Registration No. ________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------
WMC SECURED ASSETS CORP.
(Exact name of Registrant as specified in its Charter)
Delaware
(State of Incorporation)
(I.R.S. Employer Identification Number)
6320 Canoga Avenue, Suite 1300
Woodland Hills, California 91367
(818) 592-2610
(Address and telephone number of Registrant's principal executive offices)
Scott McAfee
WMC Secured Assets Corp.
6320 Canoga Avenue, Suite 1300
Woodland Hills, California 91367
(818) 592-2610
(Name, address and telephone number of agent for service)
----------------
Copies to:
Kathryn Cruze, Esq.
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
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Approximate date of commencement of proposed sale to the public: From time
to time on or after the effective date of this Registration Statement, as
determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, please check the following box.
/X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Proposed Proposed
Maximum Maximum
Offering Aggregate Amount of
Amount Price Offering Registration
Title of Securities Being Registered to be Registered Per Unit (1) Price (1) Fee
<S> <C> <C> <C> <C>
Mortgage Pass-Through Certificates and
Mortgage-Backed Notes, issued in series $1,000,000 100% $1,000,000 $303.03
======================================================================================================================
</TABLE>
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(1) Estimated solely 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>
EXPLANATORY NOTE
This Registration Statement includes (i) a basic prospectus, (ii) an
illustrative form of prospectus supplement for use in an offering of Mortgage
Pass-Through Certificates consisting of senior and subordinate certificate
classes ("Version 1"), (iii) an illustrative form of prospectus supplement for
use in an offering of Mortgage Pass-Through Certificates which provides for
credit support in the form of a letter of credit ("Version 2") and (iv) an
illustrative form of prospectus supplement for use in an offering of
Mortgage-Backed Notes ("Version 3").
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PRELIMINARY 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.
VERSION 1
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED NOVEMBER 26, 1997
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED ____________, 19__)
$----------------
WMC SECURED ASSETS CORP.
COMPANY
[NAME OF MASTER SERVICER]
MASTER SERVICER
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 19__-__
$__________ ____% Class A-1 Certificates
$__________ ____% Class A-2 Certificates
$__________ ____% Class A-3 Certificates
$__________ ____% Class A-4 Certificates
$ 0 ____%* Class A-5 Certificates
$__________ ____% Class A-6 Certificates
$ 0 Variable Rate* Class A-7 Certificates
*Accrual of interest based on the related Notional Amount as described
herein.
The Series 19__-__ Mortgage Pass-Through Certificates will include the
following seven classes (the "Senior Certificates"): (i) Class A-1 Certificates,
Class A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates, (ii)
Class A-5 Certificates (the "Fixed Strip Certificates"), (iii) Class A-6
Certificates and (iv) Class A-7 Certificates (the "Variable Strip
Certificates"). In addition to the Senior Certificates, the Series 19__-__
Mortgage Pass-Through Certificates will also consist of one class of subordinate
certificates which is designated as the Class B Certificates (the "Subordinate
Certificates") and one class of residual certificates which is designated as the
Class R Certificates (the "Residual Certificates" and, collectively with the
Senior Certificates and the Subordinate Certificates, the "Certificates"). Only
the Senior Certificates (the "Offered Certificates") are offered hereby.
The Senior Certificates in the aggregate will evidence an initial undivided
interest of approximately _____% in a trust fund (the "Trust Fund") consisting
primarily of a pool of certain conventional fixed-rate one- to four-family first
lien mortgage loans (the "Mortgage Loans") to
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be deposited by WMC Secured Assets Corp. (the "Company") into the Trust Fund for
the benefit of the Certificateholders. Certain characteristics of the Mortgage
Loans are described herein under "Description of the Mortgage Pool."
Distributions on the Senior Certificates will be made on the 25th day of
each month or, if such day is not a business day, then on the next business day,
commencing on ____________, 19__ (each, a "Distribution Date"). As more fully
described herein, interest distributions on the Senior Certificates will be
based on the Certificate Principal Balance thereof (or the Notional Amount (as
defined herein) in the case of the Fixed Strip Certificates and Variable Strip
Certificates) and the then applicable Pass-Through Rate thereof, which will be
variable for the Variable Strip Certificates and fixed for all other classes of
Certificates. Distributions in respect of principal of the Senior Certificates
will be allocated among the various classes of the Senior Certificates as
described herein under "Description of the Certificates--Principal
Distributions." The rights of the holders of the Subordinate Certificates to
receive distributions with respect to the Mortgage Loans will be subordinate to
the rights of the holders of the Senior Certificates. Certain losses incurred
due to defaults on the Mortgage Loans and not covered by the Subordinate
Certificates will be allocated on a pro rata basis between the Class A-1, Class
A-5 and Class A-6 Certificates (collectively, the "Tiered Certificates"), on the
one hand, and the Class A-2, Class A-3, Class A-4 and Variable Strip
Certificates, on the other, as more particularly described herein. Any such
losses so allocated to the Tiered Certificates will be allocated first to the
Class A-6 Certificates until the Certificate Principal Balance thereof is
reduced to zero, and then on a pro rata basis to the Class A-1 Certificates and
Class A-5 Certificates, as more particularly described herein.
There is currently no secondary market for the Senior Certificates.
__________________________________ (the "Underwriter") intends to make a
secondary market in the Senior Certificates, but is not obligated to do so.
There can be no assurance that a secondary market for the Senior Certificates
will develop or, if it does develop, that it will continue. The Senior
Certificates will not be listed on any securities exchange.
It is a condition of the issuance of the Senior Certificates that they be
rated "___" by _____________________________ and "____" by _________________
____________________________________.
As described herein, a "real estate mortgage investment conduit" ("REMIC")
election will be made in connection with the Trust Fund for federal income tax
purposes. Each class of Senior Certificates will constitute "regular interests"
in the REMIC. See "Certain Federal Income Tax Consequences" herein and in the
Prospectus.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER "RISK
FACTORS" ON PAGE S-__ OF THE PROSPECTUS SUPPLEMENT AND THE INFORMATION SET FORTH
UNDER "RISK FACTORS" ON PAGE __ OF THE PROSPECTUS BEFORE PURCHASING ANY OF THE
CLASS A CERTIFICATES.
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THE YIELD TO MATURITY ON THE SENIOR CERTIFICATES WILL DEPEND ON THE RATE
AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING AS A RESULT OF PREPAYMENTS, DEFAULTS
AND LIQUIDATIONS) ON THE MORTGAGE LOANS. THE MORTGAGE LOANS GENERALLY MAY BE
PREPAID IN FULL OR IN PART AT ANY TIME WITHOUT PENALTY. THE YIELD TO INVESTORS
ON THE SENIOR CERTIFICATES MAY BE ADVERSELY AFFECTED BY ANY SHORTFALLS IN
INTEREST COLLECTED ON THE MORTGAGE LOANS DUE TO PREPAYMENTS, LIQUIDATIONS OR
OTHERWISE. THE YIELD TO INVESTORS ON THE FIXED STRIP CERTIFICATES AND THE
VARIABLE STRIP CERTIFICATES WILL BE EXTREMELY SENSITIVE TO THE RATE AND TIMING
OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) AND DEFAULTS ON THE MORTGAGE
LOANS, WHICH RATE MAY FLUCTUATE SIGNIFICANTLY OVER TIME. A RAPID RATE OF
PRINCIPAL PAYMENTS ON THE MORTGAGE LOANS COULD RESULT IN THE FAILURE OF
INVESTORS IN SUCH CERTIFICATES TO RECOVER THEIR INITIAL INVESTMENTS. SEE
"CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS" HEREIN AND "YIELD CONSIDERATIONS"
IN THE PROSPECTUS.
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON
THE OFFERED CERTIFICATES. THE OFFERED CERTIFICATES DO NOT REPRESENT AN INTEREST
IN OR OBLIGATION OF THE COMPANY, THE MASTER SERVICER OR ANY OF THEIR AFFILIATES.
NEITHER THE OFFERED CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED
OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE COMPANY,
THE MASTER SERVICER OFFERED OR ANY OF THEIR AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The Offered Certificates will be purchased from the Company by the
Underwriter and will be offered by the Underwriter from time to time to the
public in negotiated transactions or otherwise at varying prices to be
determined at the time of sale. The proceeds to the Company from the sale of the
Offered Certificates will be equal to _________% of the initial aggregate
principal balance of the Offered Certificates, plus accrued interest thereon
from ___________ 1, 19__ (the "Cut-off Date"), net of any expenses payable by
the Company.
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 certain other conditions. The Underwriter reserves the right to withdraw,
cancel or modify such offer and to reject any order
<PAGE>
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in whole or in part. It is expected that delivery of the Offered Certificates
will be made on or about ____________, 19__ at the office of
__________________________________, _______________, _____________________
against payment therefor in immediately available funds.
[Name of Underwriter]
[Date of Prospectus Supplement]
[
<PAGE>
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THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE PART OF A
SEPARATE SERIES OF CERTIFICATES BEING OFFERED BY THE COMPANY PURSUANT TO ITS
PROSPECTUS DATED ____________, 19__, OF WHICH THIS PROSPECTUS SUPPLEMENT IS A
PART AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE PROSPECTUS CONTAINS
IMPORTANT INFORMATION REGARDING THIS OFFERING WHICH IS NOT CONTAINED HEREIN, AND
PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS PROSPECTUS
SUPPLEMENT IN FULL. SALES OF THE OFFERED CERTIFICATES MAY NOT BE CONSUMMATED
UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS.
UNTIL __________, 19__, 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 TO WHICH IT RELATES. THIS
DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
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SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus.
Capitalized terms used herein and not otherwise defined herein have the meanings
assigned in the Prospectus.
Title of Securities.................... Mortgage Pass-Through Certificates,
Series 19__-__.
Company................................ WMC Secured Assets Corp. (the
"Company"), a wholly-owned subsidiary
of WMC Mortgage Corp. ("WMC"). See
"The Company" in the Prospectus.
Seller[s]............................. [Name[s] of the Seller[s]] (the
"Seller[s]"). See ["Name[s] of
Seller[s]"] herein.
Master Servicer....................... [Name of Master Servicer] (the "Master
Servicer"). See "Pooling and Servicing
Agreement--The Master Servicer"
herein.
Trustee............................... _______________, ___________________
___________________ (the "Trustee").
Cut-off Date.......................... ____________ 1, 19__ (the "Cut-off
Date").
Delivery Date......................... On or about ____________, 19__ (the
"Delivery Date").
Denominations......................... The Senior Certificates will be issued
in registered, certificated form, in
minimum denominations of $______ (or
in minimum Notional Amounts of $_____
in the case of the Fixed Strip
Certificates or Variable Strip
Certificates) and integral multiples
of $_____ in excess thereof.
The Mortgage Pool..................... The Mortgage Pool will consist of a
pool of conventional, fixed-rate,
fully amortizing mortgage loans (the
"Mortgage Loans") with an aggregate
principal balance as of the Cut-off
Date of approximately $___________.
The Mortgage Loans are secured by
first liens on
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one- to four-family residential real
properties (each, a "Mortgaged
Property"). The Mortgage Loans have
individual principal balances at
origination of at least $______ but
not more than $_________ with an
average principal balance at
origination of approximately
$_________. The Mortgage Loans have
terms to maturity from the date of
origination or modification of not
more than __ years, and a weighted
average remaining term to stated
maturity of approximately ___ months
as of the Cut-off Date. The Mortgage
Loans will bear interest at Mortgage
Rates of at least ____% per annum but
not more than _____% per annum, with a
weighted average Mortgage Rate of
approximately _______% per annum as of
the Cut-off Date. For a further
description of the Mortgage Loans, see
"Description of the Mortgage Pool"
herein.
The Senior Certificates............... The Senior Certificates in the
aggregate evidence an initial interest
of approximately _____% in a trust
fund (the "Trust Fund") consisting
primarily of the Mortgage Pool. The
Senior Certificates will be issued
pursuant to a Pooling and Servicing
Agreement, to be dated as of the
Cut-off Date, among the Company, the
Master Servicer, and the Trustee (the
"Pooling and Servicing Agreement").
The Senior Certificates will have the
following Pass-Through Rates and
Certificate Principal Balances as of
the Cut-off Date:
Class A-1 Certificates ____% $__________
Class A-2 Certificates ____% $__________
Class A-3 Certificates ____% $__________
Class A-4 Certificates ____% $__________
Class A-5 Certificates ____% $ 0
Class A-6 Certificates ____% $__________
Class A-7 Certificates Variable Rate $ 0
<PAGE>
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The Offered Certificates are subject
to various priorities for payment of
interest and principal as described
herein. For a description of the
allocation of interest and principal
distributions among the Senior
Certificates, see "Summary--Interest
Distributions," "--Principal
Distributions," "Description of the
Certificates--Interest Distributions"
and "--Principal Distributions on the
Senior Certificates" herein.
Interest Distributions................ The Pass-Through Rates on the Senior
Certificates (other than the Variable
Strip Certificates) are fixed and set
forth on the cover hereof. The
Pass-Through Rate on the Variable
Strip Certificates on each
Distribution Date will equal the
weighted average, as determined on the
Due Date in the month preceding the
month in which such Distribution Date
occurs, of the Pool Strip Rates on
each of the Mortgage Loans. The Pool
Strip Rate on each Mortgage Loan is
equal to the Net Mortgage Rate thereon
minus ____%. The Net Mortgage Rate on
each Mortgage Loan is equal to the
Mortgage Rate thereon minus the rate
per annum at which the related master
servicing fees accrue (the "Servicing
Fee Rate"). The Pool Strip Rates on
the Mortgage Loans range between
_____% and _____%. The initial
Pass-Through Rate on the Variable
Strip Certificates is approximately
_____%. The Fixed Strip Certificates
and Variable Strip Certificates have
no Certificate Principal Balance and
will accrue interest at the then
applicable Pass-Through Rate on the
Notional Amount (as defined herein).
Holders of the Senior Certificates
will be entitled to receive on each
Distribution Date, to the extent of
the Available Distribution Amount (as
defined herein) for such Distribution
Date, interest distributions in an
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amount equal to the aggregate of all
Accrued Certificate Interest (as
defined below) with respect to such
Certificates for such Distribution
Date and, to the extent not previously
paid, for all prior Distribution Dates
(the "Senior Interest Distribution
Amount").
With respect to any Distribution Date,
the Accrued Certificate Interest in
respect of each class of Senior
Certificates will be equal to one
month's interest accrued at the
applicable Pass- Through Rate on the
Certificate Principal Balance (or, in
the case of the Fixed Strip
Certificates and Variable Strip
Certificates, the Notional Amount (as
defined below)) of the Certificates of
such class immediately prior to such
Distribution Date, less any interest
shortfalls not covered by
Subordination (as defined herein) and
allocated to the Certificates of such
class as described herein, including
any Prepayment Interest Shortfall (as
defined herein), if any, for such
Distribution Date.
If the Senior Interest Distribution
Amount for any Distribution Date is
less than the Available Distribution
Amount for such date, then such
shortfall shall be allocated among the
respective classes of Senior
Certificates as described herein, and
the unpaid Accrued Certificate
Interest in respect of the
Certificates of each such class will
be payable to the holders thereof on
subsequent Distribution Dates, to the
extent of available funds.
The Notional Amount of the Fixed Strip
Certificates and Variable Strip
Certificates as of any date of
determination is equal to the
aggregate Certificate Principal
Balance of the Certificates of all
classes, including the Subordinate
Certificates, as of such date. See
"Description of the
Certificates--Interest Distributions"
herein.
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References herein to the Notional
Amount of the Fixed Strip Certificates
and Variable Strip Certificates are
used solely for certain calculations
and do not represent the right of the
holders of the Fixed Strip
Certificates and Variable Strip
Certificates to receive distributions
of such amount.
Principal Distributions............... Holders of the Senior Certificates
will be entitled to receive on each
Distribution Date, in the manner and
priority set forth herein, to the
extent of the portion of the Available
Distribution Amount remaining after
the Senior Interest Distribution
Amount is distributed to the holders
of the Senior Certificates, a
distribution allocable to principal
which will, as more fully described
herein, include (i) the Senior
Percentage (as defined herein) of
scheduled principal payments due on
the Mortgage Loans and of the
principal portion of any unscheduled
collections of principal (other than
mortgagor prepayments and amounts
received in connection with a Final
Disposition (as defined herein) of a
Mortgage Loan described in clause (ii)
below), including repurchases of the
Mortgage Loans, (ii) in connection
with the Final Disposition of a
Mortgage Loan that did not incur any
Excess Special Hazard Losses, Excess
Fraud Losses, Excess Bankruptcy Losses
or Extraordinary Losses (each as
defined herein), an amount equal to
the lesser of (a) the Senior
Percentage of the Stated Principal
Balance (as defined herein) of such
Mortgage Loan and (b) the Senior
Accelerated Distribution Percentage
(as defined herein) of the related
collections, including any Insurance
Proceeds and Liquidation Proceeds, to
the extent applied as recoveries of
principal and (iii) the Senior
Accelerated Distribution Percentage
(as defined below) of mortgagor
prepayments on each Mortgage Loan.
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Distributions in respect of principal
of the Senior Certificates on any
Distribution Date will be allocated
among the classes then entitled to
such distributions, as described
herein. See "Summary--Special
Prepayment Considerations" and
"--Special Yield Considerations" and
"Certain Yield and Prepayment
Considerations" herein. The Fixed
Strip Certificates and Variable Strip
Certificates will not be entitled to
receive any principal distributions.
The Senior Percentage initially will
be approximately _____% and will be
recalculated after each Distribution
Date as described herein to reflect
the entitlement of the holders of the
Senior Certificates to subsequent
distributions allocable to principal.
For each Distribution Date occurring
prior to the Distribution Date in
________, ________, the Senior
Accelerated Distribution Percentage
will equal 100%. Thereafter, as
further described herein, during
certain periods, subject to certain
loss and delinquency criteria
described herein, the Senior
Accelerated Distribution Percentage
may be 100% or otherwise
disproportionately large relative to
the Senior Percentage. See
"Description of the
Certificates--Principal Distributions
on the Senior Certificates" herein.
Advances.............................. The Master Servicer is required to
make advances ("Advances") in respect
of delinquent payments of principal
and interest on the Mortgage Loans,
subject to the limitations described
herein. See "Description of the
Certificates--Advances" herein and in
the Prospectus.
Allocation of Losses;
Subordination....................... Subject to the limitations set forth
below, Realized Losses (as more
particularly described herein) on the
Mortgage Loans will
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be allocated first to the Subordinate
Certificates and then to the Senior
Certificates. The subordination
provided by the Subordinate
Certificates will cover Realized
Losses on the Mortgage Loans that
constitute Defaulted Mortgage Losses,
Special Hazard Losses, Fraud Losses
and Bankruptcy Losses (each as defined
in the Prospectus) to the extent
described herein. The aggregate
amounts of Special Hazard Losses,
Fraud Losses and Bankruptcy Losses
which may be allocated to the
Subordinate Certificates are initially
limited to $__________, $_________ and
$_______, respectively. All of the
foregoing amounts are subject to
periodic reduction as described
herein. In the event the Certificate
Principal Balance of the Subordinate
Certificates is reduced to zero, all
additional losses will be borne by the
Senior Certificateholders. In
addition, any Special Hazard Losses,
Fraud Losses and Bankruptcy Losses, in
excess of the respective amounts of
coverage therefor will be borne by the
holders of Senior Certificates and
Subordinate Certificates on a pro rata
basis. Any Default Losses (as defined
herein) incurred on the Mortgage Loans
and not covered by the Subordinate
Certificates will be allocated on a
pro rata basis between the Class A-1,
Class A-5 and Class A-6 Certificates
(the "Tiered Certificates"), on the
one hand, and the Class A-2, Class
A-3, Class A-4 and Variable Strip
Certificates, on the other, as more
particularly described herein. Any
such losses so allocated to the Tiered
Certificates will be allocated first
to the Class A-6 Certificates until
the Certificate Principal Balance
thereof is reduced to zero and then on
a pro rata basis between the Class A-1
Certificates and the Class A-5
Certificates, as more particularly
described herein. Because principal
distributions are paid to certain
classes of Senior Certificates before
other classes, holders of classes of
Senior
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Certificates having a later priority
of payment bear a greater risk of such
losses than holders of classes of
Senior Certificates having earlier
priorities for distribution of
principal. See "Description of the
Certificates--Allocation of Losses;
Subordination" herein.
Subordinate Certificates.............. The Class B Certificates (the
"Subordinate Certificates") have an
aggregate initial Certificate
Principal Balance of approximately
$__________, evidencing an initial
Subordinate Percentage of
approximately ____%, and a
Pass-Through Rate of ____%. The
Subordinate Certificates are not being
offered hereby.
Optional Termination.................. At its option, on any Distribution
Date when the aggregate principal
balance of the Mortgage Loans is less
than [__]% of the aggregate principal
balance of the Mortgage Loans as of
the Cut-off Date, the Master Servicer
or the Company may (i) purchase from
the Trust Fund all remaining Mortgage
Loans and other assets thereof, and
thereby effect early retirement of the
Certificates or (ii) purchase in
whole, but not in part, the
Certificates. See "Pooling and
Servicing Agreement--Termination"
herein and "The Pooling
Agreement--Termination; Retirement of
Certificates" in the Prospectus.
Special Prepayment
Considerations...................... The rate and timing of principal
payments on the Senior Certificates
will depend on the rate and timing of
principal payments (including by
reason of prepayments, defaults and
liquidations) on the Mortgage Loans.
As is the case with mortgage-backed
securities generally, the Senior
Certificates are subject to
substantial inherent cash-flow
uncertainties because the Mortgage
Loans may be prepaid at any time.
Generally, when prevailing interest
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rates increase, prepayment rates on
mortgage loans tend to decrease,
resulting in a slower return of
principal to investors at a time when
reinvestment at such higher prevailing
rates would be desirable. Conversely,
when prevailing interest rates
decline, prepayment rates on mortgage
loans tend to increase, resulting in a
faster return of principal to
investors at a time when reinvestment
at comparable yields may not be
possible.
[The multiple class structure of the
Senior Certificates results in the
allocation of prepayments among
certain classes as follows [TO BE
INCLUDED AS APPROPRIATE]:]
[SEQUENTIALLY PAYING CLASSES: [All]
classes of the Senior Certificates are
subject to various priorities for
payment of principal as described
herein. Distributions of principal on
classes having an earlier priority of
payment will be affected by the rates
of prepayments of the Mortgage Loans
early in the life of the Mortgage
Pool. The timing of commencement of
principal distributions and the
weighted average lives of classes of
Certificates with a later priority of
payment will be affected by the rates
of prepayments experienced both before
and after the commencement of
principal distributions on such
classes.]
[PAC CERTIFICATES: Principal
distributions on the PAC Certificates
generally will be payable in amounts
determined based on schedules as
described herein, assuming that the
prepayments on the Mortgage Loans
occur each month at a constant level
between approximately ___% SPA and
approximately ___% SPA and based on
certain other assumptions. However, as
discussed herein, actual principal
distributions may be greater or less
than the described amounts. If the
prepayments on the Mortgage Loans
occur at
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a level below or above the PAC
Targeted Range, the amount of
principal distributions may deviate
from the described amounts and the
weighted average lives of the
remaining PAC Certificates may be
extended or shortened. The classes of
PAC Certificates with later priorities
of payment are less likely to benefit
from the stabilization of principal
distributions provided by the
Companion Certificates as described
herein) than the PAC Certificates with
earlier priorities of payment.
Investors in the PAC Certificates
should be aware that the stabilization
provided by the Companion Certificates
is limited.]
[TAC CERTIFICATES: Principal
distributions on the TAC Certificates
generally will be payable thereon in
the amounts determined by using the
schedules described herein, assuming
that prepayments on the Mortgage Loans
occur each month at a constant level
of approximately ___% SPA, and based
on certain other assumption. However,
as discussed herein, actual principal
distributions may be greater or less
than the described amounts, because it
is highly unlikely that the actual
prepayment speed of the Mortgage Loans
each month will remain at or near ___%
SPA. If the Companion Certificates are
retired before all of the TAC
Certificates are retired, the rate of
principal distributions and the
weighted average lives of the
remaining TAC Certificates will become
significantly more sensitive to
changes in the prepayment speed of the
Mortgage Loans, and principal
distributions thereon will be more
likely to deviate from the described
amounts.]
[COMPANION CERTIFICATES: Because all
amounts available for principal
distributions among the Senior
Certificates in any given month will
be applied first to the [PAC] [TAC]
Certificates up to the described
amounts and
<PAGE>
-16-
any excess other such amounts will be
applied to the Companion Certificates,
the rate of principal distributions
on, and the weighted average lives of
the Companion Certificates will be
more sensitive to changes in the rates
of prepayment of the Mortgage Loans
than the rate of principal
distributions on and the weighted
average lives of the [PAC] [TAC]
Certificates.
See "Description of the
Certificates--Principal Distributions
on the Senior Certificates," and
"Certain Yield and Prepayment
Considerations" herein, and "Maturity
and Prepayment Considerations" in the
Prospectus.
Special Yield
Considerations...................... The yield to maturity on each class of
the Senior Certificates will depend on
the rate and timing of principal
payments (including by reason of
prepayments, defaults and
liquidations) on the Mortgage Loans
and the allocation thereof to reduce
the Certificate Principal Balance or
Notional Amount of such class. The
yield to maturity on each class of the
Senior Certificates will also depend
on the Pass-Through Rate and any
adjustments thereto (as applicable)
and the purchase price for such
Certificates. The yield to investors
on any class of Senior Certificates
will be adversely affected by any
allocation thereto of Prepayment
Interest Shortfalls on the Mortgage
Loans, which are expected to result
from the distribution of interest only
to the date of prepayment (rather than
a full month's interest) in connection
with prepayments in full and the lack
of any distribution of interest on the
amount of any partial prepayments.
Prepayment Interest Shortfalls
resulting from principal prepayments
in full in any calendar month will not
adversely affect the yield to
investors in the Offered Certificates
to the extent such prepayment interest
shortfalls are
<PAGE>
-17-
covered by the Master Servicer as
discussed herein.
In general, if a class of Senior
Certificates is purchased at a premium
and principal distributions thereon
occur at a rate faster than
anticipated at the time of purchase,
the investor's actual yield to
maturity will be lower than that
assumed at the time of purchase.
Conversely, if a class of Senior
Certificates is purchased at a
discount and principal distributions
thereon occur at a rate slower than
that assumed at the time of purchase,
the investor's actual yield to
maturity will be lower than that
assumed at the time of purchase.
The Senior Certificates were
structured based on a number of
assumptions, including a prepayment
assumption of ___% SPA and
corresponding weighted average lives
as set forth herein under "Special
Prepayment Considerations." The
prepayment, yield and other
assumptions for the respective classes
that are to be offered hereunder will
vary as determined at the time of
sale.
[The multiple class structure of the
Senior Certificates causes the yield
of certain classes to be particularly
sensitive to changes in the prepayment
speed of the Mortgage Loans and other
factors, as follows [TO BE INCLUDED AS
APPROPRIATE]:]
[INTEREST STRIP AND INVERSE FLOATER
CLASSES: The yield to investors on the
[identify classes] will be extremely
sensitive to the rate and timing of
principal payments on the Mortgage
Loans (including by reason of
prepayments, defaults and
liquidations), which may fluctuate
significantly over time. A rapid rate
of principal payments on the Mortgage
Loans could result in the failure of
investors in the
<PAGE>
-18-
[identify interest strip and inverse
floater strip classes] to recover
their initial investments, and a
slower than anticipated rate of
principal payments on the Mortgage
Loans could adversely affect the yield
to investors on the [identify
non-strip inverse floater classes].]
[VARIABLE STRIP CERTIFICATES: In
addition to the foregoing, the yield
on the Variable Strip Certificates
will be materially adversely affected
to a greater extent than the yields on
the other Senior Certificates if the
Mortgage Loans with higher Mortgage
Rates prepay faster than the Mortgage
Loans with lower Mortgage Rates,
because holders of the Variable Strip
Certificates generally have rights to
relatively larger portions of interest
payments on the Mortgage Loans with
higher Mortgage Rates than on Mortgage
Loans with lower Mortgage Rates.]
[ADJUSTABLE RATE (INCLUDING INVERSE
FLOATER) CLASSES: The yield to
investors on the [identify floating
rate classes] will be sensitive, and
the yield to investors on the
[identify inverse floater classes]
will be extremely sensitive, to
fluctuations in the level of [the
Index]. THE PASS-THROUGH RATE ON THE
[IDENTIFY INVERSE FLOATER CLASSES]
WILL VARY INVERSELY WITH, AND AT A
MULTIPLE OF, [THE INDEX].]
[INVERSE FLOATER COMPANION CLASSES: In
addition to the foregoing, in the
event of relatively low prevailing
interest rates (including [the Index])
and relatively high rates of principal
prepayments over an extended period,
while investors in the [identify
inverse floater companion classes] may
then be experiencing a high current
yield on such Certificates, such yield
may be realized only over a relatively
short period, and it is unlikely that
such investors would be able to
reinvest
<PAGE>
-19-
such principal prepayments on such
Certificates at a comparable yield.]
[RESIDUAL CERTIFICATES: Holders of the
Residual Certificates are entitled to
receive distributions of principal and
interest as described herein; however,
holders of such Certificates may have
tax liabilities with respect to their
Certificates during the early years of
the term of the REMIC that
substantially exceed the principal and
interest payable thereon during such
periods. See "Certain Yield and
Prepayment Considerations," especially
"--Additional Yield Considerations
Applicable Solely to the Residual
Certificates" herein, "Certain Federal
Income Tax Consequences" herein and in
the Prospectus and "Yield
Considerations" in the Prospectus.]
See "Certain Yield and Prepayment
Considerations" [, especially "--Yield
Considerations," "--Additional Yield
Considerations Applicable Solely to
the Residual Certificates" and
"Certain Federal Income Tax
Consequences"] herein, and "Yield
Considerations" in the Prospectus.
Certain Federal Income
Tax Consequences.................... An election will be made to treat the
Trust Fund as a real estate mortgage
investment conduit ("REMIC") for
federal income tax purposes. Upon the
issuance of the Offered Certificates,
__________ ___________, counsel to the
Company, will deliver its opinion
generally to the effect that, assuming
compliance with all provisions of the
Pooling and Servicing Agreement, for
federal income tax purposes, the Trust
Fund will qualify as a REMIC within
the meaning of Sections 860A through
860G of the Internal Revenue Code of
1986 (the "Code").
<PAGE>
-20-
For federal income tax purposes, the
Class R Certificates will be the sole
Class of "residual interests" in the
Trust Fund and the Senior Certificates
and the Subordinate Certificates will
constitute the "regular interests" in
the Trust Fund and will generally be
treated as representing ownership of
debt instruments in the Trust Fund.
For federal income tax reporting
purposes, the _______ Certificates
will not, and the ___________________
Certificates will, be treated as
having been issued with original issue
discount. The prepayment assumption
that will be used in determining the
rate of accrual of original issue
discount, market discount and premium,
if any, for federal income tax
purposes will be ___% SPA (as defined
herein). No representation is made
that the Mortgage Loans will prepay at
that rate or at any other rate.
For further information regarding the
federal income tax consequences of
investing in the Offered Certificates
see "Certain Federal Income Tax
Consequences" herein and in the
Prospectus.
Ratings............................... It is a condition of the issuance of
the Senior Certificates that they be
rated "___" by ________ _____________
________________ and "___" by
_________________________. 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. A security rating does
not address the frequency of
prepayments of Mortgage Loans, or the
corresponding effect on yield to
investors. The ratings of the Fixed
Strip Certificates and Variable Strip
Certificates do not address the
possibility that the holders of such
Certificates may fail to fully recover
their initial investments. See
<PAGE>
-21-
"Certain Yield and Prepayment
Considerations" and "Ratings" herein
and "Yield Considerations" in the
Prospectus.
Legal Investment...................... The Senior Certificates will
constitute "mortgage related
securities" for purposes of the
Secondary Mortgage Market Enhancement
Act of 1984 ("SMMEA") for so long as
they are rated in at least the second
highest rating category by one or more
nationally recognized statistical
rating agencies. Institutions whose
investment activities are subject to
legal investment laws and regulations,
regulatory capital requirements or
review by regulatory authorities may
be subject to restrictions on
investment in the Offered Certificates
and should consult with their legal
advisors. See "Legal Investment"
herein and "Legal Investment Matters"
in the Prospectus.
<PAGE>
-22-
[RISK FACTORS]
[Prospective Certificateholders should consider, among other things, the
items discussed under "Risk Factors" in the Prospectus and the following factors
in connection with the purchase of the Certificates:]
[Appropriate Risk Factors as necessary.]
DESCRIPTION OF THE MORTGAGE POOL
General
The Mortgage Pool will consist of Mortgage Loans with an aggregate
principal balance outstanding as of the Cut-off Date of $____________. The
Mortgage Loans will consist of conventional, fixed-rate, fully-amortizing, level
monthly payment first lien Mortgage Loans with terms to maturity of not more
than ___ years from the due date of the first monthly payment. On or before the
Delivery Date, the Company will acquire the Mortgage Loans to be included in the
Mortgage Pool from WMC Mortgage Corp. ("WMC Mortgage"), an affiliate of the
Company [, which in turn acquired them pursuant to various mortgage loan
purchase agreements between WMC Mortgage and [_________] (the "Sellers")]. The
Seller[s] will make certain representations and warranties with respect to the
Mortgage Loans and, as more particularly described in the Prospectus, will have
certain repurchase or substitution obligations in connection with a breach of
any such representation and warranty, as well as in connection with an omission
or defect in respect of certain constituent documents required to be delivered
with respect to the Mortgage Loans, in any event if such breach, omission or
defect cannot be cured and it materially and adversely affects the interests of
Certificateholders. Neither the Company nor any other entity or person will have
any responsibility to purchase or replace any Mortgage Loan if a Seller is
obligated but fails to do so. See "Description of the Mortgage
Pool--Representations by Sellers" and "Description of the
Certificates--Assignment of Trust Fund Assets" in the Prospectus and "--The
Seller" below. The Mortgage Loans will have been originated or acquired by the
[Sellers] in accordance with the underwriting criteria described herein. See
"--Underwriting" below. All percentages of the Mortgage Loans described herein
are approximate percentages (except as otherwise indicated) by aggregate
principal balance as of the Cut-off Date.
None of the Mortgage Loans will have been originated prior to
__________________ or will have a maturity date later than __________________.
No Mortgage Loan will have a remaining term to maturity as of the Cut-off Date
of less than ____ months. The weighted average remaining term to maturity of the
Mortgage Loans as of the Cut-off Date will be approximately ____ months. The
weighted average original term to maturity of the Mortgage Loans as of the
Cut-off Date will be approximately ____ months.
<PAGE>
-23-
As of the Cut-off Date, no Mortgage Loan will be one month or more
delinquent in payment of principal and interest.
Approximately _____% of the Mortgage Loans in the Mortgage Pool will have
been purchased from ______________, and each of _______ other Sellers sold more
than ____% but less than ____% of the Mortgage Loans to WMC Mortgage. Except as
indicated in the preceding sentence, no Seller sold more than ____% of the
Mortgage Loans to WMC Mortgage.
No Mortgage Loan provides for deferred interest or negative amortization.
None of the Mortgage Loans in the Mortgage Pool will be Buydown Mortgage
Loans.
Set forth below is a description of certain additional characteristics of
the Mortgage Loans as of the Cut-off Date (except as otherwise indicated). All
percentages of the Mortgage Loans are approximate percentages by aggregate
principal balance as of the Cut-off Date.
MORTGAGE RATES
Number of Aggregate Percentage
Mortgage Rates (%) Mortgage Loans Principal Balance of Mortgage Pool
- ------------------ -------------- ----------------- ----------------
........................ $ %
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
------ ----------
Total......... $ %
====== ========== =========
As of the Cut-off Date, the weighted average Mortgage Rate of the Mortgage Loans
was approximately ______% per annum.
<PAGE>
-24-
CUT-OFF DATE MORTGAGE LOAN PRINCIPAL BALANCES
Number of Aggregate Percentage
Principal Balance (%) Mortgage Loans Principal Balance of Mortgage Pool
- --------------------- -------------- ----------------- ----------------
$....................... $ %
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................ .
------ ---------- ---------
Total......... $ . %
====== ========= =========
As of the Cut-off Date, the average unpaid principal balance of the
Mortgage Loans will be approximately $_______.
ORIGINAL LOAN-TO-VALUE RATIOS
Number of Aggregate Percentage
Loan-to-Value Ratio Mortgage Loans Principal Balance of Mortgage Pool
- ------------------- -------------- ----------------- ----------------
$....................... $ %
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................ .
------ ---------- ---------
Total......... $ . %
====== ========= =========
The weighted average Loan-to-Value Ratio at origination of the Mortgage
Loans will have been approximately ____%.
<PAGE>
-25-
GEOGRAPHIC DISTRIBUTIONS OF MORTGAGED PROPERTIES
Number of Aggregate Percentage
State Mortgage Loans Principal Balance of Mortgage Pool
- ----- -------------- ----------------- ----------------
[NAME OF STATE]......... $ %
[NAME OF STATE].........
[NAME OF STATE].........
[NAME OF STATE].........
[NAME OF STATE].........
Other (1)............... .
------ ---------- --------
Total......... $ . %
====== ========== ========
(1) "Other" includes states and the District of Columbia with less than __%
concentrations individually.
[No more than ____% of the Mortgage Loans will be secured by Mortgaged
Properties located in any one zip code area].
MORTGAGED PROPERTY TYPES
<TABLE>
<CAPTION>
Number of Aggregate Percentage
Property Mortgage Loans Principal Balance of Mortgage Pool
- -------- -------------- ----------------- ----------------
<S> <C> <C> <C>
Single-family detached............... $ %
Planned Unit Developments (detached).
Two- to four-family units............
Condo Low-Rise (less than 5 stories).
Condo Mid-Rise (5 to 8 stories)......
Condo High-Rise (9 stories or more)..
Townhouse............................
Planned Unit Developments (attached).
Leasehold............................ .
------ ---------- --------
Total..................... $ . %
====== ========= ========
</TABLE>
MORTGAGE LOAN PURPOSES
<PAGE>
-26-
Number of Aggregate Percentage
Loan Purpose Mortgage Loans Principal Balance of Mortgage Pool
- ------------ -------------- ----------------- ----------------
Purchase............... $ %
Rate/Term Refinance....
Equity Refinance....... .
------ ---------- --------
Total......... $ . %
====== ========== ========
The weighted average Loan-to-Value Ratio at origination of equity refinance
Mortgage Loans will have been ____%. The weighted average Loan-to-Value Ratio at
origination of rate and term refinance Mortgage Loans will have been ____%.
MORTGAGE LOAN DOCUMENTATION
Number of Aggregate Percentage
Type of Program Mortgage Loans Principal Balance of Mortgage Pool
- --------------- -------------- ----------------- ----------------
Full................... $ %
Reduced................ .
------ ---------- --------
Total......... $ . %
====== ========== ========
The weighted average Loan-to-Value Ratio at origination of the Mortgage
Loans which were underwritten under a reduced loan documentation program will
have been ____%. No more than ____% of such reduced loan documentation Mortgage
Loans will be secured by Mortgaged Properties located in California.
OCCUPANCY TYPES
Number of Aggregate Percentage
Occupancy Mortgage Loans Principal Balance of Mortgage Pool
- --------- -------------- ----------------- ----------------
Primary Residence...... $ %
Second/Vacation........
Non Owner-occupied..... .
------ ---------- --------
Total........ $ . %
====== ========= ========
<PAGE>
-27-
[Specific information with respect to the Mortgage Loans will be available
to purchasers of the Certificates on or before the time of issuance of such
Certificates. If not included in the Prospectus Supplement, such information
will be included in the Form 8-K.]
UNDERWRITING
[Underwriting standards as appropriate. The following underwriting
standards are those presently applicable for WMC for adjustable rate mortgage
loans].
The Mortgage Loans will have been originated generally in accordance with
underwriting guidelines (the "WMC Guidelines") established by Equity Services.
The WMC Guidelines are primarily intended to (a) determine that the borrower has
the ability to repay the mortgage loan in accordance with its terms and (b)
determine that the related mortgaged property will provide sufficient value to
recover the investment if the borrower defaults. On a case-by-case basis Equity
Services may determine that, based upon compensating factors, a prospective
mortgagor not strictly qualifying under the underwriting risk category or other
guidelines described below warrants an underwriting exception. Compensating
factors may include, but are not limited to, low loan-to-value ratio at
origination ("LTV"), low debt-to-income ratio ("Debt Ratio"), good mortgage
payment history, stable employment and time in residence at the applicant's
current address. It is expected that a substantial number of the Mortgage Loans
to be included in the Trust Fund will represent such underwriting exceptions.
The Mortgage Loans in the Trust Fund will fall within the following three
documentation type categories established by Equity Services: Full
Documentation, Lite Documentation and Stated Documentation. Certain of the
Mortgage Loans will have been underwritten (in many cases, as described above,
subject to exceptions for compensating factors) in accordance with programs
established by Equity Services for the origination of mortgage loans secured by
mortgages on condominiums, vacation and second homes, manufactured housing and
two- to four-family properties. In addition, Equity Services has established
specific parameters for Super Jumbo Loans, which are designated in the WMC
Guidelines as mortgage loans with original principal balances of $500,000 or
more.
Under the WMC Guidelines, Equity Services or the applicable originating
broker reviews and verifies the loan applicant's eligible sources of income
(except under the Stated Documentation category), calculates the amount of
income from eligible sources indicated on the loan application, reviews the
credit and mortgage payment history of the applicant and calculates the Debt
Ratio to determine the applicant's ability to repay the loan, and reviews the
mortgaged property for compliance with the WMC Guidelines. The WMC Guidelines
are applied in accordance with a procedure which complies with applicable
federal and state laws and regulations and require, among other things, (i) an
appraisal of the mortgaged property which conforms to FHLMC and FNMA standards
and (ii) unless such appraisal was completed by Lenders Service Inc., Strategic
<PAGE>
- -28-
Mortgage Services, Nationwide Appraisals, Valuation Information Technology or
G.S. Hansen & Associates, a review of such appraisal by a WMC-approved review
appraiser, which review, depending upon the original principal balance and LTV
of the related mortgaged property, may consist of a second appraisal, a field
review or a desk review. The WMC Guidelines permit mortgage loans with LTVs of
up to 90% (lower in the case of (i) risk categories below "A-", (ii) Lite
Documentation and Stated Documentation categories, (iii) condominium, vacation
and second home and manufactured housing mortgaged property types, (iv) Super
Jumbo Loans and (v) refinance mortgage loans). The WMC Guidelines permit
combined LTVs ("CLTV") of up to 100% first and second lien mortgage loans (lower
in the case of risk categories below "C"), provided that mortgage loans with
LTVs of 90% or more are not eligible for second lien financing. Under the WMC
Guidelines, cash out on refinance mortgage loans is generally (i) unlimited on
Full Documentation mortgage loans with LTVs of up to 85% and Stated
Documentation mortgage loans with LTVs of up to 80%, (ii) limited to 20% of the
loan amount after payment of all revolving debt for mortgage loans with LTVs
over 85% and (iii) limited to $125,000 on mortgage loans in risk categories "D"
and "Z".
All mortgage loans originated under the WMC Guidelines are based on loan
application packages submitted through mortgage brokerage companies or WMC's
retail branches. Loan application packages submitted through mortgage brokerage
companies, containing in each case relevant credit, property and underwriting
information on the loan request, are compiled by the applicable mortgage
brokerage company and submitted to Equity Services for approval and funding. The
mortgage brokerage companies receive a portion of the loan origination fee
charged to the mortgagor at the time the loan is made. No single mortgage
brokerage company accounts for more than 5%, measured by outstanding principal
balance, of the subprime mortgage loans originated by WMC.
The WMC Guidelines require that the documentation accompanying each
mortgage loan application include, among other things, a credit report on the
related applicant from a credit reporting company. The report typically contains
information relating to such matters as credit history with local and national
merchants and lenders, installment debt payments and any record of defaults,
bankruptcy, repossession, suits or judgments. In the case of purchase money
mortgage loans, WMC generally verifies the source of funds for the downpayment.
In the case of mortgage loans originated under the Full Documentation category,
the WMC Guidelines require documentation of income (which may consist of (i)
verification of employment form covering a specified time period which varies
with LTV, (ii) two most recent pay stubs and two years of tax returns and/or
(iii) two years of bank statements) and telephonic verification. In the case of
mortgage loans originated under the Lite Documentation category, the WMC
Guidelines require similar documentation of income, provided that such
documentation may cover shorter periods of time and telephonic verification may
be omitted. Lite Documentation mortgage loans are generally acceptable at 5%
greater LTV than Stated Documentation mortgage loans, up to a maximum of 80%
LTV. In the case of mortgage loans originated under the Stated Documentation
category,
<PAGE>
-29-
the WMC Guidelines require (i) that income be stated on the application,
accompanied by proof of self employment in the case of self-employed
individuals, (ii) that a WMC prefunding auditor conduct telephonic verification
of employment, or in the case of self-employed individuals, telephonic
verification of business line and (iii) that stated income be consistent with
type of work and that assets listed on the application be consistent with stated
income.
The general collateral requirements in the WMC Guidelines specify that a
mortgaged property not have a rating of lower than "average". For mortgage loans
with LTVs greater than 80%, deferred maintenance costs may generally not exceed
$1,500. At LTVs of 80% and below, deferred maintenance costs are generally
acceptable at the lesser of $4,000 or 3% of the value of the mortgaged property.
Each appraisal includes a market data analysis based on recent sales of
comparable homes in the area. The general collateral requirements in the WMC
Guidelines specify conditions and parameters relating to zoning, land to
improvement ratio, special hazard zones, neighborhood property value trends,
whether the property site is too isolated, whether the property site is too
close to commercial businesses, whether the property site is rural, city or
suburban, whether the property site is typical for the neighborhood in which it
is located and whether the property site is sufficient in size and shape to
support all improvements.
The WMC Guidelines used by Equity Services are less stringent than the
standards generally acceptable to FNMA and FHLMC with regard to the mortgagor's
credit standing and repayment ability and certain other respects. Mortgagors who
qualify under the WMC Guidelines generally have payment histories and Debt
Ratios which would not satisfy FNMA and FHLMC underwriting guidelines and may
have a record of major derogatory credit items such as outstanding judgments or
prior bankruptcies. The WMC Guidelines establish the maximum permitted LTV for
each loan type based upon these and other risk factors.
Equity Services requires that all mortgage loans have title insurance and
be secured by liens on real property. Equity Services also requires that fire
and extended coverage casualty insurance be maintained on the mortgaged property
in an amount equal to the greater of full replacement or the amount of all liens
on such mortgaged property. In addition, flood insurance is obtained where
applicable and a tax service is used to monitor the payment of property taxes on
all loans.
<PAGE>
-30-
RISK CATEGORIES
Under the WMC Guidelines, various risk categories are used to grade the
likelihood that the mortgagor will satisfy the repayment conditions of the
mortgage loan. These risk categories establish the maximum permitted LTV and
loan amount, given the borrower's mortgage payment history, the borrower's
consumer credit history, the borrower's liens/charge-offs/bankruptcy history,
the borrower's Debt Ratio, the borrower's use of proceeds (purchase or
refinance), the documentation type (Full Documentation or Stated Documentation)
and other factors. Lite Documentation mortgage loans are generally acceptable at
5% greater LTV than Stated Documentation mortgage loans, up to a maximum of 80%
LTV. In general, higher credit risk mortgage loans are graded in categories
which permit higher Debt Ratios and more (or more recent) major derogatory
credit items such as outstanding judgments or prior bankruptcies. Tax liens are
not considered in determining risk category; derogatory medical collections are
not considered in determining risk category and are not required to be paid off;
and delinquent student loans are not considered in determining risk category if
other consumer credit is paid as agreed.
The WMC Guidelines specify the following risk categories and associated
criteria for grading the potential likelihood that an applicant will satisfy the
repayment obligations of a mortgage loan. However, as described above, the
following are guidelines only, and exceptions are made on a case specific basis.
In addition, variations of the following criteria are applicable under the
programs established by Equity Services for the origination of Super Jumbo Loans
and for the origination of mortgage loans secured by mortgages on condominiums,
vacation and second homes, manufactured housing and two- to four-family
properties.
RISK CATEGORY "A-"
Maximum loan amount: $600,000 for Full Documentation; $400,000 for Stated
Documentation; $300,000 for non-owner-occupied mortgaged property.
Mortgage payment history: not more than two 30 day delinquencies during the
preceding 12 months (a rolling 30 day delinquency counts as only one such
delinquency) and no 60 day delinquencies during the preceding 12 months.
Consumer credit history: majority paid as agreed during the preceding 12 months;
30 day delinquencies and isolated 60 day delinquencies during the preceding 12
months are permitted.
Liens/charge-offs: minor in nature.
Bankruptcy: permitted if filed more than two years preceding origination of
loan.
Notice of Default ("NOD")/foreclosures: none permitted within the preceding two
years.
<PAGE>
-31-
Maximum LTV: 90% for Full Documentation and owner-occupied mortgaged property;
80% for Full Documentation and non-owner-occupied mortgaged property; 80% for
Stated Documentation and owner-occupied mortgaged property; 70% for Stated
Documentation and non-owner-occupied mortgaged property. For 90% LTV mortgage
loans, maximum loan amount is limited to $400,000 and maximum Debt Ratio is
limited to 45%.
Debt Ratio: 45% to 60%.
RISK CATEGORY "B"
Maximum loan amount: $500,000 for Full Documentation; $400,000 for Stated
Documentation; $300,000 for non-owner-occupied mortgaged property.
Mortgage payment history: either (i) not more than two 30 day delinquencies and
one 60 day delinquency during the preceding 12 months (a rolling 30 day or 60
day delinquency counts as only one such delinquency) or (ii) not more than four
30 day delinquencies during the preceding 12 months (a rolling 30 day
delinquency counts as only one such delinquency) and no 60 day delinquencies
during the preceding 12 months.
Consumer credit history: some 60 day and some 90 day delinquencies during the
preceding 12 months are permitted. A borrower with no consumer credit history
will be deemed to have a "B" risk category consumer credit history.
Liens/charge-offs: minor in nature.
Bankruptcy: permitted if filed more than two years preceding origination of
loan.
NODs/foreclosures: none permitted within the preceding two years.
Maximum LTV: 85% for Full Documentation and owner-occupied mortgaged property;
75% for Full Documentation and non-owner-occupied mortgaged property; 75% for
Stated Documentation and owner-occupied mortgaged property; 65% for Stated
Documentation and non-owner-occupied mortgaged property.
Debt Ratio: 50% to 60%.
RISK CATEGORY "C"
Maximum loan amount: $400,000 for Full Documentation; $350,000 for Stated
Documentation; $250,000 for non-owner-occupied mortgaged property.
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Mortgage payment history: 60 day and 90 day delinquencies during the preceding
12 months are permitted at Equity Services' discretion.
Consumer credit history: a pattern of late payments during the preceding 12
months is permitted.
Liens/charge-offs: permitted at Equity Services' discretion.
Bankruptcy: permitted if filed more than 12 months preceding origination of
loan; if Chapter 13, an LTV of 70% or less is allowed and the Seller will pay
off a bankruptcy trustee if payments in the plan were as agreed.
NODs/foreclosures: none permitted within the preceding 12 months.
Maximum LTV: 75% for Full Documentation and owner-occupied mortgaged property
(80% where borrower has 5 years steady employment with the same employer,
borrower has 5 years of residency in the same house, loan amount does not exceed
$300,000, mortgaged property is a single-family residence and Debt Ratio does
not exceed 50%); 70% for Full Documentation and non-owner-occupied mortgaged
property; 70% for Stated Documentation and owner-occupied mortgaged property;
60% for Stated Documentation and non-owner-occupied mortgaged property.
Debt Ratio: 50% to 60%.
RISK CATEGORY "D"
Maximum loan amount: $400,000 for Full Documentation; $200,000 for Stated
Documentation; $200,000 for non-owner-occupied mortgaged property.
Mortgage payment history: maximum 120 day delinquency status (up to 149 actual
days) during the preceding 12 months.
Consumer credit history: a poor consumer credit history during the preceding 12
months is permitted.
Liens/charge-offs: permitted at Equity Services' discretion.
Bankruptcy: permitted if discharged at least one day prior to origination of the
loan.
NODs/foreclosures: NOD outstanding less than 150 days at the time of origination
of the loan is permitted.
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Maximum LTV: 70% for Full Documentation and owner-occupied mortgaged property;
60% for Full Documentation and non-owner-occupied mortgaged property; 65% for
Stated Documentation and owner-occupied mortgaged property; 60% for Stated
Documentation and non-owner-occupied mortgaged property.
Debt Ratio: 60%.
RISK CATEGORY "Z"
Maximum loan amount: $300,000 for Full Documentation; $200,000 for Stated
Documentation; $200,000 for non-owner-occupied mortgaged property.
Mortgage payment history: mortgage payment history not considered as a factor
for this risk category.
Consumer credit history: a poor consumer credit history during the preceding 12
months is permitted.
Liens/charge-offs: permitted at Equity Services' discretion.
Bankruptcy: permitted if discharged at least one day prior to origination of the
loan.
NODs/foreclosures: NOD outstanding 150 or more days at the time of origination
of the loan is permitted.
Maximum LTV: 65% for Full Documentation and owner-occupied mortgaged property;
60% for Full Documentation and non-owner-occupied mortgaged property; 60% for
Stated Documentation and owner-occupied mortgaged property; 60% for Stated
Documentation and non-owner-occupied mortgaged property.
Debt Ratio: 60%.
QUALITY CONTROL PROCEDURES HIGHLIGHTS
Each month, WMC's quality control department conducts a review and
verification of approximately 5% of the loans originated and purchased during
the previous month with specific attention to the following areas:
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LEGAL DOCUMENTATION: Promissory note, mortgage, deed of trust,
truth-in-lending disclosure, title policy and all other applicable origination
documents are reviewed for accuracy and proper signatures.
CREDIT DOCUMENTATION: All credit verifications, credit applications and
credit reports are reviewed for accuracy and proper signatures.
All reviews are reported to management on a monthly basis. Management meets
with the department supervisors in both underwriting and quality control to
review results. Quality control functions are performed separately from loan
originating and underwriting.
QUALITY CONTROL APPRAISALS: Each appraisal is reviewed with emphasis on the
following areas: verification of occupancy, valuation method, and review of
comparable sales.
In addition to the review above, re-inspections are performed on 10% of the
reviewed loans, i.e., approximately 1/2% of originations. If a pattern of
questionable values or methodology becomes apparent for an appraiser, a meeting
is arranged to discuss these problems, and the appraisal may be replaced.
COLLECTION PROCEDURES
Collections are conducted by WMC=s service center at its corporate
headquarters in Woodland Hills, California.
The collection department is structured in such a way that the most
experienced collectors are responsible for the accounts which are most
delinquent. Accounts which are 10-29 days delinquent are handled by collectors
with a minimum of two years of experience in sub-prime mortgage collections.
Accounts which are 30-59 days delinquent are handled by collectors with a
minimum of 3 years of experience in sub-prime mortgage collections. All accounts
over 60 days delinquent are reviewed by a loss mitigation collector with a
minimum of 5 years of experience in sub-prime mortgage collections. Accounts may
be transferred to a loss mitigation collector at any time during the delinquency
process, depending on the loan situation and the degree of delinquency. Loss
mitigation collectors are responsible for accounts requiring Aspecial handling@,
such as short pays, forbearance, settlement, and overall workout handling. Loss
mitigation collectors review all pre-foreclosure accounts and are responsible
for packaging loans for foreclosure committee approval. Bankruptcy and
foreclosure collectors (or processors) with a minimum of 3 years of experience
in sub-prime mortgage collections are responsible for monitoring
trustee/attorney performance. The REO department is responsible for marketing
and managing the sale effort for any property acquired through foreclosure, and
a minimum of 2 years of experience in mortgage collections is required.
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WMC utilizes an automatic telephone dialer (DAVOX) for sequence calling and
an on-line servicing system (LSAMS). Telephone calls are initiated from the 10th
day of delinquency; late notices are sent after the 15th day of delinquency;
notices of intent to foreclose or demand notices are generally sent after the
60th day of delinquency. Between the 30th and 45th day of delinquency, broker
price opinions ("BPOs") are ordered and the account analysis process begins.
Senior lienholder, tax and mortgage insurance status is confirmed. Borrower
contact is maintained for the possibility of a recovery or curing the
delinquency. Accounts are prioritized by the degree of delinquency and
transferred at the end of each month, if appropriate, to the next level of
collection action. After all collection efforts have been exhausted, the
foreclosure committee (consisting of the Collection Manager, Senior Vice
President of Loan Service and an origination designee (if available) approves
foreclosure action.
In all workout situations, the borrower is asked to provide current
financial information and must complete a new loan application. WMC obtains a
current credit report and updated appraisal (drive-by or BPO). All information
is used to determine a workout decision.
Collector assignments are controlled and monitored daily by the Collection
Manager. The Collection Manager reviews each collector=s workload, and telephone
activity is adjusted as necessary. Reports are generated daily and month-end
recap activity is discussed with the Senior Vice President of Loan Service. The
Senior Vice President is responsible for corporate reporting on a monthly
basis.]
DELINQUENCY AND FORECLOSURE EXPERIENCE
[Delinquency and foreclosure experience as appropriate. The following
disclosure is presently applicable for WMC:
LIMITED SUBPRIME SERVICING EXPERIENCE
Until recently, Equity Services sold its subprime product on a whole-loan,
servicing- released basis to secondary market investors. Consequently, there is
currently no meaningful information regarding the delinquency and loss
experience relating to WMC's subprime mortgage portfolio. In addition, WMC
historically has serviced only conforming or prime quality mortgage loans, and
the majority of that servicing portfolio has been or will be sold in connection
with the acquisition of WMC by Apollo. WMC intends to modify and expand the
existing servicing platform to serve the subprime market.]
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as constituted at the close
of business on
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the Cut-off Date, as adjusted for the scheduled principal payments due on or
before such date. Prior to the issuance of the Senior Certificates, Mortgage
Loans may be removed from the Mortgage Pool as a result of incomplete
documentation or otherwise, if the Company deems such removal necessary or
appropriate. A limited number of other mortgage loans may be added to the
Mortgage Pool prior to the issuance of the Senior Certificates. The Company
believes that the information set forth herein will be substantially
representative of the characteristics of the Mortgage Pool as it will be
constituted at the time the Senior Certificates are issued although the range of
Mortgage Rates and maturities and certain other characteristics of the Mortgage
Loans in the Mortgage Pool may vary.
A Current Report on Form 8-K will be available to purchasers of the Senior
Certificates and will be filed, together with the Pooling and Servicing
Agreement, with the Securities and Exchange Commission within fifteen days after
the initial issuance of the Senior Certificates. In the event Mortgage Loans are
removed from or added to the Mortgage Pool as set forth in the preceding
paragraph, such removal or addition will be noted in the Current Report on Form
8-K.
See "The Mortgage Pools" and "Certain Legal Aspects of Mortgage Loans" in
the Prospectus.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Series 19__-_ Mortgage Pass-Through Certificates will include the
following seven classes (the "Senior Certificates"): (i) Class A-1 Certificates,
Class A-2 Certificates, Class A-3 Certificates and Class A-4 Certificates, (ii)
Class A-5 Certificates (the "Fixed Strip Certificates"), (iii) Class A-6
Certificates and (iv) Class A-7 Certificates (the "Variable Strip
Certificates"). In addition to the Senior Certificates, the Series 19__-_
Mortgage Pass-Through Certificates will also consist of one class of subordinate
certificates which is designated as the Class B Certificates (the "Subordinate
Certificates") and one class of residual certificates which is designated as the
Class R Certificates (the "Residual Certificates"). Only the Senior Certificates
(the "Offered Certificates") are offered hereby.
The Senior Certificates (together with the Subordinate Certificates
and Residual Certificates) will evidence the entire beneficial ownership
interest in the Trust Fund. The Trust Fund will consist of (i) the Mortgage
Loans; (ii) such assets as from time to time are identified as deposited in
respect of the Mortgage Loans in the Certificate Account (as described in the
Prospectus) and belonging to the Trust Fund; (iii) property acquired by
foreclosure of such
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Mortgage Loans or deed in lieu of foreclosure; and (iv) any applicable insurance
policies and all proceeds thereof.
AVAILABLE DISTRIBUTION AMOUNT
The "Available Distribution Amount" for any Distribution Date will
generally consist of (i) the aggregate amount of scheduled payments on the
Mortgage Loans due on the related Due Date and received on or prior to the
related Determination Date, after deduction of the related master servicing fees
(the "Servicing Fees"), (ii) certain unscheduled payments, including Mortgagor
prepayments on the Mortgage Loans, Insurance Proceeds, Liquidation Proceeds and
proceeds from repurchases of and substitutions for the Mortgage Loans occurring
during the preceding calendar month and (iii) all Advances made for such
Distribution Date, in each case net of amounts reimbursable therefrom to the
Master Servicer. In addition to the foregoing amounts, with respect to
unscheduled collections, not including Mortgagor prepayments, the Master
Servicer may elect to treat such amounts as included in the Available
Distribution Amount for the Distribution Date in the month of receipt, but is
not obligated to do so. With respect to any Distribution Date, (i) the "Due
Date" is the first day of the month in which such Distribution Date occurs and
(ii) the "Determination Date" is the [__th] day of the month in which such
Distribution Date occurs or, if such day is not a business day, the immediately
succeeding business day. See "Description of the Certificates--Distributions" in
the Prospectus.
INTEREST DISTRIBUTIONS
Holders of the Senior Certificates will be entitled to receive on each
Distribution Date, to the extent of the Available Distribution Amount for such
Distribution Date, interest distributions in an amount equal to the aggregate of
all Accrued Certificate Interest with respect to such Certificates for such
Distribution Date and, to the extent not previously paid, for all prior
Distribution Dates (the "Senior Interest Distribution Amount"). On each
Distribution Date, the Available Distribution Amount for such Distribution Date
will be applied to make interest distributions on the various classes of Senior
Certificates pro rata in accordance with the respective amounts of Accrued
Certificate Interest then payable with respect thereto, provided, however, that,
in the case of the Tiered Certificates, following the Credit Support Depletion
Date, such distributions shall be made in the priority set forth in the _____th
paragraph under the heading "Principal Distributions". With respect to any
Distribution Date, the Accrued Certificate Interest in respect of each class of
Senior Certificates will be equal to one month's interest accrued at the
applicable Pass-Through Rate on the Certificate Principal Balance (or, in the
case of the Fixed Strip Certificates and Variable Strip Certificates, the
Notional Amount) of the Certificates of such class immediately prior to such
Distribution Date; in each case less interest shortfalls, if any, for such
Distribution Date not covered by the Subordination provided by the Subordinate
Certificates, including in each case (i) any Prepayment Interest Shortfall (as
defined below), (ii) the interest portions (in each case, adjusted to the
related Net Mortgage Rate) of Realized Losses (including
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Special Hazard Losses, in excess of the Special Hazard Amount ("Excess Special
Hazard Losses"), Fraud Losses in excess of the Fraud Loss Amount ("Excess Fraud
Losses"), Bankruptcy Losses in excess of the Bankruptcy Amount ("Excess
Bankruptcy Losses") and losses occasioned by war, civil insurrection, certain
governmental actions, nuclear reaction and certain other risks ("Extraordinary
Losses")) not covered by the Subordination (which, with respect to the pro rata
portion thereof allocated to the Tiered Certificates, to the extent such losses
are Default Losses, will be allocated first to the Class A-6 Certificates and
second to the Class A-1 Certificates and Class A-5 Certificates), (iii) the
interest portion of any Advances that were made with respect to delinquencies
that were ultimately determined to be Excess Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses or Extraordinary Losses and (iv) any other
interest shortfalls not covered by Subordination, including interest shortfalls
relating to the Relief Act (as defined in the Prospectus) or similar legislating
on or regulations, all allocated as described below. Accrued Certificate
Interest is calculated on the basis of a 360-day year consisting of twelve
30-day months.
The Prepayment Interest Shortfall for any Distribution Date is equal
to the aggregate shortfall, if any, in collections of interest (adjusted to the
related Net Mortgage Rates) resulting from mortgagor prepayments on the Mortgage
Loans during the preceding calendar month, to the extent not offset by the
Master Servicer's application of servicing compensation as described below. Such
shortfalls will result because interest on prepayments in full is collected only
to the date of prepayment, and because no interest is collected on prepayments
in part, as such prepayments are applied to reduce the outstanding principal
balance of the related Mortgage Loan as of the Due Date in the month of
prepayment.
If the Available Distribution Amount for any Distribution Date is less
than the Accrued Certificate Interest payable on the Senior Certificates for
such Distribution Date, the shortfall will be allocated among the holders of all
classes of Senior Certificates in proportion to the respective amounts of
Accrued Certificate Interest for such Distribution Date on each such class, and
will be distributable to holders of the Certificates of such classes, on
subsequent Distribution Dates, to the extent of available funds, provided,
however, that following the Credit Support Depletion Date, distributions will be
made to the Tiered Certificates in the priority set forth in the _____ paragraph
under the heading "--Principal Distributions on the Senior Certificates" and
therefore the pro rata portion of such shortfall that is allocated to the Tiered
Certificates will be allocated first to the Class A-6 Certificates. Any such
amounts so carried forward will not bear interest.
The Pass-Through Rates on each class of Senior Certificates, other
than the Variable Strip Certificates, are fixed and are set forth on the cover
hereof. The Pass-Through Rate on the Variable Strip Certificates for each
Distribution Date will equal the weighted average, as determined as of the Due
Date in the month preceding the month in which such Distribution Date occurs, of
the Pool Strip Rates on each of the Mortgage Loans in the Mortgage Pool. The
"Pool
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Strip Rate" on any Mortgage Loan is equal to the Net Mortgage Rate thereon minus
___%. The "Net Mortgage Rate" on each Mortgage Loan is equal to the Mortgage
Rate thereon minus the Servicing Fee Rate. The initial Pass-Through Rate on the
Variable Strip Certificates is approximately _____% per annum.
As described herein, the Accrued Certificate Interest allocable to
each class of Senior Certificates is based on the Certificate Principal Balance
thereof or, in the case of the Variable Strip Certificates, on the Notional
Amount. The Certificate Principal Balance of any Senior Certificate as of any
date of determination is equal to the initial Certificate Principal Balance
thereof reduced by the aggregate of (a) all amounts allocable to principal
previously distributed with respect to such Certificate and (b) any reductions
in the Certificate Principal Balance thereof deemed to have occurred in
connection with allocations of Realized Losses (as defined herein) in the manner
described herein. The Notional Amount of the Fixed Strip Certificates and
Variable Strip Certificates as of any date of determination is equal to the
aggregate Certificate Principal Balance of the Certificates of all classes
(including the Subordinate Certificates) as of such date. Reference to the
Notional Amount of the Fixed Strip Certificates or Variable Strip Certificates
is solely for convenience in certain calculations and does not represent the
right to receive any distributions allocable to principal.
PRINCIPAL DISTRIBUTIONS ON THE SENIOR CERTIFICATES
Holders of the Senior Certificates will be entitled to receive on each
Distribution Date, to the extent of the portion of the Available Distribution
Amount remaining after the Senior Interest Distribution Amount is distributed to
such holders, a distribution allocable to principal in the following amount (the
"Senior Principal Distribution Amount"):
(i) the product of (A) the then applicable Senior Percentage and
(B) the aggregate of the following amounts:
(1) the principal portion of all scheduled monthly payments
on the Mortgage Loans due on the related Due Date, whether or not
received on or prior to the related Determination Date, less the
principal portion of Debt Service Reductions (as defined below)
which together with other Bankruptcy Losses are in excess of the
Bankruptcy Amount;
(2) the principal portion of all proceeds of the repurchase
of any Mortgage Loan (or, in the case of a substitution, certain
amounts representing a principal adjustment) as required by the
Pooling and Servicing Agreement during the preceding calendar
month;
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(3) the principal portion of all other unscheduled
collections received during the preceding calendar month (other
than full and partial principal prepayments made by the
respective mortgagors and any amounts received in connection with
a Final Disposition (as defined below) of a Mortgage Loan
described in clause (ii) below), to the extent applied as
recoveries of principal;
(ii) in connection with the Final Disposition of a Mortgage Loan
(x) that occurred in the preceding calendar month and (y) that did not
result in any Excess Special Hazard Losses, Excess Fraud Losses,
Excess Bankruptcy Losses or Extraordinary Losses, an amount equal to
the lesser of (a) the then-applicable Senior Percentage of the Stated
Principal Balance of such Mortgage Loan immediately prior to such
Distribution Date and (b) the then-applicable Senior Accelerated
Distribution Percentage (as defined below) of the related collections,
including Insurance Proceeds and Liquidation Proceeds, to the extent
applied as recoveries of principal;
(iii) the then applicable Senior Accelerated Distribution
Percentage of the aggregate of all full and partial principal
prepayments made by the respective mortgagors during the preceding
calendar month; and
(iv) any amounts allocable to principal for any previous
Distribution Date (calculated pursuant to clauses (i) through (iii)
above) that remain undistributed to the extent that any such amounts
are not attributable to Realized Losses which were allocated to the
Subordinate Certificates.
A "Final Disposition" of a defaulted Mortgage Loan is deemed to have
occurred upon a determination by the Master Servicer that it has received all
Insurance Proceeds, Liquidation Proceeds and other payments or cash recoveries
which the Master Servicer reasonably and in good faith expects to be finally
recoverable with respect to such Mortgage Loan.
The "Stated Principal Balance" of any Mortgage Loan as of any date of
determination is equal to the principal balance thereof as of the Cut-off Date,
after application of all scheduled principal payments due on or before the
Cut-off Date, whether or not received, reduced by all amounts allocable to
principal that have been distributed to Certificateholders with respect to such
Mortgage Loan on or before such date, and as further reduced to the extent that
the principal portion of any Realized Loss thereon has been allocated to one or
more classes of Certificates on or before the date of determination.
The Senior Percentage, which initially will equal approximately _____%
and will in no event exceed 100%, will be adjusted for each Distribution Date to
be the percentage equal
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to the aggregate Certificate Principal Balance of the Senior Certificates
immediately prior to such Distribution Date divided by the aggregate Stated
Principal Balance of all of the Mortgage Loans immediately prior to such
Distribution Date. The Subordinate Percentage as of any date of determination is
equal to 100% minus the Senior Percentage as of such date.
The Senior Accelerated Distribution Percentage for any Distribution
Date occurring prior to the Distribution Date in _________, _________ will be
100%. The Senior Accelerated Distribution Percentage for any Distribution Date
occurring after _____, ____ will be as follows: for any Distribution Date during
in the sixth year after the Delivery Date, the Senior Percentage for such
Distribution Date plus 70% of the Subordinate Percentage for such Distribution
Date; for any Distribution Date during the seventh year after the Delivery Date,
the Senior Percentage for such Distribution Date plus 60% of the Subordinate
Percentage for such Distribution Date; for any Distribution Date during the
eighth year after the Delivery Date, the Senior Percentage for such Distribution
Date plus 40% of the Subordinate Percentage for such Distribution Date; for any
Distribution Date during the ninth year after the Delivery Date, the Senior
Percentage for such Distribution Date plus 20% of the Subordinate Percentage for
such Distribution Date; and for any Distribution Date thereafter, the Senior
Percentage for such Distribution Date (unless on any such Distribution Date the
Senior Percentage exceeds the initial Senior Percentage, in which case the
Senior Accelerated Distribution Percentage for such Distribution Date will once
again equal 100%). Any scheduled reduction to the Senior Prepayment Percentage
described above shall not be made as of any Distribution Date unless either
(a)(i) the outstanding principal balance of the Mortgage Loans delinquent __
days or more (including foreclosure and REO Property) averaged over the last ___
months, as a percentage of the aggregate outstanding principal balance of all
Mortgage Loans averaged over the last ___ months, does not exceed _% and (ii)
Realized Losses on the Mortgage Loans to date for such Distribution Date, if
occurring during the sixth, seventh, eighth, ninth or tenth year (or any year
thereafter) after __________ 19__, are less than __%, __%, __%, __% or __%,
respectively, of the initial Certificate Principal Balance of the Subordinate
Certificates or (b)(i) the aggregate outstanding principal balance of the
Mortgage Loans delinquent __ days or more (including foreclosure and REO
Property) averaged over the last ___ months, as a percentage of the aggregate
outstanding principal balance of all Mortgage Loans averaged over the last ___
months, does not exceed __% and (ii) Realized Losses on the Mortgage Loans to
date are less than __% of the initial Certificate Principal Balance of the
Subordinate Certificates.]
Distributions of the Senior Principal Distribution Amount to the
Senior Certificates (other than the Fixed Strip Certificates and Variable Strip
Certificates) will be made (to the extent of the Available Distribution Amount
remaining after distributions of the Senior Interest Distribution Amount as
described under "--Interest Distributions"), as follows:
(a) prior to the occurrence of the Credit Support Depletion Date
(as defined below):
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(i) first, concurrently, to the Class A-1 and Class A-6
Certificates, with the amount to be distributed allocated as
between such classes on a pro rata basis in proportion to the
respective Certificate Principal Balances thereof, until the
Certificate Principal Balance of each such class is reduced to
zero;
(ii) second, to the Class A-2 Certificates until the
Certificate Principal Balance thereof is reduced to zero;
(iii) third, to the Class A-3 Certificates until the
Certificate Principal Balance thereof is reduced to zero; and
(iv) fourth, to the Class A-4 Certificates until the
Certificate Principal Balance thereof is reduced to zero.
(b) On each Distribution Date occurring on or after the Credit
Support Depletion Date, all priorities relating to sequential
distributions in respect of principal among the various classes of
Senior Certificates will be disregarded, and the Senior Principal
Distribution Amount will be distributed to all classes of Senior
Certificates pro rata in accordance with their respective outstanding
Certificate Principal Balances; provided, that the aggregate amount
distributable to the Class A-1, Class A-5 and Class A-6 Certificates
(the "Tiered Certificates") in respect of Accrued Certificate Interest
thereon and in respect of their pro rata portion of the Senior
Principal Distribution Amount shall be distributed among the Tiered
Certificates in the amounts and priority as follows: first, to the
Class A-1 Certificates and the Class A-5 Certificates, up to an amount
equal to, and pro rata based on, the Accrued Certificate Interest
thereon; second to the Class A-1 Certificates, up to an amount equal
to the Optimal Principal Distribution Amount thereof (as defined
below), in reduction of the Certificate Principal Balances thereof;
third to the Class A-6 Certificates, up to an amount equal to the
Accrued Certificate Interest thereon; and fourth to the Class A-6
Certificates the remainder of the amount so distributable among the
Tiered Certificates.
(c) The "Optimal Principal Distribution Amount" is equal to the
product of (i) the then applicable Optimal Percentage and (ii) the
Senior Principal Distribution Amount. The "Optimal Percentage" is
equal to a fraction, expressed as a percentage, the numerator of which
is the aggregate Certificate Principal Balance of the Class A-1
Certificates immediately prior to the applicable Distribution Date and
the denominator of which is the aggregate Certificate Principal
Balance of all of the Senior Certificates immediately prior to such
Distribution Date.
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The "Credit Support Depletion Date" is the first Distribution Date on
which the Senior Percentage equals 100%.
The Master Servicer may elect to treat Insurance Proceeds, Liquidation
Proceeds and other unscheduled collections (not including prepayments by the
Mortgagors) received in any calendar month as included in the Available
Distribution Amount and the Senior Principal Distribution Amount for the
Distribution Date in the month of receipt, but is not obligated to do so. If the
Master Servicer so elects, such amounts will be deemed to have been received
(and any related Realized Loss shall be deemed to have occurred) on the last day
of the month prior to the receipt thereof.
ALLOCATION OF LOSSES; SUBORDINATION
The Subordination provided to the Senior Certificates by the
Subordinate Certificates will cover Realized Losses on the Mortgage Loans that
are Defaulted Mortgage Losses, Fraud Losses, Bankruptcy Losses (each as defined
in the Prospectus) and Special Hazard Losses (as defined herein) to the extent
described herein. Any such Realized Losses which do not constitute Excess
Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or
Extraordinary Losses will be allocated first to the Subordinate Certificates
until the Certificate Principal Balance of the Subordinate Certificates has been
reduced to zero, and then except as provided below on a pro rata basis to the
Senior Certificates based on their then outstanding Certificate Principal
Balance or the Accrued Certificate Interest thereon, as applicable. Any
allocation of a Realized Loss (other than a Debt Service Reduction) to a Senior
Certificate will be made by reducing the Certificate Principal Balance thereof,
in the case of the principal portion of such Realized Loss, and the Accrued
Certificate Interest thereon, in the case of the interest portion of such
Realized Loss, by the amount so allocated as of the Distribution Date occurring
in the month following the calendar month in which such Realized Loss was
incurred. Allocations of Realized Losses which are Default Losses (as defined
below) to Senior Certificates will be made on a pro rata basis, based on their
then outstanding Certificate Principal Balances, or the Accrued Certificate
Interest thereon, as applicable, between the Tiered Certificates, on the one
hand, and the Class A-2, Class A-3, Class A-4 and Variable Strip Certificates,
on the other. Any such Realized Losses so allocated to the Tiered Certificates
will be allocated first to the Class A-6 Certificates until the Certificate
Principal Balance thereof or the Accrued Certificate Interest thereon, as
appropriate, is reduced to zero and then to the Class A-1 Certificates and Class
A-5 Certificates on a pro rata basis. "Default Losses" are Realized Losses that
are attributable to the mortgagor's failure to make any payment of principal or
interest as required under the Mortgage Note, and do not include Special Hazard
Losses (or any other loss resulting from damage to a Mortgaged Property),
Bankruptcy Losses, Fraud Losses, or other losses of a type not covered by the
Subordination. Allocations of Debt Service Reductions to the Subordinate
Certificates will result from the priority of distributions to the Senior
Certificateholders of the Available Distribution Amount as described under the
captions "--Interest Distributions" and "--Principal
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Distributions on the Senior Certificates" herein. Any Excess Special Hazard
Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary Losses
will be allocated on a pro rata basis between the Senior Certificates and the
Subordinate Certificates (any such Realized Losses so allocated to the Senior
Certificates, as well as any Realized Losses that are not Default Losses which
are allocated to the Senior Certificates, will be allocated without priority
among the various classes of Senior Certificates).
With respect to any defaulted Mortgage Loan that is finally
liquidated, through foreclosure sale, disposition of the related Mortgaged
Property if acquired on behalf of the Certificateholders by deed in lieu of
foreclosure, or otherwise, the amount of loss realized, if any, will generally
equal the portion of the unpaid principal balance remaining, if any, plus
interest thereon through the last day of the month in which such Mortgage Loan
was finally liquidated, after application of all amounts recovered (net of
amounts reimbursable to the Master Servicer for Advances and certain expenses,
including attorneys' fees) towards interest and principal owing on the Mortgage
Loan. Such amount of loss realized and any Special Hazard Losses, Fraud Losses
and Bankruptcy Losses are referred to herein as "Realized Losses." As used
herein, "Debt Service Reductions" means reductions in the amount of monthly
payments due to certain bankruptcy proceedings, but does not include any
forgiveness of principal.
In order to maximize the likelihood of distribution in full of the
Senior Interest Distribution Amount and the Senior Principal Distribution
Amount, holders of Senior Certificates will have a prior right, on each
Distribution Date, to the Available Distribution Amount, to the extent necessary
to satisfy the Senior Interest Distribution Amount and the Senior Principal
Distribution Amount. The Senior Principal Distribution Amount is subject to
adjustment on each Distribution Date to reflect the then applicable Senior
Percentage and the Senior Accelerated Distribution Percentage, as described
herein under "--Principal Distributions" on the Senior Certificates, each of
which may be increased (to not more than 100%) in the event of delinquencies or
Realized Losses on the Mortgage Loans. The application of the Senior Accelerated
Distribution Percentage (when it exceeds the Senior Percentage) to determine the
Senior Principal Distribution Amount will accelerate the amortization of the
Senior Certificates relative to the actual amortization of the Mortgage Loans.
To the extent that the Senior Certificates are amortized faster than the
Mortgage Loans, the percentage interest evidenced by the Senior Certificates in
the Trust Fund will be decreased (with a corresponding increase in the interest
in the Trust Fund evidenced by the Subordinate Certificates), thereby
increasing, as a relative matter, the Subordination afforded by the Subordinate
Certificates. Similarly, holders of Class A-1 Certificates and Class A-5
Certificates will have a prior right, on each Distribution Date occurring on or
after the Credit Support Depletion Date, to that portion of the Available
Distribution Amount allocated to the Tiered Certificates, to the extent
necessary to satisfy the Accrued Certificate Interest on the Class A-1
Certificates and Class A-5 Certificates. Therefore, any shortfalls in the
amounts that would otherwise be distributable to Class A-1 Certificateholders
and Class A-5 Certificateholders, whether resulting from Mortgage Loan
delinquencies or
<PAGE>
-45-
Realized Losses, will be borne by the holders of the Class A-6 Certificates for
so long as the Class A-6 Certificates are outstanding.
The aggregate amount of Realized Losses which may be allocated in
connection with Special Hazard Losses (the "Special Hazard Amount") through
Subordination shall initially be equal to $_________. As of any date of
determination following the Cut-off Date, the Special Hazard Amount shall equal
$_________ less the sum of (i) any amounts allocated through Subordination in
respect of Special Hazard Losses and (ii) the Adjustment Amount. The Adjustment
Amount will be equal to an amount calculated pursuant to the terms of the
Pooling and Servicing Agreement. As used in this Prospectus Supplement, "Special
Hazard Losses" has the same meaning set forth in the Prospectus, except that
Special Hazard Losses will not include and the Subordination will not cover
Extraordinary Losses, and Special Hazard Losses will not exceed the lesser of
the cost of repair or replacement of the related Mortgaged Properties.
The aggregate amount of Realized Losses which may be allocated to the
Subordinate Certificates in connection with Fraud Losses (the "Fraud Loss
Amount") through Subordination shall initially be equal to $_________. As of any
date of determination after the Cut-off Date the Fraud Loss Amount shall equal
(i) up to and including the [first] anniversary of the Cut-off Date, an amount
equal to ____% of the aggregate principal balance of all of the Mortgage Loans
as of the Cut-off Date minus the aggregate amounts allocated solely to the
Subordinate Certificates through Subordination with respect to Fraud Losses up
to such date of determination, and (ii) from the [first] through [fifth]
anniversary of the Cut-off Date, an amount equal to (a) the lesser of (1) the
Fraud Loss Amount as of the most recent anniversary of the Cut-off Date and (2)
____% of the aggregate principal balance of all of the Mortgage Loans as of the
most recent anniversary of the Cut-off Date minus (b) the aggregate amounts
allocated solely to the Subordinate Certificates through Subordination with
respect to Fraud Losses since the most recent anniversary of the Cut-off Date up
to such date of determination. On or after the fifth anniversary of the Cut-off
Date, the Fraud Loss Amount shall be zero and Fraud Losses shall not be
allocated through Subordination.
The aggregate amount of Realized Losses which may be allocated solely
to the Subordinate Certificates in connection with Bankruptcy Losses (the
"Bankruptcy Amount") Subordination will initially be equal to $_________. As of
any day of determination on or after the [first] anniversary of the Cut-off
Date, the Bankruptcy Amount will equal the excess, if any, of (i) the lesser of
(a) the Bankruptcy Amount as of the business day next preceding the most recent
anniversary of the Cut-off Date (the "Relevant Anniversary") and (b) an amount
calculated pursuant to the terms of the Pooling and Servicing Agreement, which
amount as calculated will provide for a reduction in the Bankruptcy Amount, over
(ii) the aggregate amount of Bankruptcy Losses allocated solely to the
Subordinate Certificates through Subordination since the Relevant Anniversary.
<PAGE>
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Notwithstanding the foregoing, the provisions relating to
Subordination will not be applicable in connection with a Bankruptcy Loss 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 representations and warranties made regarding the related Mortgage Loan and
either (i) the related Mortgage Loan is not in default with regard to payments
due thereunder or (ii) delinquent payments of principal and interest under the
related Mortgage Loan and any premiums on any applicable Primary Hazard
Insurance Policy 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 the particular Bankruptcy Loss.
The Special Hazard Amount, Fraud Amount and Bankruptcy Amount are
subject to further reduction with the consent of the Rating Agencies.
ADVANCES
Prior to each Distribution Date, the Master Servicer is required to
make advances (each an "Advance") for the benefit of Certificateholders (out of
its own funds or funds held in the Certificate Account (as described in the
Prospectus) for future distribution or withdrawal) with respect to any payments
of principal and interest (net of the related Servicing Fees) which were due on
the Mortgage Loans on the immediately preceding Due Date and delinquent on the
business day next preceding the related Determination Date.
Such Advances are required to be made only to the extent they are
deemed by the Master Servicer to be recoverable from related late collections,
Insurance Proceeds, Liquidation Proceeds or amounts otherwise payable to the
holders of the Subordinate Certificates as described below. The purpose of
making such Advances is to maintain a regular cash flow to the
Certificateholders, rather than to guarantee or insure against losses. The
Master Servicer will not be required to make any Advances with respect to
reductions in the amount of the monthly payments on the Mortgage Loans due to
Debt Service Reductions or the application of the Relief Act or similar
legislation or regulations. Any failure by the Master Servicer to make an
Advance as required under the Pooling and Servicing Agreement will constitute an
Event of Default thereunder, in which case the Trustee, as successor Master
Servicer, will be obligated to make any such Advance, in accordance with the
terms of the Pooling and Servicing Agreement.
All Advances will be reimbursable to the Master Servicer on a first
priority basis from either (a) late collections, Insurance Proceeds and
Liquidation Proceeds from the Mortgage Loan as to which such unreimbursed
Advance was made or (b) as to any Advance that remains unreimbursed in whole or
in part following the final liquidation of the related Mortgage Loan, from any
amounts otherwise distributable on the Subordinate Certificates; provided,
however, that only the Subordinate Percentage of such Advances are reimbursable
from amounts otherwise distributable on the Subordinate Certificates in the
event that such Advances were made with
<PAGE>
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respect to delinquencies which ultimately were determined to be Excess Special
Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary
Losses and the Senior Percentage of such Advances which may not be so reimbursed
from amounts otherwise distributable on the Subordinate Certificates may be
reimbursed to the Master Servicer out of any funds in the related Certificate
Account prior to distributions on the Senior Certificates. In the latter event,
the aggregate amount otherwise distributable on the Senior Certificates will be
reduced by an amount equal to the Senior Percentage of such Advances. In
addition, if the Certificate Principal Balance of the Subordinate Certificates
has been reduced to zero, any Advances previously made which are deemed by the
Master Servicer to be nonrecoverable from related late collections, Insurance
Proceeds and Liquidation Proceeds may be reimbursed to the Master Servicer out
of any funds in the related Certificate Account prior to distributions on the
Senior Certificates.
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
GENERAL
The effective yield to the holders of the Offered Certificates will be
lower than the yield otherwise produced by the applicable Pass-Through Rate and
purchase price because monthly distributions will not be made to such holders
until the 25th day (or if such day is not a business day, then on the next
succeeding business day) of the month following the month in which interest
accrues on the Mortgage Loans (without any additional distributions of interest
or earnings thereon in respect of such delay). See "Yield Considerations" in the
Prospectus.
The yields to maturity and the aggregate amount of distributions on
the Offered Certificates will be affected by the rate and timing of principal
payments on the Mortgage Loans and the amount and timing of mortgagor defaults
resulting in Realized Losses. Such yields may be adversely affected by a higher
or lower than anticipated rate of principal payments on the Mortgage Loans in
the Trust Fund. The rate of principal payments on such Mortgage Loans will in
turn be affected by the amortization schedules of the Mortgage Loans, the rate
and timing of principal prepayments thereon by the mortgagors, liquidations of
defaulted Mortgage Loans and purchases of Mortgage Loans due to certain breaches
of representations and warranties. The timing of changes in the rate of
prepayments, liquidations and purchases of the Mortgage Loans may, and the
timing of Realized Losses will, significantly affect the yield to an investor,
even if the average rate of principal payments experienced over time is
consistent with an investor's expectation. Since the rate and timing of
principal payments on the Mortgage Loans will depend on future events and on a
variety of factors (as described herein and in the Prospectus under "Yield
Considerations" and "Maturity and Prepayment Considerations"), no assurance can
be given as to such rate or the timing of principal payments on the Offered
Certificates.
<PAGE>
-48-
The Mortgage Loans generally may be prepaid by the Mortgagors at any
time without payment of any prepayment fee or penalty. The Mortgage Loans
generally contain due-on-sale clauses. As described under "Description of the
Certificates--Principal Distributions on the Senior Certificates" herein, during
certain periods all or a disproportionately large percentage of principal
prepayments on the Mortgage Loans will be allocated among the Senior
Certificates. Prepayments, liquidations and purchases of the Mortgage Loans will
result in distributions to holders of the Offered Certificates of principal
amounts which would otherwise be distributed over the remaining terms of the
Mortgage Loans. Factors affecting prepayment (including defaults and
liquidations) of mortgage loans include changes in mortgagors' housing needs,
job transfers, unemployment, mortgagors' net equity in the mortgaged properties,
changes in the value of the mortgaged properties, mortgage market interest
rates, solicitations and servicing decisions. In addition, if prevailing
mortgage rates fell significantly below the Mortgage Rates on the Mortgage
Loans, the rate of prepayments (including refinancings) would be expected to
increase. Conversely, if prevailing mortgage rates rose significantly above the
Mortgage Rates on the Mortgage Loans, the rate of prepayments on the Mortgage
Loans would be expected to decrease.
The rate of defaults on the Mortgage Loans will also affect the rate
and timing of principal payments on the Mortgage Loans. In general, defaults on
mortgage loans are expected to occur with greater frequency in their early
years. The rate of default on Mortgage Loans which are refinance or limited
documentation mortgage loans, and on Mortgage Loans with high Loan-to-Value
Ratios, may be higher than for other types of Mortgage Loans. Furthermore, the
rate and timing of prepayments, defaults and liquidations on the Mortgage Loans
will be affected by the general economic condition of the region of the country
in which the related Mortgaged Properties are located. The risk of delinquencies
and loss is greater and prepayments are less likely in regions where a weak or
deteriorating economy exists, as may be evidenced by, among other factors,
increasing unemployment or falling property values. See "Maturity and Prepayment
Considerations" in the Prospectus.
Because the Mortgage Rates on the Mortgage Loans and the Pass-Through
Rates on the Senior Certificates (other than the Variable Strip Certificates)
are fixed, such rates will not change in response to changes in market interest
rates. The Pass-Through Rate on the Variable Strip Certificates is based on the
weighted average of the Pool Strip Rates on the Mortgage Loans, and such rates
will also not change in response to changes in market interest rates.
Accordingly, if market interest rates or market yields for securities similar to
the Senior Certificates were to rise, the market value of the Senior
Certificates may decline. In addition, if prevailing mortgage rates fell
significantly below the Mortgage Rates on the Mortgage Loans, the rate of
prepayments (including refinancings) would be expected to increase. Conversely,
if prevailing mortgage rates rose significantly above the Mortgage Rates on the
Mortgage Loans, the rate of prepayment on the Mortgage Loans would be expected
to decrease.
<PAGE>
-49-
The amount of interest otherwise payable to holders of the Senior
Certificates will be reduced by any interest shortfalls not covered by
Subordination, including Prepayment Interest Shortfalls. Such shortfalls will
not be offset by a reduction in the Servicing Fees payable to the Master
Servicer or otherwise. See "Yield Considerations" in the Prospectus and
"Description of the Certificates--Interest Distributions" herein for a
discussion of the effect that principal prepayments on the Mortgage Loans may
have on the yield to maturity of the Senior Certificates and certain possible
shortfalls in the collection of interest.
The timing of changes in the rate of prepayments, liquidations and
repurchases of the Mortgage Loans may significantly affect an investor's actual
yield to maturity, even if the average rate of principal payments experienced
over time is consistent with an investor's expectation. Because all or a
disproportionate percentage of principal prepayments will be allocated to the
Senior Certificates during not less than the first nine years after the Delivery
Date, the rate of prepayments on the Mortgage Loans during this period may
significantly affect the yield to maturity of the Senior Certificates.
In addition, the yield to maturity of the Senior Certificates will
depend on the price paid by the holders of the Senior Certificates and the
related Pass-Through Rate. The extent to which the yield to maturity of a Senior
Certificate may vary from the anticipated yield thereon will 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.
Because principal distributions are paid to certain classes of Senior
Certificates before other classes, holders of classes of Senior Certificates
having a later priority of payment bear a greater risk of losses than holders of
classes of Senior Certificates having earlier priorities for distribution of
principal. In addition, the Class A-6 Certificates bear a greater risk of losses
than the other Tiered Certificates because Default Losses on the Mortgage Loans
not covered by the Subordination which are allocated to the Tiered Certificates
are allocated first to the Class A-6 Certificates prior to allocation to the
Class A-1 and Class A-5 Certificates to the extent described herein. For
additional considerations relating to the yield on the Certificates, see "Yield
Considerations" and "Maturity and Prepayment Considerations" in the Prospectus.
The assumed final Distribution Date with respect to each class of
Senior Certificates is _____ __, 20__. The assumed final Distribution Date is
the Distribution Date immediately following the latest scheduled maturity date
of any Mortgage Loan in the Mortgage Pool.
Weighted average life refers to the average amount of time that will
elapse from the date of issuance of a security until a dollar amount in payment
of principal equal to the original principal balance of such security (less
losses) is distributed to the investor. The weighted average life of the Senior
Certificates will be influenced by among other things, the rate at which
principal
<PAGE>
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of the Mortgage Loans is paid, which may be in the form of scheduled
amortization, prepayments or liquidations.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement, the
standard prepayment assumption ("SPA"), represents an assumed rate of prepayment
each month relative to the then outstanding principal balance of a pool of new
mortgage loans. A prepayment assumption of 100% SPA assumes constant prepayment
rates of 0.2% per annum of the then outstanding principal balance of such
mortgage loans in the first month of the life of the mortgage loans and an
additional 0.2% per annum in each month thereafter until the thirtieth month.
Beginning in the thirtieth month and in each month thereafter during the life of
the mortgage loans, 100% SPA assumes a constant prepayment rate of 6% per annum
each month. As used in the table below, "0% SPA" assumes prepayment rates equal
to 0% of SPA (no prepayments). Correspondingly, "___% SPA" assumes prepayment
rates equal to ___% of SPA, and so forth. SPA 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.
The table set forth below has been prepared on the basis of certain
assumptions as described below regarding the weighted average characteristics of
the Mortgage Loans that are expected to be included in the Trust Fund as
described under "Description of the Mortgage Pool" herein and the performance
thereof. The table assumes, among other things, that: (i) as of the date of
issuance of the Senior Certificates, the aggregate principal balance of the
Mortgage Loans is approximately $____________ and each Mortgage Loan has a
Mortgage Rate of _____% per annum, an original term of ___ months, a remaining
term to maturity of ___ months and a related Servicing Fee calculated at ___%
per annum, (ii) the scheduled monthly payment for each Mortgage Loan has been
based on its outstanding balance, Mortgage Rate and remaining term to maturity,
such that the Mortgage Loan will amortize in amounts sufficient for repayment
thereof over its remaining term to maturity, (iii) none of the Sellers, the
Master Servicer or the Company will repurchase any Mortgage Loan, as described
under "The Mortgage Loan Pools--Representations by Sellers" and "Description of
the Certificates--Assignment of the Trust Fund Assets" in the Prospectus, and
the Master Servicer will not exercise its option to purchase the Mortgage Loans
and thereby cause a termination of the Trust Fund, (iv) there are no
delinquencies or Realized Losses on the Mortgage Loans, and scheduled monthly
payments on the Mortgage Loans will be timely received together with
prepayments, if any, at the respective constant percentages of SPA set forth in
the table, (v) there is no Prepayment Interest Shortfall or any other interest
shortfall in any month, (vi) payments on the Mortgage Loans earn no reinvestment
return; (vii) there are no additional ongoing Trust Fund expenses payable out of
the Trust Fund; and (viii) the Certificates will be purchased on _____________
__, 199_.
The actual characteristics and performance of the Mortgage Loans will
differ from the assumptions used in constructing the table set forth below,
which is hypothetical in nature and
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is provided only to give a general sense of how the principal cash flows might
behave under varying prepayment scenarios. For example, it is very unlikely that
the Mortgage Loans will prepay at a constant level of SPA until maturity or that
all of the Mortgage Loans will prepay at the same level of SPA. Moreover, the
diverse remaining terms to maturity of the Mortgage Loans could produce slower
or faster principal distributions than indicated in the table at the various
constant percentages of SPA specified, even if the weighted average remaining
term to maturity of the Mortgage Loans is as assumed. Any difference between
such assumptions and the actual characteristics and performance of the Mortgage
Loans, or actual prepayment or loss experience, will affect the percentages of
initial Certificate Principal Balances outstanding over time and the weighted
average lives of the classes of Offered Certificates.
Subject to the foregoing discussion and assumptions, the following
table indicates the weighted average life of each class of Offered Certificates
(other than the Fixed Strip Certificates and Variable Strip Certificates), and
sets forth the percentages of the initial Certificate Principal Balance of each
such class of Offered Certificates that would be outstanding after each of the
dates shown at various percentages of SPA.
<PAGE>
-52-
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
AT THE FOLLOWING PERCENTAGES OF SPA
<TABLE>
<CAPTION>
Class A-1 Class A-2 Class A-3
----------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DISTRIBUTION DATE % % % % % % % % % % % % % % %
----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
</TABLE>
Initial Percentage
Weighted Average Life in Years (**)....
----------
* Indicates a number that is greater than zero but less than .5%.
** The weighted average life of a Certificate of any class is determined
by (i) multiplying the amount of each net distribution in reduction of
Certificate Principal Balance by the number of years from the date of
issuance of the Certificate to the related Distribution Date, (ii)
adding the results, and (iii) dividing the sum by the aggregate of the
net distributions described in (i) above.
THIS TABLE HAS BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED IN THE
THIRD PARAGRAPH PRECEDING THIS TABLE (INCLUDING THE ASSUMPTIONS REGARDING THE
CHARACTERISTICS AND PERFORMANCE OF THE MORTGAGE LOANS WHICH DIFFER FROM THE
ACTUAL CHARACTERISTICS AND PERFORMANCE THEREOF) AND SHOULD BE READ IN
CONJUNCTION THEREWITH.
<PAGE>
-53-
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
AT THE FOLLOWING PERCENTAGES OF SPA
Class A-4 Class A-6
----------------------------- ----------------------------
DISTRIBUTION DATE % % % % % % % % % %
----- ---- ---- ---- ---- ---- ---- ---- ---- ----
Initial Percentage
Weighted Avg. Life in Years (**)
----------
* Indicates a number that is greater than zero but less than .5%.
** The weighted average life of a Certificate of any class is determined
by (i) multiplying the amount of each net distribution in reduction of
Certificate Principal Balance by the number of years from the date of
issuance of the Certificate to the related Distribution Date, (ii)
adding the results, and (iii) dividing the sum by the aggregate of the
net distributions described in (i) above.
THIS TABLE HAS BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED IN THE
THIRD PARAGRAPH PRECEDING THIS TABLE (INCLUDING THE ASSUMPTIONS REGARDING THE
CHARACTERISTICS AND PERFORMANCE OF THE MORTGAGE LOANS WHICH DIFFER FROM THE
ACTUAL CHARACTERISTICS AND PERFORMANCE THEREOF) AND SHOULD BE READ IN
CONJUNCTION THEREWITH.
(TABLE CONTINUED FROM PREVIOUS PAGE.)
<PAGE>
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FIXED STRIP CERTIFICATES AND VARIABLE STRIP CERTIFICATES YIELD
CONSIDERATIONS
The following tables indicate the sensitivity of the pre-tax yield to
maturity on the Fixed Strip Certificates and Variable Strip Certificates to
various rates of prepayment on the Mortgage Loans by projecting the monthly
aggregate payments of interest on the Fixed Strip Certificates and Variable
Strip Certificates and the corresponding pre-tax yields on a corporate bond
equivalent basis, based on distributions being made with respect to the Mortgage
Loans that are assumed to be included in the Trust Fund, as described in the
assumptions stated in clauses (i) through (viii) of the third paragraph
preceding the table entitled "Percent of Initial Certificate Principal Balance
Outstanding at the Following Percentages of SPA" under the heading "Certain
Yield and Prepayment Considerations--General" herein, including the assumptions
regarding the characteristics and performance of the Mortgage Loans which differ
from the actual characteristics and performance thereof and assuming the
aggregate purchase prices set forth below and assuming further that the
Pass-Through Rate and Notional Amount of the Fixed Strip Certificates and
Variable Strip Certificates are as set forth herein. Any differences between
such assumptions and the actual characteristics and performance of the Mortgage
Loans and of the Certificates may result in yields being different from those
shown in such tables. Discrepancies between assumed and actual characteristics
and performance underscore the hypothetical nature of the tables, which are
provided only to give a general sense of the sensitivity of yields in varying
prepayment scenarios.
PRE-TAX YIELD TO MATURITY ON THE FIXED
STRIP CERTIFICATES AND THE VARIABLE STRIP CERTIFICATES
AT THE FOLLOWING PERCENTAGES OF SPA
Fixed Strip Certificates
---------------------------------
Assumed
Purchase
Price* % % % % %
---------- ----- ----- ----- ----- -----
*Expressed as a percentage of the Initial Notional Amount
<PAGE>
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Variable Strip Certificates
---------------------------------
Assumed
Purchase
Price* % % % % %
---------- ----- ----- ----- ----- -----
*Expressed as a percentage of the Initial Notional Amount
The pre-tax yields set forth in the preceding tables were calculated
by determining the monthly discount rates which, when applied to the assumed
streams of cash flows to be paid on the Fixed Strip Certificates and Variable
Strip Certificates, would cause the discounted present value of such assumed
streams of cash flows to equal the assumed purchase prices listed as percentages
of the initial Notional Amounts in the table for the Fixed Strip Certificates
and Variable Strip Certificates, respectively. Yields shown are corporate bond
equivalent and are based on the assumed prices given in the tables. The prices
shown do not include accrued interest but an amount of accrued interest
consistent with the assumptions was computed and was used to arrive at these
yields. Implicit in the use of any discounted present value or internal rate of
return calculation such as these is the assumption that cash flows are
reinvested at the discount rate or internal rate of return. Thus these
calculations do not take into account the different interest rates at which
investors may be able to reinvest funds received by them as distributed on the
Fixed Strip Certificates or Variable Strip Certificates. Consequently these
yields do not purport to reflect the return on any investment in the Fixed Strip
Certificates or Variable Strip Certificates when such reinvestment rates are
considered.
The preceding tables are based on a set of assumptions that vary from
other information provided herein. The differences between such assumptions and
the actual characteristics of the Mortgage Loans and of the Certificates may
result in actual yields being different from those shown in such tables. For
example, the Pass-Through Rate on the Variable Strip Certificates, which is
assumed to be fixed throughout the life of the Certificates, will actually be
likely to change from one period to the next, and the rate assumed may be
different from the actual initial Pass-Through Rate on the Variable Strip
Certificates. Such discrepancies between assumed and actual characteristics
underscore the hypothetical nature of the tables, which are provided to give a
general sense of the sensitivity of yields in varying prepayment scenarios.
Notwithstanding the assumed prepayment rates reflected in the
preceding tables, it is highly unlikely that the Mortgage Loans will prepay at a
constant rate until maturity or that all of the Mortgage Loans will be prepaid
according to one particular pattern. For this reason, and because the timing of
cash flows is critical to determining yields, the pre-tax yields on the Fixed
Strip Certificates and Variable Strip Certificates are likely to differ from
those shown in
<PAGE>
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such table, even if all of the Mortgage Loans prepay at the indicated
percentages of SPA over any given time period or over the entire life of the
Certificates. No representation is made as to the actual rate of principal
payment on the Mortgage Loans for any period or over the life of the Senior
Certificates or as to the yield on the Senior Certificates. In addition, the
various remaining terms to maturity of the Mortgage Loans could produce slower
or faster principal distributions than indicated in the preceding tables at the
various constant percentages of SPA specified, even if the weighted average
remaining term to maturity of the Mortgage Loans is ___ months. Investors are
urged to make their investment decisions based on their determinations as to
anticipated rates of prepayment under a variety of scenarios.
For additional considerations relating to the yield on the
Certificates, see "Yield Considerations" and "Maturity and Prepayment
Considerations" in the Prospectus.
POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued, and the Mortgage Loans serviced and
administered, pursuant to a Pooling and Servicing Agreement (the "Pooling and
Servicing Agreement") dated as of __________ 1, 19__, among the Company, the
Master Servicer, and _____________________, as trustee (the "Trustee").
Reference is made to the Prospectus for important information in addition to
that set forth herein regarding the terms and conditions of the Pooling and
Servicing Agreement and the Senior Certificates. The Trustee will appoint
____________________ to serve as Custodian in connection with the Certificates.
The Senior Certificates will be transferable and exchangeable at the corporate
trust office of the Trustee, which will serve as Certificate Registrar and will
be responsible for making distributions on the Senior Certificates and
forwarding monthly reports with respect thereto to the holders of such
Certificates. In addition to the circumstances described in the Prospectus, the
Company may terminate the Trustee for cause under certain circumstances. The
fees payable to the Trustee will be payable directly from the Certificate
Account. The Company will provide a prospective or actual Certificateholder
without charge, on written request, a copy (without exhibits) of the Pooling and
Servicing Agreement. Requests should be addressed to the President, WMC Secured
Assets Corp., 6320 Canoga Avenue, Woodland Hills, California 91367. See
"Description of the Certificates," "Servicing of Mortgage Loans" and "The
Pooling Agreement" in the Prospectus.
THE MASTER SERVICER
[Name of Master Servicer] [WMC Mortgage Corp. ("WMC Mortgage"), an
affiliate of the Company], will act as master servicer (in such capacity, the
"Master Servicer") for the Certificates pursuant to the Pooling and Servicing
Agreement.
<PAGE>
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[Further disclosure as appropriate. The following disclosure is for
WMC Mortgage only, but will be similar to the disclosure if the Master Servicer
is a different entity.]
[There can be no assurance that the delinquency and foreclosure
experience set forth above will be representative of the results that may be
experienced with respect to the Mortgage Loans.]
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The Servicing Fees for each Mortgage Loan are payable out of the
interest payments on such Mortgage Loan. The Servicing Fees in respect of each
Mortgage Loan will accrue at _____% per annum (the "Servicing Fee Rate") on the
outstanding 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 Pooling and Servicing Agreement. See "Servicing of Mortgage Loans--Servicing
and Other Compensation and Payment of Expenses; Spread" in the Prospectus for
information regarding other possible compensation to the Master Servicer and for
information regarding expenses payable by the Master Servicer.
VOTING RIGHTS
Certain actions specified in the Prospectus that may be taken by
holders of Certificates evidencing a specified percentage of all undivided
interests in the Trust Fund may be taken by holders of Certificates entitled in
the aggregate to such percentage of the Voting Rights. __% of all Voting Rights
will be allocated among all holders of the Certificates (other than the Fixed
Strip Certificates, Variable Strip Certificates and Residual Certificates) in
proportion to their then outstanding Certificate Principal Balances, and _%, _%
and _% of all Voting Rights will be allocated among holders of the Fixed Strip
Certificates, Variable Strip Certificates and Class R Certificates,
respectively, in proportion to the percentage interests evidenced by their
respective Certificates. The Pooling and Servicing Agreement will be subject to
amendment without the consent of the holders of the Residual Certificates in
certain circumstances.
TERMINATION
The circumstances under which the obligations created by the Pooling
and Servicing Agreement will terminate in respect of the Senior Certificates are
described in "The Pooling Agreement--Termination; Retirement of Certificates" in
the Prospectus. The Master Servicer or the Company will have the option on any
Distribution Date on which the aggregate principal balance of the Mortgage Loans
is less than ___% of the aggregate principal balance of the Mortgage Loans as of
the Cut-off Date either (i) to purchase all remaining Mortgage Loans and other
assets in the Trust Fund, thereby effecting early retirement of the Senior
Certificates or (ii)
<PAGE>
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purchase in whole, but not in part, the Certificates other than the Residual
Certificates. Any such purchase of Mortgage Loans and other assets of the Trust
Fund shall be made at a price equal to the sum of (a) 100% of the unpaid
principal balance of each Mortgage Loan (or, the fair market value of the
related underlying Mortgaged Properties with respect to defaulted Mortgage Loans
as to which title to such underlying Mortgaged Properties has been acquired if
such fair market value is less than such unpaid principal balance) (net of any
unreimbursed Advance attributable to principal) as of the Distribution Date on
which the purchase proceeds are to be distributed plus (b) accrued interest
thereon at the Net Mortgage Rate to, but not including, the first day of the
month of repurchase.
Upon presentation and surrender of the Senior Certificates in
connection with the termination of the Trust Fund or a purchase of Certificates
under the circumstances described above, the holders of the Senior Certificates
will receive an amount equal to the Certificate Principal Balance of such class
plus one month's interest thereon (or with respect to the Variable Strip
Certificates, one month's interest on the Notional Amount) at the applicable
Pass-Through Rate plus any previously unpaid Accrued Certificate Interest
subject to the priority in "Description of the Certificates--Interest
Distributions" and "--Principal Distributions on the Senior Certificates".
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Offered Certificates, Thacher Proffitt &
Wood, counsel to the Depositor, delivered its opinion generally to the effect
that, assuming compliance with all provisions of the Pooling and Servicing
Agreement, for federal income tax purposes, the Trust Fund will qualify as a
REMIC under Sections 860A through 860G (the "REMIC Provisions") of the Internal
Revenue Code of 1986 (the "Code"). For federal income tax purposes, (i) the
Residual Certificates are the sole Class of "residual interests" in the Trust
Fund; and (ii) the Certificates constitute the "regular interests" in the Trust
Fund. See "Certain Federal Income Tax Consequences--REMICs" in the Prospectus.
For federal income tax reporting purposes, the Certificates will not
and the Certificates will be treated as having been issued with original issue
discount. The prepayment assumption that will be used in determining the rate of
accrual of original issue discount, market discount and premium, if any, for
federal income tax purposes will be based on the assumption that subsequent to
the date of any determination the Mortgage Loans will prepay at a rate equal to
% SPA. No representation is made that the Mortgage Loans will prepay at that
rate or at any other rate. See "Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Regular Certificates--Original
Issue Discount," "--Market Discount" and "--Premium" in the Prospectus.
<PAGE>
-59-
The Internal Revenue Service (the "IRS") has issued regulations (the
"OID Regulations") under Sections 1271 to 1275 of the Code generally addressing
the treatment of debt instruments issued with original issue discount.
Purchasers of the Offered Certificates should be aware that the OID Regulations
and Section 1272(a)(6) of the Code do not adequately address certain issues
relevant to, or are not applicable to, securities such as the Offered
Certificates. In addition, there is considerable uncertainty concerning the
application of the OID Regulations to REMIC Regular Certificates that provide
for payments based on an adjustable rate such as the Offered Certificates.
Because of the uncertainties concerning the application of Section 1272(a)(6) of
the Code to such Certificates and because the rules of the OID Regulations
relating to debt instruments having an adjustable rate of interest are limited
in their application in ways that could preclude their application to such
Certificates even in the absence of Section 1272(a)(6) of the Code, the IRS
could assert that the Certificates should be treated as having been issued with
original issue discount or that one or more of such Class of Certificates should
be governed by the rules applicable to debt instruments having contingent
payments or by some other method not yet set forth in regulations. Prospective
purchasers of the Offered Certificates are advised to consult their tax advisors
concerning the tax treatment of such Certificates.
It appears that a reasonable method of reporting original issue
discount with respect to the Offered Certificates generally would be to report
all income with respect to such Certificates as original issue discount for each
period, computing such original issue discount (i) by assuming that the value of
the Index will remain constant for purposes of determining the original yield to
maturity of, and projecting future distributions on, each class of such
Certificates, thereby treating such Certificates as fixed rate instruments to
which the original issue discount computation rules described herein can be
applied, and (ii) by accounting for any positive or negative variation in the
actual value of the Index in any period from its assumed value as a current
adjustment to original issue discount with respect to such period.
If the rules of the OID Regulations were applied literally to the
Offered Certificates, it appears that such rules would (i) require that the
weighted average interest rate paid on such Certificates be modified and treated
as if it were an adjustable rate based on the Index (plus or minus a fixed
number of basis points) rather than a fixed rate prior to the first adjustment
date of each Mortgage Loan, with the adjustable rate being such that the fair
market value of such Certificates would not be affected by the substitution of
the adjustable rate for the fixed rate, (ii) accrue original discount, if any,
on the Certificates as so modified by assuming that the Index will remain
constant for purposes of determining the constant yield to maturity of, and the
cash flow projections on, the Certificates as so modified and (iii) make a
positive (or negative) adjustment to interest income in any period in which the
actual interest paid on such Certificates (including interest paid at a fixed
rate prior to the first adjustment date of each Mortgage Loan) were greater or
less than the interest assumed to be paid thereon (including the interest
assumed to be paid thereon at an adjustable rate prior to the first adjustment
date).
<PAGE>
-60-
The OID Regulations appear to permit in some circumstances the holder
of a debt instrument to recognize original issue discount under a method that
differs from that of the issuer. Accordingly, it is possible that holders of the
Offered Certificates may be able to select a method for recognizing original
issue discount that differs from that used in preparing reports to holders of
Offered Certificates and the IRS. Prospective purchasers of Offered Certificates
issued with original issue discount are advised to consult their tax advisors
concerning the tax treatment of such Certificates in this regard.
Under Section 166 of the Code, both corporate holders of the Offered
Certificates and noncorporate holders of the Offered Certificates that acquire
such Certificates in connection with a trade or business should be allowed to
deduct, as ordinary losses, any losses sustained during a taxable year in which
their Certificates become wholly or partially worthless as the result of one or
more realized losses or distribution shortfalls on the Mortgage Loans that are
allocable to such Offered Certificates. However, it appears that a noncorporate
holder that does not acquire an Offered Certificate in connection with its trade
or business will not be entitled to deduct a loss under Section 166 of the Code
until such holder's Certificate becomes demonstrably wholly worthless and that
the loss will be characterized as a short-term capital loss.
Each holder of an Offered Certificate will be required to accrue
original issue discount with respect to such Certificate without giving effect
to any reductions in distributions attributable to a default or delinquency on
the Mortgage Loans until it can be established that any such reduction
ultimately will not be recoverable. As a result, the amount of income required
to be reported for tax purposes in any period by the holder of such a
Certificate could exceed the amount of economic income actually realized by the
holder in such period. Although the holder of such a Certificate eventually will
recognize a loss or a reduction in income attributable to previously accrued and
included income that as the result of a realized loss ultimately will not be
realized, the law is unclear with respect to the timing and character of such
loss or reduction in income.
The Offered Certificates will be treated as "qualifying real property
loans" within the meaning of Section 593(d) of the Code, assets described in
Section 7701(a)(19)(C) of the Code and "real estate assets" within the meaning
of Section 856(c)(5)(A) of the Code. In addition, interest (including original
issue discount, if any) on the Offered Certificates will be interest described
in Section 856(c)(3)(B) of the Code to the extent that such Certificates are
treated as "real estate assets" within the meaning of Section 856(c)(5)(A) of
the Code. Moreover, the Offered Certificates (other than the Residual
Certificates) will be "qualified mortgages" within the meaning of Section
860G(a)(3) of the Code. See "Certain Federal Income Tax
Consequences-REMICs-Characterization of Investments in REMIC Certificates" in
the Prospectus.
To the extent permitted by then applicable law, any "prohibited
transactions tax," "contributions tax," tax on "net income from foreclosure
property" or state or local income or
<PAGE>
-61-
franchise tax that may be imposed on the Trust Fund will be borne by the Master
Servicer or Trustee in either case out of its own funds, provided that the
Master Servicer or the Trustee, as the case may be, has sufficient assets to do
so, and provided further that such tax arises out of a breach of the Master
Servicer's or the Trustee's obligations, as the case may be, under the Pooling
and Servicing Agreement and in respect of compliance with then applicable law.
Any such tax not borne by the Master Servicer or the Trustee will be payable out
of the Trust Fund which may reduce the amounts otherwise payable to holders of
the Offered Certificates. See "Certain Federal Income Tax
Considerations-REMICs-Prohibited Transactions Tax and Other Taxes" in the
Prospectus.
For further information regarding the federal income tax consequences
of investing in the Subordinate Certificates, see "Certain Federal Income Tax
Consequences--REMICs" in the Prospectus.
[SPECIAL TAX CONSIDERATIONS APPLICABLE TO RESIDUAL CERTIFICATES
The Residual Certificates will be subject to tax rules that differ
significantly from those that would apply if the Residual Certificates were
treated for federal income tax purposes as direct ownership interest in the
Mortgage Loans or as debt instruments issued by the Trust Fund. For further
information regarding the federal income tax consequences of investing in the
Residual Certificates, see "Certain Federal Income Tax
Consequences--REMICS--Taxation of Owners of REMIC Residual Certificates" in the
Prospectus.
The IRS has issued regulations under the provisions of the Code
related to REMICs (the "REMIC Regulations") that significantly affect holders of
the Residual Certificates. The REMIC Regulations impose restrictions on the
transfer or acquisition of certain residual interests, including the Residual
Certificates. The REMIC Regulations include restrictions that apply to: (i)
thrift institutions holding residual interests lacking "significant value" and
(ii) the transfer of "noneconomic" residual interests to United States persons.
Pursuant to the Pooling and Servicing Agreement, the Residual Certificates may
not be transferred to non-United States persons.
The REMIC Regulations provide for the determination of whether a
residual interest has "significant value" for purposes of applying the rules
relating to "excess inclusions" with respect to residual interests. Based on the
REMIC Regulations, the Residual Certificates do not have significant value and,
accordingly, thrift institutions and their affiliates will be prevented from
using their unrelated losses or loss carryovers to offset any excess inclusions
with respect to the Residual Certificates, which will be in an amount equal to
all or virtually all of the taxable income includible by holders of the Residual
Certificates. See "Certain Federal Income Tax Consequences--Taxation of Owners
of REMIC Residual Certificates--Excess Inclusions" in the Prospectus.
<PAGE>
-62-
The REMIC Regulations also provide that a transfer to a United States
person of "noneconomic" residual interests will be disregarded for all federal
income tax purposes, and that the purported transferor of "noneconomic" residual
interests will continue to remain liable for any taxes due with respect to the
taxable income on such residual interests, if "a significant purpose of the
transfer was to enable the transferor to impede the assessment or collection of
tax." Based on the REMIC Regulations, the Residual Certificates will constitute
"noneconomic" residual interests during some or all of their term for purposes
of the REMIC Regulations and, accordingly, unless no significant purpose of a
transfer is to enable the transferor to impede the assessment or collection of
tax, transfers of the Residual Certificates may be disregarded and purported
transferors may remain liable for any taxes due with respect to the income on
the Residual Certificates. All transfers of the Residual Certificates will be
subject to certain restrictions under the terms of the Pooling and Servicing
Agreement that are intended to reduce the possibility of any such transfer being
disregarded to the extent that the Residual Certificates constitute noneconomic
residual interests. Such transfers are prohibited under the Pooling and
Servicing Agreement. See "Certain Federal Income Tax Consequences--Taxation of
Owners of REMIC Residual Certificates--Noneconomic REMIC Residual Certificates"
in the Prospectus.
As discussed above and in the Prospectus, the rules for accrual of
original issue discount with respect to the Senior and Subordinate Certificates
are subject to significant complexity and uncertainty. See "Certain Federal
Income Tax Consequences" in the Prospectus. Because original issue discount on
such classes of Certificates will be deducted by the Trust Fund in determining
its taxable income, any changes required by the IRS in the application of those
rules to such Certificates may significantly affect the timing of original issue
discount deductions to the Trust Fund and therefore the amount of the Trust
Fund's taxable income allocable to holders of the Residual Certificates.
The Residual Certificateholders will be required to report an amount
of taxable income with respect to the earlier accrual periods of the term of the
REMIC that significantly exceeds the amount of cash distributions received by
such Residual Certificateholders from the REMIC with respect to such periods.
Furthermore, the tax on such income will exceed the cash distributions with
respect to such periods. Consequently, Residual Certificateholders should have
other sources of funds sufficient to pay any federal income taxes due as a
result of their ownership of Residual Certificates. In addition, the required
inclusion of this amount of income during the REMIC's earlier accrual periods
and the deferral of corresponding tax losses or deductions until later accrual
periods or until the ultimate sale or disposition of a Residual Certificate (or
possibly later under the "wash sale" rules of Section 1091 of the Code) may
cause the Residual Certificateholders' after-tax rate of return to be zero or
negative even if the Residual Certificateholder's pre-tax rate of return is
positive. That is, on a present value basis, the Residual Certificateholders'
resulting tax liabilities could substantially exceed the sum of any tax benefits
and the amount of any cash distributions on such Residual Certificates over
their life.
<PAGE>
-63-
An individual, trust or estate that holds (whether directly or
indirectly through certain pass-through entities) a Residual Certificate,
particularly a Residual Certificate, may have significant additional gross
income with respect to, but may be subject to limitations on the deductibility
of, servicing and trustee's fees and other administrative expenses properly
allocable to the REMIC in computing such Certificateholder's regular tax
liability and will not be able to deduct such fees or expenses to any extent in
computing such Certificateholder's alternative minimum tax liability. Such
expenses will be allocated for federal income tax information reporting purposes
entirely to the Residual Certificates. However, it is possible that the IRS may
require all or some portion of such fees and expense to be allocable to the
Residual Certificates. See "Certain Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Residual
Certificates--Possible Pass-Through of Miscellaneous Itemized Deductions" in the
Prospectus.
The Trustee will be designated as the "tax matters person" as defined
in Treasury Regulation Section 301.6231(a)(7)-1T with respect to the Trust Fund,
and in connection therewith will be required to hold not less than a 0.01%
Percentage Interest of the Residual Certificates.
Purchasers of the Residual Certificates are strongly advised to
consult their own tax advisors as to the economic and tax consequences of
investment in such Residual Certificates.
For further information regarding the federal income tax consequences
of investing in the Residual Certificates, see "Yield Considerations--Additional
Yield Considerations Applicable Solely to the Residual Certificates" herein and
"Certain Federal Income Tax Consequences--REMICs--Taxation of Owners of REMIC
Residual Certificates" in the Prospectus.]
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement dated __________, 19__, the Underwriter has agreed to purchase and the
Company has agreed to sell to the Underwriter each class of Senior Certificates.
The Underwriting Agreement provides that the obligation of the
Underwriter to pay for and accept delivery of the Senior Certificates is subject
to, among other things, the receipt of certain legal opinions and to the
conditions, among others, that no stop order suspending the effectiveness of the
Company's Registration Statement shall be in effect, and that no proceedings for
such purpose shall be pending before or threatened by the Securities and
Exchange Commission.
The distribution of the Senior Certificates by the Underwriter may be
effected from time to time in one or more negotiated transactions, or otherwise,
at varying prices to be
<PAGE>
-64-
determined at the time of sale. Proceeds to the Company from the sale of the
Senior Certificates, before deducting expenses payable by the Company, will be
_________% of the aggregate Certificate Principal Balance of the Senior
Certificates plus accrued interest thereon from the Cut-off Date. The
Underwriter may effect such transactions by selling the Senior Certificates to
or through dealers, and such dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Underwriter for whom
they act as agent. In connection with the sale of the Senior Certificates, the
Underwriter may be deemed to have received compensation from the Company in the
form of underwriting compensation. The Underwriter and any dealers that
participate with the Underwriter in the distribution of the Senior Certificates
may be deemed to be underwriters and any profit on the resale of the Senior
Certificates positioned by them may be deemed to be underwriting discounts and
commissions under the Securities Act of 1933.
The Underwriting Agreement provides that the Company will indemnify
the Underwriter, and that under limited circumstances the Underwriter will
indemnify the Company, against certain civil liabilities under the Securities
Act of 1933, or contribute to payments required to be made in respect thereof.
There can be no assurance that a secondary market for the Senior
Certificates will develop or, if it does develop, that it will continue. The
primary source of information available to investors concerning the Senior
Certificates will be the monthly statements discussed in the Prospectus under
"Description of the Certificates - Reports to Certificateholders," which will
include information as to the outstanding principal balance of the Senior
Certificates and the status of the applicable form of credit enhancement. There
can be no assurance that any additional information regarding the Senior
Certificates will be available through any other source. In addition, the
Company is not aware of any source through which price information about the
Senior Certificates will be generally available on an ongoing basis. The limited
nature of such information regarding the Senior Certificates may adversely
affect the liquidity of the Senior Certificates, even if a secondary market for
the Senior Certificates becomes available.
LEGAL OPINIONS
Certain legal matters relating to the Certificates will be passed upon
for the Company by _________________________________, ________ and for the
Underwriter by _______________________________.
RATINGS
<PAGE>
-65-
It is a condition to the issuance of the Senior Certificates that they
be rated not lower than "___" by _____________ ___________ ("_________________")
and "___" by ___________________________ ("_______").
The ratings of _______ on mortgage pass-through certificates address
the likelihood of the receipt by Certificateholders of all distributions on the
underlying mortgage loans to which they are entitled. _______ ratings on
pass-through certificates do not represent any assessment of the likelihood that
principal prepayments will be made by mortgagors or the degree to which such
prepayments might differ from that originally anticipated. The rating does not
address the possibility that Certificateholders might suffer a lower than
anticipated yield.
_________________ ratings on mortgage pass-through certificates also
address the likelihood of the receipt by Certificateholders of payments required
under the Pooling and Servicing Agreement. _________________ ratings take into
consideration the credit quality of the mortgage pool, structural and legal
aspects associated with the Certificates, and the extent to which the payment
stream in the mortgage pool is adequate to make payments required under the
Certificates. _________________ rating on the Certificates does not, however,
constitute a statement regarding frequency of prepayments on the mortgages. See
"Certain Yield and Prepayment Considerations" herein.
The Company has not requested a rating on the Senior Certificates by
any rating agency other than _______ and ________. However, there can be no
assurance as to whether any other rating agency will rate the Senior
Certificates, or, if it does, what rating would be assigned by any such other
rating agency. A rating on the Certificates by another rating agency, if
assigned at all, may be lower than the ratings assigned to the Senior
Certificates by _______ and ---------.
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. The rating of the Fixed Strip
Certificates or Variable Strip Certificates does not address the possibility
that the holders of such Certificates may fail to fully recover their initial
investment. In the event that the rating initially assigned to the Senior
Certificates is subsequently lowered for any reason, no person or entity is
obligated to provide any additional support or credit enhancement with respect
to the Senior Certificates.
LEGAL INVESTMENT
The Senior 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 at least the second highest rating category by one
of the Rating Agencies, and, as such,
<PAGE>
-66-
are legal investments for certain entities to the extent provided in SMMEA.
SMMEA provides, however, that states could override its provisions on legal
investment and restrict or condition investment in mortgage related securities
by taking statutory action on or prior to October 3, 1991. Certain states have
enacted legislation which overrides the preemption provisions of SMMEA.
The Company makes no representations as to the proper characterization
of any class of the Offered Certificates for legal investment or other purposes,
or as to the ability of particular investors to purchase any class of the
Offered Certificates under applicable legal investment restrictions. These
uncertainties may adversely affect the liquidity of any class of Offered
Certificates. Accordingly, all institutions whose investment activities are
subject to legal investment laws and regulations, regulatory capital
requirements or review by regulatory authorities should consult with their legal
advisors in determining whether and to what extent any class of the Offered
Certificates constitutes a legal investment or is subject to investment, capital
or other restrictions.
See "Legal Investment Matters" in the Prospectus.
<PAGE>
-67-
================================================================================
No dealer, salesman or other person has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement and the Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or by the Underwriter. This Prospectus Supplement and the Prospectus do not
constitute an offer to sell, or a solicitation of an offer to buy, the
securities offered hereby to anyone in any jurisdiction in which the person
making such offer or solicitation is not qualified to do so or to anyone to whom
it is unlawful to make any such offer or solicitation. Neither the delivery of
this Prospectus Supplement and the Prospectus nor any sale made hereunder shall,
under any circumstances, create an implication that information herein or
therein is correct as of any time since the date of this Prospectus Supplement
or the Prospectus.
-----------
TABLE OF CONTENTS
Page
----
Prospectus Supplement
Summary..................................... S-
Description of the Mortgage Pool............ S-
Description of the Certificates............. S-
Certain Yield and Prepayment Considerations. S-
Pooling and Servicing Agreement............. S-
Certain Federal Income Tax Consequences .... S-
Method of Distribution...................... S-
Legal Opinions.............................. S-
Ratings..................................... S-
Legal Investment............................ S-
Prospectus .................................
Summary of Prospectus.......................
Risk Factors................................
The Mortgage Pools..........................
Servicing of Mortgage Loans.................
Description of the Certificates.............
Subordination...............................
Description of Credit Enhancement...........
Purchase Obligations........................
Primary Mortgage Insurance, Hazard
Insurance; Claims Thereunder...............
The Company.................................
Imperial Credit Industries, Inc.............
The Pooling Agreement.......................
Yield Considerations........................
Maturity and Prepayment Considerations .....
Certain Legal Aspects of Mortgage Loans ....
Certain Federal Income Tax Consequences ....
State and Other Tax Consequences............
ERISA Considerations........................
Legal Investment Matters....................
Use of Proceeds.............................
Methods of Distribution.....................
Legal Matters...............................
Financial Information.......................
Rating......................................
Index of Principal Definitions..............
================================================================================
<PAGE>
-68-
WMC Secured
Assets Corp.
$---------------
Mortgage Pass-Through
Certificates
Series 199_-__
$ -- -- -- -- %
Class A-1 Certificates
$ -- -- -- -- %
Class A-2 Certificates
$ -- -- -- -- %
Class A-3 Certificates
$ -- -- -- -- %
Class A-4 Certificates
$ -- -- -- -- %
Class A-5 Certificates
$ -- -- -- -- %
Class A-6 Certificates
$ Variable Rate
Class A-7 Certificates
-------------
PROSPECTUS SUPPLEMENT
------------
-----------------------------
_______, 19__
================================================================================
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PRELIMINARY 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.
VERSION 2
SUBJECT TO COMPLETION SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED NOVEMBER 26, 1997
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED ______________, 19__)
$---------------
WMC SECURED ASSETS CORP.
COMPANY
[NAME OF MASTER SERVICER]
MASTER SERVICER
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 19__-__
WEIGHTED AVERAGE ADJUSTABLE PASS-THROUGH RATE
The Series 19__-__ Mortgage Pass-Through Certificates (the
"Certificates") will evidence the entire beneficial ownership interest in a
trust fund (the "Trust Fund") consisting primarily of a pool of conventional
adjustable-rate one- to four-family first lien mortgage loans (the "Mortgage
Loans"), exclusive of the Spread (as defined herein), to be deposited by WMC
Secured Assets Corp. (the "Company") into the Trust Fund for the benefit of the
Certificateholders. Certain characteristics of the Mortgage Loans are described
herein under "Description of the Mortgage Pool."
A limited amount of losses on the Mortgage Loans will initially be
covered by an irrevocable letter of credit (the "Letter of Credit") to be issued
by ________________ (the "Letter of Credit Bank"). The maximum amount available
to be drawn under the Letter of Credit will initially be equal to approximately
_____% of the aggregate principal balance of the Mortgage Loans as of
_______________, 19__ (the "Cut-off Date").
The interest rates on the Mortgage Loans (each, a "Mortgage Rate") will
change semi-annually based on the Index (as defined herein) and the respective
Note Margins described herein, subject to certain periodic and lifetime
limitations as described more fully herein.
Distributions on the Certificates will be made on the 25th day of each
month or, if such day is not a business day, then on the next succeeding
business day commencing on ____________, 19__ (each, a "Distribution Date"). As
more fully described herein, interest distributions on the Certificates will be
based on the principal balance of the Mortgage Loans and the then applicable
Weighted Average Adjustable Pass-Through Rate, which will equal the weighted
average of the Net Mortgage Rates on the Mortgage Loans for the month preceding
such Distribution Date, as described more fully herein. The "Net Mortgage Rate"
for each Mortgage
<PAGE>
Loan is generally equal the Mortgage Rate thereon from time to time, net of the
per annum rates applicable to the calculation of the related servicing fee and
Spread. The initial Weighted Average Adjustable Pass-Through Rate for the
Certificates will be _______% per annum. The Weighted Average Adjustable
Pass-Through Rate on the Certificates may increase or decrease from month to
month. Distributions in respect of principal of the Certificates will be made as
described herein under "Description of the Certificates--Distributions."
Certain Mortgage Loans provide that, at the option of the related
Mortgagors, the adjustable rate on such Mortgage Loans may be converted to a
fixed rate (the "Convertible Mortgage Loans"), provided that certain conditions
have been satisfied. Upon notification from a Mortgagor of such Mortgagor's
intent to convert from an adjustable rate to a fixed rate and prior to the
conversion of any such Mortgage Loan (a "Converting Mortgage Loan"), the Master
Servicer [or the related Subservicer] will be obligated to purchase the
Converting Mortgage Loan at a net price of par plus accrued interest thereon
(the "Conversion Price"). [In the event of a failure by a Subservicer to
purchase a Converting Mortgage Loan, the Master Servicer shall use its best
efforts to purchase any Converted Mortgage Loan (as defined herein) from the
Mortgage Pool at the Conversion Price during the one month period following the
date of conversion to a Converted Mortgage Loan.] In the event that neither the
Master Servicer [nor the related Subservicer] purchases a Converting or
Converted Mortgage Loan, the Mortgage Pool will thereafter include both fixed
rate and adjustable rate Mortgage Loans. See "Certain Yield and Prepayment
Considerations" herein. Except as set forth herein, the Master Servicer's only
obligations with respect to the Certificates are its contractual obligations as
Master Servicer under the terms of the Pooling and Servicing Agreement (as
defined herein).
As described herein, the Trust Fund will be treated as a grantor trust
for federal income tax purposes.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER
"RISK FACTORS" ON PAGE S-__ OF THE PROSPECTUS SUPPLEMENT AND THE INFORMATION SET
FORTH UNDER "RISK FACTORS" ON PAGE __ OF THE PROSPECTUS BEFORE PURCHASING ANY OF
THE CLASS A CERTIFICATES.
THE YIELD TO MATURITY ON THE CERTIFICATES WILL DEPEND ON THE RATE OF
PAYMENT OF PRINCIPAL (INCLUDING AS A RESULT OF PREPAYMENTS, DEFAULTS,
LIQUIDATIONS AND PURCHASES OF CONVERTING MORTGAGE LOANS AND CONVERTED MORTGAGE
LOANS) ON THE MORTGAGE LOANS. THE MORTGAGE LOANS MAY BE PREPAID IN FULL OR IN
PART AT ANY TIME WITHOUT PENALTY. THE YIELD TO INVESTORS ON THE CERTIFICATES
WILL BE ADVERSELY AFFECTED BY ANY SHORTFALLS IN INTEREST COLLECTED ON THE
MORTGAGE LOANS DUE TO PREPAYMENTS, LIQUIDATIONS OR OTHERWISE. SEE "CERTAIN YIELD
AND PREPAYMENT CONSIDERATIONS" HEREIN AND "YIELD CONSIDERATIONS" IN THE
PROSPECTUS.
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE
OF PAYMENTS ON THE CERTIFICATES. THE CERTIFICATES DO NOT REPRESENT
AN INTEREST IN OR OBLIGATION OF THE COMPANY, THE MASTER SERVICER
OR ANY OF THEIR AFFILIATES. NEITHER THE CERTIFICATES NOR THE
UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY
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<PAGE>
GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE COMPANY, THE MASTER SERVICER
OFFERED OR ANY OF THEIR AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED
ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
The Certificates will be purchased from the Company by the Underwriter
and will be offered by the Underwriter from time to time to the public in
negotiated transactions or otherwise at varying prices to be determined at the
time of sale. The proceeds to the Company from the sale of the Certificates will
be equal to _________% of the initial aggregate principal balance of the
Certificates, plus accrued interest thereon from ___________ 1, 19__ (the
"Cut-off Date"), net of any expenses payable by the Company.
The Certificates are offered by the Underwriter subject to prior sale,
when, as and if delivered to and accepted by the Underwriter and subject to
certain other conditions. The Underwriter reserves the right to withdraw, cancel
or modify such offer and to reject any order in whole or in part. It is expected
that delivery of the Certificates will be made on or about ____________, 19__ at
the office of __________________________________, _______________,
_____________________ against payment therefor in immediately available funds.
[Name of Underwriter]
[Date of Prospectus Supplement]
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<PAGE>
THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE A
SEPARATE SERIES OF CERTIFICATES BEING OFFERED BY THE COMPANY PURSUANT TO ITS
PROSPECTUS DATED _____________, 19__, OF WHICH THIS PROSPECTUS SUPPLEMENT IS A
PART AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE PROSPECTUS CONTAINS
IMPORTANT INFORMATION REGARDING THIS OFFERING WHICH IS NOT CONTAINED HEREIN, AND
PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS PROSPECTUS
SUPPLEMENT IN FULL. SALES OF THE CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE
PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
UNTIL _____________, 19__, ALL DEALERS EFFECTING TRANSACTIONS IN THE
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT RELATES. THIS
DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus.
Capitalized terms used herein and not otherwise defined herein have the meanings
assigned in the Prospectus.
Title of Securities.............. Mortgage Pass-Through Certificates, Weighted
Average Adjustable Pass-Through Rate, Series
19__-__.
Company.......................... WMC Secured Assets Corp. (the "Company"), an
affiliate of WMC Mortgage Corp. ("WMC
Mortgage"). See "The Company" in the
Prospectus.
Master Servicer.................. [Name of Master Servicer] (the "Master
Servicer"),[ an affiliate of the Company].
See "Pooling and Servicing Agreement--The
Master Servicer" herein.
Trustee.......................... ________________, ______________ (the
"Trustee").
Cut-off Date..................... ___________, 19__ (the "Cut-off Date").
Delivery Date.................... On or about __________, 19__ (the "Delivery
Date").
Denominations.................... The Certificates will be issued in
registered, certificated form, in minimum
denominations of $______ and integral
multiples of $_____ in excess thereof.
The Mortgage Pool................ The Mortgage Pool will consist of a pool of
adjustable rate, fully-amortizing mortgage
loans (the "Mortgage Loans"), exclusive of
the Spread (as defined herein). The
aggregate principal balance of the Mortgage
Loans as of the Cut-off Date will be
approximately $______________.
The Mortgage Loans are secured by first
liens on one- to four-family residential
real properties (each, a "Mortgaged
Property"). The Mortgage Loans have
individual principal balances at origination
of at least $______ but not more than
$_________ with an average principal balance
at origination of approximately $_________.
The Mortgage Loans have terms to maturity of
__ years from the date of origination and a
weighted average remaining term to stated
maturity of approximately ____ years and __
months as of the Cut-off Date. The Mortgage
Rate on each Mortgage Loan will adjust
semi-annually on its Adjustment Date (as
defined herein),
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<PAGE>
with corresponding adjustments in the amount
of monthly payments, to equal the sum
(rounded as described herein) of the Index
described below and a fixed percentage set
forth in the related Mortgage Note (the
"Note Margin"). However, (i) on any
Adjustment Date such Mortgage Rate may not
increase or decrease by more than 1% (the
"Periodic Rate Cap"), (ii) over the life of
such Mortgage Loan, such Mortgage Rate may
not exceed the related maximum Mortgage Rate
(such maximum Mortgage Rate is equal to the
Mortgage Rate at origination plus a lifetime
rate cap (the "Lifetime Rate Cap")), which
maximum Mortgage Rates will range from
______% to ______% and (iii) with respect to
approximately ____% of the Mortgage Loans,
by aggregate principal balance as of the
Cut-off Date, over the life of such Mortgage
Loan, such Mortgage Rate may not be lower
than the minimum Mortgage Rate. The
difference between the Mortgage Rate on each
Mortgage Loan at origination and the minimum
Mortgage Rate on such Mortgage Loan will
equal the lifetime rate floor (the "Lifetime
Rate Floor"). The minimum Mortgage Rates
will range from _____% to ______% per annum.
Accordingly, changes in the Weighted Average
Adjustable Pass-Through Rate will not
necessarily correspond to changes in the
Index or other prevailing interest rates.
Additionally, the initial Mortgage Rates in
effect on the Mortgage Loans will likely be
lower than the sum of the Index and related
Note Margin that would have been applicable
at origination. Because the maximum Mortgage
Rate on any Mortgage Loan is determined by
adding the Lifetime Rate Cap to the Mortgage
Rate at origination, the maximum rate on a
Mortgage Loan will likely be less than the
sum of the Index and the Note Margin that
would have been applicable at origination
plus the Lifetime Rate Cap. No Mortgage Loan
provides for payment caps on any Adjustment
Date which would result in deferred interest
or negative amortization. The Mortgage Loans
will bear interest at Mortgage Rates of at
least _____% per annum but not more than
______% per annum, as of the Cut-off Date.
For a further description of the Mortgage
Loans, see "Description of the Mortgage
Pool" herein.
The Index...................... As of any Adjustment Date with respect to
any Mortgage Loan, the Index applicable to
the determination of the
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<PAGE>
related Mortgage Rate will be a rate equal
to the monthly weighted average cost of
funds for members of the Federal Home Loan
Bank of San Francisco as most recently
available 45 days prior to the Adjustment
Date (the "Cost of Funds Index" or "Index").
Conversion of Mortgage Loans... Approximately _____% of the Mortgage Loans,
by aggregate principal balance as of the
Cut-off Date, are Convertible Mortgage
Loans. Upon notification from a Mortgagor of
such Mortgagor's intent to convert from an
adjustable rate to a fixed rate and prior to
the conversion thereof, the Master Servicer
[or the related Subservicer] will be
obligated to purchase the Converting
Mortgage Loan at a net price of par plus
accrued interest thereon (the "Conversion
Price"). [In the event of a failure by a
Subservicer to purchase a Converting
Mortgage Loan, the Master Servicer shall use
its best efforts to purchase any Converted
Mortgage Loan (as defined herein) from the
Mortgage Pool at the Conversion Price during
the one- month period following the date of
conversion to a Converted Mortgage Loan.] In
the event that neither the Master Servicer
[nor the related Subservicer] purchases a
Converting or Converted Mortgage Loan, the
Mortgage Pool will thereafter include both
fixed-rate and adjustable- rate Mortgage
Loans. See "Certain Yield and Prepayment
Considerations" herein.
The Certificates............... The Certificates evidence the entire
beneficial ownership interest in a trust
fund (the "Trust Fund") consisting primarily
of the Mortgage Pool, exclusive of the
Spread. The Certificates will be issued
pursuant to a Pooling and Servicing
Agreement, to be dated as of the Cut-off
Date, among the Company, the Master
Servicer, and the Trustee (the "Pooling and
Servicing Agreement").
Interest Distributions......... The Weighted Average Adjustable Pass-Through
Rate applicable to the Certificates in
respect of each Distribution Date will equal
the weighted average of the Net Mortgage
Rates on the Mortgage Loans for the month
preceding such Distribution Date. The
initial Weighted Average Adjustable
Pass-Through Rate will be ______% per annum.
The Net Mortgage Rate on each Mortgage Loan
is generally equal to the Mortgage Rate
thereon minus the rate per annum at which
the related servicing fee accrues (the
"Servicing Fee Rate") and the per annum rate
at which the Spread referred to below
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<PAGE>
under "Pooling and Servicing
Agreement--Servicing and Other Compensation
and Payment of Expenses; Spread" accrues.
Holders of the Certificates will be
entitled to receive distributions
allocable to interest in proportion
to their respective Percentage
Interests (as defined herein) on
each Distribution Date, to the
extent of available funds, in an
aggregate amount equal to one
month's interest, at the then
applicable Weighted Average
Adjustable Pass-Through Rate, on the
principal balance of the
Certificates outstanding as of the
close of business on the immediately
preceding Distribution Date, subject
to reduction in the event of any
full and partial prepayments or any
interest shortfalls not covered by
the Letter of Credit (as defined
herein) as well as certain losses
and delinquencies on the Mortgage
Loans as described herein. See
"Description of the
Certificates--Distributions" herein
and in the Prospectus.
Principal Distributions........ Principal payments (including prepayments)
received on the Mortgage Loans will be
passed through on each Distribution Date to
holders of the Certificates in proportion to
their respective Percentage Interests. See
"Description of the
Certificates--Distributions" herein and in
the Prospectus.
Advances....................... The Master Servicer is required to make
advances ("Advances") to holders of the
Certificates in respect of delinquent
payments of principal and interest on the
Mortgage Loans, subject to the limitations
described herein. See "Description of the
Certificates--Advances" herein and in the
Prospectus.
Credit Enhancement............. Neither the Certificates nor the Mortgage
Loans are insured or guaranteed by any
governmental agency or instrumentality or by
the Company, the Master Servicer or any
affiliate thereof. However, a limited amount
of losses on the Mortgage Loans will be
covered initially by an irrevocable letter
of credit (the "Letter of Credit") to be
issued by ________________ (the "Letter of
Credit Bank") in favor of the Trustee for
the benefit of the holders of the
Certificates. The maximum amount available
under the Letter of Credit to cover losses
with respect to the Mortgage Loans will
initially equal $_________ (the initial
"Available Amount") which is equal to
approximately _____% of the aggregate
principal balance of the Mortgage Loans as
of the
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<PAGE>
Cut-off Date. The Available Amount is
subject to periodic reduction as described
herein.
The Letter of Credit will cover losses on
the Mortgage Loans that constitute Defaulted
Mortgage Losses, Special Hazard Losses,
Fraud Losses and Bankruptcy Losses (each as
defined in the Prospectus), to the extent
described herein. Amounts that may be drawn
under the Letter of Credit to cover Special
Hazard Losses, Fraud Losses and Bankruptcy
Losses are initially limited to
$___________, $___________ and
$______________, respectively. All of the
foregoing amounts are subject to periodic
reduction as described herein. Any draws
under the Letter of Credit, including draws
for Special Hazard Losses, Fraud Losses and
Bankruptcy Losses, will reduce the Available
Amount. The Letter of Credit will expire on
______________, 19__, unless earlier
terminated or extended in accordance with
its terms or replaced in a manner as herein
described.
In the event losses on Mortgage Loans occur
which are not covered by the Letter of
Credit or any replacement credit
enhancement, such losses will be borne by
the Certificateholders. See "Description of
Credit Enhancement" herein.
Optional Termination........... At its option, on any Distribution Date when
the principal balance of the Mortgage Loans
is less than [___]% of the aggregate
principal balance of the Mortgage Loans as
of the Cut-off Date, the Master Servicer or
the Company may (i) purchase from the Trust
Fund all remaining Mortgage Loans and other
assets thereof and thereby effect early
retirement of the Certificates or (ii)
purchase in whole, but not in part, the
Certificates. See "Pooling and Servicing
Agreement--Termination" herein and "The
Pooling Agreement--Termination; Retirement
of Certificates" in the Prospectus.
Special Prepayment
Considerations.............. The rate of principal payments on the
Certificates collectively will depend on the
rate and timing of principal payments
(including by reason of prepayments,
defaults and liquidations) on the Mortgage
Loans. As is the case with mortgage-backed
securities generally, the Certificates are
subject to substantial inherent cash-flow
uncertainties
-9-
<PAGE>
because the Mortgage Loans may be prepaid at
any time. Generally, when prevailing
interest rates are increasing, prepayment
rates on mortgage loans tend to decrease,
resulting in a reduced return of principal
to investors at a time when reinvestment at
such higher prevailing rates would be
desirable. Conversely, when prevailing
interest rates are declining, prepayment
rates on mortgage loans tend to increase,
resulting in a greater return of principal
to investors at a time when reinvestment at
comparable yields may not be possible.
See "Description of the
Certificates--Distributions" and "Certain
Yield and Prepayment Considerations" herein,
and "Maturity and Prepayment Considerations"
in the Prospectus.
Special Yield
Considerations.............. The yield to maturity on the Certificates
will depend on the rate and timing of
principal payments (including by reason of
prepayments, defaults, liquidations [and
purchases of Mortgage Loans converting to a
fixed rate]) on the Mortgage Loans, as well
as other factors such as changes in the
Index, provisions of the Mortgage Loans
limiting changes in the Mortgage Rates and
the purchase price for such Certificates, as
described herein. The Weighted Average
Adjustable Pass-Through Rate will be reduced
to the extent that prepayments, liquidations
and purchases occur at a faster rate for
Mortgage Loans having higher Net Mortgage
Rates than for Mortgage Loans having lower
Net Mortgage Rates. The yield to investors
on the Certificates will be adversely
affected by any allocation thereto of
prepayment interest shortfalls on the
Mortgage Loans, which are expected to result
from the distribution of interest only to
the date of prepayment (rather than a full
month's interest) in connection with
prepayments in full, and the lack of any
distribution of interest on the amount of
any partial prepayments.
See "Certain Yield and Prepayment
Considerations" herein, and "Yield
Considerations" in the Prospectus.
Certain Federal Income Tax
Consequences.................. No election will be made to treat the Trust
Fund as a real estate mortgage investment
conduit for federal income tax
-10-
<PAGE>
purposes. _______________________, counsel
to the Depositor, will deliver its opinion
generally to the effect that, assuming
compliance with all provisions of the
Pooling and Servicing Agreement, for federal
income tax purposes the Trust Fund will be
classified as a grantor trust under the
Internal Revenue Code of 1986 (the "Code"),
and not as a partnership or an association
taxable as a corporation.
For further information regarding the
federal income tax consequences of investing
in the Certificates see "Certain Federal
Income Tax Consequences" herein.
Rating......................... It is a condition of the issuance of the
Certificates that they be rated at least
"___" by __________________. _________
RATING OF THE CERTIFICATES WILL NOT
REPRESENT ANY ASSESSMENT OF THE MASTER
SERVICER'S [NOR THE RELATED SUBSERVICER'S]
ABILITY TO PURCHASE CONVERTING MORTGAGE
LOANS, OR THE REMARKETING AGENT'S ABILITY TO
ARRANGE FOR THE PURCHASE OF CONVERTED
MORTGAGE LOANS. In the event that neither
the Master Servicer [nor the related
Subservicer] purchases a Converting or
Converted Mortgage Loan, investors in the
Certificates might suffer a lower than
anticipated yield. 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. A security rating does
not address the frequency of prepayments of
Mortgage Loans, or the corresponding effect
on yield to investors. See "Certain Yield
and Prepayment Considerations" and "Rating"
herein and "Yield Considerations" in the
Prospectus.
Legal Investment............... The Certificates will constitute "mortgage
related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA") for so long as they are rated
in at least the second highest rating
category by one or more nationally
recognized statistical rating agencies.
Institutions whose investment activities are
subject to legal investment laws and
regulations, regulatory capital requirements
or review by regulatory authorities may be
subject to restrictions on investment in the
Certificates and should consult with their
legal advisors. See "Legal
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<PAGE>
Investment" herein and "Legal Investment
Matters" in the Prospectus.
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<PAGE>
[RISK FACTORS]
[Prospective Certificateholders should consider, among other things,
the items discussed under "Risk Factors" in the Prospectus and the following
factors in connection with the purchase of the Certificates:]
[Appropriate Risk Factors as necessary.]
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Mortgage Pool will consist of Mortgage Loans with an aggregate
principal balance outstanding as of the Cut-off Date of approximately
$___________. The Mortgage Pool will consist of conventional, adjustable-rate,
fully-amortizing Mortgage Loans with terms to maturity of not more than 30 years
from the due date of the first monthly payment. On or before the Delivery Date,
the Company will acquire the Mortgage Loans to be included in Mortgage Pool from
WMC Mortgage Corp. ("WMC Mortgage"), an affiliate of the Company [, which in
turn acquired them pursuant to various mortgage loan purchase agreements from
[_________] (the "Sellers")]. The Seller[s] will make certain representations
and warranties with respect to the Mortgage Loans and, as more particularly
described in the Prospectus, will have certain repurchase or substitution
obligations in connection with a breach of any such representation and warranty,
as well as in connection with an omission or defect in respect of certain
constituent documents required to be delivered with respect to the Mortgage
Loans, in any event if such breach, omission or defect cannot be cured and it
materially and adversely affects the interests of Certificateholders. Neither
the Company nor any other entity or person will have any responsibility to
purchase or replace any Mortgage Loan if a Seller is obligated but fails to do
so. See "Description of the Mortgage Pool--Representations by Sellers" and
"Description of the Certificates--Assignment of Trust Fund Assets" in the
Prospectus and "--The Seller" below. The Mortgage Loans will have been
originated or acquired by the [Sellers] in accordance with the underwriting
criteria described herein. See "--Underwriting" below. All percentages of the
Mortgage Loans described herein are approximate percentages (except as otherwise
indicated) by aggregate principal balance as of the Cut-off Date.
The Mortgage Rate on each Mortgage Loan will adjust semi-annually on a
date specified in the related Mortgage Note (the "Adjustment Date"). For
approximately ____% of the Mortgage Loans, by aggregate principal balance as of
the Cut-off Date, the first Adjustment Date occurred prior to the Cut-off Date.
On each Adjustment Date, the Mortgage Rate on a Mortgage Loan will be
adjusted to equal the sum (rounded to either the nearest or next highest
multiple of _____%) of (a) a rate per annum equal to the monthly weighted
average cost of funds for members of the Federal Home Loan Bank
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<PAGE>
of San Francisco (the "FHLB of San Francisco") as published by the FHLB of San
Francisco (the "Cost of Funds Index" or "Index") and as most recently available
as of the day 45 days prior to such Adjustment Date or, in the event that such
Index is no longer available, an index selected by the Master Servicer and
reasonably acceptable to the Trustee that is based on comparable information,
and (b) the related Note Margin, subject to the following limitations. The
Mortgage Rate on the Mortgage Loan on any Adjustment Date may not increase or
decrease by more than the Periodic Rate Cap applicable to such Mortgage Loan
and, over the life of such Mortgage Loan, generally may not exceed the Mortgage
Rate at origination plus the Lifetime Rate Cap, or be less than the Mortgage
Rate at origination minus any Lifetime Rate Floor, applicable to such Mortgage
Loan. No Mortgage Loan provides for payment caps on any Adjustment Date which
would result in deferred interest or negative amortization. Effective with the
first payment due date on a Mortgage Loan after an Adjustment Date therefor, the
monthly principal and interest payment will be adjusted to an amount that will
fully amortize the then outstanding principal balance of such Mortgage Loan at
its stated maturity and pay interest at the adjusted Mortgage Rate. Because the
amortization schedule of each Mortgage Loan will be recalculated semi-annually,
any partial prepayments thereof will not reduce the term to maturity of such
Mortgage Loan. An increase in the Mortgage Rate on a Mortgage Loan will result
in a larger monthly payment and in a larger percentage of such monthly payment
being allocated to interest and a smaller percentage being allocated to
principal, and conversely, a decrease in the Mortgage Rate on the Mortgage Loan
will result in a lower monthly payment and in a larger percentage of each
monthly payment being allocated to principal and a smaller percentage being
allocated to interest.
The Cost of Funds Index reflects the monthly weighted average cost of
funds of savings and loan associations and savings banks, the home offices of
which are located in Arizona, California and Nevada, that are member
institutions of the FHLB of San Francisco, as computed from statistics tabulated
and published by the FHLB of San Francisco. The FHLB of San Francisco normally
announces the Cost of Funds Index on or near the last working day of the month
following the month in which the cost of funds was incurred. The Index is
available through a variety of sources, including, without limitation, Telerate,
THE WALL STREET JOURNAL and USA TODAY.
Listed below are the historical values of the Cost of Funds Index since
1988. Such values may fluctuate significantly over time and may not increase or
decrease in a constant pattern from period to period. The following does not
purport to be representative of future values of the Index. No assurance can be
given as to the Index value to be applied on any future Adjustment Date.
COST OF FUNDS INDEX
Month 1992 1993 1994 1995 1996 1997
===== ===== ===== ====== ====== ====== =====
January.................
February................
March...................
April...................
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<PAGE>
May.....................
June....................
July....................
August..................
September...............
October.................
November................
December................
The initial Mortgage Rate in effect on a Mortgage Loan generally will
be lower than the sum of the Index that would have been applicable at
origination and the Note Margin. Absent a decline in the Index subsequent to
origination of a Mortgage Loan, the related Mortgage Rate will generally
increase on the first Adjustment Date following origination of such Mortgage
Loan. The repayment of such Mortgage Loans will be dependent on the ability of
the Mortgagor to make larger Monthly Payments following adjustments of the
Mortgage Rate. Moreover, because the maximum Mortgage Rate on any Mortgage Loan
is determined by adding the Lifetime Rate Cap to the Mortgage Rate at
origination, irrespective of the Index that would have been applicable at
origination, the maximum Mortgage Rate on a Mortgage Loan will generally be less
than the sum of the Index and the Note Margin that would have been applicable at
origination plus the Lifetime Rate Cap. Mortgage Loans that have the same
initial Mortgage Rate may not always bear interest at the same Mortgage Rate
because the Mortgage Loans may have different Adjustment Dates (and the Mortgage
Rate therefore may reflect different Index values), different Note Margins,
different Lifetime Rate Caps and different Lifetime Rate Floors, if any.
Approximately ____% of the Mortgage Loans, by aggregate principal
balance as of the Cut-off Date, are Convertible Mortgage Loans. The first month
in which any of the Mortgage Loans could convert is _______, 19__ and the last
month in which any of the Mortgage Loans may convert is ________ 1, 19__. Upon
conversion, the monthly payments of principal and interest will be adjusted to
provide for full amortization at scheduled maturity. Upon notification from a
Mortgagor of such Mortgagor's intent to convert from an adjustable rate to a
fixed rate and prior to the conversion thereof, the Master Servicer [or the
related Subservicer] will be obligated to purchase the Converting Mortgage Loan
at the Conversion Price. [In the event of a failure by a Subservicer to purchase
a Converting Mortgage Loan, the Master Servicer shall use its best efforts to
purchase such Mortgage Loan following its conversion (a "Converted Mortgage
Loan") at the Conversion Price during the one-month period following the date of
conversion to a Converted Mortgage Loan.]
In the event that the Master Servicer [nor the related Subservicer]
fails to purchase a Converting Mortgage Loan and the Master Servicer does not
purchase a Converted Mortgage Loan, neither the Company nor any of its
affiliates nor any other entity is obligated to purchase or arrange for the
purchase of any Converted Mortgage Loan. Any such Converted Mortgage Loan will
remain in the Mortgage Pool as a fixed-rate Mortgage Loan and will result in the
Mortgage Pool having both fixed rate and adjustable rate Mortgage Loans. See
"Certain Yield and Prepayment Considerations" herein.
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<PAGE>
Following the purchase of any Converted Mortgage Loan as described
above, the purchaser will be entitled to receive an assignment from the Trustee
of such Mortgage Loan and the purchaser will thereafter own such Mortgage Loan
free of any further obligation to the Trustee or the Certificateholders with
respect thereto.
The Principal Balance of any Mortgage Loan as of any time of
determination is the principal balance of such Mortgage Loan remaining to be
paid by the Mortgagor at the close of business on the Cut-off Date, after
deduction of all payments due on or before the Cut-off Date whether or not paid,
reduced by all amounts distributed to Certificateholders with respect to such
Mortgage Loan and reported to them as allocable to principal, including the
principal components of any Advances (as described below under "Description of
the Certificates--Advances").
The Mortgage Loans will have approximately the following
characteristics as of the Cut-off Date:
Number of Mortgage Loans.........................
Weighted Average Adjustable Pass-Through Rate(1).
Mortgage Rates:
Weighted Average.............................
Range........................................
Range of Net Mortgage Rates.......................
Note Margins:
Weighted Average.............................
Range........................................
Net Note Margin(2)................................
Maximum Mortgage Rates:
Weighted Average.............................
Range........................................
Maximum Net Mortgage Rates (3):
Weighted Average.............................
Range........................................
Weighted Average Months to Next
Adjustment Date after ____________, 19__ (4)......
======
(1) The Weighted Average Adjustable Pass-Through Rate is equal to the
weighted average of the Net Mortgage Rates on the Mortgage Loans.
(2) The Net Note Margin is the Note Margin on each Mortgage Loan minus the
Servicing Fee Rate and the rate at which the Spread accrues.
(3) The difference between the maximum Net Mortgage Rate and the Net
Mortgage Rate as of the Cut-off Date may be less than the Lifetime Rate
Cap.
(4) The Weighted Average Months to the next Adjustment Date is equal to the
weighted average of the number of months until the Adjustment Date next
following _____________, 19__.
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The Mortgage Loans in the Mortgage Pool will have the following
characteristics as of the Cut-off Date (expressed as a percentage of the
aggregate principal balance of the Mortgage Loans having such characteristics
relative to the aggregate principal balance of all Mortgage Loans in the
Mortgage Pool):
The Mortgage Loans will have had individual principal balances
at origination of at least $__________ but not more than $__________.
None of the Mortgage Loans in the Mortgage Pool will have been
originated prior to _____________, 19__ or will have a scheduled
maturity later than ____________, ____. No Mortgage Loan in the
Mortgage Pool will have an unexpired term to stated maturity as of the
Cut-off Date of less than __ years and __ months. The weighted average
remaining term to stated maturity of the Mortgage Loans in the Mortgage
Pool as of the Cut-off Date will be approximately ____ years and __
months. The weighted average Adjustment Date of the Mortgage Loans in
the Mortgage Pool next following the Cut-off Date is ____________,
19__.
Approximately _____% of the Mortgage Loans will have
Loan-to-Value Ratios at origination exceeding 80% but less than or
equal to 90%, and approximately ____% of the Mortgage Loans will have
Loan-to-Value Ratios exceeding 90%. The weighted average Loan-to-Value
Ratio at origination, as of the Cut-off Date, is approximately _____%.
At least _____% of such Mortgage Loans will be secured by fee
simple interests in detached one- to four-family dwelling units with
the remaining units being secured by fee simple interests in attached
planned unit developments, condominiums or townhouses.
Approximately _____% of the Mortgage Loans in the Mortgage
Pool will be secured by Mortgaged Properties located in California.
No more than _____% of the Mortgage Loans in the Mortgage Pool
will be secured by Mortgaged Properties located in any one zip code
area in California, and no more than ____% will be secured by Mortgaged
Properties located in any one zip code area outside California.
No more than _____% of the Mortgage Loans were equity
refinance mortgage loans made to mortgagors who used less than the
entire amount of the proceeds to refinance an existing mortgage loan.
The weighted average Loan-to-Value Ratio at origination of such
Mortgage Loans, as of the Cut-off Date, is approximately ______%.
Approximately ____% of the Mortgage Loans were made to Mortgagors who
used the entire proceeds to refinance an existing Mortgage Loan.
No Mortgage Loan provides for deferred interest or negative
amortization.
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<PAGE>
Approximately ____% of the Mortgage Loans in the Mortgage Pool
will have been underwritten under a reduced loan documentation program.
The weighted average Loan-to-Value Ratio at origination of the Mortgage
Loans in the Mortgage Pool which were underwritten under such reduced
loan documentation program will be approximately ____% and no more than
approximately ____% of such Mortgage Loans will be secured by Mortgaged
Properties located in California. See "Pooling and Servicing
Agreement--The Master Servicer" herein.
No more than ____% of the Mortgage Loans will be secured by
vacation or second homes. No more than ____% of the Mortgage Loans will
be secured by one- to four-story condominium units. No Mortgage Loans
will be secured by condominium units in buildings of five or more
stories.
None of the Mortgage Loans in the Mortgage Pool will be
Buydown Mortgage Loans.
The following table sets forth the number and aggregate principal
balance as of the Cut-off Date of Mortgage Loans having their next Adjustment
Dates in the month described therein. The table also indicates the approximate
percentage of Mortgage Loans in the Mortgage Pool with an Adjustment Date in
each such month.
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MONTH OF NUMBER OF AGGREGATE PERCENTAGE OF
ADJUSTMENT DATE MORTGAGE LOANS PRINCIPAL BALANCE MORTGAGE POOL
=============== ============== ================= =============
Total................
The following table sets forth the number and aggregate principal
balance of Mortgage Loans having unpaid principal balances in the ranges
described therein as of the Cut-off Date. The table also indicates the
approximate weighted average Mortgage Rate and the approximate weighted average
Loan-to-Value Ratio at origination of the Mortgage Loans in each given range, as
of the Cut-off Date.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER WEIGHTED ORIGINAL
OF AGGREGATE AVERAGE LOAN-TO-
MORTGAGE PRINCIPAL MORTGAGE VALUE
PRINCIPAL BALANCE LOANS BALANCE RATE RATIO
- ----------------- ----- ------- ---- -----
<S> <C> <C> <C> <C>
Total, Average or Weighted Average ........... _______ $____________ _______% _______%
</TABLE>
UNDERWRITING STANDARDS
[Additional disclosure as necessary. See Version 1 for underwriting
disclosure for WMC Mortgage.]
DELINQUENCY AND FORECLOSURE EXPERIENCE
[Additional disclosure as necessary. See Version 1 for sample
disclosure for this section.]
-19-
<PAGE>
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Mortgage Pool and
the Mortgaged Properties is based upon the Mortgage Pool as constituted at the
close of business on the Cut-off Date, as adjusted for the scheduled principal
payments due before such date. Prior to the issuance of the Certificates,
Mortgage Loans may be removed from the Mortgage Pool as a result of incomplete
documentation or otherwise, if the Company deems such removal necessary or
appropriate. A limited number of other mortgage loans may be included in the
Mortgage Pool prior to the issuance of the Certificates. The Company believes
that the information set forth herein will be substantially representative of
the characteristics of the Mortgage Pool as they will be constituted at the time
the Certificates are issued although the range of Mortgage Rates and maturities
and certain other characteristics of the Mortgage Loans in the Mortgage Pool may
vary.
A Current Report on Form 8-K containing a detailed description of the
Mortgage Loans will be available to purchasers of the Certificates and will be
filed, together with the Pooling and Servicing Agreement, with the Securities
and Exchange Commission within fifteen days after initial issuance. The Current
Report on Form 8-K will specify the aggregate principal balance of the Mortgage
Loans in the Mortgage Pool outstanding as of the Cut-off Date and will set forth
the other approximate information presented in this Prospectus Supplement.
See also "The Mortgage Pools" and "Certain Legal Aspects of Mortgage
Loans" in the Prospectus.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates evidence in the aggregate the entire beneficial
ownership of the Trust Fund. The Trust Fund will consist of (i) the Mortgage
Loans, exclusive of the Company's rights in and to the Spread with respect to
each Mortgage Loan; (ii) such assets as from time to time are identified as
deposited in respect of the Mortgage Loans in the Certificate Account (as
described in the Prospectus) and belonging to the Trust Fund; (iii) property
acquired by foreclosure of such Mortgage Loans or deed in lieu of foreclosure;
(iv) any applicable insurance policies and all proceeds thereof; and (v) the
Letter of Credit (or any alternate form of credit support substituted therefor)
and all proceeds thereof, other than any amount drawn thereunder and deposited
in a reserve fund.
DISTRIBUTIONS
Distributions to holders of Certificates will be made on each
Distribution Date based on their respective Percentage Interests. The undivided
Percentage Interest of a Certificate will be equal to the percentage obtained by
dividing the initial principal balance of such Certificate by
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<PAGE>
the aggregate initial principal balance of all Certificates, which will equal
the aggregate principal balance of the Mortgage Loans as of the Cut-off Date.
The "Available Distribution Amount" for any Distribution Date will
generally consist of (i) the aggregate amount of scheduled payments on the
Mortgage Loans due on the related Due Date and received on or prior to the
related Determination Date, after deduction of the related master servicing fees
(the "Servicing Fees"), (ii) certain unscheduled payments, including Mortgagor
prepayments on the Mortgage Loans, Insurance Proceeds, Liquidation Proceeds and
proceeds from repurchases of and substitutions for the Mortgage Loans occurring
during the preceding calendar month and (iii) all Advances made for such
Distribution Date, in each case net of amounts reimbursable therefrom to the
Master Servicer. In addition to the foregoing amounts, with respect to
unscheduled collections, not including Mortgagor prepayments, the Master
Servicer may elect to treat such amounts as included in the Available
Distribution Amount for the Distribution Date in the month of receipt, but is
not obligated to do so. With respect to any Distribution Date, (i) the "Due
Date" is the first day of the month in which such Distribution Date occurs and
(ii) the "Determination Date" is the [__th] day of the month in which such
Distribution Date occurs or, if such day is not a business day, the immediately
succeeding business day. See "Description of the Certificates--Distributions" in
the Prospectus.
Holders of Certificates will be entitled to receive distributions of
interest on each Distribution Date, to the extent of the Available Distribution
Amount for such Distribution Date, in an aggregate amount equal to one month's
interest, at the then applicable Weighted Average Adjustable Pass-Through Rate
on the principal balance of the Mortgage Loans outstanding as of the close of
business on the immediately preceding Distribution Date (or, in the case of the
first Distribution Date, outstanding as of the Delivery Date), subject to
reduction in the event of any interest shortfalls not covered by the Letter of
Credit, including any Prepayment Interest Shortfalls (as defined below)
resulting from full and partial prepayments, as well as certain losses and
delinquencies on the Mortgage Loans as described below. The Weighted Average
Adjustable Pass-Through Rate for any Distribution Date will equal the average of
the Net Mortgage Rates on the Mortgage Loans (weighted by the principal balances
of such Mortgage Loans as of the Due Date occurring in the preceding month).
Subject to the following limitations, for each period beginning on the related
Adjustment Date therefor, the Net Mortgage Rate on a Mortgage Loan will equal
the sum of the Cost of Funds Index (rounded to the nearest multiple of ______%)
and the Net Note Margin. The Net Note Margin for each Mortgage Loan will be
______%. The Net Mortgage Rate on any Mortgage Loan on any Adjustment Date may
not increase or decrease by more than the Periodic Rate Cap, and the Net
Mortgage Rate on any Mortgage Loan will not exceed the maximum Net Mortgage Rate
(the "Maximum Net Mortgage Rate") applicable to such Mortgage Loan as specified
in the Pooling and Servicing Agreement. The difference between the Net Mortgage
Rate as of the Cut-off Date and the Maximum Net Mortgage Rate will not exceed,
and may be less than, the Lifetime Rate Cap. With respect to each Mortgage Loan,
the Net Mortgage Rate is the rate per annum equal to the Mortgage Rate for such
Mortgage Loan, net of the Servicing Fee Rate and the per annum rate at which the
Spread accrues. See "Description of
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<PAGE>
the Mortgage Pool" and "Pooling and Servicing Agreement--Servicing and Other
Compensation and Payment of Expenses; Spread" herein.
Holders of the Certificates will be entitled to receive on each
Distribution Date, to the extent of the Available Distribution Amount for such
Distribution Date after distributions of interest as set forth above, an amount
equal to the "Principal Distribution Amount" for such Distribution Date, which
will equal the sum of: (a) the principal portion of any Advances for such
Distribution Date; (b) any amount required to be paid by the Master Servicer due
to the operation of a deductible clause in any blanket policy maintained by it
to cover hazard losses on the Mortgage Loans as described in the Prospectus
under "Primary Mortgage Insurance, Hazard Insurance; Claims Thereunder"; (c) all
payments in respect of the Mortgage Loans on account of principal (including,
without limitation, principal prepayments, the principal portion of any
Liquidation Proceeds and Insurance Proceeds, the principal portion of proceeds
from repurchased Mortgage Loans and the principal portion of proceeds from the
purchase of Converting Mortgage Loans and the sale of Converted Mortgage Loans)
on deposit in the Certificate Account on the Determination Date immediately
preceding such Distribution Date, exclusive or net of (i) Liquidation Proceeds,
Insurance Proceeds and principal prepayments received during the month in which
such Distribution Date occurs (unless such amounts are deemed to have been
received in the prior month pursuant to the Pooling and Servicing Agreement as
described below), (ii) scheduled payments of principal due on a date or dates
subsequent to the first day of the month in which such Distribution Date occurs,
(iii) late payments of principal which have been the subject of a previous
Advance or Advances that have not been reimbursed to the Master Servicer and
(iv) an amount equal to liquidation expenses incurred by the Master Servicer to
the extent not reimbursed from related Liquidation Proceeds; and (d) all amounts
required to be deposited in the Certificate Account on the Business Day
immediately preceding such Distribution Date, with respect to draws or payments
under the Letter of Credit which are allocable to payments on account of
principal of the Mortgage Loans, except for payments of principal which have
been the subject of a previous Advance or Advances and which are eligible for
withdrawal in reimbursement to the Master Servicer.
The Prepayment Interest Shortfall for any Distribution Date is equal to
the aggregate shortfall, if any, in collections of interest (adjusted to the
related Net Mortgage Rates) resulting from mortgagor prepayments on the Mortgage
Loans during the preceding calendar month. Such shortfalls will result because
interest on prepayments in full is collected only to the date of prepayment, and
no interest is collected on prepayments in part, as such prepayments are applied
to reduce the outstanding principal balance of the related Mortgage Loan as of
the Due Date in the month of prepayment. The Prepayment Interest Shortfall and
other interest shortfalls (such as those resulting from the application of the
Relief Act (as defined herein)) not covered by the Letter of Credit on any
Distribution Date will be allocated to the holders of the Certificates pro rata
based on distributions of interest to be made on such Distribution Date, before
taking into account any such reduction. Prepayment Interest Shortfalls and other
interest shortfalls will not be offset by a reduction of the servicing
compensation of the Master Servicer or otherwise.
-22-
<PAGE>
Distributions for any Distribution Date will also be reduced if net
Liquidation Proceeds or net Insurance Proceeds (together with any net amounts
payable as described below under "Description of Credit Enhancement") received
on a defaulted Mortgage Loan liquidated during the month preceding the month in
which such Distribution Date occurs are less than the outstanding principal
balance of such Mortgage Loan, plus interest thereon at the related Net Mortgage
Rate. If an Advance by the Master Servicer was previously made in respect
thereof, late payments of principal and interest, if any, remitted to the Master
Servicer for deposit into the Certificate Account will not be passed through to
Certificateholders but rather will be subject to withdrawal by the Master
Servicer from the Certificate Account in reimbursement to itself for such
Advance. To the extent that an Advance is not made, the distributions for such
Distribution Date will be reduced accordingly. Reimbursement of the Master
Servicer or the Company for any other advances or expenses reimbursable to
either as described in the Prospectus, out of amounts otherwise distributable to
the Certificateholders, will also reduce the distributions for the related
Distribution Date. Distributions for any Distribution Date will be reduced to
the extent that losses on any Mortgage Loans in the Mortgage Pool are not
covered by the Letter of Credit or any substitute form of credit enhancement.
With respect to Insurance Proceeds, Liquidation Proceeds and other
unscheduled collections (not including prepayments by the mortgagors) received
in any calendar month, the Master Servicer may elect to treat such amounts as
part of the distribution to be made on the Distribution Date in the month of
receipt, but is not obligated to do so. If the Master Servicer so elects, such
amounts will be deemed to have been received (and any related loss which
requires a draw on the Letter of Credit shall be deemed to have occurred) on the
last day of the month prior to the receipt thereof.
ADVANCES
Prior to each Distribution Date, the Master Servicer is required to
make Advances for the benefit of the Certificateholders (out of its own funds or
funds held in the Custodial Account (as described in the Prospectus) for future
distribution or withdrawal) with respect to any payments of principal and
interest (net of the related Servicing Fees and the Spread) which were due on
the Mortgage Loans on the immediately preceding Due Date and delinquent on the
business day next preceding the related Determination Date.
Such Advances are required to be made only to the extent they are
deemed by the Master Servicer to be recoverable from related late collections,
Insurance Proceeds, Liquidation Proceeds or draws on the Letter of Credit. The
purpose of making such Advances is to maintain a regular cash flow to the
Certificateholders, rather than to guarantee or insure against losses. The
Master Servicer will not be required to make any Advances with respect to
reductions in the amount of the monthly payments on the Mortgage Loans due to
bankruptcy proceedings or the application of the Relief Act or similar
legislation or regulations.
All Advances will be reimbursable to the Master Servicer on a first
priority basis from late collections, Insurance Proceeds, Liquidation Proceeds
and draws on the Letter of Credit on
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<PAGE>
or in respect of the Mortgage Loan as to which such unreimbursed Advance was
made. In addition, any Advances previously made which are deemed by the Master
Servicer to be nonrecoverable from related late collections, Insurance Proceeds,
Liquidation Proceeds or draws on the Letter of Credit may be reimbursed to the
Master Servicer out of any funds in the Custodial Account or Certificate Account
prior to distributions on the Certificates.
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
The effective yield to the holders of Certificates will be lower than
the yield otherwise produced by the applicable Weighted Average Adjustable
Pass-Through Rate and purchase price because monthly distributions will not be
made to such holders until the 25th day (or if such day is not a business day,
then on the next succeeding business day) of the month following the month in
which interest accrues on the Mortgage Loans (without any additional
distributions of interest or earnings thereon in respect of such delay). See
"Yield Considerations" in the Prospectus.
The yield to maturity and the aggregate amount of distributions on the
Certificates will be directly related to the rate of payment of principal on the
Mortgage Loans. Such yield may be adversely affected by a higher or lower than
anticipated rate of payment of principal on the Mortgage Loans in the Trust
Fund. The rate of payment of principal on such Mortgage Loans will in turn be
affected by the amortization schedules of the Mortgage Loans (which will change
periodically as described above), the rate of principal prepayments thereon by
the Mortgagors, liquidations of defaulted Mortgage Loans and purchases of
Mortgage Loans due to certain breaches of representations or the conversion of
Convertible Mortgage Loans. The principal component of the monthly payments on
the Mortgage Loans may change on each related Adjustment Date. In addition, the
amortization schedule of a Mortgage Loan may be changed in connection with the
receipt of a partial prepayment thereon, provided however that such changes will
not include a change in the maturity date of the related Mortgage Loan. See
"Description of the Mortgage Pool--General" herein.
Other factors affecting prepayment of mortgage loans include changes in
mortgagors' housing needs, job transfers, mortgage market interest rates,
unemployment, mortgagors' net equity in the mortgaged properties, changes in the
value of the mortgaged properties and servicing decisions. If prevailing
mortgage rates fell significantly below the Mortgage Rates on the Mortgage
Loans, the rate of prepayment (and refinancing) would be expected to increase.
Conversely, if prevailing mortgage rates rose significantly above the Mortgage
Rates on the Mortgage Loans, the rate of prepayment on the Mortgage Loans would
be expected to decrease. There can be no certainty as to the rate of prepayments
on, or conversions of, the Mortgage Loans during any period or over the life of
the Certificates. However, in the event that substantial numbers of Mortgagors
exercise their conversion rights, and [the related Subservicers and] the Master
Servicer purchase the Converting and Converted Mortgage Loans, the Mortgage Pool
will experience substantial prepayment of principal.
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<PAGE>
The Mortgage Loans may be prepaid by the Mortgagors at any time without
payment of any prepayment fee or penalty. In addition, certain of the Mortgage
Loans provide that the Mortgagors may, during a specified period of time,
convert the adjustable rate of such Mortgage Loans to a fixed rate. The Company
is not aware of any publicly available statistics that set forth principal
prepayment or conversion experience or prepayment or conversion forecasts of
comparable adjustable rate mortgage loans over an extended period of time, and
its experience with respect to comparable adjustable rate mortgages is
insufficient to draw any conclusions with respect to the expected prepayment or
conversion rates on the Mortgage Loans included in the Mortgage Pool. The rate
of payments (including prepayments) on pools of mortgage loans is influenced by
a variety of economic, geographic, social and other factors. As is the case with
conventional fixed rate mortgage loans, adjustable rate mortgage loans may be
subject to a greater rate of principal prepayments or purchases due to their
conversion to fixed interest rate loans in a low interest rate environment. For
example, if prevailing interest rates fall significantly, adjustable rate
mortgage loans could be subject to higher prepayment and conversion rates than
if prevailing interest rates remain constant because the availability of fixed
rate or other adjustable rate mortgage loans at competitive interest rates may
encourage Mortgagors to refinance their adjustable rate mortgages to "lock in" a
lower fixed interest rate or take advantage of the availability of such other
adjustable rate mortgage loans, or, in the case of convertible adjustable rate
mortgage loans, to exercise their option to convert the adjustable interest
rates to fixed interest rates. The conversion feature may also be exercised in a
rising interest rate environment as Mortgagors attempt to limit their risk of
higher rates. Such a rising interest rate environment may also result in an
increase in the rate of defaults on the Mortgage Loans. In the event that [the
Subservicers or] the Master Servicer purchases Converting or Converted Mortgage
Loans, a Mortgagor's exercise of the conversion option will result in a pro rata
distribution of the principal portion thereof to the Certificateholders, as
described herein. Alternatively, to the extent Subservicers fail in their
obligation to purchase Converting Mortgage Loans and the Master Servicer does
not purchase Converted Mortgage Loans, as described herein, the Mortgage Pool
will include fixed rate Mortgage Loans, which will have the effect of limiting
the extent to which the Weighted Average Adjustable Pass-Through Rate can
increase or decrease in accordance with changes in the Index and accordingly may
affect the yield to Certificateholders.
The existence of Periodic Rate Caps, Lifetime Rate Caps and any
Lifetime Rate Floors also will affect the likelihood of prepayments resulting
from refinancing and the exercise of the conversion option. Although the
Mortgage Rates on the Mortgage Loans will adjust periodically, such increases
and decreases will be limited by the Periodic Rate Caps, Lifetime Rate Caps and
any Lifetime Rate Floors on each Mortgage Loan and will be based on the Index
(which may not rise and fall consistently with mortgage interest rates) plus the
related Note Margins (which may be different from the prevailing margins on
other mortgage loans). As a result, the Mortgage Rates on the Mortgage Loans at
any time may not equal the prevailing rates for other adjustable rate loans and
accordingly, the rate of prepayment may be lower or higher than would otherwise
be anticipated.
With respect to those Mortgage Loans having Lifetime Rate Floors, if
prevailing mortgage rates were to fall below the minimum Mortgage Rates, the
rate of prepayment on such
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<PAGE>
Mortgage Loans may be expected to increase and such Mortgage Loans may prepay at
a rate higher than would otherwise be anticipated for adjustable rate mortgage
loans.
All of the Mortgage Loans are assumable under certain circumstances if,
in the sole judgment of the Master Servicer, the prospective purchaser of a
Mortgaged Property is creditworthy and the security for such Mortgage Loan is
not impaired by the assumption. The extent to which the Mortgage Loans are
assumed by purchasers of the Mortgaged Properties rather than prepaid by the
related mortgagors in connection with the sales of the Mortgaged Properties will
affect the weighted average life of the Certificates and may result in a
prepayment experience on the Mortgage Loans that differs from that on other
conventional mortgage loans.
The yield to maturity of the Certificates will depend on the rate of
payment of principal (including by reason of principal prepayments, purchases of
Mortgage Loans in the Mortgage Pool which are Converting Mortgage Loans or
Converted Mortgage Loans or in respect of which a breach of a representation or
warranty has occurred, and liquidation of defaulted Mortgage Loans) on the
Mortgage Loans, the price paid by the holders of Certificates and the Weighted
Average Adjustable Pass-Through Rate in effect from time to time. Such yield may
be adversely affected by a higher or lower than anticipated rate of prepayments
on the Mortgage Loans. Because the Weighted Average Adjustable Pass-Through Rate
at any time is the weighted average of the Net Mortgage Rates on the Mortgage
Loans, the Weighted Average Adjustable Pass Through Rate (and the yield on the
Certificates) will be reduced as a result of prepayments, liquidations and
purchases at a faster rate for Mortgage Loans having higher Net Mortgage Rates
as opposed to Mortgage Loans having lower Net Mortgage Rates. Because Mortgage
Loans having higher Net Mortgage Rates generally have higher Mortgage Rates,
such Mortgage Loans are generally more likely to be prepaid at a faster rate
under most circumstances than are Mortgage Loans having lower Net Mortgage
Rates.
The rate of default on the Mortgage Loans will also affect the rate of
payment of principal on the Mortgage Loans. In general, defaults on mortgage
loans are expected to occur with greater frequency in their early years,
although little data is available with respect to the rate of default on
adjustable rate mortgage loans. Increases in the monthly payments to an amount
in excess of the preceding monthly payment required at the time of origination
may result in a default rate higher than that on level payment mortgage loans.
Furthermore, the Mortgagor under each Mortgage Loan was qualified on the basis
of the Mortgage Rate in effect at origination. The repayment of such Mortgage
Loans will be dependent on the ability of the Mortgagor to make larger monthly
payments following adjustments of the Mortgage Rate. The rate of default on
Mortgage Loans which are equity refinance or limited documentation mortgage
loans may be higher than for other types of Mortgage Loans.
Prepayments, liquidations and purchases of the Mortgage Loans will
result in distributions to Certificateholders of principal amounts which would
otherwise be distributed over the remaining terms of the Mortgage Loans.
Furthermore, the rate of prepayments, defaults and liquidations on, or
conversions of, the Mortgage Loans will be affected by the general economic
condition of the region of the country where the related Mortgaged Properties
are located. The
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<PAGE>
risk of delinquencies and loss is greater and prepayments are less likely in
regions where a weak or deteriorating economy exists, as may be evidenced by
increasing unemployment or falling property values. See "Maturity and Prepayment
Considerations" in the Prospectus. Since the rates of payment of principal on
the Mortgage Loans will depend on future events and a variety of factors (as
described more fully herein and in the Prospectus under "Yield Considerations"
and "Maturity and Prepayment Considerations"), no assurance can be given as to
such rate or the rate of principal prepayments on the Certificates.
The amount of interest passed through to holders of the Certificates
will be reduced by shortfalls in collections of interest resulting from full or
partial principal prepayments or otherwise, which will not be offset by a
reduction in the Servicing Fees payable to the Master Servicer or otherwise. See
"Yield Considerations" in the Prospectus and "Description of the
Certificates--Distributions" herein for a discussion of the effect of principal
prepayments on the Mortgage Loans on the yield to maturity of the Certificates.
The timing of changes in the rate of prepayments, liquidations and
purchases of the Mortgage Loans may significantly affect an investor's actual
yield to maturity, even if the average rate of principal payments experienced
over time is consistent with an investor's expectation.
In addition, the yield to maturity of the Certificates will depend on
the price paid by holders of the Certificates. If any Certificate is purchased
at initial issuance at a discount and the rate of prepayments on the Mortgage
Loans is lower than that originally anticipated, the purchaser's yield to
maturity will be lower than that assumed at the time of purchase. Conversely, if
any Certificate is purchased at initial issuance at a premium and the rate of
prepayments on the Mortgage Loans is higher than that originally anticipated,
the purchaser's yield to maturity will be lower than that assumed at the time of
purchase.
The first distribution on the Certificates reflecting an adjustment to
the scheduled monthly payments on a related Mortgage Loan will be passed through
to holders of Certificates on the second Distribution Date following the date on
which the adjustment to such Mortgage Rate was made. Furthermore, adjustments in
the Net Mortgage Rates are based on the Index as reported 45 days prior to the
Adjustment Date. Accordingly, the yield to Certificateholders will be adjusted
on a delayed basis relative to movements in the Index. Although the Net Mortgage
Rate of each Mortgage Loan will be adjusted pursuant to the Index, such rate is
subject to the Periodic Rate Cap and is also limited by the Lifetime Rate Cap
and any Lifetime Rate Floor applicable to such Mortgage Loan. With respect to
certain Mortgage Loans the difference between the Net Mortgage Rate as of the
Cut-off Date and the maximum Net Mortgage Rate will be less than the Lifetime
Rate Cap. Therefore, if the Index changes substantially between Adjustment
Dates, the Net Mortgage Rate may be lower than if the Net Mortgage Rate could be
adjusted based on the Index without such caps.
A number of factors affect the performance of the Index and may cause
the Index to move in a manner different from other indices. To the extent that
the Index may reflect changes in the general level of interest rates less
quickly than other indices, in a period of rising interest
-27-
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rates, increases in the yield to Certificateholders due to such rising interest
rates may occur later than that which would be produced by other indices, and in
a period of declining rates, the Index may remain higher than other market
interest rates which may result in a higher level of prepayments of Mortgage
Loans which adjust in accordance with the Index than mortgage loans which adjust
in accordance with other indices.
For additional considerations relating to the yield on the
Certificates, see "Yield Considerations" and "Maturity and Prepayment
Considerations" in the Prospectus.
POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued, and the Mortgage Loans serviced and
administered, pursuant to a Pooling and Servicing Agreement (the "Pooling and
Servicing Agreement") dated as of __________ 1, 19__, among the Company, the
Master Servicer, and _____________________, as trustee (the "Trustee").
Reference is made to the Prospectus for important information in addition to
that set forth herein regarding the terms and conditions of the Pooling and
Servicing Agreement and the Certificates. The Trustee will appoint
____________________ to serve as Custodian in connection with the Certificates.
The Certificates will be transferable and exchangeable at the corporate trust
office of the Trustee, which will serve as Certificate Registrar and will be
responsible for making distributions on the Certificates and forwarding monthly
reports with respect thereto to the holders thereof. In addition to the
circumstances described in the Prospectus, the Company may terminate the Trustee
for cause under certain circumstances. The Company will provide a prospective or
actual Certificateholder without charge, on written request, a copy (without
exhibits) of the Pooling and Servicing Agreement. Requests should be addressed
to the President, WMC Secured Assets Corp., 6320 Canoga Avenue, Woodland Hills,
California 91367. See "Description of the Certificates," "Servicing of Mortgage
Loans" and "The Pooling Agreement" in the Prospectus.
THE MASTER SERVICER
[Name of Master Servicer] will act as master servicer (in such
capacity, the "Master Servicer") for the Certificates pursuant to the Pooling
and Servicing Agreement.
[Further disclosure as appropriate. See Version 1 for disclosure for
WMC Mortgage Corp.]
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES; SPREAD
The Servicing Fees for each Mortgage Loan are payable out of the
interest payments on such Mortgage Loan. The Servicing Fees in respect of each
Mortgage Loan will accrue at
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____% per annum (the "Servicing Fee Rate") on the outstanding 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 Pooling and Servicing Agreement,
including the expenses of the Letter of Credit and any substitute credit support
and the fees of the Trustee. See "Servicing of Mortgage Loans -- Servicing and
Other Compensation and Payment of Expenses; Spread" in the Prospectus for
information regarding other possible compensation to the Master Servicer and for
information regarding expenses payable by the Master Servicer.
Pursuant to the terms of the Pooling and Servicing Agreement, the
Master Servicer will be obligated to remit to the Company or its designee, a
portion of the interest collected on each Mortgage Loan (the "Spread"). The rate
at which the Spread on each Mortgage Loan accrues will be equal to ____% per
annum.
TERMINATION
The circumstances under which the obligations created by the Pooling
and Servicing Agreement will terminate in respect of the Certificates are
described in "Description of the Certificates--Termination; Retirement of
Certificates" in the Prospectus. The Master Servicer or the Company will have
the option (i) to purchase all remaining Mortgage Loans and other assets in the
Trust Fund, thereby effecting early retirement of the Certificates or (ii) to
purchase in whole, but not in part, the Certificates, but either such option
will not be exercisable until such time as the aggregate principal balance of
the Mortgage Loans as of the Distribution Date on which the purchase proceeds
are to be distributed to the Certificateholders is less than __% of the
aggregate principal balance of the Mortgage Loans as of the Cut-off Date. Any
such purchase of Mortgage Loans and other assets of the Trust Fund shall be made
at a price equal to the aggregate principal balance of all the Mortgage Loans
(or the fair market value of the related underlying Mortgaged Properties with
respect to defaulted Mortgage Loans as to which title to such Mortgaged
Properties has been acquired if such fair market value is less than such unpaid
principal balance) (net of any unreimbursed Advance attributable to principal),
together with one month's interest on such aggregate amount at the then
applicable Weighted Average Adjustable Pass-Through Rate.
Upon presentation and surrender of the Certificates in connection with
the termination of the Trust Fund or a purchase of Certificates under the
circumstances described above, the holders of the Certificates will receive, in
proportion to their respective Percentage Interests, an amount equal to the sum
of the principal balances of the Mortgage Loans plus one month's accrued
interest thereon at the then applicable Weighted Average Adjustable Pass-Through
Rate.
DESCRIPTION OF CREDIT ENHANCEMENT
GENERAL
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All of the Mortgage Loans are the subject of credit support coverage
provided by the Letter of Credit. In addition, each Mortgage Loan is covered by
a Primary Hazard Insurance Policy as described under "Primary Mortgage
Insurance, Hazard Insurance; Claims Thereunder" in the Prospectus. See also
"Description of the Mortgage Pool--Primary Mortgage Insurance" herein.
LETTER OF CREDIT
The Letter of Credit Bank will issue the Letter of Credit to the
Trustee for the benefit of the holders of the Certificates. Subject to the
limitations described below, the Letter of Credit will be available to cover
Defaulted Mortgage Losses, Special Hazard Losses, Fraud Losses and Bankruptcy
Losses. The maximum amount available to be drawn under the Letter of Credit with
respect to all losses will initially be equal to $_________ (the initial
"Available Amount") which is equal to approximately ____% of the aggregate
principal balance of the Mortgage Loans as of the Cut-off Date. The Available
Amount at any time will be reduced by any amounts previously drawn under the
Letter of Credit (net of any amounts received or collected by the Master
Servicer following each respective draw as subsequent recoveries on the Mortgage
Loans with respect to which such draws were made and, if appropriate, such draws
were reimbursed to the Letter of Credit Bank). The Available Amount will be
reinstated with respect to the subsequent recoveries described in the preceding
sentence, however in no event will the Available Amount be reinstated to an
amount in excess of the initial Available Amount. The Available Amount under the
Letter of Credit (if the Letter of Credit is extended in accordance with its
terms) is also subject to reduction pursuant to the terms of the Pooling and
Servicing Agreement annually beginning on the tenth anniversary of the Cut-off
Date and each anniversary thereafter, such that, beginning with the fourteenth
anniversary of the Cut-off Date and on each anniversary thereafter, the
Available Amount will not exceed ____% of the aggregate outstanding principal
balance of the Mortgage Loans, provided that such scheduled reductions will not
reduce the Available Amount below three times the principal balance of the
largest single Mortgage Loan outstanding on such anniversary, and further
provided that the Available Amount will not be reduced in accordance with the
preceding sentence if delinquency rates and losses on the Mortgage Loans exceed
certain levels as specified by the Rating Agency as set forth in the Pooling and
Servicing Agreement. The Amount Available may be further reduced from time to
time by such amounts as the Master Servicer may determine and direct the
Trustee, provided the then current rating of the Certificates is not adversely
affected.
Notwithstanding the foregoing, the maximum amount available under the
Letter of Credit in connection with Fraud Losses (the "Fraud Loss Amount") shall
initially be equal to $___________. As of any date of determination after the
Cut-off Date the Fraud Loss Amount shall equal (X) prior to the first
anniversary of the Cut-off Date an amount equal to ____% of the aggregate
principal balance of all of the Mortgage Loans as of the Cut-off Date minus the
aggregate amount of draws made under the Letter of Credit with respect to Fraud
Losses up to such date of determination, and (Y) from the first through fifth
anniversary of the Cut-off Date, an amount equal to (1) the lesser of (a) the
Fraud Loss Amount as of the most recent anniversary of the Cut-off Date and (b)
____% of the aggregate principal balance of all of the Mortgage Loans
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as of the most recent anniversary of the Cut-off Date minus (2) the aggregate
amount of draws made under the Letter of Credit with respect to Fraud Losses
since the most recent anniversary of the Cut-off Date up to such date of
determination. After the fifth anniversary of the Cut-off Date the Fraud Loss
Amount shall be zero and no draws shall be made under the Letter of Credit with
respect to Fraud Losses.
The maximum amount available under the Letter of Credit in respect of
Special Hazard Losses (the "Special Hazard Amount") will equal $__________ less
the sum of (A) any amounts drawn under the Letter of Credit in respect of
Special Hazard Losses (to the extent that such amounts do not exceed the lesser
of the cost of repair or replacement of the related Mortgaged Properties) and
(B) the Adjustment Amount. The Adjustment Amount on each anniversary of the
Cut-off Date will be equal to the amount, if any, by which the Special Hazard
Amount, without giving effect to the deduction of the Adjustment Amount for such
anniversary, exceeds the greater of (i) 1% (or, if greater than 1%, the highest
percentage of Mortgage Loans by principal balance in any California zip code
area) times the aggregate principal balance of all of the Mortgage Loans in the
Mortgage Pool on such anniversary and (ii) twice the principal balance of the
single Mortgage Loan in the Mortgage Pool having the largest principal balance.
As used in this Prospectus Supplement, "Special Hazard Losses" has the same
meaning set forth in the Prospectus except that Special Hazard Losses will not
include and the Letter of Credit will not cover losses occasioned by war, civil
insurrection, certain governmental actions, nuclear reaction and certain other
risks.
As of any date of determination prior to the first anniversary of the
Cut-off Date, the maximum amount available under the Letter of Credit in respect
of Bankruptcy Losses (the "Bankruptcy Amount") will equal $__________ less the
sum of any amounts drawn under the Letter of Credit for such losses up to such
date of determination. As of any day of determination on or after the first
anniversary of the Cut-off Date, the Bankruptcy Amount will equal the excess, if
any, of (1) the lesser of (a) the Bankruptcy Amount as of the business day next
preceding the most recent anniversary of the Cut-off Date (the "Relevant
Anniversary") and (b) an amount calculated pursuant to the terms of the Pooling
and Servicing Agreement, which amount as calculated will provide for a reduction
in the Bankruptcy Amount, provided that delinquency rates and losses on all of
the Mortgage Loans do not exceed certain levels as set forth in the Pooling and
Servicing Agreement, over (2) the aggregate amount of draws made under the
Letter of Credit since the Relevant Anniversary in connection with Bankruptcy
Losses. The Bankruptcy Amount and the related automatic reductions described
above may be reduced or modified upon written confirmation from the Rating
Agency that such reduction or modification will not adversely affect the then
current rating assigned to the Certificates by such Rating Agency. Such a
reduction or modification may adversely affect the coverage provided by the
Letter of Credit with respect to Bankruptcy Losses.
[Described manner in which payments will be made under the Letter of
Credit.] See "Description of Credit Enhancement--Letter of Credit" in the
Prospectus. However, the Trustee shall not make such draws under the Letter of
Credit in connection with a Bankruptcy Loss so long as the Master Servicer has
notified the Trustee in writing that the Master Servicer is diligently
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pursuing any remedies that may exist in connection with the representations and
warranties made regarding 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 premiums on any applicable Primary Hazard Insurance Policy and any
related escrow payments in respect of such Mortgage Loan are being advanced on a
current basis by the Master Servicer [or a Subservicer].
Any Mortgage Loan the unpaid principal balance of which is paid
pursuant to a draw under the Letter of Credit will be assigned to the Company
and will no longer be subject to the Pooling and Servicing Agreement. Any
subsequent recoveries with respect to such Mortgage Loans will be paid to the
Company and, following notice and, if appropriate, reimbursement of such draw to
the Letter of Credit Bank, the Available Amount under the Letter of Credit (and
the Special Hazard Amount, Fraud Loss Amount or Bankruptcy Amount, if
applicable) will be reinstated to the extent of such recovery.
The Master Servicer, in lieu of maintaining the Letter of Credit, may
reduce the coverage thereunder (including accelerating the manner in which such
coverage is reduced pursuant to the related automatic reductions), terminate
such coverage or obtain and maintain alternate forms of credit support
(including, but not limited to, other letters of credit, insurance policies,
surety bonds, reserve funds, and secured or unsecured corporate guaranties),
with respect to Defaulted Mortgage Losses, Special Hazard Losses, Fraud Losses
and Bankruptcy Losses, provided that prior to any such reduction, termination or
substitution the Master Servicer shall have obtained written confirmation from
the Rating Agency that such reduction, termination or substitution will not
adversely affect the then current rating assigned to the Certificates by such
Rating Agency and shall provide a copy of each confirmation to the Trustee. In
the event that the long-term debt obligations of the Letter of Credit Bank are
at any time downgraded by the Rating Agency, the Company may request the Master
Servicer to obtain alternate forms of credit support, in accordance with the
preceding sentence, but the Master Servicer is under no obligation to do so. In
lieu of making a draw under the Letter of Credit for Defaulted Mortgage Losses,
Special Hazard Losses, Fraud Losses or Bankruptcy Losses as provided above, the
Master Servicer, at its sole option, may pay the amount otherwise required to be
drawn, in which case the amount so paid will reduce the related coverage under
the Letter of Credit.
As to any Mortgage Loan which is delinquent in payment by 90 days or
more, the Master Servicer may, at its sole option, purchase such Mortgage Loan
at a price equal to 100% of the unpaid principal balance thereof plus all
accrued and unpaid interest thereon through the last day of the month in which
such purchase occurs. To the extent that the Master Servicer subsequently
experiences losses with respect to such purchased Mortgage Loans which would
have been covered by the Letter of Credit had such Mortgage Loans remained in
the Trust Fund, the Available Amount (and the Special Hazard Amount, Fraud Loss
Amount or Bankruptcy Amount, to the extent that such losses constitute Special
Hazard Losses, Fraud Losses or Bankruptcy Losses) will be reduced by an amount
equal to the entire amount of such losses.
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The Letter of Credit will expire on ___________, 19__ unless earlier
terminated or extended in accordance with its terms. The Letter of Credit
contains provisions to the effect that on or before the first day of the sixth
month immediately preceding the expiration date a request may be made to extend
the expiration date. It is within the Letter of Credit Bank's sole discretion
whether to agree to such an extension. If, as of the date 30 days prior to the
expiration date, or the expiration date thereof as so extended, a replacement
Letter of Credit or alternate form of credit support has not been delivered to
the Trustee, then, pursuant to the terms of the Pooling and Servicing Agreement,
the entire remaining amount of the Letter of Credit will be drawn by the Trustee
prior to such expiration date. In that event, the amount so paid will be held by
the Trustee in the form of a reserve fund held outside of the Trust Fund (but
pledged to the Trustee and held by it in trust for the benefit of the
Certificateholders), pending the substitution of any other form of credit
support therefor, and will be applied in the same manner as described herein
regarding draws under the Letter of Credit.
LETTER OF CREDIT BANK
The Letter of Credit will be issued by the Letter of Credit Bank, which
will be the , a . principal executive offices are located at .
____________________ is engaged in a broad range of banking and
financial services activities, including deposit-taking, lending and leasing,
securities brokerage services, investment management, investment banking,
capital markets activities and foreign exchange transactions. [Additional
disclosure as appropriate.]
The information set forth in the preceding paragraphs concerning the
Letter of Credit Bank has been provided by the Letter of Credit Bank as of the
date hereof.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of certain
anticipated material federal income tax consequences of the purchase, ownership
and disposition of Certificates. This discussion is directed solely to a holder
of a Certificate as a capital asset within the meaning of Section 1221 of the
Internal Revenue Code of 1986 (the "Code") and does not purport to discuss all
federal income tax consequences that may be applicable to particular categories
of investors, some of which (such as banks, insurance companies and foreign
investors) may be subject to special rules. Further, the authorities on which
this discussion, and the opinion referred to below, are based are subject to
change or differing interpretations, which could apply retroactively. Taxpayers
and preparers of tax returns should be aware that under applicable Treasury
regulations a provider of advice on specific issues of law is not considered an
income tax return preparer unless the advice (i) is given with respect to events
that have occurred at the time the advice is rendered and is not given with
respect to the consequences of contemplated actions, and (ii) is directly
relevant to the determination of an entry on a tax return. Accordingly,
taxpayers should consult their own tax advisors and tax return preparers
regarding the preparation of any item on a tax return, even where the
anticipated tax treatment has been discussed herein. A holder of a Certificate
is advised to consult its own tax advisors concerning the federal, state, local
or other tax consequences to it of the purchase, ownership and disposition of a
Certificate.
GRANTOR TRUST
CLASSIFICATION OF THE TRUST FUND
Upon issuance of the Certificates, Thacher Proffitt &
Wood, counsel to the Depositor, will deliver its opinion to the effect that,
assuming compliance with all provisions of the Pooling and Servicing Agreement,
the Trust Fund will be classified as a grantor trust under subpart E, part I of
subchapter J of the Code and not as an association taxable as a corporation or
as a partnership. Accordingly, a holder of a Certificate generally will be
treated as the owner of an undivided interest in the Mortgage Loans and other
assets held as part of the trust fund in which the Certificates evidence an
undivided interest.
CHARACTERIZATION OF THE INVESTMENT IN THE CERTIFICATES
The Certificates will represent interests in (i)
"qualifying real property loans" within the meaning of Section 593(d) of the
Code; (ii) "loans secured by an interest in real
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property" within the meaning of Section 7701(a)(19)(C) of the Code; (iii)
"obligations (including any participation or certificate of beneficial ownership
therein) which . . . are principally secured by an interest in real property"
within the meaning of Section 860G(a)(3)(A) of the Code; and (iv) "real estate
assets" within the meaning of Section 856(c)(5)(A) of the Code generally in the
same proportion that the assets of the Trust Fund would be so treated. In
addition, interest on the Certificates will to the same extent be considered
"interest on obligations secured by mortgages on real property or on interests
in real property" within the meaning of Section 856(c)(3)(B) of the Code.
