<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21, 1997
REGISTRATION NO. 333-24453
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MELLON RESIDENTIAL FUNDING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
DELAWARE APPLICATION PENDING
(STATE OR OTHER JURISDICTION OF INCORPORATION
OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
</TABLE>
ONE MELLON BANK CENTER, ROOM 410
PITTSBURGH, PENNSYLVANIA 15258
(412) 236-6559
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
STEPHEN COBAIN
MELLON RESIDENTIAL FUNDING CORPORATION
ONE MELLON BANK CENTER, ROOM 410
PITTSBURGH, PENNSYLVANIA 15258
(412) 236-6559
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
With copies to:
<TABLE>
<S> <C>
KENNETH C. KETTERING ROBERT C. WIPPERMAN
REED SMITH SHAW & MCCLAY STROOCK & STROOCK & LAVAN LLP
435 SIXTH AVENUE 180 MAIDEN LANE
PITTSBURGH, PENNSYLVANIA 15219 NEW YORK, NEW YORK 10038
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time on or after the effective date of the registration statement, as
determined by market conditions.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [X]
------------------------
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* OFFERING PRICE* FEE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage Pass-Through Certificates..... $1,000,000 100% $1,000,000 $303.03
- -------------------------------------------------------------------------------------------------------
</TABLE>
* Estimated for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
SUBJECT TO COMPLETION DATED MAY 21, 1997
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1997)
$
(APPROXIMATE)
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 199 -
MELLON RESIDENTIAL FUNDING CORPORATION
DEPOSITOR
------------------------
The Mortgage Pass-Through Certificates, Series 199 - (collectively, the
"Certificates") will represent the entire beneficial interest in a trust fund
(the "Trust Fund"). The Trust Fund will consist primarily of a pool (the
"Mortgage Pool") of fixed-rate Mortgage Loans secured by first liens on one- to
four-family residential properties. Only the Classes identified in the table
below (collectively, the "Offered Certificates") are offered hereby.
------------------------
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE
DEPOSITOR, THE SELLER, THE MASTER SERVICER, THE TRUSTEE OR ANY OF THEIR
RESPECTIVE AFFILIATES. THE CERTIFICATES ARE NOT DEPOSITS IN, OR OBLIGATIONS OF,
ANY BANK. NEITHER THE CERTIFICATES NOR THE MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL ENTITY, THE DEPOSITOR, THE SELLER, THE MASTER SERVICER, THE TRUSTEE
OR ANY OF THEIR AFFILIATES OR ANY OTHER PERSON. DISTRIBUTIONS ON THE
CERTIFICATES WILL BE PAYABLE SOLELY FROM THE ASSETS TRANSFERRED TO THE TRUST
FUND FOR THE BENEFIT OF CERTIFICATEHOLDERS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS DISCUSSED UNDER "RISK
FACTORS" BEGINNING ON PAGE 12 OF THE PROSPECTUS.
<TABLE>
<CAPTION>
==================================================================================================================================
INITIAL CLASS CERTIFICATE
BALANCE(1) PASS-THROUGH RATE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Class A-1....................................................................... $ %
- ----------------------------------------------------------------------------------------------------------------------------------
Class A-2....................................................................... $ %
- ----------------------------------------------------------------------------------------------------------------------------------
Class A-3....................................................................... $ %
- ----------------------------------------------------------------------------------------------------------------------------------
Class A-4....................................................................... $ %
- ----------------------------------------------------------------------------------------------------------------------------------
Class X......................................................................... (2) (3)
- ----------------------------------------------------------------------------------------------------------------------------------
Class A-R....................................................................... $ 100 %
- ----------------------------------------------------------------------------------------------------------------------------------
Class B-1....................................................................... $ %
- ----------------------------------------------------------------------------------------------------------------------------------
Class B-2....................................................................... $ %
- ----------------------------------------------------------------------------------------------------------------------------------
Class B-3....................................................................... $ %
==================================================================================================================================
</TABLE>
(1) Subject to the permitted variance described herein.
(2) The Class X Certificates will be Notional Amount Certificates, will have no
principal balance and will bear interest on their Notional Amount (initially
expected to be approximately $ ).
(3) The Pass-Through Rate for the Class X Certificates for any Distribution Date
will be equal to the excess of (a) the weighted average of the Adjusted Net
Mortgage Rates of the Mortgage Loans over (b) % per annum. The Pass-
Through Rate for the Class X Certificates for the first Distribution Date is
expected to be approximately % per annum.
The Offered Certificates will be purchased by from the
Depositor and will be offered by from time to time in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. Proceeds to the Depositor from the sale of the Offered Certificates are
expected to be approximately % of the aggregate principal balance of the
Offered Certificates plus accrued interest, before deducting issuance expenses
payable by the Depositor.
The Offered Certificates are offered by the Underwriter, subject to prior
sale, when, as and if delivered to and accepted by the Underwriter and subject
to its right to reject orders in whole or in part. It is expected that delivery
of the Offered Certificates, other than the Class A-R Certificates, will be made
in book-entry form only through the facilities of The Depository Trust Company,
and that the Class A-R Certificates will be delivered at the offices of
in New York, New York, in each case on or about ,
1997.
[UNDERWRITER]
, 199
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
<PAGE> 3
The Mortgage Loans will be sold to the Depositor by (the
"Seller").
An election will be made to treat the Trust Fund as a "real estate mortgage
investment conduit" (the "REMIC") for federal income tax purposes. As described
more fully herein and in the Prospectus, the Offered Certificates, other than
the Class A-R Certificates, will constitute "regular interests" in the REMIC.
The Class A-R Certificates will constitute the sole class of "residual interest"
in the REMIC. Prospective investors are cautioned that a Class A-R
Certificateholder's REMIC taxable income and the tax liability thereon will
exceed cash distributions in certain periods, in which event such holder must
have sufficient alternative sources of funds to pay such tax liability. See
"Federal Income Tax Considerations" herein and in the Prospectus.
The Class A-R Certificates will be subject to certain transfer
restrictions. See "Description of the Certificates -- Restrictions on Transfer
of the Class A-R Certificates" herein.
THE YIELD TO INVESTORS ON EACH CLASS OF OFFERED CERTIFICATES WILL BE
SENSITIVE IN VARYING DEGREES TO, AMONG OTHER THINGS, THE RATE AND TIMING OF
PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) OF THE MORTGAGE LOANS WHICH MAY VARY
SIGNIFICANTLY OVER TIME. THE YIELD TO MATURITY OF A CLASS OF OFFERED
CERTIFICATES PURCHASED AT A DISCOUNT OR PREMIUM WILL BE MORE SENSITIVE TO THE
RATE AND TIMING OF PAYMENTS THEREON. HOLDERS OF THE OFFERED CERTIFICATES SHOULD
CONSIDER, IN THE CASE OF ANY SUCH CERTIFICATES PURCHASED AT A DISCOUNT, THE RISK
THAT A SLOWER THAN ANTICIPATED RATE OF PRINCIPAL PAYMENTS COULD RESULT IN AN
ACTUAL YIELD THAT IS LOWER THAN THE ANTICIPATED YIELD AND, IN THE CASE OF ANY
OFFERED CERTIFICATES PURCHASED AT A PREMIUM, AND PARTICULARLY THE NOTIONAL
AMOUNT CERTIFICATES, THE RISK THAT A FASTER THAN ANTICIPATED RATE OF PRINCIPAL
PAYMENTS COULD RESULT IN AN ACTUAL YIELD THAT IS LOWER THAN THE ANTICIPATED
YIELD. HOLDERS OF THE NOTIONAL AMOUNT CERTIFICATES SHOULD CAREFULLY CONSIDER THE
RISK THAT A RAPID RATE OF PRINCIPAL PAYMENTS ON THE MORTGAGE LOANS COULD RESULT
IN THE FAILURE OF SUCH HOLDERS TO RECOVER THEIR INITIAL INVESTMENTS. THE YIELDS
TO INVESTORS IN THE OFFERED CERTIFICATES, AND PARTICULARLY THE CLASS B-1, CLASS
B-2 AND CLASS B-3 CERTIFICATES, ALSO WILL BE ADVERSELY AFFECTED BY NET INTEREST
SHORTFALLS AND BY REALIZED LOSSES. THE RIGHTS OF THE HOLDERS OF THE CLASS B-1,
CLASS B-2 AND CLASS B-3 CERTIFICATES TO DISTRIBUTIONS FROM THE TRUST FUND ARE
SUBORDINATED TO SUCH RIGHTS OF THE HOLDERS OF THE SENIOR CERTIFICATES (AS
DEFINED HEREIN) TO THE EXTENT DESCRIBED HEREIN. NO REPRESENTATION IS MADE AS TO
THE ANTICIPATED RATE OF PREPAYMENTS ON THE MORTGAGE LOANS, THE AMOUNT AND TIMING
OF NET INTEREST SHORTFALLS OR REALIZED LOSSES, OR THE RESULTING YIELD TO
MATURITY OF ANY CLASS OF CERTIFICATES.
The Underwriter intends to make a secondary market in the Offered
Certificates but the Underwriter has no obligation to do so. There is currently
no secondary market for the Offered Certificates and there can be no assurance
that such a market will develop or, if it does develop, that it will continue or
that it will provide Certificateholders with a sufficient level of liquidity of
investment.
This Prospectus Supplement does not contain complete information about the
offering of the Offered Certificates. Additional information is contained in the
Prospectus of the Depositor dated , 1997 (the "Prospectus") and
purchasers are urged to read both this Prospectus Supplement and the Prospectus
in full. Sales of the Offered Certificates may not be consummated unless the
purchaser has received both this Prospectus Supplement and the Prospectus.
UNTIL NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
S-2
<PAGE> 4
SUMMARY OF TERMS
This Summary of Terms is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms used in this Summary of
Terms are defined elsewhere in this Prospectus Supplement or in the Prospectus.
Title of Certificates...... Mortgage Pass-Through Certificates, Series 199 -
(the "Certificates").
Offered Certificates....... Class A-1, Class A-2, Class A-3, Class A-4, Class
X, Class A-R, Class B-1, Class B-2 and Class B-3
Certificates. Only the Offered Certificates are
offered hereby. The aggregate of the initial Class
Certificate Balances of the Offered Certificates
will be subject to a permitted variance of plus or
minus 5%. Variances in the Class Certificate
Balances may result in variances in the Notional
Amount of the Notional Amount Certificates.
The Notional Amount of the Class X Certificates for
any Distribution Date will be equal to the
aggregate of the Stated Principal Balances of the
Mortgage Loans with respect to such Distribution
Date. The initial Notional Amount of the Class X
Certificates will be equal to the aggregate of the
Stated Principal Balances of the Mortgage Loans as
of the Cut-off Date.
Certificates other than the
Offered Certificates..... In addition to the Offered Certificates, the
following Classes of Subordinated Certificates will
be issued in the indicated approximate initial
Class Certificate Balances and will bear interest
at the indicated Pass-Through Rates, but are not
offered hereby:
<TABLE>
<CAPTION>
INITIAL CLASS
CERTIFICATE PASS-THROUGH
BALANCE RATE
------------- ------------
<S> <C> <C>
Class B-4(1)....................... $ %
Class B-5(1)....................... $ %
Class B-6(1)....................... $ %
</TABLE>
--------------------------------------------
(l) The Class B-4, Class B-5 and Class B-6
Certificates will provide limited credit support
for the Senior Certificates and the other
Subordinated Certificates as described herein.
Any information contained herein with respect to
the Class B-4, Class B-5 and Class B-6 Certificates
is provided only to permit a better understanding
of the Offered Certificates.
Designations
Regular Certificates..... All Classes of Certificates other than the Class
A-R Certificates.
Residual Certificates.... Class A-R Certificates.
Senior Certificates...... Class A-1, Class A-2, Class A-3, Class A-4, Class X
and Class A-R Certificates.
Subordinated
Certificates........... Class B-1, Class B-2, Class B-3, Class B-4, Class
B-5 and Class B-6 Certificates.
Notional Amount
Certificates........... Class X Certificates.
Fixed Rate
Certificates........... All Classes of Certificates other than the Class X
Certificates.
Variable Rate
Certificates........... Class X Certificates.
S-3
<PAGE> 5
Physical Certificates.... Subordinated Certificates and Class A-R
Certificates.
Book-Entry Certificates.. All Classes of Certificates other than the Physical
Certificates.
Trust Fund................. The Certificates will represent the entire
beneficial ownership interest in the Trust Fund,
which will consist primarily of the Mortgage Pool.
Pooling and Servicing
Agreement................ The Certificates will be issued pursuant to a
Pooling and Servicing Agreement dated as of
1, 1997 (the "Agreement") among the
Depositor, the Seller, the Master Servicer and the
Trustee.
Depositor.................. Mellon Residential Funding Corporation (the
"Depositor"), a Delaware corporation and an
indirect limited purpose finance subsidiary of
Mellon Bank, N.A. See "The Depositor" in the
Prospectus.
Seller..................... (the "Seller"), a
corporation. See "Mortgage Loan Program" in the
Prospectus. The Mortgage Loans were originated or
acquired in the normal course of its business by
the Seller and were acquired by the Depositor in a
privately negotiated transaction.
Master Servicer............ (the "Master Servicer"), a
corporation. The Master Servicer will be
responsible for the servicing of the Mortgage Loans
and will receive the Master Servicing Fee from
interest collected on the Mortgage Loans. See
"Servicing of Mortgage Loans -- Servicing
Compensation and Payment of Fees" herein.
Trustee.................... , a banking corporation organized under
the laws of the (the "Trustee").
Cut-off Date............... 1, 1997.
Closing Date............... On or about , 1997.
Determination Date......... The 18th day of each month or, if such day is not a
business day, the first business day thereafter.
Mortgage Loans............. The Mortgage Pool will consist primarily of 30-year
conventional fixed-rate Mortgage Loans secured by
first liens on one- to four-family residential
properties. Distributions of principal and interest
on the Certificates will be based solely on
payments received on the Mortgage Loans as
described herein. See "The Mortgage Pool" herein.
Distribution Date.......... The 25th day of each month or, if such day is not a
business day, the first business day thereafter,
commencing in 1997 (each, a
"Distribution Date"). Distributions on each
Distribution Date will be made to
Certificateholders of record as of the related
Record Date, except that the final distribution on
the Certificates will be made only upon presentment
and surrender of the Certificates at the Corporate
Trust Office of the Trustee.
Record Date................ The Record Date for each Distribution Date will be
the last business day of the month preceding the
month of such Distribution Date.
Priority of
Distributions.............. Distributions will be made on each Distribution
Date from Available Funds in the following order of
priority: (i) to interest on each Class of Senior
Certificates; (ii) to principal of the Classes of
Senior Certificates then entitled to receive
distributions of principal, in the order and
subject to the priorities set forth herein under
"Description of the Certificates -- Principal," in
each case in an aggregate amount up to the maximum
S-4
<PAGE> 6
amount of principal to be distributed on such
Classes on such Distribution Date; and (iii) to
interest on and then principal of each Class of
Subordinated Certificates, in the order of their
numerical Class designations, beginning with the
Class B-1 Certificates, subject to the limitations
set forth herein under "Description of the
Certificates -- Principal."
Under certain circumstances described herein,
distributions from Available Funds for a
Distribution Date that would otherwise be made on
the Subordinated Certificates may be distributed
instead on the Senior Certificates. See
"Description of the Certificates -- Allocation of
Losses" herein.
Distributions of
Interest................... To the extent funds are available therefor, each
Class of Certificates will be entitled to receive
interest in the amount of the Interest Distribution
Amount for much Class. See "Description of the
Certificates -- Interest" herein.
A. Interest Distribution
Amount.................. For each Class of Certificates, the amount of
interest accrued during the related Interest
Accrual Period at the applicable Pass-Through Rate
on the related Class Certificate Balance or
Notional Amount, as the case may be.
B. Pass-Through Rate...... The Pass-Through Rate for each Class of Offered
Certificates for each Distribution Date will be as
set forth or described on the cover page hereof.
With respect to each Distribution Date, the
"Interest Accrual Period" for each Class of
Certificates will be the calendar month preceding
the month of such Distribution Date.
Distributions of
Principal.................. On each Distribution Date, to the extent funds are
available therefor, principal distributions in
reduction of the Class Certificate Balance of each
Class of Certificates (other than the Notional
Amount Certificates) will be made in the order and
subject to the priorities set forth herein under
"Description of the Certificates -- Principal" in
an aggregate amount equal to such Class' allocable
portion of the Senior Principal Distribution Amount
or the Subordinated Principal Distribution Amount,
as applicable. The Notional Amount Certificates do
not have principal balances and are not entitled to
any distributions in respect of principal. See
"Description of the Certificates -- Principal"
herein.
Credit Enhancement --
General.................... Credit enhancement for the Senior Certificates will
be provided by the Subordinated Certificates.
Credit enhancement for each Class of Subordinated
Certificates (other than the Class B-6
Certificates) will be provided by the Class or
Classes of Subordinated Certificates with higher
numerical Class designations, as described below.
The aggregate of the initial Class Certificate
Balances of the Class B-4, Class B-5 and Class B-6
Certificates, which are the only Certificates
supporting the Class B-3 Certificates, is expected
to be approximately $ .
Subordination.............. The rights of holders of the Subordinated
Certificates to receive distributions with respect
to the Mortgage Loans in the Trust Fund will be
subordinated to such rights of the holders of the
Senior Certificates, and the rights of the holders
of each Class of Subordinated Certificates (other
than the Class B-1 Certificates) to receive
distributions will be
S-5
<PAGE> 7
further subordinated to such rights of the holders
of the Class or Classes of Subordinated
Certificates with lower numerical Class
designations, in each case only to the extent
described herein.
The subordination of the Subordinated Certificates
to the Senior Certificates and the further
subordination within the Subordinated Certificates
are each intended to increase the likelihood of
timely receipt by the holders of Certificates with
higher relative payment priority of the maximum
amount to which they are entitled on any
Distribution Date and to provide such holders
protection against losses resulting from defaults
on Mortgage Loans to the extent described herein.
The Subordinated Certificates also provide
protection to a lesser extent against Special
Hazard Losses, Bankruptcy Losses and Fraud Losses.
However, in certain circumstances, the amount of
available subordination (including the limited
subordination provided for certain types of losses)
may be exhausted and shortfalls in distributions on
the Certificates could result. Holders of Senior
Certificates will bear their proportionate share of
any losses realized on the Mortgage Loans in excess
of the available subordination amount. See
"Description of the Certificates--Priority of
Distributions Among Certificates," "-- Allocation
of Losses" and "Credit Enhancement -- Subordination
of Certain Classes" herein.
Advances................... The Master Servicer is obligated to make cash
advances ("Advances") with respect to delinquent
payments of principal and interest on any Mortgage
Loan to the extent described herein. The Trustee
will be obligated to make any such Advance if the
Master Servicer fails in its obligation to do so,
to the extent provided in the Agreement. See
"Servicing of Mortgage Loans -- Advances" herein.
Prepayment Considerations
and Risks; Reinvestment
Risk..................... The rate of principal payments on the Offered
Certificates, the aggregate amount of distributions
on the Offered Certificates and the yield to
maturity of the Offered Certificates will be
related to the rate and timing of payments of
principal on the Mortgage Loans.
Since the rate of payment of principal on the
Mortgage Loans will depend on future events and a
variety of other factors, no assurance can be given
as to such rate or the rate of principal
prepayments. The extent to which the yield to
maturity of a Class of Offered Certificates may
vary from the anticipated yield may depend upon the
degree to which it is purchased at a discount or
premium, and the degree to which the timing of
payments thereon is sensitive to prepayments,
liquidations and purchases of the Mortgage Loans.
Further, an investor should consider the risk that,
in the case of any Offered Certificates purchased
at a discount, a slower than anticipated rate of
principal payments (including prepayments) on the
Mortgage Loans could result in an actual yield to
such investor that is lower than the anticipated
yield and, in the case of the Notional Amount
Certificates and any other Offered Certificates
purchased at a premium, a faster than anticipated
rate of principal payments on the Mortgage Loans
could result in an actual yield to such investor
that is lower than the anticipated yield. Investors
in the Notional Amount Certificates should
carefully consider the risk that a rapid rate of
principal payments on the Mortgage Loans could
result in the failure of such investors to recover
their initial investments.
S-6
<PAGE> 8
Because the Mortgage Loans may be prepaid at any
time, it is not possible to predict the rate at
which distributions of principal of the Offered
Certificates will be received. Since prevailing
interest rates are subject to fluctuation, there
can be no assurance that investors in the Offered
Certificates will be able to reinvest the
distributions thereon at yields equaling or
exceeding the yields on such Offered Certificates.
It is possible that yields on any such
reinvestments will be lower, and may be
significantly lower, than the yields on the Offered
Certificates. See "'Yield, Prepayment and Maturity
Considerations" herein.
Optional Termination....... On any Distribution Date on which the Pool
Principal Balance is less than 10% of the Cut-off
Date Pool Principal Balance, the Master Servicer
will have the option to purchase, in whole, the
Mortgage Loans and the REO Property, if any,
remaining in the Trust Fund. See "Description of
the Certificates -- Optional Termination" herein.
Federal Income Tax
Considerations........... An election will be made to treat the Trust Fund as
a "real estate mortgage investment conduit"
("REMIC") for federal income tax purposes. In the
opinion of Stroock & Stroock & Lavan LLP, special
federal tax counsel for the Depositor, assuming
that a timely REMIC election is made and ongoing
compliance with the Agreement, the Regular
Certificates will constitute "regular interests" in
the REMIC and the Residual Certificates will
constitute the sole class of "residual interest" in
the REMIC.
The Class X Certificates will, and depending on
their respective issue prices certain other Classes
of Offered Certificates may, be issued with
original issue discount ("OlD") for federal income
tax purposes. See "Federal Income Tax
Considerations" herein and in the Prospectus.
The holders of the Class A-R Certificates will be
subject to special federal income tax rules that
may significantly reduce the after-tax yield of
such Certificates. Further, significant
restrictions apply to the transfer of the Class A-R
Certificates. See "Description of the
Certificates -- Restrictions on Transfer of the
Class A-R Certificates" herein.
ERISA Considerations....... The acquisition of an Offered Certificate by a
pension or other employee benefit plan (a "Plan")
subject to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), could, in some
instances, result in a prohibited transaction or
other violation of the fiduciary responsibility
provisions of ERISA and Section 4975 of the
Internal Revenue Code of 1986, as amended (the
"Code").
Subject to the considerations and conditions
described under "ERISA Considerations" herein, it
is expected that the Senior Certificates (other
than the Class A-R Certificates) may be purchased
by a Plan.
Any Plan fiduciary considering whether to purchase
any Offered Certificates on behalf of a Plan should
consult with its counsel regarding the
applicability of the provisions of ERISA and the
Code. See "ERISA Considerations" herein.
Legal Investment........... The Senior Certificates and the Class B-l
Certificates will constitute "mortgage related
securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA") so long as
they are rated in one of the two highest rating
categories by at least one nationally
S-7
<PAGE> 9
recognized statistical rating organization and, as
such, are legal investments for certain entities to
the extent provided for in SMMEA. It is anticipated
that the Class B-2 and Class B-3 Certificates will
not be rated in one of the two highest rating
categories by a nationally recognized statistical
rating organization and, therefore, will not
constitute "mortgage related securities" for
purposes of SMMEA.
Institutions whose investment activities are
subject to review by federal or state regulatory
authorities should consult with their counsel or
the applicable authorities to determine whether an
investment in the Offered Certificates complies
with applicable guidelines, policy statements or
restrictions. See "Legal Investment" in the
Prospectus.
Ratings.................... It is a condition of the issuance of the Senior
Certificates that they be rated by
(" ") and by
(" " and together with
, the "Rating Agencies"). It is a
condition to the issuance of the Class B-1, Class
B-2 and Class B-3 Certificates that they be rated
at least , and
, respectively, by . The
ratings of the Offered Certificates of any Class
should be evaluated independently from similar
ratings on other types of securities. A rating is
not a recommendation to buy, sell or hold
securities and may be subject to revision or
withdrawal at any time by the Rating Agencies. The
Depositor has not requested a rating of the Offered
Certificates by any rating agency other than the
Rating Agencies. There can be no assurance as to
whether any other rating agency will rate the
Offered Certificates or, if it does, what rating
would be assigned by such other rating agency. The
rating assigned by such other rating agency to the
Offered Certificates could be lower than the
respective ratings assigned by the Rating Agencies.
See "Ratings" herein.
S-8
<PAGE> 10
THE MORTGAGE POOL
GENERAL
The Depositor will purchase the Mortgage Loans from
(the "Seller") pursuant to the Pooling and Servicing
Agreement dated as of the Cut-off Date among , as Seller,
, as Master Servicer (the "Master Servicer"), the Depositor
and the Trustee (the "Agreement") and will cause the Mortgage Loans to be
assigned to the Trustee for the benefit of holders of the Certificates (the
"Certificateholders").
Under the Agreement, the Seller will make certain representations,
warranties and covenants to the Depositor relating to, among other things, the
due execution and enforceability of the Agreement and certain characteristics of
the Mortgage Loans and, subject to the limitations described below under
"-- Assignment of Mortgage Loans," will be obligated to repurchase or substitute
a similar mortgage loan for any Mortgage Loan as to which there exists deficient
documentation or an uncured material breach of any such representation, warranty
or covenant. The Seller will represent and warrant to the Depositor in the
Agreement that the Mortgage Loans were selected from among the outstanding one-
to four-family mortgage loans in the Seller's portfolio as to which the
representations and warranties set forth in the Agreement can be made and that
such selection was not made in a manner that would adversely affect the
interests of the Certificateholders. See "Mortgage Loan
Program -- Representations by Sellers; Repurchases" in the Prospectus. Under the
Agreement, the Depositor will assign all its right, title and interest in and to
such representations, warranties and covenants (including the Seller's
repurchase obligation) to the Trustee for the benefit of the Certificateholders.
The Depositor will make no representations or warranties with respect to the
Mortgage Loans and will have no obligation to repurchase or substitute Mortgage
Loans with deficient documentation or which are otherwise defective. The Seller
is selling the Mortgage Loans without recourse and will have no obligation with
respect to the Certificates in its capacity as Seller other than the repurchase
or substitution obligations described above. The obligations of the Master
Servicer with respect to the Certificates are limited to the Master Servicer's
contractual servicing obligations under the Agreement.
Certain information with respect to the Mortgage Loans to be included in
the Mortgage Pool is set forth below. Prior to the Closing Date, Mortgage Loans
may be removed from the Mortgage Pool and other Mortgage Loans may be
substituted therefor. The Depositor believes that the information set forth
herein with respect to the Mortgage Pool as presently constituted is
representative of the characteristics of the Mortgage Pool as it will be
constituted at the Closing Date, although certain characteristics of the
Mortgage Loans in the Mortgage Pool may vary. Unless otherwise indicated,
information presented below expressed as a percentage (other than rates of
interest) are approximate percentages based on the Stated Principal Balances of
the Mortgage Loans as of the Cut-off Date.
As of the Cut-off Date, the aggregate of the Stated Principal Balances of
the Mortgage Loans is expected to be approximately $ (the "Cut-off Date
Pool Principal Balance"). The Mortgage Loans provide for the amortization of the
amount financed over a series of substantially equal monthly payments. All of
the Mortgage Loans provide for payments due on the first day of each month (the
"Due Date"). The Mortgage Loans to be included in the Mortgage Pool were
originated or acquired by the Seller in the normal course of its business and
substantially in accordance with the underwriting criteria specified herein. At
origination, substantially all of the Mortgage Loans had stated terms to
maturity of 30 years. Scheduled monthly payments made by the Mortgagors on the
Mortgage Loans ("Scheduled Payments") either earlier or later than the scheduled
Due Dates thereof will not affect the amortization schedule or the relative
application of such payments to principal and interest. Mortgagors may prepay
their Mortgage Loans at any time without penalty.
Each Mortgage Loan was originated on or after 1, 199 .
The earliest and latest stated maturity date of any Mortgage Loan is
202 and 202 , respectively.
As of the Cut-off Date, no Mortgage Loan will be delinquent more than 30
days.
S-9
<PAGE> 11
of the Mortgage Loans are subject to buydown agreements. No
Mortgage Loan provides for deferred interest or negative amortization.
No Mortgage Loan had a Loan-to-Value Ratio at origination of more than %.
Except for
Mortgage Loans, representing approximately % of the Cut-off Date Pool
Principal Balance, each Mortgage Loan with a Loan-to-Value Ratio at origination
of greater than 80% will be covered by a primary mortgage guaranty insurance
policy issued by a mortgage insurance company acceptable to the Federal National
Mortgage Association ("FNMA"), the Federal Home Loan Mortgage Corporation
("FHLMC") or any nationally recognized statistical rating organization, which
policy provides coverage of a portion of the original principal balance of the
related Mortgage Loan equal to the product of the original principal balance
thereof and a fraction, the numerator of which is the excess of the original
principal balance of the related Mortgage Loan over 75% of the lesser of the
appraised value and selling price of the related Mortgaged Property and the
denominator of which is the original principal balance of the related Mortgage
Loan, plus accrued interest thereon and related foreclosure expenses. No such
primary mortgage guaranty insurance policy will be required with respect to any
such Mortgage Loan after the date on which the related Loan-to-Value Ratio is
80% or less or, based on a new appraisal, the principal balance of such Mortgage
Loan represents 80% or less of the new appraised value. See "Mortgage Loan
Program" in the Prospectus.
The "Loan-to-Value Ratio" of a Mortgage Loan at any given time is a
fraction, expressed as a percentage, the numerator of which is the principal
balance of the related Mortgage Loan at the date of determination and the
denominator of which is (a) in the case of a purchase, the lesser of the selling
price of the Mortgaged Property and its appraised value determined in an
appraisal obtained by the originator at origination of such Mortgage Loan, or
(b) in the case of a refinance, the appraised value of the Mortgaged Property at
the time of such refinance. No assurance can be given that the value of any
Mortgaged Property has remained or will remain at the level that existed on the
appraisal or sales date. If residential real estate values generally or in a
particular geographic area decline, the Loan-to-Value Ratios might not be a
reliable indicator of the rates of delinquencies, foreclosures and losses that
could occur with respect to such Mortgage Loans.
The following information sets forth in tabular format certain information,
as of the Cut-off Date, as to the Mortgage Loans. Other than with respect to
rates of interest, percentages (approximate) are stated by Stated Principal
Balance of the Mortgage Loans as of the Cut-off Date and have been rounded in
order to total 100%.
ORIGINAL LOAN-TO VALUE RATIOS(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL
MORTGAGE BALANCE PERCENT OF
ORIGINAL LOAN-TO-VALUE RATIOS(%) LOANS OUTSTANDING MORTGAGE POOL
- ------------------------------------------------------- --------- ----------- -------------
<S> <C> <C> <C>
Up to 60.00............................................ %
60.01-65.00............................................
65.01-70.00............................................
70.01-75.00............................................
75.01-80.00............................................
80.01-85.00............................................
85.01-90.00............................................
90.01-95.00............................................
--- ---------- ---
Total........................................ 100%
=== ========== ===
</TABLE>
- ---------------
(1) The weighted average original Loan-to-Value Ratio of the Mortgage Loans is
%
S-10
<PAGE> 12
ORIGINAL TERMS TO MATURITY(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL
MORTGAGE BALANCE PERCENT OF
ORIGINAL TERM TO MATURITY (MONTHS) LOANS OUTSTANDING MORTGAGE POOL
- ------------------------------------------------------- --------- ----------- -------------
<S> <C> <C> <C>
354....................................................
360....................................................
--- ---------- ---
Total........................................ 100%
=== ========== ===
</TABLE>
- ---------------
(1) As of the Cut-off Date, the weighted average remaining term to maturity of
the Mortgage Loans is approximately Months.
CURRENT MORTGAGE LOAN PRINCIPAL BALANCES(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL
MORTGAGE BALANCE PERCENT OF
RANGE OF CURRENT MORTGAGE LOAN PRINCIPAL BALANCES LOANS OUTSTANDING MORTGAGE POOL
- ------------------------------------------------------- --------- ----------- -------------
<S> <C> <C> <C>
0-$50,000.............................................. $ %
$ 50,001-$100,000......................................
$100,001-$150,000......................................
$150,001-$200,000......................................
$200,001-$250,000......................................
$250,001-$300,000......................................
$300,001-$350,000......................................
$350,001-$400,000......................................
$400,001-$450,000......................................
$450,001-$500,000......................................
$500,001-$550,000......................................
$550,001-$600,000......................................
$600,001-$650,000......................................
$650,001-$700,000......................................
$700,001-$750,000......................................
$750,001-$800,000......................................
$800,001-$850,000......................................
$900,001-$950,000......................................
$950,001-$1,000,000....................................
--- ---------- ---
Total........................................ 100%
=== ========== ===
</TABLE>
- ---------------
(1) As of the Cut-off Date, the average current Mortgage Loan principal balance
is approximately $ .
S-11
<PAGE> 13
MORTGAGE RATES(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL
MORTGAGE BALANCE PERCENT OF
MORTGAGE(%) LOANS OUTSTANDING MORTGAGE POOL
- -------------------------------------------------------- --------- ----------- -------------
<S> <C> <C> <C>
8.450................................................... $ %
8.475...................................................
8.500...................................................
8.575...................................................
8.600...................................................
8.625...................................................
8.670...................................................
8.695...................................................
8.720...................................................
8.745...................................................
8.750...................................................
8.775...................................................
8.825...................................................
8.850...................................................
8.870...................................................
8.875...................................................
8.895...................................................
8.900...................................................
8.920...................................................
8.930...................................................
8.955...................................................
8.975...................................................
8.990...................................................
9.000...................................................
9.045...................................................
9.055...................................................
9.075...................................................
9.080...................................................
9.100...................................................
9.125...................................................
9.145...................................................
9.170...................................................
9.173...................................................
9.200...................................................
9.225...................................................
9.250...................................................
9.270...................................................
9.325...................................................
9.350...................................................
9.360...................................................
9.375...................................................
9.395...................................................
9.430...................................................
9.445...................................................
</TABLE>
S-12
<PAGE> 14
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL
MORTGAGE BALANCE PERCENT OF
MORTGAGE(%) LOANS OUTSTANDING MORTGAGE POOL
- -------------------------------------------------------- ------ ------- ---
<S> <C> <C> <C>
9.455...................................................
9.475...................................................
9.488...................................................
9.500...................................................
9.555...................................................
9.570...................................................
9.580...................................................
9.600...................................................
9.625...................................................
9.705...................................................
------ ------- ---
Total.........................................
====== ======= ===
</TABLE>
- ---------------
(1) As of the Cut-off Date, the weighted average Mortgage Rate of the Mortgage
Loans approximately 9.213% per annum
OCCUPANCY TYPES(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL
MORTGAGE BALANCE PERCENT OF
LOANS OUTSTANDING MORTGAGE POOL
--------- ----------- -------------
<S> <C> <C> <C>
Primary Home............................................ $ %
Second Home.............................................
Investor................................................
------ ------- ---
Total......................................... 100%
====== ======= ===
</TABLE>
- ---------------
(1) Based upon representations of the related Mortgagors at the time of
origination.
S-13
<PAGE> 15
STATE DISTRIBUTION OF MORTGAGED PROPERTIES(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL
MORTGAGE BALANCE PERCENT OF
STATE LOANS OUTSTANDING MORTGAGE POOL
- -------------------------------------------------------- --------- ----------- -------------
<S> <C> <C> <C>
Arizona.................................................
California..............................................
Colorado................................................
Florida.................................................
Hawaii..................................................
Illinois................................................
Massachusetts...........................................
Nevada..................................................
New Jersey..............................................
New York................................................
Oregon..................................................
Texas...................................................
Utah....................................................
Washington..............................................
Other(1)................................................ %
------ ------- ---
Total......................................... $ 100%
====== ======= ===
</TABLE>
- ---------------
(1) Other includes other states, and the District of Columbia, with under 2%
concentrations individually. No more than approximately. % of the
Mortgage Loans will be secured by Mortgaged Properties located in any one
postal zip code area.
PURPOSE OF MORTGAGE LOANS
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL
MORTGAGE BALANCE PERCENT OF
LOAN PURPOSE LOANS OUTSTANDING MORTGAGE POOL
- -------------------------------------------------------- --------- ----------- -------------
<S> <C> <C> <C>
Purchase Refinance...................................... $ %
Refinance (Rate or Term)................................
Refinance (cash-out)....................................
------ ------- ---
Total......................................... $ 100%
====== ======= ===
</TABLE>
DOCUMENTATION FOR MORTGAGE LOANS
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL
MORTGAGE BALANCE PERCENT OF
TYPE OF PROGRAM LOANS OUTSTANDING MORTGAGE POOL
- -------------------------------------------------------- --------- ----------- -------------
<S> <C> <C> <C>
Full.................................................... $ %
Alternative.............................................
------ ------- ---
Total......................................... $ 100%
====== ======= ===
</TABLE>
S-14
<PAGE> 16
TYPES OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL
MORTGAGE BALANCE PERCENT OF
PROPERTY TYPE LOANS OUTSTANDING MORTGAGE POOL
- -------------------------------------------------------- --------- ----------- -------------
<S> <C> <C> <C>
Single Family Planned Unit Development (PUD)............ %
Low Rise Condominium....................................
Co-Op...................................................
------ ------- ---
Townhome Total................................ $ 100%
====== ======= ===
</TABLE>
- ---------------
(1) As of the Cut-off Date, the weighted average Mortgage Rate of the Mortgage
Loans approximately 9.213% per annum.
ASSIGNMENT OF THE MORTGAGE LOANS
Pursuant to the Agreement, the Depositor on the Closing Date will sell,
transfer, assign, set over and otherwise convey without recourse to the Trustee
in trust for the benefit of the Certiflcateholders all right, title and interest
of the Depositor in and to each Mortgage 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 Mortgage Loans, exclusive of
principal and interest due on or prior to the Cut-off Date.
In connection with such transfer and assignment, the Depositor will deliver
or cause to be delivered to the Trustee, or a custodian for the Trustee, among
other things, the original promissory note (the "Mortgage Note") (and any
modification or amendment thereto) endorsed in blank without recourse, the
original instrument creating a first lien on the related Mortgaged Property (the
"Mortgage") with evidence of recording indicated thereon, an assignment in
recordable form of the Mortgage, the title policy with respect to the related
Mortgaged Property and, if applicable, all recorded intervening assignments of
the Mortgage and any riders or modifications to such Mortgage Note and Mortgage
(except for any such document not returned from the public recording office,
which will be delivered to the Trustee as soon as the same is available to the
Depositor) (collectively, the "Mortgage File"). Assignments of the Mortgage
Loans to the Trustee (or its nominee) will be recorded in the appropriate public
office for real property records, except in states such as California where, in
the opinion of counsel, such recording is not required to protect the Trustee's
interest in the Mortgage Loan against the claim of any subsequent transferee or
any successor to or creditor of the Depositor or the Seller.
The Trustee will review each Mortgage File within 90 days of the Closing
Date (or promptly after the Trustee's receipt of any document permitted to be
delivered after the Closing Date) and if any document in a Mortgage File is
found to be missing or defective in a material respect and the Seller does not
cure such defect within 90 days of notice thereof from the Trustee (or within
such longer period not to exceed 720 days after the Closing Date as provided in
the Agreement in the case of missing documents not returned from the public
recording office), the Seller will be obligated to repurchase the related
Mortgage Loan from the Trust Fund. Rather than repurchase the Mortgage Loan as
provided above, the Seller may remove such Mortgage Loan (a "Deleted Mortgage
Loan") from the Trust Fund and substitute in its place another mortgage loan (a
"Replacement Mortgage Loan"); however, such substitution is permitted only
within two years of the Closing Date and may not be made unless an opinion of
counsel is provided to the effect that such substitution will not disqualify the
Trust Fund as a REMIC or result in a prohibited transaction tax under the Code.
Any Replacement Mortgage Loan generally will, on the date of substitution, among
other characteristics set forth in the Agreement, (i) have a principal balance,
after deduction of all Scheduled Payments due in the month of substitution, not
in excess of, and not more than 10% less than, the Stated Principal Balance of
the Deleted Mortgage Loan (the amount of any shortfall to be deposited by the
Seller and held for distribution to the Certificateholders on the related
Distribution Date (a "Substitution Adjustment Amount")), (ii) have a Mortgage
Rate not lower than, and not more than 1% per annum higher than, that of the
Deleted Mortgage Loan, (iii) have a Loan-to-Value Ratio not higher than that of
the Deleted Mortgage Loan, (iv) have a remaining term to maturity not greater
than (and not more than one year less than) that of the Deleted
S-15
<PAGE> 17
Mortgage Loan, and (v) comply with all of the representations and warranties set
forth in the Agreement as of the date of substitution. This cure, repurchase or
substitution obligation constitutes the sole remedy available to
Certificateholders or the Trustee for omission of, or a material defect in, a
Mortgage Loan document.
SERVICING OF MORTGAGE LOANS
THE MASTER SERVICER
will act as Master Servicer. The principal executive offices
of are located at , ,
.
The Master Servicer will be responsible for servicing the Mortgage Loans in
accordance with the terms set forth in the Agreement. The Master Servicer may
perform its servicing obligations under the Agreement through one or more
subservicers. Notwithstanding any such servicing arrangement, the Master
Servicer will remain liable for its servicing duties and obligations under the
Agreement as if the Master Servicer alone were servicing the Mortgage Loans.
SERVICING AND COLLECTION PROCEDURES
Servicing functions include collection and remittance of principal and
interest payments, administration of mortgage escrow accounts, collection of
certain insurance claims and, if necessary, foreclosure.
FORECLOSURE AND DELINQUENCY EXPERIENCE
The following table summarizes the delinquency and foreclosure experience,
respectively, as of December 3l, 199 , December 3l, 199 and, 199 on
approximately $ , $ and $ , respectively, in
outstanding principal balance of conventional mortgage loans serviced by the
Master Servicer. The delinquency and foreclosure percentages may be affected by
the size and relative lack of seasoning of the servicing portfolio because many
of such mortgage loans were not outstanding long enough to give rise to some or
all of the indicated periods of delinquency. Accordingly, the information should
not be considered as a basis for assessing the likelihood, amount or severity of
delinquency or losses on the Mortgage Loans, and no assurances can be given that
the foreclosure and delinquency experience presented in the table below will be
indicative of such experience on the Mortgage Loans in the future:
<TABLE>
<CAPTION>
AS OF DECEMBER
31, AS OF
--------------- JUNE 30,
199 199 199
----- ----- --------
<S> <C> <C> <C>
Total Number of Conventional Mortgage Loans in Portfolio...........
Delinquent Mortgage Loans and Pending Foreclosures at Period
End(l):
30-59 days....................................................... % % %
60-89 days.......................................................
90 days or more (excluding pending foreclosures).................
Total Delinquencies...................................... % % %
---- ---- ----
Foreclosures pending...............................................
---- ---- ----
Total delinquencies and foreclosures pending.............
==== ==== ====
</TABLE>
- ---------------
(1) As a percentage of the total number of loans serviced.
There can be no assurance that factors beyond the Master Servicer's
control, such as national or local economic conditions or downturns in the real
estate markets of its lending areas, will not result in increased rates of
delinquencies and foreclosure losses in the future. For example, over the last
several years there has been a general deterioration of the real estate market
and weakening of the economy in many regions of the country. The general
deterioration of the real estate market has been reflected in increases in
delinquencies of loans secured by real estate, slower absorption rates of real
estate into the market and lower sales prices for
S-16
<PAGE> 18
real estate. The general weakening of the economy has been reflected in
decreases in the financial strength of borrowers and decreases in the value of
collateral serving as collateral for loans. If the real estate market and
economy continue to decline, the Master Servicer may experience an increase in
delinquencies on the loans it services and higher net losses on liquidated
loans.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Expense Fees with respect to the Mortgage Pool are payable out of the
interest payments on each Mortgage Loan. The rate at which the Expense Fees
accrue (the "Expense Fee Rate") is % per annum, of the Stated Principal
Balance of the related Mortgage Loan. The Expense Fees consist of (a) master
servicing compensation payable to the Master Servicer in respect of its master
servicing activities (the "Master Servicing Fee") and (b) fees payable to the
Trustee in respect of its activities as trustee under the Agreement. The Master
Servicing Fee will be % per annum of the Stated Principal Balance of each
Mortgage Loan. The Master Servicer is obligated to pay certain ongoing expenses
associated with the Trust Fund and incurred by the Master Servicer in connection
with its responsibilities under the Agreement and such amounts will be paid by
the Master Servicer out of the Master Servicing Fee. The amount of the Master
Servicing Fee is subject to adjustment with respect to prepaid Mortgage Loans,
as described herein under "-- Adjustment to Master Servicing Fee in Connection
with Certain Prepaid Mortgage Loans." The Master Servicer will also be entitled
to receive late payment fees, assumption fees and other similar charges. The
Master Servicer will be entitled to receive all reinvestment income earned on
amounts on deposit in the Collection Account and the Distribution Account. The
Adjusted Net Mortgage Rate of a Mortgage Loan is the Mortgage Rate thereof minus
the related Expense Fee Rate.
ADJUSTMENT TO MASTER SERVICING FEE IN CONNECTION WITH CERTAIN PREPAID MORTGAGE
LOANS
When a borrower prepays a Mortgage Loan between Due Dates, the borrower is
required to pay interest on the amount prepaid only to the date of prepayment
and not thereafter. Principal prepayments by borrowers received during a
calendar month will be distributed to Certificateholders on the Distribution
Date in the month following the month of receipt. Pursuant to the Agreement, the
Master Servicing Fee for any month will he reduced by an amount with respect to
each such prepaid Mortgage Loan sufficient to pass through to Certificateholders
the full amount of interest to which they would be entitled in respect of such
Mortgage Loan on the related Distribution Date. If shortfalls in interest as a
result of prepayments in any month exceed the amount of the Master Servicing Fee
for such month, the amount of interest available to be distributed to
Certificateholders will be reduced by the amount of such excess.
ADVANCES
Subject to the following limitations, the Master Servicer will be required
to advance prior to each Distribution Date, from its own funds or amounts
received with respect to the Mortgage Loans that do not constitute Available
Funds for such Distribution Date, an amount equal to the aggregate of payments
of principal of and interest on the Mortgage Loans (net of the Master Servicing
Fee with respect to the related Mortgage Loans) which were due on the related
Due Date and which were delinquent on the related Determination Date, together
with an amount equivalent to interest on each Mortgage Loan as to which the
related Mortgaged Property has been acquired by the Trust Fund through
foreclosure or deed-in-lieu of foreclosure ("REO Property") (any such advance,
an "Advance").
Advances are intended to maintain a regular flow of scheduled interest and
principal payments on the Certificates rather than to guarantee or insure
against losses. The Master Servicer is obligated to make Advances with respect
to delinquent payments of principal of or interest on each Mortgage Loan to the
extent that such Advances are, in its reasonable judgment, recoverable from
future payments and collections or insurance payments or proceeds of liquidation
of the related Mortgage Loan. If the Master Servicer determines on any
Determination Date to make an Advance, such Advance will be included with the
distribution to Certificateholders on the related Distribution Date. Any failure
by the Master Servicer to make an Advance as required under the Agreement with
respect to the Certificates will constitute an Event of
S-17
<PAGE> 19
Default thereunder, in which case the Trustee or the successor master servicer
will be obligated to make any such Advance, in accordance with the terms of the
Agreement.
SPECIAL SERVICING AGREEMENTS
The Pooling and Servicing Agreement permits the Master Servicer to enter
into a special servicing agreement with an unaffiliated holder of one or more
Classes of Subordinated Certificates or of a class of securities representing
interests in one or more Classes of Subordinated Certificates. Pursuant to such
an agreement, such holder may instruct the Master Servicer to commence or delay
foreclosure proceedings with respect to delinquent Mortgage Loans. Such
commencement or delay at such holder's direction will be taken by the Master
Servicer only after such holder deposits a specified amount of cash with the
Master Servicer. Such cash will be available for distribution to
Certificateholders if Liquidation Proceeds are less than they otherwise may have
been had the Master Servicer acted pursuant to its normal servicing procedures.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Agreement. Set forth below
are summaries of the specific terms and provisions pursuant to which the
Certificates will be issued. The following summaries do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, the provisions of the Agreement. When particular provisions or terms used in
the Agreement are referred to, the actual provisions (including definitions of
terms) are incorporated by reference.
The Mortgage Pass-Through Certificates, Series 199 - will consist of the
Class A-l, Class A-2, Class A- 3, Class A-4, Class X and Class A-R Certificates
(collectively, the "Senior Certificates") and the Class B-l, Class B-2, Class
B-3, Class B-4, Class B-5 and Class B-6 Certificates (collectively, the
"Subordinated Certificates"). The Senior Certificates and the Subordinated
Certificates are collectively referred to herein as the "Certificates." Only the
Senior Certificates and the Class B-l, Class B-2 and Class B-3 Certificates
(collectively, the "Offered Certificates") are offered hereby. The Classes of
Offered Certificates will have the respective initial Class Certificate Balances
or initial Notional Amounts (subject to the permitted variance) and Pass-Through
Rates set forth or described on the cover hereof.
The "Class Certificate Balance" of any Class of Certificates as of any
Distribution Date is the initial Class Certificate Balance thereof reduced by
the sum of (i) all amounts previously distributed to holders of Certificates of
such Class as payments of principal and (ii) the amount of Realized Losses
(including Excess Losses) allocated to such Class. In addition, the Class
Certificate Balance of the Class of Subordinated Certificates then outstanding
with the highest numerical Class designation will be reduced if and to the
extent that the aggregate of the Class Certificate Balances of all Classes of
Certificates, following all distributions and the allocation of Realized Losses
on a Distribution Date, exceeds the Pool Principal Balance as of the Due Date
occurring in the month of such Distribution Date. The Notional Amount
Certificates do not have a principal balance and are not entitled to any
distributions in respect of principal of the Mortgage Loans.
The Notional Amount of the Class X Certificates for any Distribution Date
will be equal to the aggregate of the Stated Principal Balances of the Mortgage
Loans with respect to such Distribution Date. The initial Notional Amount of the
Class X Certificates will be equal to the aggregate of the Stated Principal
Balances of the Mortgage Loans as of the Cut-off Date.
The Senior Certificates will have an initial aggregate principal balance of
approximately $ and will evidence in the aggregate an initial
beneficial ownership interest of approximately % in the Trust Fund. The
Class B-l, Class B-2, Class B-3, Class B-4, Class B-5 and Class B-6 Certificates
will each evidence in the aggregate an initial beneficial ownership interest of
approximately %, %, %, %, % and %, respectively,
in the Trust Fund.
The Book-Entry Certificates will be issuable in book-entry form only. The
Physical Certificates will be issued in fully registered certificated form. The
Physical Certificates offered hereby, other than the Class A-R
S-18
<PAGE> 20
Certificates, will be issued in minimum denominations of $25,000 and integral
multiples of $1,000 in excess thereof. A single Certificate of each Class may be
issued in an amount different than described above. The Class A-R Certificates
will be issued as a single certificate with a dollar denomination of $100.
BOOK-ENTRY CERTIFICATES
Each Class of Book-Entry Certificates will be issued in one or more
certificates which equal the aggregate initial Class Certificate Balance of each
such Class of Certificates and which will be held by a nominee of The Depository
Trust Company (together with any successor depository selected by the Depositor,
the "Depository"). Beneficial interests in the Book-Entry Certificates will be
held indirectly by investors through the book-entry facilities of the
Depository, as described herein. Investors may hold such beneficial interests in
the Book-Entry Certificates in minimum denominations representing an original
principal amount of $25,000 and integral multiples of $1,000 in excess thereof.
One investor of each Class of Book-Entry Certificates may hold a beneficial
interest therein that is not an integral multiple of $1,000. The Depositor has
been informed by the Depository that its nominee will be CEDE & Co. ("CEDE").
Accordingly, CEDE is expected to be the holder of record of the Book-Entry
Certificates. Except as described in the Prospectus under "Description of the
Certificates -- Book-Entry Certificates," no person acquiring a Book-Entry
Certificate (each, a "beneficial owner") will be entitled to receive a physical
certificate representing such Certificate (a "Definitive Certificate").
Unless and until Definitive Certificates are issued, it is anticipated that
the only "Certificateholder" of the Book-Entry Certificates will be CEDE, as
nominee of the Depository. Beneficial owners of the Book-Entry Certificates will
not be Certificateholders, as that term is used in the Agreement. Beneficial
owners are only permitted to exercise the rights of Certificateholders
indirectly through Financial Intermediaries and the Depository. Monthly and
annual reports on the Trust Fund provided to CEDE, as nominee of the Depository,
may be made available to beneficial owners upon request, in accordance with the
rules, regulations and procedures creating and affecting the Depository, and to
the Financial Intermediaries to whose Depository accounts the Book-Entry
Certificates of such beneficial owners are credited.
For a description of the procedures generally applicable to the Book-Entry
Certificates, see "Description of the Certificates -- Book-Entry Certificates"
in the Prospectus.
PAYMENTS ON MORTGAGE LOANS; ACCOUNTS
On or prior to the Closing Date, the Trustee will establish an account (the
"Distribution Account"), which will be maintained with the Trustee in trust for
the benefit of the Certificateholders. On or prior to the business day
immediately preceding each Distribution Date, the Master Servicer will withdraw
from the Certificate Account the amount of Available Funds for such Distribution
Date and will deposit such Available Funds in the Distribution Account. Funds
credited to the Certificate Account or the Distribution Account may be invested
for the benefit and at the risk of the Master Servicer in Permitted Investments,
as defined in the Agreement, that are scheduled to mature on or prior to the
business day preceding the next Distribution Date.
DISTRIBUTIONS
Distributions on the Certificates will be made by the Trustee on the 25th
day of each month, or if such day is not a business day, on the first business
day thereafter, commencing in 1997 (each, a "Distribution Date"), to
the persons in whose names such Certificates are registered at the close of
business on the last business day of the month preceding the month of such
Distribution Date (the "Record Date").
Distributions on each Distribution Date will be made by check mailed to the
address of the person entitled thereto as it appears on the applicable
certificate register or, in the case of a Certificateholder who holds 100% of a
Class of Certificates or who holds a Notional Amount Certificate or who holds
Certificates with an aggregate initial Certificate Balance of $ 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 such
Certificateholder at a bank or other depository institution having appropriate
wire transfer facilities;
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<PAGE> 21
provided, however, that the final distribution in retirement of the Certificates
will be made only upon presentment and surrender of such Certificates at the
Corporate Trust Office of the Trustee.
PRIORITY OF DISTRIBUTIONS AMONG CERTIFICATES
As more fully described herein, distributions will be made on each
Distribution Date from Available Funds in the following order of priority: (i)
to interest on each Class of Senior Certificates; (ii) to principal of the
Classes of Senior Certificates then entitled to receive distributions of
principal, in the order and subject to the priorities set forth herein under
"-- Principal"; and (iii) to interest on and then principal of each Class of
Subordinated Certificates, in the order of their numerical Class designations,
beginning with the Class B-l Certificates, subject to certain limitations set
forth herein under "-- Principal."
"Available Funds" with respect to any Distribution Date will be equal to
the sum of (i) all scheduled installments of interest (net of the related
Expense Fees) and principal due on the Due Date in the month in which such
Distribution Date occurs and received prior to the related Determination Date,
together with any Advances in respect thereof; (ii) all proceeds of any primary
mortgage guaranty insurance policies and any other insurance policies with
respect to the Mortgage Loans, to the extent such proceeds are not applied to
the restoration of the related Mortgaged Property or released to the Mortgagor
in accordance with the Master Servicer's normal servicing procedures
(collectively, "Insurance Proceeds") and all other cash amounts received and
retained in connection with the liquidation of defaulted Mortgage Loans, by
foreclosure or otherwise ("Liquidation Proceeds") during the month preceding the
month of such Distribution Date (in each case, net of unreimbursed expenses
incurred in connection with a liquidation or foreclosure and unreimbursed
Advances, if any); (iii) all partial or full prepayments received during the
month preceding the month of such Distribution Date; and (iv) amounts received
with respect to such Distribution Date as the Substitution Adjustment Amount or
purchase price in respect of a Deleted Mortgage Loan or a Mortgage Loan
repurchased by the Seller or the Master Servicer as of such Distribution Date,
reduced by amounts in reimbursement for Advances previously made and other
amounts as to which the Master Servicer is entitled to be reimbursed pursuant to
the Agreement.
INTEREST
The Pass-Through Rate for each Class of Offered Certificates for each
Distribution Date (the "Pass-Through Rate") is as set forth or described on the
cover hereof.
On each Distribution Date, to the extent of funds available therefor, each
Class of Certificates will be entitled to receive an amount allocable to
interest (as to each such Class, the "Interest Distribution Amount") with
respect to the related Interest Accrual Period. The Interest Distribution Amount
for any Class will be equal to the sum of (i) interest at the applicable
Pass-Through Rate on the related Class Certificate Balance or Notional Amount,
as the case may be, and (ii) the sum of the amounts, if any, by which the amount
described in clause (i) above on each prior Distribution Date exceeded the
amount actually distributed as interest on such prior Distribution Dates and not
subsequently distributed ("Unpaid Interest Amounts").
With respect to each Distribution Date, the "Interest Accrual Period" for
each Class of Certificates will be the calendar month preceding the month of
such Distribution Date.
The interest entitlement described above for each Class of Certificates
will be reduced by the amount of "Net Interest Shortfalls" for such Distribution
Date. With respect to any Distribution Date, the "Net Interest Shortfall" is
equal to the sum of (i) the amount of interest which would otherwise have been
received with respect to any Mortgage Loan that was the subject of (x) a Relief
Act Reduction or (y) a Special Hazard Loss, Fraud Loss, Debt Service Reduction
or Deficient Valuation, after the exhaustion of the respective amounts of
coverage provided by the Subordinated Certificates for such types of losses and
(ii) any Net Prepayment Interest Shortfalls. Net Interest Shortfalls on any
Distribution Date will be allocated pro rata among all Classes of Certificates
entitled to receive distributions of interest on such Distribution Date, based
on the amount of interest each such Class of Certificates would otherwise be
entitled to receive on such Distribution Date before taking into account any
reduction in such amounts resulting from such Net Interest Shortfalls. A "Relief
Act Reduction" is a reduction in the amount of monthly interest payment on a
Mortgage
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<PAGE> 22
Loan pursuant to the Soldiers' and Sailors' Civil Relief Act of 1940. See
"Certain Legal Aspects of Mortgage Loans -- Soldiers' and Sailors' Civil Relief
Act" in the Prospectus. With respect to any Distribution Date, the "Net
Prepayment Interest Shortfall" is the amount by which the aggregate of
Prepayment Interest Shortfalls during the calendar month preceding the month of
such Distribution Date exceeds the Master Servicing Fee for such period. A
"Prepayment Interest Shortfall" is the amount by which interest paid by a
borrower in connection with a prepayment of principal on a Mortgage Loan is less
than one month's interest at the related Mortgage Rate (net of the related
Master Servicing Fee) on the Stated Principal Balance of such Mortgage Loan.
Accrued interest to be distributed on any Distribution Date will be
calculated, in the case of each Class of Certificates, on the basis of the
related Class Certificate Balance or Notional Amount, as applicable, immediately
prior to such Distribution Date. Interest will be calculated and payable on the
basis of a 360-day year divided into twelve 30-day months.
In the event that, on a particular Distribution Date, Available Funds
applied in the order described above under "-- Priority of Distributions Among
Certificates" are not sufficient to make a full distribution of the interest
entitlement on the Certificates, interest will be distributed on each Class of
Certificates of equal priority based on the amount of interest each such Class
would otherwise have been entitled to receive in the absence of such shortfall.
Any such unpaid amount will be carried forward and added to the amount holders
of each such Class of Certificates will be entitled to receive on the next
Distribution Date. Such a shortfall could occur, for example, if losses realized
on the Mortgage Loans were exceptionally high or were concentrated in a
particular month. Any such unpaid amount will not bear interest.
PRINCIPAL
General. All payments and other amounts received in respect of principal
of the Mortgage Loans will be allocated between the Senior Certificates (other
than the Notional Amount Certificates) and the Subordinated Certificates.
Senior Principal Distribution Amount. On each Distribution Date prior to
the Senior Credit Support Depletion Date, Available Funds after distribution of
interest on the Senior Certificates, up to the amount of the Senior Principal
Distribution Amount for such Distribution Date, will be distributed as principal
of the following Classes of Senior Certificates in the following order of
priority:
(i) to the Class A-R Certificates, until the Class Certificate Balance
thereof has been reduced to zero;
(ii) concurrently, % to the Class A-l Certificates and % to
the Class A-3 Certificates, until the Class Certificate Balance of the
Class A-1 Certificates has been reduced to zero;
(iii) concurrently, % to the Class A-2 Certificates and % to
the Class A-3 Certificates, until the Class Certificate Balance of the
Class A-2 Certificates has been reduced to zero; and
(iv) concurrently, % to the Class A-4 Certificates and % to
the Class A-3 Certificates, until the Class Certificate Balance of the
Class A-4 Certificates has been reduced to zero;
Notwithstanding the foregoing, on each Distribution Date on and after the
Senior Credit Support Depletion Date, Available Funds after distribution of
interest on the Senior Certificates will be distributed, concurrently, as
principal of the Classes of Senior Certificates (other than the Notional Amount
Certificates) pro rata, in accordance with their respective Class Certificate
Balances immediately prior to such Distribution Date.
The "Senior Credit Support Depletion Date" is the date on which the Class
Certificate Balance of each Class of Subordinated Certificates has been reduced
to zero.
The "Senior Principal Distribution Amount" for any Distribution Date will
equal the sum of (i) the Senior Percentage of (a) the principal portion of the
Scheduled Payment due on each Mortgage Loan on the related Due Date, (b) the
principal portion of the purchase price of each Mortgage Loan that was
repurchased
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<PAGE> 23
by the Seller or another person pursuant to the Agreement as of such
Distribution Date, (c) the Substitution Adjustment Amount in connection with any
Deleted Mortgage Loan received with respect to such Distribution Date and (d)
any Insurance Proceeds or Liquidation Proceeds allocable to recoveries of
principal of Mortgage Loans that are not yet Liquidated Mortgage Loans received
during the calendar month preceding the month of such Distribution Date, (ii)
with respect to each Mortgage Loan that became a Liquidated Mortgage Loan during
the calendar month preceding the month of such Distribution Date, the lesser of
(x) the Senior Percentage of the Stated Principal Balance of such Mortgage Loan
and (y) either (A) the Senior Prepayment Percentage or (B) if an Excess Loss was
sustained with respect to such Liquidated Mortgage Loan during such preceding
calendar month, the Senior Percentage, of the Liquidation Proceeds allocable to
principal received with respect to such Mortgage Loan, and (iii) the Senior
Prepayment Percentage of all partial and full principal prepayments by borrowers
received during the calendar month preceding the month of such Distribution
Date; provided, however, that if a Bankruptcy Loss that is an Excess Loss is
sustained with respect to a Mortgage Loan that is not a Liquidated Mortgage
Loan, the Senior Principal Distribution Amount will be reduced on the related
Distribution Date by the Senior Percentage of the principal portion of such
Bankruptcy Loss.
"Stated Principal Balance" means, as to any Mortgage Loan and Due Date, the
unpaid principal balance of such Mortgage Loan as of such Due Date, as specified
in the amortization schedule at the time relating thereto (before any adjustment
to such amortization schedule by reason of any moratorium or similar waiver or
grace period), after giving effect to any previous partial principal prepayments
and Liquidation Proceeds received and to the payment of principal due on such
Due Date and irrespective of any delinquency in payment by the related
Mortgagor. The Pool Principal Balance with respect to any Distribution Date
equals the aggregate of the Stated Principal Balances of the Mortgage Loans
outstanding on the Due Date in the month preceding the month of such
Distribution Date.
The "Senior Percentage" for any Distribution Date is the percentage
equivalent of a fraction the numerator of which is the aggregate of the Class
Certificate Balances of each Class of Senior Certificates immediately prior to
such date and the denominator of which is the aggregate of the Class Certificate
Balances of all Classes of Certificates immediately prior to such date. The
Subordinated Percentage for any Distribution Date will be calculated as the
difference between 100% and the Senior Percentage for such date.
The "Senior Prepayment Percentage" for any Distribution Date occurring
during the five years beginning on the first Distribution Date will equal 100%.
Thereafter, the Senior Prepayment Percentage will, except as described below, be
subject to gradual reduction as described in the following paragraph. This
disproportionate allocation of certain unscheduled payments in respect of
principal will have the effect of accelerating the amortization of the Senior
Certificates while, in the absence of Realized Losses, increasing the interest
in the Pool Principal Balance evidenced by the Subordinated Certificates.
Increasing the respective interest of the Subordinated Certificates relative to
that of the Senior Certificates is intended to preserve the availability of the
subordination provided by the Subordinated Certificates.
The Senior Prepayment Percentage for any Distribution Date occurring on or
after the fifth anniversary of the first Distribution Date will be as follows:
for any Distribution Date in the first year thereafter, the Senior Percentage
plus 70% of the Subordinated Percentage for such Distribution Date; for any
Distribution Date in the second year thereafter, the Senior Percentage plus 60%
of the Subordinated Percentage for such Distribution Date; for any Distribution
Date in the third year thereafter, the Senior Percentage plus 40% of the
Subordinated Percentage for such Distribution Date; for any Distribution Date in
the fourth year thereafter, the Senior Percentage plus 20% of the Subordinated
Percentage for such Distribution Date; and for any Distribution Date thereafter,
the Senior Percentage for such Distribution Date (unless on any of the foregoing
Distribution Dates the Senior Percentage exceeds the initial Senior Percentage,
in which case the Senior Prepayment Percentage for such Distribution Date will
once again equal 100%). Notwithstanding the foregoing, no decrease in the Senior
Prepayment Percentage will occur if as of the first Distribution Date as to
which any such decrease applies, (i) the outstanding principal balance of all
Mortgage Loans delinquent 60 days or more (averaged over the preceding six month
period), as a percentage of the aggregate principal balance of the Subordinated
Certificates (averaged over the preceding six month period), is equal to or
greater than 50%, or (ii) cumulative Realized Losses with respect to the
Mortgage Loans exceed (a) with respect to
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<PAGE> 24
the Distribution Date on the fifth anniversary of the first Distribution Date,
30% of the aggregate of the Class Certificate Balances of the Subordinated
Certificates as of the Closing Date (the "Original Subordinated Principal
Balance"), (b) with respect to the Distribution Date on the sixth anniversary of
the first Distribution Date, 35% of the Original Subordinated Principal Balance,
(c) with respect to the Distribution Date on the seventh anniversary of the
first Distribution Date, 40% of the Original Subordinated Principal Balance, (d)
with respect to the Distribution Date on the eighth anniversary of the first
Distribution Date, 45% of the Original Subordinated Principal Balance, and (e)
with respect to the Distribution Date on the ninth anniversary of the first
Distribution Date, 50% of the Original Subordinated Principal Balance.
The "Subordinated Prepayment Percentage" as of any Distribution Date will
be calculated as the difference between 100% and the Senior Prepayment
Percentage for such date.
If on any Distribution Date the allocation to any Class of Senior
Certificates then entitled to distributions of full and partial principal
prepayments and other amounts in the percentage required above would reduce the
outstanding Class Certificate Balance of such Class below zero, the distribution
to such Class of Certificates of the Senior Prepayment Percentage of such
amounts for such Distribution Date will be limited to the percentage necessary
to reduce the related Class Certificate Balance to zero.
Subordinated Principal Distribution Amount. On each Distribution Date, to
the extent of Available Funds therefor, an amount equal to the Subordinated
Principal Distribution Amount for such Distribution Date will be distributed as
principal of the Classes of Subordinated Certificates. Except as provided in the
next paragraph, each Class of Subordinated Certificates will be entitled to
receive its pro rata share of the Subordinated Principal Distribution Amount
(based on its respective Class Certificate Balance), in each case to the extent
of the amount available from Available Funds for distribution of principal on
such Class. Distributions of principal of the Subordinated Certificates will be
made on each Distribution Date sequentially to the Classes of Subordinated
Certificates in the order of their numerical Class designations, beginning with
the Class B-l Certificates, until each such Class has received its respective
pro rata share for such Distribution Date.
With respect to each Class of Subordinated Certificates, if on any
Distribution Date the sum of the related Class Subordination Percentages of such
Class and all Classes of Subordinated Certificates which have higher numerical
Class designations than such Class (the "Applicable Credit Support Percentage")
is less than the Applicable Credit Support Percentage for such Class on the date
of issuance of the Certificates (the "Original Applicable Credit Support
Percentage"), no distribution of partial principal prepayments and principal
prepayments in full will be made to any such Classes (the "Restricted Classes")
and the amount otherwise distributable to the Restricted Classes in respect of
such partial principal prepayments and principal prepayments in full will be
allocated among the remaining Classes of Subordinated Certificates, pro rata,
based upon their respective Class Certificate Balances, and distributed in the
order described above.
The "Class Subordination Percentage" with respect to any Distribution Date
and each Class of Subordinated Certificates will equal the fraction (expressed
as a percentage) the numerator of which is the Class Certificate Balance of such
Class of Subordinated Certificates, immediately prior to such Distribution Date
and the denominator of which is the aggregate of the Class Certificate Balances
of all Classes of Certificates immediately prior to such Distribution Date.
The approximate Original Applicable Credit Support Percentages for the
Subordinated Certificates on the date of issuance of the Certificates are
expected to be as follows:
<TABLE>
<S> <C>
Class B-1............................................................ %
Class B-2............................................................ %
Class B-3............................................................ %
Class B-4............................................................ %
Class B-5............................................................ %
Class B-6............................................................ %
</TABLE>
The "Subordinated Principal Distribution Amount" for any Distribution Date
will equal the sum of (i) the Subordinated Percentage of (a) the principal
portion of the Scheduled Payment due on each Mortgage
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<PAGE> 25
Loan on the related Due Date, (b) the principal portion of the purchase price of
each Mortgage Loan that was repurchased by the Seller or another person pursuant
to the Agreement as of such Distribution Date, (c) the Substitution Adjustment
Amount in connection with any Deleted Mortgage Loan received with respect to
such Distribution Date and (d) any Insurance Proceeds or Liquidation Proceeds
allocable to recoveries of principal of Mortgage Loans that are not yet
Liquidated Mortgage Loans received during the calendar month preceding the month
of such Distribution Date, (ii) with respect to each Mortgage Loan that became a
Liquidated Mortgage Loan during the calendar month preceding the month of such
Distribution Date, the Liquidation Proceeds allocable to principal received with
respect to such Mortgage Loan, after application of amounts pursuant to clause
(ii) of the definition of Senior Principal Distribution Amount, up to the
Subordinated Percentage of the Stated Principal Balance of such Mortgage Loan
and (iii) the Subordinated Prepayment Percentage of all partial and full
principal prepayments by borrowers received during the calendar month preceding
the month of such Distribution Date.
Residual Certificates. The Class A-R Certificates will remain outstanding
for so long as the Trust Fund shall exist, whether or not they are receiving
current distributions of principal or interest. In addition to distributions of
interest and principal as described above, on each Distribution Date the holders
of the Class A-R Certificates will be entitled to receive any Available Funds
remaining after payment of interest and principal on the Senior Certificates and
interest and principal on the Subordinated Certificates for such Distribution
Date, as described above. It is not anticipated that there will be any
significant amounts remaining for any such distribution.
ALLOCATION OF LOSSES
On each Distribution Date, any Realized Loss, other than any Excess Loss,
will be allocated first to the Subordinated Certificates, in the reverse order
of their numerical Class designations (beginning with the Class of Subordinated
Certificates then outstanding with the highest numerical Class designation), in
each case until the Class Certificate Balance of the respective Class of
Certificates has been reduced to zero, and then to the Senior Certificates
(other than the Notional Amount Certificates) pro rata, based upon their
respective Class Certificate Balances.
On each Distribution Date, Excess Losses will be allocated pro rata among
the Classes of Senior Certificates (other than the Notional Amount Certificates)
and the Subordinated Certificates based upon their respective Class Certificate
Balances.
Because principal distributions are paid to certain Classes of Senior
Certificates (other than the Notional Amount Certificates) before other Classes
of Senior Certificates, holders of such Senior Certificates that are entitled to
receive principal later bear a greater risk of being allocated Realized Losses
on the Mortgage Loans than holders of Classes that are entitled to receive
principal earlier.
In general, a "Realized Loss" means, with respect to a Liquidated Mortgage
Loan, the amount by which the remaining unpaid principal balance of the Mortgage
Loan exceeds the amount of Liquidation Proceeds applied to the principal balance
of the related Mortgage Loan. "Excess Losses" are (i) Special Hazard Losses in
excess of the Special Hazard Loss Coverage Amount, (ii) Bankruptcy Losses in
excess of the Bankruptcy Loss Coverage Amount and (iii) Fraud Losses in excess
of the Fraud Loss Coverage Amount. "Bankruptcy Losses" are losses that are
incurred as a result of Debt Service Reductions and Deficient Valuations.
"Special Hazard Losses" are Realized Losses in respect of Special Hazard
Mortgage Loans. "Fraud Losses" are Realized Losses sustained by reason of a
default arising from fraud, dishonesty or misrepresentation. See "Credit
Enhancement -- Subordination of Certain Classes" herein.
A "Liquidated Mortgage Loan" is a defaulted Mortgage Loan as to which the
Master Servicer has determined that all recoverable liquidation and insurance
proceeds have been received. A "Special Hazard Mortgage Loan" is a Liquidated
Mortgage Loan as to which the ability to recover the full amount due thereunder
was substantially impaired by a hazard not insured against under a standard
hazard insurance policy of the type described in the Prospectus under "Credit
Enhancement -- Special Hazard Insurance Policies." See "Credit
Enhancement -- Subordination of Certain Classes" herein.
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<PAGE> 26
OPTIONAL PURCHASE OF DEFAULTED LOANS
The Master Servicer may, at its option, purchase from the Trust Fund any
Mortgage Loan which is delinquent in payment by 91 days or more. Any such
purchase will be at a price equal to 100% of the Stated Principal Balance of
such Mortgage Loan plus accrued interest thereon at the applicable Mortgage Rate
from the date through which interest was last paid by the related Mortgagor or
advanced to the first day of the month in which such amount is to be
distributed.
OPTIONAL TERMINATION
The Master Servicer will have the right to repurchase all remaining
Mortgage Loans and REO Properties in the Mortgage Pool and thereby effect early
retirement of the Certificates, subject to the Pool Principal Balance of such
Mortgage Loans and REO Properties at the time of repurchase being less than or
equal to 10% of the Cut-off Date Pool Principal Balance In the event the Master
Servicer exercises such option, the purchase price distributed with respect to
each Certificate will be 100% of its then outstanding principal balance plus any
unpaid accrued interest on such principal balance or Notional Amount, as
applicable, at the applicable Pass-Through Rate (in each case subject to
reduction as provided in the Agreement if the purchase price is based in part on
the appraised value of any REO Properties and such appraised value is less than
the Stated Principal Balance of the related Mortgage Loans) Distributions on the
Certificates in respect of any such optional termination will first be paid to
the Senior Certificates and then, except as set forth in the Agreement, to the
Subordinated Certificates. The proceeds from any such distribution may not be
sufficient to distribute the full amount to which each Class of Certificates is
entitled if the purchase price is based in part on the appraised value of any
REO Property and such appraised value is less than the Stated Principal Balance
of the related Mortgage Loan.
THE TRUSTEE
will be the Trustee under the Agreement. The
Depositor, the Seller and the Master Servicer may maintain other banking
relationships in the ordinary course of business with .
Offered Certificates may be surrendered at the Corporate Trust Office of the
Trustee located at , Attention: Corporate Trust
Administration or at such other addresses as the Trustee may designate from time
to time.
RESTRICTIONS ON TRANSFER OF THE CLASS A-R CERTIFICATES
The Class A-R Certificates will be subject to the restrictions on transfer
described in the Prospectus under "Federal Income Tax Considerations -- REMIC
Certificates -- Tax-Related Restrictions on Transfers of Residual
Certificates -- Disqualified Organizations," "-- Noneconomic Residual Interests"
and "-- Foreign Investors." The Agreement provides that the Class A-R
Certificates (in addition to certain other Classes of Certificates) may not be
acquired by an ERISA Plan. See "ERISA Considerations" herein. Each Class A-R
Certificate will contain a legend describing the foregoing restrictions.
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
GENERAL
The effective yields to the holders of the Certificates will be lower than
the yields otherwise produced by the applicable rate at which interest is passed
through to such holders and the purchase price of such Certificates because
monthly distributions will not be payable to such holders until the 25th day
(or, if such day is not a business day, the following business day) of the month
following the month in which interest accrues on the Mortgage Loans (without any
additional distribution of interest or earnings thereon in respect of such
delay).
Delinquencies on the Mortgage Loans which are not advanced by or on behalf
of the Master Servicer (because amounts, if advanced, would be nonrecoverable),
will adversely affect the yield on the Certificates.
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<PAGE> 27
Because of the priority of distributions, shortfalls resulting from
delinquencies not so advanced will be borne first by the Subordinated
Certificates (in the reverse order of their numerical Class designations), and
then by the Senior Certificates. If, as a result of such shortfalls, the
aggregate of the Class Certificate Balances of all Classes of Certificates
exceeds the Pool Principal Balance, the Class Certificate Balance of the Class
of Subordinated Certificates then outstanding with the highest numerical Class
designation will be reduced by the amount of such excess.
Net Interest Shortfalls will adversely affect the yields on the Offered
Certificates. In addition, although all losses initially will be borne by the
Subordinated Certificates, in the reverse order of their numerical Class
designations, Excess Losses will be borne by all Classes of Certificates in the
manner set forth herein under "Description of the Certificates -- Allocation of
Losses." As a result, the yields on the Offered Certificates will depend on the
rate and timing of Realized Losses, including Excess Losses. Excess Losses could
occur at a time when one or more Classes of Subordinated Certificates are still
outstanding and otherwise available to absorb other types of Realized Losses.
PREPAYMENT CONSIDERATIONS AND RISKS
The rate of principal payments on the Offered Certificates, the aggregate
amount of distributions on the Offered Certificates and the yields to maturity
of the Offered Certificates will be related to the rate and timing of payments
of principal on the Mortgage Loans. The rate of principal payments on the
Mortgage Loans will in turn be affected by the amortization schedules of the
Mortgage Loans and by the rate of principal prepayments (including for this
purpose prepayments resulting from refinancing, liquidations of the Mortgage
Loans due to defaults, casualties, condemnations and repurchases by the Seller
or Master Servicer). The Mortgage Loans may be prepaid by the Mortgagors at any
time without a prepayment penalty. The Mortgage Loans are subject to the
"due-on-sale" provisions included therein. See "The Mortgage Pool" herein.
Prepayments, liquidations and purchases of the Mortgage Loans (including
any optional purchase by the Master Servicer of a defaulted Mortgage Loan and
any optional repurchase of the remaining Mortgage Loans in connection with the
termination of the Trust Fund, in each case as described herein) will result in
distributions on the Offered Certificates of principal amounts which would
otherwise be distributed over the remaining terms of the Mortgage Loans. Since
the rate of payment of principal on the Mortgage Loans will depend on future
events and a variety of other factors, no assurance can be given as to such rate
or the rate of principal prepayments. The extent to which the yield to maturity
of a Class of Offered Certificates may vary from the anticipated yield will
depend upon the degree to which such Offered Certificate is purchased at a
discount or premium, and the degree to which the timing of payments thereon is
sensitive to prepayments, liquidations and purchases of the Mortgage Loans.
Further, an investor should consider the risk that, in the case of any Offered
Certificates purchased at a discount, a slower than anticipated rate of
principal payments (including prepayments) on the Mortgage Loans could result in
an actual yield to such investor that is lower than the anticipated yield and,
in the case of the Notional Amount Certificates and any other Offered
Certificates purchased at a premium, a faster than anticipated rate of principal
payments on the Mortgage Loans could result in an actual yield to such investor
that is lower than the anticipated yield. Investors in the Notional Amount
Certificates should carefully consider the risk that a rapid rate of principal
prepayments on the Mortgage Loans could result in the failure of such investors
to recover their initial investments.
The rate of principal payments (including prepayments) on pools of mortgage
loans may vary significantly over time and may be influenced by a variety of
economic, geographic, social and other factors, including changes in mortgagors'
housing needs, job transfers, unemployment, mortgagors' net equity in the
mortgaged properties and servicing decisions. In general, if prevailing interest
rates were to fall significantly below the Mortgage Rates on the Mortgage Loans,
the Mortgage Loans could be subject to higher prepayment rates than if
prevailing interest rates were to remain at or above the Mortgage Rates on the
Mortgage Loans. Conversely, if prevailing interest rates were to rise
significantly, the rate of prepayments on the Mortgage Loans would generally be
expected to decrease. No assurances can be given as to the rate of prepayments
on the Mortgage Loans in stable or changing interest rate environments.
S-26
<PAGE> 28
As described herein under "Description of the Certificates -- Principal,"
the Senior Prepayment Percentage of all principal prepayments will be initially
distributed to the Classes of Senior Certificates then entitled to receive
principal distributions. This may result in all (or a disproportionate
percentage) of such principal prepayments being distributed to holders of
certain Classes of Senior Certificates and none (or less than their pro rata
share) of such principal prepayments being distributed to holders of the
Subordinated Certificates during the periods of time described in the
definitions of "Senior Prepayment Percentage."
The timing of changes in the rate of prepayments on the Mortgage Loans may
significantly affect an investor's actual yield to maturity, even if the average
rate of principal payments is consistent with an investor's expectation In
general, the earlier a prepayment of principal on the Mortgage Loans. the
greater the effect on an investor's yield to maturity. The effect on an
investors yield as a result of principal payments occurring at a rate higher (or
lower) than the rate anticipated by the investor during the period immediately
following the issuance of the Offered Certificates may not be offset by a
subsequent like decrease (or increase) in the rate of principal payments.
STRUCTURING ASSUMPTIONS
Unless otherwise specified, the information in the tables in this
Prospectus Supplement has been prepared on the basis of the following assumed
characteristics of the Mortgage Loans and the following additional assumptions
(collectively, the "Structuring Assumptions"): (i) the Mortgage Pool consists of
one Mortgage Loan with the following characteristics:
<TABLE>
<CAPTION>
ORIGINAL TERM REMAINING TERM
PRINCIPAL NET TO MATURITY TO MATURITY
BALANCE MORTGAGE RATE MORTGAGE RATE (IN MONTHS) (IN MONTHS) LOAN AGE
- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$ % %
</TABLE>
(ii) the Mortgage Loan prepays at the specified constant Prepayment
Assumption, (iii) no defaults in the payment by the Mortgagor of principal of
and interest on the Mortgage Loan are experienced, (iv) scheduled payments on
the Mortgage Loan are received on the first day of each month commencing in the
calendar month following the Closing Date and are computed prior to giving
effect to prepayments received on the last day of the prior month, (v)
prepayments are allocated as described herein without giving effect to loss and
delinquency tests, (vi) there are no Net Interest Shortfalls and prepayments
represent prepayments in full of the Mortgage Loan and are received on the last
day of each month, commencing in the calendar month of the Closing Date, (vii)
the scheduled monthly payment for the Mortgage Loan has been calculated based on
the assumed mortgage loan characteristics described in item (i) above such that
the Mortgage Loan will amortize in amounts sufficient to repay the principal
balance of such assumed mortgage loan by its remaining term to maturity, (viii)
the initial Class Certificate Balance or Notional Amount, as applicable, of each
Class of Certificates is as set forth on the cover page hereof and under
"Summary of Terms -- Certificates other than the Offered Certificates" herein,
(ix) interest accrues on each Class of Certificates at the applicable interest
rate set forth or described on the cover hereof or described herein, (x)
distributions in respect of the Certificates are received in cash on the 25th
day of each month commencing in the calendar month following the Closing Date,
(xi) the closing date of the sale of the Offered Certificates is
, 1997, (xii) the Seller is not required to repurchase or
substitute for any Mortgage Loan, (xiii) the Master Servicer does not exercise
any option to repurchase the Mortgage Loan described herein under "-- Optional
Purchase of Defaulted Loans" and " --Optional Termination" and (xiv) no Class of
Subordinated Certificates becomes a Restricted Class. While it is assumed that
the Mortgage Loan prepays at the specified constant Prepayment Assumption, this
is not likely to be the case. Moreover, discrepancies will exist between the
characteristics of the actual Mortgage Loans which will be delivered to the
Trustee and characteristics of the Mortgage Loan assumed in preparing the tables
herein.
Prepayments of mortgage loans commonly are measured relative to a
prepayment standard or model. The prepayment model used in this Prospectus
Supplement (the "Prepayment Assumption") represents an assumed rate of
prepayment each month relative to the then outstanding principal balance of a
pool of mortgage loans. A 100% Prepayment Assumption assumes a Constant
Prepayment Rate ("CPR") of % per annum of the then outstanding principal
balance of such mortgage loans in the first month of the life of the
S-27
<PAGE> 29
mortgage loans and an additional % (precisely %) per annum in each
month thereafter until the twelfth month. Beginning in the twelfth month and in
each month thereafter during the life of the mortgage loans, a 100% Prepayment
Assumption assumes a CPR of % per annum each month. As used in the table
below, a 50% Prepayment Assumption assumes prepayment rates equal to 50% of the
Prepayment Assumption. Correspondingly, a 200% Prepayment Assumption assumes
prepayment rates equal to 200% of the Prepayment Assumption, and so forth. The
Prepayment Assumption does not purport to be a historical description of
prepayment experience or a prediction of the anticipated rate of prepayment of
any pool of mortgage loans, including the Mortgage Loans.
SENSITIVITY OF THE NOTIONAL AMOUNT CERTIFICATES
The table below indicates the sensitivity of the pre-tax corporate bond
equivalent yields to maturity of the Class X Certificates to various constant
Prepayment Assumptions. The yields set forth in the table were calculated by
determining the monthly discount rates that, when applied to the assumed stream
of cash flows to be paid on the Class X Certificates, would cause the discounted
present value of such assumed stream of cash flows to equal the assumed purchase
price of such Class and converting such monthly rates to corporate bond
equivalent rates. Such calculations do not take into account variations that may
occur in the interest rates at which investors may be able to reinvest funds
received by them as distributions on the Class X Certificates and consequently
do not purport to reflect the return on any investment in the Class X
Certificates when such reinvestment rates are considered.
AS INDICATED IN THE TABLE BELOW, THE YIELD TO INVESTORS ON THE NOTIONAL
AMOUNT CERTIFICATES WILL BE SENSITIVE TO THE RATE OF PRINCIPAL PAYMENTS
(INCLUDING PREPAYMENTS) OF THE MORTGAGE LOANS, PARTICULARLY THOSE WITH HIGH
ADJUSTED NET MORTGAGE RATES, WHICH GENERALLY CAN BE PREPAID AT ANY TIME. ON THE
BASIS OF THE ASSUMPTIONS DESCRIBED BELOW, THE YIELD TO MATURITY ON THE CLASS X
CERTIFICATES WOULD BE APPROXIMATELY 0% IF PREPAYMENTS WERE TO OCCUR AT A
CONSTANT RATE OF APPROXIMATELY % OF THE PREPAYMENT ASSUMPTION. IF THE
ACTUAL PREPAYMENT RATE OF THE MORTGAGE LOANS WERE TO EXCEED THE APPLICABLE LEVEL
FOR AS LITTLE AS ONE MONTH WHILE EQUALING SUCH LEVEL FOR THE REMAINING MONTHS,
THE INVESTORS IN THE CLASS X CERTIFICATES WOULD NOT FULLY RECOUP THEIR INITIAL
INVESTMENTS.
As described above under "Description of the Certificates -- General," the
Pass-Through Rate of the Class X Certificates in effect from time to time is
calculated by reference to the Adjusted Net Mortgage Rates of the Mortgage
Loans. In general, mortgage loans with higher mortgage rates tend to prepay at
higher rates than mortgage loans with relatively lower mortgage rates in
response to a given change in market interest rates. As a result, the Mortgage
Loans may prepay at higher rates, thereby reducing the Pass-Through Rate and
Notional Amount of the Class X Certificates.
The information set forth in the following table has been prepared on the
basis of the Structuring Assumptions, and on the assumption that the purchase
price (expressed as a percentage of initial Notional Amount) of the Class X
Certificates is as follows:
<TABLE>
<CAPTION>
CLASS OF CERTIFICATES PRICE*
--------------------------------------------------------------------- ------
<S> <C>
Class X.............................................................. %
</TABLE>
- ---------------
* The price does not include accrued interest. Accrued interest has been added
to such price in calculating the yields set forth in the table below.
SENSITIVITY OF THE NOTIONAL AMOUNT CERTIFICATES TO PREPAYMENTS
(PRETAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION
-------------------------------------------
CLASS OF CERTIFICATES % % % % %
- ---------------------------------------------------------- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Class X................................................... % % % % % %
</TABLE>
It is highly unlikely that all of the Mortgage Loans will have the
characteristics assumed or that the Mortgage Loans will prepay at any constant
rate until maturity or that all of the Mortgage Loans will prepay at the same
rate or time. As a result of these factors, the pre-tax yields on the Notional
Amount Certificates are
S-28
<PAGE> 30
likely to differ from those shown in the table above, even if all of the
Mortgage Loans prepay at the indicated percentages of the Prepayment Assumption.
No representation is made as to the actual rate of principal payments on the
Mortgage Loans for any period or over the lives of the Notional Amount
Certificates or as to the yield on the Notional Amount Certificates. Investors
must make their own decisions as to the appropriate prepayment assumptions to be
used in deciding whether to purchase the Notional Amount Certificates.
ADDITIONAL INFORMATION
The Depositor intends to file certain additional yield tables and other
computational materials with respect to one or more Classes of Offered
Certificates with the Commission in a report on Form 8-K to be dated
, , 199 . Such tables and materials were prepared by the
Underwriter at the request of certain prospective investors, based on
assumptions provided by, and satisfying the special requirements of, such
prospective investors. Such tables and assumptions may be based on assumptions
that differ from the Structuring Assumptions. Accordingly, such tables and other
materials may not be relevant to or appropriate for investors other than those
specifically requesting them.
WEIGHTED AVERAGE LIVES OF THE OFFERED CERTIFICATES
The weighted average life of an Offered Certificate is determined by (a)
multiplying the amount of the reduction, if any, of the Class Certificate
Balance of such Certificate on each Distribution Date by the number of years
from the date of issuance to such Distribution Date, (b) summing the results and
(c) dividing the sum by the aggregate amount of the reductions in Class
Certificate Balance of such Certificate referred to in clause (a).
For a discussion of the factors which may influence the rate of payments
(including prepayments) of the Mortgage Loans, see "-- Prepayment Considerations
and Risks" herein and "Yield and Prepayment Considerations" in the Prospectus.
In general, the weighted average lives of the Offered Certificates will be
shortened if the level of prepayments of principal of the Mortgage Loans
increases. However, the weighted average lives of the Offered Certificates will
depend upon a variety of other factors, including the timing of changes in such
rate of principal payments and the priority sequence of distributions of
principal of the Classes of Certificates. See "Description of the
Certificates -- Principal" herein.
The interaction of the foregoing factors may have different effects on
various Classes of Offered Certificates and the effects on any Class may vary at
different times during the life of such Class. Accordingly, no assurance can be
given as to the weighted average life of any Class of Offered Certificates.
Further, to the extent the prices of the Offered Certificates represent
discounts or premiums to their respective original Class Certificate Balances,
variability in the weighted average lives of such Classes of Offered
Certificates will result in variability in the related yields to maturity. For
an example of how the weighted average lives of the Classes of Offered
Certificates may be affected at various constant Prepayment Assumptions, see the
Decrement Tables below.
DECREMENT TABLES
The following tables indicate the percentages of the initial Class
Certificate Balances of the Classes of Offered Certificates (other than the
Class X Certificates) that would be outstanding after each of the dates shown at
various constant Prepayment Assumptions and the corresponding weighted average
lives of such Classes. The tables have been prepared on the basis of the
Structuring Assumptions. It is not likely that (i) all of the Mortgage Loans
will have the characteristics assumed, (ii) all of the Mortgage Loans will
prepay at the constant Prepayment Assumption specified in the tables or at any
constant Prepayment Assumption or (iii) all of the Mortgage Loans will prepay at
the same rate. Moreover, the diverse remaining terms to maturity of the Mortgage
Loans could produce slower or faster principal distributions than indicated in
the tables at the specified constant Prepayment Assumptions, even if the
weighted average remaining term to maturity of the Mortgage Loans is consistent
with the remaining terms to maturity of the Mortgage Loans specified in the
Structuring Assumptions.
S-29
<PAGE> 31
PERCENT OF INITIAL CLASS CERTIFICATE BALANCES OUTSTANDING*
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2
PREPAYMENT ASSUMPTION PREPAYMENT ASSUMPTION
--------------------------- ---------------------------
DISTRIBUTION DATE % % % % % % % % % %
- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial................................... 100 100 100 100 100 100 100 100 100 100
Weighted Average Life**...................
</TABLE>
- ---------------
*Rounded to the nearest whole percentage
**Determined as specified under "Weighted Average Lives of the Offered
Certificates" herein.
PERCENT OF INITIAL CLASS CERTIFICATE BALANCES OUTSTANDING*(CONTINUED)
<TABLE>
<CAPTION>
CLASS A-3 CLASS A-4
PREPAYMENT ASSUMPTION PREPAYMENT ASSUMPTION
--------------------------- ---------------------------
DISTRIBUTION DATE % % % % % % % % % %
- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial................................... 100 100 100 100 100 100 100 100 100 100
Weighted Average Life**...................
</TABLE>
- ---------------
*Rounded to the nearest whole percentage
**Determined as specified under "Weighted Average Lives of the Offered
Certificates" herein.
PERCENT OF INITIAL CLASS CERTIFICATE BALANCES OUTSTANDING*(CONTINUED)
<TABLE>
<CAPTION>
CLASS A-R
PREPAYMENT ASSUMPTION
-----------------------------------
DISTRIBUTION DATE % % % % %
- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial.................................................... 100 100 100 100 100
Weighted Average Life**....................................
</TABLE>
- ---------------
*Rounded to the nearest whole percentage
**Determined as specified under "Weighted Average Lives of the Offered
Certificates" herein.
PERCENT OF INITIAL CLASS CERTIFICATE BALANCES OUTSTANDING*(CONTINUED)
<TABLE>
<CAPTION>
CLASS B-1, CLASS B-2 AND CLASS B-3
PREPAYMENT ASSUMPTION
-----------------------------------
DISTRIBUTION DATE % % % % %
- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial.................................................... 100 100 100 100 100
Weighted Average Life**....................................
</TABLE>
- ---------------
*Rounded to the nearest whole percentage
**Determined as specified under "Weighted Average Lives of the Offered
Certificates" herein.
LAST SCHEDULED DISTRIBUTION DATE
The last Scheduled Distribution Date for each Class of Offered Certificates
is the Distribution Date in which is the Distribution Date in the
month immediately following the month of the latest scheduled maturity date for
any of the Mortgage Loans. Since the rate of distributions in reduction of the
Class Certificate Balance or Notional Amount of each Class of Offered
Certificates will depend on the rate of payment (including prepayments) of the
Mortgage Loans, the Class Certificate Balance or Notional Amount of any such
Class could be reduced to zero significantly earlier or later than the Last
Scheduled Distribution Date. The rate of payments on the Mortgage Loans will
depend on their particular characteristics, as well as on prevailing interest
rates from time to time and other economic factors, and no assurance can be
given as to the actual payment experience of the Mortgage Loans. See
"-- Prepayment Considerations and Risks" and "-- Weighted Average Lives of the
Offered Certificates" herein and "Yield and Prepayment Considerations" in the
Prospectus.
S-30
<PAGE> 32
THE SUBORDINATED CERTIFICATES
The weighted average lives of, and the yields to maturity on, the
Subordinated Certificates, in increasing order of their numerical Class
designations, will be progressively more sensitive to the rate and timing of
mortgagor defaults and the severity of ensuing losses on the Mortgage Loans. If
the actual rate and severity of losses on the Mortgage Loans is higher than
those assumed by a holder of a Subordinated Certificate, the actual yield to
maturity of such Certificate may be lower than the yield expected by such holder
based on such assumption. The timing of losses on the Mortgage Loans will also
affect an investor's actual yield to maturity, even if the rate of defaults and
severity of losses over the life of the Mortgage Pool are consistent with an
investor's expectations. In general, the earlier a loss occurs, the greater the
effect on an investor's yield to maturity. Realized Losses on the Mortgage Loans
will reduce the Class Certificate Balances of the applicable Class of
Subordinated Certificates to the extent of any losses allocated thereto (as
described under "Description of the Certificates -- Allocation of Losses"),
without the receipt of cash attributable to such reduction. In addition,
shortfalls in cash available for distributions on the Subordinated Certificates
will result in a reduction in the Class Certificate Balance of the Class of
Subordinated Certificates then outstanding with the highest numerical Class
designation if and to the extent that the aggregate of the Class Certificate
Balances of all Classes of Certificates, following all distributions and the
allocation of Realized Losses on a Distribution Date, exceeds the Pool Principal
Balance as of the Due Date occurring in the month of such Distribution Date. As
a result of such reductions, less interest will accrue on such Class of
Subordinated Certificates than otherwise would be the case. The yields to
maturity of the Subordinated Certificates will also be affected by the
disproportionate allocation of principal prepayments to the Senior Certificates,
Net Interest Shortfalls and other cash shortfalls in Available Funds.
If on any Distribution Date the Applicable Credit Support Percentage for
any Class of Subordinated Certificates is less than its Original Applicable
Credit Support Percentage, all partial principal prepayments and principal
prepayments in full available for distribution on the Subordinated Certificates
will be allocated solely to all other Classes of Subordinated Certificates with
lower numerical designations, thereby accelerating the amortization thereof
relative to that of the Restricted Classes and reducing the weighted average
lives of such Classes of Subordinated Certificates receiving such distributions.
Accelerating the amortization of the Classes of Subordinated Certificates with
lower numerical Class designations relative to the other Classes of Subordinated
Certificates is intended to preserve the availability of the subordination
provided by such other Classes.
CREDIT ENHANCEMENT
SUBORDINATION OF CERTAIN CLASSES
The rights of the holders of the Subordinated Certificates to receive
distributions with respect to the Mortgage Loans will be subordinated to such
rights of the holders of the Senior Certificates, and the rights of the holders
of each Class of Subordinated Certificates (other than the Class B-l
Certificates) to receive such distributions will be further subordinated to such
rights of the holders of the Class or Classes of Subordinated Certificates with
lower numerical Class designations, in each case only to the extent described
herein. The subordination of the Subordinated Certificates to the Senior
Certificates and the further subordination within the Subordinated Certificates
is intended to provide holders of Certificates with a higher relative payment
priority protection against Realized Losses other than Excess Losses. In
addition, the Subordinated Certificates will provide limited protection against
Special Hazard Losses, Bankruptcy Losses and Fraud Losses up to the applicable
Special Hazard Loss Coverage Amount, Bankruptcy Loss Coverage Amount and Fraud
Loss Coverage Amount, respectively, as described below. Realized Losses, other
than Excess Losses, will be allocated to the Class of Subordinated Certificates
then outstanding with the highest numerical Class designation.
The Subordinated Certificates will provide protection to the Classes of
Certificates of higher relative priority against (i) Special Hazard Losses in an
initial amount expected to be up to approximately $ (the "Special Hazard
Loss Coverage Amount"), (ii) Bankruptcy Losses in an initial amount expected to
be
S-31
<PAGE> 33
up to approximately $ (the "Bankruptcy Loss Coverage Amount") and (iii)
Fraud Losses in an initial amount expected to be up to approximately
$ (the "Fraud Loss Coverage Amount").
The Special Hazard Loss Coverage Amount will be reduced, from time to time,
to be an amount equal on any Distribution Date to the lesser of (a) the greatest
of (i) 1% of the aggregate of the principal balances of the Mortgage Loans, (ii)
twice the principal balance of the largest Mortgage Loan and (iii) the aggregate
principal balances of the Mortgage Loans secured by Mortgaged Properties located
in the single California postal zip code area having the highest aggregate
principal balance of any such zip code area and (b) the Special Hazard Loss
Coverage Amount as of the Closing Date less the amount, if any, of losses
attributable to Special Hazard Mortgage Loans incurred since the Closing Date.
All principal balances for the purpose of this definition will be calculated as
of the first day of the month preceding such Distribution Date after giving
effect to scheduled installments of principal and interest on the Mortgage Loans
then due, whether or not paid.
The Fraud Loss Coverage Amount will be reduced, from time to time, by the
amount of Fraud Losses allocated to the Certificates. In addition, on each
anniversary of the Cut-off Date, the Fraud Loss Coverage Amount will be reduced
as follows: (a) on the first, second, third and fourth anniversaries of the
Cut-off Date, to an amount equal to the lesser of (i) 1% of the then current
Pool Principal Balance and (ii) the excess of the Fraud Loss Coverage Amount as
of the preceding anniversary of the Cut-off Date (or, in the case of the first
such anniversary, as of the Cut-off Date) over the cumulative amount of Fraud
Losses allocated to the Certificates since such preceding anniversary or the
Cut-off Date, as the case may be, and (b) on the fifth anniversary of the
Cut-off Date, to zero.
The Bankruptcy Loss Coverage Amount will be reduced, from time to time, by
the amount of Bankruptcy Losses allocated to the Certificates.
The amount of coverage provided by the Subordinated Certificates for
Special Hazard Losses, Bankruptcy Losses and Fraud Losses may be cancelled or
reduced from time to time for each of the risks covered, provided that the then
current ratings of the Certificates assigned by the Rating Agencies are not
adversely affected thereby. In addition, a reserve fund or other form of credit
enhancement may be substituted for the protection provided by the Subordinated
Certificates for Special Hazard Losses, Bankruptcy Losses and Fraud Losses.
As used herein, a "Deficient Valuation" is a bankruptcy proceeding whereby
the bankruptcy court may establish the value of the Mortgaged Property at an
amount less than the then outstanding principal balance of the Mortgage Loan
secured by such Mortgaged Property or may reduce the outstanding principal
balance of a Mortgage Loan. In the case of a reduction in the value of the
related Mortgaged Property, the amount of the secured debt could be reduced to
such value, and the holder of such Mortgage Loan thus would become an unsecured
creditor to the extent the outstanding principal balance of such Mortgage Loan
exceeds the value so assigned to the Mortgaged Property by the bankruptcy court.
In addition, certain other modifications of the terms of a Mortgage Loan can
result from a bankruptcy proceeding, including the reduction (a "Debt Service
Reduction") of the amount of the monthly payment on the related Mortgage Loan.
Notwithstanding the foregoing, no such occurrence shall be considered a Debt
Service Reduction or Deficient Valuation so long as the Master Servicer is
pursuing any other remedies that may be available with respect to the related
Mortgage Loan and (i) such Mortgage Loan is not in default with respect to
payment due thereunder or (ii) scheduled monthly payments of principal and
interest are being advanced by the Master Servicer without giving effect to any
Debt Service Reduction or Deficient Valuation.
USE OF PROCEEDS
The Depositor will apply the net proceeds of the sale of the Certificates
against the purchase price of the Mortgage Loans.
S-32
<PAGE> 34
FEDERAL INCOME TAX CONSIDERATIONS
For federal income tax purposes, an election will be made to treat the
Trust Fund as a REMIC. In the opinion of Stroock & Stroock & Lavan LLP, special
federal tax counsel for the Depositor, assuming that a timely REMIC election is
made and ongoing compliance with the Agreement, the Regular Certificates will
constitute the regular interests, and the Residual Certificates will constitute
the sole class of "residual interest," in the REMIC. In addition, the Offered
Certificates will represent qualifying assets under Sections 856(c)(5)(A) and
7701(a)(19)(C) of the Code, and net interest income attributable to the Offered
Certificates will be "interest on obligations secured by mortgages on real
property" within the meaning of Section 856(c)(3)(B) of the Code, to the extent
the assets of the Trust Fund are assets described in such sections. The Regular
Certificates will represent qualifying assets under Section 860G(a)(3) if
acquired by a REMIC within the prescribed time periods of the Code.
The Regular Certificates generally will be treated as debt instruments
issued by the REMIC for federal income tax purposes. Income on the Regular
Certificates must be reported under an accrual method of accounting.
Although the tax treatment is not entirely certain, Notional Amount
Certificates will be treated as having been issued with OID for federal income
tax purposes equal to the excess of all expected payments of interest on such
Certificates over their issue price. Although unclear, a holder of a Notional
Amount Certificate may be entitled to deduct a loss to the extent that its
remaining basis exceeds the maximum amount of future payments to which such
Certificateholder would be entitled if there were no further prepayments of the
Mortgage Loans. The remaining Classes of Regular Certificates, depending on
their respective issue prices (as described in the Prospectus under "Federal
Income Tax Considerations"), may be treated as having been issued with OID for
federal income tax purposes. For purposes of determining the amount and rate of
accrual of OID and market discount, the Trust Fund intends to assume that there
will be prepayments on the Mortgage Loans at a rate equal to % of the
Prepayment Assumption. No representation is made as to whether the Mortgage
Loans will prepay at the foregoing rate or any other rate. See "Yield,
Prepayment and Maturity Considerations" herein and "Federal Income Tax
Considerations" in the Prospectus. Computing accruals of OID in the manner
described in the Prospectus may (depending on the actual rate of prepayments
during the accrual period) result in the accrual of negative amounts of OID on
the Certificates issued with OID in an accrual period. Holders will be entitled
to offset negative accruals of OID only against future OID accrual on such
Certificates.
If the holders of any Regular Certificates are treated as holding such
Certificates at a premium, such holders should consult their tax advisors
regarding the election to amortize bond premium and the method to be employed.
The holders of the Residual Certificates must include the taxable income of
the REMIC in their federal taxable income. The resulting tax liability of the
holders may exceed cash distributions to such holders during certain periods.
All or a portion of the taxable income from a Residual Certificate recognized by
a holder may be treated as "excess inclusion" income, which, with limited
exceptions, is subject to U.S. federal income tax.
Also, purchasers of a Residual Certificate should consider carefully the
tax consequences of an investment in Residual Certificates discussed in the
Prospectus and should consult their own tax advisors with respect to those
consequences. See "Federal Income Tax Considerations -- REMIC Certificates -- b.
Residual Certificates" in the Prospectus. Specifically, prospective holders of
Residual Certificates should consult their tax advisors regarding whether, at
the time of acquisition, a Residual Certificate will be treated as a
"noneconomic" residual interest, a "non-significant value" residual interest and
a "tax avoidance potential" residual interest. See "Federal Income Tax
Considerations -- Tax-Related Restrictions on Transfer of Residual
Certificates -- Noneconomic Residual Certificates," "Federal Income Tax
Considerations -- b. Residual Certificates -- Mark to Market Rules," "-- Excess
Inclusions" and "Federal Income Tax Considerations -- Tax-Related Restrictions
on Transfers of Residual Certificates -- Foreign Investors" in the Prospectus.
Additionally, for information regarding Prohibited Transactions and Treatment of
Realized Losses, see "Federal Income Tax Considerations -- Prohibited
Transactions and Other Taxes" and "-- REMIC Certificates -- a. Regular
Certificates -- Treatment of Realized Losses" in the Prospectus.
S-33
<PAGE> 35
ERISA CONSIDERATIONS
Any plan fiduciary which proposes to cause a Plan (as defined below) to
acquire any of the Offered Certificates should consult with its counsel with
respect to the potential consequences under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and/or the Code, of the Plan's
acquisition and ownership of such Certificates. See "ERISA Considerations" in
the Prospectus. Section 406 of ERISA prohibits "parties in interest" with
respect to an employee benefit plan subject to ERISA and/or the excise tax
provisions set forth under Section 4975 of the Code (a "Plan") from engaging in
certain transactions involving such Plan and its assets unless a statutory or
administrative exemption applies to the transaction. Section 4975 of the Code
imposes certain excise taxes on prohibited transactions involving Plans and
other arrangements (including, but not limited to, individual retirement
accounts) described under that Section; ERISA authorizes the imposition of civil
penalties for prohibited transactions involving Plans not subject to the
requirements of Section 4975 of the Code. Certain employee benefit plans,
including governmental plans and certain church plans, are not subject to
ERISA's requirements. Accordingly, assets of such plans may be invested in the
Offered Certificates without regard to the ERISA considerations described herein
and in the Prospectus, subject to the provisions of other applicable federal and
state law. Any such plan that is qualified and exempt from taxation under
Sections 401(a) and 501(a) of the Code may nonetheless be subject to the
prohibited transaction rules set forth in Section 503 of the Code.
Except as noted above, investments by Plans are subject to ERISA's general
fiduciary requirements, including the requirement of investment prudence and
diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan. A fiduciary that decides to
invest the assets of a Plan in the Offered Certificates should consider, among
other factors, the extreme sensitivity of the investment to the rate of
principal payments (including prepayments) on the Mortgage Loans.
The U.S. Department of Labor has granted individual administrative
exemptions to (Prohibited Transaction Exemption ,
Exemption Application No. , Fed. Reg. ( ) (the
"Exemption")), from certain of the prohibited transaction rules of ERISA and the
related excise tax provisions of Section 4975 of the Code with respect to the
initial purchase, the holding and the subsequent resale by Plans of certificates
in pass-through trusts that consist of certain receivables, loans and other
obligations that meet the conditions and requirements of the Exemptions. The
Exemptions apply to mortgage loans such as the Mortgage Loans in the Trust Fund.
For a general description of the Exemption and the conditions that must be
satisfied for the Exemptions to apply, See "ERISA Considerations" in the
Prospectus.
It is expected that the Exemptions will apply to the acquisition and
holding by Plans of the Senior Certificates (other than Class A-R Certificates)
and that all conditions of the 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 Mortgage Loans
included in the Trust Fund by aggregate unamortized principal balance of the
assets of the Trust Fund.
Because the characteristics of the Class A-R, Class B-l, Class B-2 and
Class B-3 Certificates may not meet the requirements of PTCE 83-1, the
Exemptions or any other issued exemption under ERISA, the purchase and holding
of the Class A-R, Class B-l, Class B-2 and Class B-3 Certificates by a Plan or
by individual retirement accounts or other plans subject to Section 4975 of the
Code may result in prohibited transactions or the imposition of excise taxes or
civil penalties. Consequently, transfers of the Class A-R, Class B-l, Class B-2
and Class B-3 Certificates will not be registered by the Trustee unless the
Trustee receives: (i) a representation from the transferee of such Certificate,
acceptable to and in form and substance satisfactory to the Trustee, to the
effect that such transferee is not an employee benefit plan subject to Section
406 of ERISA or a plan or arrangement subject to Section 4975 of the Code, nor a
person acting on behalf of any such plan or arrangement nor using the assets of
any such plan or arrangement to effect such transfer; (ii) if the purchaser is
an insurance company, a representation that the purchaser is an insurance
company which is purchasing such Certificates with funds contained in an
insurance company general account" (as such term is defined in Section V(e) of
Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60")) and that the
purchase and holding of such Certificates are covered under PTCE 95-60; or (iii)
an opinion of
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<PAGE> 36
counsel satisfactory to the Trustee that the purchase or holding of such
Certificate by a Plan, any person acting on behalf of a Plan or using such
Plan's assets, will not result in the assets of the Trust Fund being deemed to
be regular assets" and subject to the prohibited transaction requirements of
ERISA and the Code and will not subject the Trustee to any obligation in
addition to those undertaken in the Agreement. Such representation as described
above shall be deemed to have been made to the Trustee by the transferee's
acceptance of a Class B-1, Class B-2 or Class B-3 Certificate. In the event that
such representation is violated, or any attempt to transfer to a Plan or person
acting on behalf of a Plan or using such Plan's assets is attempted without such
opinion of counsel, such attempted transfer or acquisition shall be void and of
no effect.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of PTCE 83-1 as
described in the Prospectus and the Exemption, and the potential consequences in
their specific circumstances, prior to making an investment in the Offered
Certificates. Moreover, each Plan fiduciary should determine whether under the
general fiduciary standards of investment prudence and diversification, an
investment in the Offered Certificates is appropriate for the Plan, taking into
account the overall investment policy of the Plan and the composition of the
Plan's investment portfolio.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting Agreement
between the Depositor and the Underwriter, the Depositor has agreed to sell
to the Offered Certificates and the Underwriter has agreed to
purchase such Certificates from the Depositor. Distribution of the Offered
Certificates will be made by the Underwriter, from time to time in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. In connection with the sale of the Offered Certificates, the Underwriter
may be deemed to have received compensation from the Depositor in the form of
underwriting discounts.
The Underwriter intends to make a secondary market in the Offered
Certificates being purchased by it, but the Underwriter has no obligation to do
so. There can be no assurance that a secondary market for the Offered
Certificates will develop or, if it does develop, that it will continue or that
it will provide Certificateholders with a sufficient level of liquidity of
investment.
The Depositor has agreed to indemnify the Underwriter against, or make
contributions to the Underwriter with respect to, certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
LEGAL MATTERS
The validity of the Certificates, including the material federal income tax
consequences with respect thereto, will be passed upon for the Depositor by
Stroock & Stroock & Lavan LLP, New York, New York.
RATINGS
It is a condition of the issuance of the Senior Certificates that they be
rated by and by ( and , together, the "Rating
Agencies"). It is a condition of the issuance of the Class B-l, Class B-2 and
Class B-3 Certificates that they be rated at least , and ,
respectively, by .
The ratings assigned by to mortgage pass-through certificates address
the likelihood of the receipt of all distributions on the mortgage loans by the
related certificateholders under the agreements pursuant to which such
certificates are issued. ratings take into consideration the
credit quality of the related mortgage pool, including any credit support
providers, structural and legal aspects associated with such certificates, and
the extent to which the payment stream on the mortgage pool is adequate to make
the payments required by such certificates. ratings on such certificates do
not, however, constitute a statement regarding frequency of prepayments of the
mortgage loans.
The ratings assigned by to mortgage pass-through certificates address
the likelihood of the receipt of all distributions on the mortgage loans by the
related Certificateholders under the agreements pursuant to
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<PAGE> 37
which such certificates are issued. ratings take into
consideration the credit quality of the related mortgage pool, including any
credit support providers, structural and legal aspects associated with such
certificates, and the extent to which the payment stream on such mortgage pool
is adequate to make payments required by such certificates. ratings on such
certificates do not, however, constitute a statement regarding frequency of
prepayments on the related mortgage loans.
The ratings of the Rating Agencies do not address the possibility that, as
a result of principal prepayments, Certificateholders may receive a lower than
anticipated yield.
The ratings assigned to the Offered Certificates should be evaluated
independently from similar ratings on other types of securities. A rating is not
a recommendation to buy, sell or hold securities and may be subject to revision
or withdrawal at any time by the Rating Agencies.
The Depositor has not requested a rating of the Offered Certificates by any
rating agency other than the Rating Agencies. There can be no assurance as to
whether any other rating agency will rate the Offered Certificates or, if it
does, what rating would be assigned by such other rating agency. The rating
assigned by such other rating agency to the Offered Certificates could be lower
than the respective ratings assigned by the Rating Agencies.
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<PAGE> 38
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED MAY 21, 1997
PROSPECTUS
$
MELLON RESIDENTIAL FUNDING CORPORATION
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
------------------------
This Prospectus relates to Mortgage Pass-Through Certificates (the
"Certificates"), which may be sold from time to time in one or more Series
(each, a "Series") by Mellon Residential Funding Corporation (the "Depositor")
on terms determined at the time of sale and described in this Prospectus and the
related Prospectus Supplement. The Certificates of a Series will evidence
beneficial ownership of a trust fund (a "Trust Fund"). The Trust Fund for a
Series of Certificates will include certain mortgage related assets (the
"Mortgage Assets") consisting of (i) mortgage loans secured by one-to
four-family residential properties (Mortgage Loans") and/or (ii) mortgage
pass-through securities (the "Agency Securities") issued or guaranteed by the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC").
The Mortgage Assets will be acquired by the Depositor, either directly or
indirectly, from Mellon Mortgage Company ("Mellon Mortgage"), Boston Safe
Deposit and Trust Company ("Boston Safe"), each of which is an affiliate of the
Depositor, or one or more other institutions (collectively, the "Sellers"), and
conveyed by the Depositor to the related Trust Fund. A Trust Fund also may
include insurance policies, cash accounts, reinvestment income, guaranties,
letters of credit or other assets to the extent described in the related
Prospectus Supplement. See "Index to Defined Terms" beginning on page 99 for the
location of definitions of certain terms used herein.
Each Series of Certificates will be issued in one or more classes. Each
class of Certificates of a Series will evidence beneficial ownership of a
specified percentage (which may be 0%) or portion of future interest payments
and a specified percentage (which may be 0%) or portion of future principal
payments on the Mortgage Assets in the related Trust Fund. A Series of
Certificates may include one or more classes that are senior in right of payment
to one or more other classes of Certificates of such Series. One or more classes
of Certificates of a Series may be entitled to receive distributions of
principal, interest or any combination thereof prior to one or more other
classes of Certificates of such Series or after the occurrence of specified
events, in each case as specified in the related Prospectus Supplement.
Distributions to holders of Certificates (the "Certificateholders") will be
made monthly, quarterly, semi-annually or at such other intervals and on the
dates specified in the related Prospectus Supplement. Distributions on the
Certificates of a Series will be made from the assets of the related Trust Fund.
THE CERTIFICATES OF ANY SERIES WILL NOT BE DEPOSITS IN OR OBLIGATIONS OF
ANY BANK AND WILL NOT BE INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR, UNLESS
OTHERWISE SPECIFIED IN THE RELATED PROSPECTUS SUPPLEMENT, BY ANY OTHER PERSON.
The only obligations of the Depositor with respect to a Series of Certificates
will be to obtain certain representations and warranties from each Seller and to
assign to the Trustee for the related Series of Certificates the Depositor's
rights with respect to such representations and warranties. The principal
obligations of the Master Servicer named in the related Prospectus Supplement
with respect to the related Series of Certificates will be limited to
obligations pursuant to certain representations and warranties and to its
contractual servicing obligations, including any obligation it may have to
advance delinquent payments on the Mortgage Assets in the related Trust Fund.
One or more elections may be made to treat the related Trust Fund or
specified portions thereof as a "real estate mortgage investment conduit"
("REMIC") for federal income tax purposes. See "Federal Income Tax
Considerations" herein.
PROSPECTUS INVESTORS SHOULD CONSIDER THE FACTORS DISCUSSED UNDER "RISK
FACTORS" BEGINNING ON PAGE 12.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prior to issuance there will have been no market for the Certificates of
any Series, and there can be no assurance that a secondary market for any
Certificates will develop or, if it does develop, that it will continue. This
Prospectus may not be used to consummate sales of a Series of Certificates
unless accompanied by a Prospectus Supplement.
Offers of the Certificates may be made through one or more different
methods, including offerings through underwriters, as more fully described under
"Method of Distribution" herein and in the related Prospectus Supplement.
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE> 39
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the securities covered by such Prospectus Supplement,
whether or not participating in the distribution thereof, may be required to
deliver such Prospectus Supplement and this Prospectus. This is in addition to
the obligation of dealers to deliver Prospectus and Prospectus Supplement when
acting as underwriters and with respect to their unsold allotments of
subscriptions.
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to the Certificates of each Series to be
offered hereunder will, among other things, set forth with respect to such
Certificates, as appropriate: (i) a description of the class or classes of
Certificate and the related Pass-Through Rate or method of determining the
amount of interest, if any, to be passed through to each such class; (ii) the
initial aggregate Certificate Balance of each class of Certificates included in
such Series, Distribution Dates relating to such Series and, if applicable, the
initial and final scheduled Distribution Dates for each class; (iii) information
as to the assets comprising the Trust Fund, including the general
characteristics of the Mortgage Asset included therein and, if applicable, the
insurance, surety bonds, guaranties, letters of credit or other instruments of
agreements included in the Trust Fund, and the amount and source of any Reserve
Fund; (iv) the circumstances, if any under which the Trust Fund may be subject
to early termination; (v) the method used to calculate the amount of principal.
to be distributed with respect to each class of Certificates; (vi) the order of
application of distributions to each of the classes within such Series, whether
sequential, pro rata, or otherwise; (vii) the Distribution Dates with respect to
such Series; (viii) additional information with respect to the plan of
distribution of such Certificates; (ix) whether one or more REMIC elections will
be made and designation of the regular interests and residual interests; (x) the
aggregate original percentage ownership interest in the Trust Fund to be
evidenced by each class of Certificates; (xi) information as to the nature and
extent of subordination with respect to any class of Certificates that is
subordinate in right of payment to any other class; and (xii) information as to
the Seller, the Master Servicer and the Trustee.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Certificates. This Prospectus, which forms a part
of the Registration Statement, and the Prospectus Supplement relating to each
Series of Certificates contain summaries of the material terms of the documents
referred to herein and therein, but do not contain all of the information set
forth in the Registration Statement pursuant to the Rules and Regulations of the
Commission. For further information, reference is made to such Registration
Statement and the exhibits thereto. Such Registration Statement and exhibits can
be inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at its Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at its Regional Offices located as follows:
Chicago Regional Office, 500 West Madison Street, Chicago, Illinois 60661; and
New York Regional Office, Seven World Trade Center, New York, New York 10048.
The Commission maintains an Internet Web site that contains reports, information
statements and other information regarding the registrants that file
electronically with the Commission, including the Depositor. The address of such
Internet Web site is (http://www.sec.gov).
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Certificates
offered hereby and thereby nor an offer of the Certificates to any person in any
state or other jurisdiction in which such offer would be unlawful. The delivery
of this Prospectus at any time does not imply that information herein is correct
as of any time subsequent to its date.
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<PAGE> 40
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by or on behalf of the Trust Fund referred
to in the accompanying Prospectus Supplement with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 as
amended (the "Exchange Act"), after the date of this Prospectus and prior to the
termination of any offering of the Certificates issued by such Trust Fund shall
be deemed to be incorporated by reference in this Prospectus and to be a part of
this Prospectus from the date of the filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for all purposes of this
Prospectus to the extent that a statement contained herein (or in the
accompanying Prospectus Supplement) or in any other subsequently filed document
which also is or is deemed to be incorporated by reference modifies or replaces
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus. The Depositor intends to seek relief from certain of the reporting
requirements under the Exchange Act and to cease reporting when permitted by the
Exchange Act.
The Depositor on behalf of any Trust Fund will provide without charge to
each person to whom this Prospectus is delivered, on the written or oral request
of such person, a copy of any or all of the documents referred to above that
have been or may be incorporated by reference in this Prospectus (not including
exhibits to the information that is incorporated by reference unless such
exhibits are specifically incorporated by reference into the information that
this Prospectus incorporates). Such requests should be directed to the Depositor
at One Mellon Bank Center, Room 410, Pittsburgh, Pennsylvania 15258, Attention:
Secretary (phone number: (412) 236-6559).
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<PAGE> 41
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and in the related Prospectus
Supplement with respect to the Series offered thereby. The Prospectus Supplement
for each Series will specify the extent (if any) to which the terms of such
Series or the related Trust Fund vary from the description of the Certificates
and Trust Funds in general that is contained in this Prospectus. See "Index to
Defined Terms" beginning on page 99 for the location of definitions of certain
terms used herein.
Title of Securities........ Mortgage Pass-Through Certificates (the
"Certificates"), issuable in series (each, a
"Series"). Each Series will be issued under a
separate pooling and servicing agreement (each, an
"Agreement") to be entered into with respect to
each such Series.
Depositor.................. Mellon Residential Funding Corporation, a Delaware
corporation (the "Depositor").
Trustee.................... The trustee (the "Trustee") for each Series of
Certificates will be specified in the related
Prospectus Supplement. See "The Pooling and
Servicing Agreement" herein for a description of
the Trustee's rights and obligations.
Master Servicer............ The entity or entities named as master servicer
(the "Master Servicer") in the related Prospectus
Supplement, which may be an affiliate of the
Depositor. See "The Pooling and Servicing
Agreement -- Certain Matters Regarding the Master
Servicer and the Depositor" herein.
Seller..................... Mellon Mortgage Company, a Colorado corporation and
an affiliate of the Depositor ("Mellon Mortgage"),
Boston Safe Deposit and Trust Company, a
Massachusetts trust company and an affiliate of the
Depositor ("Boston Safe") or another entity named
in the related Prospectus Supplement (each of
Mellon Mortgage, Boston Safe and such other entity,
a "Seller").
Closing Date............... The date (the "Closing Date") of initial issuance
of a Series of Certificates, as specified in the
related Prospectus Supplement.
Trust Fund................. The trust fund for a Series of Certificates (each,
a "Trust Fund") will include certain mortgage
related assets (the "Mortgage Assets") consisting
of (a) mortgage loans secured by one- to
four-family residential properties (the "Mortgage
Loans" ) and/or (b) mortgage pass-through
securities issued or guaranteed by the Government
National Mortgage Association ("GNMA"), the Federal
National Mortgage Association ("FNMA") or the
Federal Home Loan Mortgage Corporation ("FHLMC")
(the "Agency Securities"), together with payments
in respect of such Mortgage Assets and certain
other accounts, obligations or agreements, in each
case as specified in the related Prospectus
Supplement.
A. Mortgage Loans.......... The Mortgage Loans will be secured by liens on one-
to four-family residential properties (each, a
"Mortgaged Property"). The Mortgage Loans may
include cooperative apartment loans ("Cooperative
Loans") secured by security interests in shares
issued by private, nonprofit, cooperative housing
corporations ("Cooperatives") and in the related
proprietary leases or occupancy agreements granting
exclusive rights to occupy specific dwelling units
in such Cooperatives' buildings. The Mortgage Loans
also may be secured by additional collateral
generally
4
<PAGE> 42
consisting of marketable securities. The Mortgage
Loans may be conventional loans (i.e., loans that
are not insured or guaranteed by any governmental
agency), insured by the Federal Housing Authority
("FHA") or partially guaranteed by the Veterans'
Administration ("VA") as specified in the related
Prospectus Supplement.
B. General Attributes of
Mortgage Loans.......... The payment terms of the Mortgage 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 combinations thereof:
(a) Interest may be payable at a fixed rate, a
rate adjustable from time to time in relation
to an index (which will be specified in the
related Prospectus Supplement), a rate that is
fixed for a period of time or under certain
circumstances and is followed by an adjustable
rate, a rate that otherwise varies from time
to time, or a rate that is convertible from an
adjustable rate to a fixed rate. Changes to an
adjustable rate may be subject to periodic
limitations. maximum rates, minimum rates or a
combination of such limitations. Accrued
interest may be deferred and added to the
principal of a loan for such periods and under
such circumstances as may be specified in the
related Prospectus Supplement. The loan
agreement or promissory note (the "Mortgage
Note") in respect of a Mortgage Loan may
provide for the payment of interest at a rate
lower than the interest rate (the "Mortgage
Rate") specified in such Mortgage Note 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 a third
party.
(b) Principal may be payable on a level debt
service basis to fully amortize the loan over
its term, may be calculated on the basis of an
assumed amortization schedule that is
significantly longer than the original term to
maturity or on an interest rate that is
different from the interest rate on the
Mortgage Loan or may not be amortized during
all or a portion of the original term. Payment
of all or a substantial portion of the
principal may be due on maturity ("balloon
payments"). Principal may include interest that
has been deferred and added to the principal
balance of the Mortgage 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. Mortgage 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) The Mortgage Loans generally may be prepaid at
any time without payment of any prepayment fee.
If so specified in the related Prospectus
Supplement, prepayments of principal may be
subject to a prepayment fee, which may be fixed
for the life of any such Mortgage Loan or may
decline over time, and may be prohibited for
the life of any such Mortgage Loan or for
certain periods ("lockout periods"). Certain
Mortgage Loans may permit prepayments after
expiration of the applicable lockout period and
may require the payment of a prepayment fee in
connection with any such subsequent prepayment.
Other Mortgage Loans may permit prepayments
without payment of a fee unless the prepayment
occurs during
5
<PAGE> 43
specified time periods. The Mortgage Loans may
include "due-on-sale" clauses which permit the
mortgagee to demand payment of the entire
Mortgage Loan in connection with the sale or
certain transfers of the related Mortgaged
Property. Other Mortgage Loans may be assumable
by persons meeting the then applicable
underwriting standards of the Seller.
(e) The real property constituting security for
repayment of a Mortgage Loan may be located
in any one of the fifty states, the
District of Columbia, Guam, Puerto Rico or
any other territory of the United States.
The Mortgage Loans generally will be
covered by standard hazard insurance
policies insuring against losses due to
fire and various other causes. The Mortgage
Loans will be covered by primary mortgage
insurance policies to the extent provided
in the related Prospectus Supplement.
All Mortgage Loans will have been purchased by the
Depositor, either directly or through an affiliate,
from one or more Sellers.
C. Agency Securities....... The Agency Securities evidenced by a Series of
Certificates will consist of (i) mortgage
participation certificates issued and guaranteed as
to timely payment of interest and, ultimate payment
of principal by the Federal Home Loan Mortgage
Corporation ("FHLMC Certificates"), (ii)
certificates ("Guaranteed Mortgage Pass-Through
Certificates") issued and guaranteed as to timely
payment of principal and interest by the Federal
National Mortgage Association ("FNMA
Certificates"), (iii) fully modified pass through
mortgage-backed certificates guaranteed as to
timely payment of principal and interest by the
Government National Mortgage Association ("GNMA
Certificates"), (iv) stripped mortgage-backed
securities representing an undivided interest in
all or a part of either the principal distributions
(but not the interest distributions) or the
interest distributions (but not the principal
distributions) or in some specified portion of the
principal and interest distributions (but not all
of such distributions) on certain FHLMC, FNMA or
GNMA Certificates and, unless otherwise specified
in the related Prospectus Supplement, guaranteed to
the same extent as the underlying securities, (v)
another type of pass-through certificate issued or
guaranteed by GNMA, FNMA or FHLMC and described in
the related Prospectus Supplement or (vi) a
combination of such Agency Securities. All GNMA
Certificates will be backed by the full faith and
credit of the United States. No FHLMC or FNMA
Certificates will be backed, directly or
indirectly, by the full faith and credit of the
United States.
The Agency Securities may consist of pass-through
securities issued under FHLMC's Cash or Guarantor
Program, the GNMA I Program, the GNMA II Program or
another program specified in the related Prospectus
Supplement. The payment characteristics of the
mortgage loans underlying the Agency Securities
will be described in the related Prospectus
Supplement.
Description of the
Certificates............... Each Certificate will represent a beneficial
ownership interest in a Trust Fund created by the
Depositor pursuant to an Agreement among the
Depositor, the Master Servicer and the Trustee for
the related Series. The Certificates of any Series
may be issued in one or more classes as specified
in the related Prospectus Supplement. A Series of
Certificates may include one or more classes of
senior Certificates (collectively, the
6
<PAGE> 44
"Senior Certificates") and one or more classes of
subordinate Certificates (collectively, the
"Subordinated Certificates"). Certain Series or
classes of Certificates may be covered by insurance
policies or other forms of credit enhancement, in
each case as described herein and in the related
Prospectus Supplement.
One or more classes of Certificates of each Series
(i) may be entitled to receive distributions
allocable only to principal, only to interest or to
any combination thereof; (ii) may be entitled to
receive distributions only of prepayments of
principal throughout the lives of the Certificates
or during specified periods; (iii) may be
subordinated in the right to receive distributions
of scheduled payments of principal, prepayments of
principal, interest or any combination thereof to
one or more other classes of Certificates of such
Series throughout the lives of the Certificates or
during specified periods; (iv) may be entitled to
receive such distributions only after the
occurrence of events specified in the related
Prospectus Supplement; (v) may be entitled to
receive distributions in accordance with a schedule
or formula or on the basis of collections from
designated portions of the assets in the related
Trust Fund; (vi) as to Certificates entitled to
distributions allocable to interest, may be
entitled to receive interest at a fixed rate or a
rate that is subject to change from time to time;
and (vii) as to Certificates entitled to
distributions allocable to interest, may be
entitled to distributions allocable to interest
only after the occurrence of events specified in
the related Prospectus Supplement and may accrue
interest until such events occur, in each case as
specified in the related Prospectus Supplement. The
timing and amounts of such distributions may vary
among classes, over time, or otherwise as specified
in the related Prospectus Supplement.
Risk Factors............... An investment in the Certificates involves material
risks and should be considered only by investors
which, either alone or together with their
advisors, have the ability to understand such
risks. See "Risk Factors" beginning on page 12
herein.
Distributions on the
Certificates............... Distributions on the Certificates entitled thereto
will be made monthly, quarterly, semi-annually or
at such other intervals and on the dates specified
in the related Prospectus Supplement (each, a
"Distribution Date") out of the payments received
in respect of the assets of the related Trust Fund.
The amount allocable to payments of principal and
interest on any Distribution Date will be
determined as specified in the related Prospectus
Supplement. All distributions will be made pro rata
to Certificateholders of the class entitled
thereto.
The aggregate original balance of the Certificates
(the "Certificate Balance") generally will equal
the aggregate distributions allocable to principal
that such Certificates will be entitled to receive.
The Certificates generally will have an aggregate
original Certificate Balance equal to the aggregate
unpaid principal balance of the Mortgage Assets as
of the first day of the month of creation of the
Trust Fund and will bear interest at a rate (the
"Pass-Through Rate") equal to the interest rate
borne by the underlying Mortgage Assets, net of the
aggregate servicing fees and any other amounts
specified in the related Prospectus Supplement.
Alternatively, the aggregate original Certificate
Balance of the
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<PAGE> 45
Certificates and interest rates on the classes of
Certificates may be determined based on the cash
flow on the Mortgage Assets.
The rate at which interest will he passed through
to holders to each class of Certificates entitled
thereto may be a fixed rate or a rate that is
subject to change from time to time from the time
and for the periods, in each case, as specified in
the related Prospectus Supplement. Any such rate
may be calculated on a loan-by-loan, weighted
average or other basis, in each case as described
in the related Prospectus Supplement.
Credit Enhancement......... The assets in a Trust Fund or the Certificates of
one or more classes in the related Series may have
the benefit of one or more types of credit
enhancement. The protection against losses afforded
by any such credit support generally will be
limited. The type, characteristics and amount of
credit enhancement will be determined based on the
characteristics of the Mortgage Loans underlying or
comprising the Mortgage Assets and other factors
and will be established on the basis of
requirements of each Rating Agency rating the
Certificates of such Series. See "Credit
Enhancement" herein.
A. Subordination........... A Series of Certificates may consist of one or more
classes of Senior Certificates and one or more
classes of Subordinated Certificates. The rights of
the holders of the Subordinated Certificates of a
Series (the "Subordinated Certificateholders") to
receive distributions with respect to the assets in
the related Trust Fund will be subordinated to such
rights of the holders of the Senior Certificates of
the same Series (the "Senior Certificateholders")
and may be subordinated to such rights of the
holders of one or more other classes of
Subordinated Certificates, in each case to the
extent described in the related Prospectus
Supplement. This subordination is intended to
enhance the likelihood of regular receipt by
holders of Certificates with a higher payment
priority of the full amount of their scheduled
monthly payments of principal and interest. The
protection afforded by means of the subordination
feature will be accomplished by (i) the
preferential right of such holders to receive,
prior to any distribution being made in respect of
the related Subordinated Certificates, the amounts
of principal and interest due them on each
Distribution Date out of the funds available for
distribution on such date in the related
Certificate Account and, to the extent described in
the related Prospectus Supplement, by the right of
such holders to receive future distributions on the
assets in the related Trust Fund that would
otherwise have been payable to the Subordinated
Certificateholders; (ii) reducing the ownership
interest of the related Subordinated Certificates;
(iii) a combination of clauses (i) and (ii) above;
or (iv) as otherwise described in the related
Prospectus Supplement. Subordination may apply only
in the event of certain types of losses not covered
by other forms of credit support, such as hazard
losses not covered by standard hazard insurance
policies or losses due to the bankruptcy or fraud
of the borrower. The related Prospectus Supplement
will set forth information concerning, among other
things, the amount of subordination of a class or
classes of Subordinated Certificates in a Series,
the circumstances in which such subordination will
be applicable and the manner, if any, in which the
amount of subordination will change over time.
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<PAGE> 46
B. Reserve Fund............ One or more reserve funds (the "Reserve Fund") may
be established and maintained for each Series. The
related Prospectus Supplement will specify whether
or not any such Reserve Fund will be included in
the corpus of the Trust Fund for such Series and
will also specify the manner of funding the related
Reserve Fund and the conditions under which the
amounts in any such Reserve Fund will be used to
make distributions to holders of Certificates of a
particular class or released from the related Trust
Fund.
C. Mortgage Pool
Insurance Policy........ A mortgage pool insurance policy or policies (the
"Mortgage Pool Insurance Policy") may be obtained
and maintained for a Series, which will be limited
in scope, covering defaults on the related Mortgage
Loans in an initial amount equal to a specified
percentage of the aggregate principal balance of
all Mortgage Loans included in the Mortgage Pool as
of the first day of the month of issuance of the
related Series of Certificates or such other date
as is specified in the related Prospectus
Supplement (the "Cut-off Date").
D. Special Hazard Insurance
Policy.................. A special hazard insurance policy or policies (the
"Special Hazard Insurance Policy"), may be obtained
and maintained for a Series, covering certain
physical risks that are not otherwise insured
against by standard hazard insurance policies. Each
Special Hazard Insurance Policy will be limited in
scope and will cover losses pursuant to the
provisions of each such Special Hazard Insurance
Policy as described in the related Prospectus
Supplement.
E. Bankruptcy Bond......... A bankruptcy bond or bonds (the "Bankruptcy Bonds")
may be obtained to cover certain losses resulting
from action that may be taken by a bankruptcy court
in connection with a Mortgage Loan. The level of
coverage and the limitations in scope of each
Bankruptcy Bond will be specified in the related
Prospectus Supplement.
F. Cross Support........... If specified in the related Prospectus Supplement,
the beneficial ownership of separate groups of
assets included in a Trust Fund may be evidenced by
separate classes of the related Series of
Certificates. In such case, credit support may be
provided by a cross-support feature which requires
that distributions be made with respect to
Certificates evidencing beneficial ownership of one
or more asset groups prior to distributions to
Subordinated Certificates evidencing a beneficial
ownership interest in other asset groups within the
same Trust Fund.
G. Certificate Insurance
Policy..................... A financial guaranty insurance policy (the
"Certificate Insurance Policy") may be obtained
from a monoline insurance company or other
financial institution with respect to a Series or
one or more classes of such Series. The Certificate
Insurance Policy will guarantee the timely payment
of interest and either the timely or ultimate
payment of principal on the Certificates covered
thereby. Financial and other information regarding
the monoline insurance company will be included or
incorporated by reference in the related Prospectus
Supplement.
H. Financial Instruments... A Trust Fund may include one or more financial
instruments which will have the effect of (i)
converting payments on all or certain of the
Mortgage Assets from fixed to floating payments,
floating to fixed payments or floating payments
based on a certain index to floating
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<PAGE> 47
payments based on a different index, (ii) providing
payments if an index rises or falls below specified
levels or (iii) providing protection against
changes in interest rates, certain types of losses
or other shortfalls in amounts available for
distribution to holders of one or more classes of a
Series. Any such financial instrument will be or
will be structured so as to be exempt from
registration requirements of the Securities Act of
1933, as amended. To the extent material, financial
and other information regarding the provider of any
such financial instrument will be included or
incorporated by reference in the related Prospectus
Supplement.
Advances................... The Master Servicer and, if applicable, each
mortgage servicing institution that services a
Mortgage Loan in a Mortgage Pool on behalf of the
Master Servicer (each, a "Sub-Servicer") generally
will be obligated to advance amounts (each, an
"Advance") corresponding to delinquent principal
and interest payments on such Mortgage Loan
(including, in the case of Cooperative Loans,
unpaid maintenance fees or other charges under the
related proprietary lease) until the first day of
the month following the date on which the related
Mortgaged Property is sold at a foreclosure sale or
the related Mortgage Loan is otherwise liquidated.
Any obligation to make Advances may be subject to
limitations as specified in the related Prospectus
Supplement. Advances will be reimbursable to the
extent described herein and in the related
Prospectus Supplement.
Optional Termination....... The Master Servicer or other person specified in
the related Prospectus Supplement will have the
option to effect early retirement of a Series of
Certificates through the purchase of the Mortgage
Assets and other assets in the related Trust Fund
under the circumstances and in the manner described
in "The Pooling and Servicing
Agreement -- Termination: Optional Termination"
herein.
Legal Investment........... The Prospectus Supplement for each Series of
Certificates will specify which, if any, of the
classes of Certificates offered thereby will
constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"). Classes of
Certificates that qualify as "mortgage related
securities" will be legal investments for certain
types of institutional investors to the extent
provided in SMMEA, subject, in any case, to any
other regulations that may govern investments by
such institutional investors. Institutions whose
investment activities are subject to review by
federal or state authorities should consult with
their counsel or the applicable authorities to
determine whether an investment in a particular
class of Certificates (whether or not such class
constitutes a "mortgagee related security")
complies with applicable guidelines, policy
statements or restrictions. See "Legal Investment"
herein.
Federal Income Tax
Considerations........... The federal income tax consequences to
Certificateholders will vary depending on whether
one or more elections are made to treat the Trust
Fund or specified portions thereof as a "real
estate mortgage investment conduit" ("REMIC" )
under the provisions of the Internal Revenue Code
of 1986. as amended (the "Code"). The Prospectus
Supplement for each Series of Certificates will
specify whether such an election will
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<PAGE> 48
be made. See "Federal Income Tax Considerations"
herein and in the related Prospectus Supplement.
ERISA Considerations....... A fiduciary of any employee benefit plan or other
retirement plan or arrangement subject to the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or the Code should carefully
review with its legal advisors whether the purchase
or holding of Certificates could give rise to a
transaction prohibited or not otherwise permissible
under ERISA or the Code. See "ERISA Considerations"
herein and in the related Prospectus Supplement.
Certain classes of Certificates may not be
transferred unless the Trustee and the Depositor
are furnished with a letter of representation or an
opinion of counsel to the effect that such transfer
will not result in a violation of the prohibited
transaction provisions of ERISA and the Code and
will not subject the Trustee, the Depositor or the
Master Servicer to additional obligations. See
"Description of the Certificates -- General" and
"ERISA Considerations" herein and in the related
Prospectus Supplement.
Ratings.................... It will be a condition to the issuance of any
Certificates offered hereby that such Certificates
be rated in one of the four highest rating
categories by at least one nationally recognized
statistical rating organization. In general, any
such rating addresses credit risk only and does not
address the risk that, due to prepayments or
otherwise, investors may realize a lower than
anticipated yield. Any such rating may be reduced
or withdrawn by the assigning rating agency if, in
its judgment, circumstances in the future warrant
such action. A security rating is not a
recommendation to purchase, hold or sell the rated
securities, and should be evaluated independently
from similar ratings on other types of securities.
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<PAGE> 49
RISK FACTORS
Investors should consider, in connection with the purchase of the
Certificates of any Series, among other things, the following factors.
LIMITED LIQUIDITY
At the time of issuance of a Series of Certificates, there will be no
secondary market for any of the Certificates. There can be no assurance that a
secondary market for the Certificates of any Series will develop or, if it does
develop, that it will provide holders with liquidity of investment or will
continue while Certificates of such Series remain outstanding.
LIMITED ASSETS
The Certificates will not represent an interest in or obligation of the
Depositor, the Master Servicer, the Seller, the Trustee or any of their
affiliates. The Certificates will not be savings accounts or deposits and will
not be insured by the Federal Deposit Insurance Corporation. The only
obligations of the Seller or the Master Servicer with respect to the
Certificates or the Mortgage Assets will be the obligations (if any) of the
Seller pursuant to certain limited representations and warranties made with
respect to the Mortgage Loans and the Master Servicer's and any Sub-Servicer's
servicing obligations under the related Agreement (including the limited
obligation to make certain advances in the event of delinquencies on the
Mortgage Loans, but only to the extent deemed recoverable). The only obligation
of the Depositor with respect to a Series of Certificates will be to assign to
the Trustee the Depositor's rights against the Seller. Since certain
representations and warranties with respect to the Mortgage Assets may have been
made and/or assigned in connection with transfers of such Mortgage Assets prior
to the Closing Date, the rights of the Trustee and the Certificateholders with
respect to such representations or warranties will be limited to their rights as
an assignee thereof. None of the Depositor, the Master Servicer or any affiliate
thereof will have any obligation with respect to representations or warranties
made by any other entity. Unless otherwise specified in the related Prospectus
Supplement, neither the Certificates nor the underlying Mortgage Assets will be
guaranteed or insured by any governmental agency or instrumentality, or by the
Depositor, the Master Servicer, any Sub-Servicer or any of their affiliates.
Proceeds of the assets included in the related Trust Fund for each Series of
Certificates (including the Mortgage Assets and any form of credit enhancement)
will be the sole source of payments on the Certificates, and there will be no
recourse to the Depositor or any other entity in the event that such proceeds
are insufficient or otherwise unavailable to make all payments provided for
under the Certificates.
If the related Trust Fund is insufficient to make payments on such
Certificates, no other assets will be available for payment of the deficiency.
Additionally, certain amounts remaining in certain funds or accounts, including
the Certificate Account and any accounts maintained as credit support, may be
withdrawn under certain conditions, as described in the related Prospectus
Supplement. In the event of such withdrawal, such amounts will not be available
for future payment of principal of or interest on the Certificates. If so
provided in the Prospectus Supplement for a Series of Certificates consisting of
one or more classes of Subordinated Certificates, on any Distribution Date in
respect of which losses or shortfalls in collections on the Mortgage Assets have
been incurred, the amount of such losses or shortfalls will be borne first by
one or more classes of the Subordinated Certificates, and, thereafter, by the
remaining classes of Certificates in the priority and manner and subject to the
limitations specified in such Prospectus Supplement.
AVERAGE LIFE OF CERTIFICATES; PREPAYMENTS; YIELDS
Prepayments (including those caused by defaults) on the Mortgage Assets in
any Trust Fund generally will result in a faster rate of principal payments on
one or more classes of the related Certificates than if payments on such
Mortgage Assets were made as scheduled. Thus, the prepayment experience on the
Mortgage Assets may affect the average life of each class of related
Certificates. The rate of principal payments on pools of mortgage loans varies
between pools and from time to time is influenced by a variety of economic,
demographic, geographic, social, tax, legal and other factors. There can be no
assurance as to the rate of prepayment on the Mortgage Assets in any Trust Fund
or that the rate of payments will conform to any
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<PAGE> 50
model described in any Prospectus Supplement. If prevailing interest rates fall
significantly below the applicable mortgage interest rates, principal
prepayments are likely to be higher than if prevailing rates remain at or above
the rates borne by the Mortgage Loans underlying or comprising the Mortgage
Assets in any Trust Fund. As a result, the actual maturity of any class of
Certificates evidencing an interest in a Trust Fund containing Mortgage Assets
could occur significantly earlier than expected. In addition, certain
prepayments may result in the collection of less interest than would otherwise
be the case in the month of prepayment.
A Series of Certificates may include one or more classes of Certificates
with priorities of payment and, as a result, yields on other classes of
Certificates of such Series may be more sensitive to prepayments on the Mortgage
Assets. A Series of Certificates may include one or more classes offered at a
significant premium or discount. Yields on such classes of Certificates will be
sensitive, and in some cases extremely sensitive, to prepayments on Mortgage
Assets and, where the amount of interest payable with respect to a class is
disproportionately high, as compared to the amount of principal, a holder might,
in some prepayment scenarios, fail to recoup its original investment. A series
of Certificates may include one or more classes of Certificates that provide for
distribution of principal thereof from amounts attributable to interest accrued
but not currently distributable on one or more classes of Accrual Certificates
and, as a result, yields on such Certificates will be sensitive to (a) the
provisions of such Accrual Certificates relating to the timing of distributions
of interest thereon and (b) if such Accrual Certificates accrue interest at a
variable or adjustable Pass-Through Rate or interest rate, changes in such rate.
LIMITED NATURE OF RATINGS
Any rating assigned by a Rating Agency to a class of Certificates will
reflect such Rating Agency's assessment solely of the likelihood that holders of
Certificates of such class will receive payments to which such
Certificateholders are entitled under the related Agreement. Such rating will
not constitute an assessment of the likelihood that principal prepayments
(including those caused by defaults) on the related Mortgage Assets will be
made, the degree to which the rate of such prepayments might differ from that
originally anticipated or the likelihood of early optional termination of the
Series of Certificates. Such rating will not address the possibility that
prepayment at higher or lower rates than anticipated by an investor may cause
such investor to experience a lower than anticipated yield or that an investor
purchasing a Certificate at a significant premium might fail to recoup its
initial investment under certain prepayment scenarios. Each Prospectus
Supplement will identify any payment to which holders of Certificates of the
related Series are entitled that is not covered by the applicable rating.
MORTGAGE LOANS AND MORTGAGED PROPERTIES IN GENERAL
An investment in securities such as the Certificates which generally
represent interests in Mortgage Loans may be affected by, among other things, a
decline in real estate values and changes in the mortgagors' financial
condition. 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 Mortgage Loans. If the residential real estate market should experience
an overall decline in property values such that the outstanding balances of the
Mortgage Loans, and any secondary financing on the Mortgaged Properties, 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, in the case
of Mortgage Loans that are subject to negative amortization, due to the addition
to principal balance of deferred interest, the principal balances of such
Mortgage Loans could be increased to an amount equal to or in excess of the
value of the underlying Mortgaged Properties, thereby increasing the likelihood
of default. To the extent that such losses are not covered by the applicable
credit support, if any, holders of Certificates of the Series evidencing
interests in the related Mortgage Loans will bear all risk of loss resulting
from default by mortgagors and will have to look primarily to the value of the
Mortgaged Properties for recovery of the outstanding principal and unpaid
interest on the defaulted Mortgage Loans. Certain of the types of Mortgage Loans
may involve additional uncertainties not present in traditional types of loans.
For example, certain of the Mortgage Loans may provide for escalating or
variable payments by the mortgagor under the Mortgage Loan, as to which the
mortgagor is generally qualified on the basis of the initial payment amount. In
some instances
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<PAGE> 51
the mortgagors' income may not be sufficient to enable them to continue to make
their loan payments as such payments increase and thus the likelihood of default
will increase. In addition to the foregoing, certain geographic regions of the
United States from time to time will experience weaker regional economic
conditions and housing markets, and, consequently, will experience higher rates
of loss and delinquency than will be experienced on mortgage loans generally.
The Mortgage Loans underlying certain Series of Certificates may be concentrated
in these regions, and such concentration may present risk considerations in
addition to those generally present for similar mortgage-backed securities
without such concentration. Furthermore, the rate of default on Mortgage Loans
that are refinance or limited documentation mortgage loans, and on Mortgage
Loans with high Loan-to-Value Ratios, may be higher than for other types of
Mortgage Loans.
BALLOON PAYMENTS
Certain of the Mortgage Loans (the "Balloon Mortgage Loans") as of the
Cut-off Date may not be fully amortizing over their terms to maturity and, thus,
will require substantial principal payments (i.e., balloon payments) at their
stated maturity. Mortgage Loans with balloon payments involve a greater degree
of risk because the ability of a mortgagor to make a balloon payment typically
will depend upon its ability either to timely refinance the loan or to timely
sell the related Mortgaged Property. The ability of a mortgagor to accomplish
either of these goals will be affected by a number of factors, including the
level of available mortgage interest rates at the time of sale or refinancing,
the mortgagor's equity in the related Mortgaged Property, the financial
condition of the mortgagor, the value of the Mortgaged Property, tax laws,
prevailing general economic conditions and the availability of credit for single
family or multifamily real properties generally.
CREDIT ENHANCEMENT LIMITATIONS
The Prospectus Supplement for a Series of Certificates will describe any
credit enhancement for the related Trust Fund. Use of credit enhancement will be
subject to the conditions and limitations described herein and in the related
Prospectus Supplement. Moreover, such credit enhancement may not cover all
potential losses or risks; for example, credit enhancement may or may not cover
fraud or negligence by a mortgage loan or contract originator or other parties.
A Series of Certificates may include one or more classes of Subordinated
Certificates, if so provided in the related Prospectus Supplement. Although
subordination is intended to reduce the risk to holders of Senior Certificates
of delinquent distributions or ultimate losses, the amount of subordination will
be limited and may decline under certain circumstances. In addition, if
principal payments on one or more classes of Certificates of a Series are made
in a specified order of priority, any limits with respect to the aggregate
amount of claims under any related credit enhancement may be exhausted before
the principal of the lower priority classes of Certificates of such Series has
been repaid. As a result, the impact of significant losses and shortfalls on the
Mortgage Assets may fall primarily upon those classes of Certificates having a
lower priority of payment.
The amount of any applicable credit enhancement supporting one or more
classes of Certificates, including the subordination of one or more classes of
Certificates, will be determined on the basis of criteria established by each
Rating Agency rating such classes of Certificates based on an assumed level of
defaults, delinquencies, other losses or other factors. There can, however, be
no assurance that the loss experience on the related Mortgage Assets will not
exceed such assumed levels.
Regardless of the form of credit enhancement provided, the amount of
coverage will be limited in amount and in most cases will be subject to periodic
reduction in accordance with a schedule or formula. The Master Servicer will
generally be permitted to reduce, terminate or substitute all or a portion of
the credit enhancement for any series of Certificates, if the applicable Rating
Agency indicates that the then-current rating thereof will not be adversely
affected. The rating of any series of Certificates by any applicable Rating
Agency may be lowered following the initial issuance thereof as a result of the
downgrading of the obligations of any applicable credit enhancement provider, or
as a result of losses on the related Mortgage Assets substantially in excess of
the levels contemplated by such Rating Agency at the time of its initial rating
analysis. None of the Depositor, the Master Servicer, the Seller or any of their
affiliates will have any obligation to replace or supplement any credit
enhancement or to take any other action to maintain any rating of any Series of
Certificates.
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<PAGE> 52
SUBORDINATION OF THE SUBORDINATED CERTIFICATES; EFFECT OF LOSSES ON THE MORTGAGE
ASSETS
The rights of Subordinated Certificateholders to receive distributions to
which they would otherwise be entitled with respect to the Mortgage Assets will
be subordinate to the rights of the Master Servicer (to the extent that the
Master Servicer is paid its servicing fee, including any unpaid servicing fees
with respect to one or more prior Due Periods, and is reimbursed for certain
unreimbursed advances and unreimbursed liquidation expenses) and the Senior
Certificateholders to the extent described in the related Prospectus Supplement.
As a result of the foregoing, investors must be prepared to bear the risk that
they may be subject to delays in payment and may not recover their initial
investments in the Subordinated Certificates.
The yields on the Subordinated Certificates may be extremely sensitive to
the loss experience of the Mortgage Assets and the timing of any such losses. If
the actual rate and amount of losses experienced by the Assets exceed the rate
and amount of such losses assumed by an investor, the yields to maturity on the
Subordinated Certificates may be lower than anticipated.
FINANCIAL INSTRUMENTS MAY CREATE RISKS
As described herein under "Credit Enhancement -- Financial Instruments," a
Trust Fund may include one or more financial instruments to provide protection
against certain types of risks or to provide certain cashflow characteristics
for one or more classes of a Series. The protection or benefit to be provided by
any such financial instrument will be dependent on, among other things, the
performance of the provider of such financial instrument. If such provider were
to be unable or unwilling to perform its obligations under the related financial
instrument, the Holders of the applicable class or classes would bear the
effects of such non-performance, including the possibility of a material adverse
effect on the yield to maturity, the market price and liquidity for such class
or classes. Even if the provider of a financial instrument performs its
obligations thereunder, a withdrawal or reduction in the credit rating assigned
to such provider may adversely affect the market price and liquidity of the
applicable class or classes of Certificates. To the extent that a financial
instrument is intended to provide an approximate or partial hedge for certain
risks or cashflow characteristics, the Holders of the applicable class or
classes will bear the risk than such an imperfect hedge may result in a material
adverse effect on the yield to maturity, the market price and liquidity for such
class or classes.
CERTAIN FEDERAL TAX CONSIDERATIONS REGARDING REMIC RESIDUAL CERTIFICATES
Holders of REMIC Residual Certificates will be required to report on their
federal income tax returns as ordinary income their pro rata share of the
taxable income of the REMIC, regardless of the amount or timing of their receipt
of cash payments, as described in "Federal Income Tax Considerations -- REMICs."
Accordingly, under certain circumstances, holders of Certificates that
constitute REMIC Residual Certificates may have taxable income and tax
liabilities arising from such investment during a taxable year in excess of the
cash received during such period. Individual holders of REMIC Residual
Certificates may be limited in their ability to deduct servicing fees and other
expenses of the REMIC. In addition, REMIC Residual Certificates are subject to
certain restrictions on transfer. Because of the special tax treatment of REMIC
Residual Certificates, the taxable income arising in a given year on a REMIC
Residual Certificate will not be equal to the taxable income associated with
investment in a corporate bond or stripped instrument having similar cash flow
characteristics and pre-tax yield. Therefore, the after-tax yield on the REMIC
Residual Certificate may be significantly less than that of a corporate bond or
stripped instrument having similar cash flow characteristics. Additionally,
prospective purchasers of a REMIC Residual Certificate should be aware that
recently issued regulations provide restrictions on the ability to
mark-to-market certain REMIC residual interests. See "Federal Income Tax
Considerations -- REMICs."
BOOK-ENTRY REGISTRATION
If so provided in the Prospectus Supplement, one or more classes of the
Certificates will be initially represented by one or more certificates
registered in the name of Cede, the nominee for DTC, and will not be registered
in the names of the Certificateholders or their nominees. Because of this,
unless and until Definitive Certificates are issued, Certificateholders will not
be recognized by the Trustee as "Certificateholders" (as that term is to be used
in the related Agreement). Hence, until such time, Certificateholders will be
able to exercise the rights of Certificateholders only indirectly through DTC
and its participating organizations.
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<PAGE> 53
THE TRUST FUND*
The Trust Fund for each Series will be held by the Trustee for the benefit
of the related Certificateholders. Each Trust Fund will consist of certain
mortgage-related assets (the "Mortgage Assets") consisting of (A) a mortgage
pool (a "Mortgage Pool") comprised of Mortgage Loans and/or (B) Agency
Securities, in each case as specified in the related Prospectus Supplement,
together with payments in respect of such Mortgage Assets and insurance
policies, cash accounts, reinvestment income, guaranties, letters of credit or
other financial instruments, in each case as specified in the related Prospectus
Supplement. The holders of Certificates (the "Certificateholders") will be
entitled to payment from the assets of the related Trust Fund as specified in
the related Prospectus Supplement and will not be entitled to payments in
respect of the assets of any other trust fund established by the Depositor.
The Mortgage Assets may be acquired by the Depositor, either directly or
through affiliates, from Mellon Mortgage Company, a Colorado corporation and an
affiliate of the Depositor ("Mellon Mortgage"), Boston Safe Deposit and Trust
Company, a Massachusetts trust company and an affiliate of the Depositor
("Boston Safe") or another entity named in the related Prospectus Supplement
(each of Mellon Mortgage, Boston Safe and such other entity, a "Seller") and
conveyed by the Depositor to the related Trust Fund. Mortgage Loans acquired by
the Depositor will have been originated in accordance with the underwriting
criteria specified below under "Mortgage Loan Program -- Underwriting Standards"
or as otherwise described in a related Prospectus Supplement.
The following is a brief description of the Mortgage Assets expected to be
included in the Trust Funds. If specific information respecting the Mortgage
Assets is not known at the time the related Series of Certificates initially is
offered, more general information of the nature described below will be provided
in the related Prospectus Supplement, and specific information will be set forth
in a report on Form 8-K to be filed with the Securities and Exchange Commission
within fifteen days after the initial issuance of such Certificates (the
"Detailed Description"). A schedule of the Mortgage Assets relating to such
Series will be attached to the Agreement delivered to the Trustee upon delivery
of the Certificates.
THE MORTGAGE LOANS -- GENERAL
For purposes hereof, the real property that secures repayment of the
Mortgage Loans is referred to collectively as "Mortgaged Properties." The
Mortgaged Properties may be located in any one of the fifty states, the District
of Columbia, Guam, Puerto Rico or any other territory of the United States.
Mortgage Loans with certain Loan-to-Value Ratios and/or certain principal
balances may be covered wholly or partially by primary mortgage guaranty
insurance policies (each, a "Primary Mortgage Insurance Policy"). The existence,
extent and duration of any such coverage will be described in the applicable
Prospectus Supplement.
All of the Mortgage Loans in a Mortgage Pool will have monthly payments due
on the first day of each month. The payment terms of the Mortgage Loans to be
included in a Trust Fund will be described in the related Prospectus Supplement
and may include any of the following features or combination thereof:
(a) Interest may be payable at a fixed rate, a rate adjustable from
time to time in relation to an index (which will be specified in the
related Prospectus Supplement), a rate that is fixed for a period of time
or under certain circumstances and is followed by an adjustable rate, a
rate that otherwise varies from time to time, or a rate that is convertible
from an adjustable rate to a fixed rate. Changes to an adjustable rate may
be subject to periodic limitations, maximum rates, minimum rates or a
combination
- ---------------
* Whenever the terms "Mortgage Pool" and "Certificates" are used in this
Prospectus, such terms will be deemed to apply, unless the context indicates
otherwise, to one specific Mortgage Pool and the Certificates representing
certain undivided interests, as described below, in a single trust fund (the
"Trust Fund") consisting primarily of the Mortgage Assets in such Mortgage Pool.
Similarly, the term "Pass-Through Rate" will refer to the Pass-Through Rate
borne by the Certificates of one specific Series or Class and the term "Trust
Fund" will refer to one specific Trust Fund.
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of such limitations. Accrued interest may be deferred and added to the
principal of a loan for such periods and under such circumstances as may be
specified in the related Prospectus Supplement. A Mortgage Note may provide
for the payment of interest at a rate lower than the Mortgage Rate
specified in such Mortgage Note 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 a third party.
(b) Principal may be payable on a level debt service basis to fully
amortize the Mortgage Loan over its term, may be calculated on the basis of
an assumed amortization schedule that is significantly longer than the
original term, to maturity or on an interest rate that is different from
the Mortgage Rate or may not be amortized during all or a portion of the
original term. Payment of all or a substantial portion of the principal may
be due on maturity ("balloon payments"). Principal may include interest
that has been deferred and added to the principal balance of the Mortgage
Loan.
(c) Monthly payments of principal and interest may be fixed for the
life of the Mortgage Loan, may increase over a specified period of time or
may change from period to period. The terms of a Mortgage Loan 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) The Mortgage Loans generally may be prepaid at any time without
the payment of any prepayment fee. If so specified in the related
Prospectus Supplement, some prepayments of principal may be subject to a
prepayment fee, which may be fixed for the life of any such Mortgage Loan
or may decline over time, and may be prohibited for the life of such
Mortgage Loan or for certain periods ("lockout periods"). Certain Mortgage
Loans may permit prepayments after expiration of the applicable lockout
period and may require the payment of a prepayment fee in connection with
any such subsequent prepayment. Other Mortgage 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 that permit the
mortgagee to demand payment of the entire Mortgage Loan in connection with
the sale or certain transfers of the related Mortgaged Property. Other
Mortgage Loans may be assumable by persons meeting the then applicable
underwriting standards of the Seller.
A Trust Fund may contain certain Mortgage Loans ("Buydown Loans") that
include provisions whereby a third party partially subsidizes the monthly
payments of the obligors on such Mortgage Loans (each, a "Mortgagor") during the
early years of such Mortgage Loans, the difference to be made up from a fund (a
"Buydown Fund") contributed by such third party at the time of origination of
the Mortgage Loan. A Buydown Fund will be in an amount equal either to the
discounted value or full aggregate amount of future payment subsidies. The
underlying assumption of buydown plans is that the income of the Mortgagor will
increase during the buydown period as a result of normal increases in
compensation and inflation, so that the Mortgagor will be able to meet the full
mortgage payments at the end of the buydown period. To the extent that this
assumption as to increased income is not fulfilled, the possibility of defaults
on Buydown Loans is increased. The related Prospectus Supplement will contain
information with respect to any Buydown Loan concerning limitations on the
interest rate paid by the Mortgagor initially, on annual increases in the
interest rate and on the length of the buydown period.
Each Prospectus Supplement will contain information, as of the date of such
Prospectus Supplement and to the extent then specifically known to the
Depositor, with respect to the Mortgage Loans contained in the related Mortgage
Pool, including (i) the aggregate outstanding principal balance and the average
outstanding principal balance of the Mortgage Loans as of the applicable Cut-off
Date, (ii) the type of property securing the Mortgage Loans (e.g., separate
residential properties, individual units in condominium apartment buildings or
in buildings owned by Cooperatives, vacation and second homes, or other real
property), (iii) the original terms to maturity of the Mortgage Loans, (iv) the
largest principal balance and the smallest principal balance of any of the
Mortgage Loans, (v) the earliest origination date and latest maturity date of
any of the Mortgage Loans, (vi) the aggregate principal balance of Mortgage
Loans having Loan-to-Value Ratios at origination exceeding 80%, (vii) the
maximum and minimum per annum Mortgage Rates and (viii) the geographical
distribution of the Mortgage Loans. If specific information respecting the
Mortgage Loans is not
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known to the Depositor at the time the related Certificates are initially
offered, more general information of the nature described above will be provided
in the Detailed Description.
The "Loan-to-Value Ratio" of a Mortgage Loan at any given time is the
fraction, expressed as a percentage, the numerator of which is the original
principal balance of the related Mortgage Loan and the denominator of which is
the Collateral Value of the related Mortgaged Property. Unless otherwise
specified in the related Prospectus Supplement, the "Collateral Value" of a
Mortgaged Property is the lesser of (a) the appraised value determined in an
appraisal obtained by the originator at origination of such Mortgage Loan and
(b) the sales price for such property.
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 Mortgage Loans. If the residential real estate market should experience
an overall decline in property values such that the outstanding principal
balances of the Mortgage Loans, and any secondary financing on the Mortgaged
Properties in a particular Mortgage Pool become equal to or greater than the
value of the Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced in
the mortgage lending industry. In addition, adverse economic conditions and
other factors (which may or may not affect real property values) may affect the
timely payment by Mortgagors of scheduled payments of principal and interest on
the Mortgage Loans and, accordingly, the actual rates of delinquencies,
foreclosures and losses with respect to any Mortgage Pool. To the extent that
such losses are not covered by subordination provisions or alternative
arrangements, such losses will be borne, at least in part, by the holders of the
Certificates of the related Series.
The Depositor will cause the Mortgage Loans comprising each Mortgage Pool
to be assigned to the Trustee named in the related Prospectus Supplement for the
benefit of the Certificateholders of the related Series. The Master Servicer
named in the related Prospectus Supplement will service the Mortgage Loans,
either directly or through other mortgage servicing institutions
("Sub-Servicers"), pursuant to a Pooling and Servicing Agreement (each, an
"Agreement"), and will receive a fee for such services. See "Mortgage Loan
Program" and "The Pooling and Servicing Agreement" herein. With respect to
Mortgage Loans serviced by the Master Servicer through a Sub-Servicer, the
Master Servicer will remain liable for its servicing obligations under the
related Agreement as if the Master Servicer alone were servicing such Mortgage
Loans.
The only obligations of the Depositor with respect to a Series of
Certificates will be to obtain certain representations and warranties from the
Sellers and to assign to the Trustee for such Series of Certificates the
Depositor's rights with respect to such representations and warranties. See "The
Pooling and Servicing Agreement -- Assignment of Mortgage Assets" herein. The
obligations of the Master Servicer with respect to the Mortgage Loans will
consist principally of its contractual servicing obligations under the related
Agreement (including its obligation to enforce the obligations of the
Sub-Servicers or Sellers, or both, as more fully described herein under
"Mortgage Loan Program -- Representations by Sellers; Repurchases" and its
obligation to make certain cash advances (each, an "Advance") in the event of
delinquencies in payments on or with respect to the Mortgage Loans in the
amounts described herein under "Description of the Certificates -- Advances".
The obligations of the Master Servicer to make Advances may be subject to
limitations, to the extent provided herein and in the related Prospectus
Supplement.
The Mortgage Loans will consist of mortgage loans, deeds of trust or
security instruments secured by liens on one- to four-family residential
properties. If so specified, the Mortgage Loans may include cooperative
apartment loans ("Cooperative Loans") secured by security interests in shares
issued by private, non-profit, cooperative housing corporations ("Cooperatives")
and in the related proprietary leases or occupancy agreements granting exclusive
rights to occupy specific dwelling units in such Cooperatives' buildings. If so
specified in the related Prospectus Supplement, the Mortgage Loans also may be
secured by additional collateral generally consisting of marketable securities.
The Mortgage Loans may be conventional loans (i.e., loans that are not insured
or guaranteed by any governmental agency) or loans insured by the FHA or
partially guaranteed by the VA, as specified in the related Prospectus
Supplement.
The Mortgaged Properties relating to Mortgage Loans will consist of
detached, semi-detached or attached one-family dwelling units, two- to
four-family dwelling units, townhouses, rowhouses, individual condominium units,
individual units in planned unit developments, manufactured housing treated as
real
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property under local laws and shares issued by Cooperatives and occupancy
agreements with respect to individual units in such Cooperatives. Such Mortgaged
Properties may include vacation and second homes, investment properties and
leasehold interests. In the case of leasehold interests, the term of the
leasehold will exceed the scheduled maturity of the Mortgage Loan by at least
five years.
AGENCY SECURITIES
Government National Mortgage Association. GNMA is a wholly-owned corporate
instrumentality of the United States within the United States Department of
Housing and Urban Development. Section 306(g) of Title II of the National
Housing Act of 1934, as amended (the "Housing Act"), authorizes GNMA to
guarantee the timely payment of the principal of and interest on certificates
(the "GNMA Certificates") that represent an interest in a pool of mortgage loans
insured by the FHA under the Housing Act or Title V of the Housing Act of 1949
("FHA Loans"), or partially guaranteed by the VA under the Servicemen's
Readjustment Act of 1944, as amended, or Chapter 37 of Title 38, United States
Code ("VA Loans").
Section 306(g) of the Housing Act provides that "the full faith and credit
of the United States is pledged to the payment of all amounts which may be
required to be paid under any guaranty under this subsection." In order to meet
its obligations under any such guaranty, GNMA may, under Section 306(d) of the
Housing Act, borrow from the United States Treasury in an unlimited amount which
is at any time sufficient to enable GNMA to perform its obligations under its
guarantee.
GNMA Certificates. Each GNMA Certificate held in a Trust Fund (which may
be issued under either the GNMA I program (each such certificate, a "GNMA I
Certificate") or the GNMA II program (each such certificate, a "GNMA II
Certificate")) will be a "fully modified pass-through" mortgage-backed
certificate issued and serviced by a mortgage banking company or other financial
concern ("GNMA Issuer") approved by GNMA or by FNMA as a seller-servicer of FHA
Loans and/or VA Loans. The mortgage loans underlying the GNMA Certificates will
consist of FHA Loans and/or VA Loans. Each such mortgage loan is secured by a
one- to four-family or multifamily residential property. GNMA will approve the
issuance of each such GNMA Certificate in accordance with a guaranty agreement
(a "Guaranty Agreement") between GNMA and the GNMA Issuer. Pursuant to its
Guaranty Agreement, a GNMA Issuer will be required to advance its own funds in
order to make timely payments of all amounts due on each such GNMA Certificate
if the payments received by the GNMA Issuer on the FHA Loans or VA Loans
underlying each such GNMA Certificate are less than the amounts due on each such
GNMA Certificate.
The full and timely payment of principal of and interest on each GNMA
Certificate will be guaranteed by GNMA, which obligation is backed by the full
faith and credit of the United States. Each such GNMA Certificate will have an
original maturity of not more than 30 years (but may have original maturities of
substantially less than 30 years). Each such GNMA Certificate will be based on
and backed by a pool of FHA Loans or VA Loans secured by one- to four-family
residential properties and will provide for the payment by or on behalf of the
GNMA Issuer to the registered holder of such GNMA Certificate of scheduled
monthly payments of principal and interest equal to the registered holder's
proportionate interest in the aggregate amount of the monthly principal and
interest payment on each FHA Loan or VA Loan underlying such GNMA Certificate,
less the applicable servicing and guaranty fee, which together equal the
difference between the interest on the FHA Loan or VA Loan and the pass-through
rate on the GNMA Certificate. In addition, each payment will include
proportionate pass-through payments of any prepayments of principal on the FHA
Loans or VA Loans underlying such GNMA Certificate and liquidation proceeds in
the event of a foreclosure or other disposition of any such FHA Loans or VA
Loans.
If a GNMA Issuer is unable to make the payments on a GNMA Certificate as it
becomes due, it must promptly notify GNMA and request GNMA to make such payment.
Upon notification and request, GNMA will make such payments directly to the
registered holder of such GNMA Certificate. In the event no payment is made by a
GNMA Issuer and the GNMA Issuer fails to notify and request GNMA to make such
payment, the holder of such GNMA Certificate will have recourse only against
GNMA to obtain such payment. The Trustee or its nominee, as registered holder of
the GNMA Certificates held in a Trust Fund, will have the right to proceed
directly against GNMA under the terms of the Guaranty Agreements relating to
such GNMA Certificates for any amounts that are not paid when due.
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All mortgage loans underlying a particular GNMA I Certificate must have the
same interest rate (except for pools of mortgage loans secured by manufactured
homes). The interest rate on such GNMA I Certificate will equal the interest
rate on the mortgage loans included in the pool of mortgage loans underlying
such GNMA I Certificate, less one-half percentage point per annum of the unpaid
principal balance of the mortgage loans.
Mortgage loans underlying a particular GNMA II Certificate may have per
annum interest rates that vary from each other by up to one percentage point.
The interest rate on each GNMA II Certificate will be between one-half
percentage point and one and one-half percentage points lower than the highest
interest rate on the mortgage loans included in the pool of mortgage loans
underlying such GNMA II Certificate (except for pools of mortgage loans secured
by manufactured homes).
Regular monthly installment payments on each GNMA Certificate held in a
Trust Fund will be comprised of interest due as specified on such GNMA
Certificate plus the scheduled principal payments on the FHA Loans or VA Loans
underlying such GNMA Certificate due on the first day of the month in which the
scheduled monthly installments on such GNMA Certificate are due. Such regular
monthly installments on each such GNMA Certificate are required to be paid to
the Trustee as registered holder by the 15th day of each month in the case of a
GNMA I Certificate and are required to be mailed to the Trustee by the 20th day
of each month in the case of a GNMA II Certificate. Any principal prepayments on
any FHA Loans or VA Loans underlying a GNMA Certificate held in a Trust Fund or
any other early recovery of principal on such loans will be passed through to
the Trustee as the registered holder of such GNMA Certificate.
GNMA Certificates may be backed by graduated payment mortgage loans or by
Buydown Loans for which funds will have been provided (and deposited into escrow
accounts) for application to the payment of a portion of the borrowers' monthly
payments during the early years of such mortgage loan. Payments due the
registered holders of GNMA Certificates backed by pools containing Buydown Loans
will be computed in the same manner as payments derived from other GNMA
Certificates and will include amounts to be collected from both the borrower and
the related escrow account. The graduated payment mortgage loans will provide
for graduated interest payments that, during the early years of such mortgage
loans, will be less than the amount of stated interest on such mortgage loans.
The interest not so paid will be added to the principal of such graduated
payment mortgage loans and, together with interest thereon. will be paid in
subsequent years. The obligations of GNMA and of a GNMA Issuer will be the same
irrespective of whether the GNMA Certificates are backed by graduated payment
mortgage loans or Buydown Loans. No statistics comparable to the FHA's
prepayment experience on level payment, non-"buydown" mortgage loans are
available in respect of graduated payment or Buydown Loans. GNMA Certificates
related to a Series of Certificates may be held in book-entry form.
The GNMA Certificates included in a Trust Fund, and the related underlying
mortgage loans, may have characteristics and terms different from those
described above. Any such different characteristics and terms will be described
in the related Prospectus Supplement.
Federal Home Loan Mortgage Corporation. FHLMC is a corporate
instrumentality of the United States created pursuant to Title III of the
Emergency Home Finance Act of 1970, as amended (the "FHLMC Act"). The common
stock of FHLMC is owned by the Federal Home Loan Banks and its preferred stock
is owned by stockholders of the Federal Home Loan Banks. FHLMC was established
primarily for the purpose of increasing the availability of mortgage credit for
the financing of urgently needed housing. It seeks to provide an enhanced degree
of liquidity for residential mortgage investments primarily by assisting in the
development of secondary markets for conventional mortgages. The principal
activity of FHLMC currently consists of the purchase of first lien conventional
mortgage loans or participation interests in such mortgage loans and the sale of
the mortgage loans or participations so purchased in the form of mortgage
securities, primarily FHLMC Certificates. FHLMC is confined to purchasing, so
far as practicable, mortgage loans that it deems to be of such quality, type and
class as to meet generally the purchase standards imposed by private
institutional mortgage investors.
FHLMC Certificates. Each FHLMC Certificate represents an undivided
interest in a pool of mortgage loans that may consist of first lien conventional
loans, FHA Loans or VA Loans (a "FHLMC Certificate
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group"). FHLMC Certificates are sold under the terms of a Mortgage Participation
Certificate Agreement. A FHLMC Certificate may be issued under either FHLMC's
Cash Program or Guarantor Program.
Mortgage loans underlying the FHLMC Certificates held by a Trust Fund will
consist of mortgage loans with original terms to maturity of between 10 and 40
years. Each such mortgage loan must meet the applicable standards set forth in
the FHLMC Act. Such mortgage loans will be secured by loans on properties that
would qualify as Mortgaged Properties. A FHLMC Certificate group may include
whole loans, participation interests in whole loans and undivided interests in
whole loans and/or participations comprising another FHLMC Certificate group.
Under the Guarantor Program, any such FHLMC Certificate group may include only
whole loans or participation interests in whole loans.
FHLMC guarantees to each registered holder of a FHLMC Certificate the
timely payment of interest on the underlying mortgage loans to the extent of the
applicable certificate interest rate on the registered holder's pro rata share
of the unpaid principal balance outstanding on the underlying mortgage loans in
the FHLMC Certificate group represented by such FHLMC Certificate, whether or
not received. FHLMC also guarantees to each registered holder of a FHLMC
Certificate collection by such holder of all principal on the underlying
mortgage loans, without any offset or deduction, to the extent of such holder's
pro rata share thereof, but does not, except if and to the extent specified in
the related Prospectus Supplement for a Series of Certificates, guarantee the
timely payment of scheduled principal. Under FHLMC's Gold PC Program, FHLMC
guarantees the timely payment of principal based on the difference between the
pool factor published in the month preceding the month of distribution and the
pool factor published in such month of distribution. Pursuant to its guaranties,
FHLMC indemnifies holders of FHLMC Certificates against any diminution in
principal by reason of charges for property repairs, maintenance and
foreclosure. FHLMC may remit the amount due on account of its guaranty of
collection of principal at any time after default on an underlying mortgage
loan, but not later than (i) 30 days following foreclosure sale, (ii) 30 days
following payment of the claim by any mortgage insurer or (iii) 30 days
following the expiration of any right of redemption, whichever occurs later, but
in any event no later than one year after demand has been made upon the
mortgagor for accelerated payment of principal. In taking actions regarding the
collection of principal after default on the mortgage loans underlying FHLMC
Certificates, including the timing of demand for acceleration, FHLMC reserves
the right to exercise its judgment with respect to the mortgage loans in the
same manner as for mortgage loans that it has purchased but not sold. The length
of time necessary for FHLMC to determine that a mortgage loan should be
accelerated varies with the particular circumstances of each mortgagor, and
FHLMC has not adopted standards which require that the demand be made within any
specified period.
FHLMC Certificates are not guaranteed by the United States or by any
Federal Home Loan Bank and do not constitute debts or obligations of the United
States or any Federal Home Loan Bank. The obligations of FHLMC under its
guaranty are obligations solely of FHLMC and are not backed by, or entitled to,
the full faith and credit of the United States. If FHLMC were unable to satisfy
such obligations, distributions to holders of FHLMC Certificates would consist
solely of payments and other recoveries on the underlying mortgage loans and,
accordingly, monthly distributions to holders of FHLMC Certificates would be
affected by delinquent payments and defaults on such mortgage loans.
Registered holders of FHLMC Certificates are entitled to receive their
monthly pro rata share of all principal payments on the underlying mortgage
loans received by FHLMC, including any scheduled principal payments, full and
partial prepayments of principal and principal received by FHLMC by virtue of
condemnation, insurance, liquidation or foreclosure. and repurchases of the
mortgage loans by FHLMC or the seller thereof. FHLMC is required to remit each
registered FHLMC certificateholder's pro rata share of principal payments on the
underlying mortgage loans, interest at the FHLMC pass-through rate and any other
sums such as prepayment fees, within 60 days of the date on which such payments
are deemed to have been received by FHLMC.
Under FHLMC's Cash Program, there is no limitation on the amount by which
interest rates on the mortgage loans underlying a FHLMC Certificate may exceed
the pass-through rate on the FHLMC Certificate. Under such program, FHLMC
purchases groups of whole mortgage loans from sellers at specified percentages
of their unpaid principal balances, adjusted for accrued or prepaid interest,
which when applied to
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the interest rate of the mortgage loans and participations purchased results in
the yield (expressed as a percentage) required by FHLMC. The required yield,
which includes a minimum servicing fee retained by the servicer, is calculated
using the outstanding principal balance. The range of interest rates on the
mortgage loans and participations in a FHLMC Certificate group under the Cash
Program will vary since mortgage loans and participations are purchased and
assigned to a FHLMC Certificate group based upon their yield to FHLMC rather
than on the interest rate on the underlying mortgage loans. Under FHLMC's
Guarantor Program, the pass-through rate on a FHLMC Certificate is established
based upon the lowest interest rate on the underlying mortgage loans, minus a
minimum servicing fee and the amount of FHLMC's management and guaranty income
as agreed upon between the seller and FHLMC.
FHLMC Certificates duly presented for registration of ownership on or
before the last business day of a month are registered effective as of the first
day of the month. The first remittance to a registered holder of a FHLMC
Certificate will be distributed so as to be received normally by the 15th day of
the second month following the month in which the purchaser became a registered
holder of such FHLMC Certificate. Thereafter, such remittance will be
distributed monthly to the registered holder so as to be received normally by
the 15th day of each month. The Federal Reserve Bank of New York maintains
book-entry accounts with respect to FHLMC Certificates sold by FHLMC on or after
January 2, 1985, and makes payments of principal and interest each month to the
registered holders thereof in accordance with such holders' instructions.
The FHLMC Certificates included in a Trust Fund, and the related underlying
mortgage loans, may have characteristics and terms different from those
described above. Any such different characteristics and terms will be described
in the related Prospectus Supplement.
Federal National Mortgage Association. FNMA is a federally chartered and
privately owned corporation organized and existing under the Federal National
Mortgage Association Charter Act, as amended. FNMA was originally established in
1938 as a United States government agency to provide supplemental liquidity to
the mortgage market and was transformed into a stockholder-owned and
privately-managed corporation by legislation enacted in 1968.
FNMA provides funds to the mortgage market primarily by purchasing mortgage
loans from lenders, thereby replenishing their funds for additional lending.
FNMA acquires funds to purchase mortgage loans from many capital market
investors that may not ordinarily invest in mortgages, thereby expanding the
total amount of funds available for housing. Operating nationwide, FNMA helps to
redistribute mortgage funds from capital-surplus to capital-short areas.
FNMA Certificates. FNMA Certificates are Guaranteed Mortgage Pass-Through
Certificates representing fractional undivided interests in a pool of mortgage
loans formed by FNMA. Each mortgage loan must meet the applicable standards of
the FNMA purchase program. Mortgage loans comprising a pool are either provided
by FNMA from its own portfolio or purchased pursuant to the criteria of the FNMA
purchase program.
Mortgage loans underlying FNMA Certificates held by a Trust Fund will
consist of conventional mortgage loans, FHA Loans or VA Loans. Original
maturities of substantially all of the conventional, level payment mortgage
loans underlying a FNMA Certificate are expected to be between either 8 to 15
years or 20 to 40 years. The original maturities of substantially all of the
fixed rate, level payment FHA Loans or VA Loans are expected to be 30 years.
Such mortgage loans will be secured by properties that would qualify as
Mortgaged Properties.
Mortgage loans underlying a FNMA Certificate may have annual interest rates
that vary by as much as two percentage points from each other. The rate of
interest payable on a FNMA Certificate is equal to the lowest interest rate of
any mortgage loan in the related pool, less a specified minimum annual
percentage representing servicing compensation and FNMA's guaranty fee. Under a
regular servicing option (pursuant to which the mortgagee or each other servicer
assumes the entire risk of foreclosure losses), the annual interest rates on the
mortgage loans underlying a FNMA Certificate will be between 50 basis points and
250 basis points greater than is its annual pass-through rate and under a
special servicing option (pursuant to which
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FNMA assumes the entire risk for foreclosure losses), the annual interest rates
on the mortgage loans underlying a FNMA Certificate will generally be between 55
basis points and 255 basis points greater than the annual FNMA Certificate
pass-through rate. If specified in the related Prospectus Supplement, FNMA
Certificates may be backed by adjustable rate mortgages.
FNMA guarantees to each registered holder of a FNMA Certificate that it
will distribute amounts representing such holder's proportionate share of
scheduled principal and interest payments at the applicable pass-through rate
provided for by such FNMA Certificate on the underlying mortgage loans, whether
or not received, and such holder's proportionate share of the full principal
amount of any foreclosed or other finally liquidated mortgage loan, whether or
not such principal amount is actually recovered. The obligations of FNMA under
its guaranties are obligations solely of FNMA and are not backed by, or entitled
to, the full faith and credit of the United States. Although the Secretary of
the Treasury of the United States has discretionary authority to lend FNMA up to
$2.25 billion outstanding at any time, neither the United States nor any agency
thereof is obligated to finance FNMA's operations or to assist FNMA in any other
manner. If FNMA were unable to satisfy its obligations, distributions to holders
of FNMA Certificates would consist solely of payments and other recoveries on
the underlying mortgage loans and, accordingly, monthly distributions to holders
of FNMA Certificates would be affected by delinquent payments and defaults on
such mortgage loans.
FNMA Certificates evidencing interests in pools of mortgage loans formed on
or after May 1, 1985 (other than FNMA Certificates backed by pools containing
graduated payment mortgage loans or mortgage loans secured by multifamily
projects) are available in book-entry form only. Distributions of principal and
interest on each FNMA Certificate will be made by FNMA on the 25th day of each
month to the persons in whose name the FNMA Certificate is entered in the books
of the Federal Reserve Banks (or registered on the FNMA Certificate register in
the case of fully registered FNMA Certificates) as of the close of business on
the last day of the preceding month. With respect to FNMA Certificates issued in
book-entry form, distributions thereon will be made by wire, and with respect to
fully registered FNMA Certificates, distributions thereon will be made by check.
The FNMA Certificates included in a Trust Fund, and the related underlying
mortgage loans, may have characteristics and terms different from those
described above. Any such different characteristics and terms will be described
in the related Prospectus Supplement.
Stripped Mortgage-Backed Securities. Agency Securities may consist of one
or more stripped mortgage-backed securities, each as described herein and in the
related Prospectus Supplement. Each such Agency Security will represent an
undivided interest in all or part of either the principal distributions (but not
the interest distributions) or the interest distributions (but not the principal
distributions), or in some specified portion of the principal and interest
distributions (but not all of such distributions) on certain FHLMC, FNMA or GNMA
Certificates. The underlying securities will be held under a trust agreement by
FHLMC, FNMA or GNMA, each as trustee, or by another trustee named in the related
Prospectus Supplement. FHLMC, FNMA or GNMA will guarantee each stripped Agency
Security to the same extent as such entity guarantees the underlying securities
backing such stripped Agency Security.
Other Agency Securities. If specified in the related Prospectus
Supplement, a Trust Fund may include other mortgage pass-through certificates
issued or guaranteed by GNMA, FNMA or FHLMC. The characteristics of any such
mortgage pass-through certificates will be described in such Prospectus
Supplement. If so specified. a combination of different types of Agency
Securities may be held in a Trust Fund.
SUBSTITUTION OF MORTGAGE ASSETS
Substitution of Mortgage Assets will be permitted in the event of breaches
of representations and warranties with respect to any original Mortgage Asset or
in the event the documentation with respect to any Mortgage Asset is determined
by the Trustee to be incomplete. The period during which such substitution will
be permitted generally will be indicated in the related Prospectus Supplement.
The related Prospectus Supplement will describe any other conditions upon which
Mortgage Assets may be substituted for Mortgage Assets initially included in the
Trust Fund.
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USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of the
Certificates of a Series will be applied by the Depositor to the purchase of the
related Mortgage Assets. The Depositor expects to sell Certificates in Series
from time to time, but the timing and amount of offerings of Certificates will
depend on a number of factors, including the volume of Mortgage Assets acquired
by the Depositor, prevailing interest rates, availability of funds and general
market conditions.
THE DEPOSITOR
Mellon Residential Funding Corporation, a Delaware corporation (the
"Depositor"), was incorporated on March 11, 1997 for the limited purpose of
acquiring, owning and transferring Mortgage Assets and selling interests therein
or bonds secured thereby. The Depositor is an indirect subsidiary of Mellon
Bank, N.A., a national banking association. The Depositor maintains its
principal office at One Mellon Bank Center, Room 410, Pittsburgh, Pennsylvania
15258. Its telephone number is (412) 236-6559.
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MORTGAGE LOAN PROGRAM
The Mortgage Loans will have been purchased by the Depositor, either
directly or through affiliates, from Sellers. Whenever used in this Prospectus,
"Seller" will refer to the originator of the related Mortgage Assets unless the
context otherwise requires. Unless otherwise specified in the related Prospectus
Supplement, the Mortgage Loans so acquired by the Depositor will have been
originated in accordance with the underwriting criteria specified below under
"Underwriting Standards."
UNDERWRITING STANDARDS
General. Each Seller will represent and warrant that the origination,
underwriting and collection practices with respect to each Mortgage Loan
originated and/or sold by it to the Depositor or one of its affiliates have been
in all respects legal, prudent and customary in the mortgage lending and
servicing business. As to any Mortgage Loan insured by the FHA or partially
guaranteed by the VA, the 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 mortgaged property as collateral. In general, a prospective borrower
applying for a mortgage loan is required to fill out a detailed application
designed to provide to the underwriting officer pertinent credit information. As
part of the description of the borrower's financial condition, the borrower
generally is required to provide a current list of assets and liabilities and a
statement of income and expenses, as well as an authorization to apply for a
credit report which summarizes the borrower's credit history with local
merchants and lenders and any record of bankruptcy. In most cases, an employment
verification is obtained from an independent source (typically the borrower's
employer), which verification reports the length of employment with that
organization, the borrower's current salary and whether it is expected that the
borrower will continue such employment in the future. If a prospective borrower
is self-employed, the borrower may be required to submit copies of signed tax
returns. The borrower may also be required to authorize verification of deposits
at financial institutions where the borrower has demand or savings accounts.
In determining the adequacy of the mortgaged property as collateral, an
appraisal is made of each property considered for financing. The appraiser is
required to inspect the property and verify that it is in good repair and that
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.
Once all applicable employment, credit and property information is
received, a determination generally is made as to whether the prospective
borrower has sufficient monthly income available (i) to meet the borrower's
monthly obligations on the proposed mortgage loan (generally determined on the
basis of the monthly payments due in the year of origination) and other expenses
related to the mortgaged property (such as property taxes and hazard insurance)
and (ii) to meet monthly housing expenses and other financial obligations and
monthly living expenses. The underwriting standards applied by Sellers,
particularly with respect to the level of loan documentation and the mortgagor's
income and credit history, may be varied in appropriate cases where factors such
as low Loan-to-Value Ratios or other favorable credit exist.
In the case of a Mortgage Loan secured by a leasehold interest in real
property, the title to which is held by a third party lessor, the Seller will
represent and warrant, among other things, that the remaining term of the lease
and any sublease is at least five years longer than the remaining term on the
Mortgage Note.
Certain of the types of Mortgage Loans that may be included in a Trust Fund
are recently developed and may involve additional uncertainties not present in
traditional types of loans. For example. certain of such Mortgage Loans may
provide for escalating or variable payments by the Mortgagor. These types of
Mortgage Loans are underwritten on the basis of a judgment that the Mortgagors
have the ability to make the monthly payments required initially. In some
instances, however, a Mortgagor's income may not be sufficient to permit
continued loan payments as such payments increase. These types of Mortgage Loans
may also be underwritten primarily upon the basis of Loan-to-Value Ratios or
other favorable credit factors.
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Mellon Mortgage Company. Mellon Mortgage Company ("Mellon Mortgage"), a
Colorado corporation, is an indirect wholly-owned subsidiary of Mellon Bank,
N.A. Its executive offices are located at 3100 Travis Street, Houston, Texas
77006. Mellon Mortgage originates and servicies conforming and nonconforming
residential mortgage loans. Mellon Mortgage also provides financing for the
acquisition, development and construction of commercial and residential
properties. Set forth below is a description of the underwriting practices of
Mellon Mortgage with respect to nonconforming residential mortgage loans.
Mellon Mortgage originates mortgage loans directly through its network of
branch offices ("retail") and indirectly through mortgage loan brokers and
correspondents ("wholesale"). Mellon Mortgage's retail operations are organized
under four regional operating centers located in Portland, Oregon, Houston,
Texas, Pittsburgh, Pennsylvania and Honolulu, Hawaii. Mellon Mortgage's
wholesale purchases from correspondents are conducted through a wholesale
regional operating center in Houston, Texas, while its purchases from mortgage
loan brokers are conducted through separate wholesale regional operating centers
located in the same cities as the retail regional origination centers and in
Walnut Creek, California.
Mellon Mortgage offers 15 and 30 year fixed and adjustable rate mortgage
loans with maximum loan balances of $650,000. The rates on the adjustable
mortgage loans are subject to adjustment based on changes in the level of the
weekly average yield on United States Treasury Securities adjusted to a constant
maturity of one year ("CMT"), provided that the mortgage rates may be fixed for
a period of one, three, five, seven or ten years before the first adjustment.
Eligible properties include primary residences and second homes that are
detached, semi-detached or attached properties, units in condominiums that are 4
stories or less, planned unit developments and de minimis planned unit
developments, rural properties (in accordance with FNMA guidelines) and
leasehold interests (Hawaii only). Mellon Mortgage generally does not originate
or acquire mortgage loans secured by investment properties, cooperatives,
manufactured housing or two-to four-family properties.
Mellon Mortgage originates or acquires fixed rate loans with loan-to-value
ratios of up to 95% for loans secured by primary residences and up to 90% for
loans secured by second homes. Maximum loan-to-value ratios for adjustable rate
loans are 90% for loans secured by primary residences and 80% for loans secured
by second homes. The maximum permitted loan-to-value ratio generally decreases
with increases in the loan balance. The maximum loan-to-value ratio for fixed
and adjustable rate cash out refinance loans secured by primary residences is
limited to 75%. Mellon Mortgage does not originate or acquire cash out refinance
loans secured by second homes. Mellon Mortgage generally requires primary
mortgage insurance on loans with original loan-to-value ratios in excess of 80%.
Mellon Mortgage permits borrowers to buy down the mortgage rate for no more
than the first three years of the loan. The mortgage rate may be reduced no more
than two percentage points for each year of the buy-down period. Temporary
buy-downs are not available on certain adjustable rate mortgage loans.
Mellon Mortgage offers two documentation programs: Full Documentation and
Alternative Documentation. The Alternative Documentation Program provides for
alternative means of verifying income (pay-stubs), sources of the down payment
(bank statements), employment (telephonic verification) and mortgage payment
history (cancelled checks for the prior 12 months). Mellon Mortgage also offers
a No Income Verification Program that is limited to self-employed borrowers
requesting a fixed rate loan secured by the borrower's primary residence with an
original loan-to-value ratio not in excess of 75%.
All loans originated or acquired by Mellon Mortgage are underwritten using
the same underwriting policies. In its underwriting, Mellon Mortgage focuses
primarily on the willingness and ability of the applicant to repay the loan and
on the nature and value of the property offered as security for the loan. Mellon
Mortgage does not require a spotless credit history in order to be considered
for a loan. Mellon Mortgage analyzes the applicant's credit history generally
over the prior 24 months unless there are major indications of derogatory
credit. The credit history can be considered acceptable if during the past 12
months the applicant has had: no payments 60 days or more past due and no more
than two payments 30 days past due for all revolving credit accounts; no
payments 60 days or more past due and no more than one payment 30 days past due
for all installment credit accounts; and no payments past due for housing debt.
If a credit history reflects a consistent pattern of slow payments, each major
indication of derogatory credit must be satisfactorily explained.
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Although Mellon Mortgage obtains a credit bureau score on each applicant, the
credit bureau score is only a factor considered by the underwriter.
In assessing the applicant's ability to repay the loan, Mellon Mortgage
uses a housing expense-to-income ratio and a total obligation-to-income ratio.
The benchmark ratios are 28% and 35%, respectively, for adjustable rate loans
with loan-to-value ratios greater than 80% but less than or equal to 90%, and
33% and 38%, respectively, for adjustable rate loans with loan-to-value ratios
less than or equal to 80%. The benchmark ratios for fixed rate loans with
loan-to-value ratios greater than 90% but less than or equal to 95% are 28% and
35%, respectively, and 33% and 38%, respectively, for fixed rate loans with
loan-to-value ratios less than or equal to 90%. The benchmark ratios may be
exceeded where compensating factors are present.
Mellon Mortgage requires a full appraisal conforming to FNMA or FHLMC
guidelines for every loan. All appraisals are conducted by fee-based appraisers
who must meet the education and experience requirements of the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989, as amended
("FIRREA") and are licensed or certified in the locations in which the
properties are located.
Mellon Mortgage is implementing a new loan processing system for its retail
mortgage loans. This system is intended to analyze each applicant's
creditworthiness, income and employment stability, and the overall acceptability
of the loan based on Mellon Mortgage's underwriting guidelines and program
parameters. When fully implemented, the system will produce an overall score for
the proposed loan which will permit trained loan processors to accept or reject
an application or refer the application to an underwriter for further
consideration.
Boston Safe. Boston Safe Deposit and Trust Company ("Boston Safe"), a
wholly-owned, indirect subsidiary of Mellon Bank Corporation, is a Massachusetts
trust company engaged in the business of originating nonconforming,
custom-tailored residential mortgage loans to individuals with high net worths
or annual incomes. Its executive offices are located at One Boston Place,
Boston, Massachusetts 02108. Boston Safe originates mortgage loans through nine
regional offices.
The underwriting process is intended to assess both the prospective
borrower's credit standing and ability to repay, and the value and adequacy of
the mortgaged property as collateral. In underwriting a Mortgage Loan, Boston
Safe relies primarily on the borrower's ability to repay the loan, determined by
analyzing the borrower's cash flow with particular emphasis on verifiable,
stable cash income, liquidity and overall financial condition and the value of
the mortgaged property as a measure of the extent of its recovery in the event
of a default. In determining the adequacy of the property as collateral for a
loan, appraisals are obtained from qualified outside appraisers approved by
Boston Safe. The qualifications of appraisers are reviewed at least annually.
Eligible properties are limited to single family residences, individual
units in condominiums and individual units in cooperatives. In some cases,
Boston Safe may make a loan secured by a unit in a cooperative where the
cooperative does not permit and/or does not recognize the security interest
granted to secure the loan. Boston Safe's appraisal requirements typically
exceed FNMA/FHLMC guidelines. Multiple appraisals may be required depending upon
the loan amount and the location of the mortgaged property. The appraiser
inspects the interior and exterior of the property and prepares a report that
includes a market data analysis based on recent sales of comparable homes and,
in certain cases, a cost analysis based on the current cost of constructing a
similar home. This report is reviewed by a representative of Boston Safe, who
makes a final determination regarding the appraised value of the home.
Each prospective borrower submits an application package that includes the
applicant's federal income tax returns for at least the last two years
(self-employed individuals are generally required to submit their personal and
business tax returns for the past three years) and information with respect to
the applicant's bank and brokerage accounts, assets, liabilities, income, credit
history and employment history. To establish the applicant's ability to make
timely payments, Boston Safe obtains a credit report on each borrower. Boston
Safe verifies the income, current employment and liquid assets of the applicant.
Boston Safe will generally obtain a verification of mortgage and current
mortgage statement for mortgage loans not reported on the credit report.
Information relative to adverse credit and legal actions must be explained in
writing by the applicant and must
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be acceptable to Boston Safe. The origination process also requires that
adequate title insurance, standard fire and hazard insurance and, where
necessary, flood insurance be obtained and maintained.
Once all applicable employment, credit and property information is
received, a determination is made as to whether the prospective borrower has (i)
sufficient income available to meet both housing and total debt obligations and
(ii) sufficient post-loan liquidity. Boston Safe generally requires that the
applicant's total housing related expenses and other current obligations not
exceed 38% of the applicant's stable income. However, a high ratio of expenses
to income will not disqualify an applicant if other factors indicating the
applicant's ability to make the mortgage payments are present. Boston Safe also
focuses on the post-loan liquidity ("PLL") condition of the borrower equal to
the excess of the borrower's verified liquid assets plus any cash out from a
refinancing over any margin debt and remaining transaction costs. Boston Safe
generally requires a PLL equal to 6 to 18 months of the borrower's total debt
service depending on the size of the loan.
The amount of the loan is limited by Boston Safe to an applicable
loan-to-value ratio, which is equal to the original principal balance of the
mortgage loan divided by (i) in the case of a mortgage loan to refinance an
existing mortgage loan, the appraised value of the mortgaged property determined
at the time of application as reviewed by a representative of Boston Safe or
(ii) in the case of a mortgage loan to purchase a residence, the lesser of the
appraised value as reviewed by a representative of Boston Safe or the sales
price of the residence.
Boston Safe requires that borrowers pledge additional collateral
("Additional Collateral") generally consisting of marketable securities, to
secure a mortgage loan to the extent that the loan-to-value ratio of such
mortgage loan would otherwise exceed applicable underwriting guidelines.
Additional Collateral may include publicly traded stocks, corporate and
municipal bonds, government securities, commercial paper, bank deposits, trust
accounts and mutual funds. The loan-to-value ratio of a mortgage loan secured in
part by Additional Collateral may, with respect to the real property securing
such loan, be greater than 100%.
The market value of Additional Collateral required to be pledged ranges,
depending on collateral type, from 111% to 167% of the portion of the related
mortgage loan balance not secured by real estate or shares in a Cooperative. All
Additional Collateral is valued on a daily basis; if the market value of such
collateral with respect to any mortgage loan declines below specified levels,
the related borrower is required to pledge sufficient Additional Collateral to
meet such levels. Boston Safe will generally release its lien on some or all of
the Additional Collateral securing a mortgage loan if, within three to five
years after origination of such loan, the borrower meets certain requirements
and the loan-to-value ratio has been reduced due to (i) an increase in the
appraised value of the real property securing such mortgage loan or (ii)
prepayment by the borrower of a portion of the loan balance. After five years
have elapsed following origination of a mortgage loan, Boston Safe may, at its
option, liquidate all or part of the related Additional Collateral in order to
reduce the outstanding loan balance to a level within its loan-to-value
guidelines.
The security interests in all Additional Collateral pledged to secure the
Mortgage Loans in a Trust Fund will be assigned to the Trustee. Boston Safe will
continue to hold such Additional Collateral as custodian on behalf of the
Trustee.
Investors should consider that, due to changes in the market conditions,
Additional Collateral pledged to secure a Mortgage Loan may not be readily
marketable at the time that the related borrower defaults on such Mortgage Loan
and foreclosure proceedings are commenced. In such event, if a REMIC election
has been made with respect to the Trust Fund, such Trust Fund will be prohibited
from selling such Additional Collateral and losses to Certificateholders may
result.
None of the Mortgage Loans originated by Boston Safe are covered by primary
mortgage insurance policies.
UNAFFILIATED SELLERS
If the Mortgage Loans in a Trust Fund are being sold to the Depositor by an
unaffiliated Seller, such Seller's underwriting guidelines will be described in
the related Prospectus Supplement.
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QUALIFICATIONS OF SELLERS
Each Seller must be an institution experienced in originating and servicing
mortgage loans of the type contained in the related Mortgage Pool in accordance
with accepted practices and prudent guidelines, and must maintain satisfactory
facilities to originate and service those mortgage loans. Each Seller must be a
seller/servicer approved by either FNMA or FHLMC, a mortgagee approved by the
FHA or an institution the deposit accounts of which are insured by the Federal
Deposit Insurance Corporation.
REPRESENTATIONS BY SELLERS; REPURCHASES
Each Seller will have made representations and warranties with respect to
the Mortgage Loans sold by such Seller and evidenced by a Series of
Certificates. Such representations and warranties generally will include, among
other things: (i) that title insurance (or in the case of Mortgaged Properties
located in areas where such policies are generally not available, an attorney's
certificate of title) and any required hazard insurance policy and Primary
Mortgage Insurance Policy were effective at the origination of each Mortgage
Loan other than Cooperative Loans, and that each policy (or certificate of title
as applicable) remained in effect on the date of purchase of the Mortgage Loan
from the Seller by or on behalf of the Depositor; (ii) that the Seller had good
title to each such Mortgage Loan and such Mortgage Loan was subject to no
offsets, defenses, counterclaims or rights of rescission except to the extent
that any buydown agreement described herein may forgive certain indebtedness of
a Mortgagor; (iii) that each Mortgage Loan constituted a valid lien on, or a
perfected security interest with respect to, the Mortgaged Property (subject
only to permissible title insurance exceptions, if applicable, and certain other
exceptions described in the Agreement) and that the Mortgaged Property was free
from damage and was in good repair; (iv) that there were no delinquent tax or
assessment liens against the Mortgaged Property; (v) that no required payment on
a Mortgage Loan was more than 31 days delinquent at any time during the twelve
months prior to the Cut-off Date; and (vi) that each Mortgage Loan was made in
compliance with, and is enforceable under, all applicable local, state and
federal laws and regulations in all material respects.
If so specified in the related Prospectus Supplement, the representations
and warranties of a Seller in respect of a Mortgage Loan will be made not as of
the Cut-off Date but as of the date on which such Seller sold the Mortgage Loan
to the Depositor or one of its affiliates. Under such circumstances, a
substantial period of time may have elapsed between such date and the date of
initial issuance of the Series of Certificates evidencing an interest in such
Mortgage Loan. Since the representations and warranties of a Seller do not
address events that may occur following the sale of a Mortgage Loan by such
Seller, its repurchase obligation described below will not arise if the relevant
event that would otherwise have given rise to such an obligation with respect to
a Mortgage Loan occurs after the date of sale of such Mortgage Loan by such
Seller to the Depositor or its affiliates. However, the Depositor will not
include any Mortgage Loan in the Trust Fund for any Series of Certificates if
anything has come to the Depositor's attention that would cause it to believe
that the representations and warranties of a Seller will not be accurate and
complete in all material respects in respect of such Mortgage Loan as of the
date of initial issuance of the related Series of Certificates. If the Master
Servicer is also a Seller of Mortgage Loans with respect to a particular Series,
such representations will be in addition to the representations and warranties
made by the Master Servicer in its capacity as the Master Servicer.
The Master Servicer or the Trustee, if the Master Servicer is the Seller,
will promptly notify the relevant Seller of any breach of any representation or
warranty made by such Seller in respect of a Mortgage Loan that materially and
adversely affects the interests of the Certificateholders in such Mortgage Loan.
If such Seller cannot cure such breach within 90 days after notice from the
Master Servicer or the Trustee, as the case may be, then such Seller will be
obligated to repurchase such Mortgage Loan from the Trust Fund at a price (the
"Purchase Price") equal to 100% of the outstanding principal balance thereof as
of the date of the repurchase plus accrued interest thereon to the first day of
the month in which the Purchase Price is to be distributed at the Mortgage Rate
(less any unreimbursed Advances or amount payable as related servicing
compensation if the Seller is the Master Servicer with respect to such Mortgage
Loan). Except in those cases in which the Master Servicer is the Seller, the
Master Servicer will be required under the applicable Agreement to enforce this
obligation for the benefit of the Trustee and the Certificateholders, following
the practices it would employ
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in its good faith business judgment were it the owner of such Mortgage Loan.
This repurchase obligation will constitute the sole remedy available to
Certificateholders or the Trustee for a breach of representation by a Seller.
Neither the Depositor nor the Master Servicer (unless the Master Servicer
is the Seller) will be obligated to purchase a Mortgage 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 obligations with respect to Mortgage
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 Master
Servicer, the Master Servicer may have a repurchase obligation as described
below under "The Pooling and Servicing Agreement -- Assignment of Mortgage
Assets".
DESCRIPTION OF THE CERTIFICATES
Each Series of Certificates will be issued pursuant to an Agreement, dated
as of the related Cut-off Date, among the Depositor, the Master Servicer and the
Trustee for the benefit of the holders of the Certificates of such Series. The
provisions of each Agreement will vary depending upon the nature of the
Certificates to be issued thereunder and the nature of the related Trust Fund. A
form of an Agreement is an exhibit to the Registration Statement of which this
Prospectus is a part. The following summaries describe the material provisions
that may appear in each Agreement. The Prospectus Supplement for a Series of
Certificates will describe any provision of the Agreement relating to such
Series that materially differs from the description thereof contained in this
Prospectus. The summaries do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all of the provisions of the
Agreement for each Series of Certificates and the applicable Prospectus
Supplement. The Depositor 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 Certificate of such Series addressed to Mellon Residential
Funding Corporation, One Mellon Bank Center, Room 410, Pittsburgh, Pennsylvania
15258, Attention: Secretary.
GENERAL
The Certificates of each Series will be issued in either fully registered
or book-entry form in the authorized denominations specified in the related
Prospectus Supplement, will evidence specified beneficial ownership interests in
the Trust Fund created pursuant to the related Agreement and will not be
entitled to payments in respect of the assets included in any other Trust Fund
established by the Depositor. The Certificates will not represent obligations of
the Depositor or any affiliate of the Depositor. The Mortgage Assets will not be
insured or guaranteed by any governmental entity or other person, unless
otherwise specified in the related Prospectus Supplement. Each Trust Fund will
consist of, to the extent provided in the related Agreement, (i) the Mortgage
Assets that from time to time are subject to the related Agreement (exclusive of
any amounts specified in the related Prospectus Supplement (the "Retained
Interest")); (ii) such assets as from time to time are required to be deposited
in the related Certificate Account; ( iii ) property that secured a Mortgage
Loan and that is acquired on behalf of the Certiticateholders by foreclosure or
deed in lieu of foreclosure; and (iv) any Primary Mortgage Insurance Policies,
FHA Insurance and VA Guaranties. and any other insurance policies or other forms
of credit enhancement required to be maintained pursuant to the related
Agreement. A Trust Fund may also include one or more of the following:
reinvestment income on payments received on the Mortgage Assets, a reserve fund,
a mortgage pool insurance policy, a special hazard insurance policy, a
bankruptcy bond, a certificate insurance policy or financial instruments.
Each Series of Certificates will be issued in one or more classes. Each
class of Certificates of a Series will evidence beneficial ownership of a
specified percentage (which may be 0%) or portion of future interest payments
and a specified percentage (which may be 0%) or portion of future principal
payments on the Mortgage Assets in the related Trust Fund. A Series of
Certificates may include one or more classes that are senior in right to payment
to one or more other classes of Certificates of such Series. Certain Series or
classes of Certificates may be covered by insurance policies, surety bonds or
other forms of credit enhancement, in each case as described herein and in the
related Prospectus Supplement. One or more classes of Certificates of a Series
may be entitled to receive distributions of principal, interest or any
combination thereof. Distributions
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on one or more classes of a Series of Certificates may be made prior to one or
more other classes, after the occurrence of specified events, in accordance with
a schedule or formula, on the basis of collections from designated portions of
the Mortgage Assets in the related Trust Fund, or on a different basis, in each
case as specified in the related Prospectus Supplement. The timing and amounts
of such distributions may vary among classes or over time as specified in the
related Prospectus Supplement.
Distributions of principal and interest (or, where applicable, of principal
only or interest only) on the related Certificates will be made by the Trustee
or a paying agent on each Distribution Date (i.e., monthly, quarterly,
semi-annually or at such other intervals and on the dates as are specified in
the Prospectus Supplement) in proportion to the percentages specified in the
related Prospectus Supplement. Distributions will be made to the persons in
whose names the Certificates are registered at the close of business on the
dates specified in the related Prospectus Supplement (each, a "Record Date").
Distributions will be made by check or money order mailed to the persons
entitled thereto at the address appearing in the register maintained for holders
of Certificates (the "Certificate Register") or, if specified in the related
Prospectus Supplement, in the case of Certificates that are of a certain minimum
denomination, upon written request by the Certificateholder, by wire transfer or
by such other means as are described therein; provided, however, that the final
distribution in retirement of the Certificates will be made only upon
presentation and surrender of the Certificates at the office or agency of the
Trustee or other person specified in the notice to Certificateholders of such
final distribution.
The Certificates 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 Certificates 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 by or on behalf of any employee
benefit plan or other retirement arrangement (including individual retirement
accounts and annuities, Keogh plans and collective investment funds in which
such plans, accounts or arrangements are invested) subject to provisions of
ERISA or the Code of certain classes of Certificates may result in "prohibited
transactions" within the meaning of ERISA and the Code. See "ERISA
Considerations" herein. Unless otherwise specified in the related Prospectus
Supplement, transfer of such Certificates will not be registered unless the
transferee (i) represents that it is not, and is not purchasing on behalf of,
any such plan, account or arrangement or (ii) provides an opinion of counsel
satisfactory to the Trustee and the Depositor that the purchase of such
Certificates by or on behalf of such plan, account or arrangement is permissible
under applicable law and will not subject the Trustee, the Master Servicer or
the Depositor to any obligation or liability in addition to those undertaken in
the Agreement.
As to each Series, an election may be made to treat the related Trust Fund
or designated portions thereof as a "real estate mortgage investment conduit" or
"REMIC" as defined in the Code. The related Prospectus Supplement will specify
whether a REMIC election is to be made. Alternatively, the Agreement for a
Series may provide that a REMIC election may be made at the discretion of the
Depositor or the Master Servicer and may be made only if certain conditions are
satisfied. As to any such Series, the terms and provisions applicable to the
making of a REMIC election, as well as any material federal income tax
consequences to Certificateholders not otherwise described herein, will be set
forth in the related Prospectus Supplement. If such an election is made with
respect to a Series, one of the classes will be designated as evidencing the
sole class of "residual interests" in the related REMIC, as defined in the Code.
All other classes of Certificates in such a Series will constitute "regular
interests" in the related REMIC, as defined in the Code. As to each Series with
respect to which a REMIC election is to be made, the Master Servicer or a holder
to 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, subject to reimbursement as
provided in the Agreement. The Master Servicer, unless otherwise specified in
the related Prospectus Supplement, will be entitled to reimbursement for any
such payment from the assets of the Trust Fund or from any holder of the related
residual certificate.
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DISTRIBUTIONS ON CERTIFICATES
General. In general, the method of determining the amount of distributions
on a particular Series of Certificates will depend on the type of credit
support, if any, that is used with respect to such Series. See "Credit
Enhancement" herein and in the related Prospectus Supplement. Set forth below
are descriptions of various methods that may be used to determine the amount of
distributions on the Certificates of a particular Series. The Prospectus
Supplement for each Series of Certificates will describe the method to be used
in determining the amount of distributions on the Certificates of such Series.
Distributions allocable to principal of and interest on the Certificates
will be made by the Trustee out of, and only to the extent of, funds in the
related Certificate Account, including any funds transferred from any credit
enhancement. As between Certificates of different classes and as between
distributions of principal (and, if applicable, between distributions of
Principal Prepayments and scheduled payments of principal) and interest,
distributions made on any Distribution Date will be applied as specified in the
related Prospectus Supplement. Distributions to any class of Certificates will
be made pro rata to all Certificateholders of that class.
Available Funds. All distributions on the Certificates of each Series on
each Distribution Date will be made from the Available Funds, 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 Certificate Account on such Distribution Date
(net of related fees and expenses payable by the related Trust Fund) other than
amounts to be held therein for distribution on future Distribution Dates.
Distributions of Interest. Interest generally will accrue on the aggregate
Certificate Balance (or, in the case of Certificates entitled only to
distributions allocable to interest, the aggregate notional amount) of each
class of Certificates (the "Class Certificate Balance") entitled to interest at
the Pass-Through Rate (which may be a fixed rate or a rate adjustable as
specified in such Prospectus Supplement) from the date and for the periods
specified in such Prospectus Supplement. To the extent funds are available
therefor, interest accrued during each such specified period on each class of
Certificates entitled to interest (other than a class of Certificates that
provides for interest that accrues, but is not currently payable, referred to
hereafter as "Accrual Certificates") will be distributable on the Distribution
Dates specified in the related Prospectus Supplement until the Class Certificate
Balance of such class has been distributed in full or, in the case of
Certificates entitled only to distributions allocable to interest, until the
aggregate notional amount of such Certificates is reduced to zero or for the
period of time designated in the related Prospectus Supplement. The original
Certificate Balance of each Certificate will equal the aggregate distributions
allocable to principal to which such Certificate is entitled. Distributions
allocable to interest on each Certificate that is not entitled to distributions
is allocable to principal generally will be calculated based on the notional
amount of such Certificate. The notional amount of a Certificate will not
evidence an interest in or entitlement to distributions allocable to principal
but will be used solely for convenience in expressing the calculation of
interest and for certain other purposes.
With respect to any class of Accrual Certificates, any interest that has
accrued but is not paid on a given Distribution Date will be added to the Class
Certificate Balance of such class of Certificates on that Distribution Date.
Unless otherwise specified in the related Prospectus Supplement, distributions
of interest on each class of Accrual Certificates will commence only after the
occurrence of the events specified in such Prospectus Supplement and, prior to
such time, the beneficial ownership interest of such class of Accrual
Certificates in the Trust Fund, as reflected in the Class Certificate Balance of
such class of Accrual Certificates, will increase on each Distribution Date by
the amount of interest that accrued on such Class of Accrual Certificates during
the preceding interest accrual period but that was not required to be
distributed to such class on such Distribution Date. Any such class of Accrual
Certificates will thereafter accrue interest on its outstanding Class
Certificate Balance as so adjusted.
Distribution of Principal. The Class Certificate Balance of any class of
Certificates entitled to distributions of principal generally will be the
original Class Certificate Balance of such class of Certificates specified in
such Prospectus Supplement, reduced by all distributions reported to the holders
of such
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Certificates as allocable to principal and (i) in the case of Accrual
Certificates, increased by all interest accrued but not then distributable on
such Accrual Certificates and (ii) in the case of adjustable rate Certificates,
subject to the effect of negative amortization, if any. The related Prospectus
Supplement will specify the method by which the amount of principal to be
distributed on the Certificates on each Distribution Date will be calculated and
the manner in which such amount will be allocated among the classes of
Certificates entitled to distributions of principal.
One or more classes of Certificates may be entitled to receive all or a
disproportionate percentage of the payments of principal that are received from
borrowers in advance of their scheduled due dates and are not accompanied by
amounts representing scheduled interest due after the month of such payments
("Principal Prepayments") in the percentages and under the circumstances or for
the periods specified in the related Prospectus Supplement. Any such allocation
of Principal Prepayments to such class or classes of Certificates will have the
effect of accelerating the amortization of such Certificates while increasing
the interests evidenced by the Subordinated Certificates in the Trust Fund.
Increasing the interests of the Subordinated Certificates relative to that of
the Certificates of higher payment priority is intended to preserve the
availability of the subordination provided by the Subordinated Certificates. See
"Credit Enhancement -- Subordination" herein and "Credit
Enhancement -- Subordination of the Subordinated Certificates" in the related
Prospectus Supplement.