TAXATION OF OWNERS OF THE CERTIFICATES
A holder of a Certificate generally will be required to
report on its federal income tax returns its share of the entire income from the
Mortgage Loans (including amounts used to pay reasonable servicing fees and
other expenses) in accordance with the holder's normal method of accounting and
will be entitled to deduct its share of any such reasonable servicing fees and
other expenses. Because of market discount or premium, the amount includible in
income on account of the Certificate may differ significantly from the amount
distributable thereon representing interest on the Mortgage Loans. Under Section
67 of the Code, an individual, estate or trust holding a Certificate directly or
through certain pass-through entities will be allowed a deduction for such
reasonable servicing fees and expenses only to the extent that the aggregate of
such holder's miscellaneous itemized deductions exceeds two percent of such
holder's adjusted gross income. In addition, Section 68 of the Code provides
that the amount of itemized deductions otherwise allowable for an individual
whose adjusted gross income exceeds a specified amount will be reduced by the
lesser of (i) 3% of the excess of the individual's adjusted gross income over
such amount or (ii) 80% of the amount of itemized deductions otherwise allowable
for the taxable year. The amount of additional taxable income reportable by a
holder of a Certificate that is subject to the limitations of either Section 67
or Section 68 of the Code may be substantial. Further, a holder of a Certificate
(other than corporations) subject to the alternative minimum tax may not deduct
miscellaneous itemized deductions in determining such holder's alternative
minimum taxable income.
MARKET DISCOUNT. A holder of a Certificate may be subject
to the market discount rules of Sections 1276 through 1278 of the Code to the
extent an interest in the Mortgage Loans is considered to have been purchased at
a "market discount", that is, at a purchase price less than its adjusted issue
price. If market discount is in excess of a DE MINIMIS amount (as described
below), the holder generally will be required to include in income in each month
the amount of such discount that has accrued through such month that has not
previously been included in income, but limited, in the case of the portion of
such discount that is allocable to any Mortgage Loan, to the payment of stated
redemption price on the Mortgage Loans that is received by (or, in the case of
an accrual basis holder of a Certificate, due to) the Trust Fund in that month.
A holder of a Certificate may elect to include market discount in income
currently as it accrues (under a constant yield method based on the yield of the
Certificate to such holder) 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 holder during or after the first taxable year
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to which such election applies. In the absence of such an election, it may be
necessary to accrue such discount under a proportionate method. In addition,
Sections 1271 to 1275 of the Code addressing the treatment of debt instruments
issued with original issue discount (the "OID Regulations") would permit a
holder of a Certificate 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. If such an election were made with respect to
the Mortgage Loans with market discount, such holder would be deemed to have
made an election to include currently market discount in income with respect to
all other debt instruments having market discount that such holder acquires
during the taxable year of the election or thereafter, and possibly previously
acquired instruments. Similarly, a holder that made this election for a
Certificate acquired at a premium would be deemed to have made an election to
amortize bond premium with respect to all debt instruments having amortizable
bond premium that such holder owns or acquires. Each of these elections to
accrue interest, discount and premium with respect to a Certificate on a
constant yield method or as interest is irrevocable.
Section 1276(b)(3) of the Code authorized the Treasury
Department to issue regulations providing for the method for accruing 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
Department, certain rules described in the Conference Committee Report (the
"Committee Report") accompanying the Tax Reform Act of 1986 will apply. Under
those rules, in each accrual period market discount on the Mortgage Loans should
accrue, at the holder's option: (i) on the basis of a constant yield method, or
(ii) in an amount that bears the same ratio to the total remaining market
discount as the original issue discount accrued in the accrual period bears to
the total original issue discount remaining at the beginning of the accrual
period. Because the regulations referred to in this paragraph have not been
issued, it is not possible to predict what effect such regulations might have on
the tax treatment of the Mortgage Loans purchased at a discount in the secondary
market.
Market discount with respect to the Mortgage Loans
generally will be considered to exceed a DE MINIMIS amount if it is greater than
0.25% of the stated redemption price of the Mortgage Loans multiplied by the
number of complete years to maturity remaining after the date of their purchase.
In interpreting a similar rule with respect to original issue discount on
obligations payable in installments, the OID Regulations refer to the weighted
average maturity of obligations, and it is likely that the same rule will be
applied with respect to market discount, presumably taking into account the
prepayment assumption used, if any. If market discount is treated as DE MINIMIS
under the foregoing rule, it appears that such market discount will be included
in income as each payment of stated principal is made, based on the product of
the total amount of such DE MINIMIS market discount and a fraction, the
numerator of which is the amount of such principal payment and the denominator
of which is the outstanding stated principal amount of the Mortgage Loans.
Further, any discount that is not original issue discount
and exceeds a DE MINIMIS amount may require the deferral of interest expense
deductions attributable to accrued
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market discount not yet includible in income, unless an election has been made
to report market discount currently as it accrues.
PREMIUM. If a holder of a Certificate is treated as
acquiring the Mortgage Loans at a premium, that is, at a price in excess of
their principal amount, such holder may elect under Section 171 of the Code to
amortize using a constant yield method the portion of such premium allocable to
the Mortgage Loans that were originated after September 27, 1985. Amortizable
premium is treated as an offset to interest income on the related debt
instrument, rather than as a separate interest deduction. However, premium
allocable to Mortgage Loans originated before September 28, 1985 or to the
Mortgage Loans if an amortization election is not made should be allowed as a
deduction when a principal payment is made (or, for a holder using the accrual
method of accounting, when such payments of stated redemption price are due). A
significant portion of the Mortgage Loans were originated prior to September 28,
1985. Accordingly, such an election shall not be available for premium
attributable to such Mortgage Loans.
SALES OF CERTIFICATES
Except as described below, any gain or loss, recognized
on the sale or exchange of a Certificate, generally will be capital gain or
loss, and will be equal to the difference between the amount realized on the
sale of a Certificate and its adjusted basis. The adjusted basis of a
Certificate generally will equal its cost, increased by any income (including
original issue discount and market discount income) recognized by the seller and
reduced (but not below zero) by any previously reported losses, amortized
premium and distributions with respect to the Certificate. The Code as of the
date of this Private Placement Memorandum provides for a top marginal tax rate
applicable to ordinary income of individuals of 39.6% while maintaining a
maximum marginal rate for the long-term gains of individuals of 28%. There is no
such rate differential for corporations. In addition, the distinction between a
capital gain or loss and ordinary income or loss may be relevant for other
purposes.
Gain or loss from the sale of a Certificate may be
partially or wholly ordinary and not capital in certain circumstances. Gain
attributable to accrued and unrecognized market discount will be treated as
ordinary income, as will gain or loss recognized by banks and other financial
institutions subject to Section 582(c) of the Code. Furthermore, a portion of
any gain that might otherwise be capital gain may be treated as ordinary income
to the extent that any Certificate is held as part of a "conversion transaction"
within the meaning of Section 1258 of the Code. A conversion transaction
generally is one in which the taxpayer has taken two or more positions in any
Certificate or similar property that reduce or eliminate market risk, if
substantially all of the taxpayer's return is attributable to the time value of
the taxpayer's net investment in such transaction. The amount of gain so
realized in a conversion transaction that is recharacterized as ordinary income
generally will not exceed the amount of interest that would have accrued on the
taxpayer's net investment at 120% of the appropriate "applicable Federal rate,"
which rate is computed and published monthly by the Internal Revenue Service
(the "IRS"), at the time the taxpayer enters into the conversion transaction,
subject to appropriate reduction for prior inclusion
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of interest and other ordinary income rates rather than capital gains rates in
order to include such net capital gain in total net investment income for that
taxable year, for purposes of the limitation on the deduction of interest on
indebtedness incurred to purchase or carry property held for investment to a
taxpayer's net investment income.
GRANTOR TRUST REPORTING
The Trustee will furnish to the holders of the
Certificates with each distribution a statement setting forth the amount of such
distribution allocable to principal on the Mortgage Loans and to interest
thereon at the Pass-Through Rate. In addition, the Trustee will furnish, within
a reasonable time after the end of each calendar year, to each person who was a
holder of a Certificate at any time during such year, information regarding the
amount of servicing compensation received by the Master Servicer and Trustee and
such other customary factual information as it deems necessary or desirable to
enable each such person to prepare its tax returns and will furnish comparable
information to the IRS as and when required by law to do so. There is no
assurance the IRS will agree with the Trustee's information reports of such
items of income and expense. Neither the Depositor nor its affiliates will have
any responsibility with respect to the foregoing.
BACKUP WITHHOLDING
Payments of interest and principal, as well as payments
of proceeds from the sale of a Certificate, may be subject to the "backup
withholding tax" under Section 3406 of the Code at a rate of 31% if recipients
of such payments fail to furnish to the payor certain information, including
their taxpayer identification numbers, or otherwise fail to establish an
exemption from such tax. Any amounts deducted and withheld from a distribution
to a recipient would be allowed as a credit against such recipient's federal
income tax. Furthermore, certain penalties may be imposed by the IRS on a
recipient of payments that is required to supply information but that does not
do so in the proper manner.
FOREIGN INVESTORS
A holder of a Certificate that is not a "United States
person" (as defined below) and is not subject to federal income tax as a result
of any direct or indirect connection to the United States in addition to its
ownership of a Certificate will not be subject to United States federal income
or withholding tax in respect of a distribution on the Certificate attributable
to Mortgage Loans originated after July 18, 1984, provided that such holder
complies to the extent necessary with certain identification requirements
(including delivery of a statement, signed by such holder under penalties of
perjury, certifying that such holder is not a United States person and providing
the name and address of such holder). However, such a holder of a Certificate
will be subject to United States federal income or withholding tax in respect of
distributions of interest on the Certificate attributable to Mortgage Loans were
originated prior to July 18, 1984. A significant portion of the Mortgage Loans
were originated prior to that date and will be subject
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generally to United States withholding tax in the absence of an applicable tax
treaty exemption. Accordingly, an investment in Certificates may not be suitable
for certain foreign investors.
For these purposes, "United States person" means a
citizen or resident of the United States, a corporation, partnership or other
entity created or organized in, or under the laws of, the United States or any
political subdivision thereof, or an estate 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. To the extent such holder does not
qualify for exemption, distributions of interest, including distributions in
respect of accrued original issue discount, to such holder may be subject to a
tax rate of 30%, subject to reduction under any applicable tax treaty.
In addition, the foregoing rules will not apply to exempt
a United States shareholder of a controlled foreign corporation from taxation on
such United States shareholder's allocable portion of the interest income
received by such controlled foreign corporation.
To the extent that interest on the Certificates would be
exempt under Section 871(h)(1) of the Code from U.S. withholding tax, and a
Certificate is not held in connection with a holder's trade or business in the
United States, a Certificate will not be subject to U.S. estate taxes in the
estate of non-resident alien individual.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement dated ______________, 19__ the Underwriter has agreed to purchase and
the Company has agreed to sell to the Underwriter the Certificates.
The Underwriting Agreement provides that the obligation of the
Underwriter to pay for and accept delivery of the Certificates is subject to,
among other things, the receipt of certain legal opinions and to the conditions,
among others, that no stop order suspending the effectiveness of the Company's
Registration Statement shall be in effect, and that no proceedings for such
purpose shall be pending before or threatened by the Securities and Exchange
Commission.
The distribution of the Certificates by the Underwriter may be
effected from time to time in one or more negotiated transactions, or otherwise,
at varying prices to be determined at the time of sale. Proceeds to the Company
from the sale of the Certificates, before deducting expenses payable by the
Company, will be _____% of the aggregate principal balance of the Certificates
plus accrued interest thereon from the Cut-off Date. The Underwriter may effect
such transactions by selling the Certificates to or through dealers, and such
dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Underwriter for whom they act as agent. In
connection with the sale of the Certificates, the Underwriter may be deemed to
have received compensation from the Company in the form of underwriting
compensation. The Underwriter and any dealers that participate with the
Underwriter in the distribution of the Certificates may be deemed to be
underwriters and any profit
-39-
<PAGE>
on the resale of the Certificates positioned by them may be deemed to be
underwriting discounts and commissions under the Securities Act of 1933.
The Underwriting Agreement provides that the Company will
indemnify the Underwriter, and under limited circumstances the Underwriter will
indemnify the Company, against certain civil liabilities under the Securities
Act of 1933, or contribute to payments required to be made in respect thereof.
There can be no assurance that a secondary market for the
Certificates will develop or, if it does develop, that it will continue. The
primary source of information available to investors concerning the Certificates
will be the monthly statements discussed in the Prospectus under "Description of
the Certificates--Reports to Certificateholders," which will include information
as to the outstanding principal balance of the Certificates and the status of
the applicable form of credit enhancement. There can be no assurance that any
additional information regarding the Certificates will be available through any
other source. In addition, the Company is not aware of any source through which
price information about the Certificates will be generally available on an
ongoing basis. The limited nature of such information regarding the Certificates
may adversely affect the liquidity of the Certificates, even if a secondary
market for the Certificates becomes available.
LEGAL OPINIONS
Certain legal matters relating to the Certificates will be passed
upon for the Company by _____________________ and for the Underwriter by
__________________________.
RATING
It is a condition to the issuance of the Certificates that they be
rated not lower than "___" by _________________________ ___________.
The ratings of _______ on mortgage pass-through certificates
address the likelihood of the receipt by certificateholders of all distributions
on the underlying mortgage loans to which they are entitled. _______ ratings on
pass-through certificates do not represent any assessment of the likelihood that
principal prepayments will be made by mortgagors or the degree to which such
prepayments might differ from that originally anticipated. _______ ratings on
pass-through certificates do not represent any assessment of the Master
Servicer's [or the related Subservicer's] ability to purchase Converting
Mortgage Loans, or the Master Servicer's ability to purchase Converted Mortgage
Loans. In the event that neither the related Subservicer nor the Master Servicer
purchases a Converting or Converted Mortgage Loan, investors might suffer a
lower than anticipated yield. The rating does not address the possibility that
Certificateholders might suffer a lower than anticipated yield.
-40-
<PAGE>
The Company has not requested a rating on the Certificates by any
rating agency other than _______. However, there can be no assurance as to
whether any other rating agency will rate the Certificates, or, if it does, what
rating would be assigned by any such other rating agency. A rating on the
Certificates by another rating agency, if assigned at all, may be lower than the
rating assigned to the Certificates by _______.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating. In the event that the rating
initially assigned to the Certificates is subsequently lowered for any reason,
no person or entity is obligated to provide any additional support or credit
enhancement with respect to the Certificates.
LEGAL INVESTMENT
The 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 at least the second highest rating
category by one of the Rating Agencies, and, as such, are legal investments for
certain entities to the extent provided in SMMEA. SMMEA provides, however, that
states could override its provisions on legal investment and restrict or
condition investment in mortgage related securities by taking statutory action
on or prior to October 3, 1991. Certain states have enacted legislation which
overrides the preemption provisions of SMMEA.
The Company makes no representations as to the proper
characterization of the Certificates for legal investment or other purposes, or
as to the ability of particular investors to purchase the Certificates under
applicable legal investment restrictions. These uncertainties may adversely
affect the liquidity of the Certificates. Accordingly, all institutions whose
investment activities are subject to legal investment laws and regulations,
regulatory capital requirements or review by regulatory authorities should
consult with their legal advisors in determining whether and to what extent the
Certificates constitutes a legal investment or is subject to investment, capital
or other restrictions.
See "Legal Investment Matters" in the Prospectus.
-41-
<PAGE>
================================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR BY THE UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
SECURITIES OFFERED HEREBY TO ANYONE IN ANY JURISDICTION IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM
IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT INFORMATION HEREIN OR
THEREIN IS CORRECT AS OF ANY TIME SINCE THE DATE OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS.
----------
TABLE OF CONTENTS
Page
----
Prospectus Supplement
Summary ................................................................ S-
Description of the Mortgage Pool ....................................... S-
Description of the Certificates ........................................ S-
Certain Yield and Prepayment
Considerations .................................................... S-
Pooling and Servicing Agreement ........................................ S-
Certain Federal Income Tax
Consequences ...................................................... S-
Method of Distribution ................................................. S-
Legal Opinions ......................................................... S-
Rating ................................................................. S-
Legal Investment ....................................................... S-
Prospectus
Summary of Prospectus...................................................
Risk Factors............................................................
The Mortgage Pools......................................................
Servicing of Mortgage Loans.............................................
Description of the Certificates.........................................
Subordination...........................................................
Description of Credit Enhancement.......................................
Purchase Obligations....................................................
Primary Mortgage Insurance, Hazard
Insurance; Claims Thereunder.......................................
The Company.............................................................
WMC Mortgage Corp.......................................................
The Pooling Agreement...................................................
Yield Considerations....................................................
Maturity and Prepayment
Considerations.....................................................
Certain Legal Aspects of Mortgage
Loans .............................................................
Certain Federal Income Tax
Consequences.......................................................
State and Other Tax Consequences........................................
ERISA Considerations....................................................
Legal Investment Matters................................................
Use of Proceeds.........................................................
Methods of Distribution.................................................
Legal Matters...........................................................
Financial Information...................................................
Rating..................................................................
Index of Principal Definitions..........................................
================================================================================
================================================================================
WMC SECURED
ASSETS CORP.
$_______________
MORTGAGE PASS-THROUGH
CERTIFICATES
SERIES 199_-__
--------------
PROSPECTUS SUPPLEMENT
--------------
---------------------------------------
______________, 19__
================================================================================
<PAGE>
SUBJECT TO COMPLETION DATED NOVEMBER 26, 1997
PROSPECTUS SUPPLEMENT [VERSION 3]
(TO PROSPECTUS DATED ______________ 199_)
$____________
---------------------
MASTER SERVICER AND SELLER
---------------------
COMPANY
_________________ TRUST SERIES 199_-_
MORTGAGE-BACKED NOTES, SERIES 199_-_
The ________________ Trust Series 199_-_ (the "Issuer") will be formed
pursuant to a Trust Agreement to be dated as of ___, 199_ between _____________
(the "Company") and __________________, the Owner Trustee. The Issuer will issue
$___________ aggregate principal amount of Mortgage-Backed Notes, Series 199_-_
(the "Notes"). The Notes will be issued pursuant to an Indenture to be dated as
of ____, 199_, between the Issuer and ________________________, the Indenture
Trustee.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER "RISK
FACTORS" ON PAGE S-__ OF THIS PROSPECTUS SUPPLEMENT AND THE INFORMATION SET
FORTH UNDER "RISK FACTORS" ON PAGE __ OF THE PROSPECTUS BEFORE PURCHASING ANY OF
THE NOTES.
The Notes will represent indebtedness of the trust fund (the "Trust Fund")
created by the Trust Agreement. The Trust Fund will consist of adjustable-rate,
conventional, one- to four-family, first lien mortgage loans (the "Mortgage
Loans"). In addition, the Notes will have the benefit of an irrevocable and
unconditional financial guaranty insurance policy (the "Note Insurance Policy")
issued by __________________ (the "Note Insurer") as described under
"Description of the Notes--Note Insurance Policy" herein.
(CONTINUED ON FOLLOWING PAGE)
p
--------------------------
THE ASSETS PLEDGED TO SECURE THE NOTES AND PROCEEDS FROM THE NOTE INSURANCE
POLICY RE THE SOLE SOURCE OF PAYMENTS ON THE NOTES. THE NOTES WILL REPRESENT
OBLIGATIONS SOLELY OF THE ISSUER AND WILL NOT REPRESENT AN INTEREST IN OR
OBLIGATION F THE COMPANY, THE MASTER SERVICER, THE OWNER TRUSTEE, THE INDENTURE
TRUSTEE OR ANY F THEIR AFFILIATES, OTHER THAN THE ISSUER. NEITHER THE NOTES NOR
THE UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL
AGENCY OR INSTRUMENTALITY.
THESE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE OMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
There is currently no secondary market for the Notes.
______________________ (together, the "Underwriters") intend to make a secondary
market in the Notes, but are not obligated to do so. There can be no assurance
that a secondary market for the Notes will develop or, if it does develop, that
it will continue or provide Noteholders with sufficient liquidity of investment.
The Notes will not be listed on any securities exchange.
The Notes will be purchased from the Company by the Underwriters and will
be offered by the Underwriters from time to time to the public in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. The proceeds to the Company from the sale of the Notes are expected to be
approximately $____________________ before the deduction of expenses payable by
the Company estimated to be approximately $-----------------.
The Notes are offered by the Underwriters subject to prior sale, when, as
and if delivered to and accepted by the Underwriters and subject to certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject any order in whole or in part. It is expected
that delivery of the Notes will be made on or about __________ 199_ in
book-entry form through the Same Day Funds Settlement System of The Depository
Trust Company as discussed herein, against payment therefor in immediately
available funds.
-------------------------------------
THE UNDERWRITERS ARE ACTING AS CO-LEAD MANAGERS IN CONNECTION WITH
ALL ACTIVITIES RELATING TO THIS OFFERING.
The date of this Prospectus Supplement is ___ __, 199_
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
The interest rates on the Mortgage Loans will be subject to monthly,
semi-annual or annual adjustment commencing after the related Initial Period (as
defined herein) based on the related Index (as defined herein) and the
respective Gross Margins described herein, subject to certain periodic and
lifetime limitations as described more fully herein.
The Mortgage Loans were generally underwritten in accordance with the
underwriting standards described in "Description of the Mortgage
Pool--Underwriting" and Appendix A to this Prospectus Supplement. See also "Risk
Factors--Underwriting Standards" in this Prospectus Supplement. Approximately
____% of the Mortgage Loans, by aggregate principal balance as of the Cut-off
Date, are secured by Mortgaged Properties in California. See "Risk
Factors--Delinquencies and Potential Delinquencies" in this Prospectus
Supplement.
Payments on the Notes will be made on the __th day of each month or, if
such day is not a business day, then on the next business day, commencing in
_____ 199_ (each, a "Payment Date"). As described herein, interest will accrue
on the Notes at a floating rate (the "Note Interest Rate") equal, on the first
Payment Date, to ____%, and thereafter, equal to the lesser of (i) One-Month
LIBOR (as defined herein) plus ____% per annum, except as described herein, and
(ii) the Available Funds Interest Rate (as defined herein). See "Description of
the Notes--Interest Payments on the Notes" herein. As described herein, interest
payable with respect to each Payment Date will accrue on the basis of a 360-day
year and the actual number of days elapsed during the period commencing on the
Payment Date immediately preceding the month in which such Payment Date occurs
and ending on the calendar day immediately preceding such Payment Date, except
with respect to the first Payment Date, which has an accrual period from ___ __,
199_ to ----- ___, 199_, and will be based on the Note Principal Balance thereof
and the then-applicable Note Interest Rate thereof, as reduced by certain
interest shortfalls. Payments in respect of principal of the Notes will be made
as described herein under "Description of the Notes--Priority of Payment."
The Notes may be redeemed in whole, but not in part, by the Issuer on any
Payment Date on or after the earlier of (i) the Payment Date on which the
aggregate Principal Balance (as defined herein) of the Mortgage Loans is less
than or equal to 25% of the aggregate Principal Balance of the Mortgage Loans as
of the Cut-off Date or (ii) the Payment Date occurring in ____ 20__. See
"Description of the Notes--Optional Redemption" herein.
The Notes initially will be registered in the name of Cede & Co., as
nominee of The Depository Trust Company ("DTC"), as further described herein.
The interests of beneficial owners of the Notes will be represented by book
entries on the records of DTC and the participating members of DTC. Definitive
certificates will be available for the Notes only under the limited
circumstances described herein. See "Description of the Notes--Book-Entry Notes"
herein.
It is a condition of the issuance of the Notes that they be rated "AAA" by
Standard & Poor's Ratings Services ("S&P") and "Aaa" by Moody's Investors
Service, Inc. ("Moody's").
THE YIELD TO MATURITY ON THE NOTES WILL DEPEND ON, AMONG OTHER THINGS, THE
RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS, REPURCHASES,
DEFAULTS, LIQUIDATIONS AND NEGATIVE AMORTIZATION) ON THE MORTGAGE LOANS. THE
MORTGAGE LOANS GENERALLY MAY BE PREPAID IN FULL OR IN PART AT ANY TIME; HOWEVER,
PREPAYMENT MAY SUBJECT THE MORTGAGOR TO A PREPAYMENT CHARGE WITH RESPECT TO
APPROXIMATELY HALF OF THE MORTGAGE LOANS. IN ADDITION, THE YIELD ON THE NOTES
WILL BE SENSITIVE TO FLUCTUATIONS IN THE LEVEL OF ONE-MONTH LIBOR, WHICH MAY
VARY SIGNIFICANTLY OVER TIME. SEE "CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS"
HEREIN AND "YIELD AND PREPAYMENT CONSIDERATIONS" IN THE PROSPECTUS.
THE NOTES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE PART OF A
SEPARATE SERIES OF NOTES BEING OFFERED PURSUANT TO THE COMPANY'S PROSPECTUS
DATED ______, 199_, OF WHICH THIS PROSPECTUS SUPPLEMENT IS A PART AND WHICH
ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE PROSPECTUS CONTAINS IMPORTANT
INFORMATION REGARDING THIS OFFERING WHICH IS NOT CONTAINED HEREIN, AND
PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS PROSPECTUS
SUPPLEMENT IN FULL. SALES OF THE NOTES 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 NOTES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS TO WHICH IT RELATES. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
S-2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus.
Capitalized terms used herein and not otherwise defined herein have the meanings
assigned in the Prospectus.
The Notes............................... $_____________ Mortgage-Backed Notes,
Series 199_-_. Only the Notes are
offered hereby. The Notes will be
issued pursuant to an Indenture, dated
as of ___ __, 199_ between the Issuer
and the Indenture Trustee.
Issuer.................................. The Notes will be issued by
__________________ Trust Series 199_-_
(the "Issuer"), a Delaware business
trust established pursuant to the
Trust Agreement, dated as of _______
__, 199_ (the "Trust Agreement"),
between the Company and the Owner
Trustee. The Notes will represent
obligations solely of the Issuer, and
the proceeds of the assets of the
Issuer (such assets, the "Trust Fund")
and the Note Insurance Policy will be
the sole source of payments on the
Notes.
Company................................. WMC Secured Assets Corp. (the
"Company"). See "The Company" in the
Prospectus.
Master Servicer......................... ______________________ ( the "Master
Servicer"). See "Description of the
Servicing Agreement--The Master
Servicer; the Subservicer" herein.
Subservicer............................. The Mortgage Loans will be subserviced
by _______ ("_____________"). See
"Description of the Servicing
Agreement--The Master Servicer; the
Subservicer" herein.
Owner Trustee........................... ___________________ a _______ trust
company.
Indenture Trustee....................... ___________________________, a
___________.
Cut-off Date............................ _____ ___, 199_.
Delivery Date........................... On or about ______ ___, 199_.
Payment Date............................ The __th day of each month (or, if
such day is not a business day, the
next business day), beginning on
______ __, 199_ (each, a "Payment
Date").
Denominations and
Registration............................ The Notes will be issued, maintained
and transferred on the book-entry
records of DTC and its Participants
(as defined in the Prospectus). The
Notes will be offered in registered
form, in minimum denominations of
$25,000 and integral multiples
S-3
<PAGE>
of $1 in excess thereof. The Notes
will be represented by one or more
Notes registered in the name of Cede &
Co., as nominee of DTC. No Beneficial
Owner will be entitled to receive a
Note in fully registered, certificated
form (a "Definitive Note"), except
under the limited circumstances
described herein. See "Description of
the Notes--Book-Entry Notes" herein.
The Mortgage Pool....................... The Mortgage Loans are secured by
first liens on one- to four-family
real properties (each, a "Mortgaged
Property"). The Mortgage Loans have
individual principal balances at
origination of at least $________ but
not more than $_______ with an average
principal balance at origination of
approximately $__________ The Mortgage
Loans have terms to maturity of up to
30 years from the date of origination
and a weighted average remaining term
to stated maturity of approximately
____ months as of the Cut-off Date.
The Mortgage Rate on each Mortgage
Loan will be subject to monthly,
semi-annual or annual adjustment,
commencing after an initial period
from origination of three months, six
months, one year, two years or three
years (such period, the "Initial
Period"), on its Adjustment Date (as
defined herein), to equal the sum
(rounded as described herein) of the
related Index described below and a
fixed percentage set forth in the
related Mortgage Note (the "Gross
Margin"). However, (i) on any
Adjustment Date such Mortgage Rate may
not increase or decrease by more than
the Periodic Rate Cap (as defined
herein), except as described herein,
(ii) over the life of such Mortgage
Loan, such Mortgage Rate may not
exceed the related maximum Mortgage
Rate (the "Maximum Mortgage Rate"),
which Maximum Mortgage Rates will
range from _______% to ________% and
(iii) over the life of such Mortgage
Loan, such Mortgage Rate may not be
lower than the minimum Mortgage Rate
(the "Minimum Mortgage Rate"), which
Minimum Mortgage Rates will range from
_______% to ________% per annum. As of
the Cut-off Date, the Mortgage Loans
will have Mortgage Rates of at least
_______% per annum but not more than
_______% per annum, with a weighted
average of -----%. The Mortgage Loans
will have Gross Margins ranging from
______% to _______% with a weighted
average of ------% as of the Cut-off
Date.
Approximately ______% of the Mortgage
Loans (by aggregate principal balance
as of the Cut-off Date) (the
"Convertible Mortgage Loans") provide
that, at the option of the related
Mortgagors, the adjustable interest
rate on such
S-4
<PAGE>
Mortgage Loan may be converted to a
fixed interest rate, provided that
certain conditions have been
satisfied. Such Convertible Mortgage
Loans will be repurchased upon
conversion by the Master Servicer as
described herein. See "Description of
the Mortgage Pool-Convertible Mortgage
Loans" herein.
Approximately _____% of the Mortgage
Loans (by aggregate principal balance
as of the Cut-off Date) (the "Negative
Amortization Loans") provide for
negative amortization. To the extent
that accrued interest on any Negative
Amortization Loan exceeds the related
monthly payment, such excess
("Deferred Interest") is added to the
principal balance of such Mortgage
Loan on the Due Date and thereafter
accrues interest at the related
Mortgage Rate. Investors should
consider the potential effect of the
negative amortization feature on the
rate of default and loss on the
Negative Amortization Loans. See
"Certain Yield and Prepayment
Considerations" and "Description of
the Mortgage Pool-Negative
Amortization Loans" herein.
For a further description of the
Mortgage Loans, see "Description of
the Mortgage Pool" herein.
The Indices............................. As of any Adjustment Date with respect
to any Mortgage Loan, the Index
applicable to the determination of the
related Mortgage Rate will be one of
the following: (i) the average of the
interbank offered rates for one month
U.S. dollar deposits in the London
market based on quotations of major
banks as most recently available
generally 45 days prior to the
Adjustment Date ("Negative
Amortization Loan One- Month LIBOR");
(ii) the average of the interbank
offered rates for six month U.S.
dollar deposits in the London market
based on quotations of major banks as
most recently available generally 45
days prior to the Adjustment Date
("Six-Month LIBOR"); (iii) the weekly
average yield on U.S. Treasury
securities adjusted to a constant
maturity of six months ("Six- Month
CMT") as published by the Federal
Reserve Board in Statistical Release
H.15(519) and most recently available
as of the first business day generally
45 days prior to the Adjustment Date;
or (iv) the weekly average yield on
U.S. Treasury securities adjusted to a
constant maturity of one year
("One-Year CMT") as published by the
Federal Reserve Board in Statistical
Release H.15(519) and most recently
available as of the first business day
generally 45 days prior to the
Adjustment Date. The Negative
Amortization Loans will have an Index
of Negative Amortization Loan One-
S-5
<PAGE>
Month LIBOR, the other Mortgage Loans
will have an Index of Six-Month LIBOR,
Six-Month CMT or One-Year CMT.
Interest Payments ...................... Interest on the Notes will be paid
monthly on each Payment Date,
commencing in _____ 199_, in an amount
(the "Interest Payment Amount") equal
to interest accrued on the Note
Principal Balance thereof immediately
prior to such Payment Date at the Note
Interest Rate for the related Interest
Period (as defined below), minus (i)
any Prepayment Interest Shortfalls and
Relief Act Shortfalls (each as defined
herein) to the extent not covered by
the Master Servicer by Compensating
Interest (as defined herein) for such
Payment Date and (ii) any Deferred
Interest (as defined herein) allocated
thereto on such Payment Date as
described herein. The Note Interest
Rate on each Payment Date after the
first Payment Date will be a floating
rate equal to the lesser of (i)(a)
with respect to each Payment Date up
to and including the earlier of (x)
the Payment Date in _____ 20__ and (y)
the Payment Date which occurs on or
prior to the date on which the
aggregate Principal Balance of the
Mortgage Loans is less than 25% of the
aggregate Principal Balance of the
Mortgage Loans as of the Cut-off Date,
One-Month LIBOR (as defined herein)
plus _____%, and (b) with respect to
each Payment Date thereafter,
One-Month LIBOR plus _____% and (ii)
the Available Funds Interest Rate with
respect to such Payment Date. The Note
Interest Rate for the first Payment
Date will equal _______% per annum.
Interest on the Notes in respect of
any Payment Date will accrue from the
preceding Payment Date (or in the case
of the first Payment Date, from the
Delivery Date through the day
preceding such Payment Date (each such
period, an "Interest Period")) on the
basis of the actual number of days in
the Interest Period and a 360-day
year.
The "Available Funds Interest Rate"
for any Payment Date is a rate per
annum equal to the lesser of (x) the
fraction, expressed as a percentage,
the numerator of which is (i) an
amount equal to (A) 1/12 of the
aggregate Principal Balance of the
then outstanding Mortgage Loans times
the weighted average of the Expense
Adjusted Mortgage Rates on the then
outstanding Mortgage Loans minus (B)
the amount of the fee payable to the
Owner Trustee with respect to the
Trust Agreement and the premium with
respect to the Notes payable to the
Note Insurer with respect to the Note
Insurance Policy for such Payment
Date, and the denominator of which is
(ii) an amount equal to (A) the then
outstanding aggregate Note Principal
Balance of the Notes multiplied by (B)
the actual number of days elapsed in
the
S-6
<PAGE>
related Interest Period divided by 360
and (y) _________% per annum (the
"Maximum Note Interest Rate"). The
amount of the fee payable to the Owner
Trustee together with the amount of
the premium payable to the Note
Insurer (together, the "Administrative
Fee") will accrue at ------% per annum
based on the Note Principal Balance of
the Notes.
The "Expense Adjusted Mortgage Rate"
on any Mortgage Loan is equal to the
then applicable Mortgage Rate thereon
minus the sum of (i) the Minimum
Spread, (ii) the Servicing Fee Rate
and (iii) the Indenture Trustee Fee
Rate. For any Payment Date, the
Minimum Spread is equal to ____% per
annum, the Servicing Fee Rate is equal
to _____% per annum and the Indenture
Trustee Fee Rate is equal to _____%
per annum.
As further described herein, with
respect to the Notes and any Payment
Date, to the extent that (a) the
lesser of (x) the amount payable if
clause (i) of the definition of Note
Interest Rate above is used to
calculate interest and (y) the amount
payable if the Maximum Note Interest
Rate is used to calculate interest
exceeds (b) the amount payable if
clause (ii) of the definition of Note
Interest Rate above is used to
calculate interest (such excess, the
"Available Funds Cap Carry-Forward
Amount"), the holders of the Notes
will be paid the amount of such
Available Funds Cap Carry-Forward
Amount with interest thereon at the
Note Interest Rate for the Notes
applicable from time to time after
certain payments to the holders of the
Notes and the Note Insurer to the
extent of available funds. The Note
Insurance Policy does not cover the
Available Funds Cap Carry-Forward
Amount, nor do the ratings assigned to
the Notes address the payment of the
Available Funds Cap Carry-Forward
Amount.
To the extent that Deferred Interest
causes a shortfall in interest
collections on the Mortgage Loans that
would otherwise cause a shortfall in
the amount of interest payable to the
Noteholders, such amount will be paid
using principal collections on the
Mortgage Loans through the priority of
payment provisions described herein.
To the extent that the Interest
Payment Amount for any Payment Date
exceeds Available Funds for such
Payment Date, the lesser of such
excess and the aggregate amount of
Deferred Interest, if any, that is
added to the principal balance of the
Negative Amortization Loans on the Due
Date occurring in the month in which
such Payment Date occurs will be added
to the Note Principal Balance of the
Notes and subtracted from the Interest
Payment Amount for such Payment Date.
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<PAGE>
Principal Payments ..................... Principal payments will be payable on
the Notes on each Payment Date in an
aggregate amount equal to the
Principal Payment Amount for such
Payment Date. The Principal Payment
Amount will include, to the extent of
available funds and except as
otherwise described herein, the
principal portion of all scheduled
monthly payments (whether received or
advanced) due from Mortgagors on the
related Due Date, and all unscheduled
amounts received during the preceding
calendar month that are allocable to
principal (including proceeds of
repurchases, prepayments, liquidations
and insurance (excluding proceeds paid
in respect of the Note Insurance
Policy)) and may be reduced as a
result of overcollateralization in
excess of the required level, as
described herein. In addition, on any
Payment Date, to the extent of funds
available therefor, Noteholders will
also be entitled to receive payments
generally equal to the amount, if any,
necessary to bring the Subordination
Amount up to the Required
Subordination Amount (such amount, the
"Subordination Increase Amount"). On
the Payment Date in _____ ____,
principal will be payable on the Notes
in an amount equal to the Note
Principal Balance on such Payment
Date.
The "Note Principal Balance" of the
Notes on any date of determination is
the initial principal balance thereof
as of the Delivery Date, increased by
any Deferred Interest allocated
thereto, and reduced by all payments
of principal thereon prior to such
date of determination.
Note Insurer............................ ___________________ (the "Note
Insurer"). See ---------
_______________ herein.
Note Insurance Policy................... On the Delivery Date, the Note Insurer
will issue a Note Insurance Policy in
favor of the Indenture Trustee on
behalf of the holders of the Notes. On
each Payment Date, a draw will be made
on the Note Insurance Policy to cover
(a) any shortfall in amounts available
to make payments of the Interest
Payment Amount and (b) the
Subordination Deficit (as defined
herein). The Note Insurance Policy
will also cover any unpaid Preference
Amount. In addition, the Note
Insurance Policy will guarantee the
payment of the outstanding Note
Principal Balance of each Note on the
Payment Date in _____ _________(after
giving effect to all other amounts
distributable and allocable to
principal on such Payment Date). The
Note Insurance Policy does not insure
the payment of the Available Funds Cap
Carry-Forward Amount (as defined
herein). See "Description of the
S-8
<PAGE>
Notes--Note Insurance Policy" herein
and "Description of Credit
Enhancement" in the Prospectus.
The Certificates........................ Trust Certificates, Series 199_-_. The
Certificates will be issued pursuant
to the Trust Agreement and will
represent the beneficial ownership
interest in the Issuer. The
Certificates are not offered hereby.
Credit Enhancement...................... The credit enhancement provided for
the benefit of the Noteholders
consists solely of (a) the
overcollateralization provisions which
utilize the internal cash flows of the
Mortgage Loans and (b) the Note
Insurance Policy.
OVERCOLLATERALIZATION. Initially, the
aggregate Principal Balance of the
Mortgage Loans as of the Cut-off Date
will exceed the aggregate Note
Principal Balance of the Notes as of
the Delivery Date by approximately
$_____________ or _____% of the
aggregate Principal Balance of the
Mortgage Loans as of the Cut-off Date.
This amount is the required level of
overcollateralization (the "Required
Subordination Amount") as of the
Delivery Date and may increase or
decrease, subject to certain trigger
tests, in accordance with the
provisions of the Indenture. An
increase would result in a temporary
period of accelerated amortization of
the Notes to increase the actual level
of overcollateralization to its
required level; a decrease would
result in a temporary period of
decelerated amortization to reduce the
actual level of overcollateralization
to its required level. See
"Description of the
Notes--Overcollateralization
Provisions."
THE NOTE INSURANCE POLICY. The Notes
will have the benefit of the Note
Insurance Policy, as discussed more
fully herein. See "Description of the
Notes--Note Insurance Policy" herein.
Advances................................ The Master Servicer is required to
make advances ("Advances") in respect
of delinquent payments of principal
and interest on the Mortgage Loans,
subject to the limitations described
herein. See "Description of the
Notes--Advances" herein and in the
Prospectus.
Optional Redemption of
the Notes.............................. The Notes may be redeemed in whole,
but not in part, by the Issuer on any
Payment Date on or after the earlier
of (i) the Payment Date on which the
aggregate Principal Balance (as
defined herein) of the Mortgage Loans
is less than or equal to 25% of the
aggregate Principal Balance of the
Mortgage Loans as of the Cut-off Date
or (ii) the Payment Date
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<PAGE>
occurring in ______ ______. See
"Description of the Notes--Optional
Redemption" herein and "The
Agreements--Termination; Redemption of
Notes" in the Prospectus.
Special Prepayment
Considerations........................ The rate and timing of principal
payments on the Notes will depend,
among other things, on the rate and
timing of principal payments
(including prepayments, defaults,
liquidations, negative amortization
and purchases of the Mortgage Loans
due to a breach of a representation or
warranty) on the related Mortgage
Loans. As is the case with
mortgage-backed securities generally,
the Notes are subject to substantial
inherent cash-flow uncertainties
because the Mortgage Loans may be
prepaid at any time; however, a
prepayment may subject the related
Mortgagor to a prepayment charge with
respect to approximately half of the
Mortgage Loans. Generally, when
prevailing interest rates increase,
prepayment rates on mortgage loans
tend to decrease, resulting in a
slower return of principal to
investors at a time when reinvestment
at such higher prevailing rates would
be desirable. Conversely, when
prevailing interest rates decline,
prepayment rates on mortgage loans
tend to increase, resulting in a
faster return of principal to
investors at a time when reinvestment
at comparable yields may not be
possible.
See "Certain Yield and Prepayment
Considerations" herein, and "Maturity
and Prepayment Considerations" in the
Prospectus.
Special Yield
Considerations....................... The yield to maturity on the Notes
will depend on, among other things,
the rate and timing of principal
payments (including prepayments,
defaults, liquidations, negative
amortization and purchases of the
Mortgage Loans due to a breach of a
representation or warranty) on the
Mortgage Loans and the allocation
thereof to reduce the Note Principal
Balance thereof. The yield to maturity
on the Notes will also depend on the
Note Interest Rate and the purchase
price for such Notes.
If the Notes are purchased at a
premium and principal payments thereon
occur at a rate faster than
anticipated at the time of purchase,
the investor's actual yield to
maturity will be lower than that
assumed at the time of purchase.
Conversely, if the Notes are purchased
at a discount and principal payments
thereon occur at a rate slower than
that
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<PAGE>
assumed at the time of purchase, the
investor's actual yield to maturity
will be lower than that assumed at the
time of purchase.
The Notes were structured assuming,
among other things, a constant
prepayment rate ("CPR") of 20% and
corresponding weighted average lives
as described herein. The prepayment,
yield and other assumptions to be used
for pricing purposes for the Notes may
vary as determined at the time of
sale.
See "Certain Yield and Prepayment
Considerations" herein and "Yield
Considerations" in the Prospectus.
Federal Income Tax
Consequences........................... In the opinion of Tax Counsel (as
defined in the Prospectus), for
federal income tax purposes, the Notes
will be characterized as indebtedness
and not as representing an ownership
interest in the Trust Fund or an
equity interest in the Issuer or the
Company. In addition, for federal
income tax purposes, the Issuer will
not be (i) classified as an
association taxable as a corporation
for federal income tax purposes (other
than as a "qualified REIT subsidiary"
as defined in Section 856(i) of the
Code), (ii) a taxable mortgage pool as
defined in Section 7701(i) of the
Code, or (iii) a "publicly traded
partnership" as defined in Treasury
Regulation Section 1.7704-1.
For further information regarding
certain federal income tax
consequences of an investment in the
Notes see "Federal Income Tax
Consequences" herein and "Federal
Income Tax Consequences" and "State
and Other Tax Consequences" in the
Prospectus.
Legal Investment........................ The Notes will constitute "mortgage
related securities" for purposes of
SMMEA for so long as they are rated in
at least the second highest rating
category by one or more nationally
recognized statistical rating
agencies. Institutions whose
investment activities are subject to
legal investment laws and regulations
or to review by certain regulatory
authorities may be subject to
restrictions on investment in the
Notes. See "Legal Investment" herein.
Rating.................................. It is a condition to the issuance of
the Notes that they be rated "AAA" by
Standard & Poor's Ratings Services
("S&P") and "Aaa" by Moody's Investors
Service, Inc. ("Moody's"). 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. A security rating
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<PAGE>
does not address the frequency of
prepayments of Mortgage Loans, or the
corresponding effect on yield to
investors.
The ratings do not represent any
assessment of the Master Servicer's
ability to repurchase any Converting
Mortgage Loan following the conversion
of the related Mortgage Rate to a
fixed rate, or the effect on the yield
to Noteholders resulting from any such
conversion and the failure of the
Master Servicer to repurchase such
Converting Mortgage Loan. Also, the
ratings issued by S&P and Moody's on
payment of principal and interest on
the Notes do not cover the payment of
the Available Funds Cap Carry-Forward
Amount. See "Certain Yield and
Prepayment Considerations" and
"Ratings" herein.
S-12
<PAGE>
RISK FACTORS
Prospective Noteholders should consider, among other things, the items
discussed under "Risk Factors" in the Prospectus and the following factors in
connection with the purchase of the Notes:
UNDERWRITING STANDARDS
The Mortgage Loans were underwritten generally in accordance with
underwriting standards described in "Description of the Mortgage
Pool--Underwriting" below and Appendix A attached hereto which are primarily
intended to provide single family mortgage loans for non-conforming credits
which do not satisfy the requirements of typical "A" credit borrowers. A
"non-conforming credit" means a mortgage loan which is ineligible for purchase
by FNMA or FHLMC due to credit characteristics that do not meet the FNMA or
FHLMC underwriting guidelines underwriting guidelines for standard "A" quality
conforming mortgage loans, including mortgagors whose creditworthiness and
repayment ability do not satisfy such FNMA or FHLMC underwriting guidelines and
mortgagors who may have a record of credit write-offs, outstanding judgments,
prior bankruptcies and other credit items that do not satisfy such FNMA or FHLMC
underwriting guidelines. Accordingly, Mortgage Loans underwritten under the
Originators' non-conforming credit underwriting standards or to standards that
do not meet the requirements for typical "A" credit borrowers are likely to
experience rates of delinquency, foreclosure and loss that are higher, and may
be substantially higher, than mortgage loans originated in accordance with the
FNMA or FHLMC underwriting guidelines or to typical "A" credit borrowers.
POTENTIAL DELINQUENCIES
Approximately ______% of the Mortgage Loans (by aggregate outstanding
principal balance as of the Cut-off Date) are secured by Mortgaged Properties
located in the State of California. In the event California experiences a
decline in real estate values, losses on the Mortgage Loans may be greater than
otherwise would be the case.
Approximately _____% of the Mortgage Loans (by aggregate outstanding
principal balance as of the Cut-off Date) will have Loan-to-Value Ratios in
excess of 80% but will not be covered by a primary mortgage insurance policy.
Such Mortgage Loans will be affected to a greater extent than Mortgage Loans
with primary mortgage insurance or a Loan-to-Value Ratio equal to or less than
80% by any decline in the value of the related Mortgaged 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 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. Any decrease in the value of such
Mortgage Loans may result in the allocation of losses to the Notes which are not
covered by overcollateralization or the Note Insurance Policy. See "Primary
Mortgage Insurance, Hazard Insurance; Claims Thereunder" in the Prospectus.
__________ has limited historical delinquency and default experience that
may be referred to for purposes of estimating the future delinquency and loss
experience of the Mortgage Loans underwritten pursuant to the underwriting
standards described herein, which include those of non-related bulk purchasers.
There can be no assurance that the delinquency experience of the servicing
portfolios described herein with respect to mortgage loans serviced by
__________ will correspond to the delinquency experience of the Mortgage Loans
underwritten pursuant to such underwriting standards. See "Description of the
Servicing Agreement--The Master Servicer; the Subservicer" herein.
S-13
<PAGE>
RISK OF MORTGAGE LOAN YIELD REDUCING NOTE INTEREST RATE ON THE NOTES
The Note Interest Rate is based upon, among other factors as described
herein under "Description of the Notes--Interest Payments on the Notes," the
value of an index (One-Month LIBOR (as defined herein)) which is different from
the value of the indices applicable to the Mortgage Loans (Negative Amortization
Loan One-Month LIBOR, Six-Month LIBOR, Six-Month CMT and One-Year CMT (each as
defined herein)), as described under "Description of the Mortgage Pool" herein.
Investors should note that the value of One-Month LIBOR on the Notes may differ
from Negative Amortization Loan One- Month LIBOR, due to the different reference
date. The Mortgage Rate of each Mortgage Loan adjusts monthly, semi-annually or
annually, commencing after the Initial Period, based upon the related Index,
whereas the Note Interest Rate on the Notes adjusts monthly based upon One-Month
LIBOR plus ----% (or after the earlier of (x) the Payment Date in ____ 20__ and
(y) the Payment Date which occurs on or prior to the date on which the aggregate
Principal Balance of the Mortgage Loans is less than 25% of the aggregate
Principal Balance of the Mortgage Loans as of the Cut-off Date, One-Month LIBOR
plus _____%), limited by the Available Funds Interest Rate (as defined herein).
In addition, One-Month LIBOR and the Indices on the Mortgage Loans may respond
differently to economic and market factors, and there is not necessarily any
correlation between them. Moreover, the Mortgage Loans are subject to Periodic
Rate Caps, Maximum Mortgage Rates and Minimum Mortgage Rates (each, as defined
herein). Thus, it is possible, for example, that One-Month LIBOR may rise during
periods in which the Indices are stable or falling or that, even if both
One-Month LIBOR and the Indices rise during the same period, One-Month LIBOR may
rise much more rapidly than the Indices. See "Description of the Notes--Interest
Payments on the Notes."
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Mortgage Pool will consist of conventional, adjustable-rate, monthly
payment, first lien mortgage loans with terms to maturity of not more than 30
years from the date of origination or modification. As of the Cut-off Date, the
principal balance of the Mortgage Loans was equal to $__________. The Company
will acquire the Mortgage Loans to be included in the Mortgage Pool from
__________________ (_______), the parent of the Company, which in turn acquired
them from ------ (in such capacity, the "Seller"), which in turn acquired them
pursuant to various agreements from affiliates of ____________ and various
mortgage loan conduit sellers (collectively, the "Originators"). All of the
Mortgage Loans will be subserviced by ______________. The Company will convey
the Mortgage Loans to the Issuer on the Delivery Date pursuant to the Trust
Agreement. ________________ will make certain representations and warranties
with respect to the Mortgage Loans and, as more particularly described in the
Prospectus, will have certain repurchase or substitution obligations in
connection with a breach of any such representation or warranty, as well as in
connection with an omission or defect in respect of certain constituent
documents required to be delivered with respect to the Mortgage Loans, in any
event if such breach, omission or defect cannot be cured and it materially and
adversely affects the interests of holders of the Securities or the Note
Insurer. See "Description of the Mortgage Pool--Representations by Sellers" and
"Description of the Notes--Assignment of Trust Fund Assets" in the Prospectus.
The Mortgage Loans will have been originated or acquired by the Originators in
accordance with the underwriting criteria described herein. See "--Underwriting"
below and Appendix A.
The representations and warranties made by ______________ will be pledged
to the Indenture Trustee for the benefit of the Noteholders and the Note
Insurer.
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<PAGE>
Approximately ________% of the Mortgage Loans, by aggregate principal
balance as of the Cutoff Date, will have Loan-to-Value Ratios in excess of 80%
but will not be covered by a primary mortgage insurance policy. Each other
Mortgage Loan with a Loan-to-Value Ratio in excess of 80% will be covered by a
primary mortgage insurance policy. See "Primary Mortgage Insurance, Hazard
Insurance; Claims Thereunder" in the Prospectus.
MORTGAGE LOANS
MORTGAGE RATE ADJUSTMENT
The Mortgage Rate on each Mortgage Loan will adjust monthly (with respect
to _____% of the Mortgage Loans), semi-annually (with respect to _____% of the
Mortgage Loans) or annually (with respect to _____% of the Mortgage Loans)
commencing after an initial period after origination (the "Initial Period") of
three months, six months, one year, two years or three years, in each case on
each applicable Adjustment Date to a rate equal to the sum, generally rounded to
the nearest one-eighth of one percentage point (12.5 basis points), of (i) the
related Index plus (ii) a fixed percentage (the "Gross Margin"). In addition,
the Mortgage Rate on each Mortgage Loan (other than the Negative Amortization
Loans) is subject on its first Adjustment Date following its origination to a
cap (the "Initial Periodic Rate Cap") and on each Adjustment Date thereafter to
a periodic rate cap (the "Periodic Rate Cap"). All of the Mortgage Loans are
also subject to specified maximum and minimum lifetime Mortgage Rates ("Maximum
Mortgage Rates" and "Minimum Mortgage Rates," respectively). The Mortgage Loans
were generally originated with an initial Mortgage Rate below the sum of the
current Index and the Gross Margin. Due to the application of the Periodic Rate
Caps, Maximum Mortgage Rates and Minimum Mortgage Rates, the Mortgage Rate on
any Mortgage Loan, as adjusted on any related Adjustment Date, may not equal the
sum of the related Index and the Gross Margin. The Due Date for each Mortgage
Loan is the first day of the month.
Approximately _____% of the Mortgage Loans will not have reached their
first Adjustment Date as of the Delivery Date. All of the Mortgage Loans with an
Initial Period of three months have already reached their first Adjustment Date.
The initial Mortgage Rate is generally lower than the rate that would have been
produced if the applicable Gross Margin had been added to the related Index in
effect at origination. Mortgage Loans that have not reached their first
Adjustment Date are, therefore, more likely to be subject to the Periodic Rate
Cap on their first Adjustment Date.
SIX-MONTH LIBOR INDEX
The Index applicable to the determination of the Mortgage Rate on
approximately ______% of the Mortgage Loans (by principal balance as of the
Cut-off Date) will be the average of the interbank offered rates for six-month
United States dollar deposits in the London market as published by FNMA and as
most recently available as of the first business day generally 45 days prior to
such Adjustment Date.
The table below sets forth historical average rates of Six-Month LIBOR for
the months indicated as made available from FNMA. Such average rates may
fluctuate significantly from month to month as well as over longer periods and
may not increase or decrease in a constant pattern from period to period. There
can be no assurance that levels of Six-Month LIBOR published by FNMA, or
published on a different Reference Date would have been at the same levels as
those set forth below. The following does not purport to be representative of
future levels of Six-Month LIBOR (as published by FNMA). No assurance can be
given as to the level of Six-Month LIBOR on any Adjustment Date or during the
life of any Mortgage Loan based on Six-Month LIBOR.
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<PAGE>
SIX-MONTH LIBOR
MONTH 1993 1994 1995 1996 1997
- ----- ---- ---- ---- ---- ----
January ............ 3.44% 3.39% 6.69% 5.34% 5.71%
February ........... 3.33 4.00 6.44 5.29 5.68
March .............. 3.38 4.25 6.44 5.52 5.96
April .............. 3.31 4.63 6.31 5.42 6.08
May ................ 3.44 5.00 6.06 5.64
June ............... 3.56 5.25 5.88 5.84
July ............... 3.56 5.33 5.88 5.92
August ............. 3.44 5.33 5.94 5.74
September .......... 3.38 5.69 5.99 5.75
October ............ 3.50 6.00 5.95 5.58
November ........... 3.52 6.44 5.74 5.55
December ........... 3.50 7.00 5.56 5.62
ONE-YEAR CMT INDEX
The Index applicable to the determination of the Mortgage Rate on
approximately _____% of the Mortgage Loans (by principal balance as of the
Cut-off Date) will be the weekly average yield on U.S. Treasury securities
adjusted to a constant maturity of one year as published by the Federal Reserve
Board in Statistical Release H.15(519) and most recently available as of the
first business day generally 45 days prior to the Adjustment Date.
The table below sets forth historical average rates of One-Year CMT for the
months indicated as made available from Telerate Page 7052. Such average rates
may fluctuate significantly from month to month as well as over longer periods
and may not increase or decrease in a constant pattern from period to period.
There can be no assurance that levels of One-Year CMT published by Telerate Page
7052, or published on a different Reference Date would have been at the same
levels as those set forth below. The following does not purport to be
representative of future levels of One-Year CMT (as published by Telerate Page
7052). No assurance can be given as to the level of One-Year CMT on any
Adjustment Date or during the life of any Mortgage Loan based on One-Year CMT.
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<PAGE>
ONE-YEAR CMT
MONTH 1993 1994 1995 1996 1997
- ----- ---- ---- ---- ---- ----
January ............ 3.50% 3.54% 7.08% 5.11% 5.60%
February ........... 3.38 3.85 6.73 4.94 5.52
March .............. 3.33 4.28 6.43 5.31 5.79
April .............. 3.25 4.74 6.27 5.53 5.99
May ................ 3.36 5.31 6.02 5.64
June ............... 3.55 5.24 5.66 5.81
July ............... 3.45 5.47 5.59 5.84
August ............. 3.47 5.56 5.72 5.69
September .......... 3.36 5.74 5.64 5.84
October ............ 3.38 6.11 5.60 5.57
November ........... 3.58 6.48 5.45 5.43
December ........... 3.61 7.10 5.32 5.47
NEGATIVE AMORTIZATION LOANS
Approximately _____% of the Mortgage Loans ("Negative Amortization Loans")
have a negative amortization feature whereby interest payments on such Mortgage
Loans may be deferred and may be added to the Principal Balance thereof. The
amount of the monthly payment on each Negative Amortization Loan adjusts
annually on each "Payment Adjustment Date" to an amount which would amortize
fully the outstanding principal balance of the Negative Amortization Loan over
its remaining term, and pay interest at the Mortgage Rate as adjusted on the
immediately preceding Rate Adjustment Date, subject to a payment cap (the
"Payment Cap") that limits any increase or decrease in the amount of the monthly
payment on any Payment Adjustment Date to an amount not greater than 7.5% of the
amount of the monthly payment due on the preceding Due Date, to the extent that
the related Mortgagor has elected to have the monthly payment limited by the
Payment Cap. The Payment Cap shall not be in effect on the fifth anniversary of
the first Due Date and on each fifth anniversary thereafter (each such
anniversary, a "Recast Date"). The weighted average first Recast Date of the
Negative Amortization Loans, rounded to the nearest Due Date, is _________ __,
____. If on any Rate Adjustment Date, due to the addition of Deferred Interest,
the principal balance of any Negative Amortization Loan would exceed 110% of the
original principal balance thereof (such limitation, a "Negative Amortization
Cap"), the related monthly payment will be recalculated, without regard to the
Payment Cap, to equal an amount sufficient to amortize such Negative
Amortization Loan over its remaining term at the Mortgage Rate as adjusted on
the immediately preceding Rate Adjustment Date. Any monthly payment so
recalculated will remain in effect until the earliest of the next Payment
Adjustment Date, the next Recast Date or the next Due Date on which the
principal balance of the related Negative Amortization Loan would exceed the
Negative Amortization Cap.
The Mortgage Notes provide that at least 30 days prior to any Payment
Adjustment Date the related Mortgagor must be notified of (i) the monthly
payment that would be sufficient to amortize fully the then outstanding
principal balance of the related Negative Amortization Loan over its remaining
term (the "Full Payment") and (ii) the monthly payment that would be equal to
the above amount subject to the Payment Cap (the "Limited Payment"). Upon timely
notice, a Mortgagor may elect to pay the Limited Payment, subject only to the
related Negative Amortization Cap and the applicable provisions on the related
Recast Date.
On any Rate Adjustment Date an increase in the Mortgage Rate on a Negative
Amortization Loan will result in a larger portion of each subsequent monthly
payment being allocated to interest and a smaller
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<PAGE>
portion being allocated to principal, and conversely, a decrease in the Mortgage
Rate on a Negative Amortization Loan will result in a larger portion of each
subsequent monthly payment being allocated to principal and a smaller portion
being allocated to interest. However, because Mortgage Rates on the Negative
Amortization Loans adjust on a monthly basis but monthly payments due on the
Negative Amortization Loans adjust only annually, and because the application of
Payment Caps may limit the amount by which the monthly payments may adjust, the
amount of a monthly payment may be more or less than the amount necessary to
fully amortize the principal balance of the Negative Amortization Loan over its
then remaining term at the applicable Mortgage Rate. Accordingly, Negative
Amortization Loans may be subject to reduced amortization (if the monthly
payment due on a Due Date is sufficient to pay interest accrued during the
related accrual period at the applicable Mortgage Rate but is not sufficient to
reduce principal in accordance with a fully amortizing schedule); negative
amortization (if interest accrued during the related accrual period at the
applicable Mortgage Rate is greater than the entire monthly payment due on the
related Due Date (such excess accrued interest, "Deferred Interest")); or
accelerated amortization (if the monthly payment due on a Due Date is greater
than the amount necessary to pay interest accrued during the related accrual
period at the applicable Mortgage Rate and to reduce principal in accordance
with a fully amortizing schedule). In addition, subsequent to the final Recast
Date and the final Payment Adjustment Date, the addition of any Deferred
Interest to the principal balance of any Negative Amortization Loan that is not
offset by subsequent accelerated amortization will result in a final lump sum
payment at maturity greater than, and potentially substantially greater than,
the monthly payment due on the immediately preceding Due Date.
The maximum increase in the principal balance of a Negative Amortization
Loan due to the addition of Deferred Interest to the principal balance of such
Negative Amortization Loan and the resulting Loan-to-Value Ratio on such
Negative Amortization Loan will depend on the relationships between the Payment
Cap, the Maximum Mortgage Rate, the Negative Amortization Cap and the related
Index. If the outstanding principal balance of a Negative Amortization Loan
having a Loan-to-Value Ratio of 80% was to increase to an amount equal to the
Negative Amortization Cap, the Loan-to-Value Ratio (as based on the then
outstanding principal balance) thereof would in no event exceed approximately
88%.
CONVERTIBLE LOANS
Approximately ____% of the Mortgage Loans ("Convertible Mortgage Loans")
provide that, at the option of the related Mortgagors, the adjustable interest
rate on such Mortgage Loans may be converted to a fixed interest rate. Upon
conversion, the Mortgage Rate will be converted to a fixed interest rate
determined in accordance with the formula set forth in the related Mortgage Note
which formula is intended to result in a Mortgage Rate which is not less than
the then current market interest rate (subject to applicable usury laws). After
such conversion, the monthly payments of principal and interest will be adjusted
to provide for full amortization over the remaining term to scheduled maturity.
Upon notification from a Mortgagor of such Mortgagor's intent to convert from an
adjustable interest rate to a fixed interest rate and prior to the conversion of
any such Mortgage Loan (a "Converting Mortgage Loan"), the Master Servicer will
be obligated to purchase the Converting Mortgage Loan at a price equal to the
outstanding principal balance thereof plus accrued interest thereon at the
related Mortgage Rate plus any unreimbursed Advances with respect to such
Mortgage Loan net of any subservicing fees (the "Conversion Price").
In the event that the Master Servicer fails to purchase a Converting
Mortgage Loan (such Mortgage Loan, following its conversion, a "Converted
Mortgage Loan"), neither the Company nor any of its affiliates nor any other
entity is obligated to purchase or arrange for the purchase of any Converted
Mortgage Loan. Any such Converted Mortgage Loan will remain in the Mortgage Pool
as a fixed-rate Mortgage Loan and will result in the Mortgage Pool's having
fixed-rate Mortgage Loans and as a result the Note Interest Rate may be reduced.
See "Certain Yield and Prepayment Considerations" herein.
S-18
<PAGE>
Following the purchase of any Converted Mortgage Loan as described above,
the purchaser will be entitled to receive an assignment from the Indenture
Trustee of such Mortgage Loan and the purchaser will thereafter own such
Mortgage Loan free of any further obligation to the Indenture Trustee or the
Noteholders with respect thereto.
MORTGAGE LOAN CHARACTERISTICS
All percentages of the Mortgage Loans described herein are approximate
percentages (except as otherwise indicated) by aggregate principal balance as of
the Cut-off Date.
The Mortgage Loans generally have original terms to stated maturity of
approximately 30 years.
Effective with the first payment due on a Mortgage Loan after each related
Adjustment Date, the Monthly Payment will be adjusted to an amount that will
fully amortize the outstanding principal balance of the Mortgage Loan over its
remaining term. The weighted average number of months from the Cut-off Date to
the next Adjustment Date is __ months.
As of the Cut-off Date, each Mortgage Loan will have an unpaid principal
balance of not less than $_______ or more than $________ and the average unpaid
principal balance of the Mortgage Loans will be approximately $________. The
latest stated maturity date of any of the Mortgage Loans will be ------- __,
______; however, the actual date on which any Mortgage Loan is paid in full may
be earlier than the stated maturity date due to unscheduled payments of
principal.
As of the Cut-off Date, the weighted average remaining term to stated
maturity of the Mortgage Loans will be approximately ____ months.
The earliest year of origination of any Mortgage Loan is _____ and the
latest month and year of origination will be _________ ___.
None of the Mortgage Loans are Buydown Mortgage Loans.
Set forth below is a description of certain additional characteristics of
the Mortgage Loans as of the Cut-off Date (except as otherwise indicated).
Dollar amounts and percentages may not add up to totals due to rounding.
S-19
<PAGE>
PRINCIPAL BALANCES OF THE MORTGAGE LOANS AT ORIGINATION
<TABLE>
<CAPTION>
ORIGINAL PERCENTAGE OF CUT-OFF
MORTGAGE LOAN NUMBER OF AGGREGATE UNPAID DATE AGGREGATE
PRINCIPAL BALANCE($) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----------------- -------------- ----------------- -----------------
<S> <C> <C>
0.01 - 50,000.00......... $ %
50,000.01 - 100,000.00.........
100,000.01 - 150,000.00.........
150,000.01 - 200,000.00.........
200,000.01 - 250,000.00.........
250,000.01 - 300,000.00.........
300,000.01 - 350,000.00.........
350,000.01 - 400,000.00.........
400,000.01 - 450,000.00.........
450,000.01 - 500,000.00.........
500,000.01 - 550,000.00.........
550,000.01 - 600,000.00.........
650,000.01 - 700,000.00.........
Total...........................
</TABLE>
The average original principal balance of the Mortgage Loans will be
approximately $______.
S-20
<PAGE>
CURRENT BALANCES OF THE MORTGAGE LOANS AT THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF
CURRENT CUT-OFF DATE
MORTGAGE LOAN NUMBER OF AGGREGATE UNPAID AGGREGATE
PRINCIPAL BALANCE($) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----------------- -------------- ----------------- -----------------
<S> <C> <C>
0.01 - 50,000.00........... $ %
50,000.01 - 100,000.00............
100,000.01 - 150,000.00............
150,000.01 - 200,000.00............
200,000.01 - 250,000.00............
250,000.01 - 300,000.00............
300,000.01 - 350,000.00............
350,000.01 - 400,000.00............
400,000.01 - 450,000.00............
450,000.01 - 500,000.00............
500,000.01 - 550,000.00............
550,000.01 - 600,000.00............
650,000.01 - 700,000.00............
Total..............................
</TABLE>
The average current principal balance of the Mortgage Loans will be
approximately $------------.
S-21
<PAGE>
MORTGAGE RATES AT ORIGINATION
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
NUMBER OF AGGREGATE UNPAID AGGREGATE
MORTGAGE RATES(%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
-------------- -------------- ----------------- -----------------
<S> <C> <C>
3.000 - 3.499 ............... $ %
4.000 - 4.499 ...............
4.500 - 4.999 ...............
5.000 - 5.499 ...............
5.500 - 5.999 ...............
6.000 - 6.499 ...............
6.500 - 6.999 ...............
7.000 - 7.499 ...............
7.500 - 7.999 ...............
8.000 - 8.499 ...............
8.500 - 8.999 ...............
9.000 - 9.499 ...............
9.500 - 9.999 ...............
10.000 - 10.499 ...............
10.500 - 10.999 ...............
11.000 - 11.499 ...............
11.500 - 11.999 ...............
12.000 - 12.499 ...............
12.500 - 12.999 ...............
13.000 - 13.499 ...............
12.500 - 13.999 ...............
14.000 - 14.499 ...............
14.500 - 14.999 ...............
15.000 - 15.499 ...............
15.500 - 15.999 ...............
16.000 - 16.499 ...............
Total ......................
</TABLE>
The weighted average Mortgage Rate of the Mortgage Loans at origination
will be approximately _____% per annum.
S-22
<PAGE>
MORTGAGE RATES AT CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
NUMBER OF AGGREGATE UNPAID AGGREGATE
MORTGAGE RATES(%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
-------------- -------------- ----------------- -----------------
<S> <C> <C>
5.000 - 5.499 ............... $ %
5.500 - 5.999 ...............
6.000 - 6.499 ...............
6.500 - 6.999 ...............
7.000 - 7.499 ...............
7.500 - 7.999 ...............
8.000 - 8.499 ...............
8.500 - 8.999 ...............
9.000 - 9.499 ...............
9.500 - 9.999 ...............
10.000 - 10.499 ...............
10.500 - 10.999 ...............
11.000 - 11.499 ...............
11.500 - 11.999 ...............
12.000 - 12.499 ...............
12.500 - 12.999 ...............
13.000 - 13.499 ...............
12.500 - 13.999 ...............
14.000 - 14.499 ...............
14.500 - 14.999 ...............
15.500 - 15.999 ...............
16.500 - 16.999 ...............
Total ......................
</TABLE>
S-23
<PAGE>
NEXT ADJUSTMENT DATE
PERCENTAGE OF
CUT-OFF DATE
NUMBER OF AGGREGATE UNPAID AGGREGATE
NEXT ADJUSTMENT DATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
The weighted average remaining months to the next Adjustment Date of the
Mortgage Loans will be approximately __ months.
S-24
<PAGE>
GROSS MARGIN
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
NUMBER OF AGGREGATE UNPAID AGGREGATE
GROSS MARGINS(%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------------- -------------- ----------------- -----------------
<S> <C> <C>
2.000-2.249.................... $ %
2.500-2.749....................
2.750-2.999....................
3.000-3.249....................
3.250-3.499....................
3.500-3.749....................
3.750-3.999....................
4.000-4.249....................
4.250-4.499....................
4.500-4.749....................
4.750-4.999....................
5.000-5.249....................
5.250-5.499....................
5.500-5.749....................
5.750-5.999....................
6.000-6.249....................
6.250-6.499....................
6.500-6.749....................
6.750-6.999....................
7.000-7.249....................
7.250-7.499....................
7.500-7.749....................
7.750-7.999....................
8.000-8.249....................
8.250-8.499....................
8.500-8.749....................
8.750-8.999....................
9.000-9.249....................
9.250-9.499....................
10.000-10.249..................
10.750-10.999..................
11.000-11.249..................
Total......................
</TABLE>
The weighted average Gross Margin of the Mortgage Loans will be
approximately _______% per annum.
S-25
<PAGE>
MAXIMUM MORTGAGE RATE
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
NUMBER OF AGGREGATE UNPAID AGGREGATE
MAXIMUM MORTGAGE RATE (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------------------- -------------- ----------------- -----------------
<S> <C> <C>
10.000 - 10.499
10.500 - 10.999......................
11.000 - 11.499......................
11.500 - 11.999......................
12.000 - 12.499......................
12.500 - 12.999......................
13.000 - 13.499......................
13.500 - 13.999......................
14.000 - 14.499......................
14.500 - 14.999......................
15.000 - 15.499......................
15.500 - 15.999......................
16.000 - 16.499......................
16.500 - 16.999......................
17.000 - 17.499......................
17.500 - 17.999......................
18.000 - 18.499......................
18.500 - 18.999......................
19.000 - 19.499......................
19.500 - 19.999......................
20.000 - 20.499......................
20.500 - 20.999......................
21.000 - 21.499......................
21.500 - 21.999......................
22.000 - 22.499......................
22.500 - 22.999......................
23.000 - 23.499......................
Total............................
</TABLE>
The weighted average Maximum Mortgage Rate of the Mortgage Loans will be
approximately _____% per annum.
S-26
<PAGE>
INDEX
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
NUMBER OF AGGREGATE UNPAID AGGREGATE
INDEX MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----- -------------- ----------------- -----------------
<S> <C> <C>
Negative Amortization Loan
One-Month LIBOR................. $ %
Six-Month LIBOR....................
Six-Month CMT......................
One-Year CMT.......................
Total..........................
</TABLE>
For a description of the Indices, see "Summary-The Indices" herein.
INITIAL PERIODIC RATE CAP
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
NUMBER OF AGGREGATE UNPAID AGGREGATE
INITIAL PERIODIC RATE CAP (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----------------------------- -------------- ----------------- -----------------
<S> <C> <C>
1.000........................................ $ %
1.500........................................
2.000........................................
3.000........................................
6.500........................................
Unlimited(1).................................
Total....................................
</TABLE>
(1) Subject to the Maximum Rate Cap and the Minimum Rate Cap.
PERIODIC RATE CAP
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
NUMBER OF AGGREGATE UNPAID AGGREGATE
PERIODIC RATE CAP (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
--------------------- -------------- ----------------- -----------------
<S> <C> <C>
1.000..................................... $ %
1.500.....................................
2.000.....................................
Unlimited(1)..............................
Total.................................
- ----------
</TABLE>
(1) Subject to the Maximum Rate Cap and the Minimum Rate Cap.
S-27
<PAGE>
ORIGINAL LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
NUMBER OF AGGREGATE UNPAID AGGREGATE
ORIGINAL LOAN-TO-VALUE RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----------------------------- -------------- ----------------- -----------------
<S> <C> <C>
Less than or equal to 25.00%.......... $ %
25.01% - 30.00%.......................
30.01% - 35.00%.......................
35.01% - 40.00%.......................
40.01% - 45.00%.......................
45.01% - 50.00%.......................
50.01% - 55.00%.......................
55.01% - 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%.......................
95.01% - 100.00%......................
Total.............................
</TABLE>
The minimum and maximum Loan-to-Value Ratios at origination of the Mortgage
Loans were approximately ______% and 100.00%, respectively, and the weighted
average Loan-to-Value Ratio at origination of the Mortgage Loans was
approximately _______%.
MORTGAGE LOAN AMORTIZATION
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
NUMBER OF AGGREGATE UNPAID AGGREGATE
MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
-------------- ----------------- -----------------
<S> <C> <C>
Level Amortization................. $ %
Negative Amortization (110% Cap)...
Total..........................
</TABLE>
OCCUPANCY TYPES
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
NUMBER OF AGGREGATE UNPAID AGGREGATE
OCCUPANCY (AS INDICATED BY BORROWER) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------ -------------- ----------------- -----------------
<S> <C> <C>
Owner-Occupied Primary Residence.... $ %
Second Homes........................
Non-Owner Occupied..................
Total...........................
</TABLE>
S-28
<PAGE>
MORTGAGE LOAN PROGRAM
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
NUMBER OF AGGREGATE UNPAID AGGREGATE
LOAN PROGRAM MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------ -------------- ----------------------- --------------------
<S> <C> <C>
Full Documentation................ $ %
Limited Documentation.............
No Ratio..........................
Alternate Documentation...........
No Income No Asset................
Lite (Self Employed B/C)..........
Express...........................
Total.........................
</TABLE>
See "--Underwriting" below and Appendix A attached hereto for a description
of each Originato r's documentation programs.
RISK CATEGORIES OF MORTGAGE LOANS
PERCENTAGE OF
CUT-OFF DATE
AGGREGATE
CREDIT GRADE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
Total...................................
- ----------
S-29
<PAGE>
PROPERTY TYPES
<TABLE>
<CAPTION>
PERCENTAGE OF CUT-OFF
NUMBER OF AGGREGATE UNPAID DATE AGGREGATE
PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------- -------------- ----------------- -----------------
<S> <C> <C>
Single-family................. $ %
Planned Unit Development......
Two- to Four-Family...........
Condominium...................
CondoSelect ..................
Manufactured Housing..........
Total......................
</TABLE>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
NUMBER OF AGGREGATE UNPAID AGGREGATE
STATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----- -------------- ----------------- -----------------
<S> <C> <C>
California....................... $ %
Colorado.........................
Florida..........................
Georgia..........................
Hawaii...........................
Illinois.........................
Maryland.........................
New Jersey.......................
Utah.............................
Washington.......................
Other (no more than 3% in
any one state)..........
Total.........................
</TABLE>
No more than approximately ______% of the Mortgage Loans will be secured by
Mortgaged Properties located in any one zip code.
S-30
<PAGE>
PURPOSES OF MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
NUMBER OF AGGREGATE UNPAID AGGREGATE
LOAN PURPOSE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------ -------------- ----------------- -----------------
<S> <C> <C>
Purchase........................ $ %
Refinance/No Equity Take-Out....
Refinance/Equity Take-Out.......
Construction....................
Total........................
</TABLE>
In general, in the case of a Mortgage Loan made for "no equity take-out"
refinance purposes, substantially all of the proceeds are used to pay in full
the principal balance of a previous mortgage loan of the mortgagor with respect
to a Mortgaged Property and to pay origination and closing costs associated with
such refinancing. Mortgage Loans made for "equity take-out" refinance purposes
may involve the use of the proceeds to pay in full the principal balance of a
previous mortgage loan and related costs except that a portion of the proceeds
are generally retained by the mortgagor for uses unrelated to the Mortgaged
Property. The amount of such proceeds retained by the mortgagor may be
substantial.
See "--Underwriting" below and Appendix A attached hereto for a description
of each Originato r's risk categories.
Specific information with respect to the Mortgage Loans will be available
to purchasers of the Notes on or before the time of issuance of such Notes. If
not included in the Prospectus Supplement, such information will be included in
the Form 8-K.
UNDERWRITING
[See Prospectus Version 1 for sample disclosure and Appendix A.] See "The
Mortgage Pools-Underwriting Standards" in the Prospectus.
DELINQUENCY AND FORECLOSURE EXPERIENCE OF THE SELLER
Based solely upon information provided by the Seller, the following tables
summarize, for the respective dates indicated, the delinquency, foreclosure,
bankruptcy and REO property status with respect to all mortgage loans originated
or acquired by the Seller. The indicated periods of delinquency are based on the
number of days past due on a contractual basis. The monthly payments under all
of such mortgage loans are due on the first day of each calendar month.
At December 31, 1996 March 31, 1997
----------------------- ----------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL
OF LOANS AMOUNT OF LOANS AMOUNT
-------- --------- --------- ---------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
Total Loans Outstanding.... $ $
S-31
<PAGE>
DELINQUENCY1
Period of Delinquency:
30-59 Days.....................
60-89 Days.....................
90 Days or More................
Total Delinquencies...............
Delinquencies as a Percentage
of Total Loans Outstanding............
- ----------
1 The delinquency balances, percentages and numbers set forth under this
heading exclude (a) delinquent mortgage loans that were in foreclosure at
the respective dates indicated ("Foreclosure Loans"), (b) delinquent
mortgage loans as to which the related mortgagor was in bankruptcy
proceedings at the respective dates indicated ("Bankruptcy Loans") and (c)
REO properties that have been purchased upon foreclosure of the related
mortgage loans. All Foreclosure Loans, Bankruptcy Loans and REO properties
have been segregated into the sections of the table entitled "Foreclosures
Pending," "Bankruptcies Pending" and "REO Properties," respectively, and
are not included in the "30-59 Days," "60-89 Days," "90 Days or More" and
"Total Delinquencies" sections of the table. See the section of the table
entitled "Total Delinquencies plus Foreclosures Pending and Bankruptcies
Pending" for total delinquency balances, percentages and numbers which
include Foreclosure Loans and Bankruptcy Loans, and see the section of the
table entitled "REO Properties" for delinquency balances, percentages and
numbers related to REO properties that have been purchased upon foreclosure
of the related mortgage loans.
S-32
<PAGE>
At December 31, 1996 March 31, 1997
-----------------------------------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL
OF LOANS AMOUNT OF LOANS AMOUNT
-------- --------- -------- ---------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
FORECLOSURES PENDING2..........
Foreclosures Pending as a
Percentage of Total Loans
Outstanding....................
BANKRUPTCIES PENDING3..........
Bankruptcies Pending as a
Percentage of Total Loans
Outstanding....................
Total Delinquencies plus
Foreclosures Pending and
Bankruptcies Pending...........
Total Delinquencies plus
Foreclosures Pending and
Bankruptcies Pending as a
Percentage of Total Loans
Outstanding....................
REO PROPERTIES4................
REO Properties as a Percentage
of Total Loans Outstanding.....
The above data on delinquency, foreclosure, bankruptcy and REO property
status are calculated on the basis of the total mortgage loans originated or
acquired by the Seller. However, the total amount of mortgage loans on which the
above data are based includes many mortgage loans which were not, as of the
respective dates indicated, outstanding long enough to give rise to some of the
indicated periods of delinquency or to foreclosure or bankruptcy proceedings or
REO property status. In the absence of such mortgage loans, the delinquency,
foreclosure, bankruptcy and REO property percentages indicated above would be
higher and could be substantially higher. Because the Mortgage Pool will consist
of a fixed group of Mortgage Loans, the actual delinquency, foreclosure,
bankruptcy and REO property percentages with respect to the Mortgage Pool may
therefore be expected to be higher, and may be substantially higher, than the
percentages indicated above.
- ----------
2 Mortgage loans that are in foreclosure but as to which the mortgaged
property has not been liquidated at the respective dates indicated. It is
generally the Master Servicer's policy, with respect to mortgage loans
originated by the Seller, to commence foreclosure proceedings when a
mortgage loan is between 31 and 60 days delinquent.
3 Mortgage loans as to which the related mortgagor is in bankruptcy
proceedings at the respective dates indicated.
4 REO properties that have been purchased upon foreclosure of the related
mortgage loans, including mortgaged properties that were purchased by the
Seller after the respective dates indicated.
S-33
<PAGE>
Based solely on information provided by the Seller, the following table
presents the changes in the Seller's charge-off and recoveries for the period
indicated.
THREE MONTHS ENDED
MARCH 31, 1997
----------------------
(DOLLARS IN THOUSANDS)
Charge-offs:
Mortgage Loan Properties.....................
REO Properties...............................
Recoveries:
Mortgage Loan Properties.....................
REO Properties...............................
Net charge-offs..............................
Ratio of net charge-offs to average loans
outstanding during the three months ended March
31, 1997..........................................
- ----------
The above data on charge-offs and recoveries are calculated on the basis of
the total mortgage loans originated or acquired by the Seller. However, the
total amount of mortgage loans on which the above data are based includes many
mortgage loans which were not, as of the respective dates indicated, outstanding
long enough to give rise to some of the indicated charge-offs. In the absence of
such mortgage loans, the charge-off percentages indicated above would be higher
and could be substantially higher. Because the Mortgage Pool will consist of a
fixed group of Mortgage Loans, the actual charge-off percentages with respect to
the Mortgage Pool may therefore be expected to be higher, and may be
substantially higher, than the percentages indicated above.
The information set forth in the preceding paragraphs concerning
_____________ has been provided by ________________.
For loss and delinquency information with respect to mortgage loans
serviced by ______________, see "Description of the Servicing Agreement--The
Master Servicer; the Subservicer" herein.
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as constituted at the close
of business on the Cut-off Date, as adjusted for the scheduled principal
payments due on or before such date. The Company believes that the information
set forth herein will be substantially representative of the characteristics of
the Mortgage Pool as it will be constituted at the time the Notes are issued
although the range of Mortgage Rates and maturities and certain other
characteristics of the Mortgage Loans in the Mortgage Pool may vary.
A Current Report on Form 8-K will be available to purchasers of the Notes
and will be filed, toge ther with the Servicing Agreement, the Trust Agreement
and the Indenture, with the Securities and Exchange Commission within fifteen
days after the initial issuance of the Notes. In the event Mortgage Loans are
removed from or added to the Mortgage Pool as set forth in the preceding
paragraph, such removal or addition will be noted in the Current Report on Form
8-K.
S-34
<PAGE>
See "The Mortgage Pools" and "Certain Legal Aspects of Mortgage Loans" in
the Prospectus.
THE ISSUER
The _______________ Trust Series 199_-_, is a business trust formed under
the laws of the State of Delaware pursuant to the Trust Agreement dated as of
__________, 199_ between the Company and ____________________ as the Owner
Trustee for the transactions described in this Prospectus Supplement. The Trust
Agreement constitutes the "governing instrument" under the laws of the State of
Delaware relating to business trusts. After its formation, the Issuer will not
engage in any activity other than (i) acquiring and holding the Mortgage Loans
and the other assets of the Issuer and proceeds therefrom, (ii) issuing the
Notes and the Certificates, (iii) making payments on the Notes and the
Certificates and (iv) engaging in other activities that are necessary, suitable
or convenient to accomplish the foregoing or are incidental thereto or connected
therewith.
The assets of the Issuer will consist of the Mortgage Loans and certain
related assets.
The Issuer's principal offices are in
____________________________________________, in care of
___________________________, as Owner Trustee, at the address listed below.
THE OWNER TRUSTEE
Wilmington Trust Company is the Owner Trustee under the Trust Agreement.
The Owner Trustee is a ________________ banking corporation and its principal
offices are located in _______________.
Neither the Owner Trustee nor any director, officer or employee of the
Owner Trustee will be under any liability to the Issuer or the Noteholders under
the Trust Agreement under any circumstances, except for the Owner Trustee's own
misconduct, gross negligence, bad faith or grossly negligent failure to act or
in the case of the inaccuracy of certain representations made by the Owner
Trustee in the Trust Agreement. All persons into which the Owner Trustee may be
merged or with which it may be consolidated or any person resulting from such
merger or consolidation shall be the successor of the Owner Trustee under the
Trust Agreement.
THE INDENTURE TRUSTEE
_______________________________ will act as Indenture Trustee with respect
to the Indenture. The Indenture Trustee will provide to a prospective or actual
Noteholder without charge, upon written request, a copy of the Indenture.
Requests should be addressed to the Indenture Trustee at ______
- -----------------------------------------------------------------.
[NOTE INSURER]
S-35
<PAGE>
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to the Indenture dated as of _____, 199_,
between the Issuer and ____________________________, as Indenture Trustee. The
Certificates (together with the Notes, the "Securities") will be issued pursuant
to the Trust Agreement dated as of ________________, 199_, between the Company
and _______________________, as Owner Trustee. The following summaries describe
certain provisions of the Securities, the Indenture, the Trust Agreement and the
Servicing Agreement. The summaries do not purport to be complete and are subject
to, and qualified in their entirety by reference to, the provisions of the
applicable agreement. Only the Notes are offered hereby.
The Notes will be secured by the pledge by the Issuer of its assets to the
Indenture Trustee pursuant to the Indenture which will consist of the following
(such assets, collectively, the "Trust Fund"): (i) the Mortgage Loans; (ii)
collections in respect of principal and interest of the Mortgage Loans received
after the Cut-Off Date (other than payments due on or before the Cut-off Date);
(iii) the amounts on deposit in any Collection Account (as defined in the
Prospectus), including the account in which amounts are deposited prior to
payment to the Noteholders (the "Payment Account"), including net earnings
thereon; (iv) certain insurance policies maintained by the Mortgagors or by or
on behalf of the Master Servicer or related subservicer in respect of the
Mortgage Loans; (v) an assignment of the Company's rights under the Purchase
Agreement and the Servicing Agreement; and (vi) proceeds of the foregoing.
The Notes will be issued in denominations of $25,000 and integral multiples
of $1 in excess thereof. See "--Book-Entry Notes" below.
BOOK-ENTRY NOTES
GENERAL. Beneficial Owners that are not Participants or Intermediaries (as
defined in the Prospectus) but desire to purchase, sell or otherwise transfer
ownership of, or other interests in, the related Book-Entry Notes may do so only
through Participants and Intermediaries. In addition, Beneficial Owners will
receive all payments of principal of and interest on the related Book-Entry
Notes from the Paying Agent (as defined in the Prospectus) through DTC and
Participants. Accordingly, Beneficial Owners may experience delays in their
receipt of payments. Unless and until Definitive Notes are issued for the
related Book-Entry Notes, it is anticipated that the only registered Noteholder
of such Book-Entry Notes will be Cede, as nominee of DTC. Beneficial Owners will
not be recognized by the Indenture Trustee or the Master Servicer as
Noteholders, as such term is used in the Indenture, and Beneficial Owners will
be permitted to receive information furnished to Noteholders and to exercise the
rights of Noteholders only indirectly through DTC, its Participants and
Intermediaries.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rul es"), DTC is required to make book-entry transfers of
Book-Entry Notes among Participants and to receive and transmit payments of
principal of, and interest on, such Book-Entry Notes. Participants and
Intermediaries with which Beneficial Owners have accounts with respect to such
Book-Entry Notes similarly are required to make book-entry transfers and receive
and transmit such payments on behalf of their respective Beneficial Owners.
Accordingly, although Beneficial Owners will not possess physical certificates
evidencing their interests in the Book-Entry Notes, the Rules provide a
mechanism by which Beneficial Owners, through their Participants and
Intermediaries, will receive payments and will be able to transfer their
interests in the Book-Entry Notes.
None of the Company, the Master Servicer, the Note Insurer, the Owner
Trustee or the Indenture Trustee will have any liability for any actions taken
by DTC or its nominee, including, without limitation,
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actions for any aspect of the records relating to or payments made on account of
beneficial ownership interests in the Book-Entry Notes held by Cede, as nominee
for DTC, or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
DEFINITIVE NOTES. Definitive Notes will be issued to Beneficial Owners or
their nominees, resp ectively, rather than to DTC or its nominee, only under the
limited conditions set forth in the Prospectus under "Description of the
Notes--Form of Notes."
Upon the occurrence of an event described in the Prospectus in the third
paragraph under "Des cription of the Notes--Form of Notes," the Indenture
Trustee is required to notify, through DTC, Participants who have ownership of
Book-Entry Notes as indicated on the records of DTC of the availability of
Definitive Notes for their Book-Entry Notes. Upon surrender by DTC of the
definitive certificates representing the Book-Entry Notes and upon receipt of
instructions from DTC for re-registration, the Indenture Trustee will reissue
the Book-Entry Notes as Definitive Notes issued in the respective principal
amounts owned by individual Beneficial Owners, and thereafter the Indenture
Trustee will recognize the holders of such Definitive Notes as Noteholders under
the Indenture.
For additional information regarding DTC and the Book-Entry Notes, see
"Description of the Notes--Form of Notes" in the Prospectus.
PAYMENTS
Payments on the Notes will be made by the Indenture Trustee or the Paying
Agent on the __th day of each month or, if such day is not a Business Day, then
the next succeeding Business Day, commencing in ________ 199_. Payments on the
Notes will be made to the persons in whose names such Notes are registered at
the close of business on the day prior to each Payment Date or, if the Notes are
no longer Book-Entry Notes, on the Record Date. See "Description of the
Notes--Payments" in the Prospectus. Payments will be made by check or money
order mailed (or upon the request, at least five Business Days prior to the
related Record Date, of a Holder owning Notes having denominations aggregating
at least $5,000,000, by wire transfer or otherwise) to the address of the person
entitled thereto (which, in the case of Book-Entry Notes, will be DTC or its
nominee) as it appears on the Security Register in amounts calculated as
described herein as of the Determination Date. However, the final payment in
respect of the Notes will be made only upon presentation and surrender thereof
at the office or the agency of the Indenture Trustee specified in the notice to
Holders of such final payment. A "Business Day" is any day other than (i) a
Saturday or Sunday or (ii) a day on which banking institutions in New York City,
Delaware, California or in the city in which the corporate trust offices of the
Indenture Trustee or the principal office of the Note Insurer are located, are
required or authorized by law to be closed.
AVAILABLE FUNDS
The "Available Funds" for any Payment Date will equal the amount received
by the Indenture Trus tee and available in the Payment Account on each Payment
Date. The Available Funds will generally be equal to the sum of (i) the
aggregate amount of scheduled payments on the related Mortgage Loans due on the
related Due Date and received on or prior to the related Determination Date,
(ii) any amounts representing interest on amounts in the Payment Account and
miscellaneous fees and collections, including assumption fees, to the extent not
paid to any Subservicer, (iii) any unscheduled payments and receipts, including
Mortgagor prepayments on such Mortgage Loans, received during the related
Prepayment Period, and (iv) all Advances made for such Payment Date in respect
of such Mortgage Loans, in each case net of amounts reimbursable therefrom to
the Master Servicer and any Subservicer and reduced by Servicing Fees,
Administrative Fees and fees of the Indenture Trustee paid by the Master
Servicer. With respect to any Payment Date, (i) the Due Date is the first day of
the month in which such Payment Date occurs, and (ii)
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the Determination Date is the fourth Business Day prior to such Payment Date, or
if such day is not a business day, the immediately preceding business day.
INTEREST PAYMENTS ON THE NOTES
On each Payment Date, holders of the Notes will be entitled to receive an
amount (the "Interest Paym ent Amount") equal to interest accrued during the
related Interest Period (as defined herein) on the Note Principal Balance
thereof at the then-applicable Note Interest Rate (as defined below), minus (i)
any Prepayment Interest Shortfalls and Relief Act Shortfalls (each as defined
below) to the extent not covered by the Master Servicer by Compensating Interest
(as defined below) for such Payment Date and (ii) any Deferred Interest for such
Payment Date allocated thereto as described below. With respect to each Payment
Date, interest payable on the Notes will accrue during the Interest Period.
Interest will be calculated on the basis of the actual number of days in the
Interest Period and an a 360-day year. Notwithstanding the foregoing, if
payments are not made as required under the Note Insurance Policy, additional
interest shortfalls may be allocated to the Notes as described below. See
"Description of the Notes--Note Insurance Policy."
To the extent that Deferred Interest causes a shortfall in interest
collections on the Mortgage Loans that would otherwise cause a shortfall in the
amount of interest payable to the Noteholders, such amount will be paid using
principal collections on the Mortgage Loans through the priority of payment
provisions described under "-Priority of Payment" below. To the extent that the
Interest Payment Amount for any Payment Date exceeds Available Funds for such
Payment Date, the lesser of such excess and the aggregate amount of Deferred
Interest, if any, that is added to the principal balance of the Negative
Amortization Loans on the Due Date occurring in the month in which such Payment
Date occurs will be added to the Note Principal Balance of the Notes and
subtracted from the Interest Payment Amount for such Payment Date.
The "Prepayment Interest Shortfall" for any Payment Date is equal to the
aggregate shortfall, if any, in collections of interest resulting from Mortgagor
prepayments on the Mortgage Loans during the preceding calendar month. Such
shortfalls will result because interest on prepayments in full is distributed
only to the date of prepayment, and because no interest is distributed on
prepayments in part, as such prepayments in part are applied to reduce the
outstanding principal balance of the related Mortgage Loans as of the Due Date
in the month of prepayment. However, with respect to any Payment Date, any
Prepayment Interest Shortfalls during the preceding calendar month will be
offset by the Master Servicer, but only to the extent such Prepayment Interest
Shortfalls do not exceed an amount equal to the total servicing fee payable to
the Master Servicer and any Subservicer with respect to such Payment Date. No
assurance can be given that the servicing compensation available to cover
Prepayment Interest Shortfalls will be sufficient therefor. See "The Servicing
Agreement--Servicing and Other Compensation and Payment of Expenses." The
"Relief Act Shortfalls" for any Payment Date are any shortfalls relating to the
Relief Act (as defined in the Prospectus) or similar legislation or regulations.
On each Payment Date after the first Payment Date, the Note Interest Rate
will be a floating rate equa l to the lesser of (i)(a) with respect to each
Payment Date up to and including the earlier of (x) the Payment Date in ________
_______ and (y) the Payment Date which occurs on or prior to the date on which
the aggregate Principal Balance of the Mortgage Loans is less than 25% of the
aggregate Principal Balance of the Mortgage Loans as of the Cut-off Date,
One-Month LIBOR (as defined herein) plus 0.22%, and (b) with respect to each
Payment Date thereafter, One-Month LIBOR plus 0.44% and (ii) the Available Funds
Interest Rate with respect to such Payment Date. On the first Payment Date, the
Note Interest Rate will be equal to _______% per annum.
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The "Available Funds Interest Rate" for any Payment Date is a rate per
annum equal to the lesser of (x) the fraction, expressed as a percentage, the
numerator of which is (i) an amount equal to (A) 1/12 of the aggregate Principal
Balance of the then outstanding Mortgage Loans times the weighted average of the
Expense Adjusted Mortgage Rates on the then outstanding Mortgage Loans minus (B)
the amount of the fee payable to the Owner Trustee with respect to the Trust
Agreement and the premium with respect to the Notes payable to the Note Insurer
with respect to the Note Insurance Policy for such Payment Date, and the
denominator of which is (ii) an amount equal to (A) the then outstanding
aggregate Note Principal Balance of the Notes multiplied by (B) the actual
number of days elapsed in the related Interest Period (as defined herein)
divided by 360 and (y) ________% per annum (the "Maximum Note Interest Rate").
The amount of the fee payable to the Owner Trustee together with the amount of
the premium payable to the Note Insurer (together, the "Administrative Fee")
will accrue at ________% per annum based on the Note Principal Balance of the
Notes.
The "Expense Adjusted Mortgage Rate" on any Mortgage Loan is equal to the
then applicable Mortgage Rate thereon minus the sum of (i) the Minimum Spread
and (ii) the Servicing Fee Rate and (iii) the Indenture Trustee Fee Rate. For
any Payment Date, the Minimum Spread is equal to ____% per annum, the Servicing
Fee Rate is equal to _____% per annum and the Indenture Trustee Fee Rate is
equal to ____% per annum.
As further described herein, with respect to the Notes and any Payment
Date, to the extent that (a) the lesser of (x) the amount payable if clause (i)
of the definition of Note Interest Rate above is used to calculate interest and
(y) the amount payable if the Maximum Note Interest Rate is used to calculate
interest exceeds (b) the amount payable if clause (ii) of the definition of Note
Interest Rate above is used to calculate interest (such excess, the "Available
Funds Cap Carry-Forward Amount"), the holders of the Notes will be paid the
amount of such Available Funds Cap Carry-Forward Amount with interest thereon at
the Note Interest Rate for the Notes applicable from time to time after certain
payments to the holders of the Notes and the Note Insurer to the extent of
available funds. The Note Insurance Policy does not cover the Available Funds
Cap Carry-Forward Amount, nor do the ratings assigned to the Notes address the
payment of the Available Funds Cap Carry-Forward Amount.
As described herein, the Interest Payment Amount allocable to the Notes is
based on their Note Prin cipal Balance. The "Note Principal Balance" of any Note
as of any date of determination is equal to the initial Note Principal Balance
thereof, increased by any Deferred Interest allocated thereto, and reduced by
all amounts allocable to the Principal Payment Amount and the Subordination
Increase Amount previously distributed with respect to such Note.
The "Principal Balance" of any Mortgage Loan is, at any given time, the
Principal Balance as of the Cut-off Date of such Mortgage Loan, increased by all
Deferred Interest thereon, minus (a) the sum of all amounts paid or advanced
with respect to such Mortgage Loan with respect to principal and (b) the
principal portion of any losses with respect thereto for any previous Payment
Date.
CALCULATION OF ONE-MONTH LIBOR
On the second business day preceding each Payment Date, commencing with the
Payment Date occurring in ________ 199_ (each such date, an "Interest
Determination Date"), the Indenture Trustee will determine the London interbank
offered rate for one-month United States dollar deposits ("One-Month LIBOR") for
the next Interest Period for the Notes on the basis of the offered rates of the
Reference Banks for one-month United States dollar deposits, as such rates
appear on the Reuter Screen LIBO Page, as of 11:00 a.m. (London time) on such
Interest Determination Date. As used in this section, "business day" means a day
on which banks are open for dealing in foreign currency and exchange in London
and New York City; "Reuter Screen LIBO Page" means the display designated as
page "LIBO" on the Reuter
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Monitor Money Rates Service (or such other page as may replace the LIBO page on
that service for the purpose of displaying London interbank offered rates of
major banks); and "Reference Banks" means leading banks selected by the
Indenture Trustee and engaged in transactions in Eurodollar deposits in the
international Eurocurrency market (i) with an established place of business in
London, (ii) whose quotations appear on the Reuter Screen LIBO Page on the
Interest Determination Date in question, (iii) which have been designated as
such by the Indenture Trustee and (iv) not controlling, controlled by, or under
common control with, the Company or the Seller.
On each Interest Determination Date, One-Month LIBOR for the related
Interest Period for the Note s will be established by the Indenture Trustee as
follows:
(a) If on such Interest Determination Date two or more Reference Banks
provide such offered quotations, One-Month LIBOR for the related Interest
Period shall be the arithmetic mean of such offered quotations (rounded
upwards if necessary to the nearest whole multiple of 0.0625%).
(b) If on such Interest Determination Date fewer than two Reference
Banks provide such offered quotations, One-Month LIBOR for the related
Interest Period shall be the higher of (x) One-Month LIBOR as determined on
the previous Interest Determination Date and (y) the Reserve Interest Rate.
The "Reserve Interest Rate" shall be the rate per annum that the Indenture
Trustee determines to be either (i) the arithmetic mean (rounded upwards if
necessary to the nearest whole multiple of 0.0625%) of the one-month United
States dollar lending rates which New York City banks selected by the
Indenture Trustee are quoting on the relevant Interest Determination Date
to the principal London offices of leading banks in the London interbank
market or (ii) in the event that the Indenture Trustee can determine no
such arithmetic mean, the lowest one-month United States dollar lending
rate which New York City banks selected by the Indenture Trustee are
quoting on such Interest Determination Date to leading European banks.
The establishment of One-Month LIBOR on each Interest Determination Date by
the Indenture Trust ee and the Indenture Trustee's calculation of the rate of
interest applicable to the Notes for the related Interest Period shall (in the
absence of manifest error) be final and binding.
PRINCIPAL PAYMENTS ON THE NOTES
The "Principal Payment Amount" for any Payment Date will be equal to the
lesser of (a) the sum of the Available Funds remaining after distributions
pursuant to clause (i) of "--Priority of Payment" below and any portion of any
Insured Amount for such Payment Date representing a Subordination Deficit and
(b) the sum of:
(i) the principal portion of all scheduled monthly payments on the
Mortgage Loans received or Advanced (as defined herein) on the Mortgage
Loans with respect to the related Due Date;
(ii) the principal portion of all proceeds of the repurchase of a
Mortgage Loan (or, in the case of a substitution, certain amounts
representing a principal adjustment) pursuant to the Servicing Agreement
during the preceding calendar month;
(iii) the principal portion of all other unscheduled collections
received during the related Prepayment Period (or deemed to be received
during the related Prepayment Period) (including, without limitation, full
and partial Principal Prepayments made by the respective Mortgagors,
Liquidation Proceeds and Insurance Proceeds (excluding proceeds paid in
respect of the Note Insurance Policy)), to the extent not distributed in
the preceding month; and
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(iv) any Insured Payment made with respect to any Subordination
Deficit;
MINUS
(v) the amount of any Subordination Reduction Amount for such
Payment Date.
In no event will the Principal Payment Amount with respect to any Payment
Date be (x) less than zero or (y) greater than the then outstanding Note
Principal Balance of the Notes.
PRIORITY OF PAYMENT
On each Payment Date, Available Funds and any Insured Amount with respect
to such Payment Date will be allocated to the Securities in the following order
of priority, in each case to the extent of Available Funds remaining:
(i) to the Noteholders, the Interest Payment Amount with respect to
such Payment Date;
(ii) to the Noteholders, the Principal Payment Amount with respect
to such Payment Date;
(iii) to the Note Insurer, the aggregate of all payments, if any,
made by the Note Insurer under the Note Insurance Policy and any other
amounts due to the Note Insurer pursuant to the Insurance Agreement, to the
extent not previously paid or reimbursed (the "Reimbursement Amount");
(iv) to the Noteholders, the Subordination Increase Amount (as
defined in "--Overcolla teralization Provisions" below), in reduction of
the Note Principal Balance thereof, until the Note Principal Balance has
been reduced to zero;
(v) to the Noteholders, any Available Funds Cap Carry-Forward
Amount for such Payment Date;
(vi) to the Indenture Trustee, for any amounts owing to the
Indenture Trustee; and
(vii) any remaining amounts to the holders of the Certificates.
OVERCOLLATERALIZATION PROVISIONS
OVERCOLLATERALIZATION RESULTING FROM CASH FLOW STRUCTURE.
With respect to any Payment Date, the excess, if any, of (x) the sum of the
aggregate Principal Balances of the Mortgage Loans as of the close of business
on the last day of the period commencing on the second day of the month
preceding the month of such Payment Date (or, with respect to the first Payment
Date, the day following the Cut-Off Date) and ending on the related Due Date
(such period, the "Due Period") over (y) the Note Principal Balance of the Notes
as of such Payment Date (and following the making of all payments made on such
Payment Date) is the "Subordination Amount" as of such Payment Date. The
Indenture requires that, on each Payment Date, the Net Monthly Excess Cashflow,
if any, be applied on such Payment Date as an accelerated payment of principal
on the Notes, but only to the limited extent hereafter described. The "Net
Monthly Excess Cashflow" for any Payment Date is equal to the amount of
Available Funds remaining after application to items (i) through (iii) under
"--Priority of Payment" herein. This application has the effect of accelerating
the amortization of the Notes relative to the amortization of the Mortgage
Loans. The Indenture requires that the Net Monthly Excess Cashflow
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will be applied as an accelerated payment of principal on the Notes until the
Subordination Amount has increased to the level equal to the Required
Subordination Amount for such Payment Date.
Any amount of Net Monthly Excess Cashflow actually applied as an
accelerated payment of princ ipal is a "Subordination Increase Amount." The
required level of the Subordination Amount with respect to a Payment Date is the
"Required Subordination Amount" with respect to such Payment Date. Initially,
the aggregate Principal Balance of the Mortgage Loans as of the Cut-off Date
will exceed the aggregate Note Principal Balance of the Notes as of the Delivery
Date by approximately $_____________ or _____% of the aggregate Principal
Balance of the Mortgage Loans as of the Cut-off Date. This amount is the initial
Required Subordination Amount. The Indenture generally provides that the
Required Subordination Amount may, over time, decrease, or increase, subject to
certain floors, caps and triggers.
In the event that the Required Subordination Amount is permitted to
decrease or "step down" on a Payment Date in the future, the Indenture provides
that a portion of the principal which would otherwise be distributed to the
Holders of the Notes on such Payment Date shall be distributed to the Holders of
the Certificates on such Payment Date. This has the effect of decelerating the
amortization of the Notes relative to the amortization of the Mortgage Loans,
and of reducing the Subordination Amount. With respect to any Payment Date, the
difference, if any, between (a) the Subordination Amount that would result on
such Payment Date after taking into account all payments to be made on such
Payment Date (exclusive of any reductions thereto attributable to Subordination
Reduction Amounts (as described below) on such Payment Date) and (b) the
Required Subordination Amount for such Payment Date is the "Excess Subordination
Amount" with respect to such Payment Date. With respect to any Payment Date, an
amount equal to the lesser of (a) the Excess Subordination Amount and (b) the
principal collections received by the Master Servicer with respect to the prior
Due Period is the "Subordination Reduction Amount." In addition, a Subordination
Reduction Amount may result even prior to the occurrence of any decrease or
"step down" in the Required Subordination Amount. This is because the Holders of
the Notes will generally be entitled to receive 100% of collected principal,
even though the Note Principal Balance of the Notes will represent less than
100% of the Mortgage Loans' principal balance. In the absence of the provisions
relating to the Subordination Reduction Amount, the foregoing may otherwise
increase the Subordination Amount above the Required Subordination Amount even
without the application of any Net Monthly Excess Cashflow.
The Indenture provides that, on any Payment Date, all unscheduled
collections on account of princ ipal (other than any such amount applied to the
payment of a Subordination Reduction Amount) with respect to Mortgage Loans
during the calendar month preceding the calendar month in which such Payment
Date occurs (the "Prepayment Period") will be distributed to the Holders of the
Notes on such Payment Date. If any Mortgage Loan became a Liquidated Mortgage
Loan (as defined below) during such Prepayment Period, the net Liquidation
Proceeds (as defined in the Prospectus) related thereto and allocated to
principal may be less than the Principal Balance of the related Mortgage Loan;
the amount of any such insufficiency is generally defined as a "Realized Loss."
A "Liquidated Mortgage Loan" is, in general, a defaulted Mortgage Loan as to
which the Master Servicer has determined that all amounts that it expects to
recover on such Mortgage Loan have been recovered (exclusive of any possibility
of a deficiency judgment). The principal balance of any Mortgage Loan after it
becomes a Liquidated Mortgage Loan shall equal zero. The Indenture does not
contain any provision which requires that the amount of any Realized Loss should
be distributed to the Holders of the Notes on the Payment Date which immediately
follows the event of loss; I.E., the Indenture does not require the current
recovery of losses. However, the occurrence of a Realized Loss will reduce the
Subordination Amount, which, to the extent that such reduction causes the
Subordination Amount to be less than the Required Subordination Amount
applicable to the related Payment Date, will require the payment of a
Subordination Increase Amount on such Payment Date (or, if insufficient funds
are available on such Payment Date, on subsequent Payment Dates, until the
Subordination Amount equals the Required Subordination Amount). The effect of
the foregoing is to
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allocate losses to overcollateralization by reducing, or eliminating entirely,
payments of Net Monthly Excess Cashflow and of Subordination Reduction Amounts
which the holders of the Certificates would otherwise receive.
OVERCOLLATERALIZATION AND THE NOTE INSURANCE POLICY. The Indenture defines
a "Subordination Defic it" with respect to a Payment Date to be the amount, if
any, by which (x) the aggregate Note Principal Balance of the Notes as of such
Payment Date, and following the making of all payments to be made on such
Payment Date (except for any payment to be made as to principal from proceeds of
the Note Insurance Policy), exceeds (y) the aggregate Principal Balances of the
Mortgage Loans as of the close of business on the Due Date preceding such
Payment Date. The Indenture requires the Indenture Trustee to make a claim for
an Insured Amount under the Note Insurance Policy not later than the third
Business Day prior to any Payment Date as to which the Indenture Trustee has
determined that a Subordination Deficit will occur for the purpose of applying
the proceeds of such Insured Amount as a payment of principal to the Holders of
the Notes on such Payment Date. Investors in the Notes should realize that,
under extreme loss or delinquency scenarios, they may temporarily receive no
payments of principal.
NOTE INSURANCE POLICY
The following summary describes certain terms of the Note Insurance Policy,
to be dated as of the Delivery Date. The summary does not purport to be complete
and is subject to, and qualified in its entirety by reference to, the provisions
of the Note Insurance Policy.
On the Delivery Date, the Note Insurer will issue the Note Insurance Policy
in favor of the Indenture Trustee on behalf of the Noteholders. The Note
Insurance Policy will unconditionally and irrevocably guarantee certain payments
on the Notes. Draws will be made on the Note Insurance Policy (any such draw, an
"Insured Amount") to cover Deficiency Amounts and Preference Amounts. A
"Deficiency Amount" means (A) with respect to each Payment Date prior to the
Final Scheduled Payment Date, an amount equal to the sum of (i) the excess, if
any, of the Interest Payment Amount over the Available Funds for such Payment
Date and (ii) any Subordination Deficit; (B) with respect to the Final Scheduled
Payment Date, an amount equal to the sum of (i) the excess, if any, of the
Interest Payment Amount over the Available Funds for such Payment Date and (ii)
the excess, if any, of the Note Principal Balance of all Outstanding Notes due
on such Final Scheduled Payment Date over Available Funds not used to pay the
Interest Payment Amount for such Final Scheduled Payment Date; and (C) for any
date on which the acceleration of the Notes has been directed or consented to by
the Note Insurer pursuant to Section 5.02 of the Indenture, an amount equal to
the excess, if any, of the sum of the Note Principal Balance of the Notes,
together with accrued and unpaid interest thereon through the date of payment of
such accelerated Notes, over the Available Funds for such date of payment. For
purposes of the foregoing, amounts in the Payment Account available for interest
distributions on any Payment Date shall be deemed to include all amounts in the
Payment Account for such Payment Date available for distribution on such Payment
Date. A "Preference Amount" means any amount previously distributed to a
Noteholder that is recoverable and sought to be recovered as a voidable
preference by a trustee in bankruptcy pursuant to the United States Bankruptcy
Code (11 U.S.C.), as amended from time to time, in accordance with a final
nonappealable order of a court having competent jurisdiction. Prepayment
Interest Shortfalls, Relief Act Shortfalls and any Available Funds Cap
Carry-Forward Amount will not be covered by the Note Insurance Policy. Deferred
Interest will not be covered by the Note Insurance Policy except with respect to
Deferred Interest which is added to the Note Principal Balance of the Notes.
Pursuant to the terms of the Indenture, draws under the Note Insurance Policy in
respect of any Subordination Deficit will be paid to the Noteholders by the
Paying Agent as principal. In the absence of payments under the Note Insurance
Policy, Noteholders will directly bear the credit risks associated with their
investment to the extent such risks are not covered by the Subordination Amount
or otherwise.
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ADVANCES
Prior to each Payment Date, the Master Servicer is required under the
Servicing Agreement to make Advances (out of its own funds, advances made by a
Subservicer, or funds held in the Collection Account (as described in the
Prospectus) for future payment or withdrawal) with respect to any payments of
principal and interest (net of the Servicing Fee Rate) which were due on the
Mortgage Loans on the immediately preceding Due Date and which are delinquent on
the business day next preceding the related Determination Date.
Such Advances are required to be made only to the extent they are deemed by
the Master Servicer to be recoverable from related late collections, Insurance
Proceeds, or Liquidation Proceeds. The purpose of making such Advances is to
maintain a regular cash flow to the Noteholders, rather than to guarantee or
insure against losses. Any failure by the Master Servicer to make an Advance as
required under the Servicing Agreement will constitute an Event of Default
thereunder, in which case the Indenture Trustee, as successor Master Servicer,
will be obligated to make any such Advance, in accordance with the terms of the
Servicing Agreement.
All Advances will be reimbursable to the Master Servicer on a first
priority basis from late colle ctions, Insurance Proceeds or Liquidation
Proceeds from the Mortgage Loan as to which such unreimbursed Advance was made.
In addition, any Advances previously made which are deemed by the Master
Servicer to be nonrecoverable from related late collections, Insurance Proceeds
and Liquidation Proceeds may be reimbursed to the Master Servicer out of any
funds in the Collection Account prior to payments on the Notes.
THE PAYING AGENT
The Paying Agent shall initially be the Indenture Trustee. The Paying Agent
shall have the revoc able power to withdraw funds from the Payment Account for
the purpose of making payments to the Noteholders.
OPTIONAL REDEMPTION
The Notes may be redeemed in whole, but not in part, by the Issuer on any
Payment Date on or after the earlier of (i) the Payment Date on which the
aggregate Principal Balance of the Mortgage Loans is less than or equal to 25%
of the aggregate Principal Balance of the Mortgage Loans as of the Cut-off Date
or (ii) the Payment Date occurring in _______ ______. The purchase price will be
equal to 100% of the aggregate outstanding Note Principal Balance and accrued
and unpaid interest thereon (including any Available Funds Cap Carry-Forward
Amount) at the Note Interest Rate through the date on which the Notes are
redeemed in full together with all amounts due and owing to the Note Insurer and
the Indenture Trustee. The "Final Scheduled Payment Date" is the Payment Date
occurring in __________.
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
The yield to maturity of the Notes will depend on the price paid by the
holder for such Note, the Note Interest Rate and the rate and timing of
principal payments (including payments in excess of required installments,
prepayments or terminations, liquidations, repurchases and negative
amortization) on the Mortgage Loans and the allocation thereof. Such yield may
be adversely affected by a higher or lower than anticipated rate of principal
payments on the Mortgage Loans in the Trust Fund. The rate of principal payments
on such Mortgage Loans will in turn be affected by the amortization schedules of
the Mortgage Loans, the rate and timing of principal prepayments thereon by the
Mortgagors and liquidations of
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<PAGE>
defaulted Mortgage Loans, the negative amortization feature of the Negative
Amortization Loans and purchases of Mortgage Loans due to certain breaches of
representations and warranties or the conversion of Convertible Mortgage Loans.
The timing of changes in the rate of prepayments, liquidations, repurchases and
negative amortization of the Mortgage Loans may, and the timing of losses will,
significantly affect the yield to an investor, even if the average rate of
principal payments experienced over time is consistent with an investor's
expectation. Since the rate and timing of principal payments on the Mortgage
Loans will depend on future events and on a variety of factors (as described
more fully herein and in the Prospectus under "Yield Considerations" and
"Maturity and Prepayment Considerations"), no assurance can be given as to such
rate or the timing of principal payments on the Notes. In the event that
substantial numbers of Mortgagors exercise their conversion rights with respect
to Convertible Mortgage Loans, and the related Subservicers or the Master
Servicer purchase the Converting and Converted Mortgage Loans, the Mortgage Pool
will experience some prepayment of principal.
Certain of the Mortgage Loans may be prepaid in full or in part at any time
without penalty. The Mortgage Loans (except for the Convertible Mortgage Loans)
generally are assumable under certain circumstances if, in the sole judgment of
the Master Servicer or Subservicer, the prospective purchaser of a Mortgaged
Property is creditworthy and the security for such Mortgage Loan is not impaired
by the assumption. The Convertible Mortgage Loans are not assumable if the
related Mortgagor has exercised its option to convert such Mortgage Loan into a
fixed rate mortgage loan, in which case the Mortgage Note with respect to such
mortgage loan would generally contain a customary "due on sale" provision. The
Master Servicer shall enforce any due-on-sale clause contained in any Mortgage
Note or Mortgage, to the extent permitted under applicable law and governmental
regulations; provided, however, if the Master Servicer determines that it is
reasonably likely that any Mortgagor will bring, or if any Mortgagor does bring,
legal action to declare invalid or otherwise avoid enforcement of a due-on-sale
clause contained in any Mortgage Note or Mortgage, the Master Servicer shall not
be required to enforce the due-on-sale clause or to contest such action. The
extent to which the Mortgage Loans are assumed by purchasers of the Mortgaged
Properties rather than prepaid by the related Mortgagors in connection with the
sales of the Mortgaged Properties will affect the weighted average life of the
Notes and may result in a prepayment experience on the Mortgage Loans that
differs from that on other conventional mortgage loans. See "Maturity and
Prepayment Considerations" in the Prospectus. Prepayments, liquidations and
purchases of the Mortgage Loans will result in payments to holders of the Notes
of principal amounts which would otherwise be distributed over the remaining
terms of the Mortgage Loans. Factors affecting prepayment (including defaults
and liquidations) of mortgage loans (other than mortgage loans similar to the
CondoSelect Loans, as described below) include changes in mortgagors' housing
needs, job transfers, unemployment, mortgagors' net equity in the mortgaged
properties, changes in the value of the mortgaged properties, mortgage market
interest rates and servicing decisions.
To accommodate changes in the interest portion of the monthly payment due
on each Negative Amortization Loan resulting from monthly changes in the
Mortgage Rate, the monthly payment will be adjusted annually on each Payment
Adjustment Date, subject to an increase or decrease of not more than 7.5% in the
monthly payment from that in effect immediately prior to such Payment Adjustment
Date, except as otherwise provided under "Description of the Mortgage
Pool-Negative Amortization Loans" herein. However, due to the Payment Cap and
the fact that the Mortgage Rates on the Negative Amortization Loans are subject
to change monthly while the monthly payments due thereon are only subject to
change annually, the portion of each monthly payment allocated to interest and
that allocated to principal could vary significantly. If an adjustment of the
Mortgage Rate on any Negative Amortization Loan results in Deferred Interest,
such Deferred Interest will be added to the principal balance of the Negative
Amortization Loan, resulting in negative amortization. If an adjustment to the
Mortgage Rate on any Negative Amortization Loan causes the amount of the accrued
interest to exceed the scheduled interest component of the monthly payment and
to be less than the entire monthly payment, the principal balance will not be
reduced in accordance with a fully amortizing schedule, and therefore reduced
S-45
<PAGE>
amortization will result. If an adjustment to the Mortgage Rate on any Negative
Amortization Loan causes the amount of interest accrued in any month to be less
than the scheduled interest component of the then current monthly payment, such
excess will be applied to reduce the outstanding principal balance on the
related Negative Amortization Loan, thereby resulting in accelerated
amortization of such Negative Amortization Loan.
Several factors contribute to the increased risk of default in connection
with negatively amortizing mortgage loans. The outstanding principal balance of
a mortgage loan which is subject to negative amortization increases by the
amount of interest which is deferred as herein described. During periods in
which the outstanding principal balance of a Negative Amortization Loan is
increasing due to the addition of Deferred Interest thereto, such increasing
principal balance of the Negative Amortization Loan may approach or exceed the
value of the related Mortgaged Property, thus increasing the likelihood of
defaults as well as the amount of any loss experienced with respect to any such
Negative Amortization Loan that is required to be liquidated. Additionally,
although increases in the amount of the related monthly payments are subject to
Payment Caps, such Payment Caps are not in effect on any of the Recast Dates,
asdescribed herein, or when the outstanding principal balance exceeds the
Negative Amortization Cap, in which cases the monthly payment for each such
Negative Amortization Loan will be recalculated to equal an amount which would
be sufficient to fully amortize such Negative Amortization Loan over its
remaining term at the Mortgage Rate as adjusted on the immediately preceding
Rate Adjustment Date. The amount of such increased monthly payment may be
substantially higher than the monthly payment in effect prior to such
recalculation and the repayment of the Negative Amortization Loans will be
dependent on the ability of the Mortgagor to make such larger monthly payments.
Furthermore, each Negative Amortization Loan provides for the payment of any
remaining unamortized principal balance of such Negative Amortization Loan (due
to the addition of Deferred Interest, if any, to the principal balance of such
Negative Amortization Loan) in a single payment at the maturity of the Negative
Amortization Loan. Because the Mortgagors may be so required to make a larger
single payment upon maturity, it is possible that the default risk associated
with the Negative Amortization Loans is greater then that associated with fully
amortizing mortgage loans.
The Convertible Mortgage Loans provide that the Mortgagors may, during a
specified period of time, convert the adjustable interest rate of such Mortgage
Loans to a fixed interest rate. The Company is not aware of any publicly
available statistics that set forth principal prepayment, conversion experience
or conversion forecasts of adjustable-rate mortgage loans over an extended
period of time, and its experience with respect to adjustable-rate mortgages is
insufficient to draw any conclusions with respect to the expected prepayment or
conversion rates on the Convertible Mortgage Loans. As is the case with
conventional, fixed-rate mortgage loans originated in a high interest rate
environment which may be subject to a greater rate of principal prepayments when
interest rates decrease, adjustable-rate mortgage loans may be subject to a
greater rate of principal prepayments (or purchases by the related Subservicer
or the Master Servicer) due to their refinancing or conversion to fixed interest
rate loans in a low interest rate environment. For example, if prevailing
interest rates fall significantly, adjustable-rate mortgage loans could be
subject to higher prepayment and conversion rates than if prevailing interest
rates remain constant because the availability of fixed-rate or other
adjustable-rate mortgage loans at competitive interest rates may encourage
Mortgagors to refinance their adjustable-rate mortgages to "lock in" a lower
fixed interest rate or to take advantage of the availability of such other
adjustable-rate mortgage loans, or, in the case of convertible adjustable-rate
mortgage loans, to exercise their option to convert the adjustable interest
rates to fixed interest rates. The conversion feature may also be exercised in a
rising interest rate environment as Mortgagors attempt to limit their risk of
higher rates. Such a rising interest rate environment may also result in an
increase in the rate of defaults on the Mortgage Loans. If the related
Subservicer or the Master Servicer purchases Converting or Converted Mortgage
Loans, a Mortgagor's exercise of the conversion option will result in a payment
of the principal portion thereof to the Noteholders, as described herein.
Alternatively, to the extent Subservicers fail to purchase Converting Mortgage
Loans and the Master
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<PAGE>
Servicer does not purchase Converted Mortgage Loans, the Mortgage Pool will
include additional fixed-rate Mortgage Loans.
The rate of defaults on the Mortgage Loans will also affect the rate and
timing of principal payme nts on the Mortgage Loans. In general, defaults on
mortgage loans are expected to occur with greater frequency in their early
years. Increases in the monthly payments of the Mortgage Loans to an amount in
excess of the monthly payment required at the time of origination may result in
a default rate higher than that on level payment mortgage loans, particularly
since the Mortgagor under each Mortgage Loan was qualified on the basis of the
Mortgage Rate in effect at origination. The repayment of such Mortgage Loans
will be dependent on the ability of the Mortgagor to make larger monthly
payments as the Mortgage Rate increases. In addition, the rate of default on
Mortgage Loans which are refinance or limited documentation mortgage loans, and
on Mortgage Loans with high Loan-to-Value Ratios, may be higher than for other
types of Mortgage Loans. Furthermore, the rate and timing of prepayments,
defaults and liquidations on the Mortgage Loans will be affected by the general
economic condition of the region of the country in which the related Mortgaged
Properties are located. The risk of delinquencies and loss is greater and
prepayments are less likely in regions where a weak or deteriorating economy
exists, as may be evidenced by, among other factors, increasing unemployment or
falling property values. See "Maturity and Prepayment Considerations" in the
Prospectus.
The amount of interest otherwise payable to holders of the Notes will be
reduced by any interest shortfalls to the extent not covered by the Note
Insurance Policy or by the Master Servicer as described herein. If payments were
not made as required under the Note Insurance Policy, interest shortfalls not
allocable to Overcollateralization and not covered by the Master Servicer will
be allocated to the Notes as described herein. See "Yield Considerations" in the
Prospectus and "Description of the Notes-Interest Payments on the Notes" herein
for a discussion of the effect of principal prepayments on the Mortgage Loans on
the yield to maturity of the Notes and certain possible shortfalls in the
collection of interest.
In addition, the yield to maturity of the Notes will depend on, among other
things, the price paid by the holders of the Notes and the then applicable Note
Interest Rate. The extent to which the yield to maturity of a Note is sensitive
to prepayments will depend, in part, upon the degree to which it is purchased at
a discount or premium. In general, if a Note is purchased at a premium and
principal payments thereon occur at a rate faster than anticipated at the time
of purchase, the investor's actual yield to maturity will be lower than that
assumed at the time of purchase. Conversely, if a Note is purchased at a
discount and principal payments thereon occur at a rate slower than that assumed
at the time of purchase, the investor's actual yield to maturity will be lower
than that assumed at the time of purchase. For additional considerations
relating to the yield on the Notes, see "Yield Considerations" and "Maturity and
Prepayment Considerations" in the Prospectus.
In addition, the yield to maturity on the Notes may be affected by
shortfalls with respect to interest in the event that the interest accrued on
the Notes at the Note Interest Rate is greater than the amount of interest
accrued on the Mortgage Loans at the related Mortgage Rates less the sum of the
Servicing Fee Rate, the Indenture Trustee Fee Rate and the Administrative Fee
Rate. In such event, the resulting shortfall will only be payable to the extent
that on any future Payment Date interest accrued on the Mortgage Loans at the
related Mortgage Rates less such rates is greater than the interest accrued on
the Notes, and only to the extent of Available Funds following distributions to
the Noteholders pursuant to clauses (i) through (iv) under "Description of the
Securities-Priority of Payment."
The Note Interest Rate is based upon, among other factors as described
herein under "Description of the Notes--Interest Payments on the Notes," the
value of an index (One-Month LIBOR (as defined herein)) which is different from
the value of the indices applicable to the Mortgage Loans (Negative Amortization
Loan One-Month LIBOR, Six-Month LIBOR, Six-Month CMT and One-Year CMT).
Investors should note
S-47
<PAGE>
that the value of One-Month LIBOR on the Notes may differ from Negative
Amortization Loan One- Month LIBOR, due to the different reference date. The
Mortgage Rate of each Mortgage Loan adjusts monthly, semi-annually or annually,
commencing after the Initial Period, based upon the related Index, whereas the
Note Interest Rate on the Notes adjusts monthly based upon One-Month LIBOR plus
0.22% (or after the earlier of (x) the Payment Date in _____ _______ and (y) the
Payment Date which occurs on or prior to the date on which the aggregate
Principal Balance of the Mortgage Loans is less than 25% of the aggregate
Principal Balance of the Mortgage Loans as of the Cut-off Date, One-Month LIBOR
plus 0.44%), limited by the Available Funds Interest Rate (as defined herein).
In addition, One-Month LIBOR and the Indices on the Mortgage Loans may respond
differently to economic and market factors, and there is not necessarily any
correlation between them. Moreover, the Mortgage Loans are subject to Periodic
Rate Caps, Maximum Mortgage Rates and Minimum Mortgage Rates (each, as defined
herein). Thus, it is possible, for example, that One-Month LIBOR may rise during
periods in which the Indices are stable or falling or that, even if both
One-Month LIBOR and the Indices rise during the same period, One-Month LIBOR may
rise much more rapidly than the Indices.
Although the Mortgage Rates on the Mortgage Loans will adjust monthly,
semi-annually or annua lly, such increases and decreases may be limited by the
Periodic Rate Cap, the Maximum Mortgage Rate and the Minimum Mortgage Rate, if
applicable, on each such Mortgage Loan, and will be based on the applicable
Index (which may not rise and fall consistently with prevailing mortgage rates)
plus the related Gross Margin (which may be different from the prevailing
margins on other mortgage loans). As a result, the Mortgage Rates on the
Mortgage Loans at any time may not equal the prevailing rates for other
adjustable-rate loans and accordingly, the rate of prepayment may be lower or
higher than would otherwise be anticipated. In addition, because all of the
Mortgage Loans have Maximum Mortgage Rates, if prevailing mortgage rates were to
increase above the Maximum Mortgage Rates, the rate of prepayment on the
Mortgage Loans may be slower than would otherwise be the case. In general, if
prevailing mortgage rates fall significantly below the Mortgage Rates on the
Mortgage Loans, the rate of prepayments (including refinancings) will be
expected to increase. Conversely, if prevailing mortgage rates rise
significantly above the Mortgage Rates on the Mortgage Loans, the rate of
prepayment on the Mortgage Loans will be expected to decrease.
Weighted average life refers to the average amount of time that will elapse
from the date of issuance of a security to the date of payment to the investor
of each dollar distributed in reduction of principal of such security (assuming
no losses). The weighted average life of the Notes will be influenced by, among
other things, the rate at which principal of the Mortgage Loans is paid, which
may be in the form of scheduled amortization, prepayments or liquidations.
Because the amortization schedule of each Mortgage Loan will be recalculated
monthly, semi-annually or annually after the initial Adjustment Date for such
Mortgage Loan, any partial prepayments thereof will not reduce the term to
maturity of such Mortgage Loan. In addition, an increase in the Mortgage Rate on
a Mortgage Loan will result in a larger monthly payment and in a larger
percentage of such monthly payment being allocated to interest and a smaller
percentage being allocated to principal, and conversely, a decrease in the
Mortgage Rate on the Mortgage Loan will result in a lower monthly payment and in
a larger percentage of each monthly payment being allocated to principal and a
smaller percentage being allocated to interest.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model . The model used in this Prospectus Supplement, the
Constant Prepayment Rate model ("CPR"), assumes that the outstanding principal
balance of a pool of mortgage loans prepays at a specified constant annual rate
or CPR. In generating monthly cash flows, this rate is converted to an
equivalent constant monthly rate. To assume a 20% CPR or any other CPR
percentage is to assume that the stated percentage of the outstanding principal
balance of the pool is prepaid over the course of a year. No representation is
made that the Mortgage Loans will prepay at that or any other rate.
S-48
<PAGE>
The table set forth below has been prepared on the basis of certain
assumptions as described below regarding the weighted average characteristics of
the Mortgage Loans that are expected to be included in the Trust Fund as
described under "Description of the Mortgage Pool" herein and the performance
thereof. The table assumes, among other things, that: (i) the Mortgage Pool
consists of five Mortgage Loans with the following characteristics:
S-49
<PAGE>
<TABLE>
<CAPTION>
Original Months to Remaining
Term to Next Rate Term to Maximum Minimum Initial
Principal Mortgage Maturity Adjustment Maturity Gross Mortgage Mortgage Periodic Periodic
Balance Rate (In Months) Date (In Months) Margin Rate Rate Cap Cap
- ------- ---- ----------- ---- ----------- ------ ---- ---- --- ---
<S> <C>
$
</TABLE>
(ii) the first and second mortgage loans listed above have an Index of Six-Month
LIBOR, (iii) the third mortgage loan listed above is a negative amortization
loan with the same characteristics as the Negative Amortization Loans and an
Index of Negative Amortization Loan One-Month LIBOR; (iv) the fourth and fifth
mortgage loans listed above have an Index of One-Year CMT; (v) Negative
Amortization Loan One- Month LIBOR, Six-Month LIBOR and One-Year CMT remain
constant at _____%, ____% and ------%, respectively; (vi) payments on the Notes
are based upon the actual number of days in the month and a 360- day year and
are received, in cash, on the __th day of each month, commencing in ____ 199_;
(vii) there are no delinquencies or losses on the Mortgage Loans, there are no
conversions of Mortgage Loans from adjustable to fixed rates and principal
payments on the Mortgage Loans are timely received together with prepayments, if
any, at the respective constant percentages of CPR set forth in the following
table; (viii) there are no repurchases of the Mortgage Loans; (ix) there is no
Prepayment Interest Shortfall or any other interest shortfall in any month; (x)
the scheduled monthly payment for the Mortgage Loan is calculated based on its
principal balance, Mortgage Rate and remaining term to maturity such that such
Mortgage Loan will amortize in amounts sufficient to repay the remaining
principal balance of such Mortgage Loan by its remaining term to maturity, (xi)
the Indices remain constant at the rates listed above and the Mortgage Rate on
the Mortgage Loan is adjusted on the next Adjustment Date (and on subsequent
Adjustment Dates, as necessary) to equal the related Index plus the applicable
Gross Margin, subject to the Maximum Mortgage Rate listed below and the related
Periodic Rate Cap; (xii) with respect to each Mortgage Loan (other than the
Negative Amortization Loans), the monthly payment on the Mortgage Loan is
adjusted on the Due Date immediately following the next related Adjustment Date
(and on subsequent Adjustment Dates, as necessary) to equal a fully amortizing
payment as described in clause (x) above; (xiii) payments on the Mortgage Loans
earn no reinvestment return; (xiv) the Administrative Fee Rate is ________% per
annum, the Indenture Trustee Fee Rate is ______% per annum and the Servicing Fee
Rate is 0.50% per annum; (xv) there are no additional ongoing Trust Fund
expenses payable out of the Trust Fund; (xvi) there are no investment earnings
on amounts in any Collection Account, including the Payment Account, and no
other miscellaneous servicing fees are passed through to the Noteholders; and
(xvii) the Notes will be purchased on ____ ___, 199_.
The actual characteristics and performance of the Mortgage Loans will
differ from the assumptions used in constructing the table set forth below,
which is hypothetical in nature and is provided only to give a general sense of
how the principal cash flows might behave under varying prepayment scenarios.
For example, it is very unlikely that the Mortgage Loans will prepay at a
constant level of CPR until maturity or that all of the Mortgage Loans will
prepay at the same level of CPR. Moreover, the diverse remaining terms to stated
maturity of the Mortgage Loans could produce slower or faster principal payments
than indicated in the table at the various constant percentages of CPR
specified, even if the weighted average remaining term to stated maturity of the
Mortgage Loans is as assumed. Any difference between such assumptions and the
actual characteristics and performance of the Mortgage Loans, or actual
prepayment experience, will affect the percentages of initial Note Principal
Balance outstanding over time and the weighted average life of the Notes.
Subject to the foregoing discussion and assumptions, the following table
indicates the weighted average life of the Notes, and sets forth the percentages
of the initial Note Principal
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<PAGE>
Balance of the Notes that would be outstanding after each of the dates shown at
various percentages of CPR.
PERCENT OF INITIAL NOTE PRINCIPAL BALANCE OUTSTANDING AT THE FOLLOWING
PERCENTAGES OF CPR
NOTES
-----
PAYMENT DATE 0% 10% 15% 20% 25% 30% 40%
- ------------ -- --- --- --- --- --- ---
Initial Percentage........
Weighted Average Life in Years**...........................
Weighted Average Life in Years***..........................
- ---------------
(*) Indicates a number that is greater than zero but less than 0.5%.
(**) The weighted average life of a Note is determined by (i) multiplying the
net reduction, if any, of Note Principal Balance by the number of years
from the date of issuance of the Note to the related Payment Date, (ii)
adding the results, and (iii) dividing the sum by the aggregate of the net
reductions of the Note Principal Balance described in (i) above.
(***) Calculated pursuant to footnote **, but assumes the Issuer exercises its
option to redeem the Notes on the first Payment Date on which it would be
permitted to do so. See "Description of the Notes--Optional Redemption"
herein.
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<PAGE>
THIS TABLE HAS BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED IN THE SECOND
PARAGRAPH PRECEDING THIS TABLE (INCLUDING THE ASSUMPTIONS REGARDING THE
CHARACTERISTICS AND PERFORMANCE OF THE MORTGAGE LOANS WHICH DIFFER FROM THE
ACTUAL CHARACTERISTICS AND PERFORMANCE THEREOF) AND SHOULD BE READ IN
CONJUNCTION THEREWITH.
DESCRIPTION OF THE SERVICING AGREEMENT
The following summary describes certain terms of the Servicing Agreement,
dated as of ____, 199_ between the Company and the Master Servicer (the
"Servicing Agreement"). The summary does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the provisions of the
Servicing Agreement. Whenever particular sections or defined terms of the
Servicing Agreement are referred to, such sections or defined terms are thereby
incorporated herein by reference.
THE MASTER SERVICER; THE SUBSERVICER
_________ _____ (in its capacity as master servicer, the "Master Servicer")
will act as master servicer for the Mortgage Loans pursuant to the Servicing
Agreement. See ____________ in the Prospectus. _________________ has entered
into subservicing arrangements with ________. Notwithstanding these agreements,
____________ _______ will remain primarily liable for servicing the Mortgage
Loans. All of the Mortgage Loans will initially be subserviced by
_______________.
[DESCRIPTION OF SUBJECT]
The following table sets forth certain information concerning delinquency
experience including bankruptcies and foreclosures in progress on one- to
four-family residential mortgage, consumer, and commercial loans included in
Wendover's servicing portfolio at the dates indicated. Consumer and commercial
loans represented less than ___% of the overall portfolio volume at __________
____, 1997. As at December 31, _____, ______, ________ and _______ and March 31,
1997, the total principal balance of loans being serviced by __________ was (in
millions) $________, $___________, $___________ $___________ and $____________
respectively. The indicated periods of delinquency are based on the number of
days past due on a contractual basis. No mortgage, consumer, or commercial loan
is considered delinquent for these purposes until it is one month past due on a
contractual basis.
S-52
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------------------------------------------
1993 1994 1995
---------------------------- ------------------------------------------------------------- -
Percent of Percent of Percent of
Number Servicing Number Servicing Number Servicing
of Loans Portfolio of Loans Portfolio of Loans Portfolio
<S> <C>
Total Portfolio(1)
Period of Delinquency:
30-59 days.............
60-89 days.............
90 days or more........
Total Delinquencies
(excluding
Foreclosures)
Foreclosures Pending
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1997
-------------------------------------------------------------
1996 1997
----------------------------- ------------------------------
Percent of Percent Of
Number Servicing Number of Servicing
of Loans Portfolio Loans Portfolio
<S> <C>
Total Portfolio(1)
Period of Delinquency:
30-59 days.............
60-89 days.............
90 days or more........
Total Delinquencies
(excluding
Foreclosures)
Foreclosures Pending
</TABLE>
- ----------------
1 Includes purchased mortgage servicing rights owned by Wendover totaling
_____ loans for $____ million unpaid principal balance and ______ loans for
$_____ million unpaid principal balance as of December 31, ____ and _____,
respectively, and _____ loans for $____ million unpaid principal balance as
of _________ ______.
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<PAGE>
GENERAL. There can be no assurance that the delinquency and foreclosure
experience of the Mortgage Loans will correspond to the delinquency and
foreclosure experience of the servicing portfolio of ___________ set forth in
the foregoing tables. The statistics shown above represent the respective
delinquency and foreclosure experiences only at the dates presented, whereas the
aggregate delinquency and foreclosure experience on the Mortgage Loans will
depend on the results obtained over the life of the Trust Fund. Each servicing
portfolio includes mortgage loans with a variety of payment and other
characteristics (including geographic location) which are not necessarily
representative of the payment and other characteristics of the Mortgage Loans.
In addition, _________ servicing portfolio includes consumer and commercial
loans. Each servicing portfolio includes mortgage loans underwritten pursuant to
guidelines not necessarily representative of those applicable to the Mortgage
Loans. It should be noted that if the residential real estate market should
experience an overall decline in property values, the actual rates of
delinquencies and foreclosures could be higher than those previously experienced
by _____. In addition, adverse economic conditions 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 and foreclosures with
respect to the Mortgage Loans.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The Servicing Fee for each Mortgage Loan is payable out of the interest
payments on such Mortgage Loan. The Servicing Fee Rate in respect of each
Mortgage Loan will be equal to 0.50% per annum of the outstanding principal
balance of such Mortgage Loan. The Servicing Fee consists of (a) servicing
compensation payable to the Master Servicer in respect of its master servicing
responsibilities and (b) subservicing and other related compensation payable to
the Subservicer (including such compensation paid to the Master Servicer as the
direct servicer of a Mortgage Loan for which there is no Subservicer). The
Subservicer will be entitled to retain in the form of additional servicing
compensation half of any late payment charges. The Master Servicer will not be
entitled to any such additional servicing compensation and any such amounts,
including prepayment penalties, to the extent received by the Master Servicer,
will be included in Available Funds.
THE INDENTURE
The following summary describes certain terms of the Indenture. The summary
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, the provisions of the Trust Agreement and Indenture. Whenever
particular defined terms of the Indenture are referred to, such defined terms
are thereby incorporated herein by reference. See "The Agreements" in the
Prospectus.
CONTROL BY NOTE INSURER
Pursuant to the Indenture, unless a Note Insurer Default exists (i) the
Note Insurer shall be deemed to be the holder of the Notes for certain purposes
(other than with respect to payment on the Notes), and will be entitled to
exercise all rights of the Noteholders thereunder, including the rights of
Noteholders referred to under "--Events of Default" and "--Rights Upon Event of
Default," without the consent of such Noteholders, and the Noteholders may
exercise such rights only with the prior written consent of the Note Insurer and
(ii) the Indenture Trustee may take actions which would otherwise be at its
option or within its discretion, including the actions referred to under
"--Events of Default" and "--Rights Upon Event of Default," only at the
direction of the Note Insurer. A "Note Insurer Default" means the existence and
continuation of (i) a failure of the Note Insurer to make a payment under the
Note Insurance Policy in accordance with its terms or (ii) certain bankruptcy or
insolvency actions by or against the Note Insurer.
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<PAGE>
EVENTS OF DEFAULT
An "Event of Default" with respect to the Notes is defined in the Indenture
as follows: (a) the failure to pay (i) the Interest Payment Amount or the
Principal Payment Amount with respect to a Payment Date on such Payment Date, or
(ii) any Subordination Increase Amount or Available Funds Carry-Forward Amount
with respect to a Payment Date, but only to the extent funds are available to
make such payment as described under "Description of the Notes--Priority of
Payment"; (b) a default in the observance of certain negative covenants in the
Indenture; (c) a default in the observance of any other covenant of the
Indenture, and the continuation of any such default for a period of thirty days
after notice to the Issuer by the Indenture Trustee or the Note Insurer, or if a
Note Insurer Default exists, by the Holders of at least 25% of the Note
Principal Balance of the Notes; (d) any representation or warranty made by the
Issuer in the Indenture or in any certificate or other writing delivered
pursuant thereto having been incorrect in a material respect as of the time
made, and the circumstance in respect of which such representation or warranty
is incorrect not having been cured within thirty days after notice thereof is
given to the Issuer by the Indenture Trustee or the Note Insurer, or, if a Note
Insurer Default exists, by Noteholders representing at least 25% of the Note
Principal Balance of the Notes; (e) certain events of bankruptcy, insolvency,
receivership or reorganization of the Issuer; or (f) the failure by the Issuer
on the Final Scheduled Payment Date to reduce the Note Principal Balance of the
Notes to zero.
RIGHTS UPON EVENT OF DEFAULT
In case an Event of Default should occur and be continuing with respect to
the Notes, the Indenture Trustee may, and on request of the Note Insurer or
Noteholders representing more than 50% of the Note Principal Balance of the
Notes of such Series then outstanding shall, declare the principal of such
Series of Notes to be due and payable. Such declaration may under certain
circumstances be rescinded by Noteholders representing more than 50% of the Note
Principal Balance of the Notes.
If, following an Event of Default, the Notes have been declared to be due
and payable, the Indenture Trustee may, in its discretion (provided that the
Note Insurer or Noteholders representing more than 50% of the Note Principal
Balance of the Notes have not directed the Indenture Trustee to sell the assets
included in the Trust Estate), refrain from selling such assets and continue to
apply all amounts received on such assets to payments due on the Notes in
accordance with their terms, notwithstanding the acceleration of the maturity of
such Notes. The Indenture Trustee, however, unless otherwise directed by the
Note Insurer, must sell the assets included in the Trust Estate if collections
in respect of such assets are determined to be insufficient to pay certain
expenses payable under the Indenture and to make all scheduled payments on the
Notes, in which case payments will be made on the Notes in the same manner as
described in the next sentence with regard to instances in which such assets are
sold. In addition, upon an Event of Default the Indenture Trustee may, with the
consent of the Note Insurer, sell the assets included in the Trust Estate, in
which event the collections on, or the proceeds from the sale of, such assets
will be applied as provided below; provided, however, that any proceeds of a
claim under the Note Insurance Policy shall be used only to pay interest and
principal on the Notes as provided in clauses (iii) and (iv): (i) to the payment
of the fees of the Indenture Trustee and Owner Trustee which have not been
previously paid; (ii) to the Note Insurer, any premium then due, provided no
Note Insurer Default exists; (iii) to the Noteholders, the amount of interest
then due and unpaid on the Notes (but not including any Available Funds Cap
Carry-Forward Amount), without preference or priority of any kind; (iv) to the
Noteholders, the amount of principal then due and unpaid on the Notes, without
preference or priority of any kind; (v) to the Note Insurer, any Reimbursement
Amount, to the extent not previously reimbursed; (vi) to the Noteholders, the
amount of any Available Funds Cap Carry-Forward Amount not previously paid; and
(vii) to the Issuer.
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<PAGE>
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee, in case an Event of Default shall occur and be continuing,
the Indenture Trustee shall be under no obligation to exercise any of the rights
and powers under the Indenture at the request or direction of any of the
Noteholders, unless such Noteholders shall have offered to the Indenture Trustee
reasonable security or indemnity satisfactory to it against the costs, expenses
and liabilities which might be incurred by it in compliance with such request or
direction. Subject to such provisions for indemnification and certain
limitations contained in the Indenture, Noteholders representing more than 50%
of the Note Principal Balance of the Notes shall have the right to direct the
time, method, and place of conducting any proceeding or any remedy available to
the Indenture Trustee or exercising any trust or power conferred on the
Indenture Trustee with respect to the Notes; and Noteholders representing more
than 50% of the Note Principal Balance of the Notes may, in certain cases, waive
any default with respect thereto, except a default in the payment of principal
or interest or a default in respect of a covenant or provision of the Indenture
that cannot be modified without the waiver or consent of the holder of each
outstanding Note affected thereby.
LIMITATION ON SUITS
No Noteholder will have any right to institute any proceedings with respect
to the Indenture unless (1) such Noteholder has previously given written notice
to the Indenture Trustee of a continuing Event of Default; (2) Noteholders
representing not less than 25% of the Note Principal Balance of the Notes have
made written request to the Indenture Trustee to institute proceedings in
respect of such Event of Default in its own name as Indenture Trustee; (3) such
Noteholders have offered to the Indenture Trustee reasonable indemnity
satisfactory to it against the costs, expenses and liabilities to be incurred in
compliance with such request; (4) for 60 days after its receipt of such notice,
request and offer of indemnity the Indenture Trustee has failed to institute any
such proceedings; (5) no direction inconsistent with such written request has
been given to the Indenture Trustee during such 60-day period by the Noteholders
representing more than 50% of the Note Principal Balance of the Notes; and (6)
such Noteholders have the consent of the Note Insurer, unless a Note Insurer
Default exists.
THE INDENTURE TRUSTEE
The Indenture Trustee may resign at any time, in which event the Issuer
will be obligated to appoint, at the direction of the Note Insurer, a successor
Indenture Trustee. The Indenture Trustee also may be removed at any time by the
Note Insurer, or if a Note Insurer Default exists, then by Noteholders
representing more than 50% of the Note Principal Balance of the Notes, if the
Indenture Trustee ceases to be eligible to continue as such under the Indenture
or if the Indenture Trustee becomes incapable of acting, bankrupt, insolvent or
if a receiver or public officer takes charge of the Indenture Trustee or its
property. Any resignation or removal of the Indenture Trustee and appointment of
a successor Indenture Trustee will not become effective until acceptance of the
appointment by the successor Indenture Trustee.
FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, the Notes will be characterized as
indebtedness and not as representing an ownership interest in the Trust Fund or
an equity interest in the Issuer or the Company. In addition, for federal income
tax purposes, the Issuer will not be (i) classified as an association taxable as
a corporation for federal income tax purposes (other than as a "qualified REIT
subsidiary" as defined in Section 856(i) of the Code), (ii) a taxable mortgage
pool as defined in Section 7701(i) of the Code, or (iii) a "publicly traded
partnership" as defined in Treasury Regulation Section 1.7704-1. The Notes will
not be treated as having been issued with "original issue discount" (as defined
in the Prospectus). The prepayment assumption that will be used in determining
the rate of amortization of market discount and
S-56
<PAGE>
premium, if any, for federal income tax purposes will be based on the assumption
that, subsequent to the date of any determination the Mortgage Loans will prepay
at a rate equal to 20% CPR. No representation is made that the Mortgage Loans
will prepay at that rate or at any other rate. See "Federal Income Tax
Consequences" in the Prospectus.
The Notes will not be treated as assets described in Section 7701(a)(19)(C)
of the Code or "real estate assets" under Section 856(c)(5)(A) of the Code. In
addition, interest on the Notes will not be treated as "interest on obligations
secured by mortgages on real property" under Section 856(c)(3)(B) of the Code.
The Notes will also not be treated as "qualified mortgages" under Section
860G(a)(3)(C) of the Code.
Prospective investors in the Notes should see "Federal Income Tax
Consequences" and "State and Other Tax Consequences" in the Prospectus for a
discussion of the application of certain federal income and state and local tax
laws to the Issuer and purchasers of the Notes.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in an Underwriting Agreement,
dated ______ ___, 199_ (the "Underwriting Agreement"), among ______________ (
_____________ ), ______________ ( __________ together with ______________
"Underwriters"), the Company and ___________ the Underwriters have agreed to
purchase and the Company has agreed to sell to the Underwriters the Notes. It is
expected that delivery of the Notes will be made only in book-entry form through
the Same Day Funds Settlement System of DTC, on or about _____ ____, 199_,
against payment therefor in immediately available funds.
The Notes will be purchased from the Company by the Underwriters and will
be offered by the Underwriters from time to time to the public in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. The proceeds to the Company from the sale of the Notes are expected to be
approximately $__________________ before the deduction of expenses payable by
the Company estimated to be approximately $____________. The Underwriters may
effect such transactions by selling the Notes to or through dealers, and such
dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Underwriters. In connection with the sale of
the Notes, the Underwriters may be deemed to have received compensation from the
Company in the form of underwriting compensation. The Underwriters and any
dealers that participate with the Underwriters in the distribution of the Notes
may be deemed to be underwriters and any profit on the resale of the Notes
positioned by them may be deemed to be underwriting discounts and commissions
under the Securities Act of 1933.
The Underwriting Agreement provides that the Company and _____ will jointly
and severally indemnify the Underwriters, and that under limited circumstances
the Underwriters will indemnify the Company, against certain civil liabilities
under the Securities Act of 1933, or contribute to payments required to be made
in respect thereof.
There can be no assurance that a secondary market for the Notes will
develop or, if it does develop, that it will continue or provide the Noteholders
with sufficient liquidity of investment. The primary source of information
available to investors concerning the Notes will be the monthly statements
discussed in the Prospectus under "Description of the Notes--Reports to
Noteholders," which will include information as to the outstanding principal
balance of the Notes. There can be no assurance that any additional information
regarding the Notes will be available through any other source. In addition, the
Company is not aware of any source through which price information about the
Notes will be generally
S-57
<PAGE>
available on an ongoing basis. The limited nature of such information regarding
the Notes may adversely affect the liquidity of the Notes, even if a secondary
market for the Notes becomes available.
LEGAL OPINIONS
Certain legal matters relating to the Notes will be passed upon for the
Company by Thacher Proffitt & Wood, New York, New York and for the Underwriters
by ______________, New York, New York.
RATINGS
It is a condition of the issuance of the Notes that they be rated "AAA" by
Standard & Poor's Ratings Services ("S&P") and "Aaa" by Moody's Investors
Service, Inc. ("Moody's").
S&P's ratings on mortgage pass-through certificates address the likelihood
of the receipt by Noteholders of payments required under the Indenture. S&P's
ratings take into consideration the credit quality of the mortgage pool,
structural and legal aspects associated with the Notes, and the extent to which
the payment stream in the mortgage pool is adequate to make payments required
under the Notes. S&P's rating on the Notes does not, however, constitute a
statement regarding frequency of prepayments on the mortgages. See "Certain
Yield and Prepayment Considerations" herein. The ratings issued by S&P on
payment of principal and interest do not cover the payment of the Available
Funds Cap Carry-Forward Amount.
The rating process of Moody's addresses the structural and legal aspects
associated with the Notes, including the nature of the underlying mortgage
loans. The ratings assigned to the Notes do not represent any assessment of the
likelihood or rate of principal prepayments. The ratings do not address the
possibility that Noteholders might suffer a lower than anticipated yield. The
ratings do not address the likelihood that Noteholders will be paid any
Prepayment Interest Shortfalls, Relief Act Shortfalls or the Available Funds Cap
Carry-Forward Amount. The ratings do not address the likelihood that Noteholders
will be paid any Deferred Interest except to the extent Deferred Interest is
added to the Note Principal Balance.
The Company has not requested a rating on the Notes by any rating agency
other than S&P and Moody's. However, there can be no assurance as to whether any
other rating agency will rate the Notes, or, if it does, what rating would be
assigned by any such other rating agency. A rating on the Notes by another
rating agency, if assigned at all, may be lower than the ratings assigned to the
Notes by S&P and Moody's.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating. In the event that the ratings initially assigned to the
Notes are subsequently lowered for any reason, no person or entity is obligated
to provide any additional support or credit enhancement with respect to the
Notes.
The ratings do not address the likelihood that the Master Servicer will
repurchase any Converting Mortgage Loan following the conversion of the related
Mortgage Rate to a fixed rate, and do not address the effect on the yield to
Noteholders resulting from any such conversion and the failure of the Master
Servicer to repurchase such Converting Mortgage Loan.
S-58
<PAGE>
LEGAL INVESTMENT
The Notes will constitute "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") for so long as they
are rated in at least the second highest rating category by one or more
nationally recognized statistical rating agencies, and, as such, are legal
investments for certain entities to the extent provided in SMMEA. SMMEA
provides, however, that states could override its provision on legal investment
and restrict or condition investment in mortgage related securities by taking
statutory action on or prior to October 3, 1991.
The Company makes no representations as to the proper characterization of
the Notes for legal investment or other purposes, or as to the ability of
particular investors to purchase the Notes under applicable legal investment
restrictions. These uncertainties may adversely affect the liquidity of the
Notes. Accordingly, all institutions whose investment activities are subject to
legal investment laws and regulations, regulatory capital requirements or review
by regulatory authorities should consult with their legal advisors in
determining whether and to what extent the Notes constitute a legal investment
or are subject to investment, capital or other restrictions.
See "Legal Investment Matters" in the Prospectus.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA")
and the Code impose certain requirements on employee benefit plans and certain
other retirement plans and arrangements (including, but not limited to,
individual retirement accounts and annuities), as well as on collective
investment funds and certain separate and general accounts in which such plans
or arrangements are invested (all of which are hereinafter referred to as a
"Plan") and on persons who are fiduciaries with respect to such Plans. Any Plan
fiduciary which proposes to cause a Plan to acquire any of the Notes would be
required to determine whether such an investment is permitted under the
governing Plan instruments and is prudent and appropriate for the Plan in view
of its overall investment policy and the composition and diversification of its
portfolio. In addition, ERISA and the Code prohibit certain transactions
involving the assets of a Plan and "disqualified persons" (within the meaning of
the Code) and "parties in interest" (within the meaning of ERISA) who have
certain specified relationships to the Plan. Therefore, a Plan fiduciary
considering an investment in the Notes should also consider whether such an
investment might constitute or give rise to a prohibited transaction under ERISA
or the Code. Any Plan fiduciary which proposes to cause a Plan to acquire any of
the Notes should consult with its counsel with respect to the potential
consequences under ERISA and the Code of the Plan's acquisition and ownership of
such Notes.
EXPERTS
The consolidated financial statements of the Note Insurer,
______________________________, as of December 31, 1996 and 1995 and for each of
the years in the three-year period ended December 31, 1996 are incorporated by
reference herein and in the registration statement in reliance upon the report
of __________________________, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
S-58
<PAGE>
================================================================================
No dealer, salesman or other person has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement and the Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or by the Underwriters. This Prospectus Supplement and the Prospectus do not
constitute an offer to sell, or a solicitation of an offer to buy, the notes
offered hereby to anyone in any jurisdiction in which the person making such
offer or solicitation is not qualified to do so or to anyone to whom it is
unlawful to make any such offer or solicitation. Neither the delivery of this
Prospectus Supplement and the Prospectus nor any sale made hereunder shall,
under any circumstances, create an implication that information herein or
therein is correct as of any time since the date of this Prospectus Supplement
or the Prospectus.
TABLE OF CONTENTS
PAGE
Prospectus Supplement
Summary..............................................
Risk Factors.........................................
Description of the Mortgage Pool.....................
The Issuer...........................................
The Owner Trustee....................................
The Indenture Trustee................................
______________________ ..............................
Description of the Notes.............................
Certain Yield and Prepayment Considerations..........
Description of the Servicing Agreement...............
The Indenture........................................
Federal Income Tax Consequences......................
Method of Distribution............................... S-58
Legal Opinions....................................... S-59
Ratings..............................................
Legal Investment.....................................
ERISA Considerations.................................
Experts..............................................
Appendix A--Underwriting Guidelines Applicable
to the Mortgage Loans...........................
Prospectus
WMC SECURED
ASSETS CORP.
Series 199_-_
$
Mortgage-Backed Notes
Series 199_-_
------------------
PROSPECTUS SUPPLEMENT
------------------
------------------------------------
------- 199--
------------------
-----------------------
================================================================================
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PRELIMINARY 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
PRELIMINARY PROSPECTUS DATED NOVEMBER __, 1997
PROSPECTUS
Mortgage Pass-Through Certificates
Mortgage-Backed Notes
WMC Secured Assets Corp.
The mortgage pass-through certificates ("Certificates") or mortgage-backed notes
("Notes") offered hereby (the "Offered Securities") and by the supplements
hereto (each, a "Prospectus Supplement") will be offered from time to time in
series. The Offered Securities of each series, together with any other mortgage
pass-through certificates or mortgage-backed notes of such series, are
collectively referred to herein as the "Securities."
Each series of Certificates will represent in the aggregate the entire
beneficial ownership interest in, and each series of Notes will represent
indebtedness of, a trust fund (with respect to any series, the "Trust Fund") to
be established by WMC Secured Assets Corp. (the "Company"). Each Trust Fund will
consist primarily of a segregated pool (a "Mortgage Pool") of one- to
four-family and/or multifamily residential first and/or junior mortgage loans or
manufactured housing conditional sales contracts and installment loan agreements
(collectively, the "Mortgage Loans") or interests therein (which may include
Mortgage Securities as defined herein), acquired by the Company from one or more
affiliated or unaffiliated institutions (the "Sellers"). See "The Company" and
"The Mortgage Pools." The Mortgage Loans and other assets in each Trust Fund,
which may only include, if applicable, reinvestment income, reserve funds, cash
accounts and various forms of credit enhancement as described herein
(collectively, the "Trust Fund Assets") will be held in trust for the benefit of
the holders of the related series of Securities (the "Securityholders") pursuant
to (i) with respect to each series of Certificates, a pooling and servicing
agreement or other agreement (in either case, a "Pooling Agreement") or (ii)
with respect to each series of Notes, an indenture (an "Indenture"), in each
case as more fully described herein and in the related Prospectus Supplement.
Information regarding the Offered Securities of a series, and the general
characteristics of the Mortgage Loans and other Trust Fund Assets in the related
Trust Fund, will be set forth in the related Prospectus Supplement.
Each series of Securities will include one or more classes. Each class of
Securities of any series will represent the right, which right may be senior or
subordinate to the rights of one or more of the other classes of the Securities,
to receive a specified portion of payments of principal or interest (or both) on
the Mortgage Loans and the other Trust Fund Assets in the related Trust Fund in
the manner described herein under "Description of the Securities" and in the
related Prospectus Supplement. A series may include one or more classes of
Securities entitled to principal distributions, with disproportionate, nominal
or no interest distributions, or to interest distributions, with
disproportionate, nominal or no principal distributions. A series may include
two or more classes of Securities which differ as to the timing, sequential
order, priority of payment, pass-through rate or amount of distributions of
principal or interest or both.
THE COMPANY'S ONLY OBLIGATIONS WITH RESPECT TO A SERIES OF SECURITIES WILL BE
PURSUANT TO CERTAIN REPRESENTATIONS AND WARRANTIES MADE BY THE COMPANY, EXCEPT
AS PROVIDED IN THE RELATED PROSPECTUS SUPPLEMENT. THE MASTER SERVICER (THE
"MASTER SERVICER") FOR ANY SERIES OF SECURITIES WILL BE NAMED IN THE RELATED
PROSPECTUS SUPPLEMENT. THE PRINCIPAL OBLIGATIONS OF THE MASTER SERVICER WILL BE
PURSUANT TO ITS CONTRACTUAL SERVICING OBLIGATIONS (WHICH INCLUDE ITS LIMITED
OBLIGATION TO MAKE CERTAIN ADVANCES IN THE EVENT OF DELINQUENCIES IN PAYMENTS ON
THE RELATED MORTGAGE LOANS). SEE "DESCRIPTION OF THE SECURITIES."
If so specified in the related Prospectus Supplement, the Trust Fund for a
series of Securities may include any one or any combination of a financial
guaranty insurance policy, mortgage pool insurance policy, letter of credit,
bankruptcy bond, special hazard insurance policy, or reserve fund. In addition
to or in lieu of the foregoing, credit enhancement may be provided by means of
subordination of one or more classes of Securities or by Overcollateralization
(as defined herein). See "Description of Credit Enhancement."
The rate of payment of principal of each class of Securities entitled to a
portion of principal payments on the Mortgage Loans in the related Mortgage Pool
and the Trust Fund Assets will depend on the priority of payment of such class
and the rate and timing of principal payments (including by reason of
prepayments, defaults, liquidations and repurchases of Mortgage Loans) on such
Mortgage Loans and other Trust Fund Assets. A rate of principal payment slower
or faster than that anticipated may affect the yield on a class of Securities in
the manner described herein and in the related Prospectus Supplement. See "Yield
Considerations."
With respect to each series of Certificates, one or more separate elections may
be made to treat the related Trust Fund or a designated portion thereof as a
real estate mortgage investment conduit ("REMIC") for federal income tax
purposes. If applicable, the Prospectus Supplement for a series of Certificates
will specify which class or classes of the related series of Certificates will
be considered to be regular interests in the related REMIC and which class of
Certificates or other interests will be designated as the residual interest in
the related REMIC. See "Federal Income Tax Consequences" herein.
Prospective investors should review the information appearing under the caption
"Risk Factors" herein and such information as may be set forth under the caption
"Risk Factors" in the related Prospectus Supplement before purchasing any
Offered Security.
See "Risk Factors" beginning on page __ herein for a discussion of significant
matters affecting investment in the Securities.
PROCEEDS OF THE ASSETS IN THE RELATED TRUST FUND AND PAYMENTS UNDER ANY
FINANCIAL GUARANTY INSURANCE POLICY ARE THE SOLE SOURCE OF PAYMENTS ON THE
SECURITIES. THE SECURITIES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE
COMPANY, THE MASTER SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE
SECURITIES OF ANY SERIES NOR THE UNDERLYING MORTGAGE LOANS OR MORTGAGE
SECURITIES WILL BE GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY THE COMPANY, THE MASTER SERVICER OR ANY OF THEIR
RESPECTIVE AFFILIATES, EXCEPT AS SET FORTH IN THE RELATED PROSPECTUS SUPPLEMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Offered Securities may be offered through one or more different methods,
including offerings through underwriters, as more fully described under "Methods
of Distribution" and in the related Prospectus Supplement.
<PAGE>
There will be no secondary market for the Offered Securities of any series prior
to the offering thereof. There can be no assurance that a secondary market for
any of the Offered Securities will develop or, if it does develop, that it will
continue. The Offered Securities will not be listed on any securities exchange.
Retain this Prospectus for future reference. This Prospectus may not be used to
consummate sales of securities offered hereby unless accompanied by a Prospectus
Supplement.
The date of this Prospectus is November __, 1997.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND ANY PROSPECTUS
SUPPLEMENT WITH RESPECT HERETO AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON. THIS PROSPECTUS AND ANY PROSPECTUS
SUPPLEMENT WITH RESPECT HERETO DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES OFFERED
HEREBY AND THEREBY OR AN OFFER OF SUCH SECURITIES TO ANY PERSON IN ANY STATE OR
OTHER JURISDICTION IN WHICH SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE; HOWEVER, IF ANY MATERIAL CHANGE OCCURS WHILE
THIS PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED, THIS PROSPECTUS WILL BE
AMENDED OR SUPPLEMENTED ACCORDINGLY.
TABLE OF CONTENTS
CAPTION PAGE
- ------- ----
SUMMARY OF PROSPECTUS......................................................5
RISK FACTORS..............................................................14
THE MORTGAGE POOLS........................................................18
General ........................................................18
The Mortgage Loans...............................................19
Underwriting Standards...........................................23
Qualifications of Originators and Sellers........................25
Representations by Sellers.......................................25
SERVICING OF MORTGAGE LOANS...............................................28
General ........................................................28
The Master Servicer..............................................28
Collection and Other Servicing Procedures; Mortgage Loan
Modifications...........................................28
Subservicers.....................................................30
Special Servicers................................................31
Servicing and Other Compensation and Payment of
Expenses; Spread........................................33
Evidence as to Compliance........................................34
DESCRIPTION OF THE SECURITIES.............................................34
General ........................................................34
Form of Securities...............................................36
Assignment of Trust Fund Assets..................................37
Certificate Account..............................................39
Distributions....................................................42
Distributions of Interest and Principal on the Securities
.......................................................43
Pre-Funding Account..............................................44
Distributions on the Securities in Respect of Prepayment
Premiums or in Respect of Equity Participations
44
Allocation of Losses and Shortfalls..............................44
Advances ........................................................44
Reports to Securityholders.......................................45
DESCRIPTION OF CREDIT ENHANCEMENT.........................................46
General ........................................................46
Subordinate Securities...........................................47
Overcollateralization............................................48
Financial Guaranty Insurance Policy..............................48
Mortgage Pool Insurance Policies.................................48
Letter of Credit.................................................50
Special Hazard Insurance Policies................................50
Bankruptcy Bonds.................................................51
Reserve Funds....................................................51
Maintenance of Credit Enhancement................................52
Reduction or Substitution of Credit Enhancement..................54
PURCHASE OBLIGATIONS......................................................54
PRIMARY MORTGAGE INSURANCE, HAZARD INSURANCE;
CLAIMS THEREUNDER................................................55
General ........................................................55
Primary Mortgage Insurance Policies..............................55
Hazard Insurance Policies........................................56
FHA Insurance....................................................57
THE COMPANY...............................................................58
THE AGREEMENTS............................................................58
General ........................................................58
Certain Matters Regarding the Master Servicer and the
Company.................................................59
Events of Default and Rights Upon Event Default..................60
Amendment........................................................63
Termination; Retirement of Securities............................64
The Trustee......................................................64
Duties of the Trustee............................................65
Certain Matters Regarding the Trustee............................65
Resignation and Removal of the Trustee...........................65
YIELD CONSIDERATIONS......................................................65
MATURITY AND PREPAYMENT CONSIDERATIONS....................................68
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS...................................69
Single Family Loans and Multifamily Loans........................69
Cooperative Loans................................................70
Tax Aspects of Cooperative Ownership.............................71
Contracts........................................................71
Foreclosure on Mortgages and Certain Contracts...................72
Foreclosure on Shares of Cooperatives............................74
Repossession with respect to Contracts...........................75
Rights of Redemption.............................................76
Anti-Deficiency Legislation and Other Limitations on
Lenders.................................................77
Environmental Legislation........................................78
Consumer Protection Laws with respect to Contracts
.......................................................79
Enforceability of Certain Provisions.............................80
Subordinate Financing............................................81
Applicability of Usury Laws......................................82
Alternative Mortgage Instruments.................................82
Formaldehyde Litigation with respect to Contracts................83
Soldiers' and Sailors' Civil Relief Act of 1940..................83
Junior Mortgages.................................................84
FEDERAL INCOME TAX CONSEQUENCES...........................................85
General ........................................................85
REMICS ........................................................85
Notes ........................................................99
Grantor Trust Funds.............................................100
STATE AND OTHER TAX CONSEQUENCES.........................................108
ERISA CONSIDERATIONS.....................................................108
Tax Exempt Investors............................................113
Consultation with Counsel.......................................113
USE OF PROCEEDS..........................................................115
METHODS OF DISTRIBUTION..................................................115
LEGAL MATTERS............................................................116
FINANCIAL INFORMATION....................................................116
RATING ................................................................116
INDEX OF PRINCIPAL DEFINITIONS...........................................118
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UNTIL 90 DAYS AFTER THE DATE OF EACH PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE RELATED OFFERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THE DISTRIBUTION THEREOF, MAY BE REQUIRED TO DELIVER THIS
PROSPECTUS AND THE RELATED PROSPECTUS SUPPLEMENT. THIS DELIVERY REQUIREMENT IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance therewith
files reports and other information with the Securities and Exchange Commission
(the "Commission"). Such reports and other information filed by the Company can
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and its Regional
Offices located as follows: Chicago Regional Office, 500 West Madison, 14th
Floor, Chicago, Illinois 60661; New York Regional Office, Seven World Trade
Center, New York, New York 10048. Copies of such material can also be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates and electronically through the
Commission's Electronic Data Gathering, Analysis and Retrieval system at the
Commission's Web site (http://www.sec.gov). The Company does not intend to send
any financial reports to Securityholders.
This Prospectus does not contain all of the information set forth in
the Registration Statement (of which this Prospectus forms a part) and exhibits
thereto which the Company has filed with the Commission under the Securities Act
of 1933 (the "Securities Act") and to which reference is hereby made.
REPORTS TO SECURITYHOLDERS
The Master Servicer or another designated person will be required to
provide periodic unaudited reports concerning each Trust Fund to all registered
holders of Offered Securities of the related series with respect to each Trust
Fund as are required under the Exchange Act and the rules and regulations of the
Commission thereunder. See "Description of the Securities--Reports to
Securityholders."
The Company intends to make a written request to the staff of the
Commission that the staff either (i) issue an order pursuant to Section 12(h) of
the Exchange Act exempting the Company from certain reporting requirements under
the Exchange Act with respect to each Trust Fund or (ii) state that the staff
will not recommend that the Commission take enforcement action if the Company
fulfills its reporting obligations as described in its written request. If such
request is granted, the Company will file or cause to be filed with the
Commission as to each Trust Fund the periodic unaudited reports to holders of
the Offered Securities referenced in the preceding paragraph; however, because
of the nature of the Trust Funds, it is unlikely that any significant additional
information will be filed. In addition, because of the limited number of
Securityholders expected for each series, the Company anticipates that a
significant portion of such reporting requirements will be permanently suspended
following the first fiscal year for the related Trust Fund.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein and in the related Prospectus Supplement
by reference all documents and reports filed or caused to be filed by the
Company with respect to a Trust Fund pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act, prior to the termination of the offering of the
Offered Securities of the related series. The Company will provide or cause to
be provided without charge to each person to whom this Prospectus is delivered
in connection with the offering of one or more classes of Offered Securities,
upon written or oral request of such person, a copy of any or all such reports
incorporated herein by reference, in each case to the extent such reports relate
to one or more of such classes of such Offered Securities, other than the
exhibits to such documents, unless such exhibits are specifically incorporated
by reference in such documents. Requests should be directed in writing to WMC
Secured Assets Corp., 6320 Canoga Avenue, Woodland Hills, California 91367, or
by telephone at (818) 592-2610. The Company has determined that its financial
statements will not be material to the offering of any Offered Securities.
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SUMMARY OF PROSPECTUS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to each series of Securities contained in the
Prospectus Supplement to be prepared and delivered in connection with the
offering of Offered Securities of such series. Capitalized terms used in this
summary that are not otherwise defined shall have the meanings ascribed thereto
elsewhere in this Prospectus. An index indicating where certain capitalized
terms used herein are defined appears at the end of this Prospectus.
Securities Offered................. Mortgage pass-through certificates or
mortgage-backed notes. The mortgage
pass-through certificates (the "Offered
Certificates") or mortgage-backed notes
(the "Offered Notes"; the Offered Notes
or the Offered Certificates, the "Offered
Securities") offered hereby and by the
various Prospectus Supplements with
respect hereto will be offered from time
to time in series. The Offered Securities
of each series, together with any other
mortgage pass-through certificates or
mortgage- backed notes of such series,
are collectively referred to herein as
the "Securities."
Risk Factors....................... There are material risks associated with
an investment in the Offered
Certificates. See "Risk Factors" herein.
Company............................ WMC Secured Assets Corp. (the "Company"),
a wholly-owned subsidiary of WMC Mortgage
Corp. ("WMC Mortgage"). See "The
Company."
Master Servicer.................... The master servicer (the "Master
Servicer"), if any, for a series of
Securities will be specified in the
related Prospectus Supplement and may be
WMC Mortgage or another affiliate of the
Company. See "Servicing of Mortgage
Loans--The Master Servicer."
Special Servicer................... The special service r (the "Special
Servicer"), if any, for a series of
Securities will be specified, or the
circumstances under which a Special
Servicer will be appointed will be
described, in the related Prospectus
Supplement. Any Special Servicer may be
an affiliate of the Company. See
"Servicing of Mortgage Loans--Special
Servicers."
Issuer............................. With respect to each series of Notes, the
issuer (the "Issuer") will be the Company
or an owner trust established by it for
the purpose of issuing such series of
Notes. Each such owner trust will be
created pursuant to a trust agreement
(the "Owner Trust Agreement") between the
Company, acting as depositor, and the
Owner Trustee. Each series of Notes will
represent indebtedness of the Issuer and
will be issued pursuant to
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an indenture between the Issuer and the
Trustee (the "Indenture") whereby the
Issuer will pledge the Trust Fund to
secure the Notes under the lien of the
Indenture. As to each series of Notes
where the Issuer is an owner trust, the
ownership of the Trust Fund will be
evidenced by certificates (the "Equity
Certificates") issued under the Owner
Trust Agreement, which are not offered
hereby. The Notes will represent
nonrecourse obligations solely of the
Issuer, and the proceeds of the related
Trust Fund will be the sole source of
payments on the Notes, except as
described herein under "Description of
Credit Enhancement" and in the related
Prospectus Supplement.
Trustees........................... The trustee or indenture trustee (each,
the "Trustee") for each series of
Certificates and Notes, respectively,
will be named in the related Prospectus
Supplement. The Owner Trustee (the "Owner
Trustee") for each series of Notes will
be named in the related Prospectus
Supplement. See "The Agreements--The
Trustee."
The Securities..................... Each series of Securities will include
one or more classes of Securities which
will represent either (i) with respect to
each series of Certificates, in the
aggregate the entire beneficial ownership
interest in, or (ii) with respect to each
series of Notes, indebtedness of, a
segregated pool of Mortgage Loans
(exclusive of any portion of interest
payments (the "Spread") relating to each
Mortgage Loan retained by the Company or
any of its affiliates) or interests
therein (which may include Mortgage
Securities as defined herein), and
certain other assets as described below
(collectively, a "Trust Fund"), and will
be issued pursuant to either (i) with
respect to each series of Certificates, a
pooling and servicing agreement or other
agreement specified in the related
Prospectus Supplement (in either case, a
"Pooling Agreement") or (ii) with respect
to each series of Notes, an indenture
specified in the related Prospectus
Supplement (the "Indenture"). Except for
certain Strip Securities and REMIC
Residual Certificates (each as
hereinafter described), each series of
Securities, or class of Securities in the
case of a series consisting of two or
more classes, will have a stated
principal balance and will be entitled to
distributions of interest based on a
specified interest rate or rates (each, a
"Security Interest Rate"). The Security
Interest Rate of each Security offered
hereby will be stated in the related
Prospectus Supplement as the
"Pass-Through Rate" with respect to a
Certificate and the "Note Interest Rate"
with respect to a Note. Each series or
class of Securities may have a
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different Security Interest Rate, which
may be a fixed, variable or adjustable
Security Interest Rate, or any
combination of two or more such Security
Interest Rates. The related Prospectus
Supplement will specify the Security
Interest Rate or Rates for each series or
class of Securities, or the initial
Security Interest Rate or Rates and the
method for determining subsequent changes
to the Security Interest Rate or Rates.
A series may include one or more classes
of Securities ("Strip Securities")
entitled (i) to principal distributions,
with disproportionate, nominal or no
interest distribu tions, or (ii) to
interest distributions, with dispropor
tionate, nominal or no principal
distributions. In addition, a series may
include two or more classes of Securities
which differ as to timing, sequential
order, priority of payment, pass-through
rate or amount of distributions of
principal or interest or both, or as to
which distributions of principal or
interest or both on any class may be made
upon the occurrence of specified events,
in accordance with a schedule or formula,
or on the basis of collections from
designated portions of the Mortgage Pool,
which series may include one or more
classes of Securities ("Accrual
Securities"), as to which certain accrued
interest will not be distributed but
rather will be added to the principal
balance thereof on each Distribution
Date, as hereinafter defined, in the
manner described in the related
Prospectus Supplement.
If so provided in the related Prospectus
Supplement, a series of Securities may
include one or more classes of Securities
(collectively, the "Senior Securities")
which are senior to one or more classes
of Securities (collectively, the
"Subordinate Securities") in respect of
certain distributions of principal and
interest and allocations of losses on
Mortgage Loans. In addition, certain
classes of Senior (or Subordinate)
Securities may be senior to other classes
of Senior (or Subordinate) Securities in
respect of such distributions or losses.
As to each series of Certificates, one or
more elections may be made to treat the
related Trust Fund or a designated
portion thereof as a "real estate
mortgage investment conduit" or "REMIC"
as defined in the Internal Revenue Code
of 1986 (the "Code"). See "Description of
the Securities."
The Securities will not be guaranteed or
insured by any governmental agency or
instrumentality, by the Company, the
Master Servicer or any of their
respective
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affiliates or by any other person, unless
otherwise specified in the related
Prospectus Supplement.
Securities of one or more classes of a
series may be issued in book-entry form.
See "Description of the Securities--Form
of Securities."
The Mortgage Pools................. Unless otherwise specified in the related
Prospectus Supplement, each Trust Fund
will consist primarily of a segregated
pool (a "Mortgage Pool") of mortgage
loans and/or manufactured housing
conditional sales and installment loan
agreements (collectively, the "Mortgage
Loans") or interests therein. Unless
otherwise specified in the related
Prospectus Supplement, each Mortgage Loan
will be secured by a first or junior lien
on or security interest in (i) a one- to
four-family residential property, (ii) a
residential property consisting of five
or more rental or cooperatively-owned
dwelling units or (iii) a new or used
manufactured home (each, a "Mortgaged
Property"). The Mortgaged Properties may
be located in any one of the 50 states,
the District of Columbia or the
Commonwealth of Puerto Rico. For a
description of the types of Mortgage
Loans that may be included in the
Mortgage Pools, see "The Mortgage
Pools--The Mortgage Loans." The Mortgage
Loans will not be guaranteed or insured
by the Company, any of its affiliates or,
except as set forth in the related
Prospectus Supplement, by any
governmental agency or instrumentality or
any other person.
If specified in the related Prospectus
Supplement, Mortgage Loans which are
converting or converted from an
adjustable-rate to a fixed-rate or
certain Mortgage Loans for which the
Mortgage Rate has been reset may be
repurchased by the Company or purchased
by the related Master Servicer, the
applicable Seller or another party, or a
designated remarketing agent will use its
best efforts to arrange the sale thereof
as further described herein.
If so specified in the related Prospectus
Supplement, some Mortgage Loans may be
delinquent or non-performing as of the
date of their deposit in the related
Trust Fund.
If specified in the related Prospectus
Supplement, a Trust Fund may include or
consist solely of mortgage participations
or pass-through certificates evidencing
interests in Mortgage Loans ("Mortgage
Securities"), as
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<PAGE>
described herein. See "The Mortgage
Pools-General" herein.
Unless otherwise specified in the related
Prospectus Supplement, each Mortgage Loan
and Mortgage Security included in a Trust
Fund will have been selected by the
Company from among those purchased,
either directly or indirectly, from a
prior holder thereof (a "Seller"), which
prior holder may or may not be the
originator of such Mortgage Loan or the
issuer of such Mortgage Security and may
be an affiliate of the Company. A
Mortgage Security included in a Trust
Fund, however, may also have been issued
previously by the Company or an affiliate
thereof.
A Current Report on Form 8-K will be
available upon request to purchasers of
the Offered Securities of the related
series and will be filed, together with
the related Pooling Agreement, with
respect to each series of Certificates,
and the related Servicing Agreement,
Owner Trust Agreement and Indenture, with
respect to each series of Notes, with the
Securities and Exchange Commission within
fifteen days after such initial issuance.
Interest Distributions............. Except as otherwise specified herein or
in the related Prospectus Supplement,
interest on each class of Offered
Securities of each series, other than
Strip Securities or Accrual Securities
(prior to the time when accrued interest
becomes payable thereon), will accrue at
the applicable Security Interest Rate
(which may be a fixed, variable or
adjustable rate or any combination
thereof) on such class's principal
balance outstanding from time to time and
will be remitted on the 25th day or other
day as specified in the Prospectus
Supplement (or, if such day is not a
business day, on the next succeeding
business day) of each month, commencing
with the month following the month in
which the Cut-off Date (as defined in the
applicable Prospectus Supplement) occurs
(each, a "Distribution Date").
Distributions, if any, with respect to
interest on Strip Securities will be
calculated and made on each Distribution
Date as described herein under
"Description of the
Securities--Distribution of Interest and
Principal on the Securities" and in the
related Prospectus Supplement. Interest
that has accrued but is not yet payable
on any Accrual Securities will be added
to the principal balance of such class on
each Distribution Date, and will
thereafter bear interest at the
applicable Security Interest Rate.
Distributions of interest with respect to
one or
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<PAGE>
more classes of Offered Securities (or,
in the case of a class of Accrual
Securities, accrued interest to be added
to the principal balance thereof) may be
reduced as a result of the occurrence of
certain delinquencies not covered by
advances, losses, prepayments and other
contingencies described herein and in the
related Prospectus Supplement. See "Yield
Considerations" and "Description of the
Securities--Distribution of Interest and
Principal on the Securities."
Principal Distributions............ Except as otherwise specified in the
related Prospectus Supplement, principal
distributions on the Securities of each
series will be payable on each
Distribution Date, commencing with the
Distribution Date in the month following
the month in which the Cut-off Date
occurs, to the holders of the Securities
of such series, or of the class or
classes of Securities then entitled
thereto, on a pro rata basis among all
such Securities or among the Securities
of any such class, in proportion to their
respective outstanding principal
balances, or in the priority and manner
otherwise specified in the related
Prospectus Supplement. Strip Securities
with no principal balance will not
receive distributions in respect of
principal. Distributions of principal
with respect to any series of Securities,
or with respect to one or more classes
included therein, may be reduced to the
extent of certain delinquencies not
covered by advances or losses not covered
by the applicable form of credit
enhancement. See "The Mortgage Pools,"
"Maturity and Prepayment Considerations"
and "Description of the Securities."
Pre-Funding Account................ If so specified in the related Prospectus
Supplement, a portion of the proceeds of
the sale of one or more Classes of
Securities of a series may be deposited
in a segregated account to be applied to
acquire additional Mortgage Loans from
the Sellers, subject to the limitations
set forth herein under "Description of
the Securities-Pre-Funding Account."
Monies on deposit in the Pre-Funding
Account and not applied to acquire such
additional Mortgage Loans within the time
set forth in the related Pooling
Agreement or other applicable agreement
may be treated as principal and applied
in the manner described in the related
Prospectus Supplement.
Credit Enhancement................. If so specified in the Prospectus
Supplement, the Trust Fund with respect
to any series of Securities may include
any one or any combination of a financial
guaranty insurance policy, mortgage pool
insurance policy, letter of credit,
special hazard insurance policy,
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<PAGE>
bankruptcy bond or reserve fund to
provide full or partial coverage for
certain defaults and losses relating to
the Mortgage Loans. Credit support also
may be provided in the form of
subordination of one or more classes of
Securities in a series under which losses
are first allocated to any Subordinate
Securities up to a specified limit or in
the form of Overcollateralization. With
respect to any series of Notes, the
related Equity Certificates, insofar as
they represent the beneficial ownership
interest in the Issuer, will be
subordinate to the related Notes. Any
form of credit enhancement will have
certain limitations and exclusions from
coverage thereunder, which will be
described in the related Prospectus
Supplement. Losses not covered by any
form of credit enhancement will be borne
by the holders of the related Securities
(or certain classes thereof). To the
extent not set forth herein, the amount
and types of coverage, the identification
of any entity providing the coverage, the
terms of any subordination and related
information will be set forth in the
Prospectus Supplement relating to a
series of Securities. See "Description of
Credit Enhancement" and "Subordination."
Advances........................... If and to the extent described in the
related Prospectus Supplement, and
subject to any limitations specified
therein, the Master Servicer for any
Trust Fund will be obligated to make, or
have the option of making, certain
advances with respect to delinquent
scheduled payments on the Mortgage Loans
in such Trust Fund. Any such advance made
by the Master Servicer with respect to a
Mortgage Loan is recoverable by it as
described herein under "Description of
the Securities--Advances" either from
recoveries on or in respect of the
specific Mortgage Loan or, with respect
to any advance subsequently determined to
be nonrecoverable from recoveries on or
in respect of the specific Mortgage Loan,
out of funds otherwise distributable to
the holders of the related series of
Securities, which may include the holders
of any Senior Securities of such series.
If and to the extent provided in the
Prospectus Supplement for a series of
Securities, the Master Servicer will be
entitled to receive interest on its
advances for the period that they are
outstanding payable from amounts in the
related Trust Fund. As specified in the
Prospectus Supplement with respect to any
series of Securities as to which the
Trust Fund includes Mortgage Securities,
the advancing obligations in respect of
the underlying Mortgage Loans will be
pursuant to the terms of such Mortgage
Securities, as may be supplemented by the
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<PAGE>
terms of the applicable Pooling
Agreement, and may differ from the
provisions described herein.
Optional Termination............... The Master Servicer, the Company or a
person specified in the related
Prospectus Supplement or the holder of
the Equity Certificates with respect to a
series of Notes (other than the holder of
any Class of Offered Securities, other
than any Class of REMIC Residual
Certificates, if offered), may at its
option either (i) effect early retirement
of a series of Securities through the
purchase of the assets in the related
Trust Fund or (ii) purchase, in whole but
not in part, the Securities specified in
the related Prospectus Supplement; in
each case under the circumstances and in
the manner set forth herein under "The
Agreements--Termination; Reti rement of
Securities" and in the related Prospectus
Sup plement.
Legal Investment................... At the date of issuance, as to each
series, each class of Offered Securities
will be rated at the request of the
Company in one of the four highest rating
categories by one or more nationally
recognized statistical rating agencies
(each, a "Rating Agency"). If so
specified in the related Prospectus
Supplement, each class of Offered
Securities that is rated in one of the
two highest rating categories by at least
one Rating Agency will constitute
"mortgage related securities" for
purposes of the Secondary Mortgage Market
Enhancement Act of 1984, as amended
("SMMEA"). Investors whose investment
authority is subject to legal
restrictions should consult their own
legal advisors to determine whether and
to what extent the Offered Securities of
any series constitute legal investments
for them. See "Legal Investment Matters."
ERISA Considerations............... A fiduciary of an employee benefit plan
and 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, annuities or
arrangements are invested, that is
subject to the Employee Retirement Income
Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code
(each, a "Plan") should carefully review
with its legal advisors whether the
purchase or holding of Offered Securities
could give rise to a transaction that is
prohibited or is not otherwise
permissible either under ERISA or Section
4975 of the Code. Investors are advised
to consult their counsel and to review
"ERISA Considerations" herein and in the
related Prospectus Supplement.
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Federal Income
Tax Consequences................. Offered Certificates of each series of
Certificates will constitute or evidence
ownership of either (i) interests
("Grantor Trust Certificates") in a Trust
Fund treated as a grantor trust under
applicable provisions of the Code or (ii)
"regular interests" ("REMIC Regular
Certificates") or "residual interests"
("REMIC Residual Certificates") in a
Trust Fund, or a portion thereof, treated
as a REMIC under Sections 860A through
860G of the Code. Offered Notes of each
series of Notes will represent
indebtedness of the related Trust Fund.
Investors are advised to consult their
tax advisors and to review "Federal
Income Tax Consequences" herein and in
the related Prospectus Supplement.
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RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Offered Securities:
LIMITED LIQUIDITY. There can be no assurance that a secondary market
for the Offered Securities of any series will develop or, if it does develop,
that it will provide Securityholders with liquidity of investment or that it
will continue for the life of the Offered Securities of any series. The
Prospectus Supplement for any series of Offered Securities may indicate that an
underwriter specified therein intends to establish a secondary market in such
Securities, however no underwriter will be obligated to do so. As a result, any
resale prices that may be available for any Security in any market that may
develop may be at a discount from the initial offering price or the fair market
value thereof. The Offered Securities will not be listed on any securities
exchange.
LIMITED OBLIGATIONS. The Offered Securities will not represent an
interest in or obligation of the Company, the Master Servicer or any of their
respective affiliates. The only obligations of the foregoing entities with
respect to the Securities or the Mortgage Loans will be the obligations (if any)
of the Company pursuant to certain limited representations and warranties made
with respect to the Mortgage Loans, the Master Servicer's servicing obligations
under the related Pooling Agreement (including, if and to the extent described
in the related Prospectus Supplement, its limited obligation to make certain
advances in the event of delinquencies on the Mortgage Loans) and, if and to the
extent expressly described in the related Prospectus Supplement, certain limited
obligations of the Master Servicer in connection with a Purchase Obligation or
an agreement to purchase or act as remarketing agent with respect to a
Convertible Mortgage Loan upon conversion to a fixed rate. Except as set forth
in the related Prospectus Supplement, neither the Securities nor the underlying
Mortgage Loans will be guaranteed or insured by any governmental agency or
instrumentality, by the Company, the Master Servicer or any of their respective
affiliates or by any other person. Proceeds of the assets included in the
related Trust Fund for each series of Securities (including the Mortgage Loans
and any form of credit enhancement) will be the sole source of payments on the
Securities, and there will be no recourse to the Company, the Master Servicer or
any other entity in the event that such proceeds are insufficient or otherwise
unavailable to make all payments provided for under the Securities.
LIMITATIONS, REDUCTION AND SUBSTITUTION OF CREDIT ENHANCEMENT. With
respect to each series of Securities, credit enhancement will be provided in
limited amounts to cover certain types of losses on the underlying Mortgage
Loans. Credit enhancement will be provided in one or more of the forms referred
to herein, including, but not limited to: subordination of other classes of
Securities of the same series; a Financial Guaranty Insurance Policy; a Mortgage
Pool Insurance Policy; a Letter of Credit; a Purchase Obligation; a Special
Hazard Insurance Policy; a Bankruptcy Bond; a Reserve Fund;
Overcollateralization; or any combination thereof. See "Subordination" and
"Description of Credit Enhancement" herein. 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. Furthermore, such credit enhancements may provide only very limited
coverage as to certain types of losses or risks, and may provide no coverage as
to certain other types of losses or risks. In the event losses exceed the amount
of coverage provided by any credit enhancement or losses of a type not covered
by any credit enhancement occur, such losses will be borne by the holders of the
related Securities (or certain classes thereof). The Company, the Master
Servicer or other specified person generally will be permitted to reduce,
terminate or substitute all or a portion of the credit enhancement for any
series of Securities, if each applicable Rating Agency indicates that the
then-current rating(s) thereof will not be adversely affected. The rating(s) of
any series of Securities 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 support provider, or as a result of losses
on the related Mortgage Loans in excess of the levels contemplated by such
Rating Agency at the time of its initial rating analysis. Neither the Company,
the Master Servicer nor any of their respective affiliates will have any
obligation to replace or supplement any credit enhancement, or to take any other
action to maintain any rating(s) of any series of Securities. See "Description
of Credit Enhancement--Reduction of Credit Enhancement."
LIMITED NATURE OF RATINGS. It is a condition to the issuance of the
Securities that each class of Securities be rated in one of the four highest
rating categories by a nationally recognized statistical rating agency. A
security rating is not a recommendation to buy, sell or hold securities and may
be subject to revision or withdrawal at any time. No person is obligated to
maintain the rating on any Certificate, and, accordingly, there can be no
assurance that the
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ratings assigned to any Certificate on the date on which such Securities are
initially issued will not be lowered or withdrawn by a Rating Agency at any time
thereafter. In the event any rating is revised or withdrawn, the liquidity or
the market value of the related Securities may be adversely affected. See
"Rating" herein.
FORECLOSURE RISKS OF THE MORTGAGE LOANS. Statutory and judicial
limitations on foreclosure procedures may delay recovery in respect of the
Mortgaged Property and, in some instances, limit the amount that may be
recovered by the foreclosing lender. Foreclosure procedures may vary from state
to state. Two primary methods of foreclosing a mortgage instrument are judicial
foreclosure, involving court proceedings, and non-judicial foreclosure pursuant
to a power of sale granted in the mortgage instrument. A foreclosure action is
subject to most of the delays and expenses of other lawsuits if defenses are
raised or counterclaims are asserted. Delays may also result from difficulties
in locating necessary defendants. Non-judicial foreclosures may be subject to
delays resulting from state laws mandating the recording of notice of default
and notice of sale and, in certain states, notice to any party having an
interest of record in the real property, including junior lienholders. Certain
states have adopted "anti-deficiency" statutes that limit the ability of a
lender to realize upon assets other than assets securing a mortgage loan. In
addition, United States courts have traditionally imposed general equitable
principles to limit the remedies available to lenders in foreclosure actions
that are perceived by the court as harsh or unfair. The effect of such statutes
and judicial principles may be to delay and/or reduce distributions in respect
of the Securities. See "Certain Legal Aspects of Mortgage Loans--Foreclosure on
Mortgage Loans."
RISKS OF MORTGAGE LOANS AND PROPERTY VALUE. An investment in securities
such as the Securities that are secured by mortgage loans and/or manufactured
housing conditional sales contracts and installment loan agreements may be
affected by, among other things, a decline in real estate values and changes in
the borrowers' 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, 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 particular, Mortgage Loans with high
Loan-to-Value Ratios will be affected by any decline in real estate values. Any
decrease in the value of such Mortgage Loans may result in an allocation of
losses which is not covered by credit enhancement to the Securities.
RISKS OF NON-CONFORMING MORTGAGE LOANS. Certain Mortgage Loans may be
underwritten in accordance with underwriting standards which are primarily
intended to provide single family mortgage loans for non-conforming credits. A
"non-conforming credit" means a mortgage loan which is ineligible for purchase
by FNMA or FHLMC due to credit characteristics that do not meet the FNMA or
FHLMC underwriting guidelines for standard "A" quality conforming mortgage
loans, including mortgagors whose creditworthiness and repayment ability do not
satisfy such FNMA or FHLMC underwriting guidelines and mortgagors who may have a
record of credit write-offs, outstanding judgments, prior bankruptcies and other
credit items that do not satisfy such FNMA or FHLMC underwriting guidelines.
Accordingly, Mortgage Loans underwritten under the originators' non-conforming
credit underwriting standards are likely to experience rates of delinquency,
foreclosure and loss that are higher, and may be substantially higher, than
mortgage loans originated in accordance with the FNMA or FHLMC underwriting
guidelines. Any such losses, to the extent not covered by credit enhancement,
may affect the yield to maturity of the Securities.
RISKS OF MORTGAGE LOANS WITH VARIABLE PAYMENTS. Certain of the types of
loans which may be included in the Mortgage Pools may involve additional
uncertainties not present in traditional types of loans. 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.
In the case of Buydown Loans, the increase in the Monthly Payment by the
Mortgagor during and following the Buydown Period may result in an increased
risk of default on such Buydown Loan. Certain of the Mortgage Loans provide for
escalating or variable payments by the borrower under the Mortgage Loan (the
"Mortgagor"), as to which the Mortgagor is generally qualified on the basis of
the initial payment amount. In some instances, Mortgagors may not be able to
make their loan payments as such payments increase and thus the likelihood of
default will increase. Any risks associated with the variable payments of such
Mortgage Loans may affect the yield to maturity of the Securities to the extent
losses caused by such risks which are not covered by credit enhancement are
allocated to the Securities.
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RISKS OF MORTGAGE LOANS WITH JUNIOR LIENS. Certain Mortgage Loans may
be secured by second liens on the related Mortgaged Properties. As to Mortgage
Loans secured by second mortgages, the proceeds from any liquidation, insurance
or condemnation proceedings will be available to satisfy the outstanding balance
of such Mortgage Loans only to the extent that the claims of such senior
mortgages have been satisfied in full, including any related foreclosure costs.
In addition, the holder of a Mortgage Loan secured by a junior mortgage may not
foreclose on the Mortgaged Property unless it forecloses subject to the senior
mortgages, in which case it must either pay the entire amount due on the senior
mortgages to the senior mortgagees at or prior to the foreclosure sale or
undertake the obligation to make payments on the senior mortgages in the event
the mortgagor is in default thereunder. The Trust Fund will not have any source
of funds to satisfy the senior mortgages or make payments due to the senior
mortgagees, although the Master Servicer or Subservicer may, at its option,
advance such amounts to the extent deemed recoverable and prudent. In the event
that such proceeds from a foreclosure or similar sale of the related Mortgaged
Property are insufficient to satisfy all senior liens and the Mortgage Loan in
the aggregate, the Trust Fund, as the holder of the junior lien, and,
accordingly, Holders of one or more classes of the Securities, to the extent not
covered by credit enhancement, are likely to (i) incur losses in jurisdictions
in which a deficiency judgment against the borrower is not available, and (ii)
incur losses if any deficiency judgment obtained is not realized upon. In
addition, the rate of default of second mortgage loans may be greater than that
of mortgage loans secured by first liens on comparable properties.
RISKS OF MORTGAGE LOAN CONCENTRATION. Certain geographic regions of the
United States from time to time will experience weaker regional economic
conditions and housing markets, and, consequently, will experience higher rates
of loss and delinquency than will be experienced on mortgage loans generally.
For example, a region's economic condition and housing market may be directly,
or indirectly, adversely affected by natural disasters or civil disturbances
such as earthquakes, hurricanes, floods, eruptions or riots. The economic impact
of any of these types of events may also be felt in areas beyond the region
immediately affected by the disaster or disturbance. The Mortgage Loans securing
certain series of Securities 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.
Moreover, as described below, any Mortgage Loan for which a breach of a
representation or warranty exists will remain in the related Trust Fund in the
event that a Seller is unable, or disputes its obligation, to repurchase such
Mortgage Loan and such a breach does not also constitute a breach of any
representation made by any other person. In such event, any resulting losses
will be borne by the related form of credit enhancement, to the extent
available. Any risks associated with Mortgage Loan concentration may affect the
yield to maturity of the Securities to the extent losses caused by such risks
which are not covered by credit enhancement are allocated to the Securities.
RISKS ASSOCIATED WITH BALLOON LOANS. Certain of the Mortgage Loans
included in a Trust Fund may not be fully amortizing (or may not amortize at
all) over their terms to maturity and, thus, will require substantial payments
of principal and interest (that is, balloon payments) at their stated maturity.
Mortgage Loans of this type involve a greater degree of risk than
self-amortizing loans because the ability of a Mortgagor to make a balloon
payment typically will depend upon its ability either to fully refinance the
loan or to sell the related Mortgaged Property at a price sufficient to permit
the Mortgagor to make the balloon payment. The ability of a Mortgagor to
accomplish either of these goals will be affected by a number of factors,
including the value of the related Mortgaged Property, the level of available
mortgage rates at the time of sale or refinancing, the Mortgagor's equity in the
related Mortgaged Property, prevailing general economic conditions and the
availability of credit for loans secured by comparable real properties. Any
risks associated with the Balloon Loans may affect the yield to maturity of the
Securities to the extent losses caused by such risks which are not covered by
credit enhancement are allocated to the Securities.
RISKS OF HIGH LTV LOANS. Some or all of the Mortgage Loans secured by
junior liens included in any Trust Fund may be High LTV Loans. High LTV Loans
with Combined Loan-to-Value Ratios in excess of 100% may have been originated
with a limited expectation of recovering any amounts from the foreclosure of the
related Mortgaged Property and are underwritten with an emphasis on the
creditworthiness of the related borrower. If such Mortgage Loans go into
foreclosure and are liquidated, there may be no amounts recovered from the
related Mortgaged Property unless the value of the property increases or the
principal amount of the related senior liens have been reduced such as to reduce
the current Combined Loan-to-Value Ratio of the related Mortgage Loan to below
100%. Any such losses, to the extent not covered by credit enhancement, may
affect the yield to maturity of the Bonds.
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RISKS WITH RESPECT TO MORTGAGE LOANS WITH LIMITED RECOURSE. It is
anticipated that some or all of the Mortgage Loans included in any Trust Fund
will be nonrecourse loans or loans for which recourse may be restricted or
unenforceable. As to those Mortgage Loans, recourse in the event of Mortgagor
default will be limited to the specific Mortgaged Property and other assets, if
any, that were pledged to secure the Mortgage Loan. However, even with respect
to those Mortgage Loans that provide for recourse against the Mortgagor and its
assets generally, there can be no assurance that enforcement of such recourse
provisions will be practicable, or that the other assets of the Mortgagor will
be sufficient to permit a recovery in respect of a defaulted Mortgage Loan in
excess of the liquidation value of the related Mortgaged Property. Any risks
associated with Mortgage Loans with no or limited recourse may affect the yield
to maturity of the Securities to the extent losses caused by such risks which
are not covered by credit enhancement are allocated to the Securities.
RISKS OF UNDERWRITING STANDARDS OF UNAFFILIATED SELLERS. Mortgage Loans
to be included in a Mortgage Pool will have been purchased by the Company,
either directly or indirectly from Sellers. Such Mortgage Loans will generally
have been originated in accordance with underwriting standards acceptable to the
Company and generally described herein under "The Mortgage Pools--Underwriting
Standards" or such alternative underwriting criteria as may be described in the
related Prospectus Supplement. However, in some cases, particularly those
involving Unaffiliated Sellers, the Company may not be able to establish the
underwriting standards used in the origination of the related Mortgage Loans. In
those cases, the related Prospectus Supplement will include a statement to such
effect, will describe any related risks, and will reflect what, if any,
reunderwriting of the related Mortgage Loans was done by the Company or any of
its affiliates. To the extent the Mortgage Loans cannot be reunderwritten or the
underwriting criteria cannot be verified, the Mortgage Loans may suffer losses
greater than they would had they been directly underwritten by the Company or an
affiliate thereof. Any such losses, to the extent not covered by credit
enhancement, may affect the yield to maturity of the Securities.
LEGAL AND REGULATORY RISKS. Applicable federal and state laws generally
regulate interest rates and other charges, require certain disclosures, prohibit
unfair and deceptive practices, regulate debt collection, and require licensing
of the originators of the mortgage loans and contracts. Depending on the
provisions of the applicable law and the specified facts and circumstances
involved, violations of those laws, policies and principles may limit the
ability to collect all or part of the principal of or interest on the Mortgage
Loans and may entitle the borrower to a refund of amounts previously paid. See
"Certain Legal Aspects of Mortgage Loans" herein. To the extent such laws and
regulations result in losses on the mortgage loans, the yield to maturity of the
Securities, to the extent not covered by credit enhancement, may be affected.
YIELD AND PREPAYMENT CONSIDERATIONS. The yield to maturity of the
Offered Securities of each series will depend on, among other things, the rate
and timing of principal payments (including prepayments, liquidations due to
defaults, and repurchases due to conversion of ARM Loans to fixed interest rate
loans or breaches of representations and warranties) on the related Mortgage
Loans and the price paid by Certificateholders. Such yield may be adversely
affected by a higher or lower than anticipated rate of prepayments on the
related Mortgage Loans. The yield to maturity on Strip Securities will be
extremely sensitive to the rate of prepayments on the related Mortgage Loans. In
addition, the yield to maturity on certain other types of classes of Securities,
including Accrual Securities, Securities with a Pass-Through Rate which
fluctuates inversely with an index or certain other classes in a series
including more than one class of Securities, may be relatively more sensitive to
the rate of prepayment on the related Mortgage Loans than other classes of
Securities. In addition, to the extent amounts in any Pre-Funding Account have
not been used to purchase additional Mortgage Loans, holders of the Securities
may receive an additional prepayment. Prepayments are influenced by a number of
factors, including prevailing mortgage market interest rates, local and regional
economic conditions and homeowner mobility. See "Yield Considerations" and
"Maturity and Prepayment Considerations" herein.