Unscheduled Distributions. The Certificates may be subject to receipt of
distributions before the next scheduled Distribution Date under the
circumstances and in the manner described below and in the related Prospectus
Supplement. If applicable, the Trustee will be required to make such unscheduled
distributions on the day and in the amount specified in the related Prospectus
Supplement if, due to substantial payments of principal (including Principal
Prepayments) on the Mortgage Assets, the Trustee or the Master Servicer
determines that the funds available or anticipated to be available from the
Certificate Account and, if applicable, any credit enhancement, may be
insufficient to make required distributions on the Certificates on such
Distribution Date. The amount of any such unscheduled distribution that is
allocable to principal generally will not exceed the amount that would otherwise
have been required to be distributed as principal on the Certificates on the
next Distribution Date. Such unscheduled distributions may include interest at
the applicable Pass-Through Rate (if any) on the amount of the unscheduled
distribution allocable to principal for the period and to the date specified in
such Prospectus Supplement.
The related Prospectus Supplement will specify whether all distributions
allocable to principal in any unscheduled distribution will be made in the same
priority and manner as distributions of principal on the Certificates would have
been made on the next Distribution Date, and with respect to Certificates of the
same class, unscheduled distributions of principal will be made on a pro rata
basis. Notice of any unscheduled distribution will be given by the Trustee prior
to the date of such distribution.
ADVANCES
As specified in the related Prospectus Supplement, the Master Servicer will
be required to advance on or before each Distribution Date (from its own funds,
funds advanced by Sub-Servicers or funds held in the Certificate Account for
future distributions to Certificateholders), an amount equal to the aggregate of
payments of principal and interest that were delinquent on the related
Determination Date, subject to the Master Servicer's determination that such
advances will be recoverable out of late payments by obligors on the Mortgage
Assets, Liquidation Proceeds, Insurance Proceeds or otherwise. In the case of
Cooperative Loans, the Master Servicer also will be required to advance any
unpaid maintenance fees and other charges under the related proprietary leases
as specified in the related Prospectus Supplement.
In making Advances, the Master Servicer will endeavor to maintain a regular
flow of scheduled interest and principal payments to Certificateholders, rather
than to guarantee or insure against losses. If Advances are made by the Master
Servicer from cash being held for future distribution to Certificateholders, the
Master Servicer will replace such funds on or before any future Distribution
Date to the extent that funds in the
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applicable Certificate Account on such Distribution Date would be less than the
amount required to be available for distributions to Certiticateholders on such
date. Any Advances will be reimbursable to the Master Servicer out of recoveries
on the specific Mortgage Assets with respect to which such Advances were made
(e.g., late payments made by the related obligors, any related Insurance
Proceeds, Liquidation Proceeds or proceeds of any Mortgage Loan repurchased by
the Depositor, a Sub-Servicer or a Seller pursuant to the related Agreement). In
addition, Advances by the Master Servicer (and any advances by a Sub-Servicer)
also will be reimbursable to the Master Servicer (or Sub-Servicer) from cash
otherwise distributable to Certificateholders to the extent that the Master
Servicer determines that any such Advances previously made are not ultimately
recoverable as described in the immediately preceding sentence. The Master
Servicer also will be obligated to make advances, to the extent recoverable out
of Insurance Proceeds, Liquidation Proceeds or otherwise, in respect of certain
taxes and insurance premiums not paid by Mortgagors on a timely basis. Funds so
advanced are reimbursable to the Master Servicer to the extent permitted by the
Agreement. The obligations of the Master Servicer to make Advances may be
supported by a cash advance reserve fund, a surety bond or other arrangement, in
each case as described in such Prospectus Supplement.
REPORTS TO CERTIFICATEHOLDERS
Prior to or concurrently with each distribution on a Distribution Date, the
Master Servicer or the Trustee will furnish to each Certificateholder of record
of the related Series a statement setting forth, to the extent applicable to
such Series of Certificates, among other things:
(i) the amount of such distribution allocable to principal, separately
identifying the aggregate amount of any Principal Prepayments and, if so
specified in the related Prospectus Supplement, prepayment penalties
included therein;
(ii) the amount of such distribution allocable to interest; (iii) the
amount of any Advance;
(iv) the aggregate amount (a) otherwise allocable to the Subordinated
Certificateholders on such Distribution Date and (b) paid from the credit
enhancement, that is included in the amounts distributed to the
Certificateholders;
(v) the Class Certificate Balance or notional amount of each class of
the related Series after giving effect to the distribution of principal on
such Distribution Date;
(vi) the percentage of principal payments on the Mortgage Assets
(excluding prepayments), if any, which each such class will be entitled to
receive on the following Distribution Date;
(vii) the percentage of Principal Prepayments with respect to the
Mortgage Assets, if any, which each such class will be entitled to receive
on the following Distribution Date;
(viii) the related amount of the servicing compensation retained or
withdrawn from the Certificate Account by the Master Servicer, and the
amount of additional servicing compensation received by the Master Servicer
attributable to penalties, fees, excess Liquidation Proceeds and other
similar charges and items;
(ix) the number and aggregate principal balances of Mortgage Loans (A)
delinquent (exclusive of Mortgage Loans in foreclosure) (1) 1 to 30 days,
(2) 31 to 60 days, (3) 61 to 90 days and (4) 91 or more days and (B) in
foreclosure and delinquent (1) 1 to 30 days, (2) 31 to 60 days, (3) 61 to
90 days and (4) 91 or more days, as of the close of business on the last
day of the calendar month preceding such Distribution Date;
(x) the book value of any real estate acquired through foreclosure or
grant of a deed in lieu of foreclosure;
(xi) the Pass-Through Rate, if adjusted from the date of the last
statement, of any such class expected to be applicable to the next
distribution to such class;
(xii) the Pass-Through Rate as of the day prior to the immediately
preceding Distribution Date; and
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(xiii) any amounts remaining under the reserve fund, 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 Certificate of the relevant class having the Percentage
Interest specified in the related Prospectus Supplement. The report to
Certificateholders for any Series of Certificates may include additional or
other information of a similar nature to that specified above.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer or the Trustee will mail to each
Certificateholder of record at any time during such calendar year a report (a)
as to the aggregate of amounts reported pursuant to (i) and (ii) for such
calendar year or, in the event such person was a Certificateholder of record
during a portion of such calendar year, for the applicable portion of such year
and (b) such other customary information as may be deemed necessary or desirable
for Certificateholders to prepare their tax returns.
CATEGORIES OF CLASSES OF CERTIFICATES
In general, classes of pass-through certificates fall into different
categories. The following chart identifies and generally defines certain of the
more typical categories. The Prospectus Supplement for a series of Certificates
may identify the classes which comprise such Series by reference to the
following categories.
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CATEGORIES OF CLASSES DEFINITION
PRINCIPAL TYPES
Accretion Directed......... A class that receives principal payments from the
accreted interest from specified Accrual Classes.
An Accretion Directed Class also may receive
principal payments from principal paid on the
underlying Mortgage Assets or other assets of the
Trust Fund for the related Series.
Component Certificates..... A class consisting of "Components." The Components
of a class of Component Certificates may have
different principal and/or interest payment
characteristics but together constitute a single
class. Each Component of a class of Component
Certificates may be identified as falling into one
or more of the categories in this chart.
Notional Amount
Certificates............... A class having no principal balance and bearing
interest on the related notional amount. The
notional amount is used for purposes of the
determination of interest distributions.
Planned Principal Class
(also sometimes referred to
as "PACs")............... A class that is designed to receive principal
payments using a predetermined principal balance
schedule derived by assuming two constant
prepayment rates for the underlying Mortgage
Assets. These two rates are the endpoints for the
"structuring range" for the Planned Principal
Class. The Planned Principal Classes in any Series
of Certificates 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 Certificates will be
narrower than that for the Primary Planned
Principal Class of such Series.
Scheduled Principal
Class...................... A class that is designed to receive principal
payments using a predetermined principal balance
schedule but is not designated as a Planned
Principal Class or Targeted Principal Class. In
many cases, the schedule is derived by assuming two
constant prepayment rates for the underlying
Mortgage Assets. These two rates are the endpoints
for the "structuring range" for the Scheduled
Principal Class.
Sequential Pay............. 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 Certificates may be identified as a
Sequential Pay Class.
Strip...................... A class that receives a constant proportion, or
"strip," of the principal payments on the
underlying Mortgage Assets or other assets of the
Trust Fund.
Support Class (also
sometimes referred to as
"companion classes")..... A class that receives principal payments on any
Distribution Date only if scheduled payments have
been made on specified Planned Principal Classes,
Targeted Principal Classes and/or Scheduled
Principal Classes.
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CATEGORIES OF CLASSES DEFINITION
Targeted Principal Class
(also sometimes referred to
as "TACs")............... A class that is designed to receive principal
payments using a predetermined principal balance
schedule derived by assuming a single constant
prepayment rate for the underlying Mortgage Assets.
INTEREST TYPES
Fixed Rate................. A class with an interest rate that is fixed
throughout the life of the class.
Floating Rate.............. A class with an interest rate that resets
periodically based upon a designated index and that
varies directly with changes in such index.
Inverse Floating Rate...... A class with an interest rate that resets
periodically based upon a designated index and that
varies inversely with changes in such index.
Variable Rate.............. 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 Mortgage Rates
borne by the underlying Mortgage Loans).
Interest Only.............. A class that receives some or all of the interest
payments made on the underlying Mortgage Assets or
other assets of the Trust Fund and little or no
principal. Interest Only Classes have either a
nominal principal balance or a notional amount. A
nominal principal balance represents actual
principal that will be paid on the class. It is
referred to as nominal since it is extremely small
compared to other classes. A notional amount is the
amount used as a reference to calculate the amount
of interest due on an Interest Only Class that is
not entitled to any distributions in respect of
principal.
Principal Only............. A class that does not bear interest and is entitled
to receive only distributions in respect of
principal.
Partial Accrual............ A class that accretes a portion of the amount of
accrued interest thereon, which amount will be
added to the principal balance of such class on
each applicable Distribution Date, with the
remainder of such accrued interest to be
distributed currently as interest on such class.
Such accretion may continue until a specified event
has occurred or until such Partial Accrual Class is
retired.
Accrual.................... A class that accretes the amount of accrued
interest otherwise distributable on such class,
which amount will be added as principal to the
principal balance of such class on each applicable
Distribution Date. Such accretion may continue
until some specified event has occurred or until
such Accrual Class is retired.
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INDICES APPLICABLE TO FLOATING RATE AND INVERSE FLOATING RATE CLASSES
LIBOR
On the LIBOR Determination Date for each class of Certificates of a Series
as to which the applicable interest rate is determined by reference to an index
denominated as LIBOR, the Person designated in the related Agreement (the
"Calculation Agent") will determine LIBOR by reference to the quotations. as set
forth on the Reuters Screen LIBO Page (as defined in the International 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 such offered quotations, LIBOR for the next Interest Accrual Period
will be the arithmetic mean of such offered quotations (rounded upwards if
necessary to the nearest whole multiple of 1/32%).
(b) if on any LIBOR Determination Date only one or none of the
Reference Banks provides such offered quotations, LIBOR for the next
Interest Accrual Period will be whichever is the higher of (i) LIBOR as
determined on the previous LIBOR Determination Date or (ii) the Reserve
Interest Rate. The "Reserve Interest Rate" will be the rate per annum which
the Calculation Agent determines to be either (i) the arithmetic mean
(rounded upwards if necessary to the nearest whole multiple of 1/32%) of
the one-month United States dollar lending rates of the applicable duration
that New York City banks selected by the Calculation Agent are quoting, on
the relevant LIBOR Determination Date, to the principal London offices of
at least two of the Reference Banks to which such quotations are, in the
opinion of the Calculation Agent being so made, or (ii) in the event that
the Calculation Agent can determine no such arithmetic mean, the lowest
United States dollar lending rate of the applicable duration which New York
City banks selected by the Calculation Agent are quoting on such LIBOR
Determination Date to leading European banks.
(c) if on any LIBOR Determination Date for a class specified in the
related Prospectus Supplement, the Calculation Agent is required but is
unable to determine the Reserve Interest Rate in the manner provided in
paragraph (b) above, LIBOR for the next Interest Accrual Period will be
LIBOR as determined on the preceding LIBOR Determination Date, or, in the
case of the first LIBOR Determination Date, LIBOR will be deemed to be the
per annum rate specified as such in the related Prospectus Supplement.
Each Reference Bank (i) will be a leading bank engaged in transactions in
Eurodollar deposits in the international Eurocurrency market; (ii) will not
control, be controlled by, or be under common control with the Calculation
Agent; and (iii) will have an established place of business in London. If any
such Reference Bank should be unwilling or unable to act as such or if
appointment of any such Reference Bank is terminated, another leading bank
meeting the criteria specified above will be appointed.
The establishment of LIBOR on each LIBOR Determination Date by the
Calculation Agent and its calculation of the rate of interest for the applicable
classes for the related Interest Accrual Period will (in the absence of manifest
error) be final and binding.
COFI
The Eleventh District Cost of Funds Index is designed to represent the
monthly weighted average cost of funds for savings institutions in Arizona,
California and Nevada that are member institutions of the Eleventh Federal Home
Loan Bank District (the "Eleventh District"). The Eleventh District Cost of
Funds Index for a
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particular month reflects the interest costs paid on all types of funds held by
Eleventh District member institutions and is calculated by dividing the cost of
funds by the average of the total amount of those funds outstanding at the end
of that month and of the prior month and annualizing and adjusting the result to
reflect the actual number of days in the particular month. If necessary, before
these calculations are made, the component figures are adjusted by the Federal
Home Loan Bank of San Francisco ("FHLBSF") to neutralize the effect of events
such as member institutions leaving the Eleventh District or acquiring
institutions outside the Eleventh District. The Eleventh District Cost of Funds
index is weighted to reflect the relative amount of each type of funds held at
the end of the relevant month. The major components of funds of Eleventh
District member institutions are: (i) savings deposits, (ii) time deposits,
(iii) FHLBSF advances, (iv) repurchase agreements and (v) all other borrowings.
Because the component funds represent a variety of maturities whose costs may
react in different ways to changing conditions, the Eleventh District Cost of
Funds Index does not necessarily reflect current market rates.
A number of factors affect the performance of the Eleventh District Cost of
Funds Index, which may cause it to move in a manner different from indices tied
to specific interest rates, such as United States Treasury Bills or LIBOR.
Because the liabilities upon which the Eleventh District Cost of Funds Index is
based were issued at various times under various market conditions and with
various maturities, the Eleventh District Cost of Funds Index may not
necessarily reflect the prevailing market interest rates on new liabilities of
similar maturities. Moreover, as stated above, the Eleventh District Cost of
Funds Index is designed to represent the average cost of funds for Eleventh
District savings institutions for the month prior to the month in which it is
due to be published. Additionally, the Eleventh District Cost of Funds Index may
not necessarily move in the same direction as market interest rates at all
times, since as longer term deposits or borrowings mature and are renewed at
prevailing market interest rates, the Eleventh District Cost of Funds Index is
influenced by the differential between the prior and the new rates on those
deposits or borrowings. In addition, movements of the Eleventh District Cost of
Funds Index, as compared to other indices tied to specific interest rates, may
be affected by changes instituted by the FHLBSF in the method used to calculate
the Eleventh District Cost of Funds Index.
The FHLBSF publishes the Eleventh District Cost of Funds Index in its
monthly Information Bulletin. Any individual may request regular receipt by mail
of Information Bulletins by writing the Federal Home Loan Bank of San Francisco,
P.O. Box 7948, 600 California Street, San Francisco, California 94120, or by
calling (415) 616-1000. The Eleventh District Cost of Funds Index may also be
obtained by calling the FHLBSF at (415) 616-2600.
The FHLBSF has stated in its Information Bulletin that the Eleventh
District Cost of Funds Index for a month "will be announced on or near the last
working day" of the following month and also has stated that it "cannot
guarantee the announcement" of such index on an exact date. So long as such
index for a month is announced on or before the tenth day of the second
following month, the interest rate for each class of Certificates of a Series as
to which the applicable interest rate is determined by reference to an index
denominated as COFI (each, a class of "COFI Certificates") for the Interest
Accrual Period commencing in such second following month will be based on the
Eleventh District Cost of Funds Index for the second preceding month. If
publication is delayed beyond such tenth day, such interest rate will be based
on the Eleventh District Cost of Funds Index for the third preceding month.
Unless otherwise specified in the related Prospectus Supplement, if on the
tenth day of the month in which any Interest Accrual Period commences for a
class of COFI Certificates the most recently published Eleventh District Cost of
Funds Index relates to a month prior to the third preceding month, the index for
such current Interest Accrual Period and for each succeeding Interest Accrual
Period will, except as described in the next to last sentence of this paragraph,
be based on the National Monthly Median Cost of Funds Ratio to SAIF-lnsured
Institutions (the "National Cost of Funds Index") published by the Office of
Thrift Supervision (the "OTS") for the third preceding month (or the fourth
preceding month if the National Cost of Funds Index for the third preceding
month has not been published on such tenth day of an Interest Accrual Period).
Information on the National Cost of Funds Index may be obtained by writing the
OTS at 1700 G Street, N.W., Washington, D.C. 20552 or calling (202) 906-6677,
and the current National Cost of Funds Index may be obtained by calling (202)
906-6988. If on any such tenth day of the month in which an Interest
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Accrual Period commences the most recently published National Cost of Funds
Index relates to a month prior to the fourth preceding month, the applicable
index for such Interest Accrual Period and each succeeding Interest Accrual
Period will be based on LIBOR, as determined by the Calculation Agent in
accordance with the Agreement relating to such Series of Certificates. A change
of index from the Eleventh District Cost of Funds Index to an alternative index
will result in a change in the index level, and, particularly if LIBOR is the
alternative index, could increase its volatility.
The establishment of COFI by the Calculation Agent and its calculation of
the rates of interest for the applicable classes for the related Interest
Accrual Period will (in the absence of manifest error) be final and binding.
Treasury Index
On the Treasury Index Determination Date for each class of Certificates of
a Series as to which the applicable interest rate is determined by reference to
an index denominated as a Treasury Index, the Calculation Agent will ascertain
the Treasury Index for Treasury securities of the maturity and for the period
(or, if applicable, date) specified in the related Prospectus Supplement. Unless
otherwise specified in the related Prospectus Supplement, the Treasury Index for
any period means the average of the yield for each business day during the
period specified therein (and for any date means the yield for such date),
expressed as a per annum percentage rate, on (i) U.S. Treasury securities
adjusted to the "constant maturity" (as further described below) specified in
such Prospectus Supplement or (ii) if no "constant maturity" is so specified,
U.S. Treasury securities trading on the secondary market having the maturity
specified in such Prospectus Supplement, in each case as published by the
Federal Reserve Board in its Statistical Release No. H.15 (519). Statistical
Release No. H.15 (519) is published on Monday or Tuesday of each week and may be
obtained by writing or calling the Publications Department at the Board of
Governors of the Federal Reserve System, 21st and C Streets, Washington, D.C.
20551 (202) 452-3244. If the Calculation Agent has not yet received Statistical
Release No. H.15 (519) for such week, then it will use such Statistical Release
from the immediately preceding week.
Yields on U.S. Treasury securities at "constant maturity" are derived from
the U.S. Treasury's daily yield curve. This curve. which relates the yield on a
security to its time to maturity, is based on the closing market bid yields on
actively traded Treasury securities in the over-the-counter market. These market
yields are calculated from composites of quotations reported by five leading
U.S. Government securities dealers to the Federal Reserve Bank of New York. This
method provides a yield for a given maturity even if no security with that exact
maturity is outstanding. In the event that the Treasury Index is no longer
published, a new index based upon comparable data and methodology will be
designated in accordance with the Agreement relating to the particular Series of
Certificates.
The Calculation Agent's determination of the Treasury Index, and its
calculation of the rates of interest for the applicable classes for the related
Interest Accrual Period will (in the absence of manifest error) be final and
binding.
Prime Rate
On the Prime Rate Determination Date for each class of Certificates of a
Series as to which the applicable interest rate is determined by reference to an
index denominated as the Prime Rate, the Calculation Agent will ascertain the
Prime Rate for the related Interest Accrual Period. Unless otherwise specified
in the related Prospectus Supplement, the Prime Rate for an Interest Accrual
Period will be the "Prime Rate" as published in the "Money Rates" section of The
Wall Street Journal (or if not so published, the "Prime Rate" as published in a
newspaper of general circulation selected by the Calculation Agent in its sole
discretion) on the related Prime Rate Determination Date. If a prime rate range
is given, then the average of such range will be used. In the event that the
Prime Rate is no longer published, a new index based upon comparable data and
methodology will be designated in accordance with the Agreement relating to the
particular Series of Certificates. The Calculation Agent's determination of the
Prime Rate and its calculation of the rates of interest for the related Interest
Accrual Period will (in the absence of manifest error) be final and binding.
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BOOK-ENTRY CERTIFICATES
One or more classes of the Certificates of any Series (each, a class of
"Book-Entry Certificates") may be initially issued through the book-entry
facilities of The Depository Trust Company (together with any successor
depository selected by the Depositor, the "Depository"). Each class of
Book-Entry Certificates of a Series will be issued in one or more certificates
which equal the aggregate initial Class Certificate Balance (as defined herein)
of each such class and which will be held by a nominee of the Depository. Unless
otherwise provided in the related Prospectus Supplement, the following generally
describes the procedures that will be applicable to any class of Book-Entry
Certificates.
Beneficial interests in the Book-Entry Certificates of a Series will be
held indirectly by investors through the book-entry facilities of the
Depository, as described herein. Investors may hold such beneficial interests in
the Book-Entry Certificates in the minimum denominations specified in the
related Prospectus Supplement. Accordingly, the Depository or its nominee is
expected to be the holder of record of the Book-Entry Certificates. Except as
described below, no person acquiring a Book-Entry Certificate (each. as
"beneficial owner") will be entitled to receive a physical certificate
representing such Certificate (a "Definitive Certificate").
The beneficial owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank. thrift institution or other
financial intermediary (each. a "Financial Intermediary") that maintains the
beneficial owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on the
records of the Depository (or of a participating firm that acts as agent for the
Financial Intermediary, whose interest will in true be recorded on the records
of the Depository if the beneficial owner's Financial Intermediary is not a
Depository participant). Therefore, the beneficial owner must rely on the
foregoing procedures to evidence its beneficial ownership of a Book-Entry
Certificate. Beneficial ownership of a Book-Entry Certificate may only be
transferred by compliance with the procedures of such Financial Intermediaries
and Depository participants.
In accordance with its normal procedures, the Depository is expected to
record the positions held by each Depository participant in the Book-Entry
Certificates, whether held for its own account or as a nominee for another
person. In general, beneficial ownership of Book-Entry Certificates will be
subject to the rules, regulations and procedures governing the Depository and
Depository participants as in effect from time to time.
Distributions on the Book-Entry Certificates will be made on each
Distribution Date by the Trustee to the Depository. The Depository will be
responsible for crediting the amount of such payments to the accounts of the
applicable Depository participants in accordance with the Depository's normal
procedures. Each Depository participant will be responsible for disbursing such
payments to the beneficial owners of the Book-Entry Certificates that it
represents and to each Financial Intermediary for which it acts as agent. Each
such Financial Intermediary will be responsible for disbursing funds to the
beneficial owners of the Book-Entry Certificates that it represents.
Under a book-entry format, beneficial owners of the Book-Entry Certificates
may experience some delay in their receipt of payments, since payments will be
forwarded by the Trustee to the Depository or its nominee, as the case may be,
as holder of record of the Book-Entry Certificates. Because the Depository can
act only on behalf of Financial Intermediaries, the ability of a beneficial
owner to pledge Book-Entry Certificates to persons or entities that do not
participate in the Depository system, or otherwise take actions in respect of
such Book-Entry Certificates, may be limited due to the lack of physical
certificates for such Book-Entry Certificates. In addition, issuance of the
Book-Entry Certificates in book-entry form may reduce the liquidity of such
Certificates in the secondary market since certain potential investors may be
unwilling to purchase Certificates for which they cannot obtain physical
certificates.
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Unless and until Definitive Certificates are issued, it is anticipated that
the only "Certificateholder" of the Book-Entry Certificates will be the
Depository or its nominee. Beneficial owners of the Book-Entry Certificates will
not be Certificateholders, as that term will be used in the Agreement relating
to such Series of Certificates. Beneficial owners are only permitted to exercise
the rights of Certificateholders indirectly through Financial Intermediaries and
the Depository. Monthly and annual reports on the related Trust Fund provided to
the Depository or its nominee, as the case may be, as holder of record of the
Book-Entry Certificates, may be made available to beneficial owners upon
request, in accordance with the rules, regulations and procedures creating and
affecting the Depository, and to the Financial Intermediaries to whose
Depository accounts the Book-Entry Certificates of such beneficial owners are
credited.
Unless otherwise specified in the related Prospectus Supplement, unless and
until Definitive Certificates are issued, the Depository will take any action
permitted to be taken by the holders of the Book-Entry Certificates of a
particular Series under the related Agreement only at the direction of one or
more Financial Intermediaries to whose Depository accounts such Book-Entry
Certificates are credit to the extent that such actions are taken on behalf of
Financial Intermediaries whose holdings include such Book-Entry Certificates.
Definitive Certificates will be issued to beneficial owners of Book-Entry
Certificates, or their nominees, rather than to the Depository, only if (a) the
Depository or the Depositor advises the Trustee in writing that the Depository
is no longer willing, qualified or able to discharge properly its
responsibilities as nominee and depository with respect to the Book-Entry
Certificates and the Depositor or the Trustee is unable to locate a qualified
successor; (b) the Depositor, at its sole option, elects to terminate the
book-entry system through the Depository; or (c) after the occurrence of an
Event of Default, beneficial owners of Certificates representing not less than
51% of the aggregate Percentage Interests evidenced by each class of
Certificates of the related Series issued as Book-Entry Certificates advise the
Trustee and the Depository through the Financial Intermediaries in writing that
the continuation of a book-entry system through the Depository (or a successor
thereto) is no longer in the best interests of the beneficial owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph. the Trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability of Definitive
Certificates. Upon surrender by the Depository of the global certificate or
certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue the Definitive Certificates, and
thereafter the Trustee will recognize the holders of such Definitive
Certificates as Certificateholders under the Agreement relating to such Series
of Certificates.
CREDIT ENHANCEMENT
GENERAL
Credit enhancement may be provided with respect to one or more classes of a
Series of Certificates or with respect to the Mortgage Assets in the related
Trust Fund. 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 Certificates of such Series, the
establishment of one or more reserve funds, the use of a cross-support feature,
use of a mortgage pool insurance policy, bankruptcy bond, special hazard
insurance policy, certificate insurance policy, bond, letter of credit,
guaranteed investment contract or other method of credit enhancement described
in the related Prospectus Supplement, or any combination of the foregoing. In
general, credit enhancement will not provide protection against all risks of
loss or guarantee repayment of the entire principal balance of the Certificates
and interest thereon. If losses occur which exceed the amount covered by credit
enhancement or which are not covered by the credit enhancement,
Certificateholders will bear their allocable share of any deficiencies.
SUBORDINATION
If so specified in the related Prospectus Supplement, the rights of holders
of one or more classes of Subordinated Certificates (the "Subordinated
Certificateholders") will be subordinate to the rights of holders of one or more
other classes of Senior Certificates (the "Senior Certificateholders") of such
Series to
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distributions in respect of scheduled principal, Principal Prepayments, interest
or any combination thereof that otherwise would have been payable to holders of
Subordinated Certificates under the circumstances and to the extent specified in
the related Prospectus Supplement. If specified in the related Prospectus
Supplement, delays in receipt of scheduled payments on the Mortgage Assets and
losses with respect to the Mortgage Assets will be borne first by the various
classes of Subordinated Certificates and thereafter by the various classes of
Senior Certificates, in each case under the circumstances and subject to the
limitations specified in such related Prospectus Supplement. The aggregate
distributions in respect of delinquent payments on the Mortgage Assets over the
lives of the Certificates or at any time, the aggregate losses in respect of
Mortgage Assets which must be borne by the Subordinated Certificates by virtue
of subordination and the amount of the distributions otherwise distributable to
the Subordinated Certificateholders that will be distributable to Senior
Certificateholders on any Distribution Date may be limited as specified in the
related Prospectus Supplement. If aggregate distributions in respect of
delinquent payments on the Mortgage Assets or aggregate losses in respect of
such Mortgage Assets were to exceed the amount specified in the related
Prospectus Supplement, Senior Certificateholders would experience losses on the
Certificates.
If specified in the related Prospectus Supplement, various classes of
Senior Certificates and Subordinated Certificates may themselves be subordinate
in their right to receive certain distributions to other classes of Senior and
Subordinated Certificates, respectively, through a cross support mechanism or
otherwise.
As between classes of Senior Certificates and as between classes of
Subordinated Certificates, distributions may be allocated among such classes (i)
in the order of their scheduled final distribution dates, (ii) in accordance
with a schedule or formula, (iii) in relation to the occurrence of events or
(iv) otherwise, in each case as specified in the related Prospectus Supplement.
As between classes of Subordinated Certificates, payments to Senior
Certificateholders on account of delinquencies or losses and payments to the
Reserve Fund will be allocated as specified in the related Prospectus
Supplement.
MORTGAGE POOL INSURANCE POLICIES
If specified in the related Prospectus Supplement relating to a Mortgage
Pool. a separate mortgage pool insurance policy ("Mortgage Pool Insurance
Policy") will be obtained for the Mortgage Pool and issued by the insurer (the
"Pool Insurer") named in such Prospectus Supplement. Each Mortgage Pool
Insurance Policy will, subject to the limitations described below, cover loss by
reason of default in payment on Mortgage Loans in the Mortgage Pool in an amount
equal to a percentage specified in such Prospectus Supplement of the aggregate
principal balance of such Mortgage Loans on the Cut-off Date which are not
covered as to their entire outstanding principal balances by Primary Mortgage
Insurance Policies. As more fully described below, the Master Servicer will
present claims thereunder to the Pool Insurer on behalf of itself the Trustee
and the Certificateholders. The Mortgage Pool Insurance Policies, however, are
not blanket policies against loss, since claims thereunder may be made only
respecting particular defaulted Mortgage Loans and only upon satisfaction of
certain conditions precedent described below. Unless otherwise specified in the
related Prospectus Supplement, the Mortgage Pool Insurance Policies will not
cover losses due to a failure to pay or denial of a claim under a Primary
Mortgage Insurance Policy.
Each Mortgage Pool Insurance Policy generally will provide that no claims
may be validly presented unless (i) any required Primary Mortgage Insurance
Policy is in effect for the defaulted Mortgage Loan and a claim thereunder has
been submitted and settled; (ii) hazard insurance on the related Mortgaged
Property has been kept in force and real estate taxes and other protection and
preservation expenses have been paid; (iii) if there has been physical loss or
damage to the Mortgaged Property, it has been restored to its physical condition
(reasonable wear and tear excepted) at the time of issuance of the policy; and
(iv) the insured has acquired good and merchantable title to the Mortgaged
Property free and clear of liens except certain permitted encumbrances. Upon
satisfaction of these conditions, the Pool Insurer generally will have the
option either (a) to purchase the Mortgaged Property at a price equal to the
principal balance of the related Mortgage Loan plus accrued and unpaid interest
at the Mortgage Rate to the date of such purchase and certain expenses incurred
by the Master Servicer on behalf of the Trustee and Certificateholders or (b) to
pay the amount by which the sum of the principal balance of the defaulted
Mortgage Loan plus accrued and unpaid interest at the Mortgage Rate to the date
of payment of the claim and the aforementioned expenses
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exceeds the proceeds received from an approved sale of the Mortgaged Property,
in either case net of certain amounts paid or assumed to have been paid under
the related Primary Mortgage Insurance Policy. If any Mortgaged Property is
damaged, and proceeds, if any, from the related hazard insurance policy or the
applicable Special Hazard Insurance Policy are insufficient to restore the
damaged property to a condition sufficient to permit recovery under the Mortgage
Pool Insurance Policy, the Master Servicer generally will not be required to
expend its own funds to restore the damaged property unless it determines that
(i) such restoration will increase the proceeds to Certificateholders on
liquidation of the Mortgage Loan after reimbursement of the Master Servicer for
its expenses and (ii) such expenses will be recoverable by it through proceeds
of the sale of the Mortgaged Property or proceeds of the related Mortgage Pool
Insurance Policy or any related Primary Mortgage Insurance Policy.
A Mortgage Pool Insurance Policy generally will not insure (and many
Primary Mortgage Insurance Policies do not insure) against loss sustained by
reason of a default arising from, among other things, (i) fraud or negligence in
the origination or servicing of a Mortgage Loan, including misrepresentation by
the Mortgagor, the originator or persons involved in the origination thereof, or
(ii) failure to construct a Mortgaged Property in accordance with plans and
specifications. A failure of coverage attributable to one of the foregoing
events might result in a breach of the related Seller's representations
described above and, in such event, might give rise to an obligation on the part
of such Seller to repurchase the defaulted Mortgage Loan if the breach cannot be
cured by such Seller. No Mortgage Pool Insurance Policy will cover (and many
Primary Mortgage Insurance Policies do not cover) a claim in respect of a
defaulted Mortgage Loan occurring when the servicer of such Mortgage Loan, at
the time of default or thereafter, was not approved by the applicable insurer.
The original amount of coverage under each Mortgage Pool Insurance Policy
generally will be reduced over the life of the related Certificates 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 generally will include certain expenses incurred by the
Master Servicer as well as accrued interest on delinquent Mortgage Loans to the
date of payment of the claim, unless otherwise specified in the related
Prospectus Supplement. Accordingly, if aggregate net claims paid under any
Mortgage Pool Insurance Policy reach the original policy limit, coverage under
that Mortgage Pool insurance Policy will be exhausted and any further losses
will be borne by the Certificateholders.
SPECIAL HAZARD INSURANCE POLICIES
If specified in the related Prospectus Supplement, a separate Special
Hazard Insurance Policy will be obtained for the Mortgage Pool and will be
issued by the insurer (the "Special Hazard Insurer") named in such Prospectus
Supplement. Each Special Hazard Insurance Policy will, subject to limitations
described below, protect holders of the related Certificates from (i) loss by
reason of damage to Mortgaged Properties caused by certain hazards (including
earthquakes and, to a limited extent, tidal waves and related water damage or as
otherwise specified in the related Prospectus Supplement) not insured against
under the standard form of hazard insurance policy for the respective states in
which the Mortgaged Properties are located or under a flood insurance policy if
the Mortgaged Property is located in a federally designated flood area and (ii)
loss caused by reason of the application of the coinsurance clause contained in
hazard insurance policies. See "The Pooling and Servicing Agreement--Hazard
Insurance. " A Special Hazard Insurance Policy generally will not cover losses
occasioned by fraud or conversion by the Trustee or Master Servicer, war,
insurrection, civil war, certain governmental action, errors in design, faulty
workmanship or materials (except under certain circumstances), nuclear or
chemical reaction, flood (if the Mortgaged Property is located in a federally
designated flood area), nuclear or chemical contamination and certain other
risks. The amount of coverage under any Special Hazard Insurance Policy will be
specified in the related Prospectus Supplement. Each Special Hazard Insurance
Policy generally will provide that no claim may be paid unless hazard and, if
applicable, flood insurance on the property securing the Mortgage Loan have been
kept in force and other protection and preservation expenses have been paid.
Subject to the foregoing limitations, each Special Hazard Insurance Policy
generally will provide that where there has been damage to property securing a
foreclosed Mortgage Loan (title to which has been
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acquired by the insured) and to the extent such damage is not covered by the
hazard insurance policy or flood insurance policy, if any, maintained by the
Mortgagor or the Master Servicer, the Special Hazard Insurer will pay the lesser
of (i) the cost of repair or replacement of such property or (ii) upon transfer
of the property to the Special Hazard Insurer, the unpaid principal balance of
such Mortgage Loan at the time of acquisition of such property by foreclosure or
deed in lieu of foreclosure, plus accrued interest to the date of claim
settlement and certain expenses incurred by the Master Servicer with respect to
such property. If the unpaid principal balance of a Mortgage Loan plus accrued
interest and certain expenses is paid by the Special Hazard Insurer, the amount
of further coverage under the related Special Hazard Insurance Policy will be
reduced by such amount less any net proceeds from the sale of the property. Any
amount paid as the cost of repair of such property will further reduce coverage
by such amount. So long as a Mortgage Pool Insurance Policy remains in effect,
the payment by the Special Hazard Insurer of the cost of repair or of the unpaid
principal balance of the related Mortgage Loan plus accrued interest and certain
expenses will not affect the total insurance proceeds paid to
Certificateholders, but will affect the relative amounts of coverage remaining
under the related Special Hazard Insurance Policy and Mortgage Pool Insurance
Policy.
To the extent specified in the Prospectus Supplement, the Master Servicer
may deposit cash, an irrevocable letter of credit or any other instrument
acceptable to each nationally recognized rating agency rating the Certificates
of the related Series in a special trust account to provide protection in lieu
of or in addition to that provided by a Special Hazard Insurance Policy. The
amount of any Special Hazard Insurance Policy or of the deposit to the special
trust account in lieu thereof relating to such Certificates may be reduced so
long as any such reduction will not result in a downgrading of the rating of
such Certificates by any such rating agency.
BANKRUPTCY BONDS
If specified in the related Prospectus Supplement, a bankruptcy bond (the
"Bankruptcy Bond") to cover losses resulting from proceedings under the federal
Bankruptcy Code with respect to a Mortgage Loan will be issued by an insurer
named in such Prospectus Supplement. Each Bankruptcy Bond will cover, to the
extent specified in the related Prospectus Supplement, certain losses resulting
from a reduction by a bankruptcy court of scheduled payments of principal and
interest on a Mortgage Loan or a reduction by such court of the principal amount
of a Mortgage Loan and will cover certain unpaid interest on the amount of such
a principal reduction from the date of the filing of a bankruptcy petition. The
required amount of coverage under each Bankruptcy Bond will be set forth in the
related Prospectus Supplement. Coverage under a Bankruptcy Bond may be canceled
or reduced by the Master Servicer if such cancellation or reduction would not
adversely affect the then current rating or ratings of the related Certificates.
See "Certain Legal Aspects of the Mortgage Loans--Anti-Deficiency Legislation
and Other Limitations on Lenders" herein.
To the extent specified in the Prospectus Supplement, the Master Servicer
may deposit cash, an irrevocable letter of credit or any other instrument
acceptable to each nationally recognized rating agency rating the Certificates
of the related Series in a special trust account to provide protection in lieu
of or in addition to that provided by a Bankruptcy Bond. The amount of any
Bankruptcy Bond or of the deposit to the special trust account in lieu thereof
relating to such Certificates may be reduced so long as any such reduction will
not result in a downgrading of the rating of such Certificates by any such
rating agency.
RESERVE FUND
If so specified in the related Prospectus Supplement, credit support with
respect to a Series of Certificates may be provided by the establishment and
maintenance with the Trustee for such Series of Certificates, in trust, of one
or more reserve funds (the "Reserve Fund") for such Series. The related
Prospectus Supplement will specify whether or not a Reserve Fund will be
included in the Trust Fund for such Series.
The Reserve Fund for a Series will be funded (i) by the deposit therein of
cash, U.S. Treasury securities or instruments evidencing ownership of principal
or interest payments thereon, letters of credit, demand notes, certificates of
deposit or a combination thereof in the aggregate amount specified in the
related Prospectus Supplement, (ii) by the deposit therein from time to time of
certain amounts, as specified in the related
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Prospectus Supplement, to which the Subordinated Certificateholders, if any,
would otherwise be entitled or (iii) in such other manner as may be specified in
the related Prospectus Supplement.
Any amounts on deposit in the Reserve Fund and the proceeds of any other
instrument deposited therein upon maturity will be held in cash or will be
invested in "Permitted Investments" which, unless otherwise specified in the
related Prospectus Supplement, will include obligations of the United States and
certain agencies thereof, certificates of deposit, certain commercial paper,
time deposits and bankers acceptances sold by eligible commercial banks and
certain repurchase agreements of United States government securities with
eligible commercial banks. If a letter of credit is deposited with the Trustee,
such letter of credit will be irrevocable. Any instrument deposited therein will
name the Trustee, in its capacity as trustee for the Certificateholders, as
beneficiary and will be issued by an entity acceptable to each rating agency
that rates the Certificates.
Any amounts so deposited and payments on instruments so deposited will be
available for withdrawal from the Reserve Fund for distribution to the
Certificateholders for the purposes, in the manner and at the times specified in
the related Prospectus Supplement.
CROSS SUPPORT
If specified in the related Prospectus Supplement, the beneficial ownership
of separate groups of assets included in a Trust Fund may be evidenced by
separate classes of the related Series of Certificates. In such case, credit
support may be provided by a cross support feature which requires that
distributions be made with respect to Certificates evidencing a beneficial
ownership interest in other asset groups within the same Trust Fund. The related
Prospectus Supplement for a Series that includes a cross support feature will
describe the manner and conditions for applying such cross support feature.
If specified in the related Prospectus Supplement, the coverage provided by
one or more forms of credit support may apply concurrently to two or more
related Trust Funds. If applicable, the related Prospectus Supplement will
identify the Trust Funds to which such credit support relates and the manner of
determining the amount of the coverage provided thereby and of the application
of such coverage to the identified Trust Funds.
CERTIFICATE INSURANCE POLICY
One or more classes of Certificates of a Series may have the benefit of a
financial guaranty insurance policy or surety band (a "Certificate Insurance
Policy") issued by a monoline insurance company or other financial institution
(the "Certificate Insurer"). The Certificate Insurance Policy will generally
guarantee (i) on each Distribution Date, any deficiency amount and (ii) any
amount previously distributed to a Certificateholder that must be returned due
to a proceeding in bankruptcy against the Depositor (a "preference amount"). A
"deficiency amount" generally will equal a shortfall in Available Funds to pay
interest on the covered Certificates plus the amount of principal calculated as
provided in the related Prospectus Supplement. The Certificate Insurer will be
subrogated to the rights of the Certificateholders to whom payments under to
Certificate Insurance Policy have been made with respect to future distributions
from the Trust Fund, and the Certificate Insurer will have the right to exercise
the voting or consent rights of the holders of the covered Certificates.
Financial and other information regarding the Certificate Insurer will be set
forth or incorporated by reference in the related Prospectus Supplement.
FINANCIAL INSTRUMENTS
A Trust Fund may include one or more financial instruments which will have
the effect of (i) converting payments on all or certain of the Mortgage Assets
from fixed to floating payments, floating to fixed payments or floating payments
based on a certain index to floating payments based on a different index, (ii)
providing payments if an index rises or falls below specified levels or (iii)
providing protection against changes in interest rates, certain types of losses
or other shortfalls in amounts available for distribution to holders of one or
more classes of a Series. Any such financial instrument will be or will be
structured so as to be exempt from the registration requirements of the
Securities Act of 1933, as amended. To the extent material, financial and
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other information regarding the provider of any such financial instrument will
be included or incorporated by reference in the related Prospectus Supplement.
YIELD AND PREPAYMENT CONSIDERATIONS
The yields to maturity and weighted average lives of the Certificates will
be affected primarily by the amount and timing of principal payments received on
or in respect of the Mortgage Assets included in the related Trust Fund. The
original terms to maturity of the underlying mortgage loans with respect to the
Mortgage Assets in a given Mortgage Pool will vary depending upon the type of
Mortgage Loans included therein, and each Prospectus Supplement will contain
information with respect to the type and maturities of such mortgage loans.
Unless otherwise specified in the related Prospectus Supplement, the Mortgage
Loans may be prepaid without penalty in full or in part at any time. The
prepayment experience on the underlying Mortgage Loans with respect to the
Mortgage Assets will affect the average life of the related Series of
Certificates.
A number of factors, including homeowner mobility, economic conditions, the
presence and enforceability of due-on-sale clauses, mortgage market interest
rates and the availability of mortgage funds, may affect the prepayment
experience of Mortgage Loans.
Conventional fixed rate Mortgage Loans typically contain due-on-sale
provisions permitting the mortgagee to accelerate the maturity of the loan upon
sale or certain transfers by the Mortgagor of the underlying Mortgaged Property.
Mortgage Loans insured by the FHA and Mortgage Loans partially guaranteed by the
VA are assumable with the consent of the FHA and the VA, respectively. Thus, the
rate of prepayments on such Mortgage Loans may be lower than that on
conventional Mortgage Loans bearing comparable interest rates. The Master
Servicer generally will enforce any due-on-sale or due-on-encumbrance clause, to
the extent it has knowledge of the conveyance or further encumbrance or the
proposed conveyance or proposed further encumbrance of the Mortgaged Property
and reasonably believes that it is entitled to do so under applicable law;
provided, however, that the Master Servicer will not take any enforcement action
that would impair or threaten to impair any recovery under any related insurance
policy. See "The Pooling and Servicing Agreement--Collection Procedures" and
"Certain Legal Aspects of the Mortgage Loans" herein for a description of
certain provisions of each Agreement and certain legal developments that may
affect the prepayment experience on the Mortgage Loans.
The rate of prepayments with respect to conventional mortgage loans has
fluctuated significantly in recent years. In general, if prevailing rates fall
significantly below the Mortgage Rates borne by the Mortgage Loans, the Mortgage
Loans are likely to be subject to higher prepayment rates than if prevailing
interest rates remain at or above such Mortgage Rates. Conversely, if prevailing
interest rates rise appreciably above the Mortgage Rates borne by the Mortgage
Loans, the Mortgage Loans are likely to experience a lower prepayment rate than
if prevailing rates remain at or below such Mortgage Rates. However, there can
be no assurance that such will be the case.
When a full prepayment is made on a Mortgage Loan, the Mortgagor is charged
interest on the principal amount of the Mortgage 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 in the following month to
Certificateholders because interest on the principal amount of any Mortgage Loan
so prepaid will be paid only to the date of prepayment. Partial prepayments in a
given month may be applied to the outstanding principal balances of the Mortgage
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 in such month. Both full and partial prepayments will
not be passed through until the month following the related prepayment period.
The effective yield to Certificateholders will be slightly lower than the
yield otherwise produced by the applicable Pass-Through Rate and purchase price
because while interest will accrue on each Mortgage Loan from the first day of
the month (unless otherwise provided in the related Prospectus Supplement), the
distribution of such interest will not be made earlier than the month following
the month of accrual.
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Under certain circumstances, the person identified in the related
Prospectus Supplement may have the option to purchase the assets of a Trust Fund
thereby effecting earlier retirement of the related Series of Certificates. See
"The Pooling and Servicing Agreement--Termination; Optional Termination" herein.
Factors other than those identified herein and in the related Prospectus
Supplement could significantly affect principal prepayments at any time and over
the lives of the Certificates. The relative contribution of the various factors
affecting prepayment may also vary from time to time. There can be no assurance
as to the rate of payment of principal of the Mortgage Assets at any time or
over the lives of the Certificates.
The Prospectus Supplement relating to a Series of Certificates will discuss
in greater detail the effect of the rate and timing of principal payments
(including Principal Prepayments), delinquencies and losses on the yield,
weighted average lives and maturities of such Certificates.
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THE POOLING AND SERVICING AGREEMENT
Set forth below is a summary of the material provisions of the Agreement
which are not described elsewhere in this Prospectus. Where particular
provisions or terms used in the Agreement are referred to, such provisions or
terms are as specified in the related Agreement.
ASSIGNMENT OF MORTGAGE ASSETS
Assignment of the Mortgage Loans. At the time of issuance of the
Certificates of a Series, the Depositor will cause the Mortgage Loans comprising
the related Trust Fund to be assigned to the Trustee, together with all
principal and interest received by or on behalf of the Depositor on or with
respect to such Mortgage Loans after the Cut-off Date, other than principal and
interest due on or before the Cut-off Date and other than any Retained Interest
specified in the related Prospectus Supplement. The Trustee will, concurrently
with such assignment, deliver the Certificates to the Depositor in exchange for
the Mortgage Loans. Each Mortgage Loan will be identified in a schedule
appearing as an exhibit to the related Agreement. Such schedule will include
information as to the outstanding principal balance of each Mortgage Loan after
application of payments due on the Cut-off Date, as well as information
regarding the Mortgage Rate, the current scheduled monthly payment of principal
and interest, the maturity of the loan, the Loan-to-Value Ratio at origination
and certain other information.
In addition, the Depositor will deliver or cause to be delivered to the
Trustee (or to the custodian hereinafter referred to) as to each Mortgage Loan,
among other things, (i) the Mortgage Note endorsed without recourse in blank or
to the order of the Trustee, (ii) the mortgage, deed of trust or similar
instrument (the "Mortgage") with evidence of recording indicated thereon (except
for any Mortgage not returned from the public recording office, in which case
the Depositor will, unless otherwise specified in the related Prospectus
Supplement, deliver or cause to be delivered a copy of such Mortgage together
with a certificate that the original of such Mortgage was delivered to such
recording office), (iii) an assignment of the Mortgage to the Trustee, which
assignment will be in recordable form and (iv) such other security documents as
may be specified in the related Prospectus Supplement or the related Agreement.
The Depositor will cause the assignments of the related loans to be recorded in
the appropriate public office for real property records, except in states in
which, in the opinion of counsel acceptable to the Trustee, such recording is
not required to protect the Trustee's interest in such loans against the claim
of any subsequent transferee or any successor to or creditor of the Depositor or
the originator of such loans.
With respect to any Mortgage Loans that are Cooperative Loans, the
Depositor will cause to be delivered to the Trustee the related original
cooperative note endorsed without recourse in blank or to the order of the
Trustee, the original security agreement, the proprietary lease or occupancy
agreement, the recognition agreement, an executed financing agreement and the
relevant stock certificate, related blank stock powers and any other document
specified in the related Prospectus Supplement. The Depositor will cause to be
filed in the appropriate office an assignment and a financing statement
evidencing the Trustee's security interest in each Cooperative Loan.
The Trustee (or the custodian hereinafter referred to) will review such
Mortgage Loan documents within the period specified in the related Prospectus
Supplement after receipt thereof, and the Trustee will hold such documents in
trust for the benefit of the Certificateholders. If any such document is found
to be missing or defective in any material respect, the Trustee (or such
custodian) will notify the Master Servicer and the Depositor, and the Master
Servicer will notify the related Seller. If the Seller cannot cure the omission
or defect within the period specified in the related Prospectus Supplement after
receipt of such notice, the Seller will be obligated to purchase the related
Mortgage Loan from the Trustee at the Purchase Price or, if so specified in the
related Prospectus Supplement, replace such Mortgage Loan with another mortgage
loan that meets certain requirements set forth therein. There can be no
assurance that a Seller will fulfill this purchase obligation. Although the
Master Servicer may be obligated to enforce such obligation to the extent
described above under "Mortgage Loan Program--Representations by Sellers;
Repurchases," neither the Master Servicer nor the Depositor will be obligated to
purchase such Mortgage Loan if the Seller defaults on its purchase obligation,
unless such breach also constitutes a breach of the representations or
warranties of the
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Master Servicer or the Depositor, as the case may be. This purchase obligation
constitutes the sole remedy available to the Certificateholders 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 Mortgage Loans as agent of the Trustee.
Notwithstanding the foregoing provisions. with respect to a Trust Fund for
which a REMIC election is to be made, unless the related Prospectus Supplement
otherwise provides, no purchase of a Mortgage Loan will be made if such purchase
would result in a prohibited transaction tax under the Code.
Assignment of Agency Securities. The Depositor will cause the Agency
Securities to he registered in the name of the Trustee or its nominee, and the
Trustee concurrently will execute, countersign and deliver the Certificates.
Each Agency Security will be identified in a schedule appearing as an exhibit to
the Agreement, which will specify as to each Agency Security the original
principal amount and outstanding principal balance as of the Cut-off Date, the
annual pass-through rate (if any) and the maturity date.
PAYMENTS ON MORTGAGE ASSETS; DEPOSITS TO CERTIFICATE ACCOUNT
The Master Servicer will establish and maintain or cause to be established
and maintained with respect to the related Trust Fund a separate account or
accounts for the collection of payments on the related Mortgage Assets in the
Trust Fund (the "Certificate Account"), which must be either (i) maintained with
a depository institution the short-term unsecured debt obligations of which (or
in the case of a depository institution that is the principal subsidiary of a
holding company, the short-term debt obligations of which) are rated in the
highest short-term rating category by the nationally recognized statistical
rating organization(s) that rated one or more classes of the related Series of
Certificates (each, a "Rating Agency"), (ii) an account or accounts the deposits
in which are insured by the FDIC or SAIF to the limits established by the FDIC
or the SAIF, and the uninsured deposits in which are otherwise secured such
that, as evidenced by an opinion of counsel, the Certificateholders have a claim
with respect to the funds in the Certificate Account or a perfected first
priority security interest against any collateral securing such funds that is
superior to the claims of any other depositors or general creditors of the
depository institution with which the Certificate Account is maintained, (iii) a
trust account or accounts maintained with the trust department of a federal or a
state chartered depository institution or trust company, acting in a fiduciary
capacity or (iv) an account or accounts otherwise acceptable to each Rating
Agency. The collateral eligible to secure amounts in the Certificate Account is
limited to Permitted Investments. A Certificate 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 Master Servicer or
its designee will be entitled to receive any such interest or other income
earned on funds in the Certificate Account as additional compensation and will
be obligated to deposit in the Certificate Account the amount of any loss
immediately as realized. The Certificate Account may be maintained with the
Master Servicer or with a depository institution that is an affiliate of the
Master Servicer, provided it meets the standards set forth above.
The Master Servicer will deposit or cause to be deposited in the
Certificate Account for each Trust Fund on a daily basis, to the extent
applicable and unless otherwise specified in the related Prospectus Supplement
and provided in the Agreement, the following payments and collections received
or Advances made by or on behalf of it subsequent to the Cut-off Date (other
than payments due on or before the Cut-off Date and exclusive of any amounts
representing Retained Interest):
(i) all payments on account of principal, including Principal
Prepayments and, if specified in the related Prospectus Supplement,
prepayment penalties, on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage Loans, net of
applicable servicing compensation;
(iii) all proceeds (net of unreimbursed payments of property taxes,
insurance premiums and similar items ("Insured Expenses") incurred, and
unreimbursed Advances made, by the Master Servicer, if any)
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of the hazard insurance policies and any Primary Mortgage Insurance
Policies, to the extent such proceeds are not applied to the restoration of
the Mortgaged Property or released to the Mortgagor in accordance with the
Master Servicer's normal servicing procedures (collectively, "Insurance
Proceeds") and all other cash amounts (net of unreimbursed expenses
incurred in connection with liquidation or foreclosure ("Liquidation
Expenses") and unreimbursed Advances, if any) received and retained in
connection with the liquidation of defaulted Mortgage Loans, by foreclosure
or otherwise ("Liquidation Proceeds"), together with any net proceeds
received on a monthly basis with respect to any properties acquired on
behalf of the Certificateholders by foreclosure or deed in lieu of
foreclosure;
(iv) all proceeds of any Mortgage Loan or property in respect thereof
purchased by the Master Servicer, the Depositor or any Seller as described
under "Mortgage Loan Program--Representations by Sellers; Repurchases" or
"The Pooling and Servicing Agreement--Assignment of Mortgage Assets" above
and all proceeds of any Mortgage Loan repurchased as described under "The
Pooling and Servicing Agreement--Termination; Optional Termination" below;
(v) all payments required to be deposited in the Certificate Account
with respect to any deductible clause in any blanket insurance policy
described under "--Hazard Insurance" below;
(vi) any amount required to be deposited by the Master Servicer in
connection with losses realized on investments for the benefit of the
Master Servicer of funds held in the Certificate Account and. to the extent
specified in the related Prospectus Supplement, any payments required to be
made by the Master Servicer in connection with prepayment interest
shortfalls; and
(vii) all other amounts required to be deposited in the Certificate
Account pursuant to the Agreement.
The Master Servicer (or the Depositor, as applicable) may from time to time
direct the institution that maintains the Certificate Account to withdraw funds
from the Certificate Account for the following purposes:
(i) to pay to the Master Servicer the servicing fees described in the
related Prospectus Supplement, the master servicing fees (subject to
reduction) and, as additional servicing compensation, earnings on or
investment income with respect to funds in the Certificate Account;
(ii) to reimburse the Master Servicer for Advances, such right of
reimbursement with respect to any Mortgage Loan being limited to amounts
received that represent late recoveries of payments of principal and/or
interest on such Mortgage Loan (or Insurance Proceeds or Liquidation
Proceeds with respect thereto) with respect to which such Advance was made;
(iii) to reimburse the Master Servicer for any Advances previously
made which the Master Servicer has determined to be nonrecoverable;
(iv) to reimburse the Master Servicer from Insurance Proceeds for
expenses incurred by the Master Servicer and covered by the related
insurance policies;
(v) to reimburse the Master Servicer for unpaid master servicing fees
and unreimbursed out-of-pocket costs and expenses incurred by the Master
Servicer in the performance of its servicing obligations, such right of
reimbursement being limited to amounts received representing late
recoveries of the payments for which such advances were made;
(vi) to pay to the Master Servicer, with respect to each Mortgage Loan
or property acquired in respect thereof that has been purchased by the
Master Servicer pursuant to the Agreement, all amounts received thereon and
not taken into account in determining the principal balance of such
repurchased Mortgage Loan;
(vii) to reimburse the Master Servicer or the Depositor for expenses
incurred and reimbursable pursuant to the Agreement;
(viii) to withdraw any amount deposited in the Certificate Account and
not required to be deposited therein; and
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(ix) to clear and terminate the Certificate Account upon termination
of the Agreement.
In addition, unless otherwise specified in the related Prospectus
Supplement, on or prior to the business day immediately preceding each
Distribution Date, the Master Servicer will withdraw from the Certificate
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 Certificates.
COLLECTION PROCEDURES
The Master Servicer, directly or through one or more Sub-Servicers, will
make reasonable efforts to collect all payments called for under the Mortgage
Loans and will, consistent with each Agreement and any Mortgage Pool Insurance
Policy, Primary Mortgage Insurance Policy, FHA Insurance, VA Guaranty and
Bankruptcy Bond or alternative arrangements, follow such collection procedures
as it follows with respect to mortgage loans that are comparable to the Mortgage
Loans held in its own portfolio. Consistent with the above, the Master Servicer
may, in its discretion, (i) waive any assumption fee, late payment or other
charge in connection with a Mortgage Loan and (ii) to the extent not
inconsistent with the coverage of such Mortgage Loan by a Mortgage Pool
Insurance Policy, Primary Mortgage Insurance Policy. FHA Insurance, VA Guaranty
or Bankruptcy Bond or alternative arrangements, if applicable, arrange with a
Mortgagor 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
Master Servicer is obligated to make or to cause to be made Advances, such
obligation will remain during any period of such an arrangement.
In any case in which property securing a conventional Mortgage Loan has
been, or is about to be, conveyed by the Mortgagor, the Master Servicer will, to
the extent it has knowledge of such conveyance or proposed conveyance, exercise
or cause to be exercised its rights to accelerate the maturity of such Mortgage
Loan under any due-on-sale clause applicable thereto, but only if the exercise
of such rights is permitted by applicable law and will not impair or threaten to
impair any recovery under any related Primary Mortgage Insurance Policy. If
these conditions are not met or if the Master Servicer reasonably believes it is
unable under applicable law to enforce such due-on-sale clause or if such
Mortgage Loan is, by its terms, assumable, the Master Servicer will seek to
enter into or cause to be entered into an assumption and modification agreement
with the person to whom such property has been or is about to be conveyed,
pursuant to which such person becomes liable for repayment of the Mortgage Loan
and, to the extent permitted by applicable law, the Mortgagor also remains
liable thereon. Any fee collected by or on behalf of the Master Servicer for
entering into an assumption agreement will be retained by or on behalf of the
Master Servicer as additional servicing compensation. See "Certain Legal Aspects
of the Mortgage Loans -- Due-on-Sale Clauses" herein. In connection with any
such assumption, the terms of the related Mortgage Loan may not be changed.
With respect to Cooperative Loans, any prospective purchaser generally will
have to obtain the approval of the board of directors of the relevant
Cooperative before purchasing the shares and acquiring rights under the related
proprietary lease or occupancy agreement. See "Certain Legal Aspects of the
Mortgage Loans" herein. This approval is usually based on the purchaser's income
and net worth and numerous other factors. Although the Cooperative's approval is
unlikely to be unreasonably withheld or delayed, the necessity of acquiring such
approval could limit the number of potential purchasers for those shares and
otherwise limit the Trust Fund's ability to sell and realize the value of those
shares.
In general, a "tenant-stockholder" (as defined in Code Section 216(b)(2))
of a corporation that qualifies as a "cooperative housing corporation" within
the meaning of Code Section 216(b)(1) is allowed a deduction for amounts paid or
accrued within his taxable year to the corporation representing his
proportionate share of certain interest expenses and certain real estate taxes
allowable as a deduction under Code Section 216(a) to the corporation under Code
Sections 163 and 164. In order for a corporation to qualify under Code Section
216(b)(1) for its taxable year in which such items are allowable as a deduction
to the corporation, such Section requires, among other things, that at least 80%
of the gross income of the corporation be derived from its tenant-stockholders
(as defined in Code Section 216(b)(2)). By virtue of this requirement, the
status of a corporation for purposes of Code Section 216(b)(1) must be
determined on a year-to-year basis. Consequently, there can be no assurance that
Cooperatives relating to the Cooperative Loans will qualify
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under such Section for any particular year. In the event that such a Cooperative
fails to qualify for one or more years, the value of the collateral securing any
related Cooperative Loans could be significantly impaired because no deduction
would be allowable to tenant-stockholders under Code Section 216(a) with respect
to those years. In view of the significance of the tax benefits accorded
tenant-stockholders of a corporation that qualifies under Code Section
216(b)(1), the likelihood that such a failure would be permitted to continue
over a period of years appears remote.
HAZARD INSURANCE
The Master Servicer will require the Mortgagor on each Mortgage Loan to
maintain a hazard insurance policy providing for no less than the coverage of
the standard form of fire insurance policy with extended coverage customary for
the type of Mortgaged Property in the state in which such Mortgaged Property is
located. Such coverage will be in an amount that is at least equal to the lesser
of (i) the maximum insurable value of the improvements securing such Mortgage
Loan or (ii) the greater of (y) the outstanding principal balance of the
Mortgage Loan and (z) an amount such that the proceeds of such policy shall be
sufficient to prevent the mortgagor and/or the mortgagee from becoming a
co-insurer. All amounts collected by the Master 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 in accordance with the Master Servicer's
normal servicing procedures) will be deposited in the related Certificate
Account. In the event that the Master Servicer maintains a blanket policy
insuring against hazard losses on all the Mortgage Loans comprising part of a
Trust Fund, it will conclusively be deemed to have satisfied its obligation
relating to the maintenance of hazard insurance. Such blanket policy may contain
a deductible clause, in which case the Master Servicer will be required to
deposit from its own funds into the related Certificate Account the amounts that
would have been deposited therein but for such clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements securing a Mortgage Loan
by fire, lightning, explosion, smoke, windstorm and hail, riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Although the policies relating to the Mortgage 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 the respective state laws,
and most such policies typically do not cover any physical damage resulting from
the following: war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and mud
flows), nuclear reactions, wet or dry rot, vermin, rodents, insects or domestic
animals, theft and, in certain cases, vandalism. The foregoing list is merely
indicative of certain kinds of uninsured risks and is not intended to be all
inclusive. If the Mortgaged Property securing a Mortgage Loan is located in a
federally designated special flood area at the time of origination, the Master
Servicer will require the Mortgagor to obtain and maintain flood insurance.
The hazard insurance policies covering properties securing the Mortgage
Loans typically contain a clause which in effect requires the insured at all
times to carry insurance of a specified percentage (generally 80% to 90%) of the
full replacement value of the insured property in order to recover the full
amount of any partial loss. If the insured's coverage falls below this specified
percentage, then the insurer's liability in the event of partial loss will not
exceed the larger of (i) the actual cash value (generally defined as replacement
cost at the time and place of loss, less physical depreciation) of the
improvements damaged or destroyed or (ii) such proportion of the loss as the
amount of insurance carried bears to the specified percentage of the full
replacement cost of such improvements. Since the amount of hazard insurance the
Master Servicer may cause to be maintained on the improvements securing the
Mortgage Loans declines as the principal balances owing thereon decrease, and
since improved real estate generally has appreciated in value over time in the
past, the effect of this requirement in the event of partial loss may be that
hazard insurance proceeds will be insufficient to restore fully the damaged
property. If specified in the related Prospectus Supplement, a special hazard
insurance policy will be obtained to insure against certain of the uninsured
risks described above. See "Credit Enhancement--Special Hazard Insurance
Policies" herein and "Credit Enhancements -- Insurance -- Special Hazard
Insurance Policy" in the related Prospectus Supplement.
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The Master Servicer will not require that a standard hazard or flood
insurance policy be maintained on the cooperative dwelling relating to any
Cooperative Loan. Generally, the Cooperative itself is responsible for
maintenance of hazard insurance for the property owned by the Cooperative and
the tenant-stockholders of that Cooperative do not maintain individual hazard
insurance policies. To the extent, however, that a Cooperative and the related
borrower on a Cooperative Loan do not maintain such insurance or do not maintain
adequate coverage or any insurance proceeds are not applied to the restoration
of damaged property, any damage to such borrower's cooperative dwelling or such
Cooperative's building could significantly reduce the value of the collateral
securing such Cooperative Loan to the extent not covered by other credit
support.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
Primary Mortgage Insurance Policies. The Master Servicer will maintain or
cause to be maintained, as the case may be, in full force and effect, to the
extent specified in the related Prospectus Supplement, a Primary Mortgage
Insurance Policy with regard to each Mortgage Loan for which such coverage is
required. The Master Servicer will not cancel or refuse to renew any such
Primary Mortgage Insurance Policy in effect at the time of the initial issuance
of a Series of Certificates that is required to be kept in force under the
applicable Agreement unless the replacement Primary Mortgage Insurance Policy
for such canceled or nonrenewed policy is maintained with an insurer whose
claims-paying ability is sufficient to maintain the current rating of the
classes of Certificates of such Series that have been rated.
Although the terms and conditions of primary mortgage insurance vary, the
amount of a claim for benefits under a Primary Mortgage Insurance Policy
covering a Mortgage Loan will consist of the insured percentage of the unpaid
principal amount of the covered Mortgage Loan and accrued and unpaid interest
thereon and reimbursement of certain expenses, less (i) all rents or other
payments collected or received by the insured (other than the proceeds of hazard
insurance) that are derived from or in any way related to the Mortgaged
Property, (ii) hazard insurance proceeds in excess of the amount required to
restore the Mortgaged Property and which have not been applied to the payment of
the Mortgage Loan, (iii) amounts expended but not approved by the issuer of the
related Primary Mortgage Insurance Policy (the "Primary Insurer"), (iv) claim
payments previously made by the Primary Insurer and (v) unpaid premiums.
Primary Mortgage Insurance Policies reimburse certain losses sustained by
reason of defaults in payments by borrowers. Primary Mortgage Insurance Policies
will not insure against. and exclude from coverage, a loss sustained by reason
of a default arising from or involving certain matters. including (i) fraud or
negligence in origination or servicing of the Mortgage Loans. including
misrepresentation by the originator, Mortgagor or other persons involved in the
origination of the Mortgage Loan; (ii) failure to construct the Mortgaged
Property subject to the Mortgage Loan in accordance with specified plans; (iii)
physical damage to the Mortgaged Property; and (iv) the related Sub-Servicer not
being approved as a servicer by the Primary Insurer.
Recoveries Under a Primary Mortgage Insurance Policy. As conditions
precedent to the filing of or payment of a claim under a Primary Mortgage
Insurance Policy covering a Mortgage Loan, the insured will be required to (i)
advance or discharge (a) all hazard insurance policy premiums and (b) as
necessary and approved in advance by the Primary Insurer, (1) real estate
property taxes, (2) all expenses required to maintain the related Mortgaged
Property in at least as good a condition as existed at the effective date of
such Primary Mortgage Insurance Policy, ordinary wear and tear excepted, (3)
Mortgaged Property sales expenses, (4) any outstanding liens (as defined in such
Primary Mortgage Insurance Policy) on the Mortgaged Property and (5) foreclosure
costs, including court costs and reasonable attorneys' fees; (ii) in the event
of any physical loss or damage to the Mortgaged Property, have the Mortgaged
Property restored and repaired to at least as good a condition as existed at the
effective date of such Primary Mortgage Insurance Policy, ordinary wear and tear
excepted; and (iii) tender to the Primary Insurer good and merchantable title to
and possession of the Mortgaged Property.
The Master Servicer, on behalf of itself, the Trustee and the
Certificateholders, will present claims to the insurer under each Primary
Mortgage Insurance Policy, and will take such reasonable steps as are necessary
to receive payment or to permit recovery thereunder with respect to defaulted
Mortgage Loans. As set forth
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above, all collections by or on behalf of the Master Servicer under any Primary
Mortgage Insurance Policy and, when the Mortgaged Property has not been
restored, the hazard insurance policy, are to be deposited in the Certificate
Account, subject to withdrawal as heretofore described.
If the Mortgaged Property securing a defaulted Mortgage Loan is damaged and
proceeds, if any, from the related hazard insurance policy are insufficient to
restore the damaged Mortgaged Property to a condition sufficient to permit
recovery under the related Primary Mortgage Insurance Policy, if any, the Master
Servicer is not required to expend its own funds to restore the damaged
Mortgaged Property unless it determines (i) that such restoration will increase
the proceeds to Certificateholders on liquidation of the Mortgage Loan after
reimbursement of the Master Servicer for its expenses and (ii) that such
expenses will be recoverable by it from related Insurance Proceeds or
Liquidation Proceeds.
If recovery on a defaulted Mortgage Loan under any related Primary Mortgage
Insurance Policy is not available, or if the defaulted Mortgage Loan is not
covered by a Primary Mortgage Insurance Policy, the Master Servicer will be
obligated to follow or cause to be followed such normal practices and procedures
as it deems necessary or advisable to realize upon the defaulted Mortgage Loan.
If the proceeds of any liquidation of the Mortgaged Property securing the
defaulted Mortgage Loan are less than the principal balance of such Mortgage
Loan plus interest accrued thereon that is payable to Certificateholders, the
Trust Fund will realize a loss in the amount of such difference plus the
aggregate of expenses incurred by the Master Servicer in connection with such
proceedings that are reimbursable under the Agreement. In the unlikely event
that any such proceedings result in a total recovery which is, after
reimbursement to the Master Servicer of its expenses, in excess of the principal
balance of such Mortgage Loan plus interest accrued thereon that is payable to
Certificateholders, the Master Servicer will be entitled to withdraw or retain
from the Certificate Account amounts representing its normal servicing
compensation with respect to such Mortgage Loan and amounts representing the
balance of such excess, exclusive of any amount required by law to be forwarded
to the related Mortgagor, as additional servicing compensation.
If the Master Servicer or its designee recovers Insurance Proceeds which,
when added to any related Liquidation Proceeds and after deduction of certain
expenses reimbursable to the Master Servicer, exceed the principal balance of a
Mortgage Loan plus interest accrued thereon that is payable to
Certificateholders, the Master Servicer will be entitled to withdraw or retain
from the Certificate Account amounts representing its normal servicing
compensation with respect to such Mortgage Loan. In the event that the Master
Servicer has expended its own funds to restore the damaged Mortgaged Property
and such funds have not been reimbursed under the related hazard insurance
police it will be entitled to withdraw from the Certificate Account out of
related Liquidation Proceeds or Insurance Proceeds an amount equal to such
expenses incurred by it, in which event the Trust Fund may realize a loss up to
the amount so charged. Since Insurance Proceeds cannot exceed deficiency claims
and certain expenses incurred by the Master Servicer, no such payment or
recovery will result in a recovery to the Trust Fund that exceeds the principal
balance of the defaulted Mortgage Loan together with accrued interest thereon.
See "Credit Enhancement" herein and in the related Prospectus Supplement.
The proceeds from any liquidation of a Mortgage Loan will be applied in the
following order of priority: first, to reimburse the Master Servicer for any
unreimbursed expenses incurred by it to restore the related Mortgaged Property
and any unreimbursed servicing compensation payable to the Master Servicer with
respect to such Mortgage Loan; second, to reimburse the Master Servicer for any
unreimbursed Advances with respect to such Mortgage Loan: third, to accrued and
unpaid interest (to the extent no Advance has been made for such amount) on such
Mortgage Loan; and fourth, as a recovery of principal of such Mortgage Loan.
FHA Insurance; VA Guaranties. Mortgage 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. Such
Mortgage 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. Mortgage Loans insured by the FHA generally require a minimum down
payment of approximately 5% of the original principal amount of the loan. No
FHA-insured Mortgage Loans relating to a
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Series may have an interest rate or original principal amount exceeding the
applicable FHA limits at the time of origination of such loan.
The insurance premiums for Mortgage Loans insured by the FHA are collected
by lenders approved by the Department of Housing and Urban Development ("HUD")
or by the Master Servicer or any Sub-Servicers and are paid to the FHA. The
regulations governing FHA single-family mortgage insurance programs provide that
insurance benefits are payable either upon foreclosure (or other acquisition of
possession) and conveyance of the mortgaged premises to HUD or upon assignment
of the defaulted Mortgage Loan to HUD. With respect to a defaulted FHA-insured
Mortgage Loan, the Master Servicer or any Sub-Servicer is limited in its ability
to initiate foreclosure proceedings. When it is determined, either by the Master
Servicer or any Sub-Servicer or HUD, that default was caused by circumstances
beyond the Mortgagor's control, the Master Servicer or any Sub-Servicer is
expected to make an effort to avoid foreclosure by entering, if feasible, into
one of a number of available forms of forbearance plans with the Mortgagor. Such
plans may involve the reduction or suspension of regular mortgage payments for a
specified period, with such payments to be made up on or before the maturity
date of the mortgage, or the recasting of payments due under the mortgage up to
or beyond the maturity date. In addition, when a default caused by such
circumstances is accompanied by certain other criteria, HUD may provide relief
by making payments to the Master Servicer or any Sub-Servicer in partial or full
satisfaction of amounts due under the Mortgage Loan (which payments are to be
repaid by the Mortgagor to HUD) or by accepting assignment of the loan from the
Master Servicer or any Sub-Servicer. With certain exceptions. at least three
full monthly installments must be due and unpaid under the Mortgage Loan and HUD
must have rejected any request for relief from the Mortgagor before the Master
Servicer or any Sub-Servicer may initiate foreclosure proceedings.
HUD has the option, in most cases, to pay insurance claims in cash or in
debentures issued by HUD. Currently, claims are being paid in cash, and claims
have not been paid in debentures since 1965. HUD debentures issued in
satisfaction of FHA insurance claims bear interest at the applicable HUD
debentures interest rate. The Master Servicer or any Sub-Servicer of each
FHA-insured Mortgage Loan will be obligated to purchase any such debenture
issued in satisfaction of such Mortgage Loan upon default for an amount equal to
the principal amount of any such debenture.
The amount of insurance benefits generally paid by the FHA is equal to the
entire unpaid principal amount of the defaulted Mortgage Loan adjusted to
reimburse the Master Servicer or Sub-Servicer for certain costs and expenses and
to deduct certain amounts received or retained by the Master Servicer or
Sub-Servicer after default. When entitlement to insurance benefits results from
foreclosure (or other acquisition of possession) and conveyance to HUD, the
Master Servicer or Sub-Servicer is compensated for no more than two-thirds of
its foreclosure costs, and is compensated for interest accrued and unpaid prior
to such date but in general only to the extent it was allowed pursuant to a
forbearance plan approved by HUD. When entitlement to insurance benefits results
from assignment of the Mortgage Loan to HUD, the insurance payment includes full
compensation for interest accrued and unpaid to the assignment date. The
insurance payment itself, upon foreclosure of an FHA-insured Mortgage Loan,
bears interest from a date 30 days after the Mortgagor's first uncorrected
failure to perform any obligation to make any payment due under the Mortgage
Loan and, upon assignment, from the date of assignment to the date of payment of
the claim, in each case at the same interest rate as the applicable HUD
debenture interest rate as described above.
Mortgage Loans designated in the related Prospectus Supplement as
guaranteed by the VA will be partially guaranteed by the VA under the
Serviceman's Readjustment Act of 1944, as amended (a "VA Guaranty"). The
Serviceman's Readjustment Act of 1944, as amended. permits a veteran (or in
certain instances the spouse of a veteran) to obtain a mortgage loan guaranty by
the VA covering mortgage financing of the purchase of a one- to four-family
dwelling unit at interest rates permitted by the VA. The program has no mortgage
loan limits, requires no down payment from the purchaser and permits the
guarantee of mortgage loans of up to 30 years' duration. However, no Mortgage
Loan guaranteed by the VA will have an original principal amount greater than
five times the partial VA guaranty for such Mortgage Loan.
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The maximum guaranty that may be issued by the VA under a VA guaranteed
mortgage loan depends upon the original principal amount of the mortgage loan,
as further described in 38 United States Code Section 1803(a), as amended. As of
January 1, 1990, the maximum guaranty that may be issued by the VA under a VA
guaranteed mortgage loan of more than $144,000 is the lesser of 25% of the
original principal amount of the mortgage loan and $46,000. The liability on the
guaranty is reduced or increased pro rata with any reduction or increase in the
amount of indebtedness, but in no event will the amount payable on the guaranty
exceed the amount of the original guaranty. The VA may, at its option and
without regard to the guaranty, make full payment to a mortgage holder of
unsatisfied indebtedness on a mortgage upon its assignment to the VA.
With respect to a defaulted VA guaranteed Mortgage Loan, the Master
Servicer or Sub-Servicer is, absent exceptional circumstances, authorized to
announce its intention to foreclose only when the default has continued for
three months. Generally, a claim for the guaranty is submitted after liquidation
of the Mortgaged Property.
The amount payable under the guaranty will be the percentage of the
VA-insured Mortgage Loan originally guaranteed applied to indebtedness
outstanding as of the applicable date of computation specified in the VA
regulations. Payments under the guaranty will be equal to the unpaid principal
amount of the loan, interest accrued on the unpaid balance of the loan to the
appropriate date of computation and limited expenses of the mortgagee, but in
each case only to the extent that such amounts have not been recovered through
liquidation of the Mortgaged Property. The amount payable under the guaranty may
in no event exceed the amount of the original guaranty.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal servicing compensation to be paid to the Master Servicer in
respect of its master servicing activities for each Series of Certificates 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 Mortgage Loan, and such compensation will be retained
by it from collections of interest on such Mortgage Loan in the related Trust
Fund (the "Master Servicing Fee"). Unless otherwise specified in the related
Prospectus Supplement, as compensation for its servicing duties, a Sub-Servicer
or, if there is no Sub-Servicer, the Master Servicer will be entitled to a
monthly servicing fee as described in the related Prospectus Supplement. In
addition, the Master Servicer or a Sub-Servicer will retain all prepayment
charges, assumption fees and late payment charges, to the extent collected from
Mortgagors, and any benefit that may accrue as a result of the investment of
funds in the applicable Certificate Account.
The Master Servicer will pay or cause to be paid certain ongoing expenses
associated with each Trust Fund and incurred by it in connection with its
responsibilities under the related Agreement, including, without limitation,
payment of any fee or other amount payable in respect of any credit enhancement
arrangements, payment of the fees and disbursements of the Trustee, any
custodian appointed by the Trustee, the certificate registrar and any paying
agent, and payment of expenses incurred in enforcing the obligations of
Sub-Servicers and Sellers. The Master Servicer will be entitled to reimbursement
of expenses incurred in enforcing the obligations of Sub-Servicers and Sellers
under certain limited circumstances. In addition, as indicated in the preceding
section, the Master Servicer will be entitled to reimbursement for certain
expenses incurred by it in connection with any defaulted Mortgage Loan as to
which it has determined that all recoverable Liquidation Proceeds and Insurance
Proceeds have been received (a "Liquidated Mortgage"), and in connection with
the restoration of Mortgaged Properties, such right of reimbursement being prior
to the rights of Certificateholders to receive any related Liquidation Proceeds
(including Insurance Proceeds).
EVIDENCE AS TO COMPLIANCE
Each Agreement will provide that on or before a specified date in each
year, a firm of independent public accountants will furnish a statement to the
Trustee to the effect that, on the basis of the examination by such firm
conducted substantially in compliance with the Uniform Single Attestation
Program for Mortgage Bankers or the Audit Program for Mortgages serviced for
FHLMC, the servicing by or on behalf of the Master
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Servicer of Mortgage Loans or Agency Securities, under Agreements substantially
similar to each other (including the related Agreement) was conducted in
compliance with such agreements except for any significant exceptions or errors
in records that, in the opinion of the firm, the Audit Program for Mortgages
serviced for FHLMC or the Uniform Single Attestations Program for Mortgage
Bankers requires it to report. In rendering its statement such firm may rely, as
to matters relating to the direct servicing of Mortgage Loans or Agency
Securities by Sub-Servicers, upon comparable statements for examinations
conducted substantially in compliance with the Uniform Single Attestation
Program for Mortgage Bankers or the Audit Program for Mortgages serviced for
FHLMC (rendered within one year of such statement) of firms of independent
public accountants with respect to the related Sub-Servicer.
Each Agreement will also provide for delivery to the Trustee, on or before
a specified date in each year, of an annual statement signed by an officer of
the Master Servicer to the effect that the Master Servicer has fulfilled its
obligations under the Agreement throughout the preceding year.
Copies of the annual accountants' statement and the statement of officers
of the Master Servicer may be obtained by Certificateholders of the related
Series without charge upon written request to the Master Servicer at the address
set forth in the related Prospectus Supplement.
LIST OF CERTIFICATEHOLDERS
Each Agreement will provide that three or more holders of Certificates of
any Series may, by written request to the Trustee, obtain access to the list of
all Certificateholders maintained by the Trustee for the purpose of
communicating with other Certificateholders with respect to their rights under
the Agreement and the Certificates.
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE DEPOSITOR
The Master Servicer under each Agreement will be named in the related
Prospectus Supplement. The entity serving as Master Servicer may be an affiliate
of the Depositor, may be a Seller or may have normal business relationships with
the Depositor or the Depositor's affiliates.
Each Agreement will provide that the Master Servicer may not resign from
its obligations and duties under the Agreement except upon a determination that
the performance by it of its duties thereunder is no longer permissible under
applicable law. No such resignation will become effective until the Trustee or a
successor servicer has assumed the Master Servicer's obligations and duties
under the Agreement. Notwithstanding the foregoing, each Agreement will provide
that the Master Servicer may assign its rights and obligations under the
applicable Agreement to an entity that (i) is reasonably acceptable to the
Trustee and any third-party provider of credit enhancement for the related
Series, (ii) is duly qualified and licensed to service mortgage loans comparable
to the Mortgage Loans in the jurisdictions in which the Mortgaged Properties are
located, (iii) has a net worth of not less than $10,000,000 and is an approved
servicer for either FNMA or FHLMC, (iv) will not cause any Rating Agency to
lower or withdraw its then-current rating assigned to the Certificates of the
related Series and (v) executes and delivers an agreement pursuant to which such
successor agrees to be bound by all of the terms and conditions of the
applicable Agreement.
Each Agreement will further provide that neither the Master Servicer, the
Depositor nor any director, officer, employee, or agent of the Master Servicer
or the Depositor will be under any liability to the related Trust Fund or
Certificateholders for any action taken or for refraining from the taking of any
action in good faith pursuant to the Agreement, or for errors in judgment;
provided, however, that neither the Master Servicer, the Depositor nor any such
person will be protected against any liability that would otherwise be imposed
by reason of willful misfeasance, bad faith or negligence in the performance of
duties thereunder or by reason of reckless disregard of obligations and duties
thereunder. Each Agreement will further provide that the Master Servicer, the
Depositor and any director, officer, employee or agent of the Master Servicer or
the Depositor will be entitled to indemnification by the related Trust Fund and
will be held harmless against any loss, liability or expense incurred in
connection with any legal action relating to the Agreement or the Certificates,
other than any loss, liability or expense related to any specific Mortgage Asset
or Mortgage Assets (except any such loss, liability or expense otherwise
reimbursable pursuant to the Agreement) and any loss,
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liability or expense incurred by reason of willful misfeasance, bad faith or
negligence in the performance of duties thereunder or by reason of reckless
disregard of obligations and duties thereunder. In addition, each Agreement will
provide that neither the Master Servicer nor the Depositor will be under any
obligation to appear in, prosecute or defend any legal action which is not
incidental to its respective responsibilities under the Agreement and which in
its opinion may involve it in any expense or liability. The Master Servicer or
the Depositor may, however, in its discretion undertake any such action which it
may deem necessary or desirable with respect to the Agreement and the rights and
duties of the parties thereto and the interests of the Certificateholders
thereunder. In such event, the legal expenses and costs of such action and any
liability resulting therefrom will be expenses, costs and liabilities of the
Trust Fund, and the Master Servicer or the Depositor, as the case may be, will
be entitled to be reimbursed therefor out of funds otherwise distributable to
Certificateholders.
Any person into which the Master Servicer may be merged or consolidated, or
any person resulting from any merger or consolidation to which the Master
Servicer is a party, or any person succeeding to the business of the Master
Servicer, will be the successor of the Master Servicer under each Agreement,
provided that such person is qualified to sell mortgage loans to, and service
mortgage loans on behalf of, FNMA or FHLMC and further provided that such
merger, consolidation or succession does not adversely affect the then current
rating or ratings of the class or classes of Certificates of such Series that
have been rated.
EVENTS OF DEFAULT
Events of Default under each Agreement will consist of (i) any failure by
the Master Servicer to deposit in the Certificate Account or remit to the
Trustee any payment (other than an Advance) which continues unremedied for five
days after the giving of written notice of such failure to the Master Servicer
by the Trustee or the Depositor, or to the Master Servicer and the Trustee by
the holders of Certificates having not less than 25% of the Voting Rights
evidenced by the Certificates; (ii) any failure by the Master Servicer to make
an Advance as required under the Agreement, unless cured as specified therein;
(iii) any failure by the Master Servicer to observe or perform in any material
respect any of its other covenants or agreements in the Agreement which
continues unremedied for sixty days after the giving of written notice of such
failure to the Master Servicer by the Trustee or the Depositor, or to the Master
Servicer and the Trustee by the holders of Certificates of any class evidencing
not less than 25% of the Voting Rights evidenced by the Certificate; and (iv)
certain events of insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceeding and certain actions by or on behalf of the
Master Servicer indicating its insolvency, reorganization or inability to pay
its obligations. "Voting Rights" are the portion of voting rights of all of the
Certificates which are allocated to any Certificate pursuant to the terms of the
Agreement.
If specified in the related Prospectus Supplement, the Agreement will
permit the Trustee to sell the Mortgage Assets and the other assets of the Trust
Fund in the event that payments in respect thereto are insufficient to make
payments required in the Agreement. The assets of the Trust Fund will be sold
only under the circumstances and in the manner specified in the related
Prospectus Supplement.
RIGHTS UPON EVENT OF DEFAULT
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 Certificates
having not less than 25% of the Voting Rights and under such other circumstances
as may be specified in such Agreement, the Trustee shall terminate all of the
rights and obligations of the Master Servicer under the Agreement relating to
such Trust Fund and in and to the Mortgage Assets, whereupon the Trustee will
succeed to all of the responsibilities, duties and liabilities of the Master
Servicer under the Agreement, including, if specified in the related Prospectus
Supplement, the obligation to make Advances, and will be entitled to similar
compensation arrangements. In the event that the Trustee is unwilling or unable
so to act, it may appoint, or petition a court of competent jurisdiction for the
appointment of, a mortgage loan servicing institution with a net worth of at
least $10,000,000 to act as successor to the Master Servicer under the
Agreement. Pending such appointment, the Trustee is obligated to act in such
capacity. The Trustee and any such successor may agree upon the servicing
compensation to be
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paid to the successor servicer, which in no event may be greater than the
compensation payable to the Master Servicer under the Agreement.
No Certificateholder, solely by virtue of such holder's status as a
Certificateholder, will have any right under any Agreement to institute any
proceeding with respect to such Agreement, unless such holder previously has
given to the Trustee written notice of default and unless the holders of any
class of Certificates of such Series evidencing not less than 25% of the Voting
Rights have made written request upon the Trustee to institute such proceeding
in its own name as Trustee thereunder and have offered to the Trustee reasonable
indemnity, and the Trustee for 60 days has neglected or refused to institute any
such proceeding.
AMENDMENT
Each Agreement may be amended by the Depositor, the Master Servicer and the
Trustee, without the consent of any of the Certificateholders, (i) to cure any
ambiguity; (ii) to correct or supplement any provision therein which may be
defective or inconsistent with any other provision therein (including to give
effect to the expectations of holders); or (iii) to make any other provision
with respect to matters or questions arising under the Agreement, provided that
such action will not as evidenced by an opinion of counsel, adversely affect in
any material respect the interests of any Certificateholder; provided, however,
that no such opinion of counsel will be required if the person requesting such
amendment obtains a letter from each rating agency requested to rate the class
or classes of Certificates of such Series stating that such amendment will not
result in the downgrading or withdrawal of the respective ratings then assigned
to such Certificates. In addition, if a REMIC election is made with respect to a
Trust Fund, the related Agreement may be amended to modify, eliminate or add to
any of its provisions to such extent as may be necessary to maintain the
qualification of the related Trust Fund as a REMIC, provided that the Trustee
has received an opinion of counsel to the effect that such action is necessary
or helpful to maintain such qualification. Each Agreement may also be amended by
the Depositor, the Master Servicer and the Trustee with the consent of holders
of Certificates of such Series evidencing a majority in interest of each class
affected thereby for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of the Agreement or of modifying in
any manner the rights of the holders of the related Certificates; provided,
however, that no such amendment may (i) reduce in any manner the amount of, or
delay the timing of, payments received on Mortgage Assets that are required to
be distributed on any Certificate without the consent of the holder of such
Certificate, (ii) adversely affect in any material respect the interests of the
holders of any class of Certificates in a manner other than as described in (i),
without the consent of the holders of Certificates of such class evidencing, as
to such class, percentage interests aggregating 66%, or (iii) reduce the
aforesaid percentage of Certificates of any class of holders that is required to
consent to any such amendment without the consent of the holders of all
Certificates of such class covered by such Agreement then outstanding. If a
REMIC election is made with respect to a Trust Fund, the Trustee will not be
entitled to consent to an amendment to the related Agreement without having
first received an opinion of counsel to the effect that such amendment will not
cause such Trust Fund to fail to qualify as a REMIC.
TERMINATION; OPTIONAL TERMINATION
The obligations created by each Agreement for each Series of Certificates
will terminate upon the payment to the related Certificateholders of all amounts
held in the Certificate Account or by the Master Servicer and required to be
paid to them pursuant to such Agreement following the later of (i) the final
payment or other liquidation of the last of the Mortgage Assets subject thereto
or the disposition of all property acquired upon foreclosure of any such
Mortgage Assets remaining in the Trust Fund and (ii) the purchase by the person
specified in the related Prospectus Supplement from the related Trust Fund of
all of the remaining Mortgage Assets and all property acquired in respect of
such Mortgage Assets; provided that the Trust Fund will terminate not later than
the death of the survivors of the person named in the related Agreement.
Any purchase of Mortgage Assets and property acquired in respect of
Mortgage Assets evidenced by a Series of Certificates will be made at the option
of such person at a price, and in accordance with the procedures, specified in
the related Prospectus Supplement. The exercise of such right will effect early
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retirement of the Certificates of that Series, but the right of such person to
so purchase is subject to the principal balance of the related Mortgage Assets
being less than a fixed percentage, not more than 25%, specified in the related
Prospectus Supplement of the aggregate principal balance of the Mortgage Assets
at the Cut-off Date for the Series. The purchase price may be less than the
outstanding principal of the related Certificates if the Mortgage Assets include
Mortgaged Properties acquired by the Trust Fund through foreclosure or
deed-in-lieu of foreclosure in connection with defaulted Mortgage Loans and the
values of such Mortgaged Properties are less than the outstanding principal
balances of the related Mortgage Loans. The foregoing is subject to the
provision that if a REMIC election is made with respect to a Trust Fund, any
repurchase pursuant to clause (ii) above will be made only in connection with a
"qualified liquidation" of the REMIC within the meaning of Section 860F(g)(4) of
the Code.
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
banking relationships with the Depositor, the Master Servicer and any of their
respective affiliates.
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CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries, which are general in nature,
of certain legal matters relating to the Mortgage Loans. Because the Mortgaged
Properties are expected to be located throughout the United States and because
such legal aspects are governed primarily by applicable state law (which laws
may differ substantially), the summaries do not purport to be complete or to
reflect the laws of any particular state or to encompass the laws of all states
in which the security for the Mortgage Loans is situated.
GENERAL
The Mortgage Loans will be secured by deeds of trust, mortgages, security
deeds or deeds to secure debt, depending upon the prevailing practice in the
state in which the property subject to the loan is located. Deeds of trust are
used almost exclusively in California instead of mortgages. A mortgage creates a
lien upon the real property encumbered by the mortgage, which lien is generally
not prior to the lien for real estate taxes and assessments. Priority between
mortgages depends on their terms and generally on the order of recording with a
state or county office. There are two parties to a mortgage: the mortgagor, who
is the borrower and owner of the mortgaged property, and the mortgagee, who is
the lender. Under the mortgage instrument, the mortgagor delivers to the
mortgagee a note or bond and the mortgage. Although a deed of trust is similar
to a mortgage, a deed of trust formally has three parties, the borrower-property
owner called the trustor (similar to a mortgagor), a lender (similar to a
mortgagee) called the beneficiary, and a third-party grantee called the trustee.
Under a deed of trust, the borrower grants the property, irrevocably until the
debt is paid, in trust, generally with a power of sale, to the trustee to secure
payment of the obligation. A security deed and a deed to secure debt are special
types of deeds which indicate on their face that they are granted to secure an
underlying debt. By executing a security deed or deed to secure debt, the
grantor conveys title to, as opposed to merely creating a lien upon, the subject
property to the grantee until such time as the underlying debt is repaid. The
trustee's authority under a deed of trust, the mortgagee's authority under a
mortgage and the grantee's authority under a security deed or deed to secure
debt are governed by law and, with respect to some deeds of trust, the
directions of the beneficiary.
Cooperatives. Certain of the Mortgage Loans may be Cooperative Loans. The
Cooperative owns all the real property that comprises the project, including the
land, separate dwelling units and all common areas. The Cooperative is directly
responsible for project management and, in most cases, payment of real estate
taxes and hazard and liability insurance. If there is a blanket mortgage on the
Cooperative and/or underlying land, as is generally the case, the Cooperative,
as project mortgagor, is also responsible for meeting these mortgage
obligations. A blanket mortgage is ordinarily incurred by the Cooperative in
connection with the construction or purchase of the Cooperative's apartment
building. The interest of the occupant under proprietary leases or occupancy
agreements to which that Cooperative is a party are generally subordinate to the
interest of the holder of the blanket mortgage in that building. If the
Cooperative is unable to meet the payment obligations arising under its blanket
mortgage, the mortgagee holding the blanket mortgage could foreclose on that
mortgage and terminate all subordinate proprietary leases and occupancy
agreements. In addition, the blanket mortgage on a Cooperative may provide
financing in the form of a mortgage that does not fully amortize with a
significant portion of principal being due in one lump sum at final maturity.
The inability of the Cooperative to refinance this mortgage and its consequent
inability to make such final payment could lead to foreclosure by the mortgagee
providing the financing. A foreclosure in either event by the holder of the
blanket mortgage could eliminate or significantly diminish the value of any
collateral held by the lender who financed the purchase by an individual
tenant-stockholder of Cooperative shares or, in the case of a Trust Fund
including Cooperative Loans, the collateral securing the Cooperative Loans.
The Cooperative is owned by tenant-stockholders who, through ownership of
stock, shares or membership certificates in the corporation, receive proprietary
leases or occupancy agreements which confer exclusive rights to occupy specific
units. Generally, a tenant-stockholder of a Cooperative must make a monthly
payment to the Cooperative representing such tenant-stockholder's pro rata share
of the Cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a Cooperative and accompanying rights is financed through a
Cooperative share loan evidenced by a promissory note and secured by a security
interest in the occupancy agreement or
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proprietary lease and in the related Cooperative shares. The lender takes
possession of the share certificate and a counterpart of the proprietary lease
or occupancy agreement, and a financing statement covering the proprietary lease
or occupancy agreement and the Cooperative shares is filed in the appropriate
state and local offices to perfect the lender's interest in its collateral.
Subject to the limitations discussed below, upon default of the
tenant-stockholder, the lender may sue for judgment on the promissory note,
dispose of the collateral at a public or private sale or otherwise proceed
against the collateral or tenant-stockholder as an individual as provided in the
security agreement covering the assignment of the proprietary lease or occupancy
agreement and the pledge of Cooperative shares.
FORECLOSURE/REPOSSESSION
Deed of Trust. Foreclosure of a deed of trust is generally accomplished by
a non-judicial sale under a specific provision in the deed of trust which
authorizes the trustee to sell the property at public auction upon any default
by the borrower under the terms of the note or deed of trust. In certain states,
such foreclosure also may be accomplished by judicial action in the manner
provided for foreclosure of mortgages. In some states, the trustee must record a
notice of default and send a copy to the borrower-trustor and to any person who
has recorded a request for a copy of any notice of default and notice of sale.
In addition, the trustee must provide notice in some states to any other
individual having an interest of record in the real property, including any
junior lienholders. If the deed of trust is not reinstated within any applicable
cure period, a notice of sale must be posted in a public place and, in most
states, published for a specified period of time in one or more newspapers. In
addition, these notice provisions require that a copy of the notice of sale be
posted on the property and sent to all parties having an interest of record in
the property.
In some states, the borrower-trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In general,
the borrower, or any other person having a junior encumbrance on the real
estate, may, during a reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in enforcing the
obligation. Certain state laws control the amount of foreclosure expenses and
costs, including attorney's fees, which may be recoverable by a lender.
Mortgages. Foreclosure of a mortgage is generally accomplished by judicial
action. The action is initiated by the service of legal pleadings upon all
parties having an interest in the real property. Delays in completion of the
foreclosure may occasionally result from difficulties in locating necessary
parties. Judicial foreclosure proceedings are often not contested by any of the
parties. When the mortgagee's right to foreclosure is contested, the legal
proceedings necessary to resolve the issue can be time consuming. After the
completion of a judicial foreclosure proceeding, the court generally issues a
judgment of foreclosure and appoints a referee or other court officer to conduct
the sale of the property. In general, the borrower, or any other person having a
junior encumbrance on the real estate, may, during a statutorily prescribed
reinstatement period, cure a monetary default by paying the entire amount in
arrears plus other designated costs and expenses incurred in enforcing the
obligation. Generally, state law controls the amount of foreclosure expenses and
costs, including attorney's fees, which may be recovered by a lender. After the
reinstatement period has expired without the default having been cured, the
borrower or junior lienholder no longer has the right to reinstate the loan and
must pay the loan in full to prevent the scheduled foreclosure sale. If the deed
of trust is not reinstated, 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 in the
real property.
Although foreclosure sales are typically public sales, frequently no third
party purchaser bids in excess of the lender's lien because of the difficulty of
determining the exact status of title to the property, the possible
deterioration of the property during the foreclosure proceedings and a
requirement that the purchaser pay for the property in cash or by cashier's
check. Thus the foreclosing lender often purchases the property from the trustee
or referee for an amount equal to the principal amount outstanding under the
loan, accrued and unpaid interest and the expenses of foreclosure. Thereafter,
the lender will assume the burden of ownership, including obtaining hazard
insurance and making such repairs at its own expense as are necessary to render
the property suitable for sale. The lender will commonly obtain the services of
a real estate broker and pay the broker's
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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.
Courts have imposed general equitable principles upon foreclosure, which
are generally designed to mitigate the legal consequences to the borrower of the
borrower's defaults under the loan documents. Some courts have been faced with
the issue of whether federal or state constitutional provisions reflecting due
process concerns for fair notice require that borrowers under deeds of trust
receive notice longer than that prescribed by statute. For the most part, these
cases have upheld the notice provisions as being reasonable or have found that
the sale by a trustee under a deed of trust does not involve sufficient state
action to afford constitutional protection to the borrower.
Cooperative Loans. The Cooperative shares owned by the tenant-stockholder
and pledged to the lender are, in almost all cases, subject to restrictions on
transfer as set forth in the Cooperative's certificate of incorporation and
bylaws, as well as the proprietary lease or occupancy agreement, and may be
canceled by the Cooperative for failure by the tenant-stockholder to pay rent or
other obligations or charges owed by such tenant-stockholder, including
mechanics' liens against the cooperative apartment building incurred by such
tenant-stockholder. The proprietary lease or occupancy agreement generally
permits the Cooperative to terminate such lease or agreement in the event an
obligor fails to make payments or defaults in the performance of covenants
required thereunder. Typically, the lender and the Cooperative enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of a default by the tenant-stockholder on its obligations
under the proprietary lease or occupancy agreement. A default by the
tenant-stockholder under the proprietary lease or occupancy agreement will
usually constitute a default under the security agreement between the lender and
the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the Cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the Cooperative will recognize the
lender's lien against proceeds from the sale of the Cooperative apartment,
subject, however, to the Cooperative's right to sums due under such proprietary
lease or occupancy agreement. The total amount owed to the Cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the Cooperative Loan and accrued and unpaid interest
thereon.
Recognition agreements also provide that in the event of a foreclosure on a
Cooperative Loan, the lender must obtain the approval or consent of the
Cooperative as required by the proprietary lease before transferring the
Cooperative shares or assigning the proprietary lease. Generally, the lender is
not limited in any rights it may have to dispossess the tenant-stockholders.
In some states, foreclosure on the Cooperative shares is accomplished by a
sale in accordance with the provisions of Article 9 of the Uniform Commercial
Code (the "UCC") and the security agreement relating to those shares. Article 9
of the UCC requires that a sale be conducted in a "commercially reasonable"
manner. Whether a foreclosure sale has been conducted in a "commercially
reasonable" manner will depend on the facts in each case. In determining
commercial reasonableness, a court will look to the notice given the debtor and
the method, manner, time, place and terms of the foreclosure. Generally, a sale
conducted according to the usual practice of banks selling similar collateral
will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the Cooperative to receive sums due under the
proprietary lease or occupancy agreement. If there are proceeds remaining, the
lender must account to the tenant-stockholder for the surplus. Conversely, if a
portion of the indebtedness remains unpaid, the tenant-stockholder is generally
responsible for the deficiency. See "Anti-Deficiency Legislation and Other
Limitations on Lenders" below.
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In the case of foreclosure on a building which was converted from a rental
building to a building owned by a Cooperative under a non-eviction plan, some
states require that a purchaser at a foreclosure sale take the property subject
to rent control and rent stabilization laws which apply to certain tenants who
elected to remain in the building but who did not purchase shares in the
Cooperative when the building was so converted.
RIGHTS OF REDEMPTION
In some states after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and certain foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale. In
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 some states, the right to redeem is an equitable right. The effect of
a 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 at a foreclosure sale, or of any purchaser from the
lender subsequent to judicial foreclosure or sale under a deed of trust.
Consequently, the practical effect of the redemption right is to force the
lender to retain the property and pay the expenses of ownership until the
redemption period has run.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
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 the borrower following foreclosure or sale under a
deed of trust. 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 current fair market value of the property at the time of the foreclosure
sale. As a result of these prohibitions, it is anticipated that in most
instances the Master Servicer will utilize the non-judicial foreclosure remedy
and will not seek deficiency judgments against defaulting Mortgagors.
Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
In certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security;
however, in some of these states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and may be precluded
from exercising remedies with respect to the security. Consequently, the
practical effect of the election requirement, when applicable is that lenders
will usually proceed 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.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of the
secured mortgage lender to realize upon its security. For example, in a
proceeding under the federal Bankruptcy Code, a lender may not foreclose on a
mortgaged property without the permission of the bankruptcy court. The
rehabilitation plan proposed by the debtor may provide, if the mortgaged
property is not the debtor's principal residence and the court determines that
the value of the mortgaged property is less than the principal balance of the
mortgage loan, for the reduction of the secured indebtedness to the value of the
mortgaged property as of the date of the commencement of the bankruptcy,
rendering the lender a general unsecured creditor for the difference, and also
may reduce the monthly payments due under such mortgage loan, change the rate of
interest and alter the mortgage loan repayment schedule. The effect of any such
proceedings under the federal Bankruptcy Code, including but not limited to any
automatic stay, could result in delays in receiving payments on the Mortgage
Loans underlying a Series of Certificates and possible reductions in the
aggregate amount of such payments.
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The federal tax laws provide priority to certain tax liens over the lien of
a mortgage or secured party. Numerous federal and state consumer protection laws
impose substantive requirements upon mortgage lenders in connection with the
origination, servicing and enforcement of mortgage loans. These laws include the
federal Truth-in-Lending Act, Real Estate Settlement Procedures Act, Equal
Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act and
related statutes and regulations. These federal and state laws impose specific
statutory liabilities upon lenders who fail to comply with the provisions of the
law. In some cases, this liability may affect assignees of the loans or
contracts.
Generally, Article 9 of the UCC governs foreclosure on Cooperative shares
and the related proprietary lease or occupancy agreement. Some courts have
interpreted section 9-504 of the UCC to prohibit a deficiency award unless the
creditor establishes that the sale of the collateral (which, in the case of a
Cooperative Loan, would be the shares of the Cooperative and the related
proprietary lease or occupancy agreement) was conducted in a commercially
reasonable manner.
ENVIRONMENTAL RISKS
Real property pledged as security to a lender may be subject to unforeseen
environmental risks. Under the laws of certain states, contamination of a
property may give rise to a lien on the property to assure the payment of the
costs of clean-up. In several states such a lien has priority over the lien of
an existing mortgage against such property. In addition, under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), the United States Environmental Protection Agency ("EPA") may impose
a lien on property where the 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 such costs on
any and all "responsible parties," including owners or operators. However,
CERCLA excludes from the definition of "owner or operator" a secured creditor
who holds indicia of ownership primarily to protect its security interest (the
"secured creditor exclusion"). Thus, if a lender's activities begin to encroach
on the actual management of a contaminated facility or property, the lender may
incur liability as an "owner or operator" under CERCLA. Similarly, if a lender
forecloses and takes title to a contaminated facility or property, the lender
may incur CERCLA liability in various circumstances, including, but not limited
to, when it holds the facility or property as an investment (including leasing
the facility or property to a third party), or fails to market the property in a
timely fashion.
A decision in May 1990 of the United States Court of Appeals for the
Eleventh Circuit in United States v. Fleet Factors Corp. very narrowly construed
CERCLA's secured creditor exclusion. The Court's opinion suggested that a lender
need not have involved itself in the day-to-day operations of the facility, or
participated in decisions related to hazardous waste to be held liable under
CERCLA; rather, liability could attach to a lender if its involvement with the
management of the facility is broad enough to support the inference that the
lender had the capacity to influence the borrower's hazardous waste management
practices. The Court added that a lender's capacity to influence such decisions
could be inferred from the extent of its involvement in the facility's financial
management. In January 1991, the Supreme Court denied certiorari in the Fleet
Factors case, thereby letting the Court of Appeals decision stand. In response
to the Fleet Factors decision, on April 29, 1992. the EPA issued regulations
interpreting and delineating CERCLA's secured creditor exclusion and the range
of permissible actions that may be undertaken by a holder of a security interest
in a contaminated property without exceeding the bounds of the secured creditor
exclusion. However, on February 4, 1994, the United States Court of Appeals for
the District of Columbia Circuit issued a decision in Kelley v. EPA invalidating
the EPA regulations. Further, in January 1995, the Supreme Court denied
certiorari in the Kelley case, thereby letting the Court of Appeals decision
stand. In September 1995, the EPA and the U.S. Department of Justice issued a
guidance document stating that the two agencies, respectively, would apply the
1992 regulations in prosecuting enforcement and cost recovery actions, and in
otherwise addressing lender liability under CERCLA. However. this guidance
document is not binding on any parties
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other than the federal government, and need not be applied by the courts in
adjudicating CERCLA cost recovery or contribution actions brought by states,
municipalities or private parties.
As a result of the Kelley decision, the state of the law with respect to
the secured creditor exclusion remains unclear. Proposed amendments to CERCLA
that would clarify the range of actions a secured creditor may take without
losing the benefit of the exclusion have been introduced in Congress, but have
not been enacted. However, even if CERCLA were to be amended, such amendments
would not affect the potential for liability under other federal or state laws
which impose liability on "owners or operators" but do not provide any
protection for secured creditors.
If a lender is or becomes liable, it can bring an action for contribution
against any other "responsible parties," including a previous owner or operator,
who created the environmental hazard, but those persons or entities may be
bankrupt or otherwise judgment proof. The costs associated with environmental
cleanup may be substantial. It is conceivable that such costs arising from the
circumstances set forth above would result in a loss to Certificateholders.
CERCLA does not apply to petroleum products, and the secured creditor
exclusion does not govern liability for cleanup costs under federal laws other
than CERCLA, in particular Subtitle I of the federal Resource Conservation and
Recovery Act ("RCRA"), which regulates underground petroleum storage tanks
(except heating oil tanks). The EPA has adopted a lender liability rule for
underground storage tanks under Subtitle I of RCRA. Under such rule, a holder of
a security interest in an underground storage tank or real property containing
an underground storage tank is not considered an operator of the underground
storage tank as long as petroleum is not added to, stored in or dispensed from
the tank. It should be noted, however, that liability for cleanup of petroleum
contamination may be governed by state law, which may not provide for any
specific protection for secured creditors.
Except as otherwise specified in the applicable Prospectus Supplement, at
the time the Mortgage Loans were originated, no environmental assessment or a
very limited environmental assessment of the Mortgage Properties was conducted.