ENVIRONMENTAL RISKS OF THE MORTGAGE LOANS. To the extent the Master
Servicer acquires title to any Mortgaged Property contaminated with or affected
by hazardous wastes or hazardous substances, the Mortgage Loans may incur
losses. See "Servicing of Mortgage Loans--Realization Upon or Sale of Defaulted
Mortgage Loans" and "Certain Legal Aspects of Mortgage Loans--Environmental
Legislation." To the extent such environmental risks result in losses on the
mortgage loans, the yield to maturity of the Securities, to the extent not
covered by credit enhancement, may be affected.
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ERISA CONSIDERATIONS. Generally, ERISA applies to investments made by
employee benefit plans and transactions involving the assets of such plans. Due
to the complexity of regulations that govern such plans, prospective investors
that are subject to ERISA are urged to consult their own counsel regarding
consequences under ERISA of acquisition, ownership and disposition of the
Offered Securities of any series. See "ERISA Considerations".
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 under "Federal Income Tax Consequences--REMICs".
Accordingly, under certain circumstances, holders of Offered 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. The requirement that holders of REMIC Residual
Certificates report their PRO RATA share of the taxable income and net loss of
the REMIC will continue until the principal balances of all classes of
Certificates of the related series have been reduced to zero, even though
holders of REMIC Residual Certificates have received full payment of their
stated interest and principal. A portion (or, in certain circumstances, all) of
such Certificateholder's share of the REMIC taxable income may be treated as
"excess inclusion" income to such holder, which (i) generally will not be
subject to offset by losses from other activities, (ii) for a tax-exempt holder,
will be treated as unrelated business taxable income and (iii) for a foreign
holder, will not qualify for exemption from withholding tax. 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 a REMIC Residual Certificate may be significantly less than
that of a corporate bond or stripped instrument having similar cash flow
characteristics.
THE MORTGAGE POOLS
GENERAL
Each Mortgage Pool will consist primarily of Mortgage Loans, minus the
Spread, if any, or any other interest retained by the Company or any affiliate
of the Company. The Mortgage Loans may consist of Single Family Loans,
Multifamily Loans and Contracts, each as described below.
The Mortgage Loans (other than the Contracts) will be evidenced by
promissory notes ("Mortgage Notes") and secured by mortgages, deeds of trust or
other similar security instruments ("Mortgages") that, in each case, create a
first or junior lien on the related Mortgagor's fee or leasehold interest in the
related Mortgaged Property. The Mortgaged Properties for such loans may consist
of attached or detached one-family dwelling units, two- to four-family dwelling
units, condominiums, townhouses, row houses, individual units in planned-unit
developments and certain other individual dwelling units (a "Single Family
Property" and the related loans, "Single Family Loans"), which in each case may
be owner-occupied or may be a vacation, second or non-owner-occupied home. The
Mortgaged Properties for such loans may also consist of residential properties
consisting of five or more rental or cooperatively-owned dwelling units in
high-rise, mid-rise or garden apartment buildings or projects ("Multifamily
Properties" and the related loans, "Multifamily Loans").
The "Contracts" will consist of manufactured housing conditional sales
contracts and installment loan agreements each secured by a Manufactured Home.
The "Manufactured Homes" securing the Contracts will consist of manufactured
homes within the meaning of 42 United States Code, Section 5402(6), which
defines a "manufactured home" as "a structure, transportable in one or more
sections, which in the traveling mode, is eight body feet or more in width or
forty body feet or more in length, or, when erected on site, is three hundred
twenty or more square feet, and which is built on a permanent chassis and
designed to be used as a dwelling with or without a permanent foundation when
connected to the required utilities, and includes the plumbing, heating, air
conditioning, and electrical systems contained therein; except that such term
shall include any structure which meets all the requirements of this paragraph
except the size requirements and with respect to which the manufacturer
voluntarily files a certification
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required by the Secretary of Housing and Urban Development and complies with the
standards established under
this chapter."
Mortgaged Properties may be located in any one of the 50 states, the
District of Columbia or the Commonwealth of Puerto Rico.
The Mortgage Loans will not be guaranteed or insured by the Company,
any of its affiliates or, except as set forth in the related Prospectus
Supplement, by any governmental agency or instrumentality or other person.
However, if so specified in the related Prospectus Supplement, the Mortgage
Loans may be insured by the Federal Housing Administration (the "FHA" and such
loans, "FHA Loans") or by the Veterans Administration (the "VA" and such loans,
"VA Loans"). See "Description of Primary Insurance Policies--FHA Insurance" and
"-- VA Insurance."
A Mortgage Pool may include Mortgage Loans that are delinquent or
non-performing as of the date the related series of Securities is issued. In
that case, the related Prospectus Supplement will set forth, as to each such
Mortgage Loan, available information as to the period of such delinquency or
non-performance and any other information relevant for a prospective purchaser
to make an investment decision.
Each Mortgage Loan will be selected by the Company for inclusion in a
Mortgage Pool from among those purchased by the Company, either directly or
through its affiliates, from banks, savings and loan associations, mortgage
bankers, mortgage brokers, investment banking firms, the Resolution Trust
Corporation (the "RTC"), the Federal Deposit Insurance Corporation (the "FDIC")
and other mortgage loan originators or sellers not affiliated with the Company
("Unaffiliated Sellers") or from WMC Mortgage, the parent of the Company, and
its affiliates ("Affiliated Sellers"; Unaffiliated Sellers and Affiliated
Sellers are collectively referred to herein as "Sellers"). If a Mortgage Pool is
composed of Mortgage Loans acquired by the Company directly from Unaffiliated
Sellers, the related Prospectus Supplement will specify the extent of Mortgage
Loans so acquired. The characteristics of the Mortgage Loans are as described in
the related Prospectus Supplement. Other mortgage loans available for purchase
by the Company may have characteristics which would make them eligible for
inclusion in a Mortgage Pool but were not selected for inclusion in such
Mortgage Pool.
Under certain circumstances, the Mortgage Loans to be included in a
Mortgage Pool will be delivered either directly or indirectly to the Company by
one or more Sellers identified in the related Prospectus Supplement,
concurrently with the issuance of the related series of Securities (a
"Designated Seller Transaction"). Such Securities may be sold in whole or in
part to any such Seller in exchange for the related Mortgage Loans, or may be
offered under any of the other methods described herein under "Methods of
Distribution." The related Prospectus Supplement for a Mortgage Pool composed of
Mortgage Loans acquired by the Company pursuant to a Designated Seller
Transaction will generally include information, provided by the related Seller,
about the Seller, the Mortgage Loans and the underwriting standards applicable
to the Mortgage Loans. None of the Company or, unless it is the Seller, WMC
Mortgage or any of their affiliates will make any representation or warranty
with respect to such Mortgage Loans, or any representation as to the accuracy or
completeness of such information provided by the Seller.
If specified in the related Prospectus Supplement, the Trust Fund for a
series of Securities may include mortgage participations and pass-through
certificates evidencing interests in Mortgage Loans ("Mortgage Securities"), as
described herein. The Mortgage Securities may have been issued previously by the
Company or an affiliate thereof, a financial institution or other entity engaged
generally in the business of mortgage lending or a limited purpose corporation
organized for the purpose of, among other things, acquiring and depositing
mortgage loans into such trusts, and selling beneficial interests in such
trusts. Except as otherwise set forth in the related Prospectus Supplement, such
Mortgage Securities will be generally similar to Securities offered hereunder.
As to any such series of Securities, the related Prospectus Supplement will
include a description of such Mortgage Securities and any related credit
enhancement, and the Mortgage Loans underlying such Mortgage Securities will be
described together with any other Mortgage Loans included in the Mortgage Pool
relating to such series.
THE MORTGAGE LOANS
Each of the Mortgage Loans will be a type of mortgage loan described or
referred to in paragraphs numbered (1) through (7) below, with any variations
described in the related Prospectus Supplement:
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(1) Fixed-rate, fully-amortizing mortgage loans (which may
include mortgage loans converted from adjustable-rate mortgage loans or
otherwise modified) providing for level monthly payments of principal
and interest and terms at origination or modification of not more than
approximately 15 years;
(2) Fixed-rate, fully-amortizing mortgage loans (which may
include mortgage loans converted from adjustable-rate mortgage loans or
otherwise modified) providing for level monthly payments of principal
and interest and terms at origination or modification of more than 15
years, but not more than approximately 25 or 30 years;
(3) Fully-amortizing adjustable-rate mortgage loans ("ARM
Loans") having an original or modified term to maturity of not more
than approximately 25 or 30 years with a related interest rate (a
"Mortgage Rate") which generally adjusts initially either three months,
six months or one, two, three, five or seven years or other intervals
subsequent to the initial payment date, and thereafter at either
three-month, six-month, one-year or other intervals (with corresponding
adjustments in the amount of monthly payments) over the term of the
mortgage loan to equal the sum of a fixed percentage set forth in the
related Mortgage Note (the "Note Margin") and an index*. The related
Prospectus Supplement will set forth the relevant index and the
highest, lowest and weighted average Note Margin with respect to the
ARM Loans in the related Mortgage Pool. The related Prospectus
Supplement will also indicate any periodic or lifetime limitations on
changes in any per annum Mortgage Rate at the time of any adjustment.
If specified in the related Prospectus Supplement, an ARM Loan may
include a provision that allows the Mortgagor to convert the adjustable
Mortgage Rate to a fixed rate at some point during the term of such ARM
Loan generally not later than six to ten years subsequent to the
initial payment date;
(4) Negatively-amortizing ARM Loans having original or
modified terms to maturity of not more than approximately 25 or 30
years with Mortgage Rates which generally adjust initially on the
payment date referred to in the related Prospectus Supplement, and on
each of certain periodic payment dates thereafter, to equal the sum of
the Note Margin and the index. The scheduled monthly payment will be
adjusted as and when described in the related Prospectus Supplement to
an amount that would fully amortize the Mortgage Loan over its
remaining term on a level debt service basis; provided that increases
in the scheduled monthly payment may be subject to certain limitations
as specified in the related Prospectus Supplement. If an adjustment to
the Mortgage Rate on a Mortgage Loan causes the amount of interest
accrued thereon in any month to exceed the scheduled monthly payment on
such mortgage loan, the resulting amount of interest that has accrued
but is not then payable ("Deferred Interest") will be added to the
principal balance of such Mortgage Loan;
(5) Fixed-rate, graduated payment mortgage loans having
original or modified terms to maturity of not more than approximately
15 years with monthly payments during the first year calculated on the
basis of an assumed interest rate which is a specified percentage below
the Mortgage Rate on such mortgage loan. Such monthly payments increase
at the beginning of the second year by a specified percentage of the
monthly payment during the preceding year and each year thereafter to
the extent necessary to amortize the mortgage loan over the remainder
of its approximately 15-year term. Deferred Interest, if any, will be
added to the principal balance of such mortgage loans;
(6) Fixed-rate, graduated payment mortgage loans having
original or modified terms to maturity of not more than approximately
25 or 30 years with monthly payments during the first year
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* The index (the "Index") for a particular Mortgage Pool will be
specified in the related Prospectus Supplement and may include one of the
following indexes: (i) the weekly average yield on U.S. Treasury securities
adjusted to a constant maturity of either six months or one year, (ii) the
weekly auction average investment yield of U.S. Treasury bills of six months,
(iii) the daily Bank Prime Loan rate made available by the Federal Reserve
Board, (iv) the cost of funds of member institutions for the Federal Home Loan
Bank of San Francisco, (v) the interbank offered rates for U.S. dollar deposits
in the London market, each calculated as of a date prior to each scheduled
interest rate adjustment date which will be specified in the related Prospectus
Supplement or (vi) any other index described in the related Prospectus
Supplement.
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calculated on the basis of an assumed interest rate which is a
specified percentage below the Mortgage Rate. Such monthly payments
increase at the beginning of the second year by a specified percentage
of the monthly payment during the preceding year and each year
thereafter to the extent necessary to fully amortize the mortgage loan
within its approximately 25- or 30-year term. Deferred Interest, if
any, will be added to the principal balance of such mortgage loan; or
(7) Mortgage loans ("Balloon Loans") having payment terms
similar to those described in one of the preceding paragraphs numbered
(1) through (6), calculated on the basis of an assumed amortization
term, but providing for a payment (a "Balloon Payment") of all
outstanding principal and interest to be made at the end of a specified
term that is shorter than such assumed amortization term.
If provided in the related Prospectus Supplement, certain of the
Mortgage Pools may contain Single Family and Multifamily Loans secured by junior
liens, and the related senior liens ("Senior Liens") may not be included in the
Mortgage Pool. The primary risk to holders of such Mortgage Loans secured by
junior liens is the possibility that adequate funds will not be received in
connection with a foreclosure of the related Senior Liens to satisfy fully both
the Senior Liens and the Mortgage Loan. In the event that a holder of a Senior
Lien forecloses on a Mortgaged Property, the proceeds of the foreclosure or
similar sale will be applied first to the payment of court costs and fees in
connection with the foreclosure, second to real estate taxes, third in
satisfaction of all principal, interest, prepayment or acceleration penalties,
if any, and any other sums due and owing to the holder of the Senior Liens. The
claims of the holders of the Senior Liens will be satisfied in full out of
proceeds of the liquidation of the related Mortgaged Property, if such proceeds
are sufficient, before the Trust Fund as holder of the junior lien receives any
payments in respect of the Mortgage Loan. If the Master Servicer were to
foreclose on any such Mortgage Loan, it would do so subject to any related
Senior Liens. In order for the debt related to the Mortgage Loan to be paid in
full at such sale, a bidder at the foreclosure sale of such Mortgage Loan would
have to bid an amount sufficient to pay off all sums due under the Mortgage Loan
and the Senior Liens or purchase the Mortgaged Property subject to the Senior
Liens. In the event that such proceeds from a foreclosure or similar sale of the
related Mortgaged Property are insufficient to satisfy all Senior Liens and the
Mortgage Loan in the aggregate, the Trust Fund, as the holder of the junior
lien, and, accordingly, holders of one or more classes of the Securities of the
related series bear (i) the risk of delay in distributions while a deficiency
judgment against the borrower is sought and (ii) the risk of loss if the
deficiency judgment is not realized upon. Moreover, deficiency judgments may not
be available in certain jurisdictions or the Mortgage Loan may be nonrecourse.
In addition, a junior mortgagee may not foreclose on the property securing a
junior mortgage unless it forecloses subject to the senior mortgages.
If so specified in the related Prospectus Supplement, a Mortgage Loan
may contain a prohibition on prepayment (the period of such prohibition, a
"Lock-out Period" and its date of expiration, a "Lock-out Expiration Date") or
require payment of a premium or a yield maintenance penalty (a "Prepayment
Penalty"). A Multifamily Loan may also contain a provision that entitles the
lender to a share of profits realized from the operation or disposition of the
related Mortgaged Property (an "Equity Participation"). If the holders of any
class or classes of Offered Securities of a series will be entitled to all or a
portion of an Equity Participation, the related Prospectus Supplement will
describe the Equity Participation and the method or methods by which
distributions in respect thereof will be made to such holders.
Certain information, including information regarding loan-to-value
ratios (each, a "Loan-to-Value Ratio") at origination of the Mortgage Loans
underlying each series of Securities, will be supplied in the related Prospectus
Supplement. In the case of most Mortgage Loans, the "Loan-to-Value Ratio" at
origination is defined generally as the ratio, expressed as a percentage, of the
principal amount of the Mortgage Loan at origination (or, if appropriate, at the
time of an appraisal subsequent to origination), plus, in the case of a Mortgage
Loan secured by a junior lien, the outstanding principal balance of the related
Senior Liens, to the Value of the related Mortgaged Property. The "Value" of a
Mortgaged Property securing a Single Family or Multifamily Mortgage Loan
generally will be equal to the lesser of (x) the appraised value determined in
an appraisal obtained at origination of such Mortgage Loan, if any, or, if the
related Mortgaged Property has been appraised subsequent to origination, the
value determined in such subsequent appraisal and (y) the sales price for the
related Mortgaged Property (except in certain circumstances in which there has
been a subsequent appraisal). In the case of certain refinanced, modified or
converted Single Family or Multifamily Loans, unless otherwise specified in the
related Prospectus Supplement, the "Value" of the related Mortgaged Property
will be equal to the lesser of (x) the appraised value of the related Mortgaged
Property
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determined at origination or in an appraisal, if any, obtained at the time of
refinancing, modification or conversion and (y) the sales price of the related
Mortgage Property or, if the Mortgage Loan is not a rate and term refinance
Mortgage Loan and if the Mortgaged Property was owned for a relatively short
period of time prior to refinancing, modification or conversion, the sum of the
sales price of the related Mortgaged Property plus the added value of any
improvements. Certain Mortgage Loans which are subject to negative amortization
will have Loan-to-Value Ratios which will increase after origination as a result
of such negative amortization. For purposes of calculating the Loan- to-Value
Ratio of a Contract relating to a new Manufactured Home, the "Value" is no
greater than the sum of a fixed percentage of the list price of the unit
actually billed by the manufacturer to the dealer (exclusive of freight to the
dealer site), including "accessories" identified in the invoice (the
"Manufacturer's Invoice Price"), plus the actual cost of any accessories
purchased from the dealer, a delivery and set-up allowance, depending on the
size of the unit, and the cost of state and local taxes, filing fees and up to
three years prepaid hazard insurance premiums. With respect to a used
Manufactured Home, the "Value" is the least of the sale price, the appraised
value, and the National Automobile Dealer's Association book value plus prepaid
taxes and hazard insurance premiums. The appraised value of a Manufactured Home
is based upon the age and condition of the manufactured housing unit and the
quality and condition of the mobile home park in which it is situated, if
applicable. Manufactured Homes are less likely than other types of housing to
experience appreciation in value and more likely to experience depreciation in
value over time.
The Mortgage Loans may be "equity refinance" Mortgage Loans, as to
which a portion of the proceeds are used to refinance an existing mortgage loan,
and the remaining proceeds may be retained by the Mortgagor or used for purposes
unrelated to the Mortgaged Property. Alternatively, the Mortgage Loans may be
"rate and term refinance" Mortgage Loans, as to which substantially all of the
proceeds (net of related costs incurred by the Mortgagor) are used to refinance
an existing mortgage loan or loans (which may include a junior lien) primarily
in order to change the interest rate or other terms thereof. The Mortgage Loans
may be mortgage loans which have been consolidated and/or have had various terms
changed, mortgage loans which have been converted from adjustable rate mortgage
loans to fixed rate mortgage loans, or construction loans which have been
converted to permanent mortgage loans. In addition, a Mortgaged Property may be
subject to secondary financing at the time of origination of the Mortgage Loan
or thereafter. In addition, certain or all of the Single Family Loans secured by
junior liens may have Loan-to-Value Ratios in excess of 80% and as high as 150%
and will not be insured by a Primary Insurance Policy (such Mortgage Loans,
"High LTV Loans").
If provided for in the related Prospectus Supplement, a Mortgage Pool
may contain ARM Loans which allow the Mortgagors to convert the adjustable rates
on such Mortgage Loans to a fixed rate at some point during the life of such
Mortgage Loans (each such Mortgage Loan, a "Convertible Mortgage Loan"),
generally not later than six to ten years subsequent to the date of origination,
depending upon the length of the initial adjustment period. If specified in the
related Prospectus Supplement, upon any conversion, the Company, the related
Master Servicer, the applicable Seller or a third party will purchase the
converted Mortgage Loan as and to the extent set forth in the related Prospectus
Supplement. Alternatively, if specified in the related Prospectus Supplement,
the Company or the related Master Servicer (or another party specified therein)
may agree to act as remarketing agent with respect to such converted Mortgage
Loans and, in such capacity, to use its best efforts to arrange for the sale of
converted Mortgage Loans under specified conditions. Upon the failure of any
party so obligated to purchase any such converted Mortgage Loan, the inability
of any remarketing agent to arrange for the sale of the converted Mortgage Loan
and the unwillingness of such remarketing agent to exercise any election to
purchase the converted Mortgage Loan for its own account, the related Mortgage
Pool will thereafter include both fixed rate and adjustable rate Mortgage Loans.
If provided for in the related Prospectus Supplement, certain of the
Mortgage Loans may be subject to temporary buydown plans ("Buydown Mortgage
Loans") pursuant to which the monthly payments made by the Mortgagor during the
early years of the Mortgage Loan (the "Buydown Period") will be less than the
scheduled monthly payments on the Mortgage Loan, the resulting difference to be
made up from (i) an amount (such amount, exclusive of investment earnings
thereon, being hereinafter referred to as "Buydown Funds") contributed by the
seller of the Mortgaged Property or another source and placed in a custodial
account (the "Buydown Account"), (ii) if the Buydown Funds are contributed on a
present value basis, investment earnings on such Buydown Funds or (iii)
additional buydown funds to be contributed over time by the Mortgagor's employer
or another source. See "Description of the Securities--Payments on Mortgage
Loans; Deposits to Certificate Account." Generally, the Mortgagor under each
Buydown Mortgage Loan will be qualified at the applicable lower monthly payment.
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Accordingly, the repayment of a Buydown Mortgage Loan is dependent on the
ability of the Mortgagor to make larger level monthly payments after the Buydown
Funds have been depleted and, for certain Buydown Mortgage Loans, during the
Buydown Period.
The Prospectus Supplement for each series of Securities will contain
information as to the type of Mortgage Loans that will be included in the
related Mortgage Pool. Each Prospectus Supplement applicable to a series of
Securities will include certain information, generally as of the Cut-off Date
and to the extent then available to the Company, on an approximate basis, as to
(i) the aggregate principal balance of the Mortgage Loans, (ii) the type of
property securing the Mortgage Loans, (iii) the original or modified terms to
maturity of the Mortgage Loans, (iv) the range of principal balances of the
Mortgage Loans at origination or modification, (v) the earliest origination or
modification date and latest maturity date of the Mortgage Loans, (vi) the
Loan-to-Value Ratios of the Mortgage Loans, (vii) the Mortgage Rate or range of
Mortgage Rates borne by the Mortgage Loans, (viii) if any of the Mortgage Loans
are ARM Loans, the applicable Index, the range of Note Margins and the weighted
average Note Margin, (ix) the geographical distribution of the Mortgage Loans,
(x) the number of Buydown Mortgage Loans, if applicable, and (xi) the percent of
ARM Loans which are convertible to fixed-rate mortgage loans, if applicable.
A
Current Report on Form 8-K will be available upon request to holders of the
related series of Securities and will be filed, together with the related
Pooling Agreement, with respect to each series of Certificates, or the related
Servicing Agreement, Trust Agreement and Indenture, with respect to each series
of Notes, with the Securities and Exchange Commission within fifteen days after
the initial issuance of such Securities. In the event that Mortgage Loans are
added to or deleted from the Trust Fund after the date of the related Prospectus
Supplement, such addition or deletion will be noted in the Current Report on
Form 8-K.
The Company will cause the Mortgage Loans constituting each Mortgage
Pool (or Mortgage Securities evidencing interests therein) to be assigned,
without recourse, to the Trustee named in the related Prospectus Supplement, for
the benefit of the holders of all of the Securities of a series. Except to the
extent that servicing of any Mortgage Loan is to be transferred to a Special
Servicer, the Master Servicer named in the related Prospectus Supplement will
service the Mortgage Loans, directly or through other mortgage servicing
institutions ("Subservicers"), pursuant to a Pooling Agreement, with respect to
each series of Certificates, or a servicing agreement (a "Servicing Agreement"),
with respect to each series of Notes, and will receive a fee for such services.
See "Servicing of Mortgage Loans," "Description of the Securities" and "The
Agreements." With respect to those Mortgage Loans serviced by the Master
Servicer through a Subservicer, the Master Servicer will remain liable for its
servicing obligations under the related Pooling Agreement or Servicing Agreement
as if the Master Servicer alone were servicing such Mortgage Loans. The Master
Servicer's obligations with respect to the Mortgage Loans will consist
principally of its contractual servicing obligations under the related Pooling
Agreement or Servicing Agreement (including its obligation to enforce certain
purchase and other obligations of Subservicers and Sellers, as more fully
described herein under "--Representations by Sellers" below, "Servicing of
Mortgage Loans--Subservicers," and "Description of the Securities--Assignment of
Trust Fund Assets," and, if and to the extent set forth in the related
Prospectus Supplement, its obligation to make certain cash advances in the event
of delinquencies in payments on or with respect to the Mortgage Loans as
described herein under "Description of the Securities--Advances") or pursuant to
the terms of any Mortgage Securities.
UNDERWRITING STANDARDS
Mortgage Loans to be included in a Mortgage Pool will have been
purchased by the Company, either directly or indirectly from Sellers. Such
Mortgage Loans, as well as Mortgage Loans underlying Mortgage Securities, will
generally have been originated in accordance with underwriting standards
acceptable to the Company and generally described below. Any Mortgage Loan not
directly underwritten by the Company or its affiliates will be reunderwritten by
the Company or its affiliates, except in the case of a Designated Seller's
transaction, in which case each Mortgage Loan will be underwritten by the
Designated Seller or an affiliate thereof. The reunderwriting standards of the
Company or its affiliates for such Mortgage Loans generally will be in
accordance with the same standards as those for Mortgage Loans directly
underwritten, with any variations described in the related Prospectus
Supplement.
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The underwriting standards to be used in originating the Mortgage Loans
are primarily intended to assess the creditworthiness of the Mortgagor, the
value of the Mortgaged Property and the adequacy of such property as collateral
for the Mortgage Loan.
The primary considerations in underwriting a Single Family Loan or
Contract are the Mortgagor's employment stability and whether the Mortgagor has
sufficient monthly income available (i) to meet the Mortgagor'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 home (such as property taxes and hazard insurance) and (ii) to meet
monthly housing expenses and other financial obligations and monthly living
expenses. However, the Loan-to-Value Ratio of the Mortgage Loan is another
critical factor. In addition, a Mortgagor's credit history and repayment
ability, as well as the type and use of the Mortgaged Property, are also
considerations.
High LTV Loans are underwritten with an emphasis on the
creditworthiness of the related Mortgagor. Such Mortgage Loans are underwritten
with a limited expectation of recovering any amounts from the foreclosure of the
related Mortgaged Property.
In the case of the Multifamily Loans, lenders typically look to the
Debt Service Coverage Ratio of a loan as an important measure of the risk of
default on such a loan. Unless otherwise defined in the related Prospectus
Supplement, the "Debt Service Coverage Ratio" of a Multifamily Loan at any given
time is the ratio of (i) the Net Operating Income of the related Mortgaged
Property for a twelve-month period to (ii) the annualized scheduled payments on
the Mortgage Loan and on any other loan that is secured by a lien on the
Mortgaged Property prior to the lien of the related Mortgage. Unless otherwise
defined in the related Prospectus Supplement, "Net Operating Income" means, for
any given period, the total operating revenues derived from a Multifamily
Property during such period, minus the total operating expenses incurred in
respect of such property during such period other than (i) non-cash items such
as depreciation and amortization, (ii) capital expenditures and (iii) debt
service on loans (including the related Mortgage Loan) secured by liens on such
property. The Net Operating Income of a Multifamily Property will fluctuate over
time and may or may not be sufficient to cover debt service on the related
Mortgage Loan at any given time. As the primary source of the operating revenues
of a Multifamily Property, rental income (and maintenance payments from
tenant-stockholders of a cooperatively owned Multifamily Property) may be
affected by the condition of the applicable real estate market and/or area
economy. Increases in operating expenses due to the general economic climate or
economic conditions in a locality or industry segment, such as increases in
interest rates, real estate tax rates, energy costs, labor costs and other
operating expenses, and/or to changes in governmental rules, regulations and
fiscal policies, may also affect the risk of default on a Multifamily Loan.
Lenders also look to the Loan-to-Value Ratio of a Multifamily Loan as a measure
of risk of loss if a property must be liquidated following a default.
It is expected that each prospective Mortgagor will complete a mortgage
loan application that includes information with respect to the applicant's
liabilities, income, credit history, employment history and personal
information. One or more credit reports on each applicant from national credit
reporting companies generally will be required. The report typically contains
information relating to such matters as credit history with local and national
merchants and lenders, installment debt payments and any record of defaults,
bankruptcies, repossessions, or judgments. In the case of a Multifamily Loan,
the Mortgagor will also be required to provide certain information regarding the
related Multifamily Property, including a current rent roll and operating income
statements (which may be pro forma and unaudited). In addition, the originator
generally will also consider the location of the Multifamily Property, the
availability of competitive lease space and rental income of comparable
properties in the relevant market area, the overall economy and demographic
features of the geographic area and the Mortgagor's prior experience in owning
and operating properties similar to the Multifamily Properties.
Mortgaged Properties generally will be appraised by licensed
appraisers. The appraiser will generally address neighborhood conditions, site
and zoning status and condition and valuation of improvements. In the case of
Single Family Properties, the appraisal report will generally include a
reproduction cost analysis (when appropriate) based on the current cost of
constructing a similar home and a market value analysis based on recent sales of
comparable homes in the area. With respect to Multifamily Properties, the
appraisal must specify whether an income analysis, a market analysis or a cost
analysis was used. An appraisal employing the income approach to value analyzes
a property's projected net cash flow, capitalization and other operational
information in determining the
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property's value. The market approach to value analyzes the prices paid for the
purchase of similar properties in the property's area, with adjustments made for
variations between those other properties and the property being appraised. The
cost approach to value requires the appraiser to make an estimate of land value
and then determine the current cost of reproducing the improvements less any
accrued depreciation. In any case, the value of the property being financed, as
indicated by the appraisal, must be such that it currently supports, and is
anticipated to support in the future, the outstanding loan balance. All
appraisals are required to conform to the Uniform Standards of Professional
Appraisal Practice and the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") and must be on forms acceptable to the
Federal National Mortgage Association ("FNMA") and/or the Federal Home Loan
Mortgage Corporation ("FHLMC").
Notwithstanding the foregoing, Loan-to-Value Ratios will not
necessarily constitute an accurate measure of the risk of liquidation loss in a
pool of Mortgage Loans. For example, the value of a Mortgaged Property as of the
date of initial issuance of the related series of Securities may be less than
the Value determined at loan origination, and will likely continue to fluctuate
from time to time based upon changes in economic conditions and the real estate
market. Moreover, even when current, an appraisal is not necessarily a reliable
estimate of value for a Multifamily Property. As stated above, appraised values
of Multifamily Properties are generally based on the market analysis, the cost
analysis, the income analysis, or upon a selection from or interpolation of the
values derived from such approaches. Each of these appraisal methods can present
analytical difficulties. It is often difficult to find truly comparable
properties that have recently been sold; the replacement cost of a property may
have little to do with its current market value; and income capitalization is
inherently based on inexact projections of income and expenses and the selection
of an appropriate capitalization rate. Where more than one of these appraisal
methods are used and provide significantly different results, an accurate
determination of value and, correspondingly, a reliable analysis of default and
loss risks, is even more difficult.
If so specified in the related Prospectus Supplement, the underwriting
of a Multifamily Loan may also include environmental testing. Under the laws of
certain states, contamination of real property may give rise to a lien on the
property to assure the costs of cleanup. In several states, such a lien has
priority over an existing mortgage lien on such property. In addition, under the
laws of some states and under the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), a lender may be liable, as an
"owner" or "operator", for costs of addressing releases or threatened releases
of hazardous substances at a property, if agents or employees of the lender have
become sufficiently involved in the operations of the borrower, regardless of
whether or not the environmental damage or threat was caused by the borrower or
a prior owner. A lender also risks such liability on foreclosure of the
mortgage. See "Certain Legal Aspects of Mortgage Loans--Environmental
Legislation".
With respect to any FHA Loan or VA Loans the Mortgage Loan Seller will
be required to represent that it has complied with the applicable underwriting
policies of the FHA or VA, respectively. See "Description of Primary Insurance
Policies--FHA Insurance" and "--VA Insurance" herein.
QUALIFICATIONS OF ORIGINATORS AND SELLERS
Each Mortgage Loan generally will be originated, directly or through
mortgage brokers and correspondents, by a savings and loan association, savings
bank, commercial bank, credit union, insurance company, or similar institution
which is supervised and examined by a federal or state authority, or by a
mortgagee approved by the Secretary of Housing and Urban Development pursuant to
sections 203 and 211 of the National Housing Act of 1934, as amended (the
"Housing Act").
REPRESENTATIONS BY SELLERS
Each Seller will have made representations and warranties in respect of
the Mortgage Loans and/or Mortgage Securities sold by such Seller and evidenced
by a series of Securities. In the case of Mortgage Loans, such representations
and warranties will generally include, among other things, that as to each such
Mortgage Loan: (i) any required hazard and primary mortgage insurance policies
were effective at the origination of such Mortgage Loan, and each such policy
remained in effect on the date of purchase of such Mortgage Loan from the Seller
by or on behalf of the Company; (ii) with respect to each Mortgage Loan other
than a Contract, either (A) a title insurance policy insuring (subject only to
permissible title insurance exceptions) the lien status of the Mortgage was
effective
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at the origination of such Mortgage Loan and such policy remained in effect on
the date of purchase of the Mortgage Loan from the Seller by or on behalf of the
Company or (B) if the Mortgaged Property securing such Mortgage Loan is located
in an area where such policies are generally not available, there is in the
related mortgage file an attorney's certificate of title indicating (subject to
such permissible exceptions set forth therein) the lien status of the mortgage;
(iii) the Seller has good title to such Mortgage Loan and such Mortgage Loan was
subject to no offsets, defenses or counterclaims except as may be provided under
the Relief Act and except to the extent that any buydown agreement exists for a
Buydown Mortgage Loan; (iv) there are no mechanics' liens or claims for work,
labor or material affecting the related Mortgaged Property which are, or may be
a lien prior to, or equal with, the lien of the related Mortgage (subject only
to permissible title insurance exceptions); (v) the related Mortgaged Property
is free from damage and in good repair; (vi) there are no delinquent tax or
assessment liens against the related Mortgaged Property; (vii) such Mortgage
Loan is not more than 90 days' delinquent as to any scheduled payment of
principal and/or interest; (viii) if a Primary Insurance Policy is required with
respect to such Mortgage Loan, such Mortgage Loan is the subject of such a
policy; and (ix) such Mortgage Loan was made in compliance with, and is
enforceable under, all applicable local, state and federal laws in all material
respects. In the case of Mortgage Securities, such representations and
warranties will generally include, among other things, that as to each such
Mortgage Security: (i) such Mortgage Security is validly issued and outstanding
and entitled to the benefits of the agreement pursuant to which it was issued;
and (ii) the Seller has good title to such Mortgage Security. In the event of a
breach of a Seller's representation or warranty that materially adversely
affects the interests of the Securityholders in a Mortgage Loan or Mortgage
Security, unless otherwise specified in the related Prospectus Supplement, the
related Seller will be obligated to cure the breach or repurchase or, if
permitted, replace such Mortgage Loan or Mortgage Security as described below.
However, there can be no assurance that a Seller will honor its obligation to
repurchase or, if permitted, replace any Mortgage Loan or Mortgage Security as
to which such a breach of a representation or warranty arises.
All of the representations and warranties of a Seller in respect of a
Mortgage Loan or Mortgage Security will have been made as of the date on which
such Mortgage Loan or Mortgage Security was purchased from the Seller by or on
behalf of the Company; the date as of which such representations and warranties
were made will be a date prior to the date of initial issuance of the related
series of Securities or, in the case of a Designated Seller Transaction, will be
the date of closing of the related sale by the applicable Seller. A substantial
period of time may have elapsed between the date as of which the representations
and warranties were made and the later date of initial issuance of the related
series of Securities. Accordingly, the Seller's purchase obligation (or, if
specified in the related Prospectus Supplement, limited replacement option)
described below will not arise if, during the period commencing on the date of
sale of a Mortgage Loan or Mortgage Security by the Seller, an event occurs that
would have given rise to such an obligation had the event occurred prior to sale
of the affected Mortgage Loan or Mortgage Security, as the case may be. The only
representations and warranties to be made for the benefit of holders of
Securities in respect of any related Mortgage Loan or Mortgage Security relating
to the period commencing on the date of sale of such Mortgage Loan or Mortgage
Security by the Seller to or on behalf of the Company will be certain limited
representations of the Company and the Master Servicer described under
"Description of the Securities--Assignment of Trust Fund Assets" below.
The Company will assign to the Trustee for the benefit of the holders
of the related series of Securities all of its right, title and interest in each
agreement by which it purchased a Mortgage Loan or Mortgage Security from a
Seller insofar as such agreement relates to the representations and warranties
made by such Seller in respect of such Mortgage Loan or Mortgage Security and
any remedies provided for with respect to any breach of such representations and
warranties. If a Seller cannot cure a breach of any representation or warranty
made by it in respect of a Mortgage Loan or Mortgage Security which materially
and adversely affects the interests of the Securityholders therein within a
specified period after having discovered or received notice of such breach,
then, unless otherwise specified in the related Prospectus Supplement, such
Seller will be obligated to purchase such Mortgage Loan or Mortgage Security at
a price (the "Purchase Price") set forth in the related Pooling Agreement or
Servicing Agreement which Purchase Price generally will be equal to the
principal balance thereof as of the date of purchase plus accrued and unpaid
interest through or about the date of purchase at the related Mortgage Rate or
pass-through rate, as applicable (net of any portion of such interest payable to
such Seller in respect of master servicing compensation, special servicing
compensation or subservicing compensation, as applicable, and the Spread, if
any).
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As to any Mortgage Loan required to be purchased by an Affiliated
Seller as provided above, rather than repurchase the Mortgage Loan, the Seller
will be entitled, at its sole option, to remove such Mortgage Loan (a "Deleted
Mortgage Loan") from the Trust Fund and substitute in its place another Mortgage
Loan of like kind (a "Qualified Substitute Mortgage Loan"); however, with
respect to a series of Certificates for which no REMIC election is to be made,
such substitution must be effected within 120 days of the date of the initial
issuance of the related series of Certificates. With respect to a Trust Fund for
which a REMIC election is to be made, except as otherwise provided in the
related Prospectus Supplement, such substitution of a defective Mortgage Loan
must be effected within two years of the date of the initial issuance of the
related series of Certificates, and may not be made if such substitution would
cause the Trust Fund, or any portion thereof, to fail to qualify as a REMIC or
result in a prohibited transaction tax under the Code. Except as otherwise
provided in the related Prospectus Supplement, any Qualified Substitute Mortgage
Loan generally will, on the date of substitution, (i) have an outstanding
principal balance, after deduction of the principal portion of the monthly
payment due in the month of substitution, not in excess of the outstanding
principal balance of the Deleted Mortgage Loan (the amount of any shortfall to
be deposited in the Certificate Account by the Master Servicer in the month of
substitution for distribution to the Securityholders), (ii) have a Mortgage Rate
and a Net Mortgage Rate not less than (and not more than one percentage point
greater than) the Mortgage Rate and Net Mortgage Rate, respectively, of the
Deleted Mortgage Loan as of the date of substitution, (iii) have a Loan-to-Value
Ratio at the time of substitution no higher than that of the Deleted Mortgage
Loan at the time of substitution, (iv) have a remaining term to maturity not
greater than (and not more than one year less than) that of the Deleted Mortgage
Loan and (v) comply with all of the representations and warranties made by such
Affiliated Seller as of the date of substitution. The related purchase agreement
may include additional requirements relating to ARM Loans or other specific
types of Mortgage Loans, or additional provisions relating to meeting the
foregoing requirements on an aggregate basis where a number of substitutions
occur contemporaneously. Except as described in the related Prospectus
Supplement, an Unaffiliated Seller will have no option to substitute for a
Mortgage Loan that it is obligated to repurchase in connection with a breach of
a representation and warranty, and neither an Affiliated Seller nor an
Unaffiliated Seller will have any option to substitute for a Mortgage Security
that it is obligated to repurchase in connection with a breach of a
representation and warranty.
The Master Servicer will be required under the applicable Pooling
Agreement or Servicing Agreement to use reasonable efforts to enforce this
purchase or substitution obligation for the benefit of the Trustee and the
Securityholders, following such practices it would employ in its good faith
business judgment and which are normal and usual in its general mortgage
servicing activities; provided, however, that this purchase or substitution
obligation will not become an obligation of the Master Servicer in the event the
applicable Seller fails to honor such obligation. In instances where a Seller is
unable, or disputes its obligation, to purchase affected Mortgage Loans and/or
Mortgage Securities, the Master Servicer, employing the standards set forth in
the preceding sentence, may negotiate and enter into one or more settlement
agreements with such Seller that could provide for, among other things, the
purchase of only a portion of the affected Mortgage Loans and/or Mortgage
Securities. Any such settlement could lead to losses on the Mortgage Loans
and/or Mortgage Securities which would be borne by the related Securities. In
accordance with the above described practices, the Master Servicer will not be
required to enforce any purchase obligation of a Seller arising from any
misrepresentation by the Seller, if the Master Servicer determines in the
reasonable exercise of its business judgment that the matters related to such
misrepresentation did not directly cause or are not likely to directly cause a
loss on the related Mortgage Loan or Mortgage Security. If the Seller fails to
repurchase and no breach of any other party's representations has occurred, the
Seller's purchase obligation will not become an obligation of the Company or any
other party. In the case of a Designated Seller Transaction where the Seller
fails to repurchase a Mortgage Loan or Mortgage Security and neither the Company
nor any other entity has assumed the representations and warranties, such
repurchase obligation of the Seller will not become an obligation of the Company
or any other party. The foregoing obligations will constitute the sole remedies
available to Securityholders or the Trustee for a breach of any representation
by a Seller or for any other event giving rise to such obligations as described
above.
Neither the Company nor the Master Servicer will be obligated to
purchase a Mortgage Loan or Mortgage Security if a Seller defaults on its
obligation to do so, and no assurance can be given that the Sellers will carry
out such purchase obligations. Such a default by a Seller is not a default by
the Company or by the Master Servicer. However, to the extent that a breach of
the representations and warranties of a Seller also constitutes a breach of a
representation made by the Company or the Master Servicer, as described below
under "Description of the Securities--Assignment of Trust Fund Assets," the
Company or the Master Servicer may have a purchase or substitution obligation.
Any Mortgage Loan or Mortgage Security not so purchased or substituted for shall
remain
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in the related Trust Fund and any losses related thereto shall be allocated to
the related credit enhancement, to the extent available, and otherwise to one or
more classes of the related series of Securities.
If a person other than a Seller makes the representations and
warranties referred to in the first paragraph of this "--Representations by
Sellers" section, or a person other than a Seller is responsible for
repurchasing or replacing any Mortgage Loan or Mortgage Security in connection
with a breach of such representations and warranties, the identity of such
person will be specified in the related Prospectus Supplement.
SERVICING OF MORTGAGE LOANS
GENERAL
The Mortgage Loans and Mortgage Securities included in each Mortgage
Pool will be serviced and administered pursuant to either a Pooling Agreement or
a Servicing Agreement. Forms of Pooling Agreements and a form of Servicing
Agreement have been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. However, the provisions of each Pooling Agreement or
Servicing Agreement will vary depending upon the nature of the related Mortgage
Pool. The following summaries describe certain material servicing-related
provisions that may appear in a Pooling Agreement or Servicing Agreement for a
Mortgage Pool that includes Mortgage Loans. The related Prospectus Supplement
will describe any servicing-related provision of such a Pooling Agreement or
Servicing Agreement that materially differs from the description thereof
contained in this Prospectus and, if the related Mortgage Pool includes Mortgage
Securities, will summarize all of the material provisions of the related Pooling
Agreement or Servicing Agreement that govern the administration of such Mortgage
Securities and identify the party responsible for such administration.
With respect to any series of Securities as to which the related
Mortgage Pool includes Mortgage Securities, the servicing and administration of
the Mortgage Loans underlying such Mortgage Securities will be pursuant to the
terms of such Mortgage Securities. It is expected that Mortgage Loans underlying
any Mortgage Securities in a Mortgage Pool would be serviced and administered
generally in the same manner as Mortgage Loans included in a Mortgage Pool,
however, there can be no assurance that such will be the case, particularly if
such Mortgage Securities are issued by an entity other than the Company or any
of its affiliates. The related Prospectus Supplement will describe any material
differences between the servicing described below and the servicing of Mortgage
Loans underlying the Mortgage Securities in any Mortgage Pool.
THE MASTER SERVICER
The master servicer (the "Master Servicer"), if any, for a series of
Securities will be named in the related Prospectus Supplement and may be WMC
Mortgage or another affiliate of the Company. The Master Servicer is required to
maintain a fidelity bond and errors and omissions policy with respect to its
officers and employees and other persons acting on behalf of the Master Servicer
in connection with its activities under a Pooling Agreement or a Servicing
Agreement.
COLLECTION AND OTHER SERVICING PROCEDURES; MORTGAGE LOAN MODIFICATIONS
Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer for any Mortgage Pool, directly or through Subservicers, will be
obligated under the Pooling Agreement or Servicing Agreement to service and
administer the Mortgage Loans in such Mortgage Pool for the benefit of the
related Securityholders, in accordance with applicable law and the terms of such
Pooling Agreement or Servicing Agreement, such Mortgage Loans and any instrument
of credit enhancement included in the related Trust Fund, and, to the extent
consistent with the foregoing, in the same manner as would prudent institutional
mortgage lenders servicing comparable mortgage loans for their own account in
the jurisdictions where the related Mortgaged Properties are located. Subject to
the foregoing, the Master Servicer will have full power and authority to do any
and all things in connection with such servicing and administration that it may
deem necessary and desirable.
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As part of its servicing duties, a Master Servicer will be required to
make reasonable efforts to collect all payments called for under the terms and
provisions of the Mortgage Loans that it services and will be obligated to
follow such collection procedures as it would follow with respect to mortgage
loans that are comparable to such Mortgage Loans and held for its own account,
provided such procedures are consistent with the terms of the related Pooling
Agreement or Servicing Agreement, including the servicing standard specified
therein and generally described in the preceding paragraph (as such may be more
particularly described in the related Prospectus Supplement, the "Servicing
Standard"), and do not impair recovery under any instrument of credit
enhancement included in the related Trust Fund. Consistent with the foregoing,
the Master Servicer will be permitted, in its discretion, to waive any
Prepayment Premium, late payment charge or other charge in connection with any
Mortgage Loan.
Under a Pooling Agreement or a Servicing Agreement, a Master Servicer
will be granted certain discretion to extend relief to Mortgagors whose payments
become delinquent. In the case of Single Family Loans and Contracts, a Master
Servicer may, among other things, grant a period of temporary indulgence to a
Mortgagor or may enter into a liquidating plan providing for repayment by such
Mortgagor of delinquent amounts within a specified period from the date of
execution of the plan. However, the Master Servicer must first determine that
any such waiver or extension will not impair the coverage of any related
insurance policy or materially adversely affect the security for such Mortgage
Loan. In addition, if a material default occurs or a payment default is
reasonably foreseeable with respect to a Multifamily Loan, the Master Servicer
will be permitted, subject to any specific limitations set forth in the related
Pooling Agreement or Servicing Agreement and described in the related Prospectus
Supplement, to modify, waive or amend any term of such Mortgage Loan, including
deferring payments, extending the stated maturity date or otherwise adjusting
the payment schedule, provided that such modification, waiver or amendment (i)
is reasonably likely to produce a greater recovery with respect to such Mortgage
Loan on a present value basis than would liquidation and (ii) will not adversely
affect the coverage under any applicable instrument of credit enhancement.
In the case of Multifamily Loans, a Mortgagor's failure to make
required Mortgage Loan payments may mean that operating income is insufficient
to service the mortgage debt, or may reflect the diversion of that income from
the servicing of the mortgage debt. In addition, a Mortgagor under a Multifamily
Loan that is unable to make Mortgage Loan payments may also be unable to make
timely payment of taxes and otherwise to maintain and insure the related
Mortgaged Property. In general, the related Master Servicer will be required to
monitor any Multifamily Loan that is in default, evaluate whether the causes of
the default can be corrected over a reasonable period without significant
impairment of the value of the related Mortgaged Property, initiate corrective
action in cooperation with the Mortgagor if cure is likely, inspect the related
Mortgaged Property and take such other actions as are consistent with the
Servicing Standard. A significant period of time may elapse before the Master
Servicer is able to assess the success of any such corrective action or the need
for additional initiatives. The time within which the Master Servicer can make
the initial determination of appropriate action, evaluate the success of
corrective action, develop additional initiatives, institute foreclosure
proceedings and actually foreclose (or accept a deed to a Mortgaged Property in
lieu of foreclosure) on behalf of the Securityholders of the related series may
vary considerably depending on the particular Multifamily Loan, the Mortgaged
Property, the Mortgagor, the presence of an acceptable party to assume the
Multifamily Loan and the laws of the jurisdiction in which the Mortgaged
Property is located. If a Mortgagor files a bankruptcy petition, the Master
Servicer may not be permitted to accelerate the maturity of the related
Multifamily Loan or to foreclose on the Mortgaged Property for a considerable
period of time. See "Certain Legal Aspects of Mortgage Loans."
Certain of the Mortgage Loans in a Mortgage Pool may contain a
due-on-sale clause that entitles the lender to accelerate payment of the
Mortgage Loan upon any sale or other transfer of the related Mortgaged Property
made without the lender's consent. Certain of the Multifamily Loans in a
Mortgage Pool may also contain a due-on-encumbrance clause that entitles the
lender to accelerate the maturity of the Mortgage Loan upon the creation of any
other lien or encumbrance upon the Mortgaged Property. In any case in which
property subject to a Single Family Loan or Contract is being conveyed by the
Mortgagor, the Master Servicer will in general be obligated, to the extent it
has knowledge of such conveyance, to exercise 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 only
to the extent it would not adversely affect or jeopardize coverage under any
Primary Insurance Policy or applicable credit enhancement arrangements. If the
Master Servicer is prevented from enforcing such due-on-sale or
due-on-encumbrance clause under applicable law or if the Master Servicer
determines that it is reasonably likely that a legal action would be instituted
by the related Mortgagor to avoid enforcement of such due-on-sale or
due-on
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encumbrance clause, the Master Servicer may enter 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 under the
Mortgage Loan subject to certain specified conditions. The original Mortgagor
may be released from liability on a Single Family Loan or Contract if the Master
Servicer shall have determined in good faith that such release will not
adversely affect the collectability of the Mortgage Loan. Unless otherwise
provided in the related Prospectus Supplement, the Master Servicer will
determine whether to exercise any right the Trustee may have under any
due-on-sale or due-on-encumbrance provision in a Multifamily Loan in a manner
consistent with the Servicing Standard. The Master Servicer generally will be
entitled to retain as additional servicing compensation any fee collected in
connection with the permitted transfer of a Mortgaged Property. See "Certain
Legal Aspects of Mortgage Loans--Enforceability of Certain Provisions." FHA
Loans contain no such clause and may be assumed by the purchaser of the
mortgaged property.
Mortgagors may, from time to time, request partial releases of the
Mortgaged Properties, easements, consents to alteration or demolition and other
similar matters. The Master Servicer may approve such a request if it has
determined, exercising its good faith business judgment in the same manner as it
would if it were the owner of the related Mortgage Loan, that such approval will
not adversely affect the security for, or the timely and full collectability of,
the related Mortgage Loan. Any fee collected by the Master Servicer for
processing such request will be retained by the Master Servicer as additional
servicing compensation.
In the case of Single Family and Multifamily Loans secured by junior
liens on the related Mortgaged Properties, unless otherwise provided in the
related Prospectus Supplement, the Master Servicer will be required to file (or
cause to be filed) of record a request for notice of any action by a superior
lienholder under the Senior Lien for the protection of the related Trustee's
interest, where permitted by local law and whenever applicable state law does
not require that a junior lienholder be named as a party defendant in
foreclosure proceedings in order to foreclose such junior lienholder's equity of
redemption. The Master Servicer also will be required to notify any superior
lienholder in writing of the existence of the Mortgage Loan and request
notification of any action (as described below) to be taken against the
Mortgagor or the Mortgaged Property by the superior lienholder. If the Master
Servicer is notified that any superior lienholder has accelerated or intends to
accelerate the obligations secured by the related Senior Lien, or has declared
or intends to declare a default under the mortgage or the promissory note
secured thereby, or has filed or intends to file an election to have the related
Mortgaged Property sold or foreclosed, then, unless otherwise specified in the
related Prospectus Supplement, the Master Servicer will be required to take, on
behalf of the related Trust Fund, whatever actions are necessary to protect the
interests of the related Securityholders, and/or to preserve the security of the
related Mortgage Loan, subject to the application of the REMIC Provisions, if
applicable. The Master Servicer will be required to advance the necessary funds
to cure the default or reinstate the superior lien, if such advance is in the
best interests of the related Securityholders and the Master Servicer determines
such advances are recoverable out of payments on or proceeds of the related
Mortgage Loan.
The Master Servicer for any Mortgage Pool will also be required to
perform other customary functions of a servicer of comparable loans, including
maintaining escrow or impound accounts for payment of taxes, insurance premiums
and similar items, or otherwise monitoring the timely payment of those items;
adjusting Mortgage Rates on ARM Loans; maintaining Buydown Accounts; supervising
foreclosures and similar proceedings; managing Mortgage Properties acquired
through or in lieu of foreclosure (each, an "REO Property"); and maintaining
servicing records relating to the Mortgage Loans in such Mortgage Pool. The
Master Servicer will be responsible for filing and settling claims in respect of
particular Mortgage Loans under any applicable instrument of credit enhancement.
See "Description of Credit Enhancement."
SUBSERVICERS
A Master Servicer may delegate its servicing obligations in respect of
the Mortgage Loans serviced by it to one or more third-party servicers (each, a
"Subservicer"), but the Master Servicer will remain liable for such obligations
under the related Pooling Agreement or Servicing Agreement unless otherwise
provided in the related Prospectus Supplement. The Master Servicer will be
solely liable for all fees owed by it to any Subservicer, irrespective of
whether the Master Servicer's compensation pursuant to the related Pooling
Agreement or Servicing Agreement is sufficient to pay such fees. Each
Subservicer will be entitled to reimbursement for certain expenditures which it
makes, generally to the same extent as would the Master Servicer for making the
same expenditures. See
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"--Servicing and Other Compensation and Payment of Expenses; Spread" below and
"Description of the Securities--The Certificate Account."
SPECIAL SERVICERS
If and to the extent specified in the related Prospectus Supplement, a
special servicer (a "Special Servicer") may be a party to the related Pooling
Agreement or Servicing Agreement or may be appointed by the Master Servicer or
another specified party to perform certain specified duties in respect of
servicing the related Mortgage Loans that would otherwise be performed by the
Master Servicer (for example, the workout and/or foreclosure of defaulted
Mortgage Loans). The rights and obligations of any Special Servicer will be
specified in the related Prospectus Supplement, and the Master Servicer will be
liable for the performance of a Special Servicer only if, and to the extent, set
forth in such Prospectus Supplement.
REALIZATION UPON OR SALE OF DEFAULTED MORTGAGE LOANS
Except as described below or in the related Prospectus Supplement, the
Master Servicer will be required, in a manner consistent with the Servicing
Standard, to foreclose upon or otherwise comparably convert the ownership of
properties securing such of the Mortgage Loans in the related Mortgage Pool as
come into and continue in default and as to which no satisfactory arrangements
can be made for collection of delinquent payments. In connection therewith, the
Master Servicer will be authorized to institute foreclosure proceedings,
exercise any power of sale contained in the related Mortgage, obtain a deed in
lieu of foreclosure, or otherwise acquire title to the related Mortgaged
Property, by operation of law or otherwise, if such action is consistent with
the Servicing Standard. The Master Servicer's actions in this regard must be
conducted, however, in a manner that will permit recovery under any instrument
of credit enhancement included in the related Trust Fund. In addition, the
Master Servicer will not be required to expend its own funds in connection with
any foreclosure or to restore any damaged property unless it shall determine
that (i) such foreclosure and/or restoration will increase the proceeds of
liquidation of the Mortgage Loan to the related Securityholders after
reimbursement to itself for such expenses and (ii) such expenses will be
recoverable to it from related Insurance Proceeds, Liquidation Proceeds or
amounts drawn out of any fund or under any instrument constituting credit
enhancement (respecting which it shall have priority for purposes of withdrawal
from the Certificate Account in accordance with the Pooling Agreement or
Servicing Agreement).
Notwithstanding the foregoing, the Master Servicer may not acquire
title to any Multifamily Property securing a Mortgage Loan or take any other
action that would cause the related Trustee, for the benefit of Securityholders
of the related series, or any other specified person to be considered to hold
title to, to be a "mortgagee-in-possession" of, or to be an "owner" or an
"operator" of such Mortgaged Property within the meaning of certain federal
environmental laws, unless the Master Servicer has previously determined, based
on a report prepared by a person who regularly conducts environmental audits
(which report will be an expense of the Trust Fund), that either:
(i) the Mortgaged Property is in compliance with applicable
environmental laws and regulations or, if not, that taking such actions
as are necessary to bring the Mortgaged Property into compliance
therewith is reasonably likely to produce a greater recovery on a
present value basis than not taking such actions; and
(ii) there are no circumstances or conditions present at the
Mortgaged Property that have resulted in any contamination for which
investigation, testing, monitoring, containment, clean-up or
remediation could be required under any applicable environmental laws
and regulations or, if such circumstances or conditions are present for
which any such action could be required, taking such actions with
respect to the Mortgaged Property is reasonably likely to produce a
greater recovery on a present value basis than not taking such actions.
See "Certain Legal Aspects of Mortgage Loans--Environmental
Legislation."
In addition, the Master Servicer will not be obligated to foreclose
upon or otherwise convert the ownership of any Single Family Property securing a
Mortgage Loan if it has received notice or has actual knowledge that such
property may be contaminated with or affected by hazardous wastes or hazardous
substances; however, no environmental testing generally will be required. The
Master Servicer will not be liable to the Securityholders of the
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related series if, based on its belief that no such contamination or effect
exists, the Master Servicer forecloses on a Mortgaged Property and takes title
to such Mortgaged Property, and thereafter such Mortgaged Property is determined
to be so contaminated or affected.
With respect to a Mortgage Loan in default, the Master Servicer may
pursue foreclosure (or similar remedies) concurrently with pursuing any remedy
for a breach of a representation and warranty. However, the Master Servicer is
not required to continue to pursue both such remedies if it determines that one
such remedy is more likely to result in a greater recovery. Upon the first to
occur of final liquidation (by foreclosure or otherwise) and a repurchase or
substitution pursuant to a breach of a representation and warranty, such
Mortgage Loan will be removed from the related Trust Fund if it has not been
removed previously. The Master Servicer may elect to treat a defaulted Mortgage
Loan as having been finally liquidated if substantially all amounts expected to
be received in connection therewith have been received. Any additional
liquidation expenses relating to such Mortgage Loan thereafter incurred will be
reimbursable to the Master Servicer (or any Subservicer) from any amounts
otherwise distributable to holders of Securities of the related series, or may
be offset by any subsequent recovery related to such Mortgage Loan.
Alternatively, for purposes of determining the amount of related Liquidation
Proceeds to be distributed to Securityholders, the amount of any Realized Loss
or the amount required to be drawn under any applicable form of credit support,
the Master Servicer may take into account minimal amounts of additional receipts
expected to be received, as well as estimated additional liquidation expenses
expected to be incurred in connection with such defaulted Mortgage Loan. With
respect to certain series of Securities, if so provided in the related
Prospectus Supplement, the applicable form of credit enhancement may provide, to
the extent of coverage thereunder, that a defaulted Mortgage Loan will be
removed from the Trust Fund prior to the final liquidation thereof. In addition,
a Pooling Agreement or Servicing Agreement may grant to the Master Servicer, a
Special Servicer, a provider of credit enhancement and/or the holder or holders
of certain classes of Securities of the related series a right of first refusal
to purchase from the Trust Fund, at a predetermined purchase price (which, if
insufficient to fully fund the entitlements of Securityholders to principal and
interest thereon, will be specified in the related Prospectus Supplement), any
Mortgage Loan as to which a specified number of scheduled payments are
delinquent. Furthermore, a Pooling Agreement or a Servicing Agreement may
authorize the Master Servicer to sell any defaulted Mortgage Loan if and when
the Master Servicer determines, consistent with the Servicing Standard, that
such a sale would produce a greater recovery to Securityholders on a present
value basis than would liquidation of the related Mortgaged Property.
In the event that title to any Mortgaged Property is acquired in
foreclosure, deed in lieu of foreclosure or otherwise, the deed or certificate
of sale will be issued to the Trustee or to its nominee on behalf of
Securityholders of the related series. Notwithstanding any such acquisition of
title and cancellation of the related Mortgage Loan, such Mortgage Loan (an "REO
Mortgage Loan") will be considered for most purposes to be an outstanding
Mortgage Loan held in the Trust Fund until such time as the Mortgaged Property
is sold and all recoverable Liquidation Proceeds and Insurance Proceeds have
been received with respect to such defaulted Mortgage Loan (a "Liquidated
Mortgage Loan"). For purposes of calculations of amounts distributable to
Securityholders in respect of an REO Mortgage Loan, the amortization schedule in
effect at the time of any such acquisition of title (before any adjustment
thereto by reason of any bankruptcy or any similar proceeding or any moratorium
or similar waiver or grace period) will be deemed to have continued in effect
(and, in the case of an ARM Loan, such amortization schedule will be deemed to
have adjusted in accordance with any interest rate changes occurring on any
adjustment date therefor) so long as such REO Mortgage Loan is considered to
remain in the Trust Fund.
If title to any Mortgaged Property is acquired by a Trust Fund as to
which a REMIC election has been made, the Master Servicer, on behalf of the
Trust Fund, will be required to sell the Mortgaged Property within three years
of acquisition, unless (i) the Internal Revenue Service grants an extension of
time to sell such property or (ii) the Trustee receives an opinion of
independent counsel to the effect that the holding of the property by the Trust
Fund for more than three years after its acquisition will not result in the
imposition of a tax on the Trust Fund or cause the Trust Fund to fail to qualify
as a REMIC under the Code at any time that any Certificate is outstanding.
Subject to the foregoing and any other tax-related constraints, the Master
Servicer generally will be required to solicit bids for any Mortgaged Property
so acquired in such a manner as will be reasonably likely to realize a fair
price for such property. If title to any Mortgaged Property is acquired by a
Trust Fund as to which a REMIC election has been made, the Master Servicer will
also be required to ensure that the Mortgaged Property is administered so that
it constitutes "foreclosure property" within the meaning of Code Section
860G(a)(8) at all times, that the sale of such property does not result in the
receipt by the Trust Fund of any income from non-permitted assets as described
in Code
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Section 860F(a)(2)(B), and that the Trust Fund does not derive any "net income
from foreclosure property" within the meaning of Code Section 860G(c)(2), with
respect to such property.
If Liquidation Proceeds collected with respect to a defaulted Mortgage
Loan are less than the outstanding principal balance of the defaulted Mortgage
Loan plus interest accrued thereon plus the aggregate amount of reimbursable
expenses incurred by the Master Servicer with respect to such Mortgage Loan, and
the shortfall is not covered under any applicable instrument or fund
constituting credit enhancement, the Trust Fund will realize a loss in the
amount of such difference. The Master Servicer will be entitled to reimburse
itself from the Liquidation Proceeds recovered on any defaulted Mortgage Loan,
prior to the distribution of such Liquidation Proceeds to Securityholders,
amounts that represent unpaid servicing compensation in respect of the Mortgage
Loan, unreimbursed servicing expenses incurred with respect to the Mortgage Loan
and any unreimbursed advances of delinquent payments made with respect to the
Mortgage Loan. If so provided in the related Prospectus Supplement, the
applicable form of credit enhancement may provide for reinstatement subject to
certain conditions in the event that, following the final liquidation of a
Mortgage Loan and a draw under such credit enhancement, subsequent recoveries
are received. In addition, if a gain results from the final liquidation of a
defaulted Mortgage Loan or an REO Mortgage Loan which is not required by law to
be remitted to the related Mortgagor, the Master Servicer will be entitled to
retain such gain as additional servicing compensation unless the related
Prospectus Supplement provides otherwise. For a description of the Master
Servicer's (or other specified person's) obligations to maintain and make claims
under applicable forms of credit enhancement and insurance relating to the
Mortgage Loans, see "Description of Credit Enhancement" and "Primary Mortgage
Insurance, Hazard Insurance; Claims Thereunder."
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES; SPREAD
The principal servicing compensation to be paid to the Master Servicer
in respect of its master servicing activities for a series of Securities will be
equal to the percentage per annum described in the related Prospectus Supplement
(which may vary under certain circumstances) of the outstanding principal
balance of each Mortgage Loan, and such compensation will be retained by it on a
monthly or other periodic basis from collections of interest on such Mortgage
Loan in the related Trust Fund at the time such collections are deposited into
the applicable Certificate Account. This portion of the servicing fee will be
calculated with respect to each Mortgage Loan by multiplying such fee by the
principal balance of such Mortgage Loan. In addition, the Master Servicer may
retain all Prepayment Premiums, assumption fees and late payment charges, to the
extent collected from Mortgagors, and any benefit which may accrue as a result
of the investment of funds in the applicable Certificate Account. Any additional
servicing compensation will be described in the related Prospectus Supplement.
Any Subservicer will receive a portion of the Master Servicer's compensation as
its sub-servicing compensation.
In addition to amounts payable to any Subservicer, 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
Pooling Agreement or Servicing Agreement, including, if so specified in the
related Prospectus Supplement, payment of any fee or other amount payable in
respect of any alternative credit enhancement arrangements, payment of the fees
and disbursements of the Trustee, any custodian appointed by the Trustee and the
Security Registrar, and payment of expenses incurred in enforcing the
obligations of Subservicers and Sellers. The Master Servicer will be entitled to
reimbursement of expenses incurred in enforcing the obligations of Subservicers
and Sellers under certain limited circumstances. In addition, the Master
Servicer will be entitled to reimbursements for certain expenses incurred by it
in connection with Liquidated Mortgage Loans and in connection with the
restoration of Mortgaged Properties, such right of reimbursement being prior to
the rights of Securityholders to receive any related Liquidation Proceeds or
Insurance Proceeds. If and to the extent so provided in the related Prospectus
Supplement, the Master Servicer will be entitled to receive interest on amounts
advanced to cover such reimbursable expenses for the period that such advances
are outstanding at the rate specified in such Prospectus Supplement, and the
Master Servicer will be entitled to payment of such interest periodically from
general collections on the Mortgage Loans in the related Trust Fund prior to any
payment to Securityholders or as otherwise provided in the related Pooling
Agreement or Servicing Agreement and described in such Prospectus Supplement.
The Prospectus Supplement for a series of Securities will specify
whether there will be any Spread retained. Any such Spread will be a specified
portion of the interest payable on each Mortgage Loan in a Mortgage Pool and
will not be part of the related Trust Fund. Any such Spread will be established
on a loan-by-loan basis and the amount
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thereof with respect to each Mortgage Loan in a Mortgage Pool will be specified
on an exhibit to the related Pooling Agreement or Servicing Agreement. Any
partial recovery of interest in respect of a Mortgage Loan will be allocated
between the owners of any Spread and the holders of classes of Securities
entitled to payments of interest as provided in the related Prospectus
Supplement and the applicable Pooling Agreement or Servicing Agreement.
If and to the extent provided in the related Prospectus Supplement, the
Master Servicer may be required to apply a portion of the servicing compensation
otherwise payable to it in respect of any period to any Prepayment Interest
Shortfalls resulting from Mortgagor prepayments during such period. See "Yield
Considerations."
EVIDENCE AS TO COMPLIANCE
Each Pooling Agreement and Servicing Agreement will provide that on or
before a specified date in each year, beginning the first such date that is at
least a specified number of months after the Cut-off Date, a firm of independent
public accountants will furnish a statement to the Company and the Trustee to
the effect that, on the basis of an 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 of mortgage loans under agreements (including the related Pooling
Agreement or Servicing Agreement) substantially similar to each other was
conducted in compliance with such agreements except for such significant
exceptions or errors in records that, in the opinion of the firm, the Uniform
Single Attestation Program for Mortgage Bankers or the Audit Program for
Mortgages serviced for FHLMC requires it to report. In rendering its statement
such firm may rely, as to the matters relating to the 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
FHLMC (rendered within one year of such statement) of firms of independent
public accountants with respect to those Subservicers which also have been the
subject of such an examination.
Each Pooling Agreement and Servicing Agreement will also provide for
delivery to the Trustee, on or before a specified date in each year, of an
annual statement signed by one or more officers of the Master Servicer to the
effect that, to the best knowledge of each such officer, the Master Servicer has
fulfilled in all material respects its obligations under the Pooling Agreement
or Servicing Agreement throughout the preceding year or, if there has been a
material default in the fulfillment of any such obligation, such statement shall
specify each such known default and the nature and status thereof. Such
statement may be provided as a single form making the required statements as to
more than one Pooling Agreement or Servicing Agreement.
Copies of the annual accountants' statement and the annual statement of
officers of a Master Servicer may be obtained by Securityholders without charge
upon written request to the Master Servicer or Trustee.
DESCRIPTION OF THE SECURITIES
GENERAL
The Securities will be issued in series. Each series of Certificates
(or, in certain instances, two or more series of Certificates) will be issued
pursuant to a Pooling Agreement, similar to one of the forms filed as an exhibit
to the Registration Statement of which this Prospectus is a part. Each Pooling
Agreement will be filed with the Securities and Exchange Commission as an
exhibit to a Current Report on Form 8-K. Each series of Notes (or, in certain
instances, two or more series of Notes) will be issued pursuant to an Indenture
between the related Issuer and the Trustee, similar to the form filed as an
exhibit to the Registration Statement of which this Prospectus is a part. Such
Trust Fund will be created pursuant to an Owner Trust Agreement (the "Owner
Trust Agreement"; an Owner Trust Agreement, Servicing Agreement, Indenture or
Pooling Agreement, an "Agreement") between the Company and the Owner Trustee.
Each Indenture, along with the related Servicing Agreement and Owner Trust
Agreement, will be filed with the Securities and Exchange Commission as an
exhibit to a Current Report on Form 8-K. The following summaries (together with
additional summaries under "The Agreements" below) describe certain material
provisions relating to the Securities common to each Agreements.
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Certificates of each series covered by a particular Pooling Agreement
will evidence specified beneficial ownership interests in a separate Trust Fund
created pursuant to such Pooling Agreement. Each series of Notes covered by a
particular Indenture will evidence indebtedness of a separate Trust Fund created
pursuant to the related Owner Trust Agreement. A Trust Fund will consist of, to
the extent provided in the Pooling Agreement or Owner Trust Agreement: (i) such
Mortgage Loans (and the related mortgage documents) or interests therein
(including any Mortgage Securities) underlying a particular series of Securities
as from time to time are subject to the Pooling Agreement or Servicing
Agreement, exclusive of, if specified in the related Prospectus Supplement, any
Spread or other interest retained by the Company or any of its affiliates with
respect to each such Mortgage Loan; (ii) such assets including, without
limitation, all payments and collections in respect of the Mortgage Loans or
Mortgage Securities due after the related Cut-off Date, as from time to time are
identified as deposited in respect thereof in the related Certificate Account as
described below; (iii) any property acquired in respect of Mortgage Loans in the
Trust Fund, whether through foreclosure of such Mortgage Loans or by deed in
lieu of foreclosure or otherwise; (iv) hazard insurance policies, Primary
Insurance Policies and FHA insurance policies, if any, maintained in respect of
Mortgage Loans in the Trust Fund and certain proceeds of such policies; (v)
certain rights of the Company under any Mortgage Loan Purchase Agreement,
including in respect of any representations and warranties therein; and (vi) any
combination, as and to the extent specified in the related Prospectus
Supplement, of a Financial Guaranty Insurance Policy, Mortgage Pool Insurance
Policy, Letter of Credit, Purchase Obligation, Special Hazard Insurance Policy
or Bankruptcy Bond as described under "Description of Credit Enhancement." To
the extent that any Trust Fund includes certificates of interest or
participations in Mortgage Loans, the related Prospectus Supplement will
describe the material terms and conditions of such certificates or
participations.
If provided in the related Prospectus Supplement, the original
principal amount of a series of Securities may exceed the principal balance of
the Mortgage Loans or Mortgage Securities initially being delivered to the
Trustee. Cash in an amount equal to such difference will be deposited into a
separate trust account (the "Pre-Funding Account") maintained with the Trustee.
During the period set forth in the related Prospectus Supplement, amounts on
deposit in the Pre-Funding Account may be used to purchase additional Mortgage
Loans or Mortgage Securities for the related Trust Fund. Any amounts remaining
in the Pre-Funding Account at the end of such period will be distributed as a
principal prepayment to the holders of the related series of Securities at the
time and in the manner set forth in the related Prospectus Supplement.
Each series of Securities may consist of any one or a combination of
the following: (i) a single class of Securities; (ii) two or more classes of
Securities, one or more classes of which will be senior ("Senior Securities") in
right of payment to one or more of the other classes ("Subordinate Securities"),
and as to which certain classes of Senior (or Subordinate) Securities may be
senior to other classes of Senior (or Subordinate) Securities, as described in
the respective Prospectus Supplement (any such series, a "Senior/Subordinate
Series"); (iii) two or more classes of Securities, one or more classes ("Strip
Securities") of which will be entitled to (a) principal distributions, with
disproportionate, nominal or no interest distributions or (b) interest
distributions, with disproportionate, nominal or no principal distributions;
(iv) two or more classes of Securities which differ as to the timing, sequential
order, rate, pass-through rate or amount of distributions of principal or
interest or both, or as to which distributions of principal or interest or both
on any such class may be made upon the occurrence of specified events, in
accordance with a schedule or formula (including "planned amortization classes"
and "targeted amortization classes"), or on the basis of collections from
designated portions of the Mortgage Pool, and which classes may include one or
more classes of Securities ("Accrual Securities") with respect to which certain
accrued interest will not be distributed but rather will be added to the
principal balance thereof on each Distribution Date for the period described in
the related Prospectus Supplement; or (v) other types of classes of Securities,
as described in the related Prospectus Supplement. With respect to any series of
Notes, the Equity Certificates, insofar as they represent the beneficial
ownership interest in the Issuer, will be subordinate to the related Notes. As
to each series, all Securities offered hereby (the "Offered Securities") will be
rated in one of the four highest rating categories by one or more Rating
Agencies. Credit support for the Offered Securities of each series may be
provided by a Financial Guaranty Insurance Policy, Mortgage Pool Insurance
Policy, Letter of Credit, Bankruptcy Bond, Purchase Obligation, Reserve Fund or
Overcollateralization as described under "Description of Credit Enhancement," by
the subordination of one or more other classes of Securities as described under
"Subordination" or by any combination of the foregoing.
If so specified in the Prospectus Supplement relating to a series of
Certificates, one or more elections may be made to treat the related Trust Fund,
or a designated portion thereof, as a REMIC. If such an election is made
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with respect to a series of Certificates, one of the classes of Certificates in
such series will be designated as evidencing the sole class of "residual
interests" in each related REMIC, as defined in the Code; alternatively, a
separate class of ownership interests will evidence such residual interests. All
other classes of Certificates in such series will constitute "regular interests"
in the related REMIC, as defined in the Code and will be designated as such. As
to each series of Certificates as to which a REMIC election is to be made, the
Master Servicer, Trustee or other specified person will be obligated to take
certain specified actions required in order to comply with applicable laws and
regulations.
FORM OF SECURITIES
Except as described below, the Offered Securities of each series will
be issued as physical certificates or notes in fully registered form only in the
denominations specified in the related Prospectus Supplement, and will be
transferrable and exchangeable at the corporate trust office of the registrar
(the "Security Registrar") named in the related Prospectus Supplement. With
respect to each series of Certificates or Notes, the Security Registrar will be
referred to as the "Certificate Registrar" or "Note Registrar," respectively. No
service charge will be made for any registration of exchange or transfer of
Offered Securities, but the Trustee may require payment of a sum sufficient to
cover any tax or other governmental charge. The term "Securityholder" or
"Holder" as used herein refers to the entity whose name appears on the records
of the Security Registrar (consisting of or including the "Security Register")
as the registered holder of a Security, except as otherwise indicated in the
related Prospectus Supplement.
If so specified in the related Prospectus Supplement, specified classes
of a series of Securities will be initially issued through the book-entry
facilities of The Depository Trust Company ("DTC"). As to any such class of
Securities ("DTC Registered Securities"), the record Holder of such Securities
will be DTC's nominee. DTC is a limited-purpose trust company organized under
the laws of the State of New York, which holds securities for its participating
organizations ("Participants") and facilitates the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in the accounts of Participants. Participants include securities brokers
and dealers, banks, trust companies and clearing corporations and may include
certain other organizations. Other institutions that are not Participants but
clear through or maintain a custodial relationship with Participants (such
institutions, "Intermediaries") have indirect access to DTC's clearance system.
No person acquiring an interest in any DTC Registered Securities (each
such person, a "Beneficial Owner") will be entitled to receive a Security
representing such interest in registered, certificated form, unless either (i)
DTC ceases to act as depository in respect thereof and a successor depository is
not obtained, or (ii) the Company elects in its sole discretion to discontinue
the registration of such Securities through DTC. Prior to any such event,
Beneficial Owners will not be recognized by the Trustee or the Master Servicer
as Holders of the related Securities for purposes of the related Pooling
Agreement or Indenture, and Beneficial Owners will be able to exercise their
rights as owners of such Securities only indirectly through DTC, Participants
and Intermediaries. Any Beneficial Owner that desires to purchase, sell or
otherwise transfer any interest in DTC Registered Securities may do so only
through DTC, either directly if such Beneficial Owner is a Participant or
indirectly through Participants and, if applicable, Intermediaries. Pursuant to
the procedures of DTC, transfers of the beneficial ownership of any DTC
Registered Securities will be required to be made in minimum denominations
specified in the related Prospectus Supplement. The ability of a Beneficial
Owner to pledge DTC Registered Securities to persons or entities that are not
Participants in the DTC system, or to otherwise act with respect to such
Securities, may be limited because of the lack of physical certificates or notes
evidencing such Securities and because DTC may act only on behalf of
Participants.
Distributions in respect of the DTC Registered Securities will be
forwarded by the Trustee or other specified person to DTC, and DTC will be
responsible for forwarding such payments to Participants, each of which will be
responsible for disbursing such payments to the Beneficial Owners it represents
or, if applicable, to Intermediaries. Accordingly, Beneficial Owners may
experience delays in the receipt of payments in respect of their Securities.
Under DTC's procedures, DTC will take actions permitted to be taken by Holders
of any class of DTC Registered Securities under the Pooling Agreement or
Indenture only at the direction of one or more Participants to whose account the
DTC Registered Securities are credited and whose aggregate holdings represent no
less than any minimum amount of Percentage Interests or voting rights required
therefor. DTC may take conflicting actions with respect to any action of Holders
of Securities of any Class to the extent that Participants authorize such
actions. None of the Master Servicer, the Company, the Trustee or any of their
respective affiliates will have any liability for any aspect
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of the records relating to or payments made on account of beneficial ownership
interests in the DTC Registered Securities, or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
ASSIGNMENT OF TRUST FUND ASSETS
At the time of issuance of a series of Securities, the Company will
assign, or cause to be assigned, to the related Trustee (or its nominee),
without recourse, the Mortgage Loans or Mortgage Securities being included in
the related Trust Fund, together with, unless otherwise specified in the related
Prospectus Supplement, all principal and interest received on or with respect to
such Mortgage Loans or Mortgage Securities after the Cut-off Date, other than
principal and interest due on or before the Cut-off Date. If specified in the
related Prospectus Supplement, the Company or any of its affiliates may retain
the Spread, if any, for itself or transfer the same to others. The Trustee will,
concurrently with such assignment, deliver the Securities of such series to or
at the direction of the Company in exchange for the Mortgage Loans and/or
Mortgage Securities in the related Trust Fund. Each Mortgage Loan will be
identified in a schedule appearing as an exhibit to the related Pooling
Agreement or Servicing Agreement. Such schedule will include, among other
things, information as to the principal balance of each Mortgage Loan in the
related Trust Fund as of the Cut-off Date, as well as information respecting the
Mortgage Rate, the currently scheduled monthly payment of principal and
interest, the maturity of the Mortgage Note and the Loan-to-Value Ratio at
origination or modification (without regard to any secondary financing).
In addition, the Company will, as to each Mortgage Loan (other than
Mortgage Loans underlying any Mortgage Securities and other than Contracts),
deliver, or cause to be delivered, to the related Trustee (or to the custodian
described below) the Mortgage Note endorsed, without recourse, either in blank
or to the order of such Trustee (or its nominee), the Mortgage with evidence of
recording indicated thereon (except for any Mortgage not returned from the
public recording office), an assignment of the Mortgage in blank or to the
Trustee (or its nominee) in recordable form, together with any intervening
assignments of the Mortgage with evidence of recording thereon (except for any
such assignment not returned from the public recording office), and, if
applicable, any riders or modifications to such Mortgage Note and Mortgage,
together with certain other documents at such times as set forth in the related
Pooling Agreement or Servicing Agreement. Such assignments may be blanket
assignments covering Mortgages on Mortgaged Properties located in the same
county, if permitted by law. Notwithstanding the foregoing, a Trust Fund may
include Mortgage Loans where the original Mortgage Note is not delivered to the
Trustee if the Company delivers, or causes to be delivered, to the related
Trustee (or the custodian) a copy or a duplicate original of the Mortgage Note,
together with an affidavit certifying that the original thereof has been lost or
destroyed. In addition, if the Company cannot deliver, with respect to any
Mortgage Loan, the Mortgage or any intervening assignment with evidence of
recording thereon concurrently with the execution and delivery of the related
Pooling Agreement or Servicing Agreement because of a delay caused by the public
recording office, the Company will deliver, or cause to be delivered, to the
related Trustee (or the custodian) a true and correct photocopy of such Mortgage
or assignment as submitted for recording within one year. The Company will
deliver, or cause to be delivered, to the related Trustee (or the custodian)
such Mortgage or assignment with evidence of recording indicated thereon after
receipt thereof from the public recording office. If the Company cannot deliver,
with respect to any Mortgage Loan, the Mortgage or any intervening assignment
with evidence of recording thereon concurrently with the execution and delivery
of the related Pooling Agreement or Servicing Agreement because such Mortgage or
assignment has been lost, the Company will deliver, or cause to be delivered, to
the related Trustee (or the custodian) a true and correct photocopy of such
Mortgage or assignment with evidence of recording thereon. Assignments of the
Mortgage Loans to the Trustee (or its nominee) will be recorded in the
appropriate public recording office, except in states where, in the opinion of
counsel acceptable to the Trustee, such recording is not required to protect the
Trustee's interests in the Mortgage Loan against the claim of any subsequent
transferee or any successor to or creditor of the Company or the originator of
such Mortgage Loan, or except as otherwise specified in the related Prospectus
Supplement as to any series of Securities. In addition, unless specified in the
related Prospectus Supplement, the Company will, as to each Contract, deliver,
or cause to be delivered, the original Contract endorsed, without recourse, to
the order of the Trustee and copies of documents and instruments related to the
Contract and the security interest in the Manufactured Home securing the
Contract, together with a blanket assignment to the Trustee of all Contracts in
the related Trust Fund and such documents and instruments. In order to give
notice of the right, title and interest of the Securityholders to the Contracts,
the Company will cause to be executed and delivered to the Trustee a UCC-1
financing statement identifying the Trustee as the secured party and identifying
all Contracts as collateral. Unless otherwise specified in the related
Prospectus Supplement, the Company will, as to each Mortgage Security
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included in a Mortgage Pool, deliver, or cause to be delivered, to the related
Trustee (or the custodian) a physical certificate or note evidencing such
Mortgage Security, registered in the name of the related Trustee (or its
nominee), or endorsed in blank or to the related Trustee (or its nominee), or
accompanied by transfer documents sufficient to effect a transfer to the Trustee
(or its nominee).
The Trustee (or the custodian hereinafter referred to) will hold such
documents in trust for the benefit of the related Securityholders, and generally
will review such documents within 90 days after receipt thereof in the case of
documents delivered concurrently with the execution and delivery of the related
Pooling Agreement or Indenture, and within the time period specified in the
related Pooling Agreement or Indenture in the case of all other documents
delivered. Unless otherwise specified in the related Prospectus Supplement, if
any such document is found to be missing or defective in any material respect,
the Trustee (or such custodian) will be required to promptly so notify the
Master Servicer, the Company, and the related Seller. If the related Seller does
not cure the omission or defect within a specified period after notice is given
thereto by the Trustee, and such omission or defect materially and adversely
affects the interests of Securityholders in the affected Mortgage Loan or
Mortgage Security, then, unless otherwise specified in the related Prospectus
Supplement, the related Seller will be obligated to purchase such Mortgage Loan
or Mortgage Security from the Trustee at its Purchase Price (or, if and to the
extent it would otherwise be permitted to do so for a breach of representation
and warranty as described under "The Mortgage Pools--Representations of
Sellers," to substitute for such Mortgage Loan or Mortgage Security). The
Trustee will be obligated to enforce this obligation of the Seller to the extent
described above under "The Mortgage Pools--Representations by Sellers," but
there can be no assurance that the applicable Seller will fulfill its obligation
to purchase (or substitute for) the affected Mortgage Loan or Mortgage Security
as described above. The Company will not be obligated to purchase or substitute
for such Mortgage Loan or Mortgage Security if the Seller defaults on its
obligation to do so. This purchase or substitution obligation constitutes the
sole remedy available to the related Securityholders and the related Trustee for
omission of, or a material defect in, a constituent document. Any affected
Mortgage Loan or Mortgage Security not so purchased or substituted for shall
remain in the related Trust Fund.
The Trustee will be authorized at any time to appoint one or more
custodians pursuant to a custodial agreement to hold title to the Mortgage Loans
and/or Mortgage Securities in any Mortgage Pool, and to maintain possession of
and, if applicable, to review, the documents relating to such Mortgage Loans
and/or Mortgage Securities, in any case as the agent of the Trustee. The
identity of any such custodian to be appointed on the date of initial issuance
of the Securities will be set forth in the related Prospectus Supplement. Any
such custodian may be an affiliate of the Company or the Master Servicer.
With respect to the Mortgage Loans in a Mortgage Pool, except in the
case of a Designated Seller Transaction or as to Mortgage Loans underlying any
Mortgage Securities, the Company will make certain representations and
warranties as to the types and geographical concentrations of such Mortgage
Loans and as to the accuracy, in all material respects, of certain identifying
information furnished to the related Trustee in respect of each such Mortgage
Loan (E.G., original Loan-to-Value Ratio, principal balance as of the Cut-off
Date, Mortgage Rate and maturity). Upon a breach of any such representation
which materially and adversely affects the interests of the Securityholders in a
Mortgage Loan, the Company will be obligated to cure the breach in all material
respects, to purchase the Mortgage Loan at its Purchase Price or, unless
otherwise specified in the related Prospectus Supplement, to substitute for such
Mortgage Loan a Qualified Substitute Mortgage Loan in accordance with the
provisions for such substitution by Affiliated Sellers as described above under
"The Mortgage Pools--Representations by Sellers." However, the Company will not
be required to repurchase or substitute for any Mortgage Loan in connection with
a breach of a representation and warranty if the substance of any such breach
also constitutes fraud in the origination of the related Mortgage Loan. This
purchase or substitution obligation constitutes the sole remedy available to
Securityholders or the Trustee for such a breach of representation by the
Company. Any Mortgage Loan not so purchased or substituted for shall remain in
the related Trust Fund.
Pursuant to the related Pooling Agreement or Servicing Agreement, the
Master Servicer for any Mortgage Pool, either directly or through Subservicers,
will service and administer the Mortgage Loans included in such Mortgage Pool
and assigned to the related Trustee as more fully set forth under "Servicing of
Mortgage Loans." The Master Servicer will make certain representations and
warranties regarding its authority to enter into, and its ability to perform its
obligations under, the Pooling Agreement or Servicing Agreement.
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CERTIFICATE ACCOUNT
GENERAL. The Master Servicer and/or the Trustee will, as to each Trust
Fund, establish and maintain or cause to be established and maintained one or
more separate accounts for the collection of payments on the related Mortgage
Loans and/or Mortgage Securities constituting such Trust Fund (collectively, the
"Certificate Account"), which will be established so as to comply with the
standards of each Rating Agency that has rated any one or more classes of
Securities of the related series. A Certificate Account may be maintained either
as an interest-bearing or a non-interest-bearing account, and the funds held
therein may be held as cash or invested in United States government securities
and other investment grade obligations specified in the related Pooling
Agreement or the related Servicing Agreement and Indenture ("Permitted
Investments"). Any Permitted Investments shall not cause the Company to register
under the Investment Company Act of 1940. Any interest or other income earned on
funds in the Certificate Account will be paid to the related Master Servicer or
Trustee as additional compensation. If permitted by such Rating Agency or
Agencies and so specified in the related Prospectus Supplement, a Certificate
Account may contain funds relating to more than one series of mortgage
pass-through certificates and may contain other funds representing payments on
mortgage loans owned by the related Master Servicer or serviced by it on behalf
of others.
DEPOSITS. Except as set forth in the related Pooling Agreement or the
related Servicing Agreement and Indenture and described in the related
Prospectus Supplement, the related Master Servicer, Trustee or Special Servicer
will be required to deposit or cause to be deposited in the Certificate Account
for each Trust Fund within a certain period following receipt (in the case of
collections and payments), the following payments and collections received, or
advances made, by the Master Servicer, the Trustee or any Special Servicer
subsequent to the Cut-off Date with respect to the Mortgage Loans and/or
Mortgage Securities in such Trust Fund (other than payments due on or before the
Cut-off Date):
(i) all payments on account of principal, including principal
prepayments, on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage
Loans, including any default interest collected, in each case net of
any portion thereof retained by the Master Servicer, any Special
Servicer or Sub-Servicer as its servicing compensation or as
compensation to the Trustee, and further net of any Spread;
(iii) all payments on the Mortgage Securities;
(iv) all proceeds received under any hazard, title, primary
mortgage, FHA or other insurance policy that provides coverage with
respect to a particular Mortgaged Property or the related Mortgage Loan
(other than proceeds applied to the restoration of the property or
released to the related borrower in accordance with the customary
servicing practices of the Master Servicer (or, if applicable, a
Special Servicer) and/or the terms and conditions of the related
Mortgage (collectively, "Insurance Proceeds") and all other amounts
received and retained in connection with the liquidation of defaulted
Mortgage Loans or property acquired in respect thereof, by foreclosure
or otherwise ("Liquidation Proceeds"), together with the net operating
income (less reasonable reserves for future expenses) derived from the
operation of any Mortgaged Properties acquired by the Trust Fund
through foreclosure or otherwise;
(v) any amounts paid under any instrument or drawn from any
fund that constitutes credit enhancement for the related series of
Securities as described under "Description of Credit Enhancement";
(vi) any advances made as described under "--Advances" below;
(vii) any Buydown Funds (and, if applicable, investment
earnings thereon) required to be paid to Securityholders, as described
below;
(viii) all proceeds of any Mortgage Loan or Mortgage Security
purchased (or, in the case of a substitution, certain amounts
representing a principal adjustment) by the Master Servicer, the
Company, a Seller or any other person pursuant to the terms of the
related Pooling Agreement or Servicing Agreement as described under
"The Mortgage Pools--Representations by Sellers," "Servicing of
Mortgage Loans--Realization Upon and Sale of Defaulted Mortgage Loans,"
"--Assignment of Trust Fund Assets"
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above, "The Agreements--Termination" and "Purchase Obligations" (all of
the foregoing, also "Liquidation Proceeds");
(ix) any amounts paid by the Master Servicer to cover
Prepayment Interest Shortfalls arising out of the prepayment of
Mortgage Loans as described under "Servicing of Mortgage
Loans--Servicing and Other Compensation and Payment of Expenses;
Spread";
(x) to the extent that any such item does not constitute
additional servicing compensation to the Master Servicer or a Special
Servicer, any payments on account of modification or assumption fees,
late payment charges, Prepayment Premiums or Equity Participations on
the Mortgage Loans;
(xi) any amount required to be deposited by the Master
Servicer or the Trustee in connection with losses realized on
investments for the benefit of the Master Servicer or the Trustee, as
the case may be, of funds held in the Certificate Account; and
(xii)any other amounts required to be deposited in the
Certificate Account as provided in the related Pooling Agreement or the
related Servicing Agreement and Indenture and described herein or in
the related Prospectus Supplement.
With respect to each Buydown Mortgage Loan, the Master Servicer will be
required to deposit the related Buydown Funds provided to it in a Buydown
Account which will comply with the requirements set forth herein with respect to
the Certificate Account. The terms of all Buydown Mortgage Loans provide for the
contribution of Buydown Funds in an amount equal to or exceeding either (i) the
total payments to be made from such funds pursuant to the related buydown plan
or (ii) if such Buydown Funds are to be deposited on a discounted basis, that
amount of Buydown Funds which, together with investment earnings thereon at a
rate as will support the scheduled level of payments due under the Buydown
Mortgage Loan. Neither the Master Servicer nor the Company will be obligated to
add to any such discounted Buydown Funds any of its own funds should investment
earnings prove insufficient to maintain the scheduled level of payments. To the
extent that any such insufficiency is not recoverable from the Mortgagor or, in
an appropriate case, from the Seller, distributions to Securityholders may be
affected. With respect to each Buydown Mortgage Loan, the Master Servicer will
be required monthly to withdraw from the Buydown Account and deposit in the
Certificate Account as described above the amount, if any, of the Buydown Funds
(and, if applicable, investment earnings thereon) for each Buydown Mortgage Loan
that, when added to the amount due from the Mortgagor on such Buydown Mortgage
Loan, equals the full monthly payment which would be due on the Buydown Mortgage
Loan if it were not subject to the buydown plan. The Buydown Funds will in no
event be a part of the related Trust Fund.
If the Mortgagor on a Buydown Mortgage Loan prepays such Mortgage Loan
in its entirety during the Buydown Period, the Master Servicer will be required
to withdraw from the Buydown Account and remit to the Mortgagor or such other
designated party in accordance with the related buydown plan any Buydown Funds
remaining in the Buydown Account. If a prepayment by a Mortgagor during the
Buydown Period together with Buydown Funds will result in full prepayment of a
Buydown Mortgage Loan, the Master Servicer generally will be required to
withdraw from the Buydown Account and deposit in the Certificate Account the
Buydown Funds and investment earnings thereon, if any, which together with such
prepayment will result in a prepayment in full; provided that Buydown Funds may
not be available to cover a prepayment under certain Mortgage Loan programs. Any
Buydown Funds so remitted to the Master Servicer in connection with a prepayment
described in the preceding sentence will be deemed to reduce the amount that
would be required to be paid by the Mortgagor to repay fully the related
Mortgage Loan if the Mortgage Loan were not subject to the buydown plan. Any
investment earnings remaining in the Buydown Account after prepayment or after
termination of the Buydown Period will be remitted to the related Mortgagor or
such other designated party pursuant to the agreement relating to each Buydown
Mortgage Loan (the "Buydown Agreement"). If the Mortgagor defaults during the
Buydown Period with respect to a Buydown Mortgage Loan and the property securing
such Buydown Mortgage Loan is sold in liquidation (either by the Master
Servicer, the Primary Insurer, the insurer under the Mortgage Pool Insurance
Policy (the "Pool Insurer") or any other insurer), the Master Servicer will be
required to withdraw from the Buydown Account the Buydown Funds and all
investment earnings thereon, if any, and either deposit the same in the
Certificate Account or, alternatively, pay the same to the
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Primary Insurer or the Pool Insurer, as the case may be, if the Mortgaged
Property is transferred to such insurer and such insurer pays all of the loss
incurred in respect of such default.
WITHDRAWALS. Except as set forth in the related Pooling Agreement, the
related Servicing Agreement and Indenture and described in the related
Prospectus Supplement, a Master Servicer, Trustee or Special Servicer may make
withdrawals from the Certificate Account for each Trust Fund for any of the
following purposes:
(i) to make distributions to the related Securityholders on
each Distribution Date;
(ii) to reimburse the Master Servicer or any other specified
person for unreimbursed amounts advanced by it as described under
"--Advances" below in respect of Mortgage Loans in the Trust Fund, such
reimbursement to be made out of amounts received which were identified
and applied by the Master Servicer as late collections of interest (net
of related servicing fees) on and principal of the particular Mortgage
Loans with respect to which the advances were made or out of amounts
drawn under any form of credit enhancement with respect to such
Mortgage Loans;
(iii) to reimburse the Master Servicer or a Special Servicer
for unpaid servicing fees earned by it and certain unreimbursed
servicing expenses incurred by it with respect to Mortgage Loans in the
Trust Fund and properties acquired in respect thereof, such
reimbursement to be made out of amounts that represent Liquidation
Proceeds and Insurance Proceeds collected on the particular Mortgage
Loans and properties, and net income collected on the particular
properties, with respect to which such fees were earned or such
expenses were incurred or out of amounts drawn under any form of credit
enhancement with respect to such Mortgage Loans and properties;
(iv) to reimburse the Master Servicer or any other specified
person for any advances described in clause (ii) above made by it and
any servicing expenses referred to in clause (iii) above incurred by it
which, in the good faith judgment of the Master Servicer or such other
person, will not be recoverable from the amounts described in clauses
(ii) and (iii), respectively, such reimbursement to be made from
amounts collected on other Mortgage Loans in the Trust Fund or, if and
to the extent so provided by the related Pooling Agreement or the
related Servicing Agreement and Indenture and described in the related
Prospectus Supplement, only from that portion of amounts collected on
such other Mortgage Loans that is otherwise distributable on one or
more classes of Subordinate Securities of the related series;
(v) if and to the extent described in the related
Prospectus Supplement, to pay the Master Servicer, a Special Servicer
or another specified entity (including a provider of credit
enhancement) interest accrued on the advances described in clause (ii)
above made by it and the servicing expenses described in clause (iii)
above incurred by it while such remain outstanding and unreimbursed;
(vi) to pay for costs and expenses incurred by the Trust
Fund for environmental site assessments performed with respect to
Multifamily Properties that constitute security for defaulted Mortgage
Loans, and for any containment, clean-up or remediation of hazardous
wastes and materials present on such Mortgaged Properties, as described
under "Servicing of Mortgage Loans--Realization Upon Defaulted Mortgage
Loans";
(vii) to reimburse the Master Servicer, the Company, or any
of their respective directors, officers, employees and agents, as the
case may be, for certain expenses, costs and liabilities incurred
thereby, as and to the extent described under "The Agreements--Certain
Matters Regarding the Master Servicer and the Company";
(viii) if and to the extent described in the related
Prospectus Supplement, to pay the fees of the Trustee;
(ix) to reimburse the Trustee or any of its directors,
officers, employees and agents, as the case may be, for certain
expenses, costs and liabilities incurred thereby, as and to the extent
described under "The Agreements--Certain Matters Regarding the
Trustee";
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(x) to pay the Master Servicer or the Trustee, as
additional compensation, interest and investment income earned in
respect of amounts held in the Certificate Account;
(xi) to pay (generally from related income) for costs
incurred in connection with the operation, management and maintenance
of any Mortgaged Property acquired by the Trust Fund by foreclosure or
otherwise;
(xii) if one or more elections have been made to treat the
Trust Fund or designated portions thereof as a REMIC, to pay any
federal, state or local taxes imposed on the Trust Fund or its assets
or transactions, as and to the extent described under "Federal Income
Tax Consequences--REMICS--Prohibited Transactions and Other Possible
REMIC Taxes";
(xiii) to pay for the cost of an independent appraiser or
other expert in real estate matters retained to determine a fair sale
price for a defaulted Mortgage Loan or a property acquired in respect
thereof in connection with the liquidation of such Mortgage Loan or
property;
(xiv) to pay for the cost of various opinions of counsel
obtained pursuant to the related Pooling Agreement or the related
Servicing Agreement and Indenture for the benefit of the related
Securityholders;
(xv) to pay to itself, the Company, a Seller or any other
appropriate person all amounts received with respect to each Mortgage
Loan purchased, repurchased or removed from the Trust Fund pursuant to
the terms of the related Pooling Agreement or the related Servicing
Agreement and Indenture and not required to be distributed as of the
date on which the related Purchase Price is determined;
(xvi) to make any other withdrawals permitted by the related
Pooling Agreement or the related Servicing Agreement and Indenture and
described in the related Prospectus Supplement; and
(xvii) to clear and terminate the Certificate Account upon the
termination of the Trust Fund.
DISTRIBUTIONS
Distributions on the Securities of each series will be made by or on
behalf of the related Trustee or Master Servicer on each Distribution Date as
specified in the related Prospectus Supplement from the Available Distribution
Amount for such series and such Distribution Date. Unless otherwise provided in
the related Prospectus Supplement, the "Available Distribution Amount" for any
series of Securities and any Distribution Date will refer to the total of all
payments or other collections (or advances in lieu thereof) on, under or in
respect of the Mortgage Loans and/or Mortgage Securities and any other assets
included in the related Trust Fund that are available for distribution to the
Securityholders of such series on such date. The particular components of the
Available Distribution Amount for any series on each Distribution Date will be
more specifically described in the related Prospectus Supplement.
Except as otherwise specified in the related Prospectus Supplement,
distributions on the Securities of each series (other than the final
distribution in retirement of any such Certificate) will be made to the persons
in whose names such Securities are registered at the close of business on the
last business day of the month preceding the month in which the applicable
Distribution Date occurs (the "Record Date"), and the amount of each
distribution will be determined as of the close of business on the date (the
"Determination Date") specified in the related Prospectus Supplement. All
distributions with respect to each class of Securities on each Distribution Date
will be allocated PRO RATA among the outstanding Securities in such class.
Payments will be made either by wire transfer in immediately available funds to
the account of a Securityholder at a bank or other entity having appropriate
facilities therefor, if such Securityholder has provided the Trustee or other
person required to make such payments with wiring instructions no later than
five business days prior to the related Record Date or such other date specified
in the related Prospectus Supplement (and, if so provided in the related
Prospectus Supplement, such Securityholder holds Securities in the requisite
amount or denomination specified therein), or by check mailed to the address of
such Securityholder as it appears on the Security Register; provided, however,
that the final distribution in retirement of any class of Securities will be
made only upon presentation and surrender of such Securities at the location
specified in the notice to Securityholders of such final distribution. Payments
will be made to each Certificateholder in accordance with such
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holder's Percentage Interest in a particular class. The "Percentage Interest"
represented by a Security of a particular class will be equal to the percentage
obtained by dividing the initial principal balance or notional amount of such
Security by the aggregate initial amount or notional balance of all the
Securities of such class.
DISTRIBUTIONS OF INTEREST AND PRINCIPAL ON THE SECURITIES
Each class of Securities of each series (other than certain classes of
Strip Securities and certain REMIC Residual Certificates that have no Security
Interest Rate) may have a different Security Interest Rate, which may be fixed,
variable or adjustable, or any combination of two or more such rates. The
related Prospectus Supplement will specify the Security Interest Rate or, in the
case of a variable or adjustable Security Interest Rate, the method for
determining the Security Interest Rate, for each class. The related Prospectus
Supplement will specify whether interest on the Securities of such series will
be calculated on the basis of a 360-day year consisting of twelve 30-day months
or on a different method.
Distributions of interest in respect of the Securities of any class
(other than any class of Securities that will be entitled to distributions of
accrued interest commencing only on the Distribution Date, or under the
circumstances, specified in the related Prospectus Supplement ("Accrual
Securities"), and other than any class of Strip Securities or REMIC Residual
Certificates that is not entitled to any distributions of interest) will be made
on each Distribution Date based on the Accrued Certificate Interest for such
class and such Distribution Date, subject to the sufficiency of the portion of
the Available Distribution Amount allocable to such class on such Distribution
Date. Prior to the time interest is distributable on any class of Accrual
Securities, the amount of Accrued Certificate Interest otherwise distributable
on such class will be added to the principal balance thereof on each
Distribution Date. With respect to each class of Securities (other than certain
classes of Strip Securities and REMIC Residual Certificates), "Accrued
Certificate Interest" for each Distribution Date will be equal to interest at
the applicable Security Interest Rate accrued for a specified period (generally
one month) on the outstanding principal balance thereof immediately prior to
such Distribution Date. Unless otherwise provided in the related Prospectus
Supplement, Accrued Certificate Interest for each Distribution Date on Strip
Securities entitled to distributions of interest will be similarly calculated
except that it will accrue on a notional amount that is either (i) based on the
principal balances of some or all of the Mortgage Loans and/or Mortgage
Securities in the related Trust Fund or (ii) equal to the principal balances of
one or more other classes of Securities of the same series. Reference to such a
notional amount with respect to a class of Strip Securities is solely for
convenience in making certain calculations and does not represent the right to
receive any distribution of principal. If so specified in the related Prospectus
Supplement, the amount of Accrued Certificate Interest that is otherwise
distributable on (or, in the case of Accrual Securities, that may otherwise be
added to the principal balance of) one or more classes of the Securities of a
series will be reduced to the extent that any Prepayment Interest Shortfalls, as
described under "Yield Considerations", exceed the amount of any sums
(including, if and to the extent specified in the related Prospectus Supplement,
the Master Servicer's servicing compensation) that are applied to offset such
shortfalls. The particular manner in which such shortfalls will be allocated
among some or all of the classes of Securities of that series will be specified
in the related Prospectus Supplement. The related Prospectus Supplement will
also describe the extent to which the amount of Accrued Certificate Interest
that is otherwise distributable on (or, in the case of Accrual Securities, that
may otherwise be added to the principal balance of) a class of Offered
Securities may be reduced as a result of any other contingencies, including
delinquencies, losses and Deferred Interest on or in respect of the related
Mortgage Loans or application of the Relief Act with respect to such Mortgage
Loans. Any reduction in the amount of Accrued Certificate Interest otherwise
distributable on a class of Securities by reason of the allocation to such class
of a portion of any Deferred Interest on or in respect of the related Mortgage
Loans will result in a corresponding increase in the principal balance of such
class.
As and to the extent described in the related Prospectus Supplement,
distributions of principal with respect to a series of Securities will be made
on each Distribution Date to the holders of the class or classes of Securities
of such series entitled thereto until the principal balance(s) of such
Securities have been reduced to zero. In the case of a series of Securities
which includes two or more classes of Securities, the timing, sequential order,
priority of payment or amount of distributions in respect of principal, and any
schedule or formula or other provisions applicable to the determination thereof
(including distributions among multiple classes of Senior Securities or
Subordinate Securities), shall be as set forth in the related Prospectus
Supplement. Distributions of principal with respect to one or more classes of
Securities may be made at a rate that is faster (and, in some cases,
substantially faster) than the rate at which payments or other collections of
principal are received on the Mortgage Loans and/or Mortgage
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Securities in the related Trust Fund, may not commence until the occurrence of
certain events, such as the retirement of one or more other classes of
Securities of the same series, or may be made at a rate that is slower (and, in
some cases, substantially slower) than the rate at which payments or other
collections of principal are received on such Mortgage Loans and/or Mortgage
Securities. In addition, distributions of principal with respect to one or more
classes of Securities may be made, subject to available funds, based on a
specified principal payment schedule and, with respect to one or more classes of
Securities, may be contingent on the specified principal payment schedule for
another class of the same series and the rate at which payments and other
collections of principal on the Mortgage Loans and/or Mortgage Securities in the
related Trust Fund are received.
PRE-FUNDING ACCOUNT
If so specified in the related Prospectus Supplement, the Pooling
Agreement or other agreement may provide for the transfer by the Sellers of
additional Mortgage Loans to the related Trust after the Closing Date. Such
additional Mortgage Loans will be required to conform to the requirements set
forth in the related Agreement or other agreement providing for such transfer,
and will be underwritten to the same standards as the Mortgage Loans initially
included in the Trust Fund. As specified in the related Prospectus Supplement,
such transfer may be funded by the establishment of a Pre-Funding Account (a
"Pre-Funding Account"). If a Pre-Funding Account is established, all or a
portion of the proceeds of the sale of one or more classes of Securities of the
related series will be deposited in such account to be released as additional
Mortgage Loans are transferred. A Pre-Funding Account will be required to be
maintained as an Eligible Account, all amounts therein will be required to be
invested in Permitted Investments and the amount held therein shall at no time
exceed 25% of the aggregate outstanding principal balance of the Securities. The
related Agreement or other agreement providing for the transfer of additional
Mortgage Loans will generally provide that all such transfers must be made
within 3 months after the Closing Date, and that amounts set aside to fund such
transfers (whether in a Pre-Funding Account or otherwise) and not so applied
within the required period of time will be deemed to be principal prepayments
and applied in the manner set forth in such Prospectus Supplement.
DISTRIBUTIONS ON THE SECURITIES IN RESPECT OF PREPAYMENT PREMIUMS OR IN RESPECT
OF EQUITY PARTICIPATIONS
If so provided in the related Prospectus Supplement, Prepayment
Premiums or payments in respect of Equity Participations received on or in
connection with the Mortgage Assets in any Trust Fund will be distributed on
each Distribution Date to the holders of the class of Securities of the related
series entitled thereto in accordance with the provisions described in such
Prospectus Supplement.
ALLOCATION OF LOSSES AND SHORTFALLS
The amount of any losses or shortfalls in collections on the Mortgage
Loans and/or Mortgage Securities in any Trust Fund (to the extent not covered or
offset by draws on any reserve fund or under any instrument of credit
enhancement) will be allocated among the respective classes of Securities of the
related series in the priority and manner, and subject to the limitations,
specified in the related Prospectus Supplement. As described in the related
Prospectus Supplement, such allocations may result in reductions in the
entitlements to interest and/or principal balances of one or more such classes
of Securities, or may be effected simply by a prioritization of payments among
such classes of Securities.
ADVANCES
If and to the extent provided in the related Prospectus Supplement, and
subject to any limitations specified therein, the related Master Servicer may be
obligated to advance, or have the option of advancing, on or before each
Distribution Date, from its or their own funds or from excess funds held in the
related Certificate Account that are not part of the Available Distribution
Amount for the related series of Securities for such Distribution Date, an
amount up to the aggregate of any payments of interest (and, if specified in the
related Prospectus Supplement, principal) that were due on or in respect of such
Mortgage Loans during the related Due Period and were delinquent on the related
Determination Date. No notice will be given to the Certificateholders of such
advances. A "Due Period" is the period between Distribution Dates, and scheduled
payments on the Mortgage Loans in any Trust Fund that became due during a given
Due Period will, to the extent received by the related Determination Date or
advanced by the related Master Servicer or other specified person, be
distributed on the Distribution Date next succeeding such Determination Date.
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Advances are intended to maintain a regular flow of scheduled interest
and principal payments to holders of the class or classes of Securities entitled
thereto, rather than to guarantee or insure against losses. Accordingly, all
advances made from the Master Servicer's own funds will be reimbursable out of
related recoveries on the Mortgage Loans (including amounts received under any
fund or instrument constituting credit enhancement) respecting which such
advances were made (as to any Mortgage Loan, "Related Proceeds") and such other
specific sources as may be identified in the related Prospectus Supplement,
including amounts which would otherwise be payable as principal to the Offered
Securities.. No advance will be required to be made by the Master Servicer if,
in the good faith judgment of the Master Servicer, such advance would not be
recoverable from Related Proceeds or another specifically identified source (any
such advance, a "Nonrecoverable Advance"); and, if previously made by a Master
Servicer, a Nonrecoverable Advance will be reimbursable from any amounts in the
related Certificate Account prior to any distributions being made to the related
series of Securityholders.
If advances have been made from excess funds in a Certificate Account,
the Master Servicer that advanced such funds will be required to replace such
funds in the Certificate Account on any future Distribution Date to the extent
that funds then in the Certificate Account are insufficient to permit full
distributions to Securityholders on such date. If so specified in the related
Prospectus Supplement, the obligation of a Master Servicer to make advances may
be secured by a cash advance reserve fund or a surety bond. If applicable,
information regarding the characteristics of, and the identity of any obligor
on, any such surety bond, will be set forth in the related Prospectus
Supplement.
If any person other than the Master Servicer has any obligation to make
advances as described above, the related Prospectus Supplement will identify
such person.
If and to the extent so provided in the related Prospectus Supplement,
any entity making advances will be entitled to receive interest thereon for the
period that such advances are outstanding at the rate specified in such
Prospectus Supplement, and such entity will be entitled to payment of such
interest periodically from general collections on the Mortgage Loans in the
related Trust Fund prior to any payment to Securityholders or as otherwise
provided in the related Pooling Agreement or Servicing Agreement and described
in such Prospectus Supplement.
As specified in the related Prospectus Supplement with respect to any
series of Securities as to which the Trust Fund includes Mortgage Securities,
the advancing obligations with respect to the underlying Mortgage Loans will be
pursuant to the terms of such Mortgage Securities, as may be supplemented by the
terms of the applicable Pooling Agreement or Servicing Agreement, and may differ
from the provisions described above.
REPORTS TO SECURITYHOLDERS
With each distribution to Securityholders of a particular class of
Offered Securities, the related Master Servicer or Trustee will forward or cause
to be forwarded to each holder of record of such class of Securities a statement
or statements with respect to the related Trust Fund setting forth the
information specifically described in the related Pooling Agreement or the
related Servicing Agreement or Indenture, which generally will include the
following as applicable except as otherwise provided therein:
(i) the amount, if any, of such distribution allocable to
principal;
(ii) the amount, if any, of such distribution allocable to
interest;
(iii)the amount, if any, of such distribution allocable to (A)
Prepayment Premiums and (B) payments on account of Equity
Participations;
(iv) with respect to a series consisting of two or more
classes, the outstanding principal balance or notional amount of each
class after giving effect to the distribution of principal on such
Distribution Date;
(v) the amount of servicing compensation received by the
related Master Servicer (and, if payable directly out of the related
Trust Fund, by any Special Servicer and any Sub-Servicer);
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(vi) the aggregate amount of advances included in the
distributions on such Distribution Date, and the aggregate amount of
unreimbursed advances at the close of business on such Distribution
Date;
(vii) the aggregate principal balance of the Mortgage Loans
in the related Mortgage Pool on, or as of a specified date shortly
prior to, such Distribution Date;
(viii) the number and aggregate principal balance of any
Mortgage Loans in the related Mortgage Pool in respect of which (A) one
scheduled payment is delinquent, (B) two scheduled payments are
delinquent, (C) three or more scheduled payments are delinquent and (D)
foreclosure proceedings have been commenced;
(ix) the book value of any real estate acquired by such Trust
Fund through foreclosure or grant of a deed in lieu of foreclosure;
(x) the balance of the Reserve Fund, if any, at the close of
business on such Distribution Date;
(xi) the amount of coverage under any Financial Guaranty
Insurance Policy, Mortgage Pool Insurance Policy or Letter of Credit
covering default risk as of the close of business on the applicable
Determination Date and a description of any credit enhancement
substituted therefor;
(xii)the Special Hazard Amount, Fraud Loss Amount and
Bankruptcy Amount as of the close of business on the applicable
Distribution Date and a description of any change in the calculation of
such amounts;
(xiii) in the case of Securities benefiting from alternative
credit enhancement arrangements described in a Prospectus Supplement,
the amount of coverage under such alternative arrangements as of the
close of business on the applicable Determination Date; and
(xiv) with respect to any series of Securities as to which the
Trust Fund includes Mortgage Securities, certain additional information
as required under the related Pooling Agreement and specified in the
related Prospectus Supplement.
In the case of information furnished pursuant to subclauses (i)-(iii)
above, the amounts will be expressed as a dollar amount per minimum denomination
of the relevant class of Offered Securities or per a specified portion of such
minimum denomination. In addition to the information described above, reports to
Securityholders will contain such other information as is set forth in the
applicable Pooling Agreement or the applicable Servicing Agreement or Indenture,
which may include, without limitation, prepayments, reimbursements to
Subservicers and the Master Servicer and losses borne by the related Trust Fund.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer or Trustee will furnish a report to each
holder of record of a class of Offered Securities at any time during such
calendar year which, among other things, will include information as to the
aggregate of amounts reported pursuant to subclauses (i)-(iii) above for such
calendar year or, in the event such person was a holder of record of a class of
Securities during a portion of such calendar year, for the applicable portion of
such a year.
DESCRIPTION OF CREDIT ENHANCEMENT
GENERAL
Unless otherwise provided in the applicable Prospectus Supplement,
credit support with respect to the Offered Securities of each series may be
comprised of one or more of the following components. Each component will have
limitations and will provide coverage with respect to certain losses on the
related Mortgage Loans (as more particularly described in the related Prospectus
Supplement, "Realized Losses") that are (i) attributable to the Mortgagor's
failure to make any payment of principal or interest as required under the
Mortgage Note, but not
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including Special Hazard Losses, Extraordinary Losses or other losses resulting
from damage to a Mortgaged Property, Bankruptcy Losses or Fraud Losses (any such
loss, a "Defaulted Mortgage Loss"); (ii) of a type generally covered by a
Special Hazard Insurance Policy (as defined below) (any such loss, a "Special
Hazard Loss"); (iii) attributable to certain actions which may be taken by a
bankruptcy court in connection with a Mortgage Loan, including a reduction by a
bankruptcy court of the principal balance of or the Mortgage Rate on a Mortgage
Loan or an extension of its maturity (any such loss, a "Bankruptcy Loss"); and
(iv) incurred on defaulted Mortgage Loans as to which there was fraud in the
origination of such Mortgage Loans (any such loss, a "Fraud Loss"). Defaulted
Mortgage Losses, Special Hazard Losses, Bankruptcy Losses and Fraud Losses in
excess of the amount of coverage provided therefor and losses occasioned by war,
civil insurrection, certain governmental actions, nuclear reaction and certain
other risks ("Extraordinary Losses") will not be covered. To the extent that the
credit support for the Offered Securities of any series is exhausted, the
holders thereof will bear all further risks of loss not otherwise insured
against.
As set forth below and in the applicable Prospectus Supplement, (i)
coverage with respect to Defaulted Mortgage Losses may be provided by one or
more of a Financial Guaranty Insurance Policy, Mortgage Pool Insurance Policy or
a Letter of Credit, (ii) coverage with respect to Special Hazard Losses may be
provided by one or more of a Financial Guaranty Insurance Policy, Letter of
Credit or a Special Hazard Insurance Policy (any instrument, to the extent
providing such coverage, a "Special Hazard Instrument"), (iii) coverage with
respect to Bankruptcy Losses may be provided by one or more of a Financial
Guaranty Insurance Policy, Letter of Credit or a Bankruptcy Bond and (iv)
coverage with respect to Fraud Losses may be provided by one or more of a
Financial Guaranty Insurance Policy, Mortgage Pool Insurance Policy, Letter of
Credit or mortgage repurchase bond. In addition, if provided in the applicable
Prospectus Supplement, in lieu of or in addition to any or all of the foregoing
arrangements, credit enhancement may be in the form of a Reserve Fund to cover
such losses, in the form of subordination of one or more classes of Subordinate
Securities to provide credit support to one or more classes of Senior
Securities, or in the form of Overcollateralization, or in the form of a
specified entity's agreement to repurchase certain Mortgage Loans or fund
certain losses pursuant to a Purchase Obligation, which obligations may be
supported by a Letter of Credit, surety bonds or other types of insurance
policies, certain other secured or unsecured corporate guarantees or in such
other form as may be described in the related Prospectus Supplement, or in the
form of a combination of two or more of the foregoing. The credit support may be
provided by an assignment of the right to receive certain cash amounts, a
deposit of cash into a Reserve Fund or other pledged assets, or by banks,
insurance companies, guarantees or any combination thereof identified in the
applicable Prospectus Supplement.
The amounts and type of credit enhancement arrangement as well as the
provider thereof, if applicable, with respect to the Offered Securities of each
series will be set forth in the related Prospectus Supplement. To the extent
provided in the applicable Prospectus Supplement and the Pooling Agreement or
Indenture, the credit enhancement arrangements may be periodically modified,
reduced and substituted for based on the aggregate outstanding principal balance
of the Mortgage Loans covered thereby. See "Description of Credit
Enhancement--Reduction or Substitution of Credit Enhancement." If specified in
the applicable Prospectus Supplement, credit support for the Offered Securities
of one series may cover the Offered Securities of one or more other series.
The descriptions of any insurance policies or bonds described in this
Prospectus or any Prospectus Supplement and the coverage thereunder do not
purport to be complete and are qualified in their entirety by reference to the
actual forms of such policies, copies of which are available upon request.
In general, references to "Mortgage Loans" under this "Description of
Credit Enhancement" section are to Mortgage Loans in a Trust Fund. However, if
so provided in the Prospectus Supplement for a series of Securities, any
Mortgage Securities included in the related Trust Fund and/or the related
underlying Mortgage Loans may be covered by one or more of the types of credit
support described herein. The related Prospectus Supplement will specify, as to
each such form of credit support, the information indicated below with respect
thereto, to the extent such information is material and available.
SUBORDINATE SECURITIES
If so specified in the related Prospectus Supplement, one or more
classes of Securities of a series may be Subordinate Securities. To the extent
specified in the related Prospectus Supplement, the rights of the holders of
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Subordinate Securities to receive distributions from the Certificate Account on
any Distribution Date will be subordinated to the corresponding rights of the
holders of Senior Securities. If so provided in the related Prospectus
Supplement, the subordination of a class may apply only in the event of (or may
be limited to) certain types of losses or shortfalls. The related prospectus
Supplement will set forth information concerning the manner and amount of
subordination provided by a class or classes of Subordinate Securities in a
series and the circumstances under which such subordination will be available.
The Offered Securities of any series may include one or more classes of
Subordinate Securities.
If the Mortgage Loans and/or Mortgage Securities in any Trust Fund are
divided into separate groups, each supporting a separate class or classes of
Securities of the related series, credit enhancement may be provided by
cross-support provisions requiring that distributions be made on Senior
Securities evidencing interests in one group of Mortgage Loans and/or Mortgage
Securities prior to distributions on Subordinate Securities evidencing interests
in a different group of Mortgage Loans and/or Mortgage Securities within the
Trust Fund. The Prospectus Supplement for a series that includes a cross-support
provision will describe the manner and conditions for applying such provisions.
OVERCOLLATERALIZATION
If so specified in the related Prospectus Supplement, interest
collections on the Mortgage Loans may exceed interest payments on the Securities
for the related Payment Date (such excess referred to as "Excess Interest").
Such Excess Interest may be deposited into a Reserve Fund or applied as a
payment of principal on the Securities. To the extent Excess Interest is applied
as principal payments on the Securities, the effect will be to reduce the
principal balance of the Securities relative to the outstanding balance of the
Mortgage Loans, thereby creating "Overcollateralization" and additional
protection to the Securityholders, as specified in the related Prospectus
Supplement. If so provided in the related Prospectus Supplement,
Overcollateralization may also be provided as to any series of Securities by the
issuance of Securities in an initial aggregate principal amount which is less
than the aggregate principal amount of the related Mortgage Loans.
FINANCIAL GUARANTY INSURANCE POLICY
If so specified in the related Prospectus Supplement, a financial
guaranty insurance policy or surety bond (a "Financial Guaranty Insurance
Policy") may be obtained and maintained for a class or series of Securities. The
issuer of the Financial Guaranty Insurance Policy (the "Insurer") will be
described in the related Prospectus Supplement and a copy of the form of
Financial Guaranty Insurance Policy will be filed with the related Current
Report on Form 8-K.
A Financial Guaranty Insurance Policy will be unconditional and
irrevocable and will guarantee to holders of the applicable Securities that an
amount equal to the full amount of payments due to such holders will be received
by the Trustee or its agent on behalf of such holders for payment on each
Payment Date. The specific terms of any Financial Guaranty Insurance Policy will
be set forth in the related Prospectus Supplement. A Financial Guaranty
Insurance Policy may have limitations and generally will not insure the
obligation of the Sellers or the Master Servicer to purchase or substitute for a
defective Mortgage Loan and will not guarantee any specific rate of principal
prepayments. The Insurer will be subrogated to the rights of each holder to the
extent the Insurer makes payments under the Financial Guaranty Insurance Policy.
MORTGAGE POOL INSURANCE POLICIES
Any Mortgage Pool Insurance Policy obtained by the Company for each
Trust Fund will be issued by the Pool Insurer named in the applicable Prospectus
Supplement. Each Mortgage Pool Insurance Policy will, subject to the limitations
described below, cover Defaulted Mortgage Losses in an amount equal to a
percentage specified in the applicable Prospectus Supplement of the aggregate
principal balance of the Mortgage Loans on the Cut-off Date. As set forth under
"Maintenance of Credit Enhancement," the Master Servicer will use reasonable
efforts to maintain the Mortgage Pool Insurance Policy and to present claims
thereunder to the Pool Insurer on behalf of itself, the related Trustee and the
related Securityholders. The Mortgage Pool Insurance Policies, however, are not
blanket policies against loss, since claims thereunder may only be made
respecting particular defaulted Mortgage Loans and only upon satisfaction of
certain conditions precedent described below. Unless specified in the related
Prospectus Supplement,
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the Mortgage Pool Insurance Policies may not cover losses due to a failure to
pay or denial of a claim under a Primary Insurance Policy, irrespective of the
reason therefor.
Each Mortgage Pool Insurance Policy will generally provide that no
claims may be validly presented thereunder unless, among other things, (i) any
required Primary Insurance Policy is in effect for the defaulted Mortgage Loan
and a claim thereunder has been submitted and settled, (ii) hazard insurance on
the property securing such Mortgage Loan has been kept in force and real estate
taxes and other protection and preservation expenses have been paid by the
Master Servicer, (iii) if there has been physical loss or damage to the
Mortgaged Property, it has been restored to its condition (reasonable wear and
tear excepted) at the Cut-off Date and (iv) the insured has acquired good and
merchantable title to the Mortgaged Property free and clear of liens except
certain permitted encumbrances. Upon satisfaction of these conditions, the Pool
Insurer will have the option either (a) to purchase the property securing the
defaulted Mortgage Loan at a price equal to the principal balance thereof plus
accrued and unpaid interest at the applicable Mortgage Rate to the date of
purchase and certain expenses incurred by the Master Servicer, Special Servicer
or Subservicer on behalf of the related Trustee and Securityholders, 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 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 any related Primary
Insurance Policy. Securityholders will experience a shortfall in the amount of
interest payable on the related Securities in connection with the payment of
claims under a Mortgage Pool Insurance Policy because the Pool Insurer is only
required to remit unpaid interest through the date a claim is paid rather than
through the end of the month in which such claim is paid. In addition, the
Securityholders will also experience losses with respect to the related
Securities in connection with payments made under a Mortgage Pool Insurance
Policy to the extent that the Master Servicer expends funds to cover unpaid real
estate taxes or to repair the related Mortgaged Property in order to make a
claim under a Mortgage Pool Insurance Policy, as those amounts will not be
covered by payments under such policy and will be reimbursable to the Master
Servicer from funds otherwise payable to the Securityholders. If any Mortgaged
Property securing a defaulted Mortgage Loan is damaged and proceeds, if any (see
"Special Hazard Insurance Policies" below for risks which are not covered by
such policies), from the related hazard insurance policy or applicable Special
Hazard Instrument are insufficient to restore the damaged property to a
condition sufficient to permit recovery under the Mortgage Pool Insurance
Policy, the Master Servicer is not required to expend its own funds to restore
the damaged property unless it determines (x) that such restoration will
increase the proceeds to one or more classes of Securityholders on liquidation
of the Mortgage Loan after reimbursement of the Master Servicer for its expenses
and (y) that such expenses will be recoverable by it through Liquidation
Proceeds or Insurance Proceeds.
Unless otherwise specified in the related Prospectus Supplement, a
Mortgage Pool Insurance Policy (and certain Primary Insurance Policies) will
likely 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 Seller or other
persons involved in the origination thereof, or (ii) failure to construct a
Mortgaged Property in accordance with plans and specifications. Depending upon
the nature of the event, a breach of representation made by a Seller may also
have occurred. Such a breach, if it materially and adversely affects the
interests of Securityholders and cannot be cured, would give rise to a purchase
obligation on the part of the Seller, as more fully described under "The
Mortgage Pools--Representations by Sellers." However, such an event would not
give rise to a breach of a representation and warranty or a purchase obligation
on the part of the Company or Master Servicer.
The original amount of coverage under each Mortgage Pool Insurance
Policy will be reduced over the life of the related series of Securities by the
aggregate dollar amount of claims paid less the aggregate of the net amounts
realized by the Pool Insurer upon disposition of all foreclosed properties. The
amount of claims paid includes certain expenses incurred by the Master Servicer,
Special Servicer or Subservicer as well as accrued interest on delinquent
Mortgage Loans to the date of payment of the claim. 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 holders of the related series
of Securities. In addition, unless the Master Servicer could determine that an
advance in respect of a delinquent Mortgage Loan would be recoverable to it from
the proceeds of the liquidation of such Mortgage Loan or otherwise, the Master
Servicer would not be obligated to make an advance respecting any such
delinquency since the advance would not be ultimately recoverable
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to it from either the Mortgage Pool Insurance Policy or from any other related
source. See "Description of the Securities--Advances."
Since each Mortgage Pool Insurance Policy will require that the
property subject to a defaulted Mortgage Loan be restored to its original
condition prior to claiming against the Pool Insurer, such policy will not
provide coverage against hazard losses. As set forth under "Primary Mortgage
Insurance, Hazard Insurance; Claims Thereunder," the hazard policies covering
the Mortgage Loans typically exclude from coverage physical damage resulting
from a number of causes and, even when the damage is covered, may afford
recoveries which are significantly less than full replacement cost of such
losses. Further, no coverage in respect of Special Hazard Losses, Fraud Losses
or Bankruptcy Losses will cover all risks, and the amount of any such coverage
will be limited. See "Special Hazard Insurance Policies" below. As a result,
certain hazard risks will not be insured against and will therefore be borne by
the related Securityholders.
LETTER OF CREDIT
If any component of credit enhancement as to the Offered Securities of
any series is to be provided by a letter of credit (the "Letter of Credit"), a
bank (the "Letter of Credit Bank") will deliver to the related Trustee an
irrevocable Letter of Credit. The Letter of Credit may provide direct coverage
with respect to the Mortgage Loans or, if specified in the related Prospectus
Supplement, support an entity's obligation pursuant to a Purchase Obligation to
make certain payments to the related Trustee with respect to one or more
components of credit enhancement. The Letter of Credit Bank, as well as the
amount available under the Letter of Credit with respect to each component of
credit enhancement, will be specified in the applicable Prospectus Supplement.
If so specified in the related Prospectus Supplement, the Letter of Credit may
permit draws only in the event of certain types of losses and shortfalls. The
Letter of Credit may also provide for the payment of advances which the Master
Servicer would be obligated to make with respect to delinquent monthly mortgage
payments. The amount available under the Letter of Credit will, in all cases, be
reduced to the extent of the unreimbursed payments thereunder and may otherwise
be reduced as described in the related Prospectus Supplement. The Letter of
Credit will expire on the expiration date set forth in the related Prospectus
Supplement, unless earlier terminated or extended in accordance with its terms.
SPECIAL HAZARD INSURANCE POLICIES
Any insurance policy covering Special Hazard Losses (a "Special Hazard
Insurance Policy") obtained by the Company for a Trust Fund will be issued by
the insurer named in the applicable Prospectus Supplement. Each Special Hazard
Insurance Policy will, subject to limitations described below, protect holders
of the related series of Securities from (i) losses due to direct physical
damage to a Mortgaged Property other than any loss of a type covered by a hazard
insurance policy or a flood insurance policy, if applicable, and (ii) losses
from partial damage caused by reason of the application of the co-insurance
clauses contained in hazard insurance policies ("Special Hazard Losses"). See
"Primary Mortgage Insurance, Hazard Insurance; Claims Thereunder." However, a
Special Hazard Insurance Policy will not cover losses occasioned by war, civil
insurrection, certain governmental actions, errors in design, faulty workmanship
or materials (except under certain circumstances), nuclear reaction, chemical
contamination, waste by the Mortgagor and certain other risks. Aggregate claims
under a Special Hazard Insurance Policy will be limited to the amount set forth
in the related Prospectus Supplement and will be subject to reduction as
described in such related Prospectus Supplement. A Special Hazard Insurance
Policy will provide that no claim may be paid unless hazard and, if applicable,
flood insurance on the property securing the Mortgage Loan has been kept in
force and other protection and preservation expenses have been paid by the
Master Servicer.
Subject to the foregoing limitations, a Special Hazard Insurance Policy
will provide that, where there has been damage to property securing a foreclosed
Mortgage Loan (title to which has been 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,
Special Servicer or the Subservicer, the 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 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 at the Mortgage Rate to the date of claim
settlement and certain expenses incurred by the Master Servicer, Special
Servicer or Subservicer with respect to such property. If the property is
transferred to a third party in a sale approved by the issuer of the Special
Hazard Insurance Policy (the "Special Hazard Insurer"),
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the amount that the Special Hazard Insurer will pay will be the amount under
(ii) above reduced by the net proceeds of the sale of the property. No claim may
be validly presented under the Special Hazard Insurance Policy unless hazard
insurance on the property securing a defaulted Mortgage Loan has been kept in
force and other reimbursable protection, preservation and foreclosure expenses
have been paid (all of which must be approved in advance by the Special Hazard
Insurer). If the unpaid principal balance plus accrued interest and certain
expenses is paid by the 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 the property will further reduce coverage by such amount. Restoration
of the property with the proceeds described under (i) above will satisfy the
condition under each Mortgage Pool Insurance Policy that the property be
restored before a claim under such Mortgage Pool Insurance Policy may be validly
presented with respect to the defaulted Mortgage Loan secured by such property.
The payment described under (ii) above will render presentation of a claim in
respect of such Mortgage Loan under the related Mortgage Pool Insurance Policy
unnecessary. Therefore, so long as a Mortgage Pool Insurance Policy remains in
effect, the payment by the insurer under a Special Hazard Insurance Policy 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 Securityholders, but will affect the relative amounts
of coverage remaining under the related Special Hazard Insurance Policy and
Mortgage Pool Insurance Policy.
As and to the extent set forth in the applicable Prospectus Supplement,
coverage in respect of Special Hazard Losses for a series of Securities may be
provided, in whole or in part, by a type of Special Hazard Instrument other than
a Special Hazard Insurance Policy or by means of the special hazard
representation of the Company.
BANKRUPTCY BONDS
In the event of a personal bankruptcy of a Mortgagor, it is possible
that the bankruptcy court may establish the value of the Mortgaged Property of
such Mortgagor at an amount less than the then outstanding principal balance of
the Mortgage Loan secured by such Mortgaged Property (a "Deficient Valuation").
The amount of the secured debt could then be reduced to such value, and, thus,
the holder of such Mortgage Loan would become an unsecured creditor to the
extent the outstanding principal balance of such Mortgage Loan exceeds the value
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 a reduction in the amount of the Monthly Payment on the
related Mortgage Loan (a "Debt Service Reduction"; Debt Service Reductions and
Deficient Valuations, collectively referred to herein as Bankruptcy Losses). See
"Certain Legal Aspects of Mortgage Loans and Related Matters--Anti-Deficiency
Legislation and Other Limitations on Lenders." Any Bankruptcy Bond to provide
coverage for Bankruptcy Losses for proceedings under the federal Bankruptcy Code
obtained by the Company for a Trust Fund will be issued by an insurer named in
the applicable Prospectus Supplement. The level of coverage under each
Bankruptcy Bond will be set forth in the applicable Prospectus Supplement.
RESERVE FUNDS
If so provided in the related Prospectus Supplement, the Company will
deposit or cause to be deposited in an account (a "Reserve Fund") any
combination of cash, one or more irrevocable letters of credit or one or more
Permitted Investments in specified amounts, or any other instrument satisfactory
to the relevant Rating Agency or Agencies, which will be applied and maintained
in the manner and under the conditions specified in such Prospectus Supplement.
In the alternative or in addition to such deposit, to the extent described in
the related Prospectus Supplement, a Reserve Fund may be funded through
application of all or a portion of amounts otherwise payable on any related
Subordinate Securities, from the Spread or otherwise. To the extent that the
funding of the Reserve Fund is dependent on amounts otherwise payable on related
Subordinate Securities, Spread or other cash flows attributable to the related
Mortgage Loans or on reinvestment income, the Reserve Fund may provide less
coverage than initially expected if the cash flows or reinvestment income on
which such funding is dependent are lower than anticipated. In addition, with
respect to any series of Securities as to which credit enhancement includes a
Letter of Credit, if so specified in the related Prospectus Supplement, under
certain circumstances the remaining amount of the Letter of Credit may be drawn
by the Trustee and deposited in a Reserve Fund. Amounts in a Reserve Fund may be
distributed to Securityholders, or applied to reimburse the Master Servicer for
outstanding advances, or may be used for other purposes, in the manner and to
the extent specified in the related Prospectus Supplement. The related
Prospectus
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Supplement will disclose whether any such Reserve Fund is part of the related
Trust Fund. If set forth in the related Prospectus Supplement, a Reserve Fund
may provide coverage to more than one series of Securities.
In connection with the establishment of any Reserve Fund, the Reserve
Fund will be structured so that the Trustee will have a perfected security
interest for the benefit of the Securityholders in the assets in the Reserve
Fund. However, to the extent that the Company, any affiliate thereof or any
other entity has an interest in any Reserve Fund, in the event of the
bankruptcy, receivership or insolvency of such entity, there could be delays in
withdrawals from the Reserve Fund and corresponding payments to the
Securityholders which could adversely affect the yield to investors on the
related Securities.
Amounts deposited in any Reserve Fund for a series will be invested in
Permitted Investments by, or at the direction of, and for the benefit of the
Master Servicer or any other person named in the related Prospectus Supplement.
MAINTENANCE OF CREDIT ENHANCEMENT
To the extent that the applicable Prospectus Supplement does not
expressly provide for alternative credit enhancement arrangements in lieu of
some or all of the arrangements mentioned below, the following paragraphs shall
apply.
If a Financial Guaranty Insurance Policy has been obtained for a series
of Securities, the Master Servicer will be obligated to exercise reasonable
efforts to keep such Financial Guaranty Insurance Policy in full force and
effect throughout the term of the applicable Pooling Agreement, unless coverage
thereunder has been exhausted through payment of claims or until such Financial
Guaranty Insurance Policy is replaced in accordance with the terms of the
applicable Pooling Agreement. The Master Servicer will agree to pay the premiums
for each Financial Guaranty Insurance Policy on a timely basis. In the event the
Insurer ceases to be a qualified insurer as described in the related Prospectus
Supplement, or fails to make a required payment under the related Financial
Guaranty Insurance Policy, the Master Servicer will have no obligation to
replace the Insurer. Any losses associated with any reduction or withdrawal in
rating by an applicable Rating Agency shall be borne by the related
Securityholders.
If a Mortgage Pool Insurance Policy has been obtained for a series of
Securities, the Master Servicer will be obligated to exercise reasonable efforts
to keep such Mortgage Pool Insurance Policy (or an alternate form of credit
support) in full force and effect throughout the term of the applicable Pooling
Agreement or Servicing Agreement, unless coverage thereunder has been exhausted
through payment of claims or until such Mortgage Pool Insurance Policy is
replaced in accordance with the terms of the applicable Pooling Agreement or
Servicing Agreement. The Master Servicer will agree to pay the premiums for each
Mortgage Pool Insurance Policy on a timely basis. In the event the Pool Insurer
ceases to be a Qualified Insurer (such term being defined to mean a private
mortgage guaranty insurance company duly qualified as such under the laws of the
state of its incorporation and each state having jurisdiction over the insurer
in connection with the Mortgage Pool Insurance Policy and approved as an insurer
by FHLMC, FNMA or any successor entity) because it ceases to be qualified under
any such law to transact such insurance business or coverage is terminated for
any reason other than exhaustion of such coverage, the Master Servicer will use
reasonable efforts to obtain from another Qualified Insurer a replacement
insurance policy comparable to the Mortgage Pool Insurance Policy with a total
coverage equal to the then outstanding coverage of such Mortgage Pool Insurance
Policy, provided that, if the cost of the replacement policy is greater than the
cost of such Mortgage Pool Insurance Policy, the coverage of the replacement
policy will, unless otherwise agreed to by the Company, be reduced to a level
such that its premium rate does not exceed the premium rate on such Mortgage
Pool Insurance Policy. In the event that the Pool Insurer ceases to be a
Qualified Insurer because it ceases to be approved as an insurer by FHLMC, FNMA
or any successor entity, the Master Servicer will be obligated to review, not
less often than monthly, the financial condition of the Pool Insurer with a view
toward determining whether recoveries under the Mortgage Pool Insurance Policy
are jeopardized for reasons related to the financial condition of the Pool
Insurer. If the Master Servicer determines that recoveries are so jeopardized,
it will be obligated to exercise its best reasonable efforts to obtain from
another Qualified Insurer a replacement insurance policy as described above,
subject to the same cost limit. Any losses associated with any reduction or
withdrawal in rating by an applicable Rating Agency shall be borne by the
related Securityholders.
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If a Letter of Credit or alternate form of credit enhancement has been
obtained for a series of Securities, the Master Servicer will be obligated to
exercise reasonable efforts to keep or cause to be kept such Letter of Credit
(or an alternate form of credit support) in full force and effect throughout the
term of the applicable Pooling Agreement or Indenture, unless coverage
thereunder has been exhausted through payment of claims or otherwise, or
substitution therefor is made as described below under "--Reduction or
Substitution of Credit Enhancement." Unless otherwise specified in the
applicable Prospectus Supplement, if a Letter of Credit obtained for a series of
Securities is scheduled to expire prior to the date the final distribution on
such Securities is made and coverage under such Letter of Credit has not been
exhausted and no substitution has occurred, the Trustee will draw the amount
available under the Letter of Credit and maintain such amount in trust for such
Securityholders.
In lieu of the Master Servicer's obligation to maintain a Financial
Guaranty Insurance Policy, Mortgage Pool Insurance Policy or Letter of Credit as
provided above, the Master Servicer may obtain a substitute Financial Guaranty
Insurance Policy, Mortgage Pool Insurance Policy or Letter of Credit. If the
Master Servicer obtains such a substitute Letter of Credit, Mortgage Pool
Insurance Policy or other form of credit enhancement, it will maintain and keep
such Financial Guaranty Insurance Policy, Mortgage Pool Insurance Policy or
Letter of Credit in full force and effect as provided herein. Prior to its
obtaining any substitute Financial Guaranty Insurance Policy, Mortgage Pool
Insurance Policy or Letter of Credit, the Master Servicer will obtain written
confirmation from the Rating Agency or Agencies that rated the related series of
Securities that the substitution of such Financial Guaranty Insurance Policy,
Mortgage Pool Insurance Policy or Letter of Credit for the existing credit
enhancement will not adversely affect the then-current ratings assigned to such
Securities by such Rating Agency or Agencies.
If a Special Hazard Instrument has been obtained for a series of
Securities, the Master Servicer will also be obligated to exercise reasonable
efforts to maintain and keep such Special Hazard Instrument in full force and
effect throughout the term of the applicable Pooling Agreement or Servicing
Agreement, unless coverage thereunder has been exhausted through payment of
claims or otherwise or substitution therefor is made as described below under
"--Reduction or Substitution of Credit Enhancement." If the Special Hazard
Instrument takes the form of a Special Hazard Insurance Policy, such policy will
provide coverage against risks of the type described herein under "Description
of Credit Enhancement--Special Hazard Insurance Policies." The Master Servicer
may obtain a substitute Special Hazard Instrument for the existing Special
Hazard Instrument if prior to such substitution the Master Servicer obtains
written confirmation from the Rating Agency or Agencies that rated the related
Securities that such substitution shall not adversely affect the then-current
ratings assigned to such Securities by such Rating Agency or Agencies.
If a Bankruptcy Bond has been obtained for a series of Securities, the
Master Servicer will be obligated to exercise reasonable efforts to maintain and
keep such Bankruptcy Bond in full force and effect throughout the term of the
Pooling Agreement or Servicing Agreement, unless coverage thereunder has been
exhausted through payment of claims or substitution therefor is made as
described below under "--Reduction or Substitution of Credit Enhancement." The
Master Servicer may obtain a substitute Bankruptcy Bond or other credit
enhancement for the existing Bankruptcy Bond if prior to such substitution the
Master Servicer obtains written confirmation from the Rating Agency or Agencies
that rated the related Securities that such substitution shall not adversely
affect the then-current ratings assigned to such Securities by such Rating
Agency or Agencies. See "--Bankruptcy Bonds" above.
The Master Servicer, on behalf of itself, the Trustee and
Securityholders, will provide the Trustee information required for the Trustee
to draw under the Letter of Credit and will present claims to the provider of
any Purchase Obligation, to each Pool Insurer, to the issuer of each Special
Hazard Insurance Policy or other Special Hazard Instrument, to the issuer of
each Bankruptcy Bond and, in respect of defaulted Mortgage Loans for which there
is no Subservicer, to each Primary Insurer and take such reasonable steps as are
necessary to permit recovery under such Letter of Credit, Purchase Obligation,
insurance policies or comparable coverage respecting defaulted Mortgage Loans or
Mortgage Loans which are the subject of a bankruptcy proceeding. Additionally,
the Master Servicer will present such claims and take such steps as are
reasonably necessary to provide for the performance by the provider of the
Purchase Obligation of its Purchase Obligation. As set forth above, all
collections by the Master Servicer under any Purchase Obligation, any Mortgage
Pool Insurance Policy, any Primary Insurance Policy or any Bankruptcy Bond and,
where the related property has not been restored, any Special Hazard Instrument,
are to be deposited in the related Certificate Account, subject to withdrawal as
described above. All draws under any Letter of Credit are also to be deposited
in the related Certificate Account. In those cases in which a Mortgage Loan is
serviced by a Subservicer, the Subservicer, on behalf of itself, the Trustee and
the Securityholders will present claims to the
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Primary Insurer, and all collections thereunder shall initially be deposited in
a subservicing account that generally meets the requirements for the Certificate
Account prior to being delivered to the Master Servicer for deposit in the
related Certificate Account.
If any property securing a defaulted Mortgage Loan is damaged and
proceeds, if any, from the related hazard insurance policy or any applicable
Special Hazard Instrument are insufficient to restore the damaged property to a
condition sufficient to permit recovery under any Financial Guaranty Insurance
Policy, Mortgage Pool Insurance Policy, Letter of Credit or any related Primary
Insurance Policy, the Master Servicer is not required to expend its own funds to
restore the damaged property unless it determines (i) that such restoration will
increase the proceeds to one or more classes of Securityholders 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 through Liquidation
Proceeds or Insurance Proceeds. If recovery under any Financial Guaranty
Insurance Policy, Mortgage Pool Insurance Policy, Letter of Credit or any
related Primary Insurance Policy is not available because the Master Servicer
has been unable to make the above determinations, has made such determinations
incorrectly or recovery is not available for any other reason, the Master
Servicer is nevertheless obligated to follow such normal practices and
procedures (subject to the preceding sentence) as it deems necessary or
advisable to realize upon the defaulted Mortgage Loan and in the event such
determination has been incorrectly made, is entitled to reimbursement of its
expenses in connection with such restoration.
REDUCTION OR SUBSTITUTION OF CREDIT ENHANCEMENT
The amount of credit support provided pursuant to any form of credit
enhancement may be reduced under certain specified circumstances. In most cases,
the amount available pursuant to any form of credit enhancement will be subject
to periodic reduction in accordance with a schedule or formula on a
nondiscretionary basis pursuant to the terms of the related Pooling Agreement or
Indenture. Additionally, in most cases, such form of credit support (and any
replacements therefor) may be replaced, reduced or terminated, and the formula
used in calculating the amount of coverage with respect to Bankruptcy Losses,
Special Hazard Losses or Fraud Losses may be changed, without the consent of the
Securityholders, upon the written assurance from each applicable Rating Agency
that the then-current rating of the related series of Securities will not be
adversely affected. Furthermore, in the event that the credit rating of any
obligor under any applicable credit enhancement is downgraded, the credit
rating(s) of the related series of Securities may be downgraded to a
corresponding level, and, unless otherwise specified in the related Prospectus
Supplement, the Master Servicer will not be obligated to obtain replacement
credit support in order to restore the rating(s) of the related series of
Securities. The Master Servicer will also be permitted to replace such credit
support with other credit enhancement instruments issued by obligors whose
credit ratings are equivalent to such downgraded level and in lower amounts
which would satisfy such downgraded level, provided that the then-current
rating(s) of the related series of Securities are maintained. Where the credit
support is in the form of a Reserve Fund, a permitted reduction in the amount of
credit enhancement will result in a release of all or a portion of the assets in
the Reserve Fund to the Company, the Master Servicer or such other person that
is entitled thereto. Any assets so released will not be available for
distributions in future periods.
PURCHASE OBLIGATIONS
With respect to certain types of Mortgage Loans to be included in any
Mortgage Pool, if specified in the related Prospectus Supplement, the Mortgage
Loans may be sold subject to a Purchase Obligation as described below that would
become applicable on a specified date or upon the occurrence of a specified
event. For example, with respect to certain types of ARM Loans as to which the
Mortgage Rate is fixed for the first five years, a Purchase Obligation may apply
on the first date that the Mortgage Rate of such Mortgage Loan is adjusted, and
such obligation may apply to the Mortgage Loans or to the related Securities
themselves, or to a corresponding Purchase Obligation of the Company or another
person as specified in the related Prospectus Supplement. With respect to any
Purchase Obligation, such obligation will be an obligation of an entity (which
may include a bank or other financial institution or an insurance company)
specified in the related Prospectus Supplement, and an instrument evidencing
such obligation (a "Purchase Obligation") shall be delivered to the related
Trustee for the benefit of the Securityholders of the related series.
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The specific terms and conditions applicable to any Purchase Obligation
will be described in the related Prospectus Supplement, including the purchase
price, the timing of and any limitations and conditions to any such purchase.
Any Purchase Obligation will be payable solely to the Trustee for the benefit of
the Securityholders of the related series and will be nontransferable. Each
Purchase Obligation will be a general unsecured obligation of the provider
thereof, and prospective purchasers of Offered Securities must look solely to
the credit of such entity for payment under the Purchase Obligation.
PRIMARY MORTGAGE INSURANCE, HAZARD INSURANCE;
CLAIMS THEREUNDER
GENERAL
Each Mortgaged Property will be required to be covered by a hazard
insurance policy (as described below) and, if required as described below, a
Primary Insurance Policy. The following is only a brief description of certain
insurance policies and does not purport to summarize or describe all of the
provisions of these policies. Such insurance is subject to underwriting and
approval of individual Mortgage Loans by the respective insurers.
PRIMARY MORTGAGE INSURANCE POLICIES
In a securitization of Single Family Loans, certain Single Family Loans
included in the related Mortgage Pool having a Loan-to-Value Ratio at
origination of over 80% (or other percentage as described in the related
Prospectus Supplement) may be required by the Company to be covered by a primary
mortgage guaranty insurance policy (a "Primary Insurance Policy"). Such Primary
Insurance Policy will insure against default on a Mortgage Loan as to at least
the principal amount thereof exceeding 75% of the Value of the related Mortgaged
Property (or other percentage as described in the related Prospectus Supplement)
at origination of such Mortgage Loan, unless and until the principal balance of
the Mortgage Loan is reduced to a level that would produce a Loan-to-Value Ratio
equal to or less than at least 80% (or other percentage as described in the
Prospectus Supplement). In addition, with respect to such a securitization, the
Company will represent and warrant that, to the best of the Company's knowledge,
such Mortgage Loans are so covered. Such a Mortgage Loan will not be considered
to be an exception to the foregoing standard if no Primary Insurance Policy was
obtained at origination but the Mortgage Loan has amortized to below the above
Loan-to-Value Ratio percentage as of the applicable Cut-off Date. Mortgage Loans
which are subject to negative amortization will only be covered by a Primary
Insurance Policy if such coverage was so required upon their origination,
notwithstanding that subsequent negative amortization may cause such Mortgage
Loan's Loan-to-Value Ratio (based on the then-current balance) to subsequently
exceed the limits which would have required such coverage upon their
origination. Multifamily Loans and High LTV Loans will not be covered by a
Primary Insurance Policy, regardless of the related Loan-to-Value Ratio.
While the terms and conditions of the Primary Insurance Policies issued
by one primary mortgage guaranty insurer (a "Primary Insurer") will differ from
those in Primary Insurance Policies issued by other Primary Insurers, each
Primary Insurance Policy will in general provide substantially the following
coverage. The amount of the loss as calculated under a Primary Insurance Policy
covering a Mortgage Loan (herein referred to as the "Loss") will generally
consist of the unpaid principal amount of such Mortgage Loan and accrued and
unpaid interest thereon and reimbursement of certain expenses, less (i) rents or
other payments collected or received by the insured (other than the proceeds of
hazard insurance) that are derived from the related Mortgaged Property, (ii)
hazard insurance proceeds in excess of the amount required to restore such
Mortgaged Property and which have not been applied to the payment of the
Mortgage Loan, (iii) amounts expended but not approved by the Primary Insurer,
(iv) claim payments previously made on such Mortgage Loan and (v) unpaid
premiums and certain other amounts.
The Primary Insurer generally will be required to pay either: (i) the
insured percentage of the Loss; (ii) the entire amount of the Loss, after
receipt by the Primary Insurer of good and merchantable title to, and possession
of, the Mortgaged Property; or (iii) at the option of the Primary Insurer under
certain Primary Insurance Policies, the sum of the delinquent monthly payments
plus any advances made by the insured, both to the date of the claim payment
and, thereafter, monthly payments in the amount that would have become due under
the Mortgage Loan if it had not
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been discharged plus any advances made by the insured until the earlier of (a)
the date the Mortgage Loan would have been discharged in full if the default had
not occurred or (b) an approved sale.
As conditions precedent to the filing or payment of a claim under a
Primary Insurance Policy, in the event of default by the Mortgagor, the insured
will typically be required, among other things, to: (i) advance or discharge (a)
hazard insurance premiums and (b) as necessary and approved in advance by the
Primary Insurer, real estate taxes, protection and preservation expenses and
foreclosure and related costs; (ii) in the event of any physical loss or damage
to the Mortgaged Property, have the Mortgaged Property restored to at least its
condition at the effective date of the Primary 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.
For any Single Family Loan for which such coverage is required under
the standard described above, the Master Servicer will maintain or cause each
Subservicer to maintain, as the case may be, in full force and effect and to the
extent coverage is available a Primary Insurance Policy with regard to each
Single Family Loan, provided that such Primary Insurance Policy was in place as
of the Cut-off Date and the Company had knowledge of such Primary Insurance
Policy. In the event the Company gains knowledge that as of the Closing Date, a
Mortgage Loan which required a Primary Insurance Policy did not have one, then
the Master Servicer is required to use reasonable efforts to obtain and maintain
a Primary Insurance Policy to the extent that such a policy is obtainable at a
reasonable price. The Master Servicer or, in the case of a Designated Seller
Transaction, the Seller will not cancel or refuse to renew any such Primary
Insurance Policy in effect at the time of the initial issuance of a series of
Securities that is required to be kept in force under the applicable Pooling
Agreement or Indenture unless the replacement Primary Insurance Policy for such
canceled or non-renewed policy is maintained with an insurer whose claims-paying
ability is acceptable to the Rating Agency or Agencies that rated such series of
Securities for mortgage pass-through certificates having a rating equal to or
better than the highest then-current rating of any class of such series of
Securities. For further information regarding the extent of coverage under any
Mortgage Pool Insurance Policy or Primary Insurance Policy, see "Description of
Credit Enhancement--Mortgage Pool Insurance Policies."
HAZARD INSURANCE POLICIES
The terms of the Mortgage Loans require each Mortgagor to maintain a
hazard insurance policy for their Mortgage Loan. Additionally, the Pooling
Agreement or Servicing Agreement will require the Master Servicer to cause to be
maintained for each Mortgage Loan a hazard insurance policy providing for no
less than the coverage of the standard form of fire insurance policy with
extended coverage customary in the state in which the property is located. Such
coverage generally will be in an amount equal to the lesser of the principal
balance owing on such Mortgage Loan or 100% of the insurable value of the
improvements securing the Mortgage Loan except that, if generally available,
such coverage must not be less than the minimum amount required under the terms
thereof to fully compensate for any damage or loss on a replacement cost basis.
The ability of the Master Servicer to ensure that hazard insurance proceeds are
appropriately applied may be dependent on its being named as an additional
insured under any hazard insurance policy and under any flood insurance policy
referred to below, or upon the extent to which information in this regard is
furnished to the Master Servicer by Mortgagors or Subservicers.
As set forth above, 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. The Pooling Agreement or Servicing Agreement will provide
that the Master Servicer may satisfy its obligation to cause hazard policies to
be maintained by maintaining a blanket policy insuring against losses on the
Mortgage Loans. If such blanket policy contains a deductible clause, the Master
Servicer will deposit in the applicable Certificate Account all sums which would
have been deposited therein but for such clause.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements on the property by
fire, lightning, explosion, smoke, windstorm, hail, riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies relating to the Mortgage Loans will be underwritten by
different insurers under different state laws in accordance with different
applicable state forms and therefore will not contain identical terms and
conditions, the basic terms thereof are dictated by respective state laws, and
most such policies typically do not cover any physical damage resulting from the
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following: war, revolution, governmental actions, floods and other water-related
causes, earth movement (including earthquakes, landslides and mudflows), nuclear
reactions, wet or dry rot, vermin, rodents, insects or domestic animals, theft
and, in certain cases, vandalism. The foregoing list is merely indicative of
certain kinds of uninsured risks and is not intended to be all-inclusive. Where
the improvements securing a Mortgage Loan are located in a federally designated
flood area at the time of origination of such Mortgage Loan, the Pooling
Agreement or Servicing Agreement requires the Master Servicer to cause to be
maintained for each such Mortgage Loan serviced, flood insurance (to the extent
available) in an amount equal in general to the lesser of the amount required to
compensate for any loss or damage on a replacement cost basis or the maximum
insurance available under the federal flood insurance program.
The hazard insurance policies covering the Mortgaged Properties
typically contain a co-insurance 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 improvements on the property in order to
recover the full amount of any partial loss. If the insured's coverage falls
below this specified percentage, such clause generally provides that the
insurer's liability in the event of partial loss does not exceed the greater of
(i) the replacement cost of the improvements damaged or destroyed less physical
depreciation 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 that Mortgagors are required to
maintain on the improvements securing the Mortgage Loans may decline as the
principal balances owing thereon decrease, and since residential properties have
historically appreciated in value over time, hazard insurance proceeds could be
insufficient to restore fully the damaged property in the event of a partial
loss. See "Description of Credit Enhancement--Special Hazard Insurance Policies"
for a description of the limited protection afforded by any Special Hazard
Insurance Policy against losses occasioned by hazards which are otherwise
uninsured against (including losses caused by the application of the
co-insurance clause described in the preceding paragraph).
Under the terms of the Mortgage Loans, Mortgagors are generally
required to present claims to insurers under hazard insurance policies
maintained on the Mortgaged Properties. The Master Servicer, on behalf of the
Trustee and Securityholders, is obligated to present claims under any Special
Hazard Insurance Policy or other Special Hazard Instrument and any blanket
insurance policy insuring against hazard losses on the Mortgaged Properties.
However, the ability of the Master Servicer to present such claims is dependent
upon the extent to which information in this regard is furnished to the Master
Servicer or the Subservicers by Mortgagors.
FHA INSURANCE
The FHA is responsible for administering various federal programs,
including mortgage insurance, authorized under The Housing Act and the United
States Housing Act of 1937, as amended.
There are two primary FHA insurance programs that are available for
multifamily mortgage loans. Sections 221(d)(3) and (d)(4) of the Housing Act
allow the Department of Housing and Urban Development ("HUD") to insure mortgage
loans that are secured by newly constructed and substantially rehabilitated
multifamily rental projects. Section 244 of the Housing Act provides for
co-insurance of such mortgage loans made under Sections 221(d)(3) and (d)(4) by
HUD/FHA and a HUD-approved co-insurer. Generally the term of such a mortgage
loan may be up to 40 years and the ratio of the loan amount to property
replacement cost can be up to 90%.
Section 223(f) of the Housing Act allows HUD to insure mortgage loans
made for the purchase or refinancing of existing apartment projects which are at
least three years old. Section 244 also provides for co-insurance of mortgage
loans made under Section 223(f). Under Section 223(f), the loan proceeds cannot
be used for substantial rehabilitation work, but repairs may be made for up to,
in general, the greater of 15% of the value of the project or a dollar amount
per apartment unit established from time to time by HUD. In general the loan
term may not exceed 35 years and a loan to value ratio of no more than 85% is
required for the purchase of a project and 70% for the refinancing of a project.
HUD has the option, in most cases, to pay insurance claims in cash or
in debentures issued by HUD. Presently, claims are being paid in cash, and
claims have not been paid in debentures since 1965. HUD debentures
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issued in satisfaction of FHA insurance claims bear interest at the applicable
HUD debenture interest rate. Unless otherwise provided in the related Prospectus
Supplement, the Master Servicer will be obligated to purchase any such debenture
issued in satisfaction of a defaulted FHA insured Mortgage Loan serviced by it
for an amount equal to the principal amount of any such debenture.
The Master Servicer will be required to take such steps as are
reasonably necessary to keep FHA insurance in full force and effect.
VA MORTGAGE GUARANTY
The Servicemen's Readjustment Act of 1944, as amended, permits a
veteran (or, in certain instances, his or her spouse) to obtain a mortgage loan
guaranty by the VA covering mortgage financing of the purchase of a one-to
four-family dwelling unit to be occupied as the veteran's home at an interest
rate not exceeding the maximum rate in effect at the time the loan is made, as
established by HUD. The program has no limit on the amount of a mortgage loan,
requires no down payment for the purchaser and permits the guaranty of mortgage
loans with terms, limited by the estimated economic life of the property, up to
30 years. The maximum guaranty that may be issued by the VA under this program
is 50% of the original principal amount of the mortgage loan up to a certain
dollar limit established by the VA. The liability on the guaranty is reduced or
increased pro rata with any reduction or increase in amount of indebtedness, but
in no event will the amount payable on the guaranty exceed the amount of the
original guaranty. Notwithstanding the dollar and percentage limitations of the
guaranty, a mortgagee will ordinarily suffer a monetary loss only when the
difference between the unsatisfied indebtedness and the proceeds of a
foreclosure sale of mortgaged premises is greater than the original guaranty as
adjusted. The VA may, at its option, and without regard to the guaranty, make
full payment to a mortgagee of the unsatisfied indebtedness on a mortgage upon
its assignment to the VA.
Since there is no limit imposed by the VA on the principal amount of a
VA-guaranteed mortgage loan but there is a limit on the amount of the VA
guaranty, additional coverage under a Primary Mortgage Insurance Policy may be
required by the Company for VA loans in excess of certain amounts. The amount of
any such additional coverage will be set forth in the related Prospectus
Supplement. Any VA guaranty relating to Contracts underlying a series of
Certificates will be described in the related Prospectus Supplement.
THE COMPANY
The Company is a limited purpose wholly-owned subsidiary of WMC
Mortgage Corp. ("WMC Mortgage"). The Company was incorporated in the State of
Delaware on July 24, 1997 and re-incorporated in the State of Delaware on
November __, 1997. The Company was organized for the purpose of serving as a
private secondary mortgage market conduit. The Company does not have, nor is it
expected in the future to have, any significant assets.
WMC Mortgage may from time to time be a Seller or act as Master
Servicer with respect to a Mortgage Pool. WMC Mortgage is a mortgage banking
company incorporated in the State of California that originates or acquires
one-to four-family residential mortgage loans among other activities. WMC
originates both prime-quality mortgage loans and subprime-quality mortgage
loans. WMC Mortgage operates both production support and loan servicing
platforms for its originations.
The Company maintains its principal office at 6320 Canoga Avenue,
Woodland Hills, California 91367. Its telephone number is (818) 592-2610.
THE AGREEMENTS
GENERAL
Each series of Certificates will be issued pursuant to a pooling and
servicing agreement or other agreement specified in the related Prospectus
Supplement (in either case, a "Pooling Agreement"). In general, the parties to a
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Pooling Agreement will include the Company, the Trustee, the Master Servicer
and, in some cases, a Special Servicer. However, a Pooling Agreement that
relates to a Trust Fund that includes Mortgage Securities may include a party
solely responsible for the administration of such Mortgage Securities, and a
Pooling Agreement that relates to a Trust Fund that consists solely of Mortgage
Securities may not include a Master Servicer, Special Servicer or other servicer
as a party. All parties to each Pooling Agreement under which Securities of a
series are issued will be identified in the related Prospectus Supplement. Each
series of Notes will be issued pursuant to an Indenture. The parties to each
Indenture will be the related Issuer and the Trustee. The Issuer will be created
pursuant to an Owner Trust Agreement between the Company and the Owner Trustee.
Forms of the Agreements have been filed as exhibits to the Registration
Statement of which this Prospectus is a part. However, the provisions of each
Agreement will vary depending upon the nature of the Securities to be issued
thereunder and the nature of the related Trust Fund. The following summaries
describe certain provisions that may appear in a Pooling Agreement with respect
to a series of Certificates or in either the Servicing Agreement or Indenture
with respect to a series of Notes. The Prospectus Supplement for a series of
Securities will describe any provision of the related Agreements that materially
differs from the description thereof set forth below. The summaries herein 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 Agreements for each
series of Securities and the description of such provisions in the related
Prospectus Supplement. As used herein with respect to any series, the term
"Security" refers to all of the Securities of that series, whether or not
offered hereby and by the related Prospectus Supplement, unless the context
otherwise requires. The Company will provide a copy of the Agreement (without
exhibits) that relates to any series of Securities without charge upon written
request of a holder of a Security of such series addressed to it at its
principal executive offices specified herein under "The Company".
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE COMPANY
The Pooling Agreement or Servicing Agreement for each series of
Securities will provide that the Master Servicer may not resign from its
obligations and duties thereunder except upon a determination that performance
of such duties is no longer permissible under applicable law or except (a) in
connection with a permitted transfer of servicing or (b) upon appointment of a
successor servicer reasonably acceptable to the Trustee and upon receipt by the
Trustee of a letter from each Rating Agency generally to the effect that such
resignation and appointment will not, in and of itself, result in a downgrading
of the Securities. No such resignation will become effective until the Trustee
or a successor servicer has assumed the Master Servicer's responsibilities,
duties, liabilities and obligations under the Pooling Agreement or Servicing
Agreement.
Each Pooling Agreement and Servicing Agreement will also provide that,
except as set forth below, neither the Master Servicer, the Company, nor any
director, officer, employee or agent of the Master Servicer or the Company will
be under any liability to the Trust Fund or the Securityholders for any action
taken or for refraining from the taking of any action in good faith pursuant to
such Agreement, or for errors in judgment; provided, however, that neither the
Master Servicer, the Company, nor any such person will be protected against any
liability which would otherwise be imposed by reason of willful misfeasance, bad
faith or gross negligence in the performance of duties or by reason of reckless
disregard of obligations and duties thereunder. Each Pooling Agreement and
Servicing Agreement will further provide that the Master Servicer, the Company,
and any director, officer, employee or agent of the Master Servicer or the
Company is entitled to indemnification by the Trust Fund and will be held
harmless against any loss, liability or expense incurred in connection with any
legal action relating to the Pooling Agreement or Servicing Agreement or the
related series of Securities, other than any loss, liability or expense related
to any specific Mortgage Loan or Mortgage Loans (except any such loss, liability
or expense otherwise reimbursable pursuant to the Pooling Agreement) and any
loss, liability or expense incurred by reason of willful misfeasance, bad faith
or gross negligence in the performance of duties thereunder or by reason of
reckless disregard of obligations and duties thereunder. In addition, each
Pooling Agreement and Servicing Agreement will provide that neither the Master
Servicer nor the Company will be under any obligation to appear in, prosecute or
defend any legal or administrative action that is not incidental to its
respective duties under the Pooling Agreement or Servicing Agreement and which
in its opinion may involve it in any expense or liability. The Master Servicer
or the Company may, however, in its discretion undertake any such action which
it may deem necessary or desirable with respect to the Pooling Agreement or
Servicing Agreement and the rights and duties of the parties thereto and the
interests of the Securityholders thereunder. In such event, the legal expenses
and costs of such action and any liability resulting therefrom will be
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expenses, costs and liabilities of the Trust Fund, and the Master Servicer or
the Company, as the case may be, will be entitled to be reimbursed therefor out
of funds otherwise distributable to Securityholders.
Any person into which the Master Servicer may be merged or
consolidated, 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 the related
Pooling Agreement or Servicing Agreement, provided that (i) such person is
qualified to service mortgage loans on behalf of FNMA or FHLMC and (ii) such
merger, consolidation or succession does not adversely affect the then-current
ratings of the classes of Securities of the related series that have been rated.
In addition, notwithstanding the prohibition on its resignation, the Master
Servicer may assign its rights under a Pooling Agreement or Servicing Agreement
to any person to whom the Master Servicer is transferring a substantial portion
of its mortgage servicing portfolio, provided clauses (i) and (ii) above are
satisfied and such person is reasonably satisfactory to the Company and the
Trustee. In the case of any such assignment, the Master Servicer will be
released from its obligations under such Pooling Agreement or Servicing
Agreement, exclusive of liabilities and obligations incurred by it prior to the
time of such assignment.
EVENTS OF DEFAULT AND RIGHTS UPON EVENT DEFAULT
POOLING AGREEMENT
Events of Default under the Pooling Agreement in respect of a series of
Certificates, unless otherwise specified in the Prospectus Supplement, will
include, without limitation, (i) any failure by the Master Servicer to make a
required deposit to the Certificate Account or, if the Master Servicer is so
required, to distribute to the holders of any class of Certificates of such
series any required payment which continues unremedied for 5 days (or other time
period described in the related Prospectus Supplement) after the giving of
written notice of such failure to the Master Servicer by the Trustee or the
Company, or to the Master Servicer, the Company and the Trustee by the holders
of Certificates evidencing not less than 25% of the aggregate undivided
interests (or, if applicable, voting rights) in the related Trust Fund; (ii) any
failure by the Master Servicer duly to observe or perform in any material
respect any other of its covenants or agreements in the Pooling Agreement with
respect to such series of Certificates which continues unremedied for 30 days
(15 days in the case of a failure to pay the premium for any insurance policy
which is required to be maintained under the Pooling Agreement) after the giving
of written notice of such failure to the Master Servicer by the Trustee or the
Company, or to the Master Servicer, the Company and the Trustee by the holders
of Certificates evidencing not less than 25% of the aggregate undivided
interests (or, if applicable, voting rights) in the related Trust Fund; (iii)
certain events of insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceedings regarding the Master Servicer and certain
actions by the Master Servicer indicating its insolvency or inability to pay its
obligations; and (iv) any failure of the Master Servicer to make certain
advances as described herein under "Description of the Securities--Advances."
Additional Events of Default will be described in the related Prospectus
Supplement. A default pursuant to the terms of any Mortgage Securities included
in any Trust Fund will not constitute an Event of Default under the related
Pooling Agreement.
So long as an Event of Default remains unremedied, either the Company
or the Trustee may, and at the direction of the holders of Certificates
evidencing not less than 51% of the aggregate undivided interests (or, if
applicable, voting rights) in the related Trust Fund the Trustee shall, by
written notification to the Master Servicer and to the Company or the Trustee,
as applicable, terminate all of the rights and obligations of the Master
Servicer under the Pooling Agreement (other than any rights of the Master
Servicer as Certificateholder) covering such Trust Fund and in and to the
Mortgage Loans and the proceeds thereof, whereupon the Trustee or, upon notice
to the Company and with the Company's consent, its designee will succeed to all
responsibilities, duties and liabilities of the Master Servicer under such
Pooling Agreement (other than the obligation to purchase Mortgage Loans under
certain circumstances) and will be entitled to similar compensation
arrangements. In the event that the Trustee would be obligated to succeed the
Master Servicer but is unwilling so to act, it may appoint (or if it is unable
so to act, it shall appoint) or petition a court of competent jurisdiction for
the appointment of, an established mortgage loan servicing institution with a
net worth of at least $15,000,000 to act as successor to the Master Servicer
under the Pooling Agreement (unless otherwise set forth in the Pooling
Agreement). Pending such appointment, the Trustee is obligated to act in such
capacity. The Trustee and such successor may agree upon the servicing
compensation to be paid, which in no event may be greater than the compensation
to the initial Master Servicer under the Pooling Agreement.
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No Certificateholder will have any right under a Pooling Agreement to
institute any proceeding with respect to such Pooling Agreement unless such
holder previously has given to the Trustee written notice of default and the
continuance thereof and unless the holders of Certificates evidencing not less
than 25% of the aggregate undivided interests (or, if applicable, voting rights)
in the related Trust Fund 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 a reasonable time after
receipt of such request and indemnity has neglected or refused to institute any
such proceeding. However, the Trustee will be under no obligation to exercise
any of the trusts or powers vested in it by the Pooling Agreement or to
institute, conduct or defend any litigation thereunder or in relation thereto at
the request, order or direction of any of the holders of Certificates covered by
such Pooling Agreement, unless such Certificateholders have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby.
The holders of Certificates representing at least 66% of the aggregate
undivided interests (or, if applicable, voting rights) evidenced by those
Certificates affected by a default or Event of Default may waive such default or
Event of Default (other than a failure by the Master Servicer to make an
advance); provided, however, that (a) a default or Event of Default under clause
(i) or (iv) under "--Events of Default" above may be waived only by all of the
holders of Certificates affected by such default or Event of Default and (b) no
waiver shall reduce in any manner the amount of, or delay the timing of,
payments received on Mortgage Loans which are required to be distributed to, or
otherwise materially adversely affect, any non-consenting Certificateholder.
SERVICING AGREEMENT
Unless otherwise provided in the related Prospectus Supplement for a
series of Notes, a "Servicing Default" under the related Servicing Agreement
generally will include: (i) any failure by the Master Servicer to make a
required deposit to the Certificate Account or, if the Master Servicer is so
required, to distribute to the holders of any class of Notes or Equity
Certificates of such series any required payment which continues unremedied for
five business days (or other period of time described in the related Prospectus
Supplement) after the giving of written notice of such failure to the Master
Servicer by the Trustee or the Issuer; (ii) any failure by the Master Servicer
duly to observe or perform in any material respect any other of its covenants or
agreements in the Servicing Agreement with respect to such series of Securities
which continues unremedied for 45 days after the giving of written notice of
such failure to the Master Servicer by the Trustee or the Issuer; (iii) certain
events of insolvency, readjustment of debt, marshaling of assets and liabilities
or similar proceedings regarding the Master Servicer and certain actions by the
Master Servicer indicating its insolvency or inability to pay its obligations
and (iv) any other Servicing Default as set forth in the Servicing Agreement.
So long as a Servicing Default remains unremedied, either the Company
or the Trustee may, by written notification to the Master Servicer and to the
Issuer or the Trustee or Trust Fund, as applicable, terminate all of the rights
and obligations of the Master Servicer under the Servicing Agreement (other than
any right of the Master Servicer as Noteholder or as holder of the Equity
Certificates and other than the right to receive servicing compensation and
expenses for servicing the Mortgage Loans during any period prior to the date of
such termination), whereupon the Trustee will succeed to all responsibilities,
duties and liabilities of the Master Servicer under such Servicing Agreement
(other than the obligation to purchase Mortgage Loans under certain
circumstances) and will be entitled to similar compensation arrangements. In the
event that the Trustee would be obligated to succeed the Master Servicer but is
unwilling so to act, it may appoint (or if it is unable so to act, it shall
appoint) or petition a court of competent jurisdiction for the appointment of an
approved mortgage servicing institution with a net worth of at least $15,000,000
to act as successor to the Master Servicer under the Servicing Agreement (unless
otherwise set forth in the Servicing Agreement). Pending such appointment, the
Trustee is obligated to act in such capacity. The Trustee and such successor may
agree upon the servicing compensation to be paid, which in no event may be
greater than the compensation to the initial Master Servicer under the Servicing
Agreement.
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INDENTURE
Unless otherwise provided in the related Prospectus Supplement for a
series of Notes, an Event of Default under the Indenture generally will include:
(i) a default for five days or more (or other period of time described in the
related Prospectus Supplement) in the payment of any principal of or interest on
any Note of such series; (ii) failure to perform any other covenant of the
Company or the Trust Fund in the Indenture which continues for a period of
thirty days after notice thereof is given in accordance with the procedures
described in the related Prospectus Supplement; (iii) any representation or
warranty made by the Company or the Trust Fund in the Indenture or in any
certificate or other writing delivered pursuant thereto or in connection
therewith with respect to or affecting such series having been incorrect in a
material respect as of the time made, and such breach is not cured within thirty
days after notice thereof is given in accordance with the procedures described
in the related Prospectus Supplement; (iv) certain events of bankruptcy,
insolvency, receivership or liquidation of the Company or the Trust Fund; or (v)
any other Event of Default provided with respect to Notes of that series.
If an Event of Default with respect to the Notes of any series at the
time outstanding occurs and is continuing, the Trustee or the holders of a
majority of the then aggregate outstanding amount of the Notes of such series
may declare the principal amount (or, if the Notes of that series are Accrual
Securities, such portion of the principal amount as may be specified in the
terms of that series, as provided in the related Prospectus Supplement) of all
the Notes of such series to be due and payable immediately. Such declaration
may, under certain circumstances, be rescinded and annulled by the holders of a
majority in aggregate outstanding amount of the related Notes.
If following an Event of Default with respect to any series of Notes,
the Notes of such series have been declared to be due and payable, the Trustee
may, in its discretion, notwithstanding such acceleration, elect to maintain
possession of the collateral securing the Notes of such series and to continue
to apply payments on such collateral as if there had been no declaration of
acceleration if such collateral continues to provide sufficient funds for the
payment of principal of and interest on the Notes of such series as they would
have become due if there had not been such a declaration. In addition, the
Trustee may not sell or otherwise liquidate the collateral securing the Notes of
a series following an Event of Default, unless (a) the holders of 100% of the
then aggregate outstanding amount of the Notes of such series consent to such
sale, (b) the proceeds of such sale or liquidation are sufficient to pay in full
the principal of and accrued interest, due and unpaid, on the outstanding Notes
of such series at the date of such sale or (c) the Trustee determines that such
collateral would not be sufficient on an ongoing basis to make all payments on
such Notes as such payments would have become due if such Notes had not been
declared due and payable, and the Trustee obtains the consent of the holders of
66 2/3% of the then aggregate outstanding amount of the Notes of such series.
In the event that the Trustee liquidates the collateral in connection
with an Event of Default, the Indenture provides that the Trustee will have a
prior lien on the proceeds of any such liquidation for unpaid fees and expenses.
As a result, upon the occurrence of such an Event of Default, the amount
available for payments to the Noteholders would be less than would otherwise be
the case. However, the Trustee may not institute a proceeding for the
enforcement of its lien except in connection with a proceeding for the
enforcement of the lien of the Indenture for the benefit of the Noteholders
after the occurrence of such an Event of Default.
In the event the principal of the Notes of a series is declared due and
payable, as described above, the holders of any such Notes issued at a discount
from par may be entitled to receive no more than an amount equal to the unpaid
principal amount thereof less the amount of such discount that is unamortized.
No Noteholder or holder of an Equity Certificate generally will have
any right under an Owner Trust Agreement or Indenture to institute any
proceeding with respect to such Agreement unless (a) such holder previously has
given to the Trustee written notice of default and the continuance thereof, (b)
the holders of Notes or Equity Certificates of any class evidencing not less
than 25% of the aggregate Percentage Interests constituting such class (i) have
made written request upon the Trustee to institute such proceeding in its own
name as Trustee thereunder and (ii) have offered to the Trustee reasonable
indemnity, (c) the Trustee has neglected or refused to institute any such
proceeding for 60 days after receipt of such request and indemnity and (d) no
direction inconsistent with such written request has been given to the Trustee
during such 60 day period by the Holders of a majority of the Note Balances of
such class. However, the Trustee will be under no obligation to exercise any of
the trusts or powers vested in it
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by the applicable Agreement or to institute, conduct or defend any litigation
thereunder or in relation thereto at the request, order or direction of any of
the holders of Notes or Equity Certificates covered by such Agreement, unless
such holders have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which may be incurred therein or
thereby.
AMENDMENT
Each Pooling Agreement may be amended by the parties thereto, without
the consent of any of the holders of Certificates covered by such Pooling
Agreement, (i) to cure any ambiguity, (ii) to correct, modify or supplement any
provision therein which may be inconsistent with any other provision therein or
to correct any error, (iii) to change the timing and/or nature of deposits in
the Certificate Account, provided that (A) such change would not adversely
affect in any material respect the interests of any Certificateholder, as
evidenced by an opinion of counsel, and (B) such change would not adversely
affect the then-current rating of any rated classes of Certificates, as
evidenced by a letter from each applicable Rating Agency, (iv) if a REMIC
election has been made with respect to the related Trust Fund, to modify,
eliminate or add to any of its provisions (A) to such extent as shall be
necessary to maintain the qualification of the Trust Fund as a REMIC or to avoid
or minimize the risk of imposition of any tax on the related Trust Fund,
provided that the Trustee has received an opinion of counsel to the effect that
(1) such action is necessary or desirable to maintain such qualification or to
avoid or minimize such risk, and (2) such action will not adversely affect in
any material respect the interests of any holder of Certificates covered by the
Pooling Agreement, or (B) to restrict the transfer of the REMIC Residual
Certificates, provided that the Company has determined that the then-current
ratings of the classes of the Certificates that have been rated will not be
adversely affected, as evidenced by a letter from each applicable Rating Agency,
and that any such amendment will not give rise to any tax with respect to the
transfer of the REMIC Residual Certificates to a non-Permitted Transferee, (v)
to make any other provisions with respect to matters or questions arising under
such Pooling Agreement which are not materially inconsistent with the provisions
thereof, provided that such action will not adversely affect in any material
respect the interests of any Certificateholder, or (vi) to amend specified
provisions that are not material to holders of any class of Certificates offered
hereunder.
The Pooling Agreement may also be amended by the parties thereto with
the consent of the holders of Certificates of each class affected thereby
evidencing, in each case, at least 66% of the aggregate Percentage Interests
constituting such class for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of such Pooling Agreement or
of modifying in any manner the rights of the holders of Certificates covered by
such Pooling Agreement, except that no such amendment may (i) reduce in any
manner the amount of, or delay the timing of, payments received on Mortgage
Loans which are required to be distributed on a Certificate of any class without
the consent of the holder of such Certificate or (ii) reduce the aforesaid
percentage of Certificates of any class the holders of which are required to
consent to any such amendment without the consent of the holders of all
Certificates of such class covered by such Pooling Agreement then outstanding.
Notwithstanding the foregoing, if a REMIC election has been made with
respect to the related Trust Fund, the Trustee will not be entitled to consent
to any amendment to a Pooling Agreement without having first received an opinion
of counsel to the effect that such amendment or the exercise of any power
granted to the Master Servicer, the Company, the Trustee or any other specified
person in accordance with such amendment will not result in the imposition of a
tax on the related Trust Fund or cause such Trust Fund to fail to qualify as a
REMIC.
With respect to each series of Notes, each related Servicing Agreement
or Indenture may be amended by the parties thereto without the consent of any of
the holders of the Notes covered by such Agreement, to cure any ambiguity, to
correct, modify or supplement any provision therein, or to make any other
provisions with respect to matters or questions arising under the Agreement
which are not inconsistent with the provisions thereof, provided that such
action will not adversely affect in any material respect the interests of any
holder of Notes covered by the Agreement. Each Agreement may also be amended by
the parties thereto with the consent of the holders of Notes evidencing not less
than 66% of the Voting Rights, for any purpose; provided, however, that no such
amendment may (i) reduce in any manner the amount of or delay the timing of,
payments received on Trust Fund Assets which are required to be distributed on
any Certificate without the consent of the holder of such Certificate, (ii)
adversely affect in any material respect the interests of the holders of any
class of Notes in a manner other than as described in (i), without the consent
of the holders of Notes of such class evidencing not less than 66% of the
aggregate Voting Rights
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of such class or (iii) reduce the aforesaid percentage of Voting Rights required
for the consent to any such amendment without the consent of the holders of all
Notes covered by such Agreement then outstanding. The Voting Rights evidenced by
any Certificate will be the portion of the voting rights of all of the Notes in
the related series allocated in the manner described in the related Prospectus
Supplement.
TERMINATION; RETIREMENT OF SECURITIES
The obligations created by the related Agreements for each series of
Securities (other than certain limited payment and notice obligations of the
Trustee and the Company, respectively) will terminate upon the payment to
Securityholders of that series of all amounts held in the Certificate Account or
by the Master Servicer and required to be paid to them pursuant to such
Agreements following the earlier of (i) the final payment or other liquidation
or disposition (or any advance with respect thereto) of the last Mortgage Loan,
REO Property and/or Mortgage Security subject thereto and (ii) the purchase by
the Master Servicer or the Company or (A) if specified in the related Prospectus
Supplement with respect to each series of Certificates, by the holder of the
REMIC Residual Certificates (see "Federal Income Tax Consequences" below) or (B)
if specified in the Prospectus Supplement with respect to each series of Notes,
by the holder of the Equity Certificates, from the Trust Fund for such series of
all remaining Mortgage Loans, REO Properties and/or Mortgage Securities. In
addition to the foregoing, the Master Servicer or the Company will have the
option to purchase, in whole but not in part, the Securities specified in the
related Prospectus Supplement in the manner set forth in the related Prospectus
Supplement. Upon the purchase of such Securities or at any time thereafter, at
the option of the Master Servicer or the Company, the assets of the Trust Fund
may be sold, thereby effecting a retirement of the Securities and the
termination of the Trust Fund, or the Securities so purchased may be held or
resold by the Master Servicer or the Company. In no event, however, will the
trust created by the Pooling Agreement continue beyond the expiration of 21
years from the death of the survivor of certain persons named in such Pooling
Agreement. Written notice of termination of the Pooling Agreement will be given
to each Securityholder, and the final distribution will be made only upon
surrender and cancellation of the Securities at an office or agency appointed by
the Trustee which will be specified in the notice of termination. If the
Securityholders are permitted to terminate the trust under the applicable
Pooling Agreement, a penalty may be imposed upon the Securityholders based upon
the fee that would be foregone by the Master Servicer because of such
termination.
Any such purchase of Mortgage Loans and property acquired in respect of
Mortgage Loans evidenced by a series of Securities shall be made at the option
of the Master Servicer, the Company or, if applicable, the holder of the REMIC
Residual Certificates or Equity Certificates at the price specified in the
related Prospectus Supplement. The exercise of such right will effect early
retirement of the Securities of that series, but the right of the Master
Servicer, the Company or, if applicable, such holder to so purchase is subject
to the aggregate principal balance of the Mortgage Loans and/or Mortgage
Securities in the Trust Fund for that series as of the Distribution Date on
which the purchase proceeds are to be distributed to Securityholders being less
than the percentage specified in the related Prospectus Supplement of the
aggregate principal balance of such Mortgage Loans and/or Mortgage Securities at
the Cut-off Date for that series. The Prospectus Supplement for each series of
Securities will set forth the amounts that the holders of such Securities will
be entitled to receive upon such early retirement. Such early termination may
adversely affect the yield to holders of certain classes of such Securities. If
a REMIC election has been made, the termination of the related Trust Fund will
be effected in a manner consistent with applicable federal income tax
regulations and its status as a REMIC.
THE TRUSTEE
The Trustee under each Pooling Agreement and Indenture will be named in
the related Prospectus Supplement. The commercial bank, national banking
association, banking corporation or trust company that serves as Trustee may
have typical banking relationships with the Company and its affiliates. The
Trustee shall at all times be a corporation or an association organized and
doing business under the laws of any 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 and subject to supervision or
examination by federal or state authority.
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DUTIES OF THE TRUSTEE
The Trustee for each series of Securities will make no representation
as to the validity or sufficiency of the related Agreements, the Securities or
any underlying Mortgage Loan, Mortgage Security or related document and will not
be accountable for the use or application by or on behalf of any Master Servicer
or Special Servicer of any funds paid to the Master Servicer or Special Servicer
in respect of the Securities or the underlying Mortgage Loans or Mortgage
Securities, or any funds deposited into or withdrawn from the Certificate
Account for such series or any other account by or on behalf of the Master
Servicer or Special Servicer. If no Event of Default has occurred and is
continuing, the Trustee for each series of Securities will be required to
perform only those duties specifically required under the related Pooling
Agreement or Indenture. However, upon receipt of any of the various
certificates, reports or other instruments required to be furnished to it
pursuant to the related Agreement, a Trustee will be required to examine such
documents and to determine whether they conform to the requirements of such
agreement.
CERTAIN MATTERS REGARDING THE TRUSTEE
As and to the extent described in the related Prospectus Supplement,
the fees and normal disbursements of any Trustee may be the expense of the
related Master Servicer or other specified person or may be required to be borne
by the related Trust Fund.
The Trustee for each series of Securities generally will be entitled to
indemnification, from amounts held in the Certificate Account for such series,
for any loss, liability or expense incurred by the Trustee in connection with
the Trustee's acceptance or administration of its trusts under the related
Pooling Agreement or Indenture; provided, however, that such indemnification
will not extend to any loss, liability, cost or expense incurred by reason of
willful misfeasance, bad faith or gross negligence on the part of the Trustee in
the performance of its obligations and duties thereunder, or by reason of its
reckless disregard of such obligations or duties.
RESIGNATION AND REMOVAL OF THE TRUSTEE
The Trustee may resign at any time, in which event the Company will be
obligated to appoint a successor Trustee. The Company may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Pooling Agreement or if the Trustee becomes insolvent. Upon becoming aware of
such circumstances, the Company will be obligated to appoint a successor
Trustee. The Trustee may also be removed at any time by the holders of
Securities evidencing not less than 51% of the aggregate undivided interests
(or, if applicable, voting rights) in the related Trust Fund. Any resignation or
removal of the Trustee and appointment of a successor Trustee will not become
effective until acceptance of the appointment by the successor Trustee.
YIELD CONSIDERATIONS
The yield to maturity of an Offered Certificate will depend on the
price paid by the holder for such Certificate, the Security Interest Rate on any
such Certificate entitled to payments of interest (which Security Interest Rate
may vary if so specified in the related Prospectus Supplement) and the rate and
timing of principal payments (including prepayments, defaults, liquidations and
repurchases) on the Mortgage Loans and the allocation thereof to reduce the
principal balance of such Certificate (or notional amount thereof if applicable)
and other factors.
A class of Securities may be entitled to payments of interest at a
fixed Security Interest Rate, a variable Security Interest Rate or adjustable
Security Interest Rate, or any combination of such Security Interest Rates, each
as specified in the related Prospectus Supplement. A variable Security Interest
Rate may be calculated based on the weighted average of the Mortgage Rates (in
each case, net of the per annum rate or rates applicable to the calculation of
servicing and administrative fees and any Spread (each, a "Net Mortgage Rate"))
of the related Mortgage Loans for the month preceding the Distribution Date if
so specified in the related Prospectus Supplement. As will be described in the
related Prospectus Supplement, the aggregate payments of interest on a class of
Securities, and the yield to maturity thereon, will be affected by the rate of
payment of principal on the Securities (or the rate of reduction in the notional
balance of Securities entitled only to payments of interest) and, in the case of
Securities evidencing
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interests in ARM Loans, by changes in the Net Mortgage Rates on the ARM Loans.
See "Maturity and Prepayment Considerations" below. The yield on the Securities
will also be affected by liquidations of Mortgage Loans following Mortgagor
defaults and by purchases of Mortgage Loans in the event of breaches of
representations made in respect of such Mortgage Loans by the Company, the
Master Servicer and others, or conversions of ARM Loans to a fixed interest
rate. See "The Mortgage Pools--Representations by Sellers" and "Descriptions of
the Securities--Assignment of Trust Fund Assets" above. Holders of certain Strip
Securities or a class of Securities having a Security Interest Rate that varies
based on the weighted average Mortgage Rate of the underlying Mortgage Loans
will be affected by disproportionate prepayments and repurchases of Mortgage
Loans having higher Net Mortgage Rates or rates applicable to the Strip
Securities, as applicable.
With respect to any series of Securities, a period of time will elapse
between the date upon which payments on the related Mortgage Loans are due and
the Distribution Date on which such payments are passed through to
Securityholders. That delay will effectively reduce the yield that would
otherwise be produced if payments on such Mortgage Loans were distributed to
Securityholders on or near the date they were due.
In general, if a class of Securities is purchased at initial issuance
at a premium and payments of principal on the related Mortgage Loans occur at a
rate faster than anticipated at the time of purchase, the purchaser's actual
yield to maturity will be lower than that assumed at the time of purchase.
Similarly, if a class of Securities is purchased at initial issuance at a
discount and payments of principal on the related Mortgage Loans occur at a rate
slower than that assumed at the time of purchase, the purchaser's actual yield
to maturity will be lower than that originally anticipated. The effect of
principal prepayments, liquidations and purchases on yield will be particularly
significant in the case of a series of Securities having a class entitled to
payments of interest only or to payments of interest that are disproportionately
high relative to the principal payments to which such class is entitled. Such a
class will likely be sold at a substantial premium to its principal balance and
any faster than anticipated rate of prepayments will adversely affect the yield
to holders thereof. In certain circumstances extremely rapid prepayments may
result in the failure of such holders to recoup their original investment. In
addition, the yield to maturity on certain other types of classes of Securities,
including Accrual Securities, Securities with a Security Interest Rate which
fluctuates inversely with or at a multiple of an index or certain other classes
in a series including more than one class of Securities, may be relatively more
sensitive to the rate of prepayment on the related Mortgage Loans than other
classes of Securities.
The timing of changes in the rate of principal payments on or
repurchases of the Mortgage Loans may significantly affect an investor's actual
yield to maturity, even if the average rate of principal payments experienced
over time is consistent with an investor's expectation. In general, the earlier
a prepayment of principal on the underlying Mortgage Loans or a repurchase
thereof, the greater will be the effect on an investor's yield to maturity. As a
result, the effect on an investor's yield of principal payments and repurchases
occurring at a rate higher (or lower) than the rate anticipated by the investor
during the period immediately following the issuance of a series of Securities
would not be fully offset by a subsequent like reduction (or increase) in the
rate of principal payments.
When a principal prepayment in full is made on a Mortgage Loan, the
borrower is generally charged interest only for the period from the due date of
the preceding scheduled payment up to the date of such prepayment, instead of
for the full accrual period, that is, the period from the due date of the
preceding scheduled payment up to the due date for the next scheduled payment.
In addition, a partial principal prepayment may likewise be applied as of a date
prior to the next scheduled due date (and, accordingly, be accompanied by
interest thereon for less than the full accrual period). However, interest
accrued on any series of Securities and distributable thereon on any
Distribution Date will generally correspond to interest accrued on the principal
balance of Mortgage Loans for their respective full accrual periods.
Consequently, if a prepayment on any Mortgage Loan is distributable to
Securityholders on a particular Distribution Date, but such prepayment is not
accompanied by interest thereon for the full accrual period, the interest
charged to the borrower (net of servicing and administrative fees and any
Spread) may be less (such shortfall, a "Prepayment Interest Shortfall") than the
corresponding amount of interest accrued and otherwise payable on the related
Mortgage Loan. If and to the extent that any such shortfall is allocated to a
class of Offered Securities, the yield thereon will be adversely affected. The
Prospectus Supplement for a series of Securities will describe the manner in
which any such shortfalls will be allocated among the classes of such
Securities. If so specified in the related Prospectus Supplement, the Master
Servicer will be required to apply some or all of its servicing compensation for
the corresponding period to offset the amount of any such shortfalls. The
related Prospectus Supplement will also
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describe any other amounts available to offset such shortfalls. See Servicing of
Mortgage Loans--Servicing and Other Compensation and Payment of Expenses;
Spread".
The Trust Fund with respect to any series may include Convertible
Mortgage Loans. As is the case with conventional, fixed-rate mortgage loans
originated in a high interest rate environment which may be subject to a greater
rate of principal prepayments when interest rates decrease, Convertible Mortgage
Loans may be subject to a greater rate of principal prepayments (or purchases by
the related Subservicer or the Master Servicer) due to their refinancing or
conversion to fixed interest rate loans in a low interest rate environment. For
example, if prevailing interest rates fall significantly, Convertible Mortgage
Loans could be subject to higher prepayment and conversion rates than if
prevailing interest rates remain constant because the availability of fixed-rate
or other adjustable-rate mortgage loans at competitive interest rates may
encourage Mortgagors to refinance their adjustable-rate mortgages to "lock in" a
lower fixed interest rate or to take advantage of the availability of such other
adjustable-rate mortgage loans, or, in the case of convertible adjustable-rate
mortgage loans, to exercise their option to convert the adjustable interest
rates to fixed interest rates. The conversion feature may also be exercised in a
rising interest rate environment as Mortgagors attempt to limit their risk of
higher rates. Such a rising interest rate environment may also result in an
increase in the rate of defaults on the Mortgage Loans. If the related
Subservicer or the Master Servicer purchases Convertible Mortgage Loans, a
Mortgagor's exercise of the conversion option will result in a distribution of
the principal portion thereof to the Securityholders, as described herein.
Alternatively, to the extent Subservicers or the Master Servicer fail to
purchase Converting Mortgage Loans, the Mortgage Pool will include fixed-rate
Mortgage Loans.
The rate of defaults on the Mortgage Loans will also affect the rate
and timing of principal payments on the Mortgage Loans and thus the yield on the
Securities. In general, defaults on Single Family Loans are expected to occur
with greater frequency in their early years. However, there is a risk that
Mortgage Loans, including Multifamily Loans, that require Balloon Payments may
default at maturity, or that the maturity of such a Mortgage Loan may be
extended in connection with a workout. The rate of default on Single Family
Loans which are refinance or limited documentation mortgage loans, and on
Mortgage Loans, including Multifamily Loans, with high Loan-to- Value Ratios,
may be higher than for other types of Mortgage Loans. Furthermore, the rate and
timing of prepayments, defaults and liquidations on the Mortgage Loans will be
affected by the general economic condition of the region of the country in which
the related Mortgaged Properties are located. The risk of delinquencies and loss
is greater and prepayments are less likely in regions where a weak or
deteriorating economy exists, as may be evidenced by, among other factors,
increasing unemployment or falling property values. See "Risk Factors."
With respect to certain Mortgage Loans including ARM Loans, the
Mortgage Rate at origination may be below the rate that would result if the
index and margin relating thereto were applied at origination. Under the
applicable underwriting standards, the Mortgagor under each Mortgage Loan
generally will be qualified, or the Mortgage Loan otherwise approved, on the
basis of the Mortgage Rate in effect at origination. The repayment of any such
Mortgage Loan may thus be dependent on the ability of the mortgagor to make
larger level monthly payments following the adjustment of the Mortgage Rate. In
addition, the periodic increase in the amount paid by the Mortgagor of a Buydown
Mortgage Loan during or at the end of the applicable Buydown Period may create a
greater financial burden for the Mortgagor, who might not have otherwise
qualified for a mortgage under applicable underwriting guidelines, and may
accordingly increase the risk of default with respect to the related Mortgage
Loan.
The Mortgage Rates on certain ARM Loans subject to negative
amortization generally adjust monthly and their amortization schedules adjust
less frequently. During a period of rising interest rates as well as immediately
after origination (initial Mortgage Rates are generally lower than the sum of
the Indices applicable at origination and the related Note Margins), the amount
of interest accruing on the principal balance of such Mortgage Loans may exceed
the amount of the minimum scheduled monthly payment thereon. As a result, a
portion of the accrued interest on negatively amortizing Mortgage Loans may
become Deferred Interest which will be added to the principal balance thereof
and will bear interest at the applicable Mortgage Rate. The addition of any such
Deferred Interest to the principal balance of any related class or classes of
Securities will lengthen the weighted average life thereof and may adversely
affect yield to holders thereof, depending upon the price at which such
Securities were purchased. In addition, with respect to certain ARM Loans
subject to negative amortization, during a period of declining interest rates,
it might be expected that each minimum scheduled monthly payment on such a
Mortgage Loan would exceed the amount of scheduled principal and accrued
interest on the principal balance thereof, and since such excess will
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be applied to reduce the principal balance of the related class or classes of
Securities, the weighted average life of such Securities will be reduced and may
adversely affect yield to holders thereof, depending upon the price at which
such Securities were purchased.
MATURITY AND PREPAYMENT CONSIDERATIONS
As indicated above under "The Mortgage Pools," the original terms to
maturity of the Mortgage Loans in a given Mortgage Pool will vary depending upon
the type of Mortgage Loans included in such Mortgage Pool. The Prospectus
Supplement for a series of Securities will contain information with respect to
the types and maturities of the Mortgage Loans in the related Mortgage Pool.
Unless otherwise specified in the related Prospectus Supplement, all of the
Mortgage Loans may be prepaid without penalty in full or in part at any time.
The prepayment experience with respect to the Mortgage Loans in a Mortgage Pool
will affect the life and yield of the related series of Securities.
With respect to Balloon Loans, payment of the Balloon Payment (which,
based on the amortization schedule of such Mortgage Loans, is expected to be a
substantial amount) will generally depend on the Mortgagor's ability to obtain
refinancing of such Mortgage Loans or to sell the Mortgaged Property prior to
the maturity of the Balloon Loan. The ability to obtain refinancing will depend
on a number of factors prevailing at the time refinancing or sale is required,
including, without limitation, real estate values, the Mortgagor's financial
situation, prevailing mortgage loan interest rates, the Mortgagor's equity in
the related Mortgaged Property, tax laws and prevailing general economic
conditions. None of the Company, the Master Servicer, or any of their affiliates
will be obligated to refinance or repurchase any Mortgage Loan or to sell the
Mortgaged Property.
The extent of prepayments of principal of the Mortgage Loans may be
affected by a number of factors, including, without limitation, solicitations
and the availability of mortgage credit, the relative economic vitality of the
area in which the Mortgaged Properties are located and, in the case of
Multifamily Loans, the quality of management of the Mortgage Properties, the
servicing of the Mortgage Loans, possible changes in tax laws and other
opportunities for investment. In addition, the rate of principal payments on the
Mortgage Loans may be affected by the existence of Lock-out Periods and
requirements that principal prepayments be accompanied by Prepayment Premiums,
as well as due-on-sale and due-on-encumbrance provisions, and by the extent to
which such provisions may be practicably enforced. See "Servicing of Mortgage
Loans--Collection and Other Servicing Procedures" and "Certain Legal Aspects of
the Mortgage Loans--Enforceability of Certain Provisions" for a description of
certain provisions of the Pooling Agreement and certain legal developments that
may affect the prepayment experience on the Mortgage Loans.
The rate of prepayment on a pool of mortgage loans is also affected by
prevailing market interest rates for mortgage loans of a comparable type, term
and risk level. When the prevailing market interest rate is below a mortgage
coupon, a borrower may have an increased incentive to refinance its mortgage
loan. In addition, as prevailing market interest rates decline, even borrowers
with ARM Loans that have experienced a corresponding interest rate decline may
have an increased incentive to refinance for purposes of either (i) converting
to a fixed rate loan and thereby "locking in" such rate or (ii) taking advantage
of the initial "teaser rate" (a mortgage interest rate below what it would
otherwise be if the applicable index and gross margin were applied) on another
adjustable rate mortgage loan. Moreover, although the Mortgage Rates on ARM
Loans will be subject to periodic adjustments, such adjustments generally will
(i) not increase or decrease such Mortgage Rates by more than a fixed percentage
amount on each adjustment date, (ii) not increase such Mortgage Rates over a
fixed percentage amount during the life of any ARM Loan and (iii) be based on an
index (which may not rise and fall consistently with mortgage interest rates)
plus the related Note Margin (which may be different from margins being used at
the time for newly originated adjustable rate mortgage loans). As a result, the
Mortgage Rates on the ARM Loans at any time may not equal the prevailing rates
for similar, newly originated adjustable rate mortgage loans. In certain rate
environments, the prevailing rates on fixed-rate mortgage loans may be
sufficiently low in relation to the then-current Mortgage Rates on ARM Loans
that the rate of prepayment may increase as a result of refinancings. There can
be no certainty as to the rate of prepayments on the Mortgage Loans during any
period or over the life of any series of Securities.
If the applicable Pooling Agreement for a series of Securities provides
for a Pre-Funding Account or other means of funding the transfer of additional
Mortgage Loans to the related Trust Fund, as described under "Description of the
Securities--Pre-Funding Account" herein, and the Trust Fund is unable to acquire
such additional Mortgage
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Loans within any applicable time limit, the amounts set aside for such purpose
may be applied as principal payments on one or more classes of Securities of
such series. See "Risk Factors--Yield and Prepayment Considerations."
There can be no assurance as to the rate of prepayment of the Mortgage
Loans. The Company is not aware of any publicly available statistics relating to
the principal prepayment experience of diverse portfolios of mortgage loans such
as the Mortgage Loans over an extended period of time. All statistics known to
the Company that have been compiled with respect to prepayment experience on
mortgage loans indicate that while some mortgage loans may remain outstanding
until their stated maturities, a substantial number will be paid prior to their
respective stated maturities. No representation is made as to the particular
factors that will affect the prepayment of the Mortgage Loans or as to the
relative importance of such factors.
Under certain circumstances, the Master Servicer, the Company or a
person specified in the related Prospectus Supplement (other than holder of any
Class of Offered Certificates, other than the REMIC Residual Certificates, if
offered) may have the option to purchase the assets in a Trust Fund and effect
early retirement of the related series of Securities. See "The
Agreements--Termination; Retirement of Securities."
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans that are general in nature. Because such legal aspects are
governed in part by applicable state law (which laws may differ substantially),
the summaries do not purport to be complete nor to reflect the laws of any
particular state nor to encompass the laws of all states in which the Mortgaged
Properties may be situated. The summaries are qualified in their entirety by
reference to the applicable federal and state laws governing the Mortgage Loans
and Contracts.
SINGLE FAMILY LOANS AND MULTIFAMILY LOANS
GENERAL. Each Single Family and Multifamily Loan will, and if
applicable, Contracts (in each case other than Cooperative Loans), be evidenced
by a note or bond and secured by an instrument granting a security interest in
real property, which may be a mortgage, deed of trust or a deed to secure debt,
depending upon the prevailing practice and law in the state in which the related
Mortgaged Property is located, and may have first, second or third priority.
Mortgages and deeds to secure debt are herein referred to as "mortgages."
Contracts evidence both the obligation of the obligor to repay the loan
evidenced thereby and grant a security interest in the related Manufactured
Homes to secure repayment of such loan. However, as Manufactured Homes have
become larger and often have been attached to their sites without any apparent
intention by the borrowers to move them, courts in many states have held that
Manufactured Homes may, under certain circumstances become subject to real
estate title and recording laws. See "-- Contracts" below. In some states, a
mortgage or deed of trust creates a lien upon the real property encumbered by
the mortgage or deed of trust. However, in other states, the mortgage or deed of
trust conveys legal title to the property respectively, to the mortgagee or to a
trustee for the benefit of the mortgagee subject to a condition subsequent
(i.e., the payment of the indebtedness secured thereby). The lien created by the
mortgage or deed of trust is not prior to the lien for real estate taxes and
assessments and other charges imposed under governmental police powers. Priority
between mortgages depends on their terms or on the terms of separate
subordination or inter-creditor agreements, the knowledge of the parties in some
cases and generally on the order of recordation of the mortgage in the
appropriate recording office. There are two parties to a mortgage, the
mortgagor, who is the borrower and homeowner, and the mortgagee, who is the
lender. Under the mortgage instrument, the mortgagor delivers to the mortgagee a
note or bond and the mortgage. In the case of a land trust, there are three
parties because title to the property is held by a land trustee under a land
trust agreement of which the borrower is the beneficiary; at origination of a
mortgage loan, the borrower executes a separate undertaking to make payments on
the mortgage note. Although a deed of trust is similar to a mortgage, a deed of
trust has three parties: the trustor who is the borrower-homeowner; the
beneficiary who is the lender; 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. The trustee's authority under a deed of trust, the
grantee's authority under a deed to secure debt and the mortgagee's authority
under a mortgage are governed by the law of the state in which the real property
is located, the express provisions of the deed of trust or mortgage, and, in
certain deed of trust transactions, the directions of the beneficiary.
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LEASES AND RENTS. Mortgages that encumber income-producing multifamily
properties often contain an assignment of rents and leases, pursuant to which
the borrower assigns to the lender the borrower's right, title and interest as
landlord under each lease and the income derived therefrom, while (unless rents
are to be paid directly to the lender) retaining a revocable license to collect
the rents for so long as there is no default. If the borrower defaults, the
license terminates and the lender is entitled to collect the rents. Local law
may require that the lender take possession of the property and/or obtain a
court-appointed receiver before becoming entitled to collect the rents.
COOPERATIVE LOANS
If specified in the Prospectus Supplement relating to a series of
Certificates, the Mortgage Loans and Contracts may include Cooperative Loans.
Each debt instrument (a "COOPERATIVE NOTE") evidencing a Cooperative Loan will
be secured by a security interest in shares issued by the related corporation (a
"COOPERATIVE") that owns the related apartment building, which is a corporation
entitled to be treated as a housing cooperative under federal tax law, and in
the related proprietary lease or occupancy agreement granting exclusive rights
to occupy a specific dwelling unit in the Cooperative's building. The security
agreement will create a lien upon the shares of the Cooperative, the priority of
which will depend on, among other things, the terms of the particular security
agreement as well as the order of recordation and/or filing of the agreement (or
financing statements related thereto) in the appropriate recording office.
Unless otherwise specified in the related Prospectus Supplement, all
Cooperative buildings relating to the Cooperative Loans are located in the State
of New York. Generally, each Cooperative owns in fee or has a leasehold interest
in all the real property and owns in fee or leases the building and all separate
dwelling units therein. The Cooperative is directly responsible for property
management and, in most cases, payment of real estate taxes, other governmental
impositions and hazard and liability insurance. If there is an underlying
mortgage (or mortgages) on the Cooperative's building or underlying land, as is
generally the case, or an underlying lease of the land, as is the case in some
instances, the Cooperative, as mortgagor or lessor, as the case may be, is also
responsible for fulfilling such mortgage or rental obligations. An underlying
mortgage loan is ordinarily obtained by the Cooperative in connection with
either the construction or purchase of the Cooperative's building or the
obtaining of capital by the Cooperative. The interest of the occupant under
proprietary leases or occupancy agreements as to which that Cooperative is the
landlord is generally subordinate to the interest of the holder of an underlying
mortgage and to the interest of the holder of a land lease. If the Cooperative
is unable to meet the payment obligations (i) arising under an underlying
mortgage, the mortgagee holding an underlying mortgage could foreclose on that
mortgage and terminate all subordinate proprietary leases and occupancy
agreements or (ii) arising under its land lease, the holder of the landlord's
interest under the land lease could terminate it and all subordinate proprietary
leases and occupancy agreements. In addition, an underlying 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 final payment
at maturity. The inability of the Cooperative to refinance a mortgage and its
consequent inability to make such final payment could lead to foreclosure by the
mortgagee. Similarly, a land lease has an expiration date and the inability of
the Cooperative to extend its term or, in the alternative, to purchase the land,
could lead to termination of the Cooperative's interest in the property and
termination of all proprietary leases and occupancy agreements. In either event,
a foreclosure by the holder of an underlying mortgage or the termination of the
underlying lease could eliminate or significantly diminish the value of any
collateral held by the mortgagee who financed the purchase by an individual
tenant-stockholder of shares of the Cooperative or, in the case of the Mortgage
Loans, the collateral securing the Cooperative Loans.
Each Cooperative is owned by shareholders (referred to as
tenant-stockholders) who, through ownership of stock or shares in the
Cooperative, receive proprietary leases or occupancy agreements which confer
exclusive rights to occupy specific dwellings. Generally, a tenant-stockholder
of a Cooperative must make a monthly payment to the Cooperative pursuant to the
proprietary lease, which payment represents such tenant-stockholder's PRO RATA
share of the Cooperative's payments for its underlying mortgage, real property
taxes, maintenance expenses and other capital or ordinary expenses. An ownership
interest in a Cooperative and accompanying occupancy rights may be financed
through a Cooperative Loan evidenced by a Cooperative Note and secured by an
assignment of and a security interest in the occupancy agreement or proprietary
lease and a security interest in the related shares of the related Cooperative.
The mortgagee generally takes possession of the share certificate and a
counterpart of the proprietary lease or
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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 mortgagee'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 Cooperative 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. See "--Foreclosure on Shares of Cooperatives"
below.
TAX ASPECTS OF COOPERATIVE OWNERSHIP
In general, a "tenant-stockholder" (as defined in Section 216(b)(2) of
the Code) of a corporation that qualifies as a "cooperative housing corporation"
within the meaning of Section 216(b)(1) of the Code 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 Section 216(a) of the Code to the
corporation under Sections 163 and 164 of the Code. In order for a corporation
to qualify under Section 216(b)(1) of the Code 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. By virtue of this
requirement, the status of a corporation for purposes of Section 216(b)(1) of
the Code must be determined on a year-to-year basis. Consequently, there can be
no assurance that Cooperatives relating to the Cooperative Loans will qualify
under such section for any particular year. In the event that such a Cooperative
fails to qualify for one or more years, the value of the collateral securing any
related Cooperative Loans could be significantly impaired because no deduction
would be allowable to tenant-stockholders under Section 216(a) of the Code with
respect to those years. In view of the significance of the tax benefits accorded
tenant-stockholders of a corporation that qualifies under Section 216(b)(1) of
the Code, the likelihood that such a failure would be permitted to continue over
a period of years appears remote.
CONTRACTS
Except as set forth below, under the laws of most states, manufactured
housing constitutes personal property and is subject to the motor vehicle
registration laws of the state or other jurisdiction in which the unit is
located. In a few states, where certificates of title are not required for
manufactured homes, security interests are perfected by the filing of a
financing statement under Article 9 of the UCC which has been adopted by all
states. Such financing statements are effective for five years and must be
renewed prior to the end of each five year period. The certificate of title laws
adopted by the majority of states provide that ownership of motor vehicles and
manufactured housing shall be evidenced by a certificate of title issued by the
motor vehicles department (or a similar entity) of such state. In the states
that have enacted certificate of title laws, a security interest in a unit of
manufactured housing, so long as it is not attached to land in so permanent a
fashion as to become a fixture, is generally perfected by the recording of such
interest on the certificate of title to the unit in the appropriate motor
vehicle registration office or by delivery of the required documents and payment
of a fee to such office, depending on state law.
The Master Servicer will be required under the related Pooling
Agreement or Servicing Agreement to effect such notation or delivery of the
required documents and fees, and to obtain possession of the certificate of
title, as appropriate under the laws of the state in which any Manufactured Home
is registered. In the event the Master Servicer fails, due to clerical errors or
otherwise, to effect such notation or delivery, or files the security interest
under the wrong law (for example, under a motor vehicle title statute rather
than under the UCC, in a few states), the Trustee may not have a first priority
security interest in the Manufactured Home securing a Contract. As manufactured
homes have become larger and often have been attached to their sites without any
apparent intention by the borrowers to move them, courts in many states have
held that manufactured homes may, under certain circumstances, become subject to
real estate title and recording laws. As a result, a security interest in a
manufactured home could be rendered subordinate to the interests of other
parties claiming an interest in the home under applicable state real estate law.
In order to perfect a security interest in a manufactured home under real estate
laws, the holder of the security interest must file either a "fixture filing"
under the provisions of the UCC or a real estate mortgage under the real estate
laws of the state where the home is located. These filings must be made in the
real estate records office of the county where the home is located. Generally,
Contracts will contain provisions prohibiting the obligor from permanently
attaching the Manufactured Home to its site. So long as the obligor does not
violate this agreement,
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a security interest in the Manufactured Home will be governed by the certificate
of title laws or the UCC, and the notation of the security interest on the
certificate of title or the filing of a UCC financing statement will be
effective to maintain the priority of the security interest in the Manufactured
Home. If, however, a Manufactured Home is permanently attached to its site,
other parties could obtain an interest in the Manufactured Home that is prior to
the security interest originally retained by the Seller and transferred to the
Company.
The Company will assign or cause to be assigned a security interest in
the Manufactured Homes to the Trustee, on behalf of the Securityholders. Unless
otherwise specified in the related Prospectus Supplement, neither the Company,
the Master Servicer nor the Trustee will amend the certificates of title to
identify the Trustee, on behalf of the Securityholders, as the new secured party
and, accordingly, the Company or the Seller will continue to be named as the
secured party on the certificates of title relating to the Manufactured Homes.
In most states, such assignment is an effective conveyance of such security
interest without amendment of any lien noted on the related certificate of title
and the new secured party succeeds to the Company's rights as the secured party.
However, in some states there exists a risk that, in the absence of an amendment
to the certificate of title, such assignment of the security interest might not
be held effective against creditors of the Company or Seller.
In the absence of fraud, forgery or permanent affixation of the
Manufactured Home to its site by the Manufactured Home owner, or administrative
error by state recording officials, the notation of the lien of the Company on
the certificate of title or delivery of the required documents and fees will be
sufficient to protect the Trustee against the rights of subsequent purchasers of
a Manufactured Home or subsequent lenders who take a security interest in the
Manufactured Home. If there are any Manufactured Homes as to which the Company
has failed to perfect or cause to be perfected the security interest assigned to
the Trust Fund, such security interest would be subordinate to, among others,
subsequent purchasers for value of Manufactured Homes and holders of perfected
security interests. There also exists a risk in not identifying the Trustee, on
behalf of the Securityholders, as the new secured party on the certificate of
title that, through fraud or negligence, the security interest of the Trustee
could be released.
In the event that the owner of a Manufactured Home moves it to a state
other than the state in which such Manufactured Home initially is registered,
under the laws of most states the perfected security interest in the
Manufactured Home would continue for four months after such relocation and
thereafter until the owner re-registers the Manufactured Home in such state. If
the owner were to relocate a Manufactured Home to another state and re- register
the Manufactured Home in such state, and if the Company did not take steps to
re-perfect its security interest in such state, the security interest in the
Manufactured Home would cease to be perfected. A majority of states generally
require surrender of a certificate of title to re-register a Manufactured Home;
accordingly, the Company must surrender possession if it holds the certificate
of title to such Manufactured Home or, in the case of Manufactured Homes
registered in states that provide for notation of lien, the Company would
receive notice of surrender if the security interest in the Manufactured Home is
noted on the certificate of title. Accordingly, the Company would have the
opportunity to re-perfect its security interest in the Manufactured Home in the
state of relocation. In states that do not require a certificate of title for
registration of a manufactured home, re-registration could defeat perfection.
Similarly, when an obligor under a manufactured housing conditional sales
contract sells a manufactured home, the obligee must surrender possession of the
certificate of title or it will receive notice as a result of its lien noted
thereon and accordingly will have an opportunity to require satisfaction of the
related manufactured housing conditional sales contract before release of the
lien. Under each related Pooling Agreement or Servicing Agreement, the Master
Servicer will be obligated to take such steps, at the Master Servicer's expense,
as are necessary to maintain perfection of security interests in the
Manufactured Homes.
Under the laws of most states, liens for repairs performed on a
Manufactured Home take priority even over a perfected security interest. The
Company will obtain the representation of the related Seller that it has no
knowledge of any such liens with respect to any Manufactured Home securing a
Contract. However, such liens could arise at any time during the term of a
Contract. No notice will be given to the Trustee or Securityholders in the event
such a lien arises.
FORECLOSURE ON MORTGAGES AND CERTAIN CONTRACTS
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Foreclosure of a deed of trust is generally accomplished by a
non-judicial trustee's sale under a specific provision in the deed of trust
which authorizes the trustee to sell the property upon any default by the
borrower under the terms of the note or deed of trust. In addition to any notice
requirements contained in a deed of trust, 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 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 a specified
period, a notice of sale must be posted in a public place and, in most states,
published for a specific period of time in one or more newspapers in a specified
manner prior to the date of trustee's sale. In addition, some state laws require
that a copy of the notice of sale be posted on the property and sent to all
parties having an interest of record in the real property.
In 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, in such states, 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.
Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record 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 applicable parties. If the mortgagee's right to foreclose is
contested, the legal proceedings necessary to resolve the issue can be
time-consuming.
In the case of foreclosure under either a mortgage or a deed of trust,
the sale by the referee or other designated officer or by the trustee is a
public sale. However, because of the difficulty a potential buyer at the sale
would have in determining the exact status of title and because the physical
condition of the property may have deteriorated during the foreclosure
proceedings, it is uncommon for a third party to purchase the property at a
foreclosure sale. Rather, it is common for the lender to purchase the property
from the trustee or referee for a credit bid less than or equal to the unpaid
principal amount of note plus the accrued and unpaid interest and the expense of
foreclosure, in which case the mortgagor's debt will be extinguished unless the
lender purchases the property for a lesser amount in order to preserve its right
against a borrower to seek a deficiency judgment and such remedy is available
under state law and the related loan documents. In the same states, there is a
statutory minimum purchase price which the lender may offer for the property and
generally, state law controls the amount of foreclosure costs and expenses,
including attorneys' fees, which may be recovered by a lender. Thereafter,
subject to the right of the borrower in some states to remain in possession
during the redemption period, the lender will assume the burdens of ownership,
including obtaining hazard insurance, paying taxes and making such repairs at
its own expense as are necessary to render the property suitable for sale.
Generally, the lender will obtain the services of a real estate broker and pay
the broker's commission in connection with the sale of the property. Depending
upon market conditions, the ultimate proceeds of the sale of the property may
not equal the lender's investment in the property and, in some states, the
lender may be entitled to a deficiency judgment. Any loss may be reduced by the
receipt of any mortgage insurance proceeds or other forms of credit enhancement
for a series of Certificates. See "Description of Credit Enhancement".
A junior mortgagee may not foreclose on the property securing a junior
mortgage unless it forecloses subject to the senior mortgages, in which case it
must either pay the entire amount due on the senior mortgages to the senior
mortgagees prior to or at the time of the foreclosure sale or undertake the
obligation to make payments on the senior mortgages in the event the mortgagor
is in default thereunder, in either event adding the amounts expended to the
balance due on the junior loan, and may be subrogated to the rights of the
senior mortgagees. In addition, in the event that the foreclosure of a junior
mortgage triggers the enforcement of a "due-on-sale" clause, the junior
mortgagee may be required to pay the full amount of the senior mortgages to the
senior mortgagees. Accordingly, with respect to those Single Family and
Multifamily Loans which are junior mortgage loans, if the lender purchases the
property, the lender's title will be subject to all senior liens and claims and
certain governmental liens. The proceeds received by the referee or trustee from
the sale are applied first to the costs, fees and expenses of sale and then in
satisfaction of the indebtedness secured by the mortgage or deed of trust under
which the sale was conducted. Any remaining proceeds are generally payable to
the holders of junior mortgages or deeds of trust and other liens and claims in
order of their priority, whether or not the borrower is in default. Any
additional proceeds are generally payable to the
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mortgagor or trustor. The payment of the proceeds to the holders of junior
mortgages may occur in the foreclosure action of the senior mortgagee or may
require the institution of separate legal proceeds.
In foreclosure, courts have imposed general equitable principles. The
equitable principles are generally designed to relieve the borrower from the
legal effect of its defaults under the loan documents. Examples of judicial
remedies that have been fashioned include judicial requirements that the lender
undertake affirmative and expensive actions to determine the causes for the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's judgment and have required that lenders reinstate loans or recast
payment schedules in order to accommodate borrowers who are suffering from
temporary financial disability. In other cases, courts have limited the right of
a lender to foreclose if the default under the mortgage instrument is not
monetary, such as the borrower's failure to adequately maintain the property or
the borrower's execution of a second mortgage or deed of trust affecting the
property. Finally, some courts have been faced with the issue of whether or not
federal or state constitutional provisions reflecting due process concerns for
adequate notice require that borrowers under deeds of trust or mortgages receive
notices in addition to the statutorily-prescribed minimums. For the most part,
these cases have upheld the notice provisions as being reasonable or have found
that the sale by a trustee under a deed of trust, or under a mortgage having a
power of sale, does not involve sufficient state action to afford constitutional
protection to the borrower.
FORECLOSURE ON SHARES OF COOPERATIVES
The Cooperative shares owned by the tenant-stockholder, together with
the rights of the tenant-stockholder under the proprietary lease or occupancy
agreement, are pledged to the lender and are, in almost all cases, subject to
restrictions on transfer as set forth in the Cooperative's certificate of
incorporation and by-laws, as well as in the proprietary lease or occupancy
agreement. The proprietary lease or occupancy agreement, even while pledged, may
be cancelled by the Cooperative for failure by the tenant-stockholder to pay its
obligations or charges owed by such tenant-stockholder, including mechanics'
liens against the Cooperative's building incurred by such tenant-stockholder.
Generally, obligations and charges arising under a proprietary lease or
occupancy agreement which are owed to the Cooperative are made liens upon the
shares to which the proprietary lease or occupancy agreement relates. In
addition, the proprietary lease or occupancy agreement generally permits the
Cooperative to terminate such lease or agreement in the event the borrower
defaults in the performance of covenants thereunder. Typically, the lender and
the Cooperative enter into a recognition agreement which, together with any
lender protection provisions contained in the proprietary lease or occupancy
agreement, 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 notice of and 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 a sale of the shares and the
proprietary lease or occupancy agreement allocated to the dwelling, subject,
however, to the Cooperative's right to sums due under such proprietary lease or
occupancy agreement or which have become liens on the shares relating to the
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 amount realized upon a sale of
the collateral below the outstanding principal balance of the Cooperative Loan
and accrued and unpaid interest thereon.
Recognition agreements also generally provide that in the event the
lender succeeds to the tenant- shareholder's shares and proprietary lease or
occupancy agreement as the result of realizing upon its collateral for a
Cooperative Loan, the lender must obtain the approval or consent of the board of
directors of the Cooperative as required by the proprietary lease before
transferring the Cooperative shares or assigning the proprietary lease. Such
approval or consent is usually based on the prospective purchaser's income and
net worth, among other factors, and may significantly reduce the number of
potential purchasers, which could limit the ability of the lender to sell and
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realize upon the value of the collateral. Generally, the lender is not limited
in any rights it may have to dispossess the tenant-stockholder.
Because of the nature of Cooperative Loans, lenders do not require the
tenant-stockholder (i.e., the borrower) to obtain title insurance of any type.
Consequently, the existence of any prior liens or other imperfections of title
affecting the Cooperative's building or real estate also may adversely affect
the marketability of the shares allocated to the dwelling unit in the event of
foreclosure.
In New York, foreclosure on the Cooperative shares is accomplished by
public sale in accordance with the provisions of Article 9 of the New York
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 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 sale and the sale
price. Generally, a sale conducted according to the usual practice of banks
selling similar collateral in the same area 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 corporation 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.
REPOSSESSION WITH RESPECT TO CONTRACTS
GENERAL. Repossession of manufactured housing is governed by state law.
A few states have enacted legislation that requires that the debtor be given an
opportunity to cure its default (typically 30 days to bring the account current)
before repossession can commence. So long as a manufactured home has not become
so attached to real estate that it would be treated as a part of the real estate
under the law of the state where it is located, repossession of such home in the
event of a default by the obligor generally will be governed by the UCC (except
in Louisiana). Article 9 of the UCC provides the statutory framework for the
repossession of manufactured housing. While the UCC as adopted by the various
states may vary in certain small particulars, the general repossession procedure
established by the UCC is as follows:
(i) Except in those states where the debtor must receive
notice of the right to cure a default, repossession can commence
immediately upon default without prior notice. Repossession may be
effected either through self-help (peaceable retaking without court
order), voluntary repossession or through judicial process
(repossession pursuant to court-issued writ of replevin). The self-help
and/or voluntary repossession methods are more commonly employed, and
are accomplished simply by retaking possession of the manufactured
home. In cases in which the debtor objects or raises a defense to
repossession, a court order must be obtained from the appropriate state
court, and the manufactured home must then be repossessed in accordance
with that order. Whether the method employed is self-help, voluntary
repossession or judicial repossession, the repossession can be
accomplished either by an actual physical removal of the manufactured
home to a secure location for refurbishment and resale or by removing
the occupants and their belongings from the manufactured home and
maintaining possession of the manufactured home on the location where
the occupants were residing. Various factors may affect whether the
manufactured home is physically removed or left on location, such as
the nature and term of the lease of the site on which it is located and
the condition of the unit. In many cases, leaving the manufactured home
on location is preferable, in the event that the home is already set
up, because the expenses of retaking and redelivery will be saved.
However, in those cases where the home is left on location, expenses
for site rentals will usually be incurred.
(ii) Once repossession has been achieved, preparation for
the subsequent disposition of the manufactured home can commence. The
disposition may be by public or private sale provided the method,
manner, time, place and terms of the sale are commercially reasonable.
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(iii) Sale proceeds are to be applied first to repossession
expenses (expenses incurred in retaking, storage, preparing for sale to
include refurbishing costs and selling) and then to satisfaction of the
indebtedness. While some states impose prohibitions or limitations on
deficiency judgments if the net proceeds from resale do not cover the
full amount of the indebtedness, the remainder may be sought from the
debtor in the form of a deficiency judgement in those states that do
not prohibit or limit such judgments. The deficiency judgment is a
personal judgment against the debtor for the shortfall. Occasionally,
after resale of a manufactured home and payment of all expenses and
indebtedness, there is a surplus of funds. In that case, the UCC
requires the party suing for the deficiency judgment to remit the
surplus to the debtor. Because the defaulting owner of a manufactured
home generally has very little capital or income available following
repossession, a deficiency judgment may not be sought in many cases or,
if obtained, will be settled at a significant discount in light of the
defaulting owner's strained financial condition.
LOUISIANA LAW. Any contract secured by a manufactured home located in
Louisiana will be governed by Louisiana law rather than Article 9 of the UCC.
Louisiana laws provide similar mechanisms for perfection and enforcement of
security interests in manufactured housing used as collateral for an installment
sale contract or installment loan agreement.
Under Louisiana law, a manufactured home that has been permanently
affixed to real estate will nevertheless remain subject to the motor vehicle
registration laws unless the obligor and any holder of a security interest in
the property execute and file in the real estate records for the parish in which
the property is located a document converting the unit into real property. A
manufactured home that is converted into real property but is then removed from
its site can be converted back to personal property governed by the motor
vehicle registration laws if the obligor executes and files various documents in
the appropriate real estate records and all mortgagees under real estate
mortgages on the property and the land to which it was affixed file releases
with the motor vehicle commission.
So long as a manufactured home remains subject to the Louisiana motor
vehicle laws, liens are recorded on the certificate of title by the motor
vehicle commissioner and repossession can be accomplished by voluntary consent
of the obligor, executory process (repossession proceedings which must be
initiated through the courts but which involve minimal court supervision) or a
civil suit for possession. In connection with a voluntary surrender, the obligor
must be given a full release from liability for all amounts due under the
contract. In executory process repossessions, a sheriff's sale (without court
supervision) is permitted, unless the obligor brings suit to enjoin the sale,
and the lender is prohibited from seeking a deficiency judgment against the
obligor unless the lender obtained an appraisal of the manufactured home prior
to the sale and the property was sold for at least two-thirds of its appraised
value.
RIGHTS OF REDEMPTION
SINGLE FAMILY PROPERTIES AND MULTIFAMILY PROPERTIES. The purposes of a
foreclosure action in respect of a Single Family Property or Multifamily
Property are to enable the lender to realize upon its security and to bar the
borrower, and all persons who have interests in the property that are
subordinate to that of the foreclosing lender, from exercise of their "equity of
redemption". The doctrine of equity of redemption provides that, until the
property encumbered by a mortgage has been sold in accordance with a properly
conducted foreclosure and foreclosure sale, those having interests that are
subordinate to that of the foreclosing lender have an equity of redemption and
may redeem the property by paying the entire debt with interest. Those having an
equity of redemption must generally be made parties and joined in the
foreclosure proceeding in order for their equity of redemption to be terminated.
The equity of redemption is a common-law (non-statutory) right which
should be distinguished from post-sale statutory rights of redemption. In some
states, after sale pursuant to a deed of trust or foreclosure of a mortgage, the
borrower and foreclosed junior lienors are given a statutory period in which to
redeem the property. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
permitted if the former borrower pays only a portion of the sums due. The effect
of a statutory right of redemption is to diminish the ability of the lender to
sell the foreclosed property because the exercise of a right of redemption would
defeat the title of any purchase through a foreclosure. Consequently, the
practical effect of the redemption right is to force the lender to maintain the
property and pay the expenses of ownership until the redemption period has
expired. In some states, a post-sale statutory right of redemption may exist
following a judicial foreclosure, but not following a trustee's sale under a
deed of trust.
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MANUFACTURED HOMES. While state laws do not usually require notice to
be given to debtors prior to repossession, many states do require delivery of a
notice of default and of the debtor's right to cure defaults before
repossession. The law in most states also requires that the debtor be given
notice of sale prior to the resale of the home so that the owner may redeem at
or before resale. In addition, the sale must comply with the requirements of the
UCC.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
SINGLE FAMILY LOANS AND MULTIFAMILY LOANS. Certain states have imposed
statutory prohibitions which limit the remedies of a beneficiary under a deed of
trust or a mortgagee under a mortgage. In some states (including California),
statutes limit the right of the beneficiary or mortgagee to obtain a deficiency
judgment against the borrower following non-judicial foreclosure by power of
sale. A deficiency judgment is a personal judgment against the former borrower
equal in most cases to the difference between the net amount realized upon the
public sale of the real property and the amount due to the lender. In the case
of a Mortgage Loan secured by a property owned by a trust where the Mortgage
Note is executed on behalf of the trust, a deficiency judgment against the trust
following foreclosure or sale under a deed of trust, even if obtainable under
applicable law, may be of little value to the mortgagee or beneficiary if there
are no trust assets against which such deficiency judgment may be executed. Some
state statutes require the beneficiary or mortgagee to exhaust the security
afforded under a deed of trust or mortgage by foreclosure in an attempt to
satisfy the full debt before bringing a personal action against the borrower. In
certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security; however
in some of these states, the lender, following judgment on such personal action,
may be deemed to have elected a remedy and may be precluded from exercising
remedies with respect to the security. Consequently, the practical effect of the
election requirement, in those states permitting such election, is that lenders
will usually proceed against the security first rather than bringing a personal
action against the borrower. Finally, in certain other states, statutory
provisions limit any deficiency judgment against the former borrower following a
foreclosure to the excess of the outstanding debt over the fair value of the
property at the time of the public sale. The purpose of these statutes is
generally to prevent a beneficiary or mortgagee from obtaining a large
deficiency judgment against the former borrower as a result of low or no bids at
the judicial sale.
Generally, Article 9 of the UCC governs foreclosure on Cooperative
Shares and the related proprietary lease or occupancy agreement. Some courts
have interpreted Article 9 to prohibit or limit a deficiency award in certain
circumstances, including circumstances where the disposition 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 not
conducted in a commercially reasonable manner.
In addition to laws limiting or prohibiting deficiency judgments,
numerous other federal and state statutory provisions, including the federal
bankruptcy laws and state laws affording relief to debtors, may interfere with
or affect the ability of the secured mortgage lender to realize upon collateral
or enforce a deficiency judgment. For example, under the federal Bankruptcy
Code, as amended from time to time (Title 11 of the United States Code) (the
"Bankruptcy Code"), virtually all actions (including foreclosure actions and
deficiency judgment proceedings) to collect a debt are automatically stayed upon
the filing of the bankruptcy petition and, often, no interest or principal
payments are made during the course of the bankruptcy case. The delay and the
consequences thereof caused by such automatic stay can be significant. Also,
under the Bankruptcy Code, the filing of a petition in a bankruptcy by or on
behalf of a junior lienor may stay the senior lender from taking action to
foreclose out of such junior lien. Moreover, with respect to federal bankruptcy
law, a court with federal bankruptcy jurisdiction may permit a debtor through
his or her Chapter 11 or Chapter 13 rehabilitative plan to cure a monetary
default in respect of a mortgage loan on a debtor's residence by paying
arrearage within a reasonable time period and reinstating the original mortgage
loan payment schedule even though the lender accelerated the mortgage loan and
final judgment of foreclosure had been entered in state court (provided no sale
of the residence had yet occurred) prior to the filing of the debtor's petition.
Some courts with federal bankruptcy jurisdiction have approved plans, based on
the particular facts of the reorganization case, that effected the curing of a
mortgage loan default by paying arrearage over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that
the terms of a mortgage loan secured by property of the debtor may be modified.
These courts have allowed modifications that include reducing the amount of each
monthly payment, changing the rate of interest, altering the repayment schedule,
forgiving all or a portion
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of the debt and reducing the lender's security interest to the value of the
residence, thus leaving the lender a general unsecured creditor for the
difference between the value of the residence and the outstanding balance of the
loan. Generally, however, the terms of a mortgage loan secured only by a
mortgage on real property that is the debtor's principal residence may not be
modified pursuant to a plan confirmed pursuant to Chapter 13 except with respect
to mortgage payment arrearages, which may be cured within a reasonable time
period.
In the case of income-producing multifamily properties, federal
bankruptcy law may also have the effect of interfering with or affecting the
ability of the secured lender to enforce the borrower's assignment of rents and
leases related to the mortgaged property. Under Section 362 of the Bankruptcy
Code, the lender will be stayed from enforcing the assignment, and the legal
proceedings necessary to resolve the issue could be time-consuming, with
resulting delays in the lender's receipt of the rents.
Certain tax liens arising under the Code may, in certain circumstances,
have priority over the lien of a mortgage or deed of trust. In addition,
substantive requirements are imposed upon mortgage lenders in connection with
the origination and the servicing of mortgage loans by numerous federal and some
state consumer protection laws. 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. These
federal laws impose specific statutory liabilities upon lenders who originate
mortgage loans and who fail to comply with the provisions of the law. In some
cases, this liability may affect assignees of the mortgage loans.
CONTRACTS. In addition to the laws limiting or prohibiting deficiency
judgments, numerous other statutory provisions, including federal bankruptcy
laws and related state laws, may interfere with or affect the ability of a
lender to realize upon collateral and/or enforce a deficiency judgment. For
example, in a Chapter 13 proceeding under the federal bankruptcy law, a court
may prevent a lender from repossessing a home, and, as part of the
rehabilitation plan, reduce the amount of the secured indebtedness to the market
value of the home at the time of bankruptcy (as determined by the court),
leaving the party providing financing as a general unsecured creditor for the
remainder of the indebtedness. A bankruptcy court may also reduce the monthly
payments due under a contract or change the rate of interest and time of
repayment of the indebtedness.
ENVIRONMENTAL LEGISLATION
Under the federal Comprehensive Environmental Response, Compensation
and Liability Act, as amended ("CERCLA"), and under state law in certain states,
a secured party which takes a deed-in-lieu of foreclosure, purchases a mortgaged
property at a foreclosure sale, or operates a mortgaged property may become
liable in certain circumstances for the costs of cleaning up hazardous
substances regardless of whether they have contaminated the property. CERCLA
imposes strict, as well as joint and several, liability on several classes of
potentially responsible parties, including current owners and operators of the
property who did not cause or contribute to the contamination. Furthermore,
liability under CERCLA is not limited to the original or unamortized principal
balance of a loan or to the value of the property securing a loan. Lenders may
be held liable under CERCLA as owners or operators unless they qualify for the
secured creditor exemption to CERCLA. This exemption exempts from the definition
of owners and operators those who, without participating in the management of a
facility, hold indicia of ownership primarily to protect a security interest in
the facility.
The Asset Conservation, Lender Liability and Deposit Insurance Act of
1996 (the "Conservation Act") amended, among other things, the provisions of
CERCLA with respect to lender liability and the secured creditor exemption. The
Conservation Act offers substantial protection to lenders by defining the
activities in which a lender can engage and still have the benefit of the
secured creditor exemption. In order for lender to be deemed to have
participated in the management of a mortgaged property, the lender must actually
participate in the operational affairs of the property of the borrower. The
Conservation Act provides that "merely having the capacity to influence, or
unexercised right to control" operations does not constitute participation in
management. A lender will lose the protection of the secured creditor exemption
only if it exercises decision-making control over the borrower's environmental
compliance and hazardous substance handling and disposal practices, or assumes
day-to-day management of all operational functions of the mortgaged property.
The Conservation Act also provides that a lender will continue to have the
benefit of the secured creditor exemption even if it forecloses on a mortgaged
property,
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purchases it at a foreclosure sale or accepts a deed-in-lieu of foreclosure
provided that the lender seeks to sell the mortgaged property at the earliest
practicable commercially reasonable time on commercially reasonable terms.
Other federal and state laws in certain circumstances may impose
liability on a secured party which takes a deed-in-lieu of foreclosure,
purchases a mortgaged property at a foreclosure sale, or operates a mortgaged
property on which contaminants other than CERCLA hazardous substances are
present, including petroleum, agricultural chemicals, hazardous wastes,
asbestos, radon, and lead-based paint. Such cleanup costs may be substantial. It
is possible that such cleanup costs could become a liability of a Trust Fund and
reduce the amounts otherwise distributable to the holders of the related series
of Certificates. Moreover, certain federal statutes and certain states by
statute impose a lien for any cleanup costs incurred by such state on the
property that is the subject of such cleanup costs (an "ENVIRONMENTAL LIEN").
All subsequent liens on such property generally are subordinated to such an
Environmental Lien and, in some states, even prior recorded liens are
subordinated to Environmental Liens. In the latter states, the security interest
of the Trustee in a related parcel of real property that is subject to such an
Environmental Lien could be adversely affected.
Traditionally, many residential mortgage lenders have not taken steps
to evaluate whether contaminants are present with respect to any mortgaged
property prior to the origination of the mortgage loan or prior to foreclosure
or accepting a deed-in-lieu of foreclosure. Accordingly, the Company has not
made and will not make such evaluations prior to the origination of the Secured
Contracts. Neither the Company nor any replacement Servicer will be required by
any Agreement to undertake any such evaluations prior to foreclosure or
accepting a deed-in-lieu of foreclosure. The Company does not make any
representations or warranties or assume any liability with respect to the
absence or effect of contaminants on any related real property or any casualty
resulting from the presence or effect of contaminants. However, the Company will
not be obligated to foreclose on related real property or accept a deed- in-lieu
of foreclosure if it knows or reasonably believes that there are material
contaminated conditions on such property. A failure so to foreclose may reduce
the amounts otherwise available to Certificateholders of the related series.
CONSUMER PROTECTION LAWS WITH RESPECT TO CONTRACTS
Numerous federal and state consumer protection laws impose substantial
requirements upon creditors involved in consumer finance. These laws include the
federal Truth-in-Lending Act, Regulation "Z", the Equal Credit Opportunity Act,
Regulation "B", the Fair Credit Reporting Act, and related statutes. These laws
can impose specific statutory liabilities upon creditors who fail to comply with
their provisions. In some cases, this liability may affect an assignee's ability
to enforce a contract.
Manufactured housing contracts often contain provisions obligating the
obligor to pay late charges if payments are not timely made. In certain cases,
federal and state law may specifically limit the amount of late charges that may
be collected. Unless otherwise provided in the related Prospectus Supplement,
under the related Pooling Agreement or Servicing Agreement, late charges will be
retained by the Master Servicer as additional servicing compensation, and any
inability to collect these amounts will not affect payments to Securityholders.
Courts have imposed general equitable principles upon repossession and
litigation involving deficiency balances. These equitable principles are
generally designed to relieve a consumer from the legal consequences of a
default.
In several cases, consumers have asserted that the remedies provided to
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. For the most part, courts have upheld the notice provisions of the UCC
and related laws as reasonable or have found that the repossession and resale by
the creditor does not involve sufficient state action to afford constitutional
protection to consumers.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade
Commission (the "FTC Rule") has the effect of subjecting a seller (and certain
related creditors and their assignees) in a consumer credit transaction and any
assignee of the creditor to all claims and defenses which the debtor in the
transaction could assert against the seller of the goods. Liability under the
FTC Rule is limited to the amounts paid by a debtor on the contract, and the
holder
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of the contract may also be unable to collect amounts still due thereunder. Most
of the Contracts in a Trust Fund will be subject to the requirements of the FTC
Rule. Accordingly, the Trust Fund, as holder of the Contracts, will be subject
to any claims or defenses that the purchaser of the related manufactured home
may assert against the seller of the manufactured home, subject to a maximum
liability equal to the amounts paid by the obligor on the Contract. If an
obligor is successful in asserting any such claim or defense, and if the Seller
had or should have had knowledge of such claim or defense, the Master Servicer
will have the right to require the Seller to repurchase the Contract because of
a breach of its Seller's representation and warranty that no claims or defenses
exist that would affect the obligor's obligation to make the required payments
under the Contract. The Seller would then have the right to require the
originating dealer to repurchase the Contract from it and might also have the
right to recover from the dealer any losses suffered by the Seller with respect
to which the dealer would have been primarily liable to the obligor.
ENFORCEABILITY OF CERTAIN PROVISIONS
TRANSFER OF SINGLE FAMILY PROPERTIES AND MULTIFAMILY PROPERTIES. Unless
the related Prospectus Supplement indicates otherwise, the Single Family Loans
and Multifamily Loans generally contain due-on-sale clauses. These clauses
permit the lender to accelerate the maturity of the loan if the borrower sells,
transfers or conveys the property without the prior consent of the lender. The
enforceability of these clauses has been the subject of legislation or
litigation in many states, and in some cases the enforceability of these clauses
was limited or denied. However, the Garn-St Germain Depository Institutions Act
of 1982 (the "Garn-St Germain Act") preempts state constitutional, statutory and
case law that prohibits the enforcement of due-on-sale clauses and permits
lenders to enforce these clauses in accordance with their terms, subject to
certain limited exceptions. The Garn-St Germain Act does "encourage" lenders to
permit assumption of loans at the original rate of interest or at some other
rate less than the average of the original rate and the market rate.
The Garn-St Germain Act also sets forth nine specific instances in
which a mortgage lender covered by the Garn-St Germain Act may not exercise a
due-on-sale clause, notwithstanding the fact that a transfer of the property may
have occurred. These include intra-family transfers, certain transfers by
operation of law, leases of fewer than three years and the creation of a junior
encumbrance. Regulations promulgated under the Garn-St Germain Act also prohibit
the imposition of a prepayment penalty upon the acceleration of a loan pursuant
to a due-on-sale clause.
The inability to enforce a due-on-sale clause may result in a mortgage
loan bearing an interest rate below the current market rate being assumed by the
buyer rather than being paid off, which may have an impact upon the average life
of the Mortgage Loans and the number of Mortgage Loans which may be outstanding
until maturity.
TRANSFER OF MANUFACTURED HOMES. Generally, manufactured housing
contracts contain provisions prohibiting the sale or transfer of the related
manufactured homes without the consent of the obligee on the contract and
permitting the acceleration of the maturity of such contracts by the obligee on
the contract upon any such sale or transfer that is not consented to. Unless
otherwise provided in the related Prospectus Supplement, 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 the
related Contracts through enforcement of due-on-sale clauses, subject to
applicable state law. In certain cases, the transfer may be made by a delinquent
obligor in order to avoid a repossession proceeding with respect to a
Manufactured Home.
In the case of a transfer of a Manufactured Home as to which the Master
Servicer desires to accelerate the maturity of the related Contract, the Master
Servicer's ability to do so will depend on the enforceability under state law of
the due-on-sale clause. The Garn-St Germain Act preempts, subject to certain
exceptions and conditions, state laws prohibiting enforcement of due-on-sale
clauses applicable to the Manufactured Homes. Consequently, in some cases the
Master Servicer may be prohibited from enforcing a due-on-sale clause in respect
of certain Manufactured Homes.
LATE PAYMENT CHARGES AND PREPAYMENT RESTRICTIONS. Notes and mortgages,
as well as manufactured housing conditional sales contracts and installment loan
agreements, may contain provisions that obligate the borrower to pay a late
charge or additional interest if payments are not timely made, and in some
circumstances, may prohibit prepayments for a specified period and/or condition
prepayments upon the borrower's payment of prepayment fees or yield maintenance
penalties. In certain states, there are or may be specific limitations upon the
late charges which
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a lender may collect from a borrower for delinquent payments. Certain states
also limit the amounts that a lender may collect from a borrower as an
additional charge if the loan is prepaid. In addition, the enforceability of
provisions that provide for prepayment fees or penalties upon an involuntary
prepayment is unclear under the laws of many states.
SUBORDINATE FINANCING
When the mortgagor encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the mortgagor
may have difficulty servicing and repaying multiple loans. In addition, if the
junior loan permits recourse to the mortgagor (as junior loans often do) and the
senior loan does not, a mortgagor may be more likely to repay sums due on the
junior loan than those on the senior loan. Second, acts of the senior lender
that prejudice the junior lender or impair the junior lender's security may
create a superior equity in favor of the junior lender. For example, if the
mortgagor and the senior lender agree to an increase in the principal amount of
or the interest rate payable on the senior loan, the senior lender may lose its
priority to the extent an existing junior lender is harmed or the mortgagor is
additionally burdened. Third, if the mortgagor defaults on the senior loan
and/or any junior loan or loans, the existence of junior loans and actions taken
by junior lenders can impair the security available to the senior lender and can
interfere with or delay the taking of action by the senior lender. Moreover, the
bankruptcy of a junior lender may operate to stay foreclosure or similar
proceedings by the senior lender.
INSTALLMENT CONTRACTS
The Trust Fund Assets may also consist of installment sales contracts.
Under an installment contract ("Installment Contract") the seller (hereinafter
referred to in this section as the "lender") retains legal title to the property
and enters into an agreement with the purchaser (hereinafter referred to in this
section as the "borrower") for the payment of the purchase price, plus interest,
over the term of such contract. Only after full performance by the borrower of
the Installment Contract is the lender obligated to convey title to the property
to the purchaser.
As
with mortgage or deed of trust financing, during the effective period of the
Installment Contract, the borrower is generally responsible for the maintaining
the property in good condition and for paying real estate taxes, assessments and
hazard insurance premiums associated with the property.
The method of enforcing the rights of the lender under an Installment
Contract varies on a state-by-state basis depending upon the extent to which
state courts are willing, or able pursuant to state statute, to enforce the
contract strictly according to its terms. The terms of Installment Contracts
generally provide that upon a default by the borrower, the borrower loses his or
her right to occupy the property, the entire indebtedness is accelerated and the
buyer's equitable interest in the property is forfeited. The lender in such a
situation is not required to foreclose in order to obtain title to the property,
although in some cases a quiet title action is in order if the borrower has
filed the Installment Contract in local land records and an ejectment action may
be necessary to recover possession. In a few states, particularly in cases of
borrower default during the early years of an Installment Contract, the courts
will permit ejectment of the buyer and a forfeiture of his or her interest in
the property. However, most state legislatures have enacted provisions by
analogy to mortgage law protecting borrowers under Installment Contracts from
the harsh consequences of forfeiture. Under such statutes, a judicial or
nonjudicial foreclosure may be required, the lender may be required to give
notice of default and the borrower may be granted some grace period during which
the Installment Contract may be reinstated upon full payment of the defaulted
amount and the borrower may have a post-foreclosure statutory redemption right.
In other states, courts in equity may permit a borrower with significant
investment in the property under an Installment Contract for the sale of real
estate to share in the proceeds of sale of the property after the indebtedness
is repaid or may otherwise refuse to enforce the forfeiture clause.
Nevertheless, the lender's procedures for obtaining possession and clear title
under an Installment Contract in a given state are simpler and less time
consuming and costly than are the procedures for foreclosing and obtaining clear
title to a property subject to one or more liens.
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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. A similar federal
statute was in effect with respect to mortgage loans made during the first three
months of 1980. The Office of Thrift Supervision is authorized to issue rules
and regulations and to publish interpretations governing implementation of Title
V. The statute authorized any state to reimpose interest rate limits by
adopting, before April 1, 1983, a law or constitutional provision which
expressly rejects 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 or to limit
discount points or other charges.
Title V also provides that, subject to the following conditions, state
usury limitations shall not apply to any loan that is secured by a first lien on
certain kinds of manufactured housing. The Contracts would be covered if they
satisfy certain conditions, among other things, governing the terms of any
prepayments, late charges and deferral fees and requiring a 30-day notice period
prior to instituting any action leading to repossession of or foreclosure with
respect to the related unit. Title V authorized any state to reimpose
limitations on interest rates and finance charges by adopting before April 1,
1983 a law or constitutional provision which expressly rejects application of
the federal law. Fifteen states adopted such a law prior to the April 1, 1983
deadline. In addition, even where Title V was not so rejected, any state is
authorized by the law to adopt a provision limiting discount points or other
charges on loans covered by Title V. In any state in which application of Title
V was expressly rejected or a provision limiting discount points or other
charges has been adopted, no Contract which imposes finance charges or provides
for discount points or charges in excess of permitted levels has been included
in the Trust Fund.
Usury limits apply to junior mortgage loans in many states. Any
applicable usury limits in effect at origination will be reflected in the
maximum Mortgage Rates for ARM Loans, as set forth in the related Prospectus
Supplement.
As indicated above under "The Mortgage Pools--Representations by
Sellers," each Seller of a Mortgage Loan and a Contract will have represented
that such Mortgage Loan or Contract was originated in compliance with then
applicable state laws, including usury laws, in all material respects. However,
the Mortgage Rates on the Mortgage Loans will be subject to applicable usury
laws as in effect from time to time.
ALTERNATIVE MORTGAGE INSTRUMENTS
Alternative mortgage instruments, including adjustable rate mortgage
loans and early ownership mortgage loans, originated by non-federally chartered
lenders historically have been subjected to a variety of restrictions. Such
restrictions differed from state to state, resulting in difficulties in
determining whether a particular alternative mortgage instrument originated by a
state-chartered lender was in compliance with applicable law. These difficulties
were alleviated substantially as a result of the enactment of Title VIII of the
Garn-St Germain Act ("Title VIII"). Title VIII provides that, notwithstanding
any state law to the contrary, (i) state-chartered banks may originate
alternative mortgage instruments in accordance with regulations promulgated by
the Comptroller of the Currency with respect to origination of alternative
mortgage instruments by national banks, (ii) state-chartered credit unions may
originate alternative mortgage instruments in accordance with regulations
promulgated by the National Credit Union Administration with respect to
origination of alternative mortgage instruments by federal credit unions, and
(iii) all other non-federally chartered housing creditors, including
state-chartered savings and loan associations, state-chartered savings banks and
mutual savings banks and mortgage banking companies, may originate alternative
mortgage instruments in accordance with the regulations promulgated by the
Federal Home Loan Bank Board, predecessor to the Office of Thrift Supervision,
with respect to origination of alternative mortgage instruments by federal
savings and loan associations. Title VIII provides that any state may reject
applicability of the provisions of Title VIII by adopting, prior to October 15,
1985, a law or constitutional provision expressly rejecting the applicability of
such provisions. Certain states have taken such action.
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FORMALDEHYDE LITIGATION WITH RESPECT TO CONTRACTS
A number of lawsuits are pending in the United States alleging personal
injury from exposure to the chemical formaldehyde, which is present in many
building materials, including such components of manufactured housing as plywood
flooring and wall paneling. Some of these lawsuits are pending against
manufacturers of manufactured housing, suppliers of component parts, and related
persons in the distribution process. The Company is aware of a limited number of
cases in which plaintiffs have won judgments in these lawsuits.
Under the FTC Rule, which is described above under "Consumer Protection
Laws", the holder of any Contract secured by a Manufactured Home with respect to
which a formaldehyde claim has been successfully asserted may be liable to the
obligor for the amount paid by the obligor on the related Contract and may be
unable to collect amounts still due under the Contract. In the event an obligor
is successful in asserting such a claim, the related Securityholders could
suffer a loss if (i) the related Seller fails or cannot be required to
repurchase the affected Contract for a breach of representation and warranty and
(ii) the Master Servicer or the Trustee were unsuccessful in asserting any claim
of contribution or subrogation on behalf of the Securityholders against the
manufacturer or other persons who were directly liable to the plaintiff for the
damages. Typical products liability insurance policies held by manufacturers and
component suppliers of manufactured homes may not cover liabilities arising from
formaldehyde in manufactured housing, with the result that recoveries from such
manufacturers, suppliers or other persons may be limited to their corporate
assets without the benefit of insurance.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940,
as amended (the "Relief Act"), a Mortgagor who enters military service after the
origination of such Mortgagor's Mortgage Loan and certain Contracts (including a
Mortgagor who was in reserve status and is called to active duty after
origination of the Mortgage Loan and certain Contracts), may not be charged
interest (including fees and charges) above an annual rate of 6% during the
period of such Mortgagor's active duty status, unless a court orders otherwise
upon application of the lender.
The
Relief Act applies to Mortgagors who are members of the Army, Navy, Air Force,
Marines, National Guard, Reserves, Coast Guard, and officers of the U.S. Public
Health Service assigned to duty with the military. Because the Relief Act
applies to Mortgagors who enter military service (including reservists who are
called to active duty) after origination of the related Mortgage Loan and
related Contract, no information can be provided as to the number of loans that
may be affected by the Relief Act. Application of the Relief Act would adversely
affect, for an indeterminate period of time, the ability of the Master Servicer
to collect full amounts of interest on certain of the Mortgage Loans and
Contracts. Any shortfall in interest collections resulting from the application
of the Relief Act or similar legislation or regulations, which would not be
recoverable from the related Mortgage Loans and Contracts, would result in a
reduction of the amounts distributable to the holders of the related Securities,
and would not be covered by advances or, unless otherwise specified in the
related Prospectus Supplement, by any Letter of Credit or any other form of
credit enhancement provided in connection with the related series of Securities.
In addition, the Relief Act imposes limitations that would impair the ability of
the Master Servicer to foreclose on an affected Mortgage Loan or enforce rights
under a Contract during the Mortgagor's period of active duty status, and, under
certain circumstances, during an additional three month period thereafter. Thus,
in the event that the Relief Act or similar legislation or regulations applies
to any Mortgage Loan and Contract which goes into default, there may be delays
in payment and losses on the related Securities in connection therewith. Any
other interest shortfalls, deferrals or forgiveness of payments on the Mortgage
Loans and Contracts resulting from similar legislation or regulations may result
in delays in payments or losses to Securityholders of the related series.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984 (the "Crime
Control Act"), the government may seize the property even before conviction. The
government must publish notice of the forfeiture proceeding and may give notice
to all parties "known to have an alleged interest in the property", including
the holders of mortgage loans.
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A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (ii) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
JUNIOR MORTGAGES
Some of the Mortgage Loans or Contracts may be secured by mortgages or
deeds of trust which are junior to senior mortgages or deeds of trust which are
not part of the Trust Fund. The rights of the Securityholders, as mortgagee
under a junior mortgage, are subordinate to those of the mortgagee under the
senior mortgage, including the prior rights of the senior mortgagee to receive
hazard insurance and condemnation proceeds and to cause the property securing
the Mortgage Loan or Contract to be sold upon default of the mortgagor, which
may extinguish the junior mortgagee's lien unless the junior mortgagee asserts
its subordinate interest in the property in foreclosure litigation and, in
certain cases, either reinitiates or satisfies the defaulted senior loan or
loans. A junior mortgagee may satisfy a defaulted senior loan in full or, in
some states, may cure such default and bring the senior loan current thereby
reinstating the senior loan, in either event usually adding the amounts expended
to the balance due on the junior loan. In most states, absent a provision in the
mortgage or deed of trust, no notice of default is required to be given to a
junior mortgagee. Where applicable law or the terms of the senior mortgage or
deed of trust do not require notice of default to the junior mortgagee, the lack
of any such notice may prevent the junior mortgagee from exercising any right to
reinstate the loan which applicable law may provide.
The standard form of the mortgage or deed of trust used by most
institutional lenders confers on the mortgagee the right both to receive all
proceeds collected under any hazard insurance policy and all awards made in
connection with condemnation proceedings, and to apply such proceeds and awards
to any indebtedness secured by the mortgage or deed of trust, in such order as
the mortgagee may determine. Thus, in the event improvements on the property are
damaged or destroyed by fire or other casualty, or in the event the property is
taken by condemnation, the mortgagee or beneficiary under underlying senior
mortgages will have the prior right to collect any insurance proceeds payable
under a hazard insurance policy and any award of damages in connection with the
condemnation and to apply the same to the indebtedness secured by the senior
mortgages. Proceeds in excess of the amount of senior mortgage indebtedness, in
most cases, may be applied to the indebtedness of junior mortgages in the order
of their priority.
Another provision sometimes found in the form of the mortgage or deed
of trust used by institutional lenders obligates the mortgagor to pay before
delinquency all taxes and assessments on the property and, when due, all
encumbrances, charges and liens on the property which are prior to the mortgage
or deed of trust, to provide and maintain fire insurance on the property, to
maintain and repair the property and not to commit or permit any waste thereof,
and to appear in and defend any action or proceeding purporting to affect the
property or the rights of the mortgagee under the mortgage. Upon a failure of
the mortgagor to perform any of these obligations, the mortgagee or beneficiary
is given the right under certain mortgages or deeds of trust to perform the
obligation itself, at its election, with the mortgagor agreeing to reimburse the
mortgagee for any sums expended by the mortgagee on behalf of the mortgagor. All
sums so expended by a senior mortgagee become part of the indebtedness secured
by the senior mortgage.
NEGATIVE AMORTIZATION LOANS
A recent case decided by the United States Court of Appeals, First
Circuit, held that state restrictions on the compounding of interest are not
preempted by the provisions of the Depository Institutions Deregulation and
Monetary Control Act of 1980 ("DIDMC") and as a result, a mortgage loan that
provided for negative amortization violated New Hampshire's requirement that
first mortgage loans provide for computation of interest on a simple interest
basis. The holding was limited to the effect of DIDMC on state laws regarding
the compounding of interest and the court did not address the applicability of
the Alternative Mortgage Transaction Parity Act of 1982, which authorizes lender
to make residential mortgage loans that provide for negative amortization. The
First Circuit's decision is binding authority only on Federal District Courts in
Maine, New Hampshire, Massachusetts, Rhode Island and Puerto Rico.
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FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of certain anticipated material
federal income tax consequences of the purchase, ownership and disposition of
Offered Securities offered hereunder. This discussion has been prepared based on
the advice of Thacher Proffitt & Wood, counsel to the Company. This discussion
is directed solely to Securityholders that hold the Securities as capital assets
within the meaning of Section 1221 of the Internal Revenue Code of 1986 (the
"Code") (although portions thereof may also apply to Securityholders who do not
hold Securities as "capital assets") and does not purport to discuss all federal
income tax consequences that may be applicable to the individual circumstances
of particular categories of investors, some of which (such as banks, insurance
companies and foreign investors) may be subject to special treatment under the
Code. Further, the authorities on which this discussion, and the opinion
referred to below, are based are subject to change or differing interpretations,
which could apply retroactively. Prospective investors should note that no
rulings have been or will be sought from the Internal Revenue Service (the
"IRS") with respect to any of the federal income tax consequences discussed
below, and no assurance can be given the IRS will not take contrary positions.
Taxpayers and preparers of tax returns (including those filed by any REMIC or
other issuer) should be aware that under applicable Treasury regulations a
provider of advice on specific issues of law is not considered an income tax
return preparer unless the advice (i) is given with respect to events that have
occurred at the time the advice is rendered and is not given with respect to the
consequences of contemplated actions, and (ii) is directly relevant to the
determination of an entry on a tax return. Accordingly, taxpayers should consult
their own tax advisors and tax return preparers regarding the preparation of any
item on a tax return, even where the anticipated tax treatment has been
discussed herein. In addition to the federal income tax consequences described
herein, potential investors should consider the state and local tax
consequences, if any, of the purchase, ownership and disposition of the
Securities. See "State and Other Tax Consequences." Securityholders are advised
to consult their own tax advisors concerning the federal, state, local or other
tax consequences to them of the purchase, ownership and disposition of the
Securities offered hereunder.
The following discussion addresses securities of three general types:
(i) certificates ("REMIC Certificates") representing interests in a Trust Fund,
or a portion thereof, that the Trustee, the Master Servicer or another specified
party (the "REMIC Administrator") will elect to have treated as a real estate
mortgage investment conduit ("REMIC") under Sections 860A through 860G (the
"REMIC Provisions") of the Code, (ii) notes representing indebtedness of a trust
fund as to which no REMIC election will be made and (iii) certificates ("Grantor
Trust Certificates") representing interests in a Trust Fund ("Grantor Trust
Fund") as to which no REMIC election will be made. The Prospectus Supplement for
each series of Certificates will indicate whether a REMIC election (or
elections) will be made for the related Trust Fund and, if such an election is
to be made, will identify all "regular interests" and "residual interests" in
the REMIC. For purposes of this tax discussion, references to a "Securityholder"
or a "holder" are to the beneficial owner of a Security.
The following discussion is based in part upon the rules governing
original issue discount that are set forth in Sections 1271-1273 and 1275 of the
Code and in the Treasury regulations issued thereunder (the "OID Regulations"),
and in part upon the REMIC Provisions and the Treasury regulations issued
thereunder (the "REMIC Regulations"). The OID Regulations do not adequately
address certain issues relevant to, and in some instances provide that they are
not applicable to, securities such as the Certificates.
REMICS
CLASSIFICATION OF REMICS. On or prior to the date of the related
Prospectus Supplement with respect to the proposed issuance of each series of
REMIC Certificates, Thacher Proffitt & Wood, counsel to the Company, will
deliver its opinion generally to the effect that, assuming compliance with all
provisions of the related Pooling Agreement and upon issuance of such REMIC
Certificates, for federal income tax purposes, the related Trust Fund (or each
applicable portion thereof) will qualify as a REMIC and the REMIC Certificates
offered with respect thereto will be considered to evidence ownership of
"regular interests" ("REMIC Regular Certificates") or "residual interests"
("REMIC Residual Certificates") in that REMIC within the meaning of the REMIC
Provisions.
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If an entity electing to be treated as a REMIC fails to comply with one
or more of the ongoing requirements of the Code for such status during any
taxable year, the Code provides that the entity will not be treated as a REMIC
for such year and thereafter. In that event, such entity may be taxable as a
corporation under Treasury regulations, and the related REMIC Certificates may
not be accorded the status or given the tax treatment described below. Although
the Code authorizes the Treasury Department to issue regulations providing
relief in the event of an inadvertent termination of REMIC status, 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
Trust Fund's income for the period in which the requirements for such status are
not satisfied. The Pooling Agreement with respect to each REMIC will include
provisions designed to maintain the Trust Fund's status as a REMIC under the
REMIC Provisions. It is not anticipated that the status of any Trust Fund as a
REMIC will be inadvertently terminated.
CHARACTERIZATION OF INVESTMENTS IN REMIC CERTIFICATES. In general,
except as set forth in the related Prospectus Supplement, the REMIC Certificates
will be "real estate assets" within the meaning of Section 856(c)(5)(A) of the
Code and assets described in Section 7701(a)(19)(C) of the Code in the same
proportion that the assets of the REMIC underlying such Certificates would be so
treated. Moreover, if 95% or more of the assets of the REMIC qualify for any of
the foregoing treatments at all times during a calendar year, the REMIC
Certificates will qualify for the corresponding status in their entirety for
that calendar year. Interest (including original issue discount) on the REMIC
Regular Certificates and income allocated to the class of REMIC Residual
Certificates will be interest described in Section 856(c)(3)(B) of the Code to
the extent that such Certificates are treated as "real estate assets" within the
meaning of Section 856(c)(5)(A) of the Code. In addition, the REMIC Regular
Certificates will be "qualified mortgages" within the meaning of Section
860G(a)(3) of the Code if transferred to another REMIC on its startup day in
exchange for regular or residual interests therein. The determination as to the
percentage of the REMIC's assets that constitute assets described in the
foregoing sections of the Code will be made with respect to each calendar
quarter based on the average adjusted basis of each category of the assets held
by the REMIC during such calendar quarter. The REMIC Administrator will report
those determinations to Certificateholders in the manner and at the times
required by applicable Treasury regulations.
The assets of the REMIC will include, in addition to Mortgage Loans,
payments on Mortgage Loans held pending distribution on the REMIC Certificates
and any property acquired by foreclosure held pending sale, and may include
amounts in reserve accounts. It is unclear whether property acquired by
foreclosure held pending sale and amounts in reserve accounts would be
considered to be part of the Mortgage Loans, or whether such assets (to the
extent not invested in assets described in the foregoing sections) otherwise
would receive the same treatment as the Mortgage Loans for purposes of all of
the foregoing sections. In addition, in some instances Mortgage Loans may not be
treated entirely as assets described in the foregoing sections of the Code. If
so, the related Prospectus Supplement will describe the Mortgage Loans that may
not be so treated. The REMIC Regulations do provide, however, that cash received
from payments on Mortgage Loans held pending distribution is considered part of
the Mortgage Loans for purposes of Section 856(c)(5)(A) of the Code.
Furthermore, foreclosure property will qualify as "real estate assets" under
Section 856(C)(5)(A) of the Code.
TIERED REMIC STRUCTURES. For certain series of REMIC Certificates, two
or more separate elections may be made to treat designated portions of the
related Trust Fund as REMICs ("Tiered REMICs") for federal income tax purposes.
As to each such series of REMIC Certificates, in the opinion of counsel to the
Company, assuming compliance with all provisions of the related Pooling
Agreement, the Tiered REMICs will each qualify as a REMIC and the REMIC
Certificates issued by the Tiered REMICs will be considered to evidence
ownership of REMIC Regular Certificates or REMIC Residual Certificates in the
related REMIC within the meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates will
be "real estate assets" within the meaning of Section 856(c)(5)(A) of the Code,
and "loans secured by an interest in real property" under Section 7701(a)(19)(C)
of the Code, and whether the income on such Certificates is interest described
in Section 856(c)(3)(B) of the Code, the Tiered REMICs will be treated as one
REMIC.
TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES.
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GENERAL. Except as otherwise stated in this discussion, REMIC 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 REMIC Regular Certificates that otherwise report income
under a cash method of accounting will be required to report income with respect
to REMIC Regular Certificates under an accrual method.
ORIGINAL ISSUE DISCOUNT. Certain REMIC Regular Certificates may be
issued with "original issue discount" within the meaning of Section 1273(a) of
the Code. Any holders of REMIC Regular Certificates issued with original issue
discount generally will be required to include original issue discount in income
as it accrues, in accordance with the "constant yield" method described below,
in advance of the receipt of the cash attributable to such income. In addition,
Section 1272(a)(6) of the Code provides special rules applicable to REMIC
Regular Certificates and certain other debt instruments issued with original
issue discount. Regulations have not been issued under that section.
The Code requires that a reasonable prepayment assumption be used with
respect to Mortgage Loans held by a REMIC in computing the accrual of original
issue discount on REMIC Regular Certificates issued by that REMIC, and that
adjustments be made in the amount and rate of accrual of such discount to
reflect differences between the actual prepayment rate and the prepayment
assumption. The prepayment assumption is to be determined in a manner prescribed
in Treasury regulations; as noted above, those regulations have not been issued.
The Conference Committee Report accompanying the Tax Reform Act of 1986 (the
"Committee Report") indicates that the regulations will provide that the
prepayment assumption used with respect to a REMIC Regular Certificate must be
the same as that used in pricing the initial offering of such REMIC Regular
Certificate. The prepayment assumption (the "Prepayment Assumption") used in
reporting original issue discount for each series of REMIC Regular Certificates
will be consistent with this standard and will be disclosed in the related
Prospectus Supplement. However, neither the Company, the Master Servicer nor the
Trustee will make any representation that the Mortgage Loans will in fact prepay
at a rate conforming to the Prepayment Assumption or at any other rate.
The original issue discount, if any, on a REMIC Regular Certificate
will be the excess of its stated redemption price at maturity over its issue
price. The issue price of a particular class of REMIC Regular Certificates will
be the first cash price at which a substantial amount of REMIC Regular
Certificates of that class is sold (excluding sales to bond houses, brokers and
underwriters). If less than a substantial amount of a particular class of REMIC
Regular Certificates is sold for cash on or prior to the date of their initial
issuance (the "Closing Date"), the issue price for such class will be the fair
market value of such class on the Closing Date. Under the OID Regulations, the
stated redemption price of a REMIC Regular Certificate is equal to the total of
all payments to be made on such Certificate other than "qualified stated
interest." "Qualified stated interest" is interest that is unconditionally
payable at least annually (during the entire term of the instrument) at a single
fixed rate, or at a "qualified floating rate," an "objective rate," a
combination of a single fixed rate and one or more "qualified floating rates" or
one "qualified inverse floating rate," or a combination of "qualified floating
rates" that does not operate in a manner that accelerates or defers interest
payments on such REMIC Regular Certificate.
In the case of REMIC Regular Certificates bearing adjustable interest
rates, the determination of the total amount of original issue discount and the
timing of the inclusion thereof will vary according to the characteristics of
such REMIC Regular Certificates. If the original issue discount rules apply to
such Certificates, the related Prospectus Supplement will describe the manner in
which such rules will be applied with respect to those Certificates in preparing
information returns to the Certificateholders and the Internal Revenue Service
(the "IRS").
Certain classes of the REMIC Regular Certificates may provide for the
first interest payment with respect to such Certificates to be made more than
one month after the date of issuance, a period which is longer than the
subsequent monthly intervals between interest payments. Assuming the "accrual
period" (as defined below) for original issue discount is each monthly period
that ends on the day prior to each Distribution Date, in some cases, as a
consequence of this "long first accrual period," some or all interest payments
may be required to be included in the stated redemption price of the REMIC
Regular Certificate and accounted for as original issue discount. Because
interest on REMIC Regular Certificates must in any event be accounted for under
an accrual method, applying this analysis would result in only a slight
difference in the timing of the inclusion in income of the yield on the REMIC
Regular Certificates.
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In addition, if the accrued interest to be paid on the first
Distribution Date is computed with respect to a period that begins prior to the
Closing Date, a portion of the purchase price paid for a REMIC Regular
Certificate will reflect such accrued interest. In such cases, information
returns to the Certificateholders and the IRS will be based on the position that
the portion of the purchase price paid for the interest accrued with respect to
periods prior to the Closing Date is treated as part of the overall cost of such
REMIC Regular Certificate (and not as a separate asset the cost of which is
recovered entirely out of interest received on the next Distribution Date) and
that portion of the interest paid on the first Distribution Date in excess of
interest accrued for a number of days corresponding to the number of days from
the Closing Date to the first Distribution Date should be included in the stated
redemption price of such REMIC Regular Certificate. However, the OID Regulations
state that all or some portion of such accrued interest may be treated as a
separate asset the cost of which is recovered entirely out of interest paid on
the first Distribution Date. It is unclear how an election to do so would be
made under the OID Regulations and whether such an election could be made
unilaterally by a Certificateholder.
Notwithstanding the general definition of original issue discount,
original issue discount on a REMIC Regular Certificate will be considered to be
de minimis if it is less than 0.25% of the stated redemption price of the REMIC
Regular Certificate multiplied by its weighted average life. For this purpose,
the weighted average life of the REMIC Regular Certificate is computed as the
sum of the amounts determined, as to each payment included in the stated
redemption price of such REMIC Regular Certificate, by multiplying (i) the
number of complete years (rounding down for partial years) from the issue date
until such payment is expected to be made (presumably taking into account the
Prepayment Assumption) by (ii) a fraction, the numerator of which is the amount
of the payment, and the denominator of which is the stated redemption price at
maturity of such REMIC Regular Certificate. Under the OID Regulations, original
issue discount of only a de minimis amount (other than de minimis original issue
discount attributable to a so-called "teaser" interest rate or an initial
interest holiday) will be included in income as each payment of stated principal
is made, based on the product of the total amount of such de minimis original
issue discount and a fraction, the numerator of which is the amount of such
principal payment and the denominator of which is the outstanding stated
principal amount of the REMIC Regular Certificate. The OID Regulations also
would permit a Certificateholder to elect to accrue de minimis original issue
discount into income currently based on a constant yield method. See "Taxation
of Owners of REMIC Regular Certificates--Market Discount" for a description of
such election under the OID Regulations.
If original issue discount on a REMIC Regular Certificate is in excess
of a de minimis amount, the holder of such Certificate must include in ordinary
gross income the sum of the "daily portions" of original issue discount for each
day during its taxable year on which it held such REMIC Regular Certificate,
including the purchase date but excluding the disposition date. In the case of
an original holder of a REMIC Regular Certificate, the daily portions of
original issue discount will be determined as follows.
As to each "accrual period," that is, each period that ends on a date
that corresponds to the day prior to each Distribution Date and begins on the
first day following the immediately preceding accrual period (or in the case of
the first such period, begins on the Closing Date), a calculation will be made
of the portion of the original issue discount that accrued during such accrual
period. The portion of original issue discount that accrues in any accrual
period will equal the excess, if any, of (i) the sum of (A) the present value,
as of the end of the accrual period, of all of the distributions remaining to be
made on the REMIC Regular Certificate, if any, in future periods and (B) the
distributions made on such REMIC Regular Certificate during the accrual period
of amounts included in the stated redemption price, over (ii) the adjusted issue
price of such REMIC Regular Certificate at the beginning of the accrual period.
The present value of the remaining distributions referred to in the preceding
sentence will be calculated (i) assuming that distributions on the REMIC Regular
Certificate will be received in future periods based on the Mortgage Loans being
prepaid at a rate equal to the Prepayment Assumption, (ii) using a discount rate
equal to the original yield to maturity of the Certificate and (iii) taking into
account events (including actual prepayments) that have occurred before the
close of the accrual period. For these purposes, the original yield to maturity
of the Certificate will be calculated based on its issue price and assuming that
distributions on the Certificate will be made in all accrual periods based on
the Mortgage Loans being prepaid at a rate equal to the Prepayment Assumption.
The adjusted issue price of a REMIC Regular Certificate at the beginning of any
accrual period will equal the issue price of such Certificate, increased by the
aggregate amount of original issue discount that accrued with respect to such
Certificate in prior accrual periods, and reduced by the amount of any
distributions made on such REMIC Regular Certificate in prior accrual periods of
amounts included in the stated redemption price. The original issue discount
accruing during any
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accrual period, computed as described above, will be allocated ratably to each
day during the accrual period to determine the daily portion of original issue
discount for such day.
A subsequent purchaser of a REMIC Regular Certificate that purchases
such Certificate at a cost (excluding any portion of such cost attributable to
accrued qualified stated interest) less than its remaining stated redemption
price will also be required to include in gross income the daily portions of any
original issue discount with respect to such Certificate. However, each such
daily portion will be reduced, if such cost is in excess of its "adjusted issue
price," in proportion to the ratio such excess bears to the aggregate original
issue discount remaining to be accrued on such REMIC Regular Certificate. The
adjusted issue price of a REMIC Regular Certificate on any given day equals the
sum of (i) the adjusted issue price (or, in the case of the first accrual
period, the issue price) of such Certificate at the beginning of the accrual
period which includes such day and (ii) the daily portions of original issue
discount for all days during such accrual period prior to such day.
MARKET DISCOUNT. A Certificateholder that purchases a REMIC Regular
Certificate at a market discount, that is, in the case of a REMIC Regular
Certificate issued without original issue discount, at a purchase price less
than its remaining stated principal amount, or in the case of a REMIC Regular
Certificate issued with original issue discount, at a purchase price less than
its adjusted issue price will recognize gain upon receipt of each distribution
representing stated redemption price. In particular, under Section 1276 of the
Code such a Certificateholder generally will be required to allocate the portion
of each such distribution representing stated redemption price 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. In addition, the
OID Regulations permit a Certificateholder to elect to accrue all interest,
discount (including de minimis market or original issue discount) in income as
interest, and to amortize premium, based on a constant yield method. If such an
election were made with respect to a REMIC Regular Certificate with market
discount, the Certificateholder would be deemed to have made an election to
include currently market discount in income with respect to all other debt
instruments having market discount that such Certificateholder acquires during
the taxable year of the election or thereafter, and possibly previously acquired
instruments. Similarly, a Certificateholder that made this election for a
Certificate that is acquired at a premium would 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
"Taxation of Owners of REMIC Regular Certificates--Premium" below. Each of these
elections to accrue interest, discount and premium with respect to a Certificate
on a constant yield method or as interest would be irrevocable, except with the
approval of the IRS.
However, market discount with respect to a REMIC Regular Certificate
will be considered to be de minimis for purposes of Section 1276 of the Code if
such market discount is less than 0.25% of the remaining stated redemption price
of such REMIC Regular Certificate multiplied by the number of complete years to
maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied with respect to
market discount, presumably taking into account the Prepayment Assumption. If
market discount is treated as de minimis under this rule, it appears that the
actual discount would be treated in a manner similar to original issue discount
of a de minimis amount. See "Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" above. Such treatment would result in
discount being included in income at a slower rate than discount would be
required to be included in income using the method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. The Committee Report indicates
that in each accrual period market discount on REMIC Regular Certificates should
accrue, at the Certificateholder's option: (i) on the basis of a constant yield
method, (ii) in the case of a REMIC Regular Certificate issued without original
issue discount, in an amount that bears the same ratio to the total remaining
market discount as the stated interest paid in the accrual period bears to the
total amount of stated interest remaining to be paid on the REMIC Regular
Certificate as of the beginning of the accrual period, or (iii) in the case of a
REMIC Regular Certificate issued with original issue discount, in an amount that
bears the same ratio to the total
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remaining market discount as the original issue discount accrued in the accrual
period bears to the total original issue discount remaining on the REMIC Regular
Certificate at the beginning of the accrual period. Moreover, the Prepayment
Assumption used in calculating the accrual of original issue discount is also
used in calculating the accrual of market discount. Because the regulations
referred to in this paragraph have not been issued, it is not possible to
predict what effect such regulations might have on the tax treatment of a REMIC
Regular Certificate purchased at a discount in the secondary market.
To the extent that REMIC Regular Certificates provide for monthly or
other periodic distributions throughout their term, the effect of these rules
may be to require market discount to be includible in income at a rate that is
not significantly slower than the rate at which such discount would accrue if it
were original issue discount. Moreover, in any event a holder of a REMIC Regular
Certificate generally will be required to treat a portion of any gain on the
sale or exchange of such Certificate as ordinary income to the extent of the
market discount accrued to the date of disposition under one of the foregoing
methods, less any accrued market discount previously reported as ordinary
income.
Further, under Section 1277 of the Code a holder of a REMIC Regular
Certificate may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry a REMIC Regular Certificate purchased with market discount.
For these purposes, the de minimis rule referred to above applies. Any such
deferred interest expense would not exceed the market discount that accrues
during such taxable year and is, in general, allowed as a deduction not later
than the year in which such market discount is includible in income. If such
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
PREMIUM. A REMIC Regular Certificate purchased at a cost (excluding any
portion of such cost attributable to accrued qualified stated interest) greater
than its remaining stated redemption price will be considered to be purchased at
a premium. The holder of such a REMIC Regular Certificate may elect under
Section 171 of the Code to amortize such premium under the constant yield method
over the life of the Certificate. If made, such an election will apply to all
debt instruments having amortizable bond premium that the holder owns or
subsequently acquires. Amortizable premium will be treated as an offset to
interest income on the related debt instrument, rather than as a separate
interest deduction. The OID Regulations also permit Certificateholders to elect
to include all interest, discount and premium in income based on a constant
yield method, further treating the Certificateholder as having made the election
to amortize premium generally. See "Taxation of Owners of REMIC Regular
Certificates--Market Discount" above. The Committee Report states that the same
rules that apply to accrual of market discount (which rules will require use of
a Prepayment Assumption in accruing market discount with respect to REMIC
Regular Certificates without regard to whether such Certificates have original
issue discount) will also apply in amortizing bond premium under Section 171 of
the Code.
REALIZED LOSSES. Under Section 166 of the Code, both corporate holders
of the REMIC Regular Certificates and noncorporate holders of the REMIC Regular
Certificates that acquire such Certificates in connection with a trade or
business should be allowed to deduct, as ordinary losses, any losses sustained
during a taxable year in which their Certificates become wholly or partially
worthless as the result of one or more realized losses on the Mortgage Loans.
However, it appears that a noncorporate holder that does not acquire a REMIC
Regular Certificate in connection with a trade or business will not be entitled
to deduct a loss under Section 166 of the Code until such holder's Certificate
becomes wholly worthless (i.e., until its outstanding principal balance has been
reduced to zero) and that the loss will be characterized as a short-term capital
loss.
Each holder of a REMIC Regular Certificate will be required to accrue
interest and original issue discount with respect to such Certificate, without
giving effect to any reductions in distributions attributable to defaults or
delinquencies on the Mortgage Loans or the Underlying Certificates until it can
be established that any such reduction ultimately will not be recoverable. As a
result, the amount of taxable income reported in any period by the holder of a
REMIC Regular Certificate could exceed the amount of economic income actually
realized by the holder in such period. Although the holder of a REMIC Regular
Certificate eventually will recognize a loss or reduction in income attributable
to previously accrued and included income that as the result of a realized loss
ultimately will not be realized, the law is unclear with respect to the timing
and character of such loss or reduction in income.
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TAXATION OF OWNERS OF REMIC RESIDUAL CERTIFICATES
GENERAL. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC generally is not subject to entity-level taxation, except with
regard to prohibited transactions and certain other transactions. See
"-Prohibited Transactions Tax and Other Taxes" below. Rather, the taxable income
or net loss of a REMIC is generally taken into account by the holder of the
REMIC Residual Certificates. Accordingly, the REMIC Residual Certificates will
be subject to tax rules that differ significantly from those that would apply if
the REMIC Residual Certificates were treated for federal income tax purposes as
direct ownership interests in the Mortgage Loans or as debt instruments issued
by the REMIC.
A holder of a REMIC Residual Certificate generally will be required to
report its daily portion of the taxable income or, subject to the limitations
noted in this discussion, the net loss of the REMIC for each day during a
calendar quarter that such holder owned such REMIC Residual Certificate. For
this purpose, the taxable income or net loss of the REMIC will be allocated to
each day in the calendar quarter ratably using a "30 days per month/90 days per
quarter/360 days per year" convention unless otherwise disclosed in the related
Prospectus Supplement. The daily amounts so allocated will then be allocated
among the REMIC Residual Certificateholders in proportion to their respective
ownership interests on such day. Any amount included in the gross income or
allowed as a loss of any REMIC Residual Certificateholder by virtue of this
paragraph will be treated as ordinary income or loss. The taxable income of the
REMIC will be determined under the rules described below in "Taxable Income of
the REMIC" and will be taxable to the REMIC Residual Certificateholders without
regard to the timing or amount of cash distributions by the REMIC. Ordinary
income derived from REMIC Residual Certificates will be "portfolio income" for
purposes of the taxation of taxpayers subject to limitations under Section 469
of the Code on the deductibility of "passive losses."
A holder of a REMIC Residual Certificate that purchased such
Certificate from a prior holder of such Certificate also will be required to
report on its federal income tax return amounts representing its daily share of
the taxable income (or net loss) of the REMIC for each day that it holds such
REMIC Residual Certificate. Those daily amounts generally will equal the amounts
of taxable income or net loss determined as described above. The Committee
Report indicates that certain modifications of the general rules may be made, by
regulations, legislation or otherwise to reduce (or increase) the income of a
REMIC Residual Certificateholder that purchased such REMIC Residual Certificate
from a prior holder of such Certificate at a price greater than (or less than)
the adjusted basis (as defined below) such REMIC Residual Certificate would have
had in the hands of an original holder of such Certificate. The REMIC
Regulations, however, do not provide for any such modifications.
Any payments received by a holder of a REMIC Residual Certificate in
connection with the acquisition of such REMIC Residual Certificate will be taken
into account in determining the income of such holder for federal income tax
purposes. Although it appears likely that any such payment would be includible
in income immediately upon its receipt, the IRS might assert that such payment
should be included in income over time according to an amortization schedule or
according to some other method. Because of the uncertainty concerning the
treatment of such payments, holders of REMIC Residual Certificates should
consult their tax advisors concerning the treatment of such payments for income
tax purposes.
The amount of income REMIC Residual Certificateholders will be required
to report (or the tax liability associated with such income) may exceed the
amount of cash distributions received from the REMIC for the corresponding
period. Consequently, REMIC Residual Certificateholders should have other
sources of funds sufficient to pay any federal income taxes due as a result of
their ownership of REMIC Residual Certificates or unrelated deductions against
which income may be offset, subject to the rules relating to "excess inclusions"
and "noneconomic" residual interests discussed below. The fact that the tax
liability associated with the income allocated to REMIC Residual
Certificateholders may exceed the cash distributions received by such REMIC
Residual Certificateholders for the corresponding period may significantly
adversely affect such REMIC Residual Certificateholders' after-tax rate of
return. Such disparity between income and distributions may not be offset by
corresponding losses or reductions of income attributable to the REMIC Residual
Certificateholder until subsequent tax years and, then, may not be completely
offset due to changes in the Code, tax rates or character of the income or loss.
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TAXABLE INCOME OF THE REMIC. The taxable income of the REMIC will equal
the income from the Mortgage Loans and other assets of the REMIC plus any
cancellation of indebtedness income due to the allocation of realized losses to
REMIC Regular Certificates, less the deductions allowed to the REMIC for
interest (including original issue discount and reduced by any premium on
issuance) on the REMIC Regular Certificates (and any other class of REMIC
Certificates constituting "regular interests" in the REMIC not offered hereby),
amortization of any premium on the Mortgage Loans, bad debt losses with respect
to the Mortgage Loans and, except as described below, for servicing,
administrative and other expenses.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to the sum of the issue prices of
all REMIC Certificates (or, if a class of REMIC Certificates is not sold
initially, their fair market values). Such aggregate basis will be allocated
among the Mortgage Loans and the other assets of the REMIC in proportion to
their respective fair market values. The issue price of any REMIC Certificates
offered hereby will be determined in the manner described above under
"--Taxation of Owners of REMIC Regular Certificates--Original Issue Discount."
The issue price of a REMIC Certificate received in exchange for an interest in
the Mortgage Loans or other property will equal the fair market value of such
interests in the Mortgage Loans or other property. Accordingly, if one or more
classes of REMIC Certificates are retained initially rather than sold, the REMIC
Administrator may be required to estimate the fair market value of such
interests in order to determine the basis of the REMIC in the Mortgage Loans and
other property held by the REMIC.
Subject to possible application of the de minimis rules, the method of
accrual by the REMIC of original issue discount income and market discount
income with respect to Mortgage Loans that it holds will be equivalent to the
method for accruing original issue discount income for holders of REMIC Regular
Certificates (that is, under the constant yield method taking into account the
Prepayment Assumption). However, a REMIC that acquires loans at a market
discount must include such market discount in income currently, as it accrues,
on a constant yield basis. See "--Taxation of Owners of REMIC Regular
Certificates" above, which describes a method for accruing such discount income
that is analogous to that required to be used by a REMIC as to Mortgage Loans
with market discount that it holds.
A Mortgage Loan will be deemed to have been acquired with discount (or
premium) to the extent that the REMIC's basis therein, determined as described
in the preceding paragraph, is less than (or greater than) its stated redemption
price. Any such discount 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 original issue
discount on the REMIC Regular Certificates. It is anticipated that each REMIC
will elect under Section 171 of the Code to amortize any premium on the Mortgage
Loans. Premium on any Mortgage Loan to which such election applies may be
amortized under a constant yield method, presumably taking into account a
Prepayment Assumption. Further, such an election would not apply to any Mortgage
Loan originated on or before September 27, 1985. Instead, premium on such a
Mortgage Loan should be allocated among the principal payments thereon and be
deductible by the REMIC as those payments become due or upon the prepayment of
such Mortgage Loan.
A REMIC will be allowed deductions for interest (including original
issue discount) on the REMIC Regular Certificates (including any other class of
REMIC Certificates constituting "regular interests" in the REMIC not offered
hereby) equal to the deductions that would be allowed if the REMIC Regular
Certificates (including any other class of REMIC Certificates constituting
"regular interests" in the REMIC not offered hereby) were indebtedness of the
REMIC. Original issue discount will be considered to accrue for this purpose as
described above under "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount," except that the de minimis rule and the
adjustments for subsequent holders of REMIC Regular Certificates (including any
other class of REMIC Certificates constituting "regular interests" in the REMIC
not offered hereby) described therein will not apply.
If a class of REMIC Regular Certificates is issued at a price in excess
of the stated redemption price of such class (such excess "Issue Premium"), the
net amount of interest deductions that are allowed the REMIC in each taxable
year with respect to the REMIC Regular Certificates of such class will be
reduced by an amount equal to the portion of the Issue Premium that is
considered to be amortized or repaid in that year. Although the matter is not
entirely certain, it is likely that Issue Premium would be amortized under a
constant yield method in a manner analogous to the method of accruing original
issue discount described above under "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount."
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As a general rule, the taxable income of a REMIC will be determined in
the same manner as if the REMIC were an individual having the calendar year as
its taxable year and using the accrual method of accounting.
However,
no item of income, gain, loss or deduction allocable to a prohibited transaction
will be taken into account. See "--Prohibited Transactions Tax and Other Taxes"
below. Further, the limitation on miscellaneous itemized deductions imposed on
individuals by Section 67 of the Code (which allows such deductions only to the
extent they exceed in the aggregate two percent of the taxpayer's adjusted gross
income) will not be applied at the REMIC level so that the REMIC will be allowed
deductions for servicing, administrative and other non-interest expenses in
determining its taxable income. All such expenses will be allocated as a
separate item to the holders of REMIC Certificates, subject to the limitation of
Section 67 of the Code. See "--Possible Pass-Through of Miscellaneous Itemized
Deductions" below. If the deductions allowed to the REMIC exceed its gross
income for a calendar quarter, such excess will be the net loss for the REMIC
for that calendar quarter.
BASIS RULES, NET LOSSES AND DISTRIBUTIONS. The adjusted basis of a
REMIC Residual Certificate will be equal to the amount paid for such REMIC
Residual Certificate, increased by amounts included in the income of the REMIC
Residual Certificateholder and decreased (but not below zero) by distributions
made, and by net losses allocated, to such REMIC Residual Certificateholder.
A REMIC Residual Certificateholder is not allowed to take into account
any net loss for any calendar quarter to the extent such net loss exceeds such
REMIC Residual Certificateholder's adjusted basis in its REMIC Residual
Certificate as of the close of such calendar quarter (determined without regard
to such net loss). Any loss that is not currently deductible by reason of this
limitation may be carried forward indefinitely to future calendar quarters and,
subject to the same limitation, may be used only to offset income from the REMIC
Residual Certificate. The ability of REMIC Residual Certificateholders to deduct
net losses may be subject to additional limitations under the Code, as to which
REMIC Residual Certificateholders should consult their tax advisors.
Any distribution on a REMIC Residual Certificate will be treated as a
non-taxable return of capital to the extent it does not exceed the holder's
adjusted basis in such REMIC Residual Certificate. To the extent a distribution
on a REMIC Residual Certificate exceeds such adjusted basis, it will be treated
as gain from the sale of such REMIC Residual Certificate. Holders of certain
REMIC Residual Certificates may be entitled to distributions early in the term
of the related REMIC under circumstances in which their bases in such REMIC
Residual Certificates will not be sufficiently large that such distributions
will be treated as nontaxable returns of capital. Their bases in such REMIC
Residual Certificates will initially equal the amount paid for such REMIC
Residual Certificates and will be increased by their allocable shares of taxable
income of the REMIC. However, such bases increases may not occur until the end
of the calendar quarter, or perhaps the end of the calendar year, with respect
to which such REMIC taxable income is allocated to the REMIC Residual
Certificateholders. To the extent such REMIC Residual Certificateholders'
initial bases are less than the distributions to such REMIC Residual
Certificateholders, and increases in such initial bases either occur after such
distributions or (together with their initial bases) are less than the amount of
such distributions, gain will be recognized to such REMIC Residual
Certificateholders on such distributions and will be treated as gain from the
sale of their REMIC Residual Certificates.
The effect of these rules is that a REMIC Residual Certificateholder
may not amortize its basis in a REMIC Residual Certificate, but may only recover
its basis through distributions, through the deduction of any net losses of the
REMIC or upon the sale of its REMIC Residual Certificate. See "--Sales of REMIC
Certificates" below. For a discussion of possible modifications of these rules
that may require adjustments to income of a holder of a REMIC Residual
Certificate other than an original holder in order to reflect any difference
between the cost of such REMIC Residual Certificate to such REMIC Residual
Certificateholder and the adjusted basis such REMIC Residual Certificate would
have in the hands of an original holder, see "--Taxation of Owners of REMIC
Residual Certificates--General" above.
EXCESS INCLUSIONS. Any "excess inclusions" with respect to a REMIC
Residual Certificate will be subject to federal income tax in all events.
In general, the "excess inclusions" with respect to a REMIC Residual
Certificate for any calendar quarter will be the excess, if any, of (i) the
daily portions of REMIC taxable income allocable to such REMIC Residual
Certificate over (ii) the sum of the "daily accruals" (as defined below) for
each day during such quarter that such
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REMIC Residual Certificate was held by such REMIC Residual Certificateholder.
The daily accruals of a REMIC Residual Certificateholder will be determined by
allocating to each day during a calendar quarter its ratable portion of the
product of the "adjusted issue price" of the REMIC Residual Certificate at the
beginning of the calendar quarter and 120% of the "long-term Federal rate" in
effect on the Closing Date. For this purpose, the adjusted issue price of a
REMIC Residual Certificate as of the beginning of any calendar quarter will be
equal to the issue price of the REMIC Residual Certificate, increased by the sum
of the daily accruals for all prior quarters and decreased (but not below zero)
by any distributions made with respect to such REMIC Residual Certificate before
the beginning of such quarter. The issue price of a REMIC Residual Certificate
is the initial offering price to the public (excluding bond houses and brokers)
at which a substantial amount of the REMIC Residual Certificates were sold. The
"long-term Federal 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. Although it has not done so, the Treasury has authority to issue
regulations that would treat the entire amount of income accruing on a REMIC
Residual Certificate as an excess inclusion if the REMIC Residual Certificates
are considered to have "significant value."
For REMIC Residual Certificateholders, an excess inclusion (i) will not
be permitted to be offset by deductions, losses or loss carryovers from other
activities, (ii) will be treated as "unrelated business taxable income" to an
otherwise tax-exempt organization and (iii) will not be eligible for any rate
reduction or exemption under any applicable tax treaty with respect to the 30%
United States withholding tax imposed on distributions to REMIC Residual
Certificateholders that are foreign investors. See, however, "--Foreign
Investors in REMIC Certificates," below.
Furthermore, for purposes of the alternative minimum tax, excess
inclusions will not be permitted to be offset by the alternative tax net
operating loss deduction and alternative minimum taxable income may not be less
than the taxpayer's excess inclusions. The latter rule has the effect of
preventing nonrefundable tax credits from reducing the taxpayer's income tax to
an amount lower than the tentative minimum tax on excess inclusions.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Section 857(b)(2) of the
Code, 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 REMIC Residual Certificate as if held directly by such
shareholder. Treasury regulations yet to be issued could apply a similar rule to
regulated investment companies, common trust funds and certain cooperatives; the
REMIC Regulations currently do not address this subject.
NONECONOMIC REMIC RESIDUAL CERTIFICATES. Under the REMIC Regulations,
transfers of "noneconomic" REMIC Residual Certificates will be disregarded for
all federal income tax purposes if "a significant purpose of the transfer was to
enable the transferor to impede the assessment or collection of tax." If such
transfer is disregarded, the purported transferor will continue to remain liable
for any taxes due with respect to the income on such "noneconomic" REMIC
Residual Certificate. The REMIC Regulations provide that a REMIC Residual
Certificate is noneconomic unless, based on the Prepayment Assumption and on any
required or permitted clean up calls, or required liquidation provided for in
the REMIC's organizational documents, (1) the present value of the expected
future distributions (discounted using the "applicable Federal rate" for
obligations whose term ends on the close of the last quarter in which excess
inclusions are expected to accrue with respect to the REMIC Residual
Certificate, which rate is computed and published monthly by the IRS) on the
REMIC Residual Certificate equals at least the present value of the expected tax
on the anticipated excess inclusions, and (2) the transferor reasonably expects
that the transferee will receive distributions with respect to the REMIC
Residual Certificate at or after the time the taxes accrue on the anticipated
excess inclusions in an amount sufficient to satisfy the accrued taxes.
Accordingly, all transfers of REMIC Residual Certificates that may constitute
noneconomic residual interests will be subject to certain restrictions under the
terms of the related Pooling Agreement that are intended to reduce the
possibility of any such transfer being disregarded. Such restrictions will
require each party to a transfer to provide an affidavit that no purpose of such
transfer is to impede the assessment or collection of tax, including certain
representations as to the financial condition of the prospective transferee, as
to which the transferor is also required to make a reasonable investigation to
determine such transferee's historic payment of its debts and ability to
continue to pay its debts as they come due in the future. Prior to purchasing a
REMIC Residual Certificate, prospective purchasers should consider
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the possibility that a purported transfer of such REMIC Residual Certificate by
such a purchaser to another purchaser at some future date may be disregarded in
accordance with the above-described rules which would result in the retention of
tax liability by such purchaser.
The related Prospectus Supplement will disclose whether offered REMIC
Residual Certificates may be considered "noneconomic" residual interests under
the REMIC Regulations; provided, however, that any disclosure that a REMIC
Residual Certificate will not be considered "noneconomic" will be based upon
certain assumptions, and the Company will make no representation that a REMIC
Residual Certificate will not be considered "noneconomic" for purposes of the
above-described rules. See "--Foreign Investors in REMIC Certificates--REMIC
Residual Certificates" below for additional restrictions applicable to transfers
of certain REMIC Residual Certificates to foreign persons.
MARK-TO-MARKET RULES. On December 24, 1996, the IRS released final
regulations (the "Mark-to-Market Regulations") relating to the requirement that
a securities dealer mark to market securities held for sale to customers. This
mark-to-market requirement applies to all securities owned by a dealer, except
to the extent that the dealer has specifically identified a security as held for
investment. The Mark-to-Market Regulations provide that for purposes of this
mark-to-market requirement, a Residual Certificate issued after January 4, 1995
is not treated as a security and thus may not be marked to market. Prospective
purchasers of a Residual Certificate should consult their tax advisors regarding
the possible application of the mark-to-market requirement to Residual
Certificates.
POSSIBLE PASS-THROUGH OF MISCELLANEOUS ITEMIZED DEDUCTIONS. Fees and
expenses of a REMIC generally will be allocated to the holders of the related
REMIC Residual Certificates. The applicable Treasury regulations indicate,
however, that in the case of a REMIC that is similar to a single class grantor
trust, all or a portion of such fees and expenses should be allocated to the
holders of the related REMIC Regular Certificates. Except as stated in the
related Prospectus Supplement, such fees and expenses will be allocated to
holders of the related REMIC Residual Certificates in their entirety and not to
the holders of the related REMIC Regular Certificates.
With respect to REMIC Residual Certificates or REMIC Regular
Certificates the holders of which receive an allocation of fees and expenses in
accordance with the preceding discussion, if any holder thereof is an
individual, estate or trust, or a "pass-through entity" beneficially owned by
one or more individuals, estates or trusts, (i) an amount equal to such
individual's, estate's or trust's share of such fees and expenses will be added
to the gross income of such holder and (ii) such individual's, estate's or
trust's share of such fees and expenses will be treated as a miscellaneous
itemized deduction allowable subject to the limitation of Section 67 of the
Code, which permits such deductions only to the extent they exceed in the
aggregate two percent of a taxpayer's adjusted gross income. In addition,
Section 68 of the Code provides that the amount of itemized deductions otherwise
allowable for an individual whose adjusted gross income exceeds a specified
amount will be reduced by the lesser of (i) 3% of the excess of the individual's
adjusted gross income over such amount or (ii) 80% of the amount of itemized
deductions otherwise allowable for the taxable year. The amount of additional
taxable income reportable by REMIC Certificateholders that are subject to the
limitations of either Section 67 or Section 68 of the Code may be substantial.
Furthermore, in determining the alternative minimum taxable income of such a
holder of a REMIC Certificate that is an individual, estate or trust, or a
"pass-through entity" beneficially owned by one or more individuals, estates or
trusts, no deduction will be allowed for such holder's allocable portion of
servicing fees and other miscellaneous itemized deductions of the REMIC, even
though an amount equal to the amount of such fees and other deductions will be
included in such holder's gross income. Accordingly, such REMIC Certificates may
not be appropriate investments for individuals, estates, or trusts, or
pass-through entities beneficially owned by one or more individuals, estates or
trusts. Such prospective investors should consult with their tax advisors prior
to making an investment in such Certificates.
SALES OF REMIC CERTIFICATES. If a REMIC Certificate is sold, the
selling Certificateholder will recognize gain or loss equal to the difference
between the amount realized on the sale and its adjusted basis in the REMIC
Certificate. The adjusted basis of a REMIC Regular Certificate generally will
equal the cost of such REMIC Regular Certificate to such Certificateholder,
increased by income reported by such Certificateholder with respect to such
REMIC Regular Certificate (including original issue discount and market discount
income) and reduced (but not below zero) by distributions on such REMIC Regular
Certificate received by such Certificateholder and by any amortized premium. The
adjusted basis of a REMIC Residual Certificate will be determined as described
under "--Taxation of Owners
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of REMIC Residual Certificates--Basis Rules, Net Losses and Distributions."
Except as provided in the following four paragraphs, any such gain or loss will
be capital gain or loss, provided such REMIC Certificate is held as a capital
asset (generally, property held for investment) within the meaning of Section
1221 of the Code.
Gain from the sale of a REMIC Regular Certificate that might otherwise
be capital gain will be treated as ordinary income to the extent such gain does
not exceed the excess, if any, of (i) the amount that would have been includible
in the seller's income with respect to such REMIC Regular Certificate assuming
that income had accrued thereon at a rate equal to 110% of the "applicable
Federal rate" (generally, a rate based on an average of current yields on
Treasury securities having a maturity comparable to that of the Certificate
based on the application of the Prepayment Assumption to such Certificate, which
rate is computed and published monthly by the IRS), determined as of the date of
purchase of such REMIC Regular Certificate, over (ii) the amount of ordinary
income actually includible in the seller's income prior to such sale. In
addition, gain recognized on the sale of a REMIC Regular Certificate by a seller
who purchased such REMIC Regular Certificate at a market discount will be
taxable as ordinary income in an amount not exceeding the portion of such
discount that accrued during the period such REMIC Certificate was held by such
holder, reduced by any market discount included in income under the rules
described above under "--Taxation of Owners of REMIC Regular
Certificates--Market Discount" and "--Premium."
REMIC Certificates will be "evidences of indebtedness" within the
meaning of Section 582(c)(1) of the Code, so that gain or loss recognized from
the sale of a REMIC Certificate by a bank or thrift institution to which such
section applies will be ordinary income or loss.
A portion of any gain from the sale of a REMIC Regular Certificate that
might otherwise be capital gain may be treated as ordinary income to the extent
that such Certificate is held as part of a "conversion transaction" within the
meaning of Section 1258 of the Code. A conversion transaction generally is one
in which the taxpayer has taken two or more positions in the same or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in such transaction. The amount of gain so realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable Federal rate" (which rate is computed and
published monthly by the IRS) at the time the taxpayer enters into the
conversion transaction, subject to appropriate reduction for prior inclusion of
interest and other ordinary income items from the transaction.
Finally, a taxpayer may elect to have net capital gain taxed at
ordinary income rates rather than capital gains rates in order to include such
net capital gain in total net investment income for the taxable year, for
purposes of the rule that limits the deduction of interest on indebtedness
incurred to purchase or carry property held for investment to a taxpayer's net
investment income.
Except as may be provided in Treasury regulations yet to be issued, if
the seller of a REMIC Residual Certificate reacquires such REMIC Residual
Certificate, or acquires any other residual interest in a REMIC or any similar
interest in a "taxable mortgage pool" (as defined in Section 7701(i) of the
Code) 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 Section 1091 of the Code. In that event, any loss realized by the REMIC
Residual Certificateholder on the sale will not be deductible, but instead will
be added to such REMIC Residual Certificateholder's adjusted basis in the
newly-acquired asset.
PROHIBITED TRANSACTIONS AND OTHER POSSIBLE REMIC TAXES. The Code
imposes a tax on REMICs equal to 100% of the net income derived from "prohibited
transactions" (a "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 REMIC
Certificates. It is not anticipated that any REMIC will engage in any prohibited
transactions in which it would recognize a material amount of net income.
In addition, certain contributions to a REMIC made after the day on
which the REMIC issues all of its interests could result in the imposition of a
tax on the REMIC equal to 100% of the value of the contributed property
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(a "Contributions Tax"). Each Pooling Agreement will include provisions designed
to prevent the acceptance of any contributions that would be subject to such
tax.
REMICs also are 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 gain from the sale of a foreclosure property that is
inventory property and gross income from foreclosure property other than
qualifying rents and other qualifying income for a real estate investment trust.
It is not anticipated that any REMIC will recognize "net income from foreclosure
property" subject to federal income tax.
Except as set forth in the related Prospectus Supplement, it is not
anticipated that any material state or local income or franchise tax will be
imposed on any REMIC.
Except as set forth in the related Prospectus Supplement, and to the
extent permitted by then applicable laws, 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 the REMIC will be borne by
the related Master Servicer or Trustee in either case out of its own funds,
provided that the Master Servicer or the Trustee, as the case may be, has
sufficient assets to do so, and provided further that such tax arises out of a
breach of the Master Servicer's or the Trustee's obligations, as the case may
be, under the related Pooling Agreement and in respect of compliance with
applicable laws and regulations. Any such tax not borne by the Master Servicer
or the Trustee will be charged against the related Trust Fund resulting in a
reduction in amounts payable to holders of the related REMIC Certificates.
TAX AND RESTRICTIONS ON TRANSFERS OF REMIC RESIDUAL CERTIFICATES TO
CERTAIN ORGANIZATIONS. If a REMIC Residual Certificate is transferred to a
"disqualified organization" (as defined below), a tax would be imposed in an
amount (determined under the REMIC Regulations) equal to the product of (i) the
present value (discounted using the "applicable Federal rate" for obligations
whose term ends on the close of the last quarter in which excess inclusions are
expected to accrue with respect to the REMIC Residual Certificate, which rate is
computed and published monthly by the IRS) of the total anticipated excess
inclusions with respect to such REMIC Residual Certificate for periods after the
transfer and (ii) the highest marginal federal income tax rate applicable to
corporations. The anticipated excess inclusions must be determined as of the
date that the REMIC Residual Certificate is transferred and must be based on
events that have occurred up to the time of such transfer, the Prepayment
Assumption and any required or permitted clean up calls or required liquidation
provided for in the REMIC's organizational documents. Such a tax generally would
be imposed on the transferor of the REMIC Residual Certificate, except that
where such transfer is through an agent for a disqualified organization, the tax
would instead be imposed on such agent. However, a transferor of a REMIC
Residual Certificate would in no event be liable for such tax with respect to a
transfer if the transferee furnishes to the transferor an affidavit that the
transferee is not a disqualified organization and, as of the time of the
transfer, the transferor does not have actual knowledge that such affidavit is
false. Moreover, an entity will not qualify as a REMIC unless there are
reasonable arrangements designed to ensure that (i) residual interests in such
entity are not held by disqualified organizations and (ii) information necessary
for the application of the tax described herein will be made available.
Restrictions on the transfer of REMIC Residual Certificates and certain other
provisions that are intended to meet this requirement will be included in the
Pooling Agreement, and will be discussed more fully in any Prospectus Supplement
relating to the offering of any REMIC Residual Certificate.
In addition, if a "pass-through entity" (as defined below) includes in
income excess inclusions with respect to a REMIC Residual Certificate, and a
disqualified organization is the record holder of an interest in such entity,
then a tax will be imposed on such entity equal to the product of (i) the amount
of excess inclusions on the REMIC Residual Certificate that are allocable to the
interest in the pass-through entity held by such disqualified organization and
(ii) the highest marginal federal income tax rate imposed on corporations. A
pass-through entity will not be subject to this tax for any period, however, if
each record holder of an interest in such pass-through entity furnishes to such
pass-through entity (i) such holder's social security number and a statement
under penalties of perjury that such social security number is that of the
record holder or (ii) a statement under penalties of perjury that such record
holder is not a disqualified organization. For taxable years beginning after
December 31, 1997, notwithstanding the preceding two sentences, in the case of a
REMIC Residual Certificate held by an "electing large partnership," all
interests in such partnership shall be treated as held by disqualified
organizations (without regard to whether the record holders of the partnership
furnish statements described in the preceding sentence) and the amount that is
subject to tax under the
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second preceding sentence is excluded from the gross income of the partnership
allocated to the partners (in lieu of allocating to the partners a deduction for
such tax paid by the partnership).
For these purposes, a "disqualified organization" means (i) the United
States, any State or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of the foregoing
(but would not include instrumentalities described in Section 168(h)(2)(D) of
the Code or the Federal Home Loan Mortgage Corporation), (ii) any organization
(other than a cooperative described in Section 521 of the Code) that is exempt
from federal income tax, unless it is subject to the tax imposed by Section 511
of the Code or (iii) any organization described in Section 1381(a)(2)(C) of the
Code. For these purposes, a "pass-through entity" means any regulated investment
company, real estate investment trust, trust, partnership or certain other
entities described in Section 860E(e)(6) of the Code. In addition, a person
holding an interest in a pass-through entity as a nominee for another person
will, with respect to such interest, be treated as a pass-through entity.
TERMINATION. A REMIC will terminate immediately after the Distribution
Date following receipt by the REMIC of the final payment in respect of the
Mortgage Loans or upon a sale of the REMIC's assets following the adoption by
the REMIC of a plan of complete liquidation. The last distribution on a REMIC
Regular Certificate will be treated as a payment in retirement of a debt
instrument. In the case of a REMIC Residual Certificate, if the last
distribution on such REMIC Residual Certificate is less than the REMIC Residual
Certificateholder's adjusted basis in such Certificate, such REMIC Residual
Certificateholder should (but may not) be treated as realizing a loss equal to
the amount of such difference, and such loss may be treated as a capital loss.
REPORTING AND OTHER ADMINISTRATIVE MATTERS. Solely for purposes of the
administrative provisions of the Code, the REMIC will be treated as a
partnership and REMIC Residual Certificateholders will be treated as partners.
Except as described in the related Prospectus Supplement, the REMIC
Administrator will file REMIC federal income tax returns on behalf of the
related REMIC, and under the terms of the related Agreement, will either (i) be
irrevocably appointed by the holders of the largest percentage interest in the
related REMIC Residual Certificates as their agent to perform all of the duties
of the "tax matters person" with respect to the REMIC in all respects or (ii)
will be designated as and will act as the "tax matters person" with respect to
the related REMIC in all respects and will hold at least a nominal amount of
REMIC Residual Certificates.
The REMIC Administrator, as the tax matters person or as agent for the
tax matters person, subject to certain notice requirements and various
restrictions and limitations, generally will have the authority to act on behalf
of the REMIC and the REMIC Residual Certificateholders in connection with the
administrative and judicial review of items of income, deduction, gain or loss
of the REMIC, as well as the REMIC's classification. REMIC Residual
Certificateholders generally will be required to report such REMIC items
consistently with their treatment on the REMIC's tax return and may in some
circumstances be bound by a settlement agreement between the REMIC
Administrator, as either tax matters person or as agent for the tax matters
person, and the IRS concerning any such REMIC item. Adjustments made to the
REMIC tax return may require a REMIC Residual Certificateholder to make
corresponding adjustments on its return, and an audit of the REMIC's tax return,
or the adjustments resulting from such an audit, could result in an audit of a
REMIC Residual Certificateholder's return. Any person that holds a REMIC
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.
Reporting of interest income, including any original issue discount,
with respect to REMIC Regular Certificates is required annually, and may be
required more frequently under Treasury regulations. These information reports
generally are required to be sent to individual holders of REMIC Regular
Interests and the IRS; holders of REMIC Regular Certificates that are
corporations, trusts, securities dealers and certain other non-individuals will
be provided interest and original issue discount income information and the
information set forth in the following paragraph upon request in accordance with
the requirements of the applicable regulations. The information must be provided
by the later of 30 days after the end of the quarter for which the information
was requested, or two weeks after the receipt of the request. The REMIC must
also comply with rules requiring a REMIC Regular Certificate issued with
original issue discount to disclose on its face the amount of original issue
discount and the issue date, and requiring such information to be reported to
the IRS. Reporting with respect to the REMIC Residual Certificates, including
income, excess inclusions, investment expenses and relevant information
regarding qualification of the REMIC's assets will be made as required under the
Treasury regulations, generally on a quarterly basis.
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As applicable, the REMIC Regular Certificate information reports will
include a statement of the adjusted issue price of the REMIC Regular Certificate
at the beginning of each accrual period. In addition, the reports will include
information required by regulations with respect to computing the accrual of any
market discount. Because exact computation of the accrual of market discount on
a constant yield method would require information relating to the holder's
purchase price that the REMIC may not have, such regulations only require that
information pertaining to the appropriate proportionate method of accruing
market discount be provided. See "--Taxation of Owners of REMIC Regular
Certificates--Market Discount."
Except as set forth in the related Prospectus Supplement, the
responsibility for complying with the foregoing reporting rules will be borne by
the REMIC Administrator.
BACKUP WITHHOLDING WITH RESPECT TO REMIC CERTIFICATES. Payments of
interest and principal, as well as payments of proceeds from the sale of REMIC
Certificates, may be subject to the "backup withholding tax" under Section 3406
of the Code at a rate of 31% if recipients of such payments fail to furnish to
the payor certain information, including their taxpayer identification numbers,
or otherwise fail to establish an exemption from such tax. Any amounts deducted
and withheld from a distribution to a recipient would be allowed as a credit
against such recipient's federal income tax. Furthermore, certain penalties may
be imposed by the IRS on a recipient of payments that is required to supply
information but that does not do so in the proper manner.
FOREIGN INVESTORS IN REMIC CERTIFICATES. A REMIC Regular
Certificateholder that is not a "United States person" (as defined below) and is
not subject to federal income tax as a result of any direct or indirect
connection to the United States in addition to its ownership of a REMIC Regular
Certificate will not be subject to United States federal income or withholding
tax in respect of a distribution on a REMIC Regular Certificate, provided that
the holder complies to the extent necessary with certain identification
requirements (including delivery of a statement, signed by the Certificateholder
under penalties of perjury, certifying that such Certificateholder is not a
United States person and providing the name and address of such
Certificateholder). For these purposes, "United States person" means a citizen
or resident of the United States, a corporation, partnership or other entity
created or organized in, or under the laws of, the United States or any
political subdivision thereof (except, in the case of a partnership, to the
extent provided in regulations), or an estate whose income is subject to United
States federal income tax regardless of its source, or a trust if a court within
the United States is able to exercise primary supervision over the
administration of the trust and one or more United States fiduciaries have the
authority to control all substantial decisions of the trust. To the extent
prescribed in regulations by the Secretary of the Treasury, which regulations
have not yet been issued, a trust which was in existence on August 20, 1996
(other than a trust treated as owned by the grantor under subpart E of part I of
subchapter J of chapter 1 of the Code), and which was treated as a United States
person on August 19, 1996, may elect to continue to be treated as a United
States person notwithstanding the previous sentence. It is possible that the IRS
may assert that the foregoing tax exemption should not apply with respect to a
REMIC Regular Certificate held by a REMIC Residual Certificateholder that owns
directly or indirectly a 10% or greater interest in the REMIC Residual
Certificates. If the holder does not qualify for exemption, distributions of
interest, including distributions in respect of accrued original issue discount,
to such holder may be subject to a tax rate of 30%, subject to reduction under
any applicable tax treaty.
In addition, the foregoing rules will not apply to exempt a United
States shareholder of a controlled foreign corporation from taxation on such
United States shareholder's allocable portion of the interest income received by
such controlled foreign corporation.
Further, it appears that a REMIC 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
non-resident alien individuals should consult their tax advisors concerning this
question.
Except as stated in the related Prospectus Supplement, transfers of
REMIC Residual Certificates to investors that are not United States persons will
be prohibited under the related Pooling Agreement.
NOTES
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On or prior to the date of the related Prospectus Supplement with
respect to the proposed issuance of each series of Notes, Thacher Proffitt &
Wood, counsel to the Company, will deliver its opinion to the effect that,
assuming compliance with all provisions of the Indenture, Owner Trust Agreement
and certain related documents and upon issuance of the Notes, for federal income
tax purposes (i) the Notes will be treated as indebtedness and (ii) the Issuer,
as created pursuant to the terms and conditions of the Owner Trust Agreement,
will not be characterized as an association (or publicly traded partnership)
taxable as a corporation or as a taxable mortgage pool. The following discussion
is based in part upon the OID Regulations. The OID Regulations do not adequately
address certain issues relevant to, and in some instances provide that they are
not applicable to, securities such as the Notes. For purposes of this tax
discussion, references to a "Noteholder" or a "holder" are to the beneficial
owner of a Note.
STATUS AS REAL PROPERTY LOANS
Notes held by a domestic building and loan association will not
constitute "loans . . . secured by an interest in real property" within the
meaning of Code section 7701(a)(19)(C)(v); and (ii) Notes held by a real estate
investment trust will not constitute "real estate assets" within the meaning of
Code section 856(c)(5)(A) and interest on Notes will not be considered "interest
on obligations secured by mortgages on real property" within the meaning of Code
section 856(c)(3)(B).
TAXATION OF NOTEHOLDERS
Notes generally will be subject to the same rules of taxation as REMIC
Regular Certificates issued by a REMIC, as described above, except that (i)
income reportable on the Notes is not required to be reported under the accrual
method unless the holder otherwise used the accrual method and (ii) the special
rule treating a portion of the gain on sale or exchange of a REMIC Regular
Certificate as ordinary income is inapplicable to the Notes. See "-- REMICs
- --Taxation of Owners of REMIC Regular Certificates" and "-- Sales of REMIC
Certificates."
GRANTOR TRUST FUNDS
CLASSIFICATION OF GRANTOR TRUST FUNDS. On or prior to the date of the
related Prospectus Supplement with respect the proposed issuance of each series
of Grantor Trust Certificates, Thacher Proffitt & Wood, counsel to the Company,
will deliver its opinion generally to the effect that, assuming compliance with
all provisions of the related Pooling Agreement and upon issuance of such
Grantor Trust Certificates, the related Grantor Trust Fund will be classified as
a grantor trust under subpart E, part I of subchapter J of Chapter 1 of the Code
and not as a partnership or an association taxable as a corporation.
For purposes of the following discussion, a Grantor Trust Certificate
representing an undivided equitable ownership interest in the principal of the
Mortgage Loans constituting the related Grantor Trust Fund, together with
interest thereon at a pass-through rate, will be referred to as a "Grantor Trust
Fractional Interest Certificate." A Grantor Trust Certificate representing
ownership of all or a portion of the difference between interest paid on the
Mortgage Loans constituting the related Grantor Trust Fund (net of normal
administration fees and any Spread) and interest paid to the holders of Grantor
Trust Fractional Interest Certificates issued with respect to such Grantor Trust
Fund will be referred to as a "Grantor Trust Strip Certificate." A Grantor Trust
Strip Certificate may also evidence a nominal ownership interest in the
principal of the Mortgage Loans constituting the related Grantor Trust Fund.
CHARACTERIZATION OF INVESTMENTS IN GRANTOR TRUST CERTIFICATES.
GRANTOR TRUST FRACTIONAL INTEREST CERTIFICATES. In the case of Grantor
Trust Fractional Interest Certificates, except as disclosed in the related
Prospectus Supplement, counsel to the Company will deliver an opinion that, in
general, Grantor Trust Fractional Interest Certificates will represent interests
in (i) "loans . . . secured by an interest in real property" within the meaning
of Section 7701(a)(19)(C)(v) of the Code; (ii) "obligation[s] (including any
participation or Certificate of beneficial ownership therein) which . . .[are]
principally secured by an interest in real property" within the meaning of
Section 860G(a)(3) of the Code; and (iii) "real estate assets" within the
meaning of Section 856(c)(5)(A) of the Code. In addition, counsel to the Company
will deliver an opinion that interest on Grantor Trust Fractional Interest
Certificates will to the same extent be considered "interest on obligations
secured by mortgages on real property or on interests in real property" within
the meaning of Section 856(c)(3)(B) of the Code.
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GRANTOR TRUST STRIP CERTIFICATES. Even if Grantor Trust Strip
Certificates evidence an interest in a Grantor Trust Fund consisting of Mortgage
Loans that are "loans . . . secured by an interest in real property" within the
meaning of Section 7701(a)(19)(C)(v) of the Code, and "real estate assets"
within the meaning of Section 856(c)(5)(A) of the Code, and the interest on
which is "interest on obligations secured by mortgages on real property" within
the meaning of Section 856(c)(3)(B) of the Code, it is unclear whether the
Grantor Trust Strip Certificates, and the income therefrom, will be so
characterized. However, the policies underlying such sections (namely, to
encourage or require investments in mortgage loans by thrift institutions and
real estate investment trusts) may suggest that such characterization is
appropriate. Counsel to the Company will not deliver any opinion on these
questions. Prospective purchasers to which such characterization of an
investment in Grantor Trust Strip Certificates is material should consult their
tax advisors regarding whether the Grantor Trust Strip Certificates, and the
income therefrom, will be so characterized.
The Grantor Trust Strip Certificates will be "obligation[s] (including
any participation or Certificate of beneficial ownership therein) which . .
.[are] principally secured by an interest in real property" within the meaning
of Section 860G(a)(3)(A) of the Code.
TAXATION OF OWNERS OF GRANTOR TRUST FRACTIONAL INTEREST CERTIFICATES.
Holders of a particular series of Grantor Trust Fractional Interest Certificates
generally will be required to report on their federal income tax returns their
shares of the entire income from the Mortgage Loans (including amounts used to
pay reasonable servicing fees and other expenses) and will be entitled to deduct
their shares of any such reasonable servicing fees and other expenses. Because
of stripped interests, market or original issue discount, or premium, the amount
includible in income on account of a Grantor Trust Fractional Interest
Certificate may differ significantly from the amount distributable thereon
representing interest on the Mortgage Loans. Under Section 67 of the Code, an
individual, estate or trust holding a Grantor Trust Fractional Interest
Certificate directly or through certain pass-through entities will be allowed a
deduction for such reasonable servicing fees and expenses only to the extent
that the aggregate of such holder's miscellaneous itemized deductions exceeds
two percent of such holder's adjusted gross income. In addition, Section 68 of
the Code provides that the amount of itemized deductions otherwise allowable for
an individual whose adjusted gross income exceeds a specified amount will be
reduced by the lesser of (i) 3% of the excess of the individual's adjusted gross
income over such amount or (ii) 80% of the amount of itemized deductions
otherwise allowable for the taxable year. The amount of additional taxable
income reportable by holders of Grantor Trust Fractional Interest Certificates
who are subject to the limitations of either Section 67 or Section 68 of the
Code may be substantial. Further, Certificateholders (other than corporations)
subject to the alternative minimum tax may not deduct miscellaneous itemized
deductions in determining such holder's alternative minimum taxable income.
Although it is not entirely clear, it appears that in transactions in which
multiple classes of Grantor Trust Certificates (including Grantor Trust Strip
Certificates) are issued, such fees and expenses should be allocated among the
classes of Grantor Trust Certificates using a method that recognizes that each
such class benefits from the related services. In the absence of statutory or
administrative clarification as to the method to be used, it currently is
intended to base information returns or reports to the IRS and
Certificateholders on a method that allocates such expenses among classes of
Grantor Trust Certificates with respect to each period based on the
distributions made to each such class during that period.
The federal income tax treatment of Grantor Trust Fractional Interest
Certificates of any series will depend on whether they are subject to the
"stripped bond" rules of Section 1286 of the Code. Grantor Trust Fractional
Interest Certificates may be subject to those rules if (i) a class of Grantor
Trust Strip Certificates is issued as part of the same series of Certificates or
(ii) the Company or any of its affiliates retains (for its own account or for
purposes of resale) a right to receive a specified portion of the interest
payable on the Mortgage Loans. Further, the IRS has ruled that an unreasonably
high servicing fee retained by a seller or servicer will be treated as a
retained ownership interest in mortgages that constitutes a stripped coupon. For
purposes of determining what constitutes reasonable servicing fees for various
types of mortgages the IRS has established certain "safe harbors." The servicing
fees paid with respect to the Mortgage Loans for certain series of Grantor Trust
Certificates may be higher than the "safe harbors" and, accordingly, may not
constitute reasonable servicing compensation. The related Prospectus Supplement
will include information regarding servicing fees paid to the Master Servicer,
any subservicer or their respective affiliates necessary to determine whether
the preceding "safe harbor" rules apply.
IF STRIPPED BOND RULES APPLY. If the stripped bond rules apply, each
Grantor Trust Fractional Interest Certificate will be treated as having been
issued with "original issue discount" within the meaning of Section 1273(a)
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of the Code, subject, however, to the discussion below regarding the treatment
of certain stripped bonds as market discount bonds and the discussion regarding
de minimis market discount. See "--Taxation of Owners of Grantor Trust
Fractional Interest Certificates--Market Discount" below. Under the stripped
bond rules, the holder of a Grantor Trust Fractional Interest Certificate
(whether a cash or accrual method taxpayer) will be required to report interest
income from its Grantor Trust Fractional Interest Certificate for each month in
an amount equal to the income that accrues on such Certificate in that month
calculated under a constant yield method, in accordance with the rules of the
Code relating to original issue discount.
The original issue discount on a Grantor Trust Fractional Interest
Certificate will be the excess of such Certificate's stated redemption price
over its issue price. The issue price of a Grantor Trust Fractional Interest
Certificate as to any purchaser will be equal to the price paid by such
purchaser for the Grantor Trust Fractional Interest Certificate. The stated
redemption price of a Grantor Trust Fractional Interest Certificate will be the
sum of all payments to be made on such Certificate, other than "qualified stated
interest," if any, as well as such Certificate's share of reasonable servicing
fees and other expenses. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--If Stripped Bond Rules Do Not Apply" for a definition of
"qualified stated interest." In general, the amount of such income that accrues
in any month would equal the product of such holder's adjusted basis in such
Grantor Trust Fractional Interest Certificate at the beginning of such month
(see "Sales of Grantor Trust Certificates") and the yield of such Grantor Trust
Fractional Interest Certificate to such holder. Such yield would be computed at
the rate (compounded based on the regular interval between payment dates) that,
if used to discount the holder's share of future payments on the Mortgage Loans,
would cause the present value of those future payments to equal the price at
which the holder purchased such Certificate. In computing yield under the
stripped bond rules, a Certificateholder's share of future payments on the
Mortgage Loans will not include any payments made in respect of any ownership
interest in the Mortgage Loans retained by the Company, the Master Servicer, any
subservicer or their respective affiliates, but will include such
Certificateholder's share of any reasonable servicing fees and other expenses.
To the extent the Grantor Trust Fractional Interest Certificates
represent an interest in any pool of debt instruments the yield on which may be
affected by reason of prepayments, for taxable years beginning after August 5,
1997, Section 1272(a)(6) of the Code requires (i) the use of a reasonable
prepayment assumption in accruing original issue discount and (ii) adjustments
in the accrual of original issue discount when prepayments do not conform to the
prepayment assumption. It is unclear whether those provisions would be
applicable to the Grantor Trust Fractional Interest Certificates that do not
represent an interest in any pool of debt instruments the yield on which may be
affected by reason of prepayments, or for taxable years beginning prior to
August 5, 1997 or whether use of a reasonable prepayment assumption may be
required or permitted without reliance on these rules. It is also uncertain, if
a prepayment assumption is used, whether the assumed prepayment rate would be
determined based on conditions at the time of the first sale of the Grantor
Trust Fractional Interest Certificate or, with respect to any holder, at the
time of purchase of the Grantor Trust Fractional Interest Certificate by that
holder. Certificateholders are advised to consult their own tax advisors
concerning reporting original issue discount with respect to Grantor Trust
Fractional Interest Certificates and, in particular, whether a prepayment
assumption should be used in reporting original issue discount.
In the case of a Grantor Trust Fractional Interest Certificate acquired
at a price equal to the principal amount of the Mortgage Loans allocable to such
Certificate, the use of a prepayment assumption generally would not have any
significant effect on the yield used in calculating accruals of interest income.
In the case, however, of a Grantor Trust Fractional Interest Certificate
acquired at a discount or premium (that is, at a price less than or greater than
such principal amount, respectively), the use of a reasonable prepayment
assumption would increase or decrease such yield, and thus accelerate or
decelerate, respectively, the reporting of income.
If a prepayment assumption is not used, then when a Mortgage Loan
prepays in full, the holder of a Grantor Trust Fractional Interest Certificate
acquired at a discount or a premium generally will recognize ordinary income or
loss equal to the difference between the portion of the prepaid principal amount
of the Mortgage Loan that is allocable to such Certificate and the portion of
the adjusted basis of such Certificate that is allocable to such
Certificateholder's interest in the Mortgage Loan. If a prepayment assumption is
used, it appears that no separate item of income or loss should be recognized
upon a prepayment. Instead, a prepayment should be treated as a partial payment
of the stated redemption price of the Grantor Trust Fractional Interest
Certificate and accounted for under a method similar to that described for
taking account of original issue discount on REMIC Regular Certificates. See
"--REMICs--Taxation
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of Owners of REMIC Regular Certificates--Original Issue Discount." It is unclear
whether any other adjustments would be required to reflect differences between
an assumed prepayment rate and the actual rate of prepayments.
It is currently intended to base information reports or returns to the
IRS and Certificateholders in transactions subject to the stripped bond rules on
a prepayment assumption (the "Prepayment Assumption") that will be disclosed in
the related Prospectus Supplement and on a constant yield computed using a
representative initial offering price for each class of Certificates. However,
neither the Company, the Master Servicer nor the Trustee will make any
representation that the Mortgage Loans will in fact prepay at a rate conforming
to such Prepayment Assumption or any other rate and Certificateholders should
bear in mind that the use of a representative initial offering price will mean
that such information returns or reports, even if otherwise accepted as accurate
by the IRS, will in any event be accurate only as to the initial
Certificateholders of each series who bought at that price.
Under Treasury regulation Section 1.1286-1, certain stripped bonds are
to be treated as market discount bonds and, accordingly, any purchaser of such a
bond is to account for any discount on the bond as market discount rather than
original issue discount. This treatment only applies, however, if immediately
after the most recent disposition of the bond by a person stripping one or more
coupons from the bond and disposing of the bond or coupon (i) there is no
original issue discount (or only a de minimis amount of original issue discount)
or (ii) the annual stated rate of interest payable on the original bond is no
more than one percentage point lower than the gross interest rate payable on the
original mortgage loan (before subtracting any servicing fee or any stripped
coupon). If interest payable on a Grantor Trust Fractional Interest Certificate
is more than one percentage point lower than the gross interest rate payable on
the Mortgage Loans, the related Prospectus Supplement will disclose that fact.
If the original issue discount or market discount on a Grantor Trust Fractional
Interest Certificate determined under the stripped bond rules is less than 0.25%
of the stated redemption price multiplied by the weighted average maturity of
the Mortgage Loans, then such original issue discount or market discount will be
considered to be de minimis. Original issue discount or market discount of only
a de minimis amount will be included in income in the same manner as de minimis
original issue and market discount described in "Characteristics of Investments
in Grantor Trust Certificates--If Stripped Bond Rules Do Not Apply" and
"--Market Discount" below.
IF STRIPPED BOND RULES DO NOT APPLY. Subject to the discussion below on
original issue discount, if the stripped bond rules do not apply to a Grantor
Trust Fractional Interest Certificate, the Certificateholder will be required to
report its share of the interest income on the Mortgage Loans in accordance with
such Certificateholder's normal method of accounting. The original issue
discount rules will apply to a Grantor Trust Fractional Interest Certificate to
the extent it evidences an interest in Mortgage Loans issued with original issue
discount.
The original issue discount, if any, on the Mortgage Loans will equal
the difference between the stated redemption price of such Mortgage Loans and
their issue price. Under the OID Regulations, the stated redemption price is
equal to the total of all payments to be made on such Mortgage Loan other than
"qualified stated interest." "Qualified stated interest" is interest that is
unconditionally payable at least annually at a single fixed rate, or at a
"qualified floating rate," an "objective rate," a combination of a single fixed
rate and one or more "qualified floating rates" or one "qualified inverse
floating rate," or a combination of "qualified floating rates" that does not
operate in a manner that accelerates or defers interest payments on such
Mortgage Loan. In general, the issue price of a Mortgage Loan will be the amount
received by the borrower from the lender under the terms of the Mortgage Loan,
less any "points" paid by the borrower, and the stated redemption price of a
Mortgage Loan will equal its principal amount, unless the Mortgage Loan provides
for an initial below-market rate of interest or the acceleration or the deferral
of interest payments. The determination as to whether original issue discount
will be considered to be de minimis will be calculated using the same test
described in the REMIC discussion. See "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" above.
In the case of Mortgage Loans bearing adjustable or variable interest
rates, the related Prospectus Supplement will describe the manner in which such
rules will be applied with respect to those Mortgage Loans by the Master
Servicer or the Trustee in preparing information returns to the
Certificateholders and the IRS.
If original issue discount is in excess of a de minimis amount, all
original issue discount with respect to a Mortgage Loan will be required to be
accrued and reported in income each month, based on a constant yield. Section
1272(a)(6) of the Code requires that a prepayment assumption be made in
computing yield with respect to any pool
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of debt instruments the yield on which may be affected by reason of prepayments.
Accordingly, for certificates backed by such pools, it is intended to base
information reports and returns to the IRS and Certificateholders for taxable
years beginning after August 5, 1997, on the use of a prepayment assumption.
However, in the case of certificates not backed by such pools or with respect to
taxable years beginning prior to August 5, 1997, it currently is not intended to
base such reports and returns on the use of a prepayment assumption.
Certificateholders are advised to consult their own tax advisors concerning
whether a prepayment assumption should be used in reporting original issue
discount with respect to Grantor Trust Fractional Interest Certificates.
Certificateholders should refer to the related Prospectus Supplement with
respect to each series to determine whether and in what manner the original
issue discount rules will apply to Mortgage Loans in such series.
A purchaser of a Grantor Trust Fractional Interest Certificate that
purchases such Grantor Trust Fractional Interest Certificate at a cost less than
such Certificate's allocable portion of the aggregate remaining stated
redemption price of the Mortgage Loans held in the related Trust Fund will also
be required to include in gross income such Certificate's daily portions of any
original issue discount with respect to such Mortgage Loans. However, each such
daily portion will be reduced, if the cost of such Grantor Trust Fractional
Interest Certificate to such purchaser is in excess of such Certificate's
allocable portion of the aggregate "adjusted issue prices" of the Mortgage Loans
held in the related Trust Fund, approximately in proportion to the ratio such
excess bears to such Certificate's allocable portion of the aggregate original
issue discount remaining to be accrued on such Mortgage Loans. The adjusted
issue price of a Mortgage Loan on any given day equals the sum of (i) the
adjusted issue price (or, in the case of the first accrual period, the issue
price) of such Mortgage Loan at the beginning of the accrual period that
includes such day and (ii) the daily portions of original issue discount for all
days during such accrual period prior to such day. The adjusted issue price of a
Mortgage Loan at the beginning of any accrual period will equal the issue price
of such Mortgage Loan, increased by the aggregate amount of original issue
discount with respect to such Mortgage Loan that accrued in prior accrual
periods, and reduced by the amount of any payments made on such Mortgage Loan in
prior accrual periods of amounts included in its stated redemption price.
In addition to its regular reports, the Master Servicer or the Trustee,
except as provided in the related Prospectus Supplement, will provide to any
holder of a Grantor Trust Fractional Interest Certificate such information as
such holder may reasonably request from time to time with respect to original
issue discount accruing on Grantor Trust Fractional Interest Certificates. See
"Grantor Trust Reporting" below.
MARKET DISCOUNT. If the stripped bond rules do not apply to the Grantor
Trust Fractional Interest Certificate, a Certificateholder may be subject to the
market discount rules of Sections 1276 through 1278 of the Code to the extent an
interest in a Mortgage Loan is considered to have been purchased at a "market
discount," that is, in the case of a Mortgage Loan issued without original issue
discount, at a purchase price less than its remaining stated redemption price
(as defined above), or in the case of a Mortgage Loan issued with original issue
discount, at a purchase price less than its adjusted issue price (as defined
above). If market discount is in excess of a de minimis amount (as described
below), the holder generally will be required to include in income in each month
the amount of such discount that has accrued (under the rules described in the
next paragraph) through such month that has not previously been included in
income, but limited, in the case of the portion of such discount that is
allocable to any Mortgage Loan, to the payment of stated redemption price on
such Mortgage Loan that is received by (or, in the case of accrual basis
Certificateholders, due to) the Trust Fund in that month. A Certificateholder
may elect to include market discount in income currently as it accrues (under a
constant yield method based on the yield of the Certificate to such holder)
rather than including it on a deferred basis in accordance with the foregoing
under rules similar to those described in "--Taxation of Owners of REMIC Regular
Certificates--Market Discount" above.
Section 1276(b)(3) of the Code authorized the Treasury Department to
issue regulations providing for the method for accruing 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 Department, certain
rules described in the Committee Report will apply. Under those rules, in each
accrual period market discount on the Mortgage Loans should accrue, at the
Certificateholder's option: (i) on the basis of a constant yield method, (ii) in
the case of a Mortgage Loan issued without original issue discount, in an amount
that bears the same ratio to the total remaining market discount as the stated
interest paid in the accrual period bears to the total stated interest remaining
to be paid on the Mortgage Loan as of the beginning of the accrual period, or
(iii) in the case of a Mortgage Loan issued with original issue discount, in an
amount that bears the same ratio to the total remaining market discount as the
original
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issue discount accrued in the accrual period bears to the total original issue
discount remaining at the beginning of the accrual period. The prepayment
assumption, if any, used in calculating the accrual of original issue discount
is to be used in calculating the accrual of market discount. The effect of using
a prepayment assumption could be to accelerate the reporting of such discount
income. Because the regulations referred to in this paragraph have not been
issued, it is not possible to predict what effect such regulations might have on
the tax treatment of a Mortgage Loan purchased at a discount in the secondary
market.
Because the Mortgage Loans will provide for periodic payments of stated
redemption price, such discount may be required to be included in income at a
rate that is not significantly slower than the rate at which such discount would
be included in income if it were original issue discount.
Market discount with respect to Mortgage Loans may be considered to be
de minimis and, if so, will be includible in income under de minimis rules
similar to those described above in "-REMICs-Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount" with the exception that it is less likely
that a prepayment assumption will be used for purposes of such rules with
respect to the Mortgage Loans.
Further, under the rules described in "--REMICs--Taxation of Owners of
REMIC Regular Certificates--Market Discount," above, any discount that is not
original issue discount and exceeds a de minimis amount may require the deferral
of interest expense deductions attributable to accrued market discount not yet
includible in income, unless an election has been made to report market discount
currently as it accrues. This rule applies without regard to the origination
dates of the Mortgage Loans.
PREMIUM. If a Certificateholder is treated as acquiring the underlying
Mortgage Loans at a premium, that is, at a price in excess of their remaining
stated redemption price, such Certificateholder may elect under Section 171 of
the Code to amortize using a constant yield method the portion of such premium
allocable to Mortgage Loans originated after September 27, 1985. Amortizable
premium is treated as an offset to interest income on the related debt
instrument, rather than as a separate interest deduction. However, premium
allocable to Mortgage Loans originated before September 28, 1985 or to Mortgage
Loans for which an amortization election is not made, should be allocated among
the payments of stated redemption price on the Mortgage Loan and be allowed as a
deduction as such payments are made (or, for a Certificateholder using the
accrual method of accounting, when such payments of stated redemption price are
due).
It is unclear whether a prepayment assumption should be used in
computing amortization of premium allowable under Section 171 of the Code. If
premium is not subject to amortization using a prepayment assumption and a
Mortgage Loan prepays in full, the holder of a Grantor Trust Fractional Interest
Certificate acquired at a premium should recognize a loss, equal to the
difference between the portion of the prepaid principal amount of the Mortgage
Loan that is allocable to the Certificate and the portion of the adjusted basis
of the Certificate that is allocable to the Mortgage Loan. If a prepayment
assumption is used to amortize such premium, it appears that such a loss would
be unavailable. Instead, if a prepayment assumption is used, a prepayment should
be treated as a partial payment of the stated redemption price of the Grantor
Trust Fractional Interest Certificate and accounted for under a method similar
to that described for taking account of original issue discount on REMIC Regular
Certificates. See "REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount." It is unclear whether any other
adjustments would be required to reflect differences between the prepayment
assumption used, and the actual rate of prepayments.
TAXATION OF OWNERS OF GRANTOR TRUST STRIP CERTIFICATES. The "stripped
coupon" rules of Section 1286 of the Code will apply to the Grantor Trust Strip
Certificates. Except as described above in "Characterization of Investments in
Grantor Trust Certificates--If Stripped Bond Rules Apply," no regulations or
published rulings under Section 1286 of the Code have been issued and some
uncertainty exists as to how it will be applied to securities such as the
Grantor Trust Strip Certificates. Accordingly, holders of Grantor Trust Strip
Certificates should consult their own tax advisors concerning the method to be
used in reporting income or loss with respect to such Certificates.
The OID Regulations do not apply to "stripped coupons," although they
provide general guidance as to how the original issue discount sections of the
Code will be applied. In addition, the discussion below is subject to the
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discussion under "--Possible Application of Contingent Payment Rules" and
assumes that the holder of a Grantor Trust Strip Certificate will not own any
Grantor Trust Fractional Interest Certificates.
Under the stripped coupon rules, it appears that original issue
discount will be required to be accrued in each month on the Grantor Trust Strip
Certificates based on a constant yield method. In effect, each holder of Grantor
Trust Strip Certificates would include as interest income in each month an
amount equal to the product of such holder's adjusted basis in such Grantor
Trust Strip Certificate at the beginning of such month and the yield of such
Grantor Trust Strip Certificate to such holder. Such yield would be calculated
based on the price paid for that Grantor Trust Strip Certificate by its holder
and the payments remaining to be made thereon at the time of the purchase, plus
an allocable portion of the servicing fees and expenses to be paid with respect
to the Mortgage Loans. See "Characterization of Investments in Grantor Trust
Certificates--If Stripped Bond Rules Apply" above.
As noted above, Section 1272(a)(6) of the Code requires that a
prepayment assumption be used in computing the accrual of original issue
discount with respect to certain categories of debt instruments, and that
adjustments be made in the amount and rate of accrual of such discount when
prepayments do not conform to such prepayment assumption. To the extent the
Grantor Trust Strip Certificates represent an interest in any pool of debt
instruments the yield on which may be affected by reason of prepayments, those
provisions will apply to the Grantor Trust Strip Certificates for taxable years
beginning after August 5, 1997. It is unclear whether those provisions would be
applicable to the Grantor Trust Strip Certificates that do not represent an
interest in any such pool or for taxable years beginning prior to August 5,
1997, or whether use of a prepayment assumption may be required or permitted in
the absence of such provisions. It is also uncertain, if a prepayment assumption
is used, whether the assumed prepayment rate would be determined based on
conditions at the time of the first sale of the Grantor Trust Strip Certificate
or, with respect to any subsequent holder, at the time of purchase of the
Grantor Trust Strip Certificate by that holder.
The accrual of income on the Grantor Trust Strip Certificates will be
significantly slower if a prepayment assumption is permitted to be made than if
yield is computed assuming no prepayments. It currently is intended to base
information returns or reports to the IRS and Certificateholders on the
Prepayment Assumption disclosed in the related Prospectus Supplement and on a
constant yield computed using a representative initial offering price for each
class of Certificates. However, neither the Company, the Master Servicer nor the
Trustee will make any representation that the Mortgage Loans will in fact prepay
at a rate conforming to the Prepayment Assumption or at any other rate and
Certificateholders should bear in mind that the use of a representative initial
offering price will mean that such information returns or reports, even if
otherwise accepted as accurate by the IRS, will in any event be accurate only as
to the initial Certificateholders of each series who bought at that price.
Prospective purchasers of the Grantor Trust Strip Certificates should consult
their own tax advisors regarding the use of the Prepayment Assumption.
It is unclear under what circumstances, if any, the prepayment of a
Mortgage Loan will give rise to a loss to the holder of a Grantor Trust Strip
Certificate. If a Grantor Trust Strip 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
Grantor Trust Strip Certificate, it appears that no loss may be available as a
result of any particular prepayment unless prepayments occur at a rate faster
than the Prepayment Assumption. However, if a Grantor Trust Strip Certificate is
treated as an interest in discrete Mortgage Loans, or if the Prepayment
Assumption is not used, then when a Mortgage Loan is prepaid, the holder of a
Grantor Trust Strip Certificate should be able to recognize a loss equal to the
portion of the adjusted issue price of the Grantor Trust Strip Certificate that
is allocable to such Mortgage Loan.
POSSIBLE APPLICATION OF CONTINGENT PAYMENT RULES. The coupon stripping
rules' general treatment of stripped coupons is to regard them as newly issued
debt instruments in the hands of each purchaser. To the extent that payments on
the Grantor Trust Strip Certificates would cease if the Mortgage Loans were
prepaid in full, the Grantor Trust Strip Certificates could be considered to be
debt instruments providing for contingent payments. Under the OID Regulations,
debt instruments providing for contingent payments are not subject to the same
rules as debt instruments providing for noncontingent payments. Regulations were
promulgated on June 14, 1996, regarding contingent payment debt instruments (the
"Contingent Payment Regulations"), but it appears that Grantor Trust Strip
Certificates, to the extent subject to Section 1272(a)(6) of the Code, as
described above, or due to their similarity to other mortgage-backed securities
(such as REMIC regular interests and debt instruments subject to Section
1272(a)(6) of the Code) that are expressly excepted from the application of the
Contingent Payment Regulations, are or may be excepted from
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such regulations. Like the OID Regulations, the Contingent Payment Regulations
do not specifically address securities, such as the Grantor Trust Strip
Certificates, that are subject to the stripped bond rules of Section 1286 of the
Code.
If the contingent payment rules under the Contingent Payment
Regulations were to apply, the holder of a Grantor Trust Strip Certificate would
be required to apply the "noncontingent bond method." Under the "noncontingent
bond method," the issuer of a Grantor Trust Strip Certificate determines a
projected payment schedule on which interest will accrue. Holders of Grantor
Trust Strip Certificates are bound by the issuer's projected payment schedule.
The projected payment schedule consists of all noncontingent payments and a
projected amount for each contingent payment based on the projected yield (as
described below) of the Grantor Trust Strip Certificate. The projected amount of
each payment is determined so that the projected payment schedule reflects the
projected yield. The projected amount of each payment must reasonably reflect
the relative expected values of the payments to be received by the holder of a
Grantor Trust Strip Certificate. The projected yield referred to above is a
reasonable rate, not less than the "applicable Federal rate" that, as of the
issue date, reflects general market conditions, the credit quality of the
issuer, and the terms and conditions of the Mortgage Loans. The holder of a
Grantor Trust Strip Certificate would be required to include as interest income
in each month the adjusted issue price of the Grantor Trust Strip Certificate at
the beginning of the period multiplied by the projected yield, and would add to,
or subtract from, such income any variation between the payment actually
received in such month and the payment originally projected to be made in such
month.
Assuming that a prepayment assumption were used, if the Contingent
Payment Regulations or their principles were applied to Grantor Trust Strip
Certificates, the amount of income reported with respect thereto would be
substantially similar to that described under "Taxation of Owners of Grantor
Trust Strip Certificates". Certificateholders should consult their tax advisors
concerning the possible application of the contingent payment rules to the
Grantor Trust Strip Certificates.
SALES OF GRANTOR TRUST CERTIFICATES. Any gain or loss equal to the
difference between the amount realized on the sale or exchange of a Grantor
Trust Certificate and its adjusted basis, recognized on such sale or exchange of
a Grantor Trust Certificate by an investor who holds such Grantor Trust
Certificate as a capital asset, will be capital gain or loss, except to the
extent of accrued and unrecognized market discount, which will be treated as
ordinary income, and (in the case of banks and other financial institutions)
except as provided under Section 582(c) of the Code. The adjusted basis of a
Grantor Trust Certificate generally will equal its cost, increased by any income
reported by the seller (including original issue discount and market discount
income) and reduced (but not below zero) by any previously reported losses, any
amortized premium and by any distributions with respect to such Grantor Trust
Certificate.
Gain or loss from the sale of a Grantor Trust Certificate may be
partially or wholly ordinary and not capital in certain circumstances. Gain
attributable to accrued and unrecognized market discount will be treated as
ordinary income, as will gain or loss recognized by banks and other financial
institutions subject to Section 582(c) of the Code. Furthermore, a portion of
any gain that might otherwise be capital gain may be treated as ordinary income
to the extent that the Grantor Trust Certificate is held as part of a
"conversion transaction" within the meaning of Section 1258 of the Code. A
conversion transaction generally is one in which the taxpayer has taken two or
more positions in the same or similar property that reduce or eliminate market
risk, if substantially all of the taxpayer's return is attributable to the time
value of the taxpayer's net investment in such transaction. The amount of gain
realized in a conversion transaction that is recharacterized as ordinary income
generally will not exceed the amount of interest that would have accrued on the
taxpayer's net investment at 120% of the appropriate "applicable Federal rate"
(which rate is computed and published monthly by the IRS) at the time the
taxpayer enters into the conversion transaction, subject to appropriate
reduction for prior inclusion of interest and other ordinary income items from
the transaction. Finally, a taxpayer may elect to have net capital gain taxed at
ordinary income rates rather than capital gains rates in order to include such
net capital gain in total net investment income for that taxable year, for
purposes of the rule that limits the deduction of interest on indebtedness
incurred to purchase or carry property held for investment to a taxpayer's net
investment income.
GRANTOR TRUST REPORTING. Except as set forth in the related Prospectus
Supplement, the Master Servicer or the Trustee will furnish to each holder of a
Grantor Trust Fractional Interest Certificate with each distribution a statement
setting forth the amount of such distribution allocable to principal on the
underlying Mortgage Loans and
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to interest thereon at the related Pass-Through Rate. In addition, the Master
Servicer or the Trustee will furnish, within a reasonable time after the end of
each calendar year, to each holder of a Grantor Trust Certificate who was such a
holder at any time during such year, information regarding the amount of
servicing compensation received by the Master Servicer and sub-servicer (if any)
and such other customary factual information as the Master Servicer or the
Trustee deems necessary or desirable to enable holders of Grantor Trust
Certificates to prepare their tax returns and will furnish comparable
information to the IRS as and when required by law to do so. Because the rules
for accruing discount and amortizing premium with respect to the Grantor Trust
Certificates are uncertain in various respects, there is no assurance the IRS
will agree with the Trust Fund's information reports of such items of income and
expense. Moreover, such information reports, even if otherwise accepted as
accurate by the IRS, will in any event be accurate only as to the initial
Certificateholders that bought their Certificates at the representative initial
offering price used in preparing such reports.
Except as disclosed in the related Prospectus Supplement, the
responsibility for complying with the foregoing reporting rules will be borne by
the Master Servicer or the Trustee.
BACKUP WITHHOLDING. In general, the rules described in
"--REMICS--Backup Withholding with Respect to REMIC Certificates" will also
apply to Grantor Trust Certificates.
FOREIGN INVESTORS. In general, the discussion with respect to REMIC
Regular Certificates in "REMICS--Foreign Investors in REMIC Certificates"
applies to Grantor Trust Certificates except that Grantor Trust Certificates
will, except as disclosed in the related Prospectus Supplement, be eligible for
exemption from U.S. withholding tax, subject to the conditions described in such
discussion, only to the extent the related Mortgage Loans were originated after
July 18, 1984.
To the extent that interest on a Grantor Trust Certificate would be
exempt under Sections 871(h)(1) and 881(c) of the Code from United States
withholding tax, and the Grantor Trust Certificate is not held in connection
with a Certificateholder's trade or business in the United States, such Grantor
Trust Certificate will not be subject to United States estate taxes in the
estate of a non-resident alien individual.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in
"Federal Income Tax Consequences", potential investors should consider the state
and local tax consequences of the acquisition, ownership, and disposition of the
Securities offered hereunder. State tax law may differ substantially from the
corresponding federal tax law, and the discussion above does not purport to
describe any aspect of the tax laws of any state or other jurisdiction.
Therefore, prospective investors should consult their own tax advisors with
respect to the various tax consequences of investments in the Securities offered
hereunder.
ERISA CONSIDERATIONS
Sections 404 and 406 of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), impose certain fiduciary and prohibited transaction
restrictions on employee pension and welfare benefit plans subject to ERISA
("ERISA Plans") and on certain other retirement plans and arrangements,
including individual retirement accounts and annuities, Keogh plans and bank
collective investment funds and insurance company general and separate accounts
in which such ERISA Plans are invested. Section 4975 of the Code imposes
essentially the same prohibited transaction restrictions on tax-qualified
retirement plans described in Section 401(a) of the Code and on Individual
Retirement Accounts described in Section 408 of the Code (collectively, "Tax
Favored Plans"). ERISA and the Code prohibit a broad range of transactions
involving assets of ERISA Plans and Tax Favored Plans (collectively, "Plans")
and persons who have certain specified relationships to such Plans ("Parties in
Interest" within the meaning of ERISA or "Disqualified Persons" within the
meaning of the Code, collectively "Parties in Interest"), unless a statutory or
administrative exemption is available with respect to any such transaction.
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Certain employee benefit plans, such as governmental plans (as defined
in Section 3(32) of ERISA), and, if no election has been made under Section
410(d) of the Code, church plans (as defined in Section 3(33) of ERISA) are not
subject to ERISA requirements. Accordingly, assets of such plans may be invested
in the Securities without regard to the ERISA considerations described below,
subject to the provisions of other applicable federal, state and local law. Any
such plan which is qualified and exempt from taxation under Sections 401(a) and
501(a) of the Code, however, is subject to the prohibited transaction rules set
forth in Section 503 of the Code.
Certain transactions involving the Trust Fund might be deemed to
constitute prohibited transactions under ERISA and the Code with respect to a
Plan that purchases the Securities, if the Mortgage Loans and other assets
included in a Trust Fund are deemed to be assets of the Plan. The U.S.
Department of Labor (the "DOL") has promulgated regulations at 29 C.F.R.
ss.2510.3-101 (the "DOL Regulations") defining the term "Plan Assets" for
purposes of applying the general fiduciary responsibility provisions of ERISA
and the prohibited transaction provisions of ERISA and the Code. Under the DOL
Regulations, generally, when a Plan acquires an "equity interest" in another
entity (such as the Trust Fund), the underlying assets of that entity may be
considered to be Plan Assets unless certain exceptions apply. Exceptions
contained in the DOL Regulations provide that a Plan's assets will not include
an undivided interest in each asset of an entity in which such Plan makes an
equity investment if: (1) the entity is an operating company; (2) the equity
investment made by the Plan is either a "publicly-offered security" that is
"widely held," both as defined in the DOL Regulations, or a security issued by
an investment company registered under the Investment Company Act of 1940, as
amended; or (3) Benefit Plan Investors do not own 25% or more in value of any
class of equity securities issued by the entity. For this purpose, "Benefit Plan
Investors" include Plans, as well as any "employee benefit plan" (as defined in
Section 3(3) or ERISA) which is not subject to Title I of ERISA, such as
governmental plans (as defined in Section 3(32) of ERISA) and church plans (as
defined in Section 3(33) of ERISA) which have not made an election under Section
410(d) of the Code, and any entity whose underlying assets include Plan Assets
by reason of a Plan's investment in the entity. In addition, the DOL Regulations
provide that the term "equity interest" means any interest in an entity other
than an instrument which is treated as indebtedness under applicable local law
and which has no "substantial equity features." Under the DOL Regulations, Plan
Assets will be deemed to include an interest in the instrument evidencing the
equity interest of a Plan (such as a Certificate or a Note with "substantial
equity features"), and, because of the factual nature of certain of the rules
set forth in the DOL Regulations, Plan Assets may be deemed to include an
interest in the underlying assets of the entity in which a Plan acquires an
interest (such as the Trust Fund). Without regard to whether the Notes are
characterized as equity interests, the purchase, sale and holding of Notes by or
on behalf of a Plan could be considered to give rise to a prohibited transaction
if the Issuer, the Trustee or any of their respective affiliates is or becomes a
Party in Interest with respect to such Plan. Neither Plans nor persons investing
Plan Assets should acquire or hold Securities in reliance upon the availability
of any exception under the DOL Regulations.
ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan. Any person who has discretionary authority or control with
respect to the management or disposition of Plan Assets and any person who
provides investment advice with respect to such Plan Assets for a fee is a
fiduciary of the investing Plan. If the Mortgage Loans and other assets included
in the Trust Fund were to constitute Plan Assets, then any party exercising
management or discretionary control with respect to those Plan Assets may be
deemed to be a Plan "fiduciary," and thus subject to the fiduciary
responsibility provisions of ERISA and the prohibited transaction provisions of
ERISA and Section 4975 of the Code with respect to any investing Plan. In
addition, the acquisition or holding of Securities by or on behalf of a Plan or
with Plan Assets, as well as the operation of the Trust Fund, may constitute or
involve a prohibited transaction under ERISA and the Code unless a statutory or
administrative exemption is available.
The DOL issued an individual prohibited transactions exemption
("Exemption") to certain underwriters, which generally exempts from the
application of the prohibited transaction provisions of Section 406 of ERISA,
and the excise taxes imposed on such prohibited transactions pursuant to Section
4975(a) and (b) of the Code, certain transactions, among others, relating to the
servicing and operation of mortgage pools and the initial purchase, holding and
subsequent resale of mortgage pass-through certificates underwritten by an
Underwriter (as hereinafter defined), provided that certain conditions set forth
in the Exemption are satisfied. For purposes of this Section "ERISA
Considerations", the term "Underwriter" shall include (a) the underwriter, (b)
any person directly or indirectly, through one or more intermediaries,
controlling, controlled by or under common control with the underwriter and (c)
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any member of the underwriting syndicate or selling group of which a person
described in (a) or (b) is a manager or co-manager with respect to a class of
Securities.
The Exemption sets forth six general conditions which must be satisfied
for the Exemption to apply. First, the acquisition of Securities by a Plan or
with Plan Assets must be on terms that are at least as favorable to the Plan as
they would be in an arm's-length transaction with an unrelated party. Second,
the Exemption only applies to Securities evidencing rights and interests that
are not subordinated to the rights and interests evidenced by other Securities
of the same trust. Third, the Securities at the time of acquisition by a Plan or
with Plan Assets must be rated in one of the three highest generic rating
categories by Standard & Poor's Structured Rating Group, Moody's Investors
Service, Inc., Duff & Phelps Credit Rating Co. or Fitch Investors Service, L.P.
(collectively, the "Exemption Rating Agencies"). Fourth, the Trustee cannot be
an affiliate of any member of the "Restricted Group" which consists of any
Underwriter, the Company, the Master Servicer, the Special Servicer, any
Sub-Servicer and any obligor with respect to assets included in the Trust Fund
constituting more than 5% of the aggregate unamortized principal balance of the
assets in the Trust Fund as of the date of initial issuance of the Securities.
Fifth, the sum of all payments made to and retained by the Underwriter(s) must
represent not more than reasonable compensation for underwriting the Securities;
the sum of all payments made to and retained by the Company pursuant to the
assignment of the assets to the related Trust Fund must represent not more than
the fair market value of such obligations; and the sum of all payments made to
and retained by the Master Servicer, the Special Servicer and any Sub-Servicer
must represent not more than reasonable compensation for such person's services
under the related Agreement and reimbursement of such person's reasonable
expenses in connection therewith. Sixth, the Exemption states that the investing
Plan or Plan Asset investor must be an accredited investor as defined in Rule
501(a)(1) of Regulation D of the Commission under the Securities Act of 1933, as
amended.
The Exemption also requires that the Trust Fund meet the following
requirements: (i) the Trust Fund must consist solely of assets of the type that
have been included in other investment pools; (ii) Securities evidencing
interests in such other investment pools must have been rated in one of the
three highest generic categories of one of the Exemption Rating Agencies for at
least one year prior to the acquisition of Securities by or on behalf of a Plan
or with Plan Assets; and (iii) Securities evidencing interests in such other
investment pools must have been purchased by investors other than Plans for at
least one year prior to any acquisition of Securities by or on behalf of a Plan
or with Plan Assets.
A fiduciary of a Plan or any person investing Plan Assets to purchase a
Certificate must make its own determination that the conditions set forth above
will be satisfied with respect to such Certificate.
If the general conditions of the Exemption are satisfied, the Exemption
may provide an exemption from the restrictions imposed by Sections 406(a) and
407(a) of ERISA, and the excise taxes imposed by Sections 4975(a) and (b) of the
Code by reason of Sections 4975(c)(1)(A) through (D) of the Code, in connection
with the direct or indirect sale, exchange or transfer of Securities in the
initial issuance of such Securities or the direct or indirect acquisition or
disposition in the secondary market of Securities by a Plan or with Plan Assets
or the continued holding of Securities acquired by a Plan or with Plan Assets
pursuant to either of the foregoing. However, no exemption is provided from the
restrictions of Sections 406(a)(1)(E), 406(a)(2) and 407 of ERISA for the
acquisition or holding of a Security on behalf of an "Excluded Plan" by any
person who has discretionary authority or renders investment advice with respect
to the assets of such Excluded Plan. For purposes of the Securities, an Excluded
Plan is a Plan sponsored by any member of the Restricted Group.
If certain specific conditions of the Exemption are also satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(b)(1) and (b)(2) of ERISA, and the excise taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Section 4975(c)(1)(E) of the Code, in
connection with (1) the direct or indirect sale, exchange or transfer of
Securities in the initial issuance of Securities between the Depositor or an
Underwriter and a Plan when the person who has discretionary authority or
renders investment advice with respect to the investment of Plan Assets in the
Securities is (a) a mortgagor with respect to 5% or less of the fair market
value of the Trust Fund Assets or (b) an affiliate of such a person, (2) the
direct or indirect acquisition or disposition in the secondary market of
Securities by a Plan or with Plan Assets and (3) the continued holding of
Securities acquired by a Plan or with Plan Assets pursuant to either of the
foregoing.
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Further, if certain specific conditions of the Exemption are satisfied,
the Exemption may provide an exemption from the restrictions imposed by Sections
406(a), 406(b) and 407 of ERISA, and the excise taxes imposed by Sections
4975(a) and (b) of the Code by reason of Section 4975(c) of the Code for
transactions in connection with the servicing, management and operation of the
Trust Fund. The Depositor expects that the specific conditions of the Exemption
required for this purpose will be satisfied with respect to the Securities so
that the Exemption would provide an exemption from the restrictions imposed by
Sections 406(a) and (b) of ERISA (as well as the excise taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c) of the Code)
for transactions in connection with the servicing, management and operation of
the Trust Fund, provided that the general conditions of the Exemption are
satisfied.
The Exemption also may provide an exemption from the restrictions
imposed by Sections 406(a) and 407(a) of ERISA, and the excise taxes imposed by
Section 4975(a) and (b) of the Code by reason of Sections 4975(c)(1)(A) through
(D) of the Code if such restrictions are deemed to otherwise apply merely
because a person is deemed to be a Party in Interest with respect to an
investing Plan by virtue of providing services to the Plan (or by virtue of
having certain specified relationships to such a person) solely as a result of
the Plan's ownership of Securities.
On July 21, 1997, the DOL published in the Federal Register an
amendment to the Exemption, which will extend exemptive relief to certain
mortgage-backed and asset-backed securities transactions using pre-funding
accounts for trusts issuing pass-through certificates. With respect to the
Certificates, the amendment will generally allow Mortgage Loans supporting
payments to Certificateholders, and having a value equal to no more than 25% of
the total principal amount of the Certificates being offered by a Trust Fund, to
be transferred to such Trust Fund within a period no longer than 90 days or
three months following the Closing Date ("Pre-Funding Period") instead of
requiring that all such Mortgage Loans be either identified or transferred on or
before the Closing Date. In general, the relief applies to the purchase, sale
and holding of Certificates which otherwise qualify for the Exemption, provided
that the following general conditions are met:
(1) the ratio of the amount allocated to the Pre-Funding
Account to the total principal amount of the Certificates being offered
("Pre-Funding Limit") must be less than or equal to: (i) 40% for
transactions occurring on or after January 1, 1992 but prior to May 23,
1997 and (ii) 25% for transactions occurring on or after May 23, 1997;
(2) all additional Mortgage Loans transferred to the related
Trust Fund after the Closing Date ("Subsequent Mortgage Loans") must
meet the same terms and conditions for eligibility as the original
Mortgage Loans used to create the Trust Fund, which terms and
conditions have been approved by one of the Exemption Rating Agencies;
(3) the transfer of such Subsequent Mortgage Loans to the
Trust Fund during the Pre-Funding Period must not result in the
Certificates to be covered by the Exemptions receiving a lower credit
rating from an Exemption Rating Agency upon termination of the
Pre-Funding Period than the rating that was obtained at the time of the
initial issuance of the Certificates by the Trust Fund;
(4) solely as a result of the use of pre-funding, the weighted
average annual percentage interest rate (the "Average Interest Rate")
for all of the Mortgage Loans and Subsequent Mortgage Loans in the
Trust Fund at the end of the Pre-Funding Period must not be more than
100 basis points lower than the Average Interest Rate for the Mortgage
Loans which were transferred to the Trust Fund on the Closing Date;
(5) for transactions occurring on or after May 23, 1997,
either:
(i) the characteristics of the Subsequent Mortgage Loans
must be monitored by an insurer or other credit support provider which
is independent of the Depositor; or
(ii)an independent accountant retained by the Depositor
must provide the Depositor with a letter (with copies provided to the
Exemption Rating Agency rating the Certificates, the Underwriter and
the Trustee) stating whether or not the characteristics of the
Subsequent Mortgage Loans conform to the characteristics described in
the Prospectus or Prospectus Supplement and/or Agreement. In preparing
such
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letter, the independent accountant must use the same type of procedures
as were applicable to the Mortgage Loans which were transferred to the
Trust Fund as of the Closing Date;
(6) the Pre-Funding Period must end no later than three months
or 90 days after the Closing Date or earlier in certain circumstances
if the Pre-Funding Accounts falls below the minimum level specified in
the Agreement or an event of default occurs;
(7) amounts transferred to any Pre-Funding Accounts and/or
capitalized interest account used in connection with the pre-funding
may be invested only in investments which are permitted by the
Exemption Rating Agencies rating the Certificates and must:
(i) be direct obligations of, or obligations fully
guaranteed as to timely payment of principal and interest by, the
United States or any agency or instrumentality thereof (provided that
such obligations are backed by the full faith and credit of the United
States); or
(ii)have been rated (or the obligor has been rated) in
one of the three highest generic rating categories by one of the
Exemption Rating Agencies ("ERISA Permitted Investments");
(8) the Prospectus or Prospectus Supplement must describe the
duration of the Pre-Funding Period;
(9) the Trustee (or any agent with which the Trustee contracts
to provide trust services) must be a substantial financial institution
or trust company experienced in trust activities and familiar with its
duties, responsibilities and liabilities with ERISA. The Trustee, as
legal owner of the Trust Fund, must enforce all the rights created in
favor of Certificateholders of the Trust Fund, including employee
benefit plans subject to ERISA.
In addition to the Exemption, a Plan fiduciary or other Plan Asset
investor should consider the availability of certain class exemptions granted by
the DOL ("Class Exemptions"), which may provide relief from certain of the
prohibited transaction provisions of ERISA and the related excise tax provisions
of the Code, including Prohibited Transaction Class Exemption ("PTCE") 83-1,
regarding transactions involving mortgage pool investment trusts; PTCE 84-14,
regarding transactions effected by a "qualified professional asset manager";
PTCE 90-1, regarding transactions by insurance company pooled separate accounts;
PTCE 91-38, regarding investments by bank collective investment funds; PTCE
95-60, regarding transactions by insurance company general accounts; and PTCE
96-23, regarding transactions effected by an "in-house asset manager."
In addition to any exemption that may be available under PTCE 95-60 for
the purchase and holding of the Securities by an insurance company general
account, the Small Business Job Protection Act of 1996 added a new Section
401(c) to ERISA, which provides certain exemptive relief from the provisions of
Part 4 of Title I of ERISA and Section 4975 of the Code, including the
prohibited transaction restrictions imposed by ERISA and the related excise
taxes imposed by the Code, for transactions involving an insurance company
general account. Pursuant to Section 401(c) of ERISA, the DOL is required to
issue final regulations ("401(c) Regulations") no later than December 31, 1997
which are to provide guidance for the purpose of determining, in cases where
insurance policies supported by an insurer's general account are issued to or
for the benefit of a Plan on or before December 31, 1998, which general account
assets constitute Plan Assets. Section 401(c) of ERISA generally provides that,
until the date which is 18 months after the 401(c) Regulations become final, no
person shall be subject to liability under Part 4 of Title I of ERISA and
Section 4975 of the Code on the basis of a claim that the assets of an insurance
company general account constitute Plan Assets, unless (i) as otherwise provided
by the Secretary of Labor in the 401(c) Regulations to prevent avoidance of the
regulations or (ii) an action is brought by the Secretary of Labor for certain
breaches of fiduciary duty which would also constitute a violation of federal or
state criminal law. Any assets of an insurance company general account which
support insurance policies issued to a Plan after December 31, 1998 or issued to
Plans on or before December 31, 1998 for which the insurance company does not
comply with the 401(c) Regulations may be treated as Plan Assets. In addition,
because Section 401(c) does not relate to insurance company separate accounts,
separate account assets are still treated as Plan Assets of any Plan invested in
such separate account. Insurance companies contemplating the investment of
general account assets in the Securities should consult with their legal
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counsel with respect to the applicability of Section 401(c) of ERISA, including
the general account's ability to continue to hold the Securities after the date
which is 18 months after the date the 401(c) Regulations become final.
REPRESENTATION FROM PLANS INVESTING IN NOTES WITH "SUBSTANTIAL EQUITY FEATURES"
OR CERTAIN CERTIFICATES
Because the exemptive relief afforded by the Exemption (or any similar
exemption that might be available) will not apply to the purchase, sale or
holding of certain Securities, such as Notes with "substantial equity features,"
Subordinate Securities, REMIC Residual Certificates, any Securities which are
not rated in one of the three highest generic rating categories by the Exemption
Rating Agencies transfers of any such Securities to a Plan, to a trustee or
other person acting on behalf of any Plan, or to any other person investing Plan
Assets to effect such acquisition will not be registered by the Trustee unless
the transferee provides the Company, the Trustees and the Master Servicer with
an opinion of counsel satisfactory to the Company, the Trustee (or Indenture
Trustee in the case of transfer of Notes) and the Master Servicer, which opinion
will not be at the expense of the Company, the Trustee (or the Indenture Trustee
in the case of the transfer of Notes) or the Master Servicer, that the purchase
of such Securities by or on behalf of such Plan is permissible under applicable
law, will not constitute or result in any non-exempt prohibited transaction
under ERISA or Section 4975 of the Code and will not subject the Company, the
Trustee (or the Indenture Trustee in the case of the transfer of Notes) or the
Master Servicer to any obligation in addition to those undertaken in the related
Agreement.
In lieu of such opinion of counsel, the transferee may provide a
certification substantially to the effect that the purchase of Securities by or
on behalf of such Plan is permissible under applicable law, will not constitute
or result in any non-exempt prohibited transaction under ERISA or Section 4975
of the Code and will not subject the Company, the Trustees or the Master
Servicer to any obligation in addition to those undertaken in the Agreement and
the following statements are correct: (i) the transferee is an insurance
company, (ii) the source of funds used to purchase such Securities is an
"insurance company general account" (as such term is defined in PTCE 95-60),
(iii) the conditions set forth in PTCE 95-60 have been satisfied and (iv) there
is no Plan with respect to which the amount of such general account's reserves
and liabilities for contracts held by or on behalf of such Plan and all other
Plans maintained by the same employer (or any "affiliate" thereof, as defined in
PTCE 95-60) or by the same employee organization exceed 10% of the total of all
reserves and liabilities of such general account (as determined under PTCE
95-60) as of the date of the acquisition of such Securities.
An opinion of counsel or certification will not be required with
respect to the purchase of DTC registered Securities. Any purchaser of a DTC
registered Security will be deemed to have represented by such purchase that
either (a) such purchaser is not a Plan and is not purchasing such Securities on
behalf of, or with Plan Assets of, any Plan or (b) the purchase of any such
Security by or on behalf of, or with Plan Assets of, any Plan is permissible
under applicable law, will not result in any non-exempt prohibited transaction
under ERISA or Section 4975 of the Code and will not subject the Company, the
Trustee or the Master Servicer to any obligation in addition to those undertaken
in the related Agreement.
TAX EXEMPT INVESTORS
A Plan that is exempt from federal income taxation pursuant to Section
501 of the Code (a "TAX-EXEMPT INVESTOR") nonetheless will be subject to federal
income taxation to the extent that its income is "unrelated business taxable
income" ("UBTI") within the meaning of Section 512 of the Code. All "excess
inclusion" of a REMIC allocated to a REMIC Residual Certificate and held by a
Tax-Exempt investor will be considered UBTI and thus will be subject to federal
income tax. See "Federal Income Tax Consequences -- Taxation of Owners of REMIC
Residual Certificates -- Excess Inclusions."
CONSULTATION WITH COUNSEL
There can be no assurance that any DOL exemption will apply with
respect to any particular Plan that acquires the Securities or, even if all the
conditions specified therein were satisfied, that any such exemption would apply
to transactions involving the Trust Fund. Prospective Plan investors should
consult with their legal counsel concerning the impact of ERISA and the Code and
the potential consequences to their specific circumstances prior to making an
investment in the Securities. Neither the Company, the Trustees, the Master
Servicer nor any of their
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respective affiliates will make any representation to the effect that the
Securities satisfy all legal requirements with respect to the investment therein
by Plans generally or any particular Plan or to the effect that the Securities
are an appropriate investment for Plans generally or any particular Plan.
BEFORE PURCHASING THE SECURITIES, A FIDUCIARY OF A PLAN OR OTHER PLAN
ASSET INVESTOR SHOULD ITSELF CONFIRM THAT (A) ALL THE SPECIFIC AND GENERAL
CONDITIONS SET FORTH IN THE EXEMPTION, ONE OF THE CLASS EXEMPTIONS OR SECTION
401(C) OF ERISA WOULD BE SATISFIED AND (B) IN THE CASE OF A CERTIFICATE
PURCHASED UNDER THE EXEMPTION, THE CERTIFICATE CONSTITUTES A "CERTIFICATE" FOR
PURPOSES OF THE EXEMPTION. IN ADDITION TO MAKING ITS OWN DETERMINATION AS TO THE
AVAILABILITY OF THE EXEMPTIVE RELIEF PROVIDED IN THE EXEMPTION, ONE OF THE CLASS
EXEMPTIONS OR SECTION 410(C) OF ERISA, THE PLAN FIDUCIARY SHOULD CONSIDER ITS
GENERAL FIDUCIARY OBLIGATIONS UNDER ERISA IN DETERMINING WHETHER TO PURCHASE THE
SECURITIES ON BEHALF OF A PLAN.
LEGAL INVESTMENT MATTERS
Each class of Certificates offered hereby and by the related Prospectus
Supplement will be rated at the date of issuance in one of the four highest
rating categories by at least one Rating Agency. If so specified in the related
Prospectus Supplement, each such class that is rated in one of the two highest
rating categories by at least one Rating Agency will constitute "mortgage
related securities" for purposes of the Secondary Mortgage Market Enhancement
Act of 1984 ("SMMEA"), and, as such, 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 whose authorized investments are subject to state
regulation to the same extent that, under applicable law, obligations issued by
or guaranteed as to principal and interest by the United States or any agency or
instrumentality thereof constitute legal investments for such entities. Under
SMMEA, if a State enacted legislation on or prior to October 3, 1991
specifically limiting the legal investment authority of any such entities with
respect to "mortgage related securities," such securities will constitute legal
investments for entities subject to such legislation only to the extent provided
therein. Certain States have enacted legislation which overrides the preemption
provisions of SMMEA. 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 "mortgage related securities," or
require the sale or other disposition of such securities, so long as such
contractual commitment was made or such securities 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
with "mortgage related securities" without limitation as to the percentage of
their assets represented thereby, federal credit unions may invest in such
securities, and national banks may purchase such securities for their own
account without regard to the limitations generally applicable to investment
securities set forth in 12 U.S.C. 24 (Seventh), subject in each case to such
regulations as the applicable federal regulatory authority may prescribe.
The Federal Financial Institutions Examination Council has issued a
supervisory policy statement (the "Policy Statement") applicable to all
depository institutions, setting forth guidelines for and significant
restrictions on investments in "high-risk mortgage securities." The Policy
Statement has been adopted by the Federal Reserve Board, the Office of the
Comptroller of the Currency, the FDIC and the OTS with an effective date of
February 10, 1992. The Policy Statement generally indicates that a mortgage
derivative product will be deemed to be high risk if it exhibits greater price
volatility than a standard fixed rate thirty-year mortgage security. According
to the Policy Statement, prior to purchase, a depository institution will be
required to determine whether a mortgage derivative product that it is
considering acquiring is high-risk, and if so that the proposed acquisition
would reduce the institution's overall interest rate risk. Reliance on analysis
and documentation obtained from a securities dealer or other outside party
without internal analysis by the institution would be unacceptable. There can be
no assurance as to which classes of Offered Securities will be treated as
high-risk under the Policy Statement.
The predecessor to the Office of Thrift Supervision ("OTS") issued a
bulletin, entitled, "Mortgage Derivative Products and Mortgage Swaps", which is
applicable to thrift institutions regulated by the OTS. The bulletin established
guidelines for the investment by savings institutions in certain "high-risk"
mortgage derivative securities
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and limitations on the use of such securities by insolvent, undercapitalized or
otherwise "troubled" institutions. According to the bulletin, such "high-risk"
mortgage derivative securities include securities having certain specified
characteristics, which may include certain classes of Offered Securities. In
addition, the National Credit Union Administration has issued regulations
governing federal credit union investments which prohibit investment in certain
specified types of securities, which may include certain classes of Offered
Securities. Similar policy statements have been issued by regulators having
jurisdiction over other types of depository institutions.
Certain classes of Certificates offered hereby, including any class
that is not rated in one of the two highest rating categories by at least one
Rating Agency, will not constitute "mortgage related securities" for purposes of
SMMEA. Any such class of Certificates will be identified in the related
Prospectus Supplement. Prospective investors in such classes of Certificates, in
particular, should consider the matters discussed in the following paragraph.
There may be other restrictions on the ability of certain investors
either to purchase certain classes of Offered Securities or to purchase any
class of Offered Securities representing more than a specified percentage of the
investors' assets. The Company will make no representations as to the proper
characterization of any class of Offered Securities for legal investment or
other purposes, or as to the ability of particular investors to purchase any
class of Certificates under applicable legal investment restrictions. These
uncertainties may adversely affect the liquidity of any class of Certificates.
Accordingly, all investors whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities should consult with their own legal advisors in
determining whether and to what extent the Offered Securities of any class
thereof constitute legal investments or are subject to investment, capital or
other restrictions, and, if applicable, whether SMMEA has been overridden in any
jurisdiction relevant to such investor.
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of
Certificates will be applied by the Company to finance the purchase of, or to
repay short-term loans incurred to finance the purchase of, the Mortgage Loans
and/or Mortgage Securities in the respective Mortgage Pools and to pay other
expenses. The Company expects that it will make additional sales of securities
similar to the Offered Securities from time to time, but the timing and amount
of any such additional offerings will be dependent upon a number of factors,
including the volume of mortgage loans purchased by the Company, prevailing
interest rates, availability of funds and general market conditions.
METHODS OF DISTRIBUTION
The Certificates offered hereby and by the related Prospectus
Supplements will be offered in series through one or more of the methods
described below. The Prospectus Supplement prepared for each series will
describe the method of offering being utilized for that series and will state
the net proceeds to the Company from such sale.
The Company intends that Offered Securities will be offered through the
following methods from time to time and that offerings may be made concurrently
through more than one of these methods or that an offering of the Offered
Securities of a particular series may be made through a combination of two or
more of these methods. Such methods are as follows:
1. By negotiated firm commitment or best efforts underwriting
and public re-offering by underwriters;
2. By placements by the Company with institutional investors
through dealers; and
3. By direct placements by the Company with institutional
investors.
If underwriters are used in a sale of any Offered Securities (other
than in connection with an underwriting on a best efforts basis), such
Certificates will be acquired by the underwriters for their own account and may
be resold from time to time in one or more transactions, including negotiated
transactions, at fixed public offering prices or at
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varying prices to be determined at the time of sale or at the time of commitment
therefor. Such underwriters may be broker-dealers affiliated with the Company
whose identities and relationships to the Company will be as set forth in the
related Prospectus Supplement. The managing underwriter or underwriters with
respect to the offer and sale of the Offered Securities of a particular series
will be set forth on the cover of the Prospectus Supplement relating to such
series and the members of the underwriting syndicate, if any, will be named in
such Prospectus Supplement.
In connection with the sale of the Offered Securities, underwriters may
receive compensation from the Company or from purchasers of such Certificates in
the form of discounts, concessions or commissions. Underwriters and dealers
participating in the distribution of the Offered Securities may be deemed to be
underwriters in connection with such Certificates, and any discounts or
commissions received by them from the Company and any profit on the resale of
Offered Securities by them may be deemed to be underwriting discounts and
commissions under the Securities Act of 1933, as amended (the "Securities Act").
It is anticipated that the underwriting agreement pertaining to the
sale of Offered Securities of any series will provide that the obligations of
the underwriters will be subject to certain conditions precedent, that the
underwriters will be obligated to purchase all such Certificates if any are
purchased (other than in connection with an underwriting on a best efforts
basis) and that, in limited circumstances, the Company will indemnify the
several underwriters and the underwriters will indemnify the Company against
certain civil liabilities, including liabilities under the Securities Act or
will contribute to payments required to be made in respect thereof.
The Prospectus Supplement with respect to any series offered by
placements through dealers will contain information regarding the nature of such
offering and any agreements to be entered into between the Company and
purchasers of Offered Securities of such series.
The Company anticipates that the Certificates offered hereby will be
sold primarily to institutional investors or sophisticated non-institutional
investors. Purchasers of Offered Securities, including dealers, may, depending
on the facts and circumstances of such purchases, be deemed to be "underwriters"
within the meaning of the Securities Act in connection with reoffers and sales
by them of such Certificates. Holders of Offered Securities should consult with
their legal advisors in this regard prior to any such reoffer or sale.
LEGAL MATTERS
Certain legal matters, including certain federal income tax matters, in
connection with the Securities of each series will be passed upon for the
Company by Thacher Proffitt & Wood, New York, New York.
FINANCIAL INFORMATION
A new Trust fund will be formed with respect to each series of
Securities, and no Trust Fund will engage in any business activities or have any
assets or obligations prior to the issuance of the related series of Securities.
Accordingly, no financial statements with respect to any Trust Fund will be
included in this Prospectus or in the related Prospectus Supplement.
RATING
It is a condition to the issuance of any class of Offered Securities
that they shall have been rated not lower than investment grade, that is, in one
of the four highest rating categories, by at least one Rating Agency.
Ratings on mortgage pass-through certificates and mortgage-backed notes
address the likelihood of receipt by the holders thereof of all collections on
the underlying mortgage assets to which such holders are entitled. These ratings
address the structural, legal and issuer-related aspects associated with such
certificates and notes, the nature of the underlying mortgage assets and the
credit quality of the guarantor, if any. Ratings on mortgage pass-through
certificates and mortgage-backed notes do not represent any assessment of the
likelihood of principal prepayments by
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orrowers or of the degree by which such prepayments might differ from those
originally anticipated. As a result, Securityholders might suffer a lower than
anticipated yield, and, in addition, holders of stripped interest securities in
extreme cases might fail to recoup their initial investments.
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INDEX OF PRINCIPAL DEFINITIONS
PAGE
----
401(c) Regulations........................................................112
Accrual Certificates................................................7, 35, 43
Accrued Certificate Interest...............................................43
Affiliated Sellers.........................................................19
Agreement .........................................................34
ARM Loans .........................................................20
Available Distribution Amount..............................................42
Average Interest Rate.....................................................111
Balloon Loans .........................................................21
Balloon Payment .........................................................21
Bankruptcy Code .........................................................77
Bankruptcy Loss .........................................................47
Beneficial Owner .........................................................36
Buydown Account .........................................................22
Buydown Agreement .........................................................40
Buydown Funds .........................................................22
Buydown Mortgage Loans.....................................................22
Buydown Period .........................................................22
CERCLA .........................................................25
Certificate Account........................................................39
Certificate Registrar......................................................36
Certificates ..........................................................1
Class Exemptions ........................................................112
Closing Date .........................................................87
Code ......................................................7, 85
Commission ..........................................................4
Committee Report .........................................................87
Company .......................................................1, 5
Conservation Act .........................................................78
Contingent Payment Regulations............................................106
Contracts .........................................................18
Contributions Tax .........................................................97
Convertible Mortgage Loan..................................................22
Cooperative Note .........................................................70
Crime Control Act .........................................................83
Debt Service Coverage Ratio................................................24
Debt Service Reduction.....................................................51
Defaulted Mortgage Loss....................................................47
Deferred Interest .........................................................20
Deficient Valuation........................................................51
Deleted Mortgage Loan......................................................27
Designated Seller Transaction..............................................19
Determination Date.........................................................42
Distribution Date ..........................................................9
DOL ........................................................109
DOL Regulations ........................................................109
DTC .........................................................36
DTC Registered Securities..................................................36
Due Period .........................................................44
Equity Certificates.........................................................6
Equity Participation.......................................................21
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ERISA ....................................................12, 108
ERISA Permitted Investments...............................................112
ERISA Plans ........................................................108
Event of Default .........................................................62
Excess Interest .........................................................48
Exchange Act ..........................................................4
Excluded Plan ........................................................110
Exemption Rating Agencies.................................................110
Extraordinary Losses.......................................................47
FDIC .........................................................19
FHA .........................................................19
FHA Loans .........................................................19
FHLMC .........................................................25
Financial Guaranty Insurance Policy........................................48
FIRREA .........................................................25
FNMA .........................................................25
Fraud Loss .........................................................47
FTC Rule .........................................................79
Garn-St Germain Act........................................................80
Grantor Trust Certificates.............................................13, 85
Grantor Trust Fractional Interest Certificate.............................100
Grantor Trust Fund.........................................................85
Grantor Trust Strip Certificate...........................................100
High LTV Loans .........................................................22
Holder .........................................................36
Housing Act .........................................................25
HUD .........................................................57
Indenture .......................................................1, 6
Index .........................................................20
Installment Contract.......................................................81
Insurance Proceeds.........................................................39
Insurer .........................................................48
Intermediaries .........................................................36
IRS .........................................................87
Issue Premium .........................................................92
Issuer ..........................................................5
Letter of Credit .........................................................50
Letter of Credit Bank......................................................50
Liquidated Mortgage Loan...................................................32
Liquidation Proceeds...................................................39, 40
Loan-to-Value Ratio........................................................21
Lock-out Expiration Date...................................................21
Lock-out Period .........................................................21
Loss .........................................................55
Manufactured Homes.........................................................18
Manufacturer's Invoice Price...............................................22
Master Servicer ...................................................1, 5, 28
Mortgage Loans ....................................................1, 6, 8
Mortgage Notes .........................................................18
Mortgage Pool .......................................................1, 8
Mortgage Rate .........................................................20
Mortgage Securities.....................................................8, 19
Mortgaged Property..........................................................8
Mortgages .........................................................18
Mortgagor .........................................................15
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Multifamily Loans .........................................................18
Multifamily Properties.....................................................18
Multifamily Property........................................................8
Net Mortgage Rate .........................................................65
Net Operating Income.......................................................24
Non-conforming credit......................................................15
Nonrecoverable Advance.....................................................45
Note Interest Rate..........................................................6
Note Margin .........................................................20
Note Registrar .........................................................36
Notes ..........................................................1
Offered Certificates....................................................5, 35
Offered Notes ..........................................................5
Offered Securities.......................................................1, 5
OID Regulations .........................................................85
OTS ........................................................114
Overcollateralization......................................................48
Owner Trust ..........................................................5
Owner Trustee .......................................................5, 6
Participants .........................................................36
Parties in Interest.......................................................108
Pass-Through Rate ..........................................................6
Percentage Interest........................................................43
Permitted Investments......................................................39
Plan .........................................................12
Plan Assets ........................................................109
Plans ........................................................108
Policy Statement ........................................................114
Pool Insurer .........................................................40
Pooling Agreement ...................................................1, 6, 58
Pre-Funding Account....................................................35, 44
Pre-Funding Limit ........................................................111
Pre-Funding Period........................................................111
Prepayment Assumption.................................................87, 103
Prepayment Interest Shortfall..............................................66
Prepayment Penalty.........................................................21
Primary Insurance Policy...................................................55
Primary Insurer .........................................................55
Prohibited Transactions Tax................................................96
Prospectus Supplement.......................................................1
PTCE ........................................................112
PTCE 83-1 ........................................................112
Purchase Obligation........................................................54
Purchase Price .........................................................26
Qualified Substitute Mortgage Loan.........................................27
Rating Agency .........................................................12
Realized Losses .........................................................46
Record Date .........................................................42
Related Proceeds .........................................................45
Relief Act .........................................................83
REMIC ...................................................1, 7, 85
REMIC Administrator........................................................85
REMIC Certificates.........................................................85
REMIC Provisions .........................................................85
REMIC Regular Certificates.............................................13, 85
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REMIC Regulations .........................................................85
REMIC Residual Certificates............................................13, 85
REO Mortgage Loan .........................................................32
REO Property .........................................................30
Reserve Fund .........................................................51
RICO .........................................................83
RTC .........................................................19
Securities .......................................................1, 5
Securities Act .....................................................4, 116
Security .........................................................59
Security Interest Rate......................................................6
Security Register .........................................................36
Security Registrar.........................................................36
Securityholder .........................................................36
Securityholders ..........................................................1
Seller ..........................................................9
Sellers ......................................................1, 19
Senior Certificates.....................................................7, 35
Senior Liens .........................................................21
Senior/Subordinate Series..................................................35
Servicing Agreement........................................................23
Servicing Default .........................................................61
Servicing Standard.........................................................29
Single Family Loans........................................................18
Single Family Property.....................................................18
SMMEA ....................................................12, 114
Special Hazard Instrument..................................................47
Special Hazard Insurance Policy............................................50
Special Hazard Insurer.....................................................50
Special Hazard Loss........................................................47
Special Hazard Losses......................................................50
Special Servicer ......................................................5, 31
SPFC .........................................................58
Spread ..........................................................6
Strip Certificates......................................................7, 35
Subordinate Certificates................................................7, 35
Subsequent Mortgage Loans.................................................111
Subservicer .........................................................30
Subservicers .........................................................23
Tax Favored Plans ........................................................108
Tax-Exempt Investor.......................................................113
Tiered REMICs .........................................................86
Title V .........................................................82
Title VIII .........................................................82
Trust Agreement ..........................................................5
Trust Fund .......................................................1, 6
Trust Fund Assets ..........................................................1
Trustee ..........................................................6
UBTI ........................................................113
UCC .........................................................75
Unaffiliated Sellers.......................................................19
Underwriter ........................................................109
United States person.......................................................99
VA .........................................................19
VA Loans .........................................................19
-121-
<PAGE>
Value .........................................................21
WMC Mortgage ..........................................................5
-122-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (ITEM 14 OF FORM S-3).
The expenses expected to be incurred in connection with the issuance
and distribution of the Securities being registered, other than underwriting
compensation, are as set forth below. All such expenses, except for the filing
fee, are estimated.
Filing Fee for Registration Statement........ $ *
Legal Fees and Expenses...................... *
Accounting Fees and Expenses................. *
Trustee's Fees and Expenses
(including counsel fees).............. *
Printing and Engraving Fees.................. *
Rating Agency Fees........................... *
Miscellaneous................................ *
---------
Total ...................................... $ *
=========
- --------
* To be provided by amendment.
INDEMNIFICATION OF DIRECTORS AND OFFICERS (ITEM 15 OF FORM S-3).
Subsection (a) of Section 145 of the General Corporation Law of
Delaware empowers a corporation to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed
<PAGE>
-2-
to be in or not opposed to the best interests of the corporation and except that
no indemnification may be made in respect to any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
Section 145 further provides that to the extent a director, officer,
employee or agent of a corporation has been successful on the merits or
otherwise in the defense of any action, suit or proceeding referred to in
subsections (a) and (b), or in the defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith; that
indemnification and advancement of expenses provided by, or granted pursuant to,
Section 145 shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled; and empowers the corporation to purchase and
maintain insurance on behalf of a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liabilities under Section 145.
The By-laws of WMC Secured Assets Corp. (the "Company") provide, in
effect, that to the full extent permitted by law, the Company shall indemnify
and hold harmless each person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative and whether or not by
or in the right of the Company, by reason of the fact that he is or was a
director or officer, or his testator or intestate is or was a director or
officer of the Company, or by reason of the fact that such person is or was
serving at the request of the Company as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise of
any type or kind, domestic or foreign, against expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement, actually and reasonably
incurred as a result of such action, suit or proceeding.
The Company presently does not have liability insurance maintained
covering directors and principal officers of the Company.
Section 8(b) of the proposed form of Underwriting Agreement provides
that each Underwriter severally will indemnify and hold harmless the Company,
each of its directors, each of its officers who signs the Registration
Statement, and each person, if any, who controls the Company within the meaning
of the Securities Act of 1933, as amended, and the Securities Exchange of 1934,
as amended, against any losses, claims, damages or liabilities to which any of
<PAGE>
-3-
them may become subject under the Securities Act of 1933, the Securities
Exchange Act of 1934 or other federal or state law or regulation, at common law
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or an
alleged untrue statement of a material fact contained in the registration
statement when it became effective, or in the Registration Statement, any
related preliminary prospectus or the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus supplement, or arise out of or
are based upon 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, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
therein in reliance upon and in conformity with written information furnished to
the Company by such Underwriter, specifically for use in the preparation
thereof, and will reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with investigating or defending
against such loss, claim, damage, liability or action.
The Pooling and Servicing Agreements with respect to each series of
Certificates and the Servicing Agreements, Indentures and Owner Trust Agreements
with respect to each series of Notes will provide that no director, officer,
employee or agent of the Registrant is liable to the Trust Fund or the
Securityholders, except for such person's own willful misfeasance, bad faith or
gross negligence in the performance of duties or reckless disregard of
obligations and duties. The Pooling and Servicing Agreements with respect to
each series of Certificates and the Servicing Agreements, Indentures and Owner
Trust Agreements with respect to each series of Notes will further provide that,
with the exceptions stated above, a director, officer, employee or agent of the
Registrant is entitled to be indemnified against any loss, liability or expense
incurred in connection with legal action relating to such Agreements and related
Securities other than such expenses related to particular Mortgage Loans.
EXHIBITS (ITEM 16 OF FORM S-3).
Exhibits--
1.1 -- Form of Underwriting Agreement.
3.1 -- Amended and Restated Articles of Incorporation.
3.2 -- Restated By-Laws.
4.1 -- Form of Pooling and Servicing Agreement for an offering of
Mortgage Pass-Through Certificates consisting of senior and
subordinate certificate classes.
4.2 -- Form of Pooling and Servicing Agreement for alternate forms
of credit support (single class).
4.3 -- Form of Servicing Agreement for an offering of Mortgage-
Backed Notes.
4.4 -- Form of Trust Agreement for an offering of Mortgage-Backed
Notes.
<PAGE>
-4-
4.5 -- Form of Indenture for an offering of Mortgage-Backed Notes.
5.1 -- Opinion of Thacher Proffitt & Wood with respect to legality.
8.1 -- Opinion of Thacher Proffitt & Wood with respect to certain tax
matters (included with Exhibit 5.1).
23.1 -- Consent of Thacher Proffitt & Wood (included as part of
Exhibit 5.1 and Exhibit 8.1).
24.1 -- Power of Attorney.
UNDERTAKINGS (ITEM 17 OF FORM S-3).
A. UNDERTAKINGS PURSUANT TO RULE 415.
The Registrant hereby undertakes:
(a)(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, (ii)
to reflect in the prospectus any facts 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, and (iii) to include
any material information with respect to the plan of distribution not previously
disclosed in this Registration Statement or any material change to such
information in this Registration Statement; PROVIDED, HOWEVER, that subparts (i)
and (ii) do not apply if the information required to be included in the
post-effective amendment by those subparts is contained in periodic reports
filed 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
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) That, for the purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating
<PAGE>
-5-
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.
(f) To provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
B. UNDERTAKING IN RESPECT OF INDEMNIFICATION.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
<PAGE>
-6-
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, WMC
Secured Assets Corp. certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3, reasonably believes that
the security rating requirement contained in Transaction Requirement B.5 of Form
S-3 will be met by the time of the sale of the securities registered hereunder,
and has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the city of Woodland Hills, state
of California, on the 26th of November, 1997.
WMC SECURED ASSETS CORP.
By: /s/ Scott A. Mcafee
-----------------------------------------
Scott A. McAfee
Director and Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
DATE
<S> <C> <C>
/s/ Scott A. Mcafee President & Director November 26, 1997
- ------------------------------------------ (Chief Executive Officer)
Scott A. McAfee
/s/ Todd Wallace Vice-President, Treasurer & November 26, 1997
- ------------------------------------------ Director (Chief Financia
Todd Wallace Office and Chief Accounting
Officer)
/s/ Steve Wright Vice President, Secretary & November 26, 1997
- ------------------------------------------
Steve Wright Director
</TABLE>
EXHIBIT 1.1
-----------
WMC SECURED ASSETS CORP.
$____________ (Approximately)
Mortgage Pass-Through Certificates, Series 199_-_
Class R $____________ _____%
Class A $____________ _____%
UNDERWRITING AGREEMENT
----------------------
________________, 199_
[UNDERWRITER]
- ---------------------------
- ---------------------------
- ---------------------------
Ladies and Gentlemen:
WMC Secured Assets Corp., a Delaware corporation (the "Company"),
proposes to sell to you (also referred to herein as the "Underwriter") Mortgage
Pass-Through Certificates, Series 199_-__, Class A and Class R Certificates
other than a de minimis portion thereof (collectively, the "Certificates"),
having the aggregate principal amounts and Pass-Through Rates set forth above.
The Certificates, together with the Class M and Class B Certificates of the same
series, will evidence the entire beneficial interest in the Trust Fund (as
defined in the Pooling and Servicing Agreement referred to below) consisting
primarily of a pool (the "Pool") of conventional, fixed-rate, one- to
four-family residential mortgage loans (the "Mortgage Loans") as described in
the Prospectus Supplement (as hereinafter defined) to be sold by the Company. A
de minimis portion of the Class R Certificates will not be sold hereunder and
will be held by the Trustee.
The Certificates will be issued pursuant to a pooling and servicing
agreement (the "Pooling and Servicing Agreement") to be dated as of
__________________, 199_ (the "Cut-off Date") among the Company, as seller,
[Name of Master Servicer], as master servicer (the "Master Servicer"), and
___________________________________________, as trustee (the "Trustee"). The
Certificates are described more fully in the Basic Prospectus and the Prospectus
Supplement (each as hereinafter defined) which the Company has furnished to you.
<PAGE>
-2-
1. REPRESENTATIONS, WARRANTIES AND COVENANTS.
1.1 The Company represents and warrants to, and agrees
with you that:
(a) The Company has filed with the Securities and
Exchange Commission (the "Commission") a registration statement (No.
33-_____) on Form S-3 for the registration under the Securities Act of
1933, as amended (the "Act"), of Mortgage Pass-Through Certificates
(issuable in series), including the Certificates, which registration
statement has become effective, and a copy of which, as amended to the
date hereof, has heretofore been delivered to you. The Company proposes
to file with the Commission pursuant to Rule 424(b) under the rules and
regulations of the Commission under the Act (the "1933 Act
Regulations") a supplement dated __________, 199_ (the "Prospectus
Supplement"), to the prospectus dated __________, 199_ (the "Basic
Prospectus"), relating to the Certificates and the method of
distribution thereof. Such registration statement (No. 33-_____)
including exhibits thereto and any information incorporated therein by
reference, as amended at the date hereof, is hereinafter called the
"Registration Statement"; and the Basic Prospectus and the Prospectus
Supplement and any information incorporated therein by reference,
together with any amendment thereof or supplement thereto authorized by
the Company on or prior to the Closing Date for use in connection with
the offering of the Certificates, are hereinafter called the
"Prospectus". Any preliminary form of the Prospectus Supplement which
has heretofore been filed pursuant to Rule 424, or prior to the
effective date of the Registration Statement pursuant to Rule 402(a),
or 424(a) is hereinafter called a "Preliminary Prospectus Supplement."
(b) The Registration Statement has become effective,
and the Registration Statement as of the effective date (the "Effective
Date"), and the Prospectus, as of the date of the Prospectus
Supplement, complied in all material respects with the applicable
requirements of the Act and the 1933 Act Regulations; and the
Registration Statement, as of the Effective Date, did not contain any
untrue statement of a material fact and did not omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading and the Prospectus, as of the date of
the Prospectus Supplement, did not, and as of the Closing Date will
not, contain an untrue statement of a material fact and did not and
will not 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, however, that the Company makes no
representations or warranties as to the information contained in or
omitted from the Registration Statement or the Prospectus or any
amendment thereof or supplement thereto relating to the information
identified by underlining or other highlighting as shown in Exhibit E
(the "Excluded Information"); and provided, further, that the Company
makes no representations or warranties as to either (i) any information
in any Computational Materials or ABS Term Sheets (each as hereinafter
defined) required to be provided by the Underwriter to the Company
pursuant to Section 4.2, except to the extent of any information set
forth therein that constitutes Pool Information (as defined below), or
(ii)
<PAGE>
-3-
as to any information contained in or omitted from the portions of the
Prospectus identified by underlining or other highlighting as shown in
Exhibit F (the "Underwriter Information"). As used herein, "Pool
Information" means information with respect to the characteristics of
the Mortgage Loans and administrative and servicing fees, as provided
by or on behalf of the Company to the Underwriter in final form and set
forth in the Prospectus Supplement. The Company acknowledges that,
except for any Computational Materials, the Underwriter Information
constitutes the only information furnished in writing by you or on your
behalf for use in connection with the preparation of the Registration
Statement, any preliminary prospectus or the Prospectus, and you
confirm that the Underwriter Information is correct.
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware and has the requisite corporate power to own its properties
and to conduct its business as presently conducted by it.
(d) This Agreement has been duly authorized, executed and
delivered by the Company.
(e) As of the Closing Date (as defined herein) the
Certificates will conform in all material respects to the description
thereof contained in the Prospectus and the representations and
warranties of the Company in the Pooling and Servicing Agreement will
be true and correct in all material respects.
1.2 The Underwriter represents and warrants to and agrees with
the Company that:
(a) No purpose of the Underwriter relating to the
purchase of any of the Class R Certificates by the Underwriter is or
will be to enable the Company to impede the assessment or collection of
any tax.
(b) The Underwriter has no present knowledge or
expectation that it will be unable to pay any United States taxes owed
by it so long as any of the Certificates remain outstanding.
(c) The Underwriter has no present knowledge or
expectation that it will become insolvent or subject to a bankruptcy
proceeding for so long as any of the Certificates remain outstanding.
(d) No purpose of the Underwriter relating to any
sale of any of the Class R Certificates by the Underwriter will be to
enable it to impede the assessment or collection of tax. In this
regard, the Underwriter hereby represents to and for the benefit of the
Company that the Underwriter intends to pay taxes associated with
holding the Class
<PAGE>
-4-
R Certificates, as they become due, fully understanding that it may
incur tax liabilities in excess of any cash flows generated by the
Class R Certificates.
(e) The Underwriter will, in connection with any
transfer it makes of any of the Class R Certificates, obtain from its
transferee the affidavit required by Section 5.02(g)(i)(B)(I) of the
Pooling and Servicing Agreement, will not consummate any such transfer
if it knows or believes that any representation contained in such
affidavit is false and will provide the Trustee with the Certificate
required by Section 5.02(g)(i)(B)(II) of the Pooling and Servicing
Agreement.
(f) The Underwriter hereby certifies that (i) with
respect to any classes of Certificates issued in authorized
denominations or Percentage Interests of less than $25,000 or 20%, as
the case may be, the fair market value of each such Certificate sold to
any person on the date of initial sale thereof by the Underwriter will
not be less than $100,000, and (ii) with respect to each class of
Certificates to be maintained on the book-entry records of The
Depository Trust Company ("DTC"), the interest in each such class of
Certificates sold to any person on the date of initial sale thereof by
the Underwriter will not be less than an initial Certificate Principal
Balance of $25,000.
(g) The Underwriter will use its best reasonable
efforts to cause Trepp & Co. to issue a commitment letter, prior to the
Closing Date, to DTC stating that Trepp & Co. will value the DTC
Registered Certificates (hereinafter defined) on an ongoing basis
subsequent to the Closing Date.
(h) The Underwriter will have funds available at
__________________ _______________, in the Underwriter's account at
such bank at the time all documents are executed and the closing of the
sale of the Certificates is completed, except for the transfer of funds
and the delivery of the Certificates. Such funds will be available for
immediate transfer into the account of the Company maintained at such
bank.
(i) As of the date hereof and as of the Closing Date,
the Underwriter has complied with all of its obligations hereunder
including Section 4.2, and, with respect to all Computational Materials
and ABS Term Sheets provided by the Underwriter to the Company pursuant
to Section 4.2, if any, such Computational Materials and ABS Term
Sheets are accurate in all material respects when read in conjunction
with the Prospectus Supplement (taking into account the assumptions
explicitly set forth in the Computational Materials, except to the
extent of any errors therein that are caused by errors in the Pool
Information). The Computational Materials and ABS Term Sheets provided
by the Underwriter to the Company constitute a complete set of all
Computational Materials and ABS Term Sheets that are required to be
filed with the Commission.
1.3 The Underwriter covenants and agrees to pay directly, or
reimburse the Company upon demand for (i) any and all taxes (including penalties
and interest) owed or asserted to be owed by the Company as a result of a claim
by the Internal Revenue Service that the transfer
<PAGE>
-5-
of any of the Class R Certificates to the Underwriter hereunder or any transfer
thereof by the Underwriter may be disregarded for federal tax purposes and (ii)
any and all losses, claims, damages and liabilities, including attorney's fees
and expenses, arising out of any failure of the Underwriter to make payment or
reimbursement in connection with any such assertion as required in (i) above. In
addition, the Underwriter acknowledges that on the Closing Date immediately
after the transactions described herein it will be the owner of the Class R
Certificates for federal tax purposes, and the Underwriter covenants that it
will not assert in any proceeding that the transfer of the Class R Certificates
from the Company to the Underwriter should be disregarded for any purpose.
2. PURCHASE AND SALE. Subject to the terms and conditions and in
reliance upon the representations and warranties herein set forth, the Company
agrees to sell to you, and you agree to purchase from the Company, the
Certificates (other than for a de minimis portion of the Class R Certificates,
which shall be transferred by the Company to the Trustee) at a price equal to
__________% of the aggregate principal balance of the Certificates as of the
Closing Date. There will be added to the purchase price of the Certificates an
amount equal to interest accrued thereon from the Cut-off Date to but not
including the Closing Date. The purchase price for the Certificates was agreed
to by the Company in reliance upon the transfer from the Company to the
Underwriter of the tax liabilities associated with the ownership of the Class R
Certificates.