DUE-ON-SALE CLAUSES
Each conventional Mortgage Loan generally will contain a due-on-sale clause
which will generally provide that if the mortgagor or obligor sells, transfers
or conveys the Mortgaged Property, the loan may be accelerated by the mortgagee.
In recent years, court decisions and legislative actions have placed substantial
restriction on the right of lenders to enforce such clauses in many states.
However, the Garn-St Germain Depository Institutions Act of 1982 (the "Garn-St
Germain Act"), subject to certain exceptions, preempts state constitutional,
statutory and case law prohibiting the enforcement of due-on-sale clauses. As to
loans secured by an owner-occupied residence, the Garn-St Germain Act sets forth
nine specific instances in which a mortgagee covered by the Garn-St Germain Act
may not exercise its rights under a due-on-sale clause, notwithstanding the fact
that a transfer of the property may have occurred. The inability to enforce a
due-on-sale clause may result in transfer of the related 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
Mortgage Loans and the number of Mortgage Loans which may extend to maturity.
PREPAYMENT CHARGES
Under certain state laws, prepayment charges may not be imposed after a
certain period of time following the origination of mortgage loans with respect
to prepayments on loans secured by liens encumbering owner occupied residential
properties. Since many of the Mortgaged Properties will be owner-occupied it is
anticipated that prepayment charges may not be imposed with respect to many of
the Mortgage Loans. The absence of such a restraint on prepayment. particularly
with respect to fixed rate Mortgage Loans having higher Mortgage Rates, may
increase the likelihood of refinancing or other early retirement of such loans
or contract.
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APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("Title V"), provides that state usury
limitations shall not apply to certain types of residential first mortgage loans
originated by certain lenders after March 31, 1980. The Office of Thrift
Supervision, as successor to the Federal Home Loan Bank Board, is authorized to
issue rules and regulations and to publish interpretations governing
implementation of Title V. The statute authorized the states to reimpose
interest rate limits by adopting, before April 1, 1983, a law or constitutional
provision which expressly rejects an application of the federal law. In
addition, even where Title V is not so rejected, any state is authorized by the
law to adopt a provision limiting discount points or other charges on mortgage
loans covered by Title V. Certain states have taken action to reimpose interest
rate limits and/or to limit discount points or other charges.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Generally, under the terms of the Soldiers' and Sailors' Civil Relief Act
of 1940, as amended (the "Relief Act"), a borrower who enters military service
after the origination of such borrower's mortgage loan (including a borrower who
is a member of the National Guard or is in reserve status at the time of the
origination of the mortgage loan and is later called to active duty) may not be
charged interest above an annual rate of 6% during the period of such borrower's
active duty status, unless a court orders otherwise upon application of the
lender. It is possible that such interest rate limitation could have an effect,
for an indeterminate period of time, on the ability of the Master Servicer to
collect full amounts of interest on certain of the Mortgage Loans. Any shortfall
in interest collections resulting from the application of the Relief Act could
result in losses to the holders of the Certificates. In addition, the Relief Act
imposes limitations which would impair the ability of the Master Servicer to
foreclose on an affected Mortgage Loan during the borrower's period of active
duty status. Thus, in the event that such a Mortgage Loan goes into default,
there may be delays and losses occasioned by the inability to realize upon the
Mortgaged Property in a timely fashion.
FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
This section sets forth (i) certain federal income tax opinions of Stroock
& Stroock & Lavan LLP, special federal tax counsel to the Depositor ("Federal
Tax Counsel"), and (ii) a summary, based on the advice of Federal Tax Counsel,
of the material federal income tax consequences of the purchase, ownership and
disposition of Certificates. 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. The summary focuses
primarily upon investors who will hold Certificates as "capital assets"
(generally, property held for investment) within the meaning of Section 1221 of
the Internal Revenue Code of 1986, as amended (the "Code"), but much of the
discussion is applicable to other investors as well. Because tax consequences
may vary based on the status or tax attributes of the owner of a Certificate,
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 Certificates. For purposes of this
tax discussion (except with respect to information reporting, or where the
context indicates otherwise), any reference to the "Holder" means the beneficial
owner of a Certificate.
The summary is based upon the provisions of the Code, the regulations
promulgated thereunder, including, where applicable, proposed regulations, and
the judicial and administrative rulings and decisions now in effect, all of
which are subject to change or possible differing interpretations. The statutory
provisions, regulations, and interpretations on which this interpretation is
based are subject to change, and such a change could apply retroactively.
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GENERAL
The federal income tax consequences to Certificateholders will vary
depending on whether an election is made to treat the Trust Fund relating to a
particular Series of Certificates as a REMIC under the Code. The Prospectus
Supplement for each Series of Certificates will specify whether a REMIC election
will be made.
OPINIONS
Federal Tax Counsel is of the opinion that:
(i) If a Prospectus Supplement indicates that one or more REMIC
elections will be made with respect to the related Trust Fund, assuming
that such elections are timely made and all of the provisions of the
applicable Agreement are complied with (a) each segregated pool of assets
specified in such Agreement will constitute a REMIC for federal income tax
purposes, (b) the Class or Classes of Certificates of the related Series
which are designated as "regular interests" in such Prospectus Supplement
will be considered "regular interests" in a REMIC for federal income tax
purposes and (c) the Class of Certificates of the related Series which is
designated as the "residual interest" in such Prospectus Supplement will be
considered the sole class of "residual interests" in the applicable REMIC
for federal income tax purposes; and
(ii) If a Prospectus Supplement indicates that a Trust Fund will be
treated as a grantor trust for federal income tax purposes, assuming
compliance with all of the provisions of the applicable Agreement, (a) the
Trust Fund will be considered to be a grantor trust under Subpart E, Part I
of Subchapter J of the Code and will not be considered to be an association
taxable as a corporation and (b) a Holder of the related Certificates will
be treated for federal income tax purposes as the owner of an undivided
interest in the assets included in the Trust Fund.
Each such opinion is an expression of an opinion only, is not a guarantee
of results and is not binding on the Internal Revenue Service or any
third-party.
NON-REMIC CERTIFICATES
If a REMIC election is not made, owners of Certificates will be treated for
federal income tax purposes as owners of a portion of the Trust Fund's assets as
described below.
A. SINGLE CLASS OF CERTIFICATES
Characterization. The Trust Fund may be created with one class of
Certificates. In this case, each Certificateholder will be treated as the owner
of a pro rata undivided interest in the interest and principal portions of the
Trust Fund represented by the Certificates and will be considered the equitable
owner of a pro rata undivided interest in each of the Mortgage Loans in the
Mortgage Pool. Any amounts received by a Certificateholder in lieu of amounts
due with respect to any Mortgage Loans because of a default or delinquency in
payment will be treated for federal income tax purposes as having the same
character as the payments they replace.
Each Certificateholder will be required to report on its federal income tax
return in accordance with such Certificateholder's method of accounting its pro
rata share of the entire income from the Mortgage Loans in the Trust Fund
represented by Certificates, including interest, original issue discount
("OID"), if any, prepayment fees, assumption fees, any gain recognized upon an
assumption and late payment charges received by the Master Servicer. Under Code
Sections 162 or 212 each Certificateholder will be entitled to deduct its pro
rata share of servicing fees, prepayment fees, assumption fees, any loss
recognized upon an assumption and late payment charges retained by the Master
Servicer, provided that such amounts are reasonable compensation for services
rendered to the Trust Fund. Certificateholders that are individuals, estates or
trusts will be entitled to deduct their share of expenses only to the extent
such expenses plus such taxpayer's other miscellaneous itemized deductions (as
defined in the Code) exceed two percent of its adjusted gross income. A
Certificateholder using the cash method of accounting must take into account its
pro rata share of income and deductions as and when collected by or paid to the
Master Servicer. A Certificateholder using an accrual method of accounting must
take into account its pro rata share of income and deductions as they become due
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(or received if received prior to when due) or are paid (or accrued if accrued
prior to payment) to the Master Servicer. If the servicing fees paid to the
Master Servicer are deemed to exceed reasonable servicing compensation, the
amount of such excess could be considered as an ownership interest retained by
the Master Servicer (or any person to whom the Master Servicer assigned for
value all or a portion of the servicing fees) in a portion of the interest
payments on the Mortgage Loans. The Mortgage Loans would then be subject to the
"coupon stripping" rules of the Code discussed below.
In general, (i) a Certificate owned by a "domestic building and loan
association" within the meaning of Code Section 7701(a)(19) representing
principal and interest payments on Mortgage Loans will be considered to
represent "loans . . . secured by an interest in real property which is . . .
residential property" within the meaning of Code Section 7701(a)(19)(C)(v), to
the extent that the Mortgage Loans represented by that Certificate are of a type
described in such Code section; (ii) a Certificate owned by a real estate
investment trust representing an interest in Mortgage Loans will be considered
to represent "real estate assets" within the meaning of Code Section
856(c)(5)(A), and interest income on the Mortgage Loans will be considered
"interest on obligations secured by mortgages on real property" within the
meaning of Code Section 856(c)(3)(B), to the extent that the Mortgage Loans
represented by that Certificate are of a type described in such Code section;
and (iii) a Certificate owned by a REMIC will represent an "obligation . . .
which is principally secured, directly or indirectly, by an interest in real
property" within the meaning of Code Section 860G(a)(3).
Buydown Loans. The assets constituting certain Trust Funds may include
Buydown Loans. The characterization of any investment in Buydown Loans will
depend upon the precise terms of the related buydown agreement, but to the
extent that such Buydown Loans are secured in part by a bank account or other
personal property, they may not be treated in their entirety as assets described
in the foregoing sections of the Code. There are no directly applicable
precedents with respect to the federal income tax treatment or the
characterization of investments in Buydown Loans. Accordingly,
Certificateholders should consult their own tax advisors with respect to the
characterization of investments in Certificates representing an interest in a
Trust Fund that includes Buydown Loans.
Premium. The price paid for a Certificate by a holder will be allocated to
such holder's undivided interest in each Mortgage Loan based on each Mortgage
Loan's relative fair market value, so that such holder's undivided interest in
each Mortgage Loan will have its own tax basis. A Certificateholder that
acquires an interest in Mortgage Loans at a premium may elect, under Code
Section 171, to amortize such premium under a constant interest method, provided
that the underlying mortgage loans with respect to such Mortgage Loans were
originated after September 27, 1985. Premium allocable to mortgage loans
originated on or before September 27, 1985 should be allocated among the
principal payments on such mortgage loans and allowed as an ordinary deduction
as principal payments are made. Amortizable bond premium will be treated as an
offset to interest income on such Certificate. The basis for such Certificate
will be reduced to the extent that amortizable premium is applied to offset
interest payments. It is not clear whether a reasonable prepayment assumption
should be used in computing amortization of premium allowable under Code Section
171.
If a premium is not subject to amortization using a reasonable prepayment
assumption, the holder of a Certificate acquired at a premium should recognize a
loss if a Mortgage Loan (or an underlying mortgage loan with respect to a
Mortgage Loan) prepays in full, equal to the difference between the portion of
the prepaid principal amount of such Mortgage Loan (or underlying mortgage loan)
that is allocable to the Certificate and the portion of the adjusted basis of
the Certificate that is allocable to such Mortgage Loan (or underlying mortgage
loan). if a reasonable prepayment assumption is used to amortize such premium,
it appears that such a loss would be available, if at all, only if prepayments
have occurred at a rate faster than the reasonable assumed prepayment rate. It
is not clear whether any other adjustments would be required to reflect
differences between an assumed prepayment rate and the actual rate of
prepayments.
On June 27, 1996 the Internal Revenue Service (the "IRS") issued proposed
regulations (the "Amortizable Bond Premium Regulations") dealing with
amortizable bond premium. These regulations specifically do not apply to
prepayable debt instruments subject to Code Section 1272(a)(6). Absent further
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guidance from the IRS, the Trustee intends to account for amortizable bond
premium in the manner described above. Prospective purchasers of the
Certificates should consult their tax advisors regarding the possible
application of the Amortizable Bond Premium Regulations.
Original Issue Discount. The IRS has stated in published rulings that, in
circumstances similar to those described herein, the special rules of the Code
relating to "original issue discount" (currently Code Sections 1271 through 1273
and 1275) will be applicable to a Certificateholder's interest in those Mortgage
Loans meeting the conditions necessary for these sections to apply. OID
generally must he reported as ordinary gross income as it accrues under a
constant interest method. See "-- Multiple Classes of
Certificates -- Certificates Representing Interests in Loans Other Than ARM
Loans" below.
Market Discount. A Certificateholder that acquires an undivided interest
in Mortgage Loans may be subject to the market discount rules of Code Sections
1276 through 1278 to the extent an undivided interest in a Mortgage Loan is
considered to have been purchased at a "market discount." Generally, the amount
of market discount is equal to the excess of the portion of the principal amount
of such Mortgage Loan allocable to such holder's undivided interest over such
holders tax basis in such interest. Market discount with respect to a
Certificate will be considered to be zero if the amount allocable to the
Certificate is less than 0.25% of the Certificate's stated redemption price at
maturity multiplied by the weighted average maturity remaining after the date of
purchase. Treasury regulations implementing the market discount rules have not
yet been issued; therefore, investors should consult their own tax advisors
regarding the application of these rules and the advisability of making any of
the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled payment
or a prepayment) or any gain on disposition of a market discount bond acquired
by the taxpayer after October 22, 1986, shall be treated as ordinary income to
the extent that it does not exceed the accrued market discount at the time of
such payment. The amount of accrued market discount for purposes of determining
the tax treatment of subsequent principal payments or dispositions of the market
discount bond is to be reduced by the amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue regulations
providing for the computation of accrued market discount on debt instruments,
the principal of which is payable in more than one installment. Although the
Treasury Department has not yet issued regulations, rules described in the
relevant legislative history describes how market discount should be accrued on
such instruments. According to such legislative history, the holder of a market
discount bond may elect to accrue market discount either on the basis of a
constant interest rate or according to one of the following methods. If a
Certificate is issued with OID, the amount of market discount that accrues
during any accrual period would be equal to the product of (i) the total
remaining market discount and (ii) a fraction, the numerator of which is the OID
accruing during the period and the denominator of which is the total remaining
OID at the beginning of the accrual period. For Certificates issued without OID,
the amount of market discount that accrues during a period is equal to the
product of (i) the total remaining market discount and (ii) a fraction, the
numerator of which is the amount of stated interest paid during the accrual
period and the denominator of which is the total amount of stated interest
remaining to be paid at the beginning of the accrual period. For purposes of
calculating market discount under any of the above methods in the case of
instruments that provide for payments that may be accelerated by reason of
prepayments of other obligations (which technically does not include the
Certificates) securing such instruments, the same prepayment assumption
applicable to calculating the accrual of OID will apply. Because the regulations
described above have not been issued, it is impossible to predict what effect
those regulations might have on the tax treatment of a Certificate purchased at
a discount or premium in the secondary market.
A holder who acquired a Certificate at a market discount also may be
required to defer, until the maturity date of such Certificate or its earlier
disposition in a taxable transaction, the deduction of a portion of the amount
of interest that the holder paid or accrued during the taxable year on
indebtedness incurred or maintained to purchase or carry such Certificate in
excess of the aggregate amount of interest (including OID) includible in such
holder's gross income for the taxable year with respect to such Certificate. The
amount of such net interest expense deferred in a taxable year may not exceed
the amount of market discount
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accrued on the Certificate for the days during the taxable year on which the
holder held the Certificate and, in general, would be deductible when such
market discount is includible in income. The amount of any remaining deferred
deduction is to be taken into account in the taxable year in which the
Certificate matures or is disposed of in a taxable transaction. In the case of a
disposition in which gain or loss is not recognized in whole or in part, any
remaining deferred deduction will be allowed to the extent of gain recognized on
the disposition. This deferral rule does not apply if the Certificateholder
elects to include such market discount in income currently as it accrues on all
market discount obligations acquired by such Certificateholder in that taxable
year or thereafter.
Election to Treat All Interest as OID. The OID Regulations permit a
Certificateholder 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 Certificates acquired on or after April 4,
1994. If such an election were to be made with respect to a Certificate with
market discount, the Certificateholder would be deemed to have made an election
to include in income currently market discount with respect to all other debt
instruments having market discount that such Certificateholder acquires during
the year of the election or thereafter Similarly. a Certificateholder that makes
this election for a Certificate that is acquired at a premium will be deemed to
have made an election to amortize bond premium with respect to all debt
instruments having amortizable bond premium that such Certificateholder owns or
acquires. See "-- Single Class of Certificates -- Premium" herein. The election
to accrue interest, discount and premium on a constant yield method with respect
to a Certificate cannot be revoked without the consent of the IRS.
B. MULTIPLE CLASSES OF CERTIFICATES
1. Stripped Bonds and Stripped Coupons
Pursuant to Code Section 1286, the separation of ownership of the right to
receive some or all of the interest payments on an obligation from ownership of
the right to receive some or all of the principal payments results in the
creation of "stripped bonds" with respect to principal payments and "stripped
coupons" with respect to interest payments. For purposes of Code Sections 1271
through 1288, Code Section 1286 treats a stripped bond or a stripped coupon as
an obligation issued on the date that such stripped interest is created. If a
Trust Fund is created with two classes of Certificates, one class of
Certificates may represent the right to principal and interest, or principal
only, on all or a portion of the Mortgage Loans (the "Stripped Bond
Certificates"), while the second class of Certificates may represent the right
to some or all of the interest on such portion (the "Stripped Coupon
Certificates").
Servicing fees in excess of reasonable servicing fees ("excess servicing")
will be treated under the stripped bond rules. If the excess servicing fee is
less than 100 basis points (i.e., 1% interest on the Mortgage Loan principal
balance) or the Certificates are initially sold with a de minimis discount
(which amount may be calculated without a prepayment assumption), any non-de
minimis discount arising from a subsequent transfer of the Certificates should
be treated as market discount. The IRS appears to require that reasonable
servicing fees be calculated on a Mortgage Loan by Mortgage Loan basis, which
could result in some Mortgage Loans being treated as having more than 100 basis
points of interest stripped off. See "-- Non -- REMIC Certificates" and
"Multiple Classes of Senior Certificates-Stripped Bonds and Stripped Coupons"
herein.
Although not entirely clear, a Stripped Bond Certificate generally should
be treated as an interest in Mortgage Loans issued on the day such Certificate
is purchased for purposes of calculating any OID. Generally, if the discount on
a Mortgage Loan is larger than a de minimis amount (as calculated for purposes
of the OID rules) a purchaser of such a Certificate will be required to accrue
the discount under the OID rules of the Code. See "-- Non-REMIC Certificates"
and "-- Single Class of Certificates--Original Issue Discount" herein. However,
a purchaser of a Stripped Bond Certificate will be required to account for any
discount on the Mortgage Loans as market discount rather than OID if either (i)
the amount of OID with respect to the Mortgage Loan is treated as zero under the
OID de minimis rule when the Certificate was stripped or (ii) no more than 100
basis points (including any amount of servicing fees in excess of reasonable
servicing fees) is stripped off of the Trust Fund's Mortgage Loans.
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The precise tax treatment of Stripped Coupon Certificates is substantially
uncertain. The Code could be read literally to require that OID computations be
made for each payment from each Mortgage Loan. However, based on the recent IRS
guidance, it appears that all payments from a Mortgage Loan underlying a
Stripped Coupon Certificate should be treated as a single installment obligation
subject to the OID rules of the Code, in which case, all payments from such
Mortgage Loan would be included in the Mortgage Loan's stated redemption price
at maturity for purposes of calculating income on such certificate under the OID
rules of the Code.
It is unclear under what circumstances, if any, the prepayment of Mortgage
Loans will give rise to a loss to the holder of a Stripped Bond Certificate
purchased at a premium or a Stripped Coupon Certificate. If such Certificate is
treated as a single instrument (rather than an interest in discrete mortgage
loans) and the effect of prepayments is taken into account in computing yield
with respect to such Certificate, it appears that no loss will be available as a
result of any particular prepayment unless prepayments occur at a rate faster
than the assumed prepayment rate. However, if such Certificate is treated as an
interest in discrete Mortgage Loans, or if no prepayment assumption is used,
then when a Mortgage Loan is prepaid, the holder of such Certificate should be
able to recognize a loss equal to the portion of the unrecovered premium of such
Certificate that is allocable to such Mortgage Loan.
Holders of Stripped Bond Certificates and Stripped Coupon Certificates are
urged to consult with their own tax advisors regarding the proper treatment of
these Certificates for federal income tax purposes.
2. Certificates Representing Interests in Loans Other Than ARM Loans
The original issue discount rules of Code Sections 1271 through 1275 will
be applicable to a Certificateholder's interest in those Mortgage Loans as to
which the conditions for the application of those sections are met. Rules
regarding periodic inclusion of original issue discount in income are applicable
to mortgages of corporations originated after May 27, 1969, mortgages of
noncorporate mortgagors (other than individuals) originated after July 1, 1982,
and mortgages of individuals originated after March 2, 1984. Under the OID
Regulations, such original issue discount could arise by the charging of points
by the originator of the mortgage in an amount greater than the statutory de
minimis exception, including a payment of points that is currently deductible by
the borrower under applicable Code provisions, or under certain circumstances,
by the presence of "teaser" rates (i.e., the initial rates on the Mortgage Loans
are lower than subsequent rates on the Mortgage Loans) on the Mortgage Loans.
OID on each Certificate must be included in the owner's ordinary income for
federal income tax purposes as it accrues, in accordance with a constant
interest method that takes into account the compounding of interest, in advance
of receipt of the cash attributable to such income. The amount of OID required
to be included in an owner's income in any taxable year with respect to a
Certificate representing an interest in Mortgage Loans other than Mortgage Loans
with interest rates that adjust periodically ("ARM Loans") likely will be
computed as described below under "-- Accrual of Original Issue Discount." The
following discussion is based in part on Treasury regulations issued on January
27, 1994, under Code Sections 1271 through 1273 and 1275 (the "OID Regulations")
and in part on the provisions of the Tax Reform Act of 1986 (the "1986 Act").
The OID Regulations generally are effective for debt instruments issued on or
after April 4, 1994, but may be relied upon as authority with respect to debt
instruments issued after December 21, 1992. Alternatively, proposed Treasury
regulations issued December 21, 1992 may be treated as authority for debt
instruments issued after December 21, 1992 and prior to April 4, 1994, and
proposed Treasury regulations issued in 1986 and 1991 may be treated as
authority for instruments issued before December 21, 1992. In applying these
dates, the issued date of the Mortgage Loans should be used, or, in the case of
Stripped Bond Certificates or Stripped Coupon Certificates, the date such
Certificates are acquired. The holder of a Certificate should be aware, however,
that neither the proposed OID Regulations nor the OID Regulations adequately
address certain issues relevant to prepayable securities.
Under the Code, the Mortgage Loans underlying the Certificates will be
treated as having been issued on the date the were originated with an amount of
OID equal to the excess of such Mortgage Loan's stated redemption price at
maturity over its issue price. The issue price of a Mortgage Loan is generally
the amount
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lent to the mortgagee, which may be adjusted to take into account certain loan
origination fees. The stated redemption price at maturity of a Mortgage Loan is
the sum of all payments to be made on such Mortgage Loan other than payments
that are treated as qualified stated interest payments. The accrual of this OID,
as described below under "-- Accrual of Original Issue Discount," will, unless
otherwise specified in the related Prospectus Supplement, utilize the original
yield to maturity of the Certificates calculated based on a reasonable assumed
prepayment rate for the mortgage loans underlying the Certificates (the
"Prepayment Assumption"), and will take into account events that occur during
the calculation period. The Prepayment Assumption will be determined in the
manner prescribed by regulations that have not yet been issued. The legislative
history of the 1986 Act (the "Legislative History") provides, however, that the
regulations will require that the Prepayment Assumption be the prepayment
assumption that is used in determining the offering price of such Certificate.
No representation is made that any Certificate will prepay at the Prepayment
Assumption or at any other rate. The prepayment assumption contained in the Code
literally only applies to debt instruments collateralized by other debt
instruments that are subject to prepayment rather than direct ownership
interests in such debt instruments, such as the Certificates represent. However,
no other legal authority provides guidance with regard to the proper method for
accruing OID on obligations that are subject to prepayment, and, until further
guidance is issued, the Master Servicer intends to calculate and report OID
under the method described below.
Accrual of Original Issue Discount. Generally. The owner of a
Certificate; must include in gross income the sum of the "daily portions," as
defined below, of the OID on such Certificate for each day on which it owns such
Certificate, including the date of purchase but excluding the date of
disposition. In the case of an original owner, the daily portions of OID with
respect to each component generally will be determined as set forth under the
OID Regulations. A calculation will be made by the Master Servicer or such other
entity specified in the related Prospectus Supplement of the portion of OID that
accrues during each successive monthly accrual period (or shorter period from
the date of original issue) that ends on the day in the calendar year
corresponding to each of the Distribution Dates on the Certificates (or the day
prior to each such date). This will be done, in the case of each full month
accrual period, by adding (i) the present value at the end of the accrual period
(determined by using as a discount factor the original yield to maturity of the
respective component under the Prepayment Assumption) of all remaining payments
to be received under the Prepayment Assumption on the respective component and
(ii) any payments received during such accrual period, and subtracting from that
total the "adjusted issue price" of the respective component at the beginning of
such accrual period. The adjusted issue price of a Certificate at the beginning
of the first accrual period is its issue price; the adjusted issue price of a
Certificate at the beginning of a subsequent accrual period is the adjusted
issue price at the beginning of the immediately preceding accrual period plus
the amount of OID allocable to that accrual period reduced by the amount of any
payment made at the end of or during that accrual period. The OID accruing
during such accrual period will then be divided by the number of days in the
period to determine the daily portion of OID for each day in the period. With
respect to an initial accrual period shorter than a full monthly accrual period,
the daily portions of OID must be determined according to an appropriate
allocation under any reasonable method.
Original issue discount generally must be reported as ordinary gross income
as it accrues under a constant interest method that takes into account the
compounding of interest as it accrues rather than when received. However, the
amount of original issue discount includible in the income of a holder of an
obligation is reduced when the obligation is acquired after its initial issuance
at a price greater than the sum of the original issue price and the previously
accrued original issue discount, less prior payments of principal. Accordingly,
if such Mortgage Loans acquired by a Certificateholder are purchased at a price
equal to the then unpaid principal amount of such Mortgage Loan, no original
issue discount attributable to the difference between the issue price and the
original principal amount of such Mortgage Loan (e.g., due to points) will be
includible by such holder. Other original issue discount on the Mortgage Loans
(e.g., that arising from a "teaser" rate) would still need to be accrued.
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3. Certificates Representing Interests in ARM Loans
The OID Regulations do not address the treatment of instruments, such as
the Certificates, which represent interests in ARM Loans. Additionally, the IRS
has not issued guidance under the Code's coupon stripping rules with respect to
such instruments. In the absence of any authority, the Master Servicer will
report OID on Certificates attributable to ARM Loans ("Stripped ARM
Obligations") to holders in a manner it believes is consistent with the rules
described above under the heading "-- Certificates Representing Interests in
Loans Other Than ARM Loans" and with the OID Regulations. In general,
application of these rules may require inclusion of income on a Stripped ARM
Obligation in advance of the receipt of cash attributable to such income.
Further, the addition of interest deferred by reason of negative amortization
("Deferred Interest") to the principal balance of an ARM Loan may require the
inclusion of such amount in the income of the Certificateholder when such amount
accrues. Furthermore, the addition of Deferred Interest to the Certificate's
principal balance will result in additional income (including possibly OID
income) to the Certificateholder over the remaining life of such Certificates.
Because the treatment of Stripped ARM Obligations is uncertain, investors
are urged to consult their tax advisors regarding how income will be includible
with respect to such Certificates.
C. SALE OR EXCHANGE OF A CERTIFICATE
Sale or exchange of a Certificate prior to its maturity will result in gain
or loss equal to the difference, if any, between the amount received and the
owner's adjusted basis in the Certificate. Such adjusted basis generally will
equal the seller's purchase price for the Certificate, increased by the OID
included in the sellers gross income with respect to the Certificate, and
reduced by principal payments on the Certificate previously received by the
seller. Such gain or loss will be capital gain or loss to an owner for which a
Certificate is a "capital asset" within the meaning of Code Section 1221, and
will be long-term or short term depending on whether the Certificate has been
owned for the long-term capital gain holding period (currently more than one
year).
The Certificates will be "evidences of indebtedness" within the meaning of
Code Section 582(c)(1), so that gain or loss recognized from the sale of a
Certificate by a bank or a thrift institution to which such section applies will
be ordinary income or loss.
D. NON-U.S. PERSONS
Generally, to the extent that a Certificate evidences ownership in
underlying Mortgage Loans that were issued on or before July 18, 1984, interest
or OID paid by the person required to withhold tax under Code Section 1441 or
1442 to (i) an owner that is not a U.S. Person (as defined below) or (ii) a
Certificateholder holding on behalf of an owner that is not a U.S. Person will
be subject to federal income tax, collected by withholding, at a rate of 30% or
such lower rate as may be provided for interest by an applicable tax treaty.
Accrued OID recognized by the owner on the sale or exchange of such a
Certificate also will be subject to federal income tax at the same rate.
Generally, such payments would not be subject to withholding to the extent that
a Certificate evidences ownership in Mortgage Loans issued after July 18, 1984,
by natural persons if such Certificateholder complies with certain
identification requirements (including delivery of a statement, signed by the
Certificateholder under penalties of perjury, certifying that such
Certificateholder is not a U.S. Person and providing the name and address of
such Certificateholder). Additional restrictions apply to Mortgage Loans where
the mortgagor is not a natural person in order to qualify for the exemption from
withholding.
As used herein, a "U.S. Person" means a citizen or resident of the United
States, a corporation or a partnership organized in or under the laws of the
United States or any political subdivision thereof or an estate or trust, the
income of which from sources outside the United States is includible in gross
income for federal income tax purposes regardless of its connection with the
conduct of a trade or business within the United States.
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E. INFORMATION REPORTING AND BACKUP WITHHOLDING
The Master Servicer will furnish or make available, within a reasonable
time after the end of each calendar year, to each person who was a
Certificateholder at any time during such year, such information as may be
deemed necessary or desirable to assist Certificateholders in preparing their
federal income tax returns, or to enable holders to make such information
available to beneficial owners or financial intermediaries that hold such
Certificates as nominees on behalf of beneficial owners. If a holder, beneficial
owner, financial intermediary or other recipient of a payment on behalf of a
beneficial owner fails to supply a certified taxpayer identification number or
if the Secretary of the Treasury determines that such person has not reported
all interest and dividend income required to be shown on its federal income tax
return, 31% backup withholding may be required with respect to any payments. Any
amounts deducted and withheld from a distribution to a recipient would be
allowed as a credit against such recipient's federal income tax liability.
REMIC CERTIFICATES
The Trust Fund relating to a Series of Certificates may elect to be treated
as a REMIC. Qualification as a REMIC requires ongoing compliance with certain
conditions. Although a REMIC is not generally subject to federal income tax
(see, however "--Residual Certificates" and "--Prohibited Transactions" below),
if a Trust Fund with respect to which a REMIC election is made fails to comply
with one or more of the ongoing requirements of the Code for REMIC status during
any taxable year, including the implementation of restrictions on the purchase
and transfer of the residual interests in a REMIC as described below under
"Residual Certificates," the Code provides that a Trust Fund will not be treated
as a REMIC for such year and thereafter. In that event, such entity may be
taxable as a separate corporation, and the related Certificates (the "REMIC
Certificates") may not be accorded the status or given the tax treatment
described below. While the Code authorizes the Treasury Department to issue
regulations providing relief in the event of an inadvertent termination of the
status of a trust fund as a REMIC, no such regulations have been issued. Any
such relief, moreover, may be accompanied by sanctions, such as the imposition
of a corporate tax on all or a portion of the REMIC's income for the period in
which the requirements for such status are not satisfied. With respect to each
Trust Fund that elects REMIC status, the related Certificates will be considered
to be regular interests ("Regular Certificates") or residual interests
("Residual Certificates") in the REMIC. The related Prospectus Supplement for
each Series of Certificates will indicate whether the Trust Fund will make a
REMIC election and whether a class of Certificates will be treated as a regular
or residual interest in the REMIC.
In general, with respect to each Series of Certificates for which a REMIC
election is made, (i) Certificates held by a thrift institution taxed as a
"domestic building and loan association" will constitute assets described in
Code Section 7701(a)(19)(C); (ii) Certificates held by a real estate investment
trust will Constitute "real estate assets" within the meaning of Code Section
856(c)(5)(A); and (iii) interest on Certificates held by a real estate
investment trust will be considered "interest on obligations secured by
mortgages on real property" within the meaning of Code Section 856(c)(3)(B). If
less than 95% of the REMIC's assets are assets qualifying under any of the
foregoing Code sections, the Certificates will be qualifying assets only to the
extent that the REMIC's assets are qualifying assets. In addition, payments on
Mortgage Loans held pending distribution on the REMIC Certificates will be
considered to be qualifying real property loans for purposes of Code Section
593(d)(1) and real estate assets for purposes of Code Section 856(c).
In some instances the Mortgage Loans may not be treated entirely as assets
described in the foregoing sections. See, in this regard, the discussion of
Buydown Loans contained in "--Non-REMIC Certificates--Single Class of
Certificates" above. REMIC Certificates held by a real estate investment trust
will not constitute "Government Securities" within the meaning of Code Section
856(c)(5)(A), and REMIC Certificates held by a regulated investment company will
not constitute "Government Securities" within the meaning of Code Section
851(b)(4)(A)(ii). REMIC Certificates held by certain financial institutions will
constitute "evidences of indebtedness" within the meaning of Code Section
582(c)(1).
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A "qualified mortgage" for REMIC purposes is any obligation (including
certificates of participation in such an obligation) that is principally secured
by an interest in real property and that is transferred to the REMIC within a
prescribed time period in exchange for regular or residual interests in the
REMIC. The REMIC Regulations provide that manufactured housing or mobile homes
(not including recreational vehicles, campers or similar vehicles) that are
"single family residences" under Code Section 25(e)(10) will qualify as real
property without regard to state law classifications. Under Code Section
25(e)(10), a single family residence includes any manufactured home that has a
minimum of 400 square feet of living space and a minimum width in excess of 102
inches and that is of a kind customarily used at a fixed location.
Tiered REMIC Structures. For certain Series of Certificates, two separate
elections may be made to treat designated portions of the related Trust Fund as
REMICs (respectively, the "Subsidiary REMIC" and the "Master REMIC") for federal
income tax purposes. Only REMIC Certificates, other than the residual interest
in the Subsidiary REMIC, issued by the Master REMIC will be offered hereunder.
The Subsidiary REMIC and the Master REMIC will be treated as one REMIC solely
for purposes of determining whether the REMIC Certificates will be (i)
"qualifying real property loans" under Section 593(d) of the Code; (ii) "real
estate assets" within the meaning of Section 856(c)(5)(A) of the Code; (iii)
"loans secured by an interest in real property" under Section 7701(a)(19)(C) of
the Code; and (iv) whether the income on such Certificates is interest described
in Section 856(c)(3)(B) of the Code.
A. REGULAR CERTIFICATES
General. Except as otherwise stated in this discussion, Regular
Certificates will be treated for federal income tax purposes as debt instruments
issued by the REMIC and not as ownership interests in the REMIC or its assets.
Moreover, holders of Regular Certificates that otherwise report income under a
cash method of accounting will be required to report income with respect to
Regular Certificates under an accrual method.
Original Issue Discount and Premium. The Regular Certificates may be
issued with original issue discount ("OID"). Generally, such OID, if any, will
equal the difference between the "stated redemption price at maturity" of a
Regular Certificate and its "issue price." Holders of any class of Certificates
issued with OID will be required to include such OID in gross income for federal
income tax purposes as it accrues, in accordance with a constant interest method
based on the compounding of interest as it accrues rather than in accordance
with receipt of the interest payments. The following discussion is based in part
on Treasury regulations issued on January 27, 1994, under Code Sections 1271
through 1273 and 1275 (the "OID Regulations") and in part on the provisions of
the Tax Reform Act of 1986 (the "1986 Act"). The OID Regulations generally are
effective for debt instruments issued on or after April 4, 1994. Holders of
Regular Certificates (the "Regular Certificateholders") should be aware,
however, that the OID Regulations do not adequately address certain issues
relevant to prepayable securities, such as the Regular Certificates.
Rules governing OID are set forth in Code Sections 1271 through 1273 and
1275. These rules require that the amount and rate of accrual of OID be
calculated based on the Prepayment Assumption and the anticipated reinvestment
rate, if any, relating to the Regular Certificates and prescribe a method for
adjusting the amount and rate of accrual of such discount where the actual
prepayment rate differs from the Prepayment Assumption. Under the Code, the
Prepayment Assumption must be determined in the manner prescribed by
regulations, which regulations have not yet been issued. The Legislative History
provides, however, that Congress intended the regulations to require that the
Prepayment Assumption be the prepayment assumption that is used in determining
the initial offering price of such Regular Certificates. The Prospectus
Supplement for each Series of Regular Certificates will specify the Prepayment
Assumption to be used for the purpose of determining the amount and rate of
accrual of OID. No representation is made that the Regular Certificates will
prepay at the Prepayment Assumption or at any other rate.
The IRS recently issued final regulations (the "Contingent Regulations")
governing the calculation of OID on instruments having contingent interest
payments. The Contingent Regulations specifically do not apply for purposes of
calculating OID on debt instruments subject to Code Section 1272(a)(6), such as
the Regular Certificates. Additionally, the OID Regulations do not contain
provisions specifically interpreting Code Section 1272(a)(6). The Trustee
intends to base its computations on Code Section 1272(a)(6) and the
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OID Regulations as described herein. However, because no regulatory guidance
currently exists under Code Section 1272(a)(6), there can be no assurance that
such methodology represents the correct manner of calculating OID.
In general, each Regular Certificate will be treated as a single
installment obligation issued with an amount of OID equal to the excess of its
"stated redemption price at maturity" over its "issue price." The issue price of
a Regular Certificate is the first price at which a substantial amount of
Regular Certificates of that class are first sold to the public (excluding bond
houses, brokers, underwriters or wholesalers). The issue price of a Regular
Certificate also includes the amount paid by an initial Certificateholder for
accrued interest that relates to a period prior to the issue date of the Regular
Certificate. The stated redemption price at maturity of a Regular Certificate
includes the original principal amount of the Regular Certificate, but generally
will not include distributions of interest if such distributions constitute
"qualified stated interest." Qualified stated interest generally means interest
payable at a single fixed rate or qualified variable rate (as described below)
provided that such interest payments are unconditionally payable at intervals of
one year or less during the entire term of the Regular Certificate. Interest is
payable at a single fixed rate only if the rate appropriately takes into account
the length of the interval between payments. Distributions of interest on
Regular Certificates with respect to which Deferred Interest will accrue will
not constitute qualified stated interest payments, and the stated redemption
price at maturity of such Regular Certificates includes all distributions of
interest as well as principal thereon.
Where the interval between the issue date and the first Distribution Date
on a Regular Certificate is longer than the interval between subsequent
Distribution Dates, the greater of any original issue discount disregarding the
rate in the first period and any interest foregone during the first period is
treated as the amount by which the stated redemption price of the Certificate
exceeds its issue price for purposes of the de minimis rule described below. The
OID Regulations suggest that all or a portion of the interest on a long first
period Regular Certificate that is issued with non-de minimis OID will be
treated as OID. Where the interval between the issue date and the first
Distribution Date on a Regular Certificate is shorter than the interval between
subsequent Distribution Dates. interest due on the first Distribution Date in
excess of the amount that accrued during the first period would be added to the
Certificates stated redemption price at maturity. Regular Certificateholders
should consult their own tax advisors to determine the issue price and stated
redemption price at maturity of a Regular Certificate. Additionally, it is
possible that the IRS could assert that the stated Pass-Through Rate of interest
on the Regular Certificates is not unconditionally payable because late payments
or nonpayments on the Mortgage Loans are not penalized nor are there reasonable
remedies in place to compel payment on such Mortgage Loans. Such position, if
successful, would require all holders of Regular Certificates to accrue income
on such certificates under the OID Regulations.
Under the de minimis rule, OID on a Regular Certificate will be considered
to be zero if such OID is less than 0.25% of the stated redemption price at
maturity of the Regular Certificate multiplied by the weighted average maturity
of the Regular Certificate. For this purpose. the weighted average maturity of
the Regular Certificate is computed as the sum of the amounts determined by
multiplying the number of full years (i.e., rounding down partial years) from
the issue date until each distribution in reduction of stated redemption price
at maturity is scheduled to be made by a fraction, the numerator of which is the
amount of each distribution included in the stated redemption price at maturity
of the Regular Certificate and the denominator of which is the stated redemption
price at maturity of the Regular Certificate. Although currently unclear, it
appears that the schedule of such distributions should be determined in
accordance with the Prepayment Assumption. The Prepayment Assumption with
respect to a Series of Regular Certificates will be set forth in the related
Prospectus Supplement. Holders generally must report de minimis OID pro rata as
principal payments are received, and such income will be capital gain if the
Regular Certificate 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 Prospectus Supplement with respect to a Trust Fund may provide for
certain Regular Certificates to be issued at prices significantly exceeding
their principal amounts or based on notional principal balances (the
"Super-Premium Certificates"). The income tax treatment of such Regular
Certificates is not entirely certain. For information reporting purposes, the
Trust Fund intends to take the position that the stated redemption
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price at maturity of such Regular Certificates is the sum of all payments to be
made on such Regular Certificates determined under the Prepayment Assumption,
with the result that such Regular Certificates would be issued with OID. The
calculation of income in this manner could result in negative original issue
discount (which delays future accruals of OID rather than being immediately
deductible) when prepayments on the Mortgage Loans exceed those estimated under
the Prepayment Assumption. As discussed above, the Contingent Regulations
specifically do not apply to prepayable debt instruments subject to Code Section
1272(a)(6), such as the Regular Certificates. However, if the Super-Premium
Certificates were treated as contingent payment obligations, it is unclear how
holders of those Certificates would report income or recover their basis. In the
alternative, the IRS could assert that the stated redemption price at maturity
of such Regular Certificates should be limited to their principal amount
(subject to the discussion below under "--Accrued Interest Certificates"), so
that such Regular Certificates would be considered for federal income tax
purposes to be issued at a premium. If such a position were to prevail, the
rules described below under "--Regular Certificates--Premium" would apply. It is
unclear when a loss may be claimed for any unrecovered basis for a Super-Premium
Certificate. It is possible that a holder of a Super-Premium Certificate may
only claim a loss when its remaining basis exceeds the maximum amount of future
payments, assuming no further prepayments or when the final payment is received
with respect to such Super-Premium Certificate. Absent further guidance, the
Trustee intends to treat the Super-Premium Certificates as described herein.
Under the REMIC Regulations, if the issue price of a Regular Certificate
(other than those based on a notional amount) does not exceed 125% of its actual
principal amount, the interest rate is not considered disproportionately high.
Accordingly, such Regular Certificate generally should not be treated as a
SuperPremium Certificate and the rules described below under "--Regular
Certificates--Premium" should apply. However, it is possible that certificates
issued at a premium, even if the premium is less than 25% of such Certificate's
actual principal balance, will be required to amortize the premium under an
original issue discount method or contingent interest method even though no
election under Code section 171 is made to amortize such premium.
Generally, a Regular Certificateholder must include in gross income the
"daily portions," as determined below, of the OID that accrues on a Regular
Certificate for each day a Certificateholder holds the Regular Certificate,
including the purchase date but excluding the disposition date. The daily
portions of OID are determined by allocating to each day in an accrual period
the ratable portion of OID allocable to the accrual period. Accrual periods may
be of any length and may vary in length over the term of the Regular
Certificates. provided that each accrual period (i) is not longer than one year,
(ii) begins or ends on a Distribution Date (except for the first accrual period
which begins on the issue date) and (iii) begins on the day after the preceding
accrual period ends. This will be done. in the case of each full accrual period.
by (i) adding (a) the present value at the end of the accrual period (determined
by using as a discount factor the original yield to maturity of the Regular
Certificates as calculated under the Prepayment Assumption) of all remaining
payments to be received on the Regular Certificates under the Prepayment
Assumption and (b) any payments included in the stated redemption price at
maturity received during such accrual period, and (ii) subtracting from that
total the adjusted issue price of the Regular Certificates at the beginning of
such accrual period. The adjusted issue price of a Regular Certificate at the
beginning of the first accrual period is its issue price; the adjusted issue
price of a Regular Certificate at the beginning of a subsequent accrual period
is the adjusted issue price at the beginning of the immediately preceding
accrual period plus the amount of OID allocable to that accrual period and
reduced by the amount of any payment other than a payment of qualified stated
interest made at the end of or during that accrual period. The OID accrued
during an accrual period will then be divided by the number of days in the
period to determine the daily portion of OID for each day in the accrual period.
The calculation of OID under the method described above will cause the accrual
of OID to either increase or decrease (but never below zero) in a given accrual
period to reflect the fact that prepayments are occurring faster or slower than
under the Prepayment Assumption. With respect to an initial accrual period
shorter than a full accrual period, the daily portions of OID may be determined
according to an appropriate allocation under any reasonable method.
A subsequent purchaser of a Regular Certificate issued with OID who
purchases the Regular Certificate at a cost less than the remaining stated
redemption price at maturity will also be required to include in gross
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income the sum of the daily portions of OID on that Regular Certificate. In
computing the daily portions of OID for such a purchaser (as well as an initial
purchaser that purchases at a price higher than the adjusted issue price but
less than the stated redemption price at maturity), however, the daily portion
is reduced by the amount that would be the daily portion for such day (computed
in accordance with the rules set forth above) multiplied by a fraction, the
numerator of which is the amount, if any, by which the price paid by such holder
for that Regular Certificate exceeds the following amount: (a) the sum of the
issue price plus the aggregate amount of OID that would have been includible in
the gross income of an original Regular Certificateholder (who purchased the
Regular Certificate at its issue price), less (b) any prior payments included in
the stated redemption price at maturity, and the denominator of which is the sum
of the daily portions for that Regular Certificate for all days beginning on the
date after the purchase date and ending on the maturity date computed under the
Prepayment Assumption. A holder who pays an acquisition premium instead may
elect to accrue OID by treating the purchase as a purchase at original issue.
Variable Rate Regular Certificates. Regular Certificates may provide for
interest based on a variable rate. Interest is treated as payable at a variable
rate and not as contingent interest if, generally, (i) the issue price does not
exceed the original principal balance by more than a specified amount and (ii)
the interest compounds or is payable at least annually at current values of
certain objective rates matured by or based on lending rates for newly borrowed
funds. For a debt instrument issued after August 13, 1996, an objective rate 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.
The variable interest generally will be qualified stated interest to the extent
it is unconditionally payable at least annually and, to the extent successive
variable rates are used, interest is not significantly accelerated or deferred.
The amount of OID with respect to a Regular Certificate bearing a variable
rate of interest will accrue in the manner described above under "--Original
Issue Discount and Premium" by assuming generally that the index used for the
variable rate will remain fixed throughout the term of the Certificate.
Appropriate adjustments are made for the actual variable rate.
Although unclear at present, the Depositor intends to treat Regular
Certificates bearing an interest rate that is a weighted average of the net
interest rates on Mortgage Loans as variable rate certificates. In such case,
the weighted average rate used to compute the initial pass-through rate on the
Regular Certificates will be deemed to be the index in effect through the life
of the Regular Certificates. It is possible. however, that the IRS may treat
some or all of the interest on Regular Certificates with a weighted average rate
as taxable under the rules relating to obligations providing for contingent
payments. Such treatment may effect the timing of income accruals on such
Regular Certificates. Additionally, if some or all of the Mortgage Loans are
subject to "teaser rates" (i.e., the initial rates on the Mortgage Loans are
less than subsequent rates on the Mortgage Loans) the interest paid on some or
all of the Regular Certificates may be subject to accrual using a constant yield
method notwithstanding the fact that such Certificates may not have been issued
with "true" non-de minimis original issue discount.
Election to Treat All Interest as OID. The OID Regulations permit a
Certificateholder 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 Certificates acquired on or after April 4,
1994. If such an election were to be made with respect to a Regular Certificate
with market discount, the Certificateholder would be deemed to have made an
election to include in income currently market discount with respect to all
other debt instruments having market discount that such Certificateholder
acquires during the year of the election or thereafter. Similarly, a
Certificateholder that makes this election for a Certificate that is acquired at
a premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
Certificateholder owns or acquires. See "--Regular Certificates--Premium"
herein. The election to accrue interest, discount and premium on a constant
yield method with respect to a Certificate cannot be revoked without the consent
of the IRS.
Market Discount. A purchaser of a Regular Certificate may also be subject
to the market discount provisions of Code Sections 1276 through 1278. Under
these provisions and the OID Regulations, "market discount" equals the excess,
if any, of (i) the Regular Certificate's stated principal amount or, in the case
of a
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Regular Certificate with OID, the adjusted issue price (determined for this
purpose as if the purchaser had purchased such Regular Certificate from an
original holder) over (ii) the price for such Regular Certificate paid by the
purchaser. A Certificateholder that purchases a Regular Certificate at a market
discount will recognize income upon receipt of each distribution representing
stated redemption price. In particular, under Section 1276 of the Code such a
holder generally will be required to allocate each such principal distribution
first to accrued market discount not previously included in income, and to
recognize ordinary income to that extent. A Certificateholder may elect to
include market discount in income currently as it accrues rather than including
it on a deferred basis in accordance with the foregoing. If made, such election
will apply to all market discount bonds acquired by such Certificateholder on or
after the first day of the first taxable year to which such election applies.
Market discount with respect to a Regular Certificate will be considered to
be zero if the amount allocable to the Regular Certificate is less than 0.25% of
such Regular Certificate's stated redemption price at maturity multiplied by
such Regular Certificate's weighted average maturity remaining after the date of
purchase. If market discount on a Regular Certificate is considered to be zero
under this rule, the actual amount of market discount must be allocated to the
remaining principal payments on the Regular Certificate, and gain equal to such
allocated amount will be recognized when the corresponding principal payment is
made. Treasury regulations implementing the market discount rules have not yet
been issued; therefore, investors should consult their own tax advisors
regarding the application of these rules and the advisability of making any of
the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled payment
or a prepayment) or any gain on disposition of a market discount bond acquired
by the taxpayer after October 22, 1986, shall be treated as ordinary income to
the extent that it does not exceed the accrued market discount at the time of
such payment. The amount of accrued market discount for purposes of determining
the tax treatment of subsequent principal payments or dispositions of the market
discount bond is to be reduced by the amount so treated as ordinary income.
The Code also grants authority to the Treasury Department to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury, rules described in
the Legislative History will apply. Under those rules, the holder of a market
discount bond may elect to accrue market discount either on the basis of a
constant interest rate or according to one of the following methods. For Regular
Certificates issued with OID, the amount of market discount that accrues during
a period is equal to the product of (i) the total remaining market discount and
(ii) a fraction, the numerator of which is the OID accruing during the period
and the denominator of which is the total remaining OID at the beginning of the
period. For Regular Certificates issued without OID, the amount of market
discount that accrues during a period is equal to the product of (a) the total
remaining market discount and (b) a fraction, the numerator of which is the
amount of stated interest paid during the accrual period and the denominator of
which is the total amount of stated interest remaining to be paid at the
beginning of the period. For purposes of calculating market discount under any
of the above methods in the case of instruments (such as the Regular
Certificates) that provide for payments that may be accelerated by reason of
prepayments of other obligations securing such instruments, the same Prepayment
Assumption applicable to calculating the accrual of OID will apply.
A holder of a Regular Certificate that acquires such Regular Certificate at
a market discount also may be required to defer, until the maturity date of such
Regular Certificate or its earlier disposition in a taxable transaction, the
deduction of a portion of the amount of interest that the holder paid or accrued
during the taxable year on indebtedness incurred or maintained to purchase or
carry the Regular Certificate in excess of the aggregate amount of interest
(including OID) includible in such holder's gross income for the taxable year
with respect to such Regular Certificate. The amount of such net interest
expense deterred in a taxable year may not exceed the amount of market discount
accrued on the Regular Certificate for the days during the taxable year on which
the holder held the Regular Certificate and, in general, would be deductible
when such market discount is includible in income. The amount of any remaining
deferred deduction is to be taken into account in the taxable year in which the
Regular Certificate matures or is disposed of in a taxable transaction. In the
case of a disposition in which gain or loss is not recognized in whole or in
part, any remaining deferred
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deduction will be allowed to the extent of gain recognized on the disposition.
This deferral rule does not apply if the Regular Certificateholder elects to
include such market discount in income currently as it accrues on all market
discount obligations acquired by such Regular Certificateholder in that taxable
year or thereafter.
Premium. A purchaser of a Regular Certificate that purchases the Regular
Certificate at a cost (not including accrued qualified stated interest) greater
than its remaining stated redemption price at maturity will be considered to
have purchased the Regular Certificate at a premium and may elect to amortize
such premium under a constant yield method. It is not clear whether the
Prepayment Assumption would be taken into account in determining the life of the
Regular Certificate for this purpose. The Amortizable Bond Premium Regulations
described above specifically do not apply to prepayable debt instruments subject
to Code Section 1272(a)(6) such as the Regular Certificates. Absent further
guidance from the IRS, the Trustee intends to account for amortizable bond
premium in the manner described herein. However, the Legislative History states
that the same rules that apply to accrual of market discount (which rules
require use of a Prepayment Assumption in accruing market discount with respect
to Regular Certificates without regard to whether such Certificates have OID)
will also apply in amortizing bond premium under Code Section 171. The Code
provides that amortizable bond premium will be allocated among the interest
payments on such Regular Certificates and will be applied as an offset against
such interest payment. Prospective purchasers of the Regular Certificates should
consult their tax advisors regarding the possible application of the Amortizable
Bond Premium Regulations.
Deferred Interest. Certain classes of Regular Certificates will provide
for the accrual of Deferred Interest with respect to one or more ARM Loans. Any
Deferred Interest that accrues with respect to a class of Regular Certificates
will constitute income to the holders of such Certificates prior to the time
distributions of cash with respect to such Deferred Interest are made. It is
unclear, under the OID Regulations. whether any of the interest on such
Certificates will constitute qualified stated interest or whether all or a
portion of the interest payable on such Certificates must be included in the
stated redemption price at maturity of the Certificates and accounted for as OID
(which could accelerate such inclusion). Interest on Regular Certificates must
in any event be accounted for under an accrual method by the holders of such
Certificates and, therefore, applying the latter analysis may result only in a
slight difference in the timing of the inclusion in income of interest on such
Regular Certificates.
Effects of Defaults and Delinquencies. Certain Series of Certificates may
contain one or more classes of Subordinated Certificates, and in the event there
are defaults or delinquencies on the Mortgage Loans, amounts that would
otherwise be distributed on the Subordinated Certificates may instead be
distributed on the Certificates. Subordinated Certificateholders nevertheless
will be required to report income with respect to such Certificates under an
accrual method without giving effect to delays and reductions in distributions
on such Subordinated Certificates attributable to defaults and delinquencies on
the Mortgage Loans, except to the extent that it can be established that such
amounts are uncollectible. As a result, the amount of income reported by a
Subordinated Certificateholder in any period could significantly exceed the
amount of cash distributed to such holder in that period. The holder will
eventually be allowed a loss (or will be allowed to report a lesser amount of
income) to the extent that the aggregate amount of distributions on the
Subordinated Certificate is reduced as a result of defaults and delinquencies on
the Mortgage Loans. However. the timing and characterization of such losses or
reductions in income are uncertain, and, accordingly, Subordinated
Certificateholders should consult their own tax advisors on this point.
Sale, Exchange or Redemption. If a Regular Certificate is sold, exchanged,
redeemed or retired, the seller will recognize gain or loss equal to the
difference between the amount realized on the sale, exchange, redemption, or
retirement and the seller's adjusted basis in the Regular Certificate. Such
adjusted basis generally will equal the cost of the Regular Certificate to the
seller, increased by any OID and market discount included in the seller's gross
income with respect to the Regular Certificate, and reduced (but not below zero)
by payments included in the stated redemption price at maturity previously
received by the seller and by any amortized premium. Similarly, a holder who
receives a payment that is part of the stated redemption price at maturity of a
Regular Certificate will recognize gain equal to the excess, if any, of the
amount of the payment over the holder's adjusted basis in the Regular
Certificate. A Regular Certificateholder who receives a final payment that is
less than the holder's adjusted basis in the Regular Certificate will generally
recognize a loss.
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Except as provided in the following paragraph and as provided under "Market
Discount" above, any such gain or loss will be capital gain or loss, provided
that the Regular Certificate is held as a "capital asset" (generally, property
held for investment) within the meaning of Code Section 1221.
Gain from the sale or other disposition of a Regular Certificate that might
otherwise be capital gain will be treated as ordinary income to the extent that
such gain does not exceed the excess, if any, of (i) the amount that would have
been includible in such holder's income with respect to the Regular Certificate
had income accrued thereon at a rate equal to 110% of the AFR as defined in Code
Section 1274(d) determined as of the date of purchase of such Regular
Certificate, over (ii) the amount actually includible in such holder's income.
The Regular Certificates will be "evidences of indebtedness" within the
meaning of Code Section 582(c)(1), so that gain or loss recognized from the sale
of a Regular Certificate by a bank or a thrift institution to which such section
applies will be ordinary income or loss.
The Regular Certificate information reports will include a statement of the
adjusted issue price of the Regular Certificate at the beginning of each accrual
period. In addition, the reports will include information necessary to compute
the accrual of any market discount that may arise upon secondary trading of
Regular Certificates. Because exact computation of the accrual of market
discount on a constant yield method would require information relating to the
holder's purchase price which the REMIC may not have, it appears that the
information reports will only require information pertaining to the appropriate
proportionate method of accruing market discount.
Accrued Interest Certificates. Certain of the Regular Certificates
("Payment Lag Certificates") may provide for payments of interest based on a
period that corresponds to the interval between Distribution Dates but that ends
prior to each such Distribution Date. The period between the Closing Date for
Payment Lag Certificates and their first Distribution Date may or may not exceed
such interval. Purchasers of Payment Lag Certificates for which the period
between the Closing Date and the first Distribution Date does not exceed such
interval could pay upon purchase of the Regular Certificates accrued interest in
excess of the accrued interest that would be paid if the interest paid on the
Distribution Date were interest accrued from Distribution Date to Distribution
Date. If a portion of the initial purchase price of a Regular Certificate is
allocable to interest that has accrued prior to the issue date ("pre-issuance
accrued interest") and the Regular Certificate provides for a payment of stated
interest on the first payment date (and the first payment date is within one
year of the issue date) that equals or exceeds the amount of the pre-issuance
accrued interest, then the Regular Certificates' issue price may be computed by
subtracting from the issue price the amount of pre-issuance accrued interest,
rather than as an amount payable on the Regular Certificate. However, it is
unclear under this method how the OID Regulations treat interest on Payment Lag
Certificates. Therefore, in the case of a Payment Lag Certificate, the Trust
Fund intends to include accrued interest in the issue price and report interest
payments made on the first Distribution Date as interest to the extent such
payments represent interest for the number of days that the Certificateholder
has held such Payment Lag Certificate during the first accrual period.
Investors should consult their own tax advisors concerning the treatment
for federal income tax purposes of Payment Lag Certificates.
Non-lnterest Expenses of the REMIC. Under the temporary Treasury
regulations, if the REMIC is considered to be a "single-class REMIC," a portion
of the REMIC's servicing, administrative and other non-interest expenses will be
allocated as a separate item to those Regular Certificateholders that are "pass-
through interest holders." Certificateholders that are pass-through interest
holders should consult their own tax advisors about the impact of these rules on
an investment in the Regular Certificates. See Pass-Through of Non-Interest
Expenses of the REMIC" under "Residual Certificates" below.
Treatment of Realized Losses. Although not entirely clear, it appears that
holders of Regular Certificates that are corporations should in general be
allowed to deduct as an ordinary loss any loss sustained during the taxable year
on account of any such Certificates becoming wholly or partially worthless, and
that, in general, holders of Certificates that are not corporations should be
allowed to deduct as a short-term capital loss any loss sustained during the
taxable year on account of any such Certificates becoming wholly worthless.
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Although the matter is unclear, non-corporate holders of Certificates may be
allowed a bad debt deduction at such time that the principal balance of any such
Certificate is reduced to reflect realized losses resulting from any liquidated
Mortgage Loans. The Internal Revenue Service, however, could take the position
that non-corporate holders will be allowed a bad debt deduction to reflect
realized losses only after all Mortgage Loans remaining in the related Trust
Fund have been liquidated or the Certificates of the related Series have been
otherwise retired. Potential investors and Holders of the Certificates are urged
to consult their own tax advisors regarding the appropriate timing, amount and
character of any loss sustained with respect to such Certificates, including any
loss resulting from the failure to recover previously accrued interest or
discount income. Special loss rules are applicable to banks and thrift
institutions, including rules regarding reserves for bad debts. Such taxpayers
are advised to consult their tax advisors regarding the treatment of losses on
Certificates.
Non-U.S. Persons. Generally, payments of interest (including any payment
with respect to accrued OID) on the Regular Certificates to a Regular
Certificateholder who is not a U.S. Person and is not engaged in a trade or
business within the United States will not be subject to federal withholding tax
if such Regular Certificateholder complies with certain identification
requirements (including delivery of a statement, signed by the Regular
Certificateholder under penalties of perjury, certifying that such Regular
Certificateholder is a foreign person and providing the name and address of such
Regular Certificateholder). If a Regular Certificateholder is not exempt from
withholding, distributions of interest, including distributions in respect of
accrued OID, such holder may be subject to a 30% withholding tax, subject to
reduction under any applicable tax treaty.
Further, it appears that a Regular Certificate would not be included in the
estate of a non-resident alien individual and would not be subject to United
States estate taxes. However, Certificateholders who are nonresident alien
individuals should consult their tax advisors concerning this question.
Regular Certificateholders who are not U.S. Persons and persons related to
such holders should not acquire any Residual Certificates, and holders of
Residual Certificates (the "Residual Certificateholder") and persons related to
Residual Certificateholders should not acquire any Regular Certificates without
consulting their tax advisors as to the possible adverse tax consequences of
doing so.
Information Reporting and Backup Withholding. The Master Servicer will
furnish or make available, within a reasonable time after the end of each
calendar year, to each person who was a Regular Certificateholder at any time
during such year, such information as may be deemed necessary or desirable to
assist Regular Certificateholders in preparing their federal income tax returns,
or to enable holders to make such information available to beneficial owners or
financial intermediaries that hold such Regular Certificates on behalf of
beneficial owners. If a holder, beneficial owner, financial intermediary or
other recipient of a payment on behalf of a beneficial owner fails to supply a
certified taxpayer identification number or if the Secretary of the Treasury
determines that such person has not reported all interest and dividend income
required to be shown on its federal income tax return, 31% backup withholding
may be required with respect to any payments. Any amounts deducted and withheld
from a distribution to a recipient would be allowed as a credit against such
recipient's federal income tax liability.
B. RESIDUAL CERTIFICATES
Allocation of the Income of the REMIC to the Residual Certificates. The
REMIC will not be subject to federal income tax except with respect to income
from prohibited transactions and certain other transactions. See "-- Prohibited
Transactions and Other Taxes" below. Instead, each original holder of a Residual
Certificate will report on its federal income tax return, as ordinary income,
its share of the taxable income of the REMIC for each day during the taxable
year on which such holder owns any Residual Certificates. The taxable income of
the REMIC for each day will be determined by allocating the taxable income of
the REMIC for each calendar quarter ratably to each day in the quarter. Such a
holder's share of the taxable income of the REMIC for each day will be based on
the portion of the outstanding Residual Certificates that such holder owns on
that day. The taxable income of the REMIC will be determined under an accrual
method and will be taxable to the holders of Residual Certificates without
regard to the timing or amounts of cash distributions by the REMIC. Ordinary
income derived from Residual Certificates will be "portfolio income for
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purposes of the taxation to taxpayers subject to the limitations on the
deductibility of "passive losses." As residual interests, the Residual
Certificates will be subject to tax rules, described below, that differ from
those that would apply if the Residual Certificates were treated for federal
income tax purposes as direct ownership interests in the Certificates or as debt
instruments issued by the REMIC.
A Residual Certificateholder may be required to include taxable income from
the Residual Certificate in excess of the cash distributed. For example, a
structure where principal distributions are made serially on regular interests
(that is, a fast-pay, slow-pay structure) may generate such a mismatching of
income and cash distributions (that is, "phantom income"). This mismatching may
be caused by the use of certain required tax accounting methods by the REMIC,
variations in the prepayment rate of the underlying Mortgage Loans and certain
other factors. Depending upon the structure of a particular transaction, the
aforementioned factors may significantly reduce the after-tax yield of a
Residual Certificate to a Residual Certificateholder. Investors should consult
their own tax advisors concerning the federal income tax treatment of a Residual
Certificate and the impact of such tax treatment on the after-tax yield of a
Residual Certificate.
A subsequent Residual Certificateholder also will report on its federal
income tax return amounts representing a daily share of the taxable income of
the REMIC for each day that such Residual Certificateholder owns such Residual
Certificate. Those daily amounts generally would equal the amounts that would
have been reported for the same days by an original Residual Certificateholder,
as described above. The Legislative History indicates that certain adjustments
may be appropriate to reduce (or increase) the income of a subsequent holder of
a Residual Certificate that purchased such Residual Certificate at a price
greater than (or less than) the adjusted basis such Residual Certificate would
have in the hands of an original Residual Certificateholder. See "-- Sale or
Exchange of Residual Certificates" below. It is not clear, however, whether such
adjustments will in fact be permitted or required and, if so, how they would be
made. The REMIC Regulations do not provide for any such adjustments.
Taxable Income of the REMIC Attributable to Residual Interests. The
taxable income of the REMIC will reflect a netting of (i) the income from the
Mortgage Loans and the REMIC's other assets and (ii) the deductions allowed to
the REMIC for interest and OID on the Regular Certificates and, except as
described above under "-- Regular Certificates -- Non-Interest Expenses of the
REMIC," other expenses. REMIC taxable income is generally determined in the same
manner as the taxable income of an individual using the accrual method of
accounting, except that (i) the limitations on deductibility of investment
interest expense and expenses for the production of income do not apply, (ii)
all bad loans will be deductible as business bad debts, and (iii) the limitation
on the deductibility of interest and expenses related to tax-exempt income is
more restrictive than with respect to individual. The REMIC's gross income
includes interest, original issue discount income, and market discount income,
if any, on the Mortgage Loans, as well as, income earned from temporary
investments on reverse assets, reduced by the amortization of any premium on the
Mortgage Loans. In addition, a Residual Certificateholder will recognize
additional income due to the allocation of realized losses to the Regular
Certificates due to defaults, delinquencies and realized losses on the Mortgage
Loans. The timing of the inclusion of such income by Residual Certificateholders
may differ from the time the actual loss is allocated to the Regular
Certificates. The REMIC's deductions include interest and original issue
discount expense on the Regular Certificates, servicing fees on the Mortgage
Loans, other administrative expenses of the REMIC and realized losses on the
Mortgage Loans. The requirement that Residual Certificateholders report their
pro rata share of taxable income or net loss of the REMIC will continue until
there are no Certificates of any class of the related Series outstanding.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate tax basis in its assets equal to the sum of the issue prices
of the Regular Certificates and the Residual Certificates (or, if a class of
Certificates is not sold initially, its fair market value). Such aggregate basis
will be allocated among the Mortgage Loans and other assets of the REMIC in
proportion to their respective fair market value. A Mortgage Loan will be deemed
to have been acquired with discount or premium to the extent that the REMIC's
basis therein is less than or greater than its principal balance, respectively.
Any such discount (whether market discount or OID) will be includible in the
income of the REMIC as it accrues, in advance of receipt of the cash
attributable to such income, under a method similar to the method described
above for accruing OID on the Regular Certificates. The REMIC expects to elect
under Code Section 171 to amortize
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any premium on the Mortgage Loans. Premium on any Mortgage Loan to which such
election applies would be amortized under a constant yield method. It is not
clear whether the yield of a Mortgage Loan would be calculated for this purpose
based on scheduled payments or taking account of the Prepayment Assumption.
Additionally such an election would not apply to the yield with respect to any
underlying mortgage loan originated on or before September 27, 1985. Instead
premium with respect to such a mortgage loan would be allocated among the
principal payments thereon and would be deductible by the REMIC as those
payments become due.
The REMIC will be allowed a deduction for interest and OID on the Regular
Certificates. The amount and method of accrual of OID will be calculated for
this purpose in the same manner as described above with respect to Regular
Certificates except that the 0.25% per annum de minimis rule and adjustments for
subsequent holders described therein will not apply.
A Residual Certificateholder will not be permitted to amortize the cost of
the Residual Certificate as an offset to its share of the REMIC's taxable
income. However, that taxable income will not include cash received by the REMIC
that represents a recovery of the REMIC's basis in its assets, and, as described
above, the issue price of the Residual Certificates will be added to the issue
price of the Regular Certificates in determining the REMIC's initial basis in
its assets. See "Sale or Exchange of Residual Certificates" below. For a
discussion of possible adjustments to income of a subsequent holder of a
Residual Certificate to reflect any difference between the actual cost of such
Residual Certificate to such holder and the adjusted basis such Residual
Certificate would have in the hands of an original Residual Certificateholder,
see "Allocation of the Income of the REMIC to the Residual Certificates" above.
Net Losses of the REMIC. The REMIC will have a net loss for any calendar
quarter in which its deductions exceed its gross income. Such net loss would be
allocated among the Residual Certificateholders in the same manner as the
REMIC's taxable income. The net loss allocable to any Residual Certificate will
not be deductible by the holder to the extent that such net loss exceeds such
holder's adjusted basis in such Residual Certificate. Any net loss that is not
currently deductible by reason of this limitation may only be used by such
Residual Certificateholder to offset its share of the REMIC's taxable income in
future periods (but not otherwise). The ability of Residual Certificateholders
that are individuals or closely held corporations to deduct net losses may be
subject to additional limitations under the Code.
Mark to Market Rules. Prospective purchasers of a Residual Certificate
should be aware that the IRS recently released proposed regulations (the
"Proposed Mark-to-Market Regulations") which provide that a Residual Certificate
acquired after January 3, 1995 cannot be marked-to-market. The Proposed Mark-to-
Market Regulations change the temporary regulations which allowed a Residual
Certificate to be marked-to-market provided that it was not a "negative value"
residual interest. Prospective purchasers of a Residual Certificate should
consult their tax advisors regarding the possible application of the Proposed
Mark-to-Market Regulations.
Pass-Through of Non-interest Expenses of the REMIC. As a general rule, all
of the fees and expenses of a REMIC will be taken into account by holders of the
Residual Certificates. In the case of a single class REMIC, however, the
expenses and a matching amount of additional income will be allocated, under
temporary Treasury regulations, among the Regular Certificateholders and the
Residual Certificateholders on a daily basis in proportion to the relative
amounts of income accruing to each Certificateholder on that day. In general
terms, a single class REMIC is one that either (i) would qualify, under existing
Treasury regulations, as a grantor trust if it were not a REMIC (treating all
interests as ownership interests, even if they would be classified as debt for
federal income tax purposes) or (ii) is similar to such a trust and 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 Certificates in
their entirety and not to holders of the related Regular Certificates.
In the case of individuals (or trusts, estates or other persons that
compute their income in the same manner as individuals) who own an interest in a
Regular Certificate or a Residual Certificate directly or through a pass through
interest holder that is required to pass miscellaneous itemized deductions
through to its owners or beneficiaries (e.g. a partnership, an S corporation or
a grantor trust), such expenses will be
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deductible under Code Section 67 only to the extent that such expenses, plus
other "miscellaneous itemized deductions" of the individual, exceed 2% of such
individual's adjusted gross income. In addition, Code Section 68 provides that
the amount of itemized deductions otherwise allowable for an individual whose
adjusted gross income exceeds a certain amount (the "Applicable Amount") will be
reduced by the lesser of (i) 3% of the excess of the individual's adjusted gross
income over the Applicable Amount or (ii) 80% of the amount of itemized
deductions otherwise allowable for the taxable year. The amount of additional
taxable income recognized by Residual Certificateholders who are subject to the
limitations of either Code Section 67 or Code Section 68 may be substantial.
Further, holders (other than corporations) subject to the alternative minimum
tax may not deduct miscellaneous itemized deductions in determining such
holders' alternative minimum taxable income. The REMIC is required to report to
each pass-through interest holder and to the IRS such holder's allocable share
if any, of the REMIC's non-interest expenses. The term "pass-through interest
holder generally refers to individuals. entities taxed as individuals and
certain pass-through entities, but does not include real estate investment
trusts. Residual Certificateholders that are pass-through interest holders
should consult their own tax advisors about the impact of these rules on an
investment in the Residual Certificates.
Excess Inclusions. A portion of the income on a Residual Certificate
(referred to in the Code as an "excess inclusion") for any calendar quarter
will, with an exception discussed below for certain thrift institutions, be
subject to federal income tax in all events. Thus, for example, an excess
inclusion (i) may not, except as described below, be offset by any unrelated
losses, deductions or loss carryovers of a Residual Certificateholder; (ii) will
be treated as "unrelated business taxable income' within the meaning of Code
Section 512 if the Residual Certificateholder is a pension fund or any other
organization that is subject to tax only on its unrelated business taxable
income (see "Tax-Exempt Investors-" below); and (iii) is not eligible for any
reduction in the rate of withholding tax in the case of a Residual
Certificateholder that is a foreign investor. See "Non-U.S. Persons" below. The
exception for thrift institutions is available only to the institution holding
the Residual Certificate and not to any affiliate of the institution, unless the
affiliate is a subsidiary all the stock of which, and substantially all the
indebtedness of which, is held by the institution, and which is organized and
operated exclusively in connection with the organization and operation of one or
more REMICs.
Except as discussed in the following paragraph, with respect to any
Residual Certificateholder, the excess inclusions for any calendar quarter is
the excess, if any, of (i) the income of such Residual Certificateholder for
that calendar quarter from its Residual Certificate over (ii) the sum of the
"daily accruals" (as defined below) for all days during the calendar quarter on
which the Residual Certificateholder holds such Residual Certificate. For this
purpose, the daily accruals with respect to a Residual Certificate are
determined by allocating to each day in the calendar quarter its ratable portion
of the product of the "adjusted issue price" (as defined below) of the Residual
Certificate at the beginning of the calendar quarter and 120 percent of the
"Federal long-term rate" in effect at the time the Residual Certificate is
issued. For this purpose, the "adjusted issue price" of a Residual Certificate
at the beginning of any calendar quarter equals the issue price of the Residual
Certificate, increased by the amount of daily accruals for all prior quarters,
and decreased (but not below zero) by the aggregate amount of payments made on
the Residual Certificate before the beginning of such quarter. The "federal
long-term rate" is an average of current yields on Treasury securities with a
remaining term of greater than nine years, computed and published monthly by the
IRS.
As an exception to the general rule described above, the Treasury
Department has authority to issue regulations that would treat the entire amount
of income accruing on a Residual Certificate as excess inclusions if the
Residual Certificates in the aggregate are considered not to have "significant
value." Under the REMIC Regulations, Residual Certificateholders that are thrift
institutions described in Code Section 593 can offset excess inclusions with
unrelated deductions, losses and loss carryovers provided the Residual
Certificates have "significant value." For purposes of applying this rule,
thrift institutions that are members of an affiliated group filing a
consolidated return, together with their subsidiaries formed to issue REMICs,
are treated as separate corporations. Residual Certificates have "significant
value" if: (i) the Residual Certificates have an aggregate issue price that is
at least equal to 2% of the aggregate issue price of all Residual Certificates
and Regular Certificates with respect to the REMIC and (ii) the anticipated
weighted average
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life of the Residual Certificates is at least 20% of the anticipated weighted
average life of the REMIC based on the anticipated principal payments to be
received with respect thereto (using the Prepayment Assumption and any required
or permitted clean up calls or required liquidation provided for in the REMIC's
organizational documents), except that all anticipated distributions are to be
used to calculate the weighted average life of Regular Certificates that are not
entitled to any principal payments or are entitled to a disproportionately small
principal amount relative to interest payments thereon and all anticipated
distributions are to be used to calculate the weighted average life of the
Residual Certificates. The principal amount will be considered
disproportionately small if the issue price of the Residual Certificates exceeds
125% of their initial principal amount. Finally, an ordering rule under the
REMIC Regulations provides that a thrift institution may only offset its excess
inclusion income with deductions after it has first applied its deductions
against income that is not excess inclusion income.
In the case of my Residual Certificates held by a real estate investment
trust. the aggregate excess inclusions With respect to such Residual
Certificates. reduced (but not below zero) by the real estate investment trust
taxable income (within the meaning of Code Section 857(b)(2), excluding any net
capital gain), will be allocated among the shareholders of such trust in
proportion to the dividends received by such shareholders from such trust and
any amount so allocated will be treated as an excess inclusion with respect to a
Residual Certificate as if held directly by such shareholder. Regulated
investment companies, common trust funds and certain cooperatives are subject to
similar rules.
Payments. Any distribution made on a Residual Certificate to a Residual
Certificateholder will be treated as a non-taxable return of capital to the
extent it does not exceed the Residual Certificateholder's adjusted basis in
such Residual Certificate. To the extent a distribution exceeds such adjusted
basis, it will be treated as gain from the sale of the Residual Certificate.
Sale or Exchange of Residual Certificates. If a Residual Certificate is
sold or exchanged, the seller will generally recognize gain or loss equal to the
difference between the amount realized on the sale or exchange and its adjusted
basis in the Residual Certificate (except that the recognition of loss may be
limited under the "wash sale" rules described below). A holder's adjusted basis
in a Residual Certificate generally equals the cost of such Residual Certificate
to such Residual Certificateholder, increased by the taxable income of the REMIC
that was included in the income of such Residual Certificateholder with respect
to such Residual Certificate, and decreased (but not below zero) by the net
losses that have been allowed as deductions to such Residual Certificateholder
with respect to such Residual Certificate and by the distributions received
thereon by such Residual Certificateholder. In general, any such gain or loss
will be capital gain or loss provided the Residual Certificate is held as a
capital asset. However, Residual Certificates will be "evidences of
indebtedness" within the meaning of Code Section 582(c)(1), so that gain or loss
recognized from sale of a Residual Certificate by a bank or thrift institution
to which such section applies would be ordinary income or loss.
Except as provided in Treasury regulations yet to be issued, if the seller
of a Residual Certificate reacquires such Residual Certificate, or acquires any
other Residual Certificate, any residual interest in another REMIC or similar
interest in a "taxable mortgage pool" (as defined in Code Section 7701(i))
during the period beginning six months before, and ending six months after, the
date of such sale, such sale will be subject to the "wash sale" rules of Code
Section 1091. In that event, any loss realized by the Residual Certificateholder
on the sale will not be deductible, but, instead, will increase such Residual
Certificateholder adjusted basis in the newly acquired asset.
PROHIBITED TRANSACTIONS AND OTHER TAXES
The Code imposes a tax on REMICs equal to 100 percent of the net income
derived from "prohibited transactions" (the "Prohibited Transactions Tax"). In
general, subject to certain specified exceptions, a prohibited transaction means
the disposition of a Mortgage Loan, the receipt of income from a source other
than a Mortgage Loan or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset purchased
with the payments on the Mortgage Loans for temporary investment pending
distribution on the Certificates. It is not anticipated that the Trust Fund for
any Series of
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Certificates will engage in any prohibited transactions in which it would
recognize a material amount of net income.
In addition, certain contributions to a Trust Fund as to which an election
has been made to treat such Trust Fund as a REMIC made after the day on which
such Trust Fund issues all of its interests could result in the imposition of a
tax on the Trust Fund equal to 100% of the value of the contributed property
(the "Contributions Tax"). No Trust Fund for any Series of Certificates will
accept contributions that would subject it to such tax.
In addition, a Trust Fund as to which an election has been made to treat
such Trust Fund as a REMIC may also be subject to federal income tax at the
highest corporate rate on "net income from foreclosure property," determined by
reference to the rules applicable to real estate investment trusts "Net income
from foreclosure property" generally means income from foreclosure property
other than qualifying income for a real estate investment trust.
Where any Prohibited Transactions Tax, Contributions Tax, tax on net income
from foreclosure property or state or local income or franchise tax that may be
imposed on a REMIC relating to any Series of Certificates arises out of, or
results from, (i) a breach of the related Master Servicer's, Trustee's or
Seller's obligations, as the case may be, under the related Agreement for such
Series, such tax will be borne by such Master Servicer, Trustee or Seller as the
case may be, out of its own funds or (ii) the Seller's obligation to repurchase
a Mortgage Loan, such tax will be borne by the Seller. In the event that such
Master Servicer, Trustee or Seller, as the case may be, fails to pay or is not
required to pay any such tax as provided above, such as will be payable out of
the Trust Fund for such Series and will result in a reduction in amounts
available to be distributed to the Certificateholders of such Series.
LIQUIDATION AND TERMINATION
If the REMIC adopts a plan of complete liquidation, within the meaning of
Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in the
REMIC's final tax return a date on which such adoption is deemed to occur, and
sells all of its assets (other than cash) within a 90-day period beginning on
such date, the REMIC will not be subject to any Prohibited Transactions Tax,
provided that the REMIC credits or distributes in liquidation all of the sale
proceeds plus its cash (other than the amounts retained to meet claims) to
holders of Regular and Residual Certificates within the 90-day period.
The REMIC will terminate shortly following the retirement of the Regular
Certificates. If a Residual Certificateholder's adjusted basis in the Residual
Certificate exceeds the amount of cash distributed to such Residual
Certificateholder in final liquidation of its interest, then it would appear
that the Residual Certificateholder would be entitled to a loss equal to the
amount of such excess. It is unclear whether such a loss, if allowed, will be a
capital loss or an ordinary loss.
ADMINISTRATIVE MATTERS
Solely for the purpose of the administrative provisions of the Code, the
REMIC generally will be treated as a partnership and the Residual
Certificateholders will be treated as the partners. Certain information will be
furnished quarterly to each Residual Certificateholder who held a Residual
Certificate on any day in the previous calendar quarter.
Each Residual Certificateholder is required to treat items on its return
consistently with their treatment on the REMIC's return, unless the Residual
Certificateholder either files a statement identifying the inconsistency or
establishes that the inconsistency resulted from incorrect information received
from the REMIC. The IRS may assert a deficiency resulting from a failure to
comply with the consistency requirement without instituting an administrative
proceeding at the REMIC level. The REMIC does not intend to register as a tax
shelter pursuant to Code Section 6111 because it is not anticipated that the
REMIC will have a net loss for any of the first five taxable years of its
existence. Any person that holds a Residual Certificate as a nominee for another
person may be required to furnish the REMIC, in a manner to be provided in
Treasury regulations, with the name and address of such person and other
information.
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TAX-EXEMPT INVESTORS
Any Residual Certificateholder that is a pension fund or other entity that
is subject to federal income taxation only on its "unrelated business taxable
income" within the meaning of Code Section 512 will be subject to such tax on
that portion of the distributions received on a Residual Certificate that is
considered an excess inclusion. See "-- Residual Certificates -- Excess
Inclusions" above.
NON-U.S. PERSONS
Amounts paid to Residual Certificateholders who are not U.S. persons (see
"-- Regular Certificates -- Non -- U.S. Persons" above) are treated as interest
for purposes of the 30% (or lower treaty rate) United States withholding tax.
Amounts distributed to holders of Residual Certificates should qualify as
"portfolio interest," subject to the conditions described in "-- Regular
Certificates" above, but only to the extent that the underlying mortgage loans
were originated after July 18, 1984. Furthermore, the rate of withholding on any
income on a Residual Certificate that is excess inclusion income will not be
subject to reduction under any applicable tax treaties. See "-- Residual
Certificates Excess-Inclusions" above. If the portfolio interest exemption is
unavailable, such amount will be subject to United States withholding tax when
paid or otherwise distributed (or when the Residual Certificate is disposed of)
under rules similar to those for withholding upon disposition of debt
instruments that have OID. The Code, however, grants the Treasury Department
authority to issue regulations requiring that those amounts be taken into
account earlier than otherwise provided where necessary to prevent avoidance of
tax (for example, where the Residual Certificates do not have significant
value). See "-- Residual Certificates -- Excess Inclusions" above if the amounts
paid to Residual Certificateholders that are not U.S. persons are effectively
connected with their conduct of a trade or business within the United States,
the 30% (or lower treaty rate) withholding will not apply. Instead, the amounts
paid to such non-U.S. Person will be subject to U. S. federal income taxation at
regular graduated rates. For special restrictions on the transfer of Residual
Certificates, see "-- Tax-Related Restrictions on Transfers of Residual
Certificates" below.
Regular Certificateholders and persons related to such holders should not
acquire any Residual Certificates, and Residual Certificateholders and persons
related to Residual Certificateholders should not acquire any Regular
Certificates, without consulting their tax advisors as to the possible adverse
tax consequences of such acquisition.
TAX-RELATED RESTRICTIONS ON TRANSFERS OF RESIDUAL CERTIFICATES
Disqualified Organizations. An entity may not qualify as a REMIC unless
there are reasonable arrangements designed to ensure that residual interests in
such entity are not held by "disqualified organizations" (as defined below).
Further, a tax is imposed on the transfer of a residual interest in a REMIC to a
"disqualified organization." The amount of the tax equals the product of (A) an
amount (as determined under the REMIC Regulations) equal to the present value of
the total anticipated "excess inclusions" with respect to such interest for
periods after the transfer and (B) the highest marginal federal income tax rate
applicable to corporations. The tax is imposed on the transferor unless the
transfer is through an agent (including a broker or other middleman) for a
disqualified organization, in which event the tax is imposed on the agent. The
person otherwise liable for the tax shall be relieved of liability for the tax
if the transferee furnished to such person an affidavit that the transferee is
not a disqualified organization and, at the time of the transfer, such person
does not have actual knowledge that the affidavit is false. A "disqualified
organization" means (A) the United States, any State, possession or political
subdivision thereof, any foreign government, any international organization or
any agency or instrumentality of any of the foregoing (provided that such term
does not include an instrumentality if all its activities are subject to tax
and, except for FHLMC, a majority of its board of directors is not selected by
any such governmental agency), (B) any organization (other than certain farmers'
cooperatives) generally exempt from federal income taxes unless such
organization is subject to the tax on "unrelated business taxable income" and
(C) a rural electric or telephone cooperative.
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A tax is imposed on a "pass-through entity" (as defined below) holding a
residual interest in a REMIC if at any time during the taxable year of the
pass-through entity a disqualified organization is the record holder of an
interest in such entity. The amount of the tax is equal to the product of (A)
the amount of excess inclusions for the taxable year allocable to the interest
held by the disqualified organization and (B) the highest marginal federal
income tax rate applicable to corporations. The pass-through entity otherwise
liable for the tax, for any period during which the disqualified organization is
the record holder of an interest in such entity, will be relieved of liability
for the tax if such record holder furnishes to such entity an affidavit that
such record holder is not a disqualified organization and, for such period, the
pass-through entity does not have actual knowledge that the affidavit is false.
For this purpose, a "pass-through entity" means (i) a regulated investment
company, real estate investment trust or common trust fund, (ii) a partnership,
trust or estate and (iii) certain cooperatives. Except as may be provided in
Treasury regulations not yet issued, any person holding an interest in a
pass-through entity as a nominee for another will, with respect to such
interest, be treated as a pass-through entity. The tax on pass-through entities
is generally effective for periods after March 31, 1988, except that in the case
of regulated investment companies, real estate investment trusts, common trust
funds and publicly-traded partnerships the tax shall apply only to taxable years
of such entities beginning after December 31, 1988. Under proposed legislation,
large partnerships (generally with 250 or more partners) will be taxable on
excess inclusion income as if all partners were disqualified organizations.
In order to comply with these rules, the Agreement will provide that no
record or beneficial ownership interest in a Residual Certificate may be
purchased, transferred or sold, directly or indirectly, unless the Trustee
receives the following: (i) an affidavit from the proposed transferee to the
effect that it is not a disqualified organization and is not acquiring the
Residual Certificate as a nominee or agent for a disqualified organization and
(ii) a covenant by the proposed transferee to the effect that the proposed
transferee agrees to be bound by and to abide by the transfer restrictions
applicable to the Residual Certificate.
Noneconomic Residual Certificate. The REMIC Regulations disregard for
federal income tax purposes, any transfer of a Noneconomic Residual Certificate
to a "U.S. Person", unless no significant purpose of the transfer is to enable
the transferor to impede the assessment or collection of tax. A Noneconomic
Residual Certificate is any Residual Certificate (including a Residual
Certificate with a positive value at issuance) unless. at the time of transfer.
taking into account the Prepayment Assumption and any required or permitted
clean up calls or required liquidation provided for in the REMIC's
organizational documents, (i) the present value of the expected future
distributions on the Residual Certificate at least equals the product of the
present value of the anticipated excess inclusions and the highest corporate
income tax rate in effect for the year in which the transfer occurs and (ii) the
transferor reasonably expects that the transferee will receive distributions
from the REMIC at or after the time at which taxes accrue on the anticipated
excess inclusions in an amount sufficient to satisfy the accrued taxes. A
significant purpose to impede the assessment or collection of tax exists if the
transferor, at the time of the transfer, either knew or should have known that
the transferee would be unwilling or unable to pay taxes due on its share of the
taxable income of the REMIC. A transferor is presumed not to have such knowledge
if (i) the transferor conducted a reasonable investigation of the transferee and
(ii) the transferee acknowledges to the transferor that the residual interest
may generate tax liabilities in excess of the cash flow and the transferee
represents that it intends to pay such taxes associated with the residual
interest as they become due. If a transfer of a Noneconomic Residual Certificate
is disregarded, the transferor would continue to be treated as the owner of the
Residual Certificate and would continue to be subject to tax on its allocable
portion of the net income of the REMIC.
Foreign Investors. The REMIC Regulations provide that the transfer of a
Residual Certificate that has a "tax avoidance potential" to a "foreign person"
will be disregarded for federal income tax purposes. This rule appears to apply
to a transferee who is not a U.S. Person unless such transferee's income in
respect of the Residual Certificate is effectively connected with the conduct of
a United States trade or business. A Residual Certificate is deemed to have a
tax avoidance potential unless, at the time of transfer, the transferor
reasonably expects that the REMIC will distribute to the transferee amounts that
will equal at least 30 percent of each excess inclusion, and that such amounts
will be distributed at or after the time the excess inclusion accrues and not
later than the end of the calendar year following the year of accrual. If the
non-U.S. Person transfers the Residual Certificate to a U.S. Person, the
transfer will be disregarded, and the foreign transferor will
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continue to be treated as the owner, if the transfer has the effect of allowing
the transferor to avoid tax on accrued excess inclusions. The provisions in the
REMIC Regulations regarding transfers of Residual Certificates that have tax
avoidance potential to foreign persons are effective for all transfers after
June 30, 1992. The Agreement will provide that no record or beneficial ownership
interest in a Residual Certificate may be transferred, directly or indirectly,
to a non-U.S. Person unless such person provides the Trustee with a duly
completed I.R.S. Form 4224 and the Trustee consents to such transfer in writing.
Any attempted transfer or pledge in violation of the transfer restrictions
shall be absolutely null and void and shall vest no rights in any purported
transferee. Investors in Residual Certificates are advised to consult their own
tax advisors with respect to transfers of the Residual Certificates and, in
addition, pass-through entities are advised to consult their own tax advisors
with respect to any tax which may be imposed on a pass-through entity.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Federal
Income Tax Considerations," potential investors should consider the state and
local income tax consequences of the acquisition, ownership, and disposition of
the Certificates. State and local income tax law may differ substantially from
the corresponding federal law, and this discussion does not purport to describe
any aspect of the income tax laws of any state or locality. Therefore, potential
investors should consult their own tax advisors with respect to the various tax
consequences of investments in the Certificates.
ERISA CONSIDERATIONS
The following describes certain considerations under ERISA and the Code,
which apply only to Certificates of a Series that are not divided into classes.
If Certificates are divided into classes the related Prospectus Supplement will
contain information concerning considerations relating to ERISA and the Code
that are applicable to such Certificates.
ERISA imposes requirements on employee benefit plans (and on certain other
retirement plans and arrangements, including individual retirement accounts and
annuities, Keogh plans and collective investment funds and separate accounts in
which such plans, accounts or arrangements are invested) (collectively "Plans")
subject to ERISA and on persons who are fiduciaries with respect to such Plans.
Generally, ERISA applies to investments made by Plans. Among other things, ERISA
requires that the assets of Plans be held in trust and that the trustee, or
other duly authorized fiduciary, have exclusive authority and discretion to
manage and control the assets of such Plans. ERISA also imposes certain duties
on persons who are fiduciaries of Plans. Under ERISA, any person who exercises
any authority or control respecting the management or disposition of the assets
of a Plan is considered to be a fiduciary of such Plan (subject to certain
exceptions not here relevant). Certain employee benefit plans, such as
governmental plans (as defined in ERISA Section 3(32)) and, if no election has
been made under Section 410(d) of the Code, church plans (as defined in ERISA
Section 3(33)), are not subject to ERISA requirements. Accordingly, assets of
such plans may be invested in Certificates without regard to the ERISA
considerations described above and below, subject to the provisions of
applicable state law. Any such plan which is qualified and exempt from taxation
under Code Sections 401(a) and 501(a), however, is subject to the prohibited
transaction rules set forth in Code Section 503.
On November 13, 1986, the United States Department of Labor (the "DOL")
issued final regulations concerning the definition of what constitutes the
assets of a Plan. (Labor Reg. Section 2510.3-101). Under this regulation, the
underlying assets and properties of corporations, partnerships and certain other
entities in which a Plan makes an "equity" investment could be deemed for
purposes of ERISA to be assets of the investing Plan in certain circumstances.
However, the regulation provides that, generally, the assets of a corporation or
partnership in which a Plan invests will not be deemed for purposes of ERISA to
be assets of such Plan if the equity interest acquired by the investing Plan is
a publicly-offered security. A publicly-offered
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security, as defined in Labor Reg. Section 2510.3-101, is a security that is
widely held, freely transferable and registered under the Securities Exchange
Act of 1934, as amended.
In addition to the imposition of general fiduciary standards of investment
prudence and diversification, ERISA prohibits a broad range of transactions
involving Plan assets and persons ("Parties in Interest") having certain
specified relationships to a Plan and imposes additional prohibitions where
Parties in Interest are fiduciaries with respect to such Plan. Because the
Mortgage Loans may be deemed Plan assets of each Plan that purchases
Certificates, an investment in the Certificates by a Plan might be a prohibited
transaction under ERISA Sections 406 and 407 and subject to an excise tax under
Code Section 4975 unless a statutory or administrative exemption applies.
In Prohibited Transaction Exemption 83-1 ("PTE 83-1"), which amended
Prohibited Transaction Exemption 81-7, the DOL exempted from ERISA's prohibited
transaction rules certain transactions relating to the operation of residential
mortgage pool investment trusts and the purchase, sale and holding of "mortgage
pool pass-through certificates" in the initial issuance of such certificates.
PTE 83-1 permits, subject to certain conditions, transactions that might
otherwise be prohibited between Plans and Parties in Interest with respect to
those Plans related to the origination, maintenance and termination of mortgage
pools consisting of mortgage loans secured by first or second mortgages or deeds
of trust on single-family residential property, and the acquisition and holding
of certain mortgage pool pass-through certificates representing an interest in
such mortgage pools by Plans. If the general conditions (discussed below) of PTE
83-1 are satisfied, investments by a Plan in certificates that represent
interests in a mortgage pool consisting of mortgage loans representing loans for
single family homes ("Single Family Certificates") 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 Certificates 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 twenty-five percent (25%)
of all Single Family Certificates and at least fifty percent (50%) of all Single
Family Certificates are purchased by persons independent of the pool sponsor or
pool trustee. PTE 83-1 does not provide an exemption for transactions involving
Subordinated Certificates. Accordingly, unless otherwise provided in the related
Prospectus Supplement, no transfer of a Subordinated Certificate may be made to
a Plan.
The discussion in this and the next succeeding paragraph applies only to
Single Family Certificates. The Depositor believes that, for purposes of PTE
83-1, the term "mortgage pass-through certificate" would include: (i)
Certificates issued in a Series consisting of only a single class of
Certificates; and (ii) Senior Certificates issued in a Series in which there is
only one class of Senior Certificates; provided that the Certificates in the
case of clause (i), or the Senior Certificates in the case of clause (ii),
evidence the beneficial ownership of both a specified percentage of future
interest payments (greater than zero percent (0%) and a specified percentage
(greater than zero percent (0%)) of future principal payments on the Mortgage
Loans. It is not clear whether a class of Certificates that evidences the
beneficial ownership in a Trust Fund divided into mortgage 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 Certificates entitled to receive payments of interest
and principal on the Mortgage Loans only after payments to other classes or
after the occurrence of certain specified events would be a "mortgage pass-
through certificate" for purposes of PTE 83-1.
PTE 83-1 sets forth three general conditions which must be satisfied for
any transaction to be eligible for exemption: (i) the maintenance of a system of
insurance or other protection for the pooled mortgage loans and property
securing such loans and for indemnifying certificateholders 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 (1%) of the aggregate
principal balance of all covered pooled mortgage loans or the principal balance
of the largest covered pooled mortgage loan; (ii) the existence of a pool
trustee who is not an affiliate of the pool sponsor; and (iii) a limitation on
the amount of the payments retained by the pool sponsor together with other
funds inuring to its benefit, to not more than adequate consideration for
selling the mortgage loans plus reasonable compensation for services provided by
the pool sponsor to the mortgage pool. The Depositor
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believes that the first general condition referred to above will be satisfied
with respect to the Certificates in a Series issued without a subordination
feature, or only the Senior Certificates in a Series issued with a subordination
feature, provided that the subordination and Reserve Fund, subordination by
shifting of interests, the pool insurance or other form of credit enhancement
described herein (such subordination, pool insurance or other form of credit
enhancement being the system of insurance or other protection referred to above)
with respect to a Series of Certificates is maintained in an amount not less
than the greater of one percent of the aggregate principal balance of the
Mortgage Loans or the principal balance of the largest Mortgage Loan. See
"Description of the Certificates" herein. In the absence of a ruling that the
system of insurance or other protection with respect to a Series of Certificates
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 Certificates
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 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.
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.
While each Underwriter Exemption is an individual exemption separately
granted to a specific underwriter, the terms and conditions which generally
apply to the Underwriter Exemptions are substantially the following:
(1) the acquisition of the certificates by a Plan is on terms
(including the price for the certificates) that are at least as favorable
to the Plan as they would be in an arm's length transaction with an
unrelated party;
(2) the rights and interest evidenced by the certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by
other certificates of the trust fund;
(3) the certificates required by the Plan have received a rating at
the time of such acquisition that is one of the three highest generic
rating categories from Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc. ("S&P"), Moody's Investors Service, Inc.
("Moody's"), Duff & Phelps Credit Rating Co. ("D&P") or Fitch Investors
Service, LLP ("Fitch");
(4) the trustee must not be an affiliate of any other member of the
Restricted Group;
(5) the sum of all payments made to and retained by the underwriters
in connection with the distribution of the certificates represents not more
than reasonable compensation for underwriting the certificates; the sum of
all payments made to and retained by the seller pursuant to the assignment
of the loans to the trust fund represents not more than the fair market
value of such loans; the sum of all payments made to and retained by the
servicer and any other servicer represents not more than reasonable
compensation for such person's services under the agreement pursuant to
which the loans are pooled and reimbursements of such person's reasonable
expenses in connection therewith; and
(6) the Plan investing in the certificates is an "accredited investor"
as defined in Rule 501(a)(l) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933 as amended.
The trust fund must also meet the following requirements:
94
<PAGE> 132
(i) the corpus of the trust fund must consist solely of assets of the
type that have been included in other investment pools;
(ii) certificates in such other investment pools must have been rated
in one of the three highest rating categories of S&P, Moody's, Fitch or D&P
for at least one year prior to the Plan's acquisition of certificates; and
(iii) certificates evidencing interests in such other investment pools
must have been purchased by investors other than Plans for at least one
year prior to any Plan's acquisition of certificates.
Moreover, the Underwriter Exemptions generally provide relief from certain
self-dealing/conflict of interest prohibited transactions that may occur when
the Plan fiduciary causes a Plan to acquire certificates in a trust as to which
the fiduciary (or its affiliate) is an obligor on the receivables held in the
trust provided that, among other requirements: (i) in the case of an acquisition
in connection with the initial issuance of certificates, at least fifty percent
(50%) of each class of certificates in which Plans have invested is acquired by
persons independent of the Restricted Group, (ii) such fiduciary (or its
affiliate) is an obligor with respect to five percent (5%) or less of the fair
market value of the obligations contained in the trust; (iii) the Plan's
investment in certificates of any class does not exceed twenty-five percent
(25%) of all of the certificates of that class outstanding at the time of the
acquisition; and (iv) immediately after the acquisition, no more than
twenty-five percent (25%) of the assets of the Plan with respect to which such
person is a fiduciary is invested in certificates representing an interest in
one or more trusts containing assets sold or serviced by the same entity. The
Underwriter Exemptions do not apply to Plans sponsored by the Seller, the
related Underwriter, the Trustee, the Master Servicer, any insurer with respect
to the Mortgage Loans, any obligor with respect to Mortgage Loans included in
the Trust Fund constituting more than five percent (5%) of the aggregate
unamortized principal balance of the assets in the Trust Fund, or any affiliate
of such parties.
The Prospectus Supplement for each Series of Certificates will indicate the
classes of Certificates, if any, offered thereby as to which it is expected that
an Underwriter Exemption will apply.
Any Plan fiduciary which proposes to cause a Plan to purchase Certificates
should consult with its counsel concerning the impact of ERISA and the Code, the
applicability of PTE 83-1, the availability and applicability of any Underwriter
Exemption or any other exemptions from the prohibited transaction provisions of
ERISA and the Code and the potential consequences in their specific
circumstances, prior to making such investment. Moreover, each Plan fiduciary
should determine whether under the general fiduciary standards of investment
procedure and diversification an investment in the 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 Prospectus Supplement for each Series of Certificates will specify
which, if any, of the classes of Certificates offered thereby will constitute
"mortgage related securities" for purposes of SMMEA. Classes of Certificates
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 regulation to the same extent
as, under applicable law, obligations issued by or guaranteed as to principal
and interest by the United States or any agency or instrumentably thereof
constitute legal investments for such entities. Under SMMEA, if a state enacted
legislation prior to October 4, 1991 specifically limiting the legal investment
authority of any such entities with respect to "mortgage related securities,"
the Certificates will constitute legal investments for entities subject to such
legislation only to the extent provided therein. Approximately twenty-one states
adopted such legislation prior to the October 4, 1991 deadline. SMMEA provides,
however, that in no event will the enactment of any such legislation affect the
validity of any contractual commitment to purchase, hold or invest in
Certificates, or require the sale or other
95
<PAGE> 133
disposition of Certificates, so long as such contractual commitment was made or
such Certificates acquired prior to the enactment of such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in Certificates
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 Certificates for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
24 (Seventh), subject in each case to such regulations as the applicable federal
authority may prescribe. In this connection, federal credit unions should review
the National Credit Union Administration ("NCUA") Letter to Credit Unions No.
96, as modified by Letter to Credit Unions No. 108, which includes guidelines to
assist federal credit unions in making investment decisions for mortgage related
securities, and the NCUA's regulation "Investment and Deposit Activities" (12
C.F.R. Part 703), (whether or not the class of Certificates under consideration
for purchase constitutes a "mortgage related security").
All depository institutions considering an investment in the Certificates
(whether or not the class of certificates under consideration for purchase
constitutes a "mortgage related security") should review the Federal Financial
Institutions Examination Council's Supervisory Policy Statement on 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" that are "high-risk mortgage securities"
as defined in the Policy Statement. According to the Policy Statement, such
"high-risk mortgage securities" include securities such as Certificates not
entitled to distributions allocated to principal or interest, or Subordinated
Certificates. Under the Policy Statement, it is the responsibility of each
depository institution to determine, prior to purchase (and at stated intervals
thereafter), whether a particular mortgage derivative product is a "high-risk
mortgage security", and whether the purchase (or retention) of such a product
would be consistent with the Policy Statement.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines, or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits and provisions
that may restrict or prohibit investment in securities that are not "interest
bearing" or "income paying."
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Certificates or to
purchase Certificates 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 Certificates constitute legal
investments for such investors.
96
<PAGE> 134
METHOD OF DISTRIBUTION
Certificates are being offered hereby in Series from time to time (each
Series evidencing a separate Trust Fund) 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 such
Series is being offered, the nature and amount of any underwriting discounts or
additional compensation to such underwriters and the proceeds of the offering to
the Depositor, or the method by which the price at which the underwriters will
sell the Certificates 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 Certificates so offered. In firm commitment
underwritten offerings, the underwriters will be obligated to purchase all of
the Certificates of such Series if any such Certificates are purchased.
Certificates 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 of 1933, as amended,
or to contribution with respect to payments which such underwriters or agents
may be required to make in respect thereof.
If a Series is offered other than through underwriters, the Prospectus
Supplement relating thereto will contain information regarding the nature of
such offering and any agreements to be entered into between the Depositor and
purchasers of Certificates of such Series.
LEGAL MATTERS
The validity of the Certificates, including the material federal income tax
consequences with respect thereto, will be passed upon for the Depositor by
Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York 10038.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each Series of Certificates
and no Trust Fund will engage in any business activities or have any assets or
obligations prior to the issuance of the related Series of Certificates.
Accordingly, no financial statements with respect to any Trust Fund will be
included in this Prospectus or in the related Prospectus Supplement.
RATING
It is a condition to the issuance of the Certificates of each Series
offered hereby and by the Prospectus Supplement that they shall have been rated
in one of the four highest rating categories by the nationally recognized
statistical rating agency or agencies specified in the related Prospectus
Supplement.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates, the nature of the underlying mortgage loans
and the credit quality of
97
<PAGE> 135
the credit enhancer or guarantor, if any. Ratings on mortgage pass-through
certificates do not represent any assessment of the likelihood of principal
prepayments by mortgagors or of the degree by which such prepayments might
differ from those originally anticipated. As a result, certificateholders might
suffer a lower than anticipated yield, and, in addition, holders of stripped
pass-through certificates in extreme cases might fail to recoup their underlying
investments.
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.
98
<PAGE> 136
INDEX TO DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
1986 Act............................... 73
Accretion Directed Certificates........ 36
Accrual Certificates................... 32
Accrual Class.......................... 37
accrual period......................... 64
adjusted issue price................... 60
Advance................................ 10
Agency Securities...................... cover
Agreement.............................. 3
Applicable Amount...................... 71
ARM Loans.............................. 73
baloon payments........................ 6
Bankruptcy Bonds....................... 9
beneficial owner....................... 41
Book-Entry Certificates................ 41
Buydown Fund........................... 17
Buydown Loans.......................... 17
Calculation Agent...................... 38
CERCLA................................. 66
Certificate Account.................... 50
Certificate Balance.................... 7
Certificate Register................... 22
Certificateholders..................... cover
Certificates........................... cover
Class Certificate Balance.............. 32
Closing Date........................... 4
Code................................... 68
COFI................................... 28
COFI Certificates...................... 39
Collateral Value....................... 18
Component Certificates................. 36
Components............................. 36
Contributions Tax...................... 73
Cooperative Loans...................... 4
Cooperatives........................... 4
Cut-off Date........................... 9
D&P.................................... 94
Deferred Interest...................... 60
Definitive Certificates................ 41
Depositor.............................. cover
Depository............................. 41
Detailed Description................... 11
Distribution Date...................... 7
DOL.................................... 92
Eleventh District...................... 38
EPA.................................... 52
ERISA.................................. 11
excess servicing....................... 58
<CAPTION>
PAGE
------
<S> <C>
FHA.................................... 4
FHA Insurance.......................... 9
FHA Loan............................... 14
FHLBSF................................. 39
FHLMC.................................. cover
FHLMC Act.............................. 20
FHLMC Certificate group................ 20
FHLMC Certificates..................... 6
Financial Intermediary................. 41
Fitch.................................. 94
Fixed Rate Class....................... 37
Floating Rate Class.................... 37
FNMA................................... cover
FNMA Certificates...................... 6
Garn-St Germain Act.................... 67
GNMA................................... cover
GNMA Certificates...................... 6
GNMA I Certificates.................... 19
GNMA II Certificate.................... 19
GNMA Issuer............................ 19
Guaranty Agreement..................... 19
Guaranteed Mortgage Pass-Through
Certificates......................... 5
Housing Act............................ 19
HUD.................................... 44
Insurance Proceeds..................... 51
Insured Expenses....................... 51
Interest Only Class.................... 37
Inverse Floating Rate Class............ 37
IRS.................................... 70
Issuer
Legislative History.................... 59
LIBOR.................................. 28
LIBOR Determination Date............... 25
Liquidated Mortgage Loan............... 57
Liquidation Expenses................... 51
Liquidation Proceeds................... 51
Loan-to-Value Ratio.................... 18
lockout periods........................ 5
Master REMIC........................... 76
Master Servicer........................ 4
Master Servicing Fee................... 57
Moody's................................ 94
Mortgage............................... 38
Mortgage Assets........................ cover
Mortgage Loans......................... cover
Mortgage Note.......................... 6
Mortgage Pool.......................... 16
</TABLE>
99
<PAGE> 137
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Mortgage Pool Insurance Policy......... 9
Mortgage Rate.......................... 6
Mortgaged Property..................... 4
Mortgagor.............................. 17
National Cost of Funds Index........... 39
NCUA................................... 80
Notional Amount Certificates........... 36
OID.................................... 69
OID Regulations........................ 73
OTS.................................... 39
Partial Accrual Class.................. 37
Parties in Interest.................... 77
pass-through entity.................... 75
pass-through interest holder........... 72
Pass-Through Rate...................... 7
Payment Lag Certificates............... 68
Percentage Interest
Permitted Investments.................. 35
Plans.................................. 77
Policy Statement....................... 80
Pool Insurer........................... 43
pre-issuance accrued interest.......... 68
Prepayment Assumption.................. 59
Primary Insurer........................ 43
Primary Mortgage Insurance Policy...... 16
Prime Rate............................. 40
Principal Only Class................... 37
Principal Prepayments.................. 33
Private Mortgage-Backed Securities..... 3
Prohibited Transactions Tax............ 73
PTE 83-1............................... 92
Purchase Price......................... 21
Rating Agency.......................... 50
Record Date............................ 22
Reference Banks........................ 38
Regular Certificateholders............. 63
Regular Certificates................... 75
Relief Act............................. 68
REMIC.................................. 10
REMIC Certificates..................... 75
REMIC Regulations...................... 68
PAGE
------
Reserve Fund........................... 8
Reserve Interest Rate.................. 38
Residual Certificateholder............. 69
Residual Certificates.................. 75
Retained Interest...................... 30
S&P.................................... 94
Scheduled Principal Class.............. 26
Seller................................. cover
Senior Certificateholders.............. 8
Senior Certificates.................... 6
Sequential Pay......................... 27
Series................................. cover
Single Family Certificates............. 92
SMMEA.................................. 10
Special Hazard Insurance Policy........ 9
Special Hazard Insurer................. 44
Strip.................................. 36
Stripped ARM Obligations............... 74
Stripped Bond Certificates............. 72
Stripped Coupon Certificates........... 72
Subordinated Certificateholders........ 8
Subordinated Certificate............... 7
Sub-Servicer........................... 10
Subsidiary REMIC....................... 76
Super-Premium Certificates............. 64
Support Class.......................... 36
Targeted Principal Class............... 37
Temporary Mark to Market Regulations... 71
Title V................................ 68
Treasury Index......................... 40
Trust Fund............................. cover
Trustee................................ 4
UCC.................................... 64
Underwriter Exemption.................. 93
U.S. Person............................ 61
VA..................................... 4
VA Guaranty............................ 9
VA Loans............................... 19
Variable Rate.......................... 37
Voting Rights.......................... 47
</TABLE>
100
<PAGE> 138
=========================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY, NOR AN OFFER OF OFFERED CERTIFICATES IN ANY STATE OR
JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER WOULD BE UNLAWFUL.
THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AT ANY TIME DOES
NOT IMPLY THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE; HOWEVER, IF ANY MATERIAL CHANGE OCCURS WHILE THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED, THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED
ACCORDINGLY.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PROSPECTUS SUPPLEMENT
Summary of Terms................................... S-3
The Mortgage Pool.................................. S-9
Servicing of Mortgage Loans........................ S-16
Description of the Certificates.................... S-18
Yield, Prepayment and Maturity Considerations...... S-25
Credit Enhancement................................. S-31
Use of Proceeds.................................... S-32
Federal Income Tax Considerations.................. S-33
ERISA Considerations............................... S-34
Method of Distribution............................. S-35
Experts............................................ S-
Legal Matters...................................... S-35
Ratings............................................ S-35
PROSPECTUS
Prospectus Supplement.............................. 2
Available Information.............................. 2
Incorporation of Certain Documents by Reference.... 3
Summary of Terms................................... 4
Risk Factors....................................... 12
The Trust Fund..................................... 16
Use of Proceeds.................................... 24
The Depositor...................................... 24
Mortgage Loan Program.............................. 25
Description of the Certificates.................... 30
Credit Enhancement................................. 42
Yield and Prepayment Considerations................ 47
The Pooling and Servicing Agreement................ 49
Certain Legal Aspects of the Mortgage Loans........ 62
Federal Income Tax Considerations.................. 68
State Tax Consideration............................ 92
ERISA Considerations............................... 92
Legal Investment................................... 95
Method of Distribution............................. 97
Legal Matters...................................... 97
Financial Information.............................. 97
Rating............................................. 97
Index to Defined Terms............................. 99
</TABLE>
=========================================================
=========================================================
$_________
(APPROXIMATE)
MELLON RESIDENTIAL FUNDING
CORPORATION
DEPOSITOR
MORTGAGE PASS-THROUGH
CERTIFICATES,
SERIES 199_ - ____
------------------------------------
PROSPECTUS SUPPLEMENT
------------------------------------
[UNDERWRITER]
________ __, 199_
=========================================================
<PAGE> 139
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 Certificates being registered under this
Registration Statement, other than underwriting discounts and commissions:
<TABLE>
<S> <C>
SEC Registration Fee............................................ $303.03
Printing and Engraving.......................................... **
Legal Fees and Expenses......................................... **
Trustee Fees and Expenses....................................... **
Rating Agency Fees.............................................. **
Miscellaneous................................................... **
Total......................................................... **
-------
$ **
=======
</TABLE>
- ---------------
* All amounts except the SEC Registration Fee are estimates of expenses
incurred in connection with the issuance and distribution of a Series of
Certificates in an aggregate principal amount assumed for these purposes to
be equal to $250,000,000 of Certificates registered hereby.
** To be completed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Certificate of Incorporation provides for indemnification
of directors and officers of the Registrant to the full extent permitted by
Delaware law.
Section 145 of the Delaware General Corporation Law provides, in substance,
that Delaware corporations shall have the power, under specified circumstances,
to indemnify their directors, officers, employees and agents in connection with
actions, suits or proceedings brought against them by a third party or in the
right of the corporation, by reason of the fact that they were or are such
directors, officers, employees or agents, against expenses incurred in any such
action, suit or proceeding. The Delaware General Corporation Law also provides
that the Registrant may purchase insurance on behalf of any such director,
officer, employee or agent.
ITEM 16. EXHIBITS.
<TABLE>
<S> <C>
1.1 -- Form of Underwriting Agreement.
3.1 -- Certificate of Incorporation of the Registrant.
3.2 -- Bylaws of the Registrant.
4.1 -- Form of Pooling and Servicing Agreement.
5.1 -- Opinion of Stroock & Stroock & Lavan LLP as to the legality of the Certificates
(including consent of such firm).
8.1 -- Opinion of Stroock & Stroock & Lavan LLP as to certain tax matters (included in
exhibit 5.1 hereof).
23.1 -- Consent of Stroock & Stroock & Lavan LLP (included in exhibits 5.1 and 8.1
hereof).
24.1* -- Power of Attorney.
</TABLE>
- ---------------
* Previously filed.
II-1
<PAGE> 140
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Act");
(ii) To reflect in the prospectus any fact or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the registration statement is on Form S-3, Form S-8 or Form F-3, and
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 the registration statement.
(2) That, for the purpose of determining any liability under the Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant undertakes that, for the purposes of determining
any liability under the Act, each filing of the Registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 that is incorporated by reference in this Registration Statement shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE> 141
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Pittsburgh,
Pennsylvania, on the 21st day of May, 1997.
MELLON RESIDENTIAL FUNDING CORPORATION
By: /s/ STEPHEN COBAIN
-----------------------------------------
Stephen Cobain
Chairman and President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities indicated on May 21, 1997.
<TABLE>
<CAPTION>
Signature Title
- ------------------------------------------ -------------------------------------------
<S> <C>
/s/ STEPHEN COBAIN Chairman of the Board, President and
- ------------------------------------------ Director
Stephen Cobain (principal executive officer)
JEFFREY S. GEARHART* Treasurer
- ------------------------------------------ (principal financial and accounting
Jeffrey S. Gearhart officer)
DAVID R. LOVEJOY* Director
- ------------------------------------------
David R. Lovejoy
PAUL H. DIMMICK* Director
- ------------------------------------------
Paul H. Dimmick
J. DAVID OFFICER* Director
- ------------------------------------------
J. David Officer
EARL M. BALDWIN* Director
- ------------------------------------------
Earl M. Baldwin
THOMAS B. MCCHESNEY* Director
- ------------------------------------------
Thomas B. McChesney
*By: /s/ STEPHEN COBAIN
-------------------------------------
Stephen Cobain
(Attorney-in-fact)
</TABLE>
II-3
<PAGE> 142
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ------------------------------------------------------------------------ ------------
<C> <C> <S> <C>
1.1 -- Form of Underwriting Agreement..........................................
3.1 -- Certificate of Incorporation of the Registrant..........................
3.2 -- Bylaws of the Registrant................................................
4.1 -- Form of Pooling and Servicing Agreement.................................
5.1 -- Opinion of Stroock & Stroock & Lavan LLP as to the legality of the
Certificates (including consent of such firm)...........................
8.1 -- Opinion of Stroock & Stroock & Lavan LLP as to certain tax matters
(included in exhibit 5.1 hereof)........................................
23.1 -- Consent of Stroock & Stroock & Lavan LLP (included in exhibits 5.1 and
8.1 hereof).............................................................
24.1* -- Power of Attorney.......................................................
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
EXHIBIT 1.1
5/19/96
MELLON RESIDENTIAL FUNDING CORPORATION
Mortgage Pass-Through Certificates,
Series 199_-_
UNDERWRITING AGREEMENT
_________, 199_
[Name and addresses of
Underwriters]
Ladies and Gentlemen::
Mellon Residential Funding Corporation, a Delaware corporation ("MRFC"),
proposes to cause to be issued and to sell to you, as underwriters (each, an
"Underwriter"), the Mortgage Pass-Through Certificates of the series specified
above and described in Section 2 hereof (the "Offered Certificates" and,
together with any certificates of such series retained by MRFC or the Seller,
set forth on the cover page of the Prospectus Supplement (as defined below),
collectively, the "Public Certificates") having the characteristics set forth in
the Prospectus Supplement, evidencing ownership interests in a trust consisting
of mortgage notes and the related mortgages acquired by MRFC(the "Mortgage
Loans") and related property (collectively, the "Trust"). The Mortgage Loans
will be of the type and will have the characteristics described in the
Prospectus Supplement, subject to the variances, ranges, minimums and maximums
set forth in the Prospectus Supplement, and will have the aggregate principal
balance set forth in the Prospectus Supplement, subject to an upward or downward
variance in principal balance, not to exceed the percentage set forth in the
Prospectus Supplement, the precise aggregate principal balance within such range
to be determined by MRFC in its sole discretion.
The Public Certificates, together with the other classes of certificates
of the same series (the "Private Certificates," and collectively with the Public
Certificates, the "Certificates") are to be issued under a pooling and servicing
agreement (the "Pooling and Servicing Agreement"), dated as of the Cut-off Date
(as defined in the Prospectus Supplement), among MRFC, as Depositor, the master
servicer and seller specified in the Prospectus Supplement (the "Seller"), and
__________________________, as trustee (the "Trustee"). The Public Certificates
of each class will be issued in the minimum denominations and will have the
terms set forth in the Prospectus Supplement. Capitalized terms used but not
otherwise defined herein shall have the respective meanings ascribed thereto in
the Pooling and Servicing Agreement.
SECTION 1 Representations and Warranties of the Depositor. The Depositor
represents and warrants to, and agrees with the Underwriters that:
A. A Registration Statement on Form S-3 (No. 333-24453) has (i) been
prepared by
<PAGE> 2
the Depositor in conformity with the requirements of the Securities Act of
1933 (the "Securities Act") and the rules and regulations (the "Rules and
Regulations") of the United States Securities and Exchange Commission (the
"Commission") thereunder, (ii) been filed with the Commission under the
Securities Act and (iii) become effective under the Securities Act. Copies
of such Registration Statement have been delivered by the Depositor to the
Underwriters. As used in this Agreement, "Effective Time" means the date
and the time as of which such Registration Statement, or the most recent
post-effective amendment thereto, if any, was declared effective by the
Commission; "Effective Date" means the date of the Effective Time;
"Registration Statement" means such registration statement, at the
Effective Time, including any documents incorporated by reference therein
at such time; and "Basic Prospectus" means the final prospectus included
in the Registration Statement at the Effective Time; "Prospectus
Supplement" means the final prospectus supplement relating to the Offered
Certificates, to be filed with the Commission pursuant to paragraph (2),
(3) or (5) of Rule 424(b) of the Rules and Regulations; and "Prospectus"
means the Basic Prospectus together with the Prospectus Supplement.
Reference made herein to the Prospectus shall be deemed to refer to and
include any documents incorporated by reference therein pursuant to Item
12 of Form S-3 under the Securities Act, as of the date of the Prospectus
and any reference to any amendment or supplement to the Prospectus shall
be deemed to refer to and include any document filed under the Securities
Exchange Act of 1934 (the "Exchange Act") after the date of the
Prospectus, and incorporated by reference in the Prospectus and any
reference to any amendment to the Registration Statement shall be deemed
to include any report of the Depositor filed with the Commission pursuant
to Section 13(a) or 15(d) of the Exchange Act after the Effective Time
that is incorporated by reference in the Registration Statement. There are
no contracts or documents of the Depositor which are required to be filed
as exhibits to the Registration Statement pursuant to the Securities Act
or the Rules and Regulations which have not been so filed or incorporated
by reference therein on or prior to the Effective Date of the Registration
Statement. The conditions for use of Form S-3, as set forth in the General
Instructions thereto, have been satisfied.
B. The Registration Statement conforms, and the Prospectus and any further
amendments or supplements to the Registration Statement or the Prospectus
will, when they become effective or are filed with the Commission, as the
case may be, conform in all respects to the requirements of the Securities
Act and the Rules and Regulations. The Registration Statement, as of the
Effective Date thereof and of any amendment thereto, did not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading. The Prospectus as of its date, and as amended or
supplemented as of the Closing Date, does not and will not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided that no
representation or warranty is made as to information contained in or
omitted from the Registration Statement or the Prospectus in reliance upon
and in conformity with written information furnished to the Depositor in
writing by the Underwriters expressly
-2-
<PAGE> 3
for use therein. The only information furnished by the Underwriters or on
behalf of the Underwriters for use in connection with the preparation of
the Registration Statement or the Prospectus is described in Section 8(I)
hereof.
C. The documents incorporated by reference to the Prospectus, when they
became effective or were filed with the Commission, as the case may be,
conformed in all material respects to the requirements of the Securities
Act or the Exchange Act, as applicable, and the rules and regulations of
the Commission thereunder, and none of such documents contained an untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; and any further documents so filed and incorporated by
reference in the Prospectus, when such documents become effective or are
filed with the Commission, as the case may be, will conform in all
material respects to the requirements of the Securities Act or the
Exchange Act, as applicable, and the rules and regulations of the
Commission thereunder and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
provided that no representation is made as to documents deemed to be
incorporated by reference in the Prospectus as the result of filing a Form
8-K at the request of the Underwriters except to the extent such documents
reflect information furnished by the Depositor to the Underwriters for the
purpose of preparing such documents.
D. Since the respective dates as of which information is given in the
Prospectus, there has not been any material adverse change in the general
affairs, management, financial condition, or results of operations of the
Depositor, otherwise than as set forth or contemplated in the Prospectus
as supplemented or amended as of the Closing Date.
E. The Depositor has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware and
is in good standing as a foreign corporation in each jurisdiction in which
its ownership or lease of property or the conduct of its business requires
such qualification, and has all power and authority necessary to own or
hold its properties, to conduct the business in which it is engaged and to
enter into and perform its obligations under this Agreement and the
Pooling and Servicing Agreement and to cause the Certificates to be
issued.
F. There are no actions, proceedings or investigations pending before or
threatened by any court, administrative agency or other tribunal to which
the Depositor is a party or of which any of its properties is the subject
(a) which if determined adversely to the Depositor would have a material
adverse effect on the business or financial condition of the Depositor,
(b) asserting the invalidity of this Agreement, the Pooling and Servicing
Agreement, or the Certificates, (c) seeking to prevent the issuance of the
Certificates or the consummation by the Depositor of any of the
transactions contemplated by the Pooling and Servicing Agreement or this
Agreement, or (d) which might materially and adversely affect the
performance by the Depositor of its obligations under, or the validity or
enforceability of, the Pooling and Servicing Agreement, this Agreement or
-3-
<PAGE> 4
the Certificates.
G. This Agreement has been, and the Pooling and Servicing Agreement, when
executed and delivered as contemplated hereby and thereby will have been,
duly authorized, executed and delivered by the Depositor, and this
Agreement constitutes, and the Pooling and Servicing Agreement when
executed and delivered as contemplated herein, will constitute, legal,
valid and binding instruments enforceable against the Depositor in
accordance with their respective terms, subject as to enforceability to
(x) applicable bankruptcy, reorganization, insolvency moratorium or other
similar laws affecting creditors' rights generally, (y) general principles
of equity (regardless of whether enforcement is sought in a proceeding in
equity or at law), and (z) with respect to rights of indemnity under this
Agreement, limitations of public policy under applicable securities laws.
H. The execution, delivery and performance of this Agreement and the
Pooling and Servicing Agreement by the Depositor and the consummation of
the transactions contemplated hereby and thereby, and the issuance and
delivery of the Certificates do not and will not conflict with or result
in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Depositor is a
party, by which the Depositor is bound or to which any of the properties
or assets of the Depositor or any of its subsidiaries is subject, nor will
such actions result in any violation of the provisions of the articles of
incorporation or by-laws of the Depositor or any statute or any order,
rule or regulation of any court or governmental agency or body having
jurisdiction over the Depositor or any of its properties or assets.
I. KPMG Peat Marwick LLP is an independent public accountant with respect
to the Depositor as required by the Securities Act and the Rules and
Regulations.
J. The direction by the Depositor to the Trustee to execute, authenticate,
issue and deliver the Certificates has been duly authorized by the
Depositor, and assuming the Trustee has been duly authorized to do so,
when executed, authenticated, issued and delivered by the Trustee in
accordance with the Pooling and Servicing Agreement, the Certificates will
be validly issued and outstanding and will be entitled to the benefits
provided by the Pooling and Servicing Agreement.
K. No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body of the
United States is required for the issuance of the Certificates and the
sale of the Offered Certificates to the Underwriters, or the consummation
by the Depositor of the other transactions contemplated by this Agreement
and the Pooling and Servicing Agreement, except such consents, approvals,
authorizations, registrations or qualifications as may be required under
state securities or blue sky laws in connection with the purchase and
distribution of the Offered Certificates by the Underwriters or as have
been obtained.
L. The Depositor possesses all material licenses, certificates,
authorities or permits
-4-
<PAGE> 5
issued by the appropriate State, Federal or foreign regulatory agencies or
bodies necessary to conduct the business now conducted by it and as
described in the Prospectus, and the Depositor has not received notice of
any proceedings relating to the revocation or modification of any such
license, certificate, authority or permit which if decided adversely to
the Depositor would, singly or in the aggregate, materially and adversely
affect the conduct of its business, operations or financial condition.
M. At the time of execution and delivery of the Pooling and Servicing
Agreement, the Depositor will: (i) have good title to the Mortgage Loans
conveyed by the Seller, free and clear of any lien, mortgage, pledge,
charge, encumbrance, adverse claim or other security interest
(collectively, "Liens"); (ii) not have assigned to any person any of its
right or title in the Mortgage Loans, in the Pooling and Servicing
Agreement or in the Certificates being issued pursuant thereto; and (iii)
have the power and authority to sell its interest in the Mortgage Loans to
the Trustee and to sell the Offered Certificates to the Underwriters. Upon
execution and delivery of the Pooling and Servicing Agreement by the
Trustee, the Trustee will have acquired beneficial ownership of all of the
Depositor's right, title and interest in and to the Mortgage Loans. Upon
delivery to the Underwriters of the Offered Certificates, the Underwriters
will have good title to the Offered Certificates, free of any Liens.
N. As of the Cut-Off Date, each of the Mortgage Loans will meet the
eligibility criteria described in the Prospectus and will conform to the
descriptions thereof contained in the Prospectus.
O. Neither the Depositor nor the Trust created by the Pooling and
Servicing Agreement is an "investment company" within the meaning of such
term under the Investment Company Act of 1940 (the "1940 Act") and the
rules and regulations of the Commission thereunder.
P. At the Closing Date, the Offered Certificates and the Pooling and
Servicing Agreement will conform in all material respects to the
descriptions thereof contained in the Prospectus.
Q. At the Closing Date, the Offered Certificates shall have been rated in
the categories and by the nationally recognized rating agencies as set
forth in the Prospectus Supplement.
R. Any taxes, fees and other governmental charges in connection with the
execution, delivery and issuance of this Agreement, the Pooling and
Servicing Agreement and the Certificates have been paid or will be paid at
or prior to the Closing Date.
-5-
<PAGE> 6
S. At the Closing Date, each of the representations and warranties of the
Depositor set forth in the Pooling and Servicing Agreement will be true
and correct in all material respects.
Any certificate signed by an officer of the Depositor and delivered to an
Underwriter or counsel for the Underwriters in connection with an offering of
the Offered Certificates shall be deemed a representation and warranty as to the
matters covered thereby to each person to whom the representations and
warranties in this Section 1 are made.
SECTION 2 Purchase and Sale. The commitment of the Underwriters to
purchase the Offered Certificates pursuant to this Agreement shall be deemed to
have been made on the basis of the representations and warranties herein
contained and shall be subject to the terms and conditions herein set forth. The
Depositor agrees to instruct the Trustee to issue the Offered Certificates and
agrees to sell to each Underwriter, and each Underwriter agrees (except as
provided in Sections 10 and 11 hereof) severally and not jointly to purchase
from the Depositor the aggregate initial principal amounts or percentage
interests of the respective Class or Classes of Offered Certificates set forth
opposite their names on Schedule A, at the purchase price or prices set forth in
Schedule A. The Underwriters may offer the Offered Certificates to certain
dealers at such prices less a concession not in excess of the respective amounts
set forth in Schedule A. The Underwriters may allow and such dealers may reallow
a discount to certain dealers not in excess of the respective amounts set forth
in Schedule A.
SECTION 3 Delivery and Payment. Delivery of and payment for the Offered
Certificates to be purchased by the Underwriters shall be made at the offices of
Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York 10038, or at
such other place as shall be agreed upon by the Underwriters and the Depositor
at 10:00 A.M. New York City time on ______, 199_, or at such other time or date
as shall be agreed upon in writing by the Underwriters and the Depositor (such
date being referred to as the "Closing Date"). Payment shall be made to the
Depositor by wire transfer of same day funds payable to the account of the
Depositor. Delivery of the Offered Certificates shall be made to the
Underwriters for the accounts of the applicable Underwriters against payment of
the purchase price thereof. The Certificates shall be in such authorized
denominations and registered in such names as the Underwriters may request in
writing at least two business days prior to the Closing Date. The Offered
Certificates will be made available for examination by the Underwriters no later
than 2:00 P.M. New York City time on the first business day prior to the Closing
Date.
SECTION 4 Offering by the Underwriters. It is understood that, subject to
the terms and conditions hereof, the Underwriters propose to offer the Offered
Certificates for sale to the public as set forth in the Prospectus.
SECTION 5 Covenants of the Depositor. The Depositor agrees as follows:
A. To prepare the Prospectus in a form approved by the Underwriters and to
file such Prospectus pursuant to Rule 424(b) under the Securities Act not
later than the time required thereby; to make no further amendment or any
supplement to the Registration
-6-
<PAGE> 7
Statement or to the Prospectus prior to the Closing Date except as
permitted herein; to advise the Underwriters, promptly after it receives
notice thereof, of the time when any amendment to the Registration
Statement has been filed or becomes effective prior to the Closing Date or
any supplement to the Prospectus or any amended Prospectus has been filed
prior to the Closing Date and to furnish the Underwriters with copies
thereof; to file promptly all reports and any definitive proxy or
information statements required to be filed by the Depositor with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange
Act subsequent to the date of the Prospectus and, for so long as the
delivery of a prospectus is required in connection with the offering or
sale of the Offered Certificates; to promptly advise the Underwriters of
its receipt of notice of the issuance by the Commission of any stop order
or of: (i) any order preventing or suspending the use of the Prospectus;
(ii) the suspension of the qualification of the Offered Certificates for
offering or sale in any jurisdiction; (iii) the initiation of or threat of
any proceeding for any such purpose; (iv) any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information. In the event of the issuance of
any stop order or of any order preventing or suspending the use of the
Prospectus or suspending any such qualification, the Depositor promptly
shall use its best efforts to obtain the withdrawal of such order by the
Commission.
B. To furnish promptly to the Underwriters and to counsel for the
Underwriters a signed copy of the Registration Statement as originally
filed with the Commission, and of each amendment thereto filed with the
Commission, including all consents and exhibits filed therewith.
C. To deliver promptly to the Underwriters such number of the following
documents as the Underwriters shall reasonably request: (i) conformed
copies of the Registration Statement as originally filed with the
Commission and each amendment thereto (in each case including exhibits);
(ii) the Prospectus and any amended or supplemented Prospectus; and (iii)
any document incorporated by reference in the Prospectus (including
exhibits thereto). If the delivery of a prospectus is required at any time
prior to the expiration of nine months after the Effective Time in
connection with the offering or sale of the Offered Certificates, and if
at such time any events shall have occurred as a result of which the
Prospectus as then amended or supplemented would include any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in the light of the circumstances
under which they were made when such Prospectus is delivered, not
misleading, or, if for any other reason it shall be necessary during such
same period to amend or supplement the Prospectus or to file under the
Exchange Act any document incorporated by reference in the Prospectus in
order to comply with the Securities Act or the Exchange Act, the Depositor
shall notify the Underwriters and, upon the Underwriters' request, shall
file such document and prepare and furnish without charge to the
Underwriters and to any dealer in securities as many copies as the
Underwriters may from time to time reasonably request of an amended
Prospectus or a supplement to the Prospectus which corrects such statement
or omission or effects such compliance, and
-7-
<PAGE> 8
in case the Underwriters are required to deliver a Prospectus in
connection with sales of any of the Offered Certificates at any time nine
months or more after the Effective Time, upon the request of the
Underwriters but at their expense, the Depositor shall prepare and deliver
to the Underwriters as many copies as the Underwriters may reasonably
request of an amended or supplemented Prospectus complying with Section
10(a)(3) of the Securities Act.
D. To file promptly with the Commission any amendment to the Registration
Statement or the Prospectus or any supplement to the Prospectus that may,
in the judgment of the Depositor or the Underwriters, be required by the
Securities Act or requested by the Commission.
E. The Depositor will cause any Investor Materials (as defined below) with
respect to the Offered Certificates which are delivered by any Underwriter
to the Depositor and accompanied by a letter, reasonably acceptable to the
Underwriters and the Depositor, of KPMG Peat Marwick LLP with respect to
such Investor Materials to be filed with the Commission on a Current
Report on Form 8-K (the "Form 8-K -- Investor Materials") at or before the
time required by the No Action Letters (defined below); provided, however,
that the Depositor shall have no obligation to file any materials which,
in the reasonable determination of the Depositor after consultation with
such Underwriter, (i) are not required to be filed pursuant to the No
Action Letters or (ii) contain any erroneous information or untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading; it being understood, however, that the Depositor shall have no
obligation to review or pass upon the accuracy or adequacy of, or to
correct, any Investor Materials provided by any Underwriter to the
Depositor as aforesaid. For purposes hereof, as to each Underwriter, the
term "Investor Materials" shall mean those Computational Materials, ABS
Term Sheets and Collateral Term Sheets delivered by an Underwriter to the
Depositor within the meaning of the no-action letter dated May 20, 1994
issued by the Commission to Kidder, Peabody Acceptance Corporation I and
certain affiliates, the no-action letter dated May 27, 1994 issued by the
Commission to the Public Securities Association and the no action letter
dated February 17, 1995 issued by the Commission to the Public Securities
Association (collectively, the "No Action Letters") for which the filing
of such material is a condition of the relief granted in such letters.
F. To furnish the Underwriters and counsel for the Underwriters, prior to
filing with the Commission, and to obtain the consent of the Underwriters
for the filing of the following documents relating to the Certificates:
(i) amendment to the Registration Statement or supplement to the
Prospectus, or document incorporated by reference in the Prospectus, or
(ii) Prospectus pursuant to Rule 424 of the Rules and Regulations.
G. To use its best efforts, in cooperation with the Underwriters, to
qualify the Offered Certificates for offering and sale under the
applicable securities laws of such states and other jurisdictions of the
United States or elsewhere as the Underwriters may designate, and maintain
or cause to be maintained such qualifications in effect for as
-8-
<PAGE> 9
long as may be required for the distribution of the Offered Certificates.
The Depositor will file or cause the filing of such statements and reports
as may be required by the laws of each jurisdiction in which the Offered
Certificates have been so qualified.
H. Unless the Underwriters shall otherwise have given their written
consent, no pass-through certificates backed by mortgage loans or other
similar securities representing interest in or secured by other
mortgage-related assets originated or owned by the Depositor or the Seller
shall be publicly offered, sold nor shall the Depositor or the Seller
enter into any contractual arrangements that contemplate the public
offering or sale of such securities for a period of seven (7) business
days following the commencement of the offering of the Offered
Certificates to the public.
I. So long as the Offered Certificates shall be outstanding the Depositor
shall cause the Trustee, pursuant to the Pooling and Servicing Agreement,
to deliver to the Underwriters as soon as such statements are furnished to
the Holders (i) the annual statement as to compliance delivered to the
Trustee pursuant to Section ___of the Pooling and Servicing Agreement;
(ii) the annual statement of a firm of independent public accountants
furnished to the Trustee pursuant to Section ___ of the Pooling and
Servicing Agreement; (iii) the monthly servicing report furnished to the
Trustee pursuant to Section ___ of the Pooling and Servicing Agreement;
and (iv) the monthly reports furnished to the Certificateholders pursuant
to Section ___ of the Pooling and Servicing Agreement.
SECTION 6 Conditions to the Underwriters' Obligations. The obligations of
the Underwriters to purchase the Offered Certificates pursuant to this Agreement
are subject to: (i) the accuracy on and as of the Closing Date of the
representations and warranties on the part of the Depositor and the Seller
herein contained; (ii) the performance by the Depositor of all of its
obligations hereunder; and (iii) the following conditions as of the Closing
Date:
A. The Underwriters shall have received confirmation of the effectiveness
of the Registration Statement. No stop order suspending the effectiveness
of the Registration Statement or any part thereof shall have been issued
and no proceeding for that purpose shall have been initiated or threatened
by the Commission. Any request of the Commission for inclusion of
additional information in the Registration Statement or the Prospectus
shall have been complied with.
-9-
<PAGE> 10
B. The Underwriters shall not have discovered and disclosed to the
Depositor on or prior to the Closing Date that the Registration Statement
or the Prospectus or any amendment or supplement thereto contains an
untrue statement of a fact or omits to state a fact which, in the opinion
of______________________, counsel for the Underwriters, is material and is
required to be stated therein or is necessary to make the statements
therein not misleading.
C. All corporate proceedings and other legal matters relating to the
authorization, form and validity of this Agreement, the Pooling and
Servicing Agreement, the Certificates, the Registration Statement and the
Prospectus, and all other legal matters relating to this Agreement and the
transactions contemplated hereby shall be satisfactory in all respects to
the Underwriters and their counsel, and the Depositor shall have furnished
to such counsel all documents and information that they may reasonably
request to enable them to pass upon such matters.
D. ________________, special counsel to the Depositor, shall have
furnished to the Underwriters their written opinion, addressed to the
Underwriters and dated the Closing Date, in form and substance
satisfactory to the Underwriters, to the effect that:
1. The conditions to the use by the Depositor of a registration
statement on Form S-3 under the Securities Act, as set forth in the
General Instructions to Form S-3, have been satisfied with respect
to the Registration Statement and the Prospectus.
2. The Registration Statement and any amendments thereto have become
effective under the 1933 Act; to the best of such counsel's
knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and not withdrawn and no
proceedings for that purpose have been instituted or threatened and
not terminated; and the Registration Statement, the Prospectus and
each amendment or supplement thereto, as of their respective
effective or issue dates (other than the financial and statistical
information contained or incorporated therein, as to which such
counsel need express no opinion), complied as to form in all
material respects with the applicable requirements of the Securities
Act and the Rules and Regulations thereunder.
3. To the best of such counsel's knowledge, there are no material
contracts, indentures or other documents of a character required to
be described or referred to in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement
other than those described or referred to therein or filed or
incorporated by reference as exhibits thereto.
4. The statements set forth in the Prospectus and the Prospectus
Supplement under the captions "ERISA Considerations" and "Federal
Income Tax Considerations" to the extent that they constitute
matters of federal law or legal conclusions with respect thereto,
provide a fair and accurate summary of
-10-
<PAGE> 11
such law or conclusions.
5. The Pooling and Servicing Agreement conforms in all material
respects to the description thereof contained in the Prospectus and
is not required to be qualified under the Trust Indenture Act of
1939, as amended.
6. Neither the Depositor nor the Trust is an "investment company" or
under the "control" of an "investment company" as such terms are
defined in the Investment Company Act of 1940, as amended.
7. Assuming that (a) the Trustee causes the Trust, as the Trustee
has covenanted to do in the Pooling and Servicing Agreement, to be
treated as a "real estate mortgage investment conduit" (the
"REMIC"), as such term is defined in the Internal Revenue Code of
1986, as amended (the "Code") and (b) the parties to the Pooling and
Servicing Agreement comply with the terms thereof, the Offered
Certificates will be treated as "regular interests" in the REMIC and
the Class R Certificates will constitute the sole class of "residual
interest" in the REMIC.
8.. The Certificates will, when issued, conform to the description
thereof contained in the Prospectus.
9. The Offered Certificates, when duly and validly executed,
authenticated and delivered in accordance with the Pooling and
Servicing Agreement and delivered to the Underwriters and paid for
in accordance with the Underwriting Agreement, will be entitled to
the benefits of the Pooling and Servicing Agreement.
Such counsel shall also have furnished to the Underwriters a written
statement, addressed to the Underwriters and dated the Closing Date, in
form and substance satisfactory to the Underwriters to the effect that no
facts have come to the attention of such counsel which lead them to
believe that: (a) the Registration Statement, at the time such
Registration Statement became effective, contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading (except
as to financial or statistical data contained or incorporated in the
Registration Statement);or (b) the Prospectus, as of its date and as of
the Closing Date, contained or contains an untrue statement of a material
fact or omitted or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading (except as to financial or statistical data
contained or incorporated in the Prospectus).
E. The Underwriters shall have received the favorable opinion, dated the
Closing Date, of ___________special counsel to the Depositor, addressed to
the Depositor and satisfactory to _________, ________ and the
Underwriters, with respect to certain matters relating to the transfer of
the Mortgage Loans to the Depositor and from the
-11-
<PAGE> 12
Depositor to the Trust, and such counsel shall have consented to the
reliance on such opinion by ________, _________ and the Underwriters as
though such opinion had been addressed to each such party.
F. ________________, special counsel to ________________("the Company"),
in its capacity as both Seller and Servicer under the Pooling and
Servicing Agreement, shall have furnished to the Underwriters their
written opinion, addressed to the Underwriters and the Depositor and dated
the Closing Date, in form and substance satisfactory to the Underwriters,
to the effect that:
1. The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of
__________and is in good standing as a foreign corporation in each
jurisdiction in which its ownership or lease of property or the
conduct of its business so requires. The Company has all power and
authority necessary to own or hold its properties and to conduct the
business in which it is engaged and to enter into and perform its
obligations under the Pooling and Servicing Agreement.
2. The Company is not in violation of its certificate of
incorporation or by-laws or in default in the performance or
observance of any material obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which the Company is a
party or by which it or its properties may be bound, which default
might result in any material adverse change in the financial
condition, earnings, affairs or business of the Company or which
might materially and adversely affect the ability of the Company to
perform its obligations under the Pooling and Servicing Agreement.
3. This Agreement and the Pooling and Servicing Agreement have been
duly authorized, executed and delivered by the Company and, assuming
the due authorization, execution and delivery of such agreements by
the other parties thereto, such agreements constitute the valid and
binding obligations of the Company, enforceable against the Company
in accordance with their respective terms, subject as to
enforceability to (x) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating
to creditors' rights generally, (y) general principles of equity
(regardless of whether enforcement is sought in a proceeding in
equity or at law) and (z) with respect to rights of indemnity under
this Agreement, limitations of public policy under applicable
securities laws.
4. The execution, delivery and performance of this Agreement and the
Pooling and Servicing Agreement by the Company and the consummation
of the transactions contemplated hereby and thereby, do not and will
not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan
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agreement or other agreement or instrument to which the Company is a
party or by which the Company is bound or to which any of the
property or assets of the Company or any of its subsidiaries is
subject, which breach or violation would have a material adverse
effect on the business, operations or financial condition of the
Company, nor will such actions result in a violation of the
provisions of the certificate of incorporation or by-laws of the
Company or any statute or any order, rule or regulation of any court
or governmental agency or body having jurisdiction over the Company
or any of its properties or assets, which breach or violation would
have a material adverse effect on the business, operations or
financial condition of the Company.
5. There are not, to the best of such counsel's knowledge, any
actions, proceedings or investigations pending before or, threatened
by any court, administrative agency or other tribunal to which the
Company is a party or of which any of its properties is the subject:
(a) which if determined adversely to the Company would have a
material adverse effect on the business, results of operations or
financial condition of the Company (b) asserting the invalidity of
this Agreement, the Pooling and Servicing Agreement or the
Certificates; (c) seeking to prevent the issuance of the
Certificates or the consummation by the Company of any of the
transactions contemplated by this Agreement or the Pooling and
Servicing Agreement; or (d) which might materially and adversely
affect the performance by the Company of its obligations under, or
the validity or enforceability of, this Agreement, the Pooling and
Servicing Agreement, or the Certificates.
G. ____________, special counsel to the Depositor, shall have furnished to
the Underwriters their written opinion, addressed to the Underwriters and
dated the Closing Date, in form and substance satisfactory to the
Underwriters, to the effect that:
1. The Depositor has been duly organized and is validly existing as
a corporation in good standing under the laws of the State of
Delaware and is in good standing as a foreign corporation in each
jurisdiction in which its ownership or lease of property or the
conduct of its business so requires. The Depositor has all power and
authority necessary to own or hold its properties and to conduct the
business in which it is engaged and to enter into and perform its
obligations under this Agreement and the Pooling and Servicing
Agreement, and to cause the Certificates to be issued.
2. The Depositor is not in violation of its certificate of
incorporation or by-laws or in default in the performance or
observance of any material obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which the Depositor is
a party or by which it or its properties may be bound, which default
might result in any material adverse changes in the financial
condition,
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earnings, affairs or business of the Depositor or which might
materially and adversely affect the properties or assets, taken as a
whole, of the Depositor.
3. This Agreement the Pooling and Servicing Agreement have been duly
authorized, executed and delivered by the Depositor and, assuming
the due authorization, execution and delivery of such agreements by
the other parties thereto, such agreements constitute valid and
binding obligations of the Depositor, enforceable against the
Depositor in accordance with their respective terms, subject as to
enforceability to (x) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating
to creditors' rights generally, (y) general principles of equity
(regardless of whether enforcement is sought in a proceeding in
equity or at law) and (z) with respect to rights of indemnity under
this Agreement, limitations of public policy under applicable
securities laws.
4. The execution, delivery and performance of this Agreement and the
Pooling and Servicing Agreement by the Depositor, the consummation
of the transactions contemplated hereby and thereby, and the
issuance and delivery of the Certificates do not and will not
conflict with or result in a breach or violation of any of the terms
or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Depositor is a party or by which the
Depositor is bound or to which any of the property or assets of the
Depositor or any of its subsidiaries is subject, which breach or
violation would have a material adverse effect on the business,
operations or financial condition of the Depositor, nor will such
actions result in a violation of the provisions of the certificate
of incorporation or by-laws of the Depositor or any statute or any
order, rule or regulation of any court or governmental agency or
body having jurisdiction over the Depositor or any of its properties
or assets, which breach or violation would have a material adverse
effect on the business, operations or financial condition of the
Depositor.
5. The direction by the Depositor to the Trustee to execute, issue,
authenticate and deliver the Certificates has been duly authorized
by the Depositor and, assuming that the Trustee has been duly
authorized to do so, when executed, authenticated and delivered by
the Trustee in accordance with the Pooling and Servicing Agreement,
the Certificates will be validly issued and outstanding and will be
entitled to the benefits of the Pooling and Servicing Agreement.
6. No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body of
the United States is required for the issuance of the Certificates,
and the sale of the Offered Certificates to the Underwriters, or the
consummation by the Depositor of the other transactions contemplated
by this Agreement and the Pooling and Servicing Agreement, except
such consents, approvals, authorizations,
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<PAGE> 15
registrations or qualifications as may be required State securities
or Blue Sky laws in connection with the purchase and distribution of
the Offered Certificates by the Underwriters or as have been
previously obtained.
7. There are not, to the best of such counsel's knowledge, any
actions, proceedings or investigations pending with respect to which
the Depositor has received service of process before or, threatened
by any court, administrative agency or other tribunal to which the
Depositor is a party or of which any of its properties is the
subject: (a) which if determined adversely to the Depositor would
have a material adverse effect on the business, results of
operations or financial condition of the Depositor; (b) asserting
the invalidity of the Pooling and Servicing Agreement, this
Agreement or the Certificates; (c) seeking to prevent the issuance
of the Certificates or the consummation by the Depositor of any of
the transactions contemplated by the Pooling and Servicing Agreement
or this Agreement;, or (d) which might materially and adversely
affect the performance by the Depositor of its obligations under, or
the validity or enforceability of, the Pooling and Servicing
Agreement, this Agreement or the Certificates.
H. The Underwriters shall have received the favorable opinion or opinions,
dated the date of the Closing Date, of counsel for the Underwriters, with
respect to the issue and sale of the Offered Certificates, the
Registration Statement, this Agreement, the Prospectus and such other
related matters as the Underwriters may reasonably require.
I. The Depositor and the Company shall each have furnished to the
Underwriters a certificate, dated the Closing Date and signed by the
Chairman of the Board, the President or a Vice President of the Depositor
and the Company, respectively, stating as it relates to each such entity:
1. The representations and warranties made by such entity in this
Agreement and in the Pooling and Servicing Agreement are true and
correct as of the Closing Date; and such entity has complied with
all agreements contained herein which are to have been complied with
on or prior to the Closing Date.
2. The information contained in the Prospectus relating to such
entity and the Mortgage Loans is true and accurate in all material
respects and nothing has come to his or her attention that would
lead such officer to believe that the Registration Statement or the
Prospectus includes any untrue statement of a material fact or omits
to state a material fact necessary to make the statements therein
not misleading.
In addition to the foregoing, the Company Certificate shall state that the
representations and warranties set forth in Sections 1 D, E, F, G, H, L, M
and N are made by the Company instead of the Depositor and are true as to
the Company as though such representations and warranties were fully set
forth in such certificate.
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<PAGE> 16
J. The Trustee shall have furnished to the Underwriters a certificate of
the Trustee, signed by one or more duly authorized officers of the
Trustee, dated the Closing Date, to the effect that:
1. The Trustee is a national association duly incorporated and
validly existing under the laws of the United States.
2. The Trustee has the full corporate trust power to execute,
deliver and perform its obligations under the Pooling and Servicing
Agreement.
3. The execution and delivery by the Trustee of the Pooling and
Servicing Agreement and the performance by the Trustee of its
obligations under the Pooling and Servicing Agreement have been duly
authorized by all necessary corporate action of the Trustee.
4. The Pooling and Servicing Agreement is a valid and legally
binding obligation of the Trustee enforceable against the Trustee.
5. The Certificates have been duly authenticated, executed and
delivered by the Trustee.
6. If the Trustee were acting as Servicer under the Pooling and
Servicing Agreement as of the date of such opinion, the Trustee
would have the full corporate trust power to perform the obligations
of the Servicer under the Pooling and Servicing Agreement.
K. The Offered Certificates shall have been rated in the categories and by
the rating agencies set forth in the Prospectus Supplement.
L. Prior to the Closing Date, counsel for the Underwriters shall have been
furnished with such documents and opinions as they may reasonably require
for the purpose of enabling them to pass upon the issuance and sale of the
Certificates as herein contemplated and related proceedings or in order to
evidence the accuracy and completeness of any of the representations and
warranties, or the fulfillment of any of the conditions, herein contained,
and all proceedings taken by the Depositor in connection with the issuance
and sale of the Certificates as herein contemplated shall be satisfactory
in form and substance to the Underwriters and counsel for the
Underwriters.
M. Subsequent to the execution and delivery of this Agreement none of the
following shall have occurred: (i) trading in securities generally on the
New York Stock Exchange, the American Stock Exchange or the
over-the-counter market shall have been suspended or minimum prices shall
have been established on either of such exchanges or such market by the
Commission, by such exchange or by any other regulatory body or
governmental authority having jurisdiction; (ii) a banking moratorium
shall have been declared by federal or state authorities; (iii) the United
States shall have become
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<PAGE> 17
engaged in hostilities, there shall have been an escalation of hostilities
involving the United States or there shall have been a declaration of a
national emergency or war by the United States; or (iv) there shall have
occurred such a material adverse change in general economic, political or
financial conditions (or the effect of international conditions on the
financial markets of the United States shall be such) as to make it in
each of the instances set forth in clauses (i), (ii), (iii) and (iv)
herein, in the reasonable judgment of the Underwriters, impractical or
inadvisable to proceed with the public offering or delivery of the
Certificates on the terms and in the manner contemplated in the
Prospectus.
N. The Underwriters shall have received from KPMG Peat Marwick LLP,
certified public accountants, a letter dated the date of the Prospectus
Supplement and a letter dated the date hereof and satisfactory in form and
substance to the Underwriters and their counsel, to the effect that they
have performed certain specified procedures, all of which have been agreed
to by the Underwriters, as a result of which they determined that certain
information of an accounting, financial or statistical nature set forth in
the Prospectus Supplement agrees with the records of the Depositor or MMC,
excluding any questions of legal interpretation.
If any condition specified in this Section 6 shall not have been fulfilled
when and as required to be fulfilled, this Agreement may be terminated by the
Underwriters by notice to the Depositor at any time at or prior to the closing
Date, and such termination shall be without liability of any party to any other
party except as provided in Section 7.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to the Underwriters and their counsel.
SECTION 7 Payment of Expenses. The Depositor agrees to pay: (a) the costs
incident to the authorization, issuance, sale and delivery of the Certificates
and any taxes payable in connection therewith; (b) the costs incident to the
preparation, printing and filing under the Securities Act of the Registration
Statement and any amendments and exhibits thereto; (c) the costs of distributing
the Registration Statement as originally filed and each amendment thereto and
any post-effective amendments thereof (including, in each case, exhibits), the
Prospectus and any amendment or supplement to the Prospectus or any document
incorporated by reference therein, all as provided in this Agreement; (d) the
costs of reproducing and distributing this Agreement; (e) the fees and expenses
of qualifying the Certificates under the securities laws of the several
jurisdictions designated by the Underwriters as provided in Section 5(H) hereof
and of preparing, printing and distributing a Blue Sky Memorandum and a Legal
Investment Survey (including related fees and expenses of counsel to the
Underwriters); (f) any fees charged by securities rating services for rating the
Offered Certificates; (g) the costs of the accountant's letters referred to in
Section 6(N) hereof; and (h) all other costs and expenses incident to the
performance of the obligations of the Depositor (including costs and expenses of
its counsel); provided that, except as provided in this Section 7, the
Underwriters shall pay their own costs and expenses, including the costs and
expenses of their counsel, any
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<PAGE> 18
transfer taxes on the Offered Certificates which they may sell and the expenses
of advertising any offering of the Offered Certificates made by the
Underwriters, and the Underwriters shall
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<PAGE> 19
pay the cost of any accountant's letters relating to any Investor Materials (as
defined in Section 5(E) hereof).
If this Agreement is terminated by the Underwriters in accordance with the
provisions of Section 6 or Section 11, the Depositor shall cause the
Underwriters to be reimbursed for all reasonable out-of-pocket expenses,
including fees and disbursements of ________________, counsel for the
Underwriters.
SECTION 8 Indemnification and Contribution. A. The Depositor agrees to
indemnify and hold harmless the Underwriters and each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Securities Act
from and against any and all loss, claim, damage or liability, joint or several,
or any action in respect thereof (including, but not limited to, any loss,
claim, damage, liability or action relating to purchases and sales of the
Offered Certificates), to which such Underwriter or any such controlling person
may become subject, under the Securities Act or otherwise, insofar as such loss,
claim, damage, liability or action arises out of, or is based upon, (i) any
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement, or any amendment thereof or supplement thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, (iii)
any untrue statement or alleged untrue statement of a material fact contained in
the Prospectus, or any amendment thereof or supplement thereto, or (iv) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading and shall reimburse
such Underwriter and each such controlling person promptly upon demand for any
legal or other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating or defending or preparing to
defend against any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that the Depositor shall not be liable
in any such case to the extent that any such loss, claim, damage, liability or
action arises out of, or is based upon, any untrue statement or alleged untrue
statement or omission or alleged omission made in the Prospectus, or any
amendment thereof or supplement thereto, or the Registration Statement, or any
amendment thereof or supplement thereto, in reliance upon and in conformity with
written information furnished to the Depositor by or on behalf of such
Underwriter specifically for inclusion therein. The foregoing indemnity
agreement is in addition to any liability which the Depositor may otherwise have
to any Underwriter or any controlling person of any of such Underwriter. The
only information furnished by the Underwriters or on behalf of the Underwriters
for use in connection with the preparation of the Registration Statement or the
Prospectus is described in Section 8(I) hereof.
B. Each Underwriter severally, and not jointly, agrees to indemnify and hold
harmless the Depositor, each of its directors, each of its officers who signed
the Registration Statement, and each person, if any, who controls the Depositor
within the meaning of Section 15 of the Securities Act against any and all loss,
claim, damage or liability, or any action in respect thereof, to which the
Depositor or any such director, officer or controlling person may become
subject, under the Securities Act or otherwise, insofar as such loss, claim,
damage, liability or action arises out of, or is based upon, (i) any untrue
statement or alleged untrue statement of a
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<PAGE> 20
material fact contained in the Registration Statement, or any amendment thereof
or supplement thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, (iii) any untrue statement or alleged untrue statement
of a material fact contained in the Prospectus, or any amendment thereof or
supplement thereto, or (iv) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, but in each case only to the extent that the untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Depositor by or
on behalf of such Underwriter specifically for inclusion therein, and shall
reimburse the Depositor and any such director, officer or controlling person for
any legal or other expenses reasonably incurred by the Depositor or any
director, officer or controlling person in connection with investigating or
defending or preparing to defend against any such loss, claim, damage, liability
or action as such expenses are incurred. The foregoing indemnity agreement is in
addition to any liability which any Underwriter may otherwise have to the
Depositor or any such director, officer or controlling person. The only
information furnished by the Underwriters or on behalf of the Underwriters for
use in connection with the preparation of the Registration Statement or the
Prospectus is described in Section 8(I) hereof.
C. Promptly after receipt by any indemnified party under this Section 8 of
notice of any claim or the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party under this Section 8, notify the indemnifying party in writing of the
claim or the commencement of that action; provided, however, that the failure to
notify an indemnifying party shall not relieve it from any liability which it
may have under this Section 8 except to the extent it has been materially
prejudiced by such failure and, provided further, that the failure to notify any
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under this Section 8.
If any such claim or action shall be brought against an indemnified party,
and it shall notify the indemnifying party thereof, the indemnifying party shall
be entitled to participate therein and, to the extent that it wishes, jointly
with any other similarly notified indemnifying party, to assume the defense
thereof with counsel reasonably satisfactory to the indemnified party. After
notice from the indemnifying party to the indemnified party of its election to
assume the defense of such claim or action, except to the extent provided in the
next following paragraph, the indemnifying party shall not be liable to the
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation.
Any indemnified party shall have the right to employ separate counsel in
any such action and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless: (i) the employment thereof has been specifically authorized by the
indemnifying party in writing; (ii) such indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party and in the
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reasonable judgment of such counsel it is advisable for such indemnified party
to employ separate counsel; or (iii) the indemnifying party has failed to assume
the defense of such action and employ counsel reasonably satisfactory to the
indemnified party, in which case, if such indemnified party notifies the
indemnifying party in writing that it elects to employ separate counsel at the
expense of the indemnifying party, the indemnifying party shall not have the
right to assume the defense of such action on behalf of such indemnified party,
it being understood, however, the indemnifying party shall not, in connection
with any one such action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys (in addition to local counsel) at any time for all
such indemnified parties, which firm shall be designated in writing by the
related Underwriter, if the indemnified parties under this Section 8 consist of
one or more Underwriters or any of its or their controlling persons, or the
Depositor, if the indemnified parties under this Section 8 consist of the
Depositor or any of the Depositor's directors, officers or controlling persons.
Each indemnified party, as a condition of the indemnity agreements
contained in Section 8(A) and (B), shall use its best efforts to cooperate with
the indemnifying party in the defense of any such action or claim. No
indemnifying party shall be liable for any settlement of any such action
effected without its written consent (which consent shall not be unreasonably
withheld), but if settled with its written consent or if there be a final
judgment for the plaintiff in any such action, the indemnifying party agrees to
indemnify and hold harmless any indemnified party from and against any loss or
liability by reason of such settlement or judgment.
Notwithstanding the foregoing paragraph, if at any time an indemnified
party shall have requested an indemnifying party to reimburse the indemnified
party for fees and expenses of counsel, the indemnifying party agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 30 days after
receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement.
D. Each Underwriter agrees to provide the Depositor no later than two
Business Days prior to the day on which the Prospectus Supplement is required to
be filed pursuant to Rule 424 with a copy of any Investor Materials (as defined
in Section 5(E) hereof) produced by such Underwriter for filing with the
Commission on Form 8-K.
E. Each Underwriter severally agrees, assuming all Seller Provided
Information is accurate and complete in all material respects, to indemnify and
hold harmless the Depositor, each of the Depositor's directors, each of its
officers who signed the Registration Statement, and each person who controls the
Depositor within the meaning of Section 15 of the Securities Act against any and
all losses, claims, damages or liabilities, joint or several, to which they may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement of a material fact contained in the Investor
Materials provided by such Underwriter and agrees
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to reimburse each such indemnified party for any legal or other expenses
reasonably incurred by him, her or it in connection with investigating or
defending or preparing to defend any such loss, claim, damage, liability or
action as such expenses are incurred. The obligations of an Underwriter under
this Section 8(E) shall be in addition to any liability which such Underwriter
may otherwise have.
The procedures set forth in Section 8(C) shall be equally applicable to
this Section 8(E).
F. If the indemnification provided for in this Section 8 shall for any
reason be unavailable to or insufficient to hold harmless an indemnified party
under Section 8(A), (B) or (E) in respect of any loss, claim, damage or
liability, or any action in respect thereof, referred to therein, then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Depositor on the one hand and the related Underwriters on the
other from the offering of the related Offered Certificates or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law or if
the indemnified party failed to give the notice required under Section 8(C), in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Depositor on
the one hand and the related Underwriter on the other with respect to the
statements or omissions which resulted in such loss, claim, damage or liability,
or action in respect thereof, as well as any other relevant equitable
considerations.
The relative benefits of the Depositor and an Underwriter shall be deemed
to be in such proportion as the total net proceeds from the offering (before
deducting expenses) received by the Depositor bear to the total underwriting
discounts and commissions received by the related Underwriter in connection with
the Offered Certificates purchased by it.
The relative fault of the Depositor and an Underwriter shall be determined
by reference to whether the untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact relates to
information supplied by the Depositor or by such Underwriter, the intent of the
parties and their relative knowledge, access to information and opportunity to
correct or prevent such statement or omission and other equitable
considerations.
The Depositor and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 8(F) were to be determined
by pro rata allocation (even if the Underwriters were treated as one entity for
such purposes) or by any other method of allocation which does not take into
account the equitable considerations referred to herein. The amount paid or
payable by an indemnified party as a result of the loss, claim, damage or
liability, or action in respect thereof, referred to above in this Section 8(F)
shall be deemed to include, for purposes of this Section 8(F), any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim.
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<PAGE> 23
For purposes of this Section 8, in no case shall any Underwriter be
responsible for any amount in excess of the underwriting discounts and
commissions received by such Underwriter in connection with the Offered
Certificates purchased by it. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
G. For purposes of this Section 8, as to each Underwriter the term
"Investor Materials" means such portion, if any, of the information delivered to
the Depositor by such Underwriter pursuant to Section 8(D) for filing with the
Commission on Form 8-K as:
(i) is not contained in the Prospectus without taking into account
information incorporated therein by reference through a Form 8-K --
Investor Materials; and
(ii) does not constitute Seller-Provided Information.
"Seller-Provided Information" means any computer tape (or other
information) furnished to any Underwriter by or on behalf of the Seller and
Service concerning the assets comprising the Trust.
H. The Company agrees to indemnify each indemnified party referred to in
Section 8(A) hereof with respect to Seller Provided Information to the same
extent as the indemnity granted under such section. The procedures set forth in
Section 8(C) shall be equally applicable to this Section 8(H).
I. Each Underwriter confirms that the information regarding such
Underwriter set forth in the last paragraph on the cover page of the Prospectus
Supplement, the information regarding such Underwriter set forth under the
caption "Underwriting" in the Prospectus Supplement and such Underwriter's
Investor Materials, if any (other than to the extent such information is based
on Seller Provided Information) furnished by such Underwriter is correct, and
the parties hereto acknowledge that such information constitutes the only
information furnished in writing by or on behalf of any Underwriter for use in
connection with the preparation of the Registration Statement or the Prospectus.
SECTION 9 Representations, Warranties and Agreements to Survive Delivery.
All representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Depositor submitted pursuant hereto
shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of the Underwriters or controlling persons
thereof, or by or on behalf of the Depositor and shall survive delivery of any
Offered Certificates to the Underwriters.
SECTION 10 Default by One or More of the Underwriters. If one or more of
the Underwriters participating in the public offering of the Offered
Certificates shall fail at the Closing Date to purchase the Offered Certificates
which it is (or they are) obligated to purchase hereunder (the "Defaulted
Certificates"), then the non-defaulting Underwriters shall have the right,
within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting
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<PAGE> 24
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Certificates in such amounts as may be agreed upon and upon the
terms herein set forth. If, however, the Underwriters have not completed such
arrangements within such 24-hour period, then:
(i) if the aggregate principal amount of Defaulted Certificates does not
exceed 10% of the aggregate principal amount of the Offered Certificates
to be purchased pursuant to this Agreement, the non-defaulting
Underwriters named in this Agreement shall be obligated to purchase the
full amount thereof in the proportions that their respective underwriting
obligations hereunder bear to the underwriting obligations of all such
non-defaulting Underwriters, or
(ii) if the aggregate principal amount of Defaulted Certificates exceeds
10% of the aggregate principal amount of the Offered Certificates to be
purchased pursuant to this Agreement, this Agreement shall terminate,
without any liability on the part of any non-defaulting Underwriters.
No action taken pursuant to this Section 10 shall relieve any defaulting
Underwriter from the liability with respect to any default of such Underwriter
under this Agreement.
In the event of a default by any Underwriter as set forth in this Section
10, each of the Underwriters and the Depositor shall have the right to postpone
the Closing Date for a period not exceeding five Business Days in order that any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements may be effected.
SECTION 11 Termination of Agreement. The Underwriters may terminate this
Agreement immediately upon notice to the Depositor, at any time at or prior to
the Closing Date if any of the events or conditions described in Section 6(P) of
this Agreement shall occur and be continuing. In the event of any such
termination, the covenant set forth in Section 5(G), the provisions of Section
7, the indemnity agreement set forth in Section 8, and the provisions of
Sections 9 and 15 shall remain in effect.
SECTION 12 Obligations of the Company. The Company agrees with the
Underwriters, for the sole and exclusive benefit of each such Underwriter and
each person controlling such Underwriter within the meaning of the Securities
Act and not for the benefit of any assignee thereof or any other person or
persons dealing with such Underwriter, in consideration of and as an inducement
to their agreement to purchase the Offered Certificates from the Depositor, to
indemnify and hold harmless each Underwriter against any failure by the
Depositor to perform its obligations to the Underwriters hereunder, including,
without limitation, any failure by the Depositor to honor any obligation to any
Underwriter pursuant to Section 8 hereof.
SECTION 13 Notices. All statements, requests, notices and agreements
hereunder shall be in writing, and:
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<PAGE> 25
A. if to the Underwriters, shall be delivered or sent by mail, telex or
facsimile transmission to ______________________________; and
B. if to the Depositor, shall be delivered or sent by mail, telex or
facsimile transmission to _________________________________.
SECTION 14 Persons Entitled to the Benefit of this Agreement. This
Agreement shall inure to the benefit of and be binding upon the Underwriters and
the Depositor, and their respective successors. This Agreement and the terms and
provisions hereof are for the sole benefit of only those persons, except that
the representations, warranties, indemnities and agreements contained in this
Agreement shall also be deemed to be for the benefit of the person or persons,
if any, who control any of the Underwriters within the meaning of Section 15 of
the Securities Act, and for the benefit of directors of the Depositor, officers
of the Depositor who have signed the Registration Statement and any person
controlling the Depositor within the meaning of Section 15 of the Securities
Act. Nothing in this Agreement is intended or shall be construed to give any
person, other than the persons referred to in this Section 14, any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision contained herein.
SECTION 15 Survival. The respective indemnities, representations,
warranties and agreements of the Depositor and the Underwriters contained in
this Agreement, or made by or on behalf of them, respectively, pursuant to the
shall survive the delivery of and payment for the Certificates and shall remain
in full force and effect, regardless of any investigation made by or on behalf
of any of them or any person controlling any of them.
SECTION 16 Definition of the Term "Business Day". For purposes of this
Agreement, "Business Day" means any day on which the New York Stock Exchange,
Inc. is open for trading.
SECTION 17 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to the conflict of law rules thereof.
SECTION 18 Counterparts. This Agreement may be executed in counterparts
and, if executed in more than one counterpart, the executed counterparts shall
each be deemed to be an original but all such counterparts shall together
constitute one and the same instrument.
SECTION 19 Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
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<PAGE> 26
If the foregoing correctly sets forth the agreement between the Depositor
and the Underwriters, please indicate your acceptance in the space provided for
the purpose below.
Very truly yours,
MELLON RESIDENTIAL FUNDING
CORPORATION
By: _____________________
Name:
Title:
___________________________
By: _____________________
Name:
Title:
CONFIRMED AND ACCEPTED, as
of the date first above written:
[Underwriters]
By:____________________________________
Name:
Title:
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<PAGE> 27
SCHEDULE A
Underwriters Principal Purchase Price
- ------------ --------- --------------
Total
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<PAGE> 28
SCHEDULE A (cont'd)
Selling Reallowance
Class Concession Discount
- ----- ---------- --------
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<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
MELLON RESIDENTIAL FUNDING CORPORATION
THE UNDERSIGNED, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware (the "GCL"), does hereby certify as
follows:
ARTICLE I
The name of the Corporation is Mellon Residential Funding Corporation.
ARTICLE II
The registered office of the Corporation in the State of Delaware is
located at 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of the Corporation's registered agent in the State of Delaware at such
address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage solely in the following
activities:
(a) To acquire, own, hold, sell, transfer, pledge or otherwise
dispose of:
(i) interests in loan agreements, promissory notes or other
evidences of indebtedness secured by mortgages, deeds of trust,
pledge agreements or other security devices on one- to
four-family residential properties or other real or personal
property, or shares issued by private, nonprofit, cooperative
housing corporations ("Cooperatives") and the related
proprietary leases or occupancy agreements granting exclusive
rights to occupy specific dwelling units in such Cooperative
buildings ("Mortgage Loans");
(ii) mortgage-backed securities issued and/or guaranteed as to timely
payment of interest and/or principal by the Government National
Mortgage Association, Federal National Mortgage Association or
Federal Home Loan Mortgage Corporation; and
(iii) mortgage pass-through certificates and other collateralized
mortgage obligations issued by a financial institution or other
entity engaged generally in the business of mortgage lending, a
public agency or instrumentality of a state, local or federal
government, or a limited purpose corporation engaged
<PAGE> 2
in the business of establishing trusts and acquiring and
selling residential loans to such trusts and selling beneficial
interests in such trusts.
(b) To act as settlor or depositor of trusts formed under a trust
agreement, pooling and servicing agreement or other agreement to issue series
(any of which series may be issued in one or more classes) of trust
certificates ("Certificates") representing interests in Mortgage Loans and/or
other property and/or to issue 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 Mortgage Loans and/or other property and to
enter into any other agreement in connection with the authorization, issuance,
sale and delivery of such Debt Obligations.
(c) To hold, pledge, transfer or otherwise deal with Certificates
and Debt Obligations, including Certificates or Debt Obligations representing a
subordinated interest in Mortgage Loans ("Subordinated Interests") or a
residual interest in Mortgage Loans ("Residual Interests").
(d) To loan or invest or otherwise apply proceeds from Mortgage
Loans, funds received in respect of Certificates, Debt Obligations,
Subordinated Interests or Residual Interests and any other income, as
determined by the Corporation's Board of Directors.
(e) To engage in any lawful act or activity to exercise any powers
permitted to corporations organized under the GCL that are incidental to and
necessary or convenient for the accomplishment of the foregoing purposes.
ARTICLE IV
The total number of shares of stock which the Corporation shall have
authority to issue is 100 shares of Common Stock, with a par value of $1.00 per
share.
ARTICLE V
Election of directors need not be by ballot unless the By-Laws of the
Corporation shall so provide.
ARTICLE VI
The Corporation's funds and other assets will not be commingled with
those of any of its stockholders or of any direct or indirect parent of the
Corporation or of any affiliate of any such parent.
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<PAGE> 3
ARTICLE VII
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 Certificates or Debt Obligations without the termination or
lowering by such rating agencies of their ratings thereof.
ARTICLE VIII
The affairs of the Corporation shall be managed by a Board of Directors
(the "Board" or the "Board of Directors"), which shall at all times include at
least two Outside Directors. An "Outside Director" shall be an individual who,
for at least eighteen (18) months prior to being appointed by the Board, shall
not have been a director, officer or employee of, or indirect beneficial owner
of 5% or more of the voting securities of, or member of the immediate family of
any such director, officer, employee or beneficial owner of, Mellon Bank
Corporation ("Mellon") or any corporate affiliate of Mellon. Notwithstanding
the foregoing, an Outside Director may be a director or officer of one or more
other corporations that is an affiliate or are affiliates of Mellon, provided
that (i) each such corporation is or was formed with limited purposes similar
to the Corporation and (ii) such person does not earn, in the aggregate,
material compensation for serving in such positions. For the purposes of the
foregoing, an "affiliate" of an entity is an entity controlling, controlled by,
or under common control with such entity. Notwithstanding any other provision
of this Certificate of Incorporation or any other provision of law that so
empowers the Corporation, in the event of the death, incapacity, or resignation
of an Outside Director or such position is otherwise vacated, a successor
Outside Director shall be appointed by the remaining directors of the
Corporation and no action requiring the unanimous affirmative vote of the Board
of Directors of the Corporation shall be taken until a successor Outside
Director is elected and qualified and approves such action.
ARTICLE IX
Notwithstanding any other provision of this Certificate of
Incorporation and any provision of law that otherwise so empowers the
Corporation, the Corporation shall not, without the unanimous approval of the
Board of Directors of the Corporation, do any of the following:
(a) dissolve or liquidate, in whole or in part;
(b) merge or consolidate with or into any other entity or convey or
(except in a transaction of a type described in Article III hereof) transfer
its properties and assets substantially as an entirety to an entity, unless:
(i) 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 under the laws of the State of
Delaware, expressly assumes the due and punctual payment of, and all
obligations of the Corporation in connection with, the indebtedness
of the Corporation, and has a Certificate of Incorporation
containing provisions substantially identical to the provisions of
Articles III, VI, VII, VIII and this Article IX; and
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<PAGE> 4
(ii) immediately after giving effect to the transaction, no default or
event of default has occurred and is continuing under any
indebtedness of the Corporation or any agreements relating to
such indebtedness;
(c) institute proceedings to be adjudicated bankrupt or insolvent, or
consent to the institution of bankruptcy or insolvency proceedings against it,
or file a petition or answer or consent seeking reorganization or relief under
the federal bankruptcy laws, or consent to the filing of any such petition or
to the appointment of a receiver, liquidator, assignee, trustee, conservator,
sequestrator (or other similar official) of the Corporation or of any
substantial part of the Corporation's property, or make an assignment for the
benefit of creditors, or admit in writing its inability to pay its debts
generally as they become due, or take corporate action in furtherance of any
such action; or
(d) amend this Certificate of Incorporation to alter in any manner or
delete Articles III, VI, VIII and this Article IX.
ARTICLE X
In furtherance and not in limitation of the power conferred upon the
Board of Directors by law, the Board of Directors shall have power to make,
adopt, alter, amend and repeal, from time to time, the By-Laws of the
Corporation, subject to the right of the stockholders entitled to vote with
respect thereto to alter and repeal By-Laws made by the Directors.
ARTICLE XI
The incorporator of the Corporation is Carol A. Soltes, whose mailing
address is 435 Sixth Avenue, Pittsburgh, Pennsylvania 15219.
ARTICLE XII
PERSONAL LIABILITY OF DIRECTORS.
(a) To the fullest extent that the laws of the State of Delaware, as
the same exist or may hereafter be amended, permit elimination of the personal
liability of directors, no director of this Corporation shall be personally
liable to this Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director.
(b) The provisions of this Article shall be deemed to be a contract
with each director of this Corporation who serves as such at any time while
this Article is in effect, and each such director shall be deemed to be serving
as such in reliance on the provisions of this Article. Any amendment or repeal
of this Article or adoption of any By-Law of this Corporation or other
provision of the Certificate of Incorporation of this Corporation which has the
effect of increasing director liability shall operate prospectively only and
shall not affect any action taken, or any failure to act, by a director of this
Corporation prior to such amendment, repeal, By-Law or other provision becoming
effective.
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<PAGE> 5
ARTICLE XIII
INDEMNIFICATION OF, AND ADVANCEMENT OF
EXPENSES TO, DIRECTORS, OFFICERS AND OTHERS.
(a) Right to Indemnification. Except as prohibited by law, every director
and officer of the Corporation shall be entitled as of right to be indemnified
by the Corporation against all expenses and liability (as those terms are
defined below in this Paragraph) incurred by such person in connection with any
actual or threatened claim, action, suit or proceeding, whether civil, criminal,
administrative, investigative or other, or whether brought by or against such
person or by or in the right of the Corporation or otherwise, in which such
person may be involved, as a party or otherwise, by reason of such person being
or having been a director or officer of the Corporation or a subsidiary of the
Corporation or by reason of the fact that such person is or was serving at the
request of the Corporation as a director, officer, employee, fiduciary or other
representative of another corporation, partnership, joint venture, trust,
employee benefit plan or other entity (such claim, action, suit or proceeding
hereinafter being referred to as an "Action"); provided, however, that no such
right to indemnification shall exist with respect to an Action brought by an
indemnitee (as defined below) against the Corporation (an "Indemnitee Action")
except as provided in the last sentence of this Paragraph. Persons who are not
directors or officers of the Corporation may be similarly indemnified in respect
of service to the Corporation or a subsidiary of the Corporation or to another
such entity at the request of the Corporation to the extent the Board of
Directors of the Corporation at any time designates any of such persons as
entitled to the benefits of this Article. As used in this Article, "indemnitee"
includes each director and officer of the Corporation and each other person
designated by the Board of Directors of the Corporation as entitled to the
benefits of this Article; "expenses" means all expenses actually and reasonably
incurred, including fees and expenses of counsel selected by an indemnitee; and
"liability" means all liability incurred, including the amounts of any
judgments, excise taxes, fines or penalties and any amounts paid in settlement.
An indemnitee shall be entitled to be indemnified pursuant to this Article
against expenses incurred in connection with an Indemnitee Action if (i) the
Indemnitee Action is instituted under Paragraph (c) of this Article and the
indemnitee is successful in whole or in part in such Indemnitee Action, (ii) the
indemnitee is successful in whole or in part in another Indemnitee Action for
which expenses are claimed or (iii) the indemnification for expenses is included
in a settlement of, or is awarded by a court in, such other Indemnitee Action.
(b) Right to Advancement of Expenses. Every indemnitee shall be entitled
as of right to have the expenses of the indemnitee in defending any Action or in
bringing and pursuing any Indemnitee Action under Paragraph (c) of this Article
paid in advance by the Corporation prior to final disposition of the Action or
Indemnitee Action, provided that the Corporation receives a written undertaking
by or on behalf of the indemnitee to repay the amount advanced if it should
ultimately be determined that the indemnitee is not entitled to be indemnified
for the expenses.
(c) Right of Indemnitee to Bring Action. If a written claim for
indemnification under Paragraph (a) of this Article or for advancement of
expenses under Paragraph (b) of this Article is not paid in full by the
Corporation within 30 days after the claim has been received by the Corporation,
the indemnitee may at any time thereafter bring an Indemnitee Action to recover
the unpaid amount of the claim and, if successful in whole or in part, the
indemnitee shall also be entitled to be paid the expense of bringing and
pursuing such Indemnitee Action. The only defense to an Indemnitee Action to
recover on a claim for indemnification under Paragraph (a) of this Article shall
be that the conduct of the indemnitee was such that under Delaware law the
Corporation is prohibited from indemnifying the indemnitee for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel and stockholders) to
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<PAGE> 6
have made a determination prior to the commencement of such Indemnitee Action
that indemnification of the indemnitee is proper in the circumstances, nor an
actual determination by the Corporation (including its Board of Directors,
independent legal counsel or stockholders) that the conduct of the indemnitee
was such that indemnification is prohibited by Delaware law, shall be a defense
to such Indemnitee Action or create a presumption that the conduct of the
indemnitee was such that indemnification is prohibited by Delaware law. The
only defense to an Indemnitee Action to recover on a claim for advancement of
expenses under Paragraph (b) of this Article shall be failure by the indemnitee
to provide the undertaking required by Paragraph (b) of this Article.
(d) Funding and Insurance. The Corporation may create a trust fund,
grant a security interest, cause a letter of credit to be issued or use other
means (whether or not similar to the foregoing) to ensure the payment of all
sums required to be paid by the Corporation to effect indemnification as
provided in this Article. The Corporation may purchase and maintain insurance
to protect itself and any indemnitee against any expenses or liability incurred
by the indemnitee in connection with any Action, whether or not the Corporation
would have the power to indemnify the indemnitee against the expenses or
liability by law or under the provisions of this Article.
(e) Non-Exclusivity; Nature and Extent of Rights. The rights to
indemnification and advancement of expenses provided for in this Article shall
(i) not be deemed exclusive of any other rights, whether now existing or
hereafter created, to which any indemnitee may be entitled under any agreement,
provision in the Certificate of Incorporation or By-Laws of the Corporation,
vote of stockholders or disinterested directors or otherwise, (ii) be deemed
to create contractual rights in favor of each indemnitee who serves at any time
while this Article is in effect (and each such indemnitee shall be deemed to be
serving in reliance on the provisions of this Article), (iii) continue as to
each indemnitee who has ceased to have the status pursuant to which the
indemnitee was entitled or was designated as entitled to indemnification under
this Article and inure to the benefit of the heirs and legal representatives of
each indemnitee and (iv) be applicable to Actions commenced after this Article
becomes effective, whether arising from acts or omissions occurring before or
after this Article becomes effective. Any amendment or repeal of this Article
or adoption of any By-Law of this Corporation or other provision of the
Certificate of Incorporation of this Corporation which has the effect of
limiting in any way the rights to indemnification or advancement of expenses
provided for in this Article shall operate prospectively only and shall not
affect any action taken, or any failure to act, by an indemnitee prior to such
amendment, repeal, By-Law or other provision becoming effective.
(f) Partial Indemnity. If an indemnitee is entitled under any provision
of this Article to indemnification by the Corporation for some or a portion of
the expenses or liability incurred by the indemnitee in the preparation,
investigation, defense, appeal or settlement of any Action or Indemnitee Action
but not, however, for the total amount thereof, the Corporation shall indemnify
the indemnitee for the portion of such expenses or liability to which the
indemnitee is entitled.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this day of
March, 1997.
----------------------------------------
Carol A. Soltes, Incorporator
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<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
MELLON RESIDENTIAL FUNDING CORPORATION
(a Delaware corporation)
Adopted:April 1, 1997
<PAGE> 2
INDEX TO BY-LAWS
SECTION PAGE
ARTICLE I STOCKHOLDERS................................................1
Section 1.01. Annual Meetings...................................1
Section 1.02. Special Meetings..................................1
Section 1.03. Notice of Annual and Special Meetings.............1
Section 1.04. Quorum............................................2
Section 1.05. Voting............................................2
Section 1.06. Procedure at Stockholders' Meetings...............3
Section 1.07. Action Without Meeting............................3
ARTICLE II DIRECTORS..................................................4
Section 2.01. Number, Election and Term of Office...............4
Section 2.02. Annual Meetings...................................4
Section 2.03. Regular Meetings..................................4
Section 2.04. Special Meetings..................................4
Section 2.05. Notice of Annual and Special Meetings.............4
Section 2.06. Quorum and Manner of Acting.......................5
Section 2.07. Action Without Meeting............................5
Section 2.08. Participation by Conference Telephone.............6
Section 2.09. Resignations......................................6
Section 2.10. Removal of Directors..............................6
Section 2.11. Vacancies.........................................6
Section 2.12. Compensation of Directors.........................7
Section 2.13. Committees........................................7
Section 2.14. Personal Liability of Directors...................7
Section 2.15. Indemnification of and Advancement of Expenses to,
Directors, Officers and Others.............................8
ARTICLE III OFFICERS AND EMPLOYEES...................................11
Section 3.01. Executive Officers...............................11
Section 3.02. Additional Officers; Other Agents and Employees..11
Section 3.03. The Chairman.....................................12
Section 3.04. The President....................................12
Section 3.05. The Vice Presidents..............................12
Section 3.06. The Secretary and Assistant Secretaries..........12
Section 3.07. The Treasurer and Assistant Treasurers...........13
Section 3.08. Vacancies........................................13
Section 3.09. Delegation of Duties.............................14
ARTICLE IV SHARES OF CAPITAL STOCK...................................14
Section 4.01. Share Certificates...............................14
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Section 4.02. Transfer of Shares...............................14
Section 4.03. Transfer Agents and Registrars...................15
Section 4.04. Lost, Stolen, Destroyed or Mutilated
Certificates...............................................15
Section 4.05. Regulations Relating to Shares...................15
Section 4.06. Holders of Record................................15
Section 4.07. Fixing of Record Date............................15
ARTICLE V SIGNING AUTHORITY AND CORPORATE TRANSACTIONS...............16
Section 5.01. Signing Authority................................16
Section 5.02. Voting And Acting With Respect To Stock And Other
Securities Owned By The Corporation.......................17
ARTICLE VI GENERAL PROVISIONS........................................17
Section 6.01. Offices..........................................17
Section 6.02. Corporate Seal...................................17
Section 6.03. Fiscal Year......................................18
ARTICLE VII VALIDATION OF CERTAIN CONTRACTS..........................18
ARTICLE VIII AMENDMENTS..............................................18
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<PAGE> 4
BY-LAWS
ARTICLE I
STOCKHOLDERS
SECTION 1.01. ANNUAL MEETINGS. Annual meetings of the stockholders
shall be held at such date, time and place as may be fixed by the Board of
Directors and as set forth in the notice of the meeting.
SECTION 1.02. SPECIAL MEETINGS. Special meetings of the stockholders
may be called at any time, for the purpose or purposes set forth in the call, by
the President, the Board of Directors or the holders of at least one-fifth of
all the shares of any class outstanding and entitled to vote thereat, by
delivering a written request to the Secretary. At any time, upon the written
request of any person or persons who have duly called a special meeting, it
shall be the duty of the Secretary to fix the date of the meeting, to be held
not more than 75 days after receipt of the request, and to give due notice
thereof. Special meetings shall be held at such place, either within or without
the State of Delaware, and at such time and date as the Board of Directors shall
determine and as set forth in the notice of the meeting.
SECTION 1.03. NOTICE OF ANNUAL AND SPECIAL MEETINGS. Except as
otherwise expressly required by law, notice of each meeting of stockholders,
whether annual or special, shall be given at least 10 and not more than 60 days
prior to the date on which the meeting is to be held to each stockholder of
record entitled to vote thereat by delivery of a notice thereof to him
personally or by sending a copy thereof through the mail or by telegram, charges
prepaid, to his address appearing on the records of the Corporation. Each such
notice shall specify the place, day and hour of the meeting and, in the case of
a special meeting, shall briefly state the purpose or purposes for which the
meeting is called. A written waiver of notice, signed by the person or persons
entitled to such notice, whether before or after the date and time fixed for the
meeting shall be deemed the equivalent of such notice. Neither the business to
be transacted at nor the purpose of the meeting need be specified in a waiver of
notice of such meeting.
<PAGE> 5
SECTION 1.04. QUORUM. A stockholders' meeting duly called shall not
be organized for the transaction of business unless a quorum is present. At any
meeting the presence in person or by proxy of stockholders entitled to cast at
least a majority of the votes which all stockholders are entitled to cast on the
particular matter shall constitute a quorum for the purpose of considering such
matter, except as otherwise expressly provided by law or by the Certificate of
Incorporation or By-Laws of the Corporation. The stockholders present at a duly
organized meeting can continue to do business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. If a meeting
cannot be organized because a quorum has not attended, those present may adjourn
the meeting from time to time to such time (not more than 30 days after the next
previous adjourned meeting) and place as they may determine, without notice
other than by announcement at the meeting of the time and place of the adjourned
meeting; and in the case of any meeting called for the election of directors,
those who attend the second of such adjourned meetings, although entitled to
cast less than a majority of the votes entitled to be cast on any matter to be
considered at the meeting, shall nevertheless constitute a quorum for the
purpose of electing directors.
SECTION 1.05. VOTING. At every meeting of stockholders, each holder
of record of issued and outstanding stock of the Corporation entitled to vote at
such meeting shall be entitled to vote in person or by proxy and, except where a
date has been fixed as the record date for the determination of stockholders
entitled to notice of or to vote at such meeting, no holder of record of a share
of stock which has been transferred on the books of the Corporation within 10
days next preceding the date of such meeting shall be entitled to notice of or
to vote at such meeting in respect of such share so transferred. Resolutions of
the stockholders shall be adopted, and any action of the stockholders at a
meeting upon any matter shall be taken and be valid, only if at least a majority
of the votes cast with respect to such resolutions or matter are cast in favor
thereof, except as otherwise expressly provided by law or by the Certificate of
Incorporation or By-Laws of the Corporation. The Chairman of the Board (if one
has been elected and is present) shall be chairman, and the Secretary (if
present) shall act as secretary, at all meetings of the stockholders. In the
absence of the Chairman of the Board, the President shall be chairman; and
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<PAGE> 6
in the absence of both of them, the chairman shall be designated by the Board of
Directors or if not so designated shall be elected by the stockholders present;
and in the absence of the Secretary, an Assistant Secretary shall act as
secretary of the meeting.
SECTION 1.06. PROCEDURE AT STOCKHOLDERS' MEETINGS. The organization
of each meeting of the stockholders, the order of business thereat and all
matters relating to the manner of conducting the meetings shall be determined by
the chairman of the meeting, whose decisions may be overruled only by majority
vote (which shall not be by ballot) of the stockholders present and entitled to
vote at the meeting in person or by proxy. Meetings shall be conducted in a
manner designed to accomplish the business of the meeting in a prompt and
orderly fashion and to be fair and equitable to all stockholders, but it shall
not be necessary to follow Roberts' Rules of Order or any other manual of
parliamentary procedure.
SECTION 1.07. ACTION WITHOUT MEETING. Unless otherwise provided by
the Certificate of Incorporation, any action required to be taken at any annual
or special meeting of stockholders, or any action which may be taken at any
annual or special meeting, may be taken without a meeting, without prior notice
and without a vote, if a consent or consents in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted, and such written consent is delivered to the Corporation by
delivery to its registered office in Delaware, its principal place of business
or an officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
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ARTICLE II
DIRECTORS
SECTION 2.01. NUMBER, ELECTION AND TERM OF OFFICE. The number of
directors which shall constitute the full Board of Directors shall be determined
by resolution of the board of directors or by the stockholders at the annual
meeting. A full Board of Directors shall be elected as each annual meeting of
the stockholders. Each director shall hold office for the term for which he is
elected and thereafter until his successor is duly elected or until his prior
death, resignation or removal. Directors need not be stockholders.
SECTION 2.02. ANNUAL MEETINGS. Annual Meetings of the Board of
Directors shall be held each year at the same place as and immediately after the
annual meeting of stockholders, or at such other place and time as shall
theretofore have been determined by the Board. At its regular annual meeting,
the Board of Directors shall organize itself and elect the officers of the
Corporation for the ensuing year, and may transact any other business.
SECTION 2.03. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held at such intervals and at such time and place as shall from
time to time be determined by the Board. After there has been such determination
and notice thereof has been once given to each person then a member of the Board
of Directors, regular meetings may be held at such intervals and time and place
without further notice being given.
SECTION 2.04. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called at any time by the Board, by the Chairman of the Board,
by the President or by any three directors to be held on such day and at such
time and place as shall be specified by the person or persons calling the
meeting.
SECTION 2.05. NOTICE OF ANNUAL AND SPECIAL MEETINGS. Except as
otherwise expressly required by law, notice of the annual meeting of the Board
of Directors need not be given. Except as otherwise expressly required by law,
notice of every special meeting of the Board of Directors specifying the place,
date and time thereof shall be given to each director
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either by being mailed on at least the third day prior to the date of the
meeting or by being sent by telegraph or given personally or by telephone at
least 24 hours prior to the time of the meeting. A written waiver of notice of a
special meeting, signed by the person or persons entitled to such notice,
whether before or after the date and time stated therein fixed for the meeting,
shall be deemed the equivalent of such notice, and attendance of a director at a
meeting shall constitute a waiver of notice of such meeting except when the
director attends the meeting for the express purpose of objecting, when he
enters the meeting, to the transaction of any business because the meeting is
not lawfully called or convened.
SECTION 2.06. QUORUM AND MANNER OF ACTING. At all meetings of the
Board of Directors, except as otherwise expressly provided by law or by the
Certificate of Incorporation or By-Laws of the Corporation, the presence of a
majority of the full Board shall be necessary and sufficient to constitute a
quorum for the transaction of business. If a quorum is not present at any
meeting, the meeting may be adjourned from time to time by a majority of the
directors present until a quorum as aforesaid shall be present, but notice of
the time and place to which such a meeting is adjourned shall be given to any
directors not present either by being sent by telegraph or given personally or
by telephone at least eight hours prior to the date of reconvening. Resolutions
of the Board of Directors shall be adopted, and any action of the Board at a
meeting upon any matter shall be taken and be valid, only with the affirmative
vote of at least a majority of the directors present at the meeting, except as
otherwise provided herein. The Chairman of the Board (if one has been elected
and is present) shall be chairman, and the Secretary (if present) shall act as
secretary, at all meetings of the Board. In the absence of the Chairman of the
Board, the President shall be chairman, and in the absence of both of them the
directors present shall select a member of the Board of Directors to be
chairman; and in the absence of the Secretary, the chairman of the meeting shall
designate any person to act as secretary of the meeting.
SECTION 2.07. ACTION WITHOUT MEETING. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if a consent in writing,
setting forth the actions so taken, shall be signed by all members
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of the Board or such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or committee.
SECTION 2.08. PARTICIPATION BY CONFERENCE TELEPHONE. Members of the
Board of Directors of the Corporation, or any committee designated by the Board,
may participate in a meeting of the Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
SECTION 2.09. RESIGNATIONS. A director may resign by submitting his
written resignation to the Chairman of the Board (if one has been elected) or
the Secretary. Unless otherwise specified therein, the resignation of a director
need not be accepted to make it effective and shall be effective immediately
upon its receipt by such officer or as otherwise specified therein. If the
resignation of a director specifies that it shall be effective at some time
later than receipt, until that time the resigning director shall be competent to
act on all matters before the Board of Directors, including filling the vacancy
caused by such resignation.
SECTION 2.10. REMOVAL OF DIRECTORS. The entire Board of Directors or
any individual director may be removed at any time for cause or without cause by
the holders of a majority of the shares then entitled to vote at an election of
directors. The vacancy or vacancies caused in the Board of Directors by such
removal may but need not be filled by such stockholders at the same meeting or
at a special meeting of the stockholders called for that purpose.
SECTION 2.11. VACANCIES. Any vacancy that shall occur in the Board
of Directors by reason of death, resignation, removal, increase in the number of
directors or any other cause whatever shall, unless filled as provided in
Section 2.10 of this Article II, be filled by a majority of the then members of
the Board, whether or not a quorum, and each person so elected shall be a
director until he or his successor is elected by the stockholders at a meeting
called for the purpose of electing directors, or until his prior death,
resignation or removal.
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SECTION 2.12. COMPENSATION OF DIRECTORS. The Corporation may allow
compensation to its directors for their services, as determined from time to
time by resolution adopted by the Board of Directors.
SECTION 2.13. COMMITTEES. The Board of Directors may, by resolution
adopted by a majority of the full Board, designate one or more committees
consisting of directors to have and exercise such authority of the Board in the
management of the business and affairs of the Corporation as the resolution of
the Board creating such committee may specify and as is otherwise permitted by
law. The Board of Directors may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of any member
of such committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another director to act at the meeting in the
place of such absent or disqualified member.
SECTION 2.14. PERSONAL LIABILITY OF DIRECTORS.
(a) To the fullest extent that the laws of the State of Delaware, as
the same exist or may hereafter be amended, permit elimination of the personal
liability of directors, no director of this Corporation shall be personally
liable to this Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director.
(b) The provisions of this Section 2.14 shall be deemed to be a
contract with each director of this Corporation who serves as such at any time
while this Section 2.14 is in effect, and each such director shall be deemed to
be serving as such in reliance on the provisions of this Section 2.14. Any
amendment or repeal of this Section 2.14 or adoption of any By-Law of this
Corporation or other provision of the Certificate of Incorporation of this
Corporation which has the effect of increasing director liability shall operate
prospectively only and shall not affect any action taken, or any failure to act,
by a director of this Corporation prior to such amendment, repeal, By-Law or
other provision becoming effective.
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SECTION 2.15. INDEMNIFICATION OF AND ADVANCEMENT OF EXPENSES TO,
DIRECTORS, OFFICERS AND OTHERS.
(a) RIGHT TO INDEMNIFICATION. Except as prohibited by law, every
director and officer of the Corporation shall be entitled as of right to be
indemnified by the Corporation against all expenses and liability (as those
terms are defined below in this Paragraph) incurred by such person in connection
with any actual or threatened claim, action, suit or proceeding, whether civil,
criminal, administrative, investigative or other, or whether brought by or
against such person or by or in the right of the Corporation or otherwise, in
which such person may be involved, as a party or otherwise, by reason of such
person being or having been a director or officer of the Corporation or a
subsidiary of the Corporation or by reason of the fact that such person is or
was serving at the request of the Corporation as a director, officer, employee,
fiduciary or other representative of another corporation, partnership, joint
venture, trust, employee benefit plan or other entity (such claim, action, suit
or proceeding hereinafter being referred to as an "Action"); provided, however,
that no such right to indemnification shall exist with respect to an Action
brought by an indemnitee (as defined below) against the Corporation (an
"Indemnitee Action") except as provided in the last sentence of this Paragraph.
Persons who are not directors or officers of the Corporation may be similarly
indemnified in respect of service to the Corporation or a subsidiary of the
Corporation or to another such entity at the request of the Corporation to the
extent the Board of Directors of the Corporation at any time designates any of
such persons as entitled to the benefits of this Section. As used in this
Section, "indemnitee" includes each director and officer of the Corporation and
each other person designated by the Board of Directors of the Corporation as
entitled to the benefits of this Section; "expenses" means all expenses actually
and reasonably incurred, including fees and expenses of counsel selected by an
indemnitee; and "liability" means all liability incurred, including the amounts
of any judgments, excise taxes, fines or penalties and any amounts paid in
settlement. An indemnitee shall be entitled to be indemnified pursuant to this
Section against expenses incurred in connection with an Indemnitee Action if (i)
the Indemnitee Action is instituted under Paragraph (c) of this Section and the
indemnitee is successful in whole or in part in such Indemnitee Action, (ii) the
indemnitee
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is successful in whole or in part in another Indemnitee Action for which
expenses are claimed or (iii) the indemnification for expenses is included in a
settlement of, or is awarded by a court in, such other Indemnitee Action.
(b) RIGHT TO ADVANCEMENT OF EXPENSES. Every indemnitee shall be
entitled as of right to have the expenses of the indemnitee in defending any
Action or in bringing and pursuing any Indemnitee Action under Paragraph (c) of
this Section paid in advance by the Corporation prior to final disposition of
the Action or Indemnitee Action, provided that the Corporation receives a
written undertaking by or on behalf of the indemnitee to repay the amount
advanced if it should ultimately be determined that the indemnitee is not
entitled to be indemnified for the expenses.
(c) RIGHT OF INDEMNITEE TO BRING ACTION. If a written claim for
indemnification under Paragraph (a) of this Section or for advancement of
expenses under Paragraph (b) of this Section is not paid in full by the
Corporation within 30 days after the claim has been received by the Corporation,
the indemnitee may at any time thereafter bring an Indemnitee Action to recover
the unpaid amount of the claim and, if successful in whole or in part, the
indemnitee shall also be entitled to be paid the expense of bringing and
pursuing such Indemnitee Action. The only defense to an Indemnitee Action to
recover on a claim for indemnification under Paragraph (a) of this Section shall
be that the conduct of the indemnitee was such that under Delaware law the
Corporation is prohibited from indemnifying the indemnitee for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel and stockholders) to have made a determination prior
to the commencement of such Indemnitee Action that indemnification of the
indemnitee is proper in the circumstances, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel or
stockholders) that the conduct of the indemnitee was such that indemnification
is prohibited by Delaware law, shall be a defense to such Indemnitee Action or
create a presumption that the conduct of the indemnitee was such that
indemnification is prohibited by Delaware law. The only defense to an Indemnitee
Action to recover on a claim for advancement of expenses under Paragraph (b) of
this
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Section shall be failure by the indemnitee to provide the undertaking required
by Paragraph (b) of this Section.
(d) FUNDING AND INSURANCE. The Corporation may create a trust fund,
grant a security interest, cause a letter of credit to be issued or use other
means (whether or not similar to the foregoing) to ensure the payment of all
sums required to be paid by the Corporation to effect indemnification as
provided in this Section. The Corporation may purchase and maintain insurance to
protect itself and any indemnitee against any expenses or liability incurred by
the indemnitee in connection with any Action, whether or not the Corporation
would have the power to indemnify the indemnitee against the expenses or
liability by law or under the provisions of this Section.
(e) NON-EXCLUSIVITY; NATURE AND EXTENT OF RIGHTS. The rights to
indemnification and advancement of expenses provided for in this Section shall
(i) not be deemed exclusive of any other rights, whether now existing or
hereafter created, to which any indemnitee may be entitled under any agreement,
provision in the Certificate of Incorporation or By-Laws of the Corporation,
vote of stockholders or disinterested directors or otherwise, (ii) be deemed to
create contractual rights in favor of each indemnitee who serves at any time
while this Section is in effect (and each such indemnitee shall be deemed to be
serving in reliance on the provisions of this Section), (iii) continue as to
each indemnitee who has ceased to have the status pursuant to which the
indemnitee was entitled or was designated as entitled to indemnification under
this Section and inure to the benefit of the heirs and legal representatives of
each indemnitee and (iv) be applicable to Actions commenced after this Section
becomes effective, whether arising from acts or omissions occurring before or
after this Section becomes effective. Any amendment or repeal of this Section or
adoption of any other By-Law of this Corporation or other provision of the
Certificate of Incorporation of this Corporation which has the effect of
limiting in any way the rights to indemnification or advancement of expenses
provided for in this Section shall operate prospectively only and shall not
affect any action taken, or any failure to act, by an indemnitee prior to such
amendment, repeal, By-Law or other provision becoming effective.
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(f) PARTIAL INDEMNITY. If an indemnitee is entitled under any
provision of this Section to indemnification by the Corporation for some or a
portion of the expenses or liability incurred by the indemnitee in the
preparation, investigation, defense, appeal or settlement of any Action or
Indemnitee Action but not, however, for the total amount thereof, the
Corporation shall indemnify the indemnitee for the portion of such expenses or
liability to which the indemnitee is entitled.
ARTICLE III
OFFICERS AND EMPLOYEES
SECTION 3.01. EXECUTIVE OFFICERS. The Executive Officers of the
Corporation shall be the President, a Secretary and a Treasurer, and may include
a Chairman of the Board, one or more Vice Presidents, and one or more Assistant
Treasurers, as the Board of Directors may from time to time determine, all of
whom shall be elected by the Board of Directors. Any two or more offices may be
held by the same person. Each Executive Officer shall hold office until the next
succeeding annual meeting of the Board of Directors and thereafter until his
successor is duly elected and qualifies, or until his earlier death, resignation
or removal.
SECTION 3.02. ADDITIONAL OFFICERS; OTHER AGENTS AND EMPLOYEES. The
Board of Directors may from time to time appoint or hire such additional
officers, assistant officers, agents, employees and independent contractors as
the Board deems advisable; and the Board or the President shall prescribe their
duties, conditions of employment and compensation. Subject to the power of the
Board of Directors, the President may employ from time to time such other
agents, employees, and independent contractors as he may deem advisable for the
prompt and orderly transaction of the business of the Corporation, and he may
prescribe their duties and the conditions of their employment, fix their
compensation and dismiss them, without prejudice to their contract rights, if
any.
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SECTION 3.03. THE CHAIRMAN. If there shall be a Chairman of the
Board, he shall be elected from among the directors, shall preside at all
meetings of the stockholders and of the Board, and shall have such other powers
and duties as from time to time may be prescribed by the Board.
SECTION 3.04. THE PRESIDENT. The President shall be the chief
executive officer of the Corporation. Subject to the control of the Board of
Directors, the President shall have general policy supervision of and general
management and executive powers over all the property, business, operations and
affairs of the Corporation, and shall see that the policies and programs adopted
or approved by the Board are carried out. The President shall exercise such
further powers and duties as from time to time may be prescribed in these
By-Laws or by the Board of Directors.
SECTION 3.05. THE VICE PRESIDENTS. The Vice Presidents may be given
by resolution of the Board of Directors general executive powers, subject to the
control of the President, concerning one or more or all segments of the
operations of the Corporation. The Vice Presidents shall exercise such further
powers and duties as from time to time may be prescribed in these By-Laws or by
the Board of Directors or by the President. At the request of the President or
in his absence or disability, the senior Vice President shall exercise all the
powers and duties of the President.
SECTION 3.06. THE SECRETARY AND ASSISTANT SECRETARIES. It shall be
the duty of the Secretary (a) to keep or cause to be kept an original or
duplicate record of the proceedings of the stockholders and the Board of
Directors, and a copy of the Certificate of Incorporation and of the By-Laws;
(b) to attend to the giving of notices of the Corporation as may be required by
law or these By-Laws; (c) to be custodian of the corporate records and of the
seal of the Corporation and see that the seal is affixed to such documents as
may be necessary or advisable; (d) to have charge of the stock books of the
Corporation, and a share register, giving the names of the stockholders in
alphabetical order, and showing their respective addresses, the number and
classes of shares held by each, the number and date of certificates issued for
the shares, and the date of
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cancellation of every certificate surrendered for cancellation; and (e) to
exercise all powers and duties incident to the office of Secretary, and such
other powers and duties as may be prescribed by the Board of Directors or by the
President from time to time. The Secretary by virtue of his office shall be an
Assistant Treasurer. The Assistant Secretaries shall assist the Secretary in the
performance of his duties and shall also exercise such further powers and duties
as from time to time may be assigned to them by the Board of Directors, the
President or the Secretary. At the direction of the Secretary or in his absence
or disability, an Assistant Secretary shall perform the duties of the Secretary.
SECTION 3.07. THE TREASURER AND ASSISTANT TREASURERS. The Treasurer
shall have custody of all the funds and securities of the Corporation. He shall
collect all moneys due the Corporation and deposit such moneys to the credit of
the Corporation in such banks, trust companies, or other depositories as may
have been duly designated by the Board of Directors. He shall endorse for
collection on behalf of the Corporation, checks, notes, drafts and other
documents, and may sign and deliver receipts, vouchers and releases of liens
evidencing payments made to the Corporation. He shall cause to be disbursed the
funds of the Corporation by payment in cash or by checks or drafts upon the
authorized depositories of the Corporation. He shall have charge of the books
and accounts of the Corporation. He shall perform all acts incident to the
office of Treasurer and such other duties as may be assigned to him by the Board
of Directors. The Treasurer by virtue of his office shall be an Assistant
Secretary. The Assistant Treasurers shall assist the Treasurer in the
performance of his duties and shall also exercise such further powers and duties
as from time to time may be assigned to them by the Board of Directors, the
President or the Treasurer. At the direction of the Treasurer or in his absence
or disability, an Assistant Treasurer shall perform the duties of the Treasurer.
SECTION 3.08. VACANCIES. Vacancy in any office or position by reason
of death, resignation, removal, disqualification, disability or other cause,
shall be filled in the manner provided in this Article III for regular election
or appointment to such office.
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SECTION 3.09. DELEGATION OF DUTIES. The Board of Directors may in
its discretion delegate for the time being the powers and duties, or any of
them, of any officer to any other person whom it may select.
ARTICLE IV
SHARES OF CAPITAL STOCK
SECTION 4.01. SHARE CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to a certificate or certificates, to be in such
form as the Board of Directors may from time to time prescribe, signed by the
Chairman of the Board, the President or any Vice President and by the Treasurer
or any Assistant Treasurer or the Secretary or any Assistant Secretary. The
signatures of such officers may be facsimiles. Each such certificate shall set
forth the name of the registered holder thereof, the number and class of shares
and the designation of the series, if any, which the certificate represents. The
Board of Directors may, if it so determines, direct that certificates for shares
of stock of the Corporation be signed by a transfer agent or registered by a
registrar or both, in which case such certificates shall not be valid until so
signed or registered.
In case any officer of the Corporation who shall have signed, or
whose facsimile signature shall have been used on, any certificate for shares of
stock of the Corporation shall cease to be such officer, whether because of
death, resignation, removal or otherwise, before such certificate shall have
been delivered by the Corporation, such certificate shall nevertheless be deemed
to have been adopted by the Corporation and may be issued and delivered as
though the person who signed such certificate or whose facsimile signature shall
have been used thereon had not ceased to be such officer.
SECTION 4.02. TRANSFER OF SHARES. Transfers of shares of stock of
the Corporation shall be made only on the books of the Corporation by the
registered holder thereof or by his attorney thereunto authorized by an
instrument duly executed and filed with the Corporation, and on surrender of the
certificate or certificates for such shares properly endorsed or accompanied by
properly executed stock powers and evidence of the payment of all taxes imposed
upon such transfer. Except as provided in Section 4.04 of this Article IV, every
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certificate surrendered for transfer shall be cancelled and no new certificate
or certificates shall be issued in exchange for any existing certificate until
such existing certificate shall have been so cancelled.
SECTION 4.03. TRANSFER AGENTS AND REGISTRARS. The Board of Directors
may appoint any one or more qualified banks, trust companies or other
corporations organized under any law of any state of the United States or under
the laws of the United States as agent or agents for the Corporation in the
transfer of the stock of the Corporation and likewise may appoint any one or
more such qualified banks, trust companies or other corporations as registrar or
registrars of the stock of the Corporation.
SECTION 4.04. LOST, STOLEN, DESTROYED OR MUTILATED CERTIFICATES. New
certificates for shares of stock may be issued to replace certificates lost,
stolen, destroyed or mutilated upon such terms and conditions, which may but
need not include the giving of a satisfactory bond or other indemnity, as the
Board of Directors may from time to time determine.
SECTION 4.05. REGULATIONS RELATING TO SHARES. The Board of Directors
shall have power and authority to make such rules and regulations not
inconsistent with these By-Laws or with law as it may deem expedient concerning
the issue, transfer and registration of certificates representing shares of
stock of the Corporation.
SECTION 4.06. HOLDERS OF RECORD. The Corporation shall be entitled
to treat the holder of record of any share or shares of stock as the holder and
owner in fact thereof and shall not be bound to recognize any equitable or other
claim to or interest in such shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise expressly
provided by the laws of the State of Delaware.
SECTION 4.07. FIXING OF RECORD DATE. The Board of Directors may fix
a record date which does not precede the date on which the resolution fixing
such record date is adopted, (a) in order to determine the stockholders entitled
to notice of or to vote at any meeting of stockholders provided such record date
is not less than ten or more than sixty days prior to the
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date of any such meeting; (b) in order to determine the stockholders entitled to
consent to corporate action in writing without a meeting provided such record
date is not more than ten days after the date on which the resolution fixing
such record date is adopted; and (c) in order to determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, provided such record date is not more than sixty days prior to
such action.
In such case, only such stockholders as shall be stockholders of
record on the date so fixed shall be entitled to notice of, or to vote at, such
meeting or to receive payment of such dividend, or to receive such allotment of
rights, or to exercise such rights, as the case may be, notwithstanding any
transfer of any shares on the books of the Corporation after any record date
fixed as aforesaid.
ARTICLE V
SIGNING AUTHORITY AND CORPORATE TRANSACTIONS
SECTION 5.01. SIGNING AUTHORITY. The Chief Executive Officer, the
Chairman, the President, any senior officer or any Vice President of the
Corporation shall have full power and authority, in the name and on behalf of
the Corporation, under seal of the Corporation or otherwise, to execute,
acknowledge and deliver any and all agreements, instruments or other documents
relating to property or rights of all kinds held or owned by the Corporation or
to the operation of the Corporation, all as may be incidental to the operation
of the Corporation and subject to such limitations as the Board of Directors or
the Chief Executive Officer may impose. Any such agreement, instrument or
document may also be executed, acknowledged and delivered in the name and on
behalf of the Corporation, under seal of the Corporation or otherwise, by such
other officers, employees or agents of the Corporation as the Board of
Directors, the Chief Executive Officer or the delegate of either of them may
from time to time authorize. In each such case, the authority so conferred shall
be subject to such limitations as the Board of Directors, the
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Chief Executive Officer or the delegate may impose. Any officer, employee or
agent authorized hereunder to execute, acknowledge and deliver any such
agreement, instrument or document is also authorized to cause the Secretary, any
Assistant Secretary or any other authorized person to affix the seal of the
Corporation thereto and to attest it.
SECTION 5.02. VOTING AND ACTING WITH RESPECT TO STOCK AND OTHER
SECURITIES OWNED BY THE CORPORATION. The Chief Executive Officer, the Chairman,
the President, any senior officer or any Vice President shall have the power and
authority to vote and act with respect to all stock and other securities in any
other corporation owned by this Corporation, subject to such limitations as the
Board of Directors or the Chief Executive Officer may impose. Such power and
authority may be conferred upon any other officer, employee or agent by the
Board, the Chief Executive Officer or the authorized delegate of either of them,
and such authority may be general or may be limited to specific instances. Any
person so authorized shall have the power to appoint an attorney or attorneys
with general power of substitution, as proxies for the Corporation with full
power to vote and act on behalf of the Corporation with respect to such stock
and other securities.
ARTICLE VI
GENERAL PROVISIONS
SECTION 6.01. OFFICES. The registered office of the Corporation
shall be at the location specified in the Certificate of Incorporation. The
Corporation may have other offices, within or without the State of Delaware, at
such place or places as the Board of Directors may from time to time determine
or the business of the Corporation may require.
SECTION 6.02. CORPORATE SEAL. The Board of Directors shall prescribe
the form of a suitable corporate seal, which shall contain the full name of the
Corporation and the year and state of incorporation. Such seal may be used by
causing it or a facsimile or reproduction thereof to be affixed to or placed
upon the document to be sealed.
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SECTION 6.03. FISCAL YEAR. Unless otherwise determined by the Board
of Directors, the fiscal year of the Corporation shall be the calendar year.
ARTICLE VII
VALIDATION OF CERTAIN CONTRACTS
SECTION 7.01. No contract or other transaction between the
Corporation and another person shall be invalidated or otherwise adversely
affected by the fact that any one or more stockholders, directors or officers of
the Corporation (i) is pecuniarily or otherwise interested in, or is a
stockholder, director, officer, or member of, such other person, or (ii) is a
party to, or is in any other way pecuniarily or otherwise interested in, the
contract or other transaction, or (iii) is in any way connected with any person
pecuniarily or otherwise interested in such contract or other transaction,
provided the fact of such interest shall be disclosed or known to the Board of
Directors or the stockholders, as the case may be, and in any action of the
stockholders or of the Board authorizing or approving any such contract or other
transaction, any and every stockholder or director may be counted in determining
the existence of a quorum with like force and effect as though he were not so
interested, or were not such a stockholder, director, member or officer, or were
not such a party, or were not so connected. Such director, stockholder or
officer shall not be liable to account to the Corporation for any profit
realized by him from or through any such contract or transaction approved or
authorized as aforesaid. As used herein, the term "person" includes a
corporation, partnership, firm, association or other legal entity.
ARTICLE VIII
AMENDMENTS
SECTION 8.01. These By-Laws may be amended, altered and repealed,
and new by-laws may be adopted, by the stockholders or the Board of Directors of
the Corporation at any
-18-
<PAGE> 22
regular or special meeting. No provision of these By-Laws shall vest any
property or contract right in any stockholder.