3. DELIVERY AND PAYMENT. Delivery of and payment for the Certificates
shall be made at the office of Thacher Proffitt & Wood at 10:00 a.m., New York
City time, on ______________, 199_ or such later date as you shall designate,
which date and time may be postponed by agreement between you and the Company
(such date and time of delivery and payment for the Certificates being herein
called the "Closing Date"). Delivery of the Certificates (except for the Class R
Certificates (the "Definitive Certificates")) shall be made to you through the
Depository Trust Company ("DTC") (such Certificates, the "DTC Registered
Certificates"), and delivery of the Definitive Certificates shall be made in
registered, certified form, in each case against payment by you of the purchase
price thereof to or upon the order of the Company by wire transfer in
immediately available funds. The Definitive Certificates shall be registered in
such names and in such denominations as you may request not less than two
business days in advance of the Closing Date. The Company agrees to have the
Definitive Certificates available for inspec tion, checking and packaging by you
in New York, New York not later than 1:00 p.m. on the business day prior to the
Closing Date.
4. OFFERING BY UNDERWRITER.
4.1 It is understood that you propose to offer the
Certificates for sale to the public as set forth in the Prospectus and you agree
that all such offers and sales by you shall be made in compliance with all
applicable laws and regulations.
4.2 It is understood that you may prepare and provide to
prospective investors certain Computational Materials (as defined below) in
connection with your offering of the Certificates, subject to the following
conditions:
<PAGE>
-6-
(a) The Underwriter shall comply with all applicable
laws and regulations in connection with the use of Computational
Materials, including the No-Action Letter of May 20, 1994 issued by the
Commission to Kidder, Peabody Acceptance Corporation I, Kidder, Peabody
& Co. Incorporated and Kidder Structured Asset Corporation, as made
applicable to other issuers and underwriters by the Commission in
response to the request of the Public Securities Association dated May
24, 1994 (collectively, the "Kidder/PSA Letter") as well as the PSA
Letter referred to below. The Underwriter shall comply with all
applicable laws and regulations in connection with the use of ABS Term
Sheets, including the No-Action Letter of February 17, 1995 issued by
the Commission to the Public Securities Association (the "PSA Letter"
and, together with the Kidder/PSA Letter, the "No-Action Letters").
(b) For purposes hereof, "Computational Materials" as
used herein shall have the meaning given such term in the No-Action
Letters, but shall include only those Computational Materials that have
been prepared or delivered to prospective investors by or at the
direction of the Underwriter. For purposes hereof, "ABS Term Sheets"
and "Collateral Term Sheets" as used herein shall have the meanings
given such terms in the PSA Letter but shall include only those ABS
Term Sheets or Collateral Term Sheets that have been prepared or
delivered to prospective investors by or at the direction of the
Underwriter.
(c) All Computational Materials and ABS Term Sheets
provided to prospective investors that are required to be filed
pursuant to the No-Action Letters shall bear a legend on each page
including the following statement:
"THE INFORMATION HEREIN HAS BEEN PROVIDED SOLELY BY
[Underwriter]. NEITHER THE ISSUER OF THE CERTIFICATES NOR ANY
OF ITS AFFILIATES MAKES ANY REPRESENTATION AS TO THE ACCURACY
OR COMPLETENESS OF THE INFORMATION HEREIN. THE INFORMATION
HEREIN IS PRELIMINARY, AND WILL BE SUPERSEDED BY THE
APPLICABLE PROSPECTUS SUPPLEMENT AND BY ANY OTHER INFORMATION
SUBSEQUENTLY FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION.
In the case of Collateral Term Sheets, such legend shall also include
the following statement:
"THE INFORMATION CONTAINED HEREIN WILL BE
SUPERSEDED BY THE DESCRIPTION OF THE MORTGAGE
POOL CONTAINED IN THE PROSPECTUS SUPPLEMENT
RELATING TO THE CERTIFICATES AND [Except with respect
to the initial Collateral Term Sheet prepared by the
Underwriter]
<PAGE>
-7-
SUPERSEDES ALL INFORMATION CONTAINED IN ANY
COLLATERAL TERM SHEETS RELATING TO THE
MORTGAGE POOL PREVIOUSLY PROVIDED BY [the
Underwriter]."
The Company shall have the right to require additional specific legends
or notations to appear on any Computational Materials or ABS Term
Sheets, the right to require changes regarding the use of terminology
and the right to determine the types of information appearing therein.
Notwithstanding the foregoing, this subsection (c) will be satisfied if
all such Computational Materials and ABS Term Sheets bear a legend in
the form set forth in Exhibit I hereto.
(d) The Underwriter shall provide the Company with
representative forms of all Computational Materials and ABS Term Sheets
prior to their first use, to the extent such forms have not previously
been approved by the Company for use by the Underwriter. The
Underwriter shall provide to the Company, for filing on Form 8-K as
provided in Section 5.9, copies (in such format as required by the
Company) of all Computational Materials that are required to be filed
with the Commission pursuant to the No-Action Letters. The Underwriter
may provide copies of the foregoing in a consolidated or aggregated
form including all information required to be filed. All Computational
Materials and ABS Term Sheets described in this subsection (d) must be
provided to the Company not later than 10:00 a.m. New York time one
business day before filing thereof is required pursuant to the terms of
this Agreement. The Underwriter agrees that it will not provide to any
investor or prospective investor in the Certificates any Computational
Materials or ABS Term Sheets on or after the day on which Computational
Materials and ABS Term Sheets are required to be provided to the
Company pursuant to this Section 4.2(d) (other than copies of
Computational Materials or ABS Term Sheets previously submitted to the
Company in accordance with this Section 4.2(d) for filing pursuant to
Section 5.9), unless such Computational Materials or ABS Term Sheets
are preceded or accompanied by the delivery of a Prospectus to such
investor or prospective investor.
(e) All information included in the Computational
Materials shall be generated based on substantially the same
methodology and assumptions that are used to generate the information
in the Prospectus Supplement as set forth therein; provided that the
Computational Materials and ABS Term Sheets or ABS Term Sheets, as the
case may be, may include information based on alternative assumptions
if specified therein. If any Computational Materials or ABS Term Sheets
that are required to be filed were based on assumptions with respect to
the Pool that differ from the final Pool Information in any material
respect or on Certificate structuring terms that were revised prior to
the printing of the Prospectus, the Underwriter shall prepare revised
Computational Materials or ABS Term Sheets, as the case may be, based
on the final Pool Information and structuring assumptions, circulate
such revised Computational Materials and ABS Term Sheets to all
recipients of the preliminary versions thereof that indicated orally to
the Underwriter they would purchase all or any portion of the
Certificates and include such revised
<PAGE>
-8-
Computational Materials and ABS Term Sheets (marked, "as revised") in
the materials delivered to the Company pursuant to subsection (d)
above.
(f) The Company shall not be obligated to file any
Computational Materials that have been determined to contain any
material error or omission. In the event that any Computational
Materials or ABS Terms Sheets are determined, within the period which
the Prospectus relating to the Certificates is required to be delivered
under the Act, to contain a material error or omission, the Underwriter
shall prepare a corrected version of such Computational Materials or
ABS Term Sheets, shall circulate such corrected Computational Materials
to all recipients of the prior versions thereof that indicated orally
to the Underwriter they would purchase all or any portion of the
Certificates and shall deliver copies of such corrected Computational
Materials and ABS Term Sheets (marked, "as corrected") to the Company
for filing with the Commission in a subsequent Form 8-K submission
(subject to the Company's obtaining an accountant's comfort letter in
respect of such corrected Computational Materials, which shall be at
the expense of the Underwriter), provided that if any such letter is
required to be revised solely because of a change in the Pool
Information, fifty percent of any additional expenses for such letter
resulting from the change in Pool Information shall be paid by each of
the Underwriter and the Company.
(g) If the Underwriter does not provide any
Computational Materials or ABS Term Sheets to the Company pursuant to
subsection (d) above, the Underwriter shall be deemed to have
represented, as of the Closing Date, that it did not provide any
prospective investors with any information in written or electronic
form in connection with the offering of the Certificates that is
required to be filed with the Commission in accordance with the
No-Action Letters, and the Underwriter shall provide the Company with a
certification to that effect on the Closing Date.
(h) In the event of any delay in the delivery by the
Underwriter to the Company of all Computational Materials and ABS Term
Sheets required to be delivered in accordance with subsection (d)
above, or in the delivery of the accountant's comfort letter in respect
thereof pursuant to Section 5.9, the Company shall have the right to
delay the release of the Prospectus to investors or to the Underwriter,
to delay the Closing Date and to take other appropriate actions in each
case as necessary in order to allow the Company to comply with its
agreement set forth in Section 5.9 to file the Computational Materials
and ABS Term Sheets by the time specified therein.
(i) The Underwriter represents that it has in place,
and covenants that it shall maintain internal controls and procedures
which it reasonably believes to be sufficient to ensure full compliance
with all applicable legal requirements of the No-Action Letters with
respect to the generation and use of Computational Materials and ABS
Term Sheets in connection with the offering of the Certificates.
<PAGE>
-9-
4.3 You further agree that on or prior to the sixth day after
the Closing Date, you shall provide the Company with a certificate,
substantially in the form of Exhibit G attached hereto, setting forth (i) in the
case of each class of Certificates, (a) if less than 10% of the aggregate
principal balance of such class of Certificates has been sold to the public as
of such date, the value calculated pursuant to clause (b)(iii) of Exhibit G
hereto, or, (b) if 10% or more of such class of Certificates has been sold to
the public as of such date but no single price is paid for at least 10% of the
aggregate principal balance of such class of Certificates, then the weighted
average price at which the Certificates of such class were sold expressed as a
percentage of the principal balance of such class of Certificates sold, or (c)
the first single price at which at least 10% of the aggregate principal balance
of such class of Certificates was sold to the public, (ii) the prepayment
assumption used in pricing each class of Certificates, and (iii) such other
information as to matters of fact as the Company may reasonably request to
enable it to comply with its reporting requirements with respect to each class
of Certificates to the extent such information can in the good faith judgment of
the Underwriter be determined by it.
5. AGREEMENTS. The Company agrees with you that:
5.1 Before amending or supplementing the Registration
Statement or the Prospectus with respect to the Certificates, the Company will
furnish you with a copy of each such proposed amendment or supplement.
5.2 The Company will cause the Prospectus Supplement to be
transmitted to the Commission for filing pursuant to Rule 424(b) under the Act
by means reasonably calculated to result in filing with the Commission pursuant
to said rule.
5.3 If, during the period after the first date of the public
offering of the Certificates in which a prospectus relating to the Certificates
is required to be delivered under the Act, any event occurs as a result of which
it is necessary to amend or supplement the Prospectus, as then amended or
supplemented, in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not misleading,
or if it shall be necessary to amend or supplement the Prospectus to comply with
the Act or the 1933 Act Regulations, the Company promptly will prepare and
furnish, at its own expense, to you, either amendments or supplements to the
Prospectus so that the statements in the Prospectus as so amended or
supplemented will not, in the light of the circumstances when the Prospectus is
delivered to a purchaser, be misleading or so that the Prospectus will comply
with law.
5.4 The Company will furnish to you, without charge, a copy of
the Registration Statement (including exhibits thereto) and, so long as delivery
of a prospectus by an underwriter or dealer may be required by the Act, as many
copies of the Prospectus, any documents incorporated by reference therein and
any amendments and supplements thereto as you may reasonably request.
5.5 The Company agrees, so long as the Certificates shall be
outstanding, or until such time as you shall cease to maintain a secondary
market in the Certificates, whichever
<PAGE>
-10-
first occurs, to deliver to you the annual statement as to compliance delivered
to the Trustee pursuant to Section 3.18 of the Pooling and Servicing Agreement
and the annual statement of a firm of independent public accountants furnished
to the Trustee pursuant to Section 3.19 of the Pooling and Servicing Agreement,
as soon as such statements are furnished to the Company.
5.6 The Company will endeavor to arrange for the qualification
of the Certificates for sale under the laws of such jurisdictions as you may
reasonably designate and will maintain such qualification in effect so long as
required for the initial distribution of the Certificates; provided, however,
that the Company shall not be required to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action that would
subject it to general or unlimited service of process in any jurisdiction where
it is not now so subject.
5.7 If the transactions contemplated by this Agreement are
consummated, the Company will pay or cause to be paid all expenses incident to
the performance of the obligations of the Company under this Agreement, and will
reimburse you for any reasonable expenses (including reasonable fees and
disbursements of counsel) reasonably incurred by you in connection with
qualification of the Certificates for sale and determination of their
eligibility for investment under the laws of such jurisdictions as you have
reasonably requested pursuant to Section 5.6 above and the printing of memoranda
relating thereto, for any fees charged by investment rating agencies for the
rating of the Certificates, and for expenses incurred in distributing the
Prospectus (including any amendments and supplements thereto) to the
Underwriter. Except as herein provided, you shall be responsible for paying all
costs and expenses incurred by you, including the fees and disbursements of your
counsel, in connection with the purchase and sale of the Certificates.
5.8 If, during the period after the Closing Date in which a
prospectus relating to the Certificates is required to be delivered under the
Act, the Company receives notice that a stop order suspending the effectiveness
of the Registration Statement or preventing the offer and sale of the
Certificates is in effect, the Company will advise you of the issuance of such
stop order.
5.9 The Company shall file the Computational Materials and ABS
Term Sheets (if any) provided to it by the Underwriter under Section 4.2(d) with
the Commission pursuant to a Current Report on Form 8-K by 10:00 a.m. on the
morning the Prospectus is delivered to the Underwriter or, the case of any
Collateral Term Sheet required to be filed prior to such date, by 10:00 a.m. on
the second business day following the first day on which such Collateral Term
Sheet has been sent to a prospective investor; provided, however, that prior to
such filing of the Computational Materials and ABS Term Sheets (other than any
Collateral Term Sheets that are not based on the Pool Information) by the
Company, the Underwriter must comply with its obligations pursuant to Section
4.2 and the Company must receive a letter from ___________________________,
certified public accountants, satisfactory in form and substance to the Company
and its counsel, to the effect that such accountants have performed certain
specified procedures, all of which have been agreed to by the Company, as a
result of which they determined that all information that is included in the
Computational Materials (if any) provided
<PAGE>
-11-
by the Underwriter to the Company for filing on Form 8-K, as provided in Section
4.2 and this Section 5.9, is accurate without exception. The foregoing letter
shall be at the sole expense of the Underwriter. The Company shall file any
corrected Computational Materials described in Section 4.2(f) as soon as
practicable following receipt thereof. The Company also will file with the
Commission within fifteen days of the issuance of the Certificates a Current
Report on Form 8-K (for purposes of filing the Pooling and Servicing Agreement).
6. CONDITIONS TO THE OBLIGATIONS OF THE UNDERWRITER. The Underwriter's
obligation to purchase the Certificates shall be subject to the following
conditions:
6.1 No stop order suspending the effectiveness of the
Registration Statement shall be in effect, and no proceedings for that purpose
shall be pending or, to the knowledge of the Company, threatened by the
Commission; and the Prospectus Supplement shall have been filed or transmitted
for filing, by means reasonably calculated to result in a filing with the
Commission pursuant to Rule 424(b) under the Act.
6.2 Since _________ 1, 199_ there shall have been no material
adverse change (not in the ordinary course of business) in the condition of the
Company.
6.3 The Company shall have delivered to you a certificate,
dated the Closing Date, of the President, a Senior Vice President or a Vice
President of the Company to the effect that the signer of such certificate has
examined this Agreement, the Prospectus, the Pooling and Servicing Agreement and
various other closing documents, and that, to the best of his or her knowledge
after reasonable investigation:
(a) the representations and warranties of the Company
in this Agreement and in the Pooling and Servicing Agreement are true
and correct in all material respects; and
(b) the Company has, in all material respects,
complied with all the agreements and satisfied all the conditions on
its part to be performed or satisfied hereunder at or prior to the
Closing Date.
6.4 You shall have received the opinions of Thacher Proffitt &
Wood, counsel for the Company and the Master Servicer, dated the Closing Date
and substantially to the effect set forth in Exhibit A-1 and Exhibit A-2, and
the opinion of [General Counsel to Master Servicer], dated the Closing Date and
substantially to the effect set forth in Exhibit B.
6.5 You shall have received from ________________________,
counsel for the Underwriter, an opinion dated the Closing Date in form and
substance satisfactory to the Underwriter.
6.6 The Underwriter shall have received from
________________________, certified public accountants, a letter dated the date
hereof and satisfactory in form and substance
<PAGE>
-12-
to the Underwriter and the Underwriter's counsel, to the effect that they have
performed certain specified procedures, all of which have been agreed to by the
Underwriter, as a result of which they determined that certain information of an
accounting, financial or statistical nature set forth in the Prospectus
Supplement under the captions "Description of the Mortgage Pool", "Pooling and
Servicing Agreement", "Description of the Certificates" and "Certain Yield and
Prepayment Considerations" agrees with the records of the Company excluding any
questions of legal interpretation.
6.7 The Certificates shall have been rated "AAA" by [Standard
& Poor's Ratings Services] and [Fitch Investor's Service, L.P.]
6.8 You shall have received the opinion of [Trustee's
Counsel], dated the Closing Date, substantially to the effect set forth in
Exhibit C.
6.9 You shall have received from Thacher Proffitt & Wood,
counsel to the Company, reliance letters with respect to any opinions delivered
to Standard & Poor's Ratings Services and Fitch Investor Services, L.P.
The Company will furnish you with conformed copies of the above opinions,
certificates, letters and documents as you reasonably request.
7. INDEMNIFICATION AND CONTRIBUTION.
7.1 The Company agrees to indemnify and hold harmless you and
each person, if any, who controls you within the meaning of either Section 15 of
the Act or Section 20 of the Securities Exchange Act of 1934, from and against
any and all losses, claims, damages and liabilities caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement for the registration of the Certificates as originally
filed or in any amendment thereof or other filing incorporated by reference
therein, or in the Prospectus or incorporated by reference therein (if used
within the period set forth in Section 5.3 hereof and as amended or supplemented
if the Company shall have furnished any amendments or supplements thereto), or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
insofar as such losses, claims, damages, or liabilities are caused by any such
untrue statement or omission or alleged untrue statement or omission based upon
any information with respect to which the Underwriter has agreed to indemnify
the Company pursuant to Section 7.2; provided, that neither the Company, or you
will be liable in any case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein relating to the
Excluded Information.
7.2 You agree to indemnify and hold harmless the Company, its
directors or officers and any person controlling the Company to the same extent
as the indemnity set forth in clause 7.1 above from the Company to you, but only
with respect to (i) the Underwriter
<PAGE>
-13-
Information and (ii) the Computational Materials and ABS Term Sheets, except to
the extent of any errors in the Computational Materials or ABS Term Sheets that
are caused by errors in the Pool Information. In addition, you agree to
indemnify and hold harmless the Company its directors or officers and any person
controlling the Company against any and all losses, claims, damages, liabilities
and expenses (including, without limitation, reasonable attorneys' fees) caused
by, resulting from, relating to, or based upon any legend regarding original
issue discount on any Certificate resulting from incorrect information provided
by the Underwriter in the certificates described in Section 4.3 hereof.
7.3 In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to either clause 7.1 or 7.2, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the reasonable fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel, but the reasonable fees and expenses of such counsel
shall be at the expense of such indemnified party unless (i) the indemnifying
party and the indemnified party shall have mutually agreed to the retention of
such counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. It is understood
that the indemnifying party shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees
and expenses of more than one separate firm for all such indemnified parties.
Such firm shall be designated in writing by you, in the case of parties
indemnified pursuant to clause 7.1 and by the Company, in the case of parties
indemnified pursuant to clause 7.2. The indemnifying party may, at its option,
at any time upon written notice to the indemnified party, assume the defense of
any proceeding and may designate counsel reasonably satisfactory to the
indemnified party in connection therewith provided that the counsel so
designated would have no actual or potential conflict of interest in connection
with such representation. Unless it shall assume the defense of any proceeding
the indemnifying party shall not be liable for any settlement of any proceeding,
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. If the indemnifying party assumes the defense of
any proceeding, it shall be entitled to settle such proceeding with the consent
of the indemnified party or, if such settlement provides for release of the
indemnified party in connection with all matters relating to the proceeding
which have been asserted against the indemnified party in such proceeding by the
other parties to such settlement, without the consent of the indemnified party.
7.4 If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under clause 7.1 or 7.2 hereof or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then the indemnifying party, in lieu of indemnifying such
<PAGE>
-14-
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities, in
such proportion as is appropriate to reflect not only the relative benefits
received by the Company on the one hand and the Underwriter on the other from
the offering of the Certificates but also the relative fault of the Company on
the one hand and of the Underwriter, on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company on the one hand and of the Underwriter on the
other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or by the Underwriter, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
7.5 The Company and the Underwriter agree that it would not be
just and equitable if contribution pursuant to this Section 7 were determined by
pro rata allocation or by any other method of allocation which does not take
account of the considerations referred to in clause 7.4, above. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages
and liabilities referred to in this Section 7 shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim except where the indemnified party is
required to bear such expenses pursuant to clause 7.4; which expenses the
indemnifying party shall pay as and when incurred, at the request of the
indemnified party, to the extent that the indemnifying party believes that it
will be ultimately obligated to pay such expenses. In the event that any
expenses so paid by the indemnifying party are subsequently determined to not be
required to be borne by the indemnifying party hereunder, the party which
received such payment shall promptly refund the amount so paid to the party
which made such payment. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
7.6 The indemnity and contribution agreements contained in
this Section 7 and the representations and warranties of the Company in this
Agreement shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by the
Underwriter or on behalf of the Underwriter or any person controlling the
Underwriter or by or on behalf of the Company and its respective directors or
officers or any person controlling the Company and (iii) acceptance of and
payment for any of the Certificates.
8. TERMINATION. This Agreement shall be subject to termination by
notice given to the Company, if the sale of the Certificates provided for herein
is not consummated because of any failure or refusal on the part of the Company
to comply with the terms or to fulfill any of the conditions of this Agreement,
or if for any reason the Company shall be unable to perform their respective
obligations under this Agreement. If you terminate this Agreement in accordance
with this Section 8, the Company will reimburse you for all reasonable
out-of-pocket expenses
<PAGE>
-15-
(including reasonable fees and disbursements of counsel) that shall have been
reasonably incurred by the Underwriter in connection with the proposed purchase
and sale of the Certificates.
9. CERTAIN REPRESENTATIONS AND INDEMNITIES TO SURVIVE. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or the officers of the Company, and you set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation, or statement as to the results thereof, made by you or on your
behalf or made by or on behalf of the Company or any of its officers, directors
or controlling persons, and will survive delivery of and payment for the
Certificates.
10. NOTICES. All communications hereunder will be in writing and
effective only on receipt, and, if sent to the Underwriter will be mailed,
delivered or telegraphed and confirmed to you at
________________________________________________________________________,
Attention: ____________________________ or if sent to the Company, will be
mailed, delivered or telegraphed and confirmed to it at WMC Secured Assets
Corp., 6320 Canoga Avenue, Suite 1300, Woodland Hills, California 91367.
11. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 7 hereof, and their
successors and assigns, and no other person will have any right or obligation
hereunder.
12. APPLICABLE LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of New York.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, which taken together
shall constitute one and the same instrument.
<PAGE>
-16-
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
letter and your acceptance shall represent a binding agreement between the
Company and you.
Very truly yours,
WMC SECURED ASSETS CORP.
By:
------------------------
Name:
Title:
The foregoing Underwriting Agreement
is hereby confirmed and accepted as of
the date first above written.
- --------------------------------
By:-----------------------------
Name:
Title:
<PAGE>
EXHIBIT A-1
[Thacher Proffitt & Wood Letterhead]
_________________, 199_
WMC Secured Assets Corp.
6320 Canoga Avenue, Suite 1300
Woodland Hills, California 91367
[Name of Master Servicer]
[Address of Master Servicer]
[UNDERWRITER]
- --------------------------------
- --------------------------------
- --------------------------------
[TRUSTEE]
- --------------------------------
- --------------------------------
- --------------------------------
Re: WMC Secured Assets Corp.
Mortgage Pass-through Certificates, Series 199_-____
----------------------------------------------------
Ladies and Gentlemen:
We have acted as special counsel to WMC Secured Assets Corp. (the
"Company") and [Name of Master Servicer] (the "Master Servicer") in connection
with the issuance and sale by the Company of Mortgage Pass-Through Certificates,
Series 199_- ____ (the "Certificates"), pursuant to a Pooling and Servicing
Agreement, dated as of _______________ 1, 199_ (the "Pooling and Servicing
Agreement"), among the Company, the Master Servicer and ___________________, as
trustee (the "Trustee"). The Certificates consist of ____________ classes
designated as Class A and Class R (collectively, the "Senior Certificates") and
____________ classes of subordinated certificates designated as Class M and
Class B. Only the Senior Certificates and the Class M Certificates
(collectively, the "Offered Certificates") are offered under the Prospectus.
<PAGE>
WMC Secured Assets Corp.
[Name of Master Servicer]
__________________, 199_ 2.
The Senior Certificates in the aggregate and the Class M Certificates
will evidence initial undivided interests of approximately _____% and _____%,
respectively, in a trust fund (the "Trust Fund") consisting primarily of a pool
of conventional, fixed-rate, one- to four-family first mortgage loans (the
"Mortgage Loans") held by ______________________________ ______________, as
custodian (the "Custodian"), pursuant to a Custodial Agreement, dated as of
_______________ 1, 199_, among the Company, the Master Servicer, the Custodian
and the Trustee (the "Custodial Agreement").
____________________________________ ("The Purchaser") acquired the Mortgage
Loans through its mortgage loan purchase program from various seller/servicers.
The Purchaser transferred the Mortgage Loans to the Company pursuant to an
Assignment and Assumption Agreement, dated ________, 199_ (the "Assignment and
Assumption Agreement"), in exchange for immediately available funds, the Class M
and Class B Certificates. The Company will sell the Class A and the Class R
Certificates other than a de minimis portion thereof (the "Underwritten
Certificates") to _______________________ (the "Underwriter"), pursuant to an
Underwriting Agreement, dated _______________, 199_, between the Company and the
Underwriter (the "Underwriting Agreement"; the Pooling and Servicing Agreement,
the Custodial Agreement, the Underwriting Agreement and the Assignment and
Assumption Agreement, collectively, the "Agreements"). Capitalized terms used
but not defined herein shall have the meanings set forth in the Agreements. This
opinion letter is rendered pursuant to Section 6.4 of the Underwriting
Agreement.
In connection with rendering this opinion letter, we have examined the
Agreements and such records and other documents as we have deemed necessary. As
to matters of fact, we have examined and relied upon representations of the
parties contained in the Agreements and, where we have deemed appropriate,
representations or certifications of officers of the Company, the Master
Servicer, the Trustee or public officials. We have assumed the authenticity of
all documents submitted to us as originals, the genuineness of all signatures,
the legal capacity of natural persons and the conformity to the originals of all
documents submitted to us as copies. We have assumed that all parties, except
for the Company and the Master Servicer, had the corporate power and authority
to enter into and perform all obligations under such documents. As to such
parties, we also have assumed the due authorization by all requisite corporate
action, the due execution and delivery and the enforceability of such documents.
We have assumed that there is not and will not be any other agreement that
materially supplements or otherwise modifies the agreements expressed in the
Agreements. We have further assumed the conformity of the Mortgage Loans and
related documents to the requirements of the Agreements.
In rendering this opinion letter, we do not express any opinion
concerning any law other than the law of the State of New York and the federal
law of the United States, nor do we express any opinion concerning the
application of the "doing business" laws or the securities laws of any
jurisdiction other than the federal securities laws of the United States. In
rendering the opinion set forth below, as to matters governed by the laws of the
State of California, we have relied without independent investigation on the
opinion letter of [Counsel to Master Servicer], general counsel to the Company
and the Master Servicer, dated the date hereof, a copy of which is
<PAGE>
WMC Secured Assets Corp.
[Name of Master Servicer]
__________________, 199_ 3.
annexed hereto. To the extent that we have relied on the foregoing opinion
letter, the opinions set forth below are subject to the same assumptions,
qualifications, exceptions and other limitations set forth therein. We do not
express any opinion on any issue not expressly addressed below.
Based upon the foregoing, it is our opinion that:
1. The Registration Statement has become effective under the
Securities Act of 1933, as amended (the "Act"), and, to the
best of our 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 under Section 8(d) of the Act.
2. The Registration Statement, at the Effective Date, and the
Prospectus, as of the date of the Prospectus Supplement, other
than any financial or statistical information or Computational
Materials contained or incorporated by reference therein,
complied as to form in all material respects with the
requirements of the Act and the applicable rules and
regulations thereunder.
3. To our knowledge, there are no material contracts, indentures,
or other documents (not including computational materials) of
a character required to be described or referred to in either
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 Offered Certificates, when duly and validly executed,
authenticated and delivered in accordance with the Pooling and
Servicing Agreement, will be entitled to the benefits of the
Pooling and Servicing Agreement.
5. The statements made in the Prospectus under the heading
"Description of the Certificates", insofar as such
statements purport to summarize certain provisions of the
Offered Certificates and the Pooling and Servicing
Agreement, provide a fair summary of such provisions. The
statements made in the Basic Prospectus and the Prospectus
Supplement, as the case may be, under the headings "Certain
Federal Income Tax Consequences", "Certain Legal Aspects of
Mortgage Loans and Related Matters--Applicability of Usury
Laws", and "--Alternative Mortgage Instruments", and "ERISA
Considerations", to the extent that they constitute matters
of State of New York or federal law or legal conclusions
with respect thereto, while not purporting to discuss all
possible consequences of investment in the Offered
Certificates are correct in all material respects with
respect to those consequences or matters that are discussed
therein.
<PAGE>
WMC Secured Assets Corp.
[Name of Master Servicer]
__________________, 199_ 4.
6. Each class of the Senior Certificates and the Class M
Certificates will be "mortgage related securities", as defined
in Section 3(a)(41) of the Securities Exchange Act of 1934, as
amended, so long as such class is rated in one of the two
highest rating categories by at least one nationally
recognized statistical rating organization.
7. The Pooling and Servicing Agreement is not required to be
qualified under the Trust Indenture Act of 1939, as amended,
and the Trust Fund created by the Pooling and Servicing
Agreement is not required to be registered under the
Investment Company Act of 1940, as amended.
8. No consent, approval, authorization or order of any federal or
State of New York court or governmental agency or body is
required for the consummation by the Company or the Master
Servicer of the transactions contemplated by the terms of the
Agreements, except (a) such as have been obtained under the
Act and (b) such as may be required under the blue sky laws of
any jurisdiction in connection with the purchase and the offer
and sale of the Underwritten Certificates by the Underwriter,
as to which we express no opinion.
9. Neither the sale of the Underwritten Certificates to the
Underwriter pursuant to the Underwriting Agreement, nor the
consummation of any other of the transactions contemplated by,
or the fulfillment by the Company or the Master Servicer of
the terms of the Agreements, will result in a breach of any
term or provision of any federal or State of New York statute
or regulation or, to the best of our knowledge, conflict with,
result in a breach, violation or acceleration of or constitute
a default under any order of any federal or State of New York
court, regulatory body, administrative agency or governmental
body having jurisdiction over the Company or the Master
Servicer.
10. Each of the Agreements has been duly authorized, executed and
delivered by the Company and the Master Servicer and, upon due
authorization, execution and delivery by the other parties
thereto, each will constitute a valid, legal and binding
agreement of the Company and the Master Servicer, enforceable
against the Company and the Master Servicer in accordance with
its terms, except as enforceability may be limited by (i)
bankruptcy, insolvency, liquidation, receivership, moratorium,
reorganization or other similar laws affecting the rights of
creditors, (ii) general principles of equity, whether
enforcement is sought in a proceeding in equity or at law, and
(iii) public policy considerations underlying the securities
laws, to the extent that such public policy considerations
limit the enforceability of the provisions of any of the
Agreements which purport to provide indemnification with
respect to securities law violations.
<PAGE>
WMC Secured Assets Corp.
[Name of Master Servicer]
__________________, 199_ 5.
11. Assuming compliance with the provisions of the Pooling and
Servicing Agreement, for federal income tax purposes, the
Trust Fund will qualify as a real estate mortgage investment
conduit ("REMIC") within the meaning of Sections 860A through
860G (the "REMIC Provisions") of the Internal Revenue Code of
1986, the Offered Certificates (other than the Class R
Certificates) will be "regular interests" in the Trust Fund
and the Class R Certificates will be the sole class of
"residual interests" in the Trust Fund, within the meaning of
the REMIC Provisions in effect on the date hereof.
12. Assuming compliance with the provisions of the Pooling and
Servicing Agreement, for City and State of New York income and
corporation franchise tax purposes, the Trust Fund will be
classified as a REMIC and not as a corporation, partnership or
trust, in conformity with the federal income tax treatment of
the Trust Fund. Accordingly, the Trust Fund will be exempt
from all City and State of New York taxation imposed on its
income, franchise or capital stock, and its assets will not be
included in the calculation of any franchise tax liability.
This opinion letter is rendered for the sole benefit of each addressee
hereof, and no other person or entity is entitled to rely hereon without our
prior written consent. Copies of this opinion letter may not be furnished to any
other person or entity, nor may any portion of this opinion letter be quoted,
circulated or referred to in any other document, without our prior written
consent.
Very truly yours,
THACHER PROFFITT & WOOD
By
<PAGE>
EXHIBIT A-2
[Thacher Proffitt & Wood Letterhead]
_________________, 199_
WMC Secured Assets Corp.
6320 Canoga Avenue, Suite 1300
Woodland Hills, California 91367
[UNDERWRITER]
- --------------------------------
- --------------------------------
- --------------------------------
[TRUSTEE]
- --------------------------------
- --------------------------------
- --------------------------------
Re: WMC Secured Assets Corp.
Mortgage Pass-Through Certificates,
Series 199_-_____
-----------------------------------
Ladies and Gentlemen:
We have acted as special counsel to WMC Secured Assets Corp. (the
"Company") and [Name of Master Servicer] (the "Master Servicer") in connection
with the issuance and sale by the Company of Mortgage Pass-Through Certificates,
Series 199_-____ (the "Certificates"), pursuant to a Pooling and Servicing
Agreement, dated as of ________________ 1, 199_ (the "Pooling and Servicing
Agreement"), among the Company, the Master Servicer and _____________________ as
trustee (the "Trustee"). The Certificates consist of ____________ classes
designated as Class A and Class R (collectively, the "Senior Certificates") and
____________ classes of subordinated certificates designated as Class M and
Class B.
The Senior Certificates in the aggregate and the Class M Certificates
will evidence initial undivided interests of approximately _____% and _____%,
respectively, in a trust fund (the "Trust Fund") consisting primarily of a pool
of conventional, fixed-rate, one- to four-family first
<PAGE>
WMC Secured Assets Corp.
[Underwriter]
[Trustee]
____________________, 199_ 2.
mortgage loans (the "Mortgage Loans") held by ___________________
________________________, as custodian (the "Custodian"), pursuant to a
Custodial Agreement, dated as of ___________ 1, 199_, among the Company, the
Master Servicer, the Custodian and the Trustee (the "Custodial Agreement").
________________________________ ("The Purchaser") acquired the Mortgage Loans
through its mortgage loan purchase program from various seller/servicers. The
Purchaser transferred the Mortgage Loans to the Company pursuant to an
Assignment and Assumption Agreement, dated ______________, 199_ (the "Assignment
and Assumption Agreement"), in exchange for immediately available funds, the
Class M and Class B Certificates and a de minimis portion of the Class R
Certificates. The Company will sell the Class A Certificates and the Class R
Certificates other than a de minimis portion thereof (the "Underwritten
Certificates") to ______________________ (the "Underwriter"), pursuant to an
Underwriting Agreement, dated ______________, 199_, between the Company and the
Underwriter (the "Underwriting Agreement"; the Pooling and Servicing Agreement,
the Custodial Agreement, the Underwriting Agreement and the Assignment and
Assumption Agreement, collectively, the "Agreements"). Capitalized terms used
but not defined herein shall have the meanings set forth in the Agreements. This
letter is rendered pursuant to Section 6.4 of the Underwriting Agreement.
Because the primary purpose of our professional engagement was not to
establish factual matters and because of the wholly or partially non-legal
character of many determinations involved in the preparation of the Registration
Statement and the Prospectus, we are not passing upon and do not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus, except to the extent
expressly set forth in paragraph numbered 5 of our opinion letter relating to
certain securities matters, dated the date hereof and addressed to the Company,
the Master Servicer, the Underwriter and the Trustee (the "Closing Opinion"),
and make no representation that we have otherwise independently verified the
accuracy, completeness or fairness of such statements, except as aforesaid. In
particular and without limiting the foregoing, we have not examined any
accounting, financial or statistical records not included in either the
Registration Statement or the Prospectus from which the information and
statements included therein are derived, and we express no belief as to any such
accounting, financial or statistical information contained in either the
Registration Statement or the Prospectus or the information included under the
caption "Method of Distribution" contained in the Prospectus Supplement, or as
to any Computational Materials. We also note that we are not experts with
respect to any portion of the Registration Statement or the Prospectus,
including without limitation such accounting, financial or statistical
information, except to the extent we may be deemed to be "experts" within the
meaning of the Securities Act of 1933 or the rules and regulations thereunder
with respect to the matters specifically mentioned in paragraph numbered 5 of
the Closing Opinion.
However, in the course of our acting as counsel to the Company in
connection with its preparation of the Registration Statement or the Prospectus,
we met in conferences and partici pated in telephone conversations involving
representatives of the Company, representatives of the Master Servicer,
representatives of the Underwriter, representatives of the Trustee,
representatives of the Custodian, _______________ in their capacity as counsel
to the Underwriter, and _______________ in their capacity as counsel to the
Master Servicer, during which conferences and telephone conversations the
contents of the Registration Statement and the Prospectus and related matters
were discussed. In addition, we reviewed the minutes of the Board of Directors
of the Company and of the Master Servicer, which minutes were represented to us
by the Company or the Master Servicer, as applicable, to _________________,
199_, and certain documents furnished to us by the Company and the Master
Servicer or otherwise in our possession. We have not otherwise undertaken any
procedures that were intended or likely to elicit information concerning the
accuracy, completeness or fairness of the statements made in the Registration
Statement or the Prospectus.
Based on the foregoing, our understanding of applicable law and the
experience we have gained in our practice thereunder, we hereby advise the
Underwriter that no information has come to our attention that causes us to
believe that the Registration Statement, as of the Effective Date, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or that the Prospectus, as of the date of the Prospectus Supplement and as of
the Closing Date, contained an untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
This letter is rendered for the sole benefit of each addressee hereof,
and no other person or entity is entitled to rely hereon without our prior
written consent. Copies of this letter may not be furnished to any other person
or entity, nor may any portion of this letter be quoted, circulated or referred
to in any other document, without our prior written consent.
Very truly yours,
THACHER PROFFITT & WOOD
By
<PAGE>
EXHIBIT B
[Counsel to Master Servicer Letterhead]
_________________, 199_
[TRUSTEE]
- -------------------------------
- -------------------------------
- -------------------------------
[UNDERWRITER]
- -------------------------------
- -------------------------------
- -------------------------------
Re: WMC Secured Assets Corp.
Mortgage Pass-Through Certificates, Series 199_-____
----------------------------------------------------
Ladies and Gentlemen:
Our firm is General Counsel to WMC Secured Assets Corp. (the "Company")
and [Name of Master Servicer] (the "Master Servicer"). In that capacity, we are
familiar with the issuance and sale by the Company of Mortgage Pass-Through
Certificates, Series 199_-____ (the "Certifi cates"), pursuant to a Pooling and
Servicing Agreement, dated as of _______________ 1, 199_ (the "Pooling and
Servicing Agreement"), among the Company, the Master Servicer and
_____________________, as trustee (the "Trustee"). The Certificates consist of
____________ classes designated as Class A and Class R (collectively, the
"Senior Certificates") and ____________ classes of subordinated certificates
designated as Class M and Class B. Only the Senior Certificates and the Class M
Certificates (collectively, the "Offered Certificates") are offered under the
Prospectus.
The Senior Certificates in the aggregate and the Class M Certificates
will evidence initial undivided interests of approximately _____% and _____%,
respectively, in a trust fund (the "Trust Fund") consisting primarily of a pool
of conventional, fixed-rate, one- to four-family first mortgage loans (the
"Mortgage Loans") held by _________________________________ ___________, as
custodian (the "Custodian"), pursuant to a Custodial Agreement, dated as of
_____________ 1, 199_, among the Company, the Master Servicer, the Custodian and
the Trustee (the "Custodial Agreement"). The Master Servicer acquired the
Mortgage Loans through its mortgage loan purchase program from various
seller/servicers. The Master Servicer transferred the Mortgage Loans to the
Company pursuant to an Assignment and Assumption Agreement, dated
________________, 199_ (the "Assignment and Assumption Agreement") in exchange
for immediately available funds, the Class M and the Class B Certificates. The
Company will sell the Class A Certificates and the Class R Certificates other
than a de minimis portion thereof (the "Underwritten Certificates") to
_________________________ (the "Underwriter") pursuant to an
<PAGE>
[Trustee]
[Underwriter]
____________________, 199_ 2.
Underwriting Agreement, dated _________________, 199_, between the Company and
the Underwriter (the "Underwriting Agreement"; the Pooling and Servicing
Agreement, the Custodial Agreement, the Underwriting Agreement and the
Assignment and Assumption Agreement, collectively, the "Agreements").
Capitalized terms used but not defined herein shall have the meanings set forth
in the Agreements. This opinion letter is rendered pursuant to Section 6.4 of
the Underwriting Agreement.
In connection with rendering this opinion letter, we have examined the
Agreements and such other records and other documents as we have deemed
necessary. As to matters of fact, we have examined and relied upon
representations of the parties contained in the Agreements and, where we have
deemed appropriate, representations and certifications of officers of the
Company, the Master Servicer, the Trustee or public officials. We have assumed
the authenticity of all documents submitted to me as originals, the genuineness
of all signatures, the legal capacity of natural persons and the conformity to
the original of all documents submitted to me as copies. We have assumed that
all parties, except for the Company and the Master Servicer, had the corporate
power and authority to enter into and perform all obligations thereunder. As to
such parties, we also have assumed the due authorization by all requisite
corporate action, the due execution and delivery and the enforceability of such
documents. We have further assumed the conformity of the Mortgage Loans and
related documents to the requirements of the Agreements.
In rendering this opinion letter, we do not express any opinion
concerning law other than the law of the State of ___________, the corporate law
of the State of Delaware and the federal law of the United States, and we do not
express any opinion concerning the application of the "doing business" laws or
the securities laws of any jurisdiction other than the federal securities laws
of the United States. We do not express any opinion on any issue not expressly
addressed below.
Based upon the foregoing, we are of the opinion that:
1. The Company and the Master Servicer are duly incorporated and are
validly existing as corporations in good standing under the laws of the State of
Delaware and the State of __________, respectively, and each has the requisite
power and authority, corporate or other, to own its properties and conduct its
business, as presently conducted by it, and to enter into and perform its
obligations under the Agreements.
2. Each of the Agreements has been duly and validly authorized,
executed and delivered by the Company and the Master Servicer and, upon due
authorization, execution and delivery by other parties thereto, will constitute
the valid, legal and binding agreements of the Company and the Master Servicer,
enforceable against the Company and the Master Servicer in accordance with its
terms, except as enforceability may be limited by (i) bankruptcy, insolvency,
liquidation, receivership, moratorium, reorganization or other similar laws
affecting the rights of creditors, (ii) general principles of equity, whether
enforcement is sought in a proceeding in equity
<PAGE>
[Trustee]
[Underwriter]
____________________, 199_ 3.
or at law, and (iii) public policy considerations underlying the securities
laws, to the extent that such public policy considerations limit the
enforceability of the provisions of the Agreements which purport to provide
indemnification with respect to securities law violations.
3. The Offered Certificates, when duly and validly executed,
authenticated and delivered in accordance with the Pooling and Servicing
Agreement, will be entitled to the benefits of the Pooling and Servicing
Agreement.
4. No consent, approval, authorization or order of the State of
__________ or federal court or governmental agency or body is required for the
consummation by the Company or the Master Servicer of the transactions
contemplated by the terms of the Agreements, except for those consents,
approvals, authorizations or orders which previously have been obtained.
5. Neither the sale, issuance and delivery of the Underwritten
Certificates as provided in the Agreements, nor the consummation of any other of
the transactions contemplated by, or the fulfillment of any other of the terms
of, the Agreements, will result in a breach of any term or provision of the
charter or bylaws of the Company or the Master Servicer or any State of
Minnesota or federal statute or regulation or conflict with, result in a breach,
violation or acceleration of or constitute a default under the terms of any
indenture or other material agreement or instrument to which the Company or the
Master Servicer is a party or by which it is bound or any order or regulation of
any State of Minnesota or federal court, regulatory body, administrative agency
or governmental body having jurisdiction over the Company or the Master
Servicer.
This opinion letter is rendered for the sole benefit of each addressee
hereof, and no other person or entity, except Thacher Proffitt & Wood, is
entitled to rely hereon without my prior written consent. Copies of this opinion
letter may not be furnished to any other person or entity, nor may any portion
of this opinion letter be quoted, circulated or referred to in any other
document without my prior written consent.
Very truly yours,
COUNSEL TO MASTER SERVICER
<PAGE>
EXHIBIT C
[TRUSTEE'S COUNSEL'S LETTERHEAD]
________________, 199_
[UNDERWRITER]
- ------------------------------- [Name of Master Servicer]
- ------------------------------- [Address of Master Servicer]
- -------------------------------
WMC Secured Assets Corp. [TRUSTEE]
6230 Canoga Avenue, Suite 1300 ------------------------------
Woodland Hills, California 91367 ------------------------------
Re: WMC Secured Assets Corp.
Mortgage Pass-Through Certificates, Series 199_-____
----------------------------------------------------
Ladies and Gentlemen:
In connection with the issuance of the above-referenced Certificates
pursuant to the Pooling and Servicing Agreement, dated as of ____________ 1,
199_ (the "Pooling and Servicing Agreement"), among WMC Secured Assets Corp., as
Company, [Name of Master Servicer], as Master Servicer and
_____________________, as Trustee (the "Trustee"), we have been asked to furnish
this opinion. Capitalized terms used but not defined herein shall have the
meanings ascribed to such terms in the Pooling and Servicing Agreement.
In arriving at the opinions expressed below, we have examined and
relied upon the originals or copies, certified or otherwise identified to our
satisfaction, of the Pooling and Servicing Agreement and of such documents,
instruments and certificates, and we have made such investigations of law, as we
have deemed appropriate as the basis for the opinions expressed below. We have
assumed but have not verified that the signatures on all documents that we have
examined are genuine and that each person signing each such document was duly
authorized to sign such document on behalf of the person or entity purported to
be bound thereby.
Based on the foregoing, we are of the opinion that:
1. The Trustee has full corporate power and authority to execute and
deliver the Pooling and Servicing Agreement, the Custodial Agreement
and the Certificates and to perform its obligations under the Pooling
and Servicing Agreement and the Custodial Agreement.
<PAGE>
WMC Secured Assets Corp.
____________________, 199_ Page 2.
2. Each of the Pooling and Servicing Agreement and the Custodial
Agreement has been duly authorized, executed and delivered by
the Trustee, and the Trustee has duly executed and delivered
the Certificates as provided in the Pooling and Servicing
Agreement.
3. The Pooling and Servicing Agreement is a legal, valid and
binding obligation of the Trustee, enforceable against the
Trustee in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium,
receivership and similar laws affecting the rights of
creditors generally, and subject, as to enforceability, to
general principles of equity, regardless of whether such
enforcement is considered in a proceeding at law or in equity.
4. In the event that the Master Servicer defaults in its
obligation to make Advances pursuant to Section 4.03(b) of the
Pooling and Servicing Agreement, the Trustee is not, as of the
date hereof, prohibited by any provision of its Restated
Organization Certificate or By-Laws or by any provision of the
banking and trust laws of the State of New York from assuming,
pursuant to Section 7.02 of the Pooling and Servicing
Agreement, the obligation to make such Advances.
We express no opinion as to the laws of any jurisdiction other than the
laws of the State of New York.
We are furnishing this opinion to you solely for your benefit. This
opinion may not be used, circulated, quoted or otherwise referred to for any
other purpose.
Very truly yours,
-------------------------------
<PAGE>
EXHIBIT D
<PAGE>
EXHIBIT E
Excluded Information
<PAGE>
EXHIBIT F
Underwriter Information
<PAGE>
WMC Secured Assets Corp.
__________________, 199_ Page 1.
EXHIBIT G
__________________, 199_
WMC Secured Assets Corp.
6320 Canoga Avenue, Suite 1300
Woodland Hills, California 91367
Re: WMC Secured Assets Corp.,
Mortgage Pass-Through Certificates,
Series 199_- __, Class A and Class R
------------------------------------
Pursuant to Section 4 of the Underwriting Agreement, dated
_______________, 199_, between WMC Secured Assets Corp. and
________________________ (the "Underwriter") relating to the Certificates
referenced above (the "Underwriting Agreement"), the undersigned does hereby
certify that:
(a) The prepayment assumption used in pricing the Certificates was
______% SPA.
(b) Set forth below is (i), the first price, as a percentage of the
principal balance of each class of Certificates, at which 10% of the aggregate
principal balance of each such class of Certificates was sold to the public at a
single price, if applicable, or (ii) if more than 10% of a class of Certificates
have been sold to the public but no single price is paid for at least 10% of the
aggregate principal balance of such class of Certificates, then the weighted
average price at which the Certificates of such class were sold expressed as a
percentage of the principal balance of such class of Certificates, or (iii) if
less than 10% of the aggregate principal balance of a class of Certificates has
been sold to the public, the purchase price for each such class of Certificates
paid by the Underwriter expressed as a percentage of the principal balance of
such class of Certificates calculated by: (1) estimating the fair market value
of each such class of Certificates as of __________________, 199_; (2) adding
such estimated fair market value to the aggregate purchase price of each class
of Certificates described in clause (i) or (ii) above; (3) dividing each of the
fair market values determined in clause (1) by the sum obtained in clause (2);
(4) multiplying the quotient obtained for each class of Certificates in clause
(3) by the purchase price paid by the Underwriter for all the Certificates; and
(5) for each class of Certificates, dividing the product obtained from such
class of Certificates in clause (4) by the original principal balance of such
class of Certificates:
<PAGE>
WMC Secured Assets Corp.
__________________, 199_ Page 2.
Class A: __________________
Class R: __________________
[* less than 10% has been sold to the public]
The prices set forth above do not include accrued interest with respect to
periods before closing.
----------------------------------
By:
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
<PAGE>
EXHIBIT I
[Form of Legend]
Exhibit 3.1
-----------
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
WMC SECURED ASSETS CORP.
The Certificate of Incorporation of WMC Secured Assets Corp.,
originally filed with the Secretary of State of the State of Delaware on July
24, 1997, is hereby amended, restated and integrated, in accordance with
Sections 241 and 245 of the General Corporation Law of the State of Delaware, to
read in its entirety as follows:
1. The name of the Corporation incorporated hereby is
WMC SECURED ASSETS CORP.
2. The address of the Corporation's registered office in the
State of Delaware is Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of the Corporation's registered agent
at such address is The Corporation Trust Company.
3. The Corporation exists only for the purposes specified in
this paragraph 3 and may not conduct any other business without the unanimous
consent of its Board of Directors. The Corporation shall have the authority to
engage in any other acts or activities and to exercise any power permitted to
corporations under the General Corporation Law of the State of Delaware so long
as the same are incidental to or connected with and are necessary, suitable or
convenient to accomplish such purposes. The business and purposes to be
conducted and promoted by the Corporation are limited to the following
activities and none other:
A. To acquire as purchaser and/or by contribution to the
capital of the Corporation or otherwise, own, hold,
transfer, assign, sell, contribute to capital, pledge and
otherwise deal with (i) mortgage notes and similar such
instruments, related real property mortgages and deeds of
trust and other related agreements, documents, books and
records, (ii) related rights to payment, whether
constituting cash, account, chattel paper, instrument,
general intangible or otherwise, and any other related
assets, property and rights, including without limitation
security interests, (iii) related collection, deposit,
custodial, trust and other accounts, lock boxes and post
office boxes and any amounts and other items from time to
time on deposit therein, (iv) real property and any
improvements thereon and personal property acquired by
foreclosure, deed-in-lieu thereof or otherwise in respect
of any of the foregoing, (v) certificates, notes, bonds or
other securities, instruments and documents evidencing
ownership interests in or obligations secured by all or
any of the foregoing and (vi) proceeds and
<PAGE>
other payments and distributions of any kind of, on or in
respect of any of the foregoing;
B. To authorize, issue, sell and deliver, directly or
indirectly through business trusts, common law trusts or
other entities established solely for such purpose,
certificates, notes, bonds and other securities,
instruments and documents evidencing ownership interests
in or obligations secured by all or any portion of the
assets described in foregoing paragraph A, and in
connection therewith to enter into servicing, insurance,
credit enhancement, reimbursement and other agreements
incidental thereto; and
C. To take any action reasonable or necessary to enable the
Corporation to engage in any lawful act or activity and to
exercise any powers permitted to corporations organized
under the laws of the State of Delaware that are related
or incidental to and necessary, convenient or advisable to
accomplish any of the foregoing.
4. The total number of shares of stock which the Corporation
shall have authority to issue is one thousand (1,000) shares of common stock,
each of which shall have a par value of $1.00.
5. The election of directors of the Corporation need not be by
ballot unless the by-laws of the Corporation so provide. The books of the
Corporation may, subject to any statutory requirements, be kept at such place
within or outside the State of Delaware as may be designated by the board of
directors or the by-laws of the Corporation.
6. As used herein, (i) "person" means any individual,
proprietorship, trust, estate, partnership, joint venture, association, company,
corporation, limited liability company or other entity, (ii) "affiliate" means
any person that directly, or indirectly through one or more intermediaries,
controls, is controlled by or is under common control with the person specified
and (iii) "control", including the terms "controlling," "controlled by" and
"under common control with", means the direct or indirect possession of the
power to direct or cause the direction of the management and policies of a
person, whether through the ownership of at least 10% of the voting securities,
by contract or otherwise.
7. The Corporation shall at all times have at least one
Independent Director. As used in this Certificate of Incorporation (i)
"Independent Director" means a director who is not a current or former employee,
officer, director, partner, member, shareholder, creditor or customer of any
affiliate of the Corporation and is not a spouse, parent, brother, sister or
child of any such person and who has not received, and was not an employee,
officer, director, partner, member or shareholder of any person that has
received, from any affiliate of the Corporation, in any year within the five (5)
years immediately preceding or any year during such director's incumbency as an
Independent Director, fees or other income in excess of five percent (5%) of the
gross income of such person for any applicable year, provided that an
Independent Director may serve in similar capacities for other special purpose
entities formed by any affiliate of the
<PAGE>
- 3 -
Corporation. No resignation or removal of an Independent Director shall be
effective until a successor Independent Director has been elected to replace
such Independent Director.
8. The affirmative votes of the holders of all of the
Corporation's outstanding common stock and all of the directors at any meeting
of the board of directors shall be necessary (i) for the amendment of this
Certificate of Incorporation of the Corporation and for the amendment of the
by-laws of the Corporation or (ii) the institution by the Corporation of any
action to have itself adjudicated as bankrupt or insolvent, any consent to the
institution of bankruptcy or insolvency proceedings against it, any request or
consent to the entry of any order for relief or the appointment of a receiver,
trustee or other similar official for it or for any substantial part of its
property, the liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, the making of any
general assignment for the benefit of creditors, the admission in writing that
it is unable to pay its debts generally as they become due or the taking of any
corporate action in furtherance of any of the actions set forth above in this
paragraph. In such voting each Independent Director shall owe a fiduciary duty
to the Corporation itself, including the Corporation's creditors.
9. A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware or (iv) for any transaction from which the director
derived any improper personal benefit. If the General Corporation Law of the
State of Delaware is amended after the filing of this Certificate of
Incorporation to authorize corporate action eliminating or further limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the General Corporation Law of the State of Delaware as so amended. Any repeal
or modification of the foregoing portion of this paragraph by the stockholders
of the Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification.
10. The Corporation shall be operated in such a manner that
its assets and liabilities shall not be substantively consolidated with those of
any other person in the event of the bankruptcy or insolvency of the Corporation
or such other person. Without limiting the foregoing the Corporation shall
conduct its business in its own name, maintain its books and records separate
from those of any other person, maintain its bank accounts separate from those
of any other person, maintain separate financial statements, showing its assets
and liabilities separate and apart from those of any other person, pay its own
liabilities and expenses only out of its own funds, enter into a transaction
with an affiliate only if such transaction is intrinsically fair, commercially
reasonable and on the same terms as would be available in an arm's length
transaction with a person or entity that is not an affiliate, allocate fairly
and reasonably any overhead expenses that are shared with an affiliate, hold
itself out as a separate entity, maintain adequate capital in light
<PAGE>
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of its contemplated business operations and observe all other appropriate
corporate and other organizational formalities.
11. Notwithstanding any provision of law which otherwise
empowers the Corporation, the Corporation shall not (i) consolidate or merge
with or into any other person or dissolve or liquidate in whole or in part, or
transfer its properties and assets substantially as an entirety to any other
person other than a transfer incident to a transaction within the scope of
paragraph 3 above, (ii) hold itself out as being liable for the debts of any
other person, (iii) act other than in its corporate name and through its duly
authorized officers or agents, (iv) engage in any joint activity or transaction
of any kind with or for the benefit of any affiliate other than any loan to or
from or guarantee of the indebtedness of any affiliate within the scope of
paragraph 3 above, (v) commingle its funds or other assets with those of any
other person, (vi) create, incur, assume, guarantee or in any manner become
liable in respect of any indebtedness or (vii) take any other action that would
be inconsistent with maintaining the separate legal identity of the Corporation
or engage in any other activity.
THE UNDERSIGNED hereby certifies that the Corporation has not received
any payment for any of its stock and has hereby signed this Amended and Restated
Certificate of Incorporation as the sole incorporator of the Corporation in
accordance with Section 241 of the General Corporation Law of the State of
Delaware as of November 21, 1997.
/s/ Susan T. Tice
---------------------------------------------
Susan T. Tice
Exhibit 3.2
BY-LAWS
OF
WMC SECURED ASSETS CORP.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the
Corporation shall be in the City of Wilmington, County of Newcastle, State of
Delaware.
SECTION 2. OTHER OFFICES. The Corporation may also have
offices at such other places both within and without the State of Delaware as
the Board of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders for
the election of directors or for any other purpose shall be held at such time
and place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
SECTION 2. ANNUAL MEETINGS. The Annual Meetings of
Stockholders shall be held on such date and at such time as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting, at which meeting the stockholders shall elect by a plurality vote a
Board of Directors, and transact such other business as may properly be brought
before the meeting. Written notice of the Annual Meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than ten nor more than sixty days before the date of the
meeting.
SECTION 3. SPECIAL MEETINGS. Unless otherwise prescribed by
law or by the Certificate of Incorporation, Special Meetings of Stockholders,
for any purpose or purposes, may be called by either (i) the Chairman, if there
be one, or (ii) the President, (iii) any Vice President, if there be one, (iv)
the Secretary or (v) any Assistant Secretary, if there be one, and shall be
called by any such officer at the request in writing of a majority of the Board
of Directors or at the request in writing of stockholders owning a majority of
the capital stock of the Corporation issued and outstanding and entitled to
vote. Such request shall state the purpose or purposes of
<PAGE>
the proposed meeting. Written notice of a Special Meeting stating the place,
date and hour of the meeting and the purpose or purposes for which the meeting
is called shall be given not less than ten nor more than sixty days before the
date of the meeting to each stockholder entitled to vote at such meeting.
SECTION 4. QUORUM. Except as otherwise provided by law or by
the Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall not
be present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder entitled to vote at
the meeting.
SECTION 5. VOTING. Unless otherwise required by law, the
Certificate of Incorporation or these By-Laws, any question brought before any
meeting of stockholders shall be decided by the vote of the holders of a
majority of the stock represented and entitled to vote thereat. Each stockholder
represented at a meeting of stockholders shall be entitled to cast one vote for
each share of the capital stock entitled to vote thereat held by such
stockholder. Such votes may be cast in person or by proxy but no proxy shall be
voted on or after three years from its date, unless such proxy provides for a
longer period. The Board of Directors, in its discretion, or the officer of the
Corporation presiding at a meeting of stockholders, in his discretion, may
require that any votes cast at such meeting shall be cast by written ballot.
SECTION 6. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless
otherwise provided in the Certificate of Incorporation, any action required or
permitted to be taken at any Annual or Special Meeting of Stockholders of the
Corporation, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
SECTION 7. List of Stockholders Entitled to Vote. The officer
of the Corporation who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
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specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.
SECTION 8. STOCK LEDGER. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list required by Section 7 of this Article II or the books
of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER, ELECTION AND REMOVAL OF DIRECTORS. The
Board of Directors shall consist of not less than three members the exact number
of which shall initially be fixed by the Incorporator and thereafter from time
to time by the Board of Directors. The Board of Directors shall at all times
include at least one independent director ( an "Independent Director"). The
Independent Director shall be a director who is not a current or former
employee, officer, director, partner, member, or shareholder, creditor or
customer of the Corporation or any of its affiliates and is not a spouse,
parent, brother, sister or child of any such person and who has not received,
and was not an employee, officer, director, partner, member or shareholder of
any person that has received, from the Corporation or any of its affiliates, in
any year within the five (5) years immediately preceding or any year during such
director's incumbency as an Independent Director, fees or other income in excess
of five percent (5%) of the gross income of such person for any applicable year,
provided that an Independent Director may serve in similar capacities for other
special purpose entities formed by any affiliate of the Corporation. "Affiliate"
shall mean any person that directly, or indirectly through one or more
intermediaries, controls, is controlled by or is under common control with the
person specified. The term "control", including the terms "controlling,"
"controlled by" and "under common control with", means the direct or indirect
possession of the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of at least 10% of the
voting securities, by contract or otherwise. "Person" shall mean any individual,
proprietorship, trust, estate, partnership, joint venture, association, company,
corporation, limited liability company or other entity. Except as provided in
Section 2 of this Article, directors shall be elected by a plurality of the
votes cast at Annual Meetings of Stockholders and each director so elected shall
hold office until the next Annual Meeting and until his successor is duly
elected and qualified or until his earlier resignation or removal. Any director
may resign at any time upon notice to the Corporation. Directors need not be
stockholders. At any time, directors may be removed and their successors chosen
by the unanimous written consent of the holders of the outstanding stock of the
Corporation entitled to vote on the election of directors. No removal of an
Independent Director shall be effective until a successor Independent Director
has been elected to replace such Independent Director.
SECTION 2. VACANCIES. Subject to Section 1 of this Article,
vacancies and newly created directorships resulting from any increase in the
authorized number of directors may be filled by a majority of the directors then
in office, though less than a quorum, or by a sole
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<PAGE>
remaining director, and the directors so chosen shall hold office until the next
annual election and until their successors are duly elected and qualified, or
until their earlier resignation or removal.
SECTION 3. DUTIES AND POWERS. The business of the Corporation
shall be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
By-Laws directed or required to be exercised or done by the stockholders.
SECTION 4. MEETINGS. The Board of Directors of the Corporation
may hold meetings, both regular and special, either within or without the State
of Delaware. Regular meetings of the Board of Directors may be held without
notice at such time and at such place as may from time to time be determined by
the Board of Directors. Special meetings of the Board of Directors may be called
by the Chairman, if there be one, the President, or any two directors. Notice
thereof stating the place, date and hour of the meeting shall be given to each
director either by mail not less than forty-eight (48) hours before the date of
the meeting, by telephone or telegram on twenty-four (24) hours notice, or on
such shorter notice as the person or persons calling such meeting may deem
necessary or appropriate in the circumstances.
SECTION 5. QUORUM. Except as may be otherwise specifically
provided by law, the Certificate of Incorporation or these By-Laws, at all
meetings of the Board of Directors, a majority of the entire Board of Directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors. If a quorum shall not be present at
any meeting of the Board of Directors, the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
SECTION 6. ACTIONS OF BOARD. Unless otherwise provided by the
Certificate of Incorporation or these By-Laws, 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 all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 7. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Unless
otherwise provided by the Certificate of Incorporation or these By-Laws, members
of the Board of Directors of the Corporation, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors or
such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 7 shall
constitute presence in person at such meeting.
SECTION 8. COMMITTEES. The Board of Directors may, by
resolution passed by a majority of the entire Board of Directors, designate one
or more committees, each committee to consist of one or more of the directors of
the Corporation. The Board of Directors may
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<PAGE>
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of any such committee.
In the absence or disqualification of a member of a committee, and in the
absence of a designation by the Board of Directors of an alternate member to
replace the absent or disqualified member, the member or members thereof present
at any meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any absent or disqualified
member. Any committee, to the extent allowed by law and provided in the
resolution establishing such committee, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation. Each committee shall keep regular minutes and
report to the Board of Directors when required.
SECTION 9. COMPENSATION. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
SECTION 10. INTERESTED DIRECTORS. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the shareholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
shareholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof or the shareholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction. This Section 10 shall be subject to Section 9 of the Certificate of
Incorporation.
ARTICLE IV
OFFICERS
Section 1. General. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a President, a Secretary and a
Treasurer. The Board of Directors,
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<PAGE>
in its discretion, may also choose a Chairman of the Board of Directors (who
must be a director) and one or more Vice-Presidents or Assistant
Vice-Presidents, Assistant Secretaries, Assistant Treasurers and other officers.
Any number of offices may be held by the same person, unless otherwise
prohibited by law, the Certificate of Incorporation or these By-Laws. The
officers of the Corporation need not be stockholders of the Corporation nor,
except in the case of the Chairman of the Board of Directors, need such officers
be directors of the Corporation.
SECTION 2. ELECTION. The Board of Directors at its first
meeting held after each Annual Meeting of Stockholders shall elect the officers
of the Corporation who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board of Directors; and all officers of the Corporation shall hold
office until their successors are chosen and qualified, or until their earlier
resignation or removal. Any officer elected by the Board of Directors may be
removed at any time by the affirmative vote of a majority of the Board of
Directors. Any vacancy occurring in any office of the Corporation shall be
filled by the Board of Directors. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors.
SECTION 3. VOTING SECURITIES OWNED BY THE CORPORATION. Powers
of attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be executed in
the name of and on behalf of the Corporation by the President or any
Vice-President and any such officer may, in the name of and on behalf of the
Corporation, take all such action as any such officer may deem advisable to vote
in person or by proxy at any meeting of security holders of any corporation in
which the Corporation may own securities and at any such meeting shall possess
and may exercise any and all rights and power incident to the ownership of such
securities and which, as the owner thereof, the Corporation might have exercised
and possessed if present. The Board of Directors may, by resolution, from time
to time confer like powers upon any other person or persons.
SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. He shall be the Chief Executive
Officer of the Corporation, and except where by law the signature of the
President is required, the Chairman of the Board of Directors shall possess the
same power as the President to sign all contracts, certificates and other
instruments of the Corporation which may be authorized by the Board of
Directors. During the absence or disability of the President, the Chairman of
the Board of Directors shall exercise all the powers and discharge all the
duties of the President. The Chairman of the Board of Directors shall also
perform such other duties and may exercise such other powers as from time to
time may be assigned to him by these By-Laws or by the Board of Directors.
SECTION 5. PRESIDENT. The President shall, subject to the
control of the Board of Directors and, if there be one, the Chairman of the
Board of Directors, have general supervision of the business of the Corporation
and shall see that all orders and resolutions of the Board of Directors are
carried into effect. He shall execute all bonds, mortgages, contracts and other
instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other
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<PAGE>
officers of the Corporation may sign and execute documents when so authorized by
these By-Laws, the Board of Directors or the President. In the absence or
disability of the Chairman of the Board of Directors, or if there be none, the
President shall preside at all meetings of the stockholders and the Board of
Directors. If there be no Chairman of the Board of Directors, the President
shall be the Chief Executive Officer of the Corporation. The President shall
also perform such other duties and may exercise such other powers as from time
to time may be assigned to him by these By-Laws or by the Board of Directors.
SECTION 6. VICE-PRESIDENTS. At the request of the President or
in his absence or in the event of his inability or refusal to act (and if there
be no Chairman of the Board of Directors), the Vice-President or the
Vice-Presidents if there is more than one (in the order designated by the Board
of Directors) shall perform the duties of the President, and when so acting,
shall have all the powers of and be subject to all the restrictions upon the
President. Each Vice-President shall perform such other duties and have such
other powers as the Board of Directors from time to time may prescribe. If there
be no Chairman of the Board of Directors and no Vice-President, the Board of
Directors shall designate the officer of the Corporation who, in the absence of
the President or in the event of the inability or refusal of the President to
act, shall perform the duties of the President, and when so acting, shall have
all the powers of and be subject to all the restrictions upon the President.
SECTION 7. SECRETARY. The Secretary shall attend all meetings
of the Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
President, under whose supervision he shall be. If the Secretary shall be unable
or shall refuse to cause to be given notice of all meetings of the stockholders
and special meetings of the Board of Directors, and if there be no Assistant
Secretary, then either the Board of Directors or the President may choose
another officer to cause such notice to be given. The Secretary shall have
custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest the affixing by his signature. The Secretary
shall see that all books, reports, statements, certificates and other documents
and records required by law to be kept or filed are properly kept or filed, as
the case may be.
SECTION 8. TREASURER. The Treasurer shall have the custody of
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so
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requires, an account of all his transactions as Treasurer and of the financial
condition of the Corporation. If required by the Board of Directors, the
Treasurer shall give the Corporation a bond in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of his office and for the restoration to the
Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
SECTION 9. ASSISTANT SECRETARIES. Except as may be otherwise
provided in these By-Laws, Assistant Secretaries, if there be any, shall perform
such duties and have such powers as from time to time may be assigned to them by
the Board of Directors, the President, any Vice-President, if there be one, or
the Secretary, and in the absence of the Secretary or in the event of his
disability or refusal to act, shall perform the duties of the Secretary, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Secretary.
SECTION 10. ASSISTANT TREASURERS. Assistant Treasurers, if
there be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Directors, the President, any
Vice-President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of his disability or refusal to act, shall perform the
duties of the Treasurer, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Treasurer. If required by the Board of
Directors, an Assistant Treasurer shall give the Corporation a bond in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
SECTION 11. OTHER OFFICERS. Such other officers as the Board
of Directors may choose shall perform such duties and have such powers as from
time to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
ARTICLE V
STOCK
SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice-President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by him in the Corporation.
SECTION 2. SIGNATURES. Where a certificate is countersigned by
(i) a transfer agent other than the Corporation or its employee, or (ii) a
registrar other than the Corporation or
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its employee, any other signature on the certificate may be a facsimile. In case
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
SECTION 3. LOST CERTIFICATES. The Board of Directors may
direct a new certificate to be issued in place of any certificate theretofore
issued by the Corporation alleged to have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming the certificate
of stock to be lost, stolen or destroyed. When authorizing such issue of a new
certificate, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate, or his legal representative, to advertise the same in
such manner as the Board of Directors shall require and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.
SECTION 4. TRANSFERS. Stock of the Corporation shall be
transferable in the manner prescribed by law and in these By-Laws. Transfers of
stock shall be made on the books of the Corporation only by the person named in
the certificate or by his attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be canceled before a new
certificate shall be issued.
SECTION 5. RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than sixty days nor less than
ten days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 6. BENEFICIAL OWNERS. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by law.
-9-
<PAGE>
ARTICLE VI
NOTICES
SECTION 1. NOTICES. Whenever written notice is required by
law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, such notice may be given by
mail, addressed to such director, member of a committee or stockholder, at his
address as it appears on the records of the Corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when the same
shall be deposited in the United States mail. Written notice may also be given
personally or by telegram, telex or cable.
SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required
by law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed, by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of the capital
stock. Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
SECTION 2. DISBURSEMENTS. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation
shall be fixed by resolution of the Board of Directors.
SECTION 4. CORPORATE SEAL. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
-10-
<PAGE>
ARTICLE VIII
INDEMNIFICATION
SECTION 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS
OTHER THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of
this Article VIII, the Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
it self, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
SECTION 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS
BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article
VIII, the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit wee brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
SECTION 3. AUTHORIZATION OF INDEMNIFICATION. Any
indemnification under this Article VIII (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or
-11-
<PAGE>
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in Section 1 or Section 2 of this Article VIII, as the case
may be. Such determination shall be made (i) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (iii) by the stockholders. To the extent,
however, that a director, officer, employee or agent of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reason ably incurred by him in connection therewith, without the necessity
of authorization in the specific case.
SECTION 4. GOOD FAITH DEFINED. For purposes of any
determination under Section 3 of this Article VIII, a person shall be deemed to
have acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, or, with respect to any
criminal action or proceeding, to have had no reasonable cause to believe his
conduct was unlawful, if his action is based on the records or books of account
of the Corporation or another enterprise, or on information supplied to him by
the officers of the Corporation or another enterprise in the course of their
duties, or on the advice of legal counsel for the Corpo ration or another
enterprise or on information or records given or reports made to the Corporation
or another enterprise by an independent certified public accountant or by an
appraiser or other expert selected with reasonable care by the Corporation or
another enterprise. The term "another enterprise" as used in this Section 4
shall mean any other corporation or any partnership, joint venture, trust or
other enterprise of which such person is or was serving at the request of the
Corporation as a director, officer, employee or agent. The provisions of this
Section 4 shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have met the applicable
standard of conduct set forth in Sections 1 or 2 of this Article VIII, as the
case may be.
SECTION 5. INDEMNIFICATION BY A COURT. Not withstanding any
contrary determination in the specific case under Section 3 of this Article
VIII, and notwithstanding the absence of any determination thereunder, any
director, officer, employee or agent may apply to any court of competent
jurisdiction in the State of Delaware for indemnification to the extent
otherwise permissible under Sections 1 and 2 of this Article VIII. The basis of
such indemnification by a court shall be a determination by such court that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standards of conduct set forth
in Sections 1 or 2 of this Article VIII, as the case may be. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application.
SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred in
defending or investigating a threatened or pending action, suit or proceeding
may be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding as authorized by the Board of Directors in the
specific case upon receipt of an undertaking by or on behalf of the director,
-12-
<PAGE>
officer, employee or agent to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by the Corporation as
authorized in this Article VIII.
SECTION 7. NON-EXCLUSIVITY AND SURVIVAL OF INDEMNIFICATION.
The indemnification provided by this Article VIII shall not be deemed exclusive
of any other rights to which those seeking indemnification may be entitled under
any By-Law, agreement, contract, vote of stockholders or disinterested directors
or pursuant to the direction (howsoever embodied) of any court of competent
jurisdiction or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, it being the policy of the
Corporation that indemnification of the persons specified in Sections 1 and 2 of
this Article VIII shall be made to the fullest extent permitted by law. The
provisions of this Article VIII shall not be deemed to preclude the
indemnification of any person who is not specified in Sections 1 or 2 of this
Article VIII but whom the Corporation has the power or obligation to indemnify
under the provisions of the General Corporation Law of the State of Delaware, or
otherwise. The indemnification provided by this Article VIII shall continue as
to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such
person.
SECTION 8. INSURANCE. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power or the
obligation to indemnify him against such liability under the provisions of this
Article VIII.
SECTION 9. MEANING OF "CORPORATION" FOR PURPOSES OF ARTICLE
VIII. For purposes of this Article VIII, references to "the Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the name
position under the provisions of this Article VIII with respect to the resulting
or surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
-13-
<PAGE>
ARTICLE IX
AMENDMENTS
SECTION 1. These By-Laws may be altered, amended or repealed,
in whole or in part, or new By-Laws may be adopted by the affirmative vote of
the holders of a majority of the outstanding capital stock entitled to vote
thereon and by the Board of Directors, including the affirmative vote of the
Independent Director. Notice of such alteration, amendment, repeal or adoption
of new By-Laws be contained in the notice of such meeting of stockholders and/or
Board of Directors.
SECTION 2. ENTIRE BOARD OF DIRECTORS. As used in this Article
IX and in these By-Laws generally, the term "entire Board of Directors" means
the total number of directors that the Corporation would have if there were no
vacancies.
-14-
EXHIBIT 4.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WMC SECURED ASSETS CORP.
Company,
[NAME OF MASTER SERVICER]
Master Servicer,
and
[NAME OF TRUSTEE],
Trustee
POOLING AND SERVICING AGREEMENT
Dated as of ____________ 1, 199_
Mortgage Pass-Through Certificates
Series 199_-____
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[TPW: NY01:500007.1] 18305-00002 11/24/97 01:09PM
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
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ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms
Accrued Certificate Interest................................3
Advance ...............................................3
Agreement ...............................................3
Anniversary ...............................................4
Assignment ...............................................4
Assignment Agreement........................................4
Available Distribution Amount...............................4
Bankruptcy Amount...........................................4
Bankruptcy Code.............................................4
Bankruptcy Loss.............................................4
Business Day ...............................................5
Cash Liquidation............................................5
Certificate ...............................................5
Certificate Account.........................................5
Certificate Account Deposit Date............................5
Certificateholder" or "Holder...............................5
Certificate Owner...........................................5
Certificate Principal Balance...............................6
Certificate Register........................................6
Class ...............................................6
Class A Certificate.........................................6
Class B Certificate.........................................6
Class B Percentage..........................................6
Class R Certificate.........................................6
Closing Date ...............................................6
Code ...............................................6
Collateral Value............................................6
Company ...............................................7
Corporate Trust Office......................................7
Credit Support Depletion Date...............................7
Custodial Account...........................................7
Cut-off Date ...............................................7
Debt Service Reduction......................................7
Default Loss ...............................................7
Deficient Valuation.........................................7
Definitive Certificate......................................7
Deleted Mortgage Loan.......................................7
i
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PAGE
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Determination Date..........................................8
Disqualified Organization...................................8
Distribution Date...........................................8
Due Date ...............................................8
Due Period ...............................................8
Duff & Phelps...............................................8
Eligible Account............................................8
Event of Default............................................9
Excess Bankruptcy Loss......................................9
Excess Fraud Loss...........................................9
Excess Special Hazard Loss..................................9
Extraordinary Events........................................9
Extraordinary Losses.......................................10
FDIC ..............................................10
FHLMC ..............................................10
FNMA ..............................................10
Fraud Losses ..............................................10
Fraud Loss Amount..........................................10
Funding Date ..............................................11
Initial Certificate Principal Balance......................11
Insurance Policy...........................................11
Insurance Proceeds.........................................11
Late Collections...........................................11
Loan-to-Value Ratio........................................11
Master Servicer............................................11
Monthly Payment............................................11
Moody's ..............................................11
Mortgage ..............................................12
Mortgage File..............................................12
Mortgage Loan..............................................12
Mortgage Loan Schedule.....................................12
Mortgage Note..............................................13
Mortgage Rate..............................................13
Mortgaged Property.........................................13
Mortgagor ..............................................13
Net Mortgage Rate..........................................13
Nonrecoverable Advance.....................................13
Non-United States Person...................................13
Notional Amount............................................13
Officers' Certificate......................................14
Opinion of Counsel.........................................14
Optimal Percentage.........................................14
Optimal Principal Distribution Amount......................14
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Original Senior Percentage.................................14
OTS ..............................................14
Outstanding Mortgage Loan..................................14
Ownership Interest.........................................14
Pass-Through Rate..........................................14
Percentage Interest........................................15
Permitted Instruments......................................15
Permitted Transferee.......................................16
Person ..............................................16
Prepayment Assumption......................................16
Prepayment Period..........................................17
Primary Hazard Insurance Policy............................17
Primary Mortgage Insurance Policy..........................17
Principal Prepayment.......................................17
Purchase Price.............................................17
Qualified Insurer..........................................17
Qualified Substitute Mortgage Loan.........................17
Rating Agency..............................................18
Realized Loss..............................................18
Record Date ..............................................19
Regular Certificate........................................19
Relief Act ..............................................19
Relief Act Interest Shortfall..............................19
REMIC ..............................................19
REMIC Provisions...........................................19
Remittance Report..........................................19
REO Acquisition............................................19
REO Disposition............................................19
REO Imputed Interest.......................................19
REO Proceeds ..............................................19
REO Property ..............................................19
Request for Release........................................20
Required Insurance Policy..................................20
Residual Certificate.......................................20
Responsible Officer........................................20
Seller ..............................................20
Seller's Warranty Certificate..............................20
Senior Accelerated Distribution Percentage.................20
Senior Percentage..........................................21
Senior Principal Distribution Amount.......................21
Servicing Account..........................................21
Servicing Advances.........................................21
Servicing Fee..............................................21
iii
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PAGE
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Servicing Fee Rate.........................................22
Servicing Officer..........................................22
Single Certificate.........................................22
Special Hazard Amount......................................22
Special Hazard Percentage..................................22
Standard & Poor's..........................................22
Startup Day ..............................................22
Stated Principal Balance...................................22
Subordinate Principal Distribution Amount..................23
Sub-Servicer ..............................................23
Sub-Servicer Remittance Date...............................23
Sub-Servicing Account......................................23
Sub-Servicing Agreement....................................23
Tax Returns ..............................................23
Transfer ..............................................23
Transferor ..............................................23
Trust Fund ..............................................23
Trustee ..............................................24
Trustee's Fee..............................................24
Uninsured Cause............................................24
United States Person.......................................24
Voting Rights..............................................24
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
2.01. Conveyance of Mortgage Loans........................25
2.02. Acceptance of the Trust Fund by the
Trustee.............................................28
2.03. Representations, Warranties and Covenants of
the Master Servicer and the Company.................29
2.04. Representations and Warranties of the Seller;
Repurchase and Substitution.........................31
2.05. Issuance of Certificates Evidencing Interests
in the Trust Fund...................................33
ARTICLE III
ADMINISTRATION AND SERVICING
OF THE TRUST FUND
3.01. Master Servicer to Act as Master Servicer...........34
3.02. Sub-Servicing Agreements Between Master
Servicer and Sub-Servicers..........................35
iv
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PAGE
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3.03. Successor Sub-Servicers.............................36
3.04. Liability of the Master Servicer....................36
3.05. No Contractual Relationship Between Sub-Servicers
and Trustee or Certificateholders...................36
3.06. Assumption or Termination of Sub-Servicing
Agreements by Trustee...............................37
3.07. Collection of Certain Mortgage Loan Payments........37
3.08. Sub-Servicing Accounts..............................37
3.09. Collection of Taxes, Assessments and Similar
Items; Servicing Accounts...........................38
3.10. Custodial Account...................................38
3.11. Permitted Withdrawals From the Custodial Account....40
3.12. Permitted Instruments...............................41
3.13. Maintenance of Primary Mortgage Insurance and
Primary Hazard Insurance............................41
3.14. Enforcement of Due-on-Sale Clauses; Assumption
Agreements..........................................43
3.15. Realization Upon Defaulted Mortgage Loans...........44
3.16. Trustee to Cooperate; Release of Mortgage Files.....45
3.17. Servicing Compensation..............................46
3.18. Maintenance of Certain Servicing Policies...........46
3.19. Annual Statement as to Compliance...................47
3.20. Annual Independent Public Accountants' Servicing
Statement...........................................47
3.21. Access to Certain Documentation.....................47
3.22. Title, Conservation and Disposition of REO
Property............................................48
3.23. Additional Obligations of the Master Servicer.......50
3.24. Additional Obligations of the Company...............50
ARTICLE IV
PAYMENTS TO CERTIFICATEHOLDERS
4.01. Certificate Account; Distributions..................52
4.02. Statements to Certificateholders....................55
4.03. Remittance Reports; Advances by the Master
Servicer............................................57
4.04. Allocation of Realized Losses.......................59
4.05. Information Reports to be Filed by the Master
Servicer............................................59
4.06. Compliance with Withholding Requirements............60
ARTICLE V
THE CERTIFICATES
5.01 The Certificates....................................61
5.02. Registration of Transfer and Exchange
of Certificate......................................62
5.03. Mutilated, Destroyed, Lost or Stolen Certificates...65
v
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PAGE
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5.04. Persons Deemed Owners...............................66
ARTICLE VI
THE COMPANY AND THE MASTER SERVICER
6.01. Liability of the Company and the Master
Servicer............................................67
6.02. Merger, Consolidation or Conversion of the
Company or the Master Servicer......................67
6.03. Limitation on Liability of the Company, the
Master Servicer and Others..........................67
6.04. Limitation on Resignation of the Master
Servicer............................................68
ARTICLE VII
DEFAULT
7.01. Events of Default...................................69
7.02. Trustee to Act; Appointment of Successor............70
7.03. Notification to Certificateholders..................71
7.04. Waiver of Events of Default.........................71
ARTICLE VIII
CONCERNING THE TRUSTEE
8.01. Duties of Trustee...................................73
8.02. Certain Matters Affecting the Trustee...............74
8.03. Trustee Not Liable for Certificates or
Mortgage Loans......................................75
8.04. Trustee May Own Certificates........................75
8.05. Payment of Trustee's Fees...........................75
8.06. Eligibility Requirements for Trustee................76
8.07. Resignation and Removal of the Trustee..............76
8.08. Successor Trustee...................................77
8.09. Merger or Consolidation of Trustee..................78
8.10. Appointment of Co-Trustee or Separate
Trustee.............................................78
ARTICLE IX
TERMINATION
9.01. Termination Upon Repurchase or Liquidation
of All Mortgage Loans...............................80
9.02. Additional Termination Requirements.................81
vi
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PAGE
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ARTICLE X
REMIC PROVISIONS
10.01. REMIC Administration................................83
10.02. Prohibited Transactions and Activities..............85
10.03. Master Servicer and Trustee
Indemnification.....................................86
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.01. Amendment...........................................87
11.02. Recordation of Agreement; Counterparts..............88
11.03. Limitation on Rights of Certificateholders..........88
11.04. Governing Law.......................................89
11.05. Notices.............................................89
11.06. Severability of Provisions..........................90
11.07. Successors and Assigns; Third Party Beneficiary.....90
11.08. Article and Section Headings........................90
11.09. Notice to Rating Agencies and Certificateholder.....90
vii
<PAGE>
Signatures
Acknowledgments
Exhibit A-1 Form of Class A Certificate
Exhibit A-2 Form of Class B Certificate
Exhibit B Form of Class R Certificate
Exhibit C Form of Trustee Initial Certification
Exhibit D Form of Trustee Final Certification
Exhibit E Form of Remittance Report
Exhibit F-1 Request for Release
Exhibit F-2 Request for Release for Mortgage Loans Paid in Full
Exhibit G-1 Form of Investor Representation Letter
Exhibit G-2 Form of Transferor Representation Letter
Exhibit G-3 Transferor Affidavit and Agreement in connection with
transfer of Residual
Certificates
Exhibit G-4 Transferee Affidavit and Agreement in connection with
transfer of Residual Certificates
Exhibit G-5 Form of Investor Representation Letter for Insurance
Companies
Exhibit H Mortgage Loan Schedule
Exhibit I Seller's Warranty Certificate
Exhibit J Form of Notice Under Section 3.24
viii
<PAGE>
This Pooling and Servicing Agreement, effective as of
__________ 1, 199_, among WMC SECURED ASSETS CORP., as the company (together
with its permitted successors and assigns, the "Company"), [NAME OF MASTER
SERVICER], as master servicer (together with its permitted successors and
assigns, the "Master Servicer"), and [NAME OF TRUSTEE], as trustee (together
with its permitted successors and assigns, the "Trustee"),
PRELIMINARY STATEMENT:
The Company intends to sell mortgage pass-through certificates
(collectively, the "Certificates"), to be issued hereunder in multiple classes
(each, a "Class"), which in the aggregate will evidence the entire beneficial
ownership interest in the Mortgage Loans (as defined herein). As provided
herein, the Master Servicer will make an election to treat the segregated pool
of assets described in the definition of Trust Fund (as defined herein), and
subject to this Agreement (including the Mortgage Loans but excluding the
Initial Monthly Payment Deposit), as a real estate mortgage investment conduit
(a "REMIC") for federal income tax purposes, and such segregated pool of assets
will be designated as the "Trust Fund." The Class A-1, Class A-2, Class A-3,
Class A-4, Class A-5, Class A-6, Class A-7 and Class B Certificates will
represent ownership of "regular interests" in the Trust Fund, and the Class R
Certificates will be the sole class of "residual interests" therein, for
purposes of the REMIC Provisions (as defined herein) under federal income tax
law.
The following table sets forth the designation, type,
Pass-Through Rate, aggregate Initial Certificate Principal Balance, initial
ratings and certain features for each Class of Certificates comprising the
interests in the Trust Fund created hereunder.
<TABLE>
<CAPTION>
AGGREGATE
INITIAL
PASS- CERTIFICATE
THROUGH PRINCIPAL
DESIGNATION TYPE RATE BALANCE FEATURES INITIAL RATINGS
- ----------------------------- ---------- --------------------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
[ ] [ ]
Class A-1 Senior ____% $____________ Senior ____ ____
Class A-2 Senior ____% $____________ Senior ____ ____
Class A-3 Senior ____% $____________ Senior ____ ____
Class A-4 Senior ____% $____________ Senior ____ ____
Class A-5 Senior/Fixed ____% $____________ Senior/Interest ____ ____
Strip Only
Class A-6 Senior ____% $____________ Senior ____ ____
Class A-7 Senior/Variable Variable $____________ Senior/Interest ____ ____
Strip Rate Only
Class R Residual ____% $____________ Residual ____ ____
Class B Subordinate ____% $____________ Subordinate ____ ____
</TABLE>
The Mortgage Loans have an aggregate Stated Principal Balance
as of the Cut-off Date equal to $______________. The Mortgage Loans are fixed
rate mortgage loans having terms to maturity at origination or modification of
not more than 30 years.
1
<PAGE>
In consideration of the mutual agreements herein contained,
the Company, the Master Servicer and the Trustee agree as follows:
2
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms.
Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the meanings
specified in this Article.
"Accrued Certificate Interest": With respect to each
Distribution Date, as to any Class A Certificate (other than the Class A-5
Certificates and Class A-7 Certificates) or any Class B Certificate, one month's
interest accrued at the then applicable Pass-Through Rate on the Certificate
Principal Balance thereof immediately prior to such Distribution Date. With
respect to each Distribution Date, as to the Class A-5 Certificates and Class
A-7 Certificates, one month's interest accrued at the then applicable
Pass-Through Rate on the Notional Amount thereof immediately prior to such
Distribution Date. Accrued Certificate Interest will be calculated on the basis
of a 360-day year consisting of twelve 30-day months. In each case Accrued
Certificate Interest on any Class of Certificates will be reduced by the amount
of (i) Prepayment Interest Shortfalls, if any, which are not covered by payments
by the Master Servicer pursuant to Section 3.23 with respect to such
Distribution Date, (ii) the interest portion (adjusted to the related Net
Mortgage Rate) of any of Realized Losses (including Excess Special Hazard
Losses, Excess Fraud Losses, Excess Bankruptcy Losses and Extraordinary Losses)
not allocated solely to one or more specific Classes of Certificates pursuant to
Section 4.04 (which, with respect to the pro rata portion thereof allocated to
the Class A-1, Class A-5 and Class A-6 Certificates will be allocated first to
the Class A-6 Certificates and second to the Class A-1 and Class A-5
Certificates on a pro rata basis to the extent such Realized Losses are Default
Losses), (iii) the interest portion of Advances previously made with respect to
a Mortgage Loan or REO Property which remained unreimbursed following the Cash
Liquidation or REO Disposition of such Mortgage Loan or REO Property that was
made with respect to delinquencies that were ultimately determined to be Excess
Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or
Extraordinary Losses, and (iv) any other interest shortfalls not covered by the
subordination provided by the Class B Certificates pursuant to Section 4.04,
including interest that is not collectible from the Mortgagor pursuant to the
Relief Act or similar legislation or regulations as in effect from time to time;
with all such reductions allocated among the Classes of Certificates, in
proportion to their respective amounts of Accrued Certificate Interest which
would have resulted absent such reductions. In addition to that portion of the
reductions described in the preceding sentence, Accrued Certificate Interest on
the Class B Certificates will be reduced by the interest portion (adjusted to
the related Net Mortgage Rate) of Realized Losses that are allocated solely to
the Class B Certificates pursuant to Section 4.04.
"Advance": As to any Mortgage Loan, any advance made by the
Master Servicer on any Distribution Date pursuant to Section 4.03.
"Agreement": This Pooling and Servicing Agreement and all
amendments hereof.
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"Anniversary": Each anniversary of ___________ 1, 19__.
"Assignment": An assignment of Mortgage, notice of transfer or
equivalent instrument, in recordable form, which is sufficient under the laws of
the jurisdiction wherein the related Mortgaged Property is located to reflect of
record the sale of the Mortgage, which assignment, notice of transfer or
equivalent instrument may be in the form of one or more blanket assignments
covering Mortgages secured by Mortgaged Properties located in the same county,
if permitted by law.
"Assignment Agreement": The Assignment and Assumption
Agreement, dated as of ____________, 199_, between and the Company relating to
the transfer and assignment of the Mortgage Loans.
"Available Distribution Amount": With respect to each
Distribution Date, the Available Distribution Amount will be an amount equal to
(a) the sum of (i) the balance on deposit in the Custodial Account as of the
close of business on the related Determination Date and (ii) the aggregate
amount of any Advances made, all required amounts pursuant to Section 3.22 and
all amounts required to be paid by the Master Servicer pursuant to Sections 3.13
and 3.23 by deposits into the Certificate Account on the immediately preceding
Certificate Account Deposit Date, reduced by (b) the sum, as of the close of
business on the related Determination Date of (i) Monthly Payments collected but
due during a Due Period subsequent to the Due Period ending on the first day of
the month of the related Distribution Date, (ii) all interest or other income
earned on deposits in the Custodial Account, (iii) any other amounts
reimbursable or payable to the Master Servicer or any other Person pursuant to
Section 3.11, (iv) Insurance Proceeds, Liquidation Proceeds, Principal
Prepayments, REO Proceeds and the proceeds of Mortgage Loan purchases (or
amounts received in connection with substitutions) made pursuant to Section 2.02
and 2.04, in each case received or made in the month of such Distribution Date
and (v) the Trustee's Fee.
"Bankruptcy Amount": As of any date of determination, an
amount, equal to the excess, if any, of (A) $_______, over (B) the aggregate
amount of Bankruptcy Losses allocated solely to one or more specific Classes of
Certificates in accordance with Section 4.04.
The Bankruptcy Amount may be further reduced by the Master
Servicer (including accelerating the manner in which such coverage is reduced)
provided that prior to any such reduction, the Master Servicer shall (i) obtain
written confirmation from each Rating Agency that such reduction shall not
reduce the rating assigned to any Class of Certificates by such Rating Agency
below the lower of the then-current rating or the rating assigned to such
Certificates as of the Closing Date by such Rating Agency and (ii) provide a
copy of such written confirmation to the Trustee.
"Bankruptcy Code": The United States Bankruptcy Code of 1978,
as amended.
"Bankruptcy Loss": With respect to any Mortgage Loan, a
Deficient Valuation or Debt Service Reduction; provided, however, that a
Deficient Valuation or a Debt Service
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Reduction 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 Deficient Valuation
or Debt Service Reduction.
"Business Day": Any day other than (i) a Saturday or a Sunday
or (ii) a day on which banking institutions in the State of __________ or the
State of ________ (and such other state or states in which the Custodial Account
or the Certificate Account are at the time located) are required or authorized
by law or executive order to be closed.
"Cash Liquidation": As to any defaulted Mortgage Loan other
than a Mortgage Loan as to which an REO Acquisition occurred, the final receipt
by or on behalf of the Master Servicer of all Insurance Proceeds, Liquidation
Proceeds and other payments or cash recoveries which the Master Servicer
reasonably and in good faith expects to be finally recoverable with respect to
such Mortgage Loan.
"Certificate": Any Class A, Class B or Class R Certificate.
"Certificate Account": The account or accounts created and
maintained pursuant to Section 4.01, which shall be entitled
"________________________________, as trustee, in trust for the registered
holders of WMC Secured Assets Corp., Mortgage Pass-Through Certificates, Series
199_-___" and which must be an Eligible Account.
"Certificate Account Deposit Date": The 20th day (or if such
20th day is not a Business Day, the Business Day immediately preceding such 20th
day) of the month.
"Certificateholder" or "Holder": The Person in whose name a
Certificate is registered in the Certificate Register, except that, neither a
Disqualified Organization nor a Non-United States Person shall be a Holder of a
Class R Certificate for any purposes hereof and, solely for the purposes of
giving any consent pursuant to this Agreement, any Certificate registered in the
name of the Company or the Master Servicer or any affiliate thereof shall be
deemed not to be outstanding and the Voting Rights to which it is entitled shall
not be taken into account in determining whether the requisite percentage of
Voting Rights necessary to effect any such consent has been obtained, except as
otherwise provided in Section 11.01. The Trustee shall be entitled to rely upon
a certification of the Company or the Master Servicer in determining if any
Certificates are registered in the name of a respective affiliate.
"Certificate Owner": With respect to a Book-Entry Certificate,
the Person who is the beneficial owner of such Certificate, as reflected on the
books of an indirect participating brokerage firm for which a Company
Participant acts as agent, if any, and otherwise on the books of a Company
Participant, if any, and otherwise on the books of the Company.
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"Certificate Principal Balance": With respect to each Class A
Certificate (other than a Class A-5 Certificate or Class A-7 Certificate), on
any date of determination, an amount equal to (i) the Initial Certificate
Principal Balance of such Certificate as specified on the face thereof, minus
(ii) the sum of (x) the aggregate of all amounts previously distributed with
respect to such Certificate (or any predecessor Certificate) and applied to
reduce the Certificate Principal Balance thereof pursuant to Section 4.02(b) and
(y) the aggregate of all reductions in Certificate Principal Balance deemed to
have occurred in connection with Realized Losses which were previously allocated
to such Certificate (or any predecessor Certificate) pursuant to Section 4.04.
With respect to the Class B Certificates, on any date of determination, an
amount equal to the Percentage Interest evidenced by such Certificate times the
excess, if any, of (A) the then aggregate Stated Principal Balance of the
Mortgage Loans over (B) the then aggregate Certificate Principal Balance of all
other Classes of Certificates then outstanding. The Class A-5 Certificates,
Class A-7 Certificates and Class R Certificates have no Certificate Principal
Balance.
"Certificate Register": The register maintained pursuant to
Section 5.02.
"Class": Collectively, all of the Certificates bearing the
same designation.
"Class A Certificate": Any one of the Class A-1, Class A-2,
Class A-3, Class A-4, Class A-5, Class A-6 or Class A-7 Certificates, executed
by the Trustee and authenticated by the Certificate Registrar substantially in
the form annexed hereto as Exhibit A-1, each such Certificate evidencing an
interest designated as a "regular interest" in the Trust Fund for purposes of
the REMIC Provisions.
"Class B Certificate": The Class B Certificates executed by
the Trustee and authenticated by the Certificate Registrar substantially in the
form annexed hereto as Exhibit A-2 and evidencing an interest designated as a
"regular interest" in the Trust Fund for purposes of the REMIC Provisions.
"Class B Percentage": With respect to any Distribution Date,
the lesser of (i) 100% minus the Senior Percentage and (ii) a fraction,
expressed as a percentage, the numerator of which is the aggregate Certificate
Principal Balance of the Class B Certificates immediately prior to such date and
the denominator of which is the aggregate Stated Principal Balance of all of the
Mortgage Loans (or related REO Properties) immediately prior to such
Distribution Date.
"Class R Certificate": Any one of the Class R Certificates
executed and delivered by the Trustee substantially in the form annexed hereto
as Exhibit B and evidencing an interest designated as a "residual interest" in
the REMIC for purposes of the REMIC Provisions.
"Closing Date": _______ __, 19__.
"Code": The Internal Revenue Code of 1986.
"Collateral Value": The appraised value of a Mortgaged
Property based upon the lesser of (i) the appraisal made at the time of the
origination of the related Mortgage Loan, or (ii)
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the sales price of such Mortgaged Property at such time of origination. With
respect to a Mortgage Loan the proceeds of which were used to refinance an
existing mortgage loan, the appraised value of the Mortgaged Property based upon
the appraisal (as reviewed and approved by the Seller) obtained at the time of
refinancing.
"Company": WMC Secured Assets Corp., or its successor in
interest.
"Corporate Trust Office": The principal office of the Trustee
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 instrument is located at __________________
_______________________________________________, Attention:
_______________________ Series 199_-__.
"Credit Support Depletion Date": The first Distribution Date
on which the Senior Percentage equals 100%.
"Custodial Account": The custodial account or accounts created
and maintained pursuant to Section 3.10 in a depository institution, as
custodian for the holders of the Certificates, for the holders of certain other
interests in mortgage loans serviced or sold by the Master Servicer and for the
Master Servicer, into which the amounts set forth in Section 3.10 shall be
deposited directly. Any such account or accounts shall be an Eligible Account.
"Cut-off Date": __________ 1, 199_.
"Debt Service Reduction": With respect to any Mortgage Loan, a
reduction in the scheduled Monthly Payment for such Mortgage Loan by a court of
competent jurisdiction in a proceeding under the Bankruptcy Code, except such a
reduction constituting a Deficient Valuation or any reduction that results in a
permanent forgiveness of principal.
"Default Loss": Any Realized Loss that is attributable to the
related Mortgagor's failure to make any payment of principal or interest as
required under the Mortgage Note, excluding Special Hazard Losses (or any other
loss resulting from damage to a Mortgaged Property), Bankruptcy Losses, Fraud
Losses, or other losses of a type not covered by the subordination provided by
the Class B Certificates pursuant to Section 4.04.
"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,
which valuation results from a proceeding initiated by the Mortgagor under the
Bankruptcy Code.
"Definitive Certificate": Any definitive, fully registered
Certificate.
"Deleted Mortgage Loan": A Mortgage Loan replaced or to be
replaced with a Qualified Substitute Mortgage Loan.
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"Determination Date": The 15th day (or if such 15th day is not
a Business Day, the Business Day immediately preceding such 15th day) of the
month of the related Distribution Date.
"Disqualified Organization": Any of the following: (i) the
United States, any State or any political subdivision thereof, any possession of
the United States or any agency or instrumentality of any of the foregoing
(other than an instrumentality which is a corporation, if all of its activities
are subject to tax and, except for the FHLMC, a majority of its board of
directors is not selected by any such governmental unit), (ii) a foreign
government, international organization or any agency or instrumentality of
either 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 (unless such organization is subject to the tax
imposed by Section 511 of the Code on unrelated business taxable income), (iv)
rural electric and telephone cooperatives described in Section 1381 of the Code
or (v) any other Person so designated by the Trustee based on an Opinion of
Counsel obtained by the Trustee, at the expense of the Trust Fund, (which
opinion shall be sought only if the Trustee has actual knowledge that the
holding of an Ownership Interest in a Class R Certificate by such Person may
cause the Trust Fund or any Person having an Ownership Interest in any Class of
Certificates, other than such Person, to incur a liability for any federal tax
imposed under the Code that would not otherwise be imposed but for the Transfer
of an Ownership Interest in a Class R Certificate to such Person). The terms
"United States," "State" and "international organization" shall have the
meanings set forth in Section 7701 of the Code or successor provisions.
"Distribution Date": The 25th day of any month, or if such
25th day is not a Business Day, the Business Day immediately following such 25th
day commencing on ________ 25, 19__.
"Due Date": The first day of the month of the related
Distribution Date.
"Due Period": With respect to any Distribution Date, the
period commencing on the second day of the month preceding the month of such
Distribution Date (or, with respect to the first Due Period, the day following
the Cut-off Date) and ending on the related Due Date.
["Duff & Phelps": Duff & Phelps Credit Rating Company or its
successor in interest.]
"Eligible Account": An account maintained with a federal or
state chartered depository institution (i) the short-term obligations of which
are rated by each of the Rating Agencies in its highest rating at the time of
any deposit therein, or (ii) insured by the FDIC (to the limits established by
such Corporation), the uninsured deposits in which account are otherwise secured
such that, as evidenced by an Opinion of Counsel (obtained by and at the expense
of the Person requesting that the account be held pursuant to this clause (ii))
delivered to the Trustee prior to the establishment of such account, the
Certificateholders will have a claim with respect to the funds in such account
and a perfected first priority security interest against any collateral (which
shall be limited to Permitted Instruments, each of which shall mature not later
than the
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Business Day immediately preceding the Distribution Date next following the date
of investment in such collateral or the Distribution Date if such Permitted
Instrument is an obligation of the institution that maintains the Certificate
Account or Custodial Account) securing such funds that is superior to claims of
any other depositors or general creditors of the depository institution with
which such account is maintained or (iii) a trust account or accounts maintained
with a federal or state chartered depository institution or trust company with
trust powers acting in its fiduciary capacity or (iv) an account or accounts of
a depository institution acceptable to the Rating Agencies (as evidenced in
writing by the Rating Agencies that use of any such account as the Custodial
Account or the Certificate Account will not have an adverse effect on the
then-current ratings assigned to the Classes of the Certificates then rated by
the Rating Agencies). Eligible Accounts may bear interest.
"Event of Default": One or more of the events described in
Section 7.01.
"Excess Bankruptcy Loss": Any Bankruptcy Loss, or portion
thereof, which exceeds the then applicable Bankruptcy Amount.
"Excess Fraud Loss": Any Fraud Loss, or portion thereof, which
exceeds the then applicable Fraud Loss Amount.
"Excess Special Hazard Loss": Any Special Hazard Loss, or
portion thereof, that exceeds the then applicable Special Hazard Amount.
"Extraordinary Events": Any of the following conditions with
respect to a Mortgaged Property or Mortgage Loan causing or resulting in a loss
which causes the liquidation of such Mortgage Loan:
(a) losses that are of a type that would be covered by the
fidelity bond and the errors and omissions insurance policy required to
be maintained pursuant to Section 3.18 but are in excess of the
coverage maintained thereunder;
(b) nuclear reaction or nuclear radiation or radioactive
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";
(c) hostile or warlike action in time of peace or war,
including action in hindering, combatting 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;
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(d) any weapon of war employing atomic fission or radioactive
force whether in time of peace or war; or
(e) insurrection, rebellion, revolution, civil war, usurped
power or action taken by governmental authority in hindering,
combatting 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.
"Extraordinary Losses": Any loss incurred on a Mortgage Loan
caused by or resulting from an Extraordinary Event.
"FDIC": Federal Deposit Insurance Corporation or any
successor.
"FHLMC": Federal Home Loan Mortgage Corporation or any
successor.
["Fitch": Fitch Investors Service, Inc., or its successor in
interest.]
"FNMA": Federal National Mortgage Association or any
successor.
"Fraud Losses": Any Realized Loss sustained by reason of a
default arising from fraud, dishonesty or misrepresentation in connection with
the related Mortgage Loan.
"Fraud Loss Amount": As of any date of determination after the
Cut-off Date, an amount equal to: (X) up to and including the [first]
anniversary of the Cut-off Date an amount equal to ____% of the aggregate
outstanding principal balance of all of the Mortgage Loans as of the Cut-off
Date minus the aggregate amount of Fraud Losses allocated to the Class B
Certificates in accordance with Section 4.04 since the Cut-off Date up to such
date of determination, (Y) from the [first] to the fifth anniversary of the
Cut-off Date, an amount equal to (1) the lesser of (a) the Fraud Loss Amount as
of the most recent anniversary of the Cut-off Date and (b) ____% of the
aggregate outstanding principal balance of all of the Mortgage Loans as of the
most recent anniversary of the Cut-off Date minus (2) the Fraud Losses allocated
solely to the Class B Certificates in accordance with Section 4.04 since the
most recent anniversary of the Cut-off Date up to such date of determination. On
and after the fifth anniversary of the Cut-off Date the Fraud Loss Amount shall
be zero.
The Fraud Loss Amount may be further reduced by the Master
Servicer (including accelerating the manner in which such coverage is reduced)
provided that prior to any such reduction, the Master Servicer shall (i) obtain
written confirmation from each Rating Agency that such reduction shall not
reduce the rating assigned to any Class of Certificates by such Rating Agency
below the lower of the then-current rating or the rating assigned to such
Certificates as of the Closing Date by such Rating Agency and (ii) provide a
copy of such written confirmation to the Trustee.
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"Funding Date": With respect to each Mortgage Loan, the date
on which funds were advanced by or on behalf of the Seller and interest began to
accrue thereunder.
"Initial Certificate Principal Balance": With respect to each
Class of Certificates, the Certificate Principal Balance of such Class of
Certificates as of the Cut-off Date as set forth in the Preliminary Statement
hereto.
"Insurance Policy": With respect to any Mortgage Loan, any
insurance policy which is required to be maintained from time to time under this
Agreement in respect of such Mortgage Loan.
"Insurance Proceeds": Proceeds paid by any insurer pursuant to
the Primary Mortgage Insurance Policy and any other insurance policy covering a
Mortgage Loan to the extent such proceeds are not applied to the restoration of
the related Mortgaged Property or released to the Mortgagor in accordance with
the procedures that the Master Servicer would follow in servicing mortgage loans
held for its own account.
"Late Collections": With respect to any Mortgage Loan, all
amounts received during any Due Period, whether as late payments of Monthly
Payments or as Insurance Proceeds, Liquidation Proceeds or otherwise, which
represent late payments or collections of Monthly Payments due but delinquent
for a previous Due Period and not previously recovered.
"Liquidation Proceeds": Amounts (other than Insurance
Proceeds) received by the Master Servicer in connection with the taking of an
entire Mortgaged Property by exercise of the power of eminent domain or
condemnation or in connection with the liquidation of a defaulted Mortgage Loan
through trustee's sale, foreclosure sale or otherwise, other than amounts
received in respect of REO Property.
"Loan-to-Value Ratio": As of any date, the fraction, expressed
as a percentage, the numerator of which is the current principal balance of the
related Mortgage Loan at the date of determination and the denominator of which
is the Collateral Value of the related Mortgaged Property.
"Master Servicer": [Name of Master Servicer], or any successor
master servicer appointed as herein provided.
"Monthly Payment": With respect to any Mortgage Loan, the
scheduled monthly payment of principal and interest on such Mortgage Loan which
is payable by a Mortgagor from time to time under the related Mortgage Note as
originally executed (after adjustment, if any, for Principal Prepayments and for
Deficient Valuations occurring prior to such Due Date, and after any adjustment
by reason of any bankruptcy or similar proceeding or any moratorium or similar
waiver or grace period).
["Moody's": Moody's Investors Service, Inc. or its successor
in interest.]
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"Mortgage": The mortgage, deed of trust or any other
instrument securing the Mortgage Loan.
"Mortgage File": The mortgage documents listed in Section 2.01
pertaining to a particular Mortgage Loan and any additional documents required
to be added to the Mortgage File pursuant to this Agreement; provided, that
whenever the term "Mortgage File" is used to refer to documents actually
received by the Trustee, such term shall not be deemed to include such
additional documents required to be added unless they are actually so added.
"Mortgage Loan": Each of the mortgage loans, transferred and
assigned to the Trustee pursuant to Section 2.01 or Section 2.03 and from time
to time held in the Trust Fund, the Mortgage Loans originally so transferred,
assigned and held being identified in the Mortgage Loan Schedule attached hereto
as Exhibit H (and any Qualified Substitute Mortgage Loans). As used herein, the
term "Mortgage Loan" includes the related Mortgage Note and Mortgage.
"Mortgage Loan Schedule": As of any date of determination, the
schedule of Mortgage Loans included in the Trust Fund. The initial schedule of
Mortgage Loans with accompanying information transferred on the Closing Date to
the Trustee as part of the Trust Fund for the Certificates, attached hereto as
Exhibit H (as amended from time to time to reflect the addition of Qualified
Substitute Mortgage Loans) (and, for purposes of the Trustee's review of the
Mortgage Files pursuant to Section 2.02, in computer-readable form as delivered
to the Trustee), which list shall set forth the following information, if
applicable, with respect to each Mortgage Loan:
(i) the loan number and name of the Mortgagor;
(ii) the street address, city, state and zip code of the
Mortgaged Property;
(iii) the Mortgage Rate;
(iv) the maturity date;
(v) the original principal balance;
(vi) the first payment date;
(vii) the type of Mortgaged Property;
(viii) the Monthly Payment in effect as of the Cut-off Date;
(ix) the principal balance as of the Cut-off Date;
(x) the occupancy status;
(xi) the purpose of the Mortgage Loan;
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(xii) the Collateral Value of the Mortgaged Property;
(xiii) the original term to maturity;
(xiv) the paid-through date of the Mortgage Loan;
(xv) the Loan-to-Value Ratio; and
(xvi) whether or not the Mortgage Loan was underwritten
pursuant to a limited documentation program.
The Mortgage Loan Schedule shall also set forth the total of
the amounts described under (ix) above for all of the Mortgage Loans. The
Mortgage Loan Schedule may be in the form of more than one schedule,
collectively setting forth all of the information required. With respect to any
Qualified Substitute Mortgage Loan, the item described in clauses (viii) shall
be set forth as the date of substitution.
"Mortgage Note": The note or other evidence of the
indebtedness of a Mortgagor under a Mortgage Loan.
"Mortgage Rate": With respect to any Mortgage Loan, the annual
rate at which interest accrues on such Mortgage Loan.
"Mortgaged Property": The underlying property securing a
Mortgage Loan.
"Mortgagor": The obligor or obligors on a Mortgage Note.
"Net Mortgage Rate": As to each Mortgage Loan, a per annum
rate of interest equal to the related Mortgage Rate as in effect from time to
time minus the sum of the Servicing Fee Rate and the rate at which the Trustee's
Fee accrues.
"Nonrecoverable Advance": Any Advance previously made or
proposed to be made in respect of a Mortgage Loan which, in the good faith
judgment of the Master Servicer, will not or, in the case of a proposed Advance,
would not be ultimately recoverable from related Late Collections, Insurance
Proceeds, Liquidation Proceeds, REO Proceeds or amounts reimbursable to the
Master Servicer pursuant to Section 4.01(b). The determination by the Master
Servicer that it has made a Nonrecoverable Advance or that any proposed Advance
would constitute a Nonrecoverable Advance, shall be evidenced by an Officers'
Certificate delivered to the Company and the Trustee.
"Non-United States Person": Any Person other than a United
States Person.
"Notional Amount": As of any Distribution Date, with respect
to the Class A-5 Certificates and the Class A-7 Certificates, an amount equal to
the aggregate Certificate Principal Balance of all Classes of Certificates
immediately prior to such date.
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"Officers' Certificate": A certificate signed by the Chairman
of the Board, the Vice Chairman of the Board, the President or a vice president
and by the Treasurer, the Secretary, or one of the assistant treasurers or
assistant secretaries of the Master Servicer or of the Sub-Servicer and
delivered to the Company and Trustee.
"Opinion of Counsel": A written opinion of counsel, who may be
counsel for the Company or the Master Servicer, reasonably acceptable to the
Trustee; except that any opinion of counsel relating to (a) the qualification of
any account required to be maintained pursuant to this Agreement as an Eligible
Account, (b) qualification of the Trust Fund as a REMIC, (c) compliance with the
REMIC Provisions or (d) resignation of the Master Servicer pursuant to Section
6.04 must be an opinion of counsel who (i) is in fact independent of the Company
and the Master Servicer, (ii) does not have any direct financial interest or any
material indirect financial interest in the Company or the Master Servicer or in
an affiliate of either and (iii) is not connected with the Company or the Master
Servicer as an officer, employee, director or person performing similar
functions.
"Optimal Percentage": A fraction, expressed as a percentage,
the numerator of which is the Certificate Principal Balance of the Class A-1
Certificates immediately prior to the applicable Distribution Date and the
denominator of which is the aggregate Certificate Principal Balance of all of
the Class A Certificates immediately prior to such Distribution Date.
"Optimal Principal Distribution Amount": An amount equal to
the product of (i) the then applicable Optimal Percentage and (ii) the Senior
Principal Distribution Amount.
"Original Senior Percentage": _____%, which is the fraction,
expressed as a percentage, the numerator of which is the aggregate Initial
Certificate Principal Balance of the Class A Certificates and the denominator of
which is the aggregate Stated Principal Balance of the Mortgage Loans.
"OTS": Office of Thrift Supervision or any successor.
"Outstanding Mortgage Loan": As to any Due Date, a Mortgage
Loan (including an REO Property) which was not the subject of a Principal
Prepayment in full, Cash Liquidation or REO Disposition and which was not
purchased or substituted for prior to such Due Date pursuant to Sections 2.02 or
2.04.
"Ownership Interest": As to any Certificate, any ownership or
security interest in such Certificate, including any interest in such
Certificate as the Holder thereof and any other interest therein, whether direct
or indirect, legal or beneficial, as owner or as pledgee.
"Pass-Through Rate": With respect to the Class A Certificates
(other than the Class A-7 Certificates) and Class B Certificates and any
Distribution Date, the per annum rate set forth in the Preliminary Statement
hereto. With respect to the Class A-7 Certificates and any Distribution Date, a
rate equal to the weighted average, expressed as a percentage, of the Pool Strip
Rates of all Mortgage Loans in the Trust Fund as of the Due Date in the month
immediately
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preceding the month in which such Distribution Date occurs, weighted on the
basis of the respective Stated Principal Balances of such Mortgage Loans, which
Stated Principal Balances shall be the Stated Principal Balances of such
Mortgage Loans at the close of business on the immediately preceding
Distribution Date after giving effect to the distributions thereon allocable to
principal (or, in the case of the initial Distribution Date, at the close of
business on the Cut-off Date). With respect to the Class A-7 Certificates and
the initial Distribution Date, the Pass- Through Rate is equal to ______% per
annum.
"Percentage Interest": With respect to any Certificate (other
than a Class A-5, Class A-7 or Class R Certificate), the undivided percentage
ownership interest in the related Class evidenced by such Certificate, which
percentage ownership interest shall be equal to the initial Certificate
Principal Balance thereof divided by the aggregate Initial Certificate Principal
Balance of all of the Certificates of the same Class. With respect to a Class
A-5 or Class A-7 Certificate), the undivided percentage ownership interest in
the related Class evidenced by such Certificate, which percentage ownership
interest shall be equal to the initial Notional Amount thereof divided by the
aggregate initial Notional Amount of all of the Certificates of the same Class.
With respect to a Class R Certificate, the interest in distributions to be made
with respect to such Class evidenced thereby, expressed as a percentage, as
stated on the face of each such Certificate.
"Permitted Instruments": Any one or more of the following:
(i)(a) direct obligations of, or obligations fully guaranteed as to
principal and interest by, the United States or any agency or
instrumentality thereof, provided such obligations are backed by the
full faith and credit of the United States and (b) direct obligations
of, and obligations guaranteed as to timely payment by FHLMC or FNMA
if, at the time of investment, they are assigned the highest credit
rating by the Rating Agencies;
(ii) repurchase obligations (the collateral for which is held by
a third party or the Trustee) with respect to any security described in
clause (i) above, provided that the short-term unsecured obligations of
the party agreeing to repurchase such obligations are at the time rated
by each Rating Agency in one of its two highest long-term rating
categories;
(iii) certificates of deposit, time deposits, demand deposits and
bankers' acceptances of any bank or trust company incorporated under
the laws of the United States or any state thereof or the District of
Columbia, provided that the short-term commercial paper of such bank or
trust company (or, in the case of the principal depository institution
in a depository institution holding company, the long-term unsecured
debt obligations of the depository institution holding company) at the
date of acquisition thereof has been rated by each Rating Agency in its
highest short-term rating;
(iv) commercial paper (having original maturities of not more
than nine months) of any corporation incorporated under the laws of the
United States or any state thereof or
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the District of Columbia which on the date of acquisition has been
rated by each Rating Agency in its highest short-term rating;
(v) a money market fund or a qualified investment fund rated by
each Rating Agency in its highest rating available; and
(vi) if previously confirmed in writing to the Trustee, any other
obligation or security acceptable to each Rating Agency in respect of
mortgage pass-through certificates rated in each Rating Agency's
highest rating category;
provided, that no such instrument shall be a Permitted Instrument if such
instrument evidences either (a) the right to receive interest only payments with
respect to the obligations underlying such instrument or (b) both principal and
interest payments derived from obligations underlying such instrument where the
principal and interest payments with respect to such instrument provide a yield
to maturity exceeding 120% of the yield to maturity at par of such underlying
obligation.
"Permitted Transferee": Any transferee of a Class R
Certificate other than a Disqualified Organization or a Non-United States
Person.
"Person": Any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Pool Strip Rate": With respect to each Mortgage Loan, the
rate per annum equal to the Net Mortgage Rate thereon minus ____% per annum.
"Prepayment Assumption": A prepayment assumption of ___% of
the standard prepayment assumption, used for determining the accrual of original
issue discount and market discount and premium on the Certificates for federal
income tax purposes. The standard prepayment assumption assumes a constant rate
of prepayment of mortgage loans of 0.2% per annum of the then outstanding
principal balance of such mortgage loans in the first month of the life of the
mortgage loans, increasing by an additional 0.2% per annum in each succeeding
month until the thirtieth month, and a constant 6% per annum rate of prepayment
thereafter for the life of such mortgage loans.
"Prepayment Interest Shortfall": With respect to any
Distribution Date, for each Mortgage Loan that was the subject of a partial
Principal Prepayment, a Principal Prepayment in full, or of a Cash Liquidation
or an REO Disposition during the related Prepayment Period, an amount equal to
the amount of interest that would have accrued at the applicable Net Mortgage
Rate (i) in the case of a Principal Prepayment in full, Cash Liquidation or REO
Disposition on the principal balance of such Mortgage Loan immediately prior to
such prepayment (or liquidation), commencing on the date of prepayment (or
liquidation) and ending on the last day of the month of prepayment or
liquidation or (ii) in the case of a partial Principal Prepayment, on the amount
of such prepayment, commencing on the date as of which the prepayment is applied
and ending on the last day of the month of prepayment.
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<PAGE>
"Prepayment Period": As to any Distribution Date, the calendar
month preceding the month in which such Distribution Date occurs.
"Primary Hazard Insurance Policy": Each primary hazard
insurance policy required to be maintained pursuant to Section 3.13.
"Primary Mortgage Insurance Policy": Each primary mortgage
insurance policy required to be maintained pursuant to Section 3.13.
"Principal Prepayment": Any payment of principal made by the
Mortgagor on a Mortgage Loan which is received in advance of its scheduled Due
Date and which is not accompanied by an amount of interest representing
scheduled interest due on any date or dates in any month or months subsequent to
the month of prepayment.
"Purchase Price": With respect to any Mortgage Loan (or REO
Property) required to be purchased pursuant to Section 2.02 or 2.04, an amount
equal to the sum of (i) 100% of the Stated Principal Balance thereof, (ii)
unpaid accrued interest (or REO Imputed Interest) at the sum of the applicable
Net Mortgage Rate, the rate at which the Trustee's Fee accrues on the Stated
Principal Balance thereof outstanding during each Due Period that such interest
was not paid or advanced, from the date through which interest was last paid by
the Mortgagor or advanced and distributed to Certificateholders together with
unpaid related Servicing Fees from the date through which interest was last paid
by the Mortgagor, in each case to the first day of the month in which such
Purchase Price is to be distributed, plus (iii) the aggregate of all Advances
made in respect thereof that were not previously reimbursed.
"Qualified Insurer": An 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 business in such states and to write the insurance provided by the
insurance policy issued by it, approved as an insurer by the Master Servicer, as
a FNMA-approved mortgage insurer and having a claims paying ability rating of at
least "AA" by ____________________ and which is acceptable to _____________. Any
replacement insurer with respect to a Mortgage Loan must have at least as high a
claims paying ability rating by _____________ and ___________________ as the
insurer it replaces had on the Closing Date.
"Qualified Substitute Mortgage Loan": A Mortgage Loan
substituted by the Company for a Deleted Mortgage Loan which must, on the date
of such substitution, as confirmed in an Officers' Certificate delivered to the
Trustee, (i) have an outstanding principal balance, after deduction of the
principal portion of the monthly payment due in the month of substitution (or in
the case of a substitution of more than one Mortgage Loan for a Deleted Mortgage
Loan, an aggregate outstanding principal balance, after such deduction), not in
excess of the Stated Principal Balance of the Deleted Mortgage Loan (the amount
of any shortfall to be deposited by the Master Servicer, in the Custodial
Account in the month of substitution); (ii) have a Mortgage Rate and a Net
Mortgage Rate no lower than and not more than 1% per annum higher than the
Mortgage Rate and Net Mortgage Rate, respectively, of the Deleted Mortgage Loan
as of the date of
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<PAGE>
substitution; (iii) have a remaining term to stated maturity not greater than
(and not more than one year less than) that of the Deleted Mortgage Loan; (iv)
comply with each representation and warranty set forth in Section 2 of the
Seller's Warranty Certificate; (v) have a Loan-to-Value Ratio as of the date of
substitution equal to or lower than the Loan-to-Value Ratio of the Deleted
Mortgage Loan as of such date; and (vi) be covered under a Primary Insurance
Policy if such Qualified Substitute Mortgage Loan has a Loan-to-Value Ratio in
excess of 80%. In the event that one or more mortgage loans are substituted for
one or more Deleted Mortgage Loans, the amounts described in clause (i) hereof
shall be determined on the basis of aggregate principal balances, the Mortgage
Rates described in clause (ii) hereof shall be determined on the basis of
weighted average Mortgage Rates, the Net Mortgage Rates described in clause (ii)
hereof shall be satisfied as to each such mortgage loan, the terms described in
clause (iii) shall be determined on the basis of weighted average remaining
terms to maturity, the Loan-to-Value Ratios described in clause (v) hereof shall
be satisfied as to each such mortgage loan and, except to the extent otherwise
provided in this sentence, the representations and warranties described in
clause (iv) hereof must be satisfied as to each Qualified Substitute Mortgage
Loan or in the aggregate, as the case may be.
"Rating Agency": [Standard & Poor's] [Moody's] [Fitch] [Duff &
Phelps]. If either agency or a successor is no longer in existence, "Rating
Agency" shall be such statistical credit rating agency, or other comparable
Person, designated by the Company, notice of which designation shall be given to
the Trustee and the Master Servicer. References herein to the two highest long
term debt rating categories of a Rating Agency shall mean "AA" or better in the
case of [Standard & Poor's] [Fitch] [Duff & Phelps] and "Aa2" or better in the
case of Moody's and references herein to the highest short-term debt rating of a
Rating Agency shall mean "D-1" or better in the case of [Duff & Phelps] and
"A-1" in the case of [Standard & Poor's,] and in the case of any other Rating
Agency such references shall mean such rating categories without regard to any
plus or minus.
"Realized Loss": With respect to any Mortgage Loan or related
REO Property as to which a Cash Liquidation or REO Disposition has occurred, an
amount (not less than zero) equal to (i) the Stated Principal Balance of the
Mortgage Loan as of the date of Cash Liquidation or REO Disposition, plus (ii)
interest (and REO Imputed Interest, if any) at the related Net Mortgage Rate
from the Due Date as to which interest was last paid or advanced to
Certificateholders up to the date of the Cash Liquidation or REO Disposition on
the Stated Principal Balance of such Mortgage Loan outstanding during each Due
Period that such interest was not paid or advanced, minus (iii) the proceeds, if
any, received during the month in which such Cash Liquidation or REO Disposition
occurred, to the extent applied as recoveries of interest at the related Net
Mortgage Rate and to principal of the Mortgage Loan, net of the portion thereof
reimbursable to the Master Servicer or any Sub-Servicer with respect to related
Advances not previously reimbursed. With respect to each Mortgage Loan which has
become the subject of a Deficient Valuation, 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, the amount of such Debt Service Reduction.
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<PAGE>
"Record Date": The last Business Day of the month immediately
preceding the month of the related Distribution Date.
"Regular Certificate": Any of the Certificates other than the
Class R Certificates.
"Relief Act": The Soldiers' and Sailors' Civil Relief Act of
1940, as amended.
"Relief Act Interest Shortfall": With respect to any
Distribution Date and any Mortgage Loan, any reduction in the amount of interest
collectible on such Mortgage Loan for the most recently ended calendar month as
a result of the application of the Relief Act.
"REMIC": A "real estate mortgage investment conduit" within
the meaning of Section 860D of the Code.
"REMIC Provisions": Provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at Sections
860A through 860G of Subchapter M of Chapter 1 of the Code, and related
provisions, and proposed, temporary and final regulations and published rulings,
notices and announcements promulgated thereunder, as the foregoing may be in
effect from time to time.
"Remittance Report": A report prepared by the Master Servicer
providing the information set forth in Exhibit E attached hereto.
"REO Acquisition": The acquisition by the Master Servicer on
behalf of the Trustee for the benefit of the Certificateholders of any REO
Property pursuant to Section 3.15.
"REO Disposition": The receipt by the Master Servicer of
Insurance Proceeds, Liquidation Proceeds and other payments and recoveries
(including proceeds of a final sale) which the Master Servicer expects to be
finally recoverable from the sale or other disposition of the REO Property.
"REO Imputed Interest": As to any REO Property, for any
period, an amount equivalent to interest (at the Mortgage Rate that would have
been applicable to the related Mortgage Loan had it been outstanding) on the
unpaid principal balance of the Mortgage Loan as of the date of acquisition
thereof (as such balance is reduced by any income from the REO Property treated
as a recovery of principal pursuant to Section 3.15).
"REO Proceeds": Proceeds, net of directly related expenses,
received in respect of any REO Property (including, without limitation, proceeds
from the rental of the related Mortgaged Property and of any REO Disposition),
which proceeds are required to be deposited into the Custodial Account as and
when received.
"REO Property": A Mortgaged Property acquired by the Master
Servicer through foreclosure or deed-in-lieu of foreclosure in connection with a
defaulted Mortgage Loan.
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<PAGE>
"Request for Release": A release signed by a Servicing
Officer, in the form of Exhibits F-1 or F-2 attached hereto.
"Required Insurance Policy": With respect to any Mortgage
Loan, any Insurance Policy or any other insurance policy that is required to be
maintained from time to time under this Agreement or pursuant to the provisions
of a Mortgage Loan.
"Residual Certificate": Any of the Class R Certificates.
"Responsible Officer": When used with respect to the Trustee,
the Chairman or Vice Chairman of the Board of Directors or Trustees, the
Chairman or Vice Chairman of the Executive or Standing Committee of the Board of
Directors or Trustees, the President, the Chairman of the Committee on Trust
Matters, any vice president, any assistant vice president, the Secretary, any
assistant secretary, the Treasurer, any assistant treasurer, the Cashier, any
assistant cashier, any trust officer or assistant trust officer, the Controller
and any assistant controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also, with respect to a particular matter, any other officer to
whom such matter is referred because of such officer's knowledge of and
familiarity with the particular subject.
"Seller": [Name of Seller], and its successors and assigns.
"Seller's Warranty Certificate": The Seller's Warranty
Certificate of the Seller, dated _____ __, 19__, in the form of Exhibit I
attached hereto.
"Senior Accelerated Distribution Percentage": With respect to
any Distribution Date, the percentage indicated below:
<TABLE>
<CAPTION>
DISTRIBUTION DATE SENIOR ACCELERATED DISTRIBUTION
PERCENTAGE
- ------------------------------------------- ------------------------------------------------
<S> <C>
_______ ____ through ____________ ________..........100%
_______ ____ through ____________ ________..........Senior Percentage, plus 70% of the difference
between 100% and the Senior Percentage
_______ ____ through ____________ ________..........Senior Percentage, plus 60% of the difference
between 100% and the Senior Percentage
_______ ____ through ____________ ________..........Senior Percentage, plus 40% of the difference
between 100% and the Senior Percentage
_______ ____ through ____________ ________..........Senior Percentage, plus 20% of the difference
between 100% and the Senior Percentage
_______ ____ and thereafter..........................Senior Percentage;
</TABLE>
provided, however, (i) that any scheduled reduction to the Senior Accelerated
Distribution Percentage described above shall not occur as of any Distribution
Date unless either (a)(1) the outstanding principal balance of Mortgage Loans
delinquent [60] days or more averaged over the last six months, as a percentage
of the aggregate outstanding principal balance of all Mortgage
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<PAGE>
Loans averaged over the last [six] months, does not exceed [2%] and (2) Realized
Losses on the Mortgage Loans to date for such Distribution Date if occurring
during the sixth, seventh, eighth, ninth or tenth year (or any year thereafter)
after the Closing Date are less than [30%, 35%, 40%, 45% or 50%], respectively,
of the Initial Certificate Principal Balance of the Class B Certificates or
(b)(1) the outstanding principal balance of the Mortgage Loans delinquent [60]
days or more averaged over the last six months, as a percentage of the aggregate
outstanding principal balance of all Mortgage Loans averaged over the last [six]
months, does not exceed [4%] and (2) Realized Losses on the Mortgage Loans to
date for such Distribution Date are less than [10%] of the Initial Certificate
Principal Balance of the Class B Certificates and (ii) that for any Distribution
Date on which the Senior Percentage is greater than the Original Senior
Percentage, the Senior Accelerated Distribution Percentage for such Distribution
Date shall be 100%. Notwithstanding the foregoing, upon the reduction of the
aggregate Certificate Principal Balance of the Class A Certificates to zero, the
Senior Accelerated Distribution Percentage shall thereafter be 0%.
"Senior Percentage": As of any Distribution Date, the lesser
of 100% and a fraction, expressed as a percentage, the numerator of which is the
aggregate Certificate Principal Balance of the Class A Certificates immediately
prior to such Distribution Date and the denominator of which is the aggregate
Stated Principal Balance of all of the Mortgage Loans (or related REO
Properties) immediately prior to such Distribution Date.
"Senior Principal Distribution Amount": As to any Distribution
Date, the lesser of (a) the balance of the Available Distribution Amount
remaining after the distribution of all amounts required to be distributed
pursuant to Section 4.02(b)(i) and (b) the sum of the amounts required to be
distributed to the Class A Certificateholders on such Distribution Date pursuant
to Section 4.02(b)(ii) and (vi).
"Servicing Account": The account or accounts created and
maintained pursuant to Section 3.09.
"Servicing Advances": All customary, reasonable and necessary
"out of pocket" costs and expenses incurred in connection with a default,
delinquency or other unanticipated event by the Master Servicer in the
performance of its servicing obligations, including, but not limited to, the
cost of (i) the preservation, restoration and protection of a Mortgaged
Property, (ii) any enforcement or judicial proceedings, including foreclosures,
(iii) the management and liquidation of any REO Property and (iv) compliance
with the obligations under the second paragraph of Section 3.01 and Section
3.09.
"Servicing Fee": As to each Mortgage Loan, an amount, payable
out of any payment of interest on the Mortgage Loan, equal to interest at the
related Servicing Fee Rate on the Stated Principal Balance of such Mortgage Loan
for the calendar month preceding the month in which the payment is due
(alternatively, in the event such payment of interest accompanies a Principal
Prepayment in full made by the Mortgagor, interest for the number of days
covered by such payment of interest).
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"Servicing Fee Rate": With respect to each Mortgage Loan, the
per annum rate of -----%.
"Servicing Officer": Any officer of the Master Servicer
involved in, or responsible for, the administration and servicing of the
Mortgage Loans, whose name appears on a list of servicing officers furnished to
the Trustee by the Master Servicer, as such list may from time to time be
amended.
"Single Certificate": A Certificate of any Class evidencing
the minimum denomination for Certificates of such Class as set forth in Section
5.01.
"Special Hazard Amount": As of any Distribution Date, an
amount equal to $________ (the initial "Special Hazard Amount") minus the sum of
(i) the aggregate amount of Special Hazard Losses allocated solely to the Class
B Certificates pursuant to Section 4.04 and (ii) the Adjustment Amount (as
defined below) as most recently calculated. For each anniversary of the Cut-off
Date, the Adjustment Amount shall be calculated and shall be equal to the
amount, if any, by which the amount calculated in accordance with the preceding
sentence (without giving effect to the deduction of the Adjustment Amount for
such anniversary) exceeds the greater of (A) the product of the Special Hazard
Percentage for such anniversary multiplied by the outstanding principal balance
of all of the Mortgage Loans on such anniversary and (B) twice the outstanding
principal balance of the Mortgage Loan which has the largest outstanding
principal balance on such Anniversary.
"Special Hazard Percentage": As of each anniversary of the
Cut-off Date, the greater of (i) 1% and (ii) the largest percentage obtained by
dividing the aggregate outstanding principal balance on such anniversary of the
Mortgage Loans secured by Mortgaged Properties located in a single, five-digit
zip code area in the State of California by the outstanding principal balance of
all the Mortgage Loans on such anniversary.
["Standard & Poor's": Standard & Poor's Ratings Group, a
division of McGraw Hill, Inc. or its successor in interest.]
"Startup Day": The day designated as such pursuant to Article
X hereof.
"Stated Principal Balance": With respect to any Mortgage Loan
or related REO Property at any given time, (i) the principal balance of the
Mortgage Loan outstanding as of the Cut-off Date, after application of principal
payments due on or before such date, whether or not received, minus (ii) the sum
of (a) the principal portion of the Monthly Payments due with respect to such
Mortgage Loan or REO Property during each Due Period ending prior to the most
recent Distribution Date which were received or with respect to which an Advance
was made, (b) all Principal Prepayments with respect to such Mortgage Loan or
REO Property, and all Insurance Proceeds, Liquidation Proceeds and net income
from a REO Property to the extent applied by the Master Servicer as recoveries
of principal in accordance with Section 3.15 with respect to such Mortgage Loan
or REO Property, which were distributed pursuant to Section 4.01 on any previous
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Distribution Date and (c) any Realized Loss with respect thereto allocated
pursuant to Section 4.04 for any previous Distribution Date.
"Subordinate Principal Distribution Amount": With respect to
any Distribution Date and the Class B Certificates, (a) the sum of (i) the
product of (x) the Class B Percentage and (y) the aggregate of the amounts
calculated for such Distribution Date under clauses (1), (2) and (3) of Section
4.01(b)(ii)(A); (ii) the principal collections described in Section
4.01(b)(ii)(B) to the extent such collections are not otherwise distributed to
the Senior Certificates; and (iii) the product of (x) 100% minus the Senior
Accelerated Distribution Percentage and (z) the aggregate of all Principal
Prepayments in Full and Curtailments received in the related Prepayment Period;
provided, however, that such amount shall in no event exceed the outstanding
Certificate Principal Balance of the Class B Certificates immediately prior to
such date.
"Sub-Servicer": Any Person with which the Master Servicer has
entered into a Sub-Servicing Agreement and which meets the qualifications of a
Sub-Servicer pursuant to Section 3.02.
"Sub-Servicer Remittance Date": The 18th day of each month, or
if such day is not a Business Day, the immediately preceding Business Day.
"Sub-Servicing Account": An account established by a
Sub-Servicer which meets the requirements set forth in Section 3.08 and is
otherwise acceptable to the Master Servicer. "Sub-Servicing Agreement": The
written contract between the Master Servicer and a Sub-Servicer and any
successor Sub-Servicer relating to servicing and administration of certain
Mortgage Loans as provided in Section 3.02.
"Tax Returns": The federal income tax return on Internal
Revenue Service Form 1066, U.S. Real Estate Mortgage Investment Conduit Income
Tax Return, including Schedule Q thereto, Quarterly Notice to Residual Interest
Holders of REMIC Taxable Income or Net Loss Allocation, or any successor forms,
to be filed on behalf of the Trust Fund due to its classification as a REMIC
under the REMIC Provisions, together with any and all other information, reports
or returns that may be required to be furnished to the Certificateholders or
filed with the Internal Revenue Service or any other governmental taxing
authority under any applicable provisions of federal, state or local tax laws.
"Transfer": Any direct or indirect transfer, sale, pledge,
hypothecation or other form of assignment of any Ownership Interest in a
Certificate.
"Transferor": Any Person who is disposing by Transfer of any
Ownership Interest in a Certificate.
"Trust Fund": The segregated pool of assets subject hereto,
constituting the primary trust created hereby and to be administered hereunder,
with respect to which a REMIC election is to be made, consisting of: (i) the
Mortgage Loans (exclusive of payments of principal and interest due on or before
the Cut-off Date, if any) as from time to time are subject to this
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<PAGE>
Agreement and all payments under and proceeds of the Mortgage Loans, together
with all documents included in the related Mortgage File, subject to Section
2.01; (ii) such funds or assets as from time to time are deposited in the
Custodial Account and the Certificate Account; (iii) any REO Property; (iv) the
Primary Mortgage Insurance Policies, if any, Primary Hazard Insurance Policies
and all other Insurance Policies with respect to the Mortgage Loans; and (v) the
Company's interest in respect of the representations and warranties made by the
Seller in the Seller's Warranty Certificate as assigned to the Trustee pursuant
to Section 2.04 hereof.
"Trustee": [Name of Trustee], or its successor in interest, or
any successor trustee appointed as herein provided.
"Trustee's Fee": As to each Mortgage Loan and as the
Distribution Date, an amount, payable out of any payment of interest on the
Mortgage Loan, equal to interest at ----% per annum on the Stated Principal
Balance of such Mortgage Loan as of the Due Date immediately preceding the month
in which such Distribution Date occurs.
"Uninsured Cause": Any cause of damage to property subject to
a Mortgage such that the complete restoration of such property is not fully
reimbursable by the hazard insurance policies or flood insurance policies
required to be maintained pursuant to Section 3.13.
"United States Person": A citizen or resident of the United
States, a corporation, partnership or other entity created or organized in, or
under the laws of, the United States or any political subdivision thereof, or an
estate or trust whose income from sources without the United States is
includable 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. The term "United States" shall have the meaning set forth in
Section 7701 of the Code or successor provisions.
"Voting Rights": The portion of the voting rights of all of
the Certificates which is allocated to any Certificate. ___% of all of the
Voting Rights shall be allocated among Holders of the Certificates,
respectively, other than the Class A-5, Class A-7 and Class R Certificates, in
proportion to the outstanding Certificate Principal Balances of their respective
Certificates; and the Holders of the Class A-5, Class A-7 and Class R
Certificates shall be entitled to __%, __% and __% of all of the Voting Rights,
respectively, allocated among the Certificates of each such Class in accordance
with their respective Percentage Interests.
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<PAGE>
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
SECTION 2.01. Conveyance of Mortgage Loans.
The Company, as of the Closing Date, and concurrently with the
execution and delivery hereof, does hereby assign, transfer, sell, set over and
otherwise convey to the Trustee without recourse all the right, title and
interest of the Company in and to the Mortgage Loans identified on the Mortgage
Loan Schedule and all other assets included or to be included in the Trust Fund
for the benefit of the Certificateholders. Such assignment includes all
principal and interest received by the Master Servicer on or with respect to the
Mortgage Loans (other than payment of principal and interest due on or before
the Cut-off Date).
In connection with such transfer and assignment, the Company
has requested the Seller to deliver to, and deposit with the Trustee, the
following documents or instruments:
(i) the original Mortgage Note, endorsed by the Seller "Pay to
the order of [Name of Trustee], as trustee without recourse" or to "Pay
to the order of [Name of Trustee], as trustee for holders of WMC
Secured Assets Corp., Mortgage Pass-Through Certificates, Series
199_-_, without recourse" with all intervening endorsements showing a
complete chain of endorsements from the originator to the Person
endorsing it to the Trustee;
(ii) the original recorded Mortgage or, if the original Mortgage
has not been returned from the applicable public recording office, a
copy of the Mortgage certified by the Seller to be a true and complete
copy of the original Mortgage submitted to the title insurance company
for recording;
(iii) a duly executed original Assignment of the Mortgage endorsed
by the Seller, without recourse, to "[Name of Trustee], as trustee" or
to "[Name of Trustee], as trustee for holders of WMC Secured Assets
Corp., Mortgage Pass-Through Certificates, Series 199_-_", with
evidence of recording thereon;
(iv) the original recorded Assignment or Assignments of the
Mortgage showing a complete chain of assignment from the originator
thereof to the Person assigning it to the Trustee or, if any such
Assignment has not been returned from the applicable public recording
office, a copy of such Assignment certified by the Seller to be a true
and complete copy of the original Assignment submitted to the title
insurance company for recording;
(v) the original lender's title insurance policy, or, if such
policy has not been issued, any one of an original or a copy of the
preliminary title report, title binder or title
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<PAGE>
commitment on the Mortgaged Property with the original policy of the
insurance to be delivered promptly following the receipt thereof;
(vi) the original of any assumption, modification, extension or
guaranty agreement;
(vii) the original or a copy of the private mortgage insurance
policy or original certificate of private mortgage insurance, if applicable; and
(viii) if any of the documents or instruments referred to above
were executed on behalf of the Mortgagor by another Person, the original power
of attorney or other instrument that authorized and empowered such Person to
sign, or a copy thereof certified by the Seller (or by an officer of the
applicable title insurance or escrow company) to be a true and correct copy of
the original.
The Seller is obligated pursuant to the Seller's Warranty
Certificate to deliver to the Trustee: (a) either the original recorded
Mortgage, or in the event such original cannot be delivered by the Seller, a
copy of such Mortgage certified as true and complete by the appropriate
recording office, in those instances where a copy thereof certified by the
Seller was delivered to the Trustee pursuant to clause (ii) above; and (b)
either the original Assignment or Assignments of the Mortgage, with evidence of
recording thereon, showing a complete chain of assignment from the originator to
the Seller, or in the event such original cannot be delivered by the Seller, a
copy of such Assignment or Assignments certified as true and complete by the
appropriate recording office, in those instances where copies thereof certified
by the Seller were delivered to the Trustee pursuant to clause (iv) above.
Notwithstanding anything to the contrary contained in this Section 2.01, in
those instances where the public recording office retains the original Mortgage
after it has been recorded, the Seller shall be deemed to have satisfied its
obligations hereunder upon delivery to the Trustee of a copy of such Mortgage
certified by the public recording office to be a true and complete copy of the
recorded original thereof.
If any Assignment is lost or returned unrecorded to the
Trustee because of any defect therein, the Seller is required to prepare a
substitute Assignment or cure such defect, as the case may be, and the Trustee
shall cause such Assignment to be recorded in accordance with this paragraph.
The Seller is required, as described in the Seller's Warranty
Certificate, to deliver to the Trustee the original of any documents assigned to
the Trustee pursuant to this Section 2.01 not later than 120 days after the
Closing Date.
All original documents relating to the Mortgage Loans which
are not delivered to the Trustee, to the extent delivered by the Seller to the
Master Servicer, are and shall be held by the Master Servicer in trust for the
benefit of the Trustee on behalf of the Certificateholders.
Except as may otherwise expressly be provided herein, neither
the Company, the Master Servicer nor the Trustee shall (and the Master Servicer
shall ensure that no Sub-Servicer shall) assign, sell, dispose of or transfer
any interest in the Trust Fund or any portion thereof, or
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permit the Trust Fund or any portion thereof to be subject to any lien, claim,
mortgage, security interest, pledge or other encumbrance of, any other Person.
It is intended that the conveyance of the Mortgage Loans by
the Company to the Trustee as provided in this Section be, and be construed as,
a sale of the Mortgage Loans by the Company to the Trustee for the benefit of
the Certificateholders. It is, further, not intended that such conveyance be
deemed a pledge of the Mortgage Loans by the Company to the Trustee to secure a
debt or other obligation of the Company. However, in the event that the Mortgage
Loans are held to be property of the Company, or if for any reason this
Agreement is held or deemed to create a security interest in the Mortgage Loans,
then it is intended that, (a) this Agreement shall also be deemed to be a
security agreement within the meaning of Articles 8 and 9 of the New York
Uniform Commercial Code and the Uniform Commercial Code of any other applicable
jurisdiction; (b) the conveyance provided for in this Section shall be deemed to
be (1) a grant by the Company to the Trustee of a security interest in all of
the Company's right (including the power to convey title thereto), title and
interest, whether now owned or hereafter acquired, in and to (A) the Mortgage
Loans, including the Mortgage Notes, the Mortgages, any related insurance
policies and all other documents in the related Mortgage Files, (B) all amounts
payable to the holders of the Mortgage Loans in accordance with the terms
thereof and (C) all proceeds of the conversion, voluntary or involuntary, of the
foregoing into cash, instruments, securities or other property, including
without limitation all amounts from time to time held or invested in the
Certificate Account or the Custodial Account, whether in the form of cash,
instruments, securities or other property and (2) an assignment by the Company
to the Trustee of any security interest in any and all of the Seller's right
(including the power to convey title thereto), title and interest, whether now
owned or hereafter acquired, in and to the property described in the foregoing
clauses (1)(A) through (C) granted by the Seller to the Company pursuant to the
Assignment Agreement; (c) the possession by the Trustee or its agent of Mortgage
Notes and such other items of property as constitute instruments, money,
negotiable documents or chattel paper shall be deemed to be "possession by the
secured party" or possession by a purchaser or a person designated by such
secured party, for purposes of perfecting the security interest pursuant to the
New York Uniform Commercial Code and the Uniform Commercial Code of any other
applicable jurisdiction (including, without limitation, Sections 9-305, 8-313 or
8-321 thereof); and (d) notifications to persons holding such property, and
acknowledgments, receipts or confirmations from persons holding such property,
shall be deemed notifications to, or acknowledgments, receipts or confirmations
from, financial intermediaries, bailees or agents (as applicable) of the Trustee
for the purpose of perfecting such security interest under applicable law. The
Company and the Trustee shall, to the extent consistent with this Agreement,
take such actions as may be necessary to ensure that, if this Agreement were
deemed to create a security interest in the Mortgage Loans, such security
interest would be deemed to be a perfected security interest of first priority
under applicable law and will be maintained as such throughout the term of the
Agreement.
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SECTION 2.02. Acceptance of the Trust Fund by the Trustee.
The Trustee acknowledges receipt (subject to any exceptions
noted in the Initial Certification described below) of the documents referred to
in Section 2.01 above and all other assets included in the Trust Fund 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 included in the Trust Fund (to the extent delivered or
assigned to the Trustee), in trust for the exclusive use and benefit of all
present and future Certificateholders.
The Trustee agrees, for the benefit of the Certificateholders,
to review each Mortgage File on or before the Closing Date to ascertain that all
documents required to be delivered to it are in its possession, and the Trustee
agrees to execute and deliver to the Company and the Master Servicer on the
Closing Date an Initial Certification in the form annexed hereto as Exhibit C to
the effect that, as to each Mortgage Loan listed in the Mortgage Loan Schedule
(other than any Mortgage Loan paid in full or any Mortgage Loan specifically
identified in such certification as not covered by such certification), (i) all
documents required to be delivered to it pursuant to this Agreement with respect
to such Mortgage Loan are in its possession, (ii) such documents have been
reviewed by it and appear regular on their face and relate to such Mortgage Loan
and (iii) based on its examination and only as to the foregoing documents, the
information set forth in items (i) - (vi) and (xiii) of the definition of the
"Mortgage Loan Schedule" accurately reflects information set forth in the
Mortgage File. Neither the Trustee nor the Master Servicer shall be under any
duty to determine whether any Mortgage File should include any of the documents
specified in clause (vi) of Section 2.01. Neither the Trustee nor the Master
Servicer shall be under any 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 or that they are other than what they purport
to be on their face.
Within 90 days of the Closing Date the Trustee shall deliver
to the Company and the Master Servicer a Final Certification in the form annexed
hereto as Exhibit D evidencing the completeness of the Mortgage Files, with any
applicable exceptions noted thereon.
If in the process of reviewing the Mortgage Files and
preparing the certifications referred to above the Trustee finds any document or
documents constituting a part of a Mortgage File to be missing or defective in
any material respect, the Trustee shall promptly notify the Seller, the Master
Servicer and the Company. The Trustee shall promptly notify the Seller of such
defect and request that the Seller cure any such defect within 60 days from the
date on which the Seller was notified of such defect, and if the Seller does not
cure such defect in all material respects during such period, request that the
Seller purchase such Mortgage Loan from the Trust Fund on behalf of the
Certificateholders at the Purchase Price within 90 days after the date on which
the Seller was notified of such defect. It is understood and agreed that the
obligation of the Seller to cure a material defect in, or purchase any Mortgage
Loan as to which a material defect in a constituent document exists shall
constitute the sole remedy respecting such defect available to
Certificateholders or the Trustee on behalf of Certificateholders. The Purchase
Price for the purchased Mortgage Loan shall be deposited or caused to be
deposited upon receipt by the Master
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Servicer in the Custodial Account and, upon receipt by the Trustee of written
notification of such deposit signed by a Servicing Officer, the Trustee shall
release or cause to be released to the Seller the related Mortgage File and
shall execute and deliver such instruments of transfer or assignment, in each
case without recourse, as the Seller shall require as necessary to vest in the
Seller ownership of any Mortgage Loan released pursuant hereto and at such time
the Trustee shall have no further responsibility with respect to the related
Mortgage File.
SECTION 2.03. Representations, Warranties and Covenants of the
Master Servicer and the Company.
(a) The Master Servicer hereby represents and warrants to and
covenants with the Company and the Trustee for the benefit of Certificateholders
that:
(i) The Master Servicer is, and throughout the term
hereof shall remain, a __________ duly organized, validly existing and
in good standing under the laws of the State of __________ (except as
otherwise permitted pursuant to Section 6.02), the Master Servicer is,
and shall remain, in compliance with the laws of each state in which
any Mortgaged Property is located to the extent necessary to perform
its obligations under this Agreement, and the Master Servicer is, and
shall remain, approved to sell mortgage loans to and service mortgage
loans for FNMA and FHLMC;
(ii) The execution and delivery of this Agreement by the
Master Servicer, and the performance and compliance with the terms of
this Agreement by the Master Servicer, will not violate the Master
Servicer's articles of incorporation or bylaws or constitute a default
(or an event which, with notice or lapse of time, or both, would
constitute a default) under, or result in the breach of, any material
agreement or other instrument to which it is a party or which is
applicable to it or any of its assets;
(iii) The Master Servicer has the full power and authority
to enter into and consummate all transactions contemplated by this
Agreement, has duly authorized the execution, delivery and performance
of this Agreement, and has duly executed and delivered this Agreement;
(iv) This Agreement, assuming due authorization,
execution and delivery by the Company and the Trustee, constitutes a
valid, legal and binding obligation of the Master Servicer, enforceable
against the Master Servicer in accordance with the terms hereof,
subject to (A) applicable bankruptcy, insolvency, reorganization,
moratorium and other laws affecting the enforcement of creditors'
rights generally, and (B) general principles of equity, regardless of
whether such enforcement is considered in a proceeding in equity or at
law;
(v) The Master Servicer is not in violation of, and its
execution and delivery of this Agreement and its performance and
compliance with the terms of this Agreement will not constitute a
violation of, any law, any order or decree of any court or arbiter, or
any order, regulation or demand of any federal, state or local
governmental or
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regulatory authority, which violation is likely to affect materially
and adversely either the ability of the Master Servicer to perform its
obligations under this Agreement or the financial condition of the
Master Servicer;
(vi) No litigation is pending or, to the best of the
Master Servicer's knowledge, threatened against the Master Servicer
which would prohibit its entering into this Agreement or performing its
obligations under this Agreement or is likely to affect materially and
adversely either the ability of the Master Servicer to perform its
obligations under this Agreement or the financial condition of the
Master Servicer;
(vii) The Master Servicer will comply in all material
respects in the performance of this Agreement and with all reasonable
rules and requirements of each insurer under each Insurance Instrument;
(viii) The execution of this Agreement and the performance
of the Master Servicer's obligations hereunder do not require any
license, consent or approval of any state or federal court, agency,
regulatory authority or other governmental body having jurisdiction
over the Master Servicer, other than such as have been obtained; and
(ix) No information, certificate of an officer, statement
furnished in writing or report delivered to the Company, any affiliate
of the Company or the Trustee by the Master Servicer will, to the
knowledge of the Master Servicer, contain any untrue statement of a
material fact or omit a material fact necessary to make the
information, certificate, statement or report not misleading; and
It is understood and agreed that the representations,
warranties and covenants set forth in this Section 2.03(a) shall survive the
execution and delivery of this Agreement, and shall inure to the benefit of the
Company, the Trustee and the Certificateholders. Upon discovery by the Company,
the Trustee or the Master Servicer of a breach of any of the foregoing
representations, warranties and covenants that materially and adversely affects
the interests of the Company or the Trustee, the party discovering such breach
shall give prompt written notice to the other parties.
(b) The Company hereby represents and warrants to the Master
Servicer and the Trustee for the benefit of Certificateholders that as of the
Closing Date (or, if otherwise specified below, as of the date so specified):
(i) Immediately prior to the assignment of the Mortgage
Loans to the Trustee, the Company had good title to, and was
the sole owner of, each Mortgage Loan free and clear of any
pledge, lien, encumbrance or security interest (other than
rights to servicing and related compensation) and such
assignment validly transfers ownership of the Mortgage Loans
to the Trustee free and clear of any pledge, lien, encumbrance
or security interest;
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(ii) No Mortgage Loan is one month or more delinquent in
payment of principal and interest as of the Cut-off Date and
no Mortgage Loan has been so delinquent more than once in the
12-month period prior to the Cut-off Date;
(iii) The information set forth in the Mortgage Loan
Schedule with respect to each Mortgage Loan or the Mortgage
Loans, as the case may be, is true and correct in all material
respects at the date or dates respecting which such
information is furnished;
(iv) The Mortgage Loans are fully-amortizing, fixed-rate
mortgage loans with level Monthly Payments due on the first
day of each month and terms to maturity at origination or
modification of not more than 30 years;
(v) Each Mortgage Loan secured by a Mortgaged Property
with a Loan- to-Value Ratio at origination in excess of 80% is
the subject of a Primary Mortgage 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 Mortgage
Insurance Policy is in full force and effect and the Trustee
is entitled to the benefits thereunder; and
(vi) The representations and warranties of the Seller
with respect to the Mortgage Loans and the remedies therefor
are as set forth in the Seller's Warranty Certificate.
[Other representations and warranties as applicable.]
It is understood and agreed that the representations and warranties set forth in
this Section 2.03(b) shall survive delivery of the respective Mortgage Files to
the Trustee.
Upon discovery by either the Company, the Master Servicer or
the Trustee of a breach of any representation or warranty set forth in this
Section 2.03 which materially and adversely affects the interests of the
Certificateholders in any Mortgage Loan, the party discovering such breach shall
give prompt written notice to the other parties.
SECTION 2.04. Representations and Warranties of the Seller;
Repurchase and Substitution.
The Company hereby assigns to the Trustee for the benefit of
Certificateholders its interest in respect of the representations and warranties
made by the Seller in the Seller's Warranty Certificate or the exhibits thereto.
Insofar as the Seller's Warranty Certificate relates to such representations and
warranties and any remedies provided thereunder for any breach of such
representations and warranties, such right, title and interest may be enforced
by the Trustee on behalf of the Certificateholders. Upon the discovery by the
Company, the Master Servicer or the Trustee of a breach of any of the
representations and warranties made in the Seller's Warranty
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Certificate in respect of any Mortgage Loan which materially and adversely
affects the interests of the Certificateholders in such Mortgage Loan, the party
discovering such breach shall give prompt written notice to the other parties.
The Trustee shall promptly notify the Seller of such breach and request that
such Seller shall, within 90 days from the date that the Company, the Seller or
the Trustee was notified of such breach, either (i) cure such breach in all
material respects or (ii) purchase such Mortgage Loan from the Trust Fund at the
Purchase Price and in the manner set forth in Section 2.02; provided that in the
case of such breach, the Seller shall have the option to substitute a Qualified
Substitute Mortgage Loan or Loans for such Mortgage Loan if such substitution
occurs within two years following the Closing Date. Any such substitution must
occur within 90 days from the date the Seller was notified of the breach if such
90 day period expires before two years following the Closing Date. In the event
that the Seller elects to substitute a Qualified Substitute Mortgage Loan or
Loans for a Deleted Mortgage Loan pursuant to this Section 2.04, the Seller
shall deliver to the Trustee for the benefit of the Certificateholders with
respect to such Qualified Substitute Mortgage Loan or Loans, the original
Mortgage Note, the Mortgage, an Assignment of the Mortgage in recordable form,
and such other documents and agreements as are required by Section 2.01, with
the Mortgage Note endorsed as required by Section 2.01. No substitution will be
made in any calendar month after the Determination Date for such month. Monthly
Payments due with respect to Qualified Substitute Mortgage Loans in the month of
substitution shall not be part of the Trust Fund and will be retained by the
Master Servicer and remitted by the Master Servicer to the Seller on the next
succeeding Distribution Date. For the month of substitution, distributions to
Certificateholders will include the Monthly Payment due on a 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 Company shall
amend or cause to be amended the Mortgage Loan Schedule for the benefit of the
Certificateholders to reflect the removal of such Deleted Mortgage Loan and the
substitution of the Qualified Substitute Mortgage Loan or Loans and the Company
shall deliver the amended Mortgage Loan Schedule, to the Trustee. Upon such
substitution, the Qualified Substitute Mortgage Loan or Loans shall be subject
to the terms of this Agreement in all respects, the Seller shall be deemed to
have made the representations and warranties with respect to the Qualified
Substitute Mortgage Loan contained in the Seller's Warranty Certificate as of
the date of substitution, and the Company shall be deemed to have made with
respect to any Qualified Substitute Mortgage Loan or Loans, as of the date of
substitution, the representations and warranties set forth in Section 2.03
hereof, and the Seller shall be obligated to repurchase or substitute for any
Qualified Substitute Mortgage Loan as to which a repurchase or substitution
obligation has occurred pursuant to Section 3 of the Seller's Warranty
Certificate.
In connection with the substitution of one or more Qualified
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 Qualified Substitute Mortgage Loans as of the date of
substitution is less than the aggregate Stated Principal Balance of all such
Deleted Mortgage Loans (in each case after application of the principal portion
of the Monthly Payments due in the month of substitution that are to be
distributed to Certificateholders in the month of substitution). The Seller
shall provide the Master Servicer on the day of substitution for immediate
deposit in to the Custodial Account the amount of such shortfall, without any
reimbursement therefor. The Seller shall give notice in writing to the Trustee
of such event,
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which notice shall be accompanied by an Officers' Certificate as to the
calculation of such shortfall and by an Opinion of Counsel to the effect that
such substitution will not cause (a) any federal tax to be imposed on the Trust
Fund, including without limitation, any federal tax imposed on "prohibited
transactions" under Section 860F(a)(1) of the Code or on "contributions after
the startup date" under Section 860G(d)(1) of the Code or (b) any portion of the
Trust Fund to fail to qualify as a REMIC at any time that any Certificate is
outstanding. The costs of any substitution as described above, including any
related assignments, opinions or other documentation in connection therewith
shall be borne by the Seller.
Except as expressly set forth herein neither the Trustee nor
the Master Servicer is under any obligation to discover any breach of the above
mentioned representations and warranties. It is understood and agreed that the
obligation of the Seller to cure such breach or to so purchase or substitute for
any Mortgage Loan as to which such a breach has occurred and is continuing shall
constitute the sole remedy respecting such breach available to
Certificateholders or the Trustee on behalf of Certificateholders. In addition,
if the first scheduled Monthly Payment is due during the first month after its
closing date (as such term is used in the Seller's Warranties Certificate) and
such Monthly Payment is not received by the Master Servicer within 30 days of
the due date in accordance with the terms of the related Mortgage Note, the
Master Servicer shall promptly notify the Seller and the Trustee and the Seller
shall purchase such Mortgage Loan from the Trust Fund at the Purchase Price or
substitute a Qualified Substitute Mortgage Loan therefor within 15 days from the
date that the Seller was notified.
SECTION 2.05. Issuance of Certificates Evidencing Interests in
the Trust Fund.
The Trustee acknowledges the assignment to it of the Mortgage
Loans and the delivery of the Mortgage Files to it together with the assignment
to it of all other assets included in the Trust Fund, receipt of which is hereby
acknowledged. Concurrently with such delivery and in exchange therefor, the
Trustee, pursuant to the written request of the Company executed by an officer
of the Company, has executed and caused to be authenticated, and delivered to or
upon the order of the Company, the Certificates in authorized denominations
which evidence ownership of the entire Trust Fund.
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ARTICLE III
ADMINISTRATION AND SERVICING
OF THE TRUST FUND
SECTION 3.01. Master Servicer to Act as Master Servicer.
The Master Servicer shall service and administer the Mortgage
Loans for the benefit of the Certificateholders, in accordance with this
Agreement and the customary and usual standards of practice of prudent
institutional mortgage lenders servicing comparable mortgage loans for their own
account in the respective states in which the Mortgaged Properties are located.
Subject to the foregoing, the Master Servicer shall have full power and
authority, acting alone and/or through Sub-Servicers as provided in Section
3.02, to do or cause to be done any and all things in connection with such
servicing and administration that it may deem necessary or desirable. Without
limiting the generality of the foregoing, the Master Servicer in its own name or
in the name of a Sub-Servicer is hereby authorized and empowered by the Trustee
when the Master Servicer believes it appropriate in its best judgment, to (i)
execute and deliver, on behalf of the Certificateholders and the Trustee or any
of them, any and all instruments of satisfaction or cancellation, or of partial
or full release or discharge, and all other comparable instruments, with respect
to the Mortgage Loans and the Mortgaged Properties, (ii) institute foreclosure
pro ceedings or obtain a deed-in-lieu of foreclosure so as to convert the
ownership of such properties, and (iii) hold or cause to be held title to such
properties, on behalf of the Trustee and Certifi cateholders. The Master
Servicer shall service and administer the Mortgage Loans in accordance with
applicable state and federal law and shall provide to the Mortgagors any reports
required to be provided to them thereby. Subject to Section 3.16, the Trustee
shall furnish to the Master Servicer and any Sub-Servicer any powers of attorney
and other documents necessary or appropriate to enable the Master Servicer and
any Sub-Servicer to carry out their servicing and administrative duties
hereunder. The Trustee shall not be responsible for any action taken by the
Master Servicer or any Sub-Servicer pursuant to the application of such powers
of attorney.
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 3.09, and further as
provided in Section 3.11. No costs incurred by the Master Servicer or by
Sub-Servicers in effecting the payment of taxes and assessments on the Mortgaged
Properties shall, for the purpose of calculating distributions to
Certificateholders, be added to the amount owing under the related Mortgage
Loans, notwithstanding that the terms of such Mortgage Loans so permit.
The Master Servicer shall not (unless the Mortgagor is in
default with respect to the Mortgage Loan or such default is, in the judgment of
the Master Servicer, reasonably foreseeable) make or permit any modification,
waiver or amendment of any term of any Mortgage Loan that would both (i) effect
an exchange or reissuance of such Mortgage Loan under Section 1001 of the Code
(or final, temporary or proposed Treasury regulations promulgated thereunder)
and (ii) cause the Trust Fund to fail to qualify as a REMIC under the Code or
the imposition of
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any tax on "prohibited transactions" or "contributions" after the startup date
under the REMIC Provisions.
The Master Servicer may approve a request for a partial
release of the Mortgaged Property, easement, consent to alteration or demolition
and other similar matters if it has determined, exercising its good faith
business judgement in the same manner as it would if it were the owner of the
related Mortgage Loan, that such approval will not adversely affect the security
for, or the timely and full collectability of, the related Mortgage Loan. Any
fee collected by the Master Servicer for processing such request will be
retained by the Master Servicer as additional servicing compensation.
The relationship of the Master Servicer (and of any successor
to the Master Servicer under this Agreement) to the Trustee under this Agreement
is intended by the parties to be that of an independent contractor and not that
of a joint venturer, partner or agent.
SECTION 3.02. Sub-Servicing Agreements Between Master
Servicer and Sub-Servicers.
(a) The Master Servicer may enter into Sub-Servicing
Agreements with Sub- Servicers for the servicing and administration of the
Mortgage Loans and for the performance of any and all other activities of the
Master Servicer hereunder. Each Sub-Servicer shall be either (i) an institution
the accounts of which are insured by the FDIC or (ii) another entity that
engages in the business of originating or servicing mortgage loans, and in
either case shall be authorized to transact business in the state or states in
which the related Mortgaged Properties it is to service are situated, if and to
the extent required by applicable law to enable the Sub-Servicer to perform its
obligations hereunder and under the Sub-Servicing Agreement, and in either case
shall be a FHLMC or FNMA approved mortgage servicer. Each Sub-Servicing
Agreement must impose on the Sub-Servicer requirements conforming to the
provisions set forth in Section 3.08 and provide for servicing of the Mortgage
Loans consistent with the terms of this Agreement. With the consent of the
Trustee, which consent shall not be unreasonably withheld, the Master Servicer
and the Sub-Servicers may enter into Sub-Servicing Agreements and make
amendments to the Sub-Ser vicing Agreements or enter into different forms of
Sub-Servicing Agreements; provided, however, that any such amendments or
different forms shall be consistent with and not violate the provisions of this
Agreement.
(b) As part of its servicing activities hereunder, the Master
Servicer, for the benefit of the Trustee and the Certificateholders, shall
enforce the obligations of each Sub-Servicer under the related Sub-Servicing
Agreement, including, without limitation, any obligation to make advances in
respect of delinquent payments as required by a Sub-Servicing Agreement, or to
purchase a Mortgage Loan on account of defective documentation or on account of
a breach of a representation or warranty, as described in Section 2.02. Such
enforcement, including, without limitation, the legal prosecution of claims,
termination of Sub-Servicing Agreements and the pursuit of other appropriate
remedies, shall be in such form and carried out to such an extent and at such
time as the Master Servicer, in its good faith business judgment, would require
were it the owner of the related Mortgage Loans. The Master Servicer shall pay
the costs of such
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enforcement at its own expense, but shall be reimbursed therefor only (i) from a
general recovery resulting from such enforcement only to the extent, if any,
that such recovery exceeds all amounts due in respect of the related Mortgage
Loans or (ii) from a specific recovery of costs, expenses or attorneys' fees
against the party against whom such enforcement is directed.
SECTION 3.03. Successor Sub-Servicers.
The Master Servicer shall be entitled to terminate any
Sub-Servicing Agreement and the rights and obligations of any Sub-Servicer
pursuant to any Sub-Servicing Agreement in accor dance with the terms and
conditions of such Sub-Servicing Agreement. In the event of termination of any
Sub-Servicer, all servicing obligations of such Sub-Servicer shall be assumed
simultaneously by the Master Servicer without any act or deed on the part of
such Sub-Servicer or the Master Servicer, and the Master Servicer either shall
service directly the related Mortgage Loans or shall enter into a Sub-Servicing
Agreement with a successor Sub-Servicer which qualifies under Section 3.02.
SECTION 3.04. Liability of the Master Servicer.
Notwithstanding any Sub-Servicing Agreement, any of the
provisions of this Agreement relating to agreements or arrangements between the
Master Servicer and a Sub- Servicer or reference to actions taken through a
Sub-Servicer or otherwise, the Master Servicer shall remain obligated and
primarily liable to the Trustee and Certificateholders for the servicing and
administering of the Mortgage Loans in accordance with the provisions of Section
3.01 without diminution of such obligation or liability by virtue of such
Sub-Servicing Agreements or arrangements or by virtue of indemnification from
the Sub-Servicer and to the same extent and under the same terms and conditions
as if the Master Servicer alone were servicing and administering the Mortgage
Loans. For purposes of this Agreement, the Master Servicer shall be deemed to
have received payments on Mortgage Loans when the Sub-Servicer has received such
payments. The Master Servicer shall be entitled to enter into any agreement with
a Sub-Servicer for indemnification of the Master Servicer by such Sub-Servicer
and nothing contained in this Agreement shall be deemed to limit or modify such
indemnification.
SECTION 3.05. No Contractual Relationship Between
Sub-Servicers and Trustee or
Certificateholders.
Any Sub-Servicing Agreement that may be entered into and any
transactions or services relating to the Mortgage Loans involving a Sub-Servicer
in its capacity as such and not as an originator shall be deemed to be between
the Sub-Servicer and the Master Servicer alone, and the Trustee and
Certificateholders shall not be deemed parties thereto and shall have no claims,
rights, obligations, duties or liabilities with respect to the Sub-Servicer
except as set forth in Section 3.06.
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SECTION 3.06. Assumption or Termination of Sub-Servicing
Agreements by Trustee.
In the event the Master Servicer shall for any reason no
longer be the master servicer (including by reason of an Event of Default), the
Trustee or its designee shall thereupon assume all of the rights and obligations
of the Master Servicer under each Sub-Servicing Agreement that the Master
Servicer may have entered into, unless the Trustee is then permitted and elects
to terminate any Sub-Servicing Agreement in accordance with its terms. The
Trustee, its designee or the successor servicer for the Trustee shall be deemed
to have assumed all of the Master Servicer's interest therein and to have
replaced the Master Servicer as a party to each Sub- Servicing Agreement to the
same extent as if the Sub-Servicing Agreements had been assigned to the assuming
party, except that the Master Servicer shall not thereby be relieved of any
liability or obligations under the Sub-Servicing Agreements, and the Master
Servicer shall continue to be entitled to any rights or benefits which arose
prior to its termination as master servicer.
The Master Servicer at its expense shall, upon request of the
Trustee, deliver to the assuming party all documents and records relating to
each Sub-Servicing Agreement and the Mortgage Loans then being serviced and an
accounting of amounts collected and held by it and otherwise use its best
efforts to effect the orderly and efficient transfer of the Sub-Servicing
Agreements to the assuming party.
SECTION 3.07. Collection of Certain Mortgage Loan Payments.
The Master Servicer shall make reasonable efforts to collect
all payments called for under the terms and provisions of the Mortgage Loans,
and shall, to the extent such procedures shall be consistent with this Agreement
and the terms and provisions of any related Insurance Policy, follow such
collection procedures as it would follow with respect to mortgage loans
comparable to the Mortgage Loans and held for its own account. 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, Primary
Hazard Insurance Policy, Primary Mortgage Insurance Policy or otherwise or
against any public or governmental authority with respect to a taking or
condemnation) if it reasonably believes that it is prohibited by applicable law
from enforcing the provision of the Mortgage or other instrument pursuant to
which such payment is required. Consistent with the foregoing, the Master
Servicer may in its discretion waive any prepayment fees, late payment charge or
other charge, except as otherwise required under applicable law. The Master
Servicer shall be responsible for preparing and distributing all information
statements relating to payments on the Mortgage Loans, in accordance with all
applicable federal and state tax laws and regulations.
SECTION 3.08. Sub-Servicing Accounts.
In those cases where a Sub-Servicer is servicing a Mortgage
Loan pursuant to a Sub-Servicing Agreement, the Sub-Servicer will be required to
establish and maintain one or more accounts (collectively, the "Sub-Servicing
Account"). The Sub-Servicing Account shall be an Eligible Account and shall
otherwise be acceptable to the Master Servicer. All amounts held in
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a Sub-Servicing Account shall be held in trust for the Trustee for the benefit
of the Certificateholders. The Sub-Servicer will be required to deposit into the
Sub-Servicing Account no later than the first Business Day after receipt all
proceeds of Mortgage Loans received by the Sub-Servicer, less its servicing
compensation and any unreimbursed expenses and advances, to the extent permitted
by the Sub-Servicing Agreement. On each Sub-Servicer Remittance Date the
Sub-Servicer will be required to remit to the Master Servicer for deposit into
the Custodial Account all funds held in the Sub-Servicing Account with respect
to any Mortgage Loan as of the Sub-Servicer Remittance Date, after deducting
from such remittance an amount equal to the servicing compensation and
unreimbursed expenses and advances to which it is then entitled pursuant to the
related Sub-Servicing Agreement, to the extent not previously paid to or
retained by it. In addition, on each Sub-Servicer Remittance Date the
Sub-Servicer will be required to remit to the Master Servicer any amounts
required to be advanced pursuant to the related Sub- Servicing Agreement. The
Sub-Servicer will also be required to remit to the Master Servicer, within one
Business Day of receipt, the proceeds of any Principal Prepayment made by the
Mortgagor and any Insurance Proceeds or Liquidation Proceeds.
SECTION 3.09. Collection of Taxes, Assessments and Similar
Items; Servicing Accounts.
The Master Servicer and the Sub-Servicers shall establish and
maintain one or more accounts (the "Servicing Accounts"), and shall deposit and
retain therein all collections from the Mortgagors (or related advances from
Sub-Servicers) for the payment of taxes, assessments, Primary Hazard Insurance
Policy premiums, and comparable items for the account of the Mortgagors, to the
extent that the Master Servicer customarily escrows for such amounts.
Withdrawals of amounts so collected from a Servicing Account may be made only to
(i) effect payment of taxes, assessments, Primary Hazard Insurance Policy
premiums and comparable items; (ii) reimburse the Master Servicer (or a
Sub-Servicer to the extent provided in the related Sub- Servicing Agreement) out
of related collections for any payments made pursuant to Sections 3.01 (with
respect to taxes and assessments) and 3.13 (with respect to Primary Hazard
Insurance Policies); (iii) refund to Mortgagors any sums as may be determined to
be overages; or (iv) clear and terminate the Servicing Account at the
termination of this Agreement pursuant to Section 9.01. As part of its servicing
duties, the Master Servicer or Sub-Servicers shall, if and to the extent
required by law, pay to the Mortgagors interest on funds in Servicing Accounts
from its or their own funds, without any reimbursement therefor.
SECTION 3.10. Custodial Account.
(a) The Master Servicer shall establish and maintain one or
more accounts (collectively, the "Custodial Account") in which the Master
Servicer shall deposit or cause to be deposited no later than the first Business
Day after receipt or as and when received from the Sub- Servicers, the following
payments and collections received or made by or on behalf of it subsequent to
the Cut-off Date, or received by it prior to the Cut-off Date but allocable to a
period subsequent thereto (other than in respect of principal and interest on
the Mortgage Loans due on or before the Cut-off Date):
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(i) all payments on account of principal, including Principal
Prepayments, on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage Loans,
not including any portion thereof representing interest on account of
the related Servicing Fee Rate;
(iii) all Insurance Proceeds, other than proceeds that represent
reimbursement of costs and expenses incurred by the Master Servicer in
connection with presenting claims under the related Insurance Policies,
Liquidation Proceeds and REO Proceeds;
(iv) all proceeds of any Mortgage Loan or REO Property repurchased
or purchased in accordance with Sections 2.02, 2.04 or 9.01 and all
amounts required to be deposited in connection with the substitution of
a Qualified Substitute Mortgage Loan pursuant to Section 2.04;
(v) any amounts required to be deposited in the Custodial Account
pursuant to Section 3.12, 3.13 or 3.22; and
(vi) all amounts transferred from the Certificate Account to the
Custodial Account in accordance with Sections 4.01(b).
For purposes of the immediately preceding sentence, the
Cut-off Date with respect to any Qualified Substitute Mortgage Loan shall be
deemed to be the date of substitution.
The foregoing requirements for deposit in the Custodial
Account shall be exclusive. In the event the Master Servicer shall deposit in
the Custodial Account any amount not required to be deposited therein, it may
withdraw such amount from the Custodial Account, any provision herein to the
contrary notwithstanding. The Custodial Account shall be maintained as a
segregated account, separate and apart from trust funds created for mortgage
pass-through certificates of other series, and the other accounts of the Master
Servicer.
(b) Funds in the Custodial Account may be invested in
Permitted Instruments in accordance with the provisions set forth in Section
3.12. The Master Servicer shall give notice to the Trustee and the Company of
the location of the Custodial Account after any change thereof.
(c) Payments in the nature of late payment charges, prepayment
fees, assumption fees and reconveyance fees received on the Mortgage Loans shall
not be deposited in the Custodial Account, but rather shall be received and held
by the Master Servicer as additional servicing compensation.
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SECTION 3.11. Permitted Withdrawals From the Custodial
Account.
The Master Servicer may, from time to time as provided herein,
make withdrawals from the Custodial Account of amounts on deposit therein
pursuant to Section 3.10 that are attributable to the Mortgage Loans for the
following purposes:
(i) to make deposits into the Certificate Account in
the amounts and in the manner provided for in Section 4.01, such
deposit to include interest collections on the Mortgage Loans at the
Net Mortgage Rate [and net of amounts reimbursed therefrom];
(ii) to pay to itself, the Company, the Seller or any
other appropriate person, as the case may be, with respect to each
Mortgage Loan that has previously been purchased, repurchased or
replaced pursuant to Sections 2.02, 2.04 or 9.01 all amounts received
thereon and not yet distributed as of the date of purchase, repurchase
or substitution;
(iii) to reimburse itself or any Sub-Servicer for
Advances not previously reimbursed, the Master Servicer's or any
Sub-Servicer's right to reimbursement pursuant to this clause (iii)
being limited to amounts received which represent Late Collections (net
of the related Servicing Fees) of Monthly Payments on Mortgage Loans
with respect to which such Advances were made and as further provided
in Section 3.15;
(iv) to reimburse or pay itself, the Trustee or the
Company for expenses incurred by or reimbursable to the Master
Servicer, the Trustee or the Company pursuant to Sections 3.22, 6.03,
8.05, 10.01(c) or 10.01(g), except as otherwise provided in such
Sections;
(v) to reimburse itself or any Sub-Servicer for costs
and expenses incurred by or reimbursable to it relating to the
prosecution of any claims pursuant to Section 3.13 that are in excess
of the amounts so recovered;
(vi) to reimburse itself or any Sub-Servicer for unpaid
Servicing Fees and unreimbursed Servicing Advances, the Master
Servicer's or any Sub-Servicer's right to reimbursement pursuant to
this clause (vi) with respect to any Mortgage Loan being limited to
late recoveries of the payments for which such advances were made
pursuant to Section 3.01 or Section 3.09 and any other related Late
Collections;
(vii) to pay itself as servicing compensation (in
addition to the Servicing Fee), on or after each Distribution Date, any
interest or investment income earned on funds deposited in the
Custodial Account for the period ending on such Distribution Date,
subject to Section 8.05;
(viii) to reimburse itself or any Sub-Servicer for any
Advance previously made which itself has determined to be a
Nonrecoverable Advance, provided that either (a) such Advance was made
with respect to a delinquency that ultimately constituted an
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Excess Special Hazard Loss, Excess Fraud Loss, Excess Bankruptcy Loss
or Extraordinary Loss, or (b) the Certificate Principal Balances of the
Class B Certificates have been reduced to zero; and
(ix) to clear and terminate the Custodial Account at the
termination of this Agreement pursuant to Section 9.01.
The Master Servicer shall keep and maintain separate
accounting records on a Mortgage Loan by Mortgage Loan basis, for the purpose of
justifying any withdrawal from the Custodial Account pursuant to such clauses
(ii), (iii), (iv), (v), (vi), (vii) and (viii).
In connection with clause (viii) above, the Trustee shall
notify the Master Servicer if and when the Certificate Principal Balances of the
Class B Certificates have been reduced to zero.
SECTION 3.12. Permitted Instruments.
Any institution maintaining the Custodial Account shall at the
direction of the Master Servicer invest the funds in such account in Permitted
Instruments, each of which shall mature not later than the Business Day
immediately preceding the Distribution Date next following the date of such
investment (except that if such Permitted Instrument is an obligation of the
insti tution that maintains such account, then such Permitted Instrument shall
mature not later than such Distribution Date) and shall not be sold or disposed
of prior to its maturity. All income and gain realized from any such investment
as well as any interest earned on deposits in the Custodial Account shall be for
the benefit of the Master Servicer. The Master Servicer shall deposit in the
Custodial Account (with respect to investments made hereunder of funds held
therein) an amount equal to the amount of any loss incurred in respect of any
such investment immediately upon realization of such loss without right of
reimbursement.
SECTION 3.13. Maintenance of Primary Mortgage Insurance and
Primary Hazard Insurance.
(a) The Master Servicer shall not take, or permit any
Sub-servicer to take, any action which would result in non-coverage under any
applicable Primary Mortgage Insurance Policy of any loss which, but for the
actions of the Master Servicer or Sub-servicer, would have been covered
thereunder. To the extent coverage is available, the Master Servicer shall keep
or cause to be kept in full force and effect each such Primary Mortgage
Insurance Policy until the principal balance of the related Mortgage Loan
secured by a Mortgaged Property is reduced to 75% or less of the Collateral
Value in the case of such a Mortgage Loan having a Loan-to-Value Ratio at
origination in excess of 80%. The Master Servicer shall not cancel or refuse to
renew any such Primary Mortgage Insurance Policy, or consent to any Sub-servicer
canceling or refusing to renew any such Primary Mortgage Insurance Policy
applicable to a Mortgage Loan subserviced by it, 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 Mortgage Insurance Policy for such
canceled or non-renewed policy is maintained with a Qualified Insurer.
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(b) In connection with its activities as administrator and
servicer of the Mortgage Loans, the Master Servicer agrees to present or to
cause the related Sub-servicer to present, on behalf of the Master Servicer, the
Sub-servicer, if any, the Trustee and Certificateholders, claims to the insurer
under any Primary Mortgage Insurance Policies, in a timely manner in accordance
with such policies, and, in this regard, to take or cause to be taken such
reasonable action as shall be necessary to permit recovery under any Primary
Mortgage Insurance Policies respecting defaulted Mortgage Loans. Pursuant to
Section 3.10, any Insurance Proceeds collected by or remitted to the Master
Servicer under any Primary Mortgage Insurance Policies shall be deposited in the
Custodial Account, subject to withdrawal pursuant to Section 3.11.
(c) The Master Servicer shall cause to be maintained for each
Mortgage Loan primary hazard insurance with extended coverage on the related
Mortgaged Property in an amount equal to the lesser of 100% of the replacement
value of the improvements, as determined by the insurance company, on such
Mortgaged Property or the unpaid principal balance of the Mortgage Loan. The
Master Servicer shall also cause to be maintained on property acquired upon
foreclosure, or deed in lieu of foreclosure, of any Mortgage Loan, fire
insurance with extended coverage in an amount equal to the replacement value of
the improvements thereon. Pursuant to Section 3.10, any amounts collected by the
Master Servicer under any such policies (other than amounts to be applied to the
restoration or repair of the related Mortgaged Property or property thus
acquired or amounts released to the Mortgagor in accordance with the Master
Servicer's normal servicing procedures) shall be deposited in the Custodial
Account, subject to withdrawal pursuant to Section 3.11. Any cost incurred by
the Master Servicer in maintaining any such insurance shall not, for the purpose
of calculating monthly distributions to Certificateholders, be added to the
amount owing under the Mortgage Loan, notwithstanding that the terms of the
Mortgage Loan so permit. 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 Loan other than pursuant to such
applicable laws and regulations as shall at any time be in force and as shall
require such additional insurance. When the improvements securing a Mortgage
Loan are located at the time of origination of such Mortgage Loan in a federally
designated special flood hazard area, the Master Servicer shall cause flood
insurance (to the extent available) to be maintained in respect thereof. Such
flood insurance shall be in an amount equal to the lesser of (i) the replacement
value of the improvements, which are part of such Mortgaged Property on a
replacement cost basis and (ii) the maximum amount of such insurance available
for the related Mortgaged Property under the national flood insurance program
(assuming that the area in which such Mortgaged Property is located is
participating in such program).
In the event that the Master Servicer shall obtain and
maintain a blanket fire insurance policy with extended coverage 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 two sentences of this
Section 3.13, it being understood and agreed that such policy may contain a
deductible clause, in which case the Master Servicer shall, in the event that
there shall not have been maintained on the related Mortgaged Property a policy
complying with the first two sentences of this Section 3.13 and there shall have
been a loss which would have been covered by such policy, deposit in the
Certificate Account the amount not otherwise payable under the blanket
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policy because of such deductible clause. Any such deposit by the Master
Servicer shall be made on the Certificate Account Deposit Date next preceding
the Distribution Date which occurs in the month following the month in which
payments under any such policy would have been deposited in the Custodial
Account. In connection with its activities as administrator and servicer of the
Mortgage Loans, the Master Servicer agrees to present, on behalf of itself, the
Trustee and Certificateholders, claims under any such blanket policy.
SECTION 3.14. Enforcement of Due-on-Sale Clauses; Assumption
Agreements.
The Master Servicer will, to the extent it has knowledge of
any conveyance or prospective conveyance by any Mortgagor of the Mortgaged
Property (whether by absolute conveyance or by contract of sale, and whether or
not the Mortgagor remains or is to remain liable under the Mortgage Note or the
Mortgage), exercise or cause to be exercised its rights to accele rate the
maturity of such Mortgage Loan under any "due-on-sale" clause applicable
thereto; provided, however, that the Master Servicer shall not exercise any such
rights if it reasonably believes that it is prohibited by law from doing so or
if such enforcement will adversely affect or jeopardize required coverage under
the Insurance Instruments. If the Master Servicer is unable to enforce such
"due-on-sale" clause (as provided in the previous sentence) or if no
"due-on-sale" clause is applicable, the Master Servicer or the Sub-Servicer will
enter into an assumption and modification agreement with the Person to whom such
property has been conveyed or is proposed to be conveyed, pursuant to which such
Person becomes liable under the Mortgage Note and, to the extent permitted by
applicable state law, the Mortgagor remains liable thereon; provided, however,
that the Master Servicer shall not enter into any assumption and modification
agreement if the coverage provided under the Primary Insurance Policy, if any,
would be impaired by doing so. The Master Servicer is also authorized 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 the Mortgagor and becomes liable under the Mortgage Note, if the Master
Servicer shall have determined in good faith that such substitution will not
adversely affect the collectability of the Mortgage Loan. Any fee collected by
or on behalf of the Master Servicer for entering into an assumption or
substitution of liability agreement will be retained by or on behalf of the
Master Servicer as additional servicing compensation. In connection with any
such assumption, no material term of the Mortgage Note (including but not
limited to the Mortgage Rate, the amount of the Monthly Payment and any other
term affecting the amount or timing of payment on the Mortgage Loan) may be
changed. The Master Servicer shall not enter into any substitution or assumption
if such substitution or assumption would constitute a "significant modification"
effecting an exchange or reissuance of such Mortgage Loan under the Code (or
final, temporary or proposed Treasury regulations promulgated thereunder) and
cause the Trust Fund to fail to qualify as a REMIC under the Code or the
imposition of any tax on "prohibited transactions" or "contributions" after the
Startup Day under the REMIC Provisions. The Master Servicer shall notify the
Trustee that any such substitution or assumption agreement has been completed by
forwarding to the Trustee the original copy of such substitution or assumption
agree ment, which copy shall be added to the related Mortgage File and shall,
for all purposes, be con sidered a part of such Mortgage File to the same extent
as all other documents and instruments constituting a part thereof.
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Notwithstanding the foregoing paragraph or any other provision
of this Agreement, the Master Servicer shall not be deemed to be in default,
breach or any other violation of its obligations hereunder by reason of any
assumption of a Mortgage Loan by operation of law or any assumption that the
Master Servicer may be restricted by law from preventing, for any reason
whatsoever. For purposes of this Section 3.14, the term "assumption" is deemed
to also include a sale of a Mortgaged Property that is not accompanied by an
assumption or substitution of liability agreement.
SECTION 3.15. Realization Upon Defaulted Mortgage Loans.
The Master Servicer shall exercise reasonable efforts,
consistent with the procedures that the Master Servicer would use in servicing
loans for its own account, to foreclose upon or otherwise comparably convert
(which may include an REO Acquisition) 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
pursuant to Section 3.07, and which are not released from the Trust Fund
pursuant to any other provision hereof. The Master Servicer shall use reasonable
efforts to realize upon such defaulted Mortgage Loans in such manner as will
maximize the receipt of principal and interest by Certificateholders, taking
into account, among other things, the timing of foreclosure proceedings. The
foregoing is subject to the provisions that, in any case in which Mortgaged
Property shall have suffered damage from an Uninsured Cause, the Master Servicer
shall not be required to expend its own funds toward the restoration of such
property unless it shall determine in (i) that such restoration will increase
the net proceeds of liquidation of the related Mortgage Loan to
Certificateholders after reimbursement to itself for such expenses, and (ii)
that such expenses will be recoverable by the Master Servicer through Insurance
Proceeds or Liquidation Proceeds from the related Mortgaged Property, as
contemplated in Section 3.11. 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 related
Mortgaged Property, as contemplated in Section 3.11.
The proceeds of any Cash Liquidation or REO Disposition, as
well as any recovery resulting from a partial collection of Insurance Proceeds
or Liquidation Proceeds or any income from an REO Property, will be applied in
the following order of priority: first, to reimburse the Master Servicer or any
Sub-Servicer for any related unreimbursed Servicing Advances, pursuant to
Section 3.11(vi) or 3.22; second, to accrued and unpaid interest on the Mortgage
Loan or REO Imputed Interest, at the Mortgage Rate, to the date of the Cash
Liquidation or REO Disposition, or to the Due Date prior to the Distribution
Date on which such amounts are to be distributed if not in connection with a
Cash Liquidation or REO Disposition; and third, as a recovery of principal of
the Mortgage Loan. If the amount of the recovery so allocated to interest is
less than a full recovery thereof, that amount will be allocated as follows:
first, on a pro rata basis, to unpaid Servicing Fees; and second, to interest at
the related Net Mortgage Rate. The portion of the recovery so allocated to
unpaid Servicing Fees shall be reimbursed to the Master Servicer or any
Sub-Servicer pursuant to Section 3.11(vi). The portions of the recovery so
allocated to interest at the related Net Mortgage Rate and to principal of the
Mortgage Loan shall be applied as follows: first, to reimburse the Trustee for
any unpaid Trustee's Fees, second, to reimburse
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the Master Servicer or any Sub-Servicer for any related unreimbursed Advances in
accordance with Section 3.11(iii) or 3.22, and third, for distribution in
accordance with the provisions of Section 4.01(b) and 4.01(c).
SECTION 3.16. 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 shall be escrowed
in a manner customary for such purposes, the Master Servicer will immediately
notify the Trustee by a certification (which certification shall include a
statement to the effect that all amounts received or to be received in
connection with such payment which are required to be deposited in the Custodial
Account pursuant to Section 3.10 have been or will be so deposited) of a
Servicing Officer and shall request delivery to it of the Mortgage File in the
form of the Request for Release attached hereto as Exhibit F-2. Upon receipt of
such certification and request, the Trustee shall promptly release the related
Mortgage File to the Master Servicer. Subject to the receipt by the Master
Servicer of the proceeds of such payment in full and the payment of all related
fees and expenses, the Master Servicer shall arrange for the release to the
Mortgagor of the original cancelled Mortgage Note. The Master Servicer shall
provide for preparation of the appropriate instrument of satisfaction covering
any Mortgage Loan which pays in full and the Trustee shall cooperate in the
execution and return of such instrument to provide for its delivery or recording
as may be required. All other documents in the Mortgage File shall be retained
by the Master Servicer to the extent required by applicable law. No expenses
incurred in connection with any instrument of satisfac tion or deed of
reconveyance shall be chargeable to the Custodial Account or the Certificate
Account.
From time to time and as appropriate for the servicing or
foreclosure of any Mortgage Loan, including, for this purpose, collection under
the Insurance Instruments or any other insurance policy relating to the Mortgage
Loan, the Trustee shall, upon request of the Master Servicer and delivery to the
Trustee of a Request for Release in the form attached hereto as Exhibit F-1,
release the related Mortgage File to the Master Servicer, and the Trustee shall
execute such documents as the Master Servicer shall prepare and request as being
necessary to the prosecution of any such proceedings. Such Request for Release
shall obligate the Master Servicer to return each document previously requested
from the Mortgage File to the Trustee when the need therefor by the Master
Servicer no longer exists, unless the Mortgage Loan has been liquidated and the
Liquidation Proceeds relating to the Mortgage Loan have been deposited in the
Custodial Account or the Mortgage File or such document has been delivered to an
attorney, or to a public trustee or other public official as required by law,
for purposes of initiating or pursuing legal action or other proceedings for the
foreclosure of the Mortgaged Property either judicially or non-judicially, and
the Master Servicer has delivered to the Trustee a certificate of a Servicing
Officer certifying as to the name and address of the Person to which such
Mortgage File or such document was delivered and the purpose or purposes of such
delivery. Upon receipt of a certificate of a Servicing Officer stating that such
Mortgage Loan was liquidated and that all amounts received or to be received in
connection with such liquidation which are required to be deposited into the
Custodial Account have been or will be so deposited, or that such Mortgage Loan
has become an REO Property, the servicing receipt shall be released by the
Trustee to the Master Servicer.
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Upon written request of a Servicing Officer, the Trustee shall
execute and deliver to the Master Servicer any court pleadings, requests for
trustee's sale or other documents prepared by the Master Servicer that are
necessary to the foreclosure or trustee's sale in respect of a Mortgaged
Property or to any legal action brought to obtain judgment against any Mortgagor
on the Mortgage Note or Mortgage or to obtain a deficiency judgment, or to
enforce any other remedies or rights provided by the Mortgage Note or Mortgage
or otherwise available at law or in equity. Each such request that such
pleadings or documents be executed by the Trustee shall include a certification
as to the reason such documents or pleadings are required and that the execution
and delivery thereof by the Trustee will not invalidate or otherwise affect the
lien of the Mortgage, except for the termination of such a lien upon completion
of the foreclosure or trustee's sale.
SECTION 3.17. Servicing Compensation.
As compensation for its activities hereunder, the Master
Servicer shall be entitled to retain, from deposits to the Custodial Account of
amounts representing payments or recoveries of interest, the Servicing Fees with
respect to each Mortgage Loan (less any portion of such amounts retained by any
Sub-Servicer). In addition, the Master Servicer shall be entitled to recover
unpaid Servicing Fees out of related Late Collections to the extent permitted in
Section 3.11.
The Master Servicer also shall be entitled pursuant to Section
3.11 to receive from the Custodial Account, as additional servicing compensation
interest or other income earned on deposits therein, as well as any prepayment
fees, assumption fees, late payment fees and reconveyance fees. The Master
Servicer shall be required to pay all expenses incurred by it in connection with
its servicing activities hereunder (including payment of the premiums for any
Primary Mortgage Insurance Policy or blanket policy insuring against hazard
losses pursuant to Section 3.13, payment of the servicing compensation of the
Sub-Servicer to the extent not retained by it), and shall not be entitled to
reimbursement therefor except as specifically provided in Section 3.11. The
Servicing Fee may not be transferred in whole or in part except in connection
with the transfer of all of the Master Servicer's responsibilities and
obligations under this Agreement.
SECTION 3.18. Maintenance of Certain Servicing Policies.
During the term of its service as Master Servicer, the Master
Servicer shall maintain in force (i) a policy or policies of insurance covering
errors and omissions in the performance of its obligations as servicer hereunder
and (ii) a fidelity bond in respect of its officers, employees or 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 such corporation. The Master Servicer shall prepare and
present, on behalf of itself, the Trustee and Certificateholders, claims under
any such errors and omissions policy or policies or fidelity bond in a timely
fashion in accordance with the terms of such policy or bond, and upon the filing
of any claim on any policy or bond described in this Section, the Master
Servicer shall
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promptly notify the Trustee of any such claims and the Trustee shall notify the
Rating Agency of such claim.
SECTION 3.19. Annual Statement as to Compliance.
The Master Servicer will deliver to the Trustee and the
Company on or before _____ __ of each year, beginning with _____ __, 199_, an
Officers' Certificate stating, as to each signatory thereof, that (i) a review
of the activities of the Master Servicer during the preceding calendar year and
of its performance under this Agreement has been made under such officers'
supervision, and (ii) to the best of such officers' knowledge, based on such
review, the Master Servicer has fulfilled in all material respects 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 officers and the nature and status thereof. Copies of such
certificate 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 3.20. Annual Independent Public Accountants' Servicing
Statement.
On or before March 31 of each year, beginning with March 31,
19__, the Master Servicer at its expense shall furnish to the Company and the
Trustee a statement from a firm of independent certified public accountants
(which is a member of the American Institute of Certified Public Accountants) to
the effect that, based on an 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 of mortgage
loans under agreements (including this Agreement) substantially similar to each
other was conducted in compliance with such agreements except for such
significant exceptions or errors in record that, in the opinion of the firm, the
Uniform Single Attestation Program for Mortgage Bankers or the Audit Program for
Mortgages serviced for FHLMC requires it to report. In rendering its statement
such firm may rely, as to the matters relating to the direct servicing of
mortgage loans by Sub-servicers, upon comparable statements for examinations
conducted substantially in compliance with the Uniform Single Attestation
Program for Mortgage Bankers or the Audit Program for Mortgages serviced for
FHLMC (rendered within one year of such statement) of firms of independent
public accountants with respect to those Sub-servicers which also have been the
subject of such an examination. 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 3.21. Access to Certain Documentation.
(a) The Master Servicer shall provide to the OTS, the FDIC and
other federal banking regulatory agencies, and their respective examiners,
access to the documentation regarding the Mortgage Loans required by applicable
regulations of the OTS, the FDIC and such other agencies. Such access shall be
afforded without charge, but only upon reasonable and prior written request and
during normal business hours at the offices of the Master Servicer designated
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by it. Nothing in this Section shall derogate from the obligation of the Master
Servicer to observe any applicable law prohibiting disclosure of information
regarding the Mortgagors and the failure of the Master Servicer to provide
access as provided in this Section as a result of such obligation shall not
constitute a breach of this section.
(b) The Master Servicer shall afford the Company and the
Trustee, upon reasonable notice, during normal business hours access to all
records maintained by the Master Servicer in respect of its rights and
obligations hereunder and access to officers of the Master Servicer responsible
for such obligations. Upon request, the Master Servicer shall furnish the
Company and the Trustee with its most recent financial statements and such other
information as the Master Servicer possesses regarding its business, affairs,
property and condition, financial or otherwise to the extent related to the
servicing of the Mortgage Loans. The Company 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 or exercise the 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 Company or its
designee. The Company shall not have any responsibility or liability for any
action or failure to act by the Master Servicer and is not obligated to
supervise the performance of the Master Servicer under this Agreement or
otherwise.
SECTION 3.22. Title, Conservation and Disposition of REO
Property.
This Section shall apply only to REO Properties acquired for
the account of the Trust Fund, and shall not apply to any REO Property relating
to a Mortgage Loan which was purchased or repurchased from the Trust Fund
pursuant to any provision hereof. In the event that title to any such REO
Property is acquired, the deed or certificate of sale shall be issued to the
Trustee, or to its nominee, on behalf of the Certificateholders. The Master
Servicer, on behalf of the Trust Fund, shall either sell any REO Property within
two years after the Trust Fund acquires ownership of such REO Property for
purposes of Section 860G(a)(8) of the Code or, at the expense of the Trust Fund,
request an extension of the two-year grace period, more than 60 days before the
day on which the two-year grace period would otherwise expire, unless the Master
Servicer has delivered to the Trustee an Opinion of Counsel, addressed to the
Trustee and the Master Servicer, to the effect that the holding by the Trust
Fund of such REO Property subsequent to two years after its acquisition will not
result in the imposition on the Trust Fund of taxes on "prohibited transactions"
thereof, as defined in Section 860F of the Code, or cause the Trust Fund to fail
to qualify as a REMIC under federal law at any time that any Certificates are
outstanding. The Master Servicer shall manage, conserve, protect and operate
each REO Property for the Certificateholders solely for the purpose of its
prompt disposition and sale in a manner which does not cause such REO Property
to fail to qualify as "foreclosure property" within the meaning of Section
860G(a)(8) or result in the receipt by the Trust Fund of any "income from
non-permitted assets" within the meaning of Section 860F(a)(2)(B) of the Code or
any "net income from fore closure property" which is subject to taxation under
the REMIC Provisions. 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
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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 segregate and hold all funds
collected and received in connection with the operation of any REO Property
separate and apart from its own funds and general assets. The Master Servicer
shall deposit, or cause to be deposited, on a daily basis in the Custodial
Account all revenues received with respect to the REO Properties, net of any
directly related expenses incurred or withdraw therefrom funds necessary for the
proper operation, management and maintenance of the REO Property.
If as of the date of acquisition of title to any REO Property
there remain outstanding unreimbursed Servicing Advances with respect to such
REO Property or any outstanding Advances allocated thereto the Master Servicer,
upon an REO Disposition, shall be entitled to reimbursement for any related
unreimbursed Servicing Advances and any unreimbursed related Advances as well as
any unpaid Servicing Fees from proceeds received in connection with the REO
Disposition, as further provided in Section 3.15.
Subject to the first paragraph of this Section 3.22, the REO
Disposition shall be carried out by the Master Servicer at such price and upon
such terms and conditions as the Master Servicer shall determine to be in the
best economic interest of the Trust Fund.
Any REO Disposition shall be for cash only (unless changes in
the REMIC Provisions made subsequent to the Startup Day allow a sale for other
consideration).
The Master Servicer shall deposit the proceeds from the REO
Disposition, net of any payment to the Master Servicer as provided above, in the
Custodial Account upon receipt thereof for distribution in accordance with
Section 4.01, including any such net proceeds which are in excess of the
applicable Stated Principal Balance plus all unpaid REO Imputed Interest thereon
through the date of the REO Disposition.
Notwithstanding the foregoing provisions of this Section 3.22,
with respect to any Mortgage Loan as to which the Master Servicer has received
notice of, or has actual knowledge of, the presence of any toxic or hazardous
substance on the Mortgaged Property, the Master Servicer shall promptly request
the Trustee and the Company to provide directions and instructions with respect
to such Mortgage Loan and shall act in accordance with any such directions and
instructions jointly provided by the Trustee and the Company. Notwithstanding
the preceding sentence of this Section 3.22, with respect to any Mortgage Loan
described by such sentence, the Master Servicer shall not, on behalf of the
Trustee, either (i) obtain title to the related Mortgaged Property as a result
of or in lieu of foreclosure or otherwise, or (ii) otherwise acquire possession
of, the related Mortgaged Property, unless (i) the Company and the Trustee
jointly direct the Master Servicer to take such action and (ii) either (A) the
Master Servicer has, at least 30 days prior to taking such action, obtained and
delivered to the Company an environmental audit report prepared by a Person who
regularly conducts environmental audits using customary industry standards or
(B) the Company has directed the Master Servicer not to obtain an environmental
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audit report. If the Trustee and the Company have not jointly provided
directions and instructions to the Master Servicer in connection with any such
Mortgage Loan within 30 days of a request by the Master Servicer for such
directions and instructions, then the Master Servicer shall take such action as
it deems to be in the best economic interest of the Trust Fund (other than
proceeding against the Mortgaged Property) and is hereby authorized at such time
as it deems appropriate to release such Mortgaged Property from the lien of the
related Mortgage.
The cost of the environmental audit report contemplated by
this Section 3.22 shall be advanced by the Master Servicer as an expense of the
Trust Fund, and the Master Servicer shall be reimbursed therefor from the
Custodial Account as provided in Section 3.11, any such right of reimbursement
being prior to the rights of the Certificateholders to receive any amount in the
Custodial Account.
If the Master Servicer determines, as described above, that it
is in the best economic interest of the Trust Fund to take such actions as are
necessary to bring any such Mortgaged Property in compliance with applicable
environmental laws, or to take such action with respect to the containment,
clean-up or remediation of hazardous substances, hazardous materials, hazardous
wastes, or petroleum-based materials affecting any such Mortgaged Property, then
the Master Servicer shall take such action as it deems to be in the best
economic interest of the Trust Fund. The cost of any such compliance,
containment, clean-up or remediation shall be advanced by the Master Servicer as
an expense of the Trust Fund, and the Master Servicer shall be entitled to be
reimbursed therefor from the Custodial Account as provided in Section 3.11, any
such right of reimbursement being prior to the rights of the Certificateholders
to receive any amount in the Custodial Account.
SECTION 3.23. Additional Obligations of the Master Servicer.
On each Certificate Account Deposit Date, the Master Servicer
shall deliver to the Trustee for deposit in the Certificate Account from its own
funds and without any right of reimbursement therefor, a total amount equal to
the aggregate of the Prepayment Interest Shortfalls for such Distribution Date;
provided that the Master Servicer's obligations under this subsection on any
Distribution Date shall not be more than the total amount of its master
servicing compensation payable in such month.
SECTION 3.24. Additional Obligations of the Company.
The Company agrees that on or prior to the tenth day after the
Closing Date, the Company shall provide the Trustee with a written notification,
substantially in the form of Exhibit J attached hereto, relating to each Class
of Certificates, setting forth (i) in the case of each Class of such
Certificates, (a) if less than 10% of the aggregate Certificate Principal
Balance of such Class of Certificates has been sold as of such date, the value
calculated pursuant to clause (b)(iii) of Exhibit J hereto, or, (b) if 10% or
more of such Class of Certificates has been sold as of such date but no single
price is paid for at least 10% of the aggregate Certificate Principal Balance of
such Class of Certificates, then the weighted average price at which the
Certificates of such Class were sold and the aggregate percentage of
Certificates of such Class sold, (c) the first single price
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at which at least 10% of the aggregate Certificate Principal Balance of such
class of Certificates was sold or, (d) if any Certificates of each Class of
Certificates are retained by the Company or an affiliated corporation, or are
delivered to the Seller, the fair market value of such Certificates as of the
Closing Date, (ii) the prepayment assumption used in pricing the Certificates,
and (iii) such other information as to matters of fact as the Trustee may
reasonably request to enable it to comply with its reporting requirements with
respect to each Class of such Certificates to the extent such information can in
the good faith judgment of the Company be determined by it.
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ARTICLE IV
PAYMENTS TO CERTIFICATEHOLDERS
SECTION 4.01. Certificate Account; Distributions.
(a) The Trustee shall establish and maintain a Certificate
Account, in which the Master Servicer shall cause to be deposited on behalf of
the Trustee on or before 3:00 P.M. New York time on each Certificate Account
Deposit Date by wire transfer of immediately available funds an amount equal to
the sum of (i) any Advance for the immediately succeeding Distribution Date,
(ii) any amount required to be deposited in the Certificate Account pursuant to
Sections 3.11, 3.13, 3.23 or 4.03(b) and (iii) all other amounts constituting
or, if not otherwise applicable to the payment of the Trustee's Fee, that would
constitute the Available Distribution Amount for the immediately succeeding
Distribution Date. The Trustee shall transfer from the Certificate Account to
itself, the Trustee's Fee on each Certificate Account Deposit Date. Such amounts
do not constitute part of the Available Distribution Amount.
(b) On each Distribution Date the Trustee shall, distribute to
the Master Servicer, in the case of a distribution pursuant to Section
4.01(b)(iii), and to each Certificateholder of record on the next preceding
Record Date (other than as provided in Section 9.01 respecting the final
distribution) either in immediately available funds (by wire transfer or
otherwise) to the account of such Certificateholder at a bank or other entity
having appropriate facilities therefor, if such Certificateholder has so
notified the Trustee at least 5 Business Days prior to the related Record Date
and such Certificateholder is the registered owner of Certificates the aggregate
Initial Certificate Principal Balance of which is not less than $2,500,000 (or,
with respect to the Class A-5 and Class A-7 Certificates, is the registered
owner of an initial Notional Amount of not less than $10,000,000 of each such
class), or otherwise by check mailed to such Certificateholder at the address of
such Holder appearing in the Certificate Register, such Certificateholder's
share (based on the aggregate of the Percentage Interests represented by
Certificates of the applicable Class held by such Holder) of the following
amounts, in the following order of priority, in each case to the extent of the
Available Distribution Amount:
(i) to the Class A Certificateholders on a pro rata basis
based on Accrued Certificate Interest payable thereon, Accrued
Certificate Interest on such Classes of Certificates for such
Distribution Date and to the extent not previously paid, for all prior
Distribution Dates;
(ii) to the Class A Certificateholders (other than the Class
A-5 Certificateholders and the Class A-7 Certificateholders), in the
priorities and amounts set forth in Sections 4.01(c) and (d), the sum
of the following (applied to reduce the Certificate Principal Balances
of such Class A Certificates, as applicable):
(A) the Senior Percentage for such Distribution Date
times the sum of the following:
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(1) the principal portion of each Monthly
Payment due during the related Due Period on each
Outstanding Mortgage Loan, whether or not received on
or prior to the related Determination Date, minus the
principal portion of any Debt Service Reduction which
together with other Bankruptcy Losses exceeds the
Bankruptcy Amount;
(2) the Stated Principal Balance of any
Mortgage Loan purchased during the related Prepayment
Period and the amount of any shortfall deposited in
the Custodial Account in connection with the
substitution of a Deleted Mortgage Loan pursuant to
Section 2.04 during the related Prepayment Period;
and
(3) the principal portion of all other
unscheduled collections (other than Principal
Prepayments and amounts received in connection with a
Cash Liquidation or REO Disposition) received during
the related Prepayment Period, including, without
limitation, Insurance Proceeds, Liquidation Proceeds
and REO Proceeds, to the extent applied by the Master
Servicer as recoveries of principal of the related
Mortgage Loan pursuant to Section 3.15;
(B) with respect to each Mortgage Loan for which a
Cash Liquidation or a REO Disposition occurred during the related
Prepayment Period and did not result in any Excess Special Hazard
Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary
Losses, an amount equal to the lesser of (a) the Senior Percentage for
such Distribution Date times the Stated Principal Balance of such
Mortgage Loan and (b) the Senior Accelerated Distribution Percentage
for such Distribution Date times the related unscheduled collections
(including without limitation Insurance Proceeds, Liquidation Proceeds
and REO Proceeds) to the extent applied by the Master Servicer as
recoveries of principal of the related Mortgage Loan pursuant to
Section 3.15;
(C) the Senior Accelerated Distribution Percentage
for such Distribution Date times the aggregate of all Principal
Prepayments in Full and Curtailments received in the related Prepayment
Period; and
(D) any amounts described in clauses (A), (B) and (C)
of this Section 4.01(b)(ii), as determined for any previous
Distribution Date, which remain unpaid after application of amounts
previously distributed pursuant to this clause (D) to the extent that
such amounts are not attributable to Realized Losses which have been
allocated to the Class B Certificates;
(iii) if the Certificate Principal Balances of the Class B
Certificates have not been reduced to zero, to the Master Servicer or a
Subservicer, to the extent of and in reimbursement for any Advances
previously made with respect to any Mortgage Loan or REO Property which
remain unreimbursed in whole or in part following the Cash Liquidation
or REO Disposition of such Mortgage Loan or REO Property, minus any
such
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Advances that were made with respect to delinquencies that ultimately
constituted Excess Special Hazard Losses, Excess Fraud Losses, Excess
Bankruptcy Losses or Extraordinary Losses;
(iv) to the Holders of the Class B Certificates, the Accrued
Certificate Interest thereon for such Distribution Date, plus any
Accrued Certificate Interest thereon remaining unpaid from any previous
Distribution Date, except as provided below;
(v) to the Holders of the Class B Certificates, an amount equal
to the Subordinate Principal Distribution Amount for such Class of
Certificates for such Distribution Date, applied in reduction of the
Certificate Principal Balance of the Class B Certificates;
(vi) to the Class A Certificateholders (other than the Class A-5
and Class A-7 Certificateholders) in the priority set forth in Section
4.01(c), the portion, if any, of the Available Distribution Amount
remaining after the foregoing distributions, applied to reduce the
Certificate Principal Balances of such Class A Certificates, but in no
event more than the sum of the outstanding Certificate Principal
Balances of the Class A Certificates (other than the Class A-5 and
Class A-7 Certificates) and thereafter applied to reduce the
Certificate Principal Balance of the Class B Certificates, but in no
event more than the outstanding Certificate Principal Balance of the
Class B Certificates; and
(vii) to the Class R Certificateholders, the balance, if any, of
the Available Distribution Amount.
(c) Distributions of principal on the Class A Certificates
(other than the Class A-5 and Class A-7 Certificates) on each Distribution Date
occurring prior to the occurrence of the Credit Support Depletion Date will be
made as follows:
(i) first, to the Class A-1 Certificates and Class A-6
Certificates, with the amount to be distributed allocated as between
such classes on a pro rata basis, until the Certificate Principal
Balance of each such Class has been reduced to zero;
(ii) second, to the Class A-2 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero;
(iii) third, to the Class A-3 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero; and
(iv) fourth, to the Class A-4 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero.
(d) On each Distribution Date occurring on or after the Credit
Support Depletion Date, all priorities relating to sequential distributions in
respect of principal among the various classes of Senior Certificates will be
disregarded, and the Senior Principal Distribution
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Amount will be distributed to all classes of Senior Certificates pro rata in
accordance with their respective outstanding Certificate Principal Balances;
provided, that the aggregate amount distributable to the Class A-1, Class A-5
and Class A-6 Certificates (the "Tiered Certificates") in respect of Accrued
Certificate Interest thereon and in respect of their pro rata portion of the
Senior Principal Distribution Amount shall be distributed among the Tiered
Certificates in the amounts and priority as follows: first, to the Class A-1
Certificates and the Class A-5 Certificates, up to an amount equal to, and pro
rata based on, the Accrued Certificate Interest thereon; second to the Class A-1
Certificates, up to an amount equal to the Optimal Principal Distribution Amount
thereof, in reduction of the Certificate Principal Balances thereof; third to
the Class A-6 Certificates, up to an amount equal to the Accrued Certificate
Interest thereon; and fourth to the Class A-6 Certificates the remainder of the
amount so distributable among the Tiered Certificates.
(e) The Trustee shall, upon written request from the Master
Servicer, invest or cause the institution maintaining the Certificate Account to
invest the funds in the Certificate Account in Permitted Instruments designated
in the name of the Trustee for the benefit of the Certificateholders, which
shall mature not later than the Business Day next preceding the Distribution
Date next following the date of such investment (except that (i) any investment
in obligations of the institution with which the Certificate Account is
maintained may mature on such Distribution Date and (ii) any other investment
may mature on such Distribution Date if the Trustee shall agree to advance funds
on such Distribution Date to the Certificate Account in the amount payable on
such investment on such Distribution Date, pending receipt thereof to the extent
necessary to make distributions on the Certificates) and shall not be sold or
disposed of prior to maturity. All income and gain realized from any such
investment shall be for the benefit of the Master Servicer and shall be subject
to its withdrawal or order from time to time. The amount of any losses incurred
in respect of any such investments shall be deposited in the Certificate Account
by the Master Servicer out of its own funds immediately as realized without
right of reimbursement.
SECTION 4.02. Statements to Certificateholders.
On each Distribution Date the Trustee shall forward or cause
to be forwarded by mail to each Holder of a Certificate and to the Company and
the Master Servicer a statement as to such distribution setting forth the
following information as to each Class of Certificates to the extent applicable:
(i) (a) the amount of such distribution to the
Certificateholders of such Class applied to reduce the Certificate
Principal Balance thereof, and (b) the aggregate amount included
therein representing Principal Prepayments;
(ii) the amount of such distribution to the Certificateholders
of such Class allocable to interest;
(iii) if the distribution to the Certificateholders of such
Class is less than the full amount that would be distributable to such
Certificateholders if there were sufficient funds available therefor,
the amount of the shortfall;
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(iv) the amount of any Advance by the Master Servicer pursuant to
Section 4.04;
(v) the number and aggregate Stated Principal Balance of the
Mortgage Loans after giving effect to the distribution of principal on
such Distribution Date;
(vi) the aggregate Certificate Principal Balance of each Class of
Certificates, after giving effect to the amounts distributed on such
Distribution Date, separately identifying any reduction thereof due to
Realized Losses other than pursuant to an actual distribution of
principal;
(vii) the related Subordinate Principal Distribution Amount;
(viii) the amount of Servicing Fees paid to the Master Servicer;
(ix) on the basis of the most recent reports furnished to it by
Subservicers, the number and aggregate principal balances of Mortgage
Loans that are delinquent (A) one month, (B) two months and (C) three
months, and the number and aggregate principal balance of Mortgage
Loans that are in foreclosure;
(x) the number, aggregate principal balance and book value of any
REO Properties;
(xi) the aggregate Accrued Certificate Interest remaining unpaid,
if any, for each Class of Certificates, after giving effect to the
distribution made on such Distribution Date;
(xii) the Special Hazard Amount, Fraud Loss Amount and Bankruptcy
Amount as of the close of business on such Distribution Date and a
description of any change in the calculation of such amounts;
(xiii) the Pass-Through Rate on the Class A-7 Certificates for
such Distribution Date;
(xiv) the occurrence of the Credit Support Depletion Date;
(xv) the Senior Accelerated Distribution Percentage applicable to
such distribution;
(xvi) the Senior and Class B Percentages for such Distribution
Date;
(xvii) the aggregate amount of Realized Losses allocated to the
Certificates on such Distribution Date;
(xviii) the aggregate amount of any recoveries on previously
foreclosed loans from the Seller due to a breach of representation or
warranty;
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(xix) the weighted average remaining term to maturity of the
Mortgage Loans after giving effect to the amounts distributed on such
Distribution Date; and
(xx) the weighted average Mortgage Rates of the Mortgage Loans
after giving effect to the amounts distributed on such Distribution
Date.
In the case of information furnished pursuant to subclauses
(i) and (ii) above, the amounts shall also be expressed as a dollar amount per
Single Certificate.
Within a reasonable period of time after the end of each
calendar year, the Trustee shall prepare and forward to each Person who at any
time during the calendar year was a Holder of a Certificate, a statement
containing the information set forth in subclauses (i) and (ii) above,
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 and regulations thereunder as from time to time are in force.
SECTION 4.03. Remittance Reports; Advances by the Master
Servicer.
(a) By 11:00 A.M. New York time the Business Day following
each Determination Date, the Master Servicer shall deliver to the Trustee a
report, prepared as of the close of business on the Determination Date (the
"Determination Date Report"), by telecopy or in a mutually agreeable electronic
format. The Determination Date Report and any written information supplemental
thereto shall include such information with respect to the Mortgage Loans that
is reasonably available to the Master Servicer and that is required by the
Trustee for purposes of making the calculations referred to in the following
paragraph, as set forth in written specifications or guidelines issued by the
Trustee from time to time. Not later than 2:00 P.M. New York time on the
Certificate Account Deposit Date, the Trustee shall furnish by telecopy to the
Master Servicer a statement (the information in such statement to be made
available to Certificateholders or the Company by the Master Servicer on
request) setting forth (i) the Available Distribution Amount, (ii) the amounts
required to be withdrawn from the Custodial Account and deposited into the
Certificate Account on the immediately succeeding Certificate Account Deposit
Date pursuant to clause (iii) of Section 4.01(a); and (iii) such other
information with respect to the Mortgage Loans as the Trustee may reasonably
require to perform the calculations necessary to make the distributions
contemplated by Section 4.01 and to prepare the statements to Certificateholders
contemplated by Section 4.02. The determination by the Trustee of such amounts
shall, in the absence of obvious error, be presumptively deemed to be correct
for all purposes hereunder.
(b) Not later than 2:00 P.M. New York time on the Certificate
Account Deposit Date, the Trustee shall notify the Master Servicer of the
aggregate amount of Advances required to be made for the related Distribution
Date, which shall be the aggregate amount of Monthly Payments (with each
interest portion thereof adjusted to be net of the related Servicing Fee Rate),
less the amount of any related Debt Service Reductions or reductions in the
amount of interest collectable from the Mortgagor pursuant to the Relief Act, on
the Outstanding Mortgage Loans
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as of the related Due Date, which Monthly Payments were delinquent as of the
close of business as of the related Determination Date, provided that following
the reduction of the Certificate Principal Balances of the Class B Certificates
to zero no Advance shall be made if it would be a Nonrecoverable Advance. On or
before 3:00 P.M. New York time on each Certificate Account Deposit Date, the
Master Servicer shall either (i) deposit in the Certificate Account from its own
funds, or funds received therefor from the Sub-Servicers, an amount equal to the
Advances to be made by the Master Servicer in respect of the related
Distribution Date, (ii) withdraw from amounts on deposit in the Custodial
Account and deposit in the Certificate Account all or a portion of the amounts
held for future distribution in discharge of any such Advance, or (iii) make
advances in the form of any combination of (i) and (ii) aggregating the amount
of such Advance. Any portion of the amounts held for future distribution so used
shall be replaced by the Master Servicer by deposit in the Custodial Account on
or before 12:00 P.M. New York time on any future Certificate Account Deposit
Date to the extent that funds attributable to the Mortgage Loans that are
available in the Custodial Account for deposit in the Certificate Account on
such Certificate Account Deposit Date shall be less than payments to
Certificateholders required to be made on the following Distribution Date. The
amount of any reimbursement pursuant to Section 4.01(b)(iii) in respect of
outstanding Advances on any Distribution Date shall be allocated to specific
Monthly Payments due but delinquent for previous Due Periods, which allocation
shall be made, to the extent practicable, to Monthly Payments which have been
delinquent for the longest period of time. Such allocations shall be conclusive
for purposes of reimbursement to the Master Servicer from recoveries on the
Mortgage Loans pursuant to Section 3.11. The determination by the Master
Servicer that it has made a Nonrecoverable Advance or that any proposed Advance,
if made, would constitute a Nonrecoverable Advance, shall be evidenced by a
certificate of a Servicing Officer delivered to the Seller and the Trustee. The
Trustee shall deposit all funds it receives pursuant to this Section 4.03 into
the Certificate Account.
(c) In the event that the Master Servicer determines on the
Certificate Account Deposit Date that it will be unable to deposit in the
Certificate Account an amount equal to the Advance required to be made for the
immediately succeeding Distribution Date in the amount determined by the Trustee
pursuant to paragraph (b) above, it shall give notice to the Trustee of its
inability to advance (such notice may be given by telecopy), not later than 3:00
P.M., New York time, on such Business Day, specifying the portion of such amount
that it will be unable to deposit. If the Master Servicer shall have determined
that it is not obligated to make the entire Advance because all or a lesser
portion of such Advance would not be recoverable from Insurance Proceeds,
Liquidation Proceeds or otherwise, the Master Servicer shall promptly deliver to
the Trustee for the benefit of the Certificateholders an Officer's Certificate
setting forth the reasons for the Master Servicer's determination. Not later
than 5:00 P.M., New York time, on the Certificate Account Deposit Date, unless
by such time the Master Servicer shall have directly or indirectly deposited in
the Certificate Account the entire amount of the Advances required to be made
for the related Distribution Date, pursuant to Section 7.01, the Trustee shall
(a) terminate all of the rights and obligations of the Master Servicer under
this Agreement in accordance with Section 7.01 and (b) assume the rights and
obligations of the Master Servicer hereunder, including the obligation to
deposit in the Certificate Account an amount equal to the Advance for the
immediately succeeding Distribution Date.
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SECTION 4.04. Allocation of Realized Losses.
Prior to each Distribution Date, the Master Servicer shall
determine the total amount of Realized Losses, if any, that resulted from any
Cash Liquidation, Debt Service Reduction, Deficient Valuation or REO Disposition
that occurred during the related Prepayment Period. The amount of each Realized
Loss shall be evidenced by an Officers' Certificate by the Master Servicer.
Realized Losses shall be allocated among the various Classes of Certificates as
determined by the Trustee in accordance with the following provisions. All
Realized Losses, other than Excess Special Hazard Losses, Excess Bankruptcy
Losses, Excess Fraud Losses or Extraordinary Losses shall be allocated as
follows: first, to the Class B Certificates until the Certificate Principal
Balance thereof has been reduced to zero; and second, among all the Class A
Certificates as described below. Any Excess Special Hazard Losses, Excess
Bankruptcy Losses, Excess Fraud Losses and Extraordinary Losses on Mortgage
Loans will be allocated among the Class A and Class B Certificates on a pro rata
basis, as described below. As used herein, an allocation of a Realized Loss on a
"pro rata basis" among two or more specified Classes of Certificates means an
allocation on a pro rata basis, without priority among the various Classes so
specified, to each such Class of Certificates on the basis of the then
outstanding Certificate Principal Balances thereof in the case of the principal
portion of a Realized Loss or based on the Accrued Certificate Interest thereon
in the case of an interest portion of a Realized Loss. Allocations of Realized
Losses which are Default Losses to the Class A Certificates will be made on a
pro rata basis, based on their then outstanding Certificate Principal Balances,
or the Accrued Certificate Interest thereon, as applicable, between the Class
A-1, Class A-5 and Class A-6 Certificates, on the one hand, and the Class A-2,
Class A-3, Class A-4 and Variable Strip Certificates, on the other. Any such
Realized Losses so allocated to the Class A-1, Class A-5 and Class A-6
Certificates will be allocated first to the Class A-6 Certificates until the
Certificate Principal Balance thereof or the Accrued Certificate Interest
thereon, as appropriate, is reduced to zero and then to the Class A-1 and Class
A-5 Certificates on a pro rata basis. Any allocation of the principal portion of
Realized Losses (other than Debt Service Reductions) to a Class A Certificate
shall be made by reducing the Certificate Principal Balance thereof by the
amount so allocated, which allocation shall be deemed to have occurred at the
close of business on such Distribution Date. Any allocation of the principal
portion of Realized Losses (other than Debt Service Reductions) to the Class B
Certificates, shall be made by operation of the definition of "Certificate
Principal Balance" and by operation of the provisions of Section 4.01(b).
Allocations of the interest portions of Realized Losses shall be made by
operation of the definition of "Accrued Certificate Interest" and by operation
of the provisions of Section 4.01(b) or 4.01(d), as applicable. Allocations of
the principal portion of Debt Service Reductions shall be made by operation of
the provisions of Section 4.01(b) or 4.01(d), as applicable. All Realized Losses
and all other losses allocated to a Class of Certificates under this Section
4.04 will be allocated among the Certificates of such Class in proportion to the
Percentage Interests evidenced thereby.
SECTION 4.05. Information Reports to be Filed by the Master
Servicer.
The Master Servicer or the Sub-Servicers shall file the
information returns with respect to the receipt of mortgage interest received in
a trade or business, reports of foreclosures and abandonments of any Mortgaged
Property and the information returns relating to cancellation
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of indebtedness income with respect to any Mortgaged Property required by
Sections 6050H, 6050J and 6050P of the Code, respectively, and deliver to the
Trustee an Officers' Certificate stating that such reports have been filed. Such
reports shall be in form and substance sufficient to meet the reporting
requirements imposed by such Sections 6050H, 6050J and 6050P of the Code.
SECTION 4.06. Compliance with Withholding Requirements.
Notwithstanding any other provision of this Agreement, the
Trustee shall comply with all federal withholding requirements respecting
payments to Certificateholders of interest or original issue discount on the
Mortgage Loans, and payments of interest or discount on amounts invested by the
Trustee as agent for Certificateholders pursuant to an election made under
Section 4.01 hereof, that the Trustee reasonably believes are applicable under
the Code. The consent of Certificateholders shall not be required for such
withholding. In the event the Trustee withholds any amount from interest or
original issue discount payments or advances thereof to any Certificateholder
pursuant to federal withholding requirements, the Trustee shall, together with
its monthly report to such Certificateholders pursuant to Section 4.02 hereof,
indicate such amount withheld.
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ARTICLE V
THE CERTIFICATES
SECTION 5.01 The Certificates.
The Certificates will be substantially in the respective forms
annexed hereto as Exhibits A-1, A-2 and B. The Certificates will be issuable in
registered form only. The Class A Certificates, other than the Class A-5 and
Class A-7 Certificates, shall be issuable in minimum dollar denominations of
$1,000 and integral multiples of $1 in excess thereof, except that one
Certificate of each Class of Class A Certificates may be issued in an amount
such that the denomination of such Certificate and the aggregate denomination of
all other outstanding Certificates of such Class together equal the aggregate
Certificate Principal Balance of such Class. The Class B Certificates shall be
issuable in minimum dollar denominations of $25,000 and integral multiples of $1
in excess thereof, except that one Certificate of such Class may be issued in an
amount such that the denomination of such Certificate and the aggregate
denomination of all other outstanding Certificates of such Class together equal
the aggregate Certificate Principal Balance of such Class. The Class A-5 and
Class A-7 Certificates shall be issuable in minimum Notional Amounts of $1,000
and integral multiples of $1 in excess thereof, except that one Certificate of
each such Class may be issued in an amount such that the denomination of such
Certificate and the aggregate denomination of all other outstanding Certificates
of such Class together equal the aggregate Notional Amount of such Class. The
Class R Certificates will each be issuable in minimum denominations of any
Percentage Interest representing 20% and integral multiples of 0.01% in excess
thereof, provided, however, that one Class R Certificate may be issued to the
"tax matters person" pursuant to Article X, in a minimum denomination
representing a Percentage Interest of not less than 0.01%.
Upon original issue, the Certificates shall, upon the written
request of the Company executed by an officer of the Company, be executed and
delivered by the Trustee, authenticated by the Trustee and delivered to or upon
the order of the Company upon receipt by the Trustee of the documents specified
in Section 2.01. The Certificates shall be executed by manual or facsimile
signature on behalf of the Trustee in its capacity as trustee hereunder by a
Responsible Officer. Certificates bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Trustee shall bind
the Trustee, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Certificates
or did not hold such offices at the date of such Certificates. No Certificate
shall be entitled to any benefit under this Agreement, or be valid for any
purpose, unless there appears on such Certificate a certificate of
authentication substantially in the form provided for herein executed by the
Trustee by manual signature, and such certificate upon any Certificate shall be
conclusive evidence, and the only evidence, that such Certificate has been duly
authenticated and delivered hereunder. All Certificates issued on the Closing
Date shall be dated the Closing Date and any Certificates delivered thereafter
shall be dated the date of their authentication.
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SECTION 5.02. Registration of Transfer and Exchange of
Certificates.
The Trustee shall maintain a Certificate Register in which,
subject to such reasonable regulations as it may prescribe, the Trustee shall
provide for the registration of Certif icates and of transfers and exchanges of
Certificates as herein provided.
No transfer, sale, pledge or other disposition of a Class B or
a Class R Certificate shall be made unless such transfer, sale, pledge or other
disposition is exempt from the registration requirements of the Securities Act
of 1933, as amended (the "Act"), and any applicable state securities laws or is
made in accordance with said Act and laws. In the event that a transfer of a
Class B or Class R Certificate is to be made (i) the Depositor may direct the
Trustee to require a written Opinion of Counsel acceptable to and in form and
substance satisfactory to the Trustee and the Depositor that such transfer shall
be made pursuant to an exemption, describing the applicable exemption and the
basis therefor, from said Act and laws or is being made pursuant to said Act and
laws, which Opinion of Counsel shall not be an expense of the Trustee, the
Depositor or the Master Servicer, provided that such Opinion of Counsel will not
be required in connection with the initial transfer of any such Certificate by
the Depositor or any affiliate thereof, to a non-affiliate of the Depositor and
(ii) the Trustee shall require the transferee to execute a representation
letter, substantially in the form of Exhibit G-1 hereto, and the Trustee shall
require the transferor to execute a representation letter, substantially in the
form of Exhibit G-2 hereto, each acceptable to and in form and substance
satisfactory to the Depositor and the Trustee certifying to the Depositor and
the Trustee the facts surrounding such transfer, which representation letters
shall not be an expense of the Trustee, the Depositor or the Master Servicer.
Any such Certificate holder desiring to effect such transfer shall, and does
hereby agree to, indemnify the Trustee, the Depositor and the Master Servicer
against any liability that may result if the transfer is not so exempt or is not
made in accordance with such applicable federal and state laws.
The Trustee shall require a written Opinion of Counsel from a
prospective transferee prior to the transfer of any Class B or Class R
Certificate to any employee benefit plan or other retirement arrangement,
including individual retirement accounts and Keogh plans, that is subject to
Section 406 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") or Section 4975 of the Code (any of the foregoing, a "Plan"), to a
trustee or other Person acting on behalf of any Plan, or to any other person who
is using "plan assets" of any Plan to effect such acquisition (including any
insurance company using funds in its general or separate accounts that may
constitute "plan assets"). Such Opinion of Counsel must establish to the
satisfaction of the Depositor and the Trustee or the Certificate Registrar that
such disposition will not violate the prohibited transaction provisions of
Section 406 of ERISA and Section 4975 of the Code. Neither the Depositor, the
Master Servicer nor the Trustee will be required to obtain such Opinion of
Counsel on behalf of any prospective transferee. In the case of any transfer of
the foregoing Certificates to an insurance company, in lieu of such Opinion of
Counsel, the Trustee shall require a certification in the form of Exhibit G-5
hereto substantially to the effect that all funds used by such transferee to
purchase such Certificates will be funds held by it in its general account which
it reasonably believes do not constitute "plan assets" of any Plan (as defined
above). The permission of any transfer in violation of the restriction on
transfer set forth in this paragraph shall not constitute a default or an Event
of Default.
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(i) Each Person who has or who acquires any Ownership Interest
in a Class R Certificate shall be deemed by the acceptance or acquisition of
such Ownership Interest to have agreed to be bound by the following provisions
and to have irrevocably authorized the Trustee or its designee under clause
(iii)(A) below to deliver payments to a Person other than such Person and to
negotiate the terms of any mandatory sale under clause (iii)(B) below and to
execute all instruments of transfer and to do all other things necessary in
connection with any such sale. The rights of each Person acquiring any Ownership
Interest in a Class R Certificate are expressly subject to the following
provisions:
(A) Each Person holding or acquiring any Ownership Interest in
a Class R Certificate shall be a Permitted Transferee and shall
promptly notify the Trustee of any change or impending change in its
status as a Permitted Transferee.
(B) In connection with any proposed transfer of any Ownership
Interest in a Class R Certificate, the Trustee shall require delivery
to it, and shall not register the transfer of any Class R Certificate
until its receipt of (I) an affidavit and agreement (a "Transfer
Affidavit and Agreement" in the form attached hereto as Exhibit G-3)
from the proposed Transferee, in form and substance satisfactory to the
Master Servicer and the Trustee representing and warranting, among
other things, that it is a Permitted Transferee, that it is not
acquiring its Ownership Interest in the Class R Certificate that is the
subject of the proposed Transfer as a nominee, trustee or agent for any
Person who is not a Permitted Transferee, that for so long as it
retains its Ownership Interest in a Class R Certificate, it will
endeavor to remain a Permitted Transferee, and that it has reviewed the
provisions of this Section 5.02 and agrees to be bound by them, and
(II) a certificate, in the form attached hereto as Exhibit G-4, from
the Holder wishing to transfer the Class R Certificate, in form and
substance satisfactory to the Master Servicer and the Trustee
representing and warranting, among other things, that no purpose of the
proposed Transfer is to impede the assessment or collection of tax.
(C) Notwithstanding the delivery of a Transfer Affidavit and
Agreement by a proposed Transferee under clause (B) above, if a
Responsible Officer of the Trustee assigned to this transaction has
actual knowledge that the proposed Transferee is not a Permitted
Transferee, no Transfer of an Ownership Interest in a Class R
Certificate to such proposed Transferee shall be effected.
(D) Each Person holding or acquiring any Ownership Interest in
a Class R Certificate shall agree (x) to require a Transfer Affidavit
and Agreement from any other Person to whom such Person attempts to
transfer its Ownership Interest in a Class R Certificate and (y) not to
transfer its Ownership Interest unless it provides a certificate to the
Trustee in the form attached hereto as Exhibit G-4.
(E) Each Person holding or acquiring an Ownership Interest in
a Class R Certificate, by purchasing an Ownership Interest in such
Certificate, agrees to give the Trustee written notice that it is a
"pass-through interest holder" within the meaning of
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Temporary Treasury Regulations Section 1.67-3T(a)(2)(i)(A) immediately
upon acquiring an Ownership Interest in a Class R Certificate, if it is
"a pass-through interest holder", or is holding an Ownership Interest
in a Class R Certificate on behalf of a "pass-through interest holder."
(ii) The Trustee will register the Transfer of any Class R
Certificate only if it shall have received the Transfer Affidavit and Agreement
in the form attached hereto as Exhibit G-3, a certificate of the holder
requesting such transfer in the form attached hereto as Exhibit G-4 and all of
such other documents as shall have been reasonably required by the Trustee as a
condition to such registration. Transfers of the Class R Certificates to
Non-United States Persons and Disqualified Organizations are prohibited.
(iii) (a) If any Disqualified Organization shall become a
holder of a Class R Certificate, then the last preceding Permitted Transferee
shall be restored, to the extent permitted by law, to all rights and obligations
as holder thereof retroactive to the date of registration of such Transfer of
such Class R Certificate. If a Non-United States Person shall become a holder of
a Class R Certificate, then the last preceding United States Person shall be
restored, to the extent permitted by law, to all rights and obligations as
holder thereof retroactive to the date of registration of such Transfer of such
Class R Certificate. If a transfer of a Class R Certificate is disregarded
pursuant to the provisions of Treasury Regulations Section 1.860E-1 or Section
1.860G-3, then the last preceding Permitted Transferee shall be restored, to the
extent permitted by law, to all rights and obligations as holder thereof
retroactive to the date of registration of such Transfer of such Class R
Certificate. The Trustee shall be under no liability to any Person for any
registration of Transfer of a Class R Certificate that is in fact not permitted
by this Section 5.02 or for making any payments due on such Certificate to the
holder thereof or for taking any other action with respect to such holder under
the provisions of this Agreement.
(b) If any purported Transferee shall become a holder
of a Class R Certificate in violation of the restrictions in this Section 5.02
and to the extent that the retroactive restoration of the rights of the holder
of such Class R Certificate as described in clause (iii)(a) above shall be
invalid, illegal or unenforceable, then the Trustee shall have the right,
without notice to the holder or any prior holder of such Class R Certificate, to
sell such Class R Certificate to a purchaser selected by the Trustee on such
terms as the Trustee may choose. Such purported Transferee shall promptly
endorse and deliver each Class R Certificate in accordance with the instructions
of the Trustee. Such purchaser may be the Trustee itself. The proceeds of such
sale, net of the commissions (which may include commissions payable to the
Trustee), expenses and taxes due, if any, will be remitted by the Trustee to
such purported Transferee. The terms and conditions of any sale under this
clause (iii)(b) shall be determined in the sole discretion of the Trustee, and
the Trustee shall not be liable to any Person having an Ownership Interest in a
Class R Certificate as a result of its exercise of such discretion.
(iv) The Trustee shall make available to the Internal Revenue
Service and those Persons specified by the REMIC Provisions, all information
necessary to compute any tax imposed (A) as a result of the transfer of an
ownership interest in a Class R Certificate to any Person who is a Disqualified
Organization, including the information regarding "excess inclusions" of such
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Class R Certificates required to be provided to the Internal Revenue Service and
certain Persons as described in Treasury Regulations Sections 1.860D-1(b)(5) and
1.860E-2(a)(5), and (B) as a result of any regulated investment company, real
estate investment trust, common trust fund, partnership, trust, estate or
organization described in Section 1381 of the Code that holds an Ownership
Interest in a Class R Certificate having as among its record holders at any time
any Person who is a Disqualified Organization. The Trustee may charge and shall
be entitled to reasonable compensation for providing such information as may be
required from those Persons which may have had a tax imposed upon them as
specified in clauses (A) and (B) of this paragraph for providing such
information.
Subject to the preceding paragraphs, upon surrender for
registration of transfer of any Certificate at the office of the Trustee
maintained for such purpose, the Trustee shall execute and the Trustee or the
Authenticating Agent shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Certificates of the same
Class of a like aggregate initial Certificate Principal Balance. Every
Certificate surrendered for transfer shall be accompanied by notification of the
account of the designated transferee or transferees for the purpose of receiving
distributions pursuant to Section 4.01 by wire transfer, if any such transferee
desires and is eligible for distribution by wire transfer.
At the option of the Certificateholders, Certificates may be
exchanged for other Certificates of authorized denominations of the same Class
of a like aggregate initial Certificate Principal Balance, upon surrender of the
Certificates to be exchanged at the office of the Certificate Registrar.
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 transfer or exchange shall (if so required by the Trustee or the
Certificate Registrar) be duly endorsed by, or be accompanied by a written
instrument of transfer in the form satisfactory to the Trustee or the
Certificate Registrar duly executed by, the Holder thereof or his attorney duly
authorized in writing.
No service charge shall be made to the Certificateholders for
any transfer or exchange of Certificates, but the Trustee may require payment of
a sum sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certi ficates.
All Certificates surrendered for transfer and exchange shall
be canceled and retained by the Trustee in accordance with the Trustee's
standard procedures.
SECTION 5.03. Mutilated, Destroyed, Lost or Stolen
Certificates.
If (i) any mutilated Certificate is surrendered to the Trustee
and the Trustee receives evidence to its satisfaction of the destruction, loss
or theft of any Certificate, and (ii) there is delivered to the Trustee such
security or indemnity as may be required by it to save it harmless, then, in the
absence of notice to the Trustee that such Certificate has been acquired by a
bona fide purchaser, the Trustee shall execute, authenticate and deliver, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Certificate, a new Certificate of the same Class and initial
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Certificate Principal Balance. Upon the issuance of any new Certificate under
this Section, 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 shall
constitute complete and indefeasible evidence of ownership in the Trust Fund, 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 Company, the Master Servicer, the Trustee and any agent of
any of them may treat the person in whose name any Certificate is registered as
the owner of such Certificate for the purpose of receiving distributions
pursuant to Section 4.01 and for all other purposes whatsoever, and neither the
Company, the Master Servicer, the Trustee nor any agent of any of them shall be
affected by notice to the contrary.
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ARTICLE VI
THE COMPANY AND THE MASTER SERVICER
SECTION 6.01. Liability of the Company and the Master
Servicer.
The Company and the Master Servicer each shall be liable in
accordance herewith only to the extent of the obligations specifically imposed
upon and undertaken by the Company and the Master Servicer herein.
SECTION 6.02. Merger, Consolidation or Conversion of the
Company or the Master Servicer.
The Company and the Master Servicer each will keep in full
effect its existence, rights and franchises as a corporation under the laws of
the state of its incorporation, and each will 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, the Certificates or any of the Mortgage Loans
and to perform its respective duties under this Agreement; and provided further
that the Rating Agencies' ratings of the Class A Certificates immediately prior
to such merger or consolidation will not be qualified, reduced or withdrawn as a
result thereof (as evidenced by a letter to such effect from the Rating
Agencies).
Any Person into which the Company or the Master Servicer may
be merged, consolidated or converted, or any corporation resulting from any
merger or consolidation to which the Company or the Master Servicer shall be a
party, or any Person succeeding to the business of the Company or the Master
Servicer, shall be the successor of the Company 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
service mortgage loans for FNMA or FHLMC.
SECTION 6.03. Limitation on Liability of the Company, the
Master Servicer and Others.
Neither the Company, the Master Servicer nor any of the
directors, officers, employees or agents of the Company or the Master Servicer
shall be under any liability to the Trust Fund or the Certificateholders for any
action taken or for refraining from the taking of any action in good faith
pursuant to this Agreement, or for errors in judgment; provided, however, that
this provision shall not protect the Company or the Master Servicer (but this
provision shall protect the above described persons) against any breach of
warranties or representations made herein, or against any specific liability
imposed on the Master Servicer pursuant to Section 3.01 or any other Section
hereof; and provided further that this provision shall not protect the Company,
the Master Servicer or any such person, against any liability which would
otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance of
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duties or by reason of reckless disregard of obligations and duties hereunder.
The Company, the Master Servicer and any director, officer, employee or agent of
the Company or the Master Servicer may rely in good faith on any document of any
kind PRIMA FACIE properly executed and submitted by any Person respecting any
matters arising hereunder. The Company, the Master Servicer and any director,
officer, employee or agent of the Company or the Master Servicer shall be
indemnified and held harmless by the Trust Fund against any loss, liability or
expense incurred in connection with any legal action relating to this Agreement
or the Certificates, other than any loss, liability or expense related to Master
Servicer's servicing obligations with respect to any specific Mortgage Loan or
Mortgage Loans (except as any such loss, liability or expense shall be otherwise
reimbursable pursuant to this Agreement) or related to the Master Servicer's
obligations under Section 3.01, or any loss, liability or expense incurred by
reason of willful misfeasance, bad faith or gross negligence in the performance
of duties hereunder or by reason of reckless disregard of obligations and duties
hereunder. Neither the Company nor the Master Servicer shall be under any
obligation to appear in, prosecute or defend any legal action which is not
incidental to its respective duties under this Agreement and which in its
opinion may involve it in any expense or liability; provided, however, that the
Company or the Master Servicer may in its sole discretion undertake any such
action which it may deem necessary or desirable with respect to this Agreement
and the rights and duties of the parties hereto and the interests of the
Certificateholders hereunder. In such event, the legal expenses and costs of
such action and any liability resulting therefrom (except any action or
liability related to the Master Servicer's obligations under Section 3.01) shall
be expenses, costs and liabilities of the Trust Fund, and the Company and the
Master Servicer shall be entitled to be reimbursed therefor from the Certificate
Account as provided in Section 3.11, any such right of reimbursement being prior
to the rights of Certificateholders to receive any amount in the Certificate
Account.
SECTION 6.04. Limitation on Resignation of the Master
Servicer.
The Master Servicer shall not resign from the obligations and
duties hereby imposed on it except (a) upon appointment of a successor servicer
reasonably acceptable to the Trustee and upon receipt by the Trustee of a letter
from each Rating Agency that such a resignation and appointment will not, in and
of itself, result in a downgrading of the Certificates or (b) upon determination
that its duties hereunder are no longer permissible under applicable law (any
such determination permitting the resignation of the Master Servicer to be
evidenced by an Opinion of Counsel (at the expense of the resigning Master
Servicer) to such effect delivered to the Trustee). No such resignation shall
become effective until the Trustee or a successor 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 remit to the Trustee
for distribution to the Certificateholders any payment (other than an
Advance) required to be made under the terms of the Certificates or
this Agreement which continues unremedied for a period of one day after
the date upon which written notice of such failure, requiring the same
to be remedied, shall have been given to the Master Servicer by the
Company (with a copy to the Trustee) or the Trustee, or to the Master
Servicer, the Company and the Trustee by the Holders of Certificates
entitled to at least 25% of the Voting Rights; or
(ii) any failure on the part of the Master Servicer duly to
observe or perform in any material respect any other of the covenants
or agreements on the part of the Master Servicer contained in the
Certificates or in this Agreement (including any breach of the Master
Servicer's representations and warranties pursuant to Section 2.03(a)
which materially and adversely affects the interests of the
Certificateholders) which continues unremedied for a period of 30 days
after the date on which written notice of such failure, requiring the
same to be remedied, shall have been given to the Master Servicer by
the Company (with a copy to the Trustee) or the Trustee, or to the
Master Servicer, the Company and the Trustee by the Holders of
Certificates entitled to at least 25% of the Voting Rights; or
(iii) a decree or order of a court or agency or supervisory
authority having jurisdiction in an involuntary case under any present
or future federal or state bankruptcy, insolvency or similar law or the
appointment of a conservator or receiver or liquidator in any
insolvency, readjustment of debt, marshalling of assets and liabilities
or similar proceedings, or for the winding-up or liquidation of its
affairs, shall have been entered against the Master Servicer and such
decree or order shall have remained in force undischarged or unstayed
for a period of 60 consecutive days; or
(iv) the Master Servicer shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment
of debt, marshalling of assets and liabilities or similar proceedings
of or relating to the Master Servicer or of or relating to all or
substantially all of its property; 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 otherwise voluntarily commence a case or proceeding
under any applicable bankruptcy, insolvency, reorganization or other
similar statute, make an assignment for the benefit of its creditors,
or voluntarily suspend payment of its obligations; or
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(vi) the Master Servicer shall fail to deposit in the Certificate
Account on any Certificate Account Deposit Date an amount equal to any
required Advance.
If the Master Servicer shall fail to make any deposit in the Certificate Account
as required by Section 4.01, the Trustee shall give the Master Servicer notice
pursuant to clause (i) not later than the Business Day following the Certificate
Account Deposit Date. If an Event of Default described in clauses (i) - (v) of
this Section shall occur, then, and in each and every such case, so long as such
Event of Default shall not have been remedied, the Company or the Trustee may,
and at the direction of the Holders of Certificates entitled to at least 51% of
the Voting Rights, the Trustee shall, by notice to the Master Servicer (and to
the Company if given by the Trustee or to the Trustee if given by the Company)
terminate all of the rights and obligations of the Master Servicer under this
Agreement and in and to the Trust Fund, other than its rights as a
Certificateholder hereunder and the Company, terminate all of the rights and
obligations of the Master Servicer under this Agreement and in and to the Trust
Fund, other than its rights as a Certificateholder hereunder. If an Event of
Default described in clause (vi) hereof shall occur, the Trustee shall, by
notice to the Master Servicer and the Company, terminate all of the rights and
obligations of the Master Servicer under this Agreement and in and to the Trust
Fund, other than its rights as a Certificateholder hereunder. On or after the
receipt by the Master Servicer of such notice, all authority and power of the
Master Servicer under this Agreement, whether with respect to the Certificates
(other than as a holder thereof) or the Mortgage Loans or otherwise, shall pass
to and be vested in the Trustee pursuant to and under this Section, and, without
limitation, the Trustee is hereby authorized and empowered to execute and
deliver, on behalf of the Master Ser vicer, 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. The Master Servicer
agrees to cooperate with the Trustee in effecting the termination of the Master
Servicer's responsibilities and rights hereunder, including, without limitation,
the transfer to the Trustee or its appointed agent for administration by it of
all cash amounts which shall at the time be deposited by the Master Servicer or
should have been deposited to the Custodial or the Certificate Account or
thereafter be received with respect to the Mortgage Loans. The Trustee shall not
be deemed to have breached any obligation hereunder as a result of a failure to
make or delay in making any distribution as and when required hereunder caused
by the failure of the Master Servicer to remit any amounts received on it or to
deliver any documents held by it with respect to the Mortgage Loans. For
purposes of this Section 7.01, the Trustee shall not be deemed to have knowledge
of an Event of Default unless a Responsible Officer of the Trustee assigned to
and working in the Trustee's Corporate Trust Division has actual knowledge
thereof or unless notice of any event which is in fact such an Event of Default
is received by the Trustee and such notice references the Certificates, the
Trust Fund or this Agreement.
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, the Trustee or its appointed agent shall
be the successor in all respects to the Master Servicer in its capacity as
Master Servicer under this Agreement and the transactions set
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forth or provided for herein and shall be subject thereafter to all the
responsibilities, duties and liabilities relating thereto placed on the Master
Servicer including the obligation to make Advances which have been or will be
required to be made (except for the responsibilities, duties and liabilities
contained in Section 2.03 and its obligations to deposit amounts in respect of
losses incurred prior to the date of succession pursuant to Section 3.12 and
4.01(e)) by the terms and provisions hereof; and provided further, that any
failure to perform such duties or responsibilities caused by the Master
Servicer's failure to provide information required by Section 4.03 shall not be
considered a default by the Trustee hereunder. As compensation therefor, the
Trustee shall be entitled to all funds relating to the Mortgage Loans which the
Master Servicer would have been entitled to charge to the Custodial Account and
the Certificate Account if the Master Servicer had continued to act hereunder.
Notwithstanding the above, the Trustee may, if it shall be unwilling to so act,
or shall, if it is unable to so act or if the Holders of Certificates entitled
to at least 51% of the Voting Rights so request in writing to the Trustee,
appoint, or petition a court of competent jurisdiction to appoint, any FNMA- or
FHLMC-approved mortgage servicing institution having a net worth of not less
than $10,000,000 as the successor to the Master Servicer hereunder in the
assumption of all or any part of the responsibilities, duties or liabilities of
the Master Servicer hereunder. Pending appointment of a successor to the Master
Servicer hereunder, the Trustee shall act in such capacity as hereinabove
provided. In connection with such appointment and assumption, the Trustee may
make such arrangements for the compensation of such successor out of payments on
Mortgage Loans as it and such successor shall agree; provided, however, that no
such compensation shall be in excess of that permitted the Master Servicer
hereunder. The Trust ee and such successor shall take such action, consistent
with this Agreement, as shall be necessary to effectuate any such succession;
provided, however, that such succession shall not reduce the ratings of the
Certificates below the original ratings thereof.
Any successor, including the Trustee, to the Master Servicer
shall maintain in force during its term as master servicer hereunder the
Insurance Policies and fidelity bonds to the same extent as the Master Servicer
is so required pursuant to Sections 3.13 and 3.18.
SECTION 7.03. Notification to Certificateholders.
(a) Upon any such termination or appointment of a successor to
the Master Servicer, the Trustee shall give prompt notice thereof to
Certificateholders.
(b) Within 60 days after the occurrence of any Event of
Default, the Trustee shall transmit by mail to all Holders of Certificates
notice of each such Event of Default hereunder known to the Trustee, unless such
Event of Default shall have been cured or waived.
SECTION 7.04. Waiver of Events of Default.
The Holders representing at least 66% of the Voting Rights of
Certificates affected by a default or Event of Default hereunder, may waive such
default or Event of Default (other than an Event of Default set forth in Section
7.01(vi); PROVIDED, HOWEVER, that (a) a default or Event of Default under clause
(i) of Section 7.01 may be waived only by all of the Holders of Certificates
affected by such default or Event of Default and (b) no waiver pursuant to this
Section 7.04 shall
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affect the Holders of Certificates in the manner set forth in the second
paragraph of Section 11.01 or materially adversely affect any non-consenting
Certificateholder. Upon any such waiver of a default or Event of Default by the
Holders representing the requisite percentage of Voting Rights of Certificates
affected by such default or Event of Default, such default or Event of Default
shall cease to exist and shall be deemed to have been remedied for every purpose
hereunder. No such waiver shall extend to any subsequent or other default or
Event of Default or impair any right consequent thereon except to the extent
expressly so 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 which may have occurred,
undertakes to perform such duties and only such duties as are specifically set
forth in this Agreement. If an Event of Default occurs and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Agreement, and use the same degree of care and skill in their exercise as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs. Any permissive right of the Trustee enumerated in this Agreement
shall not be construed as a duty.
The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to deter mine whether they
conform to the requirements of this Agreement. If any such instrument is found
not to conform to the requirements of this Agreement in a material manner, the
Trustee shall take action as it deems appropriate to have the instrument
corrected.
The Trustee shall sign on behalf of the Trust Fund any tax
return that the Trustee is required to sign pursuant to applicable federal,
state or local tax laws.
The Trustee covenants and agrees that it shall perform its
obligations hereunder in a manner so as to maintain the status of the Trust Fund
as a REMIC under the REMIC Provisions and to prevent the imposition of any
federal, state or local income, prohibited transaction, contribution or other
tax on the Trust Fund to the extent that maintaining such status and avoiding
such taxes are reasonably within the control of the Trustee and are reasonably
within the scope of its duties under this Agreement.
No provision of this Agreement shall be construed to relieve
the Trustee from liability for its own negligent action, its own negligent
failure to act or its own misconduct; provided, however, that:
(i) Prior to the occurrence of an Event of Default, and
after the curing of all such Events of Default which may have
occurred, the duties and obligations of the Trustee shall be
determined solely by the express provisions of this Agreement,
the Trustee shall not be liable except for the performance of
such duties and obligations as are specifically set forth in
this Agreement, no implied covenants or obligations shall be
read into this Agreement against the Trustee and, in the
absence of bad faith on the part of the Trustee, the Trustee
may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Trustee and
conforming to the requirements of this Agreement;
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(ii) The Trustee shall not be personally liable for an
error of judgment made in good faith by a Responsible Officer
or Responsible Officers of the Trustee, unless it shall be
proved that the Trustee was negligent in ascertaining the
pertinent facts;
(iii) The Trustee shall not be personally liable with
respect to any action taken, suffered or omitted to be taken
by it in good faith in accordance with the direction of
Holders of Certificates entitled to at least 25% of the Voting
Rights relating to the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee,
under this Agreement.
SECTION 8.02. Certain Matters Affecting the Trustee.
Except as otherwise provided in Section 8.01:
(a) 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 reasonably believed by it to be genuine and
to have been signed or presented by the proper party or
parties;
(b) The Trustee may consult with counsel and any
Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken or suffered or
omitted by it hereunder in good faith and in accordance
therewith;
(c) The Trustee shall be under no obligation to
exercise any of the trusts or powers vested in it by this
Agreement or to make any investigation of matters arising
hereunder or to institute, conduct or defend any litigation
hereunder or in relation hereto at the request, order or
direction of any of the Certificateholders, pursuant to the
provisions of this Agreement, unless such Certificateholders
shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which
may be incurred therein or thereby; nothing contained herein
shall, however, relieve the Trustee of the obligation, upon
the occurrence of an Event of Default (which has not been
cured), to exercise such of the rights and powers vested in it
by this Agreement, and to use the same degree of care and
skill in their exercise as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs;
(d) The Trustee shall not be personally liable for any
action taken, suffered or omitted by it in good faith and
believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Agreement;
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(e) Prior to the occurrence of an Event of Default
hereunder and after the curing of all Events of Default which
may have occurred, the Trustee shall not be bound to make any
investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, approval, bond or
other paper or document, unless requested in writing to do so
by Holders of Certificates entitled to at least 25% of the
Voting Rights; provided, however, that if the payment within a
reasonable time to the Trustee of the costs, expenses or
liabilities likely to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, not
reasonably assured to the Trustee by the security afforded to
it by the terms of this Agreement, the Trustee may require
reasonable indemnity against such expense or liability as a
condition to taking any such action. The reasonable expense of
every such reasonable examination shall be paid by the Master
Servicer or, if paid by the Trustee, shall be repaid by the
Master Servicer upon demand; and
(f) The Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or
by or through agents or attorneys.
SECTION 8.03. Trustee Not Liable for Certificates or Mortgage
Loans.
The recitals contained herein and in the Certificates, other
than the signature of the Trustee on the Certificates and the certificate of
authentication, shall be taken as the statements of the Company or the Master
Servicer, as the case may be, and the Trustee assumes no respons ibility for
their correctness. The Trustee makes no representations or warranties as to the
validity or sufficiency of this Agreement or of the Certificates or of any
Mortgage Loan or related document, other than the signature of the Trustee on
the Certificates and the Certificate of Authentication. The Trustee shall not be
accountable for the use or application by the Company or the Master Servicer of
any of the Certificates or of the proceeds of such Certificates, or for the use
or application of any funds paid to the Seller in respect of the Mortgage Loans
or deposited in or withdrawn from the Custodial Account or the Certificate
Account or any other account by or on behalf of the Company or the Master
Servicer, other than any funds held by or on behalf of the Trustee in accordance
with Section 4.01.
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 it would have if it
were not Trustee.
SECTION 8.05. Payment of Trustee's Fees.
The Trustee shall withdraw from the Certificate Account on
each Distribution Date and pay to itself the Trustee's Fee. Except as otherwise
provided in this Agreement, the Trustee and any director, officer, employee or
agent of the Trustee shall be indemnified by the Trust Fund and held harmless
against any loss, liability or "unanticipated out-of-pocket" expense incurred or
paid to third parties (which expenses shall not include salaries paid to
employees, or allocable
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overhead, of the Trustee) in connection with the acceptance or administration of
its trusts hereunder or the Certificates, other than any loss, liability or
expense incurred by reason of willful misfeasance, bad faith or negligence in
the performance of duties hereunder or by reason of reckless disregard of
obligations and duties hereunder all such amounts shall be payable from funds in
the Custodial Account as provided in Section 3.11. The provisions of this
Section 8.05 shall survive the termination of this Agreement.
The Master Servicer shall indemnify the Trustee and any
director, officer, employee or agent of the Trustee against any loss, liability
or expense that may be sustained in connection with this Agreement related to
the willful misfeasance, bad faith or negligence in the performance of its
duties hereunder.
SECTION 8.06. Eligibility Requirements for Trustee.
The Trustee hereunder shall at all times be a corporation or a
national banking association organized and doing business under the laws of any
state or the United States of America or the District of Columbia, authorized
under such laws to exercise corporate trust powers, having a combined capital
and surplus of at least $50,000,000 and subject to supervision or examination by
federal or state authority. In addition, the Trustee shall at all times be
acceptable to the Rating Agency rating the Certificates. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for the
purposes of this Section the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. In case at any time the Trustee shall
cease to be eligible in accordance with the provisions of this Section, the
Trustee shall resign immediately in the manner and with the effect specified in
Section 8.07. The corporation or national banking association serving as Trustee
may have normal banking and trust relationships with the Seller and its
affiliates or the Master Servicer and its affiliates; provided, however, that
such corporation 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 the Trustee.
The Trustee may at any time resign and be discharged from the
trusts hereby created by giving notice thereof to the Company, the Master
Servicer and to all Certificateholders; provided, that such resignation shall
not be effective until a successor trustee is appointed and accepts appointment
in accordance with the following provisions. Upon receiving such notice of
resignation, the Company shall promptly appoint a successor trustee who meets
the eligibility requirements of Section 8.06 by written instrument, in
duplicate, which instrument shall be delivered to the resigning Trustee and to
the successor trustee. A copy of such instrument shall be delivered to the
Certificateholders and the Master Servicer by the Company. If no successor
trustee shall have been so appointed and have accepted appointment within 60
days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdic tion for the appointment of a successor
trustee; provided, however, that the resigning Trustee shall
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not resign and be discharged from the trusts hereby created until such time as
the Rating Agency rating the Certificates approves the successor trustee.
If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 8.06 and shall fail to resign after
written request therefor by the Company or the Master Servicer, or if at any
time the Trustee shall become incapable of acting, or shall be adjudged bankrupt
or insolvent, or a receiver of the Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation, conservation or
liquidation, or if the rating of the long-term debt obligations of the Trustee
is not acceptable to the Rating Agency in respect of mortgage pass-through
certificates having a rating equal to the then current rating on the
Certificates, then the Company may remove the Trustee and appoint a successor
trustee who meets the eligibility requirements of Section 8.06 by written
instrument, in duplicate, which instrument shall be delivered to the Trustee so
removed and to the successor trustee. A copy of such instrument shall be
delivered to the Certificateholders and the Master Servicer by the Company.
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 to the Master Servicer, one complete set to the Trustee so
removed and one complete set to the successor so appointed. A copy of such
instrument shall be delivered to the Certificateholders and the Master Servicer
by the Company.
Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section shall not
become effective until acceptance of appointment by the successor trustee as
provided in Section 8.08.
SECTION 8.08. Successor Trustee.
Any successor trustee appointed as provided in Section 8.07
shall execute, acknowledge and deliver to the Master Servicer and to its
predecessor trustee an instrument accepting such appointment hereunder, and
thereupon the resignation or removal of the prede cessor trustee shall become
effective and such successor trustee, without any further act, deed or
conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with the like effect as if originally
named as trustee herein. The predecessor trustee shall deliver to the successor
trustee all Mortgage Files and related documents and statements held by it
hereunder, and the Master Servicer and the predecessor trustee shall execute and
deliver such instruments and do such other things as may reasonably be required
for more fully and certainly vesting and confirming in the successor trustee all
such rights, powers, duties and obligations.
No successor trustee shall accept appointment as provided in
this Section unless at the time of such acceptance such successor trustee shall
be eligible under the provisions of Section 8.06.
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Upon acceptance of appointment by a successor trustee as
provided in this Section, the Master Servicer shall mail notice of the
succession of such trustee hereunder to all Holders of Certificates at their
addresses as shown in the Certificate Register. If the Master Servicer fails to
mail such notice within ten days after acceptance of appointment by the
successor trustee, the successor trustee shall cause such notice to be mailed at
the expense of the Master Servicer.
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 such corporation shall be eligible
under the provisions of Section 8.06, without the execution or filing of any
paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding.
SECTION 8.10. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions hereof, at any time, for
the purpose of meeting any legal requirements of any jurisdiction in which any
part of the Trust Fund or property securing the same may at the time be located,
the Company and the Trustee acting jointly shall have the power and shall
execute and deliver all instruments to appoint one or more Persons approved by
the Trustee to act as co-trustee or co-trustees, jointly with the Trustee, or
separate trustee or separate trustees, of all or any part of the Trust Fund, and
to vest in such Person or Per sons, in such capacity, such title to the Trust
Fund, or any part thereof, and, subject to the other provisions of this Section
8.10, such powers, duties, obligations, rights and trusts as the Company and the
Trustee may consider necessary or desirable. If the Company shall not have
joined in such appointment within 15 days after the receipt by it of a request
so to do, or in case an Event of Default shall have occurred and be continuing,
the Trustee alone shall have the power to make such appointment. No co-trustee
or separate trustee hereunder shall be required to meet the terms of eligibility
as a successor trustee under Section 8.06 hereunder and no notice to Holders of
Certificates of the appointment of co-trustee(s) or separate trustee(s) shall be
required under Section 8.08 hereof.
In the case of any appointment of a co-trustee or separate
trustee pursuant to this Section 8.10 all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or co-trustee
jointly, except to the extent that under any law of any jurisdiction in which
any particular act or acts are to be performed (whether as Trustee hereunder or
as successor to the Master Servicer hereunder), the Trustee shall be incompetent
or unqualified to perform such act or acts, in which event such rights, powers,
duties and obligations (including the holding of title to the Trust Fund or any
portion thereof in any such jurisdiction) shall be exercised and performed by
such separate trustee or co-trustee at the direction of the Trustee.
Any notice, request or other writing given to the Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this
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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.
Any separate trustee or co-trustee may, at any time,
constitute the Trustee, its agent or attorney-in-fact, with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Agreement on its behalf and in its name. If any separate trustee
or co-trustee shall die, become incapable of acting, resign or be removed, all
of its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
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ARTICLE IX
TERMINATION
SECTION 9.01. Termination Upon Repurchase or Liquidation of
All Mortgage Loans.
Subject to Section 9.02, the respective obligations and
responsibilities of the Company, the Master Servicer and the Trustee created
hereby (other than the obligations of the Master Servicer to provide for and the
Trustee to make payments to Certificateholders as hereafter set forth) shall
terminate upon payment to the Certificateholders of all amounts held by or on
behalf of the Trustee and required to be paid to them hereunder following the
earlier to occur of (i) the repurchase by the Master Servicer of all Mortgage
Loans and each REO Property in respect thereof remaining in the Trust Fund at a
price equal to (a) 100% of the unpaid principal balance of each Mortgage Loan
(other than one as to which a REO Property was acquired) on the day of
repurchase together with accrued interest on such unpaid principal balance at
the related Net Mortgage Rate to the first day of the month in which the
proceeds of such repurchase are to be distributed, plus (b) the appraised value
of any REO Property less the good faith estimate of the Master Servicer of
liquidation expenses to be incurred in connection with its disposal thereof,
such appraisal to be conducted by an appraiser mutually agreed upon by the
Master Servicer and the Trustee at the expense of the Master Servicer, (but not
more than the unpaid principal balance of the related Mortgage Loan, together
with accrued interest on that balance at the Net Mortgage Rate to the first day
of the month of repurchase), and (ii) the final payment or other liquidation (or
any Advance with respect thereto) of the last Mortgage Loan remaining in the
Trust Fund (or the disposition of all REO Property in respect thereof);
provided, however, that in no event shall the trust created hereby continue
beyond expiration of 21 years from the death of the last survivor of the
descendants of Joseph P. Kennedy, the late ambassador of the United States to
the Court of St. James, living on the date hereof. In the case of any repurchase
by the Master Servicer pursuant to clause (i), the Master Servicer shall include
in such repurchase price the amount of any Advances that will be reimbursed to
the Master Servicer pursuant to Section 3.11(iii) and the Master Servicer shall
exercise reasonable efforts to cooperate fully with the Trustee in effecting
such repurchase and the transfer of the Mortgage Loans and related Mortgage
Files and related records to the Master Servicer.
The right of the Master Servicer to repurchase all Mortgage
Loans pursuant to (i) above shall be conditioned upon the aggregate Stated
Principal Balance of such Mortgage Loans at the time of any such repurchase
aggregating an amount equal to or less than __% of the aggregate Stated
Principal Balance of the Mortgage Loans at the Cut-off Date. If such right is
exercised, the Master Servicer upon such repurchase shall provide to the
Trustee, the certification required by Section 3.16.
Notice of any termination, specifying the Distribution Date
upon which the Certificateholders may surrender their Certificates to the
Trustee for payment of the final distri bution and cancellation, shall be given
promptly by the Master Servicer by letter to the Trustee and shall be given
promptly by the Trustee to the Certificateholders mailed (a) in the event such
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notice is given in connection with the Master Servicer's election to repurchase,
not earlier than the 15th day and not later than the 25th day of the month next
preceding the month of such final distribution or (b) otherwise during the month
of such final distribution on or before the Determination Date in such month, in
each case specifying (i) the Distribution Date upon which final payment of the
Certificates will be made upon presentation and surrender of Certificates at the
office of the Certificate Registrar therein designated, (ii) the amount of any
such final payment and (iii) that the Record Date otherwise applicable to such
Distribution Date is not applicable, pay ments being made only upon presentation
and surrender of the Certificates at the office of the Certificate Registrar
therein specified. In the event such notice is given in connection with the
Master Servicer's election to repurchase, the Master Servicer shall deposit in
the Custodial Account pursuant to Section 3.10 on the last day of the related
Prepayment Period an amount equal to the above-described repurchase price
payable out of its own funds. Upon presentation and surrender of the
Certificates by the Certificateholders, the Trustee shall distribute to the
Certificateholders (i) the amount otherwise distributable on such Distribution
Date, if not in connection with the Master Servicer's election to repurchase, or
(ii) if the Master Servicer elected to so repurchase, an amount determined as
follows: with respect to each Class A and Class B Certificate, the outstanding
Certificate Principal Balance thereof, plus one month's interest thereon at the
applicable Pass-Through Rate and any previously unpaid Accrued Certificate
Interest, subject to the priority set forth in Section 4.01(b); and with respect
to each Class R Certificate, the Percentage Interest evidenced thereby
multiplied by the difference, if any, between the above described repurchase
price and the aggregate amount to be distributed to the Class A and Class B
Certificateholders. Upon certification to the Trustee by a Servicing Officer,
following such final deposit, the Trustee shall promptly release the Mortgage
Files as directed by the Master Servicer for the remaining Mortgage Loans, and
the Trustee shall execute all assignments, endorsements and other instruments
required by the Master Servicer as being necessary to effectuate such transfer.
In the event that all of the Certificateholders shall not
surrender their Certificates for cancellation within six months after the time
specified in the above-mentioned notice, the Trustee shall give a second notice
to the remaining Certificateholders to surrender their Certificates for
cancellation and receive the final distribution with respect thereto. If within
six months after the second notice all of the Certificates shall not have been
surrendered for cancellation, the Trustee shall take reasonable steps as
directed by the Company, or appoint an agent to take reasonable steps, to
contact the remaining Certificateholders concerning surrender of their
Certificates, and the cost thereof shall be paid out of the funds and other
assets which remain subject hereto. If, within nine months after the second
notice, all of the Certificates shall not have been surrendered for
cancellation, the Class R Certificateholders shall be entitled to all unclaimed
funds and other assets which remain subject hereto.
SECTION 9.02. Additional Termination Requirements.
(a) In the event the Master Servicer repurchases the Mortgage
Loans as provided in Section 9.01, the Trust Fund shall be terminated in
accordance with the following additional requirements, unless the Master
Servicer obtains for the Trustee an Opinion of Counsel to the effect that the
failure of the Trust Fund to comply with the requirements of this Section 9.02
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will not (i) result in the imposition of taxes on the net income derived from
"prohibited transactions" of the Trust Fund as defined in Section 860F of the
Code or (ii) cause the Trust Fund to fail to qualify as a REMIC at any time that
any Certificates are outstanding:
(i) The Trustee shall establish a 90-day liquidation period and
specify the first day of such period in a statement attached to the
Trust Fund's final Tax Return pursuant to Treasury Regulation
ss.1.860F-1. The Trustee shall satisfy all the requirements of a
qualified liquidation under 860F of the Code and any regulations
thereunder, as evidenced by an Opinion of Counsel obtained at the
expense of the Master Servicer;
(ii) During such 90-day liquidation period, and at or prior to
the time of making of the final payment on the Certificates, the Master
Servicer shall sell all of the assets of the Trust Fund for cash; and
(iii) At the time of the making of the final payment on the
Certificates, the Trustee shall distribute or credit, or cause to be
distributed or credited, to the Holders of the Class R Certificates all
remaining cash on hand (other than cash retained to meet claims), and
the Trust Fund shall terminate at that time.
(b) By their acceptance of the Class R Certificates, the
Holders thereof hereby agree to authorize the Trustee to specify the 90-day
liquidation period for the Trust Fund, which authorization shall be binding upon
all successor Class R Certificateholders.
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ARTICLE X
REMIC PROVISIONS
SECTION 10.01. REMIC Administration.
(a) The Trustee shall make an election to treat the Trust Fund
as a REMIC under the Code and, if necessary, under applicable state law. Such
election will be made on Form 1066 or other appropriate federal tax or
information return or any appropriate state return for the taxable year ending
on the last day of the calendar year in which the Certificates are issued. For
the purposes of the REMIC election in respect of the Trust Fund, the Class A and
Class B Certificates shall be designated as the "regular interests" and the
Class R Certificates shall be designated as the sole class of "residual
interest" in the Trust Fund. The Trustee shall not permit the creation of any
"interests" in the Trust Fund (within the meaning of Section 860G of the Code)
other than the Regular Certificates and the Residual Certificates.
(b) The Closing Date is hereby designated as the "startup day"
of the Trust Fund within the meaning of Section 860G(a)(9) of the Code.
(c) The Trustee shall hold a Class R Certificate representing
a 0.01% Percentage interest of all Class R Certificates and shall be designated
as the tax matters person of the Trust Fund in the manner provided under
Treasury regulations section 1.860F-4(d) and temporary Treasury regulations
section 301.6231(a)(7)-1T. The Trustee, as tax matters person, shall (i) act on
behalf of the Trust Fund in relation to any tax matter or controversy involving
the Trust Fund and (ii) represent the Trust Fund in any administrative or
judicial proceeding relating to an examination or audit by any governmental
taxing authority with respect thereto. To the extent authorized under the Code
and the regulations promulgated thereunder, each Holder of a Class R
Certificate, hereby irrevocably appoints and authorizes the Trustee to be its
attorney-in-fact for purposes of signing any Tax Returns required to be filed on
behalf of the Trust Fund. The legal expenses and costs of any such action
described in this subsection and any liability resulting therefrom shall
constitute expenses of the Trust Fund and the Trustee shall be entitled to
reimbursement therefor unless such legal expenses and costs are incurred by
reason of the Trustee's willful misfeasance, bad faith or negligence.
(d) Except as provided in Section 4.05, the Trustee shall
prepare or cause to be prepared, sign and file all of the Tax Returns in respect
of the Trust Fund created hereunder. The expenses of preparing and filing such
returns shall be borne by the Trustee without any right of reimbursement
therefor.
(e) The Trustee shall perform on behalf of the Trust Fund all
reporting and other tax compliance duties that are the responsibility of the
Trust Fund under the Code, REMIC Provisions or other compliance guidance issued
by the Internal Revenue Service or any state or local taxing authority. Among
its other duties, as required by the Code, the REMIC Provisions or other such
compliance guidance, the Trustee shall provide (i) to any Transferor of a Class
R Certificate such information as is necessary for the application of any tax
relating to the transfer
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of a Class R Certificate to any Person who is not a Permitted Transferee, (ii)
Certificateholders such information or reports as are required by the Code or
the REMIC Provisions including reports relating to interest, original issue
discount and market discount or premium (using the Prepayment Assumption) and
(iii) to the Internal Revenue Service the name, title, address and telephone
number of the person who will serve as the representative of the Trust Fund. In
addition, the Company shall provide or cause to be provided to the Trustee,
within ten (10) days after the Closing Date, all information or data that the
Trustee reasonably determines to be relevant for tax purposes as to the
valuations and issue prices of the Certificates, including, without limitation,
the price, yield, prepayment assumption and projected cash flow of the
Certificates.
(f) The Trustee shall take such action and shall cause the
Trust Fund created hereunder to take such action as shall be necessary to create
or maintain the status thereof as a REMIC under the REMIC Provisions (and the
Master Servicer shall assist it, to the extent reason ably requested by it). The
Trustee shall not take any action, cause the Trust Fund to take any action or
fail to take (or fail to cause to be taken) any action that, under the REMIC
Provisions, if taken or not taken, as the case may be, could (i) endanger the
status of the Trust Fund as a REMIC or (ii) result in the imposition of a tax
upon the Trust Fund (including but not limited to the tax on prohibited
transactions as defined in Section 860F(a)(2) of the Code and the tax on
contributions to a REMIC set forth in Section 860G(d) of the Code) (either such
event, an "Adverse REMIC Event") unless the Trustee received an Opinion of
Counsel (at the expense of the party seeking to take such action but in no event
shall such Opinion of Counsel be an expense of the Trustee) to the effect that
the contemplated action will not, with respect to the Trust Fund created
hereunder, endanger such status or result in the imposition of such a tax. The
Master Servicer shall not take or fail to take any action (whether or not
authorized hereunder) as to which the Trustee has advised it in writing that it
has received an Opinion of Counsel to the effect that an Adverse REMIC Event
could occur with respect to such action. In addition, prior to taking any action
with respect to the Trust Fund or its assets, or causing the Trust Fund to take
any action, which is not expressly permitted under the terms of this Agreement,
the Master Servicer will consult with the Trustee or its designee, in writing,
with respect to whether such action could cause an Adverse REMIC Event to occur
with respect to the Trust Fund, and the Master Servicer shall not take any such
action or cause the Trust Fund to take any such action as to which the Trustee
has advised it in writing that an Adverse REMIC Event could occur. The Trustee
may consult with counsel to make such written advice, and the cost of same shall
be borne by the party seeking to take the action not permitted by this Agreement
(but in no event shall such cost be an expense of the Trustee). At all times as
may be required by the Code, the Trustee will ensure that substantially all of
the assets of the Trust Fund will consist of "qualified mortgages" as defined in
Section 860G(a)(3) of the Code and "permitted investments" as defined in Section
860G(a)(5) of the Code.
(g) In the event that any tax is imposed on "prohibited
transactions" of the Trust Fund created hereunder as defined in Section
860F(a)(2) of the Code, on "net income from foreclosure property" of the Trust
Fund as defined in Section 860G(c) of the Code, on any contributions to the
Trust Fund after the Startup Day therefor pursuant to Section 860G(d) of the
Code, or any other tax is imposed by the Code or any applicable provisions of
state or local tax
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laws, such tax shall be charged (i) to the Trustee pursuant to Section 10.03
hereof, if such tax arises out of or results from the willful misfeasance, bad
faith or negligence in performance by the Trustee of any of its obligations
under this Article X, (ii) to the Master Servicer pursuant to Section 10.03
hereof, if such tax arises out of or results from a breach by the Master
Servicer of any of its obligations under Article III or this Article X, or
otherwise (iii) against amounts on deposit in the Custodial Account and shall be
paid by withdrawal therefrom.
(h) On or before April 15 of each calendar year, commencing
April 15, 19__, the Trustee shall deliver to the Master Servicer and each Rating
Agency a Certificate from a Responsible Officer of the Trustee stating the
Trustee's compliance with this Article X.
(i) The Master Servicer and the Trustee shall, for federal
income tax purposes, maintain books and records with respect to the Trust Fund
on a calendar year and on an accrual basis.
(j) Following the Startup Day, the Trustee shall not accept
any contributions of assets to the Trust Fund other than in connection with any
Qualified Substitute Mortgage Loan delivered in accordance with Section 2.04
unless it shall have received an Opinion of Counsel (which such Opinion of
Counsel shall not be an expense of the Trustee) to the effect that the inclusion
of such assets in the Trust Fund will not cause the Trust Fund to fail to
qualify as a REMIC at any time that any Certificates are outstanding or subject
the Trust Fund to any tax under the REMIC Provisions or other applicable
provisions of federal, state and local law or ordinances.
(k) Neither the Trustee nor the Master Servicer shall enter
into any arrangement by which the Trust Fund will receive a fee or other
compensation for services nor permit either such REMIC to receive any income
from assets other than "qualified mortgages" as defined in Section 860G(a)(3) of
the Code or "permitted investments" as defined in Section 860G(a)(5) of the
Code.
(l) Solely for purposes of satisfying Section
1.860G-1(a)(4)(iii) of the Treasury regulations, and based on certain
assumptions described below, the "latest possible maturity date" by which the
Certificate Principal Balances of the Certificates representing a regular
interest in the Trust Fund would be reduced to zero is _________ 25, 20__, which
is the Distribution Date immediately following the latest scheduled maturity of
any Mortgage Loan as determined assuming that (i) scheduled interest and
principal payments on the Mortgage Loans are received in a timely manner, with
no delinquencies or losses, (ii) there are no principal prepayments, and (iii)
neither the Seller nor the Master Servicer will repurchase any Mortgage Loans.
SECTION 10.02. Prohibited Transactions and Activities.
Neither the Company, the Master Servicer nor the Trustee shall
sell, dispose of or substitute for any of the Mortgage Loans (except in
connection with (i) the foreclosure of a Mortgage Loan, including but not
limited to, the acquisition or sale of a Mortgaged Property acquired by deed in
lieu of foreclosure, (ii) the bankruptcy of the Trust Fund, (iii) the
termination of the Trust Fund pursuant to Article IX of this Agreement or (iv) a
purchase of Mortgage Loans
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pursuant to Article II or III of this Agreement) nor acquire any assets for the
Trust Fund, nor sell or dispose of any investments in the Custodial Account or
the Certificate Account for gain, nor accept any contributions to the Trust Fund
after the Closing Date unless it has received an Opinion of Counsel (at the
expense of the party seeking to cause such sale, disposition, substitution or
acquisition but in no event shall such Opinion of Counsel be an expense of the
Trustee) that such sale, disposition, substitution or acquisition will not (a)
affect adversely the status of the Trust Fund as a REMIC or (b) cause the Trust
Fund to be subject to a tax on "prohibited transactions" or "contributions"
pursuant to the REMIC Provisions.
SECTION 10.03. Master Servicer and Trustee Indemnification.
(a) The Trustee agrees to indemnify the Trust Fund, the
Company and the Master Servicer for any taxes and costs including, without
limitation, any reasonable attorneys fees imposed on or incurred by the Trust
Fund, the Company or the Master Servicer, as a result of the willful
misfeasance, bad faith or negligence by the Trustee with respect to the
Trustee's covenants set forth in this Article X.
(b) The Master Servicer agrees to indemnify the Trust Fund,
the Company and the Trustee for any taxes and costs (including, without
limitation, any reasonable attorneys' fees) imposed on or incurred by the Trust
Fund, the Company or the Trustee, as a result of a breach of the Master
Servicer's covenants set forth in this Article X or in Article III with respect
to compliance with the REMIC Provisions, including without limitation, any
penalties arising from the Trustee's execution of Tax Returns prepared by the
Master Servicer that contain errors or omissions.
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ARTICLE XI
MISCELLANEOUS PROVISIONS
SECTION 11.01. Amendment.
This Agreement may be amended from time to time by the
Company, the Master Servicer and the Trustee without the consent of any of the
Certificateholders, (i) to cure any ambiguity, (ii) to correct or supplement any
provisions herein which may be defective or incon sistent with any other
provisions herein or to correct any error, (iii) to change the timing and/or
nature of deposits in the Certificate Account, provided that (a) such change
would not adversely affect in any material respect the interests of any
Certificateholder, as evidenced by an Opinion of Counsel, and (b) such change
would not adversely affect the then-current rating of any rated class of
Certificates, as evidenced by a letter from each applicable Rating Agency, (iv)
to modify, eliminate or add to any of the provisions of the Trust Fund (a) to
such extent as shall be necessary to maintain the qualification of the Trust
Fund as a REMIC or to avoid or minimize the risk of imposition of any tax on the
Trust Fund, provided that the Trustee has received an Opinion of Counsel to the
effect that (1) such action is necessary or desirable to maintain such
qualification or to avoid or minimize such risk, and (2) such action will not
adversely affect in any material respect the interests of any Certificateholder,
or (b) to restrict the transfer of the Class R Certificates, provided that the
Company has determined that the then-current ratings of the Class A Certificates
will not be adversely affected, as evidenced by a letter from each Rating
Agency, and that any such amendment will not give rise to any tax with respect
to the transfer of the Class R Certificates to a non-Permitted Transferee, (v)
to make any other provisions with respect to matters or questions arising this
Agreement which are not materially inconsistent with the provisions thereof,
provided that such action will not adversely affect in any material respect the
interests of any Certificateholder, or (vi) to amend specified provisions that
are not material to holders of any class of Certificates offered hereunder.
This Agreement may also be amended from time to time by the
Company, the Master Servicer and the Trustee with the consent of the Holders of
Certificates entitled to at least 66-2/3% of the Voting Rights allocated to each
Class 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 received on Mortgage Loans which are required to
be distributed on any Certificate without the consent of the Holder of such
Certificate, or (ii) reduce the aforesaid percentage of Certificates the Holders
of which are required to consent to any such amendment, without the consent of
the Holders of all Certificates then outstanding. Notwithstanding any other
provision of this Agreement, for purposes of the giving or withholding of
consents pursuant to this Section 11.01, Certificates registered in the name of
the Seller or the Master Servicer or any affiliate thereof shall be entitled to
Voting Rights with respect to matters described in clauses (i) and (ii) of this
paragraph.
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Notwithstanding any contrary provision of this Agreement, the
Trustee shall not consent to any amendment to this Agreement unless it shall
have first received an Opinion of Counsel (provided by the Person requesting
such amendment) to the effect that such amendment will not result in the
imposition of any tax on the Trust Fund pursuant to the REMIC Provisions or
cause the Trust Fund to fail to qualify as a REMIC at any time that any of the
Certificates are outstanding.
Promptly after the execution of any such amendment the Trustee
shall furnish a statement describing the amendment to each Certificateholder.
It shall not be necessary for the consent of
Certificateholders under this Section 11.01 to approve the particular form of
any proposed amendment, but it shall be sufficient if such consent shall approve
the substance thereof. The manner of obtaining such consents and of evidencing
the authorization of the execution thereof by Certificateholders shall be
subject to such reasonable regulations as the Trustee may prescribe.
Prior to executing any amendment pursuant to this Section, the
Trustee shall be entitled to receive an Opinion of Counsel (provided by the
Person requesting such amendment) to the effect that such amendment is
authorized or permitted by this Agreement. The cost of an Opinion of Counsel
delivered pursuant to this Section 11.01 shall be an expense of the party
requesting such amendment, but in any case shall not be an expense of the
Trustee.
The Trustee may, but shall not be obligated to enter into any
amendment pursuant to this Section that affects its rights, duties and
immunities under this Agreement or otherwise.
SECTION 11.02. Recordation of Agreement; Counterparts.
To the extent permitted by applicable law, 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 and at the expense of the Company on direction
by the Trustee, but only upon direction 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 counter parts, each of which
counterparts shall be deemed to be an original, and such counterparts shall
constitute but one and the same instrument.
SECTION 11.03. Limitation on Rights of Certificateholders.
The death or incapacity of any Certificateholder shall not
operate to terminate this Agreement or the Trust Fund, nor entitle such
Certificateholder's legal representatives or heirs to claim an accounting or to
take any action or proceeding in any court for a partition or winding
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up of the Trust Fund, nor otherwise affect the rights, obligations and
liabilities of the parties hereto or any of them.
No Certificateholder shall have any right to vote (except as
expressly provided for herein) or in any manner otherwise control the operation
and management of the Trust Fund, or the obligations of the parties hereto, nor
shall anything herein set forth, or contained in the terms of the Certificates,
be construed so as to constitute the Certificateholders from time to time as
partners or members of an association; nor shall any Certificateholder be under
any liability to any third 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 of any
provision 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 notice of an Event of
Default, or of a default by the Seller or the Trustee in the performance of any
obligation hereunder, and of the continuance thereof, as hereinbefore provided,
and unless also the Holders of Certificates entitled to at least 25% of the
Voting Rights shall have made written request upon the Trustee to institute such
action, suit or proceeding in its own name as Trustee hereunder and shall have
offered to the Trustee such reasonable indemnity as it may require against the
costs, expenses and liabilities to be incurred therein or thereby, and the
Trustee, for 60 days after its receipt of such notice, request and offer of
indemnity, shall have neglected or refused to institute any such action, suit or
proceeding. It is understood and intended, and 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 of any provision of this Agreement to affect, disturb or prejudice the
rights of the Holders of any other of such Certificates, or to obtain or seek to
obtain priority over or preference to any other such Holder, or to enforce any
right under this Agreement, except in the manner herein provided and for the
equal, ratable and common benefit of all Certificateholders. For the protection
and enforcement of the provisions of this Section, each and every
Certificateholder and the Trustee shall be entitled to such relief as can be
given either at law or in equity.
SECTION 11.04. Governing Law.
This Agreement and the Certificates shall be construed in
accordance with the laws of the State of New York and the obligations, rights
and remedies of the parties hereunder shall be determined in accordance with
such laws.
SECTION 11.05. Notices.
All demands, notices and direction hereunder shall be in
writing and shall be deemed effective upon receipt when delivered to (a) in the
case of the Company,_____________, ____________________________________,
Attention: ________________, or such other address as may hereafter be furnished
to the Trustee and the Master Servicer in writing by the Company, (b) in the
case of the Trustee, __________________________________________________________,
Attention: _________________________________, or such other address as may
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hereafter be furnished to the Master Servicer and the Company in writing by the
Trustee and (c) in the case of the Master Servicer, [Name of Master Servicer]
[Address of Master Servicer] Attention: ________________________ or such other
address as may hereafter be furnished to the Company and the Trustee in writing.
Any notice required or permitted to be mailed to a Certificateholder shall be
given by first class mail, postage prepaid, at the address of such Holder as
shown in the Certificate Register. Any notice so mailed within the time
prescribed in this Agreement shall be conclusively presumed to have been duly
given, whether or not the Certificate holder receives such notice.
SECTION 11.06. 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 11.07. Successors and Assigns; Third Party
Beneficiary.
The provisions of this Agreement shall be binding upon and
inure to the benefit of the respective successors and assigns of the parties
hereto, and all such provisions shall inure to the benefit of the Trustee and
the Certificateholders. The parties hereto agree that the Seller is the intended
third party beneficiary of Sections 3.07, 3.10 and 3.22 hereof, and that the
Seller may enforce such provisions to the same extent as if the Seller were a
party to this Agreement.
SECTION 11.08. Article and Section Headings.
The article and section headings herein are for convenience of
reference only, and shall not limit or otherwise affect the meaning hereof.
SECTION 11.09. Notice to Rating Agencies and
Certificateholder.
The Trustee shall use its best efforts to promptly provide
notice to the Rating Agency referred to below with respect to each of the
following of which it has actual knowledge:
1. Any material change or amendment to this Agreement;
2. The occurrence of any Event of Default that has not been
cured;
3. The resignation or termination of the Master Servicer or
the Trustee;
4. The repurchase or substitution of Mortgage Loans pursuant
to Section 2.04;
5. The final payment to Certificateholders; and
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6. Any change in the location of the Custodial Account or the
Certificate Account.
In addition, the Trustee shall promptly furnish to the Rating
Agency copies of the following:
1. Each report to Certificateholders described in Section
4.02;
2. Each annual independent public accountants' servicing
report received as described in Section 3.20; and
3. Each Master Servicer compliance report received as
described in Section 3.19.
Any such notice pursuant to this Section 11.09 shall be in
writing and shall be deemed to have been duly given if personally delivered or
mailed by first class mail, postage prepaid, or by express delivery service to
(i) in the case of [_______________________________________]
____________________________________, Attention: ____________, and (ii) in the
case of [___________________________________________________________________]
or, in each case, such other address as such Rating Agency may designate in
writing to the parties thereto.
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IN WITNESS WHEREOF, the Company, the Master Servicer and the
Trustee have caused their names to be signed hereto by their respective officers
thereunto duly authorized all as of the day and year first above written.
WMC SECURED ASSETS CORP.,
Company
By: ______________________
[NAME OF MASTER SERVICER],
Master Servicer
By: ______________________
[NAME OF TRUSTEE]
Trustee
By: ______________________
<PAGE>
EXHIBIT A-1
FORM OF CLASS A 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.
[UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), 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.]
[THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR THE PURPOSES OF
APPLYING THE U.S. FEDERAL INCOME TAX ORIGINAL ISSUE DISCOUNT ("OID") RULES TO
THIS CERTIFICATE. ASSUMING THAT THE MORTGAGE LOANS PREPAY AT AN ASSUMED RATE OF
PREPAYMENT USED SOLELY FOR THE PURPOSES OF APPLYING THE OID RULES TO THE
CERTIFICATES EQUAL TO A STANDARD PREPAYMENT ASSUMPTION OF ___% PER ANNUM (THE
"PREPAYMENT ASSUMPTION"), THIS CERTIFICATE HAS BEEN ISSUED WITH NO MORE THAN
$______ OF OID PER $1,000 OF INITIAL PRINCIPAL AMOUNT, AND THE YIELD TO MATURITY
IS ____% AND THE AMOUNT OF OID ATTRIBUTABLE TO THE INITIAL ACCRUAL PERIOD IS NO
MORE THAN $____ PER $1,000 OF INITIAL PRINCIPAL AMOUNT COMPUTED USING THE EXACT
METHOD. NO REPRESENTATION IS MADE THAT THE MORTGAGE LOANS WILL PREPAY AT A RATE
BASED ON THE PREPAYMENT ASSUMPTION OR AT ANY OTHER RATE.]
<PAGE>
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Series 199_-____ Aggregate Initial Certificate
Principal Balance of the
Class A Certificates: $_______________
Pass-Through Rate: _____% Initial Certificate Principal Balance
of this Certificate: $_______________
Date of Pooling and Servicing
Agreement and Cut-off Date:
_____________ 1, 199_
First Distribution Date:
____________ 2, 199_
Issue Date: ____________ __, 199_ Master Servicer: [Name of Master
Servicer]
No. ___________________ Trustee: [Name of Trustee]
CUSIP:
CLASS A MORTGAGE PASS-THROUGH
CERTIFICATE, SERIES 199_-____
evidencing a beneficial ownership interest in the Trust Fund
consisting primarily of a pool of residential mortgage loans sold by
WMC SECURED ASSETS CORP.
This certifies that is the registered owner of the Percentage Interest
evidenced by this Certificate in the Trust Fund established under a Pooling and
Servicing Agreement, dated as specified above (the "Agreement"), among WMC
Secured Assets Corp. (hereinafter called the "Depositor", which term includes
any successor entity under the Agreement), [Name of Master Servicer] (the
"Master Servicer") and [Name of Trustee] (the "Trustee"), a summary of certain
of the pertinent provisions of which is set forth hereafter. The Certificates of
the Series specified above (collectively, the "Certificates") evidence in the
aggregate the entire beneficial ownership interest in a segregated pool of
assets created pursuant to the Agreement (the "Trust Fund") comprised of
conventional one- to four-family residential first mortgage loans (the "Mortgage
Loans"), or interests therein, and certain other assets sold by the Depositor.
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.
<PAGE>
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The Trustee shall distribute or cause to be distributed on the 25th
day of each month or, if such 25th day is not a Business Day, the Business Day
immediately following (each, a "Distribution Date"), commencing on the First
Distribution Date specified above, to the Person in whose name this Certificate
is registered at the close of business on the last Business Day of the month
immediately preceding the month of such distribution (the "Record Date"), from
the Available Distribution Amount an amount equal to the product of the
Percentage Interest evidenced by this Certificate and the amount required to be
distributed to the Holders of Class A Certificates on such Distribution Date
pursuant to the Agreement. Reference is hereby made to the further provisions of
this Certificate and the Agreement set forth herein, which further provisions
shall for all purposes have the same effect as though fully set forth at this
place.
This Certificate is one of a duly authorized issue of Certificates of
the series and class specified on the face hereof (herein called the
"Certificates"). The Certificates in the aggregate represent the entire
beneficial interest in: (i) the Mortgage Loans (exclusive of payments of
principal and interest due on or before the Cut-off Date) as from time to time
are subject to the Agreement and all payments under and proceeds of the Mortgage
Loans, together with all documents included in the related Mortgage File; (ii)
such funds or assets as from time to time are deposited in respect of the
Mortgage Loans in the account established by the Master Servicer for the
collection of payments on the Mortgage Loans (the "Custodial Account"), the
Certificate Account and the Expense Fund and belonging to the Trust Fund; (iii)
any REO Property; (iv) the Pool Insurance Policy, the Special Hazard Insurance
Policy and all other insurance policies with respect to the Mortgage Loans
required to be maintained pursuant to the Agreement and all the proceeds
thereof; and (v) the Depositor's interest in respect of the representations and
warranties made be the Seller in the Seller's Warranty Certificate as assigned
to the Trustee pursuant to Section 2.04 of the Agreement (all of the foregoing
being hereinafter collectively called the "Trust Fund").
All distributions will be made or caused to be made by the Trustee
either in immediately available funds (i) by check mailed to the address of the
Person entitled thereto, as such name and address shall appear on the
Certificate Register or (ii) by wire transfer to the account of such Person at
the request of the Person entitled thereto if such Person shall have so notified
the Trustee in writing by 5 Business Days prior to the applicable Record Date
and such Certificateholder is the registered holder of Certificates the
aggregate Initial Certificate Principal Balance of which is not less than
$2,500,000. Notwithstanding the above, the final distribution on this
Certificate will be made after due notice by the Master Servicer of the pendency
of such distribution and only upon presentation and surrender of this
Certificate at the office of the Trustee. The Certificate Principal Balance
hereof will be reduced to the extent of distributions allocable to principal and
any Realized Losses allocable hereto.
The Certificates do not represent an obligation of, or an interest in,
the Depositor, the Master Servicer, or the Trustee and are not insured or
guaranteed by any governmental agency or instrumentality. The Certificates are
limited in right of payment to certain collections and recoveries respecting the
Mortgage Loans, all as more specifically set forth herein and in the Agreement.
As provided in the Agreement, withdrawals from the Custodial Account or
Certificate Account may be made by the Master Servicer from time to time for
purposes other than
<PAGE>
-4-
distributions to Certificateholders, such purposes including reimbursement to
the Master Servicer of advances made, or certain expenses incurred, by it, or by
the Depositor or Trustee.
The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Depositor and the Master Servicer 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 entitled to at least 66-2/3% of
the Voting Rights. Any such consent by the Holder of this Certificate shall be
conclusive and binding on such Holder and upon all future Holders of this
Certificate and of any Certificate issued upon the transfer hereof or in
exchange herefor or in lieu hereof whether or not notation of such consent is
made upon 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 upon surrender of this Certificate for registration of
transfer at the Corporate Trust Office, duly endorsed by, or accompanied by an
assignment in the form below or other written instrument of transfer in form
satisfactory to the Trustee 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 evidencing the same aggregate
initial Certificate Principal Balance will be issued to the designated
transferee or transferees.
The Certificates are issuable in fully registered form and in
denominations specified in the Agreement. As provided in the Agreement and
subject to certain limitations therein set forth, the Certificates are
exchangeable for new Certificates of the same Class in authorized denominations
evidencing the same aggregate initial Certificate Principal Balance, 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 that may be imposed in connection with any
transfer or exchange of Certificates.
The Depositor, the Master Servicer and the Trustee and any agent of
the Depositor, the Master Servicer 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 Master Servicer, the Trustee nor any such agent shall
be affected by notice to the contrary.
The obligations created by the Agreement and the Trust Fund created
thereby shall terminate upon payment to the Certificateholders of all amounts
held by or on behalf of the Trustee and required to be paid to them pursuant to
the Agreement following the earlier of (i) the repurchase by the Master Servicer
of all Mortgage Loans and each REO Property in respect thereof, or (ii) the
final payment on, or other liquidation (or any advance with respect thereto) of,
the last Mortgage Loan remaining in the Trust Fund (or the disposition of all
REO Property in respect thereof). The Agreement permits, but does not require,
the Master Servicer to repurchase
<PAGE>
-5-
from the Trust Fund all Mortgage Loans and all property acquired in respect of
any Mortgage Loan at a price determined as provided in the Agreement. The
exercise of such right will effect early retirement of the Certificates;
however, the Master Servicer's right to repurchase is subject to the aggregate
Stated Principal Balance of the Mortgage Loans at the time of repurchase being
less than or equal to 5% of the aggregate Stated Principal Balance of the
Mortgage Loans at the Cut-off Date.
Unless the certificate of authentication hereon has been executed by
the Trustee, by manual signature, this Certificate shall not be entitled to any
benefit under the Agreement or be valid for any purpose.
The recitals contained herein shall be taken as statements of the
Depositor or the Master Servicer as the case may be.
<PAGE>
-6-
IN WITNESS WHEREOF, the Trustee in its capacity as trustee under the
Agreement has caused this Certificate to be duly executed.
Dated: [NAME OF TRUSTEE],
as Trustee
By:_________________________________
Authorized Officer
CERTIFICATE OF AUTHENTICATION
This is one of the Class A Certificates referred to in the
within-mentioned Agreement.
[NAME OF TRUSTEE],
as Trustee
By:________________________________
Authorized Officer
<PAGE>
-7-
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and
transfer(s) unto ________________________
_______________________________________________________________
_______________________________________________________________
Social Security or other identifying number of assignee:
(Please print or typewrite name and address including postal zip code of
assignee)
the beneficial interest evidenced by the within Mortgage Pass-Through
Certificate and hereby authorizes the registration of transfer of such interest
to the above-named assignee on the Certificate Register.
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(s) to the following address:
______________________________________________________________________
________________________________________________________________________________
Dated:
________________________________________
Signature by or on behalf of assignor
________________________________________
Signature Guaranteed
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within instrument in every particular, without
alteration or enlargement or any change whatever, and must be guaranteed by a
commercial bank or trust company on the continental United States or by a firm
or corporation having membership in any national securities exchange or in the
National Association of Securities Dealers, Inc.
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for the information of __________
___________________ and the Master Servicer:
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.
<PAGE>
EXHIBIT A-2
FORM OF CLASS B 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 (THE "CODE").
THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS A
CERTIFICATES AS DESCRIBED IN THE POOLING AND SERVICING AGREEMENT REFERRED TO
HEREIN (THE "AGREEMENT").
NO TRANSFER OF THIS CERTIFICATE MAY BE MADE TO AN EMPLOYEE BENEFIT
PLAN SUBJECT TO SECTION 406 OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
1974, AS AMENDED, OR SECTION 4975 OF THE CODE OR PERSON USING "PLAN ASSETS" OF
ANY SUCH PLAN TO EFFECT SUCH ACQUISITION (INCLUDING ANY INSURANCE COMPANY UNDER
THE CIRCUMSTANCES DESCRIBED IN THE AGREEMENT), UNLESS THE TRANSFEREE PROVIDES AN
OPINION OF COUNSEL (OR CERTIFICATION OF FACTS UNDER THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE AGREEMENT) SATISFACTORY TO THE DEPOSITOR AND THE TRUSTEE OR THE
CERTIFICATE REGISTRAR THAT SUCH DISPOSITION WILL NOT VIOLATE THE PROHIBITED
TRANSACTION PROVISIONS OF SECTION 406 OF ERISA AND SECTION 4975 OF THE CODE.
[THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR THE PURPOSES OF
APPLYING THE U.S. FEDERAL INCOME TAX ORIGINAL ISSUE DISCOUNT ("OID") RULES TO
THIS CERTIFICATE. ASSUMING THAT THE MORTGAGE LOANS PREPAY AT AN ASSUMED RATE OF
PREPAYMENT USED SOLELY FOR THE PURPOSES OF APPLYING THE OID RULES TO THE
CERTIFICATES EQUAL TO A STANDARD PREPAYMENT ASSUMPTION OF ___% PER ANNUM (THE
"PREPAYMENT ASSUMPTION"), THIS CERTIFICATE HAS BEEN ISSUED WITH NO MORE THAN
$______ OF OID PER $1,000 OF INITIAL PRINCIPAL AMOUNT, AND THE YIELD TO MATURITY
IS ____% AND THE AMOUNT OF OID ATTRIBUTABLE TO THE INITIAL ACCRUAL PERIOD IS NO
MORE THAN $____ PER $1,000 OF INITIAL PRINCIPAL BALANCE COMPUTED USING THE EXACT
METHOD. NO REPRESENTATION IS MADE THAT THE MORTGAGE LOANS WILL PREPAY AT A RATE
BASED ON THE PREPAYMENT ASSUMPTION OR AT ANY OTHER RATE.]
<PAGE>
-1-
Series 199_-____ Aggregate Initial Certificate Principal
Balance of the Class B Certificates:
$_______________
Pass-Through Rate: _____% Initial Certificate Principal Balance
of this Certificate: $_______________
Date of Pooling and Servicing
Agreement and Cut-off Date:
_____________ 1, 199_
First Distribution Date: Master Servicer: [Name of Master Servicer]
____________ __, 199_
Issue Date: _____________ __, 199_ Trustee: [Name of Trustee]
No.___________________
CUSIP: _______________
CLASS B MORTGAGE PASS-THROUGH
CERTIFICATE, SERIES 199_-____
evidencing a beneficial ownership interest in the Trust Fund
consisting primarily of a pool of residential mortgage loans sold by
WMC SECURED ASSETS CORP.
This certifies that is the registered owner of the Percentage Interest
evidenced by this Certificate in the Trust Fund established under a Pooling and
Servicing Agreement, dated as specified above (the "Agreement"), among WMC
Secured Assets Corp. (hereinafter called the "Depositor", which term includes
any successor entity under the Agreement), [Name of Master Servicer] (the
"Master Servicer") and [Name of Trustee] (the "Trustee"), a summary of certain
of the pertinent provisions of which is set forth hereafter. The Certificates of
the Series specified above (collectively, the "Certificates") evidence in the
aggregate the entire beneficial ownership interest in a segregated pool of
assets created pursuant to the Agreement (the "Trust Fund") comprised of
conventional one- to four-family residential first mortgage loans (the "Mortgage
Loans"), or interests therein, and certain other assets sold by the Depositor.
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.
<PAGE>
-2-
The Trustee shall distribute or cause to be distributed on the 25th
day of each month or, if such 25th day is not a Business Day, the Business Day
immediately following (each, a "Distribution Date"), commencing on the First
Distribution Date specified above, to the Person in whose name this Certificate
is registered at the close of business on the last Business Day of the month
immediately preceding the month of such distribution (the "Record Date"), from
the related Group Available Distribution Amount an amount equal to the product
of the Percentage Interest evidenced by this Certificate and the amount required
to be distributed to the Holders of Class B Certificates on such Distribution
Date pursuant to the Agreement. Reference is hereby made to the further
provisions of this Certificate and the Agreement set forth herein, which further
provisions shall for all purposes have the same effect as though fully set forth
at this place.
This Certificate is one of a duly authorized issue of Certificates of
the series and class specified on the face hereof (herein called the
"Certificates"). The Certificates in the aggregate represent the entire
beneficial interest in: (i) the Mortgage Loans (exclusive of payments of
principal and interest due on or before the Cut-off Date) as from time to time
are subject to the Agreement and all payments under and proceeds of the Mortgage
Loans, together with all documents included in the related Mortgage File; (ii)
such funds or assets as from time to time are deposited in respect of the
Mortgage Loans in the account established by the Master Servicer for the
collection of payments on the Mortgage Loans (the "Custodial Account"), the
Certificate Account and the Expense Fund and belonging to the Trust Fund; (iii)
any REO Property; (iv) the Pool Insurance Policy, the Special Hazard Insurance
Policy, and all other insurance policies with respect to the Mortgage Loans
required to be maintained pursuant to the Agreement and all the proceeds
thereof; and (v) the Depositor's interest in respect of the representations and
warranties made by the Seller in the Seller's Warranty Certificate as assigned
to the Trustee pursuant to Section 2.04 of the Agreement (all of the foregoing
being hereinafter collectively called the "Trust Fund").
All distributions will be made or caused to be made by the Trustee
either in immediately available funds (i) by check mailed to the address of the
Person entitled thereto, as such name and address shall appear on the
Certificate Register, (ii) by wire transfer to the account of such Person at the
request of the Person entitled thereto if such Person shall have so notified the
Trustee in writing by 5 Business Days prior to the applicable Record Date and
such Certificateholder is the registered holder of Certificates the aggregate
Initial Certificate Principal Balance of which is not less than $2,500,000.
Notwithstanding the above, the final distribution on this Certificate will be
made after due notice by the Master Servicer of the pendency of such
distribution and only upon presentation and surrender of this Certificate at the
office of the Trustee. The Certificate Principal Balance hereof will be reduced
to the extent of distributions allocable to principal and any Realized Losses
allocable hereto.
The Certificates do not represent an obligation of, or an interest in,
the Depositor, the Master Servicer, or the Trustee and are not insured or
guaranteed by any governmental agency or instrumentality. The Certificates are
limited in right of payment to certain collections and recoveries respecting the
Mortgage Loans, all as more specifically set forth herein and in the Agreement.
As provided in the Agreement, withdrawals from the Custodial Account or
Certificate Account may be made from time to time for purposes other than
distributions to Certificateholders,
<PAGE>
-3-
such purposes including reimbursement to the Master Servicer of advances made,
or certain expenses incurred, by it, or by the Depositor or Trustee.
The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Depositor and the Master Servicer 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 entitled to at least 66-2/3% of
the Voting Rights. Any such consent by the Holder of this Certificate shall be
conclusive and binding on such Holder and upon all future Holders of this
Certificate and of any Certificate issued upon the transfer hereof or in
exchange herefor or in lieu hereof whether or not notation of such consent is
made upon this Certificate. The Agreement also permits the amendment thereof, in
certain limited circumstances, without the consent of the Holders of any of the
Certificates.
No transfer of any Class B Certificate shall be made to any employee
benefit plan or other retirement arrangement, including individual retirement
accounts and annuities and Keogh plans, that is subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (any of the
foregoing, a "Plan"), to any Person acting on behalf of a Plan, or to any other
Person who is using "plan assets" to effect such acquisition (including any
insurance company using funds in its general or separate accounts that may
constitute "plan assets") unless the prospective transferee of a
Certificateholder desiring to transfer its Certificates provides to the Trustee
or the Certificate Registrar an Opinion of Counsel (or, in the limited
circumstances described in the Agreement, a certification of facts) which
establishes to the satisfaction of the Depositor and the Trustee or the
Certificate Registrar that such disposition will not violate the prohibited
transaction provisions of Section 406 of ERISA and Section 4975 of the Code.
As provided in the Agreement and subject to certain limitations
therein set forth, the transfer of this Certificate is registrable in the
Certificate Register upon surrender of this Certificate for registration of
transfer at the Corporate Trust Office, duly endorsed by, or accompanied by an
assignment in the form below or other written instrument of transfer in form
satisfactory to the Trustee 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 evidencing the same aggregate
initial Certificate Principal Balance will be issued to the designated
transferee or transferees.
The Certificates are issuable in fully registered form and in
denominations specified in the Agreement. As provided in the Agreement and
subject to certain limitations therein set forth, the Certificates are
exchangeable for new Certificates of the same Class in authorized denominations
evidencing the same aggregate initial Certificate Principal Balance, 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 that may be imposed in connection with any
transfer or exchange of Certificates.
<PAGE>
-4-
The Depositor, the Master Servicer and the Trustee and any agent of
the Depositor, the Master Servicer 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 Master Servicer, the Trustee nor any such agent shall
be affected by notice to the contrary.
The obligations created by the Agreement and the Trust Fund created
thereby shall terminate upon payment to the Certificateholders of all amounts
held by or on behalf of the Trustee and required to be paid to them pursuant to
the Agreement following the earlier of (i) the repurchase by the Master Servicer
of all Mortgage Loans and each REO Property in respect thereof, or (ii) the
final payment on, or other liquidation (or any advance with respect thereto) of,
the last Mortgage Loan remaining in the Trust Fund (or the disposition of all
REO Property in respect thereof). The Agreement permits, but does not require,
the Master Servicer to repurchase from the Trust Fund all Mortgage Loans and all
property acquired in respect of any Mortgage Loan at a price determined as
provided in the Agreement. The exercise of such right will effect early
retirement of the Certificates; however, the Master Servicer's right to
repurchase is subject to the aggregate Stated Principal Balance of the Mortgage
Loans at the time of repurchase being less than or equal to 5% of the aggregate
Stated Principal Balance of the Mortgage Loans at the Cut-off Date.
Unless the certificate of authentication hereon has been executed by
the Trustee, by manual signature, this Certificate shall not be entitled to any
benefit under the Agreement or be valid for any purpose.
The recitals contained herein shall be taken as statements of the
Depositor or the Master Servicer as the case may be.
<PAGE>
-5-
IN WITNESS WHEREOF, the Trustee in its capacity as trustee under the
Agreement has caused this Certificate to be duly executed.
Dated: [NAME OF TRUSTEE],
as Trustee
By: ________________________________
Authorized Officer
CERTIFICATE OF AUTHENTICATION
This is one of the Class B Certificates referred to in the
within-mentioned Agreement.
[NAME OF TRUSTEE],
as Trustee
By: ________________________________
Authorized Officer
<PAGE>
-6-
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and
transfer(s) unto_______________________
_________________________________________________________________
_________________________________________________________________ Social
Security or other identifying number of assignee:
(Please print or typewrite name and address including postal zip code of
assignee)
the beneficial interest evidenced by the within Mortgage Pass-Through
Certificate and hereby authorizes the registration of transfer of such interest
to the above-named assignee on the Certificate Register.
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(s) to the following address:
________________________________________________________________
________________________________________________________________________________
Dated:
_____________________________________
Signature by or on behalf of assignor
_____________________________________
Signature Guaranteed
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within instrument in every particular, without
alteration or enlargement or any change whatever, and must be guaranteed by a
commercial bank or trust company on the continental United States or by a firm
or corporation having membership in any national securities exchange or in the
National Association of Securities Dealers, Inc.
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for the information of
______________ _______________ and the Master Servicer:
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.
<PAGE>
EXHIBIT B
FORM OF CLASS R CERTIFICATE
THIS CLASS R CERTIFICATE HAS BEEN DESIGNATED BY THE SELLER REFERRED TO BELOW AS
A "RESIDUAL INTEREST" IN THE REMIC CREATED BY THE POOLING AND SERVICING
AGREEMENT PURSUANT TO THE REMIC PROVISIONS OF THE INTERNAL REVENUE CODE OF 1986
(THE "CODE").
NO TRANSFER OF THIS CERTIFICATE MAY BE MADE TO AN EMPLOYEE BENEFIT PLAN SUBJECT
TO THE FIDUCIARY RESPONSIBILITY PROVISIONS OF THE EMPLOYEE RETIREMENT INCOME
SECURITY ACT OF 1974, AS AMENDED, OR SECTION 4975 OF THE CODE OR PERSON USING
"PLAN ASSETS" OF ANY SUCH PLAN TO EFFECT SUCH ACQUISITION (INCLUDING ANY
INSURANCE COMPANY UNDER THE CIRCUMSTANCES DESCRIBED IN THE AGREEMENT), UNLESS
THE TRANSFEREE PROVIDES AN OPINION OF COUNSEL (OR CERTIFICATION OF FACTS UNDER
THE LIMITED CIRCUMSTANCES DESCRIBED IN THE AGREEMENT) SATISFACTORY TO THE
DEPOSITOR AND THE TRUSTEE OR THE CERTIFICATE REGISTRAR THAT SUCH DISPOSITION
WILL NOT VIOLATE THE PROHIBITIVE TRANSACTION PROVISIONS OF SECTION 406 OF ERISA
AND SECTION 4975 OF THE CODE. [BY ITS ACCEPTANCE OF A CERTIFICATE, EACH
CERTIFICATEHOLDER WILL BE DEEMED TO HAVE REPRESENTED AND WARRANTED THAT IT IS
NOT SUBJECT TO THE FOREGOING LIMITATION.]
THIS CERTIFICATE AND THE POOLING AND SERVICING AGREEMENT MAY BE AMENDED WITHOUT
THE CONSENT OF THE HOLDER HEREOF, AND IN A MANNER THAT MAY ADVERSELY AFFECT THE
INTERESTS OF THE HOLDER HEREOF, IF NECESSARY TO PREVENT THE DISQUALIFICATION OF
THE TRUST FUND AS A REMIC.
ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CLASS R CERTIFICATE MAY BE
MADE ONLY IF THE PROPOSED TRANSFEREE PROVIDES AN AFFIDAVIT TO THE MASTER
SERVICER AND THE TRUSTEE THAT (1) SUCH TRANSFEREE IS NOT EITHER (A) THE UNITED
STATES, ANY STATE OR POLITICAL SUBDIVISION THEREOF, ANY FOREIGN GOVERNMENT, ANY
INTERNATIONAL ORGANIZATION, OR ANY AGENCY OR INSTRUMENTALITY OF ANY OF THE
FOREGOING, (B) ANY ORGANIZATION (OTHER THAN A COOPERATIVE DESCRIBED IN SECTION
521 OF THE CODE) WHICH IS EXEMPT FROM THE TAX IMPOSED BY CHAPTER 1 OF THE CODE
UNLESS SUCH ORGANIZATION IS SUBJECT TO THE TAX IMPOSED BY SECTION 511 OF THE
CODE, (C) ANY ORGANIZATION DESCRIBED IN SECTION 1381(a)(2)(C) OF THE CODE, (ANY
SUCH PERSON DESCRIBED IN THE FOREGOING CLAUSES (A), (B) OR (C) BEING HEREINAFTER
REFERRED TO AS A "DISQUALIFIED ORGANIZATION") OR (D) AN AGENT OF A DISQUALIFIED
ORGANIZATION. NOTWITHSTANDING THE REGISTRATION IN THE CERTIFICATE REGISTER OR
ANY TRANSFER, SALE OR OTHER DISPOSITION OF THIS CLASS R CERTIFICATE TO A
DISQUALIFIED ORGANIZATION OR AN AGENT OF A DISQUALIFIED ORGANIZATION, SUCH
REGISTRATION SHALL BE DEEMED TO BE OF NO LEGAL FORCE OR EFFECT
<PAGE>
-2-
WHATSOEVER AND SUCH PERSON SHALL NOT BE DEEMED TO BE A CERTIFICATEHOLDER FOR ANY
PURPOSE HEREUNDER, INCLUDING, BUT NOT LIMITED TO, THE RECEIPT OF DISTRIBUTIONS
ON THIS CERTIFICATE. EACH HOLDER OF A CLASS R CERTIFICATE BY ACCEPTANCE OF THIS
CERTIFICATE SHALL BE DEEMED TO HAVE CONSENTED TO THE PROVISIONS OF THIS
PARAGRAPH.
IF ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CLASS R CERTIFICATE IS MADE
TO ANY OF CERTAIN "PASS-THROUGH ENTITIES" DESCRIBED IN SECTION 860E(e)(6) OF THE
CODE, AND A DISQUALIFIED ORGANIZATION IS THE RECORD HOLDER OF AN INTEREST IN
SUCH ENTITY, THEN A TAX MAY BE IMPOSED ON SUCH ENTITY.
NO TRANSFER OF THE CERTIFICATE MAY BE MADE TO A NON-UNITED STATES PERSON AS
DEFINED IN THE AGREEMENT.
<PAGE>
-3-
Series 199_-____ Aggregate unpaid principal balance of the
Mortgage Loans after deducting payments
due on or before the Cut-off Date:
$____________
Percentage Interest: ___%
Date of Pooling and Servicing Issue Date: ___________ __, 199_
Agreement: _____________ 1, 199_
First Distribution Date: _______ __, 199_
Master Servicer:
[Name of Master Servicer]
Trustee:
[Name of Trustee]
No. __
CLASS R MORTGAGE PASS-THROUGH CERTIFICATE, SERIES 199_-____
evidencing a beneficial ownership interest in the Trust Fund consisting
primarily of a pool of residential mortgage loans sold by
WMC SECURED ASSETS CORP.
This certifies that is the registered owner of the Percentage Interest
evidenced by this Certificate in the Class R residual interests in the Trust
Fund created pursuant to a Pooling and Servicing Agreement, dated as specified
above (the "Agreement"), between WMC Secured Assets Corp. (hereinafter called
the "Depositor", which term includes any successor entity under the Agreement),
[Name of Master Servicer] (the "Master Servicer"), and [Name of Trustee] (the
"Trustee"), a summary of certain of the pertinent provisions of which is set
forth hereafter. To the extent not defined herein, the capitalized terms used
herein have the meanings assigned in the Agreement. This Certificate is issued
under and is subject to the terms, provisions and conditions of the Agreement,
to which Agreement the Holder of this Certificate by virtue of the acceptance
hereof assents and by which such Holder is bound.
Pursuant to the terms of the Agreement, distributions 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 (a "Distribution Date"), commencing on the
First Distribution Date specified above, to the Person in whose name this
Certificate is registered at the close of business on the last Business Day of
the month immediately preceding the month of such distribution (the "Record
Date"), from the Available Distribution Amount in an amount equal to the product
of the Percentage Interest evidenced by this Certificate and the amount required
to be distributed to the holders of Class R Certificates on such Distribution
Date pursuant to the Agreement.
<PAGE>
-4-
All distributions under the Agreement on the Class R Certificates will
be made or caused to be made by the Trustee by check mailed to the address of
the Person entitled thereto, as such name and address shall appear on the
Certificate Register. Notwithstanding the above, the final distribution on this
Certificate will be made after due notice by the Master Servicer of the pendency
of such distribution and only upon presentation and surrender of this
Certificate at the office of the Trustee.
This Certificate is one of a duly authorized issue of Certificates
designated as Mortgage Pass-Through Certificates of the series specified on the
face hereof (herein called the "Certificates") and representing the Percentage
Interest specified on the face hereof in the Class R Certificates.
The Certificates are limited in right of payment to certain
collections and recoveries respecting the Mortgage Loans, all as more
specifically set forth herein and in the Agreement. As provided in the
Agreement, withdrawals from the Custodial Account or Certificate Account may be
made from time to time for purposes other than distributions to
Certificateholders, such purposes including reimbursement of advances made, or
certain expenses incurred with respect to the Mortgage Loans.
The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Depositor, the Master Servicer and 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
entitled to at least 66-2/3% of the Voting Rights. Any such consent by the
Holder of this Certificate shall be conclusive and binding on such Holder and
upon all future Holders of this Certificate and of any Certificate issued upon
the transfer hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent is made upon 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 upon surrender of this Certificate for registration of
transfer at the Corporate Trust Office, duly endorsed by, or accompanied by an
assignment in the form below or other written instrument of transfer in form
satisfactory to the Trustee 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 evidencing the same aggregate
Percentage Interest will be issued to the designated transferee or transferees.
No transfer of any Class R Certificate shall be made to any employee
benefit plan or other retirement arrangement, including individual retirement
accounts and annuities and Keogh plans, that is subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (any of the
foregoing, a "Plan") to any Person acting on behalf of a Plan, or to any other
Person who is using "plan assets" to effect such acquisition (including any
insurance company using funds in its general or separate accounts that may
constitute "plan assets"), unless
<PAGE>
-5-
the prospective transferee of a Certificateholder desiring to transfer its
Certificates provides to the Trustee or the Certificate Registrar an Opinion of
Counsel (or, in the limited circumstances described in the Agreement, a
certification of facts) which establishes to the satisfaction of the Depositor
and the Trustee or the Certificate Registrar that such disposition will not
violate the prohibited transaction provisions of Section 406 of ERISA and
Section 4975 of the Code.
The Class R Certificates are issuable in fully registered form and in
minimum denominations specified in the Agreement. As provided in the Agreement
and subject to certain limitations therein set forth (including limitations on
the total number of Class R Certificates outstanding), Class R Certificates are
exchangeable for new Certificates of the same Class in authorized denominations
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 that may be imposed in connection with any
transfer or exchange of Certificates.
The Depositor, the Master Servicer and the Trustee and any agent of
the Depositor, the Master Servicer 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 Master Servicer, the Trustee nor any such agent shall
be affected by notice to the contrary.
The obligations created by the Agreement and the Trust Fund created
thereby shall terminate upon payment to the Certificateholders of all amounts
held by or on behalf of the Trustee and required to be paid to them pursuant to
the Agreement following the earlier of (i) the repurchase by the Master Servicer
of all Mortgage Loans and each REO Property in respect thereof or (ii) the final
payment or other liquidation (or any advance with respect thereto) of the last
Mortgage Loan remaining in the Trust Fund (or the disposition of all REO
Property in respect thereof). The Agreement permits, but does not require, the
Master Servicer to purchase from the Trust Fund all Mortgage Loans and all
property acquired in respect of any Mortgage Loan at a price determined as
provided in the Agreement. The exercise of such right will effect early retire
ment of the Certificates; however, such right to purchase is subject to the
aggregate Stated Principal Balance of the Mortgage Loans at the time of purchase
being less than or equal to 5% of the aggregate Stated Principal Balance of the
Mortgage Loans at the Cut-off Date.
Unless the certificate of authentication hereon has been executed by
the Trustee, by manual signature, this Certificate shall not be entitled to any
benefit under the Agreement or be valid for any purpose.
The recitals contained herein shall be taken as the statements of the
Depositor or the Master Servicer, as the case may be.
<PAGE>
-6-
IN WITNESS WHEREOF, the Trustee in its capacity as trustee under the
Agreement has caused this Certificate to be duly executed.
Dated: [NAME OF TRUSTEE],
as Trustee
By: _____________________________________
Authorized Officer
CERTIFICATE OF AUTHENTICATION
This is one of the Class R Certificates referred to in the
within-mentioned Agreement.
[NAME OF TRUSTEE],
as Trustee
By: _____________________________________
Authorized Officer
<PAGE>
-7-
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto _______________________________
________________________________________________
________________________________________________
Social Security or other identifying number of assignee:
(Please print or typewrite name and address including postal zip code
of assignee)
the Percentage Interest evidenced by the within Class R Mortgage Pass-Through
Certificate and hereby authorizes the registration of transfer of such interest
to the above-named assignee on the
Certificate Register.
I (we) further direct the Trustee to issue a new Class R Certificate
of a like Percentage Interest to the above named assignee and deliver such
Certificate to the following address: __________________________________________
_______________________________________________________
_______________________________________________________
Dated:
______________________________
Signature by or on behalf of assignor
______________________________
Signature Guaranteed
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within instrument in every particular, without
alteration or enlargement or any change whatever, and must be guaranteed by a
commercial bank or trust company on the continental United States or by a firm
or corporation having membership in any national securities exchange or in the
National Association of Securities Dealers, Inc.
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.
<PAGE>
EXHIBIT C
TRUSTEE INITIAL CERTIFICATION
_______ __, 199_
[Name of Master Servicer]
[Address of Master Servicer]
WMC Secured Assets Corp.
6320 Canoga Avenue, Suite 1300
Woodland Hills, California 91367
Re: Pooling and Servicing Agreement dated as of ____________ 1,
199_ among WMC Secured Assets Corp., [Name of Master
Servicer] and [Name of Trustee], Mortgage Pass-THROUGH
CERTIFICATES, SERIES 199_-____
Gentlemen:
In accordance with Section 2.02 of the above-captioned 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 attachment hereto) it has reviewed the
Mortgage File and the Mortgage Loan Schedule and has determined that, except as
provided in Exhibit A hereto: (i) all documents required to be included in the
Mortgage File are in its possession; (ii) such documents have been reviewed by
it and appear regular on their face and relate to such Mortgage Loan; and (iii)
based on examination by it, and only as to such documents, the information set
forth in items (i) - (vi), (viii) and (x) - (xii) of the definition or
description of "Mortgage Loan Schedule" is correct.
The Trustee has made no independent examination of any documents
contained in each Mortgage File beyond the review specifically required in the
above-referenced Pooling and Servicing Agreement. The Trustee makes no
representation that any documents specified in clause (vi) of Section 2.01
should be included in any Mortgage File. The Trustee makes no representations as
to: (i) the validity, legality, sufficiency, enforceability or genuineness of
any of the documents contained in each Mortgage File of any of the Mortgage
Loans identified on the Mortgage Loan Schedule, (ii) the collectability,
insurability, effectiveness or suitability of any such Mortgage Loan, or (iii)
the existence of any assumption, modification, written assurance or substitution
agreement with respect to any Mortgage File if no such documents appear in the
Mortgage File delivered to the Trustee.
<PAGE>
-2-
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the above-captioned Pooling and Servicing
Agreement.
[NAME OF TRUSTEE]
By: ____________________________________
Name:
Title:
<PAGE>
EXHIBIT D
FORM OF TRUSTEE FINAL CERTIFICATION
[date]
[Name of Master Servicer]
[Address of Master Servicer]
WMC Secured Assets Corp.
6320 Canoga Avenue, Suite 1300
Woodland Hills, California 91367
Re: Pooling and Servicing Agreement dated as of ___________ 1, 199_
among WMC Secured Assets Corp., [Name of Master Servicer] and
[Name of Trustee], Mortgage Pass-Through Certificates,
Series 199_-____
Gentlemen:
In accordance with Section 2.02 of the above-captioned Pooling and
Servicing Agreement, the undersigned, as Trustee, hereby certifies, except as
provided in Exhibit __ hereto, that as to each Mortgage Loan listed in the
Mortgage Loan Schedule (other than any Mortgage Loan paid in full or listed on
the attachment hereto) it has received the documents set forth in Section 2.01.
The Trustee has made no independent examination of any documents
contained in each Mortgage File beyond the review specifically required in the
above-referenced Pooling and Servicing Agreement. The Trustee makes no
representation that any documents specified in clause (vi) of Section 2.01
should be included in any Mortgage File. 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 above-captioned Pooling and Servicing
Agreement.
[NAME OF TRUSTEE]
By: _____________________________________
Name: ___________________________________
Title: __________________________________
<PAGE>
EXHIBIT E
FORM OF REMITTANCE REPORT
<PAGE>
EXHIBIT F-1
REQUEST FOR RELEASE
(for Trustee)
LOAN INFORMATION
Name of Mortgagor: ___________________________
Master Servicer
Loan No.: ___________________________
TRUSTEE
Name: ___________________________
Address: ___________________________
___________________________
Trustee
Mortgage File No.: ___________________________
REQUEST FOR REQUESTING DOCUMENTS (check one):
1. Mortgage Loan Liquidated.
(The Master Servicer hereby certifies that all proceeds
of foreclosure, insurance or other liquidation have been
finally received and deposited into the Custodial Account
to the extent required pursuant to the Pooling and
Servicing
Agreement.)
2. Mortgage Loan in Foreclosure.
3. Mortgage Loan Repurchased Pursuant to Section 9.01 of the Pooling
and Servicing Agreement.
4. Mortgage Loan Repurchased Pursuant to Article II of the Pooling
and Servicing Agreement.
(The Master Servicer hereby certifies that the repurchase
price has been deposited into the Custodial Account
pursuant to the Pooling and Servicing Agreement.)
<PAGE>
-2-
5. Other (explain).
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
The undersigned Master Servicer hereby acknowledges that it has
received from [Name of Trustee], as Trustee for the Holders of Mortgage
Pass-Through Certificates, Series 199_-____, 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 dated as of _____________ 1, 199_, (the "Pooling and Servicing
Agreement") between the Trustee, WMC Secured Assets Corp. and [Name of Master
Servicer].
( ) Promissory 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 ______________.
( ) 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.
( ) _____________________________________________
( ) _____________________________________________
( ) _____________________________________________
<PAGE>
-3-
( ) _____________________________________________
The undersigned Master Servicer hereby acknowledges and agrees as
follows:
(1) The Master Servicer shall hold and retain possession of the
Documents in trust for the benefit of the Trustee, solely for the
purposes provided in the Agreement.
(2) The Master Servicer shall not cause or knowingly permit the
Documents to become subject to, or encumbered by, any claim, liens,
security interest, charges, writs of attachment or other impositions
nor shall the Master Servicer assert or seek to assert any claims or
rights of setoff to or against the Documents or any proceeds thereof.
(3) The Master Servicer shall return each and every Document
previously requested from the Mortgage File to the Trustee when the
need therefor no longer exists, unless the Mortgage Loan relating to
the Documents has been liquidated and the proceeds thereof have been
remitted to the Custodial 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.
[NAME OF MASTER SERVICER]
By: _____________________________________
Its: ____________________________________
Date: _____________________, 19__
<PAGE>
EXHIBIT F-2
REQUEST FOR RELEASE
[Mortgage Loans Paid in Full]
OFFICER'S CERTIFICATE AND TRUST RECEIPT
MORTGAGE PASS-THROUGH CERTIFICATES
Series 199_-____
______________________________________ HEREBY CERTIFIES THAT HE/SHE IS AN
OFFICER OF THE MASTER SERVICER, HOLDING THE OFFICE SET FORTH BENEATH HIS/HER
SIGNATURE, AND HEREBY FURTHER CERTIFIES AS FOLLOWS:
WITH RESPECT TO THE MORTGAGE LOANS, AS THE TERM IS DEFINED IN THE POOLING AND
SERVICING AGREEMENT DESCRIBED IN THE ATTACHED SCHEDULE:
ALL PAYMENTS OF PRINCIPAL, PREMIUM (IF ANY), AND INTEREST HAVE BEEN MADE.
LOAN NUMBER: _______________ BORROWER'S NAME:_____________
COUNTY:_____________________
WE HEREBY CERTIFY THAT ALL AMOUNTS RECEIVED IN CONNECTION WITH SUCH PAYMENTS,
WHICH ARE REQUIRED TO BE DEPOSITED IN THE CUSTODIAL ACCOUNT PURSUANT TO SECTION
3.10 OF THE POOLING AND SERVICING AGREEMENT, HAVE BEEN OR WILL BE CREDITED.
___________ ______________________ DATED:______________
/ / VICE PRESIDENT
/ / ASSISTANT VICE PRESIDENT
<PAGE>
EXHIBIT G-1
TRANSFER AFFIDAVIT AND AGREEMENT
STATE OF )
: ss.:
COUNTY OF )
___________________, being first duly sworn, deposes, represents and
warrants:
1. That he is [Title of Officer] of [Name of Owner] (the "Owner"),
(record or beneficial owner of the Class R Certificates (the "Owner"), a
[savings institution] [corporation] duly organized and existing under the laws
of [the State of ___________] [the United States], on behalf of which he makes
this affidavit and agreement. This Class R Certificate was issued pursuant to
the Pooling and Servicing Agreement (the "Pooling and Servicing Agreement")
dated as of _____________ 1, 199_ among WMC Secured Assets Corp., as depositor,
[Name of Master Servicer], as master servicer (the "Master Servicer"), and [Name
of Trustee], as trustee (the "Trustee").
2. That the Owner (i) is and will be a "Permitted Transferee" as of
____________, 199_ and (ii) is acquiring the Class R Certificates for its own
account or for the account of another Owner from which it has received an
affidavit in substantially the same form as this affidavit. A "Permitted
Transferee" is any person other than a "disqualified organization" or a
Non-United States Person. For this purpose, a "disqualified organization" means
any of the following: (i) the United States, any State or political subdivision
thereof, any possession of the United States, or any agency or instrumentality
of any of the foregoing (other than an instrumentality which is a corporation if
all of its activities are subject to tax and, except for the FHLMC, a majority
of its board of directors is not selected by such governmental unit), (ii) a
foreign government, any international organization, or any agency or
instrumentality of any of the foregoing, (iii) any organization (other than
certain farmers' cooperatives described in Section 521 of the Internal Revenue
Code of 1986 (the "Code")) which is exempt from the tax imposed by Chapter 1 of
the Code (unless such organization is subject to the tax imposed by Section 511
of the Code on unrelated business taxable income), (iv) rural electric and
telephone cooperatives described in Section 1381(a)(2)(C) of the Code and (v)
any other Person so designated by the Trustee based upon an Opinion of Counsel
that the holding of an Ownership Interest in a Class R Certificate by such
Person may cause the Trust Fund or any Person having an Ownership Interest in
any Class of Certificates, other than such Person, to incur a liability for any
federal tax imposed under the Code that would not otherwise be imposed but for
the Transfer of an Ownership Interest in a Class R Certificate to such Person.
The terms "United States", "State" and "international organization" shall have
the meanings set forth in Section 7701 of the Code or successor provisions.
<PAGE>
-2-
3. That the Owner is aware (i) of the tax that would be imposed on
transfers of the Class R Certificates to disqualified organizations under the
Code that applies to all transfers of the Class R Certificates after March 31,
1988; (ii) that such tax would be on the transferor, or, if such transfer is
through an agent (which person includes a broker, nominee or middleman) for a
disqualified organization Transferee, on the agent; (iii) that the person
otherwise liable for the tax shall be relieved of liability for the tax if the
transferee furnishes to such person an affidavit that the transferee is not a
disqualified organization and, at the time of transfer, such person does not
have actual knowledge that the affidavit is false and; (iv) that the Residual
Certificates may be "noneconomic residual interests" within the meaning of
Treasury regulation section 1.860E-1(c)(2) 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 is to enable the transferor to impede the assessment or
collection of tax.
4. That the Owner is aware of the tax imposed on a "pass-through
entity" holding the Class R Certificates if at any time during the taxable year
of the pass-through entity a non-Permitted Transferee is the record holder of an
interest in such entity. For this purpose, a "pass through entity" includes a
regulated investment company, a real estate investment trust or common trust
fund, a partnership, trust or estate, and certain cooperatives.
5. That the Owner is aware that the Trustee will not register the
transfer of any Class R Certificates unless the transferee, or the transferee's
agent, delivers to the Trustee, among other things, an affidavit in
substantially the same form as this affidavit. The Owner expressly agrees that
it will not consummate any such transfer if it knows or believes that any of the
representations contained in such affidavit and agreement are false.
6. That the Owner consents to any additional restrictions or
arrangements that shall be deemed necessary upon advice of counsel to constitute
a reasonable arrangement to ensure that the Class R Certificates will only be
owned, directly or indirectly, by Owners that are Permitted Transferees.
7. That the Owner's taxpayer identification number is __________.
8. That the Owner has reviewed the restrictions set forth on the face
of the Class R Certificates and the provisions of Section 5.02 of the Pooling
and Servicing Agreement under which the Class R Certificates were issued (and,
in particular, the Owner is aware that such Section authorizes the Trustee to
deliver payments to a person other than the Owner and negotiate a mandatory sale
by the Trustee in the event that the Owner holds such Certificate in violation
of Section 5.02); and that the Owner expressly agrees to be bound by and to
comply with such restrictions and provisions.
9. That the Owner is not acquiring and will not transfer the Class R
Certificates in order to impede the assessment or collection of any tax.
<PAGE>
-3-
10. That the Owner anticipates that it will, so long as it holds the
Class R Certificates, have sufficient assets to pay any taxes owed by the holder
of such Class R Certificates.
11. That the Owner has no present knowledge that it may become
insolvent or subject to a bankruptcy proceeding for so long as it holds the
Class R Certificates.
12. That the Owner has no present knowledge or expectation that it
will be unable to pay any United States taxes owed by it so long as any of the
Certificates remain outstanding. In this regard, the Owner hereby represents to
and for the benefit of the Person from whom it acquired the Class R Certificates
that the Owner intends to pay taxes associated with holding the Class R
Certificates as they become due, fully understanding that it may incur tax
liabilities in excess of any cash flows generated by the Class R Certificates.
13. That the Owner is not acquiring the Class R Certificates with the
intent to transfer the Class R Certificates to any person or entity that will
not have sufficient assets to pay any taxes owed by the holder of such Class R
Certificates, or that may become insolvent or subject to a bankruptcy
proceeding, for so long as the Class R Certificates remain outstanding.
14. That Owner will, in connection with any transfer that it makes of
the Class R Certificates, obtain from its transferee the representations
required by Section 5.02(d) of the Pooling and Servicing Agreement under which
the Class R Certificates were issued and will not consummate any such transfer
if it knows, or knows facts that should lead it to believe, that any such
representations are false.
15. That Owner will, in connection with any transfer that it makes of
the Class R Certificates, deliver to the Trustee an affidavit, which represents
and warrants that it is not transferring the Class R Certificates to impede the
assessment or collection of any tax and that it has no actual knowledge that the
proposed transferee: (i) has insufficient assets to pay any taxes owed by such
transferee as holder of the Class R Certificates; (ii) may become insolvent or
subject to a bankruptcy proceeding, for so long as the Class R Certificates
remain outstanding and; (iii) is not a "Permitted Transferee".
16. That the Owner is a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in, or under the
laws of, the United States or any political subdivision thereof, or an estate or
trust whose income from sources without the United States is includible in gross
income for United States federal income tax purposes regardless of its
connection with the conduct of a trade or business within the United States.
<PAGE>
-4-
17. The Purchaser is not any employee benefit plan subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or the
Internal Revenue Code of 1986, as amended, (the "Code"), nor a Person acting,
directly or indirectly, on behalf of any such plan or using the assets of any
such plan to effect the acquisition of the Class R Certificate (including any
insurance company using funds in its general or separate accounts that may
constitute "plan assets"), and understands that the registration of transfer of
any Certificate to any employee benefit plan, or to any person acting on behalf
of such plan or using the assets of any such plan, will not be made unless such
employee benefit plan delivers an opinion of its counsel, addressed and
satisfactory to the Trustee, the Company and the Master Servicer, to the effect
that the purchase and holding of a Certificate by or on behalf of such employee
benefit plan would not result in the assets of the Trust Fund being deemed to be
"plan assets" and subject to the fiduciary responsibility provision of ERISA or
the prohibited transaction provisions of the Code (or comparable provisions of
subsequent enactments), would not constitute or result in a prohibited
transaction under section 406 of ERISA or section 4975 of the Code, and would
not subject the Company, the Master Servicer or the Trustee to any obligation or
liability (including liabilities under ERISA or Section 4975 of the Code) in
addition to those undertaken in the Pooling and Servicing Agreement or any other
liability. The Purchaser understands that under current law such an opinion
cannot be rendered. In the case of any transfer of the foregoing Certificates to
an insurance company, in lieu of such opinion of counsel, the transferee may
provide a certification substantially to the effect that all funds used by such
transferee to purchase such Certificates will be funds held by it in its general
account which it reasonably believes do not constitute "plan assets" of any
Plan.
<PAGE>
-5-
IN WITNESS WHEREOF, the Owner has caused this instrument to be
executed on its behalf, by its [TITLE OF OFFICER], attested by its [Assistant
Secretary], this ___ day of ____________, 199_.
[NAME OF OWNER]
By: _________________________
Name: [NAME OF OFFICER]
Title: [TITLE OF OFFICER]
ATTEST:
_______________________________
[Assistant] Secretary
Personally appeared before me the above-named [NAME OF OFFICER], known
or proved to me to be the same person who executed the foregoing instrument and
to be a [TITLE OF OFFICER] of the Owner, and acknowledged to me that he or she
executed the same as his or her free act and deed and the free act and deed of
the Owner.
Subscribed and sworn before me this _____ day of _______, 199_.
______________________________
NOTARY PUBLIC
COUNTY O ___________________
STATE OF ___________________
My Commission expires the ____ day of
________________, 19__.
<PAGE>
EXHIBIT G-2
Form of Transferor Certificate
___________________, 19__
[Depositor]
[Name of Trustee]
[Address of Trustee]
Attention:
Re: MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 199_-____, CLASS R
Dear Sirs:
This letter is delivered to you in connection with the sale by
___________________________ (the "Seller") to _____________________________ (the
"Purchaser") of $_____________ Initial Certificate Principal Balance of Mortgage
Pass-Through Certificates, Series 199_-____, Class R (the "Certificates"),
pursuant to Section 5.02 of the Pooling and Servicing Agreement (the "Pooling
and Servicing Agreement"), dated as of _____________ 1, 199_ among WMC Secured
Assets Corp., as seller (the "Company"), [Name of Master Servicer], as master
servicer, and [Name of Trustee], as trustee (the "Trustee"). All terms used
herein and not otherwise defined shall have the meaning set forth in the Pooling
and Servicing Agreement. The Seller hereby certifies, represents and warrants
to, and covenants with, the Company and the Trustee that:
1. No purpose of the Seller relating to the transfer of the
Certificates by the Seller to the Purchaser is or will be to impede the
assessment or collection of any tax.
2. The Seller understands that the Purchaser has delivered to the
Trustee and the Master Servicer a transfer affidavit and agreement in the form
attached to the Pooling and Servicing Agreement as Exhibit G-1. The Seller does
not know or believe that any representation contained therein is false.
3. The Seller has at the time of the transfer conducted a reasonable
investigation of the financial condition of the Purchaser as contemplated by
Treasury Regulations Section 1.860E-1(c)(4)(i) and, as a result of that
investigation, the Seller has determined that the Purchaser has historically
paid its debts as they become due and has found no significant evidence to
indicate that the Purchaser will not continue to pay its debts as they become
due in the future. The Seller understands that the transfer of the Certificates
may not be respected for United States income tax purposes (and the Seller may
continue to be liable for United States income taxes associated therewith)
unless the Seller has conducted such an investigation.
<PAGE>
-2-
4. The Seller has no actual knowledge that the proposed Transferee is
a Disqualified Organization, an agent of a Disqualified Organization or a
Non-United States Person.
Very truly yours,
___________________________
(Seller)
By: _______________________
Name: _____________________
Title: ____________________
<PAGE>
-3-
EXHIBIT G-5
FORM OF INVESTOR REPRESENTATION LETTER
[for Insurance Companies]
_____________, 199_
[Depositor]
[Name of Trustee]
[Address of Trustee]
Attention: Corporate Trust
Re: Mortgage Pass-Through Certificate
SERIES 199_-____, CLASS
Dear Sirs:
___________ (the "Purchaser") intends to purchase from __________ (the
"Seller") $__________ Initial Certificate Principal Balance of Mortgage
Pass-Through Certificates, Series 199_-____, Class __ (the "Certificate"),
issued pursuant to the Pooling and Servicing Agreement (the "Pooling and
Servicing Agreement"), dated as _____________ 1, 199_ among WMC Secured Assets
Corp., as seller (the "Company"), [Name of Master Servicer], as master servicer,
and [Name of Trustee], as trustee (the "Trustee"). All terms used herein and not
otherwise defined shall have the meanings set forth in the Pooling and Servicing
Agreement. The Purchaser hereby certifies, represents and warrants to, and
covenants with, the Company and the Trustee that:
1. The certificates purchased pursuant hereto will not be
transferred to any employee benefit plan or other retirement
arrangement including individual retirement accounts and Keogh plans
that is subject to Section 406 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or Section 4975 of the Code
(any of the foregoing, a "Plan").
<PAGE>
-4-
2. The Purchaser is an insurance company and all funds used by
the Purchaser in connection with the purchase of such certificates are
and will be, funds held by the Purchaser in its general account which
the Purchaser reasonably believes do not constitute "plan assets" as
defined under Section 406 of ERISA or Section 4975 of the Code of any
Plan.
Very truly yours,
____________________________________
By:_________________________________
Name:_______________________________
Title:______________________________
[
<PAGE>
EXHIBIT H
MORTGAGE LOAN SCHEDULE
<PAGE>
EXHIBIT I
SELLER'S WARRANTY CERTIFICATE
This Seller's Warranty Certificate, dated _____________ __, 199_, is
executed and delivered by [Name of Seller], a _________ corporation (the
"Seller").
PRELIMINARY STATEMENT
The Seller and WMC Mortgage Corp. ("WMC") are parties to the Standard Terms
and Conditions of Agreement Effective _________ __, 199_ and the Standard Terms
and Conditions of Agreement Effective ________ _, ____ (each a "Standard Terms
Agreement") and to various Mortgage Loan Purchase Agreements entered into
thereunder.
All of the Mortgage Loans have been previously sold by the Seller to WMC in
accordance with the related Standard Terms Agreement and the related Mortgage
Loan Purchase Agreements.
WMC has notified the Seller that WMC intends to assign the Mortgage Loans
to WMC Secured Assets Corp. (the "Depositor"), and that the Depositor intends to
deposit the Mortgage Loans into a trust fund (the "Trust Fund") evidenced by
Mortgage Pass-Through Certificates, Series 199_-____ (the "Certificates"). The
Certificates will be issued pursuant to a Pooling and Servicing Agreement (the
"Pooling and Servicing Agreement") among the Depositor, [Name of Trustee] as
trustee (in such capacity, the "Trustee"), and [Name of Master Servicer], as
master servicer (the "Master Servicer"), dated as of ____________ 1, 199_ (the
"Cut-off Date"). The Certificates are described more fully in the related
Prospectus Supplement (the "Prospectus Supplement") dated __________ __, 199_,
to the prospectus (the "Prospectus") dated _____________ __, 199_. Capitalized
terms used but not defined herein shall have the respective meanings assigned in
the related Standard Terms Agreements and the Pooling and Servicing Agreement,
as applicable.
Pursuant to the terms of the Pooling and Servicing Agreement, the Depositor
shall assign to the Trustee all of its right, title and interest in and to the
Mortgage Loans, and other rights and obligations under this Agreement (except
with respect to its rights to either indemnification or notice) and the Trustee
shall succeed to such right, title and interest and rights and obligations
hereunder of the Depositor.
Pursuant to the foregoing, the Seller hereby certifies to the following:
SECTION 1. DELIVERY OF MORTGAGE FILES. On or before the date hereof (the
"REMIC Closing Date"), the Seller shall have delivered the documents or
instruments specified below with respect to each Mortgage Loan (each a "Mortgage
File") to [Name of Trustee] (acting in such capacity, the "Custodian"), pursuant
to the [Tri-Party Custody Agreement] dated ________ ______ __, 199_, as amended
(the "Custody Agreement") and the Custodial Agreement, dated ____________ 1,
199_, in each case among WMC, the Seller and the Custodian.
<PAGE>
-2-
Each Mortgage File contains the following documents:
(a) the original mortgage note, naming the Seller as the holder/payee
thereof (or, if the Seller is not the original holder/payee thereof,
bearing all endorsements necessary to evidence a complete and unbroken
chain of endorsements from the original holder/payee to the Seller) and
endorsed by the Seller "Pay to the order of [Name of Trustee], as trustee
for holders of WMC Secured Assets Corp., Mortgage Pass-Through
Certificates, without recourse";
(b) the original mortgage or deed of trust ("Mortgage"), naming the
Seller as the "mortgagee" or "beneficiary" thereof (or, if the Seller is
not the original mortgagee/beneficiary thereof, such Mortgage together with
all assignments necessary to evidence the complete and unbroken chain of
intervening assignments from the original mortgagee/beneficiary to the
Seller), and bearing evidence that such instrument has been recorded in the
appropriate jurisdiction where the underlying property securing the
Mortgage Loan (the "Mortgaged Property") is located (or, in lieu of the
original of the recorded Mortgage, a duplicate or conformed copy of the
Mortgage, together with a certificate of an officer of the Seller
certifying that such copy represents a true and correct copy of the
original and that such original has been submitted to the title insurance
company for recordation in the appropriate governmental recording office of
the jurisdiction where the Mortgaged Property is located, or a certificate
of receipt from the recording office, certifying that such copy represents
a true and correct copy of the original and that such original has been
submitted for recordation in the appropriate governmental recording office
of the jurisdiction where the Mortgaged Property is located);
(c) an original assignment of the Mortgage executed by the Seller,
without recourse, to "[Name of Trustee], as trustee for holders of WMC
Secured Assets Corp., Mortgage Pass-Through Certificates, without recourse,
with evidence of recording thereon, and the original of any intervening
assignment of the Mortgage, including any warehousing assignment, necessary
to evidence a complete and unbroken chain of assignments from the original
mortgagee/beneficiary to the Seller and bearing evidence that each such
instrument has been recorded in the appropriate jurisdiction where the
Mortgaged Property is located (or, in lieu of any such original recorded
assignment of Mortgage or any such original recorded intervening assignment
of Mortgage, a duplicate or conformed copy of such assignment of Mortgage,
together with a certificate of an officer of the Seller or the Originator
certifying that such copy represents a true and correct copy of the
original and that such original has been submitted to the title insurance
company for recordation in the appropriate governmental recording office of
the jurisdiction where the Mortgaged Property is located, or a certificate
of receipt from the recording office, certifying that such copy represents
a true and correct copy of the original and that such original has been
submitted for recordation in the appropriate governmental recording office
of the juris diction where the Mortgaged Property is located);
<PAGE>
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(d) the original lender's title insurance policy, or, if such policy
has not been issued, any one of an original or a copy of the preliminary
title report, title binder or title commitment on the Mortgaged Property
with the original policy of the insurance to be delivered promptly
following the receipt thereof;
(e) the original of any assumption, modification, extension or
guaranty agreement;
(f) the original or a copy of the private mortgage insurance policy or
original certificate of private mortgage insurance, if applicable;
(g) if the mortgage note, the Mortgage, any assignment of Mortgage or
any other related document has been signed by a person on behalf of the
mortgagor, the original power of attorney or other instrument that
authorized and empowered such person to sign, or a duplicate or conformed
copy of the power of attorney or other instrument, together with a
certification of an officer of the Seller or of the applicable title
insurance company or escrow company certifying that such copy represents a
true and correct copy of the original; and
(h) The original or a copy of the Certificate of Pool Insurance issued
by GEMICO, UGI or PMI, if applicable.
Within five days of the receipt by the Seller of the Assignment of Mortgage
with evidence of recordation thereon, or a copy thereof certified by the
applicable recording office, but in no event later than 120 days after the REMIC
Closing Date, the Seller shall deliver such Assignment of Mortgage to the
Trustee.
In the event that the recorded Assignment of Mortgage, or a certified copy
thereof, is not delivered to the Trustee within 120 days of the REMIC Closing
Date, the Seller shall be obligated to repurchase or substitute the related
Mortgage Loan as provided in Section 3. The Seller will also pay the fees of the
Trustee incurred in connection with the removal and replacement of each
Assignment of Mortgage delivered for recording, as well as the fees of the
Trustee incurred in connection with the addition of any title insurance policy
or recorded Mortgage to the related Mortgage File.
Within five days of the Seller's receipt thereof, but in no event later
than 120 days after the REMIC Closing Date, the Seller shall deliver to the
Trustee: (i) the original recorded Mortgage in those instances where an original
was not delivered to the Custodian on or prior to the applicable Purchase Date;
(ii) the original policy of title insurance or a true and correct copy thereof
in those instances where a marked up commitment (binder) to issue such policy or
preliminary policy was delivered to the Custodian; and (iii) any other original
documents constituting a part of a Mortgage File received with respect to any
Mortgage Loan, including, but not limited to, any original documents evidencing
the assumption or modification of any Mortgage Loan.
<PAGE>
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Subject to the next succeeding sentence, in the event that the Seller is
not able to deliver with respect to a given Mortgage Loan the documents referred
to in the above paragraph within 120 days of the REMIC Closing Date, such
Mortgage Loan shall be repurchased by the Seller in the manner provided in
Section 3. With respect to any Mortgage Loan, in the event that the Seller is
unable to deliver the original recorded Mortgage, the original recorded
Assignment of Mortgage, any recorded intervening assignments of the Mortgage or
any assumption or modification agreement or the original policy of title
insurance, duplicate policy or a true and correct copy thereof within the
applicable time period and such failure of timely delivery (i) is solely the
result of a delay caused by the recording office, in the case of the Mortgage,
the Assignment of Mortgage, any intervening assignments of Mortgage or any
assumption and modification agreements, or (ii) is solely the result of acts or
omissions on the part of the applicable title insurance company, in the case of
the title insurance policy, then the Seller shall be afforded additional time to
deliver such document or documents; provided that such document or documents
shall be delivered within the time period required by the applicable Pooling and
Servicing Agreement.
The Seller shall deliver to the Master Servicer or its designee all
original documents relating to the Mortgage Loans that are not delivered to the
Depositor or the Trustee, other than original documents required to be held by
the Seller pursuant to applicable mortgage lending laws, rules and regulations
of the jurisdiction in which the Mortgaged Property is located (in lieu of which
the Seller shall deliver photocopies). In the event that any original document
held by the Seller is required pursuant to the terms of this Section to be a
part of a Mortgage File, such document shall be delivered promptly to the
Trustee.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller hereby
represents and warrants to and for the benefit of the Depositor and its
affiliates and the Trustee that as of the REMIC Closing Date (or such other date
specifically provided herein):
(i) no written information, certificate of an officer, statement
furnished in writing or written report delivered to WMC, any affiliate of
WMC, the Master Servicer or the Trustee and prepared by the Seller will
contain any untrue statement of a material fact or omit to state a material
fact necessary to make the information, certificate, statement or report
not misleading;
(ii) each of the representations and warranties contained in
Exhibits 2-A and 2-B hereto is true and correct. With respect to such
representations and warranties which are made to the best of the Seller's
knowledge, if the Seller discovers or receives written notice, which may
come from the Purchaser, the Servicer, the Custodian or any Interested
Party, that the substance of such representation and warranty is inaccurate
and such inaccuracy materially and adversely affects the interest of the
Purchaser or any Interested Person in the related Mortgage Loan,
notwithstanding the Seller's lack of knowledge with respect to the
substance of such representation of warranty, such inaccuracy shall be
deemed a breach thereof;
[
<PAGE>
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(iii) as of the date of the Prospectus Supplement and as of the
REMIC Closing Date, the Seller's Information will be true and accurate and
will not contain any 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, in light of the circumstances in which they are made,
not misleading. For purposes hereof and of each of the related Standard
Terms Agreements, the "Seller's Information" shall include all information
included in the Prospectus Supplement under the headings "Summary of
Prospectus Supplement--The Mortgage Pool" and "Description of the Mortgage
Pool", or elsewhere in the Prospectus Supplement with respect to the
matters discussed under such captions, to the extent based upon any
information provided by or approved by the Seller including the information
in the Mortgage Loan Schedules attached hereto as Exhibits 1 and the
Seller's representations and warranties relating to the Mortgage Loans
attached hereto as Exhibits.
SECTION 3. CURE, REPURCHASE, AND INDEMNITY OBLIGATIONS OF THE SELLER. Each
of the representations and warranties contained in or required to be made
pursuant to Section 2 shall survive the transfer of the Mortgage Loans to the
Trustee and shall continue in full force and effect, notwithstanding any
restrictive or qualified endorsement on the mortgage notes and notwithstanding
subsequent termination of the related Standard Terms Agreement, this Certificate
or the Pooling and Servicing Agreement. The representations, warranties and
covenants contained herein shall not be impaired by any review or examination of
the Mortgage Files or other docu ments evidencing or relating to the Mortgage
Loans by the Depositor, its affiliates or agents or any failure on the part of
the Depositor, its affiliates or agents to review or examine such documents, and
shall inure to the benefit of any transferee of the Mortgage Loans from the
Depositor including, without limitation, the Trustee for the benefit of holders
of the Certificates.
Within 90 days of the earlier of discovery by the Seller or receipt of
notice of a breach of any of the representations and warranties of the Seller
set forth in or required to be made pursuant to Section 2 which materially and
adversely affects the interests of the Depositor or the Certificateholders or
any other transferee in any Mortgage Loan, the Seller shall, not later than 90
days after its receipt of notice of such defect, (i) cure such breach in all
material respects, or (ii) repurchase the related Mortgage Loan if such defect
cannot be corrected or cured at a price equal to the sum of (a) 100% of the
outstanding principal balance thereof, (b) unpaid accrued interest thereon from
the due date to which interest was last paid by the mortgagor to the first day
of the month following the month of repurchase at a rate equal to the related
mortgage rate, (c) all amounts advanced by the Master Servicer on the Mortgage
Loan and not reimbursed, and (d) all expenses reasonably incurred or to be
incurred by the Depositor, the Master Servicer or the Trustee in respect of the
breach or defect giving rise to the repurchase obligation, including any
expenses in connection with servicing a Mortgage Loan that has gone into default
and which subsequently is determined to be eligible for repurchase or arising
out of the enforcement of the repurchase obligation (the "Repurchase Price"), or
(iii) substitute a Qualified Substitute Mortgage Loan in place of such Deleted
Mortgage Loan in accordance with Section 2.04 of the Pooling and Servicing
Agreement.
<PAGE>
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Upon discovery of any defective document in a Mortgage File relating to a
Mortgage Loan which materially and adversely affects the interests of the
Depositor or the Certificateholders or any other transferee in any Mortgage
Loan, the Trustee shall notify the Seller of such defect and request that the
Seller cure such defect within 60 days from the date the Seller was notified of
such defect. In the event that any such defect cannot be corrected or cured
within such 90-day period, the Seller shall (i) repurchase the related Mortgage
Loan at the Repurchase Price or (ii) substitute a Qualified Substitute Mortgage
Loan for the related Deleted Mortgage Loan as provided for in accordance with
Section 2.04 of the Pooling and Servicing Agreement.
If the first scheduled Monthly Payment with respect to a Mortgage Loan is
not made within 30 days of the due date in accordance with the terms of the
related Mortgage Note, such Mortgage Loan will be substituted or repurchased by
the Seller in the manner provided in this Section 3.
<PAGE>
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SECTION 4. PURCHASE OF CERTAIN CONVERTIBLE MORTGAGE LOANS FROM TRUSTEE.
Upon notification that the related Mortgagor intends to exercise the option to
convert a Convertible Mortgage Loan to a fixed interest rate Mortgage Loan the
Seller shall promptly, and in no event after the day on which such Convertible
Mortgage Loan converts to a fixed interest rate, purchase such Convertible
Mortgage Loan from the Trust Fund by depositing into the Custodial Account the
Purchase Price.
IN WITNESS WHEREOF, the Seller has caused this Certificate to be signed by
its duly authorized officer as of the date first above written.
[NAME OF MASTER SERVICER]
By _______________________
Name:
Title:
<PAGE>
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EXHIBIT 1
MORTGAGE LOAN SCHEDULE
<PAGE>
EXHIBIT 2
GROUP I MORTGAGE LOANS
(ADJUSTABLE RATE MORTGAGE LOANS)
SELLER'S REPRESENTATIONS AND WARRANTIES
The Seller hereby represents and warrants to and for the benefit of the
Depositor and the Trustee, as to each Mortgage Loan, that as of the Closing Date
or as of such other date specifically provided herein:
[Sample representations and warranties:]
(i) The information set forth on the Mortgage Loan Schedule with
respect to each Mortgage Loan is true and correct in all material respects
as of the REMIC Closing Date;
(ii) No more than _____% of the Mortgage Loans, based on the
Cut-off Date Principal Balance, are located in any one zip code area;
(iii) No more than _____% of the Mortgaged Properties, based on
the Cutoff Date Pool Principal Balance, were located in the State of
California;
(iv) No more than _____% of the Mortgage Loans, based on the
Cut-off Date Pool Principal Balance, were secured by condominium units; no
more than -----% of the Mortgage Loans, based on the Cut-off Date Pool
Principal Balance, were secured by properties in planned unit developments;
(v) At least _____% of the Mortgage Loans, based on the Cut-off
Date Pool Principal Balance, were secured by a first lien on a parcel of
real property improved by a single family residence; and no more than
_____% of the Mortgage Loans, based on the Cut-off Date Pool Principal
Balance, were secured by a first lien on a parcel of real estate improved
by a two-to four-unit single family residence;
(vi) No Mortgage Loan at origination had a principal balance less
than $________; no more than _____% of the Mortgage Loans, based on the
Cut-off Date Pool Principal Balance, had original principal balances in
excess of $_________; the average Cut-off Date Principal Balance of
Mortgage Loans in the Mortgage Pool was $---------;
(vii) At least _____% of the Mortgage Loans, by Cut-off Date Pool
Principal Balance, were secured by owner-occupied primary residences; less
than __% of the Mortgage Loans, by Cut-off Date Pool Principal Balance,
were secured by second homes or vacation homes of the related Mortgagors;
and no more than _____% of the Mortgage Loans, by Cut-off Date Principal
Balance, were secured by investor-owned properties;
<PAGE>
(viii) Each Mortgage Loan in the Mortgage Pool will have a first
payment due date on or after ____________ 1, 199_;
(ix) Each Mortgage Loan will have been originated on or before
_______________, 199_.
(x) The Mortgage Interest Rates borne by the Mortgage Loans in
the Mortgage Pool as of the Cut-off Date range from _____% per annum to
______% per annum and the weighted average Mortgage Interest Rate, based on
the Cut-off Date Pool Principal Balance, was _____% per annum;
(xi) Approximately _____% of the Mortgage Loans, based on the
Cut-off Date Pool Principal Balance, were rate and term refinance Mortgage
Loans; approximately _____% of the Mortgage Loans, based on the Cut-off
Date Pool Principal Balance, were "cash-out refi's" (as defined in the
Seller's Underwriting Guide); and approximately _____% of the Mortgage
Loans, based on the Cut-off Date Pool Principal Balance, were made in order
to purchase the related Mortgaged Properties;
(xii) No Mortgage Loan in the Mortgage Pool shall have had an LTV
at origination in excess of _____% or a CLTV in excess of _____%; the
weighted average LTV, based on the Cut-off Date Pool Principal Balance, was
equal to or less than _____%; no more than _____% of the Mortgage Loans,
based on the Cut-off Date Pool Principal Balance, shall have an LTV in
excess of 80% and each such Mortgage Loan is subject to a policy of primary
mortgage insurance, issued by ___________ insuring the excess balance above
75% until such balance is reduced to 80% of the Appraised Value;
(xiii) No more than _____% of the Mortgage Loans, based on the
Cut-off Date Pool Principal Balance, have financing on the related
Mortgaged Property subordinate to the lien of such Mortgage Loan;
(xiv) The gross margins on the Mortgage Loans range from _____%
to _____%. The weighted average gross margin on the Mortgage Loans is
_____%.
(xv) There is no delinquent tax or assessment lien against any
Mortgaged Property;
(xvi) 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, and any
applicable right of rescission has expired;
(xvii) 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 (vii) below;
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<PAGE>
(xviii) To the best of the Seller's knowledge each Mortgaged
Property is free of material damage and is in good repair;
(xix) Each Mortgage is a valid and enforceable first lien on the
Mortgaged Property subject only to (1) the lien of nondelinquent current
real property taxes and assessments, (2) 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 (3) other matters to which
like properties are commonly subject that do not materially interfere with
the benefits of the security intended to be provided by such Mortgage;
(xx) 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, including without limitation, the receipt
of interest by the owner of such Mortgage Loan or the holders of
Certificates evidencing an interest therein, will not involve the violation
of any such laws.
(xxi) 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, if
necessary to protect the interests of the owner of such Mortgage Loan or
the holders of Certificates evidencing an interest therein and which has
been delivered to the Trustee); satisfied, canceled or subordinated such
Mortgage in whole or in part; released the applicable Mortgaged Property in
whole or in part from the lien of such Mortgage; or executed any instrument
of release, cancellation or satisfaction with respect thereto;
(xxii) A lender's policy of title insurance insuring the first
lien priority of the Mortgage Loan, together with a condominium endorsement
and extended coverage endorsement, if applicable, and an 8.1 ALTA
environmental endorsement or equivalent endorsement in an amount at least
equal to the original principal balance of each such Mortgage Loan, or a
commitment binder, commitment to issue the same or preliminary policy
affirmatively insuring ingress and egress and insuring against
encroachments by or upon the Mortgaged Property on the standard ALTA form,
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 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; 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 applicable Mortgage, including
the Seller, has done, by act or omission, anything which would impair the
coverage of such mortgage title insurance policy;
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<PAGE>
(xxiii) Each Mortgage Loan was originated or funded by (a) a
savings and loan association, savings bank, commercial bank, credit union,
insurance company or similar institution which is supervised and examined
by a federal or state authority (or originated by (i) a subsidiary of any
of the foregoing institutions which subsidiary is actually supervised and
examined by applicable regulatory authorities or (ii) a mortgage loan
correspondent of any of the foregoing and that was originated pursuant to
the criteria established by any of the foregoing) or (b) a mortgagee
approved by the Secretary of Housing and Urban Development pursuant to
sections 203 and 211 of the National Housing Act, as amended;
(xxiv) With respect to each Mortgage Loan, the applicable
Mortgage Note provides for an adjustable rate of interest, is payable on
the first day of each month in self- amortizing monthly installments of
principal and interest, with interest payable in arrears, and requires a
payment which is sufficient to fully amortize the outstanding principal
balance of the Mortgage Loan over its remaining term and to pay interest at
the applicable Mortgage Interest Rate. No Mortgage Loan is subject to
negative amortization or has a maximum original term of more than 30 years;
(xxv) 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;
(xxvi) No improvement located on or being part of the Mortgaged
Property is in violation of any applicable zoning law or regulation. 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 and fire underwriting certificates, have
been made or obtained from the appropriate authorities and the Mortgaged
Property is lawfully occupied under applicable law;
(xxvii) All parties that have had any interest in the Mortgage,
whether as Mortgagee, assignee, pledgee or otherwise, are (or, during the
period in which they held and disposed of such interest, were) (1) in
compliance with any and all applicable licensing requirements of the laws
of the state wherein the Mortgaged Property is located, and (2)(A)
organized under the laws of such state, or (B) qualified to do business in
such state, or (C) federal savings and loan associations or national banks
having principal offices in such state, or (D) not doing business in such
state;
(xxviii) Each Mortgage Note and the applicable Mortgage are
genuine, and each is the legal, valid and binding obligation of the maker
thereof, enforceable in accordance with its terms, except as limited by
bankruptcy, insolvency, moratorium, receivership and other similar laws
relating to creditors' rights generally or by equitable principles. All
parties to the Mortgage Note and the Mortgage had legal capacity to execute
the Mortgage
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<PAGE>
Note and the Mortgage and each Mortgage Note and Mortgage has been duly and
properly executed by such parties.
(xxix) The proceeds of the Mortgage Loans 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 disbursement of any escrow funds therefor have been complied with.
All costs, fees and expenses incurred in making, closing or recording the
Mortgage Loans were paid;
(xxx) Each Mortgage contains customary and enforceable provisions that
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. There is no
homestead or other exemption available to the Mortgagor which would
interfere with the right to sell the Mortgaged Property at a trustee's sale
or the right to foreclose the Mortgage;
(xxxi) 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;
(xxxii) Each Mortgage Note and each Mortgage is in substantially one
of the forms approved by FNMA and FHLMC.
(xxxiii) Each Mortgaged Property is suitable for year-round occupancy;
(xxxiv) 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 deficits or payments of
other charges or payments due the Seller have been capitalized under the
Mortgage or the applicable Mortgage Note;
(xxxv) The origination, underwriting and collection practices used by
the Seller or any originator with respect to each Mortgage Loan have been
in all respects legal, proper, prudent and customary in the mortgage
servicing business;
(xxxvi) There is no pledged account or other security other than real
estate securing the Mortgagor's obligations;
(xxxvii) No Mortgage Loan has a shared appreciation feature, or other
contingent interest feature;
(xxxviii) With respect to each Mortgage Loan secured by a leasehold
estate:
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<PAGE>
(1) The leasehold created by direct lease of the freehold
estate, the ground lease or memorandum thereof has been recorded,
and by its terms permits the leasehold estate to be mortgaged.
The ground lease grants any leasehold mortgagee standard
protections necessary to protect the security of a leasehold
mortgagee including the right of the leasehold mortgagee to
receive notice of the lessee's default under the ground lease;
the right of the leasehold mortgagee, with adequate time, to cure
such default; and, in the case of incurable defaults of the
lessee, the right of the leasehold mortgagee to enter into a new
ground lease with the lessor on terms financially identical and
otherwise substantially identical to the existing ground lease;
(2) The ground lease was at the origination of the Mortgage
Loan, and is, in full force and effect without any outstanding
defaults, and was and is not subject to liens and encumbrances;
(3) The ground lease has an original term which extends not
less than ten (10) years beyond the term of the Mortgage; and
(4) The fee estate of the lessor under the ground lease is
encumbered by the ground lease, and any lien of any present or
future fee mortgagee is and will be subject to and subordinate to
the ground lease. The foreclosure of the fee mortgage will not
terminate the leasehold estate or the rights of the sub-tenants,
and the fee mortgage is subject to the ground lease;
(xxxix) Each Mortgage Loan contains a customary "due on sale"
clause;
(xl) No Mortgage Loan provides for a prepayment penalty;
(xli) The improvements upon each Mortgaged Property are covered
by a valid and existing hazard insurance policy with a generally acceptable
carrier which policy provides for fire extended coverage and such other
hazards as are customary in the area where the Mortgaged Property is
located representing coverage not less than the minimum amount required to
compensate for damage or loss on a replacement cost basis. All individual
insurance policies contain a standard mortgagee clause naming the Seller or
the original holder of the Mortgage, 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 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;
(xlii) 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
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<PAGE>
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 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;
(xliii) There is no proceeding pending or, to the best of the
Seller's knowledge, threatened for the total or partial condemnation for
any Mortgaged Property, nor is such a proceeding currently occurring, and
such property is undamaged by waste, fire, earthquake or earth movement;
(xliv) There is no default, breach, violation or event of
acceleration existing under the Mortgage or the applicable Mortgage Note;
and the Seller has not waived by default, breach, violation or event of
acceleration;
(xlv) The Mortgaged Properties do not include cooperatives or
mobile homes and do not constitute other than real property under state
law;
(xlvi) Prior to its respective Closing Date, each Mortgage Loan
is being serviced by the Seller;
(xlvii) There is no obligation on the part of the Seller or any
other party to make any payments in addition to the Monthly Payments
required to be made by the applicable Mortgagor;
(xlviii) Any future advances made prior to the applicable Cut-off
Date with respect to any Mortgage Loan have been consolidated with the
outstanding principal amount secured by such 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 with respect to any Mortgage Loan does not
permit or obligate the Servicer to make future advances to the Mortgagor at
the option of the Mortgagor;
(xlix) The Seller has caused or will cause to be performed any
and all acts required to preserve the rights and remedies of the Purchaser
and any Interested Person evidencing an interest in the Mortgage Loans in
any insurance policies applicable to the Mortgage Loans including, without
limitation, any necessary notifications of insurers, assignments of
policies or interests therein, and establishments of coinsured, joint loss
payee and mortgagee rights in favor of the Purchaser;
(l) There are no defaults in complying with the terms of any
Mortgage, and all taxes, governmental assessments, insurance premiums,
water, sewer and municipal charges, leasehold payments or ground rents
which previously became due and owing have
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<PAGE>
been paid, or, if required by the terms of the Mortgage Loan, 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 greater to the day
which precedes by one month the Due Date of the first installment of
principal and interest, including, without limitation, taxes and insurance
payments, the Servicer has not advanced funds, or induced, solicited or
knowingly received any advance of funds by a party other than the
Mortgagor, directly or indirectly, for the payment of any amount required
by the Mortgage;
(li) The Mortgage File contains an appraisal of the applicable
Mortgaged Property signed prior to the approval of the Mortgage Loan by a
qualified appraiser, duly appointed by the originator or the mortgage loan
broker, as the case may be, 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; the appraisal is in a form acceptable to FNMA and FHLMC and meets the
requirements of the Office of Thrift Supervision or its predecessor as they
existed at the time of origination;
(lii) None of the Mortgage Loans are graduated payment mortgage
loans or growth equity mortgage loans;
(liii) In selecting the Mortgage Loans for sale pursuant hereto,
no selection procedure was employed by the Seller which was intended to
adversely affect the interest of the Purchaser;
(liv) (a) None of the Mortgage Loans shall be 30 days or more
past due as of the applicable Closing Date and (b) no Mortgage Loan shall
have been contractually delinquent for more than one monthly installment
period during the twelve months preceding the applicable Cut-off Date;
(lv) To the Seller's best knowledge, no material
misrepresentation, fraud or similar occurrence with respect to a Mortgage
Loan has taken place on the part of any person involved in the origination
of the Mortgage Loan or in the application of any insurance in relation to
such Mortgage Loan;
(lvi) Upon payment of the purchase price for the Mortgage Loan by
the Purchaser, the Seller has transferred to the Purchaser good and
marketable title to each Mortgage Note and Mortgage free and clear of any
and all liens, claims, encumbrances, participation interests, equities,
pledges, charges or security interests of any nature and has full right and
authority, subject to no participation of or agreement with any other
person, to sell and assign the same;
-8-
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(lvii) The Seller acquired any right, title and interest in and
to the Mortgage Loans in good faith and without notice of any adverse
claim;
(lviii) The Seller has not assigned any interest or participation
in any Mortgage Loan (or, if, any interest or participation has been
assigned, it has been released); (lix) The Seller knows of nothing
involving any Mortgage File, Mortgaged Property or Mortgagor's credit
standing that could reasonably be expected (1) to cause private
institutional investors seeking to invest in mortgage loans originated in
accordance with underwriting criteria established by the Guide to regard
the Mortgage Loan as an unacceptable investment, (2) to cause the Mortgage
Loan to become delinquent or (3) to affect adversely the value of
marketability of the Mortgage Loan;
(lx) The representations and warranties of the Mortgagor in the
mortgage loan application and in connection with the Mortgage Loan are true
and correct in all material respects (and it shall be deemed that a breach
is material only if the Mortgage Loan would not have been made if the
Mortgagor had not provided true and correct information); and
(lxi) Interest on each Mortgage Loan is calculated on the basis
of a 360-day year consisting of twelve 30-day months.
-9-
<PAGE>
EXHIBIT J
Notice Under Section 3.24
___________________, 199_
[Name of Trustee]
[Address of Trustee]
Attention: ____________________________
Re: MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 199_-____
Pursuant to Section 3.24 of the Pooling and Servicing Agreement, dated as
of _____________ 1, 199_, relating to the Certificates* referenced above, the
undersigned does hereby notify you that:
(a) The prepayment assumption used in pricing the Certificates was ___% CPR
or ___% SPA, as applicable.
(b) With respect to each Class of the captioned Certificates, set forth
below is (i), the first price, as a percentage of the Certificate Principal
Balance of each Class of Certificates, at which 10% of the aggregate Certificate
Principal Balance of each such Class of Certificates was first sold at a single
price, if applicable, or (ii) if more than 10% of a Class of Certificates have
been sold but no single price is paid for at least 10% of the aggregate
Certificate Principal Balance of such Class of Certificates, then the weighted
average price at which the Certificates of such Class were sold expressed as a
percentage of the Certificate Principal Balance of such Class of Certificates,
(iii) if less than 10% of the aggregate Certificate Principal Balance of a Class
of Certificates has been sold, the purchase price for each such Class of
Certificates paid by ________________ (the "Underwriter") expressed as a
percentage of the Certificate Principal Balance of such Class of Certificates
calculated by: (1) estimating the fair market value of each such Class of
Certificates as of _______ __, 199_; (2) adding such estimated fair market value
to the aggregate purchase prices of each Class of Certificates described in
clause (i) or (ii) above; (3) dividing each of the fair market values determined
in clause (1) by the sum obtained in clause (2); (4) multiplying the quotient
obtained for each Class of Certificates in clause (3) by the purchase price paid
by the Underwriter for all the Certificates purchased by it; and (5) for each
Class of Certificates, dividing the product obtained from such Class of
Certificates in clause (4) by the -------- * Defined terms used herein and not
otherwise defined herein have the meaning assigned in the Pooling and Servicing
Agreement.
-1-
<PAGE>
initial Principal Balance of such Class of Certificates or (iv) the fair market
value (but not less than zero) as of the Closing Date of each Certificate of
each Class of Certificates retained by the
Depositor or an affiliate corporation, or delivered to the Seller:
Class A-1: ____________________
Class A-2: ____________________
Class A-3: ____________________
Class A-4: ____________________
Class A-5: ____________________
Class A-6: ____________________
Class A-7: ____________________
Class B: ____________________
[*less than 10% has been sold to the public]
The prices and values set forth above do not include accrued interest with
respect to periods before the closing.
WMC SECURED ASSETS
CORP.
By ___________________________________
Name:
Title:
-2-
Exhibit 4.2
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
WMC SECURED ASSETS CORP.
Company,
[NAME OF MASTER SERVICER]
Master Servicer,
and
[NAME OF TRUSTEE],
Trustee
POOLING AND SERVICING AGREEMENT
Dated as of ____________ 1, 199_
Mortgage Pass-Through Certificates
Series 199_-____
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
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Page
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ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms
Accrued Certificate Interest..................................... 2
Adjustment Date.................................................. 2
Advance .................................................... 2
Agreement .................................................... 2
Anniversary .................................................... 2
Assignment .................................................... 2
Assignment Agreement............................................. 3
Available Distribution Amount.................................... 3
Bankruptcy Amount................................................ 3
Bankruptcy Code.................................................. 3
Bankruptcy Loss.................................................. 3
Business Day .................................................... 4
Cash Liquidation................................................. 4
Certificate .................................................... 4
Certificate Account.............................................. 4
Certificate Account Deposit Date................................. 4
Certificateholder" or "Holder.................................... 4
Certificate Owner................................................ 4
Certificate Principal Balance.................................... 4
Certificate Register............................................. 5
Closing Date .................................................... 5
Code .................................................... 5
Collateral Value................................................. 5
Company .................................................... 5
Converted Mortgage Loan.......................................... 5
Convertible Mortgage Loan........................................ 5
Converting Mortgage Loan......................................... 5
Corporate Trust Office........................................... 5
Custodial Account................................................ 5
Cut-off Date .................................................... 5
Debt Service Reduction........................................... 6
Deficient Valuation.............................................. 6
Definitive Certificate........................................... 6
Deleted Mortgage Loan............................................ 6
Determination Date............................................... 6
Distribution Date................................................ 6
Due Date .................................................... 6
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Page
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Due Period .................................................... 6
Duff & Phelps.................................................... 6
Eligible Account................................................. 6
Event of Default................................................. 7
Excess Bankruptcy Loss........................................... 7
Excess Fraud Loss................................................ 7
Excess Special Hazard Loss....................................... 7
Extraordinary Events............................................. 7
Extraordinary Losses............................................. 8
FDIC .................................................... 8
FHLMC .................................................... 8
FNMA .................................................... 8
Fraud Losses .................................................... 8
Fraud Loss Amount................................................ 8
Funding Date .................................................... 8
Gross Margin .................................................... 9
Index .................................................... 9
Initial Certificate Principal Balance............................ 9
Insurance Policy................................................. 9
Insurance Proceeds............................................... 9
Late Collections................................................. 9
Letter of Credit................................................. 9
Letter of Credit Issuer.......................................... 9
Loan-to-Value Ratio.............................................. 10
Master Servicer.................................................. 10
Maximum Interest Rate........................................... 10
Minimum Interest Rate........................................... 10
Monthly Payment................................................. 10
Moody's ................................................... 10
Mortgage ................................................... 10
Mortgage File................................................... 10
Mortgage Loan................................................... 10
Mortgage Loan Schedule.......................................... 11
Mortgage Note................................................... 12
Mortgage Rate................................................... 12
Mortgaged Property.............................................. 12
Mortgagor ................................................... 12
Net Mortgage Rate............................................... 12
Nonrecoverable Advance.......................................... 12
Officers' Certificate........................................... 12
Opinion of Counsel.............................................. 12
OTS ................................................... 13
Outstanding Mortgage Loan....................................... 13
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Page
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Ownership Interest............................................... 13
Pass-Through Rate................................................ 13
Percentage Interest.............................................. 13
Periodic Cap .................................................... 13
Permitted Instruments............................................ 13
Person .................................................... 14
Prepayment Assumption............................................ 14
Prepayment Period................................................ 15
Primary Hazard Insurance Policy.................................. 15
Primary Mortgage Insurance Policy................................ 15
Principal Prepayment............................................. 15
Purchase Price................................................... 15
Qualified Insurer................................................ 15
Qualified Substitute Mortgage Loan............................... 15
Rating Agency.................................................... 16
Realized Loss.................................................... 16
Record Date .................................................... 17
Relief Act .................................................... 17
Remittance Report................................................ 17
REO Acquisition.................................................. 17
REO Disposition.................................................. 17
REO Imputed Interest............................................. 17
REO Proceeds .................................................... 17
REO Property .................................................... 17
Request for Release.............................................. 17
Required Insurance Policy........................................ 17
Responsible Officer.............................................. 18
Seller .................................................... 18
Seller's Warranty Certificate.................................... 18
Servicing Account................................................ 18
Servicing Advances............................................... 18
Servicing Fee.................................................... 18
Servicing Fee Rate............................................... 18
Servicing Officer................................................ 18
Single Certificate............................................... 18
Special Hazard Amount............................................ 19
Special Hazard Percentage........................................ 19
Standard & Poor's................................................ 19
Stated Principal Balance......................................... 19
Sub-Servicer .................................................... 19
Sub-Servicer Remittance Date..................................... 19
Sub-Servicing Account............................................ 19
Sub-Servicing Agreement.......................................... 20
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Page
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Transfer .................................................... 20
Transferor .................................................... 20
Trust Fund .................................................... 20
Trustee .................................................... 20
Trustee's Fee.................................................... 20
Uninsured Cause.................................................. 20
Voting Rights.................................................... 20
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
2.01. Conveyance of Mortgage Loans.............................. 21
2.02. Acceptance of the Trust Fund by the Trustee............... 24
2.03. Representations, Warranties and Covenants of the
Master Servicer and the Company........................... 25
2.04. Representations and Warranties of the Seller; Repurchase
and Substitution.......................................... 27
2.05. Issuance of Certificates Evidencing Interests in the
Trust Fund................................................ 29
ARTICLE III
ADMINISTRATION AND SERVICING
OF THE TRUST FUND
3.01. Master Servicer to Act as Master Servicer................. 30
3.02. Sub-Servicing Agreements Between Master Servicer and
Sub-Servicers............................................. 31
3.03. Successor Sub-Servicers................................... 32
3.04. Liability of the Master Servicer.......................... 32
3.05. No Contractual Relationship Between Sub-Servicers and
Trustee or Certificateholders............................. 32
3.06. Assumption or Termination of Sub-Servicing Agreements by
Trustee................................................... 32
3.07. Collection of Certain Mortgage Loan Payments.............. 33
3.08. Sub-Servicing Accounts.................................... 33
3.09. Collection of Taxes, Assessments and Similar Items;
Servicing Accounts........................................ 34
3.10. Custodial Account......................................... 34
3.11. Permitted Withdrawals From the Custodial Account.......... 35
3.12. Permitted Instruments..................................... 37
3.13. Maintenance of the Letter of Credit, Primary Mortgage
Insurance and Primary Hazard Insurance.................... 37
3.14. Enforcement of Due-on-Sale Clauses; Assumption Agreements. 39
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Page
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3.15. Realization Upon Defaulted Mortgage Loans................. 40
3.16. Trustee to Cooperate; Release of Mortgage Files........... 41
3.17. Servicing Compensation.................................... 42
3.18. Maintenance of Certain Servicing Policies................. 43
3.19. Annual Statement as to Compliance......................... 43
3.20. Annual Independent Public Accountants' Servicing
Statement................................................. 44
3.21. Access to Certain Documentation........................... 44
3.22. Title, Conservation and Disposition of REO Property....... 45
3.23. Additional Obligations of the Master Servicer............. 46
3.24. Additional Obligations of the Company..................... 47
3.25. Converted Mortgage Loans; Purchase Obligations Upon
Conversion; Administration by the Trustee................. 47
ARTICLE IV
PAYMENTS TO CERTIFICATEHOLDERS
4.01. Certificate Account; Distributions........................ 49
4.02. Statements to Certificateholders.......................... 50
4.03. Remittance Reports; Advances by the Master Servicer....... 51
4.04. Allocation of Realized Losses............................. 53
4.05. Information Reports to be Filed by the Master Servicer.... 53
4.06. The Letter of Credit...................................... 53
4.07. Compliance with Withholding Requirements.................. 55
ARTICLE V
THE CERTIFICATES
5.01 The Certificates.......................................... 56
5.02. Registration of Transfer and Exchange of Certificates..... 56
5.03. Mutilated, Destroyed, Lost or Stolen Certificates......... 57
5.04. Persons Deemed Owners..................................... 57
ARTICLE VI
THE COMPANY AND THE MASTER SERVICER
6.01. Liability of the Company and the Master Servicer.......... 58
6.02. Merger, Consolidation or Conversion of the Company or the
Master Servicer........................................... 58
6.03. Limitation on Liability of the Company, the Master
Servicer and Others....................................... 58
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Page
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6.04. Limitation on Resignation of the Master Servicer.......... 59
ARTICLE VII
DEFAULT
7.01. Events of Default......................................... 60
7.02. Trustee to Act; Appointment of Successor.................. 62
7.03. Notification to Certificateholders........................ 62
7.04. Waiver of Events of Default............................... 63
ARTICLE VIII
CONCERNING THE TRUSTEE
8.01. Duties of Trustee......................................... 64
8.02. Certain Matters Affecting the Trustee..................... 65
8.03. Trustee Not Liable for Certificates or Mortgage
Loans..................................................... 66
8.04. Trustee May Own Certificates.............................. 66
8.05. Payment of Trustee's Fees................................. 66
8.06. Eligibility Requirements for Trustee...................... 67
8.07. Resignation and Removal of the Trustee.................... 67
8.08. Successor Trustee......................................... 68
8.09. Merger or Consolidation of Trustee........................ 69
8.10. Appointment of Co-Trustee or Separate Trustee............. 69
8.11. Information Reports and Tax Returns....................... 70
ARTICLE IX
TERMINATION
9.01. Termination Upon Repurchase or Liquidation of All
Mortgage Loans............................................ 71
ARTICLE X
MISCELLANEOUS PROVISIONS
10.01. Amendment................................................. 73
10.02. Recordation of Agreement; Counterparts.................... 74
10.03. Limitation on Rights of Certificateholders................ 74
10.04. Governing Law............................................. 75
10.05. Notices................................................... 75
10.06. Severability of Provisions................................ 75
vi
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Page
10.07. Successors and Assigns; Third Party Beneficiary........... 75
10.08. Article and Section Headings.............................. 76
10.09. Notice to Rating Agencies and Certificateholder........... 76
vii
<PAGE>
Signatures
Acknowledgments
Exhibit A Form of A Certificate
Exhibit B Form of Irrevocable Letter of Credit
Exhibit C Form of Trustee Initial Certification
Exhibit D Form of Trustee Final Certification
Exhibit E Form of Remittance Report
Exhibit F-1 Request for Release
Exhibit F-2 Request for Release for Mortgage Loans Paid in Full
Exhibit G-1 Form of Investor Representation Letter
Exhibit G-2 Form of Transferor Representation Letter
Exhibit G-3 Form of Investor Representation Letter for
Insurance Companies
Exhibit H Mortgage Loan Schedule
Exhibit I Seller's Warranty Certificate
Exhibit J Form of Notice Under Section 3.24
viii
<PAGE>
This Pooling and Servicing Agreement, effective as of __________ 1,
199_, among WMC SECURED ASSETS CORP., as the company (together with its
permitted successors and assigns, the "Company"), [NAME OF MASTER SERVICER] , as
master servicer (together with its permitted successors and assigns, the "Master
Servicer"), and [NAME OF TRUSTEE], as trustee (together with its permitted
successors and assigns, the "Trustee"),
PRELIMINARY STATEMENT:
The Company intends to sell mortgage pass-through certificates (the
"Certificates"), which will evidence the entire beneficial ownership interest in
the Mortgage Loans (as defined herein). The Mortgage Loans have an aggregate
Stated Principal Balance as of the Cut-off Date equal to $______________. The
Mortgage Loans are adjustable rate mortgage loans having terms to maturity at
origination or modification of not more than 30 years.
In consideration of the mutual agreements herein contained, the
Company, the Master Servicer and the Trustee agree as follows:
1
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms.
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the meanings specified in this
Article.
"Accrued Certificate Interest": With respect to each Distribution
Date, one month's interest accrued at the then applicable Pass-Through Rate on
the Certificate Principal Balance of the Certificates immediately prior to such
Distribution Date. Accrued Certificate Interest will be calculated on the basis
of a 360-day year consisting of twelve 30-day months. In each case Accrued
Certificate Interest on the Certificates will be reduced by the amount of (i)
Prepayment Interest Shortfalls, if any, which are not covered by payments by the
Master Servicer pursuant to Section 3.23 with respect to such Distribution Date,
(ii) the interest portion (adjusted to the related Net Mortgage Rate) of any of
Realized Losses (including Excess Special Hazard Losses, Excess Fraud Losses,
Excess Bankruptcy Losses and Extraordinary Losses) not covered by draws on the
Letter of Credit pursuant to Section 4.04, (iii) the interest portion of
Advances previously made with respect to a Mortgage Loan or REO Property which
remained unreimbursed following the Cash Liquidation or REO Disposition of such
Mortgage Loan or REO Property that was made with respect to delinquencies that
were ultimately determined to be Excess Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses or Extraordinary Losses, and (iv) any other
interest shortfalls, including interest that is not collectible from the
Mortgagor pursuant to the Relief Act or similar legislation or regulations as in
effect from time to time; with all such reductions allocated to the
Certificates, in proportion to their respective amounts of Accrued Certificate
Interest which would have resulted absent such reductions.
"Adjustment Date": With respect to each Mortgage Loan, the date set
forth in the related Mortgage Note on which the Mortgage Rate may change and
each semi-annual anniversary of such date. The first Adjustment Date as to each
Mortgage Loan is set forth in the Mortgage Loan Schedule.
"Advance": As to any Mortgage Loan, any advance made by the Master
Servicer on any Distribution Date pursuant to Section 4.03.
"Agreement": This Pooling and Servicing Agreement and all amendments
hereof.
"Anniversary": Each anniversary of ___________ 1, 19__.
"Assignment": An assignment of Mortgage, notice of transfer or
equivalent instrument, in recordable form, which is sufficient under the laws of
the jurisdiction wherein the related Mortgaged Property is located to reflect of
record the sale of the Mortgage, which assignment, notice of transfer or
equivalent instrument may be in the form of one or more blanket
2
<PAGE>
assignments covering Mortgages secured by Mortgaged Properties located in the
same county, if permitted by law.
Assignment Agreement": The Assignment and Assumption Agreement, dated
as of ____________, 199_, between __________________ and the Company relating to
the transfer and assignment of the Mortgage Loans.
"Available Distribution Amount": With respect to each Distribution
Date, the Available Distribution Amount will be an amount equal to (a) the sum
of (i) the balance on deposit in the Custodial Account as of the close of
business on the related Determination Date and (ii) the aggregate amount of any
Advances made, all required amounts pursuant to Section 3.22 and all amounts
required to be paid by the Master Servicer pursuant to Sections 3.13 and 3.23 by
deposits into the Certificate Account on the immediately preceding Certificate
Account Deposit Date, reduced by (b) the sum, as of the close of business on the
related Determination Date of (i) Monthly Payments collected but due during a
Due Period subsequent to the Due Period ending on the first day of the month of
the related Distribution Date, (ii) all interest or other income earned on
deposits in the Custodial Account, (iii) any other amounts reimbursable or
payable to the Master Servicer or any other Person pursuant to Section 3.11,
(iv) Insurance Proceeds, Liquidation Proceeds, Principal Prepayments, REO
Proceeds and the proceeds of Mortgage Loan purchases (or amounts received in
connection with substitutions) made pursuant to Section 2.02, 2.04 and 3.25, in
each case received or made in the month of such Distribution Date and (v) the
Trustee's Fee.
"Bankruptcy Amount": As of any date of determination, an amount, equal
to the excess, if any, of (A) $______, over (B) the aggregate amount of draws
made under the Letter of Credit with respect to Bankruptcy Losses since the
Cut-off Date up to such date of determination in accordance with Section 4.04.
The Bankruptcy Amount may be further reduced by the Master Servicer
(including accelerating the manner in which such coverage is reduced) provided
that prior to any such reduction, the Master Servicer shall (i) obtain written
confirmation from each Rating Agency that such reduction shall not reduce the
rating assigned to the Certificates by such Rating Agency below the lower of the
then-current rating or the rating assigned to such Certificates as of the
Closing Date by such Rating Agency and (ii) provide a copy of such written
confirmation to the Trustee.
"Bankruptcy Code": The United States Bankruptcy Code of 1978, as
amended.
"Bankruptcy Loss": With respect to any Mortgage Loan, a Deficient
Valuation or Debt Service Reduction; provided, however, that a Deficient
Valuation or a Debt Service Reduction 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
3
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Mortgage Loan are being advanced on a current basis by the Master Servicer, in
either case without giving effect to any Deficient Valuation or Debt Service
Reduction.
"Business Day": Any day other than (i) a Saturday or a Sunday or (ii)
a day on which banking institutions in the State of __________ or the State of
________ (and such other state or states in which the Custodial Account, the
Certificate Account or the office of the Letter of Credit Issuer at which draws
under the Letter of Credit are to be made is at the time located) are required
or authorized by law or executive order to be closed.
"Cash Liquidation": As to any defaulted Mortgage Loan other than a
Mortgage Loan as to which an REO Acquisition occurred, the final receipt by or
on behalf of the Master Servicer of all Insurance Proceeds, Liquidation Proceeds
and other payments or cash recoveries which the Master Servicer reasonably and
in good faith expects to be finally recoverable with respect to such Mortgage
Loan.
"Certificate": Any one of the Certificates, executed by the Trustee
and authenticated by the Certificate Registrar substantially in the form annexed
hereto as Exhibit A.
"Certificate Account": The account or accounts created and maintained
pursuant to Section 4.01, which shall be entitled
"________________________________, as trustee, in trust for the registered
holders of WMC Secured Assets Corp., Mortgage Pass-Through Certificates, Series
199_-___" and which must be an Eligible Account.
"Certificate Account Deposit Date": The 20th day (or if such 20th day
is not a Business Day, the Business Day immediately preceding such 20th day) of
the month.
"Certificateholder" or "Holder": The Person in whose name a
Certificate is registered in the Certificate Register, except that any
Certificate registered in the name of the Company or the Master Servicer or any
affiliate thereof shall be deemed not to be outstanding and the Voting Rights to
which it is entitled shall not be taken into account in determining whether the
requisite percentage of Voting Rights necessary to effect any such consent has
been obtained, except as otherwise provided in Section 10.01. The Trustee shall
be entitled to rely upon a certification of the Company or the Master Servicer
in determining if any Certificates are registered in the name of a respective
affiliate.
"Certificate Owner": With respect to a Book-Entry Certificate, the
Person who is the beneficial owner of such Certificate, as reflected on the
books of an indirect participating brokerage firm for which a Company
Participant acts as agent, if any, and otherwise on the books of a Company
Participant, if any, and otherwise on the books of the Company.
"Certificate Principal Balance": With respect to each Certificate, on
any date of determination, an amount equal to (i) the Initial Certificate
Principal Balance of such Certificate as specified on the face thereof, minus
(ii) the sum of (x) the aggregate of all amounts previously distributed with
respect to such Certificate (or any predecessor Certificate) and applied to
reduce the Certificate Principal Balance thereof pursuant to Section 4.02(b) and
(y) the aggregate of all
4
<PAGE>
reductions in Certificate Principal Balance deemed to have occurred in
connection with Realized Losses which were previously allocated to such
Certificate (or any predecessor Certificate) pursuant to Section 4.04.
"Certificate Register": The register maintained pursuant to Section
5.02.
"Closing Date": _______ __, 19__.
"Code": The Internal Revenue Code of 1986.
"Collateral Value": The appraised value of a Mortgaged Property based
upon the lesser of (i) the appraisal made at the time of the origination of the
related Mortgage Loan, or (ii) the sales price of such Mortgaged Property at
such time of origination. With respect to a Mortgage Loan the proceeds of which
were used to refinance an existing mortgage loan, the appraised value of the
Mortgaged Property based upon the appraisal (as reviewed and approved by the
Seller) obtained at the time of refinancing.
"Company": WMC Secured Assets Corp., or its successor in interest.
"Converted Mortgage Loan": Any Convertible Mortgage Loan with respect
to which the interest rate borne by such Mortgage Loan has been converted from
an adjustable interest rate to a fixed interest rate.
"Convertible Mortgage Loan": Any Mortgage Loan which by its terms
grants to the related Mortgagor the option to convert the interest rate borne by
such Mortgage Loan from an adjustable interest rate to a fixed interest rate.
"Converting Mortgage Loan": Any Convertible Mortgage Loan with respect
to which the related Mortgagor has given notice of his intent to convert from an
adjustable interest rate to a fixed interest rate and prior to the conversion of
such Mortgage Loan.
"Corporate Trust Office": The principal office of the Trustee 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 instrument is located at __________________
_______________________________________________, Attention:
_______________________ Series 199_-__.
"Custodial Account": The custodial account or accounts created and
maintained pursuant to Section 3.10 in a depository institution, as custodian
for the holders of the Certificates, for the holders of certain other interests
in mortgage loans serviced or sold by the Master Servicer and for the Master
Servicer, into which the amounts set forth in Section 3.10 shall be deposited
directly. Any such account or accounts shall be an Eligible Account.
"Cut-off Date": __________ 1, 199_.
5
<PAGE>
"Debt Service Reduction": With respect to any Mortgage Loan, a
reduction in the scheduled Monthly Payment for such Mortgage Loan by a court of
competent jurisdiction in a proceeding under the Bankruptcy Code, except such a
reduction constituting a Deficient Valuation or any reduction that results in a
permanent forgiveness of principal.
"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, which valuation
results from a proceeding initiated by the Mortgagor under the Bankruptcy Code.
"Definitive Certificate": Any definitive, fully registered
Certificate.
"Deleted Mortgage Loan": A Mortgage Loan replaced or to be replaced
with a Qualified Substitute Mortgage Loan.
"Determination Date": The 15th day (or if such 15th day is not a
Business Day, the Business Day immediately preceding such 15th day) of the month
of the related Distribution Date.
"Distribution Date": The 25th day of any month, or if such 25th day is
not a Business Day, the Business Day immediately following such 25th day
commencing on ________ 25, 19__.
"Due Date": The first day of the month of the related Distribution
Date.
"Due Period": With respect to any Distribution Date, the period
commencing on the second day of the month preceding the month of such
Distribution Date (or, with respect to the first Due Period, the day following
the Cut-off Date) and ending on the related Due Date.
["Duff & Phelps": Duff & Phelps Credit Rating Company or its successor
in interest.]
"Eligible Account": An account maintained with a federal or state
chartered depository institution (i) the short-term obligations of which are
rated by each of the Rating Agencies in its highest rating at the time of any
deposit therein, or (ii) insured by the FDIC (to the limits established by such
Corporation), the uninsured deposits in which account are otherwise secured such
that, as evidenced by an Opinion of Counsel (obtained by and at the expense of
the Person requesting that the account be held pursuant to this clause (ii))
delivered to the Trustee prior to the establishment of such account, the
Certificateholders will have a claim with respect to the funds in such account
and a perfected first priority security interest against any collateral (which
shall be limited to Permitted Instruments, each of which shall mature not later
than the Business Day immediately preceding the Distribution Date next following
the date of investment in such collateral or the Distribution Date if such
Permitted Instrument is an obligation of the institution that maintains the
Certificate Account or Custodial Account) securing such funds that is superior
to claims of any other depositors or general creditors of the depository
institution with
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which such account is maintained or (iii) a trust account or accounts maintained
with a federal or state chartered depository institution or trust company with
trust powers acting in its fiduciary capacity or (iv) an account or accounts of
a depository institution acceptable to the Rating Agencies (as evidenced in
writing by the Rating Agencies that use of any such account as the Custodial
Account or the Certificate Account will not have an adverse effect on the
then-current ratings assigned to the Certificates). Eligible Accounts may bear
interest.
"Event of Default": One or more of the events described in Section
7.01.
"Excess Bankruptcy Loss": Any Bankruptcy Loss, or portion thereof,
which exceeds the then applicable Bankruptcy Amount.
"Excess Fraud Loss": Any Fraud Loss, or portion thereof, which exceeds
the then applicable Fraud Loss Amount.
"Excess Special Hazard Loss": Any Special Hazard Loss, or portion
thereof, that exceeds the then applicable Special Hazard Amount.
"Extraordinary Events": Any of the following conditions with respect
to a Mortgaged Property or Mortgage Loan causing or resulting in a loss which
causes the liquidation of such Mortgage Loan:
(a) losses that are of a type that would be covered by the fidelity
bond and the errors and omissions insurance policy required to be
maintained pursuant to Section 3.18 but are in excess of the coverage
maintained thereunder;
(b) nuclear reaction or nuclear radiation or radioactive
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";
(c) hostile or warlike action in time of peace or war, including
action in hindering, combatting 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;
(d) any weapon of war employing atomic fission or radioactive force
whether in time of peace or war; or
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(e) insurrection, rebellion, revolution, civil war, usurped power or
action taken by governmental authority in hindering, combatting 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.
"Extraordinary Losses": Any loss incurred on a Mortgage Loan caused by
or resulting from an Extraordinary Event.
"FDIC": Federal Deposit Insurance Corporation or any successor.
"FHLMC": Federal Home Loan Mortgage Corporation or any successor.
["Fitch": Fitch Investors Service, Inc., or its successor in
interest.]
"FNMA": Federal National Mortgage Association or any successor.
"Fraud Losses": Any Realized Loss sustained by reason of a default
arising from fraud, dishonesty or misrepresentation in connection with the
related Mortgage Loan.
"Fraud Loss Amount": As of any date of determination after the Cut-off
Date, an amount equal to: (X) up to and including the [first] anniversary of the
Cut-off Date an amount equal to ____% of the aggregate outstanding principal
balance of all of the Mortgage Loans as of the Cut-off Date minus the aggregate
amount of draws made under the Letter of Credit with respect to Fraud Losses
since the Cut-off Date up to such date of determination, (Y) from the [first] to
the fifth anniversary of the Cut-off Date, an amount equal to (1) the lesser of
(a) the Fraud Loss Amount as of the most recent anniversary of the Cut-off Date
and (b) ____% of the aggregate outstanding principal balance of all of the
Mortgage Loans as of the most recent anniversary of the Cut-off Date minus (2)
the aggregate amount of draws made under the Letter of Credit with respect to
Fraud Losses since the most recent anniversary of the Cut-off Date up to such
date of determination. On and after the fifth anniversary of the Cut-off Date
the Fraud Loss Amount shall be zero.
The Fraud Loss Amount may be further reduced by the Master Servicer
(including accelerating the manner in which such coverage is reduced) provided
that prior to any such reduction, the Master Servicer shall (i) obtain written
confirmation from each Rating Agency that such reduction shall not reduce the
rating assigned to the Certificates by such Rating Agency below the lower of the
then-current rating or the rating assigned to such Certificates as of the
Closing Date by such Rating Agency and (ii) provide a copy of such written
confirmation to the Trustee.
"Funding Date": With respect to each Mortgage Loan, the date on which
funds were advanced by or on behalf of the Seller and interest began to accrue
thereunder.
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"Gross Margin": As to each Mortgage Loan, the fixed percentage set
forth in the related Mortgage Note and indicated in Exhibit H hereto which
percentage is added to the Index on each Adjustment Date to determine (subject
to rounding in accordance with the related Mortgage Note, Periodic Cap, Maximum
Interest Rate and Minimum Interest Rate) the interest rate to be borne by such
Mortgage Loan until the next Adjustment Date.
"Index": With respect to any Mortgage Loan, the Cost of Funds Index
reflecting the monthly weighted average cost of funds of savings and loan
associations and savings banks, the home offices of which are located in
Arizona, California and Nevada, that are member institutions of the FHLB of San
Francisco, as published in The Wall Street Journal, as most recently available
as of the date ____ days prior to the relevant Adjustment Date, or in the event
that such index is no longer available, an index selected by the Master Servicer
and reasonably acceptable to the Trustee that is based on comparable
information.
"Initial Certificate Principal Balance": With respect to the
Certificates, $------------.
"Insurance Policy": With respect to any Mortgage Loan, any insurance
policy which is required to be maintained from time to time under this Agreement
in respect of such Mortgage Loan.
"Insurance Proceeds": Proceeds paid by any insurer pursuant to the
Primary Mortgage Insurance Policy and any other insurance policy covering a
Mortgage Loan to the extent such proceeds are not applied to the restoration of
the related Mortgaged Property or released to the Mortgagor in accordance with
the procedures that the Master Servicer would follow in servicing mortgage loans
held for its own account.
"Late Collections": With respect to any Mortgage Loan, all amounts
received during any Due Period, whether as late payments of Monthly Payments or
as Insurance Proceeds, Liquidation Proceeds or otherwise, which represent late
payments or collections of Monthly Payments due but delinquent for a previous
Due Period and not previously recovered.
"Letter of Credit": The irrevocable letter of credit covering certain
losses on the Mortgage Loans in all of the Mortgage Pools, in the form of
Exhibit B hereto, issued by the Letter of Credit Issuer, naming the Trustee as
beneficiary for the benefit of the Certificateholders, as the same may be
terminated, modified or reduced from time to time pursuant to its terms and
Section 4.06, and any replacement letter of credit obtained pursuant to Section
4.06.