-19-
<PAGE> 1
Exhibit 4.1
==============================================================================
MELLON RESIDENTIAL FUNDING CORPORATION,
Depositor
MELLON MORTGAGE COMPANY,
Seller and Master Servicer
and
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
Trustee
-----------------------------------
POOLING AND SERVICING AGREEMENT
Dated as of _____, 199_
----------------------------------
MORTGAGE PASS-THROUGH CERTIFICATES, Series 199_-_
==============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I .................................................................................1
Accretion Directed Certificates....................................................1
Accrual Amount ....................................................................1
Accrual Certificates...............................................................1
Accrual Termination Date...........................................................1
Adjusted Mortgage Rate.............................................................1
Adjusted Net Mortgage Rate.........................................................1
Advance ...........................................................................1
Agreement .........................................................................1
Allocable Share....................................................................1
Amount Available for Senior Principal..............................................2
Amount Held for Future Distribution................................................2
Applicable Credit Support Percentage...............................................2
Appraised Value....................................................................2
Available Funds....................................................................2
Bankruptcy Code....................................................................2
Bankruptcy Coverage Termination Date...............................................2
Bankruptcy Loss....................................................................2
Bankruptcy Loss Coverage Amount....................................................3
Blanket Mortgage...................................................................3
Book-Entry Certificates............................................................3
Business Day ......................................................................3
Certificate .......................................................................3
Certificate Account................................................................3
Certificate Balance................................................................3
Certificate Owner..................................................................3
Certificate Register...............................................................4
Certificateholder or Holder........................................................4
Class .............................................................................4
Class A-6 Percentage...............................................................4
Class A-6 Prepayment Percentage....................................................4
Class A-6 Principal Distribution Amount............................................5
Class A-6 Step Down Conditions.....................................................5
Class Certificate Balance..........................................................5
Class Interest Shortfall...........................................................5
Class Optimal Interest Distribution Amount.........................................5
Class PO Deferred Amount...........................................................6
Class Subordination Percentage.....................................................6
Class Unpaid Interest Amounts......................................................6
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Closing Date ......................................................................6
Code ..............................................................................6
COFI ..............................................................................6
COFI Certificates..................................................................6
Combined Prepayment Percentage.....................................................6
Component .........................................................................6
Component Balance..................................................................6
Component Certificates.............................................................6
Cooperative Corporation............................................................6
Coop Shares .......................................................................6
Cooperative Loan...................................................................7
Cooperative Property...............................................................7
Cooperative Unit...................................................................7
Corporate Trust Office.............................................................7
Corresponding Classes of Certificates..............................................7
Cut-off Date ......................................................................7
Cut-off Date Pool Principal Balance................................................7
Cut-off Date Principal Balance.....................................................7
Debt Service Reduction.............................................................7
Defective Mortgage Loan............................................................7
Deficient Valuation................................................................7
Definitive Certificates............................................................7
Delay Certificates.................................................................8
Deleted Mortgage Loan..............................................................8
Denomination ......................................................................8
Depositor .........................................................................8
Depository ........................................................................8
Depository Participant.............................................................8
Determination Date.................................................................8
Discount Mortgage Loan.............................................................8
Distribution Account...............................................................8
Distribution Account Deposit Date..................................................8
Distribution Date..................................................................8
Due Date ..........................................................................9
Duff & Phelps .....................................................................9
Eligible Account...................................................................9
ERISA .............................................................................9
ERISA-Restricted Certificate.......................................................9
Escrow Account ....................................................................9
Event of Default...................................................................9
Excess Loss .......................................................................9
Excess Proceeds....................................................................9
Expense Rate ......................................................................10
FDIC ..............................................................................10
FHLMC .............................................................................10
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
FIRREA ...........................................................................10
Fitch ............................................................................10
FNMA .............................................................................10
Fraud Loan .......................................................................10
Fraud Losses .....................................................................10
Fraud Loss Coverage Amount........................................................10
Fraud Loss Coverage Termination Date..............................................11
Index ............................................................................11
Indirect Participant..............................................................11
Initial Bankruptcy Coverage Amount................................................11
Initial Component Balance.........................................................11
Initial LIBOR Rate................................................................11
Insurance Policy..................................................................11
Insurance Proceeds................................................................11
Insured Expenses..................................................................11
Interest Accrual Period...........................................................11
Interest Determination Date.......................................................11
Interest Rate ....................................................................11
Latest Possible Maturity Date.....................................................11
LIBOR ............................................................................12
LIBOR Certificates................................................................12
Liquidated Mortgage Loan..........................................................12
Liquidation Proceeds..............................................................12
Loan-to-Value Ratio...............................................................12
Maintenance ......................................................................12
Majority in Interest..............................................................12
Master REMIC .............................................................................12
Master Servicer...................................................................12
Master Servicer Advance Date......................................................12
Master Servicing Fee..............................................................12
Master Servicing Fee Rate.........................................................13
Monthly Statement.................................................................13
Moody's ..........................................................................13
Mortgage .........................................................................13
Mortgage File ....................................................................13
Mortgage Loans ...................................................................13
Mortgage Loan Schedule............................................................13
Mortgage Note ....................................................................14
Mortgage Rate ....................................................................14
Mortgaged Property................................................................14
Mortgagor ........................................................................14
MR Interest ..............................................................................14
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C>
National Cost of Funds Index......................................................14
Net Prepayment Interest Shortfalls................................................14
Non-Delay Certificates............................................................14
Non-Discount Mortgage Loan........................................................15
Non-PO Formula Principal Amount...................................................15
Non-PO Percentage.................................................................15
Nonrecoverable Advance............................................................15
Notice of Final Distribution......................................................15
Notional Amount...................................................................15
Notional Amount Certificates......................................................15
Offered Certificates..............................................................15
Officer's Certificate.............................................................15
Opinion of Counsel................................................................16
Optional Termination..............................................................16
Original Applicable Credit Support Percentage.....................................16
Original Mortgage Loan............................................................16
Original Subordinated Principal Balance...........................................16
OTS ..............................................................................16
Outside Reference Date............................................................16
Outstanding ......................................................................16
Outstanding Mortgage Loan.........................................................17
Ownership Interest................................................................17
Pass-Through Rate.................................................................17
Percentage Interest...............................................................17
Permitted Investments.............................................................17
Permitted Transferee..............................................................18
Person ...........................................................................19
Physical Certificate..............................................................19
Planned Balance...................................................................19
Planned Principal Classes.........................................................19
PO Formula Principal Amount.......................................................19
PO Percentage 19
Pool Stated Principal Balance.....................................................20
Prepayment Interest Excess................................................................20
Prepayment Interest Shortfall.....................................................20
Prepayment Period.................................................................20
Primary Insurance Policy..........................................................20
Primary Planned Principal Classes.................................................20
Principal Prepayment..............................................................20
Principal Prepayment in Full......................................................20
Private Certificate...............................................................20
Pro Rata Share ...................................................................20
Proprietary Lease.................................................................21
</TABLE>
iv
<PAGE> 6
<TABLE>
<CAPTION>
<S> <C>
Prospectus Supplement.............................................................21
PUD ..............................................................................21
Purchase Price ...................................................................21
Qualified Insurer.................................................................21
Rating Agency ....................................................................21
Realized Loss ....................................................................21
Recognition Agreement.............................................................22
Record Date ......................................................................22
Reference Bank ...................................................................22
Refinancing Mortgage Loan.........................................................22
Regular Certificates..............................................................22
Relief Act .......................................................................22
Relief Act Reductions.............................................................22
REMIC ............................................................................22
REMIC Change of Law...............................................................22
REMIC Provisions..................................................................22
REO Property .....................................................................23
Request for Release...............................................................23
Required Coupon...................................................................23
Required Insurance Policy.........................................................23
Residual Certificates.............................................................23
Responsible Officer...............................................................23
Restricted Classes................................................................23
Scheduled Balances................................................................23
Scheduled Classes.................................................................23
Scheduled Payment.................................................................23
Scheduled Principal Distribution Amount...........................................23
Secondary Planned Principal Clauses...............................................23
Securities Act ...................................................................23
Seller ...........................................................................23
Senior Certificates...............................................................24
Senior Credit Support Depletion Date..............................................24
Senior Percentage.................................................................24
Senior Prepayment Percentage......................................................24
Senior Principal Distribution Amount..............................................24
Senior Step Down Conditions.......................................................25
Servicing Advances................................................................25
Servicing Officer.................................................................25
Special Hazard Coverage Termination Date..........................................25
Special Hazard Loss...............................................................25
Special Hazard Loss Coverage Amount...............................................26
Special Hazard Mortgage Loan......................................................26
SR Interest ......................................................................26
S&P ..............................................................................26
Startup Day ......................................................................26
</TABLE>
v
<PAGE> 7
<TABLE>
<CAPTION>
<S> <C>
Stated Principal Balance..........................................................27
Subordinated Certificates.........................................................27
Subordinated Percentage...........................................................27
Subordinated Prepayment Percentage................................................27
Subordinated Principal Distribution Amount........................................27
Subservicer...................................................................... 27
Subsidiary REMIC..........................................................................27
Subsidiary REMIC Interest.................................................................27
Subsidiary REMIC Regular Interest.........................................................27
Substitute Mortgage Loan..........................................................28
Substitution Adjustment Amount....................................................28
Support Classes...................................................................28
Targeted Balance..................................................................28
Targeted Principal Classes........................................................28
Tax Matters Person................................................................28
Tax Matters Person Certificate....................................................28
Transfer..........................................................................28
Trigger Date......................................................................28
Trustee...........................................................................28
Trustee Fee.......................................................................28
Trustee Fee+- Rate................................................................28
Trust Fund........................................................................29
Voting Rights.....................................................................29
ARTICLE II ...............................................................................1
SECTION 2.01. Conveyance of Mortgage Loans.......................................1
SECTION 2.02. Acceptance by Trustee of the Mortgage Loans.........................3
SECTION 2.03. Representations, Warranties and Covenants of the Seller and Master
Servicer..........................................................5
SECTION 2.04. Representations and Warranties of the Depositor as to the Mortgage
Loans.............................................................7
SECTION 2.05. Delivery of Opinion of Counsel in Connection with Substitutions.....7
SECTION 2.06. Execution and Delivery of Certificates.............................8
SECTION 2.07. REMIC Matters......................................................8
ARTICLE III ..............................................................................1
SECTION 3.01. Master Servicer to Service Mortgage Loans...........................1
SECTION 3.02. Subservicing; Enforcement of the Obligations of Servicers...........2
</TABLE>
vi
<PAGE> 8
<TABLE>
<CAPTION>
<S> <C>
SECTION 3.03. Rights of the Depositor and the Trustee in Respect of the Master
Servicer...........................................................2
SECTION 3.04. Trustee to Act as Master Servicer...................................3
SECTION 3.05. Collection of Mortgage Loan Payments; Certificate Account;
Class A-4 Reserve Fund, Class A-11 Reserve Fund, Class A-12
Reserve Fund and Class A-13 Reserve Fund; Distribution Account....3
SECTION 3.06. Collection of Taxes, Assessments and Similar Items; Escrow Accounts.6
SECTION 3.07. Access to Certain Documentation and Information Regarding the
Mortgage Loans....................................................6
SECTION 3.08. Permitted Withdrawals from the Certificate Account and Distribution
Account...........................................................7
SECTION 3.09. Maintenance of Hazard Insurance; Maintenance of Primary Insurance
Policies..........................................................8
SECTION 3.10. Enforcement of Due-on-Sale Clauses; Assumption Agreements...........10
SECTION 3.11. Realization Upon Defaulted Mortgage Loans; Repurchase of Certain
Mortgage Loans....................................................11
SECTION 3.12. Trustee to Cooperate; Release of Mortgage Files.....................13
SECTION 3.13. Documents Records and Funds in Possession of Master Servicer to be
Held for the Trustee..............................................14
SECTION 3.14. Servicing Compensation..............................................14
SECTION 3.15. Access to Certain Documentation.....................................15
SECTION 3.16. Annual Statement as to Compliance...................................15
SECTION 3.17. Annual Independent Public Accountants' Servicing Statement;
Financial Statements..............................................15
SECTION 3.18. Errors and Omissions Insurance; Fidelity Bonds......................16
ARTICLE IV ...............................................................................1
SECTION 4.01. Advances............................................................1
SECTION 4.02. Priorities of Distribution..........................................1
04 Allocation of Realized Losses..................................................5
SECTION 4.05 Monthly Statements to Certificateholders.............................7
SECTION 4.06 Determination of Pass-Through Rates for COFI Certificates............8
SECTION 4.08 Determination of Pass-Through Rates for LIBOR Certificates...........10
ARTICLE V ................................................................................1
SECTION 5.01. The Certificates............................................................1
SECTION 5.02. Certificate Register; Registration of Transfer and Exchange of
Certificates..............................................................1
SECTION 5.03. Mutilated, Destroyed, Lost or Stolen Certificates...........................6
</TABLE>
vii
<PAGE> 9
<TABLE>
<CAPTION>
<S> <C>
SECTION 5.04. Persons Deemed Owners.......................................................6
SECTION 5.05. Access to List of Certificateholders' Names and Addresses...................6
SECTION 5.06. Maintenance of Office or Agency.............................................7
ARTICLE VI ...............................................................................1
SECTION 6.01. Respective Liabilities of the Depositor and the Master Servicer.............1
SECTION 6.02. Merger or Consolidation of the Depositor or the Master Servicer.............1
SECTION 6.03. Limitation on Liability of the Depositor, the Seller, the Master
Servicer and Others.......................................................1
SECTION 6.04. Limitation on Resignation of Master Servicer................................2
ARTICLE VII ..............................................................................1
SECTION 7.01. Events of Default...........................................................1
SECTION 7.02. Trustee to Act; Appointment of Successor....................................2
SECTION 7.03. Notification to Certificateholders..........................................3
ARTICLE VIII .............................................................................1
SECTION 8.01. Duties of Trustee...........................................................1
SECTION 8.02. Certain Matters Affecting the Trustee.......................................2
SECTION 8.03. Trustee Not Liable for Certificates or Mortgage Loans.......................3
</TABLE>
viii
<PAGE> 10
<TABLE>
<CAPTION>
<S> <C>
SECTION 8.04. Trustee May Own Certificates................................................3
SECTION 8.05. Trustee's Fees and Expenses.................................................3
SECTION 8.06. Eligibility Requirements for Trustee........................................4
SECTION 8.07. Resignation and Removal of Trustee..........................................4
SECTION 8.08. Successor Trustee...........................................................5
SECTION 8.09. Merger or Consolidation of Trustee..........................................5
SECTION 8.10. Appointment of Co-Trustee or Separate Trustee...............................6
SECTION 8.11. Tax Matters.................................................................7
SECTION 8.12. Periodic Filings............................................................9
ARTICLE IX ...............................................................................1
SECTION 9.01. Termination upon Liquidation or Purchase of all Mortgage Loans..............1
SECTION 9.02. Final Distribution on the Certificates......................................1
SECTION 9.03. Additional Termination Requirements.........................................2
ARTICLE X ................................................................................1
SECTION 10.01. Amendment..................................................................1
SECTION 10.02. Recordation of Agreement; Counterparts.....................................2
SECTION 10.03. Governing Law..............................................................2
</TABLE>
ix
<PAGE> 11
<TABLE>
<CAPTION>
<S> <C>
SECTION 10.04. Intention of Parties.......................................................3
SECTION 10.05. Notices....................................................................3
SECTION 10.06. Severability of Provisions.................................................4
SECTION 10.07. Assignment.................................................................4
SECTION 10.08. Limitation on Rights of Certificateholders.................................4
SECTION 10.09. Inspection and Audit Rights................................................5
SECTION 10.10. Certificates Nonassessable and Fully Paid..................................5
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Exhibit A: Form of Senior Certificate
(excluding Notional Amount Certificates)................................A-1
Exhibit B: Form of Subordinated Certificate........................................B-1
Exhibit C: Form of Class A-R Certificate...........................................C-1
Exhibit D: Form of Notional Amount Certificate.....................................D-1
Exhibit E: Form of Reverse of Certificates.........................................E-1
Exhibit F: [Reserved]..............................................................F-1
Exhibit G: Form of Initial Certificates............................................G-1
Exhibit H: Form of Final Certification of Trustee..................................H-1
Exhibit I: Transfer Affidavit......................................................I-1
Exhibit J: Form of Transferor Certificate..........................................J-1
Exhibit K: Form of Investment Letter [Non-Rule 144A]...............................K-1
Exhibit L: Form of Rule 144A Letter................................................L-1
Exhibit M: Request for Release (for Trustee).......................................M-1
Exhibit N: Request for Release (Mortgage Loan)
Paid in Full, Repurchased and Replaced).................................N-1
Exhibit O: Form of Financial Guaranty Insurance Policy.............................O-1
SCHEDULES
Schedule I: Mortgage Loan Schedule................................................S-I-1
Schedule II: Representations and Warranties of the
Seller/Master Servicer.............................................S-II-1
Schedule III: Representations and Warranties as to
the Mortgage Loans................................................S-III-1
</TABLE>
x
<PAGE> 12
<TABLE>
<CAPTION>
<S> <C>
Schedule IV: Planned Balance Schedules............................................S-IV-1
</TABLE>
xi
<PAGE> 13
THIS POOLING AND SERVICING AGREEMENT, dated as of _______1, 199_, among
MELLON RESIDENTIAL FUNDING CORPORATION, a Delaware corporation, as depositor
(the "Depositor"), MELLON MORTGAGE COMPANY, a Colorado corporation, as seller
(in such capacity, the "Seller") and as master servicer (in such capacity, the
"Master Servicer"), and BANKERS TRUST COMPANY OF CALIFORNIA, N.A., a national
banking association organized under the laws of the United States, 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 two REMICs. The Subsidiary REMIC will consist of
all of the assets constituting the Trust Fund and will be evidenced by the
Subsidiary REMIC Regular Interests (which will be uncertificated and will
represent the "regular interests" in the Subsidiary REMIC) and the SR Interest
as the single "residual interest" in the Subsidiary REMIC. The Trustee will hold
the Subsidiary REMIC Regular Interests. The Master REMIC will consist of the
Subsidiary REMIC Regular Interests and will be evidenced by the Regular
Certificates (which will represent the "regular interests" in the Master REMIC)
and the MR Interest as the single "residual interest" in the Master REMIC. The
Class A-R Certificates will represent beneficial ownership of the SR Interest
and the MR Interest. 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
Residual Certificate representing the Tax Matters Person Certificate may be
issued in a different amount):
<PAGE> 14
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Integral
Initial Class Multiples
Certificate Pass-Through Minimum in Excess of
Balance Rate Denomination Minimum
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A-1 $ % $25,000 $1,000
- --------------------------------------------------------------------------------------------------------------------
Class A-2 $ % $25,000 $1,000
- --------------------------------------------------------------------------------------------------------------------
Class A-3 $ % $25,000 $1,000
- --------------------------------------------------------------------------------------------------------------------
Class A-4 $ % $25,000 $1,000
- --------------------------------------------------------------------------------------------------------------------
Class A-5 $ % $25,000 $1,000
- --------------------------------------------------------------------------------------------------------------------
Class A-6 $ % $25,000 $1,000
- --------------------------------------------------------------------------------------------------------------------
Class A-7 $ % $25,000 $1,000
- --------------------------------------------------------------------------------------------------------------------
Class A-8 $ % $25,000 $1,000
- --------------------------------------------------------------------------------------------------------------------
Class A-9 $ % $25,000 $1,000
- --------------------------------------------------------------------------------------------------------------------
Class A-10 $ % $25,000 $1,000
- --------------------------------------------------------------------------------------------------------------------
Class A-11 $ % $25,000 $1,000
- --------------------------------------------------------------------------------------------------------------------
Class A-12 $ % $25,000 $1,000
- --------------------------------------------------------------------------------------------------------------------
Class A-13 $ % $25,000 $1,000
- --------------------------------------------------------------------------------------------------------------------
Class PO $ (2) $25,000 $1,000
- --------------------------------------------------------------------------------------------------------------------
Class X (1) (4) $25,000(3) $1,000(3)
- --------------------------------------------------------------------------------------------------------------------
Class A-R(5) $100.00 % $100 N/A
- --------------------------------------------------------------------------------------------------------------------
Class B-1 $ % $25,000 $1,000
- --------------------------------------------------------------------------------------------------------------------
Class B-2 $ % $25,000 $1,000
- --------------------------------------------------------------------------------------------------------------------
Class B-3 $ % $25,000 $1,000
- --------------------------------------------------------------------------------------------------------------------
Class B-4 $ % $100,000 $1,000
- --------------------------------------------------------------------------------------------------------------------
Class B-5 $ % $100,000 $1,000
- --------------------------------------------------------------------------------------------------------------------
Class B-6 $ % $100,000 $1,000
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------------
(1) The Class X Certificates will be Notional Amount Certificates, will
have no principal balance and will bear interest on their Notional
Amount (initially, $_____________).
(2) The Class PO Certificates will be Principal Only Certificates and will
not bear interest.
2
<PAGE> 15
(3) Minimum Denomination is based on the Notional Amount of such Class.
(4) The Pass-Through Rate for the Class X Certificates for any Distribution
Date will be equal to the excess of (a) the average of the Adjusted Net
Mortgage Rates of the Non-Discount Mortgage Loans, weighted on the
basis of their respective Stated Principal Balances over (b) ___% per
annum. The Pass-Through Rate of the Class X Certificates for the first
Distribution Date is ____%.
(5) The Class A-R Certificates will represent the beneficial ownership of
the SR Interest (described in the table below) and the MR Interest. The
initial principal balance and interest rate applicable to the MR
Interest shall be equal to the initial Class Certificate Balance and
Pass-Through Rate, respectively, of the Class A-R Certificates.
3
<PAGE> 16
Principal of and interest on the Subsidiary REMIC Regular Interests and
the SR Interest shall be allocated to the Corresponding Classes of Certificates
in the manner set forth in the following table:
Corresponding Class of Certificates or Components(1)
<TABLE>
<CAPTION>
Subsidiary REMIC Initial Principal Allocation Allocation
Interest Balance Interest Rate of Principal of Interest
-------- ------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
1 $ % A-1 A-1
2 $ % A-2 A-2
3 $ % A-4 A-4
4 $ % A-5 A-5
5 $ % A-6 A-6
6 $ % A-7 A-7
7 $ % A-8 A-8
8 $ % A-9 A-9
9 $ % A-10 A-10
10 $ % A-11 A-11
11 $ % A-12 A-12
12 $ % A-13 A-13
13 $ % B-1 B-1
14 $ % B-2 B-2
15 $ % B-3 B-3
16 $ % B-4 B-4
17 $ % B-5 B-5
18 $ % B-6 B-6
19 $ (2) PO --
20 (3) (4) -- X
21 $100.00 7.50% MR(6) MR(5)
SR (6) (6) A-R A-R
</TABLE>
- ----------------------
(1) The amount of principal and, except in the case of Subsidiary REMIC
Interest 19, interest allocable from a Subsidiary REMIC Regular
Interest to its Corresponding Class of Certificates on any Distribution
Date shall be 100%.
4
<PAGE> 17
(2) Subsidiary REMIC Regular Interest 19 will be a principal only
Subsidiary REMIC Regular Interest and will not bear interest.
(3) The Notional Amount of Subsidiary REMIC Interest 20 with respect to any
Distribution Date will be equal to the Notional Amount of the Class X
Certificates with respect to such Distribution Date.
(4) The Interest Rate for Subsidiary REMIC Interest 20 for any Distribution
Date will be equal to the Pass-Through Rate applicable to the Class X
Certificates with respect to such Distribution Date.
(5) The beneficial ownership of the MR Interest and the SR Interest is
represented by the Class A-R Certificates.
(6) The SR Interest will have no principal balance and will not bear
interest.
5
<PAGE> 18
Set forth below are designations of Classes of Certificates to the
categories used herein:
<TABLE>
<CAPTION>
<S> <C>
Accretion Directed
Certificates.............................. None.
Accrual Certificates...................... None.
Book-Entry Certificates................... All Classes of Certificates other than the Physical Certificates
Component Certificates.................... None
Components................................ For purposes of calculating distributions, the Component
Certificates will be comprised of multiple payment components
having the designations, Initial Component Balances and Pass-
Through Rates set forth below:
Initial
Component
Designation Balance Pass-Through Rate
N/A N/A N/A
Delay Certificates........................ All interest-bearing Classes of Certificates other than the Non-
Delay Certificates, if any.
ERISA-Restricted
Certificates.............................. Class PO and Class X Certificates, Residual Certificates and
Subordinated Certificates.
Floating Rate Certificates................ None..
Inverse Floating Rate
Certificates.............................. None.
COFI Certificates......................... None
LIBOR Certificates........................ None..
Non-Delay Certificates.................... None.
Notional Amount
Certificates.............................. Class X Certificates.
Offered Certificates...................... All Classes of Certificates other than the Private Certificates
</TABLE>
6
<PAGE> 19
<TABLE>
<CAPTION>
<S> <C>
Physical Certificates..................... Class X and Class PO Certificates and the Private and Residual Certificates.
Planned Principal Classes................. None.
Primary Planned Principal
Classes................................... None.
Principal Only
Certificates.............................. Class PO Certificates.
Private Certificates...................... Class B-4, Class B-5 and Class B-6 Certificates.
Rating Agencies........................... S&P and Moody's.
Regular Certificates...................... All Classes of Certificates, other than the Residual Certificates.
Residual Certificates..................... Class A-R Certificates.
Scheduled Principal
Classes................................... None.
Secondary Planned Principal
Class..................................... None.
Senior Certificates. ..................... Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class A-6, Class A-7,
Class A-8, Class A-9, Class A-10, Class A-11, Class A-12, Class A-13, Class PO,
Class X and Class A-R Certificates.
Subordinated Certificates................. Class B-1, Class B-2, Class B-3, Class B-4, Class B-5 and Class B-6 Certificates.
Support Classes........................... None.
Targeted Principal
Classes................................... None.
</TABLE>
With respect to any of the foregoing designations as to which the
corresponding reference is "None," all defined terms and provisions herein
relating solely to such designations shall be of no force or effect, and any
calculations herein incorporating references to such designations shall be
interpreted without reference to such designations and amounts. Defined terms
and provisions herein relating to statistical rating agencies not designated
above as Rating Agencies shall be of no force or effect.
7
<PAGE> 20
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
Accretion Directed Certificates: As specified in the Preliminary
Statement.
Accrual Amount: With respect to any Class of Accrual Certificates and
any Distribution Date prior to the Accrual Termination Date, the amount
allocable to interest on each such Class of Accrual Certificates with respect to
such Distribution Date pursuant to Section 4.02(a)(ii).
Accrual Certificates: As specified in the Preliminary Statement.
Accrual Termination Date: Not applicable.
Adjusted Mortgage Rate: As to each Mortgage Loan, and at any time, the
per annum rate equal to the Mortgage Rate less the Master Servicing Fee Rate.
Adjusted Net Mortgage Rate: As to each Mortgage Loan, and at any time,
the per annum rate equal to the Mortgage Rate less the related Expense Rate. For
purposes of determining whether any Substitute Mortgage Loan is a Discount
Mortgage Loan or a Non-Discount Mortgage Loan and for purposes of calculating
the applicable PO Percentage and applicable Non-PO Percentage, each Substitute
Mortgage Loan shall be deemed to have an Adjusted Net Mortgage Rate equal to the
Adjusted Net Mortgage Rate of the Deleted Mortgage Loan for which it is
substituted.
Advance: The payment required to be made by the Master Servicer with
respect to any Distribution Date pursuant to Section 4.01, the amount of any
such payment being equal to the aggregate of payments of principal and interest
(net of the Master Servicing Fee and net of any net income in the case of any
REO Property) on the Mortgage Loans that were due on the related Due Date and
not received as of the close of business on the related Determination Date, less
the aggregate amount of any such delinquent payments that the Master Servicer
has determined would constitute a Nonrecoverable Advance if advanced.
Agreement: This Pooling and Servicing Agreement and all amendments or
supplements hereto.
Allocable Share: As to any Distribution Date and any Mortgage Loan (i)
with respect to the Class X Certificates, (a) the ratio that (x) the excess, if
any, of the Adjusted Net Mortgage Rate with respect to such Mortgage Loan over
the Required Coupon bears to (y) such Adjusted Net Mortgage Rate or (b) if the
Adjusted Net Mortgage Rate with respect to such Mortgage Loan does not exceed
the Required Coupon, zero, (ii) with respect to the Class PO Certificates, zero
and (iii) with respect to each other Class of Certificates the product of (a)
the lesser of (I) the ratio that the Required Coupon bears to such Adjusted Net
Mortgage Rate and (II) one, multiplied by (b) the ratio that the amount
calculated with respect to such Distribution Date for such Class pursuant to
clause (i) of the definition of Class Optimal Interest Distribution Amount
(without giving effect to any reduction of such amount pursuant to Section
4.02(d)) bears to the amount calculated with respect to such Distribution Date
for each Class of
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Certificates pursuant to clause (i) of the definition of Class Optimal Interest
Distribution Amount (without giving effect to any reduction of such amount
pursuant to Section 4.02(d)).
Amount Available for Senior Principal: As to any Distribution Date,
Available Funds for such Distribution Date reduced by the aggregate amount
distributable (or allocable to the Accrual Amount, if applicable) on such
Distribution Date in respect of interest on the Senior Certificates pursuant to
Section 4.02(a)(ii).
Amount Held for Future Distribution: As to any Distribution Date, the
aggregate amount held in the Certificate Account at the close of business on the
related Determination Date on account of (i) Principal Prepayments received
during the related Prepayment Period and Liquidation Proceeds received in the
month of such Distribution Date and (ii) all Scheduled Payments due after the
related Due Date.
Applicable Credit Support Percentage: As defined in Section 4.02(e).
Appraised Value: With respect to any Mortgage Loan, the Appraised Value
of the related Mortgaged Property shall be: (i) with respect to a Mortgage Loan
other than a Refinancing Mortgage Loan, the lesser of (a) the value of the
Mortgaged Property based upon the appraisal made at the time of the origination
of such Mortgage Loan and (b) the sales price of the Mortgaged Property at the
time of the origination of such Mortgage Loan; and (ii) with respect to a
Refinancing Mortgage Loan ,the value of the Mortgaged Property based upon the
appraisal made at the time of the origination of such Refinancing Mortgage Loan.
Available Funds: As to any Distribution Date, the sum of (a) the
aggregate amount held in the Certificate Account at the close of business on the
related Determination Date net of the Amount Held for Future Distribution and
net of amounts permitted to be withdrawn from the Certificate Account pursuant
to clauses (i)B(viii), inclusive, of Section 3.08(a) and amounts permitted to be
withdrawn from the Distribution Account pursuant to clauses (i)B(iii) inclusive
of Section 3.08(b), (b) the amount of the related Advance and (c) in connection
with Defective Mortgage Loans, as applicable, the aggregate of the Purchase
Prices and Substitution Adjustment Amounts deposited on the related Distribution
Account Deposit Date.
Bankruptcy Code: The United States Bankruptcy Reform Act of 1978, as
amended.
Bankruptcy Coverage Termination Date: The point in time at which the
Bankruptcy Loss Coverage Amount is reduced to zero.
Bankruptcy Loss: With respect to any Mortgage Loan, a Deficient
Valuation or Debt Service Reduction; provided, however, that a Bankruptcy Loss
shall not be deemed a Bankruptcy Loss hereunder so long as the Master Servicer
has notified the Trustee in writing that the Master Servicer is diligently
pursuing any remedies that may exist in connection with the related Mortgage
Loan and either (A) the related Mortgage Loan is not in default with regard to
payments due thereunder or (B) delinquent payments of principal and interest
under the related Mortgage Loan and any related escrow payments in respect of
such Mortgage Loan are being advanced on a current basis by the Master Servicer,
in either case without giving effect to any Debt Service Reduction or Deficient
Valuation.
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Bankruptcy Loss Coverage Amount: As of any Determination Date, the
Bankruptcy Loss Coverage Amount shall equal the Initial Bankruptcy Coverage
Amount as reduced by (i) the aggregate amount of Bankruptcy Losses allocated to
the Certificates since the Cut-off Date and (ii) any permissible reductions in
the Bankruptcy Loss Coverage Amount as evidenced by a letter of each Rating
Agency to the Trustee to the effect that any such reduction will not result in a
downgrading of the then current ratings assigned to the Classes of Certificates
rated by it.
Blanket Mortgage: The mortgage or mortgages encumbering the Cooperative
Property.
Book-Entry Certificates: As specified in the Preliminary Statement.
Business Day: Any day other than (i) a Saturday or a Sunday, or (ii) a
day on which banking institutions in the City of New York, New York, or the
State of Colorado or the city in which the Corporate Trust Office of the Trustee
is located are authorized or obligated by law or executive order to be closed.
Certificate: Any one of the Certificates executed by the Trustee in
substantially the forms attached hereto as exhibits.
Certificate Account: The separate Eligible Account or Accounts created
and maintained by the Master Servicer pursuant to Section 3.05 with a depository
institution in the name of the Master Servicer for the benefit of the Trustee on
behalf of Certificateholders and designated "Countrywide Home Loans, Inc. in
trust for the registered holders of Mellon Residential Funding Corporation,
Mortgage Pass-Through Certificates Series 199_-_."
Certificate Balance: With respect to any Certificate at any date, the
maximum dollar amount of principal to which the Holder thereof is then entitled
hereunder, such amount being equal to the Denomination thereof (A) minus the sum
of (i) all distributions of principal previously made with respect thereto and
(ii) all Realized Losses allocated thereto and, in the case of any Subordinated
Certificates, all other reductions in Certificate Balance previously allocated
thereto pursuant to Section 4.03 and (B) in the case of any Class of Accrual
Certificates, increased by the Accrual Amount added to the Class Certificate
Balance of such Class prior to such date.
Certificate Owner: With respect to a Book-Entry Certificate, the Person
who is the beneficial owner of such Book-Entry Certificate.
Certificate Register: The register maintained pursuant to Section 5.02
hereof.
Certificateholder or Holder: The person in whose name a Certificate is
registered in the Certificate Register, except that, solely for the purpose of
giving any consent pursuant to this Agreement, any Certificate registered in the
name of the Depositor or any affiliate of the Depositor shall be deemed not to
be Outstanding and the Percentage Interest evidenced thereby shall not be taken
into account in determining whether the requisite amount of Percentage Interests
necessary to effect such consent has been obtained; provided, however, that if
any such Person (including the Depositor) owns 100% of the Percentage Interests
evidenced by a Class of Certificates, such Certificates shall be deemed to be
Outstanding for purposes of any provision hereof that requires the consent of
the Holders of Certificates of a particular Class as a condition to the taking
of any action hereunder. The Trustee is entitled to rely
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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-6 Percentage: As to any Distribution Date, the percentage
equivalent of a fraction the numerator of which is the Class Certificate Balance
of the Class A-6 Certificates as of such date and the denominator of which is
the aggregate of the Class Certificate Balances of all Classes of Certificates
(other than the Class PO Certificates) as of such date.
Class A-6 Prepayment Percentage: As to any Distribution Date occurring
prior to the Trigger Date, the product of (i) a fraction, expressed as a
percentage, the numerator of which is the Class Certificate Balance of the Class
A-6 Certificates immediately prior to such Distribution Date and the denominator
of which is the aggregate of the Class Certificate Balances of the Class A-6
Certificates and the Subordinated Certificates immediately prior to such
Distribution Date and (ii) the Combined Prepayment Percentage. As to any
Distribution Date occurring on or after the Trigger Date, the Class A-6
Prepayment Percentage will equal: 100%, if such Distribution Date occurs during
the five years beginning on the first Distribution Date; the Class A-6
Percentage plus 70% of the Subordinated Percentage for such Distribution Date
for any Distribution Date in the first year following the fifth anniversary of
the first Distribution Date; the Class A-6 Percentage plus 60% of the
Subordinated Percentage for such Distribution Date for any Distribution Date in
the second year following the fifth anniversary of the first Distribution Date;
the Class A-6 Percentage plus 40% of the Subordinated Percentage for such
Distribution Date for any Distribution Date in the third year following the
fifth anniversary of the first Distribution Date; the Class A-6 Percentage plus
20% of the Subordinated Percentage for such Distribution Date for any
Distribution Date in the fourth year following the fifth anniversary of the
first Distribution Date; and the Class A-6 Percentage for such Distribution Date
for any Distribution Date thereafter; provided, however, that if the Class A-6
Percentage exceeds the initial Class A-6 Percentage on and after the Trigger
Date, the Class A-6 Prepayment Percentage will once again equal 100%.
Notwithstanding the foregoing, no decrease in the Class A-6 Prepayment
Percentage will occur after the Trigger Date if, as of the first Distribution
Date as to which any such decrease applies, either of the Class A-6 Step Down
Conditions occurs.
Class A-6 Principal Distribution Amount: As to any Distribution Date,
the sum of (i) the Class A-6 Percentage of the applicable Non-PO Percentage of
all amounts described in clauses (a) through (d) of the definition of "Non-PO
Formula Principal Amount" for such Distribution Date, (ii) with respect to any
Mortgage Loan that became a Liquidated Mortgage Loan during the calendar month
preceding the month of such Distribution Date, the lesser of (x) the Class A-6
Percentage of the applicable Non-PO Percentage of the Stated Principal Balance
of such Mortgage Loan and (y) either (A) the Class A-6 Prepayment Percentage, if
the Class A-6 Prepayment Percentage is greater than 0%, or if the Class A-6
Prepayment Percentage equals 0%, the percentage obtained by dividing the Class
A-6 Percentage by the sum of the Senior Percentage and the Class A-6 Percentage
or (B), if an Excess Loss was sustained with respect to such Liquidated Mortgage
Loan during such preceding calendar month, the Class A-6 Percentage of the
applicable Non-PO Percentage of the amount of the Liquidation Proceeds allocable
to principal and (iii) the Class A-6 Prepayment Percentage of the applicable
Non-PO Percentage of the amounts described in clause (f) of the definition
"Non-PO Formula Principal Amount" for such Distribution Date.
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Class A-6 Step Down Conditions: As of the first Distribution Date as to
which any decrease in the Class A-6 Prepayment Percentage applies, (i) the
outstanding principal balance of all Mortgage Loans delinquent 60 days or more
(averaged over the preceding six month period), as a percentage of the aggregate
principal balance of the Subordinate Certificates (averaged over the preceding
six month period), is equal to or greater than 50% or (ii) cumulative Realized
Losses with respect to the Mortgage Loans do not exceed (a) with respect to the
Distribution Date on the fifth anniversary of the first Distribution Date, 30%
of the Original Subordinated Principal Balance, (b) with respect to the
Distribution Date on the sixth anniversary of the first Distribution Date, 35%
of the Original Subordinated Principal Balance, (c) with respect to the
Distribution Date on the seventh anniversary of the first Distribution Date, 40%
of the Original Subordinated Principal Balance, (d) with respect to the
Distribution Date on the eighth anniversary of the first Distribution Date, 45%
of the Original Subordinated Principal Balance and (e) with respect to the
Distribution Date on the ninth anniversary of the first Distribution Date, 50%
of the Original Subordinated Principal Balance.
Class Certificate Balance: With respect to any Class and as to any date
of determination, the aggregate of the Certificate Balances of all Certificates
of such Class as of such date.
Class Interest Shortfall: As to any Distribution Date and Class, the
amount by which the amount described in clause (i) of the definition of Class
Optimal Interest Distribution Amount for such Class exceeds the amount of
interest actually distributed on such Class on such Distribution Date pursuant
to such clause (i).
Class Optimal Interest Distribution Amount: With respect to any
Distribution Date and interest bearing Class or, with respect to any interest
bearing Component, any Component thereof, the sum of (i) one month's interest
accrued during the related Interest Accrual Period at the Pass-Through Rate for
such Class on the related Class Certificate Balance, Component Balance or
Notional Amount, as applicable, subject to reduction as provided in Section
4.02(d) and (ii) any Class Unpaid Interest Amounts for such Class or Component.
Class PO Deferred Amount: As to any Distribution Date, the aggregate of
the applicable PO Percentage of each Realized Loss, other than any Excess Loss,
to be allocated to the Class PO Certificates on such Distribution Date on or
prior to the Senior Credit Support Depletion Date or previously allocated to the
Class PO Certificates and not yet paid to the Holders of the Class PO
Certificates.
Class Subordination Percentage: With respect to any Distribution Date
and each Class of Subordinated Certificates, the quotient (expressed as a
percentage) of (a) the Class Certificate Balance of such Class of Certificates
immediately prior to such Distribution Date divided by (b) the aggregate of the
Class Certificate Balances immediately prior to such Distribution Date of all
Classes of Certificates.
Class Unpaid Interest Amounts: As to any Distribution Date and Class of
interest bearing Certificates, the amount by which the aggregate Class Interest
Shortfalls for such Class on prior Distribution Dates exceeds the amount
distributed on such Class on prior Distribution Dates pursuant to clause (ii) of
the definition of Class Optimal Interest Distribution Amount.
Closing Date: __________, 199_.
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Code: The Internal Revenue Code of 1986, including any successor or
amendatory provisions.
COFI: The Monthly Weighted Average Cost of Funds Index for the Eleventh
District Savings Institutions published by the Federal Home Loan Bank of San
Francisco.
COFI Certificates: As specified in the Preliminary Statement.
Combined Prepayment Percentage: As to any Distribution Date, the
difference between 100% and the Senior Prepayment Percentage for such date.
Component: As specified in the Preliminary Statement.
Component Balance: With respect to any Component and any Distribution
Date, the Initial Component Balance thereof on the Closing Date, less all
amounts applied in reduction of the principal balance of such Component and
Realized Losses allocated thereto on previous Distribution Dates.
Component Certificates: As specified in the Preliminary Statement.
Cooperative Corporation: The entity that holds title (fee or an
acceptable leasehold estate) to the real property and improvements constituting
the Cooperative Property and which governs the Cooperative Property, which
Cooperative Corporation must qualify as a Cooperative Housing Corporation under
Section 216 of the Code.
Coop Shares: Shares issued by a Cooperative Corporation. Cooperative
Loan: Any Mortgage Loan secured by Coop Shares and a Proprietary Lease.
Cooperative Property: The real property and improvements owned by the
Cooperative Corporation, including the allocation of individual dwelling units
to the holders of the Coop Shares of the Cooperative Corporation.
Cooperative Unit: A single family dwelling located in a Cooperative
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 3 Park Plaza, Irvine,
California 92614 (Attn:_______________________, facsimile no. (714) 253-7577,
and which is the address to which notices to and correspondence with the Trustee
should be directed.
Corresponding Classes of Certificates: With respect to each Subsidiary
REMIC Regular Interest, any Class of Certificates or Components appearing
opposite such Subsidiary REMIC Regular Interest in the Preliminary Statement.
Cut-off Date: ________ 1, 199_.
Cut-off Date Pool Principal Balance: $________________
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Cut-off Date Principal Balance: As to any Mortgage Loan, the Stated
Principal Balance thereof as of the close of business on the Cut-off Date.
Debt Service Reduction: With respect to any Mortgage Loan, a reduction
by a court of competent jurisdiction in a proceeding under the Bankruptcy Code
in the Scheduled Payment for such Mortgage Loan which became final and
non-appealable, except such a reduction resulting from a Deficient Valuation or
any reduction that results in a permanent forgiveness of principal.
Defective Mortgage Loan: Any Mortgage Loan which is required to be
repurchased pursuant to Section 2.02 or 2.03.
Deficient Valuation: With respect to any Mortgage Loan, a valuation by
a court of competent jurisdiction of the Mortgaged Property in an amount less
than the then-outstanding indebtedness under the Mortgage Loan, or any reduction
in the amount of principal to be paid in connection with any Scheduled Payment
that results in a permanent forgiveness of principal, which valuation or
reduction results from an order of such court which is final and non-appealable
in a proceeding under the Bankruptcy Code.
Definitive Certificates: Any Certificate evidenced by a Physical
Certificate and any Certificate issued in lieu of a Book-Entry Certificate
pursuant to Section 5.02(e).
Delay Certificates: As specified in the Preliminary Statement.
Deleted Mortgage Loan: As defined in Section 2.03(b) hereof.
Denomination: With respect to each Certificate, the amount set forth on
the face thereof as the "Initial Certificate Balance of this Certificate" or the
"Initial Notional Amount of this Certificate" or, if neither of the foregoing,
the Percentage Interest appearing on the face thereof.
Depositor: Mellon Residential Funding Corporation, 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 22nd day of each
month or if such 22nd day is not a Business Day the next preceding Business Day;
provided, however, that if such 22nd day or such Business Day, whichever is
applicable, is less than two Business Days prior to the related Distribution
Date, the Determination Date shall be the first Business Day which is two
Business Days preceding such Distribution Date.
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Discount Mortgage Loan: Any Mortgage Loan with an Adjusted Net Mortgage
Rate that is less than the Required Coupon.
Distribution Account: The separate Eligible Account created and
maintained by the Trustee pursuant to Section 3.05 in the name of the Trustee
for the benefit of the Certificateholders and designated "The Bank of New York
in trust for registered holders of Mellon Residential Funding Corporation,.
Mortgage Pass-Through Certificates, Series 199_-_." Funds in the Distribution
Account shall be held in trust for the Certificateholders for the uses and
purposes set forth in this Agreement.
Distribution Account Deposit Date: As to any Distribution Date, 12:30
p.m. Pacific time on the Business Day immediately preceding such Distribution
Date.
Distribution Date: The 25th day of each calendar month after the
initial issuance of the Certificates, or if such 25th day is not a Business Day,
the next succeeding Business Day, commencing in ________, 199_
Due Date: With respect to any Distribution Date, the first day of the
month in which the related Distribution Date occurs.
Duff & Phelps: Duff & Phelps Credit Rating Company, or any successor
thereto. If Duff & Phelps is designated as a Rating Agency in the Preliminary
Statement, for purposes of Section 10.05(b) the address for notices to Duff &
Phelps shall be Duff & Phelps Credit Rating Company, 17 State Street, 12th
Floor, New York, New York 10004, Attention: MBS Monitoring, or such other
address as Duff & Phelps may hereafter furnish to the Depositor and the Master
Servicer.
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. Eligible Accounts may bear interest,
and may include, if otherwise qualified under this definition, accounts
maintained with the Trustee.
ERISA: The Employee Retirement Income Security Act of 1974, as amended.
ERISA-Restricted Certificate: As specified in the Preliminary
Statement.
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Escrow Account: The Eligible Account or Accounts established and
maintained pursuant to Section 3.06(a) hereof.
Event of Default: As defined in Section 7.01 hereof.
Excess Loss: The amount of any (i) Fraud Loss realized after the Fraud
Loss Coverage Termination Date, (ii) Special Hazard Loss realized after the
Special Hazard Coverage Termination Date or (iii) Bankruptcy Loss realized after
the Bankruptcy Coverage Termination Date.
Excess Proceeds: With respect to any Liquidated Mortgage Loan, the
amount, if any, by which the sum of any Liquidation Proceeds of such Mortgage
Loan received in the calendar month in which such Mortgage Loan became a
Liquidated Mortgage Loan, net of any amounts previously reimbursed to the Master
Servicer as Nonrecoverable Advance(s) with respect to such Mortgage Loan
pursuant to Section 3.08(a)(iii), exceeds (i) the unpaid principal balance of
such Liquidated Mortgage Loan as of the Due Date in the month in which such
Mortgage Loan became a Liquidated Mortgage Loan plus (ii) accrued interest at
the Mortgage Rate from the Due Date as to which interest was last paid or
advanced (and not reimbursed) to Certificateholders up to the Due Date
applicable to the Distribution Date immediately following the calendar month
during which such liquidation occurred.
Expense Rate: As to each Mortgage Loan, the sum of the related Master
Servicing Fee Rate and the Trustee Fee Rate.
FDIC: The Federal Deposit Insurance Corporation, or any successor
thereto.
FHLMC: The Federal Home Loan Mortgage Corporation, a corporate
instrumentality of the United States created and existing under Title III of the
Emergency Home Finance Act of 1970, as amended, or any successor thereto.
FIRREA: The Financial Institutions Reform, Recovery, and Enforcement
Act of 1989.
Fitch: Fitch Investors Service, L.P., or any successor thereto. If
Fitch is designated as a Rating Agency in the Preliminary Statement, for
purposes of Section 10.05(b) the address for notices to Fitch shall be Fitch
Investors Service, L.P., One State Street Plaza, New York, New York 10004,
Attention: Residential Mortgage Surveillance Group, or such other address as
Fitch may hereafter furnish to the Depositor and the Master Servicer.
FNMA: The Federal National Mortgage Association, a federally chartered
and privately owned corporation organized and existing under the Federal
National Mortgage Association Charter Act, or any successor thereto.
Fraud Loan: A Liquidated Mortgage Loan as to which a Fraud Loss has
occurred.
Fraud Losses: Realized Losses on Mortgage Loans as to which a loss is
sustained by reason of a default arising from fraud, dishonesty or
misrepresentation in connection with the related Mortgage Loan, including a loss
by reason of the denial of coverage under any related Primary Insurance Policy
because of such fraud, dishonesty or misrepresentation.
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Fraud Loss Coverage Amount: As of the Closing Date, $________ subject
to reduction from time to time, by the amount of Fraud Losses allocated to the
Certificates. In addition, on each anniversary of the Cut-off Date, the Fraud
Loss Coverage Amount will be reduced as follows: (a) on the first, second, third
and fourth anniversaries of the Cut-off Date, to an amount equal to the lesser
of (i) 1% of the then current Pool Stated Principal Balance and (ii) the excess
of the Fraud Loss Coverage Amount as of the preceding anniversary of the Cut-off
Date over the cumulative amount of Fraud Losses allocated to the Certificates
since such preceding anniversary; and (b) on the fifth anniversary of the
Cut-off Date, to zero.
Fraud Loss Coverage Termination Date: The point in time at which the
Fraud Loss Coverage Amount is reduced to zero.
Index: With respect to any Interest Accrual Period for the COFI
Certificates, the then-applicable index used by the Trustee pursuant to Section
4.05 to determine the applicable Pass-Through Rate for such Interest Accrual
Period for the COFI Certificates.
Indirect Participant: A broker, dealer, bank or other financial
institution or other Person that clears through or maintains a custodial
relationship with a Depository Participant.
Initial Bankruptcy Coverage Amount: $_________.
Initial Component Balance: As specified in the Preliminary Statement.
Initial LIBOR Rate None.
Insurance Policy: With respect to any Mortgage Loan included in the
Trust Fund, any insurance policy, including all riders and endorsements thereto
in effect, including any replacement policy or policies for any Insurance
Policies.
Insurance Proceeds: Proceeds paid by an insurer pursuant to any
Insurance Policy, in each case other than any amount included in such Insurance
Proceeds in respect of Insured Expenses.
Insured Expenses: Expenses covered by an Insurance Policy or any other
insurance policy with respect to the Mortgage Loans.
Interest Accrual Period: With respect to each Class of Delay
Certificates, corresponding Subsidiary REMIC Regular Interest and any
Distribution Date, the calendar month prior to the month of such Distribution
Date. With respect to any Non-Delay Certificates, corresponding Subsidiary REMIC
Regular Interest and any Distribution Date, the one month period commencing on
the 25th day of the month preceding the month in which such Distribution Date
occurs and ending on the 24th day of the month in which such Distribution Date
occurs.
Interest Determination Date: With respect to (a) any Interest Accrual
Period for any LIBOR Certificates and (b) any Interest Accrual Period for the
COFI Certificates for which the applicable Index is LIBOR, the second Business
Day prior to the first day of such Interest Accrual Period.
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Interest Rate: With respect to each Subsidiary REMIC Interest, the
applicable rate set forth or calculated in the manner described in the
Preliminary Statement.
Latest Possible Maturity Date: The Distribution Date following the
third anniversary of the scheduled maturity date of the Mortgage Loan having the
latest scheduled maturity date as of the Cut-off Date.
LIBOR: The London interbank offered rate for one-month United States
dollar deposits calculated in the manner described in Section 4.06.
LIBOR Certificates: As specified in the Preliminary Statement.
Liquidated Mortgage Loan: With respect to any Distribution Date, a
defaulted Mortgage Loan (including any REO Property) which was liquidated in the
calendar month preceding the month of such Distribution Date and as to which the
Master Servicer has determined (in accordance with this Agreement) that it has
received all amounts it expects to receive in connection with the liquidation of
such Mortgage Loan, including the final disposition of an REO Property.
Liquidation Proceeds: Amounts, including Insurance Proceeds, received
in connection with the partial or complete liquidation of defaulted Mortgage
Loans, whether through trustee's sale, foreclosure sale or otherwise or amounts
received in connection with any condemnation or partial release of a Mortgaged
Property and any other proceeds received in connection with an REO Property,
less the sum of related unreimbursed Master Servicing Fees, Servicing Advances
and Advances.
Loan-to-Value Ratio: With respect to any Mortgage Loan and as to any
date of determination, the fraction (expressed as a percentage) the numerator of
which is the principal balance of the related Mortgage Loan at such date of
determination and the denominator of which is the Appraised Value of the related
Mortgaged Property.
Maintenance: With respect to any Cooperative Unit, the rent paid by the
Mortgagor to the Cooperative Corporation pursuant to the Proprietary Lease.
Majority in Interest: As to any Class of Regular Certificates, the
Holders of Certificates of such Class evidencing, in the aggregate, at least 51%
of the Percentage Interests evidenced by all Certificates of such Class.
Master REMIC: As described in the Preliminary Statement.
Master Servicer: Mellon Mortgage Company, a Colorado corporation, and
its successors and assigns, in its capacity as master servicer hereunder.
Master Servicer Advance Date: As to any Distribution Date, 12:30 p.m.
_______ time on the Business Day immediately preceding such Distribution Date.
Master Servicing Fee: As to each Mortgage Loan and any Distribution
Date, an amount payable out of each full payment of interest received on such
Mortgage Loan and equal to one-twelfth of the Master Servicing Fee Rate
multiplied by the Stated Principal Balance of such Mortgage Loan as of
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the Due Date in the month of such Distribution Date (prior to giving effect to
any Scheduled Payments due on such Mortgage Loan on such Due Date), subject to
reduction as provided in Section 3.14.
Master Servicing Fee Rate: With respect to each Mortgage Loan, ____%
per annum.
Monthly Statement: The statement delivered to the Certificateholders
pursuant to Section 4.04.
Moody's: Moody's Investors Service, Inc., or any successor thereto. If
Moody's is designated as a Rating Agency in the Preliminary Statement, for
purposes of Section 10.05(b) the address for notices to Moody's shall be Moody's
Investors Service, Inc., 99 Church Street, New York, New York 10007, Attention:
Residential Pass-Through Monitoring, or such other address as Moody's may
hereafter furnish to the Depositor or the Master Servicer.
Mortgage: The mortgage, deed of trust or other instrument creating a
first lien on an estate in fee simple or leasehold interest in real property
securing a Mortgage Note.
Mortgage File: The mortgage documents listed in Section 2.01 hereof
pertaining to a particular Mortgage Loan and any additional documents delivered
to the Trustee to be added to the Mortgage File pursuant to this Agreement.
Mortgage Loans: Such of the mortgage loans transferred and assigned to
the Trustee pursuant to the provisions hereof as from time to time are held as a
part of the Trust Fund (including any REO Property), the mortgage loans so held
being identified in the Mortgage Loan Schedule, notwithstanding foreclosure or
other acquisition of title of the related Mortgaged Property.
Mortgage Loan Schedule: The list of Mortgage Loans (as from time to
time amended by the Master Servicer to reflect the addition of Substitute
Mortgage Loans and the deletion of Deleted Mortgage Loans pursuant to the
provisions of this Agreement) transferred to the Trustee as part of the Trust
Fund and from time to time subject to this Agreement, attached hereto as
Schedule I, setting forth the following information with respect to each
Mortgage Loan:
(i) the loan number;
(ii) the Mortgagor's name and the street address of the
Mortgaged Property, including the zip code;
(iii) the maturity date;
(iv) the original principal balance;
(v) the Cut-off Date Principal Balance;
(vi) the first payment date of the Mortgage Loan;
(vii) the Scheduled Payment in effect as of the Cut-off Date;
(viii) the Loan-to-Value Ratio at origination;
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(ix) a code indicating whether the residential dwelling at
the time of origination was represented to be
owner-occupied;
(x) a code indicating whether the residential dwelling is
either (a) a detached single family dwelling (b) a
dwelling in a de minimis PUD, (c) a condominium unit or
PUD (other than a de minimis PUD), (d) a two- to
four-unit residential property or (e) a Cooperative
Unit;
(xi) the Mortgage Rate;
(xii) the purpose for the Mortgage Loan; and
(xiii) the type of documentation program pursuant to which the
Mortgage Loan was originated.
Such schedule shall also set forth the total of the amounts described
under (iv) and (v) above for all of the Mortgage Loans.
Mortgage Note: The original executed note or other evidence of
indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage Loan.
Mortgage Rate: The annual rate of interest borne by a Mortgage Note
from time to time, net of any interest premium charged by the mortgagee to
obtain or maintain any Primary Insurance Policy.
Mortgaged Property: The underlying property securing a Mortgage Loan,
which, with respect to a Cooperative Loan, is the related Coop Shares and
Proprietary Lease.
Mortgagor: The obligor(s) on a Mortgage Note.
MR Interest: The sole class of "residual interest" in the Master REMIC.
National Cost of Funds Index: The National Monthly Median Cost of Funds
Ratio to SAIF-Insured Institutions published by the Office of Thrift
Supervision.
Net Prepayment Interest Shortfalls: As to any Distribution Date, the
amount by which the aggregate of Prepayment Interest Shortfalls during the
related Prepayment Period exceeds an amount equal to [one-half of ]the aggregate
Master Servicing Fee for such Distribution Date before reduction of the Master
Servicing Fee in respect of such Prepayment Interest Shortfalls.
Non-Delay Certificates: As specified in the Preliminary Statement.
Non-Discount Mortgage Loan: Any Mortgage Loan with an Adjusted Net
Mortgage Rate that is greater than or equal to the Required Coupon.
Non-PO Formula Principal Amount: As to any Distribution Date, the sum
of the applicable Non-PO Percentage of (a) the principal portion of each
Scheduled Payment (without giving effect, prior to the Bankruptcy Coverage
Termination Date, to any reductions thereof caused by any Debt
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Service Reductions or Deficient Valuations) due on each Mortgage Loan on the
related Due Date, (b) the Stated Principal Balance of each Mortgage Loan that
was repurchased by the Seller or the Master Servicer pursuant to this Agreement
as of such Distribution Date, (c) the Substitution Adjustment Amount in
connection with any Deleted Mortgage Loan received with respect to such
Distribution Date, (d) any Insurance Proceeds or Liquidation Proceeds allocable
to recoveries of principal of Mortgage Loans that are not yet Liquidated
Mortgage Loans received during the calendar month preceding the month of such
Distribution Date, (e) with respect to each Mortgage Loan that became a
Liquidated Mortgage Loan during the calendar month preceding the month of such
Distribution Date, the amount of the Liquidation Proceeds allocable to principal
received during the calendar month preceding the month of such Distribution Date
with respect to such Mortgage Loan and (f) all Principal Prepayments received
during the related Prepayment Period.
Non-PO Percentage: As to any Discount Mortgage Loan, a fraction
(expressed as a percentage) the numerator of which is the Adjusted Net Mortgage
Rate of such Discount Mortgage Loan and the denominator of which is the Required
Coupon. As to any Non-Discount Mortgage Loan, 100%.
Nonrecoverable Advance: Any portion of an Advance previously made or
proposed to be made by the Master Servicer that, in the good faith judgment of
the Master Servicer, will not be ultimately recoverable by the Master Servicer
from the related Mortgagor, related Liquidation Proceeds or otherwise.
Notice of Final Distribution: The notice to be provided pursuant to
Section 9.02 to the effect that final distribution on any of the Certificates
shall be made only upon presentation and surrender thereof.
Notional Amount: With respect to any Distribution Date and the Class X
Certificates, the aggregate of the Stated Principal Balances of the Non-Discount
Mortgage Loans as of the Due Date in the month of such Distribution Date (prior
to giving effect to any Scheduled Payments due on such Mortgage Loans on such
Due Date).
: As specified in the Preliminary Statement.
Offered Certificates: As specified in the Preliminary Statement.
Officer's Certificate: A certificate (i) signed by the Chairman of the
Board, the Vice Chairman of the Board, the President, a Managing Director, a
Vice President (however denominated), an Assistant Vice President, the
Treasurer, the Secretary, or one of the Assistant Treasurers or Assistant
Secretaries of the Depositor or the Master Servicer, or (ii), if provided for in
this Agreement, signed by a Servicing Officer, as the case may be, and delivered
to the Depositor and the Trustee, as the case may be, as required by this
Agreement.
Opinion of Counsel: A written opinion of counsel, who may be counsel
for the Depositor or the Master Servicer, including, in-house counsel,
reasonably acceptable to the Trustee; provided, however, that with respect to
the interpretation or application of the REMIC Provisions, such counsel must (i)
in fact be independent of the Depositor and the Master Servicer, (ii) not have
any direct financial interest in the Depositor or the Master Servicer or in any
affiliate of either, and (iii) not be
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connected with the-Depositor or the Master Servicer as an officer, employee,
promoter, underwriter, trustee, partner, director or person performing similar
functions.
Optional Termination: The termination of the trust created hereunder in
connection with the purchase of the Mortgage Loans pursuant to Section 9.01(a)
hereof.
Original Applicable Credit Support Percentage: With respect to each of
the following Classes of Subordinated Certificates, the corresponding percentage
described below, as of the Closing Date:
<TABLE>
<CAPTION>
<S> <C> <C>
Class B-1 %
Class B-2 %
Class B-3 %
Class B-4 %
Class B-5 %
Class B-6 %
</TABLE>
Original Mortgage Loan: The mortgage loan refinanced in connection with
the origination of a Refinancing Mortgage Loan.
Original Subordinated Principal Balance: The aggregate of the Class
Certificate Balances of the Subordinated Certificates as of the Closing Date.
OTS: The Office of Thrift Supervision.
Outside Reference Date: As to any Interest Accrual Period for the COFI
Certificates, the close of business on the tenth day thereof.
Outstanding: With respect to the Certificates as of any date of
determination, all Certificates theretofore executed and authenticated under
this Agreement except:
(i) Certificates theretofore canceled by the Trustee or
delivered to the Trustee for cancellation; and
(ii) Certificates in exchange for which or in lieu of which
other Certificates have been executed and delivered by the Trustee
pursuant to this Agreement.
Outstanding Mortgage Loan: As of any Due Date, a Mortgage Loan with a
Stated Principal Balance greater than zero-which was not the subject of a
Principal Prepayment in Full prior to such Due Date and which did not become a
Liquidated Mortgage Loan prior to such Due Date.
Ownership Interest: As to any Residual Certificate, any ownership
interest in such Certificate including any interest in such Certificate as the
Holder thereof and any other interest therein, whether direct or indirect, legal
or beneficial.
Pass-Through Rate: For any interest bearing Class of Certificates or
Component, the per annum rate set forth or calculated in the manner described in
the Preliminary Statement.
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Percentage Interest: As to any Certificate, the percentage interest
evidenced thereby in distributions required to be made on the related Class,
such percentage interest being set forth on the face thereof or equal to the
percentage obtained by dividing the Denomination of such Certificate by the
aggregate of the Denominations of all Certificates of the same Class.
Permitted Investments: At any time, any one or more of the following
obligations and securities:
(i) obligations of the United States or any agency thereof,
provided such obligations are backed by the full faith and credit of
the United States;
(ii) general obligations of or obligations guaranteed by any
state of the United States or the District of Columbia receiving the
highest long-term debt rating of each Rating Agency, or such lower
rating as will not result in the downgrading or withdrawal of the
ratings then assigned to the Certificates by each Rating Agency;
(iii) commercial or finance company paper which is then
receiving the highest commercial or finance company paper rating of
each Rating Agency, or such lower rating as will not result in the
downgrading or withdrawal of the ratings then assigned to the
Certificates by each Rating Agency;
(iv) certificates of deposit, demand or time deposits, or
bankers' acceptances issued by any depository institution or trust
company incorporated under the laws of the United States or of any
state thereof and subject to supervision and examination by federal
and/or state banking authorities, provided that the commercial paper
and/or long term unsecured debt obligations of such depository
institution or trust company (or in the case of the principal
depository institution in a holding company system, the commercial
paper or long-term unsecured debt obligations of such holding company,
but only if Moody's is not a Rating Agency) are then rated one of the
two highest long-term and the highest short-term ratings of each Rating
Agency for such securities, or such lower ratings as will not result in
the downgrading or withdrawal of the rating then assigned to the
Certificates by either Rating Agency;
(v) demand or time deposits or certificates of deposit issued
by any bank or trust company or savings institution to the extent that
such deposits are fully insured by the FDIC;
(vi) guaranteed reinvestment agreements issued by any bank,
insurance company or other corporation containing, at the time of the
issuance of such agreements, such terms and conditions as will not
result in the downgrading or withdrawal of the rating then assigned to
the Certificates by either 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;
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(viii) securities (other than stripped bonds, stripped coupons
or instruments sold at a purchase price in excess of 115% of the face
amount thereof) bearing interest or sold at a discount issued by any
corporation incorporated under the laws of the United States or any
state thereof which, at the time of such investment, have one of the
two highest ratings of each Rating Agency (except if the Rating Agency
is Moody's, such rating shall be the highest commercial paper rating of
Moody's for any such securities), or such lower rating as will not
result in the downgrading or withdrawal of the rating then assigned to
the Certificates by either Rating Agency, as evidenced by a signed
writing delivered by each Rating Agency;
(ix) units of a taxable money-market portfolio having the
highest rating assigned by each Rating Agency (except if Fitch or Duff
& Phelps is a Rating Agency and has not rated the portfolio, the
highest rating assigned by Moody's) and restricted to obligations
issued or guaranteed by the United States of America or entities whose
obligations are backed by the full faith and credit of the United
States of America and repurchase agreements collateralized by such
obligations; and
(x) such other investments bearing interest or sold at a
discount acceptable to each Rating Agency as will not result in the
downgrading or withdrawal of the rating then assigned to the
Certificates by either Rating Agency, as evidenced by a signed writing
delivered by each Rating Agency;
provided that no such instrument shall be a Permitted Investment if such
instrument evidences the right to receive interest only payments with respect to
the obligations underlying such instrument.
Permitted Transferee: Any person other than (i) the United States, any
State or political subdivision thereof, or any agency or instrumentality of any
of the foregoing, (ii) a foreign government, International Organization or any
agency or instrumentality of either of the foregoing, (iii) an organization
(except certain farmers' cooperatives described in section 521 of the Code)
which is exempt from tax imposed by Chapter 1 of the Code (including the tax
imposed by section 511 of the Code on unrelated business taxable income) on any
excess inclusions (as defined in section 860E(c)(l) of the Code) with respect to
any Residual Certificate, (iv) rural electric and telephone cooperatives
described in section 1381(a)(2)(C) of the Code, (v) a Person that is not a
citizen or resident of the United States, a corporation, partnership, or other
entity created or organized in or under the laws of the United States or any
political subdivision thereof, or an estate or trust whose income from sources
without the United States is includible in gross income for United States
federal income tax purposes regardless of its connection with the conduct of a
trade or business within the United States unless such Person has furnished the
transferor and the Trustee with a duly completed Internal Revenue Service Form
4224, and (vi) any other Person so designated by the Depositor based upon an
Opinion of Counsel that the Transfer of an Ownership Interest in a Residual
Certificate to such Person may cause the REMIC hereunder to fail to qualify as a
REMIC at any time that the Certificates are outstanding. The terms "United
States," "State" and "International Organization" shall have the meanings set
forth in section 7701 of the Code or successor provisions. A corporation will
not be treated as an instrumentality of the United States or of any State or
political subdivision thereof for these purposes if all of its activities are
subject to tax and, with the exception of the Federal Home Loan Mortgage
Corporation, a majority of its board of directors is not selected by such
government unit.
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Person: Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government, or any agency or political subdivision thereof.
Physical Certificate: As specified in the Preliminary Statement.
Planned Balance: Not applicable.
Planned Principal Classes: As specified in the Preliminary Statement.
PO Formula Principal Amount: As to any Distribution Date, the sum of
the applicable PO Percentage of (a) the principal portion of each Scheduled
Payment (without giving effect, prior to the Bankruptcy Coverage Termination
Date, to any reductions thereof caused by any Debt Service Reductions or
Deficient Valuations) due on each Mortgage Loan on the related Due Date, (b) the
Stated Principal Balance of each Mortgage Loan that was repurchased by the
Seller or the Master Servicer pursuant to this Agreement as of such Distribution
Date, (c) the Substitution Adjustment Amount in connection with any Deleted
Mortgage Loan received with respect to such Distribution Date, (d) any Insurance
Proceeds or Liquidation Proceeds allocable to recoveries of principal of
Mortgage Loans that are not yet Liquidated Mortgage Loans received during the
calendar month preceding the month of such Distribution Date, (e) with respect
to each Mortgage Loan that became a Liquidated Mortgage Loan during the month
preceding the calendar month of such Distribution Date, the amount of
Liquidation Proceeds allocable to principal received during the month preceding
the month of such Distribution Date with respect to such Mortgage Loan and (f)
all Principal Prepayments received during the related Prepayment Period.
PO Percentage: As to any Discount Mortgage Loan, a fraction (expressed
as a percentage) the numerator of which is the excess of the Required Coupon
over the Adjusted Net Mortgage Rate of such Discount Mortgage Loan and the
denominator of which is the Required Coupon. As to any Non-Discount Mortgage
Loan, 0%.
Pool Stated Principal Balance: As to any Distribution Date, the
aggregate of the Stated Principal Balances of the Mortgage Loans which were
Outstanding Mortgage Loans on the Due Date in the month preceding the month of
such Distribution Date.
[Prepayment Interest Excess: As to any Principal Prepayment received by
the Master Servicer from the first day through the fifteenth day of any calendar
month (other than the calendar month in which the Cut-off Date occurs), all
amounts paid by the related Mortgagor in respect of interest on such Principal
Prepayment. All Prepayment Interest Excess shall be paid to the Master Servicer
as additional master servicing compensation.]
Prepayment Interest Shortfall: As to any Distribution Date, Mortgage
Loan and Principal Prepayment received [on or after the sixteenth day of the
month preceding the month of such Distribution Date (or, in the case of the
first Distribution Date, on or after the Cut-off Date) and] on or before the
last day of the month preceding the month of such Distribution Date, the amount,
if any, by which one month's interest at the related Mortgage Rate, net of the
Master Servicing Fee Rate, on such Principal Prepayment exceeds the amount of
interest paid in connection with such Principal Prepayment.
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Prepayment Period: As to any Distribution Date, [the period from the
16th] day of the calendar month preceding the month of such Distribution Date [
(or, in the case of the first Distribution Date, from the Cut-off Date) through
the 15th of the month of such Distribution Date.]
Primary Insurance Policy: Each policy of primary mortgage guaranty
insurance or any replacement policy therefor with respect to any Mortgage Loan.
Primary Planned Principal Classes: As specified in the Preliminary
Statement.
Principal Prepayment: Any payment of principal by a Mortgagor on a
Mortgage Loan that is received in advance of its scheduled Due Date and is not
accompanied by an amount representing scheduled interest due on any date or
dates in any month or months subsequent to the month of prepayment. Partial
Principal Prepayments shall be applied by the Master Servicer in accordance with
the terms of the related Mortgage Note.
Principal Prepayment in Full: Any Principal Prepayment made by a
Mortgagor of the entire principal balance of a Mortgage Loan.
Private Certificate: As specified in the Preliminary Statement.
Pro Rata Share: As to any Distribution Date, the Subordinated Principal
Distribution Amount and any Class of Subordinated Certificates, the portion of
the Subordinated Principal Distribution Amount allocable to such Class, equal to
the product of the Subordinated Principal Distribution Amount on such
Distribution Date and a fraction, the numerator of which is the related Class
Certificate Balance thereof and the denominator of which is the aggregate of the
Class Certificate Balances of the Subordinated Certificates.
Proprietary Lease: With respect to any Cooperative Unit, a lease or
occupancy agreement between a Cooperative Corporation and a holder of related
Coop Shares.
Prospectus Supplement: The Prospectus Supplement dated _________, 199_
relating to the Offered Certificates.
PUD: Planned Unit Development.
Purchase Price: With respect to any Mortgage Loan required to be
purchased by the Seller pursuant to Section 2.02 or 2.03 hereof or purchased at
the option of the Master Servicer pursuant to Section 3.11, an amount equal to
the sum of (i) 100% of the unpaid principal balance of the Mortgage Loan on the
date of such purchase, and (ii) accrued interest thereon at the applicable
Mortgage Rate (or at the applicable Adjusted Mortgage Rate if (x) the purchaser
is the Master Servicer or (y) if the purchaser is the Seller and the Seller is
the Master Servicer) from the date through which interest was last paid by the
Mortgagor to the Due Date in the month in which the Purchase Price is to be
distributed to Certificateholders.
Qualified Insurer: A mortgage guaranty insurance company duly qualified
as such under the laws of the state of its principal place of business and each
state having jurisdiction over such insurer in connection with the insurance
policy issued by such insurer, duly authorized and licensed in such states to
transact a mortgage guaranty insurance business in such states and to write the
insurance
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provided by the insurance policy issued by it, approved as a FNMA-approved
mortgage insurer and having a claims paying ability rating of at least "AA" or
equivalent rating by a nationally recognized statistical rating organization.
Any replacement insurer with respect to a Mortgage Loan must have at least as
high a claims paying ability rating as the insurer it replaces had on the
Closing Date.
Rating Agency: Each of the Rating Agencies specified in the Preliminary
Statement. If any such organization or a successor is no longer in existence,
"Rating Agency" shall be such nationally recognized statistical rating
organization, or other comparable Person, as is designated by the Depositor,
notice of which designation shall be given to the Trustee. References herein to
a given rating category of a Rating Agency shall mean such rating category
without giving effect to any modifiers. For purposes of Section 10.05(b), the
addresses for notices to each Rating Agency shall be (i) Standard & Poor's
Ratings Group, 26 Broadway, 15th Floor, New York, New York 10004, Attention:
Mortgage Surveillance Monitoring, and (ii) Moody's Investors Service, Inc., 99
Church Street, New York, New York 10007, Attention: Residential Pass-Through
Monitoring, or such other address as either such Rating Agency may hereafter
furnish to the Depositor and the Master Servicer.
Realized Loss: With respect to each Liquidated Mortgage Loan, an amount
(not less than zero or more than the Stated Principal Balance of the Mortgage
Loan) as of the date of such liquidation, equal to (i) the Stated Principal
Balance of the Liquidated Mortgage Loan as of the date of such liquidation, plus
(ii) interest at the Adjusted Net Mortgage Rate from the Due Date as to which
interest was last paid or advanced (and not reimbursed) to Certificateholders up
to the Due Date in the month in which Liquidation Proceeds are required to be
distributed on the Stated Principal Balance of such Liquidated Mortgage Loan
from time to time, minus (iii) the Liquidation Proceeds, if any, received during
the month in which such liquidation occurred, to the extent applied as
recoveries of interest at the Adjusted Net Mortgage Rate and to principal of the
Liquidated Mortgage Loan. With respect to each Mortgage Loan which has become
the subject of a Deficient Valuation, if the principal amount due under the
related Mortgage Note has been reduced, the difference between the principal
balance of the Mortgage Loan outstanding immediately prior to such Deficient
Valuation and the principal balance of the Mortgage Loan as reduced by the
Deficient Valuation. With respect to each Mortgage Loan which has become the
subject of a Debt Service Reduction and any Distribution Date, the amount, if
any, by which the principal portion of the related Scheduled Payment has been
reduced.
Recognition Agreement: With respect to any Cooperative Loan, an
agreement between the Cooperative Corporation and the originator of such
Mortgage Loan which establishes the rights of such originator in the Cooperative
Property.
Record Date: With respect to any Distribution Date, the close of
business on the last Business Day of the month preceding the month in which such
Distribution Date occurs.
Reference Bank: As defined in Section 4.05.
Refinancing Mortgage Loan: Any Mortgage Loan originated in connection
with the refinancing of an existing mortgage loan.
Regular Certificates: As specified in the Preliminary Statement.
Relief Act: The Soldiers' and Sailors' Civil Relief Act of 1940, as
amended.
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Relief Act Reductions: With respect to any Distribution Date and any
Mortgage Loan as to which there has been a reduction in the amount of interest
collectible thereon for the most recently ended calendar month as a result of
the application of the Relief Act, the amount, if any, by which (i) interest
collectible on such Mortgage Loan for the most recently ended calendar month is
less than (ii) interest accrued thereon for such month pursuant to the Mortgage
Note.
REMIC: A "real estate mortgage investment conduit" within the meaning
of section 860D of the Code.
REMIC Change of Law: Any proposed, temporary or final regulation,
revenue ruling, revenue procedure or other official announcement or
interpretation relating to REMICs and the REMIC Provisions issued after the
Closing Date.
REMIC Provisions: Provisions of the federal income tax law relating to
real estate mortgage investment conduits, which appear at sections 860A through
860G of Subchapter M of Chapter 1 of the Code, and related provisions, and
regulations promulgated thereunder, as the foregoing may be in effect from time
to time as well as provisions of applicable state laws.
REO Property: A Mortgaged Property acquired by the Trust Fund through
foreclosure or deed-in-lieu of foreclosure in connection with a defaulted
Mortgage Loan.
Request for Release: The Request for Release submitted by the Master
Servicer to the Trustee, substantially in the form of Exhibits M and N, as
appropriate.
Required Coupon: ____% per annum.
Required Insurance Policy: With respect to any Mortgage Loan, any
insurance policy that is required to be maintained from time to time under this
Agreement.
Residual Certificates: As specified in the Preliminary Statement.
Responsible Officer: When used with respect to the Trustee, any Vice
President, any Assistant Vice President, the Secretary, any Assistant Secretary,
any Trust Officer or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also to whom, with respect to a particular matter, such matter is referred
because of such officer's knowledge of and familiarity with the particular
subject.
Restricted Classes: As defined in Section 4.02(e).
Scheduled Balances: Not applicable.
Scheduled Classes: As specified in the Preliminary Statement.
Scheduled Payment: The scheduled monthly payment on a Mortgage Loan due
on any Due Date allocable to principal and/or interest on such Mortgage Loan
which, unless otherwise specified herein, shall give effect to any related Debt
Service Reduction and any Deficient Valuation that affects the amount of the
monthly payment due on such Mortgage Loan.
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<PAGE> 41
Secondary Planned Principal Clauses: As specified in the Preliminary
Statement.
Securities Act: The Securities Act of 1933, as amended.
Seller: Mellon Mortgage Company, a Colorado corporation, and its
successors and assigns, in its capacity as seller of the Mortgage Loans to the
Depositor.
Senior Certificates: As specified in the Preliminary Statement.
Senior Credit Support Depletion Date: The date on which the Class
Certificate Balance of each Class of Subordinated Certificates has been reduced
to zero.
Senior Percentage: As to any Distribution Date, the percentage
equivalent of a fraction the numerator of which is the aggregate of the Class
Certificate Balances of each Class of Senior Certificates (other than the Class
A-6 and Class PO Certificates) as of such date and the denominator of which is
the aggregate of the Class Certificate Balances of all Classes of Certificates
(other than the Class PO Certificates) as of such date.
Senior Prepayment Percentage: For any Distribution Date during the five
years beginning on the first Distribution Date, 100%. The Senior Prepayment
Percentage for any Distribution Date occurring on or after the fifth anniversary
of the first Distribution Date will, except as provided herein, be as follows:
for any Distribution Date in the first year thereafter, the Senior Percentage
plus 70% of the sum of the Class A-6 Percentage and the Subordinated Percentage
for such Distribution Date; for any Distribution Date in the second year
thereafter, the Senior Percentage plus 60% of the sum of the Class A-6
Percentage and the Subordinated Percentage for such Distribution Date; for any
Distribution Date in the third year thereafter, the Senior Percentage plus 40%
of the sum of the Class A-6 Percentage and the Subordinated Percentage for such
Distribution Date; for any Distribution Date in the fourth year thereafter, the
Senior Percentage plus 20% of the sum of the Class A-6 Percentage and the
Subordinated Percentage for such Distribution Date; and for any Distribution
Date thereafter, the Senior Percentage for such Distribution Date (unless on any
Distribution Date the Senior Percentage exceeds the initial Senior Percentage,
in which case the Senior Prepayment Percentage for such Distribution Date will
once again equal 100%). Notwithstanding the foregoing, no decrease in the Senior
Prepayment Percentage will occur unless one of the Senior Step Down Conditions
is satisfied.
Senior Principal Distribution Amount: As to any Distribution Date, the
sum of (i) the Senior Percentage of the applicable Non-PO Percentage of all
amounts described in clauses (a) through (d) of the definition of "Non-PO
Formula Principal Amount" for such Distribution Date, (ii) with respect to each
Mortgage Loan that became a Liquidated Mortgage Loan during the calendar month
preceding the month of such Distribution Date, the lesser of (x) the Senior
Percentage of the applicable Non-PO Percentage of the Stated Principal Balance
of such Mortgage Loan and (y) either (A) the Senior Prepayment Percentage, if
the Senior Prepayment Percentage is less than 100%, or, if the Senior Prepayment
Percentage equals 100%, the percentage obtained by dividing the Senior
Percentage by the sum of the Senior Percentage and the Class A-6 Percentage or
(B), or (B) if an Excess Loss was sustained with respect to such Liquidated
Mortgage Loan during such prior calendar month, the Senior Percentage, of the
applicable Non-PO Percentage of the amount of the Liquidation Proceeds allocable
to principal received with respect to such Mortgage Loan, and (iii) the Senior
Prepayment Percentage of the
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applicable Non-PO Percentage of the amounts described in clause (f) of the
definition of "Non-PO Formula Principal Amount" for such Distribution Date.
Senior Step Down Conditions: As of the first Distribution Date as to
which any decrease in the Senior Prepayment Percentage applies, (i) the
outstanding principal balance of all Mortgage Loans delinquent 60 days or more
(averaged over the preceding six month period), as a percentage of the aggregate
principal balance of the Subordinate Certificates on such Distribution Date,
does not equal or exceed 50% or (ii) cumulative Realized Losses with respect to
the Mortgage Loans do not exceed (a) with respect to the Distribution Date on
the fifth anniversary of the first Distribution Date, 30% of the Original
Subordinated Principal Balance, (b) with respect to the Distribution Date on the
sixth anniversary of the first Distribution Date, 35% of the Original
Subordinated Principal Balance, (c) with respect to the Distribution Date on the
seventh anniversary of the first Distribution Date, 40% of the Original
Subordinated Principal Balance, (d) with respect to the Distribution Date on the
eighth anniversary of the first Distribution Date, 45% of the Original
Subordinated Principal Balance and (e) with respect to the Distribution Date on
the ninth anniversary of the first Distribution Date, 50% of the Original
Subordinated Principal Balance.
Servicing Advances: All customary, reasonable and necessary "out of
pocket" costs and expenses incurred in the performance by the Master Servicer of
its servicing obligations, including, but not limited to, the cost of (i) the
preservation, restoration and protection of a Mortgaged Property, (ii) any
expenses reimbursable to the Master Servicer pursuant to Section 3.11 and any
enforcement or judicial proceedings, including foreclosures, (iii) the
management and liquidation of any REO Property and (iv) compliance with the
obligations under Section 3.09.
Servicing Officer: Any officer of the Master Servicer involved in, or
responsible for, the administration and servicing of the Mortgage Loans whose
name and facsimile signature appear on a list of servicing officers furnished to
the Trustee by the Master Servicer on the Closing Date pursuant to this
Agreement, as such list may from time to time be amended.
Special Hazard Coverage Termination Date: The point in time at which
the Special Hazard Loss Coverage Amount is reduced to zero.
Special Hazard Loss: Any Realized Loss suffered by a Mortgaged Property
on account of direct physical loss but not including (i) any loss of a type
covered by a hazard insurance policy or a flood insurance policy required to be
maintained with respect to such Mortgaged Property pursuant to Section 3.09 to
the extent of the amount of such loss covered thereby, or (ii) any loss caused
by or resulting from:
(a) normal wear and tear;
(b) fraud, conversion or other dishonest act on the part of
the Trustee, the Master Servicer or any of their agents or employees
(without regard to any portion of the loss not covered by any errors
and omissions policy);
(c) errors in design, faulty workmanship or faulty materials,
unless the collapse of the property or a part thereof ensues and then
only for the ensuing loss;
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(d) nuclear or chemical reaction or nuclear radiation or
radioactive or chemical contamination, all whether controlled or
uncontrolled, and whether such loss be direct or indirect, proximate or
remote or be in whole or in part caused by, contributed to or
aggravated by a peril covered by the definition of the term "Special
Hazard Loss";
(e) hostile or warlike action in time of peace and war,
including action in hindering, combating or defending against an
actual, impending or expected attack:
1. by any government or sovereign power, de jure or
de facto, or by any authority maintaining or using military,
naval or air forces; or
2. by military, naval or air forces; or
3. by an agent of any such government, power,
authority or forces;
(f) any weapon of war employing nuclear fission, fusion or
other radioactive force, whether in time of peace or war; or
(g) insurrection, rebellion, revolution, civil war, usurped
power or action taken by governmental authority in hindering, combating
or defending against such an occurrence, seizure or destruction under
quarantine or customs regulations, confiscation by order of any
government or public authority or risks of contraband or illegal
transportation or trade.
Special Hazard Loss Coverage Amount: With respect to the first
Distribution Date, $_________. With respect to any Distribution Date after the
first Distribution Date, the lesser of (a) the greatest of (i) 1% of the
aggregate of the principal balances of the Mortgage Loans, (ii) twice the
principal balance of the largest Mortgage Loan and (iii) the aggregate of the
principal balances of all Mortgage Loans secured by Mortgaged Properties located
in the single California postal zip code area having the highest aggregate
principal balance of any such zip code area and (b) the Special Hazard Loss
Coverage Amount as of the Closing Date less the amount, if any, of Special
Hazard Losses allocated to the Certificates since the Closing Date. All
principal balances for the purpose of this definition will be calculated as of
the first day of the calendar month preceding the month of such Distribution
Date after giving effect to Scheduled Payments on the Mortgage Loans then due,
whether or not paid.
Special Hazard Mortgage Loan: A Liquidated Mortgage Loan as to which a
Special Hazard Loss has occurred.
SR Interest: The sole class of "residual interest" in the Subsidiary
REMIC.
S&P: Standard & Poor's Ratings Group, a division of McGraw-Hill Inc. If
S&P is designated as a Rating Agency in the Preliminary Statement, for purposes
of Section 10.05(b) the address for notices to S&P shall be Standard & Poor's
Ratings Group, 26 Broadway, 15th Floor, New York, New York 10004, Attention:
Mortgage Surveillance Monitoring, or such other address as S&P may hereafter
furnish to the Depositor and the Master Servicer.
Startup Day: The Closing Date.
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Stated Principal Balance: As to any Mortgage Loan and Due Date, the
unpaid principal balance of such Mortgage Loan as of such Due Date as specified
in the amortization schedule at the time relating thereto (before any adjustment
to such amortization schedule by reason of any moratorium or similar waiver or
grace period) after giving effect to any previous partial Principal Prepayments
and Liquidation Proceeds allocable to principal (other than with respect to any
Liquidated Mortgage Loan) and to the payment of principal due on such Due Date
and irrespective of any delinquency in payment by the related Mortgagor.
Subordinated Certificates: As specified in the Preliminary Statement.
Subordinated Percentage: As to any Distribution Date, 100% minus the
sum of the Senior Percentage and the Class A-6 Percentage for such Distribution
Date.
Subordinated Prepayment Percentage: As to any Distribution Date, the
Combined Prepayment Percentage minus the Class A-6 Prepayment Percentage for
such Distribution Date.
Subordinated Principal Distribution Amount: With respect to any
Distribution Date, an amount equal to (A) the sum of (i) the Subordinated
Percentage of the applicable Non-PO Percentage of all amounts described in
clauses (a) through (d) of the definition of "Non-PO Formula Principal Amount"
for such Distribution Date, (ii) with respect to each Mortgage Loan that became
a Liquidated Mortgage Loan during the calendar month preceding the month of such
Distribution Date, the applicable Non-PO Percentage of the amount of the
Liquidation Proceeds allocated to principal received with respect thereto
remaining after application thereof pursuant to clause (ii) of the definition of
Senior Principal Distribution Amount and clause (ii) of the definition of Class
A-6 Principal Distribution Amount, up to the Subordinated Percentage of the
applicable Non-PO Percentage of the Stated Principal Balance of such Mortgage
Loan and (iii) the Subordinated Prepayment Percentage of the applicable Non-PO
Percentage of all amounts described in clause (f) of the definition of "Non-PO
Formula Principal Amount" for such Distribution Date reduced by (B) the amount
of any payments in respect of Class PO Deferred Amounts on the related
Distribution Date.
Subservicer: Any person to whom the Master Servicer has contracted for
the servicing of all or a portion of the Mortgage Loans pursuant to Section 3.02
hereof.
Subsidiary REMIC: As described in the Preliminary Statement.
Subsidiary REMIC Interest: Any one of the Subsidiary REMIC Regular
Interests or the SR Interest.
Subsidiary REMIC Regular Interest: Any one of the "regular interests"
in the Subsidiary REMIC described in the Preliminary Statement.
Substitute Mortgage Loan: A Mortgage Loan substituted by the Seller for
a Deleted Mortgage Loan which must, on the date of such substitution, as
confirmed in a Request for Release, substantially in the form of Exhibit M, (i)
have a Stated Principal Balance, after deduction of the principal portion of the
Scheduled Payment due in the month of substitution, not in excess of, and not
more than 10% less than the Stated Principal Balance of the Deleted Mortgage
Loan; (ii) be accruing interest at a rate no lower than and not more than 1% per
annum higher than, that of the Deleted
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Mortgage Loan; (iii) have a Loan-to-Value Ratio no higher than that of the
Deleted Mortgage Loan; (iv) have a remaining term to maturity no greater than
(and not more than one year less than that of) the Deleted Mortgage Loan; (v)
not be a Cooperative Loan unless the Deleted Mortgage Loan was a Cooperative
Loan and (vi) comply with each representation and warranty set forth in Section
2.03 hereof.
Substitution Adjustment Amount: The meaning ascribed to such term
pursuant to Section 2.03.
Support Classes: As specified in the Preliminary Statement.
Targeted Balance: Not applicable.
Targeted Principal Classes: As specified in the Preliminary Statement.
Tax Matters Person: The person designated as "tax matters person" in
the manner provided under Treasury regulation ' 1.860F-4(d) and temporary
Treasury regulation ' 301.6231(a)(7)1T. Initially, the Tax Matters Person shall
be the Trustee.
Tax Matters Person Certificate: The Class A-R Certificate with a
Denomination of $1.00.
Transfer: Any direct or indirect transfer or sale of any Ownership
Interest in a Residual Certificate.
Trigger Date: Any Distribution Date on which the Class Certificate
Balance of each Class of Senior Certificates, other than the Class A-6 and Class
PO Certificates, has been reduced to zero.
Trustee: Bankers Trust Company of California, N.A. and its successors
and, if a successor trustee is appointed hereunder, such successor.
Trustee Fee: As to any Distribution Date, an amount equal to
one-twelfth of the Trustee Fee Rate multiplied by the Pool Stated Principal
Balance with respect to such Distribution Date.
Trustee Fee Rate: With respect to each Mortgage Loan, the per annum
rate agreed upon in writing on or prior to the Closing Date by the Trustee and
the Depositor.
Trust Fund: The corpus of the trust created hereunder consisting of (i)
the Mortgage Loans and all interest and principal received on or with respect
thereto after the Cut-off Date to the extent not applied in computing the
Cut-off Date Principal Balance thereof; (ii) the Certificate Account and the
Distribution Account and all amounts deposited therein pursuant to the
applicable provisions of this Agreement; (iii) property that secured a Mortgage
Loan and has been acquired by foreclosure, deed-in-lieu of foreclosure or
otherwise; and (iv) 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, (a) 1% of all Voting Rights shall be allocated to each Class of
Notional Amount Certificates, if any (such Voting Rights to be allocated
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<PAGE> 46
among the holders of Certificates of each such Class in accordance with their
respective Percentage Interests), and (b) the remaining Voting Rights (or 100%
of the Voting Rights if there is no Class of Notional Amount Certificates) shall
be allocated among Holders of the remaining Classes of Certificates in
proportion to the Certificate Balances of their respective Certificates on such
date.
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ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
REPRESENTATIONS AND WARRANTIES
SECTION 2.01. Conveyance of Mortgage Loans.
(a) The Seller, concurrently with the execution and delivery hereof,
hereby sells, transfers, assigns, sets over and otherwise conveys to the
Depositor, without recourse, all the right, title and interest of the Seller in
and to the Mortgage Loans, including all interest and principal received or
receivable by the Seller on or with respect to the Mortgage Loans after the
Cut-off Date and all interest and principal payments on the Mortgage Loans
received prior to the Cut-off Date in respect of installments of interest and
principal due thereafter, but not including payments of principal and interest
due and payable on the Mortgage Loans on or before the Cut-off Date. On or prior
to the Closing Date, the 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 Mortgage Loan listed in the Mortgage Loan Schedule. Such
delivery of the Mortgage Files shall be made against payment by the Depositor of
the purchase price, previously agreed to by the Seller and Depositor, for the
Mortgage Loans. With respect to any Mortgage Loan that does not have a first
payment date on or before the Due Date in the month of the first Distribution
Date, the 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 Mortgage Loan.
(b) The Depositor, concurrently with the execution and delivery hereof,
hereby sells, transfers, assigns, sets over and otherwise conveys to the Trustee
for the benefit of the Certificateholders, without recourse, all the right,
title and interest of the Depositor in and to the Trust Fund together with the
Depositor's right to require the Seller to cure any breach of a representation
or warranty made herein by the Seller or to repurchase or substitute for any
affected Mortgage Loan in accordance herewith.
(c) In connection with the transfer and assignment set forth in clause
(b) above, the Depositor has delivered or caused to be delivered to the Trustee
for the benefit of the Certificateholders the following documents or instruments
with respect to each Mortgage Loan so assigned:
(i) the original Mortgage Note endorsed by manual or
facsimile signature in blank in the following form: "Pay to the order
of ____________ without recourse," with all intervening endorsements
showing a complete chain of endorsement from the originator to the
Person endorsing it to the Trustee (each such endorsement being
sufficient to transfer all right, title and interest of the party so
endorsing, as noteholder or assignee thereof, in and to that Mortgage
Note); provided that for no more than ten Mortgage Loans the Seller may
deliver a lost note affidavit in lieu of the lost original Mortgage
Note.
(ii) except as provided below, the original recorded Mortgage
or a copy of such Mortgage certified by the Seller as being a true and
complete copy of the Mortgage;
(iii) a duly executed assignment of the Mortgage (which may be
included in a blanket assignment or assignments), together with, except
as provided below, all
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interim recorded assignments of such mortgage (each such assignment,
when duly and validly completed, to be in recordable form and
sufficient to effect the assignment of and transfer to the assignee
thereof, under the Mortgage to which the assignment relates); provided
that, if the related Mortgage has not been returned from the applicable
public recording office, such assignment of the Mortgage may exclude
the information to be provided by the recording office;
(iv) the original or copies of each assumption, modification,
written assurance or substitution agreement, if any;
(v) except as provided below, the original or duplicate
original lender's title policy and all riders thereto; and
(vi) in the case of a Cooperative Loan, the originals of the
following documents or instruments:
(a) The Coop Shares, together with a stock power in
blank;
(b) The executed Security Agreement;
(c) The executed Proprietary Lease;
(d) The executed Recognition Agreement;
(e) The executed assignment of Recognition Agreement;
(f) The executed UCC-1 financing statement with
evidence of recording thereon which have been filed in all
places required to perfect the Seller's interest in the Coop
Shares and the Proprietary Lease; and
(g) Executed UCC-3 financing statements or other
appropriate UCC financing statements required by state law,
evidencing a complete and unbroken line from the mortgagee to
the Trustee with evidence of recording thereon (or in a form
suitable for recordation).
In the event that in connection with any Mortgage Loan the Depositor
cannot deliver (a) the original recorded Mortgage, (b) all interim recorded
assignments or (c) the lender's title policy (together with all riders thereto)
satisfying the requirements of clause (ii), (iii) or (v) above, respectively,
concurrently with the execution and delivery hereof because such document or
documents have not been returned from the applicable public recording office in
the case of clause (ii) or (iii) above, or because the title policy has not been
delivered to either the Master Servicer or the Depositor by the applicable title
insurer in the case of clause (v) above, the Depositor shall promptly deliver to
the Trustee, in the case of clause (ii) or (iii) above, such original Mortgage
or such interim assignment, as the case may be, with evidence of recording
indicated thereon upon receipt thereof from the public recording office, or a
copy thereof, certified, if appropriate, by the relevant recording office, but
in no event shall any such delivery of the original Mortgage and each such
interim assignment or a copy thereof, certified, if appropriate, by the relevant
recording office, be made later than one year following the Closing Date, or, in
the case of clause (v) above, no later than 120 days following the Closing Date;
provided, however, in
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the event the Depositor is unable to deliver by such date each Mortgage and each
such interim assignment by reason of the fact that any such documents have not
been returned by the appropriate recording office, or, in the case of each such
interim assignment, because the related Mortgage has not been returned by the
appropriate recording office, the Depositor shall deliver such documents to the
Trustee as promptly as possible upon receipt thereof and, in any event, within
720 days following the Closing Date. The Depositor shall forward or cause to be
forwarded to the Trustee (a) from time to time additional original documents
evidencing an assumption or modification of a Mortgage Loan and (b) any other
documents required to be delivered by the Depositor or the Master Servicer to
the Trustee. In the event that the original Mortgage is not delivered and in
connection with the payment in full of the related Mortgage Loan and the public
recording office requires the presentation of a "lost instruments affidavit and
indemnity" or any equivalent document, because only a copy of the Mortgage can
be delivered with the instrument of satisfaction or reconveyance, the Master
Servicer shall execute and deliver or cause to be executed and delivered such a
document to the public recording office. In the case where a public recording
office retains the original recorded Mortgage or in the case where a Mortgage is
lost after recordation in a public recording office, the 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 Trustee shall (i)
affix the Trustee's name to each assignment of Mortgage, as the assignee
thereof, (ii) cause such assignment to be in proper form for recording in the
appropriate public office for real property records and (iii) cause to be
delivered for recording in the appropriate public office for real property
records the assignments of the Mortgages to the Trustee, except that, with
respect to any assignments of Mortgage as to which the Trustee has not received
the information required to prepare such assignment in recordable form, the
Trustee's obligation to do so and to deliver the same for such recording shall
be as soon as practicable after receipt of such information and in any event
within thirty (30) days after receipt thereof and that the Trustee need not
cause to be recorded any assignment which relates to a Mortgage Loan (a) the
Mortgaged Property and Mortgage File relating to which are located in California
or (b) in any other jurisdiction under the laws of which, as evidenced by an
Opinion of Counsel delivered by the Seller (at the Seller's expense) to the
Trustee, the recordation of such assignment is not necessary to protect the
Trustee's and the Certificateholders' interest in the related Mortgage Loan].
In the case of Mortgage Loans that have been prepaid in full as of the
Closing Date, the Depositor, in lieu of delivering the above documents to the
Trustee, will deposit in the Certificate Account the portion of such payment
that is required to be deposited in the Certificate Account pursuant to Section
3.08 hereof.
SECTION 2.02. Acceptance by Trustee of the Mortgage Loans.
The Trustee acknowledges receipt of the documents identified in the
Initial Certification in the form annexed hereto as Exhibit G and declares that
it holds and will hold such documents and the other documents delivered to it
constituting the Mortgage Files, and that it holds or will hold such other
assets as are included in the Trust Fund, in trust for the exclusive use and
benefit of all present and future Certificateholders. The Trustee acknowledges
that it will maintain possession of the Mortgage Notes in the State of
California, unless otherwise permitted by the Rating Agencies.
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The Trustee agrees to execute and deliver on the Closing Date to the
Depositor, the Master Servicer and the Seller an Initial Certification in the
form annexed hereto as Exhibit G. Based on its review and examination, and only
as to the documents identified in such Initial Certification, the Trustee
acknowledges that such documents appear regular on their face and relate to such
Mortgage Loan. The Trustee shall be under no duty or obligation to inspect,
review or examine said documents, instruments, certificates or other papers to
determine that the same are genuine, enforceable or appropriate for the
represented purpose or that they have actually been recorded in the real estate
records or that they are other than what they purport to be on their face.
Not later than 90 days after the Closing Date, the Trustee shall
deliver to the Depositor, the Master Servicer and the Seller a Final
Certification in the form annexed hereto as Exhibit H, with any applicable
exceptions noted thereon.
If, in the course of such review, the Trustee finds any document
constituting a part of a Mortgage File which does not meet the requirements of
Section 2.01, the Trustee shall list such as an exception in the Final
Certification; provided, however that the Trustee shall not make any
determination as to whether (i) any endorsement is sufficient to transfer all
right, title and interest of the party so endorsing, as noteholder or assignee
thereof, in and to that Mortgage Note or (ii) any assignment is in recordable
form or is sufficient to effect the assignment of and transfer to the assignee
thereof under the mortgage to which the assignment relates. The Seller shall
promptly correct or cure such defect within 90 days from the date it was so
notified of such defect and, if the Seller does not correct or cure such defect
within such period, the Seller shall either (a) substitute for the related
Mortgage Loan a Substitute Mortgage Loan, which substitution shall be
accomplished in the manner and subject to the conditions set forth in Section
2.03, or (b) purchase such Mortgage Loan from the Trustee within 90 days from
the date the Seller was notified of such defect in writing at the Purchase Price
of such Mortgage Loan; provided, however, that in no event shall such
substitution or purchase occur more than 540 days from the Closing Date, except
that if the substitution or purchase of a Mortgage Loan pursuant to this
provision is required by reason of a delay in delivery of any documents by the
appropriate recording office, and there is a dispute between either the Master
Servicer or the Seller and the Trustee over the location or status of the
recorded document, then such substitution or purchase shall occur within 720
days from the Closing Date. The Trustee shall deliver written notice to each
Rating Agency within 270 days from the Closing Date indicating each Mortgage
Loan (a) which has not been returned by the appropriate recording office or (b)
as to which there is a dispute as to location or status of such Mortgage Loan.
Such notice shall be delivered every 90 days thereafter until the related
Mortgage Loan is returned to the Trustee. Any such substitution pursuant to (a)
above or purchase pursuant to (b) above shall not be effected prior to the
delivery to the Trustee of the Opinion of Counsel required by Section 2.05
hereof, if any, and any substitution pursuant to (a) above shall not be effected
prior to the additional delivery to the Trustee of a Request for Release
substantially in the form of Exhibit N. No substitution is permitted to be made
in any calendar month after the Determination Date for such month. The Purchase
Price for any such Mortgage Loan shall be deposited by the Seller in the
Certificate Account on or prior to the Distribution Account Deposit Date for the
Distribution Date in the month following the month of repurchase and, upon
receipt of such deposit and certification with respect thereto in the form of
Exhibit N hereto, the Trustee shall release the related Mortgage File to the
Seller and shall execute and deliver at the Seller's request such instruments of
transfer or assignment prepared by the Seller, in each case without recourse, as
shall be necessary to vest in the Seller, or a designee, the Trustee's interest
in any Mortgage Loan released pursuant hereto.
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The Trustee shall retain possession and custody of each Mortgage
File in accordance with and subject to the terms and conditions set forth
herein. The Master Servicer shall promptly deliver to the Trustee, upon the
execution or receipt thereof, the originals of such other documents or
instruments constituting the Mortgage File as come into the possession of the
Master Servicer from time to time.
It is understood and agreed that the obligation of the Seller to
substitute for or to purchase any Mortgage Loan which does not meet the
requirements of Section 2.01 above shall constitute the sole remedy respecting
such defect available to the Trustee, the Depositor and any Certificateholder
against the Seller.
SECTION 2.03. Representations, Warranties and Covenants of the
Seller and Master Servicer.
(a) Mellon Mortgage Company, in its capacities as Seller and Master
Servicer, hereby makes the representations and warranties set forth in Schedule
II hereto, and by this reference incorporated herein, to the Depositor and the
Trustee, as of the Closing Date, or if so specified therein, as of the Cut-off
Date.
(b) The Seller, in its capacity as Seller, hereby makes the
representations and warranties set forth in Schedule III hereto, and by this
reference incorporated herein, to the Depositor and the Trustee, as of the
Closing Date, or if so specified therein, as of the Cut-off Date.
(c) Upon discovery by any of the parties hereto 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 in any Mortgage Loan,
the party discovering such breach shall give prompt notice thereof to the other
parties. The Seller hereby covenants that within 90 days of the earlier of its
discovery or its receipt of written notice from any party of a breach of any
representation or warranty made pursuant to Section 2.03(b) which materially and
adversely affects the interests of the Certificateholders in any Mortgage Loan,
it shall cure such breach in all material respects, and if such breach is not so
cured, shall, (i) if such 90-day period expires prior to the second anniversary
of the Closing Date, remove such Mortgage Loan (a "Deleted Mortgage Loan") from
the Trust Fund and substitute in its place a Substitute Mortgage Loan, in the
manner and subject to the conditions set forth in this Section; or (ii)
repurchase the affected Mortgage Loan or Mortgage Loans from the Trustee at the
Purchase Price in the manner set forth below; provided, however, that any such
substitution pursuant to (i) above shall not be effected prior to the delivery
to the Trustee of the Opinion of Counsel required by Section 2.05 hereof, if
any, and any such substitution pursuant to (i) above shall not be effected prior
to the additional delivery to the Trustee of a Request for Release substantially
in the form of Exhibit N and the Mortgage File for any such Substitute Mortgage
Loan. In connection with any obligation of the Seller to repurchase or
substitute an affected Mortgage Loan pursuant to this Section 2.03 as a result
of material damage to the related Mortgaged Property attributable to the Flood,
the Seller agrees to use its best efforts to effect a substitution of such
affected Mortgage Loan pursuant to clause (i) above. The Seller shall promptly
reimburse the Master Servicer and the Trustee for any expenses reasonably
incurred by the Master Servicer or the Trustee in respect of enforcing the
remedies for such breach. With respect to the representations and warranties
described in this Section which are made to the best of the Seller's knowledge,
if it is discovered by either the Depositor, the Seller or the Trustee that the
substance of such representation and warranty is inaccurate and such inaccuracy
materially and adversely
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affects the value of the related Mortgage Loan or the interests of the
Certificateholders therein, notwithstanding the Seller's lack of knowledge with
respect to the substance of such representation or warranty, such inaccuracy
shall be deemed a breach of the applicable representation or warranty.
With respect to any Substitute Mortgage Loan or Loans, the Seller
shall deliver to the Trustee for the benefit of the Certificateholders the
Mortgage Note, the Mortgage, the related assignment of the Mortgage, and such
other documents and agreements as are required by Section 2.01, with the
Mortgage Note endorsed and the Mortgage assigned as required by Section 2.01. No
substitution is permitted to be made in any calendar month after the
Determination Date for such month. Scheduled Payments due with respect to
Substitute Mortgage Loans in the month of substitution shall not be part of the
Trust Fund and will be retained by the Seller on the next succeeding
Distribution Date. For the month of substitution, distributions to
Certificateholders will include the monthly payment due on any Deleted Mortgage
Loan for such month and thereafter the Seller shall be entitled to retain all
amounts received in respect of such Deleted Mortgage Loan. The Master Servicer
shall amend the Mortgage Loan Schedule for the benefit of the Certificateholders
to reflect the removal of such Deleted Mortgage Loan and the substitution of the
Substitute Mortgage Loan or Loans and the Master Servicer shall deliver the
amended Mortgage Loan Schedule to the Trustee. Upon such substitution, the
Substitute Mortgage Loan or Loans shall be subject to-the terms of this
Agreement in all respects, and the Seller shall be deemed to have made with
respect to such Substitute Mortgage Loan or Loans, as of the date of
substitution, the representations and warranties made pursuant to Section
2.03(b) with respect to such Mortgage Loan. Upon any such substitution and the
deposit to the Certificate Account of the amount required to be deposited
therein in connection with such substitution as described in the following
paragraph, the Trustee shall release the Mortgage File held for the benefit of
the Certificateholders relating to such Deleted Mortgage Loan to the Seller and
shall execute and deliver at the Seller's direction such instruments of transfer
or assignment prepared by the Seller, in each case without recourse, as shall be
necessary to vest title in the Seller, or its designee, the Trustee's interest
in any Deleted Mortgage Loan substituted for pursuant to this Section 2.03.
For any month in which the Seller substitutes one or more Substitute
Mortgage Loans for one or more Deleted Mortgage Loans, the Master Servicer will
determine the amount (if any) by which the aggregate principal balance of all
such Substitute Mortgage Loans as of the date of substitution is less than the
aggregate Stated Principal Balance of all such Deleted Mortgage Loans (after
application of the scheduled principal portion of the monthly payments due in
the month of substitution). The amount of such shortage (the "Substitution
Adjustment Amount") plus an amount equal to the aggregate of any unreimbursed
Advances with respect to such Deleted Mortgage Loans shall be deposited in the
Certificate Account by the Seller on or before the Distribution Account Deposit
Date for the Distribution Date in the month succeeding the calendar month during
which the related Mortgage Loan became required to be purchased or replaced
hereunder.
In the event that the Seller shall have repurchased a Mortgage Loan,
the Purchase Price therefor shall be deposited in the Certificate Account
pursuant to Section 3.05 on or before the Distribution Account Deposit Date for
the Distribution Date in the month following the month during which the Seller
became obligated hereunder to repurchase or replace such Mortgage Loan and upon
such deposit of the Purchase Price, the delivery of the Opinion of Counsel
required by Section 2.05 and receipt of a Request for Release in the form of
Exhibit N hereto, the Trustee shall release the related Mortgage File held for
the benefit of the Certificateholders to such Person, and the Trustee shall
execute and deliver at such Person's direction such instruments of transfer or
assignment prepared by such
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Person, in each case without recourse, as shall be necessary to transfer title
from the Trustee. It is understood and agreed that the obligation under this
Agreement of any Person to cure, repurchase or replace any Mortgage Loan as to
which a breach has occurred and is continuing shall constitute the sole remedy
against such Persons respecting such breach available to Certificateholders, the
Depositor or the Trustee on their behalf.
The representations and warranties made pursuant to this Section
2.03 shall survive delivery of the respective Mortgage Files to the Trustee for
the benefit of the Certificateholders.
SECTION 2.04. Representations and Warranties of the Depositor as to
the Mortgage Loans.