"Letter of Credit Issuer": _____________, or if a replacement Letter
of Credit is issued in accordance with the terms hereof, the issuer of such
replacement Letter of Credit.
"Liquidation Proceeds": Amounts (other than Insurance Proceeds)
received by the Master Servicer in connection with the taking of an entire
Mortgaged Property by exercise of the power of eminent domain or condemnation or
in connection with the liquidation of a defaulted
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Mortgage Loan through trustee's sale, foreclosure sale or otherwise, other than
amounts received in respect of REO Property.
"Loan-to-Value Ratio": As of any date, the fraction, expressed as a
percentage, the numerator of which is the current principal balance of the
related Mortgage Loan at the date of determination and the denominator of which
is the Collateral Value of the related Mortgaged Property.
"Master Servicer": [Name of Master Servicer], or any successor master
servicer appointed as herein provided.
"Maximum Interest Rate": As to any Mortgage Loan, the maximum interest
rate that may be borne by such Mortgage Loan as set forth in the related
Mortgage Note and indicated in Exhibit H, which rate may be applicable to such
Mortgage Loan at any time during the life of such Mortgage Loan.
"Minimum Interest Rate": As to any Mortgage Loan, the minimum interest
rate that may be borne by such Mortgage Loan as set forth in the related
Mortgage Note and indicated in Exhibit H hereto, which rate may be applicable to
such Mortgage Loan at any time during the life of such Mortgage Loan.
"Monthly Payment": With respect to any Mortgage Loan, the scheduled
monthly payment of principal and interest on such Mortgage Loan which is payable
by a Mortgagor from time to time under the related Mortgage Note as originally
executed (after adjustment, if any, for Principal Prepayments and for Deficient
Valuations occurring prior to such Due Date, and after any adjustment by reason
of any bankruptcy or similar proceeding or any moratorium or similar waiver or
grace period).
["Moody's": Moody's Investors Service, Inc. or its successor in
interest.]
"Mortgage": The mortgage, deed of trust or any other instrument
securing the Mortgage Loan.
"Mortgage File": The mortgage documents listed in Section 2.01
pertaining to a particular Mortgage Loan and any additional documents required
to be added to the Mortgage File pursuant to this Agreement; provided, that
whenever the term "Mortgage File" is used to refer to documents actually
received by the Trustee, such term shall not be deemed to include such
additional documents required to be added unless they are actually so added.
"Mortgage Loan": Each of the mortgage loans, transferred and assigned
to the Trustee pursuant to Section 2.01 or Section 2.03 and from time to time
held in the Trust Fund, the Mortgage Loans originally so transferred, assigned
and held being identified in the Mortgage Loan Schedule attached hereto as
Exhibit H (and any Qualified Substitute Mortgage Loans). As used herein, the
term "Mortgage Loan" includes the related Mortgage Note and Mortgage.
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"Mortgage Loan Schedule": As of any date of determination, the
schedule of Mortgage Loans included in the Trust Fund. The initial schedule of
Mortgage Loans with accompanying information transferred on the Closing Date to
the Trustee as part of the Trust Fund for the Certificates, attached hereto as
Exhibit H (as amended from time to time to reflect the addition of Qualified
Substitute Mortgage Loans) (and, for purposes of the Trustee's review of the
Mortgage Files pursuant to Section 2.02, in computer-readable form as delivered
to the Trustee), which list shall set forth the following information, if
applicable, with respect to each Mortgage Loan:
(i) the loan number and name of the Mortgagor;
(ii) the street address, city, state and zip code of the Mortgaged
Property;
(iii) the Mortgage Rate;
(iv) Maximum Interest Rate;
(v) Minimum Interest Rate;
(vi) Gross Margin;
(vii) the first Adjustment Rate;
(viii) the Periodic Cap;
(ix) the maturity date;
(x) the original principal balance;
(xi) the first payment date;
(xii) the type of Mortgaged Property;
(xiii) the Monthly Payment in effect as of the Cut-off Date;
(xiv) the principal balance as of the Cut-off Date;
(xv) the occupancy status;
(xvi) the purpose of the Mortgage Loan;
(xvii) the Collateral Value of the Mortgaged Property;
(xviii) the original term to maturity;
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(xix) the paid-through date of the Mortgage Loan;
(xx) the Loan-to-Value Ratio; and
(xxi)whether or not the Mortgage Loan was underwritten pursuant to a
limited documentation program.
The Mortgage Loan Schedule shall also set forth the total of the
amounts described under (xiv) above for all of the Mortgage Loans. The Mortgage
Loan Schedule may be in the form of more than one schedule, collectively setting
forth all of the information required. With respect to any Qualified Substitute
Mortgage Loan, the item described in clause (xiii) shall be set forth as the
date of substitution.
"Mortgage Note": The note or other evidence of the indebtedness of a
Mortgagor under a Mortgage Loan.
"Mortgage Rate": With respect to any Mortgage Loan, the annual rate at
which interest accrues on such Mortgage Loan.
"Mortgaged Property": The underlying property securing a Mortgage
Loan.
"Mortgagor": The obligor or obligors on a Mortgage Note.
"Net Mortgage Rate": As to each Mortgage Loan, a per annum rate of
interest equal to the related Mortgage Rate as in effect from time to time minus
the Servicing Fee Rate.
"Nonrecoverable Advance": Any Advance previously made or proposed to
be made in respect of a Mortgage Loan which, in the good faith judgment of the
Master Servicer, will not or, in the case of a proposed Advance, would not be
ultimately recoverable from related Late Collections, Insurance Proceeds,
Liquidation Proceeds or REO Proceeds. The determination by the Master Servicer
that it has made a Nonrecoverable Advance or that any proposed Advance would
constitute a Nonrecoverable Advance, shall be evidenced by an Officers'
Certificate delivered to the Company and the Trustee.
"Officers' Certificate": A certificate signed by the Chairman of the
Board, the Vice Chairman of the Board, the President or a vice president and by
the Treasurer, the Secretary, or one of the assistant treasurers or assistant
secretaries of the Master Servicer or of the Sub-Servicer and delivered to the
Company and Trustee.
"Opinion of Counsel": A written opinion of counsel, who may be counsel
for the Company or the Master Servicer, reasonably acceptable to the Trustee;
except that any opinion of counsel relating to (a) the qualification of any
account required to be maintained pursuant to this Agreement as an Eligible
Account, or (b) resignation of the Master Servicer pursuant to Section 6.04 must
be an opinion of counsel who (i) is in fact independent of the Company and the
Master Servicer, (ii) does not have any direct financial interest or any
material indirect financial interest
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in the Company or the Master Servicer or in an affiliate of either and (iii) is
not connected with the Company or the Master Servicer as an officer, employee,
director or person performing similar functions.
"OTS": Office of Thrift Supervision or any successor.
"Outstanding Mortgage Loan": As to any Due Date, a Mortgage Loan
(including an REO Property) which was not the subject of a Principal Prepayment
in full, Cash Liquidation or REO Disposition and which was not purchased or
substituted for prior to such Due Date pursuant to Sections 2.02, 2.04 or 3.25.
"Ownership Interest": As to any Certificate, any ownership or security
interest in such Certificate, including any interest in such Certificate as the
Holder thereof and any other interest therein, whether direct or indirect, legal
or beneficial, as owner or as pledgee.
"Pass-Through Rate": With respect to the Certificates and any
Distribution Date, a rate equal to the weighted average, expressed as a
percentage, of the Net Mortgage Rates of all Mortgage Loans in the Trust Fund as
of the Due Date in the month immediately preceding the month in which such
Distribution Date occurs, weighted on the basis of the respective Stated
Principal Balances of such Mortgage Loans, which Stated Principal Balances shall
be the Stated Principal Balances of such Mortgage Loans at the close of business
on the immediately preceding Distribution Date after giving effect to the
distributions thereon allocable to principal (or, in the case of the initial
Distribution Date, at the close of business on the Cut-off Date).
"Percentage Interest": With respect to any Certificate, the undivided
percentage ownership interest equal to the initial Certificate Principal Balance
thereof divided by the aggregate Initial Certificate Principal Balance of all of
the Certificates.
"Periodic Cap": With respect to the Mortgage Loans, the periodic rate
cap which limits the increase or the decrease of the related Mortgage Rate on
any Adjustment Date to ----%.
"Permitted Instruments": Any one or more of the following:
(i)(a) direct obligations of, or obligations fully guaranteed as to
principal and interest by, the United States or any agency or
instrumentality thereof, provided such obligations are backed by the full
faith and credit of the United States and (b) direct obligations of, and
obligations guaranteed as to timely payment by FHLMC or FNMA if, at the
time of investment, they are assigned the highest credit rating by the
Rating Agencies;
(ii) repurchase obligations (the collateral for which is held by a
third party or the Trustee) with respect to any security described in
clause (i) above, provided that the short-term unsecured obligations of the
party agreeing to repurchase such obligations are
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at the time rated by each Rating Agency in one of its two highest long-term
rating categories;
(iii) certificates of deposit, time deposits, demand deposits and
bankers' acceptances of any bank or trust company incorporated under the
laws of the United States or any state thereof or the District of Columbia,
provided that the short-term commercial paper of such bank or trust company
(or, in the case of the principal depository institution in a depository
institution holding company, the long-term unsecured debt obligations of
the depository institution holding company) at the date of acquisition
thereof has been rated by each Rating Agency in its highest short-term
rating;
(iv) commercial paper (having original maturities of not more than
nine months) of any corporation incorporated under the laws of the United
States or any state thereof or the District of Columbia which on the date
of acquisition has been rated by each Rating Agency in its highest
short-term rating;
(v) a money market fund or a qualified investment fund rated by each
Rating Agency in its highest rating available; and
(vi) if previously confirmed in writing to the Trustee, any other
obligation or security acceptable to each Rating Agency in respect of
mortgage pass-through certificates rated in each Rating Agency's highest
rating category;
provided, that no such instrument shall be a Permitted Instrument if such
instrument evidences either (a) the right to receive interest only payments with
respect to the obligations underlying such instrument or (b) both principal and
interest payments derived from obligations underlying such instrument where the
principal and interest payments with respect to such instrument provide a yield
to maturity exceeding 120% of the yield to maturity at par of such underlying
obligation.
"Person": Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Prepayment Assumption": A prepayment assumption of ___% of the
standard prepayment assumption, used for determining the accrual of original
issue discount and market discount and premium on the Certificates for federal
income tax purposes. The standard prepayment assumption assumes a constant rate
of prepayment of mortgage loans of 0.2% per annum of the then outstanding
principal balance of such mortgage loans in the first month of the life of the
mortgage loans, increasing by an additional 0.2% per annum in each succeeding
month until the thirtieth month, and a constant 6% per annum rate of prepayment
thereafter for the life of such mortgage loans.
"Prepayment Interest Shortfall": With respect to any Distribution
Date, for each Mortgage Loan that was the subject of a partial Principal
Prepayment, a Principal Prepayment in full, or of a Cash Liquidation or an REO
Disposition during the related Prepayment Period, an
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amount equal to the amount of interest that would have accrued at the applicable
Net Mortgage Rate (i) in the case of a Principal Prepayment in full, Cash
Liquidation or REO Disposition on the principal balance of such Mortgage Loan
immediately prior to such prepayment (or liquidation), commencing on the date of
prepayment (or liquidation) and ending on the last day of the month of
prepayment or liquidation or (ii) in the case of a partial Principal Prepayment,
on the amount of such prepayment, commencing on the date as of which the
prepayment is applied and ending on the last day of the month of prepayment.
"Prepayment Period": As to any Distribution Date, the calendar month
preceding the month in which such Distribution Date occurs.
"Primary Hazard Insurance Policy": Each primary hazard insurance
policy required to be maintained pursuant to Section 3.13.
"Primary Mortgage Insurance Policy": Each primary mortgage insurance
policy required to be maintained pursuant to Section 3.13.
"Principal Prepayment": Any payment of principal made by the Mortgagor
on a Mortgage Loan which is received in advance of its scheduled Due Date and
which is not accompanied by an amount of interest representing scheduled
interest due on any date or dates in any month or months subsequent to the month
of prepayment.
"Purchase Price": With respect to any Mortgage Loan (or REO Property)
required to be purchased pursuant to Section 2.02, 2.04 or 3.25, an amount equal
to the sum of (i) 100% of the Stated Principal Balance thereof, (ii) unpaid
accrued interest (or REO Imputed Interest) at the sum of the applicable Net
Mortgage Rate, the rate at which the Trustee's Fee accrues on the Stated
Principal Balance thereof outstanding during each Due Period that such interest
was not paid or advanced, from the date through which interest was last paid by
the Mortgagor or advanced and distributed to Certificateholders together with
unpaid related Servicing Fees from the date through which interest was last paid
by the Mortgagor, in each case to the first day of the month in which such
Purchase Price is to be distributed, plus (iii) the aggregate of all Advances
made in respect thereof that were not previously reimbursed.
"Qualified Insurer": An 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 business
in such states and to write the insurance provided by the insurance policy
issued by it, approved as an insurer by the Master Servicer, as a FNMA-approved
mortgage insurer and having a claims paying ability rating of at least "AA" by
____________________ and which is acceptable to _____________. Any replacement
insurer with respect to a Mortgage Loan must have at least as high a claims
paying ability rating by _____________ and ___________________ as the insurer it
replaces had on the Closing Date.
"Qualified Substitute Mortgage Loan": A Mortgage Loan substituted by
the Company for a Deleted Mortgage Loan which must, on the date of such
substitution, as confirmed
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in an Officers' Certificate delivered to the Trustee, (i) have an outstanding
principal balance, after deduction of the principal portion of the monthly
payment due in the month of substitution (or in the case of a substitution of
more than one Mortgage Loan for a Deleted Mortgage Loan, an aggregate
outstanding principal balance, after such deduction), not in excess of the
Stated Principal Balance of the Deleted Mortgage Loan (the amount of any
shortfall to be deposited by the Master Servicer, in the Custodial Account in
the month of substitution); (ii) have a Mortgage Rate and a Net Mortgage Rate no
lower than and not more than 1% per annum higher than the Mortgage Rate and Net
Mortgage Rate, respectively, of the Deleted Mortgage Loan as of the date of
substitution; (iii) have a remaining term to stated maturity not greater than
(and not more than one year less than) that of the Deleted Mortgage Loan; (iv)
comply with each representation and warranty set forth in Section 2 of the
Seller's Warranty Certificate; (v) have a Loan-to-Value Ratio as of the date of
substitution equal to or lower than the Loan-to-Value Ratio of the Deleted
Mortgage Loan as of such date; and (vi) be covered under a Primary Insurance
Policy if such Qualified Substitute Mortgage Loan has a Loan-to-Value Ratio in
excess of 80%. In the event that one or more mortgage loans are substituted for
one or more Deleted Mortgage Loans, the amounts described in clause (i) hereof
shall be determined on the basis of aggregate principal balances, the Mortgage
Rates described in clause (ii) hereof shall be determined on the basis of
weighted average Mortgage Rates, the Net Mortgage Rates described in clause (ii)
hereof shall be satisfied as to each such mortgage loan, the terms described in
clause (iii) shall be determined on the basis of weighted average remaining
terms to maturity, the Loan-to-Value Ratios described in clause (v) hereof shall
be satisfied as to each such mortgage loan and, except to the extent otherwise
provided in this sentence, the representations and warranties described in
clause (iv) hereof must be satisfied as to each Qualified Substitute Mortgage
Loan or in the aggregate, as the case may be.
"Rating Agency": [Standard & Poor's] [Moody's] [Fitch] [Duff &
Phelps]. If either agency or a successor is no longer in existence, "Rating
Agency" shall be such statistical credit rating agency, or other comparable
Person, designated by the Company, notice of which designation shall be given to
the Trustee and the Master Servicer. References herein to the two highest long
term debt rating categories of a Rating Agency shall mean "AA" or better in the
case of [Standard & Poor's] [Fitch] [Duff & Phelps] and "Aa2" or better in the
case of Moody's and references herein to the highest short-term debt rating of a
Rating Agency shall mean "D-1" or better in the case of [Duff & Phelps] and
"A-1" in the case of [Standard & Poor's,] and in the case of any other Rating
Agency such references shall mean such rating categories without regard to any
plus or minus.
"Realized Loss": With respect to any Mortgage Loan or related REO
Property as to which a Cash Liquidation or REO Disposition has occurred, an
amount (not less than zero) equal to (i) the Stated Principal Balance of the
Mortgage Loan as of the date of Cash Liquidation or REO Disposition, plus (ii)
interest (and REO Imputed Interest, if any) at the related Net Mortgage Rate
from the Due Date as to which interest was last paid or advanced to
Certificateholders up to the date of the Cash Liquidation or REO Disposition on
the Stated Principal Balance of such Mortgage Loan outstanding during each Due
Period that such interest was not paid or advanced, minus (iii) the proceeds, if
any, received during the month in which such Cash Liquidation or REO Disposition
occurred, to the extent applied as recoveries of interest at the related Net
Mortgage Rate and to principal of the Mortgage Loan, net of the portion thereof
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reimbursable to the Master Servicer or any Sub-Servicer with respect to related
Advances not previously reimbursed. With respect to each Mortgage Loan which has
become the subject of a Deficient Valuation, 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, the amount of such Debt Service Reduction.
"Record Date": The last Business Day of the month immediately
preceding the month of the related Distribution Date.
"Relief Act": The Soldiers' and Sailors' Civil Relief Act of 1940, as
amended.
"Remittance Report": A report prepared by the Master Servicer
providing the information set forth in Exhibit E attached hereto.
"REO Acquisition": The acquisition by the Master Servicer on behalf of
the Trustee for the benefit of the Certificateholders of any REO Property
pursuant to Section 3.15.
"REO Disposition": The receipt by the Master Servicer of Insurance
Proceeds, Liquidation Proceeds and other payments and recoveries (including
proceeds of a final sale) which the Master Servicer expects to be finally
recoverable from the sale or other disposition of the REO Property.
"REO Imputed Interest": As to any REO Property, for any period, an
amount equivalent to interest (at the Mortgage Rate that would have been
applicable to the related Mortgage Loan had it been outstanding) on the unpaid
principal balance of the Mortgage Loan as of the date of acquisition thereof (as
such balance is reduced by any income from the REO Property treated as a
recovery of principal pursuant to Section 3.15).
"REO Proceeds": Proceeds, net of directly related expenses, received
in respect of any REO Property (including, without limitation, proceeds from the
rental of the related Mortgaged Property and of any REO Disposition), which
proceeds are required to be deposited into the Custodial Account as and when
received.
"REO Property": A Mortgaged Property acquired by the Master Servicer
through foreclosure or deed-in-lieu of foreclosure in connection with a
defaulted Mortgage Loan.
"Request for Release": A release signed by a Servicing Officer, in the
form of Exhibits F-1 or F-2 attached hereto.
"Required Insurance Policy": With respect to any Mortgage Loan, any
Insurance Policy or any other insurance policy that is required to be maintained
from time to time under this Agreement or pursuant to the provisions of a
Mortgage Loan.
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"Responsible Officer": When used with respect to the Trustee, the
Chairman or Vice Chairman of the Board of Directors or Trustees, the Chairman or
Vice Chairman of the Executive or Standing Committee of the Board of Directors
or Trustees, the President, the Chairman of the Committee on Trust Matters, any
vice president, any assistant vice president, the Secretary, any assistant
secretary, the Treasurer, any assistant treasurer, the Cashier, any assistant
cashier, any trust officer or assistant trust officer, the Controller and any
assistant controller or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also, with respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge of and familiarity with the
particular subject.
"Seller": [Name of Seller], and its successors and assigns.
"Seller's Warranty Certificate": The Seller's Warranty Certificate of
the Seller, dated _____ __, 19__, in the form of Exhibit I attached hereto.
"Servicing Account": The account or accounts created and maintained
pursuant to Section 3.09.
"Servicing Advances": All customary, reasonable and necessary "out of
pocket" costs and expenses incurred in connection with a default, delinquency or
other unanticipated event by the Master Servicer in the performance of its
servicing obligations, including, but not limited to, the cost of (i) the
preservation, restoration and protection of a Mortgaged Property, (ii) any
enforcement or judicial proceedings, including foreclosures, (iii) the
management and liquidation of any REO Property and (iv) compliance with the
obligations under the second paragraph of Section 3.01 and Section 3.09.
"Servicing Fee": As to each Mortgage Loan, an amount, payable out of
any payment of interest on the Mortgage Loan, equal to interest at the related
Servicing Fee Rate on the Stated Principal Balance of such Mortgage Loan for the
calendar month preceding the month in which the payment is due (alternatively,
in the event such payment of interest accompanies a Principal Prepayment in full
made by the Mortgagor, interest for the number of days covered by such payment
of interest).
"Servicing Fee Rate": With respect to each Mortgage Loan, the per
annum rate of -----%.
"Servicing Officer": Any officer of the Master Servicer involved in,
or responsible for, the administration and servicing of the Mortgage Loans,
whose name appears on a list of servicing officers furnished to the Trustee by
the Master Servicer, as such list may from time to time be amended.
"Single Certificate": A Certificate evidencing the minimum
denomination of the Certificates as set forth in Section 5.01.
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"Special Hazard Amount": As of any Distribution Date, an amount equal
to $________ (the initial "Special Hazard Amount") minus the sum of (i) the
aggregate amount of draws made under the Letter of Credit in accordance with
Section 4.04 since the Cut-off Date and (ii) the Adjustment Amount (as defined
below) as most recently calculated. For each anniversary of the Cut-off Date,
the Adjustment Amount shall be calculated and shall be equal to the amount, if
any, by which the amount calculated in accordance with the preceding sentence
(without giving effect to the deduction of the Adjustment Amount for such
anniversary) exceeds the greater of (A) the product of the Special Hazard
Percentage for such anniversary multiplied by the outstanding principal balance
of all of the Mortgage Loans on such anniversary and (B) twice the outstanding
principal balance of the Mortgage Loan which has the largest outstanding
principal balance on such Anniversary.
"Special Hazard Percentage": As of each anniversary of the Cut-off
Date, the greater of (i) 1% and (ii) the largest percentage obtained by dividing
the aggregate outstanding principal balance on such anniversary of the Mortgage
Loans secured by Mortgaged Properties located in a single, five-digit zip code
area in the State of California by the outstanding principal balance of all the
Mortgage Loans on such anniversary.
"[Standard & Poor's": Standard & Poor's Ratings Group, a division of
McGraw Hill, Inc. or its successor in interest.]
"Stated Principal Balance": With respect to any Mortgage Loan or
related REO Property at any given time, (i) the principal balance of the
Mortgage Loan outstanding as of the Cut-off Date, after application of principal
payments due on or before such date, whether or not received, minus (ii) the sum
of (a) the principal portion of the Monthly Payments due with respect to such
Mortgage Loan or REO Property during each Due Period ending prior to the most
recent Distribution Date which were received or with respect to which an Advance
was made, (b) all Principal Prepayments with respect to such Mortgage Loan or
REO Property, and all Insurance Proceeds, Liquidation Proceeds and net income
from a REO Property to the extent applied by the Master Servicer as recoveries
of principal in accordance with Section 3.15 with respect to such Mortgage Loan
or REO Property, which were distributed pursuant to Section 4.01 on any previous
Distribution Date and (c) any Realized Loss with respect thereto allocated
pursuant to Section 4.04 for any previous Distribution Date.
"Sub-Servicer": Any Person with which the Master Servicer has entered
into a Sub-Servicing Agreement and which meets the qualifications of a
Sub-Servicer pursuant to Section 3.02.
"Sub-Servicer Remittance Date": The 18th day of each month, or if such
day is not a Business Day, the immediately preceding Business Day.
"Sub-Servicing Account": An account established by a Sub-Servicer
which meets the requirements set forth in Section 3.08 and is otherwise
acceptable to the Master Servicer.
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"Sub-Servicing Agreement": The written contract between the Master
Servicer and a Sub-Servicer and any successor Sub-Servicer relating to servicing
and administration of certain Mortgage Loans as provided in Section 3.02.
"Transfer": Any direct or indirect transfer, sale, pledge,
hypothecation or other form of assignment of any Ownership Interest in a
Certificate.
"Transferor": Any Person who is disposing by Transfer of any Ownership
Interest in a Certificate.
"Trust Fund": The corpus of the trust created by this Agreement, to
the extent described herein, consisting of the Mortgage Loans, such assets as
shall from time to time be identified as deposited in respect of the Mortgage
Loans in the Custodial Account and in the Certificate Account, property which
secured a Mortgage Loan and which has been acquired by foreclosure or deed in
lieu of foreclosure, proceeds of any Primary Hazard Insurance Policies, if any,
and the Letter of Credit (or any alternate form of credit support substituted
therefor) and all proceeds thereof.
"Trustee": [Name of Trustee], or its successor in interest, or any
successor trustee appointed as herein provided.
"Trustee's Fee": As to each Mortgage Loan and as the Distribution
Date, an amount, payable out of any payment of interest on the Mortgage Loan,
equal to interest at ____% per annum on the Stated Principal Balance of such
Mortgage Loan as of the Due Date immediately preceding the month in which such
Distribution Date occurs.
"Uninsured Cause": Any cause of damage to property subject to a
Mortgage such that the complete restoration of such property is not fully
reimbursable by the hazard insurance policies or flood insurance policies
required to be maintained pursuant to Section 3.13.
"Voting Rights": The portion of the voting rights of all of the
Certificates which is allocated to any Certificate. The Voting Rights shall be
allocated among Holders of the Certificates, in proportion to the outstanding
Certificate Principal Balances of their respective Certificates.
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ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
SECTION 2.01. Conveyance of Mortgage Loans.
The Company, as of the Closing Date, and concurrently with the
execution and delivery hereof, does hereby assign, transfer, sell, set over and
otherwise convey to the Trustee without recourse all the right, title and
interest of the Company in and to the Mortgage Loans identified on the Mortgage
Loan Schedule and all other assets included or to be included in the Trust Fund
for the benefit of the Certificateholders. Such assignment includes all
principal and interest received by the Master Servicer on or with respect to the
Mortgage Loans (other than payment of principal and interest due on or before
the Cut-off Date).
In connection with such transfer and assignment, the Company has
requested the Seller to deliver to, and deposit with the Trustee, the following
documents or instruments:
(i) the original Mortgage Note, endorsed by the Seller "Pay to the
order of [Name of Trustee], as trustee without recourse" or to "Pay to the
order of [Name of Trustee], as trustee for holders of WMC Secured Assets
Corp., Mortgage Pass-Through Certificates, Series 199_-_, without recourse"
with all intervening endorsements showing a complete chain of endorsements
from the originator to the Person endorsing it to the Trustee;
(ii) the original recorded Mortgage or, if the original Mortgage has
not been returned from the applicable public recording office, a copy of
the Mortgage certified by the Seller to be a true and complete copy of the
original Mortgage submitted to the title insurance company for recording;
(iii) a duly executed original Assignment of the Mortgage endorsed by
the Seller, without recourse, to "[Name of Trustee], as trustee" or to
"[Name of Trustee], as trustee for holders of WMC Secured Assets Corp.
Mortgage Pass-Through Certificates, Series 199_-_", with evidence of
recording thereon;
(iv) the original recorded Assignment or Assignments of the Mortgage
showing a complete chain of assignment from the originator thereof to the
Person assigning it to the Trustee or, if any such Assignment has not been
returned from the applicable public recording office, a copy of such
Assignment certified by the Seller to be a true and complete copy of the
original Assignment submitted to the title insurance company for recording;
(v) the original lender's title insurance policy, or, if such policy
has not been issued, any one of an original or a copy of the preliminary
title report, title binder or title
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commitment on the Mortgaged Property with the original policy of the
insurance to be delivered promptly following the receipt thereof;
(vi) the original of any assumption, modification, extension or
guaranty agreement;
(vii) the original or a copy of the private mortgage insurance policy
or original certificate of private mortgage insurance, if applicable; and
(viii) if any of the documents or instruments referred to above were
executed on behalf of the Mortgagor by another Person, the original power
of attorney or other instrument that authorized and empowered such Person
to sign, or a copy thereof certified by the Seller (or by an officer of the
applicable title insurance or escrow company) to be a true and correct copy
of the original.
The Seller is obligated pursuant to the Seller's Warranty Certificate
to deliver to the Trustee: (a) either the original recorded Mortgage, or in the
event such original cannot be delivered by the Seller, a copy of such Mortgage
certified as true and complete by the appropriate recording office, in those
instances where a copy thereof certified by the Seller was delivered to the
Trustee pursuant to clause (ii) above; and (b) either the original Assignment or
Assignments of the Mortgage, with evidence of recording thereon, showing a
complete chain of assignment from the originator to the Seller, or in the event
such original cannot be delivered by the Seller, a copy of such Assignment or
Assignments certified as true and complete by the appropriate recording office,
in those instances where copies thereof certified by the Seller were delivered
to the Trustee pursuant to clause (iv) above. Notwithstanding anything to the
contrary contained in this Section 2.01, in those instances where the public
recording office retains the original Mortgage after it has been recorded, the
Seller shall be deemed to have satisfied its obligations hereunder upon delivery
to the Trustee of a copy of such Mortgage certified by the public recording
office to be a true and complete copy of the recorded original thereof.
If any Assignment is lost or returned unrecorded to the Trustee
because of any defect therein, the Seller is required to prepare a substitute
Assignment or cure such defect, as the case may be, and the Trustee shall cause
such Assignment to be recorded in accordance with this paragraph.
The Seller is required, as described in the Seller's Warranty
Certificate, to deliver to the Trustee the original of any documents assigned to
the Trustee pursuant to this Section 2.01 not later than 120 days after the
Closing Date.
All original documents relating to the Mortgage Loans which are not
delivered to the Trustee, to the extent delivered by the Seller to the Master
Servicer, are and shall be held by the Master Servicer in trust for the benefit
of the Trustee on behalf of the Certificateholders.
Except as may otherwise expressly be provided herein, neither the
Company, the Master Servicer nor the Trustee shall (and the Master Servicer
shall ensure that no Sub-Servicer shall) assign, sell, dispose of or transfer
any interest in the Trust Fund or any portion thereof, or
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permit the Trust Fund or any portion thereof to be subject to any lien, claim,
mortgage, security interest, pledge or other encumbrance of, any other Person.
It is intended that the conveyance of the Mortgage Loans by the
Company to the Trustee as provided in this Section be, and be construed as, a
sale of the Mortgage Loans by the Company to the Trustee for the benefit of the
Certificateholders. It is, further, not intended that such conveyance be deemed
a pledge of the Mortgage Loans by the Company to the Trustee to secure a debt or
other obligation of the Company. However, in the event that the Mortgage Loans
are held to be property of the Company, or if for any reason this Agreement is
held or deemed to create a security interest in the Mortgage Loans, then it is
intended that, (a) this Agreement shall also be deemed to be a security
agreement within the meaning of Articles 8 and 9 of the New York Uniform
Commercial Code and the Uniform Commercial Code of any other applicable
jurisdiction; (b) the conveyance provided for in this Section shall be deemed to
be (1) a grant by the Company to the Trustee of a security interest in all of
the Company's right (including the power to convey title thereto), title and
interest, whether now owned or hereafter acquired, in and to (A) the Mortgage
Loans, including the Mortgage Notes, the Mortgages, any related insurance
policies and all other documents in the related Mortgage Files, (B) all amounts
payable to the holders of the Mortgage Loans in accordance with the terms
thereof and (C) all proceeds of the conversion, voluntary or involuntary, of the
foregoing into cash, instruments, securities or other property, including
without limitation all amounts from time to time held or invested in the
Certificate Account or the Custodial Account, whether in the form of cash,
instruments, securities or other property and (2) an assignment by the Company
to the Trustee of any security interest in any and all of the Seller's right
(including the power to convey title thereto), title and interest, whether now
owned or hereafter acquired, in and to the property described in the foregoing
clauses (1)(A) through (C) granted by WMC Mortgage Corp. to the Company pursuant
to the Assignment Agreement; (c) the possession by the Trustee or its agent of
Mortgage Notes and such other items of property as constitute instruments,
money, negotiable documents or chattel paper shall be deemed to be "possession
by the secured party" or possession by a purchaser or a person designated by
such secured party, for purposes of perfecting the security interest pursuant to
the New York Uniform Commercial Code and the Uniform Commercial Code of any
other applicable jurisdiction (including, without limitation, Sections 9-305,
8-313 or 8-321 thereof); and (d) notifications to persons holding such property,
and acknowledgments, receipts or confirmations from persons holding such
property, shall be deemed notifications to, or acknowledgments, receipts or
confirmations from, financial intermediaries, bailees or agents (as applicable)
of the Trustee for the purpose of perfecting such security interest under
applicable law. The Company and the Trustee shall, to the extent consistent with
this Agreement, take such actions as may be necessary to ensure that, if this
Agreement were deemed to create a security interest in the Mortgage Loans, such
security interest would be deemed to be a perfected security interest of first
priority under applicable law and will be maintained as such throughout the term
of the Agreement.
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SECTION 2.02. Acceptance of the Trust Fund by the Trustee.
The Trustee acknowledges receipt (subject to any exceptions noted in
the Initial Certification described below) of the documents referred to in
Section 2.01 above and all other assets included in the Trust Fund 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 included in the Trust Fund (to the extent delivered or assigned to the
Trustee), in trust for the exclusive use and benefit of all present and future
Certificateholders.
The Trustee agrees, for the benefit of the Certificateholders, to
review each Mortgage File on or before the Closing Date to ascertain that all
documents required to be delivered to it are in its possession, and the Trustee
agrees to execute and deliver to the Company and the Master Servicer on the
Closing Date an Initial Certification in the form annexed hereto as Exhibit C to
the effect that, as to each Mortgage Loan listed in the Mortgage Loan Schedule
(other than any Mortgage Loan paid in full or any Mortgage Loan specifically
identified in such certification as not covered by such certification), (i) all
documents required to be delivered to it pursuant to this Agreement with respect
to such Mortgage Loan are in its possession, (ii) such documents have been
reviewed by it and appear regular on their face and relate to such Mortgage Loan
and (iii) based on its examination and only as to the foregoing documents, the
information set forth in items (i) - (vi) and (xiii) of the definition of the
"Mortgage Loan Schedule" accurately reflects information set forth in the
Mortgage File. Neither the Trustee nor the Master Servicer shall be under any
duty to determine whether any Mortgage File should include any of the documents
specified in clause (vi) of Section 2.01. Neither the Trustee nor the Master
Servicer shall be under any 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 or that they are other than what they purport
to be on their face.
Within 90 days of the Closing Date the Trustee shall deliver to the
Company and the Master Servicer a Final Certification in the form annexed hereto
as Exhibit D evidencing the completeness of the Mortgage Files, with any
applicable exceptions noted thereon.
If in the process of reviewing the Mortgage Files and preparing the
certifications referred to above the Trustee finds any document or documents
constituting a part of a Mortgage File to be missing or defective in any
material respect, the Trustee shall promptly notify the Seller, the Master
Servicer and the Company. The Trustee shall promptly notify the Seller of such
defect and request that the Seller cure any such defect within 60 days from the
date on which the Seller was notified of such defect, and if the Seller does not
cure such defect in all material respects during such period, request that the
Seller purchase such Mortgage Loan from the Trust Fund on behalf of the
Certificateholders at the Purchase Price within 90 days after the date on which
the Seller was notified of such defect. It is understood and agreed that the
obligation of the Seller to cure a material defect in, or purchase any Mortgage
Loan as to which a material defect in a constituent document exists shall
constitute the sole remedy respecting such defect available to
Certificateholders or the Trustee on behalf of Certificateholders. The Purchase
Price for the purchased Mortgage Loan shall be deposited or caused to be
deposited upon receipt by the Master
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Servicer in the Custodial Account and, upon receipt by the Trustee of written
notification of such deposit signed by a Servicing Officer, the Trustee shall
release or cause to be released to the Seller the related Mortgage File and
shall execute and deliver such instruments of transfer or assignment, in each
case without recourse, as the Seller shall require as necessary to vest in the
Seller ownership of any Mortgage Loan released pursuant hereto and at such time
the Trustee shall have no further responsibility with respect to the related
Mortgage File.
SECTION 2.03. Representations, Warranties and Covenants of the Master
Servicer and the Company.
(a) The Master Servicer hereby represents and warrants to and
covenants with the Company and the Trustee for the benefit of Certificateholders
that:
(i) The Master Servicer is, and throughout the term hereof shall
remain, a __________ duly organized, validly existing and in good standing
under the laws of the State of __________ (except as otherwise permitted
pursuant to Section 6.02), the Master Servicer is, and shall remain, in
compliance with the laws of each state in which any Mortgaged Property is
located to the extent necessary to perform its obligations under this
Agreement, and the Master Servicer is, and shall remain, approved to sell
mortgage loans to and service mortgage loans for FNMA and FHLMC;
(ii) The execution and delivery of this Agreement by the Master
Servicer, and the performance and compliance with the terms of this
Agreement by the Master Servicer, will not violate the Master Servicer's
articles of incorporation or bylaws or constitute a default (or an event
which, with notice or lapse of time, or both, would constitute a default)
under, or result in the breach of, any material agreement or other
instrument to which it is a party or which is applicable to it or any of
its assets;
(iii) The Master Servicer has the full power and authority to
enter into and consummate all transactions contemplated by this Agreement,
has duly authorized the execution, delivery and performance of this
Agreement, and has duly executed and delivered this Agreement;
(iv) This Agreement, assuming due authorization, execution and
delivery by the Company and the Trustee, constitutes a valid, legal and
binding obligation of the Master Servicer, enforceable against the Master
Servicer in accordance with the terms hereof, subject to (A) applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting
the enforcement of creditors' rights generally, and (B) general principles
of equity, regardless of whether such enforcement is considered in a
proceeding in equity or at law;
(v) The Master Servicer is not in violation of, and its execution
and delivery of this Agreement and its performance and compliance with the
terms of this Agreement will not constitute a violation of, any law, any
order or decree of any court or arbiter, or any order, regulation or demand
of any federal, state or local governmental or
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regulatory authority, which violation is likely to affect materially and
adversely either the ability of the Master Servicer to perform its
obligations under this Agreement or the financial condition of the Master
Servicer;
(vi) No litigation is pending or, to the best of the Master
Servicer's knowledge, threatened against the Master Servicer which would
prohibit its entering into this Agreement or performing its obligations
under this Agreement or is likely to affect materially and adversely either
the ability of the Master Servicer to perform its obligations under this
Agreement or the financial condition of the Master Servicer;
(vii) The Master Servicer will comply in all material respects in
the performance of this Agreement and with all reasonable rules and
requirements of each insurer under each Insurance Instrument;
(viii) The execution of this Agreement and the performance of the
Master Servicer's obligations hereunder do not require any license, consent
or approval of any state or federal court, agency, regulatory authority or
other governmental body having jurisdiction over the Master Servicer, other
than such as have been obtained; and
(ix) No information, certificate of an officer, statement
furnished in writing or report delivered to the Company, any affiliate of
the Company or the Trustee by the Master Servicer will, to the knowledge of
the Master Servicer, contain any untrue statement of a material fact or
omit a material fact necessary to make the information, certificate,
statement or report not misleading; and
It is understood and agreed that the representations, warranties and
covenants set forth in this Section 2.03(a) shall survive the execution and
delivery of this Agreement, and shall inure to the benefit of the Company, the
Trustee and the Certificateholders. Upon discovery by the Company, the Trustee
or the Master Servicer of a breach of any of the foregoing representations,
warranties and covenants that materially and adversely affects the interests of
the Company or the Trustee, the party discovering such breach shall give prompt
written notice to the other parties.
(b) The Company hereby represents and warrants to the Master Servicer
and the Trustee for the benefit of Certificateholders that as of the Closing
Date (or, if otherwise specified below, as of the date so specified):
(i) Immediately prior to the assignment of the Mortgage Loans to
the Trustee, the Company had good title to, and was the sole owner of, each
Mortgage Loan free and clear of any pledge, lien, encumbrance or security
interest (other than rights to servicing and related compensation) and such
assignment validly transfers ownership of the Mortgage Loans to the Trustee
free and clear of any pledge, lien, encumbrance or security interest;
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(ii) No Mortgage Loan is one month or more delinquent in payment
of principal and interest as of the Cut-off Date and no Mortgage Loan has
been so delinquent more than once in the 12-month period prior to the
Cut-off Date;
(iii) The information set forth in the Mortgage Loan Schedule
with respect to each Mortgage Loan or the Mortgage Loans, as the case may
be, is true and correct in all material respects at the date or dates
respecting which such information is furnished;
(iv) The Mortgage Loans are fully-amortizing, adjustable-rate
mortgage loans with Monthly Payments due on the first day of each month and
terms to maturity at origination or modification of not more than 30 years;
(v) Each Mortgage Loan secured by a Mortgaged Property with a
Loan- to-Value Ratio at origination in excess of 80% is the subject of a
Primary Mortgage 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
Mortgage Insurance Policy is in full force and effect and the Trustee is
entitled to the benefits thereunder; and
(vi) The representations and warranties of the Seller with
respect to the Mortgage Loans and the remedies therefor are as set forth in
the Seller's Warranty Certificate.
[Other representations and warranties as applicable.]
It is understood and agreed that the representations and warranties set forth in
this Section 2.03(b) shall survive delivery of the respective Mortgage Files to
the Trustee.
Upon discovery by either the Company, the Master Servicer or the
Trustee of a breach of any representation or warranty set forth in this Section
2.03 which materially and adversely affects the interests of the
Certificateholders in any Mortgage Loan, the party discovering such breach shall
give prompt written notice to the other parties.
SECTION 2.04. Representations and Warranties of the Seller; Repurchase
and Substitution.
The Company hereby assigns to the Trustee for the benefit of
Certificateholders its interest in respect of the representations and warranties
made by the Seller in the Seller's Warranty Certificate or the exhibits thereto.
Insofar as the Seller's Warranty Certificate relates to such representations and
warranties and any remedies provided thereunder for any breach of such
representations and warranties, such right, title and interest may be enforced
by the Trustee on behalf of the Certificateholders. Upon the discovery by the
Company, the Master Servicer or the Trustee of a breach of any of the
representations and warranties made in the Seller's Warranty
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Certificate in respect of any Mortgage Loan which materially and adversely
affects the interests of the Certificateholders in such Mortgage Loan, the party
discovering such breach shall give prompt written notice to the other parties.
The Trustee shall promptly notify the Seller of such breach and request that
such Seller shall, within 90 days from the date that the Company, the Seller or
the Trustee was notified of such breach, either (i) cure such breach in all
material respects or (ii) purchase such Mortgage Loan from the Trust Fund at the
Purchase Price and in the manner set forth in Section 2.02; provided that in the
case of such breach, the Seller shall have the option to substitute a Qualified
Substitute Mortgage Loan or Loans for such Mortgage Loan if such substitution
occurs within 90 days following the Closing Date. Any such substitution must
occur within 90 days from the date the Seller was notified of the breach if such
90 day period expires before two years following the Closing Date. In the event
that the Seller elects to substitute a Qualified Substitute Mortgage Loan or
Loans for a Deleted Mortgage Loan pursuant to this Section 2.04, the Seller
shall deliver to the Trustee for the benefit of the Certificateholders with
respect to such Qualified Substitute Mortgage Loan or Loans, the original
Mortgage Note, the Mortgage, an Assignment of the Mortgage in recordable form,
and such other documents and agreements as are required by Section 2.01, with
the Mortgage Note endorsed as required by Section 2.01. No substitution will be
made in any calendar month after the Determination Date for such month. Monthly
Payments due with respect to Qualified Substitute Mortgage Loans in the month of
substitution shall not be part of the Trust Fund and will be retained by the
Master Servicer and remitted by the Master Servicer to the Seller on the next
succeeding Distribution Date. For the month of substitution, distributions to
Certificateholders will include the Monthly Payment due on a 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 Company shall
amend or cause to be amended the Mortgage Loan Schedule for the benefit of the
Certificateholders to reflect the removal of such Deleted Mortgage Loan and the
substitution of the Qualified Substitute Mortgage Loan or Loans and the Company
shall deliver the amended Mortgage Loan Schedule, to the Trustee. Upon such
substitution, the Qualified Substitute Mortgage Loan or Loans shall be subject
to the terms of this Agreement in all respects, the Seller shall be deemed to
have made the representations and warranties with respect to the Qualified
Substitute Mortgage Loan contained in the Seller's Warranty Certificate as of
the date of substitution, and the Company shall be deemed to have made with
respect to any Qualified Substitute Mortgage Loan or Loans, as of the date of
substitution, the representations and warranties set forth in Section 2.03
hereof, and the Seller shall be obligated to repurchase or substitute for any
Qualified Substitute Mortgage Loan as to which a repurchase or substitution
obligation has occurred pursuant to Section 3 of the Seller's Warranty
Certificate.
In connection with the substitution of one or more Qualified
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 Qualified Substitute Mortgage Loans as of the date of
substitution is less than the aggregate Stated Principal Balance of all such
Deleted Mortgage Loans (in each case after application of the principal portion
of the Monthly Payments due in the month of substitution that are to be
distributed to Certificateholders in the month of substitution). The Seller
shall provide the Master Servicer on the day of substitution for immediate
deposit in to the Custodial Account the amount of such shortfall, without any
reimbursement therefor. The Seller shall give notice in writing to the Trustee
of such event,
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which notice shall be accompanied by an Officers' Certificate as to the
calculation of such shortfall. The costs of any substitution as described above,
including any related assignments, opinions or other documentation in connection
therewith shall be borne by the Seller.
Except as expressly set forth herein neither the Trustee nor the
Master Servicer is under any obligation to discover any breach of the above
mentioned representations and warranties. It is understood and agreed that the
obligation of the Seller to cure such breach or to so purchase or substitute for
any Mortgage Loan as to which such a breach has occurred and is continuing shall
constitute the sole remedy respecting such breach available to
Certificateholders or the Trustee on behalf of Certificateholders. In addition,
if the first scheduled Monthly Payment is due during the first month after its
closing date (as such term is used in the Seller's Warranties Certificate) and
such Monthly Payment is not received by the Master Servicer within 30 days of
the due date in accordance with the terms of the related Mortgage Note, the
Master Servicer shall promptly notify the Seller and the Trustee and the Seller
shall purchase such Mortgage Loan from the Trust Fund at the Purchase Price or
substitute a Qualified Substitute Mortgage Loan therefor within 15 days from the
date that the Seller was notified.
SECTION 2.05. Issuance of Certificates Evidencing Interests in the
Trust Fund.
The Trustee acknowledges the assignment to it of the Mortgage Loans
and the delivery of the Mortgage Files to it together with the assignment to it
of all other assets included in the Trust Fund, receipt of which is hereby
acknowledged. Concurrently with such delivery and in exchange therefor, the
Trustee, pursuant to the written request of the Company executed by an officer
of the Company, has executed and caused to be authenticated, and delivered to or
upon the order of the Company, the Certificates in authorized denominations
which evidence ownership of the entire Trust Fund.
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ARTICLE III
ADMINISTRATION AND SERVICING
OF THE TRUST FUND
SECTION 3.01. Master Servicer to Act as Master Servicer.
The Master Servicer shall service and administer the Mortgage Loans
for the benefit of the Certificateholders, in accordance with this Agreement and
the customary and usual standards of practice of prudent institutional mortgage
lenders servicing comparable mortgage loans for their own account in the
respective states in which the Mortgaged Properties are located. Subject to the
foregoing, the Master Servicer shall have full power and authority, acting alone
and/or through Sub-Servicers as provided in Section 3.02, to do or cause to be
done any and all things in connection with such servicing and administration
that it may deem necessary or desirable. Without limiting the generality of the
foregoing, the Master Servicer in its own name or in the name of a Sub-Servicer
is hereby authorized and empowered by the Trustee when the Master Servicer
believes it appropriate in its best judgment, to (i) execute and deliver, on
behalf of the Certificateholders and the Trustee or any of them, any and all
instruments of satisfaction or cancellation, or of partial or full release or
discharge, and all other comparable instruments, with respect to the Mortgage
Loans and the Mortgaged Properties, (ii) institute foreclosure pro ceedings or
obtain a deed-in-lieu of foreclosure so as to convert the ownership of such
properties, and (iii) hold or cause to be held title to such properties, on
behalf of the Trustee and Certifi cateholders. The Master Servicer shall service
and administer the Mortgage Loans in accordance with applicable state and
federal law and shall provide to the Mortgagors any reports required to be
provided to them thereby. Subject to Section 3.16, the Trustee shall furnish to
the Master Servicer and any Sub-Servicer any powers of attorney and other
documents necessary or appropriate to enable the Master Servicer and any
Sub-Servicer to carry out their servicing and administrative duties hereunder.
The Trustee shall not be responsible for any action taken by the Master Servicer
or any Sub-Servicer pursuant to the application of such powers of attorney.
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 3.09, and further as
provided in Section 3.11. No costs incurred by the Master Servicer or by
Sub-Servicers in effecting the payment of taxes and assessments on the Mortgaged
Properties shall, for the purpose of calculating distributions to
Certificateholders, be added to the amount owing under the related Mortgage
Loans, notwithstanding that the terms of such Mortgage Loans so permit.
The Master Servicer may approve a request for a partial release of the
Mortgaged Property, easement, consent to alteration or demolition and other
similar matters if it has determined, exercising its good faith business
judgement in the same manner as it would if it were the owner of the related
Mortgage Loan, that such approval will not adversely affect the security for, or
the timely and full collectability of, the related Mortgage Loan. Any fee
collected by the
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Master Servicer for processing such request will be retained by the Master
Servicer as additional servicing compensation.
The relationship of the Master Servicer (and of any successor to the
Master Servicer under this Agreement) to the Trustee under this Agreement is
intended by the parties to be that of an independent contractor and not that of
a joint venturer, partner or agent.
SECTION 3.02. Sub-Servicing Agreements Between Master Servicer and
Sub-Servicers.
(a) The Master Servicer may enter into Sub-Servicing Agreements with
Sub- Servicers for the servicing and administration of the Mortgage Loans and
for the performance of any and all other activities of the Master Servicer
hereunder. Each Sub-Servicer shall be either (i) an institution the accounts of
which are insured by the FDIC or (ii) another entity that engages in the
business of originating or servicing mortgage loans, and in either case shall be
authorized to transact business in the state or states in which the related
Mortgaged Properties it is to service are situated, if and to the extent
required by applicable law to enable the Sub-Servicer to perform its obligations
hereunder and under the Sub-Servicing Agreement, and in either case shall be a
FHLMC or FNMA approved mortgage servicer. Each Sub-Servicing Agreement must
impose on the Sub-Servicer requirements conforming to the provisions set forth
in Section 3.08 and provide for servicing of the Mortgage Loans consistent with
the terms of this Agreement. With the consent of the Trustee, which consent
shall not be unreasonably withheld, the Master Servicer and the Sub-Servicers
may enter into Sub-Servicing Agreements and make amendments to the Sub-Ser
vicing Agreements or enter into different forms of Sub-Servicing Agreements;
provided, however, that any such amendments or different forms shall be
consistent with and not violate the provisions of this Agreement.
(b) As part of its servicing activities hereunder, the Master
Servicer, for the benefit of the Trustee and the Certificateholders, shall
enforce the obligations of each Sub-Servicer under the related Sub-Servicing
Agreement, including, without limitation, any obligation to make advances in
respect of delinquent payments as required by a Sub-Servicing Agreement, or to
purchase a Mortgage Loan on account of defective documentation or on account of
a breach of a representation or warranty, as described in Section 2.02. Such
enforcement, including, without limitation, the legal prosecution of claims,
termination of Sub-Servicing Agreements and the pursuit of other appropriate
remedies, shall be in such form and carried out to such an extent and at such
time as the Master Servicer, in its good faith business judgment, would require
were it the owner of the related Mortgage Loans. The Master Servicer shall pay
the costs of such enforcement at its own expense, but shall be reimbursed
therefor only (i) from a general recovery resulting from such enforcement only
to the extent, if any, that such recovery exceeds all amounts due in respect of
the related Mortgage Loans or (ii) from a specific recovery of costs, expenses
or attorneys' fees against the party against whom such enforcement is directed.
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SECTION 3.03. Successor Sub-Servicers.
The Master Servicer shall be entitled to terminate any Sub-Servicing
Agreement and the rights and obligations of any Sub-Servicer pursuant to any
Sub-Servicing Agreement in accor dance with the terms and conditions of such
Sub-Servicing Agreement. In the event of termination of any Sub-Servicer, all
servicing obligations of such Sub-Servicer shall be assumed simultaneously by
the Master Servicer without any act or deed on the part of such Sub-Servicer or
the Master Servicer, and the Master Servicer either shall service directly the
related Mortgage Loans or shall enter into a Sub-Servicing Agreement with a
successor Sub-Servicer which qualifies under Section 3.02.
SECTION 3.04. Liability of the Master Servicer.
Notwithstanding any Sub-Servicing Agreement, any of the provisions of
this Agreement relating to agreements or arrangements between the Master
Servicer and a Sub- Servicer or reference to actions taken through a
Sub-Servicer or otherwise, the Master Servicer shall remain obligated and
primarily liable to the Trustee and Certificateholders for the servicing and
administering of the Mortgage Loans in accordance with the provisions of Section
3.01 without diminution of such obligation or liability by virtue of such
Sub-Servicing Agreements or arrangements or by virtue of indemnification from
the Sub-Servicer and to the same extent and under the same terms and conditions
as if the Master Servicer alone were servicing and administering the Mortgage
Loans. For purposes of this Agreement, the Master Servicer shall be deemed to
have received payments on Mortgage Loans when the Sub-Servicer has received such
payments. The Master Servicer shall be entitled to enter into any agreement with
a Sub-Servicer for indemnification of the Master Servicer by such Sub-Servicer
and nothing contained in this Agreement shall be deemed to limit or modify such
indemnification.
SECTION 3.05. No Contractual Relationship Between Sub-Servicers and
Trustee or Certificateholders.
Any Sub-Servicing Agreement that may be entered into and any
transactions or services relating to the Mortgage Loans involving a Sub-Servicer
in its capacity as such and not as an originator shall be deemed to be between
the Sub-Servicer and the Master Servicer alone, and the Trustee and
Certificateholders shall not be deemed parties thereto and shall have no claims,
rights, obligations, duties or liabilities with respect to the Sub-Servicer
except as set forth in Section 3.06.
SECTION 3.06. Assumption or Termination of Sub-Servicing Agreements by
Trustee.
In the event the Master Servicer shall for any reason no longer be the
master servicer (including by reason of an Event of Default), the Trustee or its
designee shall thereupon assume all of the rights and obligations of the Master
Servicer under each Sub-Servicing Agreement that the Master Servicer may have
entered into, unless the Trustee is then permitted and elects to terminate any
Sub-Servicing Agreement in accordance with its terms. The Trustee,
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its designee or the successor servicer for the Trustee shall be deemed to have
assumed all of the Master Servicer's interest therein and to have replaced the
Master Servicer as a party to each Sub- Servicing Agreement to the same extent
as if the Sub-Servicing Agreements had been assigned to the assuming party,
except that the Master Servicer shall not thereby be relieved of any liability
or obligations under the Sub-Servicing Agreements, and the Master Servicer shall
continue to be entitled to any rights or benefits which arose prior to its
termination as master servicer.
The Master Servicer at its expense shall, upon request of the Trustee,
deliver to the assuming party all documents and records relating to each
Sub-Servicing Agreement and the Mortgage Loans then being serviced and an
accounting of amounts collected and held by it and otherwise use its best
efforts to effect the orderly and efficient transfer of the Sub-Servicing
Agreements to the assuming party.
SECTION 3.07. Collection of Certain Mortgage Loan Payments.
The Master Servicer shall make reasonable efforts to collect all
payments called for under the terms and provisions of the Mortgage Loans, and
shall, to the extent such procedures shall be consistent with this Agreement and
the terms and provisions of any related Insurance Policy, follow such collection
procedures as it would follow with respect to mortgage loans comparable to the
Mortgage Loans and held for its own account. 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, Primary Hazard Insurance
Policy, Primary Mortgage Insurance Policy or otherwise or against any public or
governmental authority with respect to a taking or condemnation) if it
reasonably believes that it is prohibited by applicable law from enforcing the
provision of the Mortgage or other instrument pursuant to which such payment is
required. Consistent with the foregoing, the Master Servicer may in its
discretion waive any prepayment fees, late payment charge or other charge,
except as otherwise required under applicable law. The Master Servicer shall be
responsible for preparing and distributing all information statements relating
to payments on the Mortgage Loans, in accordance with all applicable federal and
state tax laws and regulations.
SECTION 3.08. Sub-Servicing Accounts.
In those cases where a Sub-Servicer is servicing a Mortgage Loan
pursuant to a Sub-Servicing Agreement, the Sub-Servicer will be required to
establish and maintain one or more accounts (collectively, the "Sub-Servicing
Account"). The Sub-Servicing Account shall be an Eligible Account and shall
otherwise be acceptable to the Master Servicer. All amounts held in a
Sub-Servicing Account shall be held in trust for the Trustee for the benefit of
the Certificateholders. The Sub-Servicer will be required to deposit into the
Sub-Servicing Account no later than the first Business Day after receipt all
proceeds of Mortgage Loans received by the Sub-Servicer, less its servicing
compensation and any unreimbursed expenses and advances, to the extent permitted
by the Sub-Servicing Agreement. On each Sub-Servicer Remittance Date the
Sub-Servicer will be required to remit to the Master Servicer for deposit into
the Custodial Account all funds held in the Sub-Servicing Account with respect
to any Mortgage Loan as of the Sub-Servicer Remittance Date, after deducting
from such remittance an amount equal to the
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servicing compensation and unreimbursed expenses and advances to which it is
then entitled pursuant to the related Sub-Servicing Agreement, to the extent not
previously paid to or retained by it. In addition, on each Sub-Servicer
Remittance Date the Sub-Servicer will be required to remit to the Master
Servicer any amounts required to be advanced pursuant to the related Sub-
Servicing Agreement. The Sub-Servicer will also be required to remit to the
Master Servicer, within one Business Day of receipt, the proceeds of any
Principal Prepayment made by the Mortgagor and any Insurance Proceeds or
Liquidation Proceeds.
SECTION 3.09. Collection of Taxes, Assessments and Similar Items;
Servicing Accounts.
The Master Servicer and the Sub-Servicers shall establish and maintain
one or more accounts (the "Servicing Accounts"), and shall deposit and retain
therein all collections from the Mortgagors (or related advances from
Sub-Servicers) for the payment of taxes, assessments, Primary Hazard Insurance
Policy premiums, and comparable items for the account of the Mortgagors, to the
extent that the Master Servicer customarily escrows for such amounts.
Withdrawals of amounts so collected from a Servicing Account may be made only to
(i) effect payment of taxes, assessments, Primary Hazard Insurance Policy
premiums and comparable items; (ii) reimburse the Master Servicer (or a
Sub-Servicer to the extent provided in the related Sub- Servicing Agreement) out
of related collections for any payments made pursuant to Sections 3.01 (with
respect to taxes and assessments) and 3.13 (with respect to Primary Hazard
Insurance Policies); (iii) refund to Mortgagors any sums as may be determined to
be overages; or (iv) clear and terminate the Servicing Account at the
termination of this Agreement pursuant to Section 9.01. As part of its servicing
duties, the Master Servicer or Sub-Servicers shall, if and to the extent
required by law, pay to the Mortgagors interest on funds in Servicing Accounts
from its or their own funds, without any reimbursement therefor.
SECTION 3.10. Custodial Account.
(a) The Master Servicer shall establish and maintain one or more
accounts (collectively, the "Custodial Account") in which the Master Servicer
shall deposit or cause to be deposited no later than the first Business Day
after receipt or as and when received from the Sub- Servicers, the following
payments and collections received or made by or on behalf of it subsequent to
the Cut-off Date, or received by it prior to the Cut-off Date but allocable to a
period subsequent thereto (other than in respect of principal and interest on
the Mortgage Loans due on or before the Cut-off Date):
(i) all payments on account of principal, including Principal
Prepayments, on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage Loans, not
including any portion thereof representing interest on account of the
related Servicing Fee Rate;
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(iii) all Insurance Proceeds, other than proceeds that represent
reimbursement of costs and expenses incurred by the Master Servicer in
connection with presenting claims under the related Insurance Policies,
Liquidation Proceeds and REO Proceeds;
(iv) all proceeds of any Mortgage Loan or REO Property repurchased or
purchased in accordance with Sections 2.02, 2.04, 3.25 or 9.01 and all
amounts required to be deposited in connection with the substitution of a
Qualified Substitute Mortgage Loan pursuant to Section 2.04;
(v) any amounts required to be deposited in the Custodial Account
pursuant to Section 3.12, 3.13 or 3.22; and
(vi) all amounts required to be deposited pursuant to Section 3.25.
For purposes of the immediately preceding sentence, the Cut-off Date
with respect to any Qualified Substitute Mortgage Loan shall be deemed to be the
date of substitution.
The foregoing requirements for deposit in the Custodial Account shall
be exclusive. In the event the Master Servicer shall deposit in the Custodial
Account any amount not required to be deposited therein, it may withdraw such
amount from the Custodial Account, any provision herein to the contrary
notwithstanding. The Custodial Account shall be maintained as a segregated
account, separate and apart from trust funds created for mortgage pass-through
certificates of other series, and the other accounts of the Master Servicer.
(b) Funds in the Custodial Account may be invested in Permitted
Instruments in accordance with the provisions set forth in Section 3.12. The
Master Servicer shall give notice to the Trustee and the Company of the location
of the Custodial Account after any change thereof.
(c) Payments in the nature of late payment charges, prepayment fees,
assumption fees and reconveyance fees received on the Mortgage Loans shall not
be deposited in the Custodial Account, but rather shall be received and held by
the Master Servicer as additional servicing compensation.
SECTION 3.11. Permitted Withdrawals From the Custodial Account.
The Master Servicer may, from time to time as provided herein, make
withdrawals from the Custodial Account of amounts on deposit therein pursuant to
Section 3.10 that are attributable to the Mortgage Loans for the following
purposes:
(i) to make deposits into the Certificate Account in the amounts and
in the manner provided for in Section 4.01, such deposit to include
interest collections on the Mortgage Loans at the Net Mortgage Rate [and
net of amounts reimbursed therefrom];
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(ii) to pay to itself, the Company, the Seller or any other
appropriate person, as the case may be, with respect to each Mortgage Loan
that has previously been purchased, repurchased or replaced pursuant to
Sections 2.02, 2.04 or 9.01 all amounts received thereon and not yet
distributed as of the date of purchase, repurchase or substitution;
(iii) to reimburse itself or any Sub-Servicer for Advances not
previously reimbursed, the Master Servicer's or any Sub-Servicer's right to
reimbursement pursuant to this clause (iii) being limited to amounts
received which represent Late Collections (net of the related Servicing
Fees) of Monthly Payments on Mortgage Loans with respect to which such
Advances were made and as further provided in Section 3.15;
(iv) to reimburse or pay itself, the Trustee or the Company for
expenses incurred by or reimbursable to the Master Servicer, the Trustee or
the Company pursuant to Sections 3.22, 6.03, 8.05, 10.01(c) or 10.01(g),
except as otherwise provided in such Sections;
(v) to reimburse itself or any Sub-Servicer for costs and expenses
incurred by or reimbursable to it relating to the prosecution of any claims
pursuant to Section 3.13 that are in excess of the amounts so recovered;
(vi) to reimburse itself or any Sub-Servicer for unpaid Servicing Fees
and unreimbursed Servicing Advances, the Master Servicer's or any
Sub-Servicer's right to reimbursement pursuant to this clause (vi) with
respect to any Mortgage Loan being limited to late recoveries of the
payments for which such advances were made pursuant to Section 3.01 or
Section 3.09 and any other related Late Collections;
(vii) to pay itself as servicing compensation (in addition to the
Servicing Fee), on or after each Distribution Date, any interest or
investment income earned on funds deposited in the Custodial Account for
the period ending on such Distribution Date, subject to Section 8.05;
(viii) to reimburse itself or any Sub-Servicer for any Advance
previously made which itself has determined to be a Nonrecoverable Advance,
provided that such Advance was made with respect to a delinquency that
ultimately constituted an Excess Special Hazard Loss, Excess Fraud Loss,
Excess Bankruptcy Loss or Extraordinary Loss; and
(ix) to clear and terminate the Custodial Account at the termination
of this Agreement pursuant to Section 9.01.
The Master Servicer shall keep and maintain separate accounting
records on a Mortgage Loan by Mortgage Loan basis, for the purpose of justifying
any withdrawal from the Custodial Account pursuant to such clauses (ii), (iii),
(iv), (v), (vi), (vii) and (viii).
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SECTION 3.12. Permitted Instruments.
Any institution maintaining the Custodial Account shall at the
direction of the Master Servicer invest the funds in such account in Permitted
Instruments, each of which shall mature not later than the Business Day
immediately preceding the Distribution Date next following the date of such
investment (except that if such Permitted Instrument is an obligation of the
insti tution that maintains such account, then such Permitted Instrument shall
mature not later than such Distribution Date) and shall not be sold or disposed
of prior to its maturity. All income and gain realized from any such investment
as well as any interest earned on deposits in the Custodial Account shall be for
the benefit of the Master Servicer. The Master Servicer shall deposit in the
Custodial Account (with respect to investments made hereunder of funds held
therein) an amount equal to the amount of any loss incurred in respect of any
such investment immediately upon realization of such loss without right of
reimbursement.
SECTION 3.13. Maintenance of the Letter of Credit, Primary Mortgage
Insurance and Primary Hazard Insurance.
(a) The Master Servicer covenants and agrees to exercise its best
reasonable efforts to maintain and keep the Letter of Credit in full force and
effect in accordance with Section 4.06 until the termination of the Trust Fund
created hereby, unless the amount available to be drawn thereunder has been
exhausted or unless the Letter of Credit has been terminated pursuant to the
terms thereof or hereof. As to any Distribution Date, with respect to any
Mortgage Loan as to which liquidation has been completed (which shall be deemed
to have occurred when the Master Servicer determines that it has received all
Insurance Proceeds (other than proceeds from a drawing under the Letter of
Credit), Liquidation Proceeds and other recoveries which the Master Servicer
deems to be recoverable) during the preceding calendar month or was deemed to
have occurred during such preceding calendar month in accordance with Section
3.07 (other than any Mortgage Loan relating to a Mortgaged Property which has
suffered an Extraordinary Loss), by 12:00 Noon, New York City time, on the
related Certificate Account Deposit Date, the Trustee shall draw on the Letter
of Credit, after receipt of the written statement of the Master Servicer
delivered pursuant to Section 4.04, pursuant to the terms thereof. In lieu of a
draw under the Letter of Credit as provided above, WMC Mortgage Corp., at its
sole option, may, on the Certificate Account Deposit Date upon which such draw
could otherwise be made, deposit an amount equal to such draw into the
Certificate Account. After any drawing under the Letter of Credit or payment by
WMC Mortgage Corp. pursuant to this Section 3.13(a), the Trustee shall assign to
WMC Mortgage Corp. any rights in or to the related Mortgage Loan and such
Mortgage Loan will thereafter no longer be part of the Trust Fund. Upon receipt
by WMC Mortgage Corp. of any amounts in connection with a Mortgage Loan so
assigned to it, WMC Mortgage Corp. shall supply the Trustee with an Officers'
Certificate which sets forth such amount, and (except in the case of a payment
made by WMC Mortgage Corp. in lieu of a draw on the Letter of Credit) WMC
Mortgage Corp. shall cause the Letter of Credit Issuer to be reimbursed to the
extent required for reinstatement of the available amount under the Letter of
Credit. Upon receipt by the Trustee of such an Officers' Certificate, if the
Letter of Credit remains outstanding, the Trustee shall request the
reinstatement of the amount remaining under the Letter of Credit in an amount
equal to such
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recovered amount by delivering a certificate to the Letter of Credit Issuer
substantially in the form of Annex B to the Letter of Credit.
Notwithstanding the foregoing, draws on the Letter of Credit, or
payments in lieu thereof, in connection with Fraud Losses shall not exceed in
the aggregate Fraud Loss Amount.
(b) The Master Servicer may terminate the Letter of Credit or reduce
the amount thereof (pursuant to Section 4.06(d)) or substitute an alternative
form of credit enhancement therefor, provided that prior to any such reduction,
termination or substitution, the Master Servicer shall obtain written
confirmation from the Rating Agency that such reduction, termination or
substitution would not adversely affect the then-current rating assigned to the
Certificates by such Rating Agency and provide a copy of such confirmation to
the Trustee and, provided that the Master Servicer obtains on Opinion of Counsel
to the effect that obtaining any such alternative form of credit support will
not adversely affect the classification of the Trust Fund as a grantor trust for
federal income tax purposes.
(c) The Master Servicer shall not take, or permit any Sub-servicer to
take, any action which would result in non-coverage under any applicable Primary
Mortgage Insurance Policy of any loss which, but for the actions of the Master
Servicer or Sub-servicer, would have been covered thereunder. To the extent
coverage is available, the Master Servicer shall keep or cause to be kept in
full force and effect each such Primary Mortgage Insurance Policy until the
principal balance of the related Mortgage Loan secured by a Mortgaged Property
is reduced to 75% or less of the Collateral Value in the case of such a Mortgage
Loan having a Loan-to-Value Ratio at origination in excess of 80%. The Master
Servicer shall not cancel or refuse to renew any such Primary Mortgage Insurance
Policy, or consent to any Sub-servicer canceling or refusing to renew any such
Primary Mortgage Insurance Policy applicable to a Mortgage Loan subserviced by
it, 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
Mortgage Insurance Policy for such canceled or non-renewed policy is maintained
with a Qualified Insurer.
(d) In connection with its activities as administrator and servicer of
the Mortgage Loans, the Master Servicer agrees to present or to cause the
related Sub-servicer to present, on behalf of the Master Servicer, the
Sub-servicer, if any, the Trustee and Certificateholders, claims to the insurer
under any Primary Mortgage Insurance Policies, in a timely manner in accordance
with such policies, and, in this regard, to take or cause to be taken such
reasonable action as shall be necessary to permit recovery under any Primary
Mortgage Insurance Policies respecting defaulted Mortgage Loans. Pursuant to
Section 3.10, any Insurance Proceeds collected by or remitted to the Master
Servicer under any Primary Mortgage Insurance Policies shall be deposited in the
Custodial Account, subject to withdrawal pursuant to Section 3.11.
(e) The Master Servicer shall cause to be maintained for each Mortgage
Loan primary hazard insurance with extended coverage on the related Mortgaged
Property in an amount equal to the lesser of 100% of the replacement value of
the improvements, as determined by the insurance company, on such Mortgaged
Property or the unpaid principal balance of the Mortgage
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Loan. The Master Servicer shall also cause to be maintained on property acquired
upon foreclosure, or deed in lieu of foreclosure, of any Mortgage Loan, fire
insurance with extended coverage in an amount equal to the replacement value of
the improvements thereon. Pursuant to Section 3.10, any amounts collected by the
Master Servicer under any such policies (other than amounts to be applied to the
restoration or repair of the related Mortgaged Property or property thus
acquired or amounts released to the Mortgagor in accordance with the Master
Servicer's normal servicing procedures) shall be deposited in the Custodial
Account, subject to withdrawal pursuant to Section 3.11. Any cost incurred by
the Master Servicer in maintaining any such insurance shall not, for the purpose
of calculating monthly distributions to Certificateholders, be added to the
amount owing under the Mortgage Loan, notwithstanding that the terms of the
Mortgage Loan so permit. 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 Loan other than pursuant to such
applicable laws and regulations as shall at any time be in force and as shall
require such additional insurance. When the improvements securing a Mortgage
Loan are located at the time of origination of such Mortgage Loan in a federally
designated special flood hazard area, the Master Servicer shall cause flood
insurance (to the extent available) to be maintained in respect thereof. Such
flood insurance shall be in an amount equal to the lesser of (i) the replacement
value of the improvements, which are part of such Mortgaged Property on a
replacement cost basis and (ii) the maximum amount of such insurance available
for the related Mortgaged Property under the national flood insurance program
(assuming that the area in which such Mortgaged Property is located is
participating in such program).
In the event that the Master Servicer shall obtain and maintain a
blanket fire insurance policy with extended coverage 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 two sentences of this
Section 3.13, it being understood and agreed that such policy may contain a
deductible clause, in which case the Master Servicer shall, in the event that
there shall not have been maintained on the related Mortgaged Property a policy
complying with the first two sentences of this Section 3.13 and there shall have
been a loss which 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. Any such deposit by the Master Servicer shall
be made on the Certificate Account Deposit Date next preceding the Distribution
Date which occurs in the month following the month in which payments under any
such policy would have been deposited in the Custodial Account. In connection
with its activities as administrator and servicer of the Mortgage Loans, the
Master Servicer agrees to present, on behalf of itself, the Trustee and
Certificateholders, claims under any such blanket policy.
SECTION 3.14. Enforcement of Due-on-Sale Clauses; Assumption
Agreements.
The Master Servicer will, to the extent it has knowledge of any
conveyance or prospective conveyance by any Mortgagor of the Mortgaged Property
(whether by absolute conveyance or by contract of sale, and whether or not the
Mortgagor remains or is to remain liable under the Mortgage Note or the
Mortgage), exercise or cause to be exercised its rights to accele rate the
maturity of such Mortgage Loan under any "due-on-sale" clause applicable
thereto;
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provided, however, that the Master Servicer shall not exercise any such rights
if it reasonably believes that it is prohibited by law from doing so or if such
enforcement will adversely affect or jeopardize required coverage under the
Insurance Instruments. If the Master Servicer is unable to enforce such
"due-on-sale" clause (as provided in the previous sentence) or if no
"due-on-sale" clause is applicable, the Master Servicer or the Sub-Servicer will
enter into an assumption and modification agreement with the Person to whom such
property has been conveyed or is proposed to be conveyed, pursuant to which such
Person becomes liable under the Mortgage Note and, to the extent permitted by
applicable state law, the Mortgagor remains liable thereon; provided, however,
that the Master Servicer shall not enter into any assumption and modification
agreement if the coverage provided under the Primary Insurance Policy, if any,
would be impaired by doing so. The Master Servicer is also authorized 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 the Mortgagor and becomes liable under the Mortgage Note, if the Master
Servicer shall have determined in good faith that such substitution will not
adversely affect the collectability of the Mortgage Loan. Any fee collected by
or on behalf of the Master Servicer for entering into an assumption or
substitution of liability agreement will be retained by or on behalf of the
Master Servicer as additional servicing compensation. In connection with any
such assumption, no material term of the Mortgage Note (including but not
limited to the Mortgage Rate, the amount of the Monthly Payment and any other
term affecting the amount or timing of payment on the Mortgage Loan) may be
changed. The Master Servicer shall notify the Trustee that any such substitution
or assumption agreement has been completed by forwarding to the Trustee the
original copy of such substitution or assumption agreement, which copy 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.
Notwithstanding the foregoing paragraph or any other provision of this
Agreement, the Master Servicer shall not be deemed to be in default, breach or
any other violation of its obligations hereunder by reason of any assumption of
a Mortgage Loan by operation of law or any assumption that the Master Servicer
may be restricted by law from preventing, for any reason whatsoever. For
purposes of this Section 3.14, the term "assumption" is deemed to also include a
sale of a Mortgaged Property that is not accompanied by an assumption or
substitution of liability agreement.
SECTION 3.15. Realization Upon Defaulted Mortgage Loans.
The Master Servicer shall exercise reasonable efforts, consistent with
the procedures that the Master Servicer would use in servicing loans for its own
account, to foreclose upon or otherwise comparably convert (which may include an
REO Acquisition) 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 pursuant to
Section 3.07, and which are not released from the Trust Fund pursuant to any
other provision hereof. The Master Servicer shall use reasonable efforts to
realize upon such defaulted Mortgage Loans in such manner as will maximize the
receipt of principal and interest by Certificateholders, taking into account,
among other things, the timing of foreclosure proceedings. The foregoing is
subject to the provisions that, in any case in which Mortgaged Property shall
have suffered
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damage from an Uninsured Cause, the Master Servicer shall not be required to
expend its own funds toward the restoration of such property unless it shall
determine in (i) that such restoration will increase the net proceeds of
liquidation of the related Mortgage Loan to Certificateholders after
reimbursement to itself for such expenses, and (ii) that such expenses will be
recoverable by the Master Servicer through Insurance Proceeds or Liquidation
Proceeds from the related Mortgaged Property, as contemplated in Section 3.11.
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 related Mortgaged Property, as
contemplated in Section 3.11.
The proceeds of any Cash Liquidation or REO Disposition, as well as
any recovery resulting from a partial collection of Insurance Proceeds or
Liquidation Proceeds or any income from an REO Property, will be applied in the
following order of priority: first, to reimburse the Master Servicer or any
Sub-Servicer for any related unreimbursed Servicing Advances, pursuant to
Section 3.11(vi) or 3.22; second, to accrued and unpaid interest on the Mortgage
Loan or REO Imputed Interest, at the Mortgage Rate, to the date of the Cash
Liquidation or REO Disposition, or to the Due Date prior to the Distribution
Date on which such amounts are to be distributed if not in connection with a
Cash Liquidation or REO Disposition; and third, as a recovery of principal of
the Mortgage Loan. If the amount of the recovery so allocated to interest is
less than a full recovery thereof, that amount will be allocated as follows:
first, on a pro rata basis, to unpaid Servicing Fees; and second, to interest at
the related Net Mortgage Rate. The portion of the recovery so allocated to
unpaid Servicing Fees shall be reimbursed to the Master Servicer or any
Sub-Servicer pursuant to Section 3.11(vi). The portions of the recovery so
allocated to interest at the related Net Mortgage Rate and to principal of the
Mortgage Loan shall be applied as follows: first, to reimburse the Trustee for
any unpaid Trustee's Fees, second, to reimburse the Master Servicer or any
Sub-Servicer for any related unreimbursed Advances in accordance with Section
3.11(iii) or 3.22, and third, for distribution in accordance with the provisions
of Section 4.01(b).
SECTION 3.16. 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 shall be escrowed in a
manner customary for such purposes, the Master Servicer will immediately notify
the Trustee by a certification (which certification shall include a statement to
the effect that all amounts received or to be received in connection with such
payment which are required to be deposited in the Custodial Account pursuant to
Section 3.10 have been or will be so deposited) of a Servicing Officer and shall
request delivery to it of the Mortgage File in the form of the Request for
Release attached hereto as Exhibit F-2. Upon receipt of such certification and
request, the Trustee shall promptly release the related Mortgage File to the
Master Servicer. Subject to the receipt by the Master Servicer of the proceeds
of such payment in full and the payment of all related fees and expenses, the
Master Servicer shall arrange for the release to the Mortgagor of the original
cancelled Mortgage Note. The Master Servicer shall provide for preparation of
the appropriate instrument of satisfaction covering any Mortgage Loan which pays
in full and the Trustee shall cooperate in the execution and return of such
instrument to provide for its delivery or recording as may be required. All
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other documents in the Mortgage File shall be retained by the Master Servicer to
the extent required by applicable law. No expenses incurred in connection with
any instrument of satisfac tion or deed of reconveyance shall be chargeable to
the Custodial Account or the Certificate Account.
From time to time and as appropriate for the servicing or foreclosure
of any Mortgage Loan, including, for this purpose, collection under the
Insurance Instruments or any other insurance policy relating to the Mortgage
Loan, the Trustee shall, upon request of the Master Servicer and delivery to the
Trustee of a Request for Release in the form attached hereto as Exhibit F-1,
release the related Mortgage File to the Master Servicer, and the Trustee shall
execute such documents as the Master Servicer shall prepare and request as being
necessary to the prosecution of any such proceedings. Such Request for Release
shall obligate the Master Servicer to return each document previously requested
from the Mortgage File to the Trustee when the need therefor by the Master
Servicer no longer exists, unless the Mortgage Loan has been liquidated and the
Liquidation Proceeds relating to the Mortgage Loan have been deposited in the
Custodial Account or the Mortgage File or such document has been delivered to an
attorney, or to a public trustee or other public official as required by law,
for purposes of initiating or pursuing legal action or other proceedings for the
foreclosure of the Mortgaged Property either judicially or non-judicially, and
the Master Servicer has delivered to the Trustee a certificate of a Servicing
Officer certifying as to the name and address of the Person to which such
Mortgage File or such document was delivered and the purpose or purposes of such
delivery. Upon receipt of a certificate of a Servicing Officer stating that such
Mortgage Loan was liquidated and that all amounts received or to be received in
connection with such liquidation which are required to be deposited into the
Custodial Account have been or will be so deposited, or that such Mortgage Loan
has become an REO Property, the servicing receipt shall be released by the
Trustee to the Master Servicer.
Upon written request of a Servicing Officer, the Trustee shall execute
and deliver to the Master Servicer any court pleadings, requests for trustee's
sale or other documents prepared by the Master Servicer that are necessary to
the foreclosure or trustee's sale in respect of a Mortgaged Property or to any
legal action brought to obtain judgment against any Mortgagor on the Mortgage
Note or Mortgage or to obtain a deficiency judgment, or to enforce any other
remedies or rights provided by the Mortgage Note or Mortgage or otherwise
available at law or in equity. Each such request that such pleadings or
documents be executed by the Trustee shall include a certification as to the
reason such documents or pleadings are required and that the execution and
delivery thereof by the Trustee will not invalidate or otherwise affect the lien
of the Mortgage, except for the termination of such a lien upon completion of
the foreclosure or trustee's sale.
SECTION 3.17. Servicing Compensation.
As compensation for its activities hereunder, the Master Servicer
shall be entitled to retain, from deposits to the Custodial Account of amounts
representing payments or recoveries of interest, the Servicing Fees with respect
to each Mortgage Loan (less any portion of such amounts retained by any
Sub-Servicer). In addition, the Master Servicer shall be entitled to
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recover unpaid Servicing Fees out of related Late Collections to the extent
permitted in Section 3.11.
The Master Servicer also shall be entitled pursuant to Section 3.11 to
receive from the Custodial Account, as additional servicing compensation
interest or other income earned on deposits therein, as well as any prepayment
fees, assumption fees, late payment fees and reconveyance fees. The Master
Servicer shall be required to pay all expenses incurred by it in connection with
its servicing activities hereunder (including payment of fees and commissions
for the Letter of Credit, payment of the premiums for any Primary Mortgage
Insurance Policy or blanket policy insuring against hazard losses pursuant to
Section 3.13, payment of the servicing compensation of the Sub-Servicer to the
extent not retained by it), and shall not be entitled to reim bursement therefor
except as specifically provided in Section 3.11. The Servicing Fee may not be
transferred in whole or in part except in connection with the transfer of all of
the Master Servicer's responsibilities and obligations under this Agreement.
SECTION 3.18. Maintenance of Certain Servicing Policies.
During the term of its service as Master Servicer, the Master Servicer
shall maintain in force (i) a policy or policies of insurance covering errors
and omissions in the performance of its obligations as servicer hereunder and
(ii) a fidelity bond in respect of its officers, employees or 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 such corporation. The Master Servicer shall prepare and
present, on behalf of itself, the Trustee and Certificateholders, claims under
any such errors and omissions policy or policies or fidelity bond in a timely
fashion in accordance with the terms of such policy or bond, and upon the filing
of any claim on any policy or bond described in this Section, the Master
Servicer shall promptly notify the Trustee of any such claims and the Trustee
shall notify the Rating Agency of such claim.
SECTION 3.19. Annual Statement as to Compliance.
The Master Servicer will deliver to the Trustee and the Company on or
before _____ __ of each year, beginning with _____ __, 199_, an Officers'
Certificate stating, as to each signatory thereof, that (i) a review of the
activities of the Master Servicer during the preceding calendar year and of its
performance under this Agreement has been made under such officers' supervision,
and (ii) to the best of such officers' knowledge, based on such review, the
Master Servicer has fulfilled in all material respects 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
officers and the nature and status thereof. Copies of such certificate 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.
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SECTION 3.20. Annual Independent Public Accountants' Servicing
Statement.
On or before March 31 of each year, beginning with March 31, 19__, the
Master Servicer at its expense shall furnish to the Company and the Trustee a
statement from a firm of independent certified public accountants (which is a
member of the American Institute of Certified Public Accountants) to the effect
that, based on an 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 of mortgage loans under
agreements (including this Agreement) substantially similar to each other was
conducted in compliance with such agreements except for such significant
exceptions or errors in record that, in the opinion of the firm, the Uniform
Single Attestation Program for Mortgage Bankers or the Audit Program for
Mortgages serviced for FHLMC requires it to report. In rendering its statement
such firm may rely, as to the matters relating to the direct servicing of
mortgage loans by Sub-servicers, upon comparable statements for examinations
conducted substantially in compliance with the Uniform Single Attestation
Program for Mortgage Bankers or the Audit Program for Mortgages serviced for
FHLMC (rendered within one year of such statement) of firms of independent
public accountants with respect to those Sub-servicers which also have been the
subject of such an examination. 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 3.21. Access to Certain Documentation.
(a) The Master Servicer shall provide to the OTS, the FDIC and other
federal banking regulatory agencies, and their respective examiners, access to
the documentation regarding the Mortgage Loans required by applicable
regulations of the OTS, the FDIC and such other agencies. Such access shall be
afforded without charge, but only upon reasonable and prior written request and
during normal business hours at the offices of the Master Servicer designated by
it. Nothing in this Section shall derogate from the obligation of the Master
Servicer to observe any applicable law prohibiting disclosure of information
regarding the Mortgagors and the failure of the Master Servicer to provide
access as provided in this Section as a result of such obligation shall not
constitute a breach of this section.
(b) The Master Servicer shall afford the Company and the Trustee, upon
reasonable notice, during normal business hours access to all records maintained
by the Master Servicer in respect of its rights and obligations hereunder and
access to officers of the Master Servicer responsible for such obligations. Upon
request, the Master Servicer shall furnish the Company and the Trustee with its
most recent financial statements and such other information as the Master
Servicer possesses regarding its business, affairs, property and condition,
financial or otherwise to the extent related to the servicing of the Mortgage
Loans. The Company 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
or exercise the 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
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performance by the Company or its designee. The Company shall not have any
responsibility or liability for any action or failure to act by the Master
Servicer and is not obligated to supervise the performance of the Master
Servicer under this Agreement or otherwise.
SECTION 3.22. Title, Conservation and Disposition of REO Property.
This Section shall apply only to REO Properties acquired for the
account of the Trust Fund, and shall not apply to any REO Property relating to a
Mortgage Loan which was purchased or repurchased from the Trust Fund pursuant to
any provision hereof. In the event that title to any such REO Property is
acquired, the deed or certificate of sale shall be issued to the Trustee, or to
its nominee, on behalf of the Certificateholders. 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 segregate and hold all funds collected and
received in connection with the operation of any REO Property separate and apart
from its own funds and general assets. The Master Servicer shall deposit, or
cause to be deposited, on a daily basis in the Custodial Account all revenues
received with respect to the REO Properties, net of any directly related
expenses incurred or withdraw therefrom funds necessary for the proper
operation, management and maintenance of the REO Property.
If as of the date of acquisition of title to any REO Property there
remain outstanding unreimbursed Servicing Advances with respect to such REO
Property or any outstanding Advances allocated thereto the Master Servicer, upon
an REO Disposition, shall be entitled to reimbursement for any related
unreimbursed Servicing Advances and any unreimbursed related Advances as well as
any unpaid Servicing Fees from proceeds received in connection with the REO
Disposition, as further provided in Section 3.15.
Subject to the first paragraph of this Section 3.22, the REO
Disposition shall be carried out by the Master Servicer at such price and upon
such terms and conditions as the Master Servicer shall determine to be in the
best economic interest of the Trust Fund.
The Master Servicer shall deposit the proceeds from the REO
Disposition, net of any payment to the Master Servicer as provided above, in the
Custodial Account upon receipt thereof for distribution in accordance with
Section 4.01, including any such net proceeds which are in excess of the
applicable Stated Principal Balance plus all unpaid REO Imputed Interest thereon
through the date of the REO Disposition.
Notwithstanding the foregoing provisions of this Section 3.22, with
respect to any Mortgage Loan as to which the Master Servicer has received notice
of, or has actual knowledge of, the presence of any toxic or hazardous substance
on the Mortgaged Property, the Master
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Servicer shall promptly request the Trustee and the Company to provide
directions and instructions with respect to such Mortgage Loan and shall act in
accordance with any such directions and instructions jointly provided by the
Trustee and the Company. Notwithstanding the preceding sentence of this Section
3.22, with respect to any Mortgage Loan described by such sentence, the Master
Servicer shall not, on behalf of the Trustee, either (i) obtain title to the
related Mortgaged Property as a result of or in lieu of foreclosure or
otherwise, or (ii) otherwise acquire possession of, the related Mortgaged
Property, unless (i) the Company and the Trustee jointly direct the Master
Servicer to take such action and (ii) either (A) the Master Servicer has, at
least 30 days prior to taking such action, obtained and delivered to the Company
an environmental audit report prepared by a Person who regularly conducts
environmental audits using customary industry standards or (B) the Company has
directed the Master Servicer not to obtain an environmental audit report. If the
Trustee and the Company have not jointly provided directions and instructions to
the Master Servicer in connection with any such Mortgage Loan within 30 days of
a request by the Master Servicer for such directions and instructions, then the
Master Servicer shall take such action as it deems to be in the best economic
interest of the Trust Fund (other than proceeding against the Mortgaged
Property) and is hereby authorized at such time as it deems appropriate to
release such Mortgaged Property from the lien of the related Mortgage.
The cost of the environmental audit report contemplated by this
Section 3.22 shall be advanced by the Master Servicer as an expense of the Trust
Fund, and the Master Servicer shall be reimbursed therefor from the Custodial
Account as provided in Section 3.11, any such right of reimbursement being prior
to the rights of the Certificateholders to receive any amount in the Custodial
Account.
If the Master Servicer determines, as described above, that it is in
the best economic interest of the Trust Fund to take such actions as are
necessary to bring any such Mortgaged Property in compliance with applicable
environmental laws, or to take such action with respect to the containment,
clean-up or remediation of hazardous substances, hazardous materials, hazardous
wastes, or petroleum-based materials affecting any such Mortgaged Property, then
the Master Servicer shall take such action as it deems to be in the best
economic interest of the Trust Fund. The cost of any such compliance,
containment, clean-up or remediation shall be advanced by the Master Servicer as
an expense of the Trust Fund, and the Master Servicer shall be entitled to be
reimbursed therefor from the Custodial Account as provided in Section 3.11, any
such right of reimbursement being prior to the rights of the Certificateholders
to receive any amount in the Custodial Account.
SECTION 3.23. Additional Obligations of the Master Servicer.
On each Certificate Account Deposit Date, the Master Servicer shall
deliver to the Trustee for deposit in the Certificate Account from its own funds
and without any right of reimbursement therefor, a total amount equal to the
aggregate of the Prepayment Interest Shortfalls for such Distribution Date;
provided that the Master Servicer's obligations under this subsection on any
Distribution Date shall not be more than the total amount of its master
servicing compensation payable in such month.
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SECTION 3.24. Additional Obligations of the Company.
The Company agrees that on or prior to the tenth day after the Closing
Date, the Company shall provide the Trustee with a written notification,
substantially in the form of Exhibit J attached hereto, relating to the
Certificates, setting forth (i)(a) if less than 10% of the aggregate Certificate
Principal Balance of the Certificates has been sold as of such date, the value
calculated pursuant to clause (b)(iii) of Exhibit J hereto, or, (b) if 10% or
more of the Certificates has been sold as of such date but no single price is
paid for at least 10% of the aggregate Certificate Principal Balance of the
Certificates, then the weighted average price at which the Certificates were
sold and the aggregate percentage of Certificates sold, (c) the first single
price at which at least 10% of the aggregate Certificate Principal Balance of
such class of Certificates was sold or, (d) if any Certificates are retained by
the Company or an affiliated corporation, or are delivered to the Seller, the
fair market value thereof as of the Closing Date, (ii) the prepayment assumption
used in pricing the Certificates, and (iii) such other information as to matters
of fact as the Trustee may reasonably request to enable it to comply with its
reporting requirements with respect to such Certificates to the extent such
information can in the good faith judgment of the Company be determined by it.
SECTION 3.25. Converted Mortgage Loans; Purchase Obligations Upon
Conversion; Administration by the Trustee.
(a) The Trustee, as Noteholder (as defined in the Mortgage Notes for
the Mortgage Loans), hereby authorizes and directs the Master Servicer, on
behalf of the Noteholder, to determine fixed interest rates into which
Mortgagors under Convertible Mortgage Loans may convert the adjustable interest
rates on their Mortgage Notes in accordance with the fixed formula set forth in
such Mortgage Notes. The Master Servicer agrees to make such determinations and
otherwise administer the Convertible Mortgage Loans as contemplated in the
Mortgage Notes until the later to occur of (i) the date on which all the
Convertible Mortgage Loans have become Converted Mortgage Loans, and (ii) the
last date on which Mortgagors have the option to convert the adjustable interest
rates on their Mortgage Notes to fixed interest rates.
(b) Upon becoming aware of the intent to convert any Convertible
Mortgage Loan the Master Servicer will promptly notify the Trustee (if it holds
the related Mortgage File) and (if the Seller is not then the Master Servicer)
the Seller. Prior to the day on which a Convertible Mortgage Loan has become a
Converted Mortgage Loan, the Seller shall be obligated pursuant to the terms of
the Seller's Warranty Certificate to purchase a Converting Mortgage Loan at the
Purchase Price. All amounts paid by the Seller in connection with the purchase
of a Converting Mortgage Loan will be deposited in the Custodial Account. A
failure by the Seller to purchase a Converting Mortgage Loan will constitute an
Event of Default for the Seller in its capacity as Master Servicer under this
Agreement pursuant to Section 7.01.
(c) A Converting Mortgage Loan or a Converted Mortgage Loan shall
remain in the Trust Fund and all payments in respect thereof shall remain in the
Trust Fund unless and until such Converting Mortgage Loan or Converted Mortgage
Loan is purchased by the Seller pursuant to Section 3.25(b).
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(d) Upon any purchase of a Converting Mortgage Loan by the Seller
pursuant to Section 3.25(b) and the deposit in the Custodial Account of the
Purchase Price, the Trustee shall give the Master Servicer written notice
thereof, and the Trustee shall release, or cause to be released, the related
Mortgage File, shall execute and deliver such instruments of transfer or
assignment (which shall be prepared by, and be at the expense of the Seller), in
each case without recourse, as the Seller, a third party, or the Trustee, as
purchaser thereof, shall require as necessary to vest in the Seller ownership of
any Mortgage Loan released pursuant hereto and at such time the Trustee shall
have no further responsibility with respect to the related Mortgage File and
whereupon such Converted Mortgage Loan shall cease to be a part of the Trust
Fund.
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ARTICLE IV
PAYMENTS TO CERTIFICATEHOLDERS
SECTION 4.01. Certificate Account; Distributions.
(a) The Trustee shall establish and maintain a Certificate Account, in
which the Master Servicer shall cause to be deposited on behalf of the Trustee
on or before 3:00 P.M. New York time on each Certificate Account Deposit Date by
wire transfer of immediately available funds an amount equal to the sum of (i)
any Advance for the immediately succeeding Distribution Date, (ii) any amount
required to be deposited in the Certificate Account pursuant to Sections 3.11,
3.13, 3.23 or 4.03(b) and (iii) all other amounts constituting or, if not
otherwise applicable to the payment of the Trustee's Fee, that would constitute
the Available Distribution Amount for the immediately succeeding Distribution
Date. The Trustee shall transfer from the Certificate Account to itself, the
Trustee's Fee on each Certificate Account Deposit Date. Such amounts do not
constitute part of the Available Distribution Amount.
(b) On each Distribution Date the Trustee shall distribute to each
Certificateholder of record on the next preceding Record Date (other than as
provided in Section 9.01 respecting the final distribution) either in
immediately available funds (by wire transfer or otherwise) to the account of
such Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder has so notified the Trustee at least 5
Business Days prior to the related Record Date and such Certificateholder is the
registered owner of Certificates the aggregate Initial Certificate Principal
Balance of which is not less than $2,500,000, or otherwise by check mailed to
such Certificateholder at the address of such Holder appearing in the
Certificate Register, such Certificateholder's share (based on the aggregate of
the Percentage Interests represented by Certificates held by such Holder) of the
Available Distribution Amount.
(c) The Trustee shall, upon written request from the Master Servicer,
invest or cause the institution maintaining the Certificate Account to invest
the funds in the Certificate Account in Permitted Instruments designated in the
name of the Trustee for the benefit of the Certificateholders, which shall
mature not later than the Business Day next preceding the Distribution Date next
following the date of such investment (except that (i) any investment in
obligations of the institution with which the Certificate Account is maintained
may mature on such Distribution Date and (ii) any other investment may mature on
such Distribution Date if the Trustee shall agree to advance funds on such
Distribution Date to the Certificate Account in the amount payable on such
investment on such Distribution Date, pending receipt thereof to the extent
necessary to make distributions on the Certificates) and shall not be sold or
disposed of prior to maturity. All income and gain realized from any such
investment shall be for the benefit of the Master Servicer and shall be subject
to its withdrawal or order from time to time. The amount of any losses incurred
in respect of any such investments shall be deposited in the Certificate Account
by the Master Servicer out of its own funds immediately as realized without
right of reimbursement.
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SECTION 4.02. Statements to Certificateholders.
On each Distribution Date the Trustee shall forward or cause to be
forwarded by mail to each Holder of a Certificate and to the Company and the
Master Servicer a statement as to such distribution setting forth the following
information as to the Certificates to the extent applicable:
(i) (a) the amount of such distribution to the Certificateholders
applied to reduce the Certificate Principal Balance thereof, and (b) the
aggregate amount included therein representing Principal Prepayments;
(ii) the amount of such distribution to the Certificateholders
allocable to interest;
(iii) if the distribution to the Certificateholders is less than the
full amount that would be distributable to such Certificateholders if there
were sufficient funds available therefor, the amount of the shortfall;
(iv) the amount of any Advance by the Master Servicer pursuant to
Section 4.03;
(v) the number and aggregate Stated Principal Balance of the Mortgage
Loans after giving effect to the distribution of principal on such
Distribution Date;
(vi) the aggregate Certificate Principal Balance of the Certificates,
after giving effect to the amounts distributed on such Distribution Date,
separately identifying any reduction thereof due to Realized Losses other
than pursuant to an actual distribution of principal;
(vii) the amount of Servicing Fees paid to the Master Servicer;
(viii) on the basis of the most recent reports furnished to it by
Subservicers, the number and aggregate principal balances of Mortgage Loans
that are delinquent (A) one month, (B) two months and (C) three months, and
the number and aggregate principal balance of Mortgage Loans that are in
foreclosure;
(ix) the number, aggregate principal balance and book value of any REO
Properties;
(x) the aggregate Accrued Certificate Interest remaining unpaid, if
any, for the Certificates, after giving effect to the distribution made on
such Distribution Date;
(xi) the Special Hazard Amount, Fraud Loss Amount and Bankruptcy
Amount as of the close of business on such Distribution Date and a
description of any change in the calculation of such amounts;
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(xii) the aggregate amount of Realized Losses allocated to the
Certificates on such Distribution Date;
(xiii) the aggregate amount of any recoveries on previously foreclosed
loans from the Seller due to a breach of representation or warranty;
(xiv) the weighted average remaining term to maturity of the Mortgage
Loans after giving effect to the amounts distributed on such Distribution
Date; and
(xv) the weighted average Mortgage Rates of the Mortgage Loans after
giving effect to the amounts distributed on such Distribution Date.
In the case of information furnished pursuant to subclauses (i) and
(ii) above, the amounts shall also be expressed as a dollar amount per Single
Certificate.
Within a reasonable period of time after the end of each calendar
year, the Trustee shall prepare and forward to each Person who at any time
during the calendar year was a Holder of a Certificate, a statement containing
the information set forth in subclauses (i) and (ii) above, 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 and regulations
thereunder as from time to time are in force.
SECTION 4.03. Remittance Reports; Advances by the Master Servicer.
(a) By 11:00 A.M. New York time the Business Day following each
Determination Date, the Master Servicer shall deliver to the Trustee a report,
prepared as of the close of business on the Determination Date (the
"Determination Date Report"), by telecopy or in a mutually agreeable electronic
format. The Determination Date Report and any written information supplemental
thereto shall include such information with respect to the Mortgage Loans that
is reasonably available to the Master Servicer and that is required by the
Trustee for purposes of making the calculations referred to in the following
paragraph, as set forth in written specifications or guidelines issued by the
Trustee from time to time. Not later than 2:00 P.M. New York time on the
Certificate Account Deposit Date, the Trustee shall furnish by telecopy to the
Master Servicer a statement (the information in such statement to be made
available to Certificateholders or the Company by the Master Servicer on
request) setting forth (i) the Available Distribution Amount, (ii) the amounts
required to be withdrawn from the Custodial Account and deposited into the
Certificate Account on the immediately succeeding Certificate Account Deposit
Date pursuant to clause (iii) of Section 4.01(a); and (iii) such other
information with respect to the Mortgage Loans as the Trustee may reasonably
require to perform the calculations necessary to make the distributions
contemplated by Section 4.01 and to prepare the statements to Certificateholders
contemplated by Section 4.02. The determination by the Trustee of such amounts
shall, in the absence of obvious error, be presumptively deemed to be correct
for all purposes hereunder.
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(b) Not later than 2:00 P.M. New York time on the Certificate Account
Deposit Date, the Trustee shall notify the Master Servicer of the aggregate
amount of Advances required to be made for the related Distribution Date, which
shall be the aggregate amount of Monthly Payments (with each interest portion
thereof adjusted to be net of the related Servicing Fee Rate), less the amount
of any related Debt Service Reductions or reductions in the amount of interest
collectable from the Mortgagor pursuant to the Relief Act, on the Outstanding
Mortgage Loans as of the related Due Date, which Monthly Payments were
delinquent as of the close of business as of the related Determination Date. On
or before 3:00 P.M. New York time on each Certificate Account Deposit Date, the
Master Servicer shall either (i) deposit in the Certificate Account from its own
funds, or funds received therefor from the Sub-Servicers, an amount equal to the
Advances to be made by the Master Servicer in respect of the related
Distribution Date, (ii) withdraw from amounts on deposit in the Custodial
Account and deposit in the Certificate Account all or a portion of the amounts
held for future distribution in discharge of any such Advance, or (iii) make
advances in the form of any combination of (i) and (ii) aggregating the amount
of such Advance. Any portion of the amounts held for future distribution so used
shall be replaced by the Master Servicer by deposit in the Custodial Account on
or before 12:00 P.M. New York time on any future Certificate Account Deposit
Date to the extent that funds attributable to the Mortgage Loans that are
available in the Custodial Account for deposit in the Certificate Account on
such Certificate Account Deposit Date shall be less than payments to
Certificateholders required to be made on the following Distribution Date. Such
allocations shall be conclusive for purposes of reimbursement to the Master
Servicer from recoveries on the Mortgage Loans pursuant to Section 3.11. The
determination by the Master Servicer that it has made a Nonrecoverable Advance
or that any proposed Advance, if made, would constitute a Nonrecoverable
Advance, shall be evidenced by a certificate of a Servicing Officer delivered to
the Seller and the Trustee. The Trustee shall deposit all funds it receives
pursuant to this Section 4.03 into the Certificate Account.
(c) In the event that the Master Servicer determines on the
Certificate Account Deposit Date that it will be unable to deposit in the
Certificate Account an amount equal to the Advance required to be made for the
immediately succeeding Distribution Date in the amount determined by the Trustee
pursuant to paragraph (b) above, it shall give notice to the Trustee of its
inability to advance (such notice may be given by telecopy), not later than 3:00
P.M., New York time, on such Business Day, specifying the portion of such amount
that it will be unable to deposit. If the Master Servicer shall have determined
that it is not obligated to make the entire Advance because all or a lesser
portion of such Advance would not be recoverable from Insurance Proceeds,
Liquidation Proceeds or otherwise, the Master Servicer shall promptly deliver to
the Trustee for the benefit of the Certificateholders an Officer's Certificate
setting forth the reasons for the Master Servicer's determination. Not later
than 5:00 P.M., New York time, on the Certificate Account Deposit Date, unless
by such time the Master Servicer shall have directly or indirectly deposited in
the Certificate Account the entire amount of the Advances required to be made
for the related Distribution Date, pursuant to Section 7.01, the Trustee shall
(a) terminate all of the rights and obligations of the Master Servicer under
this Agreement in accordance with Section 7.01 and (b) assume the rights and
obligations of the Master Servicer hereunder, including the obligation to
deposit in the Certificate Account an amount equal to the Advance for the
immediately succeeding Distribution Date.
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SECTION 4.04. Allocation of Realized Losses.
Prior to each Distribution Date, the Master Servicer shall determine
the total amount of Realized Losses, if any, that resulted from any Cash
Liquidation, Debt Service Reduction, Deficient Valuation or REO Disposition that
occurred during the related Prepayment Period. The amount of each Realized Loss
shall be evidenced by an Officers' Certificate by the Master Servicer. Realized
Losses shall be allocated to the Letter of Credit and to the Certificates as
determined by the Trustee in accordance with the following provisions. All
Realized Losses, other than Excess Special Hazard Losses, Excess Bankruptcy
Losses, Excess Fraud Losses or Extraordinary Losses shall first be covered by
draws on the Letter of Credit by the Master Servicer pursuant to Section 4.06
and then allocated to the Certificates, in reduction of the Certificate
Principal Balance thereof. Any Excess Special Hazard Losses, Excess Bankruptcy
Losses, Excess Fraud Losses and Extraordinary Losses on the Mortgage Loans will
be allocated to the Certificates. Any allocation of the principal portion of
Realized Losses to a Certificate shall be made by reducing the Certificate
Principal Balance thereof by the amount so allocated, which allocation shall be
deemed to have occurred at the close of business on such Distribution Date.
Allocations of the interest portions of Realized Losses shall be made by
operation of the definition of "Accrued Certificate Interest". All Realized
Losses and all other losses allocated to the Certificates under this Section
4.04 will be allocated among the Certificates in proportion to the Percentage
Interests evidenced thereby.
SECTION 4.05. Information Reports to be Filed by the Master Servicer.
The Master Servicer or the Sub-Servicers shall file the information
returns with respect to the receipt of mortgage interest received in a trade or
business, reports of foreclosures and abandonments of any Mortgaged Property and
the information returns relating to cancellation of indebtedness income with
respect to any Mortgaged Property required by Sections 6050H, 6050J and 6050P of
the Code, respectively, and deliver to the Trustee an Officers' Certificate
stating that such reports have been filed. Such reports shall be in form and
substance sufficient to meet the reporting requirements imposed by such Sections
6050H, 6050J and 6050P of the Code.
SECTION 4.06. The Letter of Credit.
(a) Except as otherwise set forth herein, the Master Servicer hereby
covenants and agrees to exercise its best reasonable efforts to maintain or
cause the Letter of Credit (or substitute credit enhancement), to be maintained
to the extent and in the form and amount and for the purposes set forth in this
Agreement. The Trustee shall draw on the Letter of Credit at the times and in
the manner set forth herein and therein.
(b) In the event that at any time the Letter of Credit remains
outstanding the short-term unsecured debt obligations of the Letter of Credit
Issuer are downgraded to "A-1" by Standard & Poor's, then, the Master Servicer
shall promptly notify the Trustee of such downgrade and, within 60 days of such
event, either (i) the Master Servicer shall obtain a replacement letter of
credit or other form of credit enhancement in accordance with this Section
4.06(b).
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Prior to delivering any replacement letter of credit or other form of
credit enhancement to the Trustee pursuant to this Section 4.06(b), the Master
Servicer shall (i) obtain an Opinion of Counsel to the effect that such
replacement letter of credit or alternative form of credit support will not
adversely affect the classification of the Trust Fund as a grantor trust for
federal income tax purposes and (ii) written confirmation from the Rating Agency
that such replacement letter of credit or alternative form of credit enhancement
would not have adversely affected the then-current rating assigned to the
Certificates by such Rating Agency and deliver to the Trustee an Opinion of
Counsel to the effect that such replacement letter of credit or alternative form
of credit enhancement is a valid and legally binding obligation of the related
letter of credit issuer or issuer of such alternate form of credit enhancement
in accordance with its terms. Any replacement letter of credit shall be in
generally the same form as the form of Letter of Credit attached as Exhibit B
hereto, shall be issued by a Qualified Bank and the initial amount available to
be drawn thereunder shall equal the amount remaining under the previous Letter
of Credit. The cost of obtaining and maintaining any replacement letter of
credit or alternative form of credit enhancement shall be borne by the Master
Servicer.
The Trustee acknowledges such grant and accepts the trusts under this
Section 4.06 in accordance with the provisions hereof.
(c) Upon receipt of a certificate of a Servicing Officer of the Master
Servicer or the Company instructing the Trustee to reduce, modify or terminate
the amounts available under the Letter of Credit in accordance with Section 3.13
and (i) in the case of a modification (but not a reduction or termination of the
Letter of Credit), an Opinion of Counsel to the effect that any such
modification of the Letter of Credit will not adversely affect the
classification of the Trust Fund as a grantor trust for federal income tax
purposes, and (ii) written confirmation from the Rating Agency to the effect
that the then-current rating assigned to the Certificates by such Rating Agency
will not be adversely affected by any such reduction, modification or
termination, the Trustee shall reduce, modify or terminate the Letter of Credit
pursuant to such instructions and Section 3.13 shall be deemed modified to the
extent set forth in such instructions.
On the Determination Date immediately following each anniversary of
the Cut-off Date the Master Servicer shall provide the Trustee with a
certificate of a Servicing Officer which sets forth the amounts, if any, by
which the amount available under the Letter of Credit, the Bankruptcy Amount,
the Fraud Loss Amount and the Special Hazard Amount are to be reduced in
accordance with the definitions thereof. In addition, for purposes of reducing
the amount available under the Letter of Credit, the Bankruptcy Amount, the
Fraud Loss Amount and the Special Hazard Amount, as applicable, the Master
Servicer shall notify the Trustee by means of a certificate of a Servicing
Officer of any amounts deposited by the Master Servicer in the Certificate
Account pursuant to Sections 3.11(a), 3.12(b) and 3.20(a). Upon receipt of each
certificate of a Servicing Officer the Trustee will promptly notify the Letter
of Credit Issuer of such reductions in the form of Annex C to the Letter of
Credit.
In addition, for purposes of reducing the amount available under the
Letter of Credit, the Special Hazard Amount, the Fraud Loss Amount and the
Bankruptcy Amount, as applicable, upon realization thereof, the Master Servicer
shall notify the Trustee by means of an
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Officer's Certificate of any losses incurred by the Master Servicer in
connection with any Mortgage Loan purchased pursuant to Section 3.13, separately
identifying any such losses which would have been either Special Hazard Losses,
Fraud Losses or Bankruptcy Losses, had the Mortgage Loan not been so purchased.
Upon receipt of such an Officers' Certificate, the Trustee shall promptly notify
the Letter of Credit Issuer of such reduction by delivering a certificate to the
Letter of Credit Issuer substantially in the form of Annex C to the Letter of
Credit. Upon receipt by the Trustee of such an Officers' Certificate, if the
Letter of Credit remains outstanding, the Trustee shall request the
reinstatement of the amount available under the Letter of Credit (and the Fraud
Loss Amount, Bankruptcy Amount or Special Hazard Amount, if applicable) under
the Letter of Credit in an amount equal to such recovered amount be delivering a
certificate to the Letter of Credit Issuer substantially in the form of Annex B
to the Letter of Credit.
(d) Upon termination of the Trust Fund pursuant to Article IX or upon
termination of the Letter of Credit pursuant to the terms of this Agreement
(including a draw of the entire amount available under the Letter of Credit
pursuant to Section 4.06(b)), the Trustee shall provide the Letter of Credit
Issuer with a certificate of termination pursuant to the provisions of the
Letter of Credit.
SECTION 4.07. Compliance with Withholding Requirements.
Notwithstanding any other provision of this Agreement, the Trustee
shall comply with all federal withholding requirements respecting payments to
Certificateholders of interest or original issue discount on the Mortgage Loans,
and payments of interest or discount on amounts invested by the Trustee as agent
for Certificateholders pursuant to an election made under Section 4.01 hereof,
that the Trustee reasonably believes are applicable under the Code. The consent
of Certificateholders shall not be required for such withholding. In the event
the Trustee withholds any amount from interest or original issue discount
payments or advances thereof to any Certificateholder pursuant to federal
withholding requirements, the Trustee shall, together with its monthly report to
such Certificateholders pursuant to Section 4.02 hereof, indicate such amount
withheld.
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ARTICLE V
THE CERTIFICATES
SECTION 5.01 The Certificates.
The Certificates will be substantially in the form annexed hereto as
Exhibits A. The Certificates will be issuable in registered form only. The
Certificates shall be issuable in minimum dollar denominations of $1,000 and
integral multiples of $1 in excess thereof, except that one Certificate may be
issued in an amount such that the denomination of such Certificate and the
aggregate denomination of all other outstanding Certificates together equal the
aggregate Certificate Principal Balance of the Certificates.
Upon original issue, the Certificates shall, upon the written request
of the Company executed by an officer of the Company, be executed and delivered
by the Trustee, authenticated by the Trustee and delivered to or upon the order
of the Company upon receipt by the Trustee of the documents specified in Section
2.01. The Certificates shall be executed by manual or facsimile signature on
behalf of the Trustee in its capacity as trustee hereunder by a Responsible
Officer. Certificates bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Trustee shall bind the Trustee,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Certificates or did not
hold such offices at the date of such Certificates. No Certificate shall be
entitled to any benefit under this Agreement, or be valid for any purpose,
unless there appears on such Certificate a certificate of authentication
substantially in the form provided for herein executed by the Trustee by manual
signature, and such certificate upon any Certificate shall be conclusive
evidence, and the only evidence, that such Certificate has been duly
authenticated and delivered hereunder. All Certificates issued on the Closing
Date shall be dated the Closing Date and any Certificates delivered thereafter
shall be dated the date of their authentication.
SECTION 5.02. Registration of Transfer and Exchange of Certificates.
The Trustee shall maintain a Certificate Register in which, subject to
such reasonable regulations as it may prescribe, the Trustee shall provide for
the registration of Certif icates and of transfers and exchanges of Certificates
as herein provided.
Upon surrender for registration of transfer of any Certificate at the
office of the Trustee maintained for such purpose, the Trustee shall execute and
the Trustee or the Authenticating Agent shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Certificates
of a like aggregate initial Certificate Principal Balance. Every Certificate
surrendered for transfer shall be accompanied by notification of the account of
the designated transferee or transferees for the purpose of receiving
distributions pursuant to Section 4.01 by wire transfer, if any such transferee
desires and is eligible for distribution by wire transfer.
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At the option of the Certificateholders, Certificates may be exchanged
for other Certificates of authorized denominations of a like aggregate initial
Certificate Principal Balance, upon surrender of the Certificates to be
exchanged at the office of the Certificate Registrar. 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 transfer or
exchange shall (if so required by the Trustee or the Certificate Registrar) be
duly endorsed by, or be accompanied by a written instru ment of transfer in the
form satisfactory to the Trustee or the Certificate Registrar duly executed by,
the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made to the Certificateholders for any
transfer or exchange of Certificates, but the Trustee may require payment of a
sum sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certi ficates.
All Certificates surrendered for transfer and exchange shall be
canceled and retained by the Trustee in accordance with the Trustee's standard
procedures.
SECTION 5.03. Mutilated, Destroyed, Lost or Stolen Certificates.
If (i) any mutilated Certificate is surrendered to the Trustee and the
Trustee receives evidence to its satisfaction of the destruction, loss or theft
of any Certificate, and (ii) there is delivered to the Trustee such security or
indemnity as may be required by it to save it harmless, then, in the absence of
notice to the Trustee that such Certificate has been acquired by a bona fide
purchaser, the Trustee shall execute, authenticate and deliver, in exchange for
or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new
Certificate of the same initial Certificate Principal Balance. Upon the issuance
of any new Certificate under this Section, 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 shall constitute complete and indefeasible evidence of
ownership in the Trust Fund, 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 Company, the Master Servicer, the Trustee and any agent of any of
them may treat the person in whose name any Certificate is registered as the
owner of such Certificate for the purpose of receiving distributions pursuant to
Section 4.01 and for all other purposes whatsoever, and neither the Company, the
Master Servicer, the Trustee nor any agent of any of them shall be affected by
notice to the contrary.
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ARTICLE VI
THE COMPANY AND THE MASTER SERVICER
SECTION 6.01. Liability of the Company and the Master Servicer.
The Company and the Master Servicer each shall be liable in accordance
herewith only to the extent of the obligations specifically imposed upon and
undertaken by the Company and the Master Servicer herein.
SECTION 6.02. Merger, Consolidation or Conversion of the Company or
the Master Servicer.
The Company and the Master Servicer each will keep in full effect its
existence, rights and franchises as a corporation under the laws of the state of
its incorporation, and each will 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, the Certificates or any of the Mortgage Loans
and to perform its respective duties under this Agreement; and provided further
that the Rating Agencies' ratings of the Certificates immediately prior to such
merger or consolidation will not be qualified, reduced or withdrawn as a result
thereof (as evidenced by a letter to such effect from the Rating Agencies).
Any Person into which the Company or the Master Servicer may be
merged, consolidated or converted, or any corporation resulting from any merger
or consolidation to which the Company or the Master Servicer shall be a party,
or any Person succeeding to the business of the Company or the Master Servicer,
shall be the successor of the Company 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 service
mortgage loans for FNMA or FHLMC.
SECTION 6.03. Limitation on Liability of the Company, the Master
Servicer and Others.
Neither the Company, the Master Servicer nor any of the directors,
officers, employees or agents of the Company or the Master Servicer shall be
under any liability to the Trust Fund or the Certificateholders for any action
taken or for refraining from the taking of any action in good faith pursuant to
this Agreement, or for errors in judgment; provided, however, that this
provision shall not protect the Company or the Master Servicer (but this
provision shall protect the above described persons) against any breach of
warranties or representations made herein, or against any specific liability
imposed on the Master Servicer pursuant to Section 3.01 or any other Section
hereof; and provided further that this provision shall not protect the Company,
the Master Servicer or any such person, against any liability which would
otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance of
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duties or by reason of reckless disregard of obligations and duties hereunder.
The Company, the Master Servicer and any director, officer, employee or agent of
the Company or the Master Servicer may rely in good faith on any document of any
kind prima facie properly executed and submitted by any Person respecting any
matters arising hereunder. The Company, the Master Servicer and any director,
officer, employee or agent of the Company or the Master Servicer shall be
indemnified and held harmless by the Trust Fund against any loss, liability or
expense incurred in connection with any legal action relating to this Agreement
or the Certificates, other than any loss, liability or expense related to Master
Servicer's servicing obligations with respect to any specific Mortgage Loan or
Mortgage Loans (except as any such loss, liability or expense shall be otherwise
reimbursable pursuant to this Agreement) or related to the Master Servicer's
obligations under Section 3.01, or any loss, liability or expense incurred by
reason of willful misfeasance, bad faith or gross negligence in the performance
of duties hereunder or by reason of reckless disregard of obligations and duties
hereunder. Neither the Company nor the Master Servicer shall be under any
obligation to appear in, prosecute or defend any legal action which is not
incidental to its respective duties under this Agreement and which in its
opinion may involve it in any expense or liability; provided, however, that the
Company or the Master Servicer may in its sole discretion undertake any such
action which it may deem necessary or desirable with respect to this Agreement
and the rights and duties of the parties hereto and the interests of the
Certificateholders hereunder. In such event, the legal expenses and costs of
such action and any liability resulting therefrom (except any action or
liability related to the Master Servicer's obligations under Section 3.01) shall
be expenses, costs and liabilities of the Trust Fund, and the Company and the
Master Servicer shall be entitled to be reimbursed therefor from the Certificate
Account as provided in Section 3.11, any such right of reimbursement being prior
to the rights of Certificateholders to receive any amount in the Certificate
Account.
SECTION 6.04. Limitation on Resignation of the Master Servicer.
The Master Servicer shall not resign from the obligations and duties
hereby imposed on it except (a) upon appointment of a successor servicer
reasonably acceptable to the Trustee and upon receipt by the Trustee of a letter
from each Rating Agency that such a resignation and appointment will not, in and
of itself, result in a downgrading of the Certificates or (b) upon determination
that its duties hereunder are no longer permissible under applicable law (any
such determination permitting the resignation of the Master Servicer to be
evidenced by an Opinion of Counsel (at the expense of the resigning Master
Servicer) to such effect delivered to the Trustee). No such resignation shall
become effective until the Trustee or a successor 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 remit to the Trustee for
distribution to the Certificateholders any payment (other than an Advance)
required to be made under the terms of the Certificates or this Agreement
which continues unremedied for a period of one day after the date upon
which written notice of such failure, requiring the same to be remedied,
shall have been given to the Master Servicer by the Company (with a copy to
the Trustee) or the Trustee, or to the Master Servicer, the Company and the
Trustee by the Holders of Certificates entitled to at least 25% of the
Voting Rights; or
(ii) any failure on the part of the Master Servicer duly to observe or
perform in any material respect any other of the covenants or agreements on
the part of the Master Servicer contained in the Certificates or in this
Agreement (including any breach of the Master Servicer's representations
and warranties pursuant to Section 2.03(a) which materially and adversely
affects the interests of the Certificateholders) which continues unremedied
for a period of 30 days after the date on which written notice of such
failure, requiring the same to be remedied, shall have been given to the
Master Servicer by the Company (with a copy to the Trustee) or the Trustee,
or to the Master Servicer, the Company and the Trustee by the Holders of
Certificates entitled to at least 25% of the Voting Rights; or
(iii) a decree or order of a court or agency or supervisory authority
having jurisdiction in an involuntary case under any present or future
federal or state bankruptcy, insolvency or similar law or the appointment
of a conservator or receiver or liquidator in any insolvency, readjustment
of debt, marshalling of assets and liabilities or similar proceedings, or
for the winding-up or liquidation of its affairs, shall have been entered
against the Master Servicer and such decree or order shall have remained in
force undischarged or unstayed for a period of 60 consecutive days; or
(iv) the Master Servicer shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceedings of or
relating to the Master Servicer or of or relating to all or substantially
all of its property; 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 otherwise voluntarily commence a case or proceeding under any
applicable bankruptcy, insolvency, reorganization or other similar statute,
make an assignment for the benefit of its creditors, or voluntarily suspend
payment of its obligations; or
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(vi) the Master Servicer shall fail to deposit in the Certificate
Account on any Certificate Account Deposit Date an amount equal to any
required Advance.
If the Master Servicer shall fail to make any deposit in the Certificate Account
as required by Section 4.01, the Trustee shall give the Master Servicer notice
pursuant to clause (i) not later than the Business Day following the Certificate
Account Deposit Date. If an Event of Default described in clauses (i) - (v) of
this Section shall occur, then, and in each and every such case, so long as such
Event of Default shall not have been remedied, the Company or the Trustee may,
and at the direction of the Holders of Certificates entitled to at least 51% of
the Voting Rights, the Trustee shall, by notice to the Master Servicer (and to
the Company if given by the Trustee or to the Trustee if given by the Company)
terminate all of the rights and obligations of the Master Servicer under this
Agreement and in and to the Trust Fund, other than its rights as a
Certificateholder hereunder and the Company, terminate all of the rights and
obligations of the Master Servicer under this Agreement and in and to the Trust
Fund, other than its rights as a Certificateholder hereunder. In addition, any
failure of the Master Servicer to repurchase a Converting Mortgage Loan pursuant
to Section 3.25 shall constitute an Event of Default, and in such event, all of
the rights and obligations of the Master Servicer hereunder may be terminated in
accordance with the preceding sentence. If an Event of Default described in
clause (vi) hereof shall occur, the Trustee shall, by notice to the Master
Servicer and the Company, terminate all of the rights and obligations of the
Master Servicer under this Agreement and in and to the Trust Fund, other than
its rights as a Certificateholder hereunder. On or after the receipt by the
Master Servicer of such notice, all authority and power of the Master Servicer
under this Agreement, whether with respect to the Certificates (other than as a
holder thereof) or the Mortgage Loans or otherwise, shall pass to and be vested
in the Trustee pursuant to and under this Section, and, without limitation, the
Trustee is hereby authorized and empowered to execute and deliver, on behalf of
the Master Servicer, as attorney-in-fact or otherwise, any and all documents and
other instruments, and to do or accomplish all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, whether to
complete the transfer and endorsement or assignment of the Mortgage Loans and
related documents, or otherwise. The Master Servicer agrees to cooperate with
the Trustee in effecting the termination of the Master Servicer's respon
sibilities and rights hereunder, including, without limitation, the transfer to
the Trustee or its appointed agent for administration by it of all cash amounts
which shall at the time be deposited by the Master Servicer or should have been
deposited to the Custodial or the Certificate Account or thereafter be received
with respect to the Mortgage Loans. The Trustee shall not be deemed to have
breached any obligation hereunder as a result of a failure to make or delay in
making any distribution as and when required hereunder caused by the failure of
the Master Servicer to remit any amounts received on it or to deliver any
documents held by it with respect to the Mortgage Loans. For purposes of this
Section 7.01, the Trustee shall not be deemed to have knowledge of an Event of
Default unless a Responsible Officer of the Trustee assigned to and working in
the Trustee's Corporate Trust Division has actual knowledge thereof or unless
notice of any event which is in fact such an Event of Default is received by the
Trustee and such notice references the Certificates, the Trust Fund or this
Agreement.
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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, the Trustee or its appointed agent shall
be the successor in all respects to the Master Servicer in its capacity as
Master Servicer under this Agreement and the transactions set forth or provided
for herein and shall be subject thereafter to all the responsibilities, duties
and liabilities relating thereto placed on the Master Servicer including the
obligation to make Advances which have been or will be required to be made
(except for the responsibilities, duties and liabilities contained in Section
2.03 and its obligations to deposit amounts in respect of losses incurred prior
to the date of succession pursuant to Section 3.12) by the terms and provisions
hereof; and provided further, that any failure to perform such duties or
responsibilities caused by the Master Servicer's failure to provide information
required by Section 4.03 shall not be considered a default by the Trustee
hereunder. As compensation therefor, the Trustee shall be entitled to all funds
relating to the Mortgage Loans which the Master Servicer would have been
entitled to charge to the Custodial Account and the Certificate Account if the
Master Servicer had continued to act hereunder. Notwithstanding the above, the
Trustee may, if it shall be unwilling to so act, or shall, if it is unable to so
act or if the Holders of Certificates entitled to at least 51% of the Voting
Rights so request in writing to the Trustee, appoint, or petition a court of
competent jurisdiction to appoint, any FNMA- or FHLMC-approved mortgage
servicing institution having a net worth of not less than $10,000,000 as the
successor to the Master Servicer hereunder in the assumption of all or any part
of the responsibilities, duties or liabilities of the Master Servicer hereunder.
Pending appointment of a successor to the Master Servicer hereunder, the Trustee
shall act in such capacity as hereinabove provided. In connection with such
appointment and assumption, the Trustee may make such arrangements for the
compensation of such successor out of payments on Mortgage Loans as it and such
successor shall agree; provided, however, that no such compensation shall be in
excess of that permitted the Master Servicer hereunder. The Trust ee and such
successor shall take such action, consistent with this Agreement, as shall be
necessary to effectuate any such succession; provided, however, that such
succession shall not reduce the ratings of the Certificates below the original
ratings thereof.
Any successor, including the Trustee, to the Master Servicer shall
maintain in force during its term as master servicer hereunder the Insurance
Policies and fidelity bonds to the same extent as the Master Servicer is so
required pursuant to Sections 3.13 and 3.18.
SECTION 7.03. Notification to Certificateholders.
(a) Upon any such termination or appointment of a successor to the
Master Servicer, the Trustee shall give prompt notice thereof to
Certificateholders.
(b) Within 60 days after the occurrence of any Event of Default, the
Trustee shall transmit by mail to all Holders of Certificates 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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SECTION 7.04. Waiver of Events of Default.
The Holders representing at least 66% of the Voting Rights of
Certificates affected by a default or Event of Default hereunder, may waive such
default or Event of Default (other than an Event of Default set forth in Section
7.01(vi); provided, however, that (a) a default or Event of Default under clause
(i) of Section 7.01 may be waived only by all of the Holders of Certificates
affected by such default or Event of Default and (b) no waiver pursuant to this
Section 7.04 shall affect the Holders of Certificates in the manner set forth in
the second paragraph of Section 10.01 or materially adversely affect any
non-consenting Certificateholder. Upon any such waiver of a default or Event of
Default by the Holders representing the requisite percentage of Voting Rights of
Certificates affected by such default or Event of Default, such default or Event
of Default shall cease to exist and shall be deemed to have been remedied for
every purpose hereunder. No such waiver shall extend to any subsequent or other
default or Event of Default or impair any right consequent thereon except to the
extent expressly so 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 which may have occurred, undertakes to
perform such duties and only such duties as are specifically set forth in this
Agreement. If an Event of Default occurs and is continuing, the Trustee shall
exercise such of the rights and powers vested in it by this Agreement, and use
the same degree of care and skill in their exercise as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs. Any
permissive right of the Trustee enumerated in this Agreement shall not be
construed as a duty.
The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to deter mine whether they
conform to the requirements of this Agreement. If any such instrument is found
not to conform to the requirements of this Agreement in a material manner, the
Trustee shall take action as it deems appropriate to have the instrument
corrected.
The Trustee shall sign on behalf of the Trust Fund any tax return that
the Trustee is required to sign pursuant to applicable federal, state or local
tax laws.
The Trustee covenants and agrees that it shall perform its obligations
hereunder in a manner so as to maintain the status of the Trust Fund as a
grantor trust and to prevent the imposition of any federal, state or local
income, prohibited transaction, contribution or other tax on the Trust Fund to
the extent that maintaining such status and avoiding such taxes are reasonably
within the control of the Trustee and are reasonably within the scope of its
duties under this Agreement.
No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own misconduct; provided, however, that:
(i) Prior to the occurrence of an Event of Default, and after the
curing of all such Events of Default which may have occurred, the
duties and obligations of the Trustee shall be determined solely by
the express provisions of this Agreement, the Trustee shall not be
liable except for the performance of such duties and obligations as
are specifically set forth in this Agreement, no implied covenants or
obligations shall be read into this Agreement against the Trustee and,
in the absence of bad faith on the part of the Trustee, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any certificates
or opinions furnished to the Trustee and conforming to the
requirements of this Agreement;
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(ii) The Trustee shall not be personally liable for an error of
judgment made in good faith by a Responsible Officer or Responsible
Officers of the Trustee, unless it shall be proved that the Trustee
was negligent in ascertaining the pertinent facts;
(iii) The Trustee shall not be personally liable with respect to
any action taken, suffered or omitted to be taken by it in good faith
in accordance with the direction of Holders of Certificates entitled
to at least 25% of the Voting Rights relating to the time, method and
place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee,
under this Agreement.
SECTION 8.02. Certain Matters Affecting the Trustee.
Except as otherwise provided in Section 8.01:
(a) 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 reasonably believed
by it to be genuine and to have been signed or presented by the proper
party or parties;
(b) The Trustee may consult with counsel and any Opinion of
Counsel shall be full and complete authorization and protection in
respect of any action taken or suffered or omitted by it hereunder in
good faith and in accordance therewith;
(c) The Trustee shall be under no obligation to exercise any of
the trusts or powers vested in it by this Agreement or to make any
investigation of matters arising hereunder or to institute, conduct or
defend any litigation hereunder or in relation hereto at the request,
order or direction of any of the Certificateholders, pursuant to the
provisions of this Agreement, unless such Certificateholders shall
have offered to the Trustee reasonable security or indemnity against
the costs, expenses and liabilities which may be incurred therein or
thereby; nothing contained herein shall, however, relieve the Trustee
of the obligation, upon the occurrence of an Event of Default (which
has not been cured), to exercise such of the rights and powers vested
in it by this Agreement, and to use the same degree of care and skill
in their exercise as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs;
(d) The Trustee shall not be personally liable for any action
taken, suffered or omitted by it in good faith and believed by it to
be authorized or within the discretion or rights or powers conferred
upon it by this Agreement;
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(e) Prior to the occurrence of an Event of Default hereunder and
after the curing of all Events of Default which may have occurred, the
Trustee shall not be bound to make any investigation into the facts or
matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond or
other paper or document, unless requested in writing to do so by
Holders of Certificates entitled to at least 25% of the Voting Rights;
provided, however, that if the payment within a reasonable time to the
Trustee of the costs, expenses or liabilities likely to be incurred by
it in the making of such investigation is, in the opinion of the
Trustee, not reasonably assured to the Trustee by the security
afforded to it by the terms of this Agreement, the Trustee may require
reasonable indemnity against such expense or liability as a condition
to taking any such action. The reasonable expense of every such
reasonable examination shall be paid by the Master Servicer or, if
paid by the Trustee, shall be repaid by the Master Servicer upon
demand; and
(f) The Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through
agents or attorneys.
SECTION 8.03. Trustee Not Liable for Certificates or Mortgage Loans.
The recitals contained herein and in the Certificates, other than the
signature of the Trustee on the Certificates and the certificate of
authentication, shall be taken as the statements of the Company or the Master
Servicer, as the case may be, and the Trustee assumes no respons ibility for
their correctness. The Trustee makes no representations or warranties as to the
validity or sufficiency of this Agreement or of the Certificates or of any
Mortgage Loan or related document, other than the signature of the Trustee on
the Certificates and the Certificate of Authentication. The Trustee shall not be
accountable for the use or application by the Company or the Master Servicer of
any of the Certificates or of the proceeds of such Certificates, or for the use
or application of any funds paid to the Seller in respect of the Mortgage Loans
or deposited in or withdrawn from the Custodial Account or the Certificate
Account or any other account by or on behalf of the Company or the Master
Servicer, other than any funds held by or on behalf of the Trustee in accordance
with Section 4.01.
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 it would have if it were
not Trustee.
SECTION 8.05. Payment of Trustee's Fees.
The Trustee shall withdraw from the Certificate Account on each
Distribution Date and pay to itself the Trustee's Fee. Except as otherwise
provided in this Agreement, the Trustee and any director, officer, employee or
agent of the Trustee shall be indemnified by the Trust Fund and held harmless
against any loss, liability or "unanticipated out-of-pocket" expense incurred or
paid to third parties (which expenses shall not include salaries paid to
employees, or allocable
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overhead, of the Trustee) in connection with the acceptance or administration of
its trusts hereunder or the Certificates, other than any loss, liability or
expense incurred by reason of willful misfeasance, bad faith or negligence in
the performance of duties hereunder or by reason of reckless disregard of
obligations and duties hereunder all such amounts shall be payable from funds in
the Custodial Account as provided in Section 3.11. The provisions of this
Section 8.05 shall survive the termination of this Agreement.
The Master Servicer shall indemnify the Trustee and any director,
officer, employee or agent of the Trustee against any loss, liability or expense
that may be sustained in connection with this Agreement related to the willful
misfeasance, bad faith or negligence in the performance of its duties hereunder.
SECTION 8.06. Eligibility Requirements for Trustee.
The Trustee hereunder shall at all times be a corporation or a
national banking association organized and doing business under the laws of any
state or the United States of America or the District of Columbia, authorized
under such laws to exercise corporate trust powers, having a combined capital
and surplus of at least $50,000,000 and subject to supervision or examination by
federal or state authority. In addition, the Trustee shall at all times be
acceptable to the Rating Agency rating the Certificates. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for the
purposes of this Section the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. In case at any time the Trustee shall
cease to be eligible in accordance with the provisions of this Section, the
Trustee shall resign immediately in the manner and with the effect specified in
Section 8.07. The corporation or national banking association serving as Trustee
may have normal banking and trust relationships with the Seller and its
affiliates or the Master Servicer and its affiliates; provided, however, that
such corporation 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 the Trustee.
The Trustee may at any time resign and be discharged from the trusts
hereby created by giving notice thereof to the Company, the Master Servicer and
to all Certificateholders; provided, that such resignation shall not be
effective until a successor trustee is appointed and accepts appointment in
accordance with the following provisions. Upon receiving such notice of
resignation, the Company shall promptly appoint a successor trustee who meets
the eligibility requirements of Section 8.06 by written instrument, in
duplicate, which instrument shall be delivered to the resigning Trustee and to
the successor trustee. A copy of such instrument shall be delivered to the
Certificateholders and the Master Servicer by the Company. If no successor
trustee shall have been so appointed and have accepted appointment within 60
days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdic tion for the appointment of a successor
trustee; provided, however, that the resigning Trustee shall
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not resign and be discharged from the trusts hereby created until such time as
the Rating Agency rating the Certificates approves the successor trustee.
If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 8.06 and shall fail to resign after written
request therefor by the Company or the Master Servicer, or if at any time the
Trustee shall become incapable of acting, or shall be adjudged bankrupt or
insolvent, or a receiver of the Trustee or of its property shall be appointed,
or any public officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation, or if the rating of the long-term debt obligations of the Trustee
is not acceptable to the Rating Agency in respect of mortgage pass-through
certificates having a rating equal to the then current rating on the
Certificates, then the Company may remove the Trustee and appoint a successor
trustee who meets the eligibility requirements of Section 8.06 by written
instrument, in duplicate, which instrument shall be delivered to the Trustee so
removed and to the successor trustee. A copy of such instrument shall be
delivered to the Certificateholders and the Master Servicer by the Company.
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 to the Master Servicer, one complete set to the Trustee so
removed and one complete set to the successor so appointed. A copy of such
instrument shall be delivered to the Certificateholders and the Master Servicer
by the Company.
Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section shall not
become effective until acceptance of appointment by the successor trustee as
provided in Section 8.08.
SECTION 8.08. Successor Trustee.
Any successor trustee appointed as provided in Section 8.07 shall
execute, acknowledge and deliver to the Master Servicer and to its predecessor
trustee an instrument accepting such appointment hereunder, and thereupon the
resignation or removal of the prede cessor trustee shall become effective and
such successor trustee, without any further act, deed or conveyance, shall
become fully vested with all the rights, powers, duties and obligations of its
predecessor hereunder, with the like effect as if originally named as trustee
herein. The predecessor trustee shall deliver to the successor trustee all
Mortgage Files and related documents and statements held by it hereunder, and
the Master Servicer and the predecessor trustee shall execute and deliver such
instruments and do such other things as may reasonably be required for more
fully and certainly vesting and confirming in the successor trustee all such
rights, powers, duties and obligations.
No successor trustee shall accept appointment as provided in this
Section unless at the time of such acceptance such successor trustee shall be
eligible under the provisions of Section 8.06.
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Upon acceptance of appointment by a successor trustee as provided in
this Section, the Master Servicer shall mail notice of the succession of such
trustee hereunder to all Holders of Certificates at their addresses as shown in
the Certificate Register. If the Master Servicer fails to mail such notice
within ten days after acceptance of appointment by the successor trustee, the
successor trustee shall cause such notice to be mailed at the expense of the
Master Servicer.
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 such corporation shall be eligible under the
provisions of Section 8.06, without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding.
SECTION 8.10. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions hereof, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust Fund or property securing the same may at the time be located, the
Company and the Trustee acting jointly shall have the power and shall execute
and deliver all instruments to appoint one or more Persons approved by the
Trustee to act as co-trustee or co-trustees, jointly with the Trustee, or
separate trustee or separate trustees, of all or any part of the Trust Fund, and
to vest in such Person or Per sons, in such capacity, such title to the Trust
Fund, or any part thereof, and, subject to the other provisions of this Section
8.10, such powers, duties, obligations, rights and trusts as the Company and the
Trustee may consider necessary or desirable. If the Company shall not have
joined in such appointment within 15 days after the receipt by it of a request
so to do, or in case an Event of Default shall have occurred and be continuing,
the Trustee alone shall have the power to make such appointment. No co-trustee
or separate trustee hereunder shall be required to meet the terms of eligibility
as a successor trustee under Section 8.06 hereunder and no notice to Holders of
Certificates of the appointment of co-trustee(s) or separate trustee(s) shall be
required under Section 8.08 hereof.
In the case of any appointment of a co-trustee or separate trustee
pursuant to this Section 8.10 all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or co-trustee
jointly, except to the extent that under any law of any jurisdiction in which
any particular act or acts are to be performed (whether as Trustee hereunder or
as successor to the Master Servicer hereunder), the Trustee shall be incompetent
or unqualified to perform such act or acts, in which event such rights, powers,
duties and obligations (including the holding of title to the Trust Fund or any
portion thereof in any such jurisdiction) shall be exercised and performed by
such separate trustee or co-trustee at the direction of the Trustee.
Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each
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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.
Any separate trustee or co-trustee may, at any time, constitute the
Trustee, its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor trustee.
SECTION 8.11. Information Reports and Tax Returns. The Trustee shall
prepare, execute and timely file such information reports or returns as may be
required from time to time under any applicable federal, state or local law with
respect to the Trust Fund or the Certificateholders and shall timely provide
Certificateholders of such Series with information as to the Master Servicer's
determination of monthly income accrued by the Trust Fund. [Unless there is a
statutory or administrative clarification to the contrary, as evidenced by an
Opinion of Counsel delivered to the Trustee, requiring such information reports
or returns to be prepared based on a different method, the Trustee shall prepare
such information returns or reports based on a constant yield method with
respect to the Certificates of such Series, using the Prepayment Assumption and
a representative initial offering price for Certificates in computing such
constant yield.]
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ARTICLE IX
TERMINATION
SECTION 9.01. Termination Upon Repurchase or Liquidation of All
Mortgage Loans.
The respective obligations and responsibilities of the Company, the
Master Servicer and the Trustee created hereby (other than the obligations of
the Master Servicer to provide for and the Trustee to make payments to
Certificateholders as hereafter set forth) shall terminate upon payment to the
Certificateholders of all amounts held by or on behalf of the Trustee and
required to be paid to them hereunder following the earlier to occur of (i) the
repurchase by the Master Servicer of all Mortgage Loans and each REO Property in
respect thereof remaining in the Trust Fund at a price equal to (a) 100% of the
unpaid principal balance of each Mortgage Loan (other than one as to which a REO
Property was acquired) on the day of repurchase together with accrued interest
on such unpaid principal balance at the related Net Mortgage Rate to the first
day of the month in which the proceeds of such repurchase are to be distributed,
plus (b) the appraised value of any REO Property less the good faith estimate of
the Master Servicer of liquidation expenses to be incurred in connection with
its disposal thereof, such appraisal to be conducted by an appraiser mutually
agreed upon by the Master Servicer and the Trustee at the expense of the Master
Servicer, (but not more than the unpaid principal balance of the related
Mortgage Loan, together with accrued interest on that balance at the Net
Mortgage Rate to the first day of the month of repurchase), and (ii) the final
payment or other liquidation (or any Advance with respect thereto) of the last
Mortgage Loan remaining in the Trust Fund (or the disposition of all REO
Property in respect thereof); provided, however, that in no event shall the
trust created hereby continue beyond expiration of 21 years from the death of
the last survivor of the descendants of Joseph P. Kennedy, the late ambassador
of the United States to the Court of St. James, living on the date hereof. In
the case of any repurchase by the Master Servicer pursuant to clause (i), the
Master Servicer shall include in such repurchase price the amount of any
Advances that will be reimbursed to the Master Servicer pursuant to Section
3.11(iii) and the Master Servicer shall exercise reasonable efforts to cooperate
fully with the Trustee in effecting such repurchase and the transfer of the
Mortgage Loans and related Mortgage Files and related records to the Master
Servicer.
The right of the Master Servicer to repurchase all Mortgage Loans
pursuant to (i) above shall be conditioned upon the aggregate Stated Principal
Balance of such Mortgage Loans at the time of any such repurchase aggregating an
amount equal to or less than __% of the aggregate Stated Principal Balance of
the Mortgage Loans at the Cut-off Date. If such right is exercised, the Master
Servicer upon such repurchase shall provide to the Trustee, the certification
required by Section 3.16.
Notice of any termination, specifying the Distribution Date upon which
the Certificateholders may surrender their Certificates to the Trustee for
payment of the final distri bution and cancellation, shall be given promptly by
the Master Servicer by letter to the Trustee and shall be given promptly by the
Trustee to the Certificateholders mailed (a) in the event such
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notice is given in connection with the Master Servicer's election to repurchase,
not earlier than the 15th day and not later than the 25th day of the month next
preceding the month of such final distribution or (b) otherwise during the month
of such final distribution on or before the Determination Date in such month, in
each case specifying (i) the Distribution Date upon which final payment of the
Certificates will be made upon presentation and surrender of Certificates at the
office of the Certificate Registrar therein designated, (ii) the amount of any
such final payment and (iii) that the Record Date otherwise applicable to such
Distribution Date is not applicable, pay ments being made only upon presentation
and surrender of the Certificates at the office of the Certificate Registrar
therein specified. In the event such notice is given in connection with the
Master Servicer's election to repurchase, the Master Servicer shall deposit in
the Custodial Account pursuant to Section 3.10 on the last day of the related
Prepayment Period an amount equal to the above-described repurchase price
payable out of its own funds. Upon presentation and surrender of the
Certificates by the Certificateholders, the Trustee shall distribute to the
Certificateholders (i) the amount otherwise distributable on such Distribution
Date, if not in connection with the Master Servicer's election to repurchase, or
(ii) if the Master Servicer elected to so repurchase, an amount determined as
follows: with respect to each Certificate, the outstand ing Certificate
Principal Balance thereof, plus one month's interest thereon at the applicable
Pass- Through Rate and any previously unpaid Accrued Certificate Interest. Upon
certification to the Trustee by a Servicing Officer, following such final
deposit, the Trustee shall promptly release the Mortgage Files as directed by
the Master Servicer for the remaining Mortgage Loans, and the Trustee shall
execute all assignments, endorsements and other instruments required by the
Master Servicer as being necessary to effectuate such transfer.
In the event that all of the Certificateholders shall not surrender
their Certificates for cancellation within six months after the time specified
in the above-mentioned notice, the Trustee shall give a second notice to the
remaining Certificateholders to surrender their Certificates for cancellation
and receive the final distribution with respect thereto. If within six months
after the second notice all of the Certificates shall not have been surrendered
for cancellation, the Trustee shall take reasonable steps as directed by the
Company, or appoint an agent to take reasonable steps, to contact the remaining
Certificateholders concerning surrender of their Certificates, and the cost
thereof shall be paid out of the funds and other assets which remain subject
hereto. If, within nine months after the second notice, all of the Certificates
shall not have been surrendered for cancellation, the Trustee shall be entitled
to all unclaimed funds and other assets which remain subject hereto.
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ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.01. Amendment.
This Agreement may be amended from time to time by the Company, the
Master Servicer and the Trustee without the consent of any of the
Certificateholders, (i) to cure any ambiguity, (ii) to correct or supplement any
provisions herein which may be defective or incon sistent with any other
provisions herein or to correct any error, (iii) to change the timing and/or
nature of deposits in the Certificate Account, provided that (a) such change
would not adversely affect in any material respect the interests of any
Certificateholder, as evidenced by an Opinion of Counsel, and (b) such change
would not adversely affect the then-current rating of any rated class of
Certificates, as evidenced by a letter from each applicable Rating Agency, (iv)
to make any other provisions with respect to matters or questions arising this
Agreement which are not materially inconsistent with the provisions thereof,
provided that such action will not adversely affect in any material respect the
interests of any Certificateholder, or (v) to amend specified provisions that
are not material to holders of any class of Certificates offered hereunder.
This Agreement may also be amended from time to time by the Company,
the Master Servicer and the Trustee with the consent of the Holders of
Certificates entitled to at least 66-2/3% of the Voting Rights for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or of modifying in any manner the rights of the
Holders of Certificates; provided, however, that no such amendment shall (i)
reduce in any manner the amount of, or delay the timing of, payments received on
Mortgage Loans which are required to be distributed on any Certificate without
the consent of the Holder of such Certifi cate, or (ii) reduce the aforesaid
percentage of Certificates the Holders of which are required to consent to any
such amendment, without the consent of the Holders of all Certificates then
outstanding. Notwithstanding any other provision of this Agreement, for purposes
of the giving or withholding of consents pursuant to this Section 10.01,
Certificates registered in the name of the Seller or the Master Servicer or any
affiliate thereof shall be entitled to Voting Rights with respect to matters
described in clauses (i) and (ii) of this paragraph.
Promptly after the execution of any such amendment the Trustee shall
furnish a statement describing the amendment to each Certificateholder.
It shall not be necessary for the consent of Certificateholders under
this Section 10.01 to approve the particular form of any proposed amendment, but
it shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents and of evidencing the authorization of the
execution thereof by Certificateholders shall be subject to such reasonable
regulations as the Trustee may prescribe.
Prior to executing any amendment pursuant to this Section, the Trustee
shall be entitled to receive an Opinion of Counsel (provided by the Person
requesting such amendment) to the effect that such amendment is authorized or
permitted by this Agreement. The cost of an
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Opinion of Counsel delivered pursuant to this Section 10.01 shall be an expense
of the party requesting such amendment, but in any case shall not be an expense
of the Trustee.
The Trustee may, but shall not be obligated to enter into any
amendment pursuant to this Section that affects its rights, duties and
immunities under this Agreement or otherwise.
SECTION 10.02. Recordation of Agreement; Counterparts.
To the extent permitted by applicable law, 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 and at the expense of the Company on direction by the Trustee,
but only upon direction 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 counter parts, 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. Limitation on Rights of Certificateholders.
The death or incapacity of any Certificateholder shall not operate to
terminate this Agreement or the Trust Fund, nor entitle such Certificateholder's
legal representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of the Trust Fund, nor
otherwise affect the rights, obligations and liabilities of the parties hereto
or any of them.
No Certificateholder shall have any right to vote (except as expressly
provided for herein) or in any manner otherwise control the operation and
management of the Trust Fund, or the obligations of the parties hereto, nor
shall anything herein set forth, or contained in the terms of the Certificates,
be construed so as to constitute the Certificateholders from time to time as
partners or members of an association; nor shall any Certificateholder be under
any liability to any third 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 of any provision
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 notice of an Event of Default, or
of a default by the Seller or the Trustee in the performance of any obligation
hereunder, and of the continuance thereof, as hereinbefore provided, and unless
also the Holders of Certificates entitled to at least 25% of the Voting Rights
shall have made written request upon the Trustee to institute such action, suit
or proceeding in its own name as Trustee hereunder and shall have offered to the
Trustee such reasonable indemnity as it may require
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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 is understood and intended, and 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 of any provision of this Agreement to affect, disturb or prejudice the
rights of the Holders of any other of such Certificates, or to obtain or seek to
obtain priority over or preference to any other such Holder, or to enforce any
right under this Agreement, except in the manner herein provided and for the
equal, ratable and common benefit of all Certificateholders. For the protection
and enforcement of the provisions of this Section, each and every
Certificateholder and the Trustee shall be entitled to such relief as can be
given either at law or in equity.
SECTION 10.04. Governing Law.
This Agreement and the Certificates shall be construed in accordance
with the laws of the State of New York and the obligations, rights and remedies
of the parties hereunder shall be determined in accordance with such laws.
SECTION 10.05. Notices.
All demands, notices and direction hereunder shall be in writing and
shall be deemed effective upon receipt when delivered to (a) in the case of the
Company, ____________, ____________________________________, Attention:
________________, or such other address as may hereafter be furnished to the
Trustee and the Master Servicer in writing by the Company, (b) in the case of
the Trustee, ______________________________________________ __________,
Attention: _________________________________, or such other address as may
hereafter be furnished to the Master Servicer and the Company in writing by the
Trustee and (c) in the case of the Master Servicer, Attention:
________________________ or such other address as may hereafter be furnished to
the Company and the Trustee in writing. Any notice required or permitted to be
mailed to a Certificateholder shall be given by first class mail, postage
prepaid, at the address of such Holder as shown in the Certificate Register. Any
notice so mailed within the time prescribed in this Agreement shall be
conclusively presumed to have been duly given, whether or not the
Certificateholder receives such notice.
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. Successors and Assigns; Third Party Beneficiary.
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The provisions of this Agreement shall be binding upon and inure to
the benefit of the respective successors and assigns of the parties hereto, and
all such provisions shall inure to the benefit of the Trustee and the
Certificateholders. The parties hereto agree that the Seller is the intended
third party beneficiary of Sections 3.07, 3.10 and 3.22 hereof, and that the
Seller may enforce such provisions to the same extent as if the Seller were a
party to this Agreement.
SECTION 10.08. Article and Section Headings.
The article and section headings herein are for convenience of
reference only, and shall not limit or otherwise affect the meaning hereof.
SECTION 10.09. Notice to Rating Agencies and Certificateholder.
The Trustee shall use its best efforts to promptly provide notice to
the Rating Agencies referred to below and the Letter of Credit Issuer with
respect to each of the following of which it has actual knowledge:
1. Any material change or amendment to this Agreement;
2. The occurrence of any Event of Default that has not been cured;
3. The resignation or termination of the Master Servicer or the
Trustee;
4. The repurchase or substitution of Mortgage Loans pursuant to
Section 2.04;
5. The final payment to Certificateholders; and
6. Any change in the location of the Custodial Account or the
Certificate Account.
In addition, the Trustee shall promptly furnish to the Rating Agency
copies of the following:
1. Each report to Certificateholders described in Section 4.02;
2. Each annual independent public accountants' servicing report
received as described in Section 3.20; and
3. Each Master Servicer compliance report received as described in
Section 3.19.
Any such notice pursuant to this Section 10.09 shall be in writing and
shall be deemed to have been duly given if personally delivered or mailed by
first class mail, postage prepaid, or by express delivery service to (i) in the
case of [______________________________]
_________________________________________________________, Attention:
___________, and (ii) in the case of
[_____________________________________________________________
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__________] or, in each case, such other address as such Rating Agency may
designate in writing to the parties thereto.
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<PAGE>
IN WITNESS WHEREOF, the Company, the Master Servicer and the Trustee
have caused their names to be signed hereto by their respective officers
thereunto duly authorized all as of the day and year first above written.
WMC SECURED ASSETS CORP.
Company
By:__________________________
[NAME OF MASTER SERVICER],
Master Servicer
By:__________________________
[NAME OF TRUSTEE]
Trustee
By:__________________________
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EXHIBITS
[See Exhibit 4.1]
79
EXHIBIT 4.3
================================================================================
[NAME OF SERVICER],
as Servicer,
and
WMC SECURED ASSETS CORP.
as Company
----------------------
SERVICING AGREEMENT
Dated as of _______________
----------------------
Adjustable-Rate Mortgage Loans
WMC MBN Trust Series 19__-__
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
ARTICLE I
Definitions
<S> <C>
Section 1.01. DEFINITIONS................................................................ 1
Section 1.02. OTHER DEFINITIONAL PROVISIONS.............................................. 2
Section 1.03. INTEREST CALCULATIONS...................................................... 2
ARTICLE II
Representations and Warranties
Section 2.01. REPRESENTATIONS AND WARRANTIES REGARDING THE SERVICER...................... 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................................................... 4
Section 2.03. ENFORCEMENT OF REPRESENTATIONS AND WARRANTIES.............................. 4
ARTICLE III
Administration and Servicing
of Mortgage Loans
Section 3.01. THE SERVICER............................................................... 6
Section 3.02. COLLECTION OF CERTAIN MORTGAGE LOAN PAYMENTS............................... 7
Section 3.03. WITHDRAWALS FROM THE COLLECTION ACCOUNT.................................... 9
Section 3.04. MAINTENANCE OF HAZARD INSURANCE; PROPERTY PROTECTION
EXPENSES...................................................................................... 11
Section 3.05. MODIFICATION AGREEMENTS.................................................... 11
Section 3.06. ........................................................................... 12
Section 3.07. REALIZATION UPON DEFAULTED MORTGAGE LOANS.................................. 13
Section 3.08. COMPANY AND INDENTURE TRUSTEE TO COOPERATE................................. 14
Section 3.09. SERVICING COMPENSATION; PAYMENT OF CERTAIN EXPENSES BY
SERVICER...................................................................................... 15
Section 3.10. ANNUAL STATEMENT AS TO COMPLIANCE.......................................... 15
Section 3.11. ANNUAL SERVICING REPORT.................................................... 16
Section 3.12. ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION
REGARDING THE MORTGAGE LOANS.................................................................. 16
Section 3.13. MAINTENANCE OF CERTAIN SERVICING INSURANCE POLICIES........................ 16
Section 3.14. INFORMATION REQUIRED BY THE INTERNAL REVENUE SERVICE
GENERALLY AND REPORTS OF FORECLOSURES AND ABANDONMENTS OF MORTGAGED
PROPERTY...................................................................................... 17
Section 3.15. OPTIONAL REPURCHASE OF DEFAULTED MORTGAGE LOANS............................ 17
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
ARTICLE IV
Servicing Certificate
<S> <C>
Section 4.01. STATEMENTS TO SECURITYHOLDERS.............................................. 18
ARTICLE V
Distribution and Payment Accounts
Section 5.01. DISTRIBUTION ACCOUNT....................................................... 20
Section 5.02. PAYMENT ACCOUNT............................................................ 20
ARTICLE VI
The Servicer
Section 6.01. LIABILITY OF THE SERVICER.................................................. 22
Section 6.02. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, THE SERVICER.................................................................. 22
Section 6.03. LIMITATION ON LIABILITY OF THE SERVICER AND OTHERS......................... 22
Section 6.04. SERVICER NOT TO RESIGN..................................................... 23
Section 6.05. DELEGATION OF DUTIES....................................................... 23
Section 6.06. SERVICER TO PAY INDENTURE TRUSTEE'S AND OWNER TRUSTEE'S
FEES AND EXPENSES; INDEMNIFICATION............................................................ 24
ARTICLE VII
Default
Section 7.01. SERVICING DEFAULT.......................................................... 26
Section 7.02. INDENTURE TRUSTEE TO ACT; APPOINTMENT OF SUCCESSOR......................... 28
Section 7.03. NOTIFICATION TO SECURITYHOLDERS............................................ 29
ARTICLE VIII
Miscellaneous Provisions
Section 8.01. AMENDMENT.................................................................. 30
Section 8.02. GOVERNING LAW.............................................................. 30
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
Section 8.03. NOTICES.................................................................... 30
Section 8.04. SEVERABILITY OF PROVISIONS................................................. 30
Section 8.05. THIRD-PARTY BENEFICIARIES.................................................. 30
Section 8.06. COUNTERPARTS............................................................... 31
Section 8.07. EFFECT OF HEADINGS AND TABLE OF CONTENTS................................... 31
Section 8.08. TERMINATION UPON PURCHASE BY THE SERVICER OR LIQUIDATION
OF ALL MORTGAGE LOANS......................................................................... 31
Section 8.09. CERTAIN MATTERS AFFECTING THE INDENTURE TRUSTEE............................ 31
[Section 8.10. AUTHORITY OF THE ADMINISTRATOR............................................. 32
EXHIBIT A - MORTGAGE LOAN SCHEDULE..............................................................................A-1
EXHIBIT B - POWER OF ATTORNEY...................................................................................B-1
EXHIBIT C - CERTIFICATE PURSUANT TO SECTION 3.08................................................................C-1
EXHIBIT D - FORM OF REQUEST FOR RELEASE.........................................................................D-1
Schedule 1 - Mortgage Insurance Component Schedule..............................................................S-1
</TABLE>
iii
<PAGE>
This Servicing Agreement, dated as of _______________, between
[Name of Servicer], as Servicer (the "Servicer") and WMC Secured Assets Corp.,
as Company (the "Company"),
W I T N E S S E T H T H A T:
WHEREAS, WMC Secured Assets Corp., will create WMC MBN Trust
Series 19__-__, an owner trust (the "Issuer") under Delaware law, and will
transfer the Mortgage Loans and all of its rights under the Mortgage Loan
Purchase Agreement to the Issuer,;
WHEREAS, pursuant to the terms of a Trust Agreement dated as
of _______________ (the "Owner Trust Agreement") between the Company, as
depositor, and ______________________, as owner trustee (the "Owner Trustee"),
the Company will sell the Mortgage Collateral to Issuer in exchange for the cash
proceeds of the Securities;
WHEREAS, pursuant to the terms of the Trust Agreement between
the Depositor and the Owner Trustee, the Issuer will issue and transfer to or at
the direction of the Depositor, the Mortgage-Backed Certificates, Series 199_-__
(the "Certificates");
WHEREAS, pursuant to the terms of an Indenture dated as of
_______________ (the "Indenture") between the Issuer and the Indenture Trustee,
the Issuer will issue and transfer to or at the direction of the Purchaser the
Mortgage-Backed Notes, Series 199_-__ (the "Notes"), consisting of the Notes and
secured by the Mortgage Collateral;
WHEREAS, pursuant to the terms of the Mortgage Loan Purchase
Agreement, the Company will acquire the Initial Loans; and
WHEREAS, pursuant to the terms of this Servicing Agreement,
the Servicer will service the Mortgage Loans directly or through one or more
Subservicers;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I
Definitions
Section 1.01. DEFINITIONS. For all purposes of this Servicing
Agreement, except as otherwise expressly provided herein or unless the context
otherwise requires, capitalized terms not otherwise defined herein shall have
the meanings assigned to such terms in the Definitions contained in Appendix A
to the Indenture which is incorporated by reference herein. All other
capitalized terms used herein shall have the meanings specified herein.
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<PAGE>
Section 1.02. OTHER DEFINITIONAL PROVISIONS. (a) All terms defined in
this Servicing Agreement shall have the defined meanings when used in any
certificate or other document made or delivered pursuant hereto unless otherwise
defined therein.
(b) As used in this Servicing Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Servicing Agreement or in any such certificate or other
document, and accounting terms partly defined in this Servicing Agreement or in
any such certificate or other document, to the extent not defined, shall have
the respective meanings given to them under generally accepted accounting
principles. To the extent that the definitions of accounting terms in this
Servicing Agreement or in any such certificate or other document are
inconsistent with the meanings of such terms under generally accepted accounting
principles, the definitions contained in this Servicing Agreement or in any such
certificate or other document shall control.
(c) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Servicing Agreement shall refer to this Servicing
Agreement as a whole and not to any particular provision of this Servicing
Agreement; Section and Exhibit references contained in this Servicing Agreement
are references to Sections and Exhibits in or to this Servicing Agreement unless
otherwise specified; and the term "including" shall mean "including without
limitation".
(d) The definitions contained in this Servicing Agreement are
applicable to the singular as well as the plural forms of such terms and to the
masculine as well as the feminine and neuter genders of such terms.
(e) Any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
Section 1.03. INTEREST CALCULATIONS. All calculations of interest
hereunder that are made in respect of the Principal Balance of a Mortgage Loan
shall be made on a daily basis using a 365- day year. All calculations of
interest on the Securities shall be made on the basis of the actual number of
days in an Interest Period and a year assumed to consist of 360 days. The
calculation of the Servicing Fee shall be made on the basis of a 360-day year
consisting of twelve 30-day months. All dollar amounts calculated hereunder
shall be rounded to the nearest penny with one-half of one penny being rounded
down.
2
<PAGE>
ARTICLE II
Representations and Warranties
Section 2.01. REPRESENTATIONS AND WARRANTIES REGARDING THE SERVICER.
The Servicer represents and warrants to Company, the Issuer and for the benefit
of the Indenture Trustee, as pledgee of the Mortgage Collateral, and the
Securityholders, as of the Cut-Off Date, [the date of the Servicing Agreement],
the Closing Date [and any Deposit Date], that:
(i) The Servicer is a corporation duly organized,
validly existing and in good standing under the laws of the State of
[_______] and has the corporate power to own its assets and to transact
the business in which it is currently engaged. The Servicer is duly
qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which the character of the business
transacted by it or properties owned or leased by it requires such
qualification and in which the failure to so qualify would have a
material adverse effect on the business, properties, assets, or
condition (financial or other) of the Servicer;
(ii) The Servicer has the power and authority to make,
execute, deliver and perform this Servicing Agreement and all of the
transactions contemplated under this Servicing Agreement, and has taken
all necessary corporate action to authorize the execu tion, delivery
and performance of this Servicing Agreement. When executed and
delivered, this Servicing Agreement will constitute the legal, valid
and binding obligation of the Servicer enforceable in accordance with
its terms, except as enforcement of such terms may be limited by
bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights generally and by the availability of equitable
remedies;
(iii) The Servicer is not required to obtain the consent
of any other Person or any consent, license, approval or authorization
from, or registration or declaration with, any governmental authority,
bureau or agency in connection with the execution, delivery,
performance, validity or enforceability of this Servicing Agreement,
except for such consent, license, approval or authorization, or
registration or declaration, as shall have been obtained or filed, as
the case may be;
(iv) The execution and delivery of this Servicing
Agreement and the performance of the transactions contemplated hereby
by the Servicer will not violate any provision of any existing law or
regulation or any order or decree of any court applicable to the
Servicer or any provision of the Certificate of Incorporation or Bylaws
of the Servicer, or constitute a material breach of any mortgage,
indenture, contract or other agreement to which the Servicer is a party
or by which the Servicer may be bound; and
(v) No litigation or administrative proceeding of or
before any court, tribunal or governmental body is currently pending,
or to the knowledge of the Servicer threatened, against the Servicer or
any of its properties or with respect to this Servicing Agreement or
the Notes or the Certificates which in the opinion of the Servicer has
a
3
<PAGE>
reasonable likelihood of resulting in a material adverse effect on the
transactions contemplated by this Servicing Agreement.
The foregoing representations and warranties shall survive any
termination of the Servicer hereunder.
Section 2.02. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company hereby represents and warrants to the Servicer for the benefit of the
Indenture Trustee, as pledgee of the Mortgage Collateral, and the
Securityholders, as of the Cut-Off Date, the Closing Date and any Deposit Date,
that:
(i) The Company is a corporation in good standing under
the laws of the State of California;
(ii) The Company has full power, authority and legal
right to execute and deliver this Servicing Agreement and to perform
its obligations under this Servicing Agreement, and has taken all
necessary action to authorize the execution, delivery and performance
by it of this Servicing Agreement; and
(iii) The execution and delivery by the Company of this
Servicing Agreement and the performance by the Company of its
obligations under this Servicing Agreement will not violate any
provision of any law or regulation governing the Company or any order,
writ, judgment or decree of any court, arbitrator or governmental
authority or agency applicable to the Company or any of its assets.
Such execution, delivery, authentication and performance will not
require the authorization, consent or approval of, the giving of notice
to, the filing or registration with, or the taking of any other action
with respect to, any governmental authority or agency regulating the
activities of limited liability companies. Such execution, delivery,
authentication and performance will not conflict with, or result in a
breach or violation of, any mortgage, deed of trust, lease or other
agreement or instrument to which the Company is bound.
Section 2.03. ENFORCEMENT OF REPRESENTATIONS AND WARRANTIES. The
Servicer, on behalf of and subject to the direction of the Indenture Trustee, as
pledgee of the Mortgage Collateral, or the Credit Enhancer, shall enforce the
representations and warranties of the Seller pursuant to the Mortgage Loan
Purchase Agreement. Upon the discovery by the Seller, the Servicer, the
Indenture Trustee, the Credit Enhancer, the Company or any Custodian of a breach
of any of the representations and warranties made in the Mortgage Loan Purchase
Agreement, in respect of any Mortgage Loan which materially and adversely
affects the interests of the Securityholders or the Credit Enhancer, the party
discovering such breach shall give prompt written notice to the other parties
(any Custodian being so obligated under a Custodial Agreement). The Servicer
shall promptly notify the Seller of such breach and request that, pursuant to
the terms of the Mortgage Loan Purchase Agreement, the Seller either (i) cure
such breach in all material respects within 45 days (with respect to a breach of
the representations and warranties contained in Section 3.1(a) of the Mortgage
Loan Purchase Agreement) or 90 days (with respect to a breach of the
representations and warranties contained in Section 3.1(b) of the Mortgage Loan
Purchase
4
<PAGE>
Agreement) from the date the Seller was notified of such breach or (ii) purchase
such Mortgage Loan from the Company at the price and in the manner set forth in
Section 3.1(b) of the Mortgage Loan Purchase Agreement; PROVIDED that the Seller
shall, subject to the conditions set forth in the Mortgage Loan Purchase
Agreement, have the option to substitute an Eligible Substitute Mortgage Loan or
Loans for such Mortgage Loan. In the event that the Seller elects to substitute
one or more Eligible Substitute Mortgage Loans pursuant to Section 3.1(b) of the
Mortgage Loan Purchase Agreement, the Seller shall deliver to the Company with
respect to such Eligible Substitute Mortgage Loans, the original Mortgage Note,
the Mortgage, and such other documents and agreements as are required by the
Mortgage Loan Purchase Agreement. No substitution will be made in any calendar
month after the Determination Date for such month. Payments due with respect to
Eligible Substitute Mortgage Loans in the month of substitution shall not be
transferred to the Company and will be retained by the Servicer and remitted by
the Servicer to the Seller on the next succeeding Payment Date provided a
payment has been received by the Company for such month in respect of the
Mortgage Loan to be removed. The Servicer shall amend or cause to be amended the
Mortgage Loan Schedule to reflect the removal of such Mortgage Loan and the sub
stitution of the Eligible Substitute Mortgage Loans and the Servicer shall
promptly deliver the amended Mortgage Loan Schedule to the Owner Trustee and
Indenture Trustee.
It is understood and agreed that the obligation of the Seller to cure
such breach or purchase or substitute for such Mortgage Loan as to which such a
breach has occurred and is continuing shall constitute the sole remedy
respecting such breach available to the Company and the Indenture Trustee, as
pledgee of the Mortgage Collateral, against the Seller. In connection with the
purchase of or substitution for any such Mortgage Loan by the Seller, the
Company shall assign to the Seller all of the right, title and interest in
respect of the Mortgage Loan Purchase Agreement applicable to such Mortgage
Loan. Upon receipt of the Repurchase Price, or upon completion of such
substitution, the applicable Custodian shall deliver the Mortgage Files to the
Servicer, together with all relevant endorsements and assignments.
5
<PAGE>
ARTICLE III
Administration and Servicing
of Mortgage Loans
Section 3.01. THE SERVICER. (a) The Servicer shall service and
administer the Mortgage Loans in the same manner as would prudent institutional
mortgage lenders servicing comparable mortgage loans for their own account in
the jurisdictions where the related Mortgaged Properties are located and in a
manner consistent with the terms of this Servicing Agreement and which shall be
normal and usual in its general mortgage servicing activities and shall have
full power and authority, acting alone or through a subservicer, to do any and
all things in connection with such servicing and administration which it may
deem necessary or desirable, it being understood, how ever, that the Servicer
shall at all times remain responsible to the Company, the Indenture Trustee, as
pledgee of the Mortgage Collateral, and the Securityholders for the performance
of its duties and obligations hereunder in accordance with the terms hereof and
the servicing standard set forth above. Without limiting the generality of the
foregoing, the Servicer shall continue, and is hereby authorized and empowered
by the Company and the Indenture Trustee, as pledgee of the Mortgage Collateral,
to execute and deliver, on behalf of itself, the Company, the Securityholders
and the Indenture Trustee or any of them, any and all instruments of
satisfaction or cancellation, or of partial or full release or discharge and all
other comparable instruments with respect to the Mortgage Loans and with respect
to the Mortgaged Properties. The Company, the Indenture Trustee and the
Custodian, as applicable, shall furnish the Servicer with any powers of attorney
and other documents necessary or appropriate to enable the Servicer to carry out
its servicing and administrative duties hereunder. On the Closing Date, the
Company shall deliver to the Servicer a power of attorney substantially in the
form of Exhibit B hereto.
If the Mortgage relating to a Mortgage Loan did not have a lien senior
on the related Mortgaged Property as of the Cut-Off Date, then the Servicer, in
such capacity, may not consent to the placing of a lien senior to that of the
Mortgage on the related Mortgaged Property. If the Mortgage relating to a
Mortgage Loan had a lien senior to the Mortgage Loan on the related Mort gaged
Property as of the Cut-Off Date, then the Servicer, in such capacity, may
consent to the refinancing of such senior lien; PROVIDED that (i) the resulting
Combined Loan-to-Value Ratio of such Mortgage Loan is no higher than the
Combined Loan-to-Value Ratio prior to such refinancing and (ii) the interest
rate for the loan evidencing the refinanced senior lien on the date of such
refinancing is no higher than the interest rate on the loan evidencing the
existing senior lien immediately prior to the date of such refinancing.
The relationship of the Servicer (and of any successor to the Servicer
as servicer under this Servicing Agreement) to the Company under this Servicing
Agreement is intended by the parties to be that of an independent contractor and
not that of a joint venturer, partner or agent.
(b) The Servicer has entered into Initial Subservicing Agreements with the
Initial Subservicers for the servicing and administration of the Mortgage Loans
and may enter into additional Sub servicing Agreements with Subservicers for the
servicing and administration of certain of the
6
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Mortgage Loans. References in this Servicing Agreement to actions taken or to be
taken by the Servicer in servicing the Mortgage Loans include actions taken or
to be taken by a Subservicer on behalf of the Servicer and any amount received
by such Subservicer in respect of a Mortgage Loan shall be deemed to have been
received by the Servicer whether or not actually received by the Servicer. Each
Subservicing Agreement will be upon such terms and conditions as are not
inconsistent with this Servicing Agreement and as the Servicer and the
Subservicer have agreed. With the approval of the Servicer, a Subservicer may
delegate its servicing obligations to third-party servicers, but such
Subservicers will remain obligated under the related Subservicing Agreements.
The Servicer and the Subservicer may enter into amendments to the related
Subservicing Agreements; PROVIDED, HOWEVER, that any such amendments shall be
consistent with and not violate the provisions of this Servicing Agreement. The
Servicer shall be entitled to terminate any Subservicing Agreement in accordance
with the terms and conditions thereof and without any limitation by virtue of
this Servicing Agreement; PROVIDED, HOWEVER, that in the event of termination of
any Subservicing Agreement by the Servicer or the Subservicer, the Servicer
shall either act as servicer of the related Mortgage Loan or enter into a
Subservicing Agreement with a successor Subservicer which will be bound by the
terms of the related Subservicing Agreement. The Servicer shall be entitled to
enter into any agreement with a Subservicer for indemnification of the Servicer
and nothing contained in this Servicing Agreement shall be deemed to limit or
modify such indemnification.
In the event that the rights, duties and obligations of the Servicer
are terminated hereunder, any successor to the Servicer in its sole discretion
may, to the extent permitted by applicable law, terminate the existing
Subservicing Agreement with any Subservicer in accordance with the terms of the
applicable Subservicing Agreement or assume the terminated Servicer's rights and
obligations under such subservicing arrangements which termination or assumption
will not violate the terms of such arrangements.
As part of its servicing activities hereunder, the Servicer, for the
benefit of the Company, shall use reasonable efforts to enforce the obligations
of each Subservicer under the related Subservicing Agreement, to the extent that
the non-performance of any such obligation would have material and adverse
effect on a Mortgage Loan. Such enforcement, including, without limitation, the
legal prosecution of claims, termination of Subservicing Agreements and the
pursuit of other appropriate remedies, shall be in such form and carried out to
such an extent and at such time as the Servicer, in its good faith business
judgment, would require were it the owner of the related Mortgage Loans. The
Servicer shall pay the costs of such enforcement at its own expense, and shall
be reimbursed therefor only (i) from a general recovery resulting from such
enforcement to the extent, if any, that such recovery exceeds all amounts due in
respect of the related Mortgage Loan or (ii) from a specific recovery of costs,
expenses or attorneys fees against the party against whom such enforcement is
directed.
Section 3.02. COLLECTION OF CERTAIN MORTGAGE LOAN PAYMENTS. (a) The
Servicer shall make reasonable efforts to collect all payments called for under
the terms and provisions of the Mort gage Loans, and shall, to the extent such
procedures shall be consistent with this Servicing Agreement, follow such
collection procedures as shall be normal and usual in its general mortgage
servicing activities. Consistent with the foregoing, and without limiting the
generality of the
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<PAGE>
foregoing, the Servicer may in its discretion (i) waive any late payment charge,
penalty interest or other fees which may be collected in the ordinary course of
servicing such Mortgage Loan and (ii) arrange with a Mortgagor a schedule for
the payment of principal and interest due and unpaid; PROVIDED such arrangement
is consistent with the Servicer's policies with respect to home equity mortgage
loans; PROVIDED, FURTHER, that notwithstanding such arrangement such Mortgage
Loans will be included in the information regarding delinquent Mortgage Loans
set forth in the Servicing Certificate. The Servicer may also extend the Due
Date for payment due on a Mortgage Loan, PROVIDED, HOWEVER, that the Servicer
shall first determine that any such waiver or extension will not adversely
affect the lien of the related Mortgage. Consistent with the terms of this
Servicing Agreement, the Servicer may also waive, modify or vary any term of any
Mortgage Loan or consent to the postponement of strict compliance with any such
term or in any manner grant indulgence to any Mortgagor if in the Servicer's
determination such waiver, modification, post ponement or indulgence is not
materially adverse to the interests of the Securityholders or the Credit
Enhancer, PROVIDED, HOWEVER, that the Servicer may not modify or permit any
Subservicer to modify any Mortgage Loan (including without limitation any
modification that would change the Mortgage Rate, forgive the payment of any
principal or interest (unless in connection with the liquidation of the related
Mortgage Loan) or extend the final maturity date of such Mortgage Loan) unless
such Mortgage Loan is in default or, in the judgment of the Servicer, such
default is reasonably foreseeable.
(b) The Servicer shall establish an account (the "Collection Account")
in which the Servicer shall deposit or cause to be deposited any amounts
representing payments on and any collections in respect of the Mortgage Loans
received by it subsequent to the Cut-Off Date as to any Initial Loan or the
related Deposit Date as to any Additional Loan (other than in respect of the
payments referred to in the following paragraph) within __ Business Day[s]
following receipt thereof (or otherwise on or prior to the Closing Date),
including the following payments and collections received or made by it (without
duplication):
(i) all payments of principal of or interest on the
Mortgage Loans received by the Servicer from the respective
Subservicer, net of any portion of the interest thereof retained by the
Subservicer as Subservicing Fees;
(ii) the aggregate Repurchase Price of the Mortgage
Loans purchased by the Servicer pursuant to Section 3.15;
(iii) Net Liquidation Proceeds net of any related
Foreclosure Profit;
(iv) all proceeds of any Mortgage Loans repurchased by
the Seller pursuant to the Mortgage Loan Purchase Agreement, and all
Substitution Adjustment Amounts required to be deposited in connection
with the substitution of an Eligible Substitute Mortgage Loan pursuant
to the Mortgage Loan Purchase Agreement;
(v) insurance proceeds, other than Net Liquidation
Proceeds, resulting from any insurance policy maintained on a
Mortgaged Property; and
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(vi) amounts required to be paid by the Servicer
pursuant to Section 8.08.
PROVIDED, HOWEVER, that with respect to each Collection Period, the Servicer
shall be permitted to retain from payments in respect of interest on the
Mortgage Loans, the Servicing Fee for such Collection Period. The foregoing
requirements respecting deposits to the Collection Account are exclusive, it
being understood that, without limiting the generality of the foregoing, the
Servicer need not deposit in the Collection Account amounts representing
Foreclosure Profits, fees (including annual fees) or late charge penalties,
payable by Mortgagors, or amounts received by the Servicer for the accounts of
Mortgagors for application towards the payment of taxes, insurance premiums,
assessments and similar items. In the event any amount not required to be
deposited in the Collection Account is so deposited, the Servicer may at any
time withdraw such amount from the Collection Account, any provision herein to
the contrary notwithstanding. The Collection Account may contain funds that
belong to one or more trust funds created for the notes or certificates of other
series and may contain other funds respecting payments on mortgage loans
belonging to the Servicer or serviced or serviced by it on behalf of others.
Notwithstanding such commingling of funds, the Servicer shall keep records that
accurately reflect the funds on deposit in the Collection Account that have been
identified by it as being attributable to the Mortgage Loans and shall hold all
collections in the Collection Account to the extent they represent collections
on the Mortgage Loans for the benefit of the Company, the Indenture Trustee, the
Securityholders and the Credit Enhancer, as their interests may appear. The
Servicer shall remit all Foreclosure Profits to itself as additional servicing
compensation.
The Servicer may cause the institution maintaining the Collection
Account to invest any funds in the Collection Account in Eligible Investments
(including obligations of the Servicer or any of its Affiliates, if such
obligations otherwise qualify as Eligible Investments), which shall mature not
later than the Business Day next preceding the Payment Date and shall not be
sold or disposed of prior to its maturity. Except as provided above, all income
and gain realized from any such investment shall be for the benefit of the
Servicer and shall be subject to its withdrawal or order from time to time. The
amount of any losses incurred in respect of the principal amount of any such
investments shall be deposited in the Collection Account by the Servicer out of
its own funds immediately as realized.
(c) The Servicer will require each Subservicer to hold all funds
constituting collections on the Mortgage Loans, pending remittance thereof to
the Servicer, in one or more accounts meeting the requirements of an Eligible
Account, and invested in Eligible Investments, unless, all such collections are
remitted on a daily basis to the Servicer for deposit into the Collection
Account.
Section 3.03. WITHDRAWALS FROM THE COLLECTION ACCOUNT. The Servicer
shall, from time to time as provided herein, make withdrawals from the
Collection Account of amounts on deposit therein pursuant to Section 3.02 that
are attributable to the Mortgage Loans for the following purposes:
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(i) to deposit in the Distribution Account, on the
Business Day prior to each Payment Date, an amount equal to the
Security Collections required to be distributed on such Payment Date;
(ii) to the extent deposited to the Collection Account,
to reimburse itself or the related Subservicer for previously
unreimbursed expenses incurred in maintaining individual insurance
policies pursuant to Section 3.04, or Liquidation Expenses, paid
pursuant to Section 3.07 or otherwise reimbursable pursuant to the
terms of this Servicing Agreement (to the extent not payable pursuant
to Section 3.09), such withdrawal right being limited to amounts
received on particular Mortgage Loans (other than any Repurchase Price
in respect thereof) which represent late recoveries of the payments for
which such advances were made, or from related Liquidation Proceeds or
the proceeds of the purchase of such Mortgage Loan;
(iii) to pay to itself out of each payment received on
account of interest on a Mortgage Loan as contemplated by Section 3.09,
an amount equal to the related Servicing Fee (to the extent not
retained pursuant to Section 3.02), and to pay to any Subservicer any
Subservicing Fees not previously withheld by the Subservicer;
(iv) to the extent deposited in the Collection Account
to pay to itself as additional servicing compensation any interest or
investment income earned on funds deposited in the Collection Account
and Payment Account that it is entitled to withdraw pursuant to
Sections 3.02(b) and 5.01;
(v) to the extent deposited in the Collection Account,
to pay to itself as additional servicing compensation any Foreclosure
Profits;
(vi) to pay to itself or the Seller, with respect to any
Mortgage Loan or property acquired in respect thereof that has been
purchased or otherwise transferred to the Seller, the Servicer or other
entity, all amounts received thereon and not required to be distributed
to Securityholders as of the date on which the related Purchase Price
or Repur chase Price is determined;
(vii) to withdraw any other amount deposited in the
Collection Account that was not required to be deposited therein
pursuant to Section 3.02;
(viii) to pay to the Seller the amount, if any, deposited
in the Collection Account by the Indenture Trustee upon release thereof
from the Funding Account representing payments for Additional Loans;
and
(ix) after the occurrence of an Amortization Event,
to pay to the Seller, the Excluded Amount.
Since, in connection with withdrawals pursuant to clauses (iii), (iv), (vi) and
(vii), the Servicer's entitlement thereto is limited to collections or other
recoveries on the related Mortgage Loan, the
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Servicer shall keep and maintain separate accounting, on a Mortgage Loan by
Mortgage Loan basis, for the purpose of justifying any withdrawal from the
Collection Account pursuant to such clauses. Notwithstanding any other provision
of this Servicing Agreement, the Servicer shall be entitled to reimburse itself
for any previously unreimbursed expenses incurred pursuant to Section 3.07 or
otherwise reimbursable pursuant to the terms of this Servicing Agreement that
the Servicer determines to be otherwise nonrecoverable (except with respect to
any Mortgage Loan as to which the Repurchase Price has been paid), by withdrawal
from the Collection Account of amounts on deposit therein attributable to the
Mortgage Loans on any Business Day prior to the Payment Date succeeding the date
of such determination.
Section 3.04. MAINTENANCE OF HAZARD INSURANCE; PROPERTY PROTECTION
EXPENSES. The Servicer shall cause to be maintained for each Mortgage Loan
hazard insurance naming the Servicer or related Subservicer as loss payee
thereunder providing extended coverage in an amount which is at least equal to
the lesser of (i) the maximum insurable value of the improvements securing such
Mortgage Loan from time to time or (ii) the combined principal balance owing on
such Mortgage Loan and any mortgage loan senior to such Mortgage Loan from time
to time. The Servicer shall also cause to be maintained on property acquired
upon foreclosure, or deed in lieu of foreclosure, of any Mortgage Loan, fire
insurance with extended coverage in an amount which is at least equal to the
amount necessary to avoid the application of any co-insurance clause contained
in the related hazard insurance policy. Amounts collected by the Servicer under
any such policies (other than amounts to be applied to the restoration or repair
of the related Mortgaged Property or property thus acquired or amounts released
to the Mortgagor in accordance with the Servicer's normal servicing procedures)
shall be deposited in the Collection Account to the extent called for by Section
3.02. In cases in which any Mortgaged Property is located at any time during the
life of a Mortgage Loan in a federally designated flood area, the hazard
insurance to be maintained for the related Mortgage Loan shall include flood
insurance (to the extent available). All such flood insurance shall be in
amounts equal to the lesser of (i) the amount required to compensate for any
loss or damage to the Mortgaged Property on a replacement cost basis and (ii)
the maximum amount of such insurance available for the related Mortgaged
Property under the national flood insurance program (assuming that the area in
which such Mortgaged Property is located is participating in such program). The
Servicer shall be under no obligation to require that any Mortgagor maintain
earthquake or other additional insurance and shall be under no obligation itself
to maintain any such additional insurance on property acquired in respect of a
Mortgage Loan, other than pursuant to such applicable laws and regulations as
shall at any time be in force and as shall require such additional insurance. If
the Servicer shall obtain and maintain a blanket policy consistent with its
general mortgage servicing activities 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 3.04, it being
understood and agreed that such policy may contain a deductible clause, in which
case the 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 3.04 and there shall have been a loss which would have been covered
by such policy, deposit in the Collection Account the amount not otherwise
payable under the blanket policy because of such deductible clause. Any such
deposit by the Servicer shall be made on the last Business Day of the Collection
Period in the month in which payments under any such policy would have been
deposited in the Collection Account. In connection with its activities
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as administrator and servicer of the Mortgage Loans, the Servicer agrees to
present, on behalf of itself, the Company, the Issuer, the Indenture Trustee and
the Securityholders, claims under any such blanket policy.
Section 3.05. MODIFICATION AGREEMENTS. The Servicer or the related
Subservicer, as the case may be, shall be entitled to (A) execute assumption
agreements, substitution agreements, and instruments of satisfaction or
cancellation or of partial or full release or discharge, or any other document
contemplated by this Servicing Agreement and other comparable instruments with
respect to the Mortgage Loans and with respect to the Mortgaged Properties
subject to the Mortgages (and the Company shall promptly execute any such
documents on request of the Servicer) and (B) approve the granting of an
easement thereon in favor of another Person, any alteration or demolition of the
related Mortgaged Property or other similar matters, if it has determined,
exercising its good faith business judgment in the same manner as it would if it
were the owner of the related Mortgage Loan, that the security for, and the
timely and full collectability of, such Mortgage Loan would not be adversely
affected thereby. A partial release pursuant to this Section 3.05 shall be
permitted only if the Combined Loan-to-Value Ratio for such Mortgage Loan after
such partial release does not exceed the Combined Loan-to-Value Ratio for such
Mortgage Loan as of the Cut-Off Date. Any fee collected by the Servicer or the
related Sub servicer for processing such request will be retained by the
Servicer or such Subservicer as additional servicing compensation.
Section 3.06. TRUST ESTATE; RELATED DOCUMENTS. (a) When required by the
provisions of this Servicing Agreement, the Company shall execute instruments to
release property from the terms of this Servicing Agreement, or convey the
Company's interest in the same, in a manner and under circumstances which are
not inconsistent with the provisions of this Servicing Agreement. No party
relying upon an instrument executed by the Company as provided in this Article
III shall be bound to ascertain the Company's authority, inquire into the
satisfaction of any conditions precedent or see to the application of any
moneys.
(b) If from time to time the Servicer shall deliver to the Company or
the related Custodian copies of any written assurance, assumption agreement or
substitution agreement or other similar agreement pursuant to Section 3.05, the
Company or the related Custodian shall check that each of such documents
purports to be an original executed copy (or a copy of the original executed
document if the original executed copy has been submitted for recording and has
not yet been returned) and, if so, shall file such documents, and upon receipt
of the original executed copy from the applicable recording office or receipt of
a copy thereof certified by the applicable recording office shall file such
originals or certified copies with the Related Documents. If any such documents
submitted by the Servicer do not meet the above qualifications, such documents
shall promptly be returned by the Company or the related Custodian to the
Servicer, with a direction to the Servicer to forward the correct documentation.
(c) Upon Company Request accompanied by an Officers' Certificate of the
Servicer pursuant to Section 3.09 of this Servicing Agreement to the effect that
a Mortgage Loan has been the subject of a final payment or a prepayment in full
and the related Mortgage Loan has been terminated or that substantially all
Liquidation Proceeds which have been determined by the
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Servicer in its reasonable judgment to be finally recoverable have been
recovered, and upon deposit to the Collection Account of such final monthly
payment, prepayment in full together with accrued and unpaid interest to the
date of such payment with respect to such Mortgage Loan or, if applicable,
Liquidation Proceeds, the Company shall promptly release the Related Documents
to the Servicer, along with such documents as the Servicer or the Mortgagor may
request as contemplated by the Servicing Agreement to evidence satisfaction and
discharge of such Mortgage Loan. If from time to time and as appropriate for the
servicing or foreclosure of any Mortgage Loan, the Servicer requests the Company
or the related Custodian to release the Related Documents and delivers to the
Company or the related Custodian a trust receipt reasonably satisfactory to the
Company or the related Custodian and signed by a Responsible Officer of the
Servicer, the Company or the related Custodian shall release the Related
Documents to the Servicer. If such Mortgage Loans shall be liquidated and the
Company or the related Custodian receives a certificate from the Servicer as
provided above, then, upon request of the Company or the related Custodian shall
release the trust receipt to the Servicer.
Section 3.07. REALIZATION UPON DEFAULTED MORTGAGE LOANS. With respect
to such of the Mortgage Loans as come into and continue in default, the Servicer
will decide whether to foreclose upon the Mortgaged Properties securing such
Mortgage Loans or write off the unpaid principal balance of the Mortgage Loans
as bad debt; PROVIDED that if the Servicer has actual knowledge that any
Mortgaged Property is affected by hazardous or toxic wastes or substances and
that the acquisition of such Mortgaged Property would not be commercially
reasonable, then the Servicer will not cause the Company to acquire title to
such Mortgaged Property in a foreclosure or similar proceeding. In connection
with such foreclosure or other conversion, the Servicer shall follow such
practices (including, in the case of any default on a related senior mortgage
loan, the advanc ing of funds to correct such default) and procedures as it
shall deem necessary or advisable and as shall be normal and usual in its
general mortgage servicing activities; PROVIDED that the Servicer shall not be
liable in any respect hereunder if the Servicer is acting in connection with any
such foreclosure or attempted foreclosure which is not completed or other
conversion in a manner that is consistent with the provisions of this Servicing
Agreement. The foregoing is subject to the proviso that the Servicer shall not
be required to expend its own funds in connection with any fore closure or
attempted foreclosure which is not completed or towards the correction of any
default on a related senior mortgage loan or restoration of any property unless
it shall determine that such expenditure will increase Net Liquidation Proceeds.
In the event of a determination by the Servicer that any such expenditure
previously made pursuant to this Section 3.07 will not be reimbursable from Net
Liquidation Proceeds, the Servicer shall be entitled to reimbursement of its
funds so expended pursuant to Section 3.03.
Notwithstanding any provision of this Servicing Agreement, a Mortgage
Loan may be deemed to be finally liquidated if substantially all amounts
expected by the Servicer to be received in connection with the related defaulted
Mortgage Loan have been received; PROVIDED, HOWEVER, any subsequent collections
with respect to any such Mortgage Loan shall be deposited to the Collection
Account. For purposes of determining the amount of any Liquidation Proceeds or
Insurance Proceeds, or other unscheduled collections, the Servicer may take into
account minimal amounts of additional receipts expected to be received or any
estimated additional liquidation expenses expected to be incurred in connection
with the related defaulted Mortgage Loan.
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In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be issued to the Company and the Indenture Trustee as their interests may
appear, or to their respective nominee on behalf of Securityholders.
Notwithstanding any such acquisition of title and cancellation of the related
Mortgage Loan, such Mortgaged Property shall (except as otherwise expressly
provided herein) be considered to be an outstanding Mortgage Loan held as an
asset of the Company until such time as such property shall be sold. Consistent
with the foregoing for purposes of all calculations hereunder, so long as such
Mortgaged Property shall be considered to be an outstanding Mortgage Loan it
shall be assumed that, notwithstanding that the indebtedness evidenced by the
related Mortgage Note shall have been discharged, such Mortgage Note in effect
at the time of any such acquisition of title before any adjustment thereto by
reason of any bankruptcy or similar proceeding or any moratorium or similar
waiver or grace period will remain in effect.
Any proceeds from foreclosure proceedings or the purchase or repurchase
of any Mortgage Loan pursuant to the terms of this Servicing Agreement, as well
as any recovery resulting from a collection of Liquidation Proceeds or Insurance
Proceeds, will be applied in the following order of priority: first, to
reimburse the Servicer or the related Subservicer in accordance with Section
3.07; second, to all Servicing Fees payable therefrom; third, to the extent of
accrued and unpaid interest on the related Mortgage Loan, at the Net Mortgage
Rate to the Due Date prior to the Payment Date on which such amounts are to be
deposited in the Payment Account; fourth, as a recovery of principal on the
Mortgage Loan; and fifth, to Foreclosure Profits.
Section 3.08. COMPANY AND INDENTURE TRUSTEE TO COOPERATE. On or before
each Payment Date, the Servicer will notify the Indenture Trustee or the
relevant Custodian, with a copy to the Company, of the termination of or the
payment in full and the termination of any Mortgage Loan during the preceding
Collection Period, which notification shall be by a certification in substan
tially the form attached hereto as Exhibit C (which certification shall include
a statement to the effect that all amounts received in connection with such
payment which are required to be deposited in the Collection Account pursuant to
Section 3.02 have been so deposited or credited) of a Servicing Officer. Upon
receipt of payment in full, the Servicer is authorized to execute, pursuant to
the authorization contained in Section 3.01, if the assignments of Mortgage have
been recorded as required under the Mortgage Loan Purchase Agreement, an
instrument of satisfaction regarding the related Mortgage, which instrument of
satisfaction shall be recorded by the Servicer if required by applicable law and
be delivered to the Person entitled thereto. It is understood and agreed that
any expenses incurred in connection with such instrument of satisfaction or
transfer shall be reimbursed from amounts deposited in the Collection Account.
From time to time and as appropriate for the servicing or foreclosure of any
Mortgage Loan, the Indenture Trustee or the relevant Custodian shall, upon
request of the Servicer and delivery to the Indenture Trustee or relevant
Custodian, with a copy to the Company, of a Request for Release, in the form
annexed hereto as Exhibit D, signed by a Servicing Officer, release or cause to
be released the related Mortgage File to the Servicer and the Company and
Indenture Trustee shall promptly execute such documents, in the forms provided
by the Servicer, as shall be necessary for the prosecution of any such
proceedings or the taking of other servicing actions. Such trust receipt shall
obligate the Servicer to return the Mortgage File to the Indenture Trustee or
the related Custodian (as specified in such receipt) when the need therefor by
the Servicer no longer exists unless the Mortgage Loan
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shall be liquidated, in which case, upon receipt of a certificate of a Servicing
Officer similar to that hereinabove specified, the trust receipt shall be
released to the Servicer.
In order to facilitate the foreclosure of the Mortgage securing any
Mortgage Loan that is in default following recordation of the assignments of
Mortgage in accordance with the provisions of the Mortgage Loan Purchase
Agreement, the Company shall, if so requested in writing by the Servicer,
promptly execute an appropriate assignment in the form provided by the Servicer
to assign such Mortgage Loan for the purpose of collection to the Servicer (any
such assignment shall unambiguously indicate that the assignment is for the
purpose of collection only), and, upon such assignment, such assignee for
collection will thereupon bring all required actions in its own name and
otherwise enforce the terms of the Mortgage Loan and deposit or credit the Net
Liquidation Proceeds, exclusive of Foreclosure Profits, received with respect
thereto in the Collection Account. In the event that all delinquent payments due
under any such Mortgage Loan are paid by the Mortgagor and any other defaults
are cured then the assignee for collection shall promptly reassign such Mortgage
Loan to the Company and return all Related Documents to the place where the
related Mortgage File was being maintained.
In connection with the Company's obligation to cooperate as provided in
this Section 3.08 and all other provisions of this Servicing Agreement requiring
the Company to authorize or permit any actions to be taken with respect to the
Mortgage Loans, the Indenture Trustee, as pledgee of the Mortgage Collateral in
the Company, expressly agrees, on behalf of the Company, to take all such
actions on behalf of the Company and to promptly execute and return all
instruments reasonably required by the Servicer in connection therewith;
PROVIDED that if the Servicer shall request a signature of the Indenture
Trustee, on behalf of the Company, the Servicer will deliver to the Indenture
Trustee an Officer's Certificate stating that such signature is necessary or
appropriate to enable the Servicer to carry out its servicing and administrative
duties under this Servicing Agreement.
Section 3.09. SERVICING COMPENSATION; PAYMENT OF CERTAIN EXPENSES BY
SERVICER. The Servicer shall be entitled to receive the Servicing Fee in
accordance with Section 3.03 as compen sation for its services in connection
with servicing the Mortgage Loans. Moreover, additional servicing compensation
in the form of late payment charges and certain other receipts not required to
be deposited in the Collection Account as specified in Section 3.02 shall be
retained by the Servicer. The Servicer shall be required to pay all expenses
incurred by it in connection with its activities hereunder (including payment of
all other fees and expenses not expressly stated hereunder to be for the account
of the Securityholders, including, without limitation, the fees and expenses of
the Administrator, Owner Trustee, Indenture Trustee and any Custodian) and shall
not be entitled to reimbursement therefor except as specifically provided
herein.
Section 3.10. ANNUAL STATEMENT AS TO COMPLIANCE. (a) The Servicer will
deliver to the Company, the Issuer and the Indenture Trustee, with a copy to the
Credit Enhancer, on or before ________ of each year, beginning ________, ____,
an Officer's Certificate stating that (i) a review of the activities of the
Servicer during the preceding fiscal year and of its performance under this
Servicing Agreement has been made under such officer's supervision, (ii) to the
best of such officer's knowledge, based on such review, the Servicer has
fulfilled all its material
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obligations under this Servicing Agreement in all material respects throughout
such fiscal year, or, if there has been a material default in the fulfillment of
any such obligation, specifying each such default known to such officer and the
nature and status thereof and (iii) to the best of such officer's knowledge,
based on consultation with counsel, any continuation Uniform Commercial Code
financing statement or other Uniform Commercial Code financing statement during
the preceding fiscal year which the Servicer determined was necessary to be
filed was filed in order to continue protection of the interest of the Company
in the Mortgage Loans. In addition, the Servicer shall deliver or cause each
Subservicer to deliver to the Indenture Trustee, the Company, the Issuer, the
Depositor and the Credit Enhancer a copy of each certification, accountant's
report or other document upon which the foregoing Officer's Certificate is based
with respect to such Subservicer's performance.
(b) The Servicer shall deliver to the Company, the Issuer and the
Indenture Trustee, with a copy to the Credit Enhancer, promptly after having
obtained knowledge thereof, but in no event later than five Business Days
thereafter, written notice by means of an Officer's Certificate of any event
which with the giving of notice or the lapse of time or both, would become a
Servicer of Default.
Section 3.11. ANNUAL SERVICING REPORT. On or before ________ of each
year, beginning ________, ____, the Servicer at its expense shall cause a firm
of nationally recognized independent public accountants (who may also render
other services to the Servicer) to furnish a report to the Company, the Issuer,
the Indenture Trustee, the Depositor, the Credit Enhancer and each Rating Agency
to the effect that such firm has examined certain documents and records relating
to the servicing of mortgage loans by the Servicer during the most recent
calendar year then ended under servicing agreements (including this Servicing
Agreement) substantially similar to this Servicing Agreement and that such
examination, which has been conducted substantially in compliance with the audit
guide for audits of non-supervised mortgagees approved by the Department of
Housing and Urban Development for use by independent public accountants (to the
extent that the procedures in such audit guide are applicable to the servicing
obligations set forth in such agreements), has disclosed no items of
noncompliance with the provisions of this Servicing Agreement which, in the
opinion of such firm, are material, except for such items of non compliance as
shall be set forth in such report. In rendering such statement, such firm may
rely, as to matters relating to direct servicing of mortgage loans by
Subservicers, upon comparable statements for examinations conducted
substantially in the manner described above (rendered within one year of such
statement) of independent public accountants with respect to the related
Subservicer. For purposes of such statement, such firm may conclusively assume
that all servicing agreements among the Company and the Servicer relating to
home equity mortgage loans are sub stantially similar one to another except for
any such servicing agreement which, by its terms, specifically states otherwise.
Section 3.12. ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION REGARDING
THE MORTGAGE LOANS. Whenever required by statute or regulation, the Servicer
shall provide to the Credit Enhancer, any Securityholder upon reasonable request
(or a regulator for a Securityholder) or the Indenture Trustee, reasonable
access to the documentation regarding the Mortgage Loans such access being
afforded without charge but only upon reasonable request and during normal
business
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hours at the offices of the Servicer. Nothing in this Section 3.12 shall
derogate from the obligation of the Servicer to observe any applicable law
prohibiting disclosure of information regarding the Mortgagors and the failure
of the Servicer to provide access as provided in this Section 3.12 as a result
of such obligation shall not constitute a breach of this Section 3.12.
Section 3.13. MAINTENANCE OF CERTAIN SERVICING INSURANCE POLICIES. The
Servicer shall during the term of its service as servicer maintain in force (i)
a policy or policies of insurance covering errors and omissions in the
performance of its obligations as servicer hereunder and (ii) a fidelity bond in
respect of its officers, employees or agents. Each such policy or policies and
bond shall be at least equal to the coverage that would be required by FNMA or
FHLMC, whichever is greater, for Persons performing servicing for mortgage loans
purchased by such entity.
Section 3.14. INFORMATION REQUIRED BY THE INTERNAL REVENUE SERVICE
GENERALLY AND REPORTS OF FORECLOSURES AND ABANDONMENTS OF MORTGAGED PROPERTY.
The Servicer shall prepare and deliver all federal and state information reports
when and as required by all applicable state and federal income tax laws. In
particular, with respect to the requirement under Section 6050J of the Code to
the effect that the Servicer or Subservicer shall make reports of foreclosures
and abandonments of any Mortgaged property for each year beginning in ____, the
Servicer or Subservicer shall file reports relating to each instance occurring
during the previous calendar year in which the Servicer (i) on behalf of the
Company, acquires an interest in any Mortgaged Property through foreclosure or
other comparable conversion in full or partial satisfaction of a Mortgage Loan,
or (ii) knows or has reason to know that any Mortgaged Property has been
abandoned. The reports from the Servicer or Subservicer shall be in form and
substance sufficient to meet the reporting requirements imposed by Section 6050J
and Section 6050H (reports relating to mortgage interest received) of the Code.
Section 3.15. OPTIONAL REPURCHASE OF DEFAULTED MORTGAGE LOANS.
Notwithstanding any provision in Section 3.07 to the contrary, the Servicer may
repurchase any Mortgage Loan delinquent in payment for a period of 60 days or
longer for a price equal to the Repurchase Price.
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ARTICLE IV
Servicing Certificate
Section 4.01. STATEMENTS TO SECURITYHOLDERS. (a) With respect to each
Payment Date, the Servicer shall forward to the Indenture Trustee and the
Indenture Trustee pursuant to Section 3.26 of the Indenture shall forward or
cause to be forwarded by mail to each Certificateholder, Noteholder, the Credit
Enhancer, the Depositor, the Owner Trustee, the Certificate Paying Agent and
each Rating Agency, a statement setting forth the following information as to
the Notes and Certificates, to the extent applicable:
(i) the aggregate amount of (a) Security Interest
Collections with respect to the Notes and the Certificates, (b)
aggregate Security Principal Collections with respect to the Notes and
the Certificates and (c) Security Collections for the related
Collection Period with respect to the Notes and the Certificates;
(ii) the amount of such distribution to the
Securityholders of the Notes and the Certificates applied to reduce the
principal balance thereof and separately stating the portion thereof in
respect of the Accelerated Principal Distribution Amount and the amount
to be deposited in the Funding Account on such Payment Date;
(iii) the amount of such distribution to the
Securityholders of the Notes and the Certificates allocable to interest
and separately stating the portion thereof in respect of overdue
accrued interest;
(iv) the Credit Enhancement Draw Amount, if any, for such
Payment Date and the aggregate amount of prior draws thereunder not yet
reimbursed;
(v) the aggregate Principal Balance of (a) the ________
Loans, (b) the ______ Loans, (c) the _________ Loans, as of the end of
the preceding Collection Period and (d) all of the Mortgage Loans;
(vi) the number and aggregate Principal Balances of
Mortgage Loans (a) as to which the Minimum Monthly Payment is
delinquent for 30-59 days, 60-89 days, 90-179 days and 180 or more
days, respectively and (b) that have become REO, in each case as of the
end of the preceding Collection Period; PROVIDED, HOWEVER, that such
information will not be provided on the statements relating to the
first Payment Date;
(vii) the Weighted Average Net Mortgage Rate for the
related Collection Period and the Weighted Average Net Mortgage Rate
for (a) the ________ Loans, (b) the _______Loans and (c) the _________
Loans for the related Collection Period;
(viii) the Special Capital Distribution Amount and the
Required Special Capital Distribution Amount, in each case as the end
of the related Collection Period; and
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(ix) the aggregate amount of Additional Loans acquired
during the previous Collection Period with amounts in respect of Net
Principal Collections from the Funding Account;
(x) the aggregate Liquidation Loss Amounts with respect
to the related Collection Period, the amount of any remaining Carryover
Loss Amount with respect to the Notes and Certificates, respectively,
and the aggregate of the Liquidation Loss Amounts from all Collection
Periods to date expressed as a percentage of the sum of (a) the Cut-Off
Date Pool Balance and (b) the amount by which the Pool Balance as of
the latest date that the Additional Loans have been transferred to the
Company exceeds the Cut-Off Date Pool Balance;
(xi) any unpaid interest on the Notes and Certificates,
respectively, after such Distribution Date;
(xii) the aggregate Principal Balance of each Class of
Notes and of the Certificates after giving effect to the distribution
of principal on such Payment Date;
(xiii) the respective Security Percentage applicable to the
Notes and Certificates, after application of payments made on such
Payment Date; and
(xiv) the amount distributed pursuant to Section
3.05(a)(xi) of the Indenture on such Payment Date.
In the case of information furnished pursuant to clauses (ii) and (iii)
above, the amounts shall be expressed as an aggregate dollar amount per Note or
Certificate with a $1,000 denomination.
Prior to the close of business on the Business Day next succeeding each
Determination Date, the Servicer shall furnish a written statement to the
Company, the Owner Trustee, the Depositor, the Certificate Paying Agent and the
Indenture Trustee setting forth (i) all the foregoing information, (ii) the
aggregate amounts required to be withdrawn from the Collection Account and
deposited into the Payment Account on the Business Day preceding the Payment
Date pursuant to Section 3.03 and (iii) the amounts (A) withdrawn from the
Payment Account and deposited to the Funding Account pursuant to Section 8.02(b)
of the Indenture and (B) withdrawn from the Funding Account and deposited to the
Collection Account pursuant to Section 8.02(c)(i) of the Indenture. The
determination by the Servicer of such amounts shall, in the absence of obvious
error, be presumptively deemed to be correct for all purposes hereunder and the
Owner Trustee and Indenture Trustee shall be protected in relying upon the same
without any independent check or verification. In addition, upon the Company's
written request, the Servicer shall promptly furnish information reasonably
requested by the Company that is reasonably available to the Servicer to enable
the Company to perform its federal and state income tax reporting obligations.
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ARTICLE V
Distribution and Payment Accounts
Section 5.01. DISTRIBUTION ACCOUNT. The Servicer shall establish and
maintain a separate trust account (the "Distribution Account") titled "WMC MBN
Trust Series 199_-_, [for the benefit of the Noteholders, the Certificateholders
and the Credit Enhancer pursuant to the Indenture, dated as of _______________,
between WMC MBN Trust Series 199_-_ and [Name of Indenture Trustee]. The
Distribution Account shall be an Eligible Account. On the Business Day prior to
each Payment Date, (i) amounts deposited into the Distribution Account pursuant
to Section 3.03(i) hereof will be distributed by the Servicer in accordance with
Section ____ of the [Trust] Agreement, and (ii) the portion of such amounts then
distributable with respect to the Mortgage Collateral shall be deposited into
the Payment Account. [The Servicer shall invest or cause the institution
maintaining the Distribution Account to invest the funds in the Distribution
Account in Eligible Investments designated in the name of the [Servicer], which
shall mature not later than the Business Day next preceding the Payment Date
next following the date of such investment (except that (i) any investment in
the institution with which the Distribution Account is maintained may mature on
such Payment Date and (ii) any other investment may mature on such Payment Date
if the Servicer shall advance funds on such Payment Date to the Payment Account
in the amount payable on such investment on such Payment Date, pending receipt
thereof to the extent necessary to make distributions on the Securities) and
shall not be sold or disposed of prior to maturity. All income and gain realized
from any such investment shall be for the benefit of the Servicer and shall be
subject to its withdrawal or order from time to time. The amount of any losses
incurred in respect of any such investments shall be deposited in the
Distribution Account by the Servicer out of its own funds immediately as
realized.]
Section 5.02. PAYMENT ACCOUNT. The Indenture Trustee shall establish
and maintain a separate trust account (the "Payment Account") titled
"__________________________________, as Indenture Trustee, for the benefit of
the Noteholders, the Certificate Paying Agent and the Credit Enhancer pursuant
to the Indenture, dated as of _______________, between WMC MBN Trust Series
199_-__ and __________________________________". The Payment Account shall be an
Eligible Account. On each Payment Date, amounts on deposit in the Payment
Account will be distributed by the Indenture Trustee in accordance with Section
3.05 of the Indenture. The Indenture Trustee shall, upon written request from
the Servicer, invest or cause the institution maintaining the Payment Account to
invest the funds in the Payment Account in Eligible Investments designated in
the name of the Indenture Trustee, which shall mature not later than the
Business Day next preceding the Payment Date next following the date of such
investment (except that (i) any investment in the institution with which the
Payment Account is maintained may mature on such Payment Date and (ii) any other
investment may mature on such Payment Date if the Indenture Trustee shall
advance funds on such Payment Date to the Payment Account in the amount payable
on such investment on such Payment Date, pending receipt thereof to the extent
necessary to make distributions on the Securities) and shall not be sold or
disposed of prior to maturity. All income and gain realized from any such
investment shall be for the benefit of the Servicer and shall be subject to its
withdrawal or order from time to time. The amount of any
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losses incurred in respect of any such investments shall be deposited in the
Payment Account by the Servicer out of its own funds immediately as realized.
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ARTICLE VI
The Servicer
Section 6.01. LIABILITY OF THE SERVICER. The Servicer shall be liable
in accordance herewith only to the extent of the obligations specifically
imposed upon and undertaken by the Servicer herein.
Section 6.02. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, THE SERVICER. Any corporation into which the Servicer 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 Servicer
shall be a party, or any corporation succeeding to the business of the Servicer,
shall be the successor of the Servicer, 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.
The Servicer may assign its rights and delegate its duties and
obligations under this Servicing Agreement; PROVIDED that the Person accepting
such assignment or delegation shall be a Person which is qualified to service
mortgage loans on behalf of FNMA or FHLMC, is reasonably satisfactory to the
Indenture Trustee (as pledgee of the Mortgage Collateral), the Company and the
Credit Enhancer, is willing to service the Mortgage Loans and executes and
delivers to the Indenture Trustee and the Company an agreement, in form and
substance reason ably satisfactory to the Credit Enhancer, the Indenture Trustee
and the Company, which contains an assumption by such Person of the due and
punctual performance and observance of each covenant and condition to be
performed or observed by the Servicer under this Servicing Agreement; PROVIDED
further that each Rating Agency's rating of the Securities in effect immediately
prior to such assignment and delegation will not be qualified, reduced, or
withdrawn as a result of such assignment and delegation (as evidenced by a
letter to such effect from each Rating Agency) or considered to be below
investment grade without taking into account the Credit Enhancement Instrument.
Section 6.03. LIMITATION ON LIABILITY OF THE SERVICER AND OTHERS.
Neither the Servicer nor any of the directors or officers or employees or agents
of the Servicer shall be under any liability to the Company, the Issuer, the
Owner Trustee, the Indenture Trustee or the Securityholders for any action taken
or for refraining from the taking of any action in good faith pursuant to this
Servicing Agreement, PROVIDED, HOWEVER, that this provision shall not protect
the Servicer or any such Person against any liability which would otherwise be
imposed by reason of its willful misfeasance, bad faith or gross negligence in
the performance of its duties hereunder or by reason of its reckless disregard
of its obligations and duties hereunder. The Servicer and any director or
officer or employee or agent of the Servicer may rely in good faith on any
document of any kind PRIMA FACIE properly executed and submitted by any Person
respecting any matters arising hereunder. The Servicer and any director or
officer or employee or agent of the Servicer shall be indemnified by the Company
and held harmless against any loss, liability or expense incurred in connection
with any legal action relating to this Servicing Agreement or the Securities,
including
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any amount paid to the Owner Trustee or the Indenture Trustee pursuant to
Section 6.06(b), other than any loss, liability or expense related to any
specific Mortgage Loan or Mortgage Loans (except as any such loss, liability or
expense shall be otherwise reimbursable pursuant to this Servicing Agreement)
and any loss, liability or expense incurred by reason of its willful
misfeasance, bad faith or gross negligence in the performance of its duties
hereunder or by reason of its reckless disregard of its obligations and duties
hereunder. The Servicer shall not be under any obligation to appear in,
prosecute or defend any legal action which is not incidental to its duties to
service the Mortgage Loans in accordance with this Servicing Agreement, and
which in its opinion may involve it in any expense or liability; PROVIDED,
HOWEVER, that the Servicer may in its sole discretion undertake any such action
which it may deem necessary or desirable in respect of this Servicing Agreement,
and the rights and duties of the parties hereto and the interests of the
Securityholders hereunder. In such event, the reasonable legal expenses and
costs of such action and any liability resulting therefrom shall be expenses,
costs and liabilities of the Company, and the Servicer shall be entitled to be
reimbursed therefor. The Servicer's right to indemnity or reimbursement pursuant
to this Section 6.03 shall survive any resignation or termination of the
Servicer pursuant to Section 6.04 or 7.01 with respect to any losses, expenses,
costs or liabilities arising prior to such resignation or termination (or
arising from events that occurred prior to such resignation or termination).
Section 6.04. SERVICER NOT TO RESIGN. Subject to the provisions of
Section 6.02, the Servicer shall not resign from the obligations and duties
hereby imposed on it except (i) upon determination that the performance of its
obligations or duties hereunder are no longer permissible under applicable law
or are in material conflict by reason of applicable law with any other activi
ties carried on by it or its subsidiaries or Affiliates, the other activities of
the Servicer so causing such a conflict being of a type and nature carried on by
the Servicer or its subsidiaries or Affiliates at the date of this Servicing
Agreement or (ii) upon satisfaction of the following conditions: (a) the
Servicer has proposed a successor servicer to the Company, the Administrator and
the Indenture Trustee in writing and such proposed successor servicer is
reasonably acceptable to the Company, the Administrator, the Indenture Trustee
and the Credit Enhancer; (b) each Rating Agency shall have delivered a letter to
the Company, the Credit Enhancer and the Indenture Trustee prior to the
appointment of the successor servicer stating that the proposed appointment of
such successor servicer as Servicer hereunder will not result in the reduction
or withdrawal of the then current rating of the Securities; and (c) such
proposed successor servicer is reasonably acceptable to the Credit Enhancer, as
evidenced by a letter to the Company and the Indenture Trustee; PROVIDED,
HOWEVER, that no such resignation by the Servicer shall become effective until
such successor servicer or, in the case of (i) above, the Indenture Trustee, as
pledgee of the Mortgage Collateral, shall have assumed the Servicer's
responsibilities and obligations hereunder or the Indenture Trustee, as pledgee
of the Mortgage Collateral, shall have designated a successor servicer in
accordance with Section 7.02. Any such resignation shall not relieve the
Servicer of responsibility for any of the obligations specified in Sections 7.01
and 7.02 as obligations that survive the resignation or termination of the
Servicer. The Servicer shall have no claim (whether by subrogation or otherwise)
or other action against any Securityholder or the Credit Enhancer for any
amounts paid by the Servicer pursuant to any provision of this Servicing
Agreement. Any such determination permitting the resignation of the Servicer
shall be evidenced by an Opinion of Counsel to such effect delivered to the
Indenture Trustee and the Credit Enhancer.
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Section 6.05. DELEGATION OF DUTIES. In the ordinary course of business,
the Servicer at any time may delegate any of its duties hereunder to any Person,
including any of its Affiliates, who agrees to conduct such duties in accordance
with standards comparable to those with which the Servicer complies pursuant to
Section 3.01. Such delegation shall not relieve the Servicer of its liabilities
and responsibilities with respect to such duties and shall not constitute a
resignation within the meaning of Section 6.04.
Section 6.06. SERVICER TO PAY INDENTURE TRUSTEE'S AND OWNER TRUSTEE'S
FEES AND EXPENSES; INDEMNIFICATION. (a) The Servicer covenants and agrees to pay
to the Owner Trustee, the Indenture Trustee and any co-trustee of the Indenture
Trustee from time to time, and the Owner Trustee, the Indenture Trustee and any
such co-trustee shall be entitled to, reasonable compensation (which shall not
be limited by any provision of law in regard to the compensation of a trustee of
an express trust) for all services rendered by each of them in the execution of
the trusts created under the Trust Agreement and the Indenture and in the
exercise and performance of any of the powers and duties under the Trust
Agreement or the Indenture, as the case may be, of the Owner Trustee, the
Indenture Trustee and any co-trustee, and the Servicer will pay or reimburse the
Indenture Trustee and any co-trustee upon request for all reasonable expenses,
disbursements and advances incurred or made by the Indenture Trustee or any
co-trustee in accordance with any of the provisions of this Servicing Agreement
except any such expense, disbursement or advance as may arise from its
negligence or bad faith.
(b) The Servicer agrees to indemnify the Indenture Trustee and the
Owner Trustee for, and to hold the Indenture Trustee and the Owner Trustee, as
the case may be, harmless against, any loss, liability or expense incurred
without negligence or willful misconduct on its part, arising out of, or in
connection with, the acceptance and administration of the Company and the assets
thereof, including the costs and expenses (including reasonable legal fees and
expenses) of defending itself against any claim in connection with the exercise
or performance of any of its powers or duties under any Basic Document, provided
that:
(i) with respect to any such claim, the Indenture
Trustee or Owner Trustee, as the case may be, shall have given the
Servicer written notice thereof promptly after the Indenture Trustee or
Owner Trustee, as the case may be, shall have actual knowledge thereof;
(ii) while maintaining control over its own defense, the
Company, the Indenture Trustee or Owner Trustee, as the case may be,
shall cooperate and consult fully with the Servicer in preparing such
defense; and
(iii) notwithstanding anything in this Servicing
Agreement to the contrary, the Servicer shall not be liable for
settlement of any claim by the Indenture Trustee or the Owner Trustee,
as the case may be, entered into without the prior consent of the
Servicer, which consent shall not be unreasonably withheld.
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No termination of this Servicing Agreement shall affect the obligations created
by this Section 6.06 of the Servicer to indemnify the Indenture Trustee and the
Owner Trustee under the conditions and to the extent set forth herein.
Notwithstanding the foregoing, the indemnification provided by the
Servicer in this Section 6.06(b) shall not pertain to any loss, liability or
expense of the Indenture Trustee or the Owner Trustee, including the costs and
expenses of defending itself against any claim, incurred in connection with any
actions taken by the Indenture Trustee or the Owner Trustee at the direction of
the Noteholders or Certificateholders, as the case may be, pursuant to the terms
of this Servicing Agreement.
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ARTICLE VII
Default
Section 7.01. SERVICING DEFAULT. If any one of the following events
("Servicing Default")shall occur and be continuing:
(i) Any failure by the Servicer to deposit in the
Collection Account, the Funding Account or Payment Account any deposit
required to be made under the terms of this Servicing Agreement which
continues unremedied for a period of five Business Days after the date
upon which written notice of such failure shall have been given to the
Servicer by the Company, the Issuer or the Indenture Trustee or to the
Servicer, the Company, the Issuer and the Indenture Trustee by the
Credit Enhancer; or
(ii) Failure on the part of the Servicer duly to observe
or perform in any material respect any other covenants or agreements of
the Servicer set forth in the Securi ties or in this Servicing
Agreement, which failure, in each case, materially and adversely
affects the interests of Securityholders or the Credit Enhancer and
which continues unremedied for a period of 45 days after the date on
which written notice of such failure, requiring the same to be
remedied, and stating that such notice is a "Notice of Default"
hereunder, shall have been given to the Servicer by the Company, the
Issuer or the Indenture Trustee or to the Servicer, the Company, the
Issuer and the Indenture Trustee by the Credit Enhancer; or
(iii) The entry against the Servicer of a decree or order
by a court or agency or supervisory authority having jurisdiction in
the premises for the appointment of a trustee, conservator, receiver or
liquidator in any insolvency, conservatorship, receivership,
readjustment of debt, marshaling of assets and liabilities or similar
proceed ings, or for the winding up or liquidation of its affairs, and
the continuance of any such decree or order unstayed and in effect for
a period of 60 consecutive days; or
(iv) The Servicer shall voluntarily go into liquidation,
consent to the appointment of a conservator, receiver, liquidator or
similar person in any insolvency, readjustment of debt, marshaling of
assets and liabilities or similar proceedings of or relating to the
Servicer or of or relating to all or substantially all of its property,
or a decree or order of a court, agency or supervisory authority having
jurisdiction in the premises for the appointment of a conservator,
receiver, liquidator or similar person in any insolvency, readjustment
of debt, marshaling of assets and liabilities or similar proceed ings,
or for the winding-up or liquidation of its affairs, shall have been
entered against the Servicer and such decree or order shall have
remained in force undischarged, unbonded or unstayed for a period of 60
days; or the Servicer shall admit in writing its inability to pay its
debts generally as they become due, file a petition to take advantage
of any appli cable insolvency or reorganization statute, make an
assignment for the benefit of its creditors or voluntarily suspend
payment of its obligations; or
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(v) Any failure by the Seller (so long as the Seller is
the Servicer) or the Servicer, as the case may be, to pay when due any
amount payable by it under the terms of the Insurance Agreement which
continues unremedied for a period of three (3) Business Days after the
date upon which written notice of such failure shall have been given to
the Seller (so long as the Seller is the Servicer) or the Servicer, as
the case may be; or
(vi) Failure on the part of the Seller or the Servicer
to duly perform in any material respect any covenant or agreement set
forth in the Insurance Agreement, which failure in each case materially
and adversely affects the interests of the Credit Enhancer and
continues unremedied for a period of 60 days after the date on which
written notice of such failure, requiring the same to be remedied,
shall have been given to the Depositor, the Indenture Trustee, the
Seller or the Servicer, as the case may be, by the Credit Enhancer.
then, and in every such case, other than that set forth in (vi) hereof, so long
as a Servicing Default shall not have been remedied by the Servicer, either the
Company, subject to the direction of the Indenture Trustee as pledgee of the
Mortgage Collateral, with the consent of the Credit Enhancer, or the Credit
Enhancer, by notice then given in writing to the Servicer (and to the Company
and the Issuer if given by the Credit Enhancer) and in the case of the event set
forth in (vi) hereof, the Credit Enhancer with the consent of Securityholders at
least 51% of the aggregate Principal Balance of the Notes and the Certificates
may terminate all of the rights and obligations of the Servicer as servicer
under this Servicing Agreement other than its right to receive servicing
compensation and expenses for servicing the Mortgage Loans hereunder during any
period prior to the date of such termination and the Company, subject to the
direction of the Indenture Trustee as pledgee of the Mortgage Collateral, with
the consent of the Credit Enhancer, or the Credit Enhancer may exercise any and
all other remedies available at law or equity. Any such notice to the Servicer
shall also be given to each Rating Agency, the Credit Enhancer, the Company and
the Issuer. On or after the receipt by the Servicer of such written notice, all
authority and power of the Servicer under this Servicing Agreement, whether with
respect to the Securities or the Mortgage Loans or otherwise, shall pass to and
be vested in the Company, subject to the direction of the Indenture Trustee as
pledgee of the Mortgage Collateral, pursuant to and under this Section 7.01;
and, without limitation, the Company is hereby authorized and empowered to
execute and deliver, on behalf of the Servicer, as attorney-in-fact or
otherwise, any and all documents and other instruments, and to do or accomplish
all other acts or things necessary or appropriate to effect the purposes of such
notice of termination, whether to complete the transfer and endorse ment of each
Mortgage Loan and related documents, or otherwise. The Servicer agrees to
cooperate with the Company in effecting the termination of the responsibilities
and rights of the Servicer hereunder, including, without limitation, the
transfer to the Indenture Trustee for the administration by it of all cash
amounts relating to the Mortgage Loans that shall at the time be held by the
Servicer and to be deposited by it in the Collection Account, or that have been
deposited by the Servicer in the Collection Account or thereafter received by
the Servicer with respect to the Mortgage Loans. All reasonable costs and
expenses (including, but not limited to, attorneys' fees) incurred in connection
with amending this Servicing Agreement to reflect such succession as Servicer
pursuant to this Section 7.01 shall be paid by the predecessor Servicer (or
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if the predecessor Servicer is the Indenture Trustee, the initial Servicer) upon
presentation of reasonable documentation of such costs and expenses.
Notwithstanding any termination of the activities of the Servicer
hereunder, the Servicer shall be entitled to receive, out of any late collection
of a payment on a Mortgage Loan which was due prior to the notice terminating
the Servicer's rights and obligations hereunder and received after such notice,
that portion to which the Servicer would have been entitled pursuant to Sections
3.03 and 3.09 as well as its Servicing Fee in respect thereof, and any other
amounts payable to the Servicer hereunder the entitlement to which arose prior
to the termination of its activities hereunder.
Notwithstanding the foregoing, a delay in or failure of performance
under Section 7.01(i) or under Section 7.01(ii) after the applicable grace
periods specified in such Sections, shall not constitute a Servicer Default if
such delay or failure could not be prevented by the exercise of reasonable
diligence by the Servicer and such delay or failure was caused by an act of God
or the public enemy, acts of declared or undeclared war, public disorder,
rebellion or sabotage, epidemics, landslides, lightning, fire, hurricanes,
earthquakes, floods or similar causes. The pre ceding sentence shall not relieve
the Servicer from using reasonable efforts to perform its respective obligations
in a timely manner in accordance with the terms of this Servicing Agreement and
the Servicer shall provide the Indenture Trustee, the Credit Enhancer and the
Securityholders with notice of such failure or delay by it, together with a
description of its efforts to so perform its obligations. The Servicer shall
immediately notify the Indenture Trustee, the Credit Enhancer and the Owner
Trustee in writing of any Servicer Default.
Section 7.02. INDENTURE TRUSTEE TO ACT; APPOINTMENT OF SUCCESSOR. (a)
On and after the time the Servicer receives a notice of termination pursuant to
Section 7.01 or sends a notice pursuant to Section 6.04, the Indenture Trustee
on behalf of the Noteholders shall be the successor in all respects to the
Servicer in its capacity as servicer under this Servicing Agreement and the
transactions set forth or provided for herein and shall be subject to all the
responsibilities, duties and liabilities relating thereto placed on the Servicer
by the terms and provisions hereof. Nothing in this Servicing Agreement or in
the Trust Agreement shall be construed to permit or require the Indenture
Trustee to (i) succeed to the responsibilities, duties and liabilities of the
initial Servicer in its capacity as Seller under the Mortgage Loan Purchase
Agreement, (ii) be responsible or accountable for any act or omission of the
Servicer prior to the issuance of a notice of termination hereunder, (iii)
require or obligate the Indenture Trustee, in its capacity as successor
Servicer, to purchase, repurchase or substitute any Mortgage Loan, (iv) fund any
losses on any Eligible Investment directed by any other Servicer, or (v) be
responsible for the representations and warranties of the Servicer. As
compensation therefor, the Indenture Trustee shall be entitled to such
compensation as the Servicer would have been entitled to hereunder if no such
notice of termination had been given. Notwithstanding the above, (i) if the
Indenture Trustee is unwilling to act as successor Servicer, or (ii) if the
Indenture Trustee is legally unable so to act, the Indenture Trustee on behalf
of the Mortgage Collateral holders may (in the situation described in clause
(i)) or shall (in the situation described in clause (ii)) appoint or petition a
court of competent jurisdiction to appoint any established housing and home
finance institution, bank or other mortgage loan or home equity loan servicer
having a net worth of not less than $10,000,000 as
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the successor to the Servicer hereunder in the assumption of all or any part of
the responsibilities, duties or liabilities of the Servicer hereunder; PROVIDED
that any such successor Servicer shall be acceptable to the Credit Enhancer, as
evidenced by the Credit Enhancer's prior written consent which consent shall not
be unreasonably withheld and provided further that the appointment of any such
successor Servicer will not result in the qualification, reduction or withdrawal
of the ratings assigned to the Securities by the Rating Agencies. Pending
appointment of a successor to the Servicer hereunder, unless the Indenture
Trustee is prohibited by law from so acting, the Indenture Trustee shall act in
such capacity as hereinabove provided. In connection with such appointment and
assumption, the successor shall be entitled to receive compensation out of
payments on Mortgage Loans in an amount equal to the compensation which the
Servicer would otherwise have received pursuant to Section 3.09 (or such lesser
compensation as the Indenture Trustee and such successor shall agree). The
appointment of a successor Servicer shall not affect any liability of the
predecessor Servicer which may have arisen under this Servicing Agreement prior
to its termination as Servicer (including, without limitation, the obligation to
purchase Mortgage Loans pursuant to Section 3.01, to pay any deductible under an
insurance policy pursuant to Section 3.04 or to indemnify the Indenture Trustee
pursuant to Section 6.06), nor shall any successor Servicer be liable for any
acts or omissions of the predecessor Servicer or for any breach by such Servicer
of any of its representations or warranties contained herein or in any related
document or agreement. The Indenture Trustee and such successor shall take such
action, consistent with this Servicing Agreement, as shall be necessary to
effectuate any such succession.
(b) Any successor, including the Indenture Trustee on behalf of the
Noteholders, to the Servicer as servicer shall during the term of its service as
servicer (i) continue to service and administer the Mortgage Loans for the
benefit of the Securityholders, (ii) maintain in force a policy or policies of
insurance covering errors and omissions in the performance of its obligations as
Servicer hereunder and a fidelity bond in respect of its officers, employees and
agents to the same extent as the Servicer is so required pursuant to Section
3.13.
(c) Any successor Servicer, including the Indenture Trustee on behalf
of the Mortgage Collateral holders, shall not be deemed in default or to have
breached its duties hereunder if the predecessor Servicer shall fail to deliver
any required deposit to the Collection Account or otherwise cooperate with any
required servicing transfer or succession hereunder.
Section 7.03. NOTIFICATION TO SECURITYHOLDERS. Upon any termination or
appointment of a successor to the Servicer pursuant to this Article VII or
Section 6.04, the Indenture Trustee shall give prompt written notice thereof to
the Securityholders, the Credit Enhancer, the Company, the Issuer and each
Rating Agency.
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ARTICLE VIII
Miscellaneous Provisions
Section 8.01. AMENDMENT. This Servicing Agreement may be amended from
time to time by the parties hereto, provided that any amendment be accompanied
by a letter from the Rating Agencies that the amendment will not result in the
downgrading or withdrawal of the rating then assigned to the Securities and the
consent of the Credit Enhancer and the Indenture Trustee.
Section 8.02. GOVERNING LAW. THIS SERVICING AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND
THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL
BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 8.03. NOTICES. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered at or mailed by certified mail, return receipt requested,
to (a) in the case of the Servicer, [Name and Address of Servicer], (b) in the
case of the Credit Enhancer, ________________, ________, ______________,
Attention: _________________, ___________________________, (c) in the case of
[Moody's, ___________, 4th Floor, 99 Church Street, New York, New York 10007],
(d) in the case of [Standard & Poor's, 26 Broadway, 15th Floor, New York, New
York 10004, Attention: Residential Mortgage Surveillance Group], (e) in the case
of the Owner Trustee, the Corporate Trust Office, and (f) in the case of the
Issuer, to WMC MBN Trust Series 199_-__, c/o ______________________,
__________________, __________, ______________, Attention:
__________________________, with a copy to the Administrator at ______________
or, as to each party, at such other address as shall be designated by such party
in a written notice to each other party. [Any notice required or permitted to be
mailed to a Securityholder shall be given by first class mail, postage prepaid,
at the address of such Securityholder as shown in the Register. Any notice so
mailed within the time prescribed in this Servicing Agreement shall be
conclusively presumed to have been duly given, whether or not the Securityholder
receives such notice. Any notice or other document required to be delivered or
mailed by the Indenture Trustee to any Rating Agency shall be given on a
reasonable efforts basis and only as a matter of courtesy and accommodation and
the Indenture Trustee shall have no liability for failure to delivery such
notice or document to any Rating Agency.]
Section 8.04. SEVERABILITY OF PROVISIONS. If any one or more of the
covenants, agreements, provisions or terms of this Servicing 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 Servicing Agreement and shall in no way
affect the validity or enforceability of the other provisions of this Servicing
Agreement or of the Securities or the rights of the Securityholders thereof.
Section 8.05. THIRD-PARTY BENEFICIARIES. This Servicing Agreement will
inure to the benefit of and be binding upon the parties hereto, the
Securityholders, the Credit Enhancer, the Owner Trustee, the Indenture Trustee
and their respective successors and permitted assigns.
30
<PAGE>
Except as otherwise provided in this Servicing Agreement, no other Person will
have any right or obligation hereunder.
Section 8.06. COUNTERPARTS. This instrument may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
Section 8.07. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
Section 8.08. TERMINATION UPON PURCHASE BY THE SERVICER OR LIQUIDATION
OF ALL MORTGAGE LOANS. The respective obligations and responsibilities of the
Servicer and the Company created hereby shall terminate upon the last action
required to be taken by the Issuer pursuant to the Trust Agreement and by the
Indenture Trustee pursuant to the Indenture following the earlier of:
(i) the date on or before which the Indenture or Trust
Agreement is terminated, or
(ii) the purchase by the Servicer from the Company of all Mortgage
Loans and all property acquired in respect of any Mortgage Loan at a
price equal to the greater of (a) 100% of the unpaid Principal Balance
of each Mortgage Loan, plus accrued and unpaid interest thereon at the
Weighted Average Net Mortgage Rate up to the day preceding the Payment
Date on which such amounts are to be distributed to Securityholders,
plus any amounts due and owing to the Credit Enhancer under the
Insurance Agreement and (b) the fair market value of the Mortgage Loans
as determined by two bids from competitive participants in the
adjustable home equity loan market.
The right of the Servicer to purchase the assets of the Company pursuant to
clause (ii) above is conditioned upon the Pool Balance as of the Final Scheduled
Payment Date being less than ten percent of the aggregate of the Cut-Off Date
Principal Balances of the Mortgage Loans. If such right is exercised by the
Servicer, the Servicer shall deposit the amount calculated pursuant to clause
(ii) above with the Indenture Trustee pursuant to Section 4.10 of the Indenture
and, upon the receipt of such deposit, the Indenture Trustee or relevant
Custodian shall release to the Servicer, the files pertaining to the Mortgage
Loans being purchased.
The Servicer, at its expense, shall prepare and deliver to the
Indenture Trustee and the Owner Trustee for execution, at the time the Mortgage
Loans are to be released to the Servicer, appropriate documents assigning each
such Mortgage Loan from the Company to the Servicer or the appropriate party.
Section 8.09. CERTAIN MATTERS AFFECTING THE INDENTURE TRUSTEE. For all
purposes of this Servicing Agreement, in the performance of any of its duties or
in the exercise of any of its powers hereunder, the Indenture Trustee shall be
subject to and entitled to the benefits of Article VI of the Indenture.
31
<PAGE>
[Section 8.10. AUTHORITY OF THE ADMINISTRATOR. Each of the parties to
this Agreement acknowledges that the Issuer and the Owner Trustee have each
appointed the Administrator to act as its agent to perform the duties and
obligations of the Issuer hereunder. Unless otherwise instructed by the Issuer
or the Owner Trustee, copies of all notices, requests, demands and other
documents to be delivered to the Issuer or the Owner Trustee pursuant to the
terms hereof shall be delivered to the Administrator. Unless otherwise
instructed by the Issuer or the Owner Trustee, all notices, requests, demands
and other documents to be executed or delivered, and any action to be taken, by
the Issuer or the Owner Trustee pursuant to the terms hereof may be executed,
delivered and/or taken by the Administrator pursuant to the Admin istration
Agreement.]
32
<PAGE>
IN WITNESS WHEREOF, the Servicer and the Company have caused this
Servicing Agreement to be duly executed by their respective officers or
representatives all as of the day and year first above written.
[NAME OF SERVICER],
as Servicer
By_________________________________
Title:
WMC SECURED ASSETS CORP.
as Company
By_________________________________
Title:
<PAGE>
EXHIBIT D
FORM OF REQUEST FOR RELEASE
DATE:
TO:
RE: REQUEST FOR RELEASE OF DOCUMENTS
In connection with your administration of the Mortgage Collateral, we request
the release of the Mortgage File described below.
Servicing Agreement Dated:
Series #:
Account #:
Pool #:
Loan #:
Borrower Name(s):
Reason for Document Request: (circle one) Mortgage Loan
Prepaid in Full
Mortgage Loan Repurchased
"We hereby certify that all amounts received or to be received in connection
with such payments which are required to be deposited have been or will be so
deposited as provided in the Servicing Agreement."
- -------------------------------------
[Name of Servicer]
Authorized Signature
******************************************************************
TO CUSTODIAN/INDENTURE TRUSTEE: Please acknowledge this request, and check off
documents being enclosed with a copy of this form. You should retain this form
for your files in accordance with the terms of the Servicing Agreement.
Enclosed Documents: [ ] Promissory Note
[ ] Primary Insurance Policy
[ ] Mortgage or Deed of Trust
[ ] Assignment(s) of Mortgage or
Deed of Trust
[ ] Title Insurance Policy
[ ] Other: ___________________________
___________________________
Name
___________________________
Title
<PAGE>
___________________________
Date
EXHIBIT 4.4
-----------
================================================================================
WMC SECURED ASSETS CORP.
as Depositor
and
----------------------,
as Owner Trustee
-----------------------------------------
TRUST AGREEMENT
Dated as of ________________
------------------------------------------
$_________ Collateralized Mortgage Certificates,
Series 199_-__
================================================================================
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
Section Page
<S> <C>
ARTICLE I
DEFINITIONS
........................................................................................................1
1.01. DEFINITIONS................................................................................1
1.02. OTHER DEFINITIONAL PROVISIONS..............................................................1
ARTICLE II
ORGANIZATION
........................................................................................................3
2.01. NAME.......................................................................................3
2.02. OFFICE.....................................................................................3
2.03. PURPOSES AND POWERS........................................................................3
2.04. APPOINTMENT OF OWNER TRUSTEE...............................................................4
2.05. INITIAL CAPITAL CONTRIBUTION OF OWNER TRUST ESTATE.........................................4
2.06. DECLARATION OF TRUST.......................................................................4
2.07. LIABILITY OF THE HOLDER OF THE CERTIFICATES................................................4
2.08. TITLE TO TRUST PROPERTY....................................................................5
2.09. SITUS OF TRUST.............................................................................5
2.10. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR............................................5
2.11. PAYMENT OF TRUST FEES......................................................................6
ARTICLE III
CONVEYANCE OF THE MORTGAGE COLLATERAL;
CERTIFICATES
........................................................................................................7
3.01. CONVEYANCE OF THE MORTGAGE COLLATERAL......................................................7
3.02. INITIAL OWNERSHIP..........................................................................7
3.03. THE CERTIFICATES...........................................................................7
3.04. AUTHENTICATION OF CERTIFICATES.............................................................7
3.05. REGISTRATION OF AND LIMITATIONS ON TRANSFER AND EXCHANGE OF CERTIFICATES
..........................................................................................8
3.06. MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES..........................................9
3.07. PERSONS DEEMED CERTIFICATEHOLDERS.........................................................10
3.08. ACCESS TO LIST OF CERTIFICATEHOLDERS' NAMES AND ADDRESSES.................................10
3.09. MAINTENANCE OF OFFICE OR AGENCY...........................................................10
3.10. CERTIFICATE PAYING AGENT..................................................................10
3.11. OWNERSHIP.................................................................................12
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
ARTICLE IV
AUTHORITY AND DUTIES OF OWNER TRUSTEE
.......................................................................................................13
4.01. GENERAL AUTHORITY.........................................................................13
4.02. GENERAL DUTIES............................................................................13
4.03. ACTION UPON INSTRUCTION...................................................................13
4.04. NO DUTIES EXCEPT AS SPECIFIED UNDER SPECIFIED DOCUMENTS OR IN
INSTRUCTIONS
.........................................................................................14
4.05. RESTRICTIONS..............................................................................14
4.06. PRIOR NOTICE TO CERTIFICATEHOLDERS WITH RESPECT TO CERTAIN MATTERS........................14
4.07. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO CERTAIN MATTERS..............................15
4.08. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO BANKRUPTCY...................................15
4.09. RESTRICTIONS ON CERTIFICATEHOLDERS' POWER.................................................16
4.10. MAJORITY CONTROL..........................................................................16
ARTICLE V
APPLICATION OF TRUST FUNDS
.......................................................................................................17
5.01. DISTRIBUTIONS.............................................................................17
5.02. METHOD OF PAYMENT.........................................................................17
5.03. SIGNATURE ON RETURNS......................................................................18
5.04. STATEMENTS TO CERTIFICATEHOLDERS..........................................................18
5.05. TAX REPORTING; TAX ELECTIONS..............................................................18
ARTICLE VI
CONCERNING THE OWNER TRUSTEE
.......................................................................................................19
6.01. ACCEPTANCE OF TRUSTS AND DUTIES...........................................................19
6.02. FURNISHING OF DOCUMENTS...................................................................20
6.03. REPRESENTATIONS AND WARRANTIES............................................................20
6.04. RELIANCE; ADVICE OF COUNSEL...............................................................21
6.05. NOT ACTING IN INDIVIDUAL CAPACITY.........................................................21
6.06. OWNER TRUSTEE NOT LIABLE FOR CERTIFICATES OR RELATED DOCUMENTS............................22
6.07. OWNER TRUSTEE MAY OWN CERTIFICATES AND BONDS..............................................22
ARTICLE VII
COMPENSATION OF OWNER TRUSTEE
.......................................................................................................23
7.01. OWNER TRUSTEE'S FEES AND EXPENSES.........................................................23
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
7.02. INDEMNIFICATION...........................................................................23
ARTICLE VIII
TERMINATION OF TRUST AGREEMENT
.......................................................................................................25
8.01. TERMINATION OF TRUST AGREEMENT............................................................25
8.02. DISSOLUTION UPON BANKRUPTCY OF THE HOLDER OF THE DESIGNATED CERTIFICATE
.........................................................................................26
ARTICLE IX
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
.......................................................................................................27
9.01. ELIGIBILITY REQUIREMENTS FOR OWNER TRUSTEE................................................27
9.02. REPLACEMENT OF OWNER TRUSTEE..............................................................27
9.03. SUCCESSOR OWNER TRUSTEE...................................................................28
9.04. MERGER OR CONSOLIDATION OF OWNER TRUSTEE..................................................28
9.05. APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE.............................................28
ARTICLE X
MISCELLANEOUS
.......................................................................................................30
10.01. AMENDMENTS................................................................................30
10.02. NO LEGAL TITLE TO OWNER TRUST ESTATE......................................................31
10.03. LIMITATIONS ON RIGHTS OF OTHERS...........................................................31
10.04. NOTICES...................................................................................32
10.05. SEVERABILITY..............................................................................32
10.06. SEPARATE COUNTERPARTS.....................................................................32
10.07. SUCCESSORS AND ASSIGNS....................................................................32
10.08. NO PETITION...............................................................................32
10.9. NO RECOURSE...............................................................................32
10.10. HEADINGS..................................................................................33
10.11. GOVERNING LAW.............................................................................33
10.12. INTEGRATION...............................................................................33
Signatures ......................................................................................................40
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
<S> <C>
Exhibit A - Form of Certificate.................................................................................A-1
Exhibit B - Certificate of Trust of WMC CMN Trust ..............................................................B-1
Exhibit C - Form of Certificate of Non-Foreign Status...........................................................C-1
Exhibit D - Form of Investment Letter...........................................................................D-1
Exhibit E - Form of Investment Letter
for Certificates...................................................................E-1
</TABLE>
iv
<PAGE>
This Trust Agreement, dated as of ________________ (as amended from
time to time, this "Trust Agreement"), between WMC Secured Assets Corp., a
Delaware corporation, as Depositor (the "Depositor") and ______________________,
a Delaware ___________________, as Owner Trustee (the "Owner Trustee"),
WITNESSETH THAT:
In consideration of the mutual agreements herein contained, the
Depositor and the Owner Trustee agree as follows:
ARTICLE I
DEFINITIONS
-----------
Section 1.01. DEFINITIONS. For all purposes of this Trust Agreement,
except as otherwise expressly provided herein or unless the context otherwise
requires, capitalized terms not otherwise defined herein shall have the meanings
assigned to such terms in the Indenture. All other capitalized terms used herein
shall have the meanings specified herein.
SECTION 1.02. OTHER DEFINITIONAL PROVISIONS.
(a) All terms defined in this Trust Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(b) As used in this Trust Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Trust Agreement or in any such certificate or other document,
and accounting terms partly defined in this Trust Agreement or in any such
certificate or other document to the extent not defined, shall have the
respective meanings given to them under generally accepted accounting
principles. To the extent that the definitions of accounting terms in this Trust
Agreement or in any such certificate or other document are inconsistent with the
meanings of such terms under generally accepted accounting principles, the
definitions contained in this Trust Agreement or in any such certificate or
other document shall control.
(c) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Trust Agreement shall refer to this Trust Agreement as
a whole and not to any particular provision of this Trust Agreement; Section and
Exhibit references contained in this Trust Agreement are references to Sections
and Exhibits in or to this Trust Agreement unless otherwise specified; and the
term "including" shall mean "including without limitation".
(d) The definitions contained in this Trust Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms.
<PAGE>
(e) Any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
2
<PAGE>
ARTICLE II
ORGANIZATION
------------
Section 2.01. NAME. The trust created hereby (the "Trust") shall be
known as "WMC CMN Trust Series 199_-_," in which name the Owner Trustee may
conduct the business of the Trust, make and execute contracts and other
instruments on behalf of the Trust and sue and be sued.
Section 2.02. OFFICE. The office of the Trust shall be in care of the
Owner Trustee at the Corporate Trust Office or at such other address in Delaware
as the Owner Trustee may designate by written notice to the Certificateholders
and the Depositor.
Section 2.03. PURPOSES AND POWERS. The purpose of the Trust is to
engage in the following activities:
(i) to issue the Bonds pursuant to the Indenture and the
Certificates pursuant to this Trust Agreement and to sell the Bonds and
the Certificates;
(ii) to pay the organizational, start-up and transactional
expenses of the Trust;
(iii) to assign, grant, transfer, pledge and convey the
Mortgage Collateral pursuant to the Indenture and to hold, manage and
distribute to the Certificateholders pursuant to Section 5.01 any
portion of the Mortgage Collateral released from the Lien of, and
remitted to the Trust pursuant to the Indenture;
(iv) to enter into and perform its obligations under the Basic
Documents to which it is to be a party;
(v) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to accomplish
the foregoing or are incidental thereto or connected therewith,
including, without limitation, to accept additional contributions of
equity that are not subject to the Lien of the Indenture; and
(vi) subject to compliance with the Basic Documents, to engage
in such other activities as may be required in connection with
conservation of the Owner Trust Estate and the making of distributions
to the Certificateholders and the Bondholders.
The Trust is hereby authorized to engage in the foregoing activities. The Trust
shall not engage in any activity other than in connection with the foregoing or
other than as required or authorized by the terms of this Trust Agreement or the
Basic Documents [while any Bond is outstanding and without regard to the Bonds
and] [without the consent of __% of the Certificateholders].
3
<PAGE>
Section 2.04. APPOINTMENT OF OWNER TRUSTEE. The Depositor hereby
appoints the Owner Trustee as trustee of the Trust effective as of the date
hereof, to have all the rights, powers and duties set forth herein.
Section 2.05. INITIAL CAPITAL CONTRIBUTION OF OWNER TRUST ESTATE. The
Depositor hereby sells, assigns, transfers, conveys and sets over to the Trust,
as of the date hereof, the sum of $1. The Owner Trustee hereby acknowledges
receipt in trust from the Depositor, as of the date hereof, of the foregoing
contribution, which shall constitute the initial corpus of the Trust and shall
be deposited in the Certificate Distribution Account. The Owner Trustee also
acknowledges on behalf of the trust receipt of the Mortgage Collateral and a
Surety Bond assigned to the Trust pursuant to Section 3.01, which shall
constitute the Owner Trust Estate.
Section 2.06. DECLARATION OF TRUST. The Owner Trustee hereby declares
that it shall hold the Owner Trust Estate in trust upon and subject to the
conditions set forth herein for the use and benefit of the Certificateholders,
subject to the obligations of the Trust under the Basic Documents. It is the
intention of the parties hereto that the Trust constitute a business trust under
the Business Trust Statute and that this Trust Agreement constitute the
governing instrument of such business trust. It is the intention of the parties
hereto that, for income and franchise tax pur poses, the Trust shall be treated
as a corporation, with the assets of the corporation being the Owner Trust
Estate, the [equity interest in the corporation] being the Certificates and the
Bonds being debt of the corporation and the provisions of this Agreement shall
be interpreted to further this intention. Except as otherwise provided in this
Trust Agreement, the rights of the Certificateholders will be those of [equity
owners of the Trust] formed under the Delaware [corporation law]. The parties
agree that, unless otherwise required by appropriate tax authorities, the Trust
will file or cause to be filed annual or other necessary returns, reports and
other forms consistent with the characterization of the Trust as a corporation
for such tax purposes. Effective as of the date hereof, the Owner Trustee shall
have all rights, powers and duties set forth herein and in the Business Trust
Statute with respect to accomplishing the purposes of the Trust.
Section 2.07. LIABILITY OF THE HOLDER OF THE CERTIFICATES. (a) The
Holders of the Certificates shall be liable directly to and shall indemnify any
injured party for all losses, claims, damages, liabilities and expenses of the
Trust (including Expenses, to the extent not paid out of the Owner Trust Estate)
to the extent that the Holders of the Certificates would be liable if the Trust
were a corporation under [Delaware corporate law]; provided, however, that the
Holders of the Certificates shall not be liable for payments required to be made
on the Bonds or the Certificates, or for any losses incurred by a
Certificateholder in the capacity of an investor in the Certificates or a
Bondholder in the capacity of an investor in the Bonds. The Holders of the
Certificates shall be liable for any entity level taxes imposed on the Trust. In
addition, any third party creditors of the Trust, including the Credit Enhancer
(other than in connection with the obligations described in the preceding
sentence for which the Holders of the Certificates shall not be liable) shall be
deemed third party beneficiaries of this paragraph. The obligations of the
Holders of the Certificates under this paragraph shall be evidenced by the
Certificates.
4
<PAGE>
(b) Subject to subsection (a) above, the Certificateholders shall be
entitled to the same limitation of personal liability extended to stockholders
of private corporations for profit organized under the General Corporation Law
of the State of Delaware.
Section 2.08. TITLE TO TRUST PROPERTY. Legal title to the Owner Trust
Estate shall be vested at all times in the Trust as a separate legal entity
except where applicable law in any jurisdiction requires title to any part of
the Owner Trust Estate to be vested in a trustee or trustees, in which case
title shall be deemed to be vested in the Owner Trustee, a co-trustee and/or a
separate trustee, as the case may be.
Section 2.09. SITUS OF TRUST. The Trust will be located and
administered in the State of Delaware. All bank accounts maintained by the Owner
Trustee on behalf of the Trust shall be located in the State of Delaware or the
State of ________. The Trust shall not have any employees in any state other
than Delaware; provided, however, that nothing herein shall restrict or prohibit
the Owner Trustee from having employees within or without the State of Delaware
or taking actions outside the State of Delaware in order to comply with Section
2.03. Payments will be received by the Trust only in Delaware, New York or
________, and payments will be made by the Trust only from Delaware, New York or
________. The only office of the Trust will be at the Corporate Trust Office in
Delaware.
Section 2.10. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR. The
Depositor hereby represents and warrants to the Owner Trustee that:
(i) The Depositor is duly organized and validly existing as a
corporation in good standing under the laws of the State of Delaware,
with power and authority to own its properties and to conduct its
business as such properties are currently owned and such business is
presently conducted.
(ii) The Depositor is duly qualified to do business as a
foreign corporation in good standing and has obtained all necessary
licenses and approvals in all jurisdictions in which the ownership or
lease of its property or the conduct of its business shall require such
qualifications and in which the failure to so qualify would have a
material adverse effect on the business, properties, assets or
condition (financial or other) of the Depositor.
(iii) The Depositor has the power and authority to execute and
deliver this Trust Agreement and to carry out its terms; the Depositor
has full power and authority to sell and assign the property to be sold
and assigned to and deposited with the Trust as part of the Trust and
the Depositor has duly authorized such sale and assignment and deposit
to the Trust by all necessary corporate action; and the execution,
delivery and performance of this Trust Agreement have been duly
authorized by the Depositor by all necessary corporate action.
(iv) The consummation of the transactions contemplated by this
Trust Agreement and the fulfillment of the terms hereof do not conflict
with, result in any breach of any of the terms and provisions of, or
constitute (with or without notice or lapse of time) a default
5
<PAGE>
under, the articles of incorporation or bylaws of the Depositor, or any
indenture, agreement or other instrument to which the Depositor is a
party or by which it is bound; nor result in the creation or imposition
of any Lien upon any of its properties pursuant to the terms of any
such indenture, agreement or other instrument (other than pursuant to
the Basic Documents); nor violate any law or, to the best of the
Depositor's knowledge, any order, rule or regulation applicable to the
Depositor of any court or of any federal or state regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the Depositor or its properties.
Section 2.11. PAYMENT OF TRUST FEES. The Owner Trustee shall cause the
Administrator (i) to pay the Trust's fees and expenses incurred with respect to
the performance of the Trust's duties under the Indenture from amounts received
pursuant to Section 3.05(x) under the Indenture and (ii) to notify the
Certificate Paying Agent of such fees and expenses incurred thereunder.
6
<PAGE>
ARTICLE III
CONVEYANCE OF THE MORTGAGE COLLATERAL;
--------------------------------------
CERTIFICATES
------------
Section 3.01. CONVEYANCE OF THE MORTGAGE COLLATERAL. The Depositor,
concurrently with the execution and delivery hereof, does hereby transfer,
convey, sell and assign to the Trust, on behalf of the Holders of the Bonds and
the Certificates and the Credit Enhancer, without recourse, all its right, title
and interest in and to the Mortgage Collateral. The Depositor will also provide
the Trust with a Surety Bond.
The parties hereto intend that the transaction set forth herein be a
sale by the Depositor to the Trust of all of its right, title and interest in
and to the Mortgage Collateral. In the event that the transaction set forth
herein is not deemed to be a sale, the Depositor hereby grants to the Trust a
security interest in all of its right, title and interest in, to and under the
Owner Trust Estate, all distributions thereon and all proceeds thereof; and this
Trust Agreement shall constitute a security agreement under applicable law.
Section 3.02. INITIAL OWNERSHIP. Upon the formation of the Trust by the
contribution by the Depositor pursuant to Section 2.05 and until the conveyance
of the Mortgage Collateral pursuant to Section 3.01 and the issuance of the
Certificates, the Depositor shall be the sole Certificateholder.
Section 3.03. THE CERTIFICATES. The Certificates shall be issued in
minimum denominations of $[250,000] and in integral multiples of $10,000 in
excess thereof; except for one Certificate that may not be in an integral
multiple of $10,000; provided, however, that the Designated Certificate issued
pursuant to Section 3.11 may be issued in the amount of $_________. The
Certificates shall be executed on behalf of the Trust by manual or facsimile
signature of an authorized officer of the Owner Trustee and authenticated in the
manner provided in Section 3.04. Certificates bearing the manual or facsimile
signatures of individuals who were, at the time when such signatures shall have
been affixed, authorized to sign on behalf of the Trust, shall be validly issued
and entitled to the benefit of this Trust Agreement, notwithstanding that such
individuals or any of them shall have ceased to be so authorized prior to the
authentication and delivery of such Certificates or did not hold such offices at
the date of authentication and delivery of such Certificates. A Person shall
become a Certificateholder and shall be entitled to the rights and subject to
the obligations of a Certificateholder hereunder upon such Person's acceptance
of a Certificate duly registered in such Person's name, pursuant to Section
3.05.
A transferee of a Certificate shall become a Certificateholder and
shall be entitled to the rights and subject to the obligations of a
Certificateholder hereunder upon such transferee's acceptance of a Certificate
duly registered in such transferee's name pursuant to and upon satisfaction of
the conditions set forth in Section 3.05.
Section 3.04. AUTHENTICATION OF CERTIFICATES. Concurrently with the
acquisition of the Mortgage Collateral by the Trust, the Owner Trustee shall
cause the Certificates in an aggregate
7
<PAGE>
principal amount equal to the Initial Principal Balance of the Certificates to
be executed on behalf of the Trust, authenticated and delivered to or upon the
written order of the Depositor, signed by its chairman of the board, its
president or any vice president, without further corporate action by the
Depositor, in authorized denominations. No Certificate shall entitle its holder
to any benefit under this Trust Agreement or be valid for any purpose unless
there shall appear on such Certificate a certificate of authentication
substantially in the form set forth in Exhibit A, executed by the Owner Trustee
or ____________________, by manual signature; such authentication shall
constitute conclusive evidence that such Certificate shall have been duly
authenticated and delivered hereunder. All Certificates shall be dated the date
of their authentication.
Section 3.05. REGISTRATION OF AND LIMITATIONS ON TRANSFER AND EXCHANGE
OF Certificates. The Certificate Registrar shall keep or cause to be kept, at
the office or agency maintained pursuant to Section 3.09, a Certificate Register
in which, subject to such reasonable regulations as it may prescribe, the [Owner
Trustee] shall provide for the registration of Certificates and of transfers and
exchanges of Certificates as herein provided. _____________________________
shall be the initial Certificate Registrar. If the Certificate Registrar resigns
or is removed, the Owner Trustee shall appoint a successor Certificate
Registrar.
Subject to satisfaction of the conditions set forth below and to the
provisions of Section 3.11 with respect to the Designated Certificate, upon
surrender for registration of transfer of any Certificate at the office or
agency maintained pursuant to Section 3.09, the Owner Trustee shall execute,
authenticate and deliver (or shall cause __________________________________ as
its authenticating agent to authenticate and deliver) in the name of the
designated transferee or transferees, one or more new Certificates in authorized
denominations of a like aggregate amount dated the date of authentication by the
Owner Trustee or any authenticating agent. At the option of a Holder,
Certificates may be exchanged for other Certificates of authorized denominations
of a like aggregate amount upon surrender of the Certificates to be exchanged at
the office or agency maintained pursuant to Section 3.09.
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 Certificate Registrar duly executed by the Holder or such
Holder's attorney duly authorized in writing. Each Certificate surrendered for
registration of transfer or exchange shall be cancelled and subsequently
disposed of by the Certificate Registrar in accordance with its customary
practice.
No service charge shall be made for any registration of transfer or
exchange of Certificates, but the Owner Trustee or the Certificate Registrar may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer or exchange of Certificates.
No Person shall become a Certificateholder until it shall establish its
non-foreign status by submitting to the Certificate Paying Agent an IRS Form W-9
and the Certificate of Non-Foreign
Status set forth in Exhibit C hereto.
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No transfer of a Certificate shall be made unless such transfer is
exempt from the registration requirements of the Securities Act and any
applicable state securities laws or is made in accordance with said Act and
laws. In the event of any such transfer, the Certificate Registrar or the
Depositor shall prior to such transfer require the transferee to execute (i) (a)
an investment letter (in substantially the form attached hereto as Exhibit D) in
form and substance reasonably satisfactory to the Certificate Registrar and the
Depositor certifying to the Trust, the Owner Trustee, the Certificate Registrar
and the Depositor that such transferee is a "qualified institutional buyer"
under Rule 144A under the Securities Act, or (b) solely with respect to the
Designated Certificate, an investment letter (in substantially the form attached
hereto as Exhibit E), acceptable to and in form and substance reasonably
satisfactory to the Certificate Registrar and the Depositor, which investment
letters shall not be an expense of the Trust, the Owner Trustee, the Certificate
Registrar, the Servicer or the Depositor and (ii) the Certificate of Non-Foreign
Status (in substantially the form attached hereto as Exhibit C) acceptable to
and in form and substance reasonably satisfactory to the Certificate Registrar
and the Depositor, which certificate shall not be an expense of the Trust, the
Owner Trustee, the Certificate Registrar or the Depositor. The Holder of a
Certificate desiring to effect such transfer shall, and does hereby agree to,
indemnify the Trust, the Owner Trustee, the Certificate Registrar, the Servicer
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 shall be made unless the Certificate
Registrar shall have received either (i) a representation letter from the
proposed transferee of such Certificate to the effect that such proposed
transferee is not an employee benefit plan subject to the fiduciary
responsibility provisions of ERISA, or Section 4975 of the Code, or a Person
acting on behalf of any such plan or using the assets of any such plan, which
representation letter shall not be an expense of the Trust, Owner Trustee, the
Certificate Registrar, the Servicer or the Depositor or (ii) in the case of any
such certificate presented for registration in the name of an employee benefit
plan subject to the fiduciary responsibility provisions of 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 who is using the assets of any
such plan to effect such acquisition, an Opinion of Counsel, in form and
substance reasonably satisfactory to, and addressed and delivered to, the Trust,
the Certificate Registrar and the Depositor, to the effect that the purchase or
holding of such Certificate will not result in the assets of the Owner Trust
Estate being deemed to be "plan assets" and subject to the fiduciary
responsibility provisions of ERISA or the prohibited transaction provisions of
the Code, will not constitute or result in a prohibited transaction within the
meaning of Section 406 or Section 407 of ERISA or Section 4975 of the Code, and
will not subject the Trust, the Owner Trustee, the Certificate Registrar or the
Depositor to any obligation or liability (including obligations or liabilities
under ERISA or Section 4975 of the Code) in addition to those explicitly
undertaken in this Trust Agreement which Opinion of Counsel shall not be an
expense of the Trust, the Owner Trustee, the Certificate Registrar or Depositor.
Section 3.06. MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES. If (a)
any mutilated Certificate shall be surrendered to the Certificate Registrar, or
if the Certificate Registrar shall receive evidence to its satisfaction of the
destruction, loss or theft of any Certificate and (b) there shall be delivered
to the Certificate Registrar and the Owner Trustee such security or indemnity
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as may be required by them to save each of them harmless, then in the absence of
notice to the Certificate Registrar or the Owner Trustee that such Certificate
has been acquired by a bona fide purchaser, the Owner Trustee shall execute on
behalf of the Trust and the Owner Trustee or ________________, as the Trust's
authenticating agent, shall authenticate and deliver, in exchange for or in lieu
of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate
of like tenor and denomination. In connection with the issuance of any new
Certificate under this Section 3.06, the Owner Trustee or the Certificate
Registrar may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith. Any duplicate
Certificate issued pursuant to this Section 3.06 shall constitute conclusive
evidence of ownership in the Trust, as if originally issued, whether or not the
lost, stolen or destroyed Certificate shall be found at any time.
Section 3.07. PERSONS DEEMED CERTIFICATEHOLDERS. Prior to due
presentation of a Certificate for registration of transfer, the Owner Trustee,
the Certificate Registrar or any Certificate Paying Agent may treat the Person
in whose name any Certificate is registered in the Certificate Register as the
owner of such Certificate for the purpose of receiving distributions pursuant to
Section 5.02 and for all other purposes whatsoever, and none of the Trust, the
Owner Trustee, the Certificate Registrar or any Paying Agent shall be bound by
any notice to the contrary.
Section 3.08. ACCESS TO LIST OF CERTIFICATEHOLDERS' NAMES AND
ADDRESSES. The Certificate Registrar shall furnish or cause to be furnished to
the Depositor or the Owner Trustee, within 15 days after receipt by the
Certificate Registrar of a written request therefor from the Depositor or the
Owner Trustee, a list, in such form as the Depositor or the Owner Trustee, as
the case may be, may reasonably require, of the names and addresses of the
Certificateholders as of the most recent Record Date. Each Holder, by receiving
and holding a Certificate, shall be deemed to have agreed not to hold any of the
Trust, the Depositor, the Holder of the Designated Certificate, the Certificate
Registrar or the Owner Trustee accountable by reason of the disclosure of its
name and address, regardless of the source from which such information was
derived.
Section 3.09. MAINTENANCE OF OFFICE OR AGENCY. The Owner Trustee on
behalf of the Trust, shall maintain in the Borough of Manhattan, The City of New
York, an office or offices or agency or agencies where Certificates may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Owner Trustee in respect of the Certifi cates and the
Basic Documents may be served. The Owner Trustee initially designates the
Corporate Trust Office of the Owner Trustee as its office for such purposes. The
Owner Trustee shall give prompt written notice to the Depositor, the Holder of
the Designated Certificate and the Certificateholders of any change in the
location of the Certificate Register or any such office or agency.
Section 3.10. CERTIFICATE PAYING AGENT. (a) The Certificate Paying
Agent shall make distributions to Certificateholders from the Certificate
Distribution Account on behalf of the Trust in accordance with the provisions of
the Certificates and Section 5.01 hereof from payments remitted to the
Certificate Paying Agent by the Indenture Trustee pursuant to Section 3.05 of
the Indenture. The Trust hereby appoints __________________ as Certificate
Paying Agent and
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_________________ hereby accepts such appointment and further agrees that it
will be bound by the provisions of this Trust Agreement relating to the
Certificate Paying Agent and shall:
(i) hold all sums held by it for the payment of amounts due
with respect to the Certificates in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons
or otherwise disposed of as herein provided;
(ii) give the Owner Trustee notice of any default by the Trust
of which it has actual knowledge in the making of any payment required
to be made with respect to the Certificates;
(iii) at any time during the continuance of any such default,
upon the written request of the Owner Trustee forthwith pay to the
Owner Trustee on behalf of the Trust all sums so held in Trust by such
Certificate Paying Agent;
(iv) immediately resign as Certificate Paying Agent and
forthwith pay to the Owner Trustee on behalf of the Trust all sums held
by it in trust for the payment of Certificates if at any time it ceases
to meet the standards required to be met by the Certificate Paying
Agent at the time of its appointment;
(v) comply with all requirements of the Code with respect to
the withholding from any payments made by it on any Certificates of any
applicable withholding taxes imposed thereon and with respect to any
applicable reporting requirements in connection therewith; and
(vi) deliver to the Owner Trustee a copy of the report to
Certificateholders prepared with respect to each Payment Date by the
Servicer pursuant to Section 4.01 of the Servicing Agreement.
(b) On the second LIBOR Business Day immediately preceding (i) the
Closing Date in the case of the first Interest Period and (ii) the first day of
each succeeding Interest Period, the Certificate Paying Agent shall determine
LIBOR and the Certificate Rate for such Interest Period and shall inform the
Servicer and the Depositor at their respective facsimile numbers given to the
Certificate Paying Agent in writing thereof.
(c) The Trust may revoke such power and remove the Certificate Paying
Agent if the Administrator determines in its sole discretion that the
Certificate Paying Agent shall have failed to perform its obligations under this
Trust Agreement in any material respect. __________________ shall be permitted
to resign as Certificate Paying Agent upon 30 days written notice to the Owner
Trustee; provided ________________ is also resigning as Paying Agent under the
Indenture at such time. In the event that ___________________ shall no longer be
the Certificate Paying Agent under this Trust Agreement and Paying Agent under
the Indenture, the Administrator shall appoint a successor to act as Certificate
Paying Agent (which shall be a bank or trust company) and which shall also be
the successor Paying Agent under the Indenture. The Administrator shall cause
such successor Certificate Paying Agent or any additional
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Certificate Paying Agent appointed by the Administrator to execute and deliver
to the Owner Trustee an instrument to the effect set forth in this Section 3.10
as it relates to the Certificate Paying Agent. The Certificate Paying Agent
shall return all unclaimed funds to the Trust and upon removal of a Certificate
Paying Agent such Certificate Paying Agent shall also return all funds in its
possession to the Trust. The provisions of Sections 6.01, 6.03, 6.04 and 7.01
shall apply to the Certificate Paying Agent to the extent applicable. Any
reference in this Agreement to the Certificate Paying Agent shall include any
co-paying agent unless the context requires otherwise.
(d) The Certificate Paying Agent shall establish and maintain with
itself a trust account (the "Certificate Distribution Account") in which the
Certificate Paying Agent shall, deposit, on the same day as it is received from
the Indenture Trustee, each remittance received by the Certificate Paying Agent
with respect to payments made pursuant to the Indenture. The Certificate Paying
Agent shall make all distributions of principal of and interest on the
Certificates, from moneys on deposit in the Certificate Distribution Account.
[Section 3.11. OWNERSHIP. The Certificates shall, for income and
franchise tax purposes, be treated as the equity interest of the Trust. The
Certificates shall not be transferred unless (a) the transferee shall be an
Affiliate of the Seller, unless the prior written consent of the Credit Enhancer
is obtained, which will not be unreasonably withheld, (b) the applicable
provisions of Section 3.05 are satisfied, (c) the Certificate Registrar receives
an Opinion of Counsel to the effect that the transfer of the Certificates shall
not cause the Trust to be subject to an entity level tax and (d) the Rating
Agencies shall consent to such transfer.]
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ARTICLE IV
AUTHORITY AND DUTIES OF OWNER TRUSTEE
-------------------------------------
Section 4.01. GENERAL AUTHORITY. The Owner Trustee is authorized and
directed to execute and deliver the Basic Documents to which the Trust is to be
a party and each certificate or other document attached as an exhibit to or
contemplated by the Basic Documents to which the Trust is to be a party and any
amendment or other agreement or instrument described herein, in each case, in
such form as the Administrator shall approve, as evidenced conclusively by the
Owner Trustee's execution thereof. In addition to the foregoing, the Owner
Trustee is authorized, but shall not be obligated, to take all actions required
of the Trust pursuant to the Basic Documents. The Owner Trustee is further
authorized from time to time to take such action as the Administrator directs
with respect to the Basic Documents.
Section 4.02. GENERAL DUTIES. It shall be the duty of the Owner Trustee
to discharge (or cause to be discharged) all of its responsibilities pursuant to
the terms of this Trust Agreement and the Basic Documents to which the Trust is
a party and to administer the Trust in the interest of the Certificateholders,
subject to the Basic Documents and in accordance with the provisions of this
Trust Agreement. Notwithstanding the foregoing, the Owner Trustee shall be
deemed to have discharged its duties and responsibilities hereunder and under
the Basic Documents to the extent the Administrator has agreed in the
Administration Agreement to perform such acts or to discharge such duties of the
Owner Trustee or the Trust hereunder or under any Basic Document, and the Owner
Trustee shall not be held liable for the default or failure of the Administrator
to carry out its obligations under the Administration Agreement.
Section 4.03. ACTION UPON INSTRUCTION. (a) Subject to Article IV and in
accordance with the terms of the Basic Documents, the Certificateholders may by
written instruction direct the Owner Trustee in the management of the Trust.
Such direction may be exercised at any time by written instruction of the
Certificateholders pursuant to Article IV.
(b) Notwithstanding the foregoing, the Owner Trustee shall not be
required to take any action hereunder or under any Basic Document if the Owner
Trustee shall have reasonably determined, or shall have been advised by counsel,
that such action is likely to result in liability on the part of the Owner
Trustee or is contrary to the terms hereof or of any Basic Document or is
otherwise contrary to law.
(c) Whenever the Owner Trustee is unable to decide between alternative
courses of action permitted or required by the terms of this Trust Agreement or
under any Basic Document, or in the event that the Owner Trustee is unsure as to
the application of any provision of this Trust Agreement or any Basic Document
or any such provision is ambiguous as to its application, or is, or appears to
be, in conflict with any other applicable provision, or in the event that this
Trust Agreement permits any determination by the Owner Trustee or is silent or
is incomplete as to the course of action that the Owner Trustee is required to
take with respect to a particular set of facts, the Owner Trustee shall promptly
give notice (in such form as shall be appropriate under the circumstances) to
the Certificateholders (with a copy to the Credit Enhancer) requesting
instruction
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as to the course of action to be adopted, and to the extent the Owner Trustee
acts in good faith in accordance with any written instruction of the
Certificateholders received, the Owner Trustee shall not be liable on account of
such action to any Person. If the Owner Trustee shall not have received
appropriate instruction within 10 days of such notice (or within such shorter
period of time as reasonably may be specified in such notice or may be necessary
under the circumstances) it may, but shall be under no duty to, take or refrain
from taking such action not inconsistent with this Trust Agreement or the Basic
Documents, as it shall deem to be in the best interests of the
Certificateholders, and the Owner Trustee shall have no liability to any Person
for such action or inaction.
Section 4.04. NO DUTIES EXCEPT AS SPECIFIED UNDER SPECIFIED DOCUMENTS
OR IN INSTRUCTIONS. The Owner Trustee shall not have any duty or obligation to
manage, make any payment with respect to, register, record, sell, dispose of, or
otherwise deal with the Owner Trust Estate, or to otherwise take or refrain from
taking any action under, or in connection with, any document contemplated hereby
to which the Owner Trustee is a party, except as expressly provided (i) in
accordance with the powers granted to and the authority conferred upon the Owner
Trustee pursuant to this Trust Agreement, (ii) in accordance with the Basic
Documents and (iii) in accordance with any document or instruction delivered to
the Owner Trustee pursuant to Section 4.03; and no implied duties or obligations
shall be read into this Trust Agreement or any Basic Document against the Owner
Trustee. The Owner Trustee shall have no responsibility for filing any financing
or continuation statement in any public office at any time or to otherwise
perfect or maintain the perfection of any security interest or lien granted to
it hereunder or to prepare or file any Securities and Exchange Commission filing
for the Trust or to record this Trust Agreement or any Basic Document. The Owner
Trustee nevertheless agrees that it will, at its own cost and expense, promptly
take all action as may be necessary to discharge any liens on any part of the
Owner Trust Estate that result from actions by, or claims against, the Owner
Trustee that are not related to the ownership or the administration of the Owner
Trust Estate.
Section 4.05. RESTRICTIONS. (a) The Owner Trustee shall not take any
action (x) that is inconsistent with the purposes of the Trust set forth in
Section 2.03 or (y) that, to the actual knowledge of the Owner Trustee, would
result in the Trust becoming taxable as a corporation for federal income tax
purposes. The Certificateholders shall not direct the Owner Trustee to take
action that would violate the provisions of this Section 4.06.
(b) The Owner Trustee shall not convey or transfer any of the Trust's
properties or assets, including those included in the Trust Estate, to any
person unless (a) it shall have received an Opinion of Counsel to the effect
that such transaction will not have any material adverse tax consequence to the
Trust or any Certificateholder and (b) such conveyance or transfer shall not
violate the provisions of Section 3.16(b) of the Indenture.
Section 4.06. PRIOR NOTICE TO CERTIFICATEHOLDERS WITH RESPECT TO
CERTAIN MATTERS. With respect to the following matters, the Owner Trustee shall
not take action unless at least 30 days before the taking of such action, the
Owner Trustee shall have notified the Certificateholders in writing of the
proposed action and the Certificateholders shall not have notified the Owner
Trustee
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in writing prior to the 30th day after such notice is given that such
Certificateholders have withheld consent or provided alternative direction:
(a) the initiation of any claim or lawsuit by the Trust (except claims
or lawsuits brought in connection with the collection of cash distributions due
and owing under the Mortgage Collateral) and the compromise of any action, claim
or lawsuit brought by or against the Trust (except with respect to the
aforementioned claims or lawsuits for collection of cash distributions due and
owing under the Mortgage Collateral);
(b) the election by the Trust to file an amendment to the Certificate
of Trust (unless such amendment is required to be filed under the Business Trust
Statute);
(c) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Bondholder is required;
(d) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Bondholder is not required and such
amendment materially adversely affects the interest of the Certificateholders;
(e) the amendment, change or modification of the Administration
Agreement, except to cure any ambiguity or to amend or supplement any provision
in a manner or add any provision that would not materially adversely affect the
interests of the Certificateholders; or
(f) the appointment pursuant to the Indenture of a successor Bond
Registrar, Paying Agent or Indenture Trustee or pursuant to this Trust Agreement
of a successor Certificate Registrar or Certificate Paying Agent or the consent
to the assignment by the Bond Registrar, Paying Agent, Indenture Trustee,
Certificate Registrar or Certificate Paying Agent of its obligations under the
Indenture or this Trust Agreement, as applicable.
Section 4.07. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO CERTAIN
MATTERS. The Owner Trustee shall not have the power, except upon the direction
of the Certificateholders, and with the consent of the Credit Enhancer, to (a)
remove the Administrator under the Administration Agreement pursuant to Section
8 thereof, (b) appoint a successor Administrator pursuant to Section 8 of the
Administration Agreement, (c) remove the Servicer under the Servicing Agreement
pursuant to Sections 7.01 and 8.05 thereof or (d) except as expressly provided
in the Basic Documents, sell the Mortgage Collateral after the termination of
the Indenture. The Owner Trustee shall take the actions referred to in the
preceding sentence only upon written instructions signed by the
Certificateholders and with the consent of the Credit Enhancer.
Section 4.08. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO BANKRUPTCY.
The Owner Trustee shall not have the power to commence a voluntary proceeding in
bankruptcy relating to the Trust without the unanimous prior approval of all
Certificateholders and with the consent of the Credit Enhancer and the delivery
to the Owner Trustee by each such Certificateholder of a certificate certifying
that such Certificateholder reasonably believes that the Trust is insolvent.
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Section 4.09. RESTRICTIONS ON CERTIFICATEHOLDERS' POWER. The
Certificateholders shall not direct the Owner Trustee to take or to refrain from
taking any action if such action or inaction would be contrary to any obligation
of the Trust or the Owner Trustee under this Trust Agreement or any of the Basic
Documents or would be contrary to Section 2.03, nor shall the Owner Trustee be
obligated to follow any such direction, if given.
Section 4.10. MAJORITY CONTROL. Except as expressly provided herein,
any action that may be taken by the Certificateholders under this Trust
Agreement may be taken by the Holders of Certificates evidencing not less than a
majority of the outstanding Principal Balance of the Certificates. Except as
expressly provided herein, any written notice of the Certificateholders
delivered pursuant to this Trust Agreement shall be effective if signed by
Holders of Certificates evidencing not less than a majority of the outstanding
Principal Balance of the Certificates at the time of the delivery of such
notice.
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ARTICLE V
APPLICATION OF TRUST FUNDS
--------------------------
Section 5.01. DISTRIBUTIONS. (a) On each Payment Date, the Certificate
Paying Agent shall distribute to the Certificateholders all funds on deposit in
the Certificate Distribution Account and available therefor (as provided in
Section 3.05 of the Indenture), as principal and the Certif icate Distribution
Amount for such Payment Date. All distributions made pursuant to this Section
shall be made on a pro rata basis to the Certificateholders based on the
Certificate Principal Balances thereof; provided however that any amount on
deposit in the Certificate Distribution Account relating to a payment to the
Certificate Paying Agent pursuant to Section 3.05(xi) of the Indenture shall be
distributed solely to the Designated Certificate.
(b) In the event that any withholding tax is imposed on the
distributions (or allocations of income) to a Certificateholder, such tax shall
reduce the amount otherwise distributable to the Certificateholder in accordance
with this Section 5.01. The Certificate Paying Agent is hereby authorized and
directed to retain or cause to be retained from amounts otherwise distributable
to the Certificateholders sufficient funds for the payment of any tax that is
legally owed by the Trust (but such authorization shall not prevent the Owner
Trustee from contesting any such tax in appropriate proceedings, and withholding
payment of such tax, if permitted by law, pending the outcome of such
proceedings). The amount of any withholding tax imposed with respect to a
Certificateholder shall be treated as cash distributed to such Certificateholder
at the time it is withheld by the Certificate Paying Agent and remitted to the
appropriate taxing authority. If there is a possibility that withholding tax is
payable with respect to a distribution (such as a distribution to a non-U.S.
Certificateholder), the Certificate Paying Agent may in its sole discretion
withhold such amounts in accordance with this paragraph (b).
(c) All calculations of the Certificate Distribution Amount on the
Certificates shall be made on the basis of the actual number of days in an
Interest Period and a year assumed to consist of 360 days.
(d) Distributions to Certificateholders shall be subordinated to the
creditors of the Trust, including the Bondholders.
Section 5.02. METHOD OF PAYMENT. Subject to Section 8.01(c),
distributions required to be made to Certificateholders on any Payment Date as
provided in Section 5.01 shall be made to each Certificateholder of record on
the preceding Record Date either by, in the case of any Certificateholder owning
Certificates having denominations aggregating at least $1,000,000, wire
transfer, in immediately available funds, to the account of such Holder at a
bank or other entity having appropriate facilities therefor, if such
Certificateholder shall have provided to the Certificate Registrar appropriate
written instructions at least five Business Days prior to such Payment Date or,
if not, by check mailed to such Certificateholder at the address of such Holder
appearing in the Certificate Register.
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Section 5.03. SIGNATURE ON RETURNS. The Owner Trustee shall sign on
behalf of the Trust the tax returns of the Trust.
Section 5.04. STATEMENTS TO CERTIFICATEHOLDERS. On each Payment Date,
the Certificate Paying Agent shall send to each Certificateholder the statement
or statements provided to the Owner Trustee and the Certificate Paying Agent by
the Servicer pursuant to Section 4.01 of the Servicing Agreement with respect to
such Distribution Date.
Section 5.05. TAX REPORTING; TAX ELECTIONS. The Holder of the
Certificate shall cause the Trust to file federal and state income tax returns
and information statements as a corporation for each of its taxable years.
Within 90 days after the end of each calendar year, the Holder of the Designated
Certificate shall cause the Trust to provide to each Certificateholder an
Internal Revenue Service "K-1" or any successor schedule and supplemental
information, if required by law, to enable each Certificateholder to file its
federal and state income tax returns. The Holder of the Designated Certificate
may from time to time make and revoke such tax elections with respect to the
Trust as it deems necessary or desirable in its sole discretion to carry out the
business of the Trust or the purposes of this Trust Agreement if permitted by
applicable law. Notwithstanding the foregoing, an election under Section 754 of
the Code shall not be made without the written consent of a majority in interest
of the Holders of the Certificates. The Holder of the Designated Certificate
shall serve as tax matters partner for the Trust.
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ARTICLE VI
CONCERNING THE OWNER TRUSTEE
----------------------------
Section 6.01. ACCEPTANCE OF TRUSTS AND DUTIES. The Owner Trustee
accepts the trusts hereby created and agrees to perform its duties hereunder
with respect to such trusts but only upon the terms of this Trust Agreement. The
Owner Trustee and the Certificate Paying Agent also agree to disburse all moneys
actually received by it constituting part of the Owner Trust Estate upon the
terms of the Basic Documents and this Trust Agreement. The Owner Trustee shall
not be answerable or accountable hereunder or under any Basic Document under any
circumstances, except (i) for its own willful misconduct, negligence or bad
faith or negligent failure to act or (ii) in the case of the inaccuracy of any
representation or warranty contained in Section 6.03 expressly made by the Owner
Trustee. In particular, but not by way of limitation (and subject to the
exceptions set forth in the preceding sentence):
(a) The Owner Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in accordance with the instructions of the
Administrator or the Certificateholders;
(b) No provision of this Trust Agreement or any Basic Document shall
require the Owner Trustee to expend or risk funds or otherwise incur any
financial liability in the performance of any of its rights, duties or powers
hereunder or under any Basic Document if the Owner Trustee shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured or provided to it;
(c) Under no circumstances shall the Owner Trustee be liable for
indebtedness evidenced by or arising under any of the Basic Documents, including
the principal of and interest on the Bonds;
(d) The Owner Trustee shall not be responsible for or in respect of the
validity or sufficiency of this Trust Agreement or for the due execution hereof
by the Depositor or the Holder of the Designated Certificate or for the form,
character, genuineness, sufficiency, value or validity of any of the Owner Trust
Estate, or for or in respect of the validity or sufficiency of the Basic
Documents, the Bonds, the Certificates, other than the certificate of
authentication on the Certificates, if executed by the Owner Trustee and the
Owner Trustee shall in no event assume or incur any liability, duty, or
obligation to any Bondholder or to any Certificateholder, other than as
expressly provided for herein or expressly agreed to in the Basic Documents;
(e) The execution, delivery, authentication and performance by it of
this Trust Agreement will not require the authorization, consent or approval of,
the giving of notice to, the filing or registration with, or the taking of any
other action with respect to, any governmental authority or agency;
(f) The Owner Trustee shall not be liable for the default or misconduct
of the Administrator, the Holder of the Designated Certificate, the Depositor,
Indenture Trustee or the Servicer under any of the Basic Documents or otherwise
and the Owner Trustee shall have no
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obligation or liability to perform the obligations of the Trust under this Trust
Agreement or the Basic Documents that are required to be performed by the
Administrator under the Administration Agreement, the Indenture Trustee under
the Indenture or the Seller under the Mortgage Loan Purchase Agreement; and
(g) The Owner Trustee shall be under no obligation to exercise any of
the rights or powers vested in it or duties imposed by this Trust Agreement, or
to institute, conduct or defend any litigation under this Trust Agreement or
otherwise or in relation to this Trust Agreement or any Basic Document, at the
request, order or direction of any of the Certificateholders, unless such
Certificateholders have offered to the Owner Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities that may be
incurred by the Owner Trustee therein or thereby. The right of the Owner Trustee
to perform any discretionary act enumerated in this Trust Agreement or in any
Basic Document shall not be construed as a duty, and the Owner Trustee shall not
be answerable for other than its negligence or willful misconduct in the
performance of any such act.
Section 6.02. FURNISHING OF DOCUMENTS. The Owner Trustee shall furnish
to the Securityholders promptly upon receipt of a written reasonable request
therefor, duplicates or copies of all reports, notices, requests, demands,
certificates, financial statements and any other instruments furnished to the
Trust under the Basic Documents.
Section 6.03. REPRESENTATIONS AND WARRANTIES. The Owner Trustee hereby
represents and warrants to the Depositor, for the benefit of the
Certificateholders, that:
(a) It is a banking corporation duly organized and validly existing in
good standing under the laws of the State of Delaware. It has all requisite
corporate power and authority to execute, deliver and perform its obligations
under this Trust Agreement.
(b) It has taken all corporate action necessary to authorize the
execution and delivery by it of this Trust Agreement, and this Trust Agreement
will be executed and delivered by one of its officers who is duly authorized to
execute and deliver this Trust Agreement on its behalf.
(c) Neither the execution nor the delivery by it of this Trust
Agreement, nor the consummation by it of the transactions contemplated hereby
nor compliance by it with any of the terms or provisions hereof will contravene
any federal or Delaware law, governmental rule or regulation governing the
banking or trust powers of the Owner Trustee or any judgment or order binding on
it, or constitute any default under its charter documents or bylaws or any
indenture, mortgage, contract, agreement or instrument to which it is a party or
by which any of its properties may be bound.
(d) This Trust Agreement, assuming due authorization, execution and
delivery by the Owner Trustee and the Depositor, constitutes a valid, legal and
binding obligation of the Owner Trustee, enforceable against it in accordance
with the terms hereof subject to applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting the enforcement of
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creditors' rights generally and to general principles of equity, regardless of
whether such enforcement is considered in a proceeding in equity or at law;
(e) The Owner Trustee is not in default with respect to any order or
decree of any court or any order, regulation or demand of any Federal, state,
municipal or governmental agency, which default might have consequences that
would materially and adversely affect the condition (financial or other) or
operations of the Owner Trustee or its properties or might have consequences
that would materially adversely affect its performance hereunder;
(f) No litigation is pending or, to the best of the Owner Trustee's
knowledge, threatened against the Owner Trustee which would prohibit its
entering into this Trust Agreement or performing its obligations under this
Trust Agreement;
Section 6.04. RELIANCE; ADVICE OF COUNSEL. (a) The Owner Trustee shall
incur no liability to anyone in acting upon any signature, instrument, notice,
resolution, request, consent, order, certificate, report, opinion, bond, or
other document or paper believed by it to be genuine and believed by it to be
signed by the proper party or parties. The Owner Trustee may accept a certified
copy of a resolution of the board of directors or other governing body of any
corporate party as conclusive evidence that such resolution has been duly
adopted by such body and that the same is in full force and effect. As to any
fact or matter the method of determination of which is not specifically
prescribed herein, the Owner Trustee may for all purposes hereof rely on a
certificate, signed by the president or any vice president or by the treasurer
or other authorized officers of the relevant party, as to such fact or matter
and such certificate shall constitute full protection to the Owner Trustee for
any action taken or omitted to be taken by it in good faith in reliance thereon.
(b) In the exercise or administration of the trusts hereunder and in
the performance of its duties and obligations under this Trust Agreement or the
Basic Documents, the Owner Trustee (i) may act directly or through its agents,
attorneys, custodians or nominees (including persons acting under a power of
attorney) pursuant to agreements entered into with any of them, and the Owner
Trustee shall not be liable for the conduct or misconduct of such agents,
attorneys , custodians or nominees (including persons acting under a power of
attorney) if such persons have been selected by the Owner Trustee with
reasonable care, and (ii) may consult with counsel, accountants and other
skilled persons to be selected with reasonable care and employed by it. The
Owner Trustee shall not be liable for anything done, suffered or omitted in good
faith by it in accordance with the written opinion or advice of any such
counsel, accountants or other such Persons and not contrary to this Trust
Agreement or any Basic Document.
Section 6.05. NOT ACTING IN INDIVIDUAL CAPACITY. Except as provided in
this Article VII, in accepting the trusts hereby created ______________________
acts solely as Owner Trustee hereunder and not in its individual capacity, and
all Persons having any claim against the Owner Trustee by reason of the
transactions contemplated by this Trust Agreement or any Basic Document shall
look only to the Owner Trust Estate for payment or satisfaction thereof.
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Section 6.06. OWNER TRUSTEE NOT LIABLE FOR CERTIFICATES OR RELATED
DOCUMENTS. The recitals contained herein and in the Certificates (other than the
signatures of the Owner Trustee on the Certificates) shall be taken as the
statements of the Depositor, and the Owner Trustee assumes no responsibility for
the correctness thereof. The Owner Trustee makes no representations as to the
validity or sufficiency of this Trust Agreement, of any Basic Document or of the
Certificates (other than the signatures of the Owner Trustee on the
Certificates) or the Bonds, or of any Related Documents. The Owner Trustee shall
at no time have any responsibility or liability with respect to the sufficiency
of the Owner Trust Estate or its ability to generate the payments to be
distributed to Certificateholders under this Trust Agreement or the Bondholders
under the Indenture, including, the compliance by the Depositor or the Seller
with any warranty or representation made under any Basic Document or in any
related document or the accuracy of any such warranty or representation, or any
action of the Administrator, the Certificate Paying Agent, the Certificate
Registrar or the Indenture Trustee taken in the name of the Owner Trustee.
Section 6.07. OWNER TRUSTEE MAY OWN CERTIFICATES AND BONDS. The Owner
Trustee in its individual or any other capacity may become the owner or pledgee
of Certificates or Bonds and may deal with the Depositor, the Seller, the
Certificate Paying Agent, the Certificate Registrar, the Administrator and the
Indenture Trustee in transactions with the same rights as it would have if it
were not Owner Trustee.
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ARTICLE VII
COMPENSATION OF OWNER TRUSTEE
-----------------------------
Section 7.01. OWNER TRUSTEE'S FEES AND EXPENSES. The Owner Trustee
shall receive as compensation for its services hereunder such fees as have been
separately agreed upon before the date hereof, and the Owner Trustee shall be
reimbursed for its reasonable expenses hereunder and under the Basic Documents,
including the reasonable compensation, expenses and disbursements of such
agents, representatives, experts and counsel as the Owner Trustee may reasonably
employ in connection with the exercise and performance of its rights and its
duties hereunder and under the Basic Documents pursuant to Section 3.08 of the
Servicing Agreement.
Section 7.02. INDEMNIFICATION. The Holder of the Designated Certificate
shall indemnify, defend and hold harmless the Owner Trustee and its successors,
assigns, agents and servants (collectively, the "Indemnified Parties") from and
against, any and all liabilities, obligations, losses, damages, taxes, claims,
actions and suits, and any and all reasonable costs, expenses and disbursements
(including reasonable legal fees and expenses) of any kind and nature whatsoever
(collectively, "Expenses") which may at any time be imposed on, incurred by, or
asserted against the Owner Trustee or any Indemnified Party in any way relating
to or arising out of this Trust Agreement, the Basic Documents, the Owner Trust
Estate, the administration of the Owner Trust Estate or the action or inaction
of the Owner Trustee hereunder, provided, that:
(i) the Holder of the Designated Certificate shall not be
liable for or required to indemnify an Indemnified Party from and
against Expenses arising or resulting from the Owner Trustee's willful
misconduct, negligence or bad faith or as a result of any inaccuracy of
a representation or warranty contained in Section 6.03 expressly made
by the Owner Trustee;
(ii) with respect to any such claim, the Indemnified Party
shall have given the Holder of the Designated Certificate written
notice thereof promptly after the Indemnified Party shall have actual
knowledge thereof;
(iii) while maintaining control over its own defense, the
Holder of the Designated Certificate shall consult with the Indemnified
Party in preparing such defense; and
(iv) notwithstanding anything in this Agreement to the
contrary, the Holder of the Designated Certificate shall not be liable
for settlement of any claim by an Indemnified Party entered into
without the prior consent of the Holder of the Designated Certificate
which consent shall not be unreasonably withheld.
The indemnities contained in this Section shall survive the resignation
or termination of the Owner Trustee or the termination of this Trust Agreement.
In the event of any claim, action or proceeding for which indemnity will be
sought pursuant to this Section, the Owner Trustee's choice of legal counsel, if
other than the legal counsel retained by the Owner Trustee in connection
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with the execution and delivery of this Trust Agreement, shall be subject to the
approval of the Holder of the Designated Certificate, which approval shall not
be unreasonably withheld. In addition, upon written notice to the Owner Trustee
and with the consent of the Owner Trustee which consent shall not be
unreasonably withheld, the Holder of the Designated Certificate has the right to
assume the defense of any claim, action or proceeding against the Owner Trustee.
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ARTICLE VIII
TERMINATION OF TRUST AGREEMENT
------------------------------
Section 8.01. TERMINATION OF TRUST AGREEMENT. (a) This Trust Agreement
(other than Article VIII) and the Trust shall terminate and be of no further
force or effect upon the earliest of (i) upon the final distribution of all
moneys or other property or proceeds of the Owner Trust Estate in accordance
with the terms of the Indenture and this Trust Agreement, (ii) the Payment Date
in ____________, (iii) at the time provided in Section 8.02 or (iv) purchase by
the Servicer of all Mortgage Loans pursuant to Section 8.08 of the Servicing
Agreement. The bankruptcy, liquidation, dissolution, death or incapacity of any
Certificateholder, other than the Holder of the Designated Certificate as
described in Section 8.02, shall not (x) operate to terminate this Trust
Agreement or the Trust or (y) entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of all or any part of the
Trust or the Owner Trust Estate or (z) otherwise affect the rights, obliga tions
and liabilities of the parties hereto.
(b) Except as provided in Section 8.01(a), none of the Depositor, the
Holder of the Designated Certificate or any other Certificateholder shall be
entitled to revoke or terminate the Trust.
(c) Notice of any termination of the Trust, specifying the Payment Date
upon which Certificateholders shall surrender their Certificates to the
Certificate Paying Agent for payment of the final distribution and cancellation,
shall be given by the Certificate Paying Agent by letter to Certificateholders
and the Credit Enhancer mailed within five Business Days of receipt of notice of
such termination from the Administrator, stating (i) the Payment Date upon or
with respect to which final payment of the Certificates shall be made upon
presentation and surrender of the Certificates at the office of the Certificate
Paying Agent therein designated, (ii) the amount of any such final payment and
(iii) that the Record Date otherwise applicable to such Payment Date is not
applicable, payments being made only upon presentation and surrender of the
Certificates at the office of the Certificate Payment Agent therein specified.
The Certificate Paying Agent shall give such notice to the Owner Trustee and the
Certificate Registrar at the time such notice is given to Certificateholders.
Upon presentation and surrender of the Certificates, the Certificate Paying
Agent shall cause to be distributed to Certificateholders amounts distributable
on such Payment Date pursuant to Section 5.01.
In the event that all of the Certificateholders shall not surrender
their Certificates for cancellation within six months after the date specified
in the above mentioned written notice, the Certificate Paying Agent shall give a
second written notice to the remaining Certificateholders to surrender their
Certificates for cancellation and receive the final distribution with respect
thereto. Subject to applicable laws with respect to escheat of funds, if within
one year following the Payment Date on which final payment of the Certificates
was to have been made pursuant to Section 3.03 of the Indenture, all the
Certificates shall not have been surrendered for cancellation, the Certificate
Paying Agent may take appropriate steps, or may appoint an agent to take
appropriate steps, to contact the remaining Certificateholders concerning
surrender of their Certif-
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icates, and the cost thereof shall be paid out of the funds and other assets
that shall remain subject to this Trust Agreement. Any funds remaining in the
Certificate Distribution Account after exhaustion of such remedies shall be
distributed by the Certificate Paying Agent to the Holder of the Designated
Certificate.
(d) Upon the winding up of the Trust and its termination, the Owner
Trustee shall cause the Certificate of Trust to be cancelled by filing a
certificate of cancellation with the Secretary of State in accordance with the
provisions of Section 3810(c) of the Business Trust Statute.
Section 8.02. DISSOLUTION UPON BANKRUPTCY OF THE HOLDER OF THE
DESIGNATED Certificate. In the event that an Insolvency Event shall occur with
respect to the Holder of the Designated Certificate, this Trust Agreement and
the Trust shall be terminated in accordance with Section 8.01, 90 days after the
date of such Insolvency Event, unless, before the end of such 90-day period,
the Owner Trustee shall have received written instructions from (a) if no Credit
Enhancer Default shall have occurred and be continuing, Holders of Certificates
(other than the Holder of the Designated Certificate) representing more than 50%
of the Principal Balance of the Certificates (not including the Principal
Balance of the Designated Certificate), to the effect that such Holders
disapprove of the termination of the Trust or (b) if a Credit Enhancer Default
shall have occurred and be continuing, (i) each of the Holders of Certificates
and (ii) each of the Holders of the Bonds, to the effect that such Holders
disapprove of the termination of the Trust. Promptly after the occurrence of any
Insolvency Event with respect to the Holder of the Designated Certificate (A)
the Holder of the Designated Certificate shall give the Indenture Trustee, the
Credit Enhancer and the Owner Trustee written notice of such Insolvency Event,
(B) the Owner Trustee shall, upon the receipt of such written notice from the
Holder of the Designated Certificate, give prompt written notice to the
Certificateholders of the occurrence of such event and (C) the Indenture Trustee
shall give prompt written notice of such event to the Bondholders; provided,
however, that any failure to give a notice required by this sentence shall not
prevent or delay, in any manner, a termination of the Trust pursuant to the
first sentence of this Section 8.02. Upon a termination pursuant to this
Section, the Owner Trustee shall direct the Indenture Trustee promptly to sell
the assets of the Trust (other than the Payment Account) in a commercially
reasonable manner and on commercially reasonable terms. The proceeds of any such
sale of the assets of the Trust shall be deposited to the Payment Account for
distribution in accordance with Section 5.04(b) of the Indenture.
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ARTICLE IX
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
------------------------------------------------------
Section 9.01. ELIGIBILITY REQUIREMENTS FOR OWNER TRUSTEE. The Owner
Trustee shall at all times be a corporation satisfying the provisions of Section
3807(a) of the Business Trust Statute; authorized to exercise corporate trust
powers; having a combined capital and surplus of at least $50,000,000 and
subject to supervision or examination by federal or state authorities; and
having (or having a parent that has) a rating of at least Baa3 by [Moody's]. If
such corporation shall publish reports of condition at least annually pursuant
to law or to the requirements of the aforesaid supervising or examining
authority, then for the purpose of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. In
case at any time the Owner Trustee shall cease to be eligible in accordance with
the provisions of this Section 9.01, the Owner Trustee shall resign immediately
in the manner and with the effect specified in Section 9.02.
Section 9.02. REPLACEMENT OF OWNER TRUSTEE. The Owner Trustee may at
any time resign and be discharged from the trusts hereby created by giving 30
days prior written notice thereof to the Administrator, the Credit Enhancer and
the Depositor. Upon receiving such notice of resignation, the Administrator
shall promptly appoint a successor Owner Trustee with the consent of the Credit
Enhancer which will not be unreasonably withheld, by written instrument, in
duplicate, one copy of which instrument shall be delivered to the resigning
Owner Trustee and to the successor Owner Trustee. If no successor Owner Trustee
shall have been so appointed and have accepted appointment within 30 days after
the giving of such notice of resignation, the resigning Owner Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 9.01 and shall fail to resign after
written request therefor by the Administrator, or if at any time the Owner
Trustee shall be legally unable to act, or shall be adjudged bankrupt or
insolvent, or a receiver of the Owner Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Owner
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then the Administrator may remove the Owner
Trustee. If the Administrator shall remove the Owner Trustee under the authority
of the immediately preceding sentence, the Administrator shall promptly appoint
a successor Owner Trustee by written instrument, in duplicate, one copy of which
instrument shall be delivered to the outgoing Owner Trustee so removed and one
copy to the successor Owner Trustee, and shall pay all fees owed to the outgoing
Owner Trustee.
Any resignation or removal of the Owner Trustee and appointment of a
successor Owner Trustee pursuant to any of the provisions of this Section shall
not become effective until accep tance of appointment by the successor Owner
Trustee pursuant to Section 9.03 and payment of all fees and expenses owed to
the outgoing Owner Trustee. The Administrator shall provide notice of such
resignation or removal of the Owner Trustee to each of the Rating Agencies.
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Section 9.03. SUCCESSOR OWNER TRUSTEE. Any successor Owner Trustee
appointed pursuant to Section 9.02 shall execute, acknowledge and deliver to the
Administrator and to its predecessor Owner Trustee an instrument accepting such
appointment under this Trust Agreement, and thereupon the resignation or removal
of the predecessor Owner Trustee shall become effective, and such successor
Owner Trustee, without any further act, deed or conveyance, shall become fully
vested with all the rights, powers, duties and obligations of its predecessor
under this Trust Agreement, with like effect as if originally named as Owner
Trustee. The predecessor Owner Trustee shall upon payment of its fees and
expenses deliver to the successor Owner Trustee all documents and statements and
monies held by it under this Trust Agreement; and the Administrator and the
predecessor Owner Trustee shall execute and deliver such instruments and do such
other things as may reasonably be required for fully and certainly vesting and
confirming in the successor Owner Trustee all such rights, powers, duties and
obligations.
No successor Owner Trustee shall accept appointment as provided in this
Section 9.03 unless at the time of such acceptance such successor Owner Trustee
shall be eligible pursuant to Section 9.01.
Upon acceptance of appointment by a successor Owner Trustee pursuant to
this Section 9.03, the Administrator shall mail notice thereof to all
Certificateholders, the Indenture Trustee, the Bondholders and the Rating
Agencies. If the Administrator shall fail to mail such notice within 10 days
after acceptance of such appointment by the successor Owner Trustee, the
successor Owner Trustee shall cause such notice to be mailed at the expense of
the Administrator.
Section 9.04. MERGER OR CONSOLIDATION OF OWNER TRUSTEE. Any Person into
which the Owner Trustee may be merged or converted or with which it may be
consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Owner Trustee shall be a party, or any Person
succeeding to all or substantially all of the corporate trust business of the
Owner Trustee, shall be the successor of the Owner Trustee hereunder, without
the execution or filing of any instrument or any further act on the part of any
of the parties hereto, anything herein to the contrary notwithstanding;
provided, that such Person shall be eligible pursuant to Section 9.01 and,
provided, further, that the Owner Trustee shall mail notice of such merger or
consolidation to the Rating Agencies.
Section 9.05. APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE.
Notwithstanding any other provisions of this Trust Agreement, at any time, for
the purpose of meeting any legal requirements of any jurisdiction in which any
part of the Owner Trust Estate may at the time be located, the Administrator and
the Owner Trustee acting jointly shall have the power and shall execute and
deliver all instruments to appoint one or more Persons approved by the
Administrator and Owner Trustee to act as co-trustee, jointly with the Owner
Trustee, or as separate trustee or trustees, of all or any part of the Owner
Trust Estate, and to vest in such Person, in such capacity, such title to the
Trust or any part thereof and, subject to the other provisions of this Section,
such powers, duties, obligations, rights and trusts as the Administrator and the
Owner Trustee may consider necessary or desirable. If the Administrator shall
not have joined in such appointment within 15 days after the receipt by it of a
request so to do, the Owner Trustee alone shall have the power to make such
appointment. No co-trustee or separate trustee under this Trust Agreement shall
be
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required to meet the terms of eligibility as a successor Owner Trustee pursuant
to Section 9.01 and no notice of the appointment of any co-trustee or separate
trustee shall be required pursuant to Section 9.03.
Each separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(a) All rights, powers, duties and obligations conferred or imposed
upon the Owner Trustee shall be conferred upon and exercised or performed by the
Owner Trustee and such separate trustee or co-trustee jointly (it being
understood that such separate trustee or co-trustee is not authorized to act
separately without the Owner Trustee joining in such act), except to the extent
that under any law of any jurisdiction in which any particular act or acts are
to be performed, the Owner Trustee shall be incompetent or unqualified to
perform such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Owner Trust Estate or any
portion thereof in any such jurisdiction) shall be exercised and performed
singly by such separate trustee or co-trustee, but solely at the direction of
the Owner Trustee;
(b) No trustee under this Trust Agreement shall be personally liable by
reason of any act or omission of any other trustee under this Trust Agreement;
and
(c) The Administrator and the Owner Trustee acting jointly may at any
time accept the resignation of or remove any separate trustee or co-trustee.
Any notice, request or other writing given to the Owner Trustee shall
be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Trust
Agreement and the conditions of this Article. Each separate trustee and
co-trustee, upon its acceptance of the trusts conferred, shall be vested with
the estates or property specified in its instrument of appointment, either
jointly with the Owner Trustee or separately, as may be provided therein,
subject to all the provisions of this Trust Agreement, specifically including
every provision of this Trust Agreement relating to the conduct of, affecting
the liability of, or affording protection to, the Owner Trustee. Each such
instrument shall be filed with the Owner Trustee and a copy thereof given to the
Administrator.
Any separate trustee or co-trustee may at any time appoint the Owner
Trustee as its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Trust Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Owner Trustee, to the extent permitted by law, without the
appointment of a new or successor co-trustee or separate trustee.
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ARTICLE X
MISCELLANEOUS
-------------
Section 10.01. AMENDMENTS. (a) This Trust Agreement may be amended from
time to time by the parties hereto as specified in this Section [, provided that
any amendment, except as provided in subparagraph (e) below, be accompanied by
an Opinion of Counsel to the Owner Trustee to the effect that such amendment (i)
complies with the provisions of this Section and (ii) will not cause the Trust
to be subject to an entity level tax].
(b) If the purpose of the amendment (as detailed therein) is to correct
any mistake, eliminate any inconsistency, cure any ambiguity or deal with any
matter not covered (i.e. to give effect to the intent of the parties and, if
applicable, to the expectations of the Holders), it shall not be necessary to
obtain the consent of any Holders, but the Owner Trustee shall be furnished with
(A) a letter from the Rating Agencies that the amendment will not result in the
downgrading or withdrawal of the rating then assigned to any Security and (B) an
Opinion of Counsel to the effect that such action will not adversely affect in
any material respect the interests of any Holders, and the consent of the Credit
Enhancer shall be obtained.
(c) If the purpose of the amendment is to prevent the imposition of any
federal or state taxes at any time that any Security is outstanding (i.e.
technical in nature), it shall not be necessary to obtain the consent of any
Holder, but the Owner Trustee shall be furnished with an Opinion of Counsel that
such amendment is necessary or helpful to prevent the imposition of such taxes
and is not materially adverse to any Holder and the consent of the Credit
Enhancer shall be obtained.
(d) If the purpose of the amendment is to add or eliminate or change
any provision of the Trust Agreement other than as contemplated in (b) and (c)
above, the amendment shall require (A) an Opinion of Counsel to the effect that
such action will not adversely affect in any material respect the interests of
any Holders and (B) either (a) a letter from the Rating Agency that the
amendment will not result in the downgrading or withdrawal of the rating then
assigned to any security or (b) the consent of Holders of Certificates
evidencing a majority of the Principal Balance of the Certificates and the
Indenture Trustee; provided, however, that no such amendment shall (i) reduce in
any manner the amount of, or delay the timing of, payments received that are
required to be distributed on any Certificate without the consent of the related
Certificateholder and the Credit Enhancer, or (ii) reduce the aforesaid
percentage 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.
(e) If the purpose of the amendment is to provide for the holding of
any of the Certificates in book-entry form, it shall require the consent of
Holders of all such Certificates then outstanding; provided, that the Opinion of
Counsel specified in subparagraph (a) above shall not
be required.
(f) If the purpose of the amendment is to provide for the issuance of
additional certificates representing an interest in the Trust, it shall not be
necessary to obtain the consent of
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any Holder, but the Owner Trustee shall be furnished with (A) an Opinion of
Counsel to the effect that such action will not adversely affect in any material
respect the interests of any Holders and (B) a letter from the Rating Agencies
that the amendment will not result in the downgrading or withdrawal of the
rating then assigned to any Security and the consent of the Credit Enhancer
shall be obtained.
(g) Promptly after the execution of any such amendment or consent, the
Owner Trustee shall furnish written notification of the substance of such
amendment or consent to each Certificateholder, the Indenture Trustee, the
Credit Enhancer and each of the Rating Agencies. It shall not be necessary for
the consent of Certificateholders or the Indenture Trustee pursuant to this
Section 10.01 to approve the particular form of any proposed amendment or
consent, but it shall be sufficient if such consent shall approve the substance
thereof. The manner of obtaining such consents (and any other consents of
Certificateholders provided for in this Trust Agreement or in any other Basic
Document) and of evidencing the authorization of the execution thereof by
Certificateholders shall be subject to such reasonable requirements as the Owner
Trustee may prescribe.
(h) In connection with the execution of any amendment to any agreement
to which the Trust is a party, other than this Trust Agreement, the Owner
Trustee shall be entitled to receive and conclusively rely upon an Opinion of
Counsel to the effect that such amendment is authorized or permitted by the
documents subject to such amendment and that all conditions precedent in the
Basic Documents for the execution and delivery thereof by the Trust or the Owner
Trustee, as the case may be, have been satisfied.
Promptly after the execution of any amendment to the Certificate of
Trust, the Owner Trustee shall cause the filing of such amendment with the
Secretary of State of the State of Delaware.
Section 10.02. NO LEGAL TITLE TO OWNER TRUST ESTATE. The
Certificateholders shall not have legal title to any part of the Owner Trust
Estate. The Certificateholders shall be entitled to receive distributions with
respect to their undivided beneficial interest therein only in accordance with
Articles V and IX. No transfer, by operation of law or otherwise, of any right,
title or interest of the Certificateholders to and in their ownership interest
in the Owner Trust Estate shall operate to terminate this Trust Agreement or the
trusts hereunder or entitle any transferee to an accounting or to the transfer
to it of legal title to any part of the Owner Trust Estate
Section 10.03. LIMITATIONS ON RIGHTS OF OTHERS. Except for Section
2.07, the provisions of this Trust Agreement are solely for the benefit of the
Owner Trustee, the Depositor, the Holder of the Designated Certificate, the
Certificateholders, the Administrator, the Credit Enhancer and, to the extent
expressly provided herein, the Indenture Trustee and the Bondholders, and
nothing in this Trust Agreement (other than Section 2.07), whether express or
implied, shall be construed to give to any other Person any legal or equitable
right, remedy or claim in the Owner Trust Estate or under or in respect of this
Trust Agreement or any covenants, conditions or provisions contained herein.
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Section 10.04. NOTICES. (a) Unless otherwise expressly specified or
permitted by the terms hereof, all notices shall be in writing and shall be
deemed given upon receipt , if to the Owner Trustee, addressed to the Corporate
Trust Office; if to the Depositor, addressed to WMC Secured Assets Corp.,
_____________________; Attention: _________________; if to the Credit Enhancer,
addressed to ___________, Attention: _________________, if to the Rating
Agencies, addressed to ________________________ Attention: __________or, as to
each party, at such other address as shall be designated by such party in a
written notice to each other party.
(b) Any notice required or permitted to be given to a Certificateholder
shall be given by first-class mail, postage prepaid, at the address of such
Holder as shown in the Certificate Register. Any notice so mailed within the
time prescribed in this Trust Agreement shall be conclusively presumed to have
been duly given, whether or not the Certificateholder receives such notice.
(c) A copy of any notice delivered to the Owner Trustee or the Trust
shall also be delivered to the Depositor and the Administrator.
Section 10.05. SEVERABILITY. Any provision of this Trust Agreement that
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
Section 10.06. SEPARATE COUNTERPARTS. This Trust Agreement may be
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument.
Section 10.07. SUCCESSORS AND ASSIGNS. All representations, warranties,
covenants and agreements contained herein shall be binding upon, and inure to
the benefit of, each of the Depositor, the Owner Trustee and its successors and
each Certificateholder and its successors and permitted assigns, all as herein
provided and the Credit Enhancer. Any request, notice, direction, consent,
waiver or other instrument or action by a Certificateholder shall bind the
successors and assigns of such Certificateholder.
[Section 10.08. NO PETITION. The Owner Trustee, by entering into this
Trust Agreement and each Certificateholder, by accepting a Certificate, hereby
covenant and agree that they will not at any time institute against the
Depositor or the Trust, or join in any institution against the Depositor or the
Trust of, any bankruptcy proceedings under any United States federal or state
bankruptcy or similar law in connection with any obligations to the
Certificates, the Bonds, this Trust Agreement or any of the Basic Documents.]
Section 10.9. NO RECOURSE. Each Certificateholder by accepting a
Certificate acknowledges that such Certificateholder's Certificates represent
beneficial interests in the Trust only and do not represent interests in or
obligations of the Depositor, the Holder of the Designated Certificate, the
Seller, the Administrator, the Owner Trustee, the Indenture Trustee or any
32
<PAGE>
Affiliate thereof and no recourse may be had against such parties or their
assets, except as may be expressly set forth or contemplated in this Trust
Agreement, the Certificates or the Basic Documents.
Section 10.10. HEADINGS. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
Section 10.11. GOVERNING LAW. THIS TRUST AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 10.12. INTEGRATION. This Trust Agreement constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understanding pertaining thereto.
33
<PAGE>
IN WITNESS WHEREOF, the Depositor and the Owner Trustee have caused
their names to be signed hereto by their respective officers thereunto duly
authorized, all as of the day and year
first above written.
WMC SECURED ASSETS CORP.
By:_________________________________________________
Name:
Title:
______________________, not in its individual
capacity but solely as Owner Trustee,
By:_________________________________________________
Name:
Title:
Acknowledged and Agreed:
___________________________________
__________, as Certificate
Registrar and Certificate
Paying Agent
By:_________________________________________________
Name:
Title:
34
<PAGE>
EXHIBIT A
[Form of Certificate]
[Face]
THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
RESOLD OR TRANSFERRED UNLESS IT IS REGISTERED PURSUANT TO SUCH ACT AND LAWS OR
IS SOLD OR TRANSFERRED IN TRANSACTIONS WHICH ARE EXEMPT FROM REGISTRATION UNDER
SUCH ACT AND UNDER APPLICABLE STATE LAW AND IS TRANSFERRED IN ACCORDANCE WITH
THE PROVISIONS OF SECTION 3.05 OF THE TRUST AGREEMENT REFERRED TO HEREIN.
NO TRANSFER OF THIS CERTIFICATE SHALL BE MADE UNLESS THE CERTIFI CATE REGISTRAR
SHALL HAVE RECEIVED EITHER (I) A REPRESENTATION LETTER FROM THE TRANSFEREE OF
THIS CERTIFICATE TO THE EFFECT THAT SUCH TRANSFEREE IS NOT AN EMPLOYEE BENEFIT
PLAN SUBJECT TO THE FIDUCIARY RESPONSIBILITY PROVISIONS OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF
THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), OR A PERSON ACTING
ON BEHALF OF ANY SUCH PLAN OR USING THE ASSETS OF ANY SUCH PLAN, OR (II) IF THIS
CERTIFICATE IS PRESENTED FOR REGISTRATION IN THE NAME OF A PLAN SUBJECT TO THE
FIDUCIARY RESPONSIBILITY PROVISIONS OF 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 WHO IS USING THE ASSETS OF ANY SUCH PLAN TO EFFECT
SUCH ACQUISITION, AN OPINION OF COUNSEL TO THE EFFECT THAT THE PURCHASE OR
HOLDING OF THIS CERTIFICATE WILL NOT RESULT IN THE ASSETS OF THE OWNER TRUST
ESTATE BEING DEEMED TO BE "PLAN ASSETS" AND SUBJECT TO THE FIDUCIARY
RESPONSIBILITY PROVISIONS OF ERISA OR THE PROHIBITED TRANSACTION PROVISIONS OF
THE CODE, WILL NOT CONSTITUTE OR RESULT IN A PROHIBITED TRANSACTION WITHIN THE
MEANING OF SECTION 406 OR SECTION 407 OF ERISA OR SECTION 4975 OF THE CODE, AND
WILL NOT SUBJECT THE OWNER TRUSTEE OR THE DEPOSITOR TO ANY OBLIGATION OR
LIABILITY.
NO TRANSFER OF THIS CERTIFICATE SHALL BE MADE UNLESS THE CERTIFI CATE REGISTRAR
SHALL HAVE RECEIVED A CERTIFICATE OF NON-FOREIGN STATUS CERTIFYING AS TO THE
TRANSFEREE'S STATUS AS A U.S. PERSON OR CORPORATION UNDER U.S. LAW.
THIS CERTIFICATE DOES NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE SELLER,
THE DEPOSITOR, THE SERVICER, THE INDENTURE TRUSTEE, OR
<PAGE>
THE OWNER TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES, EXCEPT AS EXPRESSLY
PROVIDED IN THE TRUST AGREEMENT OR THE BASIC DOCUMENTS.
A-2
<PAGE>
Certificate No.
Original principal amount ("Denomination") of this Certificate:
$__________
Aggregate Denominations of all Certificates: $
Pass-Through Rate: Floating
Cut-Off Date:
First Payment Date
___________, ____
CUSIP NO. __________
WMC CMN Trust Series 199_-_
Evidencing a fractional undivided equity interest in the Owner Trust
Estate, the property of which consists primarily of the Mortgage Collateral in
_________________________, a corporation sold by
WMC SECURED ASSETS CORP., AS DEPOSITOR
This certifies that [name of Holder] is the registered owner of the
Percentage Interest represented hereby in the WMC CMN Trust Series 199_-_ (the
"Trust").
The Trust was created pursuant to an Trust Agreement dated as of
________________ (as amended and supplemented from time to time, the "Trust
Agreement") between the Depositor and ______________________, as owner trustee
(as amended and supplemented from time to time, the "Owner Trustee", which term
includes any successor entity under the Trust Agreement), a summary of certain
of the pertinent provisions of which is set forth hereinafter. This Certificate
is issued under and is subject to the terms, provisions and conditions of the
Trust Agreement, to which Trust Agreement the Holder of this Certificate by
virtue of the acceptance hereof assents and by which such Holder is bound.
This Certificate is one of a duly authorized issue of Collateralized
Mortgage Certificates, Series 199_-__ (herein called the "Certificates") issued
under the Trust Agreement to which reference is hereby made for a statement of
the respective rights thereunder of the Depositor, the Owner Trustee and the
Holders of the Certificates and the terms upon which the Certificates are
executed and delivered. All terms used in this Certificate which are defined in
the Trust Agreement shall have the meanings assigned to them in the Trust
Agreement. The Owner Trust Estate consists of the Mortgage Collateral in the WMC
CMN Trust Series 199_-____ and a Surety
A-3
<PAGE>
Bond. The rights of the Holders of the Certificates are subordinated to the
rights of the Holders of the Bonds, as set forth in the [Indenture].
There will be distributed on the [twentieth] day of each month or, if
such [twentieth] day is not a Business Day, the next Business Day (each, a
"Payment Date"), commencing in _____________, to the Person in whose name this
Certificate is registered at the close of business on the last Business Day of
the month preceding the month of such Payment Date (the "Record Date"), such
Certificateholder's Percentage Interest (obtained by dividing the Denomination
of this Certificate by the aggregate Denominations of all Certificates) in the
amount to be distributed to Certificateholders on such Payment Date.
The Certificateholder, by its acceptance of this Certificate, agrees
that it will look solely to the funds on deposit in the Payment Account that
have been released from the Lien of the Indenture for payment hereunder and that
neither the Owner Trustee in its individual capacity nor the Depositor is
personally liable to the Certificateholders for any amount payable under this
Certificate or the Trust Agreement or, except as expressly provided in the Trust
Agreement, subject to any liability under the Trust Agreement.
The Holder of this Certificate acknowledges and agrees that its rights
to receive distributions in respect of this Certificate are subordinated to the
rights of the Bondholders as described in the Indenture, dated as of _________,
____, between the Trust and __________________________________, as Indenture
Trustee (the "Indenture").
It is the intent of the Depositor and the Certificateholders that, for
purposes of federal income, state and local income and single business tax and
any other income taxes, the Trust will be treated as a corporation. The
Depositor and each Certificateholder, by acceptance of a Certificate, agree to
treat, and to take no action inconsistent with the treatment of, the
Certificates for such tax purposes as an equity interest in a corporation.
Each Certificateholder, by its acceptance of a Certificate, covenants
and agrees that such Certificateholder will not at any time institute against
the Depositor, or join in any institution against the Depositor or the Trust of,
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings, or other proceedings under any United States federal or state
bankruptcy or similar law in connection with any obligations relating to the
Certificates, the Bonds, the Trust Agreement or any of the Basic Documents.
Distributions on this Certificate will be made as provided in the Trust
Agreement by the Certificate Paying Agent by wire transfer or check mailed to
the Certificateholder of record in the Certificate Register without the
presentation or surrender of this Certificate or the making of any notation
hereon. Except as otherwise provided in the Trust Agreement and notwithstanding
the above, the final distribution on this Certificate will be made after due
notice by the Certificate Paying Agent of the pendency of such distribution and
only upon presentation and surrender of this Certificate at the office or agency
maintained by the Certificate Registrar for that purpose by the Trust in the
Borough of Manhattan, The City of New York.
A-4
<PAGE>
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.
Unless the certificate of authentication hereon shall have been
executed by an authorized officer of the Owner Trustee, or an authenticating
agent by manual signature, this Certificate shall not entitle the Holder hereof
to any benefit under the Trust Agreement or be valid for any
purpose.
THIS CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
A-5
<PAGE>
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not
in its individual capacity, has caused this Certificate to be duly executed.
WMC CMN TRUST SERIES 19__-_
by _____________________, not in its
individual capacity but solely as Owner
Trustee
Dated: _________________
Authorized Signatory
Certificate of Authentication
This is one of the Certificates referred to in the within mentioned Trust
Agreement.
______________________,
not in its individual capacity
but solely as Owner Trustee
By:________________________________
Authorized Signatory
or __________________________________,
as Authenticating Agent of the Trust
By:________________________________
Authorized Signatory
A-6
<PAGE>
[REVERSE OF CERTIFICATE]
The Certificates do not represent an obligation of, or an interest in,
the Depositor, the Seller, the Servicer, the Indenture Trustee, the Owner
Trustee or any Affiliates of any of them and no recourse may be had against such
parties or their assets, except as expressly set forth or contemplated herein or
in the Trust Agreement or the Basic Documents. In addition, this Certificate is
not guaranteed by any governmental agency or instrumentality and is limited in
right of payment to certain collections and recoveries with respect to the
Mortgage Collateral, all as more specifically set forth herein. A copy of the
Trust Agreement may be examined by any Certificateholder upon written request
during normal business hours at the principal office of the Depositor and at
such other places, if any, designated by the Depositor.
The Trust Agreement permits the amendment thereof as specified below,
provided that any amendment be accompanied by the consent of the Credit Enhancer
and an Opinion of Counsel to the Owner Trustee to the effect that such amendment
complies with the provisions of the Trust Agreement and will not cause the Trust
to be subject to an entity level tax. If the purpose of the amendment is to
correct any mistake, eliminate any inconsistency, cure any ambiguity or deal
with any matter not covered, it shall not be necessary to obtain the consent of
any Holder, but the Owner Trustee shall be furnished with a letter from the
Rating Agencies that the amendment will not result in the downgrading or
withdrawal of the rating then assigned to any Security. If the pur pose of the
amendment is to prevent the imposition of any federal or state taxes at any time
that any Security is outstanding, it shall not be necessary to obtain the
consent of the any Holder, but the Owner Trustee shall be furnished with an
Opinion of Counsel that such amendment is necessary or helpful to prevent the
imposition of such taxes and is not materially adverse to any Holder. If the
purpose of the amendment is to add or eliminate or change any provision of the
Trust Agreement, other than as specified in the preceding two sentences, the
amendment shall require either (a) a letter from the Rating Agencies that the
amendment will not result in the downgrading or withdrawal of the rating then
assigned to any Security or (b) the consent of Holders of the Certificates
evidencing a majority of the Percentage Interests of the Certificates and the
Indenture Trustee; PROVIDED, HOWEVER, that no such amendment shall (i) reduce in
any manner the amount of, or delay the time of, payments received that are
required to be distributed on any Certificate without the consent of the related
Certificateholder, or (ii) reduce the aforesaid percentage 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.
As provided in the Trust Agreement and subject to certain limitations
therein set forth, the transfer of this Certificate is registerable in the
Certificate Register upon surrender of this Certificate for registration of
transfer at the offices or agencies of the Certificate Registrar maintained by
the Trust in the Borough of Manhattan, The City of New York, accompanied by a
written instrument of transfer in form satisfactory to the Certificate Registrar
duly executed by the Holder hereof or such Holder's attorney duly authorized in
writing, and thereupon one or more new Certificates of authorized denominations
evidencing the same aggregate interest in the Trust will be issued to the
designated transferee. The initial Certificate Registrar appointed under the
Trust Agreement is __________________________________.
A-7
<PAGE>
Except as provided in the Trust Agreement, the Certificates are
issuable only in minimum denominations of $10,000 and in integral multiples of
$10,000 in excess thereof, except for one Certificate that may not be in an
integral multiple of $10,000. As provided in the Trust Agreement and subject to
certain limitations therein set forth, Certificates are exchangeable for new
Certificates of authorized denominations evidencing the same aggregate
denomination, as requested by the Holder surrendering the same. No service
charge will be made for any such registration of transfer or exchange, but the
Owner Trustee or the Certificate Registrar may require payment of a sum
sufficient to cover any tax or governmental charge payable in connection
therewith.
The Owner Trustee, the Certificate Paying Agent, the Certificate
Registrar and any agent of the Owner Trustee, the Certificate Paying Agent, or
the Certificate Registrar may treat the Person in whose name this Certificate is
registered as the owner hereof for all purposes, and none of the Owner Trustee,
the Certificate Paying Agent, the Certificate Registrar or any such agent shall
be affected by any notice to the contrary.
The obligations and responsibilities created by the Trust Agreement and
the Trust created thereby shall terminate (i) upon the final distribution of all
moneys or other property or proceeds of the Owner Trust Estate in accordance
with the terms of the Indenture and the Trust Agreement, (ii) the Payment Date
in ____________, or (iii) upon the bankruptcy or insolvency of the Holder of the
Designated Certificate and the satisfaction of other conditions specified in
Section 8.02 of the Trust Agreement.
A-8
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
(Please print or type name and address, including postal zip code, of assignee)
________________________________________________________________________________
the within Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing
________________________________________________________________________________
to transfer said Certificate on the books of the Certificate Registrar, with
full power of substitution in the premises.
Dated:
___________________________________________*/
Signature Guaranteed:
____________________________*/
- -----------------
*/ NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Certificate in every particular, without
alteration, enlargement or any change whatever. Such signature must be
guaranteed by a member firm of the New York Stock Exchange or a commercial bank
or trust company.
A-9
<PAGE>
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for the information of the
Certificate Paying Agent:
Distribution shall be made by wire transfer in immediately available
funds to ______________________________________________
_________________________________________________________________ for the
account of ________________________________________, account number
______________, or, if mailed by check, to ______________.
Applicable statements should be mailed to__________________.
______________________________
Signature of assignee or agent
(for authorization of wire
transfer only)
A-10
<PAGE>
EXHIBIT B
TO THE TRUST AGREEMENT
CERTIFICATE OF TRUST OF
WMC CMN TRUST SERIES 199_-_
---------------------------
THIS Certificate of Trust of WMC CMN Trust Series 199_-_ (the "Trust"),
dated ___________, ____, is being duly executed and filed by
______________________, a Delaware banking corporation, as trustee, to form a
business trust under the Delaware Business Trust Act (12 DEL. CODE, ss. 3801 ET
SEQ.).
1. NAME. The name of the business trust formed hereby is WMC CMN Trust
Series 199_-_.
2. DELAWARE TRUSTEE. The name and business address of the trustee of
the Trust in the State of Delaware is ______________________,
__________________, __________, ______________, Attention:
______________________________.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the
Trust, has executed this Certificate of Trust as of the date first above
written.
______________________,
not in its individual capacity but solely as
owner trustee under a Trust Agreement
dated
as of _________, ____,
By:
___________________________
Name:
Title:
B-1
<PAGE>
EXHIBIT C
[FORM OF RULE 144A INVESTMENT REPRESENTATION]
Description of Rule 144A Securities, including numbers:
===============================================
The undersigned seller, as registered holder (the "Seller"),
intends to transfer the Rule 144A Securities described above to the undersigned
buyer (the "Buyer").
1. In connection with such transfer and in accordance with the
agreements pursuant to which the Rule 144A Securities were issued, the Seller
hereby certifies the following facts: Neither the Seller nor anyone acting on
its behalf has offered, transferred, pledged, sold or otherwise disposed of the
Rule 144A Securities, any interest in the Rule 144A Securities or any other
similar security to, or solicited any offer to buy or accept a transfer, pledge
or other disposition of the Rule 144A Securities, any interest in the Rule 144A
Securities or any other similar security from, or otherwise approached or
negotiated with respect to the Rule 144A Securities, any interest in the Rule
144A Securities or any other similar security with, any person in any manner, or
made any general solicitation by means of general advertising or in any other
manner, or taken any other action, that would constitute a distribution of the
Rule 144A Securities under the Securities Act of 1933, as amended (the "1933
Act"), or that would render the disposition of the Rule 144A Securities a
violation of Section 5 of the 1933 Act or require registration pursuant thereto,
and that the Seller has not offered the Rule 144A Securities to any person other
than the Buyer or another "qualified institutional buyer" as defined in Rule
144A under the 1933 Act.
2. The Buyer warrants and represents to, and covenants with,
the Owner Trustee and the Depositor (as defined in the Trust Agreement (the
"Agreement"), dated as of ---------, ____ between WMC Secured Assets Corp., as
Depositor and ______________________, as Owner Trustee pursuant to Section 3.05
of the Agreement and __________________________________ as indenture trustee, as
follows:
a. The Buyer understands that the Rule 144A
Securities have not been registered under the 1933 Act or the
securities laws of any state.
b. The Buyer considers itself a substantial,
sophisticated institutional investor having such knowledge and
experience in financial and business matters that it is capable of
evaluating the merits and risks of investment in the Rule 144A
Securities.
C-1
<PAGE>
c. The Buyer has been furnished with all information
regarding the Rule 144A Securities that it has requested from the
Seller, the Indenture Trustee, the Owner Trustee or the Servicer.
d. Neither the Buyer nor anyone acting on its behalf
has offered, transferred, pledged, sold or otherwise disposed of the
Rule 144A Securities, any interest in the Rule 144A Securities or any
other similar security to, or solicited any offer to buy or accept a
transfer, pledge or other disposition of the Rule 144A Securities, any
interest in the Rule 144A Securities or any other similar security
from, or otherwise approached or negotiated with respect to the Rule
144A Securities, any interest in the Rule 144A Securities or any other
similar security with, any person in any manner, or made any general
solicitation by means of general advertising or in any other manner, or
taken any other action, that would constitute a distribution of the
Rule 144A Securities under the 1933 Act or that would render the
disposition of the Rule 144A Securities a violation of Section 5 of the
1933 Act or require registration pursuant thereto, nor will it act, nor
has it authorized or will it authorize any person to act, in such
manner with respect to the Rule 144A Securities.
e. The Buyer is a "qualified institutional buyer" as
that term is defined in Rule 144A under the 1933 Act and has completed
either of the forms of certification to that effect attached hereto as
Annex 1 or Annex 2. The Buyer is aware that the sale to it is being
made in reliance on Rule 144A. The Buyer is acquiring the Rule 144A
Securities for its own account or the accounts of other qualified
institutional buyers, understands that such Rule 144A Securities may be
resold, pledged or transferred only (i) to a person reasonably believed
to be a qualified institutional buyer that purchases for its own
account or for the account of a qualified institutional buyer to whom
notice is given that the resale, pledge or transfer is being made in
reliance on Rule 144A, or (ii) pursuant to another exemption from
registration under the 1933 Act.
[3. The Buyer warrants and represents to, and covenants with,
the Seller, the Indenture Trustee, Owner Trustee, Servicer and the Depositor
that either (1) the Buyer is (A) not an employee benefit plan (within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), or a plan (within the meaning of Section 4975(e)(1) of
the Internal Revenue Code of 1986 ("Code")), which (in either case) is subject
to ERISA or Section 4975 of the Code (both a "Plan"), and (B) is not directly or
indirectly purchasing the Rule 144A Securities on behalf of, as investment
manager of, as named fiduciary of, as trustee of, or with "plan assets" of a
Plan, or (2) the Buyer understands that registration of transfer of any Rule
144A Securities to any Plan, or to any Person acting on behalf of any Plan, will
not be made unless such Plan delivers an opinion of its counsel, addressed and
satisfactory to the Certificate Registrar and the Depositor, to the effect that
the purchase and holding of the Rule 144A Securities by, on behalf of or with
"plan assets" of any Plan would not constitute or result in a prohibited
transaction under Section 406 of ERISA or Section 4975 of the Code, and would
not subject the Depositor, the Servicer, the Indenture Trustee or the Trust to
any obligation or liability (including liabilities under ERISA or Section 4975
of the Code) in addition to those undertaken in the Agreement or any other
liability.]
C-2
<PAGE>
4. This document may be executed in one or more counterparts
and by the different parties hereto on separate counterparts, each of which,
when so executed, shall be deemed to be an original; such counterparts,
together, shall constitute one and the same document.
IN WITNESS WHEREOF, each of the parties has executed this
document as of the date set forth below.
Print Name of Seller Print Name of Buyer
By: By:
Name: Name:
Title: Title:
Taxpayer Identification: Taxpayer Identification:
No. No.
Date: Date:
C-3
<PAGE>
ANNEX 1 TO EXHIBIT C
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
[For Buyers Other Than Registered Investment Companies]
The undersigned hereby certifies as follows in connection with the
Rule 144A Investment Representation to which this Certification is attached:
1. As indicated below, the undersigned is the President, Chief
Financial Officer, Senior Vice President or other executive officer of the
Buyer.
2. In connection with purchases by the Buyer, the Buyer is a
"qualified institutional buyer" as that term is defined in Rule 144A under the
Securities Act of 1933 ("Rule 144A") because (i) the Buyer owned and/or invested
on a discretionary basis $______________________1 in securities (except for the
excluded securities referred to below) as of the end of the Buyer's most recent
fiscal year (such amount being calculated in accordance with Rule 144A) and (ii)
the Buyer satisfies the criteria in the category marked below.
___ CORPORATION, ETC. The Buyer is a corporation (other than a bank,
savings and loan association or similar institution), Massachusetts
or similar business trust, partnership, or charitable organization
described in Section 501(c)(3) of the Internal Revenue Code.
___ BANK. The Buyer (a) is a national bank or banking institution
organized under the laws of any State, territory or the District of
Columbia, the business of which is substantially confined to
banking and is supervised by the State or territorial banking
commission or similar official or is a foreign bank or equivalent
institution, and (b) has an audited net worth of at least
$25,000,000 as demonstrated in its latest annual financial
statements, A COPY OF WHICH IS ATTACHED HERETO. -------- 1 Buyer
must own and/or invest on a discretionary basis at least
$100,000,000 in securities unless Buyer is a dealer, and, in that
case, Buyer must own and/or invest on a discretionary basis at
least $10,000,000 in securities.
C-4
<PAGE>
___ SAVINGS AND LOAN. The Buyer (a) is a savings and loan association,
building and loan association, cooperative bank, homestead
association or similar institution, which is supervised and
examined by a State or Federal authority having supervision over
any such institutions or is a foreign savings and loan association
or equivalent institution and (b) has an audited net worth of at
least $25,000,000 as demonstrated in its latest annual financial
statements.
___ BROKER-DEALER. The Buyer is a dealer registered pursuant to Section
15 of the Securities Exchange Act of 1934.
___ INSURANCE COMPANY. The Buyer is an insurance company whose primary
and predominant business activity is the writing of insurance or
the reinsuring of risks underwritten by insurance companies and
which is subject to supervision by the insurance commissioner or a
similar official or agency of a State or territory or the District
of Columbia.
___ STATE OR LOCAL PLAN. The Buyer is a plan established and maintained
by a State, its political subdivisions, or any agency or
instrumentality of the State or its political subdivisions, for the
benefit of its employees.
___ ERISA PLAN. The Buyer is an employee benefit plan within the
meaning of Title I of the Employee Retirement Income Security Act
of 1974.
___ INVESTMENT ADVISER. The Buyer is an investment adviser registered
under the Investment Advisers Act of 1940.
___ SBIC. The Buyer is a Small Business Investment Company licensed by
the U.S. Small Business Administration under Section 301(c) or (d)
of the Small Business Investment Act of 1958.
___ BUSINESS DEVELOPMENT COMPANY. The Buyer is a business development
company as defined in Section 202(a)(22) of the Investment Advisers
Act of 1940.
___ TRUST FUND. The Buyer is a trust fund whose trustee is a bank or
trust company and whose participants are exclusively (a) plans
established and maintained by a State, its political subdivisions,
or any agency or instrumentality of the State or its political
subdivisions, for the benefit of its employees, or (b) employee
benefit plans within the meaning of Title I of the Employee
Retirement Income Security Act of 1974, but is not a trust fund
that includes as participants individual retirement accounts or
H.R. 10 plans.
3. The term "SECURITIES" as used herein DOES NOT INCLUDE (i)
securities of issuers that are affiliated with the Buyer, (ii) securities that
are part of an unsold allotment to or subscription by the Buyer, if the Buyer is
a dealer, (iii) bank deposit notes and certificates of deposit, (iv) loan
C-5
<PAGE>
participations, (v) repurchase agreements, (vi) securities owned but subject to
a repurchase agreement and (vii) currency, interest rate and commodity swaps.
4. For purposes of determining the aggregate amount of securities
owned and/or invested on a discretionary basis by the Buyer, the Buyer used the
cost of such securities to the Buyer and did not include any of the securities
referred to in the preceding paragraph. Further, in determining such aggregate
amount, the Buyer may have included securities owned by subsidiaries of the
Buyer, but only if such subsidiaries are consolidated with the Buyer in its
financial statements prepared in accordance with generally accepted accounting
principles and if the investments of such subsidiaries are managed under the
Buyer's direction. However, such securities were not included if the Buyer is a
majority-owned, consolidated subsidiary of another enterprise and the Buyer is
not itself a reporting company under the Securities Exchange Act of 1934.
5. The Buyer acknowledges that it is familiar with Rule 144A and
understands that the seller to it and other parties related to the Certificates
are relying and will continue to rely on the statements made herein because one
or more sales to the Buyer may be in reliance on Rule 144A.
___ ___ Will the Buyer be purchasing the Rule 144A
Yes No Securities only for the Buyer's own account?
6. If the answer to the foregoing question is "no", the Buyer
agrees that, in connection with any purchase of securities sold to the Buyer for
the account of a third party (including any separate account) in reliance on
Rule 144A, the Buyer will only purchase for the account of a third party that at
the time is a "qualified institutional buyer" within the meaning of Rule 144A.
In addition, the Buyer agrees that the Buyer will not purchase securities for a
third party unless the Buyer has obtained a current representation letter from
such third party or taken other appropriate steps contemplated by Rule 144A to
conclude that such third party independently meets the definition of "qualified
institutional buyer" set forth in Rule 144A.
7. The Buyer will notify each of the parties to which this
certification is made of any changes in the information and conclusions herein.
Until such notice is given, the Buyer's purchase of Rule 144A Securities will
constitute a reaffirmation of this certification as of the date
of such purchase.
Print Name of Buyer
By:
Name:
Title:
Date:
C-6
<PAGE>
ANNEX 2 TO EXHIBIT C
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
[For Buyers That Are Registered Investment Companies]
The undersigned hereby certifies as follows in connection with
the Rule 144A Investment Representation to which this Certification is attached:
1. As indicated below, the undersigned is the President,
Chief Financial Officer or Senior Vice President of the Buyer or, if the Buyer
is a "qualified institutional buyer" as that term is defined in Rule 144A under
the Securities Act of 1933 ("Rule 144A") because Buyer is part of a Family of
Investment Companies (as defined below), is such an officer of the
Adviser.
2. In connection with purchases by Buyer, the Buyer is a
"qualified institutional buyer" as defined in SEC Rule 144A because (i) the
Buyer is an investment company registered under the Investment Company Act of
1940, and (ii) as marked below, the Buyer alone, or the Buyer's Family of
Investment Companies, owned at least $100,000,000 in securities (other than the
excluded securities referred to below) as of the end of the Buyer's most recent
fiscal year. For purposes of determining the amount of securities owned by the
Buyer or the Buyer's Family of Investment Companies, the cost of such securities
was used.
____ The Buyer owned $___________________ in securities (other than
the excluded securities referred to below) as of the end of
the Buyer's most recent fiscal year (such amount being
calculated in accordance with Rule 144A).
____ The Buyer is part of a Family of Investment Companies which
owned in the aggregate $______________ in securities (other
than the excluded securities referred to below) as of the end
of the Buyer's most recent fiscal year (such amount
being calculated in accordance with Rule 144A).
3. The term "FAMILY OF INVESTMENT COMPANIES" as used herein
means two or more registered investment companies (or series thereof) that have
the same investment adviser or investment advisers that are affiliated (by
virtue of being majority owned subsidiaries of the same parent or because one
investment adviser is a majority owned subsidiary of the other).
4. The term "SECURITIES" as used herein does not include (i)
securities of issuers that are affiliated with the Buyer or are part of the
Buyer's Family of Investment Companies, (ii) bank deposit notes and certificates
of deposit, (iii) loan participations, (iv) repurchase agreements, (v)
securities owned but subject to a repurchase agreement and (vi) currency,
interest rate and commodity swaps.
C-7
<PAGE>
5. The Buyer is familiar with Rule 144A and understands that
each of the parties to which this certification is made are relying and will
continue to rely on the statements made herein because one or more sales to the
Buyer will be in reliance on Rule 144A. In addition,
the Buyer will only purchase for the Buyer's own account.
6. The undersigned will notify each of the parties to which
this certification is made of any changes in the information and conclusions
herein. Until such notice, the Buyer's purchase of Rule 144A Securities will
constitute a reaffirmation of this certification by the undersigned as of the
date of such purchase.
Print Name of Buyer
By:
Name:
Title:
IF AN ADVISER:
Print Name of Buyer
Date:
C-8
<PAGE>
EXHIBIT D
CERTIFICATE OF NON-FOREIGN STATUS
This Certificate of Non-Foreign Status ("certificate") is delivered
pursuant to Section 3.03 of the Trust Agreement, dated as of _________, ____
(the "Trust Agreement"), between WMC Secured Assets Corp., as depositor and
______________________, as Owner Trustee, in connection with the acquisition of,
transfer to or possession by the undersigned, whether as beneficial owner (the
"Beneficial Owner"), or nominee on behalf of the Beneficial Owner of the
Collateralized Mortgage Certificates, Series 199_-__ (the "Certificate").
Capitalized terms used but not defined in this certificate have the respective
meanings given them in the Trust Agreement.
Each holder must complete Part I, Part II (if the holder is a nominee), and in
all cases sign and otherwise complete Part III. In addition, each holder shall
submit with the Certificate an IRS Form W-9 relating to such holder.
To confirm to the Trust that the provisions of Sections 871, 881 or 1446 of the
Internal Revenue Code (relating to withholding tax on foreign partners) do not
apply in respect of the Certificate
held by the undersigned, the undersigned hereby certifies:
Part I - Complete Either A or B
A. Individual as Beneficial Owner
1. I am (The Beneficial Owner is ) not a non-resident alien
for purposes of U.S. income taxation;
2. My (The Beneficial Owner's) name and home address are:
; and
3. My (The Beneficial Owner's) U.S. taxpayer identification
number (Social Security Number) is .
B. Corporate, Partnership or Other Entity as Beneficial Owner
1. (Name of the Beneficial Owner)
is not a foreign corporation, foreign partnership,
foreign trust or foreign estate (as those terms are
defined in the Code and Treasury Regulations;
2. The Beneficial Owner's office address and place of
incorporation
(if
applicable) is
; and
C-9
<PAGE>
3. The Beneficial Owner's U.S. employer identification
number is
.
Part II - Nominees
If the undersigned is the nominee for the Beneficial Owner, the
undersigned certifies that this certificate has been made in reliance upon
information contained in:
an IRS Form W-9
a form such as this or substantially similar
provided to the undersigned by an appropriate person and (i) the undersigned
agrees to notify the Trust at least thirty (30) days prior to the date that the
form relied upon becomes obsolete, and (ii) in connection with change in
Beneficial Owners, the undersigned agrees to submit a new Certificate of
Non-Foreign Status to the Trust promptly after such change.
Part III - Declaration
The undersigned, as the Beneficial Owner or a nominee thereof, agrees
to notify the Trust within sixty (60) days of the date that the Beneficial Owner
becomes a foreign person. The undersigned understands that this certificate may
be disclosed to the Internal Revenue Service by the Trust and any false
statement contained therein could be punishable by fines, imprisonment or both.
C-10
<PAGE>
Under penalties of perjury, I declare that I have examined this
certificate and to the best of my knowledge and belief it is true, correct and
complete and will further declare that I will inform the Trust of any change in
the information provided above, and, if applicable, I further
declare that I have the authority* to sign this document.
Name
Title (if applicable)
Signature and Date
*Note: If signed pursuant to a power of attorney, the power of attorney must
accompany this certificate.
C-11
<PAGE>
EXHIBIT E
FORM OF INVESTMENT LETTER [NON-RULE 144A]
[DATE]
[Certificate Registrar]
Re: WMC CMN Trust Series 199_-_
Collateralized Mortgage Certificates,
SERIES 199_-__, (THE "CERTIFICATES")
Ladies and Gentlemen:
In connection with our acquisition of the above-captioned 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 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, (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 effect as this certificate, and (3) the purchaser or
transferee has otherwise complied with any conditions for transfer set forth in
the Trust Agreement.
F-1
<PAGE>
Very truly yours,
[TRANSFEREE]
By:
Authorized Officer
F-2
Exhibit 4.5
-----------
WMC MBN TRUST SERIES 199_ - __
Issuer
AND
[Name of Indenture Trustee]
INDENTURE TRUSTEE
-----------------------------------------
INDENTURE
Dated as of August __, 199_
------------------------------------------
MORTGAGE-BACKED NOTES
-------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Section Page
- ------- ----
ARTICLE I
Definitions
<S> <C>
1.01. Definitions.............................................................................. 2
1.02. Incorporation by Reference of Trust Indenture Act........................................ 2
1.03. Rules of Construction.................................................................... 2
ARTICLE II
Original Issuance of Notes
2.01. Form..................................................................................... 4
2.02. Execution, Authentication and Delivery................................................... 4
ARTICLE III
Covenants
3.01. Collection of Payments with respect to the Mortgage Loans................................ 5
3.02. Maintenance of Office or Agency.......................................................... 5
3.03. Money for Payments To Be Held in Trust; Paying Agent..................................... 5
3.04. Existence................................................................................ 6
3.05. Payment of Principal and Interest; Defaulted Interest.................................... 6
3.06. Protection of Trust Estate............................................................... 8
3.07. Opinions as to Trust Estate.............................................................. 9
3.08. Performance of Obligations; Servicing Agreement.......................................... 10
3.09. Negative Covenants....................................................................... 10
3.10. Annual Statement as to Compliance........................................................ 11
3.11. Recording of Assignments................................................................. 11
3.12. Representations and Warranties Concerning the Mortgage Loans............................. 11
3.13. Amendments to Servicing Agreement........................................................ 11
3.14. Master Servicer as Agent and Bailee of the Mortgage Loans Holder......................... 12
3.15. Investment Company Act................................................................... 12
3.16. Issuer May Consolidate, etc.............................................................. 12
3.17. Successor or Transferee.................................................................. 14
3.18. No Other Business........................................................................ 14
3.19. No Borrowing............................................................................. 14
3.20. Guarantees, Loans, Advances and Other Liabilities........................................ 14
3.21. Capital Expenditures..................................................................... 14
3.22. [Reserved]............................................................................... 14
3.23. Restricted Payments...................................................................... 14
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
3.24. Notice of Events of Default.............................................................. 15
3.25. Further Instruments and Acts............................................................. 15
3.26. Statements to Noteholders................................................................ 15
3.27. Determination of Note Interest Rate...................................................... 15
3.28. Payments under the Credit Enhancement Instrument......................................... 15
3.29. Replacement Credit Enhancement Instrument................................................ 16
</TABLE>
ARTICLE IV
<TABLE>
<CAPTION>
Thetes; Satisfaction and Discharge of Indenture
<S> <C>
4.01. The Notes................................................................................ 17
4.02. Registration of and Limitations on Transfer and Exchange of Notes;
Appointment of Certificate Registrar..................................................... 17
4.03. Mutilated, Destroyed, Lost or Stolen Notes............................................... 18
4.04. Persons Deemed Owners.................................................................... 19
4.05. Cancellation............................................................................. 19
4.06. Book-Entry Notes......................................................................... 19
4.07. Notices to Depository.................................................................... 20
4.08. Definitive Notes......................................................................... 20
4.09. Tax Treatment............................................................................ 21
4.10. Satisfaction and Discharge of Indenture.................................................. 21
4.11. Application of Trust Money............................................................... 22
4.12. Subrogation and Cooperation.............................................................. 22
4.13. Repayment of Monies Held by Paying Agent................................................. 23
4.14. Temporary Notes.......................................................................... 23
</TABLE>
<TABLE>
<CAPTION>
ARTICLE V
Default and Remedies
<S> <C>
5.01. Events of Default........................................................................ 24
5.02. Acceleration of Maturity; Rescission and Annulment....................................... 24
5.03. Collection of Indebtedness and Suits for Enforcement by Indenture
Trustee.................................................................................. 25
5.04. Remedies; Priorities..................................................................... 27
5.05. Optional Preservation of the Trust Estate................................................ 28
5.06. Limitation of Suits...................................................................... 29
5.07. Unconditional Rights of Noteholders To Receive Principal and Interest
........................................................................................ 29
5.08. Restoration of Rights and Remedies....................................................... 29
5.09. Rights and Remedies Cumulative........................................................... 30
5.10. Delay or Omission Not a Waiver........................................................... 30
5.11. Control by Noteholders................................................................... 30
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
5.12. Waiver of Past Defaults.................................................................. 31
5.13. Undertaking for Costs.................................................................... 31
5.14. Waiver of Stay or Extension Laws......................................................... 31
5.15. Sale of Trust Estate..................................................................... 31
5.16. Action on Notes.......................................................................... 33
</TABLE>
<TABLE>
<CAPTION>
ARTICLE VI
The Indenture Trustee
<CAPTION>
<S> <C>
6.01. Duties of Indenture Trustee.............................................................. 35
6.02. Rights of Indenture Trustee.............................................................. 36
6.03. Individual Rights of Indenture Trustee................................................... 36
6.04. Indenture Trustee's Disclaimer........................................................... 36
6.05. Notice of Event of Default............................................................... 37
6.06. Reports by Indenture Trustee to Holders.................................................. 37
6.07. Compensation and Indemnity............................................................... 37
6.08. Replacement of Indenture Trustee......................................................... 37
6.09. Successor Indenture Trustee by Merger.................................................... 38
6.10. Appointment of Co-Indenture Trustee or Separate Indenture Trustee........................ 39
6.11. Eligibility; Disqualification............................................................ 40
6.12. Preferential Collection of Claims Against Issuer......................................... 40
6.13. Representation and Warranty.............................................................. 40
6.14. Directions to Indenture Trustee.......................................................... 41
6.15. No Consent to Certain Acts of Depositor.................................................. 41
6.16. Indenture Trustee May Own Securities..................................................... 41
</TABLE>
<TABLE>
<CAPTION>
ARTICLE VII
Noteholders' Lists and Reports
<S> <C>
7.01. Issuer To Furnish Indenture Trustee Names and Addresses of
Noteholders.............................................................................. 42
7.02. Preservation of Information; Communications to Noteholders............................... 42
7.03. Reports by Issuer........................................................................ 42
7.04. Reports by Indenture Trustee............................................................. 43
</TABLE>
<TABLE>
<CAPTION>
ARTICLE VIII
Accounts, Disbursements and Releases
<S> <C>
8.01. Collection of Money...................................................................... 44
8.02. Trust Accounts........................................................................... 44
8.03. Officer's Certificate.................................................................... 45
8.04. Termination Upon Distribution to Noteholders............................................. 45
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
8.05. Release of Trust Estate.................................................................. 45
8.06. Surrender of Notes Upon Final Payment.................................................... 46
ARTICLE IX
Supplemental Indentures
9.01. Supplemental Indentures Without Consent of Noteholders................................... 47
9.02. Supplemental Indentures With Consent of Noteholders...................................... 48
9.03. Execution of Supplemental Indentures..................................................... 49
9.04. Effect of Supplemental Indenture......................................................... 50
9.05. Conformity with Trust Indenture Act...................................................... 50
9.06. Reference in Notes to Supplemental Indentures............................................ 50
</TABLE>
<TABLE>
<CAPTION>
ARTICLE X
Miscellaneous
<S> <C>
10.01. Compliance Certificates and Opinions, etc................................................ 51
10.02. Form of Documents Delivered to Indenture Trustee......................................... 52
10.03. Acts of Noteholders...................................................................... 53
10.04. Notices, etc., to Indenture Trustee, Issuer, Credit Enhancer and Rating
Agencies................................................................................. 54
10.05. Notices to Noteholders; Waiver........................................................... 54
10.06. Alternate Payment and Notice Provisions.................................................. 55
10.07. Conflict with Trust Indenture Act........................................................ 55
10.08. Effect of Headings....................................................................... 55
10.09. Successors and Assigns................................................................... 55
10.10. Separability............................................................................. 55
10.11. Benefits of Indenture.................................................................... 56
10.12. Legal Holidays........................................................................... 56
10.13. GOVERNING LAW............................................................................ 56
10.14. Counterparts............................................................................. 56
10.15. Recording of Indenture................................................................... 56
10.16. Issuer Obligation........................................................................ 56
10.17. No Petition.............................................................................. 57
10.18. Inspection............................................................................... 57
10.19. Authority of the Administrator........................................................... 57
Signatures and Seals ......................................................................................... 81
Acknowledgments .............................................................................................. 82
</TABLE>
iv
<PAGE>
EXHIBITS
Exhibit A - Form of Notes
Appendix A Definitions
v
<PAGE>
This Indenture, dated as of _______________, between WMC MBN
Trust Series 199_ -__, a Delaware business trust, as Issuer (the "Issuer"), and
____________________________, a ____________________________, as Indenture
Trustee (the "Indenture Trustee"),
WITNESSETH THAT:
Each party hereto agrees as follows for the benefit of the
other party and for the equal and ratable benefit of the Holders of the Issuer's
Series 199_-_ Mortgage-Backed Notes (the
"Notes").
GRANTING CLAUSE
The Issuer hereby Grants to the Indenture Trustee at the
Closing Date, as trustee for the benefit of the Holders of the Notes, all of the
Issuer's right, title and interest in and to whether now existing or hereafter
created by (a) the Mortgage Loans and the proceeds thereof, (b) all funds on
deposit in the Funding Account, including all income from the investment and
reinvestment of funds therein, (c) all funds on deposit from time to time in the
Collection Account allocable to the Mortgage Loans excluding any investment
income from such funds; (d) all funds on deposit from time to time in the
Payment Account and in all proceeds thereof; (e) the Policy and (f) all present
and future claims, demands, causes and chooses in action in respect of any or
all of the foregoing and all payments on or under, and all proceeds of every
kind and nature whatsoever in respect of, any or all of the foregoing and all
payments on or under, and all proceeds of every kind and nature whatsoever in
the conversion thereof, voluntary or involuntary, into cash or other liquid
property, all cash proceeds, accounts, accounts receivable, notes, drafts,
acceptances, checks, deposit accounts, rights to payment of any and every kind,
and other forms of obligations and receivables, instruments and other property
which at any time constitute all or part of or are included in the proceeds of
any of the foregoing (collectively, the "Trust Estate" or the "Collateral").
The foregoing Grant is made in trust to secure the payment of
principal of and interest on, and any other amounts owing in respect of, the
Notes, equally and ratably without prejudice, priority or distinction, and to
secure compliance with the provisions of this Indenture, all as provided in this
Indenture.
The Indenture Trustee, as trustee on behalf of the Holders of
the Notes, acknowledges such Grant, accepts the trust under this Indenture in
accordance with the provisions hereof and agrees to perform its duties as
Indenture Trustee as required herein.
<PAGE>
ARTICLE I
Definitions
Section 1.01. Definitions. For all purposes of this Indenture, except
as otherwise expressly provided herein or unless the context otherwise requires,
capitalized terms not otherwise defined herein shall have the meanings assigned
to such terms in the Definitions attached hereto as Appendix A which is
incorporated by reference herein. All other capitalized terms used herein shall
have the meanings specified herein.
Section 1.02. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the Trust Indenture Act (the
"TIA"), the provision is incorporated by reference in and made a part of this
Indenture. The following TIA terms used in this Indenture have the following
meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Indenture Trustee.
"obligor" on the indenture securities means the Issuer and any
other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
have the meaning assigned to them by such definitions.
Section 1.03. Rules of Construction. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the
meaning assigned to it in accordance with generally accepted accounting
principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
2
<PAGE>
(v) words in the singular include the plural and words
in the plural include the singular; and
(vi) any agreement, instrument or statute defined or
referred to herein or in any instrument or certificate delivered in
connection herewith means such agreement, instru ment or statute as
from time to time amended, modified or supplemented and includes (in
the case of agreements or instruments) references to all attachments
thereto and instruments incorporated therein; references to a Person
are also to its permitted successors and assigns.
3
<PAGE>
ARTICLE II
Original Issuance of Notes
Section 2.01. Form. The Notes, together with the Indenture Trustee's
certificate of authentication, shall be in substantially the form set forth in
Exhibit A, with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may, consistently herewith, be determined by the
officers executing such Notes, as evidenced by their execution of the Notes. Any
portion of the text of any Note may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Note.
The Notes shall be typewritten, printed, lithographed or engraved or
produced by any combination of these methods (with or without steel engraved
borders), all as determined by the Authorized Officers executing such Notes, as
evidenced by their execution of such Notes.
The terms of the Notes set forth in Exhibit A are part of the terms of
this Indenture.
Section 2.02. Execution, Authentication and Delivery. The Notes shall
be executed on behalf of the Issuer by any of its Authorized Officers. The
signature of any such Authorized Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individuals who were
at any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
The Indenture Trustee shall upon Issuer Request authenticate and
deliver Notes for original issue in an aggregate initial principal amount of
$___________.
Each Note shall be dated the date of its authentication. The Notes
shall be issuable as registered Notes and the Notes shall be issuable in the
minimum initial Security Balances of $100,000 and in integral multiples of
$1,000 in excess thereof.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.
4
<PAGE>
ARTICLE III
Covenants
Section 3.01. Collection of Payments with respect to the Mortgage
Loans. The Indenture Trustee shall establish and maintain with itself a trust
account (the "Payment Account") in which the Indenture Trustee shall, subject to
the terms of this paragraph, deposit, on the same day as it is received from the
Master Servicer, each remittance received by the Indenture Trustee with respect
to the Mortgage Loans. The Indenture Trustee shall make all payments of
principal of and interest on the Notes, subject to Section 3.03 as provided in
Section 3.05 herein from monies on deposit in the Payment Account.
Section 3.02. Maintenance of Office or Agency. The Issuer will maintain
in the [Borough of Manhattan, The City of New York,] an office or agency where,
subject to satisfaction of conditions set forth herein, Notes may be surrendered
for registration of transfer or exchange, and where notices and demands to or
upon the Issuer in respect of the Notes and this Indenture may be served. The
Issuer hereby initially appoints the Indenture Trustee to serve as its agent for
the foregoing purposes. If at any time the Issuer shall fail to maintain any
such office or agency or shall fail to furnish the Indenture Trustee with the
address thereof, such surrenders, notices and demands may be made or served at
the Corporate Trust Office, and the Issuer hereby appoints the Indenture Trustee
as its agent to receive all such surrenders, notices and demands.
Section 3.03. Money for Payments To Be Held in Trust; Paying Agent. (a)
As provided in Section 3.01, all payments of amounts due and payable with
respect to any Notes that are to be made from amounts withdrawn from the Payment
Account pursuant to Section 3.01 shall be made on behalf of the Issuer by the
Indenture Trustee or by the Paying Agent, and no amounts so withdrawn from the
Payment Account for payments of Notes shall be paid over to the Issuer except as
provided in this Section 3.03.
The Issuer will cause each Paying Agent other than the Indenture
Trustee to execute and deliver to the Indenture Trustee an instrument in which
such Paying Agent shall agree with the Indenture Trustee (and if the Indenture
Trustee acts as Paying Agent it hereby so agrees), subject to the provisions of
this Section 3.03, that such Paying Agent will:
(i) hold all sums held by it for the payment of amounts
due with respect to the Notes in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and pay such sums to such
Persons as herein provided;
(ii) give the Indenture Trustee notice of any default by
the Issuer of which it has actual knowledge in the making of any
payment required to be made with respect to the Notes;
5
<PAGE>
(iii) at any time during the continuance of any such
default, upon the written request of the Indenture Trustee, forthwith
pay to the Indenture Trustee all sums so held in trust by such Paying
Agent;
(iv) immediately resign as Paying Agent and forthwith
pay to the Indenture Trustee all sums held by it in trust for the
payment of Notes if at any time it ceases to meet the standards
required to be met by a Paying Agent at the time of its appointment;
and
(v) comply with all requirements of the Code with
respect to the withholding from any payments made by it on any Notes of
any applicable withholding taxes imposed thereon and with respect to
any applicable reporting requirements in connection therewith.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Request direct any Paying Agent to pay to the Indenture Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Indenture Trustee upon
the same trusts as those upon which the sums were held by such Paying Agent; and
upon such payment by any Paying Agent to the Indenture Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds, any money
held by the Indenture Trustee or any Paying Agent in trust for the payment of
any amount due with respect to any Note and remaining unclaimed for one year
after such amount has become due and payable shall be discharged from such trust
and be paid to the Issuer on Issuer Request; and the Holder of such Note shall
thereafter, as an unsecured general creditor, look only to the Issuer for
payment thereof (but only to the extent of the amounts so paid to the Issuer),
and all liability of the Inden ture Trustee or such Paying Agent with respect to
such trust money shall thereupon cease; provided, however, that the Indenture
Trustee or such Paying Agent, before being required to make any such repayment,
shall at the expense and direction of the Issuer cause to be published once, in
an Authorized Newspaper published in the English language, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Issuer. The Indenture
Trustee may also adopt and employ, at the expense and direction of the Issuer,
any other reasonable means of notification of such repayment (including, but not
limited to, mailing notice of such repayment to Holders whose Notes have been
called but have not been surrendered for redemption or whose right to or
interest in monies due and payable but not claimed is determinable from the
records of the Indenture Trustee or of any Paying Agent, at the last address of
record for each such Holder).
Section 3.04. Existence. The Issuer will keep in full effect its
existence, rights and franchises as a business trust under the laws of the State
of Delaware (unless it becomes, or any successor Issuer hereunder is or becomes,
organized under the laws of any other state or of the United States of America,
in which case the Issuer will keep in full effect its existence, rights and
franchises under the laws of such other jurisdiction) and will obtain and
preserve its qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect
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the validity and enforceability of this Indenture, the Notes, the Mortgage Loans
and each other instrument or agreement included in the Trust Estate.
Section 3.05. Payment of Principal and Interest; Defaulted Interest.
(a) On each Payment Date from amounts on deposit in the Payment Account after
making (x) any deposit to the Funding Account pursuant to Section 8.02(b) and
(y) any deposits to the Payment Account pursuant to Section 8.02(c)(ii) and
Section 8.02(c)(i)(2), the Indenture Trustee shall pay to the Noteholders, the
Certificate Paying Agent, on behalf of the Certificateholders, and to other
Persons the amounts to which they are entitled as set forth below:
(i) To the Noteholders the sum of (a) one month's
interest at the Note Interest Rate on the Security Balances of Notes
immediately prior to such Payment Date and (b) any previously accrued
and unpaid interest for prior Payment Dates;
(ii) if such Payment Date is after the Funding Period,
to the Noteholders, as principal on the Notes, the applicable Security
Percentage of the Principal Collection Distribution Amount and if such
Payment Date is the first Payment Date following the end of the Funding
Period (if ending due to an Amortization Event) or the Payment Date on
which the Funding Period ends, to the Noteholders as principal on the
Notes the applicable Security Percentage of the amount deposited from
the Funding Account in respect of Security Principal Collections;
(iii) to the Noteholders, as principal on the Notes, from
the amount remaining on deposit in the Payment Account, up to the
applicable Security Percentage of Liquidation Loss Amounts for the
related Collection Period;
(iv) to the Noteholders, as principal on the Notes, from
the amount remaining on deposit in the Payment Account, up to the
applicable Security Percentage of Carryover
Loss Amounts;
(v) to the Credit Enhancer, in the amount of the
premium for the Credit Enhancement Instrument and for any Additional
Credit Enhancement Instrument;
(vi) to the Credit Enhancer, to reimburse it for prior
draws made on the Credit Enhancement Instrument and on any Additional
Credit Enhancement Instrument (with interest thereon as provided in the
Insurance Agreement);
(vii) to the Noteholders, as principal on the Notes based
on the Security Balances from Security Interest Collections, up to the
Special Capital Distribution Amount for such Payment Date;
(viii) to the Credit Enhancer, any other amounts owed
to the Credit Enhancer pursuant to the Insurance Agreement;
(ix) [Reserved];
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(x) to reimburse the Administrator for expenditures
made on behalf of the Issuer with respect to the performance of its
duties under the Indenture; and
(xi) any remaining amount, to the Certificate Paying
Agent, on behalf of the Certificates.
provided, however, in the event that on a Payment Date a Credit Enhancer Default
shall have occurred and be continuing then the priorities of distributions
described above will be adjusted such that payments of the Certificate
Distribution Amount and all other amounts to be paid to the Certificate Paying
Agent will not be paid until the full amount of interest and principal in
accordance with clauses (i), (x) and (ii) through (iv) above that are due on the
Notes on such Payment Date have been paid and provided, further, that on the
Final Scheduled Payment Date or other final Payment Date, the amount to be paid
pursuant to clause (ii) above shall be equal to the Security Balances of the
Securities immediately prior to such Payment Date.
On each Payment Date, the Certificate Paying Agent shall deposit in the
Certificate Distribution Account all amounts it received pursuant to this
Section 3.05 for the purpose of distributing such funds to the
Certificateholders.
The amounts paid to Noteholders shall be paid to each Class in
accordance with the Class Percentage as set forth in paragraph (b) below.
Interest will accrue on the Notes during an Interest Period on the basis of the
actual number of days in such Interest Period and a year assumed to consist of
360 days.
[Any installment of interest or principal, if any, payable on any Note
or Certificate that is punctually paid or duly provided for by the Issuer on the
applicable Payment Date shall, if such Holder holds Notes or Certificates of an
aggregate initial Principal Balance of at least $1,000,000, be paid to each
Holder of record on the preceding Record Date, by wire transfer to an account
specified in writing by such Holder reasonably satisfactory to the Indenture
Trustee as of the preceding Record Date or in all other cases or if no such
instructions have been delivered to the Indenture Trustee, by check to such
Noteholder mailed to such Holder's address as it appears in the Note Register
the amount required to be distributed to such Holder on such Payment Date
pursuant to such Holder's Securities; provided, however, that the Indenture
Trustee shall not pay to such Holders any amount required to be withheld from a
payment to such Holder by the Code.]
(b) The principal of each Note shall be due and payable in full on the
Final Scheduled Payment Date for such Note as provided in the form of Note set
forth in Exhibit A. All principal payments on each Class of Notes shall be made
to the Noteholders of such Class entitled thereto in accordance with the
Percentage Interests represented by such Notes. Upon notice to the Indenture
Trustee by the Issuer, the Indenture Trustee shall notify the Person in whose
name a Note is registered at the close of business on the Record Date preceding
the Final Scheduled Payment Date or other final Payment Date. Such notice shall
be mailed no later than five Business Days prior to such Final Scheduled Payment
Date or other final Payment Date and shall specify that payment of the principal
amount and any interest due with respect to such Note at the Final Scheduled
Payment Date or other final Payment Date will be payable only upon presentation
and
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surrender of such Note and shall specify the place where such Note may be
presented and surrendered for such final payment.
Section 3.06. Protection of Trust Estate. (a) The Issuer will from time
to time execute and deliver all such supplements and amendments hereto and all
such financing statements, continuation statements, instruments of further
assurance and other instruments, and will take such other action necessary or
advisable to:
(i) maintain or preserve the lien and security interest
(and the priority thereof) of this Indenture or carry out more
effectively the purposes hereof;
(ii) perfect, publish notice of or protect the validity
of any Grant made or to be made by this Indenture;
(iii) cause the Issuer to enforce any of the Mortgage
Loans; or
(iv) preserve and defend title to the Trust Estate and
the rights of the Indenture Trustee and the Noteholders in such Trust
Estate against the claims of all persons and parties.
(b) Except as otherwise provided in this Indenture, the Indenture
Trustee shall not remove any portion of the Trust Estate that consists of money
or is evidenced by an instrument, certificate or other writing from the
jurisdiction in which it was held at the date of the most recent Opinion of
Counsel delivered pursuant to Section 3.07 (or from the jurisdiction in which it
was held as described in the Opinion of Counsel delivered at the Closing Date
pursuant to Section 3.07(a), if no Opinion of Counsel has yet been delivered
pursuant to Section 3.07(b) unless the Trustee shall have first received an
Opinion of Counsel to the effect that the lien and security interest created by
this Indenture with respect to such property will continue to be maintained
after giving effect to such action or actions.
The Issuer hereby designates the Indenture Trustee its agent and
attorney-in-fact to execute any financing statement, continuation statement or
other instrument required to be executed pur suant to this Section 3.06.
Section 3.07. Opinions as to Trust Estate. (a) On the Closing Date, the
Issuer shall furnish to the Indenture Trustee and the Owner Trustee an Opinion
of Counsel either stating that, in the opinion of such counsel, such action has
been taken with respect to the recording and filing of this Indenture, any
indentures supplemental hereto, and any other requisite documents, and with
respect to the execution and filing of any financing statements and continuation
statements, as are necessary to perfect and make effective the lien and security
interest in the Mortgage Loans and reciting the details of such action, or
stating that, in the opinion of such counsel, no such action is necessary to
make such lien and security interest effective.
(b) On or before ___________ in each calendar year, beginning in ____,
the Issuer shall furnish to the Indenture Trustee an Opinion of Counsel at the
expense of the Issuer either stating
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that, in the opinion of such counsel, such action has been taken with respect to
the recording, filing, re-recording and refiling of this Indenture, any
indentures supplemental hereto and any other requisite documents and with
respect to the execution and filing of any financing statements and continuation
statements as is necessary to maintain the lien and security interest in the
Mortgage Loans and reciting the details of such action or stating that in the
opinion of such counsel no such action is necessary to maintain such lien and
security interest. Such Opinion of Counsel shall also describe the recording,
filing, re-recording and refiling of this Indenture, any indentures supplemental
hereto and any other requisite documents and the execution and filing of any
financing statements and continuation statements that will, in the opinion of
such counsel, be required to maintain the lien and security interest in the
Mortgage Loans until December 31 in the following calendar year.
Section 3.08. Performance of Obligations; Servicing Agreement. (a) The
Issuer will punctually perform and observe all of its obligations and agreements
contained in this Indenture, the Basic Documents and in the instruments and
agreements included in the Trust Estate.
(b) The Issuer may contract with other Persons to assist it in
performing its duties under this Indenture, and any performance of such duties
by a Person identified to the Indenture Trustee in an Officer's Certificate of
the Issuer shall be deemed to be action taken by the Issuer. Initially, the
Issuer has contracted with the Administrator to assist the Issuer in performing
its duties under this Indenture.
(c) The Issuer will not take any action or permit any action to be
taken by others which would release any Person from any of such Person's
covenants or obligations under any of the documents relating to the Mortgage
Loans or under any instrument included in the Trust Estate, or which would
result in the amendment, hypothecation, subordination, termination or discharge
of, or impair the validity or effectiveness of, any of the documents relating to
the Mortgage Loans or any such instrument, except such actions as the Master
Servicer is expressly permitted to take in the Servicing Agreement. The
Indenture Trustee, as pledgee of the Mortgage Loans, shall be able to exercise
the rights Issuer and the Mortgage Loans holder, to direct the actions of the
Master Servicer.
(d) The Issuer shall at all times retain an Administrator (approved by
the Credit Enhancer under the Administration Agreement) and may enter into
contracts with other Persons for the performance of the Issuer's obligations
hereunder, and performance of such obligations by such Persons shall be deemed
to be performance of such obligations by the Issuer.
Section 3.09. Negative Covenants. So long as any Notes are Outstanding,
the Issuer shall not:
(i) except as expressly permitted by this Indenture,
sell, transfer, exchange or otherwise dispose of the Trust Estate,
unless directed to do so by the Indenture Trustee;
(ii) claim any credit on, or make any deduction from the
principal or interest payable in respect of, the Notes (other than
amounts properly withheld from such payments
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under the Code) or assert any claim against any present or former
Noteholder by reason of the payment of the taxes levied or assessed
upon any part of the Trust Estate;
(iii) (A) permit the validity or effectiveness of this
Indenture to be impaired, or permit the lien of this Indenture to be
amended, hypothecated, subordinated, terminated or discharged, or
permit any Person to be released from any covenants or obligations with
respect to the Notes under this Indenture except as may be expressly
permitted hereby, (B) permit any lien, charge, excise, claim, security
interest, mortgage or other encumbrance (other than the lien of this
Indenture) to be created on or extend to or other wise arise upon or
burden the Trust Estate or any part thereof or any interest therein or
the proceeds thereof or (C) permit the lien of this Indenture not to
constitute a valid first priority security interest in the Trust
Estate; or
(iv) waive or impair, or fail to assert rights under,
the Mortgage Loans, or impair or cause to be impaired the Company's or
the Issuer's interest in the Mortgage Loans, the Mortgage Loan Purchase
Agreement or in any Basic Document, if any such action would materially
and adversely affect the interests of the Noteholders.
Section 3.10. Annual Statement as to Compliance. The Issuer will
deliver to the Indenture Trustee, within 120 days after the end of each fiscal
year of the Issuer (commencing with the fiscal year ____), an Officer's
Certificate stating, as to the Authorized Officer signing such Officer's
Certificate, that:
(i) a review of the activities of the Issuer during
such year and of its performance under this Indenture has been made
under such Authorized Officer's supervision; and
(ii) to the best of such Authorized Officer's knowledge,
based on such review, the Issuer has complied with all conditions and
covenants under this Indenture throughout such year, or, if there has
been a default in its compliance with any such condition or covenant,
specifying each such default known to such Authorized Officer and the
nature and status thereof.
Section 3.11. Recording of Assignments. The Company shall cause the to
exercise its right under the Mortgage Loan Purchase Agreement with respect to
the obligation of the Seller to submit or cause to be submitted for recording
all Assignments of Mortgages on or prior to ______________ with respect to the
Initial Loans and within 60 days following the related Deposit Date with respect
to any Additional Loans.
Section 3.12. Representations and Warranties Concerning the Mortgage
Loans. The Indenture Trustee, as pledgee of the Mortgage Loans, has the benefit
of the representations and warranties made by the Seller in Section [____] and
Section [____] of the Mortgage Loan Purchase Agreement concerning the Mortgage
Loans and the right to enforce the remedies against the Seller provided in such
Section [____] or Section [____] to the same extent as though such
representations and warranties were made directly to the Indenture Trustee.
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Section 3.13. Amendments to Servicing Agreement. The Issuer covenants
with the Inden ture Trustee that it will not enter into any amendment or
supplement to the Servicing Agreement in accordance with Section 8.01 of the
Servicing Agreement without the prior written consent of the Indenture Trustee.
The Indenture Trustee, as pledgee of the Mortgage Loans, may, in its discretion,
decline to enter into or consent to any such supplement or amendment if its own
rights, duties or immunities shall be adversely affected.
Section 3.14. Master Servicer as Agent and Bailee of the Mortgage Loans
Holder. Solely for purposes of perfection under Section 9-305 of the Uniform
Commercial Code or other similar applicable law, rule or regulation of the state
in which such property is held by the Master Servicer, the Indenture Trustee
hereby acknowledges that the Master Servicer is acting as agent and bailee of
the Mortgage Loans holder in holding amounts on deposit in the Collection
Account pursuant to Section 3.02 of the Servicing Agreement, as well as its
agent and bailee in holding any Related Documents released to the Master
Servicer pursuant to Section 3.06(c) of the Servicing Agreement, and any other
items constituting a part of the Trust Estate which from time to time come into
the possession of the Master Servicer. It is intended that, by the Master
Servicer's acceptance of such agency pursuant to Section 3.02 of the Servicing
Agreement, the Trustee, as a secured party of the Mortgage Loans, will be deemed
to have possession of such Related Documents, such monies and such other items
for purposes of Section 9-305 of the Uniform Commercial Code of the state in
which such property is held by the Master Servicer.
Section 3.15. Investment Company Act. The Issuer shall not become an
"investment company" or under the "control" of an "investment company" as such
terms are defined in the Investment Company Act of 1940, as amended (or any
successor or amendatory statute), and the rules and regulations thereunder
(taking into account not only the general definition of the term "investment
company" but also any available exceptions to such general definition);
provided, however, that the Issuer shall be in compliance with this Section 3.15
if it shall have obtained an order exempting it from regulation as an
"investment company" so long as it is in compliance with the conditions imposed
in such order.
Section 3.16. Issuer May Consolidate, etc. (a) The Issuer shall not
consolidate or merge with or into any other Person, unless:
(i) the Person (if other than the Issuer) formed by or
surviving such consolidation or merger shall be a Person organized and
existing under the laws of the United States of America or any state or
the District of Columbia and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Indenture Trustee,
in form reasonably satisfactory to the Indenture Trustee, the due and
punctual payment of the principal of and interest on all Notes and to
the Certificate Paying Agent, on behalf of the Certificateholders and
the performance or observance of every agreement and covenant of this
Indenture on the part of the Issuer to be performed or observed, all as
provided herein;
(ii) immediately after giving effect to such
transaction, no Event of Default shall have occurred and be continuing;
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(iii) the Rating Agencies shall have notified the Issuer
that such transaction shall not cause the rating of the Notes [or the
Certificates] to be reduced, suspended or withdrawn or to be considered
by either Rating Agency to be below investment grade without taking
into account the Credit Enhancement Instrument;
(iv) the Issuer shall have received an Opinion of
Counsel (and shall have delivered copies thereof to the Indenture
Trustee) to the effect that such transaction will not have any material
adverse tax consequence to the Issuer, any Noteholder or any
Certificateholder;
(v) any action that is necessary to maintain the lien
and security interest created by this Indenture shall have been taken;
and
(vi) the Issuer shall have delivered to the Indenture
Trustee an Officer's Certificate and an Opinion of Counsel each stating
that such consolidation or merger and such supplemental indenture
comply with this Article III and that all conditions precedent herein
provided for relating to such transaction have been complied with
(including any filing required by the Exchange Act).
(b) The Issuer shall not convey or transfer any of its properties or
assets, including those included in the Trust Estate, to any Person, unless:
(i) the Person that acquires by conveyance or transfer
the properties and assets of the Issuer the conveyance or transfer of
which is hereby restricted shall (A) be a United States citizen or a
Person organized and existing under the laws of the United States of
America or any state, (B) expressly assumes, by an indenture
supplemental hereto, executed and delivered to the Indenture Trustee,
in form satisfactory to the Indenture Trustee, the due and punctual
payment of the principal of and interest on all Notes and the
performance or observance of every agreement and covenant of this
Indenture on the part of the Issuer to be performed or observed, all as
provided herein, (C) expressly agrees by means of such supplemental
indenture that all right, title and interest so conveyed or trans
ferred shall be subject and subordinate to the rights of Holders of the
Notes, (D) unless otherwise provided in such supplemental indenture,
expressly agrees to indemnify, defend and hold harmless the Issuer
against and from any loss, liability or expense arising under or
related to this Indenture and the Notes and (E) expressly agrees by
means of such supplemental indenture that such Person (or if a group of
Persons, then one specified Person) shall make all filings with the
Commission (and any other appropriate Person) required by the Exchange
Act in connection with the Notes;
(ii) immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing;
(iii) the Rating Agencies shall have notified the Issuer
that such transaction shall not cause the rating of the Notes or the
Certificates to be reduced, suspended or withdrawn;
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(iv) the Issuer shall have received an Opinion of
Counsel (and shall have delivered copies thereof to the Indenture
Trustee) to the effect that such transaction will not have any material
adverse tax consequence to the Issuer or any Noteholder;
(v) any action that is necessary to maintain the lien
and security interest created by this Indenture shall have been taken;
and
(vi) the Issuer shall have delivered to the Indenture
Trustee an Officer's Certificate and an Opinion of Counsel each stating
that such conveyance or transfer and such supplemental indenture comply
with this Article III and that all conditions precedent herein provided
for relating to such transaction have been complied with (including any
filing required by the Exchange Act).
Section 3.17. Successor or Transferee. (a) Upon any consolidation or
merger of the Issuer in accordance with Section 3.16(a), the Person formed by or
surviving such consolidation or merger (if other than the Issuer) shall succeed
to, and be substituted for, and may exercise every right and power of, the
Issuer under this Indenture with the same effect as if such Person had been
named as the Issuer herein.
(b) Upon a conveyance or transfer of all the assets and properties of
the Issuer pursuant to Section 3.16(b), the Issuer will be released from every
covenant and agreement of this Indenture to be observed or performed on the part
of the Issuer with respect to the Notes immediately upon the delivery of written
notice to the Indenture Trustee of such conveyance or transfer.
Section 3.18. No Other Business. The Issuer shall not engage in any
business other than financing, purchasing, owning and selling and managing the
Mortgage Loans and the issuance of the Notes and Certificates in the manner
contemplated by this Indenture and the Basic Documents and all activities
incidental thereto.
Section 3.19. No Borrowing. The Issuer shall not issue, incur, assume,
guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes.
Section 3.20. Guarantees, Loans, Advances and Other Liabilities. Except
as contemplated by this Indenture or the Basic Documents, the Issuer shall not
make any loan or advance or credit to, or guarantee (directly or indirectly or
by an instrument having the effect of assuring another's payment or performance
on any obligation or capability of so doing or otherwise), endorse or otherwise
become contingently liable, directly or indirectly, in connection with the
obligations, stocks or dividends of, or own, purchase, repurchase or acquire (or
agree contingently to do so) any stock, obligations, assets or securities of, or
any other interest in, or make any capital contribution to, any other Person.
Section 3.21. Capital Expenditures. The Issuer shall not make any
expenditure (by long- term or operating lease or otherwise) for capital assets
(either realty or personalty).
Section 3.22. [Reserved]
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Section 3.23. Restricted Payments. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or security
in or of the Issuer, (ii) redeem, purchase, retire or otherwise acquire for
value any such ownership or equity interest or security or (iii) set aside or
otherwise segregate any amounts for any such purpose; provided, however, that
the Issuer may make, or cause to be made, (x) distributions to the Owner Trustee
and the Certificateholders as contemplated by, and to the extent funds are
available for such purpose under the Trust Agreement, (y) payments to the Master
Servicer pursuant to the terms of the Servicing Agreement and (z) payments to
the Indenture Trustee pursuant to Section 1(a)(ii) of the Administration
Agreement. The Issuer will not, directly or indirectly, make payments to or
distributions from the Collection Account except in accordance with this
Indenture and the Basic Documents.
Section 3.24. Notice of Events of Default. The Issuer shall give the
Indenture Trustee the Credit Enhancer and the Rating Agencies prompt written
notice of each Event of Default hereunder and under the Trust Agreement.
Section 3.25. Further Instruments and Acts. Upon request of the
Indenture Trustee, the Issuer will execute and deliver such further instruments
and do such further acts as may be reasonably necessary or proper to carry out
more effectively the purpose of this Indenture.
Section 3.26. Statements to Noteholders. The Indenture Trustee and the
Certificate Registrar shall forward by mail to each Noteholder and
Certificateholder, respectively, the State ment delivered to it pursuant to
Section 4.01 of the Servicing Agreement.
Section 3.27. Determination of Note Interest Rate. On the second LIBOR
Business Day immediately preceding (i) the Closing Date in the case of the first
Interest Period and (ii) the first day of each succeeding Interest Period, the
Indenture Trustee shall determine LIBOR and the Note Interest Rate for such
Interest Period and shall inform the Issuer, the Master Servicer and the
Depositor at their respective facsimile numbers given to the Indenture Trustee
in writing thereof.
Section 3.28. Payments under the Credit Enhancement Instrument. (a) On
any Payment Date, other than a Dissolution Payment Date, the Indenture Trustee
on behalf of the Noteholders, and in its capacity as Certificate Paying Agent on
behalf of the Certificateholders shall make a draw on the Credit Enhancement
Instrument in an amount if any equal to the sum of (x) the amount by which the
interest accrued at the Note Interest Rate on the Security Balance of the Notes
exceeds the amount on deposit in the Payment Account available to be distributed
therefor on such Payment Date and (y) the Guaranteed Principal Payment Amount
(the "Credit Enhancement Draw Amount").
(b) The Indenture Trustee shall submit, if a Credit Enhancement Draw
Amount is specified in any Statement to Holders prepared by the Master Servicer
pursuant to Section 4.01 of the Servicing Agreement, the Notice for Payment (as
defined in the Credit Enhancement Instrument) in the amount of the Credit
Enhancement Draw Amount to the Credit Enhancer no later than 2:00
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P.M., New York City time, on the second Business Day prior to the applicable
Payment Date. Upon receipt of such Credit Enhancement Draw Amount in accordance
with the terms of the Credit Enhancement Instrument, the Indenture Trustee shall
deposit such Credit Enhancement Draw Amount in the Payment Account for
distribution to Holders (and the Certificate Paying Agent on behalf of the
Certificates) pursuant to Section 3.05.
In addition, a draw may be made under the Credit Enhancement Instrument
in respect of any Avoided Payment (as defined in and pursuant to the terms and
conditions of the Credit Enhancement Instrument) and the Indenture Trustee shall
submit a Notice for Payment with respect thereto together with the other
documents required to be delivered to the Credit Enhancer pursuant to the Credit
Enhancement Instrument in connection with a draw in respect of any Avoided
Payment.
(c) In the event that any Additional Credit Enhancement Instruments are
issued pursuant to Section 4.01 and Section 2.02(B) of the Insurance Agreement,
the Indenture Trustee shall be authorized to make draws thereon subject to the
terms and conditions therein.
Section 3.29. Replacement Credit Enhancement Instrument. In the event
of a Credit Enhancer Default or if the claims paying ability rating of the
Credit Enhancer is downgraded and such downgrade results in a downgrading of the
then current rating of the Securities (in each case, a "Replacement Event"), the
Issuer, at its expense, in accordance with and upon satisfaction of the
conditions set forth in the Credit Enhancement Instrument, including, without
limitation, payment in full of all amounts owed to the Credit Enhancer, may, but
shall not be required to, substitute a new surety bond or surety bonds for the
existing Credit Enhancement Instrument or may arrange for any other form of
credit enhancement; provided, however, that in each case the Notes shall be
rated no lower than the rating assigned by each Rating Agency to the Notes
immediately prior to such Replacement Event and the timing and mechanism for
drawing on such new credit enhancement shall be reasonably acceptable to the
Indenture Trustee and provided further that the premiums under the proposed
credit enhancement shall not exceed such premiums under the existing Credit
Enhancement Instrument. It shall be a condition to substitution of any new
credit enhancement that there be delivered to the Indenture Trustee (i) an
Opinion of Counsel, acceptable in form to the Indenture Trustee, from counsel to
the provider of such new credit enhancement with respect to the enforceability
thereof and such other matters as the Indenture Trustee may require and (ii) an
Opinion of Counsel to the effect that such substitution would not (a) adversely
affect in any material respect the tax status of the Notes or (b) cause the
Issuer to be subject to a tax at the entity level. Upon receipt of the items
referred to above and payment of all amounts owing to the Credit Enhancer and
the taking of physical possession of the new credit enhancement, the Indenture
Trustee shall, within five Business Days following receipt of such items and
such taking of physical possession, deliver the replaced Credit Enhancement
Instrument to the Credit Enhancer. In the event of any such replacement the
Issuer shall give written notice thereof to the Rating Agencies.
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ARTICLE IV
The Notes; Satisfaction and Discharge of Indenture
Section 4.01. The Notes. The Notes shall be registered in the name of a
nominee desig nated by the Depository. Beneficial Owners will hold interests in
the Notes through the book- entry facilities of the Depository in minimum
initial Principal Balances of $1,000 and integral multiples of $1,000 in excess
thereof.
The Indenture Trustee may for all purposes (including the making of
payments due on the Notes) deal with the Depository as the authorized
representative of the Beneficial Owners with respect to the Notes for the
purposes of exercising the rights of Holders of Notes hereunder. Except as
provided in the next succeeding paragraph of this Section 4.01, the rights of
Beneficial Owners with respect to the Notes shall be limited to those
established by law and agreements between such Beneficial Owners and the
Depository and Depository Participants. Except as provided in Section 4.08,
Beneficial Owners shall not be entitled to definitive certificates for the Notes
as to which they are the Beneficial Owners. Requests and directions from, and
votes of, the Depository as Holder of the Notes shall not be deemed inconsistent
if they are made with respect to different Beneficial Owners. The Indenture
Trustee may establish a reasonable record date in connection with solicitations
of consents from or voting by Noteholders and give notice to the Depository of
such record date. Without the consent of the Issuer and the Indenture Trustee,
no Note may be transferred by the Depository except to a successor Depository
that agrees to hold such Note for the account of the Beneficial Owners.
In the event the Depository Trust Company resigns or is removed as
Depository, the Indenture Trustee with the approval of the Issuer may appoint a
successor Depository. If no successor Depository has been appointed within 30
days of the effective date of the Depository's resignation or removal, each
Beneficial Owner shall be entitled to certificates representing the Notes it
beneficially owns in the manner prescribed in Section 4.08.
The Notes shall, on original issue, be executed on behalf of the Issuer
by the Owner Trustee, not in its individual capacity but solely as Owner
Trustee, authenticated by the Note Registrar and delivered by the Indenture
Trustee to or upon the order of the Issuer.
Section 4.02. Registration of and Limitations on Transfer and Exchange
of Notes; Appointment of Certificate Registrar. The Issuer shall cause to be
kept at its Corporate Trust Office a Note Register in which, subject to such
reasonable regulations as it may prescribe, the Note Registrar shall provide for
the registration of Notes and of transfers and exchanges of Notes as herein
provided.
Subject to the restrictions and limitations set forth below, upon
surrender for registration of transfer of any Note at the Corporate Trust
Office, the Indenture Trustee shall execute and the Note Registrar shall
authenticate and deliver, in the name of the designated transferee or
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transferees, one or more new Notes in authorized initial Security Balances
evidencing the same aggregate Percentage Interests.
Subject to the foregoing, at the option of the Noteholders, Notes may
be exchanged for other Notes of like tenor or, in each case in authorized
initial Principal Balances evidencing the same aggregate Percentage Interests
upon surrender of the Notes to be exchanged at the Corporate Trust Office of the
Note Registrar. Whenever any Notes are so surrendered for exchange, the
Indenture Trustee shall execute and the Note Registrar shall authenticate and
deliver the Notes which the Noteholder making the exchange is entitled to
receive. Each Note presented or sur rendered for registration of transfer or
exchange shall (if so required by the Note Registrar) be duly endorsed by, or be
accompanied by a written instrument of transfer in form reasonably satisfactory
to the Note Registrar duly executed by, the Holder thereof or his attorney duly
authorized in writing with such signature guaranteed by a commercial bank or
trust company located or having a correspondent located in the city of New York.
Notes delivered upon any such transfer or exchange will evidence the same
obligations, and will be entitled to the same rights and privileges, as the
Notes surrendered.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Note Registrar shall require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes.
All Notes surrendered for registration of transfer and exchange shall
be canceled by the Note Registrar and delivered to the Indenture Trustee for
subsequent destruction without liability on the part of either.
The Issuer hereby appoints __________________________________ as
Certificate Registrar to keep at its Corporate Trust Office a Certificate
Register pursuant to Section 3.09 of the Trust Agreement in which, subject to
such reasonable regulations as it may prescribe, the Certificate Registrar shall
provide for the registration of Certificates and of transfers and exchanges
thereof pursuant to Section 3.05 of the Trust Agreement.
__________________________________ hereby accepts such appointment.
Section 4.03. Mutilated, Destroyed, Lost or Stolen Notes. If (i) any
mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (ii) there is delivered to the Indenture Trustee such security or
indemnity as may be required by it to hold the Issuer and the Indenture Trustee
harmless, then, in the absence of notice to the Issuer, the Note Registrar or
the Indenture Trustee that such Note has been acquired by a bona fide purchaser,
and provided that the requirements of Section 8-405 of the UCC are met, the
Issuer shall execute, and upon its request the Indenture Trustee shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Note, a replacement Note of the same Class; provided,
however, that if any such destroyed, lost or stolen Note, but not a mutilated
Note, shall have become or within seven days shall be due and payable, instead
of issuing a replacement Note, the Issuer may pay such
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destroyed, lost or stolen Note when so due or payable without surrender thereof.
If, after the delivery of such replacement Note or payment of a destroyed, lost
or stolen Note pursuant to the proviso to the preceding sentence, a bona fide
purchaser of the original Note in lieu of which such replacement Note was issued
presents for payment such original Note, the Issuer and the Indenture Trustee
shall be entitled to recover such replacement Note (or such payment) from the
Person to whom it was delivered or any Person taking such replacement Note from
such Person to whom such replacement Note was delivered or any assignee of such
Person, except a bona fide purchaser, and shall be entitled to recover upon the
security or indemnity provided therefor to the extent of any loss, damage, cost
or expense incurred by the Issuer or the Indenture Trustee in connection
therewith.
Upon the issuance of any replacement Note under this Section 4.03, the
Issuer may require the payment by the Holder of such Note of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other reasonable expenses (including the fees and expenses of
the Indenture Trustee) connected therewith.
Every replacement Note issued pursuant to this Section 4.03 in
replacement of any mutilated, destroyed, lost or stolen Note shall constitute an
original additional contractual obligation of the Issuer, whether or not the
mutilated, destroyed, lost or stolen Note shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section 4.03 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
Section 4.04. Persons Deemed Owners. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Indenture Trustee and any
agent of the Issuer or the Indenture Trustee may treat the Person in whose name
any Note is registered (as of the day of determination) as the owner of such
Note for the purpose of receiving payments of principal of and interest, if any,
on such Note and for all other purposes whatsoever, whether or not such Note be
overdue, and neither the Issuer, the Indenture Trustee nor any agent of the
Issuer or the Indenture Trustee shall be affected by notice to the contrary.
Section 4.05. Cancellation. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall be promptly canceled by the Indenture Trustee. The Issuer may at any
time deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Notes so delivered shall be promptly canceled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for
any Notes canceled as provided in this Section 4.05, except as expressly
permitted by this Indenture. All canceled Notes may be held or disposed of by
the Indenture Trustee in accordance with its standard retention or disposal
policy as in effect at the time unless the Issuer shall direct by an Issuer
Request that they be destroyed
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or returned to it; provided however, that such Issuer Request is timely and the
Notes have not been previously disposed of by the Indenture Trustee.
Section 4.06. Book-Entry Notes. The Notes, upon original issuance, will
be issued in the form of typewritten Notes representing the Book-Entry Notes, to
be delivered to The Depository Trust Company, the initial Depository, by, or on
behalf of, the Issuer. Such Notes shall initially be registered on the Note
Register in the name of Cede & Co., the nominee of the initial Depository, and
no Beneficial Owner will receive a Definitive Note representing such Beneficial
Owner's interest in such Note, except as provided in Section 4.08. Unless and
until definitive, fully registered Notes (the "Definitive Notes") have been
issued to Beneficial Owners pursuant to Section 4.08:
(i) the provisions of this Section 4.06 shall be in
full force and effect;
(ii) the Note Registrar and the Indenture Trustee shall
be entitled to deal with the Depository for all purposes of this
Indenture (including the payment of principal of and interest on the
Notes and the giving of instructions or directions hereunder) as the
sole holder of the Notes, and shall have no obligation to the Owners of
Notes;
(iii) to the extent that the provisions of this Section
4.06 conflict with any other provisions of this Indenture, the
provisions of this Section 4.06 shall control;
(iv) the rights of Beneficial Owners shall be exercised
only through the Depository and shall be limited to those established
by law and agreements between such Owners of Notes and the Depository
and/or the Depository Participants. Unless and until Definitive Notes
are issued pursuant to Section 4.08, the initial Depository will make
book-entry transfers among the Depository Participants and receive and
transmit payments of principal of and interest on the Notes to such
Depository Participants; and
(v) whenever this Indenture requires or permits actions
to be taken based upon instructions or directions of Holders of Notes
evidencing a specified percentage of the Security Balances of the
Notes, the Depository shall be deemed to represent such percentage only
to the extent that it has received instructions to such effect from
Beneficial Owners and/or Depository Participants owning or
representing, respectively, such required percentage of the beneficial
interest in the Notes and has delivered such instructions to the
Indenture Trustee.
Section 4.07. Notices to Depository. Whenever a notice or other
communication to the Note Holders is required under this Indenture, unless and
until Definitive Notes shall have been issued to Beneficial Owners pursuant to
Section 4.08, the Indenture Trustee shall give all such notices and
communications specified herein to be given to Holders of the Notes to the
Depository, and shall have no obligation to the Beneficial Owners.
Section 4.08. Definitive Notes. If (i) the Administrator advises the
Indenture Trustee in writing that the Depository is no longer willing or able to
properly discharge its responsibilities
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with respect to the Notes and the Administrator is unable to locate a qualified
successor, (ii) the Administrator at its option advises the Indenture Trustee in
writing that it elects to terminate the book-entry system through the Depository
or (iii) after the occurrence of an Event of Default, Owners of Notes
representing beneficial interests aggregating at least a majority of the
Security Balances of the Notes advise the Depository in writing that the
continuation of a book-entry system through the Depository is no longer in the
best interests of the Beneficial Owners, then the Depository shall notify all
Beneficial Owners and the Indenture Trustee of the occurrence of any such event
and of the availability of Definitive Notes to Beneficial Owners requesting the
same. Upon surrender to the Indenture Trustee of the typewritten Notes
representing the Book-Entry Notes by the Depository, accompanied by registration
instructions, the Issuer shall execute and the Indenture Trustee shall
authenticate the Definitive Notes in accordance with the instructions of the
Depository. None of the Issuer, the Note Registrar or the Indenture Trustee
shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
Upon the issuance of Definitive Notes, the Indenture Trustee shall recognize the
Holders of the Definitive Notes as Noteholders.
Section 4.09. Tax Treatment. The Issuer has entered into this
Indenture, and the Notes will be issued, with the intention that, for federal,
state and local income, single business and franchise tax purposes, the Notes
will qualify as indebtedness of the Issuer. The Issuer, by entering into this
Indenture, and each Noteholder, by its acceptance of its Note (and each Bene
ficial Owner by its acceptance of an interest in the applicable Book-Entry
Note), agree to treat the Notes for federal, state and local income, single
business and franchise tax purposes as indebtedness of the Issuer.
Section 4.10. Satisfaction and Discharge of Indenture. This Indenture
shall cease to be of further effect with respect to the Notes except as to (i)
rights of registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Noteholders to receive payments
of principal thereof and interest thereon, (iv) Sections 3.03, 3.04, 3.06, 3.09,
3.16, 3.18 and 3.19, (v) the rights, obligations and immunities of the Indenture
Trustee hereunder (including the rights of the Indenture Trustee under Section
6.07 and the obligations of the Indenture Trustee under Section 4.11) and (vi)
the rights of Noteholders as beneficiaries hereof with respect to the property
so deposited with the Indenture Trustee payable to all or any of them, and the
Indenture Trustee, on demand of and at the expense of the Issuer, shall execute
proper instruments acknowledging satisfaction and discharge of this Indenture
with respect to the Notes, when
(A) either
(1) all Notes theretofore authenticated and delivered (other
than (i) Notes that have been destroyed, lost or stolen and that have
been replaced or paid as provided in Section 4.03 and (ii) Notes for
whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Issuer and thereafter repaid to the
Issuer or discharged from such trust, as provided in Section 3.03) have
been delivered to the Indenture Trustee for cancellation; or
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(2) all Notes not theretofore delivered to the
Indenture Trustee for cancellation
a. have become due and payable,
b. will become due and payable at the Final
Scheduled Payment Date within one year, or
c. have been called for early redemption
pursuant to Section 5.02.
and the Issuer, in the case of a. or b. above, has irrevocably
deposited or caused to be irrevocably deposited with the Indenture
Trustee cash or direct obligations of or obligations guaranteed by the
United States of America (which will mature prior to the date such
amounts are payable), in trust for such purpose, in an amount
sufficient to pay and discharge the entire indebtedness on such Notes
and Certificates then outstanding not theretofore delivered to the
Indenture Trustee for cancellation when due on the Final Scheduled
Payment Date;
(B) the Issuer has paid or caused to be paid all other
sums payable hereunder and under the Insurance Agreement by the Issuer;
and
(C) the Issuer has delivered to the Indenture Trustee and the
Credit Enhancer an Officer's Certificate, an Opinion of Counsel and
each meeting the applicable requirements of Section 10.01 each stating
that all conditions precedent herein provided for relating to the
satisfaction and discharge of this Indenture have been complied with
and, if the Opinion of Counsel relates to a deposit made in connection
with Section 4.10(A)(2)b. above, such opinion shall further be to the
effect that such deposit will not have any material adverse tax
consequences to the Issuer, any Noteholders or any Certificateholders.
Section 4.11. Application of Trust Money. All monies deposited with the
Indenture Trustee pursuant to Section 4.10 hereof shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent or
Certificate Paying Agent, as the Indenture Trustee may determine, to the Holders
of Securities, of all sums due and to become due thereon for principal and
interest; but such monies need not be segregated from other funds except to the
extent required herein or required by law.
Section 4.12. Subrogation and Cooperation. (a) The Issuer and the
Indenture Trustee acknowledge that (i) to the extent the Credit Enhancer makes
payments under the Credit Enhancement Instrument on account of principal of or
interest on the Notes, the Credit Enhancer will be fully subrogated to the
rights of such Holders to receive such principal and interest from the Issuer,
and (ii) the Credit Enhancer shall be paid such principal and interest but only
from the sources and in the manner provided herein and in the Insurance
Agreement for the payment of such principal and interest.
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The Indenture Trustee shall cooperate in all respects with any
reasonable request by the Credit Enhancer for action to preserve or enforce the
Credit Enhancer's rights or interest under this Indenture or the Insurance
Agreement without limiting the rights of the Noteholders as otherwise set forth
in the Indenture, including, without limitation, upon the occurrence and
continuance of a default under the Insurance Agreement, a request to take any
one or more of the following actions:
(i) institute Proceedings for the collection of all
amounts then payable on the Notes, or under this Indenture in respect
to the Notes and all amounts payable under the Insurance Agreement
enforce any judgment obtained and collect from the Issuer monies
adjudged due;
(ii) sell the Trust Estate or any portion thereof or
rights or interest therein, at one or more public or private Sales
called and conducted in any manner permitted by law;
(iii) file or record all Assignments that have not
previously been recorded;
(iv) institute Proceedings from time to time for the
complete or partial foreclosure of this Indenture; and
(v) exercise any remedies of a secured party under the
Uniform Commercial Code and take any other appropriate action to
protect and enforce the rights and remedies of the Credit Enhancer
hereunder.
Section 4.13. Repayment of Monies Held by Paying Agent. In connection
with the satisfaction and discharge of this Indenture with respect to the Notes,
all monies then held by any Administrator other than the Indenture Trustee under
the provisions of this Indenture with respect to such Notes shall, upon demand
of the Issuer, be paid to the Indenture Trustee to be held and applied according
to Section 3.05 and thereupon such Paying Agent shall be released from all
further liability with respect to such monies.
Section 4.14. Temporary Notes. Pending the preparation of any
Definitive Notes, the Issuer may execute and upon its written direction, the
Indenture Trustee may authenticate and make available for delivery, temporary
Notes that are printed, lithographed, typewritten, photocopied or otherwise
produced, in any denomination, substantially of the tenor of the Definitive
Notes in lieu of which they are issued and with such appropriate insertions,
omissions, substitutions and other variations as the officers executing such
Notes may determine, as evidenced by their execution of such Notes.
If temporary Notes are issued, the Issuer will cause Definitive Notes
to be prepared without unreasonable delay. After the preparation of the
Definitive Notes, the temporary Notes shall be exchangeable for Definitive Notes
upon surrender of the temporary Notes at the office or agency of the Indenture
Trustee, without charge to the Holder. Upon surrender for cancellation of any
one or more temporary Notes, the Issuer shall execute and the Indenture Trustee
shall authenticate and make available for delivery, in exchange therefor,
Definitive Notes of authorized
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denominations and of like tenor and aggregate principal amount. Until so
exchanged, such temporary Notes shall in all respects be entitled to the same
benefits under this Indenture as Definitive Notes.
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ARTICLE V
Default and Remedies
Section 5.01. Events of Default. "Event of Default," wherever used
herein, shall have the meaning provided in Article I; provided, however, that no
Event of Default will occur under clause (i) or clause (ii) of the definition of
"Event of Default" if the Issuer fails to make payments of principal of and
interest on the Notes so long as the Credit Enhancer makes payments sufficient
therefore under the Credit Enhancement Instrument.
The Issuer shall deliver to the Indenture Trustee and the Credit
Enhancer, within five days after learning of the occurrence of an Event of
Default, written notice in the form of an Officer's Certificate of any event
which with the giving of notice and the lapse of time would become an Event of
Default under clause (iii) of the definition of "Event of Default", its status
and what action the Issuer is taking or proposes to take with respect thereto.
Section 5.02. Acceleration of Maturity; Rescission and Annulment. If an
Event of Default should occur and be continuing or if the Master Servicer shall
purchase all of the Mortgage Loans pursuant to Section 8.08 of the Servicing
Agreement, then and in every such case the Indenture Trustee or the Holders of
Notes representing not less than a majority of the Security Balances of all
Notes may declare the Notes to be immediately due and payable, by a notice in
writing to the Issuer (and to the Indenture Trustee if given by Noteholders),
and upon any such declaration the unpaid principal amount of such Class of
Notes, together with accrued and unpaid interest thereon through the date of
acceleration, shall become immediately due and payable. Unless the prior written
consent of the Credit Enhancer shall have been obtained by the Indenture
Trustee, the Payment Date upon which such accelerated payment is due and payable
shall not be a Payment Date under the Credit Enhancement Instrument and the
Indenture Trustee shall not be authorized under Section 3.29 to make a draw
therefor.
At any time after such declaration of acceleration of maturity with
respect to an Event of Default has been made and before a judgment or decree for
payment of the money due has been obtained by the Indenture Trustee as
hereinafter in this Article V provided, the Holders of Notes representing a
majority of the Security Balances of all Notes, by written notice to the Issuer
and the Indenture Trustee, may waive the related Event of Default and rescind
and annul such declaration and its consequences if:
(i) the Issuer has paid or deposited with the Indenture
Trustee a sum sufficient to pay:
(A) all payments of principal of and interest on the
Notes and all other amounts that would then be due hereunder
or upon the Notes if the Event of Default giving rise to such
acceleration had not occurred; and
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(B) all sums paid or advanced by the Indenture
Trustee hereunder and the reasonable compensation, expenses,
disbursements and advances of the Indenture Trustee and its
agents and counsel; and
(ii) all Events of Default, other than the nonpayment of
the principal of the Notes that has become due solely by such
acceleration, have been cured or waived as provided in Section 5.12.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
Section 5.03. Collection of Indebtedness and Suits for Enforcement by
Indenture Trustee. (a) The Issuer covenants that if (i) default is made in the
payment of any interest on any Note when the same becomes due and payable, and
such default continues for a period of five days, or (ii) default is made in the
payment of the principal of or any installment of the principal of any Note when
the same becomes due and payable, the Issue shall, upon demand of the Indenture
Trustee, pay to it, for the benefit of the Holders of Notes and of the