The Depositor hereby represents and warrants to the Trustee with
respect to each Mortgage Loan as of the date hereof or such other date set forth
herein that as of the Closing Date, and following the transfer of the Mortgage
Loans to it by the Seller, the Depositor had good title to the Mortgage Loans
and the Mortgage Notes were subject to no offsets, defenses or counterclaims
arising from the action or inaction of the Depositor..
The Depositor hereby assigns, transfers and conveys to the Trustee
all of its rights with respect to the Mortgage Loans including, without
limitation, the representations and warranties of the Seller made pursuant to
Section 2.03(b) hereof, together with all rights of the Depositor to require the
Seller to cure any breach thereof or to repurchase or substitute for any
affected Mortgage Loan in accordance with this Agreement.
It is understood and agreed that the representations and warranties
set forth in this Section 2.04 shall survive delivery of the Mortgage Files to
the Trustee. Upon discovery by the Depositor or the Trustee of a breach of any
of the foregoing representations and warranties set forth in this Section 2.04
(referred to herein as a "breach"), which breach materially and adversely
affects the interest of the Certificateholders, the party discovering such
breach shall give prompt written notice to the others and to each Rating Agency.
SECTION 2.05. Delivery of Opinion of Counsel in Connection with
Substitutions.
(a) Notwithstanding any contrary provision of this Agreement, no
substitution pursuant to Section 2.02 or Section 2.03 shall be made more than 90
days after the Closing Date unless the Seller delivers to the Trustee an Opinion
of Counsel, which Opinion of Counsel shall not be at the expense of either the
Trustee or the Trust Fund, addressed to the Trustee, to the effect that such
substitution will not (i) result in the imposition of the tax on "prohibited
transactions" on the Trust Fund or contributions after the Startup Date, as
defined in Sections 860F(a)(2) and 860G(d) of the Code, respectively, or (ii)
cause the Trust Fund to fail to qualify as a REMIC at any time that any
Certificates are outstanding.
(b) Upon discovery by the Depositor, the Seller, the Master
Servicer, or the Trustee that any Mortgage Loan does not constitute a "qualified
mortgage" within the meaning of Section 860G(a)(3) of the Code, the party
discovering such fact shall promptly (and in any event within five (5) Business
Days of discovery) give written notice thereof to the other parties. In
connection therewith, the Trustee shall require the Seller, at the Seller's
option, to either (i) substitute, if the conditions in Section
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2.03(c) with respect to substitutions are satisfied, a Substitute Mortgage Loan
for the affected Mortgage Loan, or (ii) repurchase the affected Mortgage Loan
within 90 days of such discovery in the same manner as it would a Mortgage Loan
for a breach of representation or warranty made pursuant to Section 2.03. The
Trustee shall reconvey to the Seller the Mortgage Loan to be released pursuant
hereto in the same manner, and on the same terms and conditions, as it would a
Mortgage Loan repurchased for breach of a representation or warranty contained
in Section 2.03.
SECTION 2.06. Execution and Delivery of Certificates.
The Trustee acknowledges the transfer and assignment to it of the
Trust Fund and, concurrently with such transfer and assignment, has executed and
delivered to or upon the order of the Depositor, the Certificates in authorized
denominations evidencing directly or indirectly the entire ownership of the
Trust Fund. The Trustee agrees to hold the Trust Fund and exercise the rights
referred to above for the benefit of all present and future Holders of the
Certificates and to perform the duties set forth in this Agreement to the best
of its ability, to the end that the interests of the Holders of the Certificates
may be adequately and effectively protected.
SECTION 2.07. REMIC Matters.
The Preliminary Statement sets forth the designations and "latest
possible maturity date" for federal income tax purposes of all interests created
hereby. The "Startup Day" for purposes of the REMIC Provisions shall be the
Closing Date. The "tax matters person" with respect to each REMIC hereunder
shall be the Trustee and the Trustee shall hold the Tax Matters Person
Certificate. Each REMIC's fiscal year shall be the calendar year.
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ARTICLE III
ADMINISTRATION AND SERVICING
OF MORTGAGE LOANS
SECTION 3.01. Master Servicer to Service Mortgage Loans.
For and on behalf of the Certificateholders, the Master Servicer
shall service and administer the Mortgage Loans in accordance with the terms of
this Agreement and customary and usual standards of practice of prudent mortgage
loan servicers. In connection with such servicing and administration, the Master
Servicer shall have full power and authority, acting alone and/or through
Subservicers as provided in Section 3.02 hereof, to do or cause to be done any
and all things that it may deem necessary or desirable in connection with such
servicing and administration, including but not limited to, the power and
authority, subject to the terms hereof (i) to execute and deliver, on behalf of
the Certificateholders and the Trustee, customary consents or waivers and other
instruments and documents, (ii) to consent to transfers of any Mortgaged
Property and assumptions of the Mortgage Notes and related Mortgages (but only
in the manner provided in this Agreement), (iii) to collect any Insurance
Proceeds and other Liquidation Proceeds, and (iv) to effectuate foreclosure or
other conversion of the ownership of the Mortgaged Property securing any
Mortgage Loan; provided that the Master Servicer shall not take any action that
is inconsistent with or prejudices the interests of the Trust Fund or the
Certificateholders in any Mortgage Loan or the rights and interests of the
Depositor, the Trustee and the Certificateholders under this Agreement. The
Master Servicer shall represent and protect the interests of the Trust Fund in
the same manner as it protects its own interests in mortgage loans in its own
portfolio in any claim, proceeding or litigation regarding a Mortgage Loan, and
shall not make or permit any modification, waiver or amendment of any Mortgage
Loan which would cause the Trust Fund to fail to qualify as a REMIC or result in
the imposition of any tax under Section 860F(a) or Section 860G(d) of the Code.
Without limiting the generality of the foregoing, the Master Servicer, in its
own name or in the name of the Depositor and the Trustee, is hereby authorized
and empowered by the Depositor and the Trustee, when the Master Servicer
believes it appropriate in its reasonable judgment, to execute and deliver, on
behalf of the Trustee, the Depositor, the Certificateholders or any of them, any
and all instruments of satisfaction or cancellation, or of partial or full
release or discharge and all other comparable instruments, with respect to the
Mortgage Loans, and with respect to the Mortgaged Properties held for the
benefit of the Certificateholders. The Master Servicer shall prepare and deliver
to the Depositor and/or the Trustee such documents requiring execution and
delivery by either or both of them as are necessary or appropriate to enable the
Master Servicer to service and administer the Mortgage Loans to the extent that
the Master Servicer is not permitted to execute and deliver such documents
pursuant to the preceding sentence. Upon receipt of such documents, the
Depositor and/or the Trustee shall execute such documents and deliver them to
the Master Servicer.
In accordance with the standards of the preceding paragraph, the
Master Servicer shall advance or cause to be advanced funds as necessary for the
purpose of effecting the payment of taxes and assessments on the Mortgaged
Properties, which advances shall be reimbursable in the first instance from
related collections from the Mortgagors pursuant to Section 3.06, and further as
provided in Section 3.08. The costs incurred by the Master Servicer, if any, in
effecting the timely payments of taxes and assessments on the Mortgaged
Properties and related insurance premiums shall not, for the purpose of
calculating monthly distributions to the Certificateholders, be added to the
Stated Principal Balances of the related Mortgage Loans, notwithstanding that
the terms of such Mortgage Loans so permit.
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SECTION 3.02. Subservicing; Enforcement of the Obligations of
Servicers.
(a) The Master Servicer may arrange for the subservicing of any
Mortgage Loan by a Subservicer pursuant to a subservicing agreement; provided,
however, that such subservicing arrangement and the terms of the related
subservicing agreement must provide for the servicing of such Mortgage Loans in
a manner consistent with the servicing arrangements contemplated hereunder.
Unless the context otherwise requires, references in this Agreement to actions
taken or to be taken by the Master Servicer in servicing the Mortgage Loans
include actions taken or to be taken by a Subservicer on behalf of the Master
Servicer. Notwithstanding the provisions of any subservicing agreement, any of
the provisions of this Agreement relating to agreements or arrangements between
the Master Servicer and a Subservicer or reference to actions taken through a
Subservicer or otherwise, the Master Servicer shall remain obligated and liable
to the Depositor, the Trustee and the Certificateholders for the servicing and
administration of the Mortgage Loans in accordance with the provisions of this
Agreement without diminution of such obligation or liability by virtue of such
subservicing agreements or arrangements or by virtue of indemnification from the
Subservicer and to the same extent and under the same terms and conditions as if
the Master Servicer alone were servicing and administering the Mortgage Loans.
All actions of each Subservicer performed pursuant to the related subservicing
agreement shall be performed as an agent of the Master Servicer with the same
force and effect as if performed directly by the Master Servicer.
(b) For purposes of this Agreement, the Master Servicer shall be
deemed to have received any collections, recoveries or payments with respect to
the Mortgage Loans that are received by a Subservicer regardless of whether such
payments are remitted by the Subservicer to the Master Servicer.
SECTION 3.03. Rights of the Depositor and the Trustee in Respect of
the Master Servicer.
The Depositor may, but is not obligated to, enforce the obligations
of the Master Servicer hereunder and may, but is not obligated to, perform, or
cause a designee to perform, any defaulted obligation of the Master Servicer
hereunder and in connection with any such defaulted obligation to exercise the
related rights of the Master Servicer hereunder; provided that the Master
Servicer shall not be relieved of any of its obligations hereunder by virtue of
such performance by the Depositor or its designee. Neither the Trustee nor the
Depositor shall have any responsibility or liability for any action or failure
to act by the Master Servicer nor shall the Trustee or the Depositor be
obligated to supervise the performance of the Master Servicer hereunder or
otherwise.
SECTION 3.04. Trustee to Act as Master Servicer.
In the event that the Master Servicer shall for any reason no longer
be the Master Servicer hereunder (including by reason of an Event of Default),
the Trustee or its successor shall thereupon assume all of the rights and
obligations of the Master Servicer hereunder arising thereafter (except that the
Trustee shall not be (i) liable for losses of the Master Servicer pursuant to
Section 3.09 hereof or any acts or omissions of the predecessor Master Servicer
hereunder), (ii) obligated to make Advances if it is prohibited from doing so by
applicable law, (iii) obligated to effectuate repurchases or substitutions of
Mortgage Loans hereunder including, but not limited to, repurchases or
substitutions of
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Mortgage Loans pursuant to Section 2.02 or 2.03 hereof, (iv) responsible for
expenses of the Master Servicer pursuant to Section 2.03 or (v) deemed to have
made any representations and warranties of the Master Servicer hereunder). Any
such assumption shall be subject to Section 7.02 hereof. If the Master Servicer
shall for any reason no longer be the Master Servicer (including by reason of
any Event of Default), the Trustee or its successor shall succeed to any rights
and obligations of the Master Servicer under each subservicing agreement.
The Master Servicer shall, upon request of the Trustee, but at the
expense of the Master Servicer, deliver to the assuming party all documents and
records relating to each subservicing agreement or substitute subservicing
agreement and the Mortgage Loans then being serviced thereunder and an
accounting of amounts collected or held by it and otherwise use its best efforts
to effect the orderly and efficient transfer of the substitute subservicing
agreement to the assuming party.
SECTION 3.05. Collection of Mortgage Loan Payments; Certificate
Account; Distribution Account.
(a) The Master Servicer shall make reasonable efforts in accordance
with the customary and usual standards of practice of prudent mortgage servicers
to collect all payments called for under the terms and provisions of the
Mortgage Loans to the extent such procedures shall be consistent with this
Agreement and the terms and provisions of any related Required Insurance Policy.
Consistent with the foregoing, the Master Servicer may in its discretion (i)
waive any late payment charge or any prepayment charge or penalty interest in
connection with the prepayment of a Mortgage Loan and (ii) extend the due dates
for payments due on a Mortgage Note for a period not greater than 180 days;
provided, however, that the Master Servicer cannot extend the maturity of any
such Mortgage Loan past the date on which the final payment is due on the latest
maturing Mortgage Loan as of the Cut-off Date. In the event of any such
arrangement, the Master Servicer shall make Advances on the related Mortgage
Loan in accordance with the provisions of Section 4.01 during the scheduled
period in accordance with the amortization schedule of such Mortgage Loan
without modification thereof by reason of such arrangements. The Master Servicer
shall not be required to institute or join in litigation with respect to
collection of any payment (whether under a Mortgage, Mortgage Note or otherwise
or against any public or governmental authority with respect to a taking or
condemnation) if it reasonably believes that enforcing the provision of the
Mortgage or other instrument pursuant to which such payment is required is
prohibited by applicable law.
(b) The Master Servicer shall establish and maintain a Certificate
Account into which the Master Servicer shall deposit or cause to be deposited on
a daily basis within one Business Day of receipt, except as otherwise
specifically provided herein, the following payments and collections remitted by
Subservicers or received by it in respect of Mortgage Loans subsequent to the
Cut-off Date (other than in respect of principal and interest due on the
Mortgage Loans on or before the Cut-off Date) and the following amounts required
to be deposited hereunder:
(i) all payments on account of principal on the Mortgage Loans,
including Principal Prepayments;
(ii) all payments on account of interest on the Mortgage Loans, net
of the related Master Servicing Fee;
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(iii) all Insurance Proceeds and Liquidation Proceeds, other than
proceeds to be applied to the restoration or repair of the Mortgaged
Property or released to the Mortgagor in accordance with the Master
Servicer's normal servicing procedures;
(iv) any amount required to be deposited by the Master Servicer
pursuant to Section 3.05(e) in connection with any losses on Permitted
Investments;
(v) any amounts required to be deposited by the Master Servicer
pursuant to Section 3.09(b), 3.09(d), and in respect of net monthly rental
income from REO Property pursuant to Section 3.11 hereof;
(vi) all Substitution Adjustment Amounts;
(vii) all Advances made by the Master Servicer pursuant to Section
4.01; and
(viii) any other amounts required to be deposited hereunder.
In addition, with respect to any Mortgage Loan that is subject to a
buydown agreement, on each Due Date for such Mortgage Loan, in addition to the
monthly payment remitted by the Mortgagor, the Master Servicer shall cause funds
to be deposited into the Certificate Account in an amount required to cause an
amount of interest to be paid with respect to such Mortgage Loan equal to the
amount of interest that has accrued on such Mortgage Loan from the preceding Due
Date at the Mortgage Rate net of the related Master Servicing Fee on such date.
The foregoing requirements for remittance by the Master Servicer
shall be exclusive, it being understood and agreed that, without limiting the
generality of the foregoing, payments in the nature of prepayment penalties,
late payment charges or assumption fees, if collected, need not be remitted by
the Master Servicer. In the event that the Master Servicer shall remit any
amount not required to be remitted, it may at any time withdraw or direct the
institution maintaining the Certificate Account to withdraw such amount from the
Certificate Account, any provision herein to the contrary notwithstanding. Such
withdrawal or direction may be accomplished by delivering written notice thereof
to the Trustee or such other institution maintaining the Certificate Account
which describes the amounts deposited in error in the Certificate Account. The
Master Servicer shall maintain adequate records with respect to all withdrawals
made pursuant to this Section. All funds deposited in the Certificate Account
shall be held in trust for the Certificateholders until withdrawn in accordance
with Section 3.08.
(c) The Trustee shall establish and maintain, on behalf of the
Certificateholders, the Distribution Account. The Trustee shall, promptly upon
receipt, deposit in the Distribution Account and retain therein the following:
(i) the aggregate amount remitted by the Master Servicer to the
Trustee pursuant to Section 3.08(a)(ix);
(ii) any amount deposited by the Master Servicer pursuant to Section
3.05(d) in connection with any losses on Permitted Investments; and
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(iii) any other amounts deposited hereunder which are required to be
deposited in the Distribution Account.
In the event that the Master Servicer shall remit any amount not
required to be remitted, it may at any time direct the Trustee to withdraw such
amount from the Distribution Account, any provision herein to the contrary
notwithstanding. Such direction may be accomplished by delivering an Officer's
Certificate to the Trustee which describes the amounts deposited in error in the
Distribution Account. All funds deposited in the Distribution Account shall be
held by the Trustee in trust for the Certificateholders until disbursed in
accordance with this Agreement or withdrawn in accordance with Section 3.08. In
no event shall the Trustee incur liability for withdrawals from the Distribution
Account at the direction of the Master Servicer.
(d) Each institution at which the Certificate Account or the
Distribution Account is maintained shall invest the funds therein as directed in
writing by the Master Servicer in Permitted Investments, which shall mature not
later than (i) in the case of the Certificate Account, the second Business Day
next preceding the related Distribution Account Deposit Date (except that if
such Permitted Investment is an obligation of the institution that maintains
such account, then such Permitted Investment shall mature not later than the
Business Day next preceding such Distribution Account Deposit Date) and (ii) in
the case of the Distribution Account, the Business Day next preceding the
Distribution Date (except that if such Permitted Investment is an obligation of
the institution that maintains such fund or account, then such Permitted
Investment shall mature not later than such Distribution Date) and, in each
case, shall not be sold or disposed of prior to its maturity. All such Permitted
Investments shall be made in the name of the Trustee, for the benefit of the
Certificateholders. All income and gain net of any losses realized from any such
investment of funds on deposit in the Certificate Account or the Distribution
Account shall be for the benefit of the Master Servicer as servicing
compensation and shall be remitted to it monthly as provided herein. The amount
of any realized losses in the Certificate Account or the Distribution Account
incurred in any such account in respect of any such investments shall promptly
be deposited by the Master Servicer in the Certificate Account or paid to the
Trustee for deposit into the Distribution Account, as applicable.
(e) The Master Servicer shall give notice to the Trustee, the
Seller, each Rating Agency and the Depositor of any proposed change of the
location of the Certificate Account prior to any change thereof. The Trustee
shall give notice to the Master Servicer, the Seller, each Rating Agency and the
Depositor of any proposed change of the location of the Distribution Account
prior to any change thereof.
SECTION 3.06. Collection of Taxes, Assessments and Similar Items;
Escrow Accounts.
(a) To the extent required by the related Mortgage Note and not
violative of current law, the Master Servicer shall establish and maintain one
or more accounts (each, an "Escrow Account") and deposit and retain therein all
collections from the Mortgagors (or advances by the Master Servicer) for the
payment of taxes, assessments, hazard insurance premiums or comparable items for
the account of the Mortgagors. Nothing herein shall require the Master Servicer
to compel a Mortgagor to establish an Escrow Account in violation of applicable
law.
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(b) Withdrawals of amounts so collected from the Escrow Accounts may
be made only to effect timely payment of taxes, assessments, hazard insurance
premiums, condominium or PUD association dues, or comparable items, to reimburse
the Master Servicer out of related collections for any payments made pursuant to
Sections 3.01 hereof (with respect to taxes and assessments and insurance
premiums) and 3.09 hereof (with respect to hazard insurance), to refund to any
Mortgagors any sums determined to be overages, to pay interest, if required by
law or the terms of the related Mortgage or Mortgage Note, to Mortgagors on
balances in the Escrow Account or to clear and terminate the Escrow Account at
the termination of this Agreement in accordance with Section 9.01 hereof. The
Escrow Accounts shall not be a part of the Trust Fund.
(c) The Master Servicer shall advance any payments referred to in
Section 3.06(a) that are not timely paid by the Mortgagors on the date when the
tax, premium or other cost for which such payment is intended is due, but the
Master Servicer shall be required so to advance only to the extent that such
advances, in the good faith judgment of the Master Servicer, will be recoverable
by the Master Servicer out of Insurance Proceeds, Liquidation Proceeds or
otherwise.
SECTION 3.07. Access to Certain Documentation and Information
Regarding the Mortgage Loans.
The Master Servicer shall afford the Depositor and the Trustee
reasonable access to all records and documentation regarding the Mortgage Loans
and all accounts, insurance information and other matters relating to this
Agreement, such access being afforded without charge, but only upon reasonable
request and during normal business hours at the office designated by the Master
Servicer.
Upon reasonable advance notice in writing, the Master Servicer will
provide to each Certificateholder which is a savings and loan association, bank
or insurance company certain reports and reasonable access to information and
documentation regarding the Mortgage Loans sufficient to permit such
Certificateholder to comply with applicable regulations of the OTS or other
regulatory authorities with respect to investment in the Certificates; provided
that the Master Servicer shall be entitled to be reimbursed by each such
Certificateholder for actual expenses incurred by the Master Servicer in
providing such reports and access.
SECTION 3.08. Permitted Withdrawals from the Certificate Account and
Distribution Account.
(a) The Master Servicer may from time to time make withdrawals from
the Certificate Account for the following purposes:
(i) to pay to the Master Servicer (to the extent not previously
retained by the Master Servicer) the servicing compensation to which it is
entitled pursuant to Section 3.14, and to pay to the Master Servicer, as
additional servicing compensation, earnings on or investment income with
respect to funds in or credited to the Certificate Account;
(ii) to reimburse the Master Servicer for unreimbursed Advances made
by it, such right of reimbursement pursuant to this subclause (ii) being
limited to amounts received on the Mortgage Loan(s) in respect of which
any such Advance was made;
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(iii) to reimburse the Master Servicer for any Nonrecoverable
Advance previously made;
(iv) to reimburse the Master Servicer for Insured Expenses from the
related Insurance Proceeds;
(v) to reimburse the Master Servicer for (a) unreimbursed Servicing
Advances, the Master Servicer's right to reimbursement pursuant to this
clause (a) with respect to any Mortgage Loan being limited to amounts
received on such Mortgage Loan(s) which represent late recoveries of the
payments for which such advances were made pursuant to Section 3.01 or
Section 3.06 and (b) for unpaid Master Servicing Fees as provided in
Section 3.11 hereof;
(vi) to pay to the purchaser, with respect to each Mortgage Loan or
property acquired in respect thereof that has been purchased pursuant to
Section 2.02, 2.03 or 3.11, all amounts received thereon after the date of
such purchase;
(vii) to reimburse the Seller, the Master Servicer or the Depositor
for expenses incurred by any of them and reimbursable pursuant to Section
6.03 hereof;
(viii) to withdraw any amount deposited in the Certificate Account
and not required to be deposited therein;
(ix) on or prior to the Distribution Account Deposit Date, to
withdraw an amount equal to the related Available Funds and the Trustee
Fee for such Distribution Date and remit such amount to the Trustee for
deposit in the Distribution Account; and
(x) to clear and terminate the Certificate Account upon termination
of this Agreement pursuant to Section 9.01 hereof.
The Master Servicer shall keep and maintain separate accounting, on
a Mortgage Loan by Mortgage Loan basis, for the purpose of justifying any
withdrawal from the Certificate Account pursuant to such subclauses (i), (ii),
(iv), (v) and (vi). Prior to making any withdrawal from the Certificate Account
pursuant to subclause (iii), the Master Servicer shall deliver to the Trustee an
Officer's Certificate of a Servicing Officer indicating the amount of any
previous Advance determined by the Master Servicer to be a Nonrecoverable
Advance and identifying the related Mortgage Loans(s), and their respective
portions of such Nonrecoverable Advance.
(b) The Trustee shall withdraw funds from the Distribution Account
for distributions to Certificateholders in the manner specified in this
Agreement (and to withhold from the amounts so withdrawn, the amount of any
taxes that it is authorized to withhold pursuant to the last paragraph of
Section 8.11). In addition, the Trustee may from time to time make withdrawals
from the Distribution Account for the following purposes:
(i) to pay to itself the Trustee Fee for the related Distribution
Date;
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(ii) to pay to the Master Servicer as additional servicing
compensation earnings on or investment income with respect to funds in the
Distribution Account;
(iii) to withdraw and return to the Master Servicer any amount
deposited in the Distribution Account and not required to be deposited
therein; and
(iv) to clear and terminate the Distribution Account upon
termination of the Agreement pursuant to Section 9.01 hereof.
SECTION 3.09. Maintenance of Hazard Insurance; Maintenance of
Primary Insurance Policies.
(a) The Master Servicer shall cause to be maintained, for each
Mortgage Loan, hazard insurance with extended coverage in an amount that is at
least equal to the lesser of (i) the maximum insurable value of the improvements
securing such Mortgage Loan or (ii) the greater of (y) the outstanding principal
balance of the Mortgage Loan and (z) an amount such that the proceeds of such
policy shall be sufficient to prevent the Mortgagor and/or the mortgagee from
becoming a co-insurer. Each such policy of standard hazard insurance shall
contain, or have an accompanying endorsement that contains, a standard mortgagee
clause. Any amounts collected by the Master Servicer under any such policies
(other than the amounts to be applied to the restoration or repair of the
related Mortgaged Property or amounts released to the Mortgagor in accordance
with the Master Servicer's normal servicing procedures) shall be deposited in
the Certificate Account. Any cost incurred by the Master Servicer in maintaining
any such insurance shall not, for the purpose of calculating monthly
distributions to the Certificateholders or remittances to the Trustee for their
benefit, be added to the principal balance of the Mortgage Loan, notwithstanding
that the terms of the Mortgage Loan so permit. Such costs shall be recoverable
by the Master Servicer out of late payments by the related Mortgagor or out of
Liquidation Proceeds to the extent permitted by Section 3.08 hereof. It is
understood and agreed that no earthquake or other additional insurance is to be
required of any Mortgagor or maintained on property acquired in respect of a
Mortgage other than pursuant to such applicable laws and regulations as shall at
any time be in force and as shall require such additional insurance. If the
Mortgaged Property is located at the time of origination of the Mortgage Loan in
a federally designated special flood hazard area and such area is participating
in the national flood insurance program, the Master Servicer shall cause flood
insurance to be maintained with respect to such Mortgage Loan. Such flood
insurance shall be in an amount equal to the least of (i) the original principal
balance of the related Mortgage Loan, (ii) the replacement value of the
improvements which are part of such Mortgaged Property, and (iii) the maximum
amount of such insurance available for the related Mortgaged Property under the
national flood insurance program.
(b) In the event that the Master Servicer shall obtain and maintain
a blanket policy insuring against hazard losses on all of the Mortgage Loans, it
shall conclusively be deemed to have satisfied its obligations as set forth in
the first sentence of this Section, it being understood and agreed that such
policy may contain a deductible clause on terms substantially equivalent to
those commercially available and maintained by comparable servicers. If such
policy contains a deductible clause, the Master Servicer shall, in the event
that there shall not have been maintained on the related Mortgaged Property a
policy complying with the first sentence of this Section, and there shall have
been a loss that
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would have been covered by such policy, deposit in the Certificate Account the
amount not otherwise payable under the blanket policy because of such deductible
clause. In connection with its activities as Master Servicer of the Mortgage
Loans, the Master Servicer agrees to present, on behalf of itself, the
Depositor, and the Trustee for the benefit of the Certificateholders, claims
under any such blanket policy.
(c) The Master Servicer shall not take any action which would result
in non-coverage under any applicable Primary Insurance Policy of any loss which,
but for the actions of the Master Servicer, would have been covered thereunder.
The Master Servicer shall not cancel or refuse to renew any such Primary
Insurance Policy that is in effect at the date of the initial issuance of the
Certificates and is required to be kept in force hereunder unless the
replacement Primary Insurance Policy for such canceled or non-renewed policy is
maintained with a Qualified Insurer. The Master Servicer shall not be required
to maintain any Primary Insurance Policy with respect to any Mortgage Loan with
a Loan-to-Value Ratio less than or equal to 80% as of any date of determination
or, based on a new appraisal, the principal balance of such Mortgage Loan
represents 80% or less of the new appraised value. The Master Servicer agrees to
effect the timely payment of the premiums on each Primary Insurance Policy, and
such costs not otherwise recoverable shall be recoverable by the Master Servicer
from the related liquidation proceeds.
(d) In connection with its activities as Master Servicer of the
Mortgage Loans, the Master Servicer agrees to present on behalf of itself, the
Trustee and Certificateholders, claims to the insurer under any Primary
Insurance Policies and, in this regard, to take such reasonable action as shall
be necessary to permit recovery under any Primary Insurance Policies respecting
defaulted Mortgage Loans. Any amounts collected by the Master Servicer under any
Primary Insurance Policies shall be deposited in the Certificate Account.
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SECTION 3.10. Enforcement of Due-on-Sale Clauses; Assumption
Agreements.
(a) Except as otherwise provided in this Section, when any property
subject to a Mortgage has been conveyed by the Mortgagor, the Master Servicer
shall to the extent that it has knowledge of such conveyance, enforce any
due-on-sale clause contained in any Mortgage Note or Mortgage, to the extent
permitted under applicable law and governmental regulations, but only to the
extent that such enforcement will not adversely affect or jeopardize coverage
under any Required Insurance Policy. Notwithstanding the foregoing, the Master
Servicer is not required to exercise such rights with respect to a Mortgage Loan
if the Person to whom the related Mortgaged Property has been conveyed or is
proposed to be conveyed satisfies the terms and conditions contained in the
Mortgage Note and Mortgage related thereto and the consent of the mortgagee
under such Mortgage Note or Mortgage is not otherwise so required under such
Mortgage Note or Mortgage as a condition to such transfer. In the event that the
Master Servicer is prohibited by law from enforcing any such due-on-sale clause,
or if coverage under any Required Insurance Policy would be adversely affected,
or if nonenforcement is otherwise permitted hereunder, the Master Servicer is
authorized, subject to Section 3.10(b), to take or enter into an assumption and
modification agreement from or with the person to whom such property has been or
is about to be conveyed, pursuant to which such person becomes liable under the
Mortgage Note and, unless prohibited by applicable state law, the Mortgagor
remains liable thereon, provided that the Mortgage Loan shall continue to be
covered (if so covered before the Master Servicer enters into such agreement) by
the applicable Required Insurance Policies. The Master Servicer, subject to
Section 3.10(b), is also authorized with the prior approval of the insurers
under any Required Insurance Policies to enter into a substitution of liability
agreement with such Person, pursuant to which the original Mortgagor is released
from liability and such Person is substituted as Mortgagor and becomes liable
under the Mortgage Note. Notwithstanding the foregoing, the Master Servicer
shall not be deemed to be in default under this Section by reason of any
transfer or assumption which the Master Servicer reasonably believes it is
restricted by law from preventing, for any reason whatsoever.
(b) Subject to the Master Servicer's duty to enforce any due-on-sale
clause to the extent set forth in Section 3.10(a) hereof, in any case in which a
Mortgaged Property has been conveyed to a Person by a Mortgagor, and such Person
is to enter into an assumption agreement or modification agreement or supplement
to the Mortgage Note or Mortgage that requires the signature of the Trustee, or
if an instrument of release signed by the Trustee is required releasing the
Mortgagor from liability on the Mortgage Loan, the Master Servicer shall prepare
and deliver or cause to be prepared and delivered to the Trustee for signature
and shall direct, in writing, the Trustee to execute the assumption agreement
with the Person to whom the Mortgaged Property is to be conveyed and such
modification agreement or supplement to the Mortgage Note or Mortgage or other
instruments as are reasonable or necessary to carry out the terms of the
Mortgage Note or Mortgage or otherwise to comply with any applicable laws
regarding assumptions or the transfer of the Mortgaged Property to such Person.
In connection with any such assumption, no material term of the Mortgage Note
may be changed. In addition, the substitute Mortgagor and the Mortgaged Property
must be acceptable to the Master Servicer in accordance with its underwriting
standards as then in effect. Together with each such substitution, assumption or
other agreement or instrument delivered to the Trustee for execution by it, the
Master Servicer shall deliver an Officer's Certificate signed by a Servicing
Officer stating that the requirements of this subsection have been met in
connection therewith. The Master Servicer shall notify the Trustee that any such
substitution or assumption agreement has been completed by forwarding to the
Trustee the original of such substitution
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or assumption agreement, which in the case of the original shall be added to the
related Mortgage File and shall, for all purposes, be considered a part of such
Mortgage File to the same extent as all other documents and instruments
constituting a part thereof. Any fee collected by the Master Servicer for
entering into an assumption or substitution of liability agreement will be
retained by the Master Servicer as additional servicing compensation.
SECTION 3.11. Realization Upon Defaulted Mortgage Loans; Repurchase
of Certain Mortgage Loans.
The Master Servicer shall use reasonable efforts to foreclose upon
or otherwise comparably convert the ownership of properties securing such of the
Mortgage Loans as come into and continue in default and as to which no
satisfactory arrangements can be made for collection of delinquent payments. In
connection with such foreclosure or other conversion, the Master Servicer shall
follow such practices and procedures as it shall deem necessary or advisable and
as shall be normal and usual in its general mortgage servicing activities and
meet the requirements of the insurer under any Required Insurance Policy;
provided, however, that the Master Servicer shall not be required to expend its
own funds in connection with any foreclosure or towards the restoration of any
property unless it shall determine (i) that such restoration and/or foreclosure
will increase the proceeds of liquidation of the Mortgage Loan after
reimbursement to itself of such expenses and (ii) that such expenses will be
recoverable to it through Liquidation Proceeds (respecting which it shall have
priority for purposes of withdrawals from the Certificate Account). The Master
Servicer shall be responsible for all other costs and expenses incurred by it in
any such proceedings; provided, however, that it shall be entitled to
reimbursement thereof from the liquidation proceeds with respect to the related
Mortgaged Property, as provided in the definition of Liquidation Proceeds. If
the Master Servicer has knowledge that a Mortgaged Property which the Master
Servicer is contemplating acquiring in foreclosure or by deed in lieu of
foreclosure is located within a 1 mile radius of any site listed in the
Expenditure Plan for the Hazardous Substance Clean Up Bond Act of 1984 or other
site with environmental or hazardous waste risks known to the Master Servicer,
the Master Servicer will, prior to acquiring the Mortgaged Property, consider
such risks and only take action in accordance with its established environmental
review procedures.
With respect to any REO Property, the deed or certificate of sale
shall be taken in the name of the Trustee for the benefit of the
Certificateholders, or its nominee, on behalf of the Certificateholders. The
Trustee's name shall be placed on the title to such REO Property solely as the
Trustee hereunder and not in its individual capacity. The Master Servicer shall
ensure that the title to such REO Property references the Pooling and Servicing
Agreement and the Trustee's capacity thereunder. Pursuant to its efforts to sell
such REO Property, the Master Servicer shall either itself or through an agent
selected by the Master Servicer protect and conserve such REO Property in the
same manner and to such extent as is customary in the locality where such REO
Property is located and may, incident to its conservation and protection of the
interests of the Certificateholders, rent the same, or any part thereof, as the
Master Servicer deems to be in the best interest of the Certificateholders for
the period prior to the sale of such REO Property. The Master Servicer shall
prepare for and deliver to the Trustee a statement with respect to each REO
Property that has been rented showing the aggregate rental income received and
all expenses incurred in connection with the management and maintenance of such
REO Property at such times as is necessary to enable the Trustee to comply with
the reporting
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requirements of the REMIC Provisions. The net monthly rental income, if any,
from such REO Property shall be deposited in the Certificate Account no later
than the close of business on each Determination Date. The Master Servicer shall
perform the tax reporting and withholding required by Sections 1445 and 6050J of
the Code with respect to foreclosures and abandonments, the tax reporting
required by Section 6050H of the Code with respect to the receipt of mortgage
interest from individuals and any tax reporting required by Section 6050P of the
Code with respect to the cancellation of indebtedness by certain financial
entities, by preparing such tax and information returns as may be required, in
the form required, and delivering the same to the Trustee for filing.
In the event that the Trust Fund acquires any Mortgaged Property as
aforesaid or otherwise in connection with a default or imminent default on a
Mortgage Loan, the Master Servicer shall dispose of such Mortgaged Property
prior to two years after its acquisition by the Trust Fund unless the Trustee
shall have been supplied with an Opinion of Counsel to the effect that the
holding by the Trust Fund of such Mortgaged Property subsequent to such two-year
period will not result in the imposition of taxes on "prohibited transactions"
of any REMIC hereunder as defined in section 860F of the Code or cause any REMIC
hereunder 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 any REMIC hereunder to the
imposition of any federal, state or local income taxes on the income earned from
such Mortgaged Property under Section 860G(c) of the Code or otherwise, unless
the Master Servicer has agreed to indemnify and hold harmless the Trust Fund
with respect to the imposition of any such taxes.
The decision of the Master Servicer to foreclose on a defaulted
Mortgage Loan shall be subject to a determination by the Master Servicer that
the proceeds of such foreclosure would exceed the costs and expenses of bringing
such a proceeding. The income earned from the management of any REO Properties,
net of reimbursement to the Master Servicer for expenses incurred (including any
property or other taxes) in connection with such management and net of
unreimbursed Master Servicing Fees, Advances and Servicing Advances, shall be
applied to the payment of principal of and interest on the related defaulted
Mortgage Loans (with interest accruing as though such Mortgage Loans were still
current) and all such income shall be deemed, for all purposes in this
Agreement, to be payments on account of principal and interest on the related
Mortgage Notes and shall be deposited into the Certificate Account. To the
extent the net income received during any calendar month is in excess of the
amount attributable to amortizing principal and accrued interest at the related
Mortgage Rate on the related Mortgage Loan for such calendar month, such excess
shall be considered to be a partial prepayment of principal of the related
Mortgage Loan.
The proceeds from any liquidation of a Mortgage Loan, as well as any
income from an REO Property, will be applied in the following order of priority:
first, to reimburse the Master Servicer for any related unreimbursed Servicing
Advances and Master Servicing Fees; second, to reimburse the Master Servicer for
any unreimbursed Advances; third, to reimburse the Certificate Account for any
Nonrecoverable Advances (or portions thereof) that were previously withdrawn by
the Master Servicer pursuant to Section 3.08(a)(iii) that related to such
Mortgage Loan; fourth, to accrued and unpaid interest
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(to the extent no Advance has been made for such amount or any such Advance has
been reimbursed) on the Mortgage Loan or related REO Property, at the Adjusted
Net Mortgage Rate to the Due Date occurring in the month in which such amounts
are required to be distributed; and fifth, as a recovery of principal of the
Mortgage Loan. Excess Proceeds, if any, from the liquidation of a Liquidated
Mortgage Loan will be retained by the Master Servicer as additional servicing
compensation pursuant to Section 3.14.
The Master Servicer, in its sole discretion, shall have the right to
purchase for its own account from the Trust Fund any Mortgage Loan which is 91
days or more delinquent at a price equal to the Purchase Price. The Purchase
Price for any Mortgage Loan purchased hereunder shall be deposited in the
Certificate Account and the Trustee, upon receipt of a certificate from the
Master Servicer in the form of Exhibit N hereto, shall release or cause to be
released to the purchaser of such Mortgage Loan the related Mortgage File and
shall execute and deliver such instruments of transfer or assignment prepared by
the purchaser of such Mortgage Loan, in each case without recourse, as shall be
necessary to vest in the purchaser of such Mortgage Loan any Mortgage Loan
released pursuant hereto and the purchaser of such Mortgage Loan shall succeed
to all the Trustee's right, title and interest in and to such Mortgage Loan and
all security and documents related thereto. Such assignment shall be an
assignment outright and not for security. The purchaser of such Mortgage Loan
shall thereupon own such Mortgage Loan, and all security and documents, free of
any further obligation to the Trustee or the Certificateholders with respect
thereto.
SECTION 3.12. Trustee to Cooperate; Release of Mortgage Files.
Upon the payment in full of any Mortgage Loan, or the receipt by the
Master Servicer of a notification that payment in full will be escrowed in a
manner customary for such purposes, the Master Servicer will immediately notify
the Trustee by delivering, or causing to be delivered a "Request for Release"
substantially in the form of Exhibit N. Upon receipt of such request, the
Trustee shall promptly release the related Mortgage File to the Master Servicer,
and the Trustee shall at the Master Servicer's direction execute and deliver to
the Master Servicer the request for reconveyance, deed of reconveyance or
release or satisfaction of mortgage or such instrument releasing the lien of the
Mortgage in each case provided by the Master Servicer, together with the
Mortgage Note with written evidence of cancellation thereon. Expenses incurred
in connection with any instrument of satisfaction or deed of reconveyance shall
be chargeable to the related Mortgagor. From time to time and as shall be
appropriate for the servicing or foreclosure of any Mortgage Loan, including for
such purpose, collection under any policy of flood insurance, any fidelity bond
or errors or omissions policy, or for the purposes of effecting a partial
release of any Mortgaged Property from the lien of the Mortgage or the making of
any corrections to the Mortgage Note or the Mortgage or any of the other
documents included in the Mortgage File, the Trustee shall, upon delivery to the
Trustee of a Request for Release in the form of Exhibit M signed by a Servicing
Officer, release the Mortgage File to the Master Servicer. Subject to the
further limitations set forth below, the Master Servicer shall cause the
Mortgage File or documents so released to be returned to the Trustee when the
need therefor by the Master Servicer no longer exists, unless the Mortgage Loan
is liquidated and the proceeds thereof are deposited in the Certificate Account,
in which case the Master Servicer shall deliver to the Trustee a Request for
Release in the form of Exhibit N, signed by a Servicing Officer.
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If the Master Servicer at any time seeks to initiate a foreclosure
proceeding in respect of any Mortgaged Property as authorized by this Agreement,
the Master Servicer shall deliver or cause to be delivered to the Trustee, for
signature, as appropriate, any court pleadings, requests for trustee's sale or
other documents necessary to effectuate such foreclosure or any legal action
brought to obtain judgment against the Mortgagor on the Mortgage Note or the
Mortgage or to obtain a deficiency judgment or to enforce any other remedies or
rights provided by the Mortgage Note or the Mortgage or otherwise available at
law or in equity.
SECTION 3.13. Documents Records and Funds in Possession of Master
Servicer to be Held for the Trustee.
Notwithstanding any other provisions of this Agreement, the Master
Servicer shall transmit to the Trustee as required by this Agreement all
documents and instruments in respect of a Mortgage Loan coming into the
possession of the Master Servicer from time to time and shall account fully to
the Trustee for any funds received by the Master Servicer or which otherwise are
collected by the Master Servicer as Liquidation Proceeds or Insurance Proceeds
in respect of any Mortgage Loan. All Mortgage Files and funds collected or held
by, or under the control of, the Master Servicer in respect of any Mortgage
Loans, whether from the collection of principal and interest payments or from
Liquidation Proceeds, including but not limited to, any funds on deposit in the
Certificate Account, shall be held by the Master Servicer for and on behalf of
the Trustee and shall be and remain the sole and exclusive property of the
Trustee, subject to the applicable provisions of this Agreement. The Master
Servicer also agrees that it shall not create, incur or subject any Mortgage
File or any funds that are deposited in the Certificate Account, Distribution
Account or any Escrow Account, or any funds that otherwise are or may become due
or payable to the Trustee for the benefit of the Certificateholders, to any
claim, lien, security interest, judgment, levy, writ of attachment or other
encumbrance, or assert by legal action or otherwise any claim or right of setoff
against any Mortgage File or any funds collected on, or in connection with, a
Mortgage Loan, except, however, that the Master Servicer shall be entitled to
set off against and deduct from any such funds any amounts that are properly due
and payable to the Master Servicer under this Agreement.
SECTION 3.14. Servicing Compensation.
As compensation for its activities hereunder, the Master Servicer
shall be entitled to retain or withdraw from the Certificate Account an amount
equal to the Master Servicing Fee for each Mortgage Loan, provided that the
aggregate Master Servicing Fee with respect to any Distribution Date shall be
reduced (i) by an amount equal to the aggregate of the Prepayment Interest
Shortfalls, if any, with respect to such Distribution Date, but not below an
amount equal to one-half of the aggregate Master Servicing Fee for such
Distribution Date before reduction thereof in respect of such Prepayment
Interest Shortfalls, and (ii) with respect to the first Distribution Date, an
amount equal to any amount to be deposited into the Distribution Account by the
Depositor pursuant to Section 2.01(a) and not so deposited.
Additional servicing compensation in the form of Excess Proceeds,
Prepayment Interest Excess, prepayment penalties, assumption fees, late payment
charges and all income and gain net of any losses realized from Permitted
Investments shall be retained by the Master Servicer to the extent not required
to be deposited in the Certificate Account pursuant to Section 3.05 hereof. The
Master Servicer
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shall be required to pay all expenses incurred by it in connection with its
master servicing activities hereunder (including payment of any premiums for
hazard insurance and any Primary Insurance Policy and maintenance of the other
forms of insurance coverage required by this Agreement) and shall not be
entitled to reimbursement therefor except as specifically provided in this
Agreement.
SECTION 3.15. Access to Certain Documentation.
The Master Servicer shall provide to the OTS and the FDIC and to
comparable regulatory authorities supervising Holders of Subordinated
Certificates and the examiners and supervisory agents of the OTS, the FDIC and
such other authorities, access to the documentation regarding the Mortgage Loans
required by applicable regulations of the OTS and the FDIC. Such access shall be
afforded without charge, but only upon reasonable and prior written request and
during normal business hours at the offices designated by the Master Servicer.
Nothing in this Section shall limit the obligation of the Master Servicer to
observe any applicable law prohibiting disclosure of information regarding the
Mortgagors and the failure of the Master Servicer to provide access as provided
in this Section as a result of such obligation shall not constitute a breach of
this Section.
SECTION 3.16. Annual Statement as to Compliance.
The Master Servicer shall deliver to the Depositor and the Trustee
on or before 120 days after the end of the Master Servicer's fiscal year,
commencing with its 199_ fiscal year, an Officer's Certificate stating, as to
the signer thereof, that (i) a review of the activities of the Master Servicer
during the preceding calendar year and of the performance of the Master Servicer
under this Agreement has been made under such officer's supervision and (ii) to
the best of such officer's knowledge, based on such review, the Master Servicer
has fulfilled all its obligations under this Agreement throughout such year, or,
if there has been a default in the fulfillment of any such obligation,
specifying each such default known to such officer and the nature and status
thereof. The Trustee shall forward a copy of each such statement to each Rating
Agency.
SECTION 3.17. Annual Independent Public Accountants' Servicing
Statement; Financial Statements.
On or before 120 days after the end of the Master Servicer's fiscal
year, commencing with its 199_ fiscal year, the Master Servicer at its expense
shall cause a nationally or regionally recognized firm of independent public
accountants (who may also render other services to the Master Servicer, 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 and the
Depositor to the effect that such firm has examined certain documents and
records relating to the servicing of the Mortgage Loans under this Agreement or
of mortgage loans under pooling and servicing agreements substantially similar
to this Agreement (such statement to have attached thereto a schedule setting
forth the pooling and servicing agreements covered thereby) and that, on the
basis of such examination, conducted substantially in compliance with the
Uniform Single Attestation Program for Mortgage Bankers or the Audit Program for
Mortgages serviced for FNMA and FHLMC, such servicing has been conducted in
compliance with such pooling and servicing agreements except for such
significant exceptions or errors in records that, in the opinion of such firm,
the Uniform Single Attestation Program for Mortgage Bankers or the Audit Program
for Mortgages serviced for FNMA and FHLMC requires it to report. In rendering
such
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statement, such firm may rely, as to matters relating to direct servicing of
mortgage loans by Subservicers, upon comparable statements for examinations
conducted substantially in compliance with the Uniform Single Attestation
Program for Mortgage Bankers or the Audit Program for Mortgages serviced for
FNMA and FHLMC (rendered within one year of such statement) of independent
public accountants with respect to the related Subservicer. Copies of such
statement shall be provided by the Trustee to any Certificateholder upon request
at the Master Servicer's expense, provided such statement is delivered by the
Master Servicer to the Trustee.
SECTION 3.18. Errors and Omissions Insurance; Fidelity Bonds.
The Master Servicer shall for so long as it acts as master servicer
under this Agreement, obtain and maintain in force (a) a policy or policies of
insurance covering errors and omissions in the performance of its obligations as
Master Servicer hereunder and (b) a fidelity bond in respect of its officers,
employees and agents. Each such policy or policies and bond shall, together,
comply with the requirements from time to time of FNMA or FHLMC for persons
performing servicing for mortgage loans purchased by FNMA or FHLMC. In the event
that any such policy or bond ceases to be in effect, the Master Servicer shall
obtain a comparable replacement policy or bond from an insurer or issuer,
meeting the requirements set forth above as of the date of such replacement.
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ARTICLE IV
DISTRIBUTIONS AND
ADVANCES BY THE MASTER SERVICER
SECTION 4.01. Advances.
The Master Servicer shall determine on or before each Master
Servicer Advance Date whether it is required to make an Advance pursuant to the
definition thereof. If the Master Servicer determines it is required to make an
Advance, it shall, on or before the Master Servicer Advance Date, either (i)
deposit into the Certificate Account an amount equal to the Advance or (ii) make
an appropriate entry in its records relating to the Certificate Account that any
Amount Held for Future Distribution has been used by the Master Servicer in
discharge of its obligation to make any such Advance. Any funds so applied shall
be replaced by the Master Servicer by deposit in the Certificate Account no
later than the close of business on the next Master Servicer Advance Date. The
Master Servicer shall be entitled to be reimbursed from the Certificate Account
for all Advances of its own funds made pursuant to this Section as provided in
Section 3.08. The obligation to make Advances with respect to any Mortgage Loan
shall continue if such Mortgage Loan has been foreclosed or otherwise terminated
and the related Mortgaged Property has not been liquidated.
The Master Servicer shall deliver to the Trustee on the related
Master Servicer Advance Date an Officer's Certificate of a Servicing Officer
indicating the amount of any proposed Advance determined by the Master Servicer
to be a Nonrecoverable Advance.
SECTION 4.02. Priorities of Distribution.
(a) On each Distribution Date, the Trustee shall withdraw the
Available Funds from the Distribution Account and apply such funds to
distributions on the Certificates in the following order and priority and, in
each case, to the extent of Available Funds remaining:
(i) to each interest-bearing Class of Senior Certificates,
an amount allocable to interest equal to the related
Class Optimal Interest Distribution Amount, any
shortfall being allocated among such Classes in
proportion to the amount of the Class Optimal Interest
Distribution Amount that would have been distributed in
the absence of such shortfall;
(i) [Reserved for distribution of Accrual Amount, if any.]
(iii) to each Class of Senior Certificates, concurrently as
follows:
(x) to the Class PO Certificates, an amount allocable to
principal equal to the PO Formula Principal Amount, up to the
outstanding Class Certificate Balance of the Class PO
Certificates;
(y) on each Distribution Date prior to the Senior Credit
Support Depletion Date, the Non-PO Formula Principal Amount,
up to the amount of the Senior Principal Distribution Amount
for such Distribution Date, will be distributed as follows:
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(A) to the Class A-R Certificates until the Class
Certificate Balance thereof has been reduced to zero;
(B) concurrently, _____________% to the Class A-1
Certificates, _____________% to the Class A-10
Certificates, and _____________% to the Class A-2
Certificates, until the Class Certificate Balance of the
Class A-10 Certificates has been reduced to
$_____________;
(C) concurrently, (a) _____________% to the Class
A-1 Certificates, (b) ______________% to the Class A-9
and Class A-10 Certificates, as follows: (1)___________%
to the Class A-9 Certificates and (2)_____________% to
the Class A-10 Certificates, and (c)_____________% to
the Class A-2 Certificates, until the Class Certificate
Balance of the Class A-9 Certificates has been reduced
to zero;
(D) concurrently, _____________% to the Class A-1
Certificates, _____________% to the Class A-10
Certificates and _____________% to the Class A-2
Certificates until the Class Certificate Balances
thereof have been reduced to zero;
(E) to the Class A-7 Certificates, until the Class
Certificate Balance thereof has been reduced to zero;
(F) concurrently, _____________% to the Class A-8
Certificates and _____________% to the Class A-4
Certificates, until the Class Certificate Balances
thereof have been reduced to zero;
(G) concurrently, _____________% to the Class A-5
Certificates and _____________% to the Class A-12
Certificates, until the Class Certificate Balance of the
Class A-12 Certificates has been reduced to zero;
(H) concurrently, _____________% to the Class A-5
Certificates and _____________% to the Class A-13
Certificates, until the Class Certificate Balance of the
Class A-13 Certificates has been reduced to zero; and
(I) concurrently, _____________% to the Class A-5
Certificates and _____________% to the Class A-11
Certificates, until the Class Certificate Balances
thereof have been reduced to zero.
(z) on each Distribution Date prior to the Senior Credit
Support Depletion Date, the Non-PO Formula Principal Amount,
up to the amount of the Class A-6 Principal Distribution
Amount for such Distribution Date, will be
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distributed as principal to the Class A-6 Certificates until
the Class Certificate Balance thereof has been reduced to
zero.
(iv) to the Class PO Certificates, any Class PO Deferred
Amount, up to an amount not to exceed the amount
calculated pursuant to clause (A) of the definition of
the Subordinated Principal Distribution Amount actually
received or advanced for such Distribution Date (with
such amount to be allocated first from amounts
calculated pursuant to (A)(i) and (ii) then (iii) of the
definition of Subordinated Principal Distribution
Amount);
(v) to each Class of Subordinated Certificates, subject to
paragraph (e) below, in the following order of priority:
(A) to the Class B-1 Certificates, an amount
allocable to interest equal to the Class Optimal
Interest Distribution Amount for such Distribution Date;
(B) to the Class B-1 Certificates, an amount
allocable to principal equal to its Pro Rata Share for
such Distribution Date until the Class Certificate
Balance thereof is reduced to zero;
(C) to the Class B-2 Certificates, an amount
allocable to interest equal to the Class Optimal
Interest Distribution Amount for such Class for such
Distribution Date;
(D) to the Class B-2 Certificates, an amount
allocable to principal equal to its Pro Rata Share for
such Distribution Date until the Class Certificate
Balance thereof is reduced to zero;
(E) to the Class B-3 Certificates, an amount
allocable to interest equal to the Class Optimal
Interest Distribution Amount for such Class for such
Distribution Date;
(F) to the Class B-3 Certificates, an amount
allocable to principal equal to its Pro Rata Share for
such Distribution Date until the Class Certificate
Balance thereof is reduced to zero;
(G) to the Class B-4 Certificates, an amount
allocable to interest equal to the amount of the Class
Optimal Interest Distribution Amount for such Class for
such Distribution Date;
(H) to the Class B-4 Certificates, an amount
allocable to principal equal to its Pro Rata Share for
such Distribution Date until the Class Certificate
Balance thereof has been reduced to zero;
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(I) to the Class B-5 Certificates, an amount
allocable to interest equal to the amount of the Class
Optimal Interest Distribution Amount for such Class for
such Distribution Date;
(J) to the Class B-5 Certificates, an amount
allocable to principal equal to its Pro Rata Share for
such Distribution Date until the Class Certificate
Balance thereof has been reduced to zero;
(K) to the Class B-6 Certificates, an amount
allocable to interest equal to the Class Optimal
Interest Distribution Amount for such Class for such
Distribution Date; and
(L) to the Class B-6 Certificates, an amount
allocable to principal equal to its Pro Rata Share for
such Distribution Date until the Class Certificate
Balance thereof is reduced to zero.
(vi) to the Class A-R Certificates, in respect to the MR
Interest, any remaining funds in the Master REMIC and in
respect of the SR Interest, any remaining funds in the
Subsidiary REMIC.
On any Distribution Date, amounts distributed in respect of Class PO Deferred
Amounts will not reduce the Class Certificate Balance of the Class PO
Certificates.
On any Distribution Date, to the extent the Amount Available for
Senior Principal is insufficient to make the full distribution required to be
made pursuant to clause (iii)(x) above, (A) the amount distributable on the
Class PO Certificates in respect of principal shall be equal to the product of
(1) the Amount Available for Senior Principal and (2) a fraction, the numerator
of which is the PO Formula Principal Amount and the denominator of which is the
sum of the PO Formula Principal Amount, the Senior Principal Distribution Amount
and the Class A-6 Principal Distribution Amount and (B) the amount distributable
on the Senior Certificates, other than the Class A-6 and Class PO Certificates,
in respect of principal shall be equal to the product of (1) the Amount
Available for Senior Principal and (2) a fraction, the numerator of which is the
Senior Principal Distribution Amount and the denominator of which is the sum of
the Senior Principal Distribution Amount, the Class A-6 Principal Distribution
Amount and the PO Formula Principal Amount and (C) the amount distributable on
the Class A-6 Certificates, in respect of principal shall be equal to the
product of (1) the Amount Available for Senior Principal and (2) a fraction, the
numerator of which is the Class A-6 Principal Distribution Amount and the
denominator of which is the sum of the Senior Principal Distribution Amount, the
Class A-6 Principal Distribution Amount and the PO Formula Principal Amount.
(b) [Reserved for allocation of Accrual Amount, if any.]
(c) On each Distribution Date on or after the Senior Credit Support
Depletion Date, notwithstanding the allocation and priority set forth in Section
4.02(a)(iii)(y) and (z), the portion of Available Funds available to be
distributed as principal of the Senior Certificates (other than the Class PO
Certificates) shall be distributed concurrently, as principal, on such Classes,
pro rata, on the basis of their respective Class Certificate Balances, until the
Class Certificate Balances thereof are reduced to zero.
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(d) On each Distribution Date, the amount referred to in clause (i)
of the definition of Class Optimal Interest Distribution Amount for each Class
of Certificates for such Distribution Date shall be reduced by (i) the related
Class' pro rata share of Net Prepayment Interest Shortfalls based on such Class'
Class Optimal Interest Distribution Amount for such Distribution Date without
taking into account such Net Prepayment Interest Shortfalls and (ii) the related
Class' Allocable Share of (A) after the Special Hazard Coverage Termination
Date, with respect to each Mortgage Loan that became a Special Hazard Mortgage
Loan during the calendar month preceding the month of such Distribution Date,
the excess of one month's interest at the related Adjusted Net Mortgage Rate on
the Stated Principal Balance of such Mortgage Loan as of the Due Date in such
month over the amount of Liquidation Proceeds applied as interest on such
Mortgage Loan with respect to such month, (B) after the Bankruptcy Coverage
Termination Date, with respect to each Mortgage Loan that became subject to a
Bankruptcy Loss during the calendar month preceding the month of such
Distribution Date, the interest portion of the related Debt Service Reduction or
Deficient Valuation, (C) each Relief Act Reduction incurred during the calendar
month preceding the month of such Distribution Date and (D) after the Fraud
Coverage Termination Date, with respect to each Mortgage Loan that became a
Fraud Loan during the calendar month preceding the month of such Distribution
Date, the excess of one month's interest at the related Adjusted Net Mortgage
Rate on the Stated Principal Balance of such Mortgage Loan as of the Due Date in
such month over the amount of Liquidation Proceeds applied as interest on such
Mortgage Loan with respect to such month.
(e) Notwithstanding the priority and allocation contained in Section
4.02(a)(v), if with respect to any Class of Subordinated Certificates on any
Distribution Date the sum of the related Class Subordination Percentages of such
Class and of all Classes of Subordinated Certificates which have a higher
numerical Class designation than such Class (the "Applicable Credit Support
Percentage") is less than the Original Applicable Credit Support Percentage for
such Class, no distribution of Principal Prepayments will be made to any such
Classes (the "Restricted Classes") and the amount of such Principal Prepayments
otherwise distributable to the Restricted Classes shall be distributed to any
Classes of Subordinated Certificates having lower numerical Class designations
than such Class, pro rata, based on their respective Class Certificate Balances
immediately prior to such Distribution Date and shall be distributed in the
sequential order provided in Section 4.02(a)(v).
(f) On each Distribution Date, Available Funds shall be applied to
distributions on the Subsidiary REMIC Regular Interests, in each case in an
amount sufficient to make the distributions on the respective Corresponding
Classes of Certificates on such Distribution Date in accordance with the
provisions of Section 4.02(a).
SECTION 4.04 Allocation of Realized Losses.
(a) On or prior to each Determination Date, the Trustee shall
determine the total amount of Realized Losses, including Excess Losses, with
respect to the related Distribution Date.
Realized Losses with respect to any Distribution Date shall be
allocated as follows:
(i) the applicable PO Percentage of any Realized Loss, including any
Excess Loss, shall be allocated to the Class PO Certificates until the
Class Certificate Balance thereof is reduced to zero; and
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(ii) (1) the applicable Non-PO Percentage of any Realized Loss
(other than an Excess Loss) shall be allocated first to the Subordinated
Certificates in reverse order of their respective numerical Class
designations (beginning with the Class of Subordinated Certificates then
outstanding with the highest numerical Class designation) until the
respective Class Certificate Balance of each such Class is reduced to
zero, and second to the Senior Certificates (other than the Notional
Amount Certificates and the Class PO Certificates), pro rata on the basis
of their respective Class Certificate Balances immediately prior to the
related Distribution Date until the Class Certificate Balances thereof
have been reduced to zero;
(2) the applicable Non-PO Percentage of any Excess Losses
shall be allocated to the Senior Certificates (other than the Notional
Amount Certificates and the Class PO Certificates) and the Subordinated
Certificates then outstanding, pro rata, on the basis of their respective
Class Certificate Balances.
(b) The Class Certificate Balance of the Class of Subordinated
Certificates then outstanding with the highest numerical Class designation
shall be reduced on each Distribution Date (i) by the amount of any
payments on the Class PO Certificates in respect of Class PO Deferred
Amounts and (ii) by the amount, if any, by which the aggregate of the
Class Certificate Balances of all outstanding Classes of Certificates
(after giving effect to the distribution of principal and the allocation
of Realized Losses and Class PO Deferred Amounts on such Distribution
Date) exceeds the Pool Stated Principal Balance for the following
Distribution Date.
(c) Any Realized Loss allocated to a Class of Certificates or any
reduction in the Class Certificate Balance of a Class of Certificates pursuant
to Section 4.04(a) above shall be allocated among the Certificates of such Class
in proportion to their respective Certificate Balances.
(d) Any allocation of Realized Losses to a Certificate or to any
Component or any reduction in the Certificate Balance of a Certificate, pursuant
to Section 4.04(a) above shall be accomplished by reducing the Certificate
Balance or Component Balance thereof, as applicable, immediately following the
distributions made on the related Distribution Date in accordance with the
definition of "Certificate Balance" or "Component Balance," as the case may be.
SECTION 4.05 Monthly Statements to Certificateholders.
(a) Not later than each Distribution Date, the Trustee shall prepare
and cause to be forwarded by first class mail to each Certificateholder, the
Master Servicer and the Depositor a statement setting forth with respect to the
related distribution:
(i) the amount thereof allocable to principal, separately
identifying the aggregate amount of any Principal Prepayments and
Liquidation Proceeds included therein;
(ii) the amount thereof allocable to interest, any Class
Unpaid Interest Shortfall included in such distribution and any
remaining Class Unpaid Interest Shortfall after giving effect to
such distribution;
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(iii) if the distribution to the Holders of such Class of
Certificates is less than the full amount that would be
distributable to such Holders if there were sufficient funds
available therefor, the amount of the shortfall and the allocation
thereof as between principal and interest;
(iv) the Class Certificate Balance of each Class of
Certificates after giving effect to the distribution of principal on
such Distribution Date;
(v) the Pool Stated Principal Balance for the following
Distribution Date;
(vi) the Senior Percentage, Class A-6 Percentage and
Subordinated Percentage for the following Distribution Date;
(vii) the amount of the Master Servicing Fees paid to or
retained by the Master Servicer with respect to such Distribution
Date;
(viii) the Pass-Through Rate for each such Class of
Certificates with respect to such Distribution Date;
(ix) the amount of Advances included in the distribution on
such Distribution Date and the aggregate amount of Advances
outstanding as of the close of business on such Distribution Date;
(x) the number and aggregate principal amounts of Mortgage
Loans (A) delinquent (exclusive of Mortgage Loans in foreclosure)
(1) 1 to 30 days (2) 31 to 60 days (3) 61 to 90 days and (4) 91 or
more days and (B) in foreclosure and delinquent (1) 1 to 30 days (2)
31 to 60 days (3) 61 to 90 days and (4) 91 or more days, as of the
close of business on the last day of the calendar month preceding
such Distribution Date;
(xi) with respect to any Mortgage Loan that became an REO
Property during the preceding calendar month, the loan number and
Stated Principal Balance of such Mortgage Loan as of the close of
business on the Determination Date preceding such Distribution Date
and the date of acquisition thereof;
(xii) the total number and principal balance of any REO
Properties (and market value, if available) as of the close of
business on the Determination Date preceding such Distribution Date;
(xiii) the Senior Prepayment Percentage and Class A-6
Prepayment Percentage for the following Distribution Date;
(xiv) the aggregate amount of Realized Losses incurred during
the preceding calendar month; and
(xv) the Special Hazard Loss Coverage Amount, the Fraud Loss
Coverage Amount and the Bankruptcy Loss Coverage Amount, in each
case as of the related Determination Date.
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(b) The Trustee's responsibility for disbursing the above
information to the Certificateholders is limited to the availability, timeliness
and accuracy of the information provided by the Master Servicer. The Trustee
will send a copy of each statement provided pursuant to this Section 4.04 to
each Rating Agency.
(c) On or before the fifth Business Day following the end of each
Prepayment Period (but in no event later than the third Business Day prior to
the related Distribution Date), the Master Servicer shall deliver to the Trustee
(which delivery may be by electronic data transmission) a report in
substantially the form set forth as Schedule V hereto.
(d) Within a reasonable period of time after the end of each
calendar year, the Trustee shall cause to be furnished to each Person who at any
time during the calendar year was a Certificateholder, a statement containing
the information set forth in clauses (a)(i), (a)(ii) and (a)(vii) of this
Section 4.04 aggregated for such calendar year or applicable portion thereof
during which such Person was a Certificateholder. Such obligation of the Trustee
shall be deemed to have been satisfied to the extent that substantially
comparable information shall be provided by the Trustee pursuant to any
requirements of the Code as from time to time in effect.
SECTION 4.06 Determination of Pass-Through Rates for COFI
Certificates.
The Pass-Through Rate for each Class of COFI Certificates for each
Interest Accrual Period after the initial Interest Accrual Period shall be
determined by the Trustee as provided below on the basis of the Index and the
applicable formulae appearing in footnotes corresponding to the COFI
Certificates in the table relating to the Certificates in the Preliminary
Statement.
Except as provided below, with respect to each Interest Accrual
Period following the initial Interest Accrual Period, the Trustee shall not
later than two Business Days following the publication of the applicable Index
determine the Pass-Through Rate at which interest shall accrue in respect of the
COFI Certificates during the related Interest Accrual Period.
Except as provided below, the Index to be used in determining the
respective Pass-Through Rates for the COFI Certificates for a particular
Interest Accrual Period shall be COFI for the second calendar month preceding
such Interest Accrual Period. If at the Outside Reference Date for any Interest
Accrual Period, COFI for the second calendar month preceding such Interest
Accrual Period has not been published, the Trustee shall use COFI for the third
calendar month preceding such Interest Accrual Period. If COFI for neither the
second nor third calendar months preceding any Interest Accrual Period has been
published on or before the related Outside Reference Date, the Index for such
Interest Accrual Period and for all subsequent Interest Accrual Periods shall be
the National Cost of Funds Index for the third calendar month preceding such
Interest Accrual Period (or the fourth preceding calendar month if such National
Cost of Funds Index for the third preceding calendar month has not been
published by such Outside Reference Date). In the event that the National Cost
of Funds Index for neither the third nor fourth calendar months preceding an
Interest Accrual Period has been published on or before the related Outside
Reference Date, then for such Interest Accrual Period and for each succeeding
Interest Accrual Period, the Index shall be LIBOR, determined in the manner set
forth below.
On each Interest Determination Date so long as the COFI Certificates
are outstanding and the applicable Index therefor is LIBOR, the Trustee shall
either (i) request each Reference Bank to
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inform the Trustee of the quotation offered by its principal London office for
making one-month United States dollar deposits in leading banks in the London
interbank market, as of 11:00 a.m. (London time) on such Interest Determination
Date or (ii) in lieu of making any such request, rely on such Reference Bank
quotations that appear at such time on the Reuters Screen LIBO Page (as defined
in the International Swap Dealers Association Inc. Code of Standard Wording,
Assumptions and Provisions for Swaps, 1986 Edition), to the extent available.
With respect to any Interest Accrual Period for which the applicable
Index is LIBOR, LIBOR for such Interest Accrual Period will be established by
the Trustee on the related Interest Determination Date as follows:
(a) If on any Interest Determination Date two or more Reference
Banks provide such offered quotations, LIBOR for the next Interest Accrual
Period shall be the arithmetic mean of such offered quotations (rounding
such arithmetic mean upwards if necessary to the nearest whole multiple of
1/32%).
(b) If on any Interest Determination Date only one or none of the
Reference Banks provides such offered quotations, LIBOR for the next
Interest Accrual Period shall be whichever is the higher of (i) LIBOR as
determined on the previous Interest Determination Date or (ii) the Reserve
Interest Rate. The "Reserve Interest Rate" shall be the rate per annum
which the Trustee determines to be either (i) the arithmetic mean (rounded
upwards if necessary to the nearest whole multiple of 1/32%) of the
one-month United States dollar lending rates that New York City banks
selected by the Trustee are quoting, on the relevant Interest
Determination Date, to the principal London offices of at least two of the
Reference Banks to which such quotations are, in the opinion of the
Trustee, being so made, or (ii) in the event that the Trustee can
determine no such arithmetic mean, the lowest one-month United States
dollar lending rate which New York City banks selected by the Trustee are
quoting on such Interest Determination Date to leading European banks.
From such time as the applicable Index becomes LIBOR until all of
the COFI Certificates are paid in full, the Trustee will at all times retain at
least four Reference Banks for the purposes of determining LIBOR with respect to
each interest Determination Date. The Master Servicer initially shall designate
the Reference Banks. Each "Reference Bank" shall be a leading bank engaged in
transactions in Eurodollar deposits in the international Eurocurrency market,
shall not control, be controlled by, or be under common control with, the
Trustee and shall have an established place of business in London. If any such
Reference Bank should be unwilling or unable to act as such or if the Master
Servicer should terminate its appointment as Reference Bank, the Trustee shall
promptly appoint or cause to be appointed another Reference Bank. The Trustee
shall have no liability or responsibility to any Person for (i) the selection of
any Reference Bank for purposes of determining LIBOR or (ii) any inability to
retain at least four Reference Banks which is caused by circumstances beyond its
reasonable control.
In determining LIBOR and any Pass-Through Rate for the COFI
Certificates or any Reserve Interest Rate, the Trustee may conclusively rely and
shall be protected in relying upon the offered quotations (whether written, oral
or on the Reuters Screen) from the Reference Banks or the New York City banks as
to LIBOR or the Reserve Interest Rate, as appropriate, in effect from time to
time. The Trustee shall not have any liability or responsibility to any Person
for (i) the Trustee's selection of
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New York City banks for purposes of determining any Reserve Interest Rate or
(ii) its inability, following a good-faith reasonable effort, to obtain such
quotations from the Reference Banks or the New York City banks or to determine
such arithmetic mean, all as provided for in this Section 4.06.
The establishment of LIBOR and each Pass-Through Rate for the LIBOR
Certificates by the Trustee shall (in the absence of manifest error) be final,
conclusive and binding upon each Holder of a Certificate and the Trustee.
SECTION 4.07 Determination of Pass-Through Rates for LIBOR
Certificates.
On each Interest Determination Date so long as the LIBOR
Certificates are outstanding, the Trustee shall either (i) request each
Reference Bank to inform the Trustee of the quotation offered by its principal
London office for making one-month United States dollar deposits in leading
banks in the London interbank market, as of 11:00 a.m. (London time) on such
Interest Determination Date or (ii) in lieu of making any such request, rely on
such Reference Bank quotations that appear at such time on the Reuters Screen
LIBO Page (as defined in the International Swap Dealers Association Inc. Code of
Standard Wording, Assumptions and provisions for Swaps, 1986 Edition), to the
extent available.
LIBOR for the next Interest Accrual Period will be established by
the Trustee on each interest Determination Date as follows:
(a) If on any interest Determination Date two or more Reference
Banks provide such offered quotations, LIBOR for the next Interest Accrual
Period shall be the arithmetic mean of such offered quotations (rounding
such arithmetic mean upwards if necessary to the nearest whole multiple of
1/32%).
(b) If on any Interest Determination Date only one or none of the
Reference Banks provides such offered quotations, LIBOR for the next
Interest Accrual Period shall be whichever is the higher of (i) LIBOR as
determined on the previous Interest Determination Date or (ii) the Reserve
Interest Rate. The "Reserve Interest Rate" shall be the rate per annum
which the Trustee determines to be either (i) the arithmetic mean (rounded
upwards if necessary to the nearest whole multiple of 1/32%) of the
one-month United States dollar lending rates that New York City banks
selected by the Trustee are quoting, on the relevant Interest
Determination Date, to the principal London offices of at least two of the
Reference Banks to which such quotations are, in the opinion of the
Trustee, being so made, or (ii) in the event that the Trustee can
determine no such arithmetic mean, the lowest one-month United States
dollar lending rate which New York City banks selected by the Trustee are
quoting on such Interest Determination Date to leading European banks.
(c) If on any interest Determination Date the trustee is required
but is unable to determine the Reserve Interest Rate in the manner
provided in paragraph (b) above, LIBOR shall be LIBOR as determined on the
preceding Interest Determination Date, or, in the case of the first
Interest Determination Date, the Initial LIBOR Rate.
Until all of the LIBOR Certificates are paid in full, the Trustee
will at all times retain at least four Reference Banks for the purpose of
determining LIBOR with respect to each Interest Determination Date. The Master
Servicer initially shall designate the Reference Banks. Each
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"Reference Bank" shall be a leading bank engaged in transactions in Eurodollar
deposits in the international Eurocurrency market, shall not control, be
controlled by, or be under common control with, the Trustee and shall have an
established place of business in London. If any such Reference Bank should be
unwilling or unable to act as such or if the Master Servicer should terminate
its appointment as Reference Bank, the Trustee shall promptly appoint or cause
to be appointed another Reference Bank. The Trustee shall have no liability or
responsibility to any Person for (i) the selection of any Reference Bank for
purposes of determining LIBOR or (ii) any inability to retain at least four
Reference Banks which is caused by circumstances beyond its reasonable control.
The Pass-Through Rate for each Class of LIBOR Certificates for each
Interest Accrual Period shall be determined by the Trustee on each Interest
Determination Date so long as the LIBOR Certificates are outstanding on the
basis of LIBOR and the respective formulae appearing in footnotes corresponding
to the LIBOR Certificates in the table relating to the Certificates in the
Preliminary Statement.
In determining LIBOR, any Pass-Through Rate for the LIBOR
Certificates or any Reserve Interest Rate, the Trustee may conclusively rely and
shall be protected in relying upon the offered quotations (whether written, oral
or on the Reuters Screen) from the Reference Banks or the New York City banks as
to LIBOR or the Reserve Interest Rate, as appropriate, in effect from time to
time. The Trustee shall not have any liability or responsibility to any Person
for (i) the Trustee's selection of New York City banks for purposes of
determining any Reserve Interest Rate or (ii) its inability, following a
good-faith reasonable effort, to obtain such quotations from the Reference Banks
or the New York City banks or to determine such arithmetic mean, all as provided
for in this Section 4.07.
The establishment of LIBOR and each Pass-Through Rate for the LIBOR
Certificates by the Trustee shall (in the absence of manifest error) be final,
conclusive and binding upon each Holder of a Certificate and the Trustee.
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ARTICLE V
THE CERTIFICATES
SECTION 5.01. The Certificates.
The Certificates shall be substantially in the forms attached hereto
as exhibits. The Certificates shall be issuable in registered form, in the
minimum denominations, integral multiples in excess thereof (except that one
Certificate in each Class may be issued in a different amount which must be in
excess of the applicable minimum denomination) and aggregate denominations per
Class set forth in the Preliminary Statement.
Subject to Section 9.02 hereof respecting the final distribution on
the Certificates, on each Distribution Date the Trustee shall make distributions
to each Certificateholder of record on the preceding Record Date either (x) by
wire transfer in immediately available funds to the account of such holder at a
bank or other entity having appropriate facilities therefor, if (i) such Holder
has so notified the Trustee at least five Business Days prior to the related
Record Date and (ii) such Holder shall hold (A) a Notional Amount Certificate,
(B) 100% of the Class Certificate Balance of any Class of Certificates or (C)
Certificates of any Class with aggregate principal Denominations of not less
than $1,000,000 or (y) by check mailed by first class mail to such
Certificateholder at the address of such holder appearing in the Certificate
Register. Payments to Financial Security shall be by wire transfer of
immediately available funds.
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
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and deliver, in the name of the designated transferee or transferees, one or
more new Certificates of the same Class and aggregate Percentage Interest.
At the option of a Certificateholder, Certificates may be exchanged
for other Certificates of the same Class in authorized denominations and
evidencing the same aggregate Percentage Interest upon surrender of the
Certificates to be exchanged at the office or agency of the Trustee. Whenever
any Certificates are so surrendered for exchange, the Trustee shall execute,
authenticate, and deliver the Certificates which the Certificateholder making
the exchange is entitled to receive. Every Certificate presented or surrendered
for registration of transfer or exchange shall be accompanied by a written
instrument of transfer in form satisfactory to the Trustee duly executed by the
holder thereof or his attorney duly authorized in writing.
No service charge to the Certificateholders shall be made for any
registration of transfer or exchange of Certificates, but payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certificates may be required.
All Certificates surrendered for registration of transfer or
exchange shall be cancelled and subsequently destroyed by the Trustee in
accordance with the Trustee's customary procedures.
(b) No transfer of a Private Certificate shall be made unless
such transfer is made pursuant to an effective registration statement under the
Securities Act and any applicable state securities laws or is exempt from the
registration requirements under said Act and such state securities laws. In the
event that a transfer is to be made in reliance upon an exemption from the
Securities Act and such laws, in order to assure compliance with the Securities
Act and such laws, the Certificateholder desiring to effect such transfer and
such Certificateholder's prospective transferee shall each certify to the
Trustee in writing the facts surrounding the transfer in substantially the forms
set forth in Exhibit J (the "Transferor Certificate") and (i) deliver a letter
in substantially the form of either Exhibit K (the "Investment Letter") or
Exhibit L (the "Rule 144A Letter") or (ii) there shall be delivered to the
Trustee at the expense of the transferor an Opinion of Counsel that such
transfer may be made pursuant to an exemption from the Securities Act. The
Depositor shall provide to any Holder of a Private Certificate and any
prospective transferee designated by any such Holder, information regarding the
related Certificates and the Mortgage Loans and such other information as shall
be necessary to satisfy the condition to eligibility set forth in Rule
144A(d)(4) for transfer of any such Certificate without registration thereof
under the Securities Act pursuant to the registration exemption provided by Rule
144A. The Trustee and the Master Servicer shall cooperate with the Depositor in
providing the Rule 144A information referenced in the preceding sentence,
including providing to the Depositor such information regarding the
Certificates, the Mortgage Loans and other matters regarding the Trust Fund as
the Depositor shall reasonably request to meet its obligation under the
preceding sentence. Each Holder of a Private Certificate desiring to effect such
transfer shall, and does hereby agree to, indemnify the Trustee and the
Depositor, the Seller and the Master Servicer against any liability that may
result if the transfer is not so exempt or is not made in accordance with such
federal and state laws.
No transfer of an ERISA-Restricted Certificate shall be made unless
the Trustee shall have received either (i) a representation from the transferee
of such Certificate acceptable to and in form and substance satisfactory to the
Trustee (in the event such Certificate is a Private Certificate, such
requirement is satisfied only by the Trustee's receipt of a representation
letter from the transferee substantially in the form of Exhibit K or Exhibit L),
to the effect that such transferee is not an employee
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benefit plan or arrangement subject to Section 406 of ERISA or a plan or
arrangement subject to Section 4975 of the Code, nor a person acting on behalf
of any such plan or arrangement, nor using the assets of any such plan or
arrangement to effect such transfer, (ii) if the purchaser is an insurance
company, a representation that the purchaser is an insurance company which is
purchasing such Certificates with funds contained in an "insurance company
general account" (as such term is defined in Section V(e) of Prohibited
Transaction Class Exemption 95-60 ("PTCE 95-60")) and that the purchase and
holding of such Certificates are covered under PTCE 95-60 or (iii) in the case
of any such ERISA-Restricted Certificate presented for registration in the name
of an employee benefit plan subject to ERISA, or a plan or arrangement subject
to Section 4975 of the Code (or comparable provisions of any subsequent
enactments), or a trustee of any such plan or any other person acting on behalf
of any such plan or arrangement, or using such plan's or arrangement's assets,
an Opinion of Counsel satisfactory to the Trustee, which Opinion of Counsel
shall not be an expense of either the Trustee or the Trust Fund, addressed to
the Trustee to the effect that the purchase or holding of such ERISA-Restricted
Certificate will not result in the assets of the Trust Fund being deemed to be
"plan assets" and subject to the prohibited transaction provisions of ERISA and
the Code and will not subject the Trustee to any obligation in addition to those
expressly undertaken in this Agreement or to any liability. For purposes of the
preceding sentence, with respect to an ERISA-Restricted Certificate that is not
a Private Certificate, in the event the representation letter referred to in the
preceding sentence is not so furnished, such representation shall be deemed to
have been made to the Trustee by the transferee's (including an initial
acquiror's) acceptance of the ERISA-Restricted Certificates. Notwithstanding
anything else to the contrary herein, any purported transfer of an
ERISA-Restricted Certificate to or on behalf of an employee benefit plan subject
to ERISA or to the Code without the delivery to the Trustee of an Opinion of
Counsel satisfactory to the Trustee as described above shall be void and of no
effect.
To the extent permitted under applicable law (including, but not
limited to, ERISA), the Trustee shall be under no liability to any Person for
any registration of transfer of any ERISA-Restricted Certificate that is in fact
not permitted by this Section 5.02(b) or for making any payments due on such
Certificate to the Holder thereof or taking any other action with respect to
such Holder under the provisions of this Agreement so long as the transfer was
registered by the Trustee in accordance with the foregoing requirements.
(c) Each Person who has or who acquires any Ownership Interest
in a Residual Certificate shall be deemed by the acceptance or acquisition of
such Ownership Interest to have agreed to be bound by the following provisions,
and the rights of each Person acquiring any Ownership Interest in a Residual
Certificate are expressly subject to the following provisions:
(i) Each Person holding or acquiring any Ownership Interest in
a Residual Certificate shall be a Permitted Transferee and shall promptly
notify the Trustee of any change or impending change in its status as a
Permitted Transferee.
(ii) No Ownership Interest in a Residual Certificate may be
registered on the Closing Date or thereafter transferred, and the Trustee
shall not register the Transfer of any Residual Certificate unless, in
addition to the certificates required to be delivered to the Trustee under
subparagraph (b) above, the Trustee shall have been furnished with an
affidavit (a "Transfer Affidavit") of the initial owner or the proposed
transferee in the form attached hereto as Exhibit I.
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(iii) Each Person holding or acquiring any Ownership Interest
in a Residual Certificate shall agree (A) to obtain a Transfer
Affidavit from any other Person to whom such Person attempts to
Transfer its Ownership Interest in a Residual Certificate, (B) to
obtain a Transfer Affidavit from any Person for whom such Person is
acting as nominee, trustee or agent in connection with any Transfer of
a Residual Certificate and (C) not to Transfer its Ownership Interest
in a Residual Certificate or to cause the Transfer of an Ownership
Interest in a Residual Certificate to any other Person if it has actual
knowledge that such Person is not a Permitted Transferee.
(iv) Any attempted or purported Transfer of any Ownership
Interest in a Residual Certificate in violation of the provisions of
this Section 5.02(c) shall be absolutely null and void and shall vest
no rights in the purported Transferee. If any purported transferee
shall become a Holder of a Residual Certificate in violation of the
provisions of this Section 5.02(c), then the last preceding Permitted
Transferee shall be restored to all rights as Holder thereof
retroactive to the date of registration of Transfer of such Residual
Certificate. The Trustee shall be under no liability to any Person for
any registration of Transfer of a Residual Certificate that is in fact
not permitted by Section 5.02(b) and this Section 5.02(c) or for making
any payments due on such Certificate to the Holder thereof or taking
any other action with respect to such Holder under the provisions of
this Agreement so long as the Transfer was registered after receipt of
the related Transfer Affidavit, Transferor Certificate and either the
Rule 144A Letter or the Investment Letter. The Trustee shall be
entitled but not obligated to recover from any Holder of a Residual
Certificate that was in fact not a Permitted Transferee at the time it
became a Holder or, at such subsequent time as it became other than a
Permitted Transferee, all payments made on such Residual Certificate at
and after either such time. Any such payments so recovered by the
Trustee shall be paid and delivered by the Trustee to the last
preceding Permitted Transferee of such Certificate.
(v) The Depositor shall use its best efforts to make
available, upon receipt of written request from the Trustee, all
information necessary to compute any tax imposed under Section 860E(e)
of the Code as a result of a Transfer of an Ownership Interest in a
Residual Certificate to any Holder who is not a Permitted Transferee.
The restrictions on Transfers of a Residual Certificate set
forth in this Section 5.02(c) shall cease to apply (and the applicable portions
of the legend on a Residual Certificate may be deleted) with respect to
Transfers occurring after delivery to the Trustee of an Opinion of Counsel,
which Opinion of Counsel shall not be an expense of the Trust Fund, the Trustee,
the Seller or the Master Servicer, to the effect that the elimination of such
restrictions will not cause any REMIC hereunder to fail to qualify as a REMIC at
any time that the Certificates are outstanding or result in the imposition of
any tax on the Trust Fund, a Certificateholder or another Person. Each Person
holding or acquiring any Ownership Interest in a Residual Certificate hereby
consents to any amendment of this Agreement which, based on an Opinion of
Counsel furnished to the Trustee, is reasonably necessary (a) to ensure that the
record ownership of, or any beneficial interest in, a Residual Certificate is
not transferred, directly or indirectly, to a Person that is not a Permitted
Transferee and (b) to provide for a means to compel the Transfer of a Residual
Certificate which is held by a Person that is not a Permitted Transferee to a
Holder that is a Permitted Transferee.
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(d) The preparation and delivery of all certificates and opinions
referred to above in this Section 5.02 in connection with transfer shall be at
the expense of the parties to such transfers.
(e) Except as provided below, the Book-Entry Certificates shall at
all times remain registered in the name of the Depository or its nominee and at
all times: (i) registration of the Certificates may not be transferred by the
Trustee except to another Depository; (ii) the Depository shall maintain
book-entry records with respect to the Certificate Owners and with respect to
ownership and transfers of such Book-Entry Certificates; (iii) ownership and
transfers of registration of the Book-Entry Certificates on the books of the
Depository shall be governed by applicable rules established by the Depository;
(iv) the Depository may collect its usual and customary fees, charges and
expenses from its Depository Participants; (v) the Trustee shall deal with the
Depository, Depository Participants and indirect participating firms as
representatives of the Certificate Owners of the Book-Entry Certificates for
purposes of exercising the rights of holders under this Agreement, and requests
and directions for and votes of such representatives shall not be deemed to be
inconsistent if they are made with respect to different Certificate Owners; and
(vi) the Trustee may rely and shall be fully protected in relying upon
information furnished by the Depository with respect to its Depository
Participants and furnished by the Depository Participants with respect to
indirect participating firms and persons shown on the books of such indirect
participating firms as direct or indirect Certificate Owners.
All transfers by Certificate Owners of Book-Entry Certificates shall
be made in accordance with the procedures established by the Depository
Participant or brokerage firm representing such Certificate Owner. Each
Depository Participant shall only transfer Book-Entry Certificates of
Certificate Owners it represents or of brokerage firms for which it acts as
agent in accordance with the Depository's normal procedures.
If (x) (i) the Depository or the Depositor advises the Trustee in
writing that the Depository is no longer willing or able to properly discharge
its responsibilities as Depository, and (ii) the Trustee or the Depositor is
unable to locate a qualified successor, (y) the Depositor at its option advises
the Trustee in writing that it elects to terminate the book-entry system through
the Depository or (z) after the occurrence of an Event of Default, Certificate
Owners representing at least 51% of the Certificate Balance of the Book-Entry
Certificates together advise the Trustee and the Depository through the
Depository Participants in writing that the continuation of a book-entry system
through the Depository is no longer in the best interests of the Certificate
Owners, the Trustee shall notify all Certificate Owners, through the Depository,
of the occurrence of any such event and of the availability of definitive,
fully-registered Certificates (the "Definitive Certificates") to Certificate
Owners requesting the same. Upon surrender to the Trustee of the related Class
of Certificates by the Depository, accompanied by the instructions from the
Depository for registration, the Trustee shall issue the Definitive
Certificates. Neither the Master Servicer, the Depositor nor the Trustee shall
be liable for any delay in delivery of such instruction and each may
conclusively rely on, and shall be protected in relying on, such instructions.
The Master Servicer shall provide the Trustee with an adequate inventory of
certificates to facilitate the issuance and transfer of Definitive Certificates.
Upon the issuance of Definitive Certificates all references herein to
obligations imposed upon or to be performed by the Depository shall be deemed to
be imposed upon and performed by the Trustee, to the extent applicable with
respect to such Definitive Certificates and the Trustee shall recognize the
Holders of the Definitive Certificates as Certificateholders hereunder; provided
that the Trustee shall not by virtue of its assumption of such obligations
become liable to any party for any act or failure to act of the Depository.
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SECTION 5.03. Mutilated, Destroyed, Lost or Stolen Certificates.
If (a) any mutilated Certificate is surrendered to the Trustee, or
the Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Certificate and (b) there is delivered to the Master Servicer and
the Trustee such security or indemnity as may be required by them to save each
of them harmless, then, in the absence of notice to the Trustee that such
Certificate has been acquired by a bona fide purchaser, the Trustee shall
execute, countersign and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Certificate, a new Certificate of like
Class, tenor and Percentage Interest. In connection with the issuance of any new
Certificate under this Section 5.03, the Trustee may require the payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in relation thereto and any other expenses (including the fees and expenses of
the Trustee) connected therewith. Any replacement Certificate issued pursuant to
this Section 5.03 shall constitute complete and indefeasible evidence of
ownership, as if originally issued, whether or not the lost, stolen or destroyed
Certificate shall be found at any time.
SECTION 5.04. Persons Deemed Owners.
The Master Servicer, the Trustee and any agent of the Master
Servicer or the Trustee may treat the Person in whose name any Certificate is
registered as the owner of such Certificate for the purpose of receiving
distributions as provided in this Agreement and for all other purposes
whatsoever, and neither the Master Servicer, the Trustee nor any agent of the
Master Servicer or the Trustee shall be affected by any notice to the contrary.
SECTION 5.05. Access to List of Certificateholders' Names and
Addresses.
If three or more Certificateholders (a) request such information in
writing from the Trustee, (b) state that such Certificateholders desire to
communicate with other 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 Master Servicer shall request such information in writing from the
Trustee, then the Trustee shall, within ten Business Days after the receipt of
such request, provide the Depositor, the Master Servicer or such
Certificateholders at such recipients' expense the most recent list of the
Certificateholders of such Trust Fund held by the Trustee, if any. The Depositor
and every Certificateholder, by receiving and holding a Certificate, agree that
the Trustee shall not be held accountable by reason of the disclosure of any
such information as to the list of the Certificateholders hereunder, regardless
of the source from which such information was derived.
SECTION 5.06. Maintenance of Office or Agency.
The Trustee will maintain or cause to be maintained at its expense
an office or offices or agency or agencies in New York City where Certificates
may be surrendered for registration of transfer or exchange. The Trustee
initially designates its ____________for such purposes. The Trustee will give
prompt written notice to the Certificateholders of any change in such location
of any such office or agency.
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ARTICLE VI
THE DEPOSITOR AND THE MASTER SERVICER
SECTION 6.01. Respective Liabilities of the Depositor and the Master
Servicer.
The Depositor and the Master Servicer shall each be liable in
accordance herewith only to the extent of the obligations specifically and
respectively imposed upon and undertaken by them herein.
SECTION 6.02. Merger or Consolidation of the Depositor or the Master
Servicer.
The Depositor and the Master Servicer will each keep in full effect
its existence, rights and franchises as a corporation under the laws of the
United States or under the laws of one of the states thereof and will each
obtain and preserve its qualification to do business as a foreign corporation in
each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of this Agreement, or any of the
Mortgage Loans and to perform its respective duties under this Agreement.
Any Person into which the Depositor or the Master Servicer may be
merged or consolidated, or any Person resulting from any merger or consolidation
to which the Depositor or the Master Servicer shall be a party, or any person
succeeding to the business of the Depositor or the Master Servicer, shall be the
successor of the Depositor or the Master Servicer, as the case may be,
hereunder, without the execution or filing of any paper or any further act on
the part of any of the parties hereto, anything herein to the contrary
notwithstanding; provided, however, that the successor or surviving Person to
the Master Servicer shall be qualified to sell mortgage loans to, and to service
mortgage loans on behalf of, FNMA or FHLMC.
SECTION 6.03. Limitation on Liability of the Depositor, the Seller,
the Master Servicer and Others.
None of the Depositor, the Seller, the Master Servicer or any of the
directors, officers, employees or agents of the Depositor, the Seller or the
Master Servicer shall be under any liability to the Certificateholders for any
action taken or for refraining from the taking of any action in good faith
pursuant to this Agreement, or for errors in judgment; provided, however, that
this provision shall not protect the Depositor, the Seller, the Master Servicer
or any such Person against any breach of representations or warranties made by
it herein or protect the Depositor, the Seller, the Master Servicer or any such
Person from any liability which would otherwise be imposed by reasons of willful
misfeasance, bad faith or gross negligence in the performance of duties or by
reason of reckless disregard of obligations and duties hereunder. The Depositor,
the Seller, the Master Servicer and any director, officer, employee or agent of
the Depositor, the Seller or the Master Servicer may rely in good faith on any
document of any kind prima facie properly executed and submitted by any Person
respecting any matters arising hereunder. The Depositor, the Seller, the Master
Servicer and any director, officer, employee or agent of the Depositor, the
Seller or the Master Servicer shall be indemnified by the Trust Fund and held
harmless against any loss, liability or expense incurred in connection with any
audit, controversy or judicial proceeding relating to a governmental taxing
authority or any legal action relating to this Agreement or the Certificates,
other than any loss, liability or expense related to any specific
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Mortgage Loan or Mortgage Loans (except as any such loss, liability or expense
shall be otherwise reimbursable pursuant to this Agreement) 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 Seller
or the Master Servicer shall be under any obligation to appear in, prosecute or
defend any legal action that is not incidental to its respective duties
hereunder and which in its opinion may involve it in any expense or liability;
provided, however, that any of the Depositor, the Seller or the Master Servicer
may in its discretion undertake any such action that it may deem necessary or
desirable in respect of this Agreement and the rights and duties of the parties
hereto and interests of the Trustee and the Certificateholders hereunder. In
such event, the legal expenses and costs of such action and any liability
resulting therefrom shall be expenses, costs and liabilities of the Trust Fund,
and the Depositor, the Seller and the Master Servicer shall be entitled to be
reimbursed therefor out of the Certificate Account.
SECTION 6.04. Limitation on Resignation of Master Servicer.
The Master Servicer shall not resign from the obligations and duties
hereby imposed on it except (a) upon appointment of a successor servicer and
receipt by the Trustee of a letter from each Rating Agency that such a
resignation and appointment will not result in a downgrading of the rating of
any of the Certificates or (b) upon determination that its duties hereunder are
no longer permissible under applicable law. Any such determination under clause
(b) permitting the resignation of the Master Servicer shall be evidenced by an
Opinion of Counsel to such effect delivered to the Trustee. No such resignation
shall become effective until the Trustee or a successor master servicer shall
have assumed the Master Servicer's responsibilities, duties, liabilities and
obligations hereunder.
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ARTICLE VII
DEFAULT
SECTION 7.01. Events of Default.
"Event of Default," wherever used herein, means any one of the
following events:
(i) any failure by the Master Servicer to deposit
in the Certificate Account or remit to the Trustee any payment
(other than a payment required to be made under Section 4.01
hereof) required to be made under the terms of this Agreement,
which failure shall continue unremedied for five days after
the date upon which written notice of such failure shall have
been given to the Master Servicer by the Trustee or the
Depositor or to the Master Servicer and the Trustee by the
Holders of Certificates having not less than 25% of the Voting
Rights evidenced by the Certificates; or
(ii) any failure by the Master Servicer to observe
or perform in any material respect any other of the covenants
or agreements on the part of the Master Servicer contained in
this Agreement, which failure shall continue unremedied for a
period of 60 days after the date on which written notice of
such failure shall have been given to the Master Servicer by
the Trustee or the Depositor, or to the Master Servicer and
the Trustee by the Holders of Certificates evidencing not less
than 25% of the Voting Rights evidenced by the Certificates;
or
(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 proceedings, or for the winding-up or liquidation of
its affairs, shall have been entered against the Master
Servicer and such decree or order shall have remained in force
undischarged or unstayed for a period of 60 consecutive days;
or
(iv) the Master Servicer shall consent to the
appointment of a receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or
similar proceedings of or relating to the Master Servicer or
all or substantially all of the property of the Master
Servicer; or
(v) the Master Servicer shall admit in writing its
inability to pay its debts generally as they become due, file
a petition to take advantage of, or commence a voluntary case
under, any applicable insolvency or reorganization statute,
make an assignment for the benefit of its creditors, or
voluntarily suspend payment of its obligations; or
(vi) so long as the Master Servicer is the Seller,
any failure by the Seller to observe or perform in any
material respect any other of the covenants or agreements on
the part of the 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 the Seller by the Trustee or the Depositor,
or to the Seller and
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the Trustee by the Holders of Certificates evidencing not less than
25% of the Voting Rights evidenced by the Certificates; or
(vii) any failure of the Master Servicer to make any Advance
in the manner and at the time required to be made pursuant to
Section 4.01 which continues unremedied for a period of one Business
Day after the date of such failure.
If an Event of Default described in clauses (i) to (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 may, or at the
direction of the Holders of Certificates evidencing not less than 25% of the
Voting Rights evidenced by the Certificates, the Trustee shall by notice in
writing to the Master Servicer (with a copy to each Rating Agency), terminate
all of the rights and obligations of the Master Servicer under this Agreement
and in and to the Mortgage Loans and the proceeds thereof, other than its rights
as a Certificateholder hereunder. If an Event of Default described in clause
(vii) hereof shall occur, the Trustee shall, by notice in writing to the Master
Servicer and the Depositor, terminate all of the rights and obligations of the
Master Servicer under this Agreement and in and to the Mortgage Loans and the
proceeds thereof, other than its rights as a Certificateholder hereunder. On and
after the receipt by the Master Servicer of such written notice, all authority
and power of the Master Servicer hereunder, whether with respect to the Mortgage
Loans or otherwise, shall pass to and be vested in the Trustee. The Trustee
shall thereupon make any Advance described in clause (vii) hereof subject to
Section 3.04 hereof. The Trustee is hereby authorized and empowered to execute
and deliver, on behalf of the Master Servicer, as attorney-in-fact or otherwise,
any and all documents and other instruments, and to do or accomplish all other
acts or things necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorsement or assignment of
the Mortgage Loans and related documents, or otherwise. Unless expressly
provided in such written notice, no such termination shall affect any obligation
of the Master Servicer to pay amounts owed pursuant to Article VIII. The Master
Servicer agrees to cooperate with the Trustee in effecting the termination of
the Master Servicer's responsibilities and rights hereunder, including, without
limitation, the transfer to the Trustee of all cash amounts which shall at the
time be credited to the Certificate Account, or thereafter be received with
respect to the Mortgage Loans.
Notwithstanding any termination of the activities of the Master
Servicer hereunder, the Master Servicer shall be entitled to receive, out of any
late collection of a Scheduled Payment on a Mortgage Loan which was due prior to
the notice terminating such Master Servicer's rights and obligations as Master
Servicer hereunder and received after such notice, that portion thereof to which
such Master Servicer would have been entitled pursuant to Sections 3.08(a)(i)
through (viii), and any other amounts payable to such Master Servicer hereunder
the entitlement to which arose prior to the termination of its activities
hereunder.
SECTION 7.02. Trustee to Act; Appointment of Successor.
On and after the time the Master Servicer receives a notice of
termination pursuant to Section 7.01 hereof, the Trustee shall, subject to and
to the extent provided in Section 3.04, be the successor to the Master Servicer
in its capacity as master servicer under this Agreement and the transactions set
forth or provided for herein and shall be subject to all the responsibilities,
duties and liabilities relating thereto placed on the Master Servicer by the
terms and provisions hereof and applicable law including the obligation to make
Advances pursuant to Section 4.01. As compensation
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therefor, the Trustee shall be entitled to all funds relating to the Mortgage
Loans that the Master Servicer would have been entitled to charge to the
Certificate Account or Distribution Account if the Master Servicer had continued
to act hereunder. Notwithstanding the foregoing, if the Trustee has become the
successor to the Master Servicer in accordance with Section 7.01 hereof, the
Trustee may, if it shall be unwilling to so act, or shall, if it is prohibited
by applicable law from making Advances pursuant to Section 4.01 hereof or if it
is otherwise unable to so act, appoint, or petition a court of competent
jurisdiction to appoint, any established mortgage loan servicing institution the
appointment of which does not adversely affect the then current rating of the
Certificates by each Rating Agency as the successor to the Master Servicer
hereunder in the assumption of all or any part of the responsibilities, duties
or liabilities of the Master Servicer hereunder. Any successor to the Master
Servicer shall be an institution which is a FNMA and FHLMC approved
seller/servicer in good standing, which has a net worth of at least $15,000,000,
and which is willing to service the Mortgage Loans and executes and delivers to
the Depositor and the Trustee an agreement accepting such delegation and
assignment, which contains an assumption by such Person of the rights, powers,
duties, responsibilities, obligations and liabilities of the Master Servicer
(other than liabilities of the Master Servicer under Section 6.03 hereof
incurred prior to termination of the Master Servicer under Section 7.01), with
like effect as if originally named as a party to this Agreement; and provided
further that each Rating Agency acknowledges that its rating of the Certificates
in effect immediately prior to such assignment and delegation will not be
qualified or reduced as a result of such assignment and delegation. Pending
appointment of a successor to the Master Servicer hereunder, the Trustee, unless
the Trustee is prohibited by law from so acting, shall, subject to Section 3.04
hereof, act in such capacity as hereinabove provided. In connection with such
appointment and assumption, the Trustee may make such arrangements for the
compensation of such successor out of payments on Mortgage Loans as it and such
successor shall agree; provided, however, that no such compensation shall be in
excess of the Master Servicing Fee permitted the Master Servicer hereunder. The
Trustee and such successor shall take such action, consistent with this
Agreement, as shall be necessary to effectuate any such succession. Neither the
Trustee nor any other successor master servicer shall be deemed to be in default
hereunder by reason of any failure to make, or any delay in making, any
distribution hereunder or any portion thereof or any failure to perform, or any
delay in performing, any duties or responsibilities hereunder, in either case
caused by the failure of the Master Servicer to deliver or provide, or any delay
in delivering or providing, any cash, information, documents or records to it.
Any successor to the Master Servicer as master servicer shall give
notice to the Mortgagors of such change of servicer and shall, during the term
of its service as master servicer maintain in force the policy or policies that
the Master Servicer is required to maintain pursuant to Section 6.05.
SECTION 7.03. Notification to Certificateholders.
(a) Upon any termination of or appointment of a successor to the
Master Servicer, the Trustee shall give prompt written notice thereof to
Certificateholders and to each Rating Agency.
(b) Within 60 days after the occurrence of any Event of Default,
the Trustee shall transmit by mail to all Certificateholders notice of each such
Event of Default hereunder known to the Trustee, unless such Event of Default
shall have been cured or waived.
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ARTICLE VIII
CONCERNING THE TRUSTEE
SECTION 8.01. Duties of Trustee.
The Trustee, prior to the occurrence of an Event of Default and
after the curing of all Events of Default that may have occurred, shall
undertake to perform such duties and only such duties as are specifically set
forth in this Agreement. In case an Event of Default has occurred and remains
uncured, the Trustee shall exercise such of the rights and powers vested in it
by this Agreement, and use the same degree of care and skill in their exercise
as a prudent person would exercise or use under the circumstances in the conduct
of such person's own affairs.
The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee that are specifically required to be furnished pursuant to any
provision of this Agreement shall examine them to determine whether they are in
the form required by this Agreement; provided, however, that the Trustee shall
not be responsible for the accuracy or content of any such resolution,
certificate, statement, opinion, report, document, order or other instrument.
No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct; provided, however, that:
(i) unless an Event of Default known to the Trustee shall
have occurred and be continuing, the duties and obligations of the
Trustee shall be determined solely by the express provisions of this
Agreement, the Trustee shall not be liable except for the performance
of such duties and obligations as are specifically set forth in this
Agreement, no implied covenants or obligations shall be read into this
Agreement against the Trustee and the Trustee may conclusively rely, as
to the truth of the statements and the correctness of the opinions
expressed therein, upon any certificates or opinions furnished to the
Trustee and conforming to the requirements of this Agreement which it
believed in good faith to be genuine and to have been duly executed by
the proper authorities respecting any matters arising hereunder;
(ii) the Trustee shall not be liable for an error of judgment
made in good faith by a Responsible Officer or Responsible Officers of
the Trustee, unless it shall be finally proven that the Trustee was
negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action taken, suffered or omitted to be taken by it in good faith in
accordance with the direction of Holders of Certificates evidencing not
less than 25% of the Voting Rights of Certificates relating to the
time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred
upon the Trustee under this Agreement.
SECTION 8.02. Certain Matters Affecting the Trustee.
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Except as otherwise provided in Section 8.01:
(i) the Trustee may request and rely upon and shall be
protected in acting or refraining from acting upon any resolution,
Officers' Certificate, certificate of auditors or any other
certificate, statement, instrument, opinion, report, notice, request,
consent, order, appraisal, bond or other paper or document believed by
it to be genuine and to have been signed or presented by the proper
party or parties and the Trustee shall have no responsibility to
ascertain or confirm the genuineness of any signature of any such party
or parties;
(ii) the Trustee may consult with counsel, financial
advisers or accountants and the advice of any such counsel, financial
advisers or accountants and any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken or
suffered or omitted by it hereunder in good faith and in accordance
with such Opinion of Counsel;
(iii) the Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon
it by this Agreement;
(iv) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
consent, order, approval, bond or other paper or document, unless
requested in writing so to do by Holders of Certificates evidencing not
less than 25% of the Voting Rights allocated to each Class of
Certificates;
(v) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents, accountants or attorneys;
(vi) the Trustee shall not be required to risk or expend its
own funds or otherwise incur any financial liability in the performance
of any of its duties or in the exercise of any of its rights or powers
hereunder if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or
liability is not assured to it;
(vii) the Trustee shall not be liable for any loss on any
investment of funds pursuant to this Agreement (other than as issuer of
the investment security);
(viii) the Trustee shall not be deemed to have knowledge of an
Event of Default until a Responsible Officer of the Trustee shall have
received written notice thereof; and
(ix) the Trustee shall be under no obligation to exercise
any of the trusts, rights or powers vested in it by this Agreement or
to institute, conduct or defend any litigation hereunder or in relation
hereto at the request, order or direction of any of the
Certificateholders, pursuant to the provisions of this Agreement,
unless such
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Certificateholders shall have offered to the Trustee reasonable
security or indemnity satisfactory to the Trustee against the costs,
expenses and liabilities which may be incurred therein or thereby.
SECTION 8.03. Trustee Not Liable for Certificates or Mortgage Loans.
The recitals contained herein and in the Certificates shall be taken
as the statements of the Depositor or the Seller, as the case may be, and the
Trustee assumes no responsibility for their correctness. The Trustee makes no
representations as to the validity or sufficiency of this Agreement or of the
Certificates or of any Mortgage Loan or related document other than with respect
to the Trustee's execution and counter-signature of the Certificates. The
Trustee shall not be accountable for the use or application by the Depositor or
the Master Servicer of any funds paid to the Depositor or the Master Servicer in
respect of the Mortgage Loans or deposited in or withdrawn from the Certificate
Account by the Depositor or the Master Servicer.
SECTION 8.04. Trustee May Own Certificates.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Certificates with the same rights as it would have if it
were not the Trustee.
SECTION 8.05. Trustee's Fees and Expenses.
The Trustee, as compensation for its activities hereunder, shall be
entitled to withdraw from the Distribution Account on each Distribution Date an
amount equal to the Trustee Fee for such Distribution Date. The Trustee and any
director, officer, employee or agent of the Trustee shall be indemnified by the
Master Servicer and held harmless against any loss, liability or expense
(including reasonable attorney's fees) (i) incurred in connection with any claim
or legal action relating to (a) this Agreement, (b) the Certificates or (c) in
connection with the performance of any of the Trustee's duties hereunder, other
than any loss, liability or expense incurred by reason of willful misfeasance,
bad faith or negligence in the performance of any of the Trustee's duties
hereunder and (ii) resulting from any error in any tax or information return
prepared by the Master Servicer. Such indemnity shall survive the termination of
this Agreement or the resignation or removal of the Trustee hereunder. Without
limiting the foregoing, the Master Servicer covenants and agrees, except as
otherwise agreed upon in writing by the Depositor and the Trustee, and except
for any such expense, disbursement or advance as may arise from the Trustee's
negligence, bad faith or willful misconduct, to pay or reimburse the Trustee,
for all reasonable expenses, disbursements and advances incurred or made by the
Trustee in accordance with any of the provisions of this Agreement with respect
to: (A) the reasonable compensation and the expenses and disbursements of its
counsel not associated with the closing of the issuance of the Certificates, (B)
the reasonable compensation, expenses and disbursements of any accountant,
engineer or appraiser that is not regularly employed by the Trustee, to the
extent that the Trustee must engage such persons to perform acts or services
hereunder and (C) printing and engraving expenses in connection with preparing
any Definitive Certificates. Except as otherwise provided herein, the Trustee
shall not be entitled to payment or reimbursement for any routine ongoing
expenses incurred by the Trustee in the ordinary course of its duties as
Trustee, Registrar, Tax Matters Person or Paying Agent hereunder or for any
other expenses.
SECTION 8.06. Eligibility Requirements for Trustee.
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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). If
such corporation or association publishes reports of condition at least
annually, pursuant to law or to the requirements of the aforesaid supervising
or examining authority, then for the purposes of this Section 8.06 the combined
capital and surplus of such corporation or association shall be deemed to be
its combined capital and surplus as set forth in its most recent report of
condition so published. In case at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section 8.06, the Trustee
shall resign immediately in the manner and with the effect specified in Section
8.07 hereof. The entity serving as Trustee may have normal banking and trust
relationships with the Depositor and its affiliates or the Master Servicer and
its affiliates; provided, however, that such entity cannot be an affiliate of
the Master Servicer other than the Trustee in its role as successor to the
Master Servicer.
SECTION 8.07. Resignation and Removal of Trustee.
The Trustee may at any time resign and be discharged from the trusts
hereby created by giving written notice of resignation to the Depositor and the
Master Servicer and each Rating Agency not less than 60 days before the date
specified in such notice when, subject to Section 8.08, such resignation is to
take effect, and acceptance by a successor trustee in accordance with Section
8.08, such resignation is to take effect, and acceptance by a successor trustee
in accordance with Section 8.08 meeting the qualifications set forth in Section
8.06. If no successor trustee meeting such qualifications shall have been so
appointed and have accepted appointment within 30 days after the giving of such
notice or resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor trustee.
If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 8.06 hereof and shall fail to resign after
written request thereto by the Depositor, or if at any time the Trustee shall
become incapable of acting, or shall be adjudged as bankrupt or insolvent, or a
receiver of the Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, or a
tax is imposed with respect to the Trust Fund by any state in which the Trustee
or the Trust Fund is located and the imposition of such tax would be avoided by
the appointment of a different trustee, then the Depositor or the Master
Servicer may remove the Trustee and appoint a successor trustee by written
instrument, in triplicate, one copy of which instrument shall be delivered to
the Trustee, one copy of which shall be delivered to the Master Servicer and
one copy to the successor trustee.
The Holders of Certificates entitled to at least 51% of the Voting
Rights may at any time remove the Trustee and appoint a successor trustee by
written instrument or instruments, in triplicate, signed by such Holders or
their attorneys-in-fact duly authorized, one complete set of which instruments
shall be delivered by the successor Trustee to the Master Servicer, one
complete set to the Trustee so removed and one complete set to the successor so
appointed. Notice of any removal of the Trustee shall be given to each Rating
Agency by the Successor Trustee.
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Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section 8.07 shall
become effective upon acceptance of appointment by the successor trustee as
provided in Section 8.08 hereof.
SECTION 8.08. Successor Trustee.
Any successor trustee appointed as provided in Section 8.07 hereof
shall execute, acknowledge and deliver to the Depositor and to its predecessor
trustee and the Master Servicer an instrument accepting such appointment
hereunder and thereupon the resignation or removal of the predecessor trustee
shall become effective and such successor trustee, without any further act,
deed or conveyance, shall become fully vested with all the rights, powers,
duties and obligations of its predecessor hereunder, with the like effect as if
originally named as trustee herein. The Depositor, the Master Servicer and the
predecessor trustee shall execute and deliver such instruments and do such
other things as may reasonably be required for more fully and certainly vesting
and confirming in the successor trustee all such rights, powers, duties, and
obligations.
No successor trustee shall accept appointment as provided in this
Section 8.08 unless at the time of such acceptance such successor trustee shall
be eligible under the provisions of Section 8.06 hereof and its appointment
shall not adversely affect the then current rating of the Certificates.
Upon acceptance of appointment by a successor trustee as provided in
this Section 8.08, the Depositor shall mail notice of the succession of such
trustee hereunder to all Holders of Certificates. If the Depositor fails to mail
such notice within 10 days after acceptance of appointment by the successor
trustee, the successor trustee shall cause such notice to be mailed at the
expense of the Depositor.
SECTION 8.09. Merger or Consolidation of Trustee.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to the business of the Trustee, shall be the successor
of the Trustee hereunder, provided that such corporation shall be eligible
under the provisions of Section 8.06 hereof without the execution or filing of
any paper or further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding.
SECTION 8.10. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time,
for the purpose of meeting any legal requirements of any jurisdiction in which
any part of the Trust Fund or property securing any Mortgage Note may at the
time be located, the Master Servicer and the Trustee acting jointly shall have
the power and shall execute and deliver all instruments to appoint one or more
Persons approved by the Trustee to act as co-trustee or co-trustees jointly
with the Trustee, or separate trustee or separate trustees, of all or any part
of the Trust Fund, and to vest in such Person or Persons, in such capacity and
for the benefit of the Certificateholders, such title to the Trust Fund or any
part thereof, whichever is applicable, and, subject to the other provisions of
this Section 8.10, such powers, duties, obligations, rights and trusts as the
Master Servicer and the Trustee may consider necessary or desirable. If the
Master Servicer shall not have joined in such appointment within 15 days after
the receipt by it of a request to do so, or in the case an Event of Default
shall have occurred and be continuing, the Trustee
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alone shall have the power to make such appointment. No co-trustee or separate
trustee hereunder shall be required to meet the terms of eligibility as a
successor trustee under Section 8.06 and no notice to Certificateholders of the
appointment of any co-trustee or separate trustee shall be required under
Section 8.08.
Every separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(i) To the extent necessary to effectuate the purposes of
this Section 8.10, all rights, powers, duties and obligations conferred
or imposed upon the Trustee, except for the obligation of the Trustee
under this Agreement to advance funds on behalf of the Master Servicer,
shall be conferred or imposed upon and exercised or performed by the
Trustee and such separate trustee or co-trustee jointly (it being
understood that such separate trustee or co-trustee is not authorized to
act separately without the Trustee joining in such act), except to the
extent that under any law of any jurisdiction in which any particular
act or acts are to be performed (whether as Trustee hereunder or as
successor to the Master Servicer hereunder), the Trustee shall be
incompetent or unqualified to perform such act or acts, in which event
such rights, powers, duties and obligations (including the holding of
title to the applicable Trust Fund or any portion thereof in any such
jurisdiction) shall be exercised and performed singly by such separate
trustee or co-trustee, but solely at the direction of the Trustee;
(ii) No trustee hereunder shall be held personally liable by
reason of any act or omission of any other trustee hereunder and such
appointment shall not, and shall not be deemed to, constitute any such
separate trustee or co-trustee as agent of the Trustee;
(iii) The Trustee may at any time accept the resignation of
or remove any separate trustee or co-trustee; and
(iv) The Master Servicer, and not the Trustee, shall be
liable for the payment of reasonable compensation, reimbursement and
indemnification to any such separate trustee or co-trustee.
Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the separate trustees and co-trustees, when
and as effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article VIII. Each separate trustee and co-trustee, upon its acceptance
of the trusts conferred, shall be vested with the estates or property specified
in its instrument of appointment, either jointly with the Trustee or
separately, as may be provided therein, subject to all the provisions of this
Agreement, specifically including every provision of this Agreement relating
to the conduct of, affecting the liability of, or affording protection to, the
Trustee. Every such instrument shall be filed with the Trustee and a copy
thereof given to the Master Servicer and the Depositor.
Any separate trustee or co-trustee may, at any time, constitute the
Trustee its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its
estates, properties, rights, remedies
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and trusts shall vest in and be exercised by the Trustee, to the extent
permitted by law, without the appointment of a new or successor trustee.
SECTION 8.11. Tax Matters.
It is intended that the assets with respect to which any REMIC election
is to be made, as set forth in the Preliminary Statement, shall constitute, and
that the conduct of matters relating to such assets shall be such as to qualify
such assets as, a "real estate mortgage investment conduit" as defined in and in
accordance with the REMIC Provisions. In furtherance of such intention, the
Trustee covenants and agrees that it shall act as agent (and the Trustee is
hereby appointed to act as agent) on behalf of any such 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 any such REMIC, containing such
information and at the times and in the manner as may be required by the Code or
state or local tax laws, regulations, or rules, and furnish or cause to be
furnished to Certificateholders the schedules, statements or information at such
times and in such manner as may be required thereby; (b) within thirty days of
the Closing Date, furnish or cause to be furnished to the Internal Revenue
Service, on Forms 8811 or as otherwise may be required by the Code, the name,
title, address, and telephone number of the person that the holders of the
Certificates may contact for tax information relating thereto, together with
such additional information as may be required by such Form, and update such
information at the time or times in the manner required by the Code; (c) make or
cause to be made elections that such assets be treated as a REMIC on the federal
tax return for its first taxable year (and, if necessary, under applicable state
law); (d) prepare and forward, or cause to be prepared and forwarded, to the
Certificateholders and to the Internal Revenue Service and, if necessary, state
tax authorities, all information returns and reports as and when required to be
provided to them in accordance with the REMIC Provisions, including without
limitation, the calculation of any original issue discount using the Prepayment
Assumption; (e) provide information necessary for the computation of tax imposed
on the transfer of a Residual Certificate to a Person that is not a Permitted
Transferee, or an agent (including a broker, nominee or other middleman) of a
Non-Permitted Transferee, or a pass-through entity in which a Non-Permitted
Transferee is the record holder of an interest (the reasonable cost of computing
and furnishing such information may be charged to the Person liable for such
tax); (f) to the extent that they are under its control conduct matters relating
to such assets at all times that any Certificates are outstanding so as to
maintain the status as a REMIC under the REMIC Provisions; (g) not knowingly or
intentionally take any action or omit to take any action that would cause the
termination of the REMIC status; (h) pay, from the sources specified in the
last paragraph of this Section 8.11, the amount of any federal or state tax,
including prohibited transaction taxes as described below, imposed on any such
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 any such
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
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necessary and appropriate, represent any such REMIC in any administrative or
judicial proceedings relating to an examination or audit by any governmental
taxing authority, request an administrative adjustment as to any taxable year
of any such REMIC, enter into settlement agreements with any governmental
taxing agency, extend any statute of limitations relating to any tax item of
any such REMIC, and otherwise act on behalf of any such REMIC in relation to
any tax matter or controversy involving it.
In order to enable the Trustee to perform its duties as set forth
herein, the Depositor shall provide, or cause to be provided, to the Trustee
within ten (10) days after the Closing Date all information or data that the
Trustee requests in writing and determines to be relevant for tax purposes to
the valuations and offering prices of the Certificates, including, without
limitation, the price, yield, prepayment assumption and projected cash flows of
the Certificates and the Mortgage Loans. Thereafter, the Depositor shall
provide to the Trustee promptly upon written request therefor, any such
additional information or data that the Trustee may, from time to time,
reasonably request in order to enable the Trustee to perform its duties as set
forth herein. The Depositor hereby indemnifies the Trustee for any losses,
liabilities, damages, claims or expenses of the Trustee arising from any errors
or miscalculations of the Trustee that result from any failure of the Depositor
to provide, or to cause to be provided, accurate information or data to the
Trustee on a timely basis.
In the event that any tax is imposed on "prohibited transactions" of
the REMIC as defined in Section 860F(a)(2) of the Code, on the "net income from
foreclosure property" of the REMIC as defined in Section 860G(c) of the Code,
on any contribution to the REMIC after the Startup Day pursuant to Section
860G(d) of the Code, or any other tax is imposed, including, without
limitation, any minimum tax imposed upon the REMIC pursuant to Sections 23153
and 24874 of the California Revenue and Taxation Code, if not paid as otherwise
provided for herein, such tax shall be paid by (i) the Trustee, if any such
other tax arises out of or results from a breach by the Trustee of any of its
obligations under this Agreement, (ii) the Master Servicer, in the case of any
such minimum tax, or if such tax arises out of or results from a breach by the
Master Servicer or Seller of any of their obligations under this Agreement,
(iii) the Seller, if any such tax arises out of or results from the Seller's
obligation to repurchase a Mortgage Loan pursuant to Section 2.02 or 2.03 or
(iv) in all other cases, or in the event that the Trustee, the Master Servicer
or the Seller fails to honor its obligations under the preceding clauses (i),
(ii) or (iii), any such tax will be paid with amounts otherwise to be
distributed to the Certificateholders, as provided in Section 3.08(b).
SECTION 8.12 Periodic Filings.
[Pursuant to written instructions from the Depositor, the Trustee shall
prepare, execute and file all periodic reports required under the Securities
Exchange Act of 1934. In connection with the preparation and filing of such
periodic reports, the Depositor and the Master Servicer shall timely provide to
the Trustee all material information available to them which is required to be
included in such reports and not known to them to be in the possession of the
Trustee and such other information as the Trustee reasonably may request from
either of them and otherwise reasonably shall cooperate with the Trustee. The
Trustee shall have no liability with respect to any failure to properly prepare
or file such periodic reports resulting from or relating to the Trustee's
inability or failure to obtain any information not resulting from its own
negligence or willful misconduct.]
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ARTICLE IX
TERMINATION
SECTION 9.01. Termination upon Liquidation or Purchase of all
Mortgage Loans.
Subject to Section 9.03, the obligations and responsibilities of the
Depositor, the Master Servicer and the Trustee created hereby with respect to
the Trust Fund shall terminate upon the earlier of (a) the purchase by the
Master Servicer of all Mortgage Loans (and REO Properties) remaining in the
Trust Fund at the price equal to the sum of (i) 100% of the Stated Principal
Balance of each Mortgage Loan plus one month's accrued interest thereon at the
applicable Adjusted Mortgage Rate and (ii) the lesser of (x) the appraised value
of any REO Property as determined by the higher of two appraisals completed by
two independent appraisers selected by the Master Servicer at the expense of the
Master Servicer and (y) the Stated Principal Balance of each Mortgage Loan
related to any REO Property, in each case plus accrued and unpaid interest
thereon at the applicable Adjusted Mortgage Rate and (b) the later of (i) the
maturity or other liquidation (or any Advance with respect thereto) of the last
Mortgage Loan remaining in the Trust Fund and the disposition of all REO
Property and (ii) the distribution to Certificateholders of all amounts required
to be distributed to them pursuant to this Agreement. In no event shall the
trusts created hereby continue beyond the earlier of (i) the expiration of 21
years from the death of the survivor of the descendants of Joseph P. Kennedy,
the late Ambassador of the United States to the Court of St. James's, living on
the date hereof and (ii) the Latest Possible Maturity Date. The right to
purchase all Mortgage Loans and REO Properties pursuant to clause (a) above
shall be conditioned upon the Pool Stated Principal Balance, at the time of any
such repurchase, aggregating less than ten percent of the aggregate Cut-off Date
Principal Balance of the Mortgage Loans.
SECTION 9.02. Final Distribution on the Certificates.
If on any Determination Date, the Master Servicer determines that
there are no Outstanding Mortgage Loans and no other funds or assets in the
Trust Fund other than the funds in the Certificate Account, the Master Servicer
shall direct the Trustee promptly to send a final distribution notice to each
Certificateholder. If the Master Servicer elects to terminate the Trust Fund
pursuant to clause (a) of Section 9.01, at least 20 days prior to the date
notice is to be mailed to the affected Certificateholders, the Master Servicer
shall notify the Depositor and the Trustee of the date the Master Servicer
intends to terminate the Trust Fund and of the applicable repurchase price of
the Mortgage Loans and REO Properties.
Notice of any termination of the Trust Fund, specifying the
Distribution Date on which Certificateholders may surrender their Certificates
for payment of the final distribution and cancellation, shall be given promptly
by the Trustee by letter to Certificateholders mailed not earlier than the 15th
day and no later than the 10th day of the month next preceding the month of such
final distribution. Any such notice shall specify (a) the Distribution Date upon
which final distribution on the Certificates will be made upon presentation and
surrender of Certificates at the office therein designated, (b) the amount of
such final distribution, (c) the location of the office or agency at which such
presentation and surrender must be made, and (d) that the Record Date otherwise
applicable to such Distribution Date is not applicable, distributions being made
only upon presentation and surrender of the Certificates at the office therein
specified. The Master Servicer will give such notice to each Rating Agency at
the time such notice is given to Certificateholders.
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In the event such notice is given, the Master Servicer shall cause
all funds in the Certificate Account to be remitted to the Trustee for deposit
in the Distribution Account on the Business Day prior to the applicable
Distribution Date in an amount equal to the final distribution in respect of the
Certificates. Upon such final deposit with respect to the Trust Fund and the
receipt by the Trustee of a Request for Release therefor, the Trustee shall
promptly release to the Master Servicer the Mortgage Files for the Mortgage
Loans.
Upon presentation and surrender of the Certificates, the Trustee
shall cause to be distributed to the Certificateholders of each Class, in the
order set forth in Section 4.02 hereof, on the final Distribution Date, in
proportion to their respective Percentage Interests, with respect to
Certificateholders of the same Class, an amount equal to (i) as to each Class of
Regular Certificates, the Certificate Balance thereof plus (a) accrued interest
thereon (or on their Notional Amount, if applicable) in the case of an interest
bearing Certificate and (b) any Class PO Deferred Amounts in the case of the
Class PO Certificates, and (ii) as to the Residual Certificates, the amount, if
any, which remains on deposit in the Distribution Account (other than the
amounts retained to meet claims) after application pursuant to clause (i) above.
In the event that any affected Certificateholders shall not
surrender Certificates for cancellation within six months after the date
specified in the above mentioned written notice, the Trustee shall give a second
written notice to the remaining Certificateholders to surrender their
Certificates for cancellation and receive the final distribution with respect
thereto. If within six months after the second notice all the applicable
Certificates shall not have been surrendered for cancellation, the Trustee may
take appropriate steps, or may appoint an agent to take appropriate steps, to
contact the remaining Certificateholders concerning surrender of their
Certificates, and the cost thereof shall be paid out of the funds and other
assets which remain a part of the Trust Fund. If within one year after the
second notice all Certificates shall not have been surrendered for cancellation,
the Class A-R Certificateholders shall be entitled to all unclaimed funds and
other assets of the Trust Fund which remain subject hereto.
SECTION 9.03. Additional Termination Requirements.
(a) In the event the Master Servicer exercises its purchase option
as provided in Section 9.01, the Trust Fund shall be terminated in accordance
with the following additional requirements, unless the Trustee has been supplied
with an Opinion of Counsel, at the expense of the Master Servicer, to the effect
that the failure to comply with the requirements of this Section 9.03 will not
(i) result in the imposition of taxes on "prohibited transactions" on any REMIC
as defined in section 860F of the Code, or (ii) cause any REMIC to fail to
qualify as a REMIC at any time that any Certificates are outstanding:
(1) Within 90 days prior to the final Distribution Date set forth in
the notice given by the Master Servicer under Section 9.02, the Master
Servicer shall prepare and the Trustee, at the expense of the "tax matters
person," shall adopt a plan of complete 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
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(2) Within 90 days after the time of adoption of such a plan of
complete liquidation, the Trustee shall sell all of the assets of the
Trust Fund to the Master Servicer for cash in accordance with Section
9.01.
(b) The Trustee as agent for any REMIC hereby agrees to adopt and
sign such a plan of complete liquidation upon the written request of the Master
Servicer, and the receipt of the Opinion of Counsel referred to in Section
9.03(a)(1) and to take such other action in connection therewith as may be
reasonably requested by the Master Servicer.
(c) By their acceptance of the Certificates, the Holders thereof
hereby authorize the Master Servicer to prepare and the Trustee to adopt and
sign a plan of complete liquidation.
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ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.01. Amendment.
This Agreement may be amended from time to time by the Depositor,
the Master Servicer and the Trustee without the consent of any of the
Certificateholders to cure any ambiguity or defect, or to correct or supplement
any provisions herein, (including to give effect to the expectations of
investors), or to make such other provisions with respect to matters or
questions arising under this Agreement as shall not be inconsistent with any
other provisions herein; provided that such action shall not, as evidenced by an
Opinion of Counsel (which Opinion of Counsel shall not be an expense of the
Trustee or the Trust Fund), adversely affect in any material respect the
interests of any Certificateholder; provided, however, that the amendment shall
not be deemed to adversely affect in any material respect the interests of the
Certificateholders if the Person requesting the amendment obtains a letter from
each Rating Agency stating that the amendment would not result in the
downgrading or withdrawal of the respective ratings then assigned to the
Certificates; it being understood and agreed that any such letter in and of
itself will not represent a determination as to the materiality of any such
amendment and will represent a determination only as to the credit issues
affecting any such rating. The Trustee, the Depositor and the Master Servicer
also may at any time and from time to time amend this Agreement without the
consent of the Certificateholders to modify, eliminate or add to any of its
provisions to such extent as shall be necessary or helpful to maintain the
qualification of any REMIC as a REMIC under the Code or to avoid or minimize the
risk of the imposition of any tax on any REMIC pursuant to the Code that would
be a claim at any time prior to the final redemption of the Certificates,
provided that the Trustee has been provided an Opinion of Counsel, which opinion
shall be an expense of the party requesting such opinion but in any case shall
not be an expense of the Trustee or the Trust Fund, to the effect that such
action is necessary or helpful to maintain such qualification or to avoid or
minimize the risk of the imposition of such a tax.
This Agreement may also be amended from time to time by the
Depositor, the Master Servicer and the Trustee with the consent of the Holders
of a Majority in Interest of each Class of Certificates affected thereby for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Agreement or of modifying in any manner the rights of
the Holders of Certificates; provided, however, that no such amendment shall (i)
reduce in any manner the amount of, or delay the timing of, payments required to
be distributed on any Certificate without the consent of the Holder of such
Certificate, (ii) adversely affect in any material respect the interests of the
Holders of any Class of Certificates in a manner other than as described in (i),
without the consent of the Holders of Certificates of such Class evidencing, as
to such Class, Percentage Interests aggregating 66% or (iii) reduce the
aforesaid percentages of Certificates the Holders of which are required to
consent to any such amendment, without the consent of the Holders of all such
Certificates then outstanding.
Notwithstanding any contrary provision of this Agreement, the
Trustee shall not consent to any amendment to this Agreement unless it shall
have first received an Opinion of Counsel, which opinion shall not be an expense
of the Trustee or the Trust Fund, to the effect that such amendment will not
cause the imposition of any tax on any REMIC or the Certificateholders or cause
any REMIC to fail to qualify as a REMIC at any time that any Certificates are
outstanding.
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Promptly after the execution of any amendment to this Agreement
requiring the consent of Certificateholders, the Trustee shall furnish written
notification of the substance or a copy of such amendment to each
Certificateholder and each Rating Agency.
It shall not be necessary for the consent of Certificateholders
under this Section to approve the particular form of any proposed amendment, but
it shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents and of evidencing the authorization of the
execution thereof by Certificateholders shall be subject to such reasonable
regulations as the Trustee may prescribe.
Nothing in this Agreement shall require the Trustee to enter into an
amendment without receiving an Opinion of Counsel (which Opinion shall not be an
expense of the Trustee or the Trust Fund, satisfactory to the Trustee that (i)
such amendment is permitted and is not prohibited by this Agreement and that all
requirements for amending this Agreement have been complied with; and (ii)
either (A) the amendment does not adversely affect in any material respect the
interests of any Certificateholder or (B) the conclusion set forth in the
immediately preceding clause (A) is not required to be reached pursuant to this
Section 10.01.
SECTION 10.02. Recordation of Agreement; Counterparts.
This Agreement is subject to recordation in all appropriate public
offices for real property records in all the counties or other comparable
jurisdictions in which any or all of the properties subject to the Mortgages are
situated, and in any other appropriate public recording office or elsewhere,
such recordation to be effected by the Master Servicer at its expense, but only
upon direction by the Trustee accompanied by an Opinion of Counsel to the effect
that such recordation materially and beneficially affects the interests of the
Certificateholders.
For the purpose of facilitating the recordation of this Agreement as
herein provided and for other purposes, this Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and such counterparts shall constitute but one and
the same instrument.
SECTION 10.03. Governing Law.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND
TO BE PERFORMED IN THE STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HERETO AND THE CERTIFICATEHOLDERS SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
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SECTION 10.04. Intention of Parties.
It is the express intent of the parties hereto that the conveyance
of the Trust Fund by the Depositor to the Trustee be, and be construed as, an
absolute sale thereof to the Trustee. It is, further, not the intention of the
parties that such conveyance be deemed a pledge thereof by the Depositor to the
Trustee. However, in the event that, notwithstanding the intent of the parties,
such assets are held to be the property of the Depositor, or if for any other
reason this Agreement is held or deemed to create a security interest in such
assets, then (i) this Agreement shall be deemed to be a security agreement
within the meaning of the Uniform Commercial Code of the State of New York and
(ii) the conveyance provided for in this Agreement shall be deemed to be an
assignment and a grant by the Depositor to the Trustee, for the benefit of the
Certificateholders, of a security interest in all of the assets that constitute
the Trust Fund, whether now owned or hereafter acquired.
The Depositor for the benefit of the Certificateholders shall, to
the extent consistent with this Agreement, take such actions as may be necessary
to ensure that, if this Agreement were deemed to create a security interest in
the Trust Fund, such security interest would be deemed to be a perfected
security interest of first priority under applicable law and will be maintained
as such throughout the term of the Agreement.
SECTION 10.05. Notices.
(a) The Trustee shall use its best efforts to promptly provide
notice to each Rating Agency with respect to each of the following of which it
has actual knowledge:
1. Any material change or amendment to this Agreement;
2. The occurrence of any Event of Default that has not been
cured;
3. The resignation or termination of the Master Servicer or
the Trustee and the appointment of any successor;
4. The repurchase or substitution of Mortgage Loans pursuant
to Section 2.03; and
5. The final payment to Certificateholders.
In addition, the Trustee shall promptly furnish to each Rating
Agency and Financial Security copies of the following:
1. Each report to Certificateholders described in Section 4.04;
2. Each annual statement as to compliance described in Section
3.16;
3. Each annual independent public accountants' servicing
report described in Section 3.17; and
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4. Any notice of a purchase of a Mortgage Loan pursuant to
Section 2.02, 2.03 or 3.11.
(b) All directions, demands and notices hereunder shall be in
writing and shall be deemed to have been duly given when delivered to (a) in the
case of the Depositor, CWMBS, Inc., One Mellon Bank Center, Room 410,
Pittsburgh, Pennsylvania 15258, Attention: Stephen Cobain , (b) in the case of
the Master Servicer, Mellon Mortgage Company, __________, Houston, Texas
_______-, Attention:___________ or such other address as may be hereafter
furnished to the Depositor and the Trustee by the Master Servicer in writing,
(c) in the case of the Trustee, at the Corporate Trust Office, or such other
address as the Trustee may hereafter furnish to the Depositor or Master
Servicer, and (d) in the case of the Rating Agencies, the address specified
therefor in the definition corresponding to the name of such Rating Agency.
Notices to Certificateholders shall be deemed given when mailed, first class
postage prepaid, to their respective addresses appearing in the Certificate
Register.
SECTION 10.06. Severability of Provisions.
If any one or more of the covenants, agreements, provisions or terms
of this Agreement shall be for any reason whatsoever held invalid, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other provisions of this
Agreement or of the Certificates or the rights of the Holders thereof.
SECTION 10.07. Assignment.
Notwithstanding anything to the contrary contained herein, except as
provided in Section 6.02, this Agreement may not be assigned by the Master
Servicer without the prior written consent of the Trustee and Depositor.
SECTION 10.08. Limitation on Rights of Certificateholders.
The death or incapacity of any Certificateholder shall not operate
to terminate this Agreement or the trust created hereby, nor entitle such
Certificateholder's legal representative or heirs to claim an accounting or to
take any action or commence any proceeding in any court for a petition or
winding up of the trust created hereby, or otherwise affect the rights,
obligations and liabilities of the parties hereto or any of them.
No Certificateholder shall have any right to vote (except as
provided herein) or in any manner otherwise control the operation and management
of the Trust Fund, or the obligations of the parties hereto, nor shall anything
herein set forth or contained in the terms of the Certificates be construed so
as to constitute the Certificateholders from time to time as partners or members
of an 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
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of an Event of Default and of the continuance thereof, as herein provided, and
unless the Holders of Certificates evidencing not less than 25% of the Voting
Rights evidenced by the Certificates shall also have made written request to the
Trustee to institute such action, suit or proceeding in its own name as Trustee
hereunder and shall have offered to the Trustee such reasonable indemnity as it
may require against the costs, expenses, and liabilities to be incurred therein
or thereby, and the Trustee, for 60 days after its receipt of such notice,
request and offer of indemnity shall have neglected or refused to institute any
such action, suit or proceeding; it being understood and intended, and being
expressly covenanted by each Certificateholder with every other
Certificateholder and the Trustee, that no one or more Holders of Certificates
shall have any right in any manner whatever by virtue or by availing itself or
themselves of any provisions of this Agreement to affect, disturb or prejudice
the rights of the Holders of any other of the Certificates, or to obtain or seek
to obtain priority over or preference to any other such Holder or to enforce any
right under this Agreement, except in the manner herein provided and for the
common benefit of all Certificateholders. For the protection and enforcement of
the provisions of this Section 10.08, each and every Certificateholder and the
Trustee shall be entitled to such relief as can be given either at law or in
equity.
SECTION 10.09. Inspection and Audit Rights.
The Master Servicer agrees that, on reasonable prior notice, it will
permit and will cause each Subservicer to permit any representative of the
Depositor or the Trustee during the Master Servicer's normal business hours, to
examine all the books of account, records, reports and other papers of the
Master Servicer relating to the Mortgage Loans, to make copies and extracts
therefrom, to cause such books to be audited by independent certified public
accountants selected by the Depositor or the Trustee and to discuss its affairs,
finances and accounts relating to the Mortgage Loans with its officers,
employees and independent public accountants (and by this provision the Master
Servicer hereby authorizes said accountants to discuss with such representative
such affairs, finances and accounts), all at such reasonable times and as often
as may be reasonably requested. Any out-of-pocket expense incident to the
exercise by the Depositor or the Trustee of any right under this Section 10.09
shall be borne by the party requesting such inspection; all other such expenses
shall be borne by the Master Servicer or the related Subservicer.
SECTION 10.10. Certificates Nonassessable and Fully Paid.
It is the intention of the Depositor that Certificate-holders shall
not be personally liable for obligations of the Trust Fund, that the interests
in the Trust Fund represented by the Certificates shall be nonassessable for any
reason whatsoever, and that the Certificates, upon due authentication thereof by
the Trustee pursuant to this Agreement, are and shall be deemed fully paid.
* * * * * *
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IN WITNESS WHEREOF, the Depositor, the Trustee, the Seller and the
Master Servicer have caused their names to be signed hereto by their respective
officers thereunto duly authorized as of the day and year first above written.
MELLON RESIDENTIAL FUNDING CORPORATION,
as Depositor
By:_______________________________________
Name:
Title:
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
By:______________________________________
Name:
Title:
MELLON MORTGAGE COMPANY,
as Seller and Master Servicer
By:______________________________________
Name:
Title:
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SCHEDULE I
Mortgage Loan Schedule
[Delivered at Closing to Trustee]
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SCHEDULE II
Mellon Residential Funding Corporation
Mortgage Pass-Through Certificates
Series 199_-_
Representations and Warranties of the Seller/Master Servicer
Mellon Mortgage Company ("MMC") hereby makes the representations and
warranties set forth in this Schedule II to the Depositor and the Trustee, as of
the Closing Date, or if so specified herein, as of the Cut-off Date. Capitalized
terms used but not otherwise defined in this Schedule II shall have the meanings
ascribed thereto in the Pooling and Servicing Agreement (the "Pooling and
Servicing Agreement") relating to the above-referenced Series, among MMC, as
seller and master servicer, Mellon Residential Funding Corporation, as
depositor, and Bankers Trust Company of California, N.A., as trustee.
(1) MMC is duly organized as a Colorado corporation and is validly
existing and in good standing under the laws of the State of Colorado and
is duly authorized and qualified to transact any and all business
contemplated by the Pooling and Servicing Agreement to be conducted by MMC
in any state in which a Mortgaged Property is located or is otherwise not
required under applicable law to effect such qualification and, in any
event, is in compliance with the doing business laws of any such state, to
the extent necessary to ensure its ability to enforce each Mortgage Loan,
to service the Mortgage Loans in accordance with the terms of the Pooling
and Servicing Agreement and to perform any of its other obligations under
the Pooling and Servicing Agreement in accordance with the terms thereof.
(2) MMC has the full corporate power and authority to sell and
service each Mortgage Loan, and to execute, deliver and perform, and to
enter into and consummate the transactions contemplated by the Pooling and
Servicing Agreement and has duly authorized by all necessary corporate
action on the part of MMC 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 MMC, enforceable against MMC 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 MMC, the sale and servicing of the Mortgage Loans by MMC
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 MMC and will not (A) result in a material
breach of any term or provision of the charter or by-laws of MMC 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 MMC is a party or by which
it may be bound, or (C)
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constitute a material violation of any statute, order or regulation
applicable to MMC of any court, regulatory body, administrative agency or
governmental body having jurisdiction over MMC; and MMC 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 MMC's
ability to perform or meet any of its obligations under the Pooling and
Servicing Agreement.
(4) MMC is an approved servicer of conventional mortgage loans for
FNMA or FHLMC and is a mortgagee approved by the Secretary of Housing and
Urban Development pursuant to sections 203 and 211 of the National Housing
Act.
(5) No litigation is pending or, to the best of MMC's knowledge,
threatened, against MMC that would materially and adversely affect the
execution, delivery or enforceability of the Pooling and Servicing
Agreement or the ability of MMC to sell or service the Mortgage Loans or
to perform any of its other obligations under the Pooling and Servicing
Agreement in accordance with the terms thereof.
(6) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by MMC of, or compliance by MMC 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, MMC has obtained the same.
(7) MMC intends to treat the transfer of the Mortgage Loans to the
Depositor as a sale of the Mortgage Loans for all tax, accounting and
regulatory purposes.
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SCHEDULE III
Mellon Residential Funding Corporation
Mortgage Pass-Through Certificates
Series 199_-_
Representations and Warranties as to the Mortgage Loans
Mellon Mortgage Company ("MMC") hereby makes the representations and
warranties set forth in this Schedule III to the Depositor and the Trustee, as
of the Closing Date, or if so specified herein, as of the Cut-off Date.
Capitalized terms used but not otherwise defined in this Schedule III shall have
the meanings ascribed thereto in the Pooling and Servicing Agreement (the
"Pooling and Servicing Agreement") relating to the above-referenced Series,
among MMC, as seller and master servicer, Mellon Residential Funding
Corporation, as depositor, and Bankers Trust Company of California, N.A., as
trustee.
(1) The information set forth on Schedule I to the Pooling and
Servicing Agreement with respect to each Mortgage Loan is true and correct
in all material respects as of the Closing Date
(2) As of the Closing Date, all payments due with respect to each
Mortgage Loan prior to the Cut-off Date have been made; and as of the
Cut-off Date, no Mortgage Loan has been contractually delinquent for 30 or
more days during the twelve months prior to the Cut-off Date.
(3) No Mortgage Loan had a Loan-to-Value Ratio at origination
in excess of 95%.
(4) Each Mortgage is a valid and enforceable first lien on the
Mortgaged Property subject only to (a) the lien of non delinquent current
real property taxes and assessments, (b) covenants, conditions and
restrictions, rights of way, easements and other matters of public record
as of the date of recording of such Mortgage, such exceptions appearing of
record being acceptable to mortgage lending institutions generally or
specifically reflected in the appraisal made in connection with the
origination of the related Mortgage Loan, and (c) other matters to which
like properties are commonly subject which do not materially interfere
with the benefits of the security intended to be provided by such
Mortgage.
(5) Immediately prior to the assignment of the Mortgage Loans to the
Depositor, the Seller had good title to, and was the sole owner of, each
Mortgage Loan free and clear of any pledge, lien, encumbrance or security
interest and had full right and authority, subject to no interest or
participation of, or agreement with, any other party, to sell and assign
the same pursuant to the Pooling and Servicing Agreement.
(6) There is no delinquent tax or assessment lien against any
Mortgaged Property.
(7) There is no valid offset, defense or counterclaim to any
Mortgage Note or Mortgage, including the obligation of the Mortgagor to
pay the unpaid principal of or interest on such Mortgage Note.
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(8) There are no mechanics' liens or claims for work, labor or
material affecting any Mortgaged Property which are or may be a lien prior
to, or equal with, the lien of such Mortgage, except those which are
insured against by the title insurance policy referred to in item (12)
below.
(9) To the best of the Seller's knowledge, each Mortgaged Property
is free of material damage and in good repair.
(10) Each Mortgage Loan at origination complied in all material
respects with applicable state and federal laws, including, without
limitation, usury, equal credit opportunity, real estate settlement
procedures, truth-in-lending and disclosure laws, and consummation of the
transactions contemplated hereby will not involve the violation of any
such laws.
(11) As of the Closing Date, neither the Seller nor any prior holder
of any Mortgage has modified the Mortgage in any material respect (except
that a Mortgage Loan may have been modified by a written instrument which
has been recorded or submitted for recordation, if necessary, to protect
the interests of the Certificateholders and the original or a copy of
which has been delivered to the Trustee); satisfied, cancelled or
subordinated such Mortgage in whole or in part; released the related
Mortgaged Property in whole or in part from the lien of such Mortgage; or
executed any instrument of release, cancellation, modification or
satisfaction with respect thereto.
(12) A lender's policy of title insurance together with a
condominium endorsement and extended coverage endorsement, if applicable,
in an amount at least equal to the Cut-off Date Stated Principal Balance
of each such Mortgage Loan or a commitment (binder) to issue the same was
effective on the date of the origination of each Mortgage Loan, each such
policy is valid and remains in full force and effect, and each such policy
was issued by a title insurer qualified to do business in the jurisdiction
where the Mortgaged Property is located and acceptable to FNMA or FHLMC
and is in a form acceptable to FNMA or FHLMC, which policy insures the
Seller and successor owners of indebtedness secured by the insured
Mortgage, as to the first priority lien of the Mortgage subject to the
exceptions set forth in paragraph (4) above; to the best of the Seller's
knowledge, no claims have been made under such mortgage title insurance
policy and no prior holder of the related Mortgage, including the Seller,
has done, by act or omission, anything which would impair the coverage of
such mortgage title insurance policy.
(13) Each Mortgage Loan was originated by an entity that satisfied
at the time of origination the requirements of Section 3(a)(41) of the
Securities Exchange Act of 1934, as amended.
(14) To the best of the Seller's knowledge, all of the improvements
which were included for the purpose of determining the Appraised Value of
the Mortgaged Property lie wholly within the boundaries and building
restriction lines of such property, and no improvements on adjoining
properties encroach upon the Mortgaged Property.
(15) To the best of the Seller's knowledge, no improvement located
on or being part of the Mortgaged Property is in violation of any
applicable zoning law or regulation. To the best
S-III-2
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of the Seller's knowledge, all inspections, licenses and certificates
required to be made or issued with respect to all occupied portions of the
Mortgaged Property and, with respect to the use and occupancy of the same,
including but not limited to certificates of occupancy and fire
underwriting certificates, have been made or obtained from the appropriate
authorities, unless the lack thereof would not have a material adverse
effect on the value of such Mortgaged Property, and the Mortgaged Property
is lawfully occupied under applicable law.
(16) The Mortgage Note and the related Mortgage are genuine, and
each is the legal, valid and binding obligation of the maker thereof,
enforceable in accordance with its terms and under applicable law. To the
best of the Seller's knowledge, all parties to the Mortgage Note and the
Mortgage had legal capacity to execute the Mortgage Note and the Mortgage
and each Mortgage Note and Mortgage have been duly and properly executed
by such parties.
(17) The proceeds of the Mortgage Loan have been fully disbursed,
there is no requirement for future advances thereunder and any and all
requirements as to completion of any on-site or off-site improvements and
as to disbursements of any escrow funds therefor have been complied with.
All costs, fees and expenses incurred in making, or closing or recording
the Mortgage Loans were paid.
(18) The related Mortgage contains customary and enforceable
provisions which render the rights and remedies of the holder thereof
adequate for the realization against the Mortgaged Property of the
benefits of the security, including, (i) in the case of a Mortgage
designated as a deed of trust, by trustee's sale, and (ii) otherwise by
judicial foreclosure.
(19) With respect to each Mortgage constituting a deed of trust, a
trustee, duly qualified under applicable law to serve as such, has been
properly designated and currently so serves and is named in such Mortgage,
and no fees or expenses are or will become payable by the
Certificateholders to the trustee under the deed of trust, except in
connection with a trustee's sale after default by the Mortgagor.
(20) Each Mortgage Note and each Mortgage is in substantially one of
the forms acceptable to FNMA or FHLMC, with such riders as have been
acceptable to FNMA or FHLMC, as the case may be.
(21) There exist no deficiencies with respect to escrow deposits and
payments, if such are required, for which customary arrangements for
repayment thereof have not been made, and no escrow deposits or payments
of other charges or payments due the Seller have been capitalized under
the Mortgage or the related Mortgage Note.
(22) The origination, underwriting and collection practices used by
the Seller with respect to each Mortgage Loan have been in all respects
legal, prudent and customary in the mortgage lending and servicing
business.
(23) There is no pledged account or other security other than real
estate securing the Mortgagor's obligations.
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(24) No Mortgage Loan has a shared appreciation feature, or other
contingent interest feature.
(25) Each Mortgage Loan contains a customary "due on sale"
clause.
(26) None of the Mortgage Loans provides for a prepayment
penalty.
(27) Each Mortgage Loan which had a Loan-to-Value Ratio at
origination in excess of 80% is the subject of a Primary Insurance Policy
that insures that portion of the principal balance thereof that exceeds
the amount equal to 75% of the Appraised Value of the related Mortgaged
Property. Each such Primary Insurance Policy is issued by a Qualified
Insurer. All provisions of any such Primary Insurance Policy have been and
are being complied with, any such policy is in full force and effect, and
all premiums due thereunder have been paid. Any Mortgage subject to any
such Primary Insurance Policy obligates either the Mortgagor or the
mortgagee thereunder to maintain such insurance and to pay all premiums
and charges in connection therewith. The Mortgage Rate for each Mortgage
Loan is net of any such insurance premium.
(28) At the Cut-off Date, the improvements upon each Mortgaged
Property are covered by a valid and existing hazard insurance policy with
a generally acceptable carrier that provides for fire and extended
coverage and coverage for such other hazards as are customary in the area
where the Mortgaged Property is located in an amount which is at least
equal to the lesser of (i) the maximum insurable value of the improvements
securing such Mortgage Loan or (ii) the greater of (a) the outstanding
principal balance of the Mortgage Loan and (b) an amount such that the
proceeds of such policy shall be sufficient to prevent the Mortgagor
and/or the mortgagee from becoming a co-insurer. If the Mortgaged Property
is a condominium unit, it is included under the coverage afforded by a
blanket policy for the condominium unit. All such individual insurance
policies and all flood policies referred to in item (29) below contain a
standard mortgagee clause naming the Seller or the original mortgagee, and
its successors in interest, as mortgagee, and the Seller has received no
notice that any premiums due and payable thereon have not been paid; the
Mortgage obligates the Mortgagor thereunder to maintain all such insurance
including flood insurance at the Mortgagor's cost and expense, and upon
the Mortgagor's failure to do so, authorizes the holder of the Mortgage to
obtain and maintain such insurance at the Mortgagor's cost and expense and
to seek reimbursement therefor from the Mortgagor.
(29) If the Mortgaged Property is in an area identified in the
Federal Register by the Federal Emergency Management Agency as having
special flood hazards, a flood insurance policy in a form meeting the
requirements of the current guidelines of the Flood Insurance
Administration is in effect with respect to such Mortgaged Property with a
generally acceptable carrier in an amount representing coverage not less
than the least of (A) the original outstanding principal balance of the
Mortgage Loan, (B) the minimum amount required to compensate for damage or
loss on a replacement cost basis, or (C) the maximum amount of insurance
that is available under the Flood Disaster Protection Act of 1973, as
amended.
(30) To the best of the Seller's knowledge, there is no proceeding
occurring, pending or threatened for the total or partial condemnation of
the Mortgaged Property.
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(31) There is no material monetary default existing under any
Mortgage or the related Mortgage Note and, to the best of the Seller's
knowledge, there is no material event which, with the passage of time or
with notice and the expiration of any grace or cure period, would
constitute a default, breach, violation or event of acceleration under the
Mortgage or the related Mortgage Note; and the Seller has not waived any
default, breach, violation or event of acceleration.
(32) Each Mortgaged Property is improved by a one- to four-family
residential dwelling including condominium units and dwelling units in
PUDs, which, to the best of Seller's knowledge, does not include
cooperatives or mobile homes and does not constitute other than real
property under state law.
(33) Each Mortgage Loan is being serviced by the Master Servicer.
(34) Any future advances made prior to the Cut-off Date have been
consolidated with the outstanding principal amount secured by the
Mortgage, and the secured principal amount, as consolidated, bears a
single interest rate and single repayment term reflected on the Mortgage
Loan Schedule. The consolidated principal amount does not exceed the
original principal amount of the Mortgage Loan. The Mortgage Note does not
permit or obligate the Master Servicer to make future advances to the
Mortgagor at the option of the Mortgagor.
(35) All taxes, governmental assessments, insurance premiums, water,
sewer and municipal charges, leasehold payments or ground rents which
previously became due and owing have been paid, or an escrow of funds has
been established in an amount sufficient to pay for every such item which
remains unpaid and which has been assessed, but is not yet due and
payable. Except for (A) payments in the nature of escrow payments, and (B)
interest accruing from the date of the Mortgage Note or date of
disbursement of the Mortgage proceeds, whichever is later, to the day
which precedes by one month the Due Date of the first installment of
principal and interest, including without limitation, taxes and insurance
payments, the Master Servicer has not advanced funds, or induced,
solicited or knowingly received any advance of funds by a party other than
the Mortgagor, directly or indirectly, for the payment of any amount
required by the Mortgage.
(36) Each Mortgage Loan was underwritten in all material respects in
accordance with the Seller's underwriting guidelines as set forth in the
Prospectus Supplement.
(37) Prior to the approval of the Mortgage Loan application, an
appraisal of the related Mortgaged Property was obtained from a qualified
appraiser, duly appointed by the originator, who had no interest, direct
or indirect, in the Mortgaged Property or in any loan made on the security
thereof, and whose compensation is not affected by the approval or
disapproval of the Mortgage Loan; such appraisal is in a form acceptable
to FNMA and FHLMC.
(38) None of the Mortgage Loans is a graduated payment mortgage loan
or a growing equity mortgage loan, no more than _____ of the Mortgage
Loans are subject to a buydown or similar arrangement.
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(39) Any leasehold estate securing a Mortgage Loan has a term of not
less than five years in excess of the term of the related Mortgage Loan.
(40) The Mortgage Loans were selected from among the outstanding
fixed-rate one- to four-family mortgage loans in the Seller's portfolio at
the Closing Date as to which the representations and warranties made as to
the Mortgage Loans set forth in this Schedule III can be made. Such
selection was not made in a manner that would adversely affect the
interests of Certificateholders.
(41) Except for ______ Mortgage Loans, each Mortgage Loan has a
payment date on or before the Due Date in the month of the first
Distribution Date.
(42) With respect to any Mortgage Loan as to which an affidavit has
been delivered to the Trustee certifying that the original Mortgage Note
is a Lost Mortgage Note, if such Mortgage Loan is subsequently in default,
the enforcement of such Mortgage Loan or of the related Mortgage by or on
behalf of the Trustee will not be materially adversely affected by the
absence of the original Mortgage Note. A "Lost Mortgage Note" is a
Mortgage Note the original of which was permanently lost or destroyed and
has not been replaced.
(43) The Mortgage Loans, individually and in the aggregate, conform
in all material respects to the descriptions thereof in the Prospectus
Supplement.
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SCHEDULE IV
PRINCIPAL BALANCE SCHEDULES
S-IV-1
<PAGE> 120
SCHEDULE V
Form of Monthly Master Servicer Report
<TABLE>
<CAPTION>
================================================================================
LOAN LEVEL REPORTING SYSTEM
================================================================================
DATABASE STRUCTURE
================================================================================
[MONTH, YEAR]
================================================================================
Field Number Field Name Field Type Field Width Dec
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 INVNUM Numeric 4
- --------------------------------------------------------------------------------
2 INVBLK Numeric 4
- --------------------------------------------------------------------------------
3 INACNU Character 8
- --------------------------------------------------------------------------------
4 BEGSCH Numeric 15 2
- --------------------------------------------------------------------------------
5 SCHPRN Numeric 13 2
- --------------------------------------------------------------------------------
6 TADPRN Numeric 11 2
- --------------------------------------------------------------------------------
7 LIQEPB Numeric 11 2
- --------------------------------------------------------------------------------
8 ACTCOD Numeric 11
- --------------------------------------------------------------------------------
9 ACTDAT Numeric 4
- --------------------------------------------------------------------------------
10 INTPMT Numeric 8
- --------------------------------------------------------------------------------
11 PRNPMT Numeric 13 2
- --------------------------------------------------------------------------------
12 ENDSCH Numeric 13 2
- --------------------------------------------------------------------------------
13 SCHNOT Numeric 13 2
- --------------------------------------------------------------------------------
14 SCHPAS Numeric 7 3
- --------------------------------------------------------------------------------
15 PRINPT Numeric 7 3
- --------------------------------------------------------------------------------
16 PRIBAL Numeric 11 2
- --------------------------------------------------------------------------------
17 LPIDTE Numeric 13 2
- --------------------------------------------------------------------------------
18 DELPRN Numeric 7
- --------------------------------------------------------------------------------
19 PPDPRN Numeric 11 2
- --------------------------------------------------------------------------------
20 DELPRN Numeric 11 2
- --------------------------------------------------------------------------------
21 NXTCHG Numeric 8
- --------------------------------------------------------------------------------
22 ARMNOT Numeric 7 3
- --------------------------------------------------------------------------------
23 ARMPAS Numeric 7 3
- --------------------------------------------------------------------------------
24 ARMPMT Numeric 11 2
- --------------------------------------------------------------------------------
25 ZZTYPE Character 2
- --------------------------------------------------------------------------------
26 ISSUID Character 1
- --------------------------------------------------------------------------------
27 KEYNAME Character 8
- --------------------------------------------------------------------------------
TOTAL 240
================================================================================
Suggested DBASE file
Format: Modem
transmission
=============================================================================
</TABLE>
S-V-1
<PAGE> 121
<TABLE>
<CAPTION>
=================================================================================================================================
LOAN LEVEL REPORTING SYSTEM
---------------------------------------------------------------------------------------------------------------------------------
INVESTOR NUMBER:
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
GENERAL CURRENT MONTH SCHEDULED INFORMATION
INFORMATION
---------------------------------------------------------------------------------------------------------------------------------
Beg. Total
Inv. # Blk # MMC# Invest # Balance Principal Curtailment Payoff Amt A/Code A/Date Interest Principal
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
Loan Total
Count: Remittance:
---------------------------------------------------------------------------------------------------------------------------------
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
=================================================================================================
- -------------------------------------------------------------------------------------------------
CUTOFF:
[DATE]
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
TRIAL BALANCE ARM LOANS
INFORMATION ONLY
- -------------------------------------------------------------------------------------------------
End Pass- Del PPD Next Pass-
Balance Note thru P&I UPB LPI Prin. Prin. Chg Note thru P&I
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
=================================================================================================
</TABLE>
S-V-2
<PAGE> 122
EXHIBIT A
[FORM OF SENIOR CERTIFICATE]
[UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.]
[SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "REGULAR
INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT," AS THOSE TERMS ARE
DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE").]
Certificate No. :
Cut-off Date :
First Distribution Date :
Initial Certificate Balance
of this Certificate
("Denomination") : $
Initial Certificate Balances
of all Certificates of
this Class : $
CUSIP :
MELLON RESIDENTIAL FUNDING CORPORATION.
Mortgage Pass-Through Certificates, Series 199 -
Class [ ]
evidencing a percentage interest in the distributions allocable to the
Certificates of the above-referenced Class with respect to a Trust Fund
consisting primarily of a pool of conventional mortgage loans (the
"Mortgage Loans") secured by first liens on one- to four-family
residential properties
MELLON RESIDENTIAL FUNDING CORPORATION, as Depositor
B-1
<PAGE> 123
Principal in respect of this Certificate is distributable monthly as
set forth herein. Accordingly, the Certificate Balance at any time may be less
than the Certificate Balance as set forth herein. This Certificate does not
evidence an obligation of, or an interest in, and is not guaranteed by the
Depositor, the Seller, the Master Servicer or the Trustee referred to below or
any of their respective affiliates. Neither this Certificate nor the Mortgage
Loans are guaranteed or insured by any governmental agency or instrumentality.
This certifies that is the registered owner of the Percentage
Interest evidenced by this Certificate (obtained by dividing the denomination of
this Certificate by the aggregate Initial Certificate Balances of all
Certificates of the Class to which this Certificate belongs) in certain monthly
distributions with respect to a Trust Fund consisting primarily of the Mortgage
Loans deposited by Mellon Residential Funding Corporation (the "Depositor"). The
Trust Fund was created pursuant to a Pooling and Servicing Agreement dated as of
the Cut-off Date specified above (the "Agreement") among the Depositor,
_________________, as seller (in such capacity, the "Seller") and as master
servicer (in such capacity, the "Master Servicer"), and Bankers Trust Company of
California, N.A., 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.
* * *
B-2
<PAGE> 124
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be
duly executed.
Dated: ____________, 19__
BANKERS TRUST COMPANY OF CALIFORNIA,
N.A., as Trustee
By ______________________
Countersigned:
By ___________________________
Authorized Signatory of
BANKERS TRUST COMPANY OF
CALIFORNIA N.A., as Trustee
B-3
<PAGE> 125
EXHIBIT B
[FORM OF SUBORDINATED CERTIFICATE]
[UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.]
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "REGULAR
INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT," AS THOSE TERMS ARE
DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE").
THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO CERTAIN CERTIFICATES AS
DESCRIBED IN THE AGREEMENT REFERRED TO HEREIN.
[THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR THE PURPOSE OF APPLYING THE
U.S. FEDERAL INCOME TAX ORIGINAL ISSUE DISCOUNT ("OID") RULES UNDER THE CODE TO
THIS CERTIFICATE. THE ISSUE DATE OF THIS CERTIFICATE IS , 199 . THE INITIAL
PER ANNUM RATE OF INTEREST ON THIS CERTIFICATE IS %. ASSUMING THAT THE
MORTGAGE LOANS PREPAY AT AN ASSUMED RATE OF PREPAYMENT OF % PER ANNUM (THE
"PREPAYMENT ASSUMPTION"), THIS CERTIFICATE HAS BEEN ISSUED WITH $ OF OID PER
$1,000 OF THE ORIGINAL PRINCIPAL AMOUNT OF THIS CERTIFICATE; THE ANNUAL YIELD TO
MATURITY OF THIS CERTIFICATE FOR PURPOSES OF COMPUTING THE ACCRUAL OF OID IS
APPROXIMATELY % (COMPOUNDED MONTHLY); THE AMOUNT OF OID ALLOCABLE TO THE SHORT
FIRST ACCRUAL PERIOD IS $ PER $1,000 OF THE ORIGINAL PRINCIPAL AMOUNT OF
THIS CERTIFICATE COMPUTED USING THE MONTHLY YIELD AND DAILY COMPOUNDING DURING
THE SHORT ACCRUAL PERIOD. NO REPRESENTATION IS MADE THAT THE MORTGAGE LOANS WILL
PREPAY AT A RATE BASED ON THE PREPAYMENT ASSUMPTION OR AT ANY OTHER RATE. THE
ACTUAL YIELD TO MATURITY MAY DIFFER FROM THAT SET FORTH ABOVE, AND THE ACCRUAL
OF OID WILL BE ADJUSTED, IN ACCORDANCE WITH SECTION 1272(a)(6) OF THE CODE, TO
TAKE INTO ACCOUNT EVENTS WHICH HAVE OCCURRED DURING ANY ACCRUAL PERIOD. THE
PREPAYMENT ASSUMPTION IS INTENDED TO BE THE PREPAYMENT ASSUMPTION REFERRED TO IN
SECTION 1272(a)(6)(B)(iii) OF THE CODE.]
[THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). ANY RESALE OR TRANSFER OF THIS CERTIFICATE WITHOUT
REGISTRATION THEREOF UNDER THE ACT MAY 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-4
<PAGE> 126
NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED UNLESS THE
TRANSFEREE REPRESENTS TO THE TRUSTEE THAT SUCH TRANSFEREE IS NOT AN EMPLOYEE
BENEFIT PLAN SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS
AMENDED, OR A PLAN SUBJECT TO SECTION 4975 OF THE CODE, OR DELIVERS TO THE
TRUSTEE AN OPINION OF COUNSEL IN ACCORDANCE WITH THE PROVISIONS OF THE AGREEMENT
REFERRED TO HEREIN. [SUCH REPRESENTATION SHALL BE DEEMED TO HAVE BEEN MADE TO
THE TRUSTEE BY THE TRANSFEREE'S ACCEPTANCE OF A CERTIFICATE OF THIS CLASS AND BY
A BENEFICIAL OWNER'S ACCEPTANCE OF ITS INTEREST IN A CERTIFICATE OF THIS CLASS.]
NOTWITHSTANDING ANYTHING ELSE TO THE CONTRARY HEREIN, ANY PURPORTED TRANSFER OF
THIS CERTIFICATE TO OR ON BEHALF OF AN EMPLOYEE BENEFIT PLAN SUBJECT TO ERISA OR
TO THE CODE WITHOUT THE OPINION OF COUNSEL SATISFACTORY TO THE TRUSTEE AS
DESCRIBED ABOVE SHALL BE VOID AND OF NO EFFECT.
B-5
<PAGE> 127
Certificate No. :
Cut-off Date :
First Distribution Date :
Initial Certificate Balance
of this Certificate
("Denomination") : $
Initial Certificate Balances
of all Certificates of
this Class : $
MELLON RESIDENTIAL FUNDING CORPORATION.
Mortgage Pass-Through Certificates, Series 199 -
Class [ ]
evidencing a percentage interest in the distributions allocable to the
Certificates of the above-referenced Class with respect to a Trust Fund
consisting primarily of a pool of conventional loans (the "Mortgage
Loans") secured by first liens on one- to four-family residential
properties
MELLON RESIDENTIAL FUNDING CORPORATION, as Depositor
Principal in respect of this Certificate is distributable monthly as
set forth herein. Accordingly, the Certificate Balance at any time may be less
than the Certificate Balance as set forth herein. This Certificate does not
evidence an obligation of, or an interest in, and is not guaranteed by the
Depositor, the Seller, the Master Servicer or the Trustee referred to below or
any of their respective affiliates. Neither this Certificate nor the Mortgage
Loans are guaranteed or insured by any governmental agency or instrumentality.
This certifies that is the registered owner of the Percentage
Interest evidenced by this Certificate (obtained by dividing the denomination of
this Certificate by the aggregate Initial Certificate Balances of all
Certificates of the Class to which this Certificate belongs) in certain monthly
distributions with respect to a Trust Fund consisting primarily of the Mortgage
Loans deposited by Mellon Residential Funding Corporation (the "Depositor"). The
Trust Fund was created pursuant to a Pooling and Servicing Agreement dated as of
the Cut-off Date specified above (the "Agreement") among the Depositor,
____________________, as seller (in such capacity, the "Seller") and as master
servicer (in such capacity, the "Master Servicer"), and Bankers Trust Company of
California, N.A., as trustee (the "Trustee"). To the extent not defined herein,
the capitalized terms used herein have the meanings assigned in the Agreement.
This Certificate is issued under and is subject to the terms, provisions and
conditions of the Agreement, to which Agreement the Holder of this Certificate
by virtue of the acceptance hereof assents and by which such Holder is bound.
[No transfer of a Certificate of this Class shall be made unless
such transfer is made pursuant to an effective registration statement under the
Securities Act and any applicable state securities laws or is exempt from the
registration requirements under said Act and such laws. In the event that a
B-6
<PAGE> 128
transfer is to be made in reliance upon an exemption from the Securities Act and
such laws, in order to assure compliance with the Securities Act and such laws,
the Certificateholder desiring to effect such transfer and such
Certificateholder's prospective transferee shall each certify to the Trustee in
writing the facts surrounding the transfer. In the event that such a transfer is
to be made within three years from the date of the initial issuance of
Certificates pursuant hereto, there shall also be delivered (except in the case
of a transfer pursuant to Rule 144A of the Securities Act) to the Trustee an
Opinion of Counsel that such transfer may be made pursuant to an exemption from
the Securities Act and such state securities laws, which Opinion of Counsel
shall not be obtained at the expense of the Trustee, the Seller, the Master
Servicer or the Depositor. The Holder hereof desiring to effect such transfer
shall, and does hereby agree to, indemnify the Trustee and the Depositor against
any liability that may result if the transfer is not so exempt or is not made in
accordance with such federal and state laws.]
No transfer of a Certificate of this Class shall be made unless the
Trustee shall have received either (i) a representation [letter] from the
transferee of such Certificate, acceptable to and in form and substance
satisfactory to the Trustee, to the effect that such transferee is not an
employee benefit plan subject to Section 406 of ERISA or Section 4975 of the
Code, nor a person acting on behalf of any such plan, which representation
letter shall not be an expense of the Trustee or the Master Servicer, (ii) if
the purchaser is an insurance company, a representation that the purchaser is an
insurance company which is purchasing such Certificates with funds contained in
an "insurance company general account" (as such term is defined in Section V(e)
of Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60")) and that the
purchase and holding of such Certificates are covered under PTCE 95-60, or (iii)
in the case of any such Certificate presented for registration in the name of an
employee benefit plan subject to ERISA or Section 4975 of the Code (or
comparable provisions of any subsequent enactments), or a trustee of any such
plan or any other person acting on behalf of any such plan, an Opinion of
Counsel satisfactory to the Trustee and the Master Servicer to the effect that
the purchase or holding of such Certificate will not result in the assets of the
Trust Fund being deemed to be "plan assets" and subject to the prohibited
transaction provisions of ERISA and the Code and will not subject the Trustee to
any obligation in addition to those undertaken in the Agreement, which Opinion
of Counsel shall not be an expense of the Trustee or the Master Servicer. [Such
representation shall be deemed to have been made to the Trustee by the
Transferee's acceptance of a Certificate of this Class and by a beneficial
owner's acceptance of its interest in a Certificate of this Class.]
Notwithstanding anything else to the contrary herein, any purported transfer of
a Certificate of this Class to or on behalf of an employee benefit plan subject
to ERISA or to the Code without the opinion of counsel satisfactory to the
Trustee as described above shall be void and of no effect.
Reference is hereby made to the further provisions of this
Certificate set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
This Certificate shall not be entitled to any benefit under the
Agreement or be valid for any purpose unless manually countersigned by an
authorized signatory of the Trustee.
* * *
B-7
<PAGE> 129
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be
duly executed.
Dated: ____________, 19__
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.
as Trustee
By ______________________
Countersigned:
By ___________________________
Authorized Signatory of
BANKERS TRUST COMPANY OF
CALIFORNIA, N.A.,
as Trustee
B-8
<PAGE> 130
EXHIBIT C
[FORM OF RESIDUAL CERTIFICATE]
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "RESIDUAL
INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT," AS THOSE TERMS ARE
DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE").
NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED UNLESS THE
PROPOSED TRANSFEREE DELIVERS TO THE TRUSTEE A TRANSFER AFFIDAVIT IN ACCORDANCE
WITH THE PROVISIONS OF THE AGREEMENT REFERRED TO HEREIN.
[THIS CERTIFICATE REPRESENTS THE "TAX MATTERS PERSON RESIDUAL INTEREST" ISSUED
UNDER THE POOLING AND SERVICING AGREEMENT REFERRED TO BELOW AND MAY NOT BE
TRANSFERRED TO ANY PERSON EXCEPT IN CONNECTION WITH THE ASSUMPTION BY THE
TRANSFEREE OF THE DUTIES OF THE SERVICER UNDER SUCH AGREEMENT.]
NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED UNLESS THE
TRANSFEREE DELIVERS TO THE TRUSTEE EITHER A REPRESENTATION LETTER TO THE EFFECT
THAT SUCH TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, OR A PLAN SUBJECT TO SECTION
4975 OF THE CODE, OR AN OPINION OF COUNSEL IN ACCORDANCE WITH THE PROVISIONS OF
THE AGREEMENT REFERRED TO HEREIN. NOTWITHSTANDING ANYTHING ELSE TO THE CONTRARY
HEREIN, ANY PURPORTED TRANSFER OF THIS CERTIFICATE TO OR ON BEHALF OF AN
EMPLOYEE BENEFIT PLAN SUBJECT TO ERISA OR TO THE CODE WITHOUT THE OPINION OF
COUNSEL SATISFACTORY TO THE TRUSTEE AS DESCRIBED ABOVE SHALL BE VOID AND OF NO
EFFECT.
C-1
<PAGE> 131
Certificate No. :
Cut-off Date :
Initial Certificate Balance
of this Certificate
("Denomination") : $
Initial Certificate Balances
of all Certificates of
this Class : $
CUSIP :
MELLON RESIDENTIAL FUNDING CORPORATION.
Mortgage Pass-Through Certificates, Series 199 -
evidencing the distributions allocable to the Class A-R Certificates with
respect to a Trust Fund consisting primarily of a pool of conventional
loans (the "Mortgage Loans") secured by first liens on one- to four-family
residential properties
MELLON RESIDENTIAL FUNDING CORPORATION, as Depositor
Principal in respect of this Certificate is distributable monthly as
set forth herein. Accordingly, the Certificate Balance at any time may be less
than the Certificate Balance as set forth herein. This Certificate does not
evidence an obligation of, or an interest in, and is not guaranteed by the
Depositor, the Seller, the Master Servicer or the Trustee referred to below or
any of their respective affiliates. Neither this Certificate nor the Mortgage
Loans are guaranteed or insured by any governmental agency or instrumentality.
This certifies that is the registered owner of the Percentage
Interest (obtained by dividing the Denomination of this Certificate by the
aggregate Initial Certificate Balances of all Certificates of the Class to which
this Certificate belongs) in certain monthly distributions with respect to a
Trust Fund consisting of the Mortgage Loans deposited by Mellon Residential
Funding Corporation (the "Depositor"). The Trust Fund was created pursuant to a
Pooling and Servicing Agreement dated as of the Cut-off Date specified above
(the "Agreement") among the Depositor, _________________ as seller (in such
capacity, the "Seller") and as master servicer (in such capacity, the "Master
Servicer"), and Bankers Trust Company of California, N.A., as trustee (the
"Trustee"). To the extent not defined herein, the capitalized terms used herein
have the meanings assigned in the Agreement. This Certificate is issued under
and is subject to the terms, provisions and conditions of the Agreement, to
which Agreement the Holder of this Certificate by virtue of the acceptance
hereof assents and by which such Holder is bound.
Any distribution of the proceeds of any remaining assets of the
Trust Fund will be made only upon presentment and surrender of this Class A-R
Certificate at the Corporate Trust Office or the office or agency maintained by
the Trustee in New York, New York.
C-2
<PAGE> 132
No transfer of a Class A-R Certificate shall be made unless the
Trustee shall have received either (i) a representation letter from the
transferee of such Certificate, acceptable to and in form and substance
satisfactory to the Trustee, to the effect that such transferee is not an
employee benefit plan subject to Section 406 of ERISA or Section 4975 of the
Code, nor a person acting on behalf of any such plan, which representation
letter shall not be an expense of the Trustee or the Master Servicer, or (ii) in
the case of any such Class A-R Certificate presented for registration in the
name of an employee benefit plan subject to ERISA, or Section 4975 of the Code
(or comparable provisions of any subsequent enactments), or a trustee of any
such plan or any other person acting on behalf of any such plan, an Opinion of
Counsel satisfactory to the Trustee and the Master Servicer to the effect that
the purchase or holding of such Class A-R Certificate will not result in the
assets of the Trust Fund being deemed to be "plan assets" and subject to the
prohibited transaction provisions of ERISA and the Code and will not subject the
Trustee or the Master Servicer to any obligation in addition to those undertaken
in this Agreement, which Opinion of Counsel shall not be an expense of the
Trustee or the Master Servicer. Notwithstanding anything else to the contrary
herein, any purported transfer of a Class A-R Certificate to or on behalf of an
employee benefit plan subject to ERISA or to the Code without the opinion of
counsel satisfactory to the Trustee as described above shall be void and of no
effect.
Each Holder of this Class A-R Certificate will be deemed to have
agreed to be bound by the restrictions of the Agreement, including but not
limited to the restrictions that (i) each person holding or acquiring any
Ownership Interest in this Class A-R Certificate must be a Permitted Transferee,
(ii) no Ownership Interest in this Class A-R Certificate may be transferred
without delivery to the Trustee of (a) a transfer affidavit of the proposed
transferee and (b) a transfer certificate of the transferor, each of such
documents to be in the form described in the Agreement, (iii) each person
holding or acquiring any Ownership Interest in this Class A-R Certificate must
agree to require a transfer affidavit and to deliver a transfer certificate to
the Trustee as required pursuant to the Agreement, (iv) each person holding or
acquiring an Ownership Interest in this Class A-R Certificate must agree not to
transfer an Ownership Interest in this Class A-R Certificate if it has actual
knowledge that the proposed transferee is not a Permitted Transferee and (v) any
attempted or purported transfer of any Ownership Interest in this Class A-R
Certificate in violation of such restrictions will be absolutely null and void
and will vest no rights in the purported transferee.
Reference is hereby made to the further provisions of this
Certificate set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
This Certificate shall not be entitled to any benefit under the
Agreement or be valid for any purpose unless manually countersigned by an
authorized signatory of the Trustee.
* * *
C-3
<PAGE> 133
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be
duly executed.
Dated: ____________, 19__
BANKERS TRUST COMPANY OF CALIFORNIA,
N.A.,
By ______________________
Countersigned:
By ___________________________
Authorized Signatory of
BANKERS TRUST COMPANY OF
CALIFORNIA, N.A.,
as Trustee
C-4
<PAGE> 134
EXHIBIT D
[FORM OF NOTIONAL AMOUNT CERTIFICATE]
[SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "REGULAR
INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT," AS THOSE TERMS ARE
DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE").]
THIS CERTIFICATE HAS NO PRINCIPAL BALANCE AND IS NOT ENTITLED TO ANY
DISTRIBUTIONS IN RESPECT OF PRINCIPAL.
[THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR THE PURPOSE OF APPLYING THE
U.S. FEDERAL INCOME TAX ORIGINAL ISSUE DISCOUNT ("OID") RULES UNDER THE CODE TO
THIS CERTIFICATE. THE ISSUE DATE OF THIS CERTIFICATE IS , 199 . THE INITIAL
PER ANNUM RATE OF INTEREST ON THIS CERTIFICATE IS %. ASSUMING THAT THE
MORTGAGE LOANS PREPAY AT AN ASSUMED RATE OF PREPAYMENT OF % PER ANNUM (THE
"PREPAYMENT ASSUMPTION"), THIS CERTIFICATE HAS BEEN ISSUED WITH $ OF OID ON
THE INITIAL POOL STATED PRINCIPAL BALANCE; THE ANNUAL YIELD TO MATURITY OF THIS
CERTIFICATE FOR PURPOSES OF COMPUTING THE ACCRUAL OF OID IS APPROXIMATELY %
(COMPOUNDED MONTHLY); THE AMOUNT OF OID ALLOCABLE TO THE SHORT FIRST ACCRUAL
PERIOD IS $ ON THE INITIAL POOL STATED PRINCIPAL BALANCE; AND THE METHOD
USED TO CALCULATE THE ANNUAL YIELD TO MATURITY AND THE AMOUNT OF OID ALLOCABLE
TO THE SHORT FIRST ACCRUAL PERIOD IS THE EXACT METHOD AS DEFINED IN PROPOSED
TREASURY REGULATIONS. NO REPRESENTATION IS MADE THAT THE MORTGAGE LOANS WILL
PREPAY AT A RATE BASED ON THE PREPAYMENT ASSUMPTION OR AT ANY OTHER RATE. THE
ACTUAL YIELD TO MATURITY MAY DIFFER FROM THAT SET FORTH ABOVE, AND THE ACCRUAL
OF OID WILL BE ADJUSTED, IN ACCORDANCE WITH SECTION 1272(a)(6) OF THE CODE, TO
TAKE INTO ACCOUNT EVENTS WHICH HAVE OCCURRED DURING ANY ACCRUAL PERIOD. THE
PREPAYMENT ASSUMPTION IS INTENDED TO BE THE PREPAYMENT ASSUMPTION REFERRED TO IN
SECTION 1272(a)(6)(B)(iii) OF THE CODE.]
C-5
<PAGE> 135
Certificate No. :
Cut-off Date :
First Distribution Date :
Initial Notional Amount
of this Certificate
("Denomination") :
Initial Notional Amount
of all Certificates
of this Class :
CUSIP :
MELLON RESIDENTIAL FUNDING CORPORATION
Mortgage Pass-Through Certificates, Series 199 -
Class [ ]
evidencing a percentage interest in the distributions allocable to the
Certificates of the above-referenced Class with respect to a Trust Fund
consisting primarily of a pool of conventional loans (the "Mortgage
Loans") secured by first liens on one- to four-family residential
properties
MELLON RESIDENTIAL FUNDING CORPORATION, as Depositor
This Certificate does not evidence an obligation of, or an interest
in, and is not guaranteed by the Depositor, the Seller, the Master Servicer or
the Trustee referred to below or any of their respective affiliates. Neither
this Certificate nor the Mortgage Loans are guaranteed or insured by any
governmental agency or instrumentality.
This certifies that is the registered owner of the Percentage
Interest evidenced by this Certificate specified above in certain monthly
distributions with respect to a Trust Fund consisting primarily of the Mortgage
Loans deposited by Mellon Residential Funding Corporation (the "Depositor"). The
Trust Fund was created pursuant to a Pooling and Servicing Agreement dated as of
Cut-off Date specified above (the "Agreement") among the Depositor,
_______________ as seller (in such capacity, the "Seller") and as master
servicer (in such capacity, the "Master Servicer"), and Bankers Trust Company of
California, N.A., 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.
C-6
<PAGE> 136
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__
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.
as Trustee
By ______________________
Countersigned:
By ___________________________
Authorized Signatory of
BANKERS TRUST COMPANY OF
CALIFORNIA, N.A.
as Trustee
C-7
<PAGE> 137
EXHIBIT E
[Form of Reverse of Certificates]
MELLON RESIDENTIAL FUNDING CORPORATION.
Mortgage Pass-Through Certificates
This Certificate is one of a duly authorized issue of Certificates
designated as Mellon Residential Funding Corporation. 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 last Business Day of the month next preceding the month
of such Distribution Date.
Distributions on this Certificate shall be made by wire transfer of
immediately available funds to the account of the Holder hereof at a bank or
other entity having appropriate facilities therefor, if such Certificateholder
shall have so notified the Trustee in writing at least five Business Days prior
to the related Record Date and such Certificateholder shall satisfy the
conditions to receive such form of payment set forth in the Agreement, or, if
not, by check mailed by first class mail to the address of such
Certificateholder appearing in the Certificate Register. The final distribution
on each Certificate will be made in like manner, but only upon presentment and
surrender of such Certificate at the Corporate Trust Office or such other
location specified in the notice to Certificateholders of such final
distribution.
The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Trustee and the rights of the Certificateholders under the Agreement at any time
by the Depositor, the Master Servicer and the Trustee with the consent of the
Holders of Certificates affected by such amendment evidencing the requisite
Percentage Interest, as provided in the Agreement. Any such consent by the
Holder of this Certificate shall be conclusive and binding on such Holder and
upon all future Holders of this Certificate and of any Certificate issued upon
the transfer hereof or in exchange therefor or in lieu hereof whether or not
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<PAGE> 138
notation of such consent is made upon this Certificate. The Agreement also
permits the amendment thereof, in certain limited circumstances, without the
consent of the Holders of any of the Certificates.
As provided in the Agreement and subject to certain limitations
therein set forth, the transfer of this Certificate is registrable in the
Certificate Register of the Trustee upon surrender of this Certificate for
registration of transfer at the Corporate Trust Office or the office or agency
maintained by the Trustee in New York, New York, accompanied by a written
instrument of transfer in form satisfactory to the Trustee and the Certificate
Registrar duly executed by the holder hereof or such holder's attorney duly
authorized in writing, and thereupon one or more new Certificates of the same
Class in authorized denominations and evidencing the same aggregate Percentage
Interest in the Trust Fund will be issued to the designated transferee or
transferees.
The Certificates are issuable only as registered Certificates
without coupons in denominations specified in the Agreement. As provided in the
Agreement and subject to certain limitations therein set forth, Certificates are
exchangeable for new Certificates of the same Class in authorized denominations
and evidencing the same aggregate Percentage Interest, as requested by the
Holder surrendering the same.
No service charge will be made for any such registration of transfer
or exchange, but the Trustee may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
The Depositor, the Master Servicer, the Seller and the Trustee and
any agent of the Depositor or the Trustee may treat the Person in whose name
this Certificate is registered as the owner hereof for all purposes, and neither
the Depositor, the Trustee, nor any such agent shall be affected by any notice
to the contrary.
On any Distribution Date on which the Pool Stated Principal Balance
is less than 10% of the aggregate Cut-off Date Principal Balances of the
Mortgage Loans, the Master Servicer will have the option to repurchase, in
whole, from the Trust Fund all remaining Mortgage Loans and all property
acquired in respect of the Mortgage Loans at a purchase price determined as
provided in the Agreement. In the event that no such optional termination
occurs, the obligations and responsibilities created by the Agreement will
terminate upon the later of the maturity or other liquidation (or any advance
with respect thereto) of the last Mortgage Loan remaining in the Trust Fund or
the disposition of all property in respect thereof and the distribution to
Certificateholders of all amounts required to be distributed pursuant to the
Agreement. In no event, however, will the trust created by the Agreement
continue beyond the expiration of 21 years from the death of the last survivor
of the descendants living at the date of the Agreement of a certain person named
in the Agreement.
Any term used herein that is defined in the Agreement shall have the
meaning assigned in the Agreement, and nothing herein shall be deemed
inconsistent with that meaning.
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<PAGE> 139
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.
E-3
<PAGE> 140
STATE OF )
) ss.:
COUNTY OF )
On the day of , 19 before me, a notary public in and for said
State, personally appeared , known to me who, being by me duly
sworn, did depose and say that he executed the foregoing instrument.
-----------------------------
Notary Public
[Notarial Seal]
E-4
<PAGE> 141
EXHIBIT F
[RESERVED]
F-1
<PAGE> 142
EXHIBIT G
FORM OF INITIAL CERTIFICATION OF TRUSTEE
[date]
[Depositor]
[Master Servicer]
[Seller]
- ---------------------
- ---------------------
Re: Pooling and Servicing Agreement among
Mellon Residential Funding Corporation,
as Depositor, ________________________,
as Seller and Master Servicer, and
Bankers Trust Company of California, N.A.,as Trustee
Mortgage Pass-Through Certificates, Series 199 -_______
Gentlemen:
In accordance with Section 2.02 of the above-captioned Pooling and
Servicing Agreement (the "Pooling and Servicing Agreement"), the undersigned, as
Trustee, hereby certifies that, as to each Mortgage Loan listed in the Mortgage
Loan Schedule (other than any Mortgage Loan paid in full or listed on the
attached schedule) it has received:
(i) the original Mortgage Note endorsed in the following form: "Pay
to the order of __________, without recourse"; and
(ii) a duly executed assignment of the Mortgage (which may be
included in a blanket assignment or assignments).
Based on its review and examination and only as to the foregoing
documents, such documents appear regular on their face and related to such
Mortgage Loan.
The Trustee has made no independent examination of any documents
contained in each Mortgage File beyond the review specifically required in the
Pooling and Servicing Agreement. The Trustee makes no representations as to: (i)
the validity, legality, sufficiency, enforceability or genuineness of any of the
documents contained in each Mortgage File of any of the Mortgage Loans
identified on the Mortgage Loan Schedule, or (ii) the collectability,
insurability, effectiveness or suitability of any such Mortgage Loan.
G-1
<PAGE> 143
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the Pooling and Servicing Agreement.
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.
as Trustee
By: _________________________________
Name: _______________________________
Title: ________________________________
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<PAGE> 144
EXHIBIT H
FORM OF FINAL CERTIFICATION OF TRUSTEE
[date]
[Depositor]
[Master Servicer]
[Seller]
- -------------------
- -------------------
Re: Pooling and Servicing Agreement among
Mellon Residential Funding Corporation,
as Depositor , _______________., as Seller and
Master Servicer and Bankers Trust Company of
California, N.A., as Trustee, Mortgage Pass-Through
Certificates, Series 199_-________________________
Gentlemen:
In accordance with Section 2.02 of the above-captioned Pooling and
Servicing Agreement (the "Pooling and Servicing Agreement"), the undersigned, as
Trustee, hereby certifies that as to each Mortgage Loan listed in the Mortgage
Loan Schedule (other than any Mortgage Loan paid in full or listed on the
attached Document Exception Report) it has received:
(i) the original Mortgage Note endorsed in the form provided in
Section 2.01(c) of the Pooling and Servicing Agreement, with all intervening
endorsements showing a complete chain of endorsement from the originator to the
Seller.
(ii) The original recorded Mortgage.
(iii) A duly executed assignment of the Mortgage in the form
provided in Section 2.01(c) of the Pooling and Servicing Agreement, or, if the
Depositor has certified or the Trustee otherwise knows that the related Mortgage
has not been returned from the applicable recording office, a copy of the
assignment of the Mortgage (excluding information to be provided by the
recording office).
(iv) The original or duplicate original recorded assignment or
assignments of the Mortgage showing a complete chain of assignment from the
originator to the Seller.
(v) The original or duplicate original lender's title policy and all
riders thereto or, any one of an original title binder, an original preliminary
title report or an original title commitment, or a copy thereof certified by the
title company.
H-1
<PAGE> 145
Based on its review and examination and only as to the foregoing
documents, (a) such documents appear regular on their face and related to such
Mortgage Loan, and (b) the information set forth in items (i), (ii), (iii),
(iv), (vi), and (xi) of the definition of the "Mortgage Loan Schedule" in
Section 1.01 of the Pooling and Servicing Agreement accurately reflects
information set forth in the Mortgage File.
The Trustee has made no independent examination of any documents
contained in each Mortgage File beyond the review specifically required in the
Pooling and Servicing Agreement. The Trustee makes no representations as to: (i)
the validity, legality, sufficiency, enforceability or genuineness of any of the
documents contained in each Mortgage File of any of the Mortgage Loans
identified on the Mortgage Loan Schedule, or (ii) the collectability,
insurability, effectiveness or suitability of any such Mortgage Loan.
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the Pooling and Servicing Agreement.
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
By : _________________________________
Name: _______________________________
Title: ________________________________
H-2
<PAGE> 146
I-6
EXHIBIT I
TRANSFER AFFIDAVIT
CWMBS, Inc.
Mortgage Pass-Through Certificates
Series 199 -_
STATE OF )
) ss.:
COUNTY OF )
The undersigned, being first duly sworn, deposes and says as
follows:
1. The undersigned is an officer of , the proposed Transferee of an
Ownership Interest in a Class A-R Certificate (the "Certificate") issued
pursuant to the Pooling and Servicing Agreement, (the "Agreement"), relating to
the above-referenced Series, by and among Mellon Residential Funding
Corporation, as depositor (the "Depositor"), ________________, as seller and
master servicer and Bankers Trust Company of California, N.A.,, as Trustee.
Capitalized terms used, but not defined herein or in Exhibit 1 hereto, shall
have the meanings ascribed to such terms in the Agreement. The Transferee has
authorized the undersigned to make this affidavit on behalf of the Transferee.
2. The Transferee is, as of the date hereof, and will be, as of the
date of the Transfer, a Permitted Transferee. The Transferee is acquiring its
Ownership Interest in the Certificate either (i) for its own account or (ii) as
nominee, trustee or agent for another Person and has attached hereto an
affidavit from such Person in substantially the same form as this affidavit. The
Transferee has no knowledge that any such affidavit is false.
3. The Transferee has been advised of, and understands that (i) a
tax will be imposed on Transfers of the Certificate to Persons that are not
Permitted Transferees; (ii) such tax will be imposed on the transferor, or, if
such Transfer is through an agent (which includes a broker, nominee or
middleman) for a Person that is not a Permitted Transferee, on the agent; and
(iii) the Person otherwise liable for the tax shall be relieved of liability for
the tax if the subsequent Transferee furnished to such Person an affidavit that
such subsequent Transferee is a Permitted Transferee and, at the time of
Transfer, such Person does not have actual knowledge that the affidavit is
false.
4. The Transferee has been advised of, and understands that a tax
will be imposed on a "pass-through entity" holding the Certificate if at any
time during the taxable year of the pass-through entity a Person that is not a
Permitted Transferee is the record holder of an interest in such entity. The
Transferee understands that such tax will not be imposed for any period with
respect to which the record holder furnishes to the pass-through entity an
affidavit that such record holder is a Permitted Transferee and the pass-through
entity does not have actual knowledge that such affidavit is false. (For this
purpose, a "pass-through entity" includes a regulated investment company, a real
estate investment trust or common trust fund, a partnership, trust or estate,
and certain cooperatives and, except
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<PAGE> 147
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 J to the Agreement (a "Transferor Certificate") to the
effect that such Transferee has no actual knowledge that the Person to which the
Transfer is to be made is not a Permitted Transferee.
7. The Transferee does not have the intention to impede the
assessment or collection of any tax legally required to be paid with respect to
the Certificate.
8. The Transferee's taxpayer identification number is .
9. The Transferee is a U.S. Person as defined in Code Section
7701(a)(30).
10. The Transferee is aware that the Certificate may be a
"noneconomic residual interest" within the meaning of proposed Treasury
regulations promulgated pursuant to the Code and that the transferor of a
noneconomic residual interest will remain liable for any taxes due with respect
to the income on such residual interest, unless no significant purpose of the
transfer was to impede the assessment or collection of tax.
11. The Transferee is not an employee benefit plan that is subject
to ERISA or a plan that is subject to Section 4975 of the Code, and the
Transferee is not acting on behalf of such a plan.
* * *
I-2
<PAGE> 148
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__.
I-3
<PAGE> 149
EXHIBIT 1
to EXHIBIT I
Certain Definitions
"Ownership Interest": As to any Certificate, any ownership interest
in such Certificate, including any interest in such Certificate as the Holder
thereof and any other interest therein, whether direct or indirect, legal or
beneficial.
"Permitted Transferee": Any Person other than (i) the United States,
any State or political subdivision thereof, or any agency or instrumentality of
any of the foregoing, (ii) a foreign government, International Organization or
any agency or instrumentality of either of the foregoing, (iii) an organization
(except certain farmers' cooperatives described in Code Section 521) which is
exempt from tax imposed by Chapter 1 of the Code (including the tax imposed by
Code Section 511 on unrelated business taxable income) on any excess inclusions
(as defined in Code Section 860E(c)(1)) with respect to any Class A-R
Certificate, (iv) rural electric and telephone cooperatives described in Code
Section 1381(a)(2)(c), (v) a Person that is not a citizen or resident of the
United States, a corporation, partnership, or other entity created or organized
in or under the laws of the United States or any political subdivision thereof,
or an estate or trust whose income from sources without the United States is
includible in gross income for United States federal income tax purposes
regardless of its connection with the conduct of a trade or business within the
United States, and (vi) any other Person so designated by the Trustee based upon
an Opinion of Counsel that the Transfer of an Ownership Interest in a Class A-R
Certificate to such Person may cause the Trust Fund to fail to qualify as a
REMIC at any time that certain Certificates are Outstanding. The terms "United
States," "State" and "International Organization" shall have the meanings set
forth in Code Section 7701 or successor provisions. A corporation will not be
treated as an instrumentality of the United States or of any State or political
subdivision thereof if all of its activities are subject to tax, and, with the
exception of the FHLMC, a majority of its board of directors is not selected by
such governmental unit.
"Person": Any individual, corporation, partnership, joint venture,
bank, joint stock company, trust (including any beneficiary thereof),
unincorporated organization or government or any agency or political subdivision
thereof.
"Transfer": Any direct or indirect transfer or sale of any Ownership
Interest in a Certificate, including the acquisition of a Certificate by the
Depositor.
"Transferee": Any Person who is acquiring by Transfer any Ownership
Interest in a Certificate.
I-4
<PAGE> 150
EXHIBIT 2
to EXHIBIT I
Section 5.02(c) of the Agreement
(c) Each Person who has or who acquires any Ownership Interest in a
Class A-R Certificate shall be deemed by the acceptance or acquisition of such
Ownership Interest to have agreed to be bound by the following provisions, and
the rights of each Person acquiring any Ownership Interest in a Class A-R
Certificate are expressly subject to the following provisions:
(i) Each Person holding or acquiring any Ownership Interest in a
Class A-R Certificate shall be a Permitted Transferee and shall promptly
notify the Trustee of any change or impending change in its status as a
Permitted Transferee.
(ii) No Ownership Interest in a Class A-R Certificate may be
registered on the Closing Date or thereafter transferred, and the Trustee
shall not register the Transfer of any Class A-R Certificate unless, in
addition to the certificates required to be delivered to the Trustee under
subparagraph (b) above, the Trustee shall have been furnished with an
affidavit (a "Transfer Affidavit") of the initial owner or the proposed
transferee in the form attached hereto as Exhibit I.
(iii) Each Person holding or acquiring any Ownership Interest in a
Class A-R Certificate shall agree (A) to obtain a Transfer Affidavit from
any other Person to whom such Person attempts to Transfer its Ownership
Interest in a Class A-R Certificate, (B) to obtain a Transfer Affidavit
from any Person for whom such Person is acting as nominee, trustee or
agent in connection with any Transfer of a Class A-R Certificate and (C)
not to Transfer its Ownership Interest in a Class A-R Certificate or to
cause the Transfer of an Ownership Interest in a Class A-R Certificate to
any other Person if it has actual knowledge that such Person is not a
Permitted Transferee.
(iv) Any attempted or purported Transfer of any Ownership Interest
in a Class A-R Certificate in violation of the provisions of this Section
5.02(c) shall be absolutely null and void and shall vest no rights in the
purported Transferee. If any purported transferee shall become a Holder of
a Class A-R Certificate in violation of the provisions of this Section
5.02(c), then the last preceding Permitted Transferee shall be restored to
all rights as Holder thereof retroactive to the date of registration of
Transfer of such Class A-R Certificate. The Trustee shall be under no
liability to any Person for any registration of Transfer of a Class A-R
Certificate that is in fact not permitted by Section 5.02(b) and this
Section 5.02(c) or for making any payments due on such Certificate to the
Holder thereof or taking any other action with respect to such Holder
under the provisions of this Agreement so long as the Transfer was
registered after receipt of the related Transfer Affidavit, Transferor
Certificate and either the Rule 144A Letter or the Investment Letter. The
Trustee shall be entitled but not obligated to recover from any Holder of
a Class A-R Certificate that was in fact not a Permitted Transferee at the
time it became a Holder or, at such subsequent time as it became other
than a Permitted Transferee, all payments made on such Class A-R
Certificate at and after either such time. Any such payments so recovered
by the Trustee shall be paid and delivered by the Trustee to the last
preceding Permitted Transferee of such Certificate.
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<PAGE> 151
(v) The Depositor shall use its best efforts to make available, upon
receipt of written request from the Trustee, all information necessary to
compute any tax imposed under Section 860E(e) of the Code as a result of a
Transfer of an Ownership Interest in a Class A-R Certificate to any Holder
who is not a Permitted Transferee.
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<PAGE> 152
EXHIBIT J
FORM OF TRANSFEROR CERTIFICATE
_____________________
Date
Mellon Residential Funding Corporation
One Mellon Bank Center, Room 410
Pittsburgh, PA 15258 Attention:
Bankers Trust Company of California, N.A.
3 Park Place
Irvine, CA 92416 Attention:
Re: Mellon Residential Funding Corporation
Mortgage Pass-Through Certificates,
Series 199 -_, Class ,
Ladies and Gentlemen:
In connection with our disposition of the above Certificates we
certify that (a) we understand that the Certificates have not been registered
under the Securities Act of 1933, as amended (the "Act"), and are being disposed
by us in a transaction that is exempt from the registration requirements of the
Act, (b) we have not offered or sold any Certificates to, or solicited offers to
buy any Certificates from, any person, or otherwise approached or negotiated
with any person with respect thereto, in a manner that would be deemed, or taken
any other action which would result in, a violation of Section 5 of the Act and
(c) to the extent we are disposing of a Class A-R Certificate, we have no
knowledge the Transferee is not a Permitted Transferee.
Very truly yours,
__________________________
Print Name of Transferor
By: ______________________
Authorized Officer
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<PAGE> 153
EXHIBIT K
FORM OF INVESTMENT LETTER (NON-RULE 144A)
___________________________
Date
Mellon Residential Funding Corporation
One Mellon Bank Center, Room 410
Pittsburgh, PA 15258 Attention:
Bankers Trust Company of California, N.A.
3 Park Place
Irvine, CA 92416 Attention:
Re: Mellon Residential Funding Corporation
Mortgage Pass-Through Certificates,
Series 199 -_, Class
Ladies and Gentlemen:
In connection with our acquisition of the above Certificates we
certify that (a) we understand that the Certificates are not being registered
under the Securities Act of 1933, as amended (the "Act"), or any state
securities laws and are being transferred to us in a transaction that is exempt
from the registration requirements of the Act and any such laws, (b) we are an
"accredited investor," as defined in Regulation D under the Act, and have such
knowledge and experience in financial and business matters that we are capable
of evaluating the merits and risks of investments in the Certificates, (c) we
have had the opportunity to ask questions of and receive answers from the
Depositor concerning the purchase of the Certificates and all matters relating
thereto or any additional information deemed necessary to our decision to
purchase the Certificates, (d) we are not an employee benefit plan that is
subject to the Employee Retirement Income Security Act of 1974, as amended, or a
plan or arrangement that is subject to Section 4975 of the Internal Revenue Code
of 1986, as amended, nor are we acting on behalf of any such plan or
arrangement, nor are we using the assets of any such plan or arrangement to
effect such acquisition, (e) we are acquiring the Certificates for investment
for our own account and not with a view to any distribution of such Certificates
(but without prejudice to our right at all times to sell or otherwise dispose of
the Certificates in accordance with clause (g) below), (f) we have not offered
or sold any Certificates to, or solicited offers to buy any Certificates from,
any person, or otherwise approached or negotiated with any person with respect
thereto, or taken any other action which would result in a violation of Section
5 of the Act, and (g) we will not sell, transfer or otherwise dispose of any
Certificates unless (1) such sale, transfer or other disposition is made
pursuant to an effective registration statement under the Act or is exempt from
such registration requirements, and if requested, we will at our expense provide
an opinion of 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
K-1
<PAGE> 154
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
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<PAGE> 155
EXHIBIT L
FORM OF RULE 144A LETTER
________________________
Date
Mellon Residential Funding Corporation
One Mellon Bank Center, Room 410
Pittsburgh, PA 15258 Attention:
Bankers Trust Company of California, N.A.
3 Park Place
Irvine, CA 92416 Attention:
Re: Mellon Residential Funding Corporation
Mortgage Pass-Through Certificates,
Series 199 -_, Class
Ladies and Gentlemen:
In connection with our acquisition of the above Certificates we
certify that (a) we understand that the Certificates are not being registered
under the Securities Act of 1933, as amended (the "Act"), or any state
securities laws and are being transferred to us in a transaction that is exempt
from the registration requirements of the Act and any such laws, (b) we have
such knowledge and experience in financial and business matters that we are
capable of evaluating the merits and risks of investments in the Certificates,
(c) we have had the opportunity to ask questions of and receive answers from the
Depositor concerning the purchase of the Certificates and all matters relating
thereto or any additional information deemed necessary to our decision to
purchase the Certificates, (d) we are not an employee benefit plan that is
subject to the Employee Retirement Income Security Act of 1974, as amended, or a
plan or arrangement that is subject to Section 4975 of the Internal Revenue Code
of 1986, as amended, nor are we acting on behalf of any such plan or
arrangement, nor are we using the assets of any such plan or arrangement to
effect such acquisition, (e) we have not, nor has anyone acting on our behalf
offered, transferred, pledged, sold or otherwise disposed of the Certificates,
any interest in the Certificates or any other similar security to, or solicited
any offer to buy or accept a transfer, pledge or other disposition of the
Certificates, any interest in the Certificates or any other similar security
from, or otherwise approached or negotiated with respect to the Certificates,
any interest in the Certificates or any other similar security with, any person
in any manner, or made any general solicitation by means of general advertising
or in any other manner, or taken any other action, that would constitute a
distribution of the Certificates under the Securities Act or that would render
the disposition of the Certificates a violation of Section 5 of the Securities
Act or require registration pursuant thereto, nor will act, nor has authorized
or will authorize any person to act, in such manner with respect to the
Certificates, (f) we are a "qualified institutional buyer" as that term is
defined in Rule 144A under the Securities Act and have completed either of the
forms of certification to that effect attached hereto as Annex 1 or Annex 2. We
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are aware that the sale to us is being made in reliance on Rule 144A. We are
acquiring the Certificates for our own account or for resale pursuant to Rule
144A and further, understand that such Certificates may be resold, pledged or
transferred only (i) to a person reasonably believed to be a qualified
institutional buyer that purchases for its own account or for the account of a
qualified institutional buyer to whom notice is given that the resale, pledge or
transfer is being made in reliance on Rule 144A, or (ii) pursuant to another
exemption from registration under the Securities Act.
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ANNEX 1 TO EXHIBIT L
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
[For Transferees Other Than Registered Investment Companies]
The undersigned (the "Buyer") hereby certifies as follows to the
parties listed in the Rule 144A Transferee Certificate to which this
certification relates with respect to the Certificates described therein:
1. As indicated below, the undersigned is the President, Chief
Financial Officer, Senior Vice President or other executive officer of the
Buyer.
2. In connection with purchases by the Buyer, the Buyer is a
"qualified institutional buyer" as that term is defined in Rule 144A under the
Securities Act of 1933, as amended ("Rule 144A") because (i) the Buyer owned
and/or invested on a discretionary basis either at least $100,000 in securities
or, if Buyer is a dealer, Buyer must own and/or invest on a discretionary basis
at least $10,000,000 in securities (except for the excluded securities referred
to below) as of the end of the Buyer's most recent fiscal year (such amount
being calculated in accordance with Rule 144A and (ii) the Buyer satisfies the
criteria in the category marked below.
___ Corporation, etc. The Buyer is a corporation (other than a
bank, savings and loan association or similar institution),
Massachusetts or similar business trust, partnership, or
charitable organization described in Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended.
___ Bank. The Buyer (a) is a national bank or banking institution
organized under the laws of any State, territory or the
District of Columbia, the business of which is substantially
confined to banking and is supervised by the State or
territorial banking commission or similar official or is a
foreign bank or equivalent institution, and (b) has an audited
net worth of at least $25,000,000 as demonstrated in its
latest annual financial statements, a copy of which is
attached hereto.
___ Savings and Loan. The Buyer (a) is a savings and loan
association, building and loan association, cooperative bank,
homestead association or similar institution, which is
supervised and examined by a State or Federal authority having
supervision over any such institutions or is a foreign savings
and loan association or equivalent institution and (b) has an
audited net worth of at least $25,000,000 as demonstrated in
its latest annual financial statements, a copy of which is
attached hereto.
___ Broker-dealer. The Buyer is a dealer registered pursuant to
Section 15 of the Securities Exchange Act of 1934.
___ Insurance Company. The Buyer is an insurance company whose
primary and predominant business activity is the writing of
insurance or the reinsuring of
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risks underwritten by insurance companies and which is 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.
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
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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: ______________________
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ANNEX 2 TO EXHIBIT L
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
[For Transferees That are Registered Investment Companies]
The undersigned (the "Buyer") hereby certifies as follows to the
parties listed in the Rule 144A Transferee Certificate to which this
certification relates with respect to the Certificates described therein:
1. As indicated below, the undersigned is the President, Chief
Financial Officer or Senior Vice President of the Buyer or, if the Buyer is a
"qualified institutional buyer" as that term is defined in Rule 144A under the
Securities Act of 1933, as amended ("Rule 144A") because Buyer is part of a
Family of Investment Companies (as defined below), is such an officer of the
Adviser.
2. In connection with purchases by Buyer, the Buyer is a "qualified
institutional buyer" as defined in SEC Rule 144A because (i) the Buyer is an
investment company registered under the Investment Company Act of 1940, as
amended and (ii) as marked below, the Buyer alone, or the Buyer's Family of
Investment Companies, owned at least $100,000,000 in securities (other than the
excluded securities referred to below) as of the end of the Buyer's most recent
fiscal year. For purposes of determining the amount of securities owned by the
Buyer or the Buyer's Family of Investment Companies, the cost of such securities
was used, except (i) where the Buyer or the Buyer's Family of Investment
Companies reports its securities holdings in its financial statements on the
basis of their market value, and (ii) no current information with respect to the
cost of those securities has been published. If clause (ii) in the preceding
sentence applies, the securities may be valued at market.
___ The Buyer owned $ in securities (other than the
excluded securities referred to below) as of the end of the
Buyer's most recent fiscal year (such amount being calculated
in accordance with Rule 144A).
___ The Buyer is part of a Family of Investment Companies which
owned in the aggregate $ in securities (other than the
excluded securities referred to below) as of the end of the
Buyer's most recent fiscal year (such amount being calculated
in accordance with Rule 144A).
3. The term "Family of Investment Companies" as used herein means
two or more registered investment companies (or series thereof) that have the
same investment adviser or investment advisers that are affiliated (by virtue of
being majority owned subsidiaries of the same parent or because one investment
adviser is a majority owned subsidiary of the other).
4. The term "securities" as used herein does not include (i)
securities of issuers that are affiliated with the Buyer or are part of the
Buyer's Family of Investment Companies, (ii) securities issued or guaranteed by
the U.S. or any instrumentality thereof, (iii) bank deposit notes and
certificates of deposit, (iv) loan participations, (v) repurchase agreements,
(vi) securities owned but subject to a repurchase agreement and (vii) currency,
interest rate and commodity swaps.
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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: _________________
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EXHIBIT M
REQUEST FOR RELEASE
(for Trustee)
MELLON RESIDENTIAL FUNDING CORPORATION.
Mortgage Pass-Through Certificates
Series 199 -_
Loan Information
Name of Mortgagor: ______________________________________
Servicer
Loan No.: ______________________________________
Trustee
Name: ______________________________________
Address: ______________________________________
______________________________________
Trustee
Mortgage File No.: ______________________________________
The undersigned Master Servicer hereby acknowledges that it has
received from Bankers Trust Company of California, N.A., as Trustee for the
Holders of Mortgage Pass-Through Certificates, of the above-referenced Series,
the documents referred to below (the "Documents"). All capitalized terms not
otherwise defined in this Request for Release shall have the meanings given them
in the Pooling and Servicing Agreement (the "Pooling and Servicing Agreement")
relating to the above-referenced Series among the Trustee, ________________., as
Seller and Master Servicer and Mellon Residential Funding Corporation., as
Depositor.
( ) Mortgage Note dated ___________ , 19__, in the original principal
sum of $ ________ , made by ________ . payable to, or endorsed to
the order of, the Trustee.
( ) Mortgage recorded on _________________ as instrument no.
_____________________ in the County Recorder's Office of the County
of ___________________ , State of _______________ in
book/reel/docket ________________ of official records at page/image
_______________ .
( ) Deed of Trust recorded on __________________ as instrument no.
_________________ in the County Recorder's Office of the County of
________________, State of _______________ in book/reel/docket
_______________ of official records at page/image ________________.
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( ) Assignment of Mortgage or Deed of Trust to the Trustee, recorded on
_________________ as instrument no. ____________ in the County
Recorder's Office of the County of __________, State of
________________ in book/reel/docket _______________ of official
records at page/image.
( ) Other documents, including any amendments, assignments or other
assumptions of the Mortgage Note or Mortgage.
( ) _____________________________________________________
( ) _____________________________________________________
( ) _____________________________________________________
( ) _____________________________________________________
The undersigned Master Servicer hereby acknowledges and agrees as
follows:
(1) The Master Servicer shall hold and retain possession of the
Documents in trust for the benefit of the Trustee, solely for the purposes
provided in the Agreement.
(2) The Master Servicer shall not cause or knowingly permit the
Documents to become subject to, or encumbered by, any claim, liens,
security interest, charges, writs of attachment or other impositions nor
shall the Servicer assert or seek to assert any claims or rights of setoff
to or against the Documents or any proceeds thereof.
(3) The Master Servicer shall return each and every Document
previously requested from the Mortgage File to the Trustee when the need
therefor no longer exists, unless the Mortgage Loan relating to the
Documents has been liquidated and the proceeds thereof have been remitted
to the Certificate Account and except as expressly provided in the
Agreement.
(4) The Documents and any proceeds thereof, including any proceeds
of proceeds, coming into the possession or control of the Master Servicer
shall at all times be earmarked for the account of the Trustee, and the
Master Servicer shall keep the Documents and any proceeds separate and
distinct from all other property in the Master Servicer's possession,
custody or control.
_________________________________
By ______________________________
Its ______________________________
Date: ______________, 19__
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EXHIBIT N
REQUEST FOR RELEASE OF DOCUMENTS
To: Bankers Trust Company of California, N.A. Attn: Mortgage Custody
Services
Re: The Pooling & Servicing Agreement dated ____________ among
_____________, as Seller and as Master Servicer, Mellon Residential
Funding Corporation and Bankers Trust Company of California, N.A.,
as Trustee
Ladies and Gentlemen:
In connection with the administration of the Mortgage Loans held by
you as Trustee for Mellon Residential Funding Corporation, we request the
release of the Mortgage Loan File for the Mortgage Loan(s) described below, for
the reason indicated.
FT Account#: Pool #:
Mortgagor's Name, Address and Zip Code:
Mortgage Loan Number:
Reason for Requesting Documents (check one)
1. Mortgage Loan paid in full (__________________hereby certifies that
all amounts have been received.)
2. Mortgage Loan Liquidated (__________________. hereby certifies that
all proceeds of foreclosure, insurance, or other liquidation have
been finally received.)
3. Mortgage Loan in Foreclosure.
4. Other (explain):
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<PAGE> 165
If item 1 or 2 above is checked, and if all or part of the Mortgage
File was previously released to us, please release to us our previous receipt on
file with you, as well as any additional documents in your possession relating
to the above-specified Mortgage Loan. If item 3 or 4 is checked, upon return of
all of the above documents to you as Trustee, please acknowledge your receipt by
signing in the space indicated below, and returning this form.
__________________________________.
___________________________________.
____________________________________
By: _________________________________
Name: ________________________________
Title: _______________________________
Date: ________________________________
TRUSTEE CONSENT TO RELEASE AND
ACKNOWLEDGEMENT OF RECEIPT
By: _________________________________
Name: ________________________________
Title: _______________________________
Date: ________________________________
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<PAGE> 1
Exhibit 5.1/8.1
STROOCK & STROOCK & LAVAN LLP
180 Maiden Lane
New York, New York 10038
May 21, 1997
Mellon Residential Funding Corporation
One Mellon Bank Center, Room 410
Pittsburgh, PA 15258
Re: Mellon Residential Funding Corporation
Registration Statement on Form S-3 (No. 333-24453)
Ladies and Gentlemen:
We have acted as counsel for Mellon Residential Funding Corporation, a Delaware
corporation (the "Company"), in connection with the authorization and issuance
from time to time in one or more series of Mellon Residential Funding
Corporation Mortgage Pass-Through Certificates (the "Certificates"). A
Registration Statement on Form S-3 (No. 333-24453), as amended, relating to the
Certificates (the "Registration Statement") is being filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended. As set
forth in the Registration Statement, the Certificates will be issued from time
to time in series by separate trusts (each, a "Trust") established by the
Company pursuant to the conditions of a separate pooling and servicing agreement
(each, a "Pooling and Servicing Agreement") for each such series among the
Company, the seller (each, a "Seller") and master servicer (each, a "Master
Servicer") identified therein and an independent trustee identified therein
(each, a "Trustee").
We have examined original or reproduced or certified copies of the Certificate
of Incorporation and By-laws of the Company, each as amended to date, records of
actions taken by the Company's Board of Directors, a form of Pooling and
<PAGE> 2
Servicing Agreement, forms of Certificates, the prospectus and form of
prospectus supplement relating to Mellon Residential Funding Corporation
Mortgage Pass-Through Certificates (the "Prospectus"), and the other agreements
and documents filed as exhibits thereto. We also have examined such other
documents, papers, statutes and authorities as we deem necessary as a basis for
the opinions hereinafter set forth. In our examination of such material, we have
assumed the genuineness of all signatures and the conformity to original
documents of all copies submitted to us as certified or reproduced copies. As to
various matters of fact material to such opinions, we have relied upon the
representations and warranties in the form of Pooling and Servicing Agreement
and statements and certificates of officers and representatives of the Company
and others.
Based upon the foregoing, we are of the opinion that:
1. When a Pooling and Servicing Agreement has been duly and validly
authorized, executed and delivered by the Company, the Seller, the Master
Servicer and the Trustee, it will constitute a legal, valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms.
2. When a Series of Certificates has been duly and validly authorized
by all necessary action on the part of the Company (subject to the terms thereof
being otherwise in compliance with applicable law at such time) and when
executed as specified in, and delivered pursuant to, a Pooling and Servicing
Agreement, and when sold as described in the Registration Statement, such
Certificates will be validly issued and outstanding and entitled to the benefits
of the Pooling and Servicing Agreement, and will be fully paid and
nonassessable.
3. The information in each Prospectus under the caption "Federal Income
Tax Considerations," sets forth our opinion with respect to the material Federal
income tax consequences of an investment in the Certificates.
In rendering the foregoing opinions, we express no opinion as to laws of any
jurisdiction other than the State of New York and the Federal law of the United
States of America. Our opinions expressed in paragraphs 1 and 2 are subject to
the effect of bankruptcy, insolvency, moratorium, fraudulent conveyance and
similar laws relating to or affecting creditors' rights generally and court
decisions with respect thereto, and we express no opinion with respect to the
application of equitable principles in any proceeding, whether at law or in
equity.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, to the references to us in each Prospectus and to the
filing of this opinion as an exhibit to any application made by or on behalf of
the Company or any dealer in connection with the registration of the
Certificates under the
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<PAGE> 3
securities or blue sky laws of any state or jurisdiction. In giving such
permission, we do not admit hereby that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933 or the
General Rules and Regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
/s/ Stroock & Stroock & Lavan LLP
STROOCK & STROOCK & LAVAN LLP
3
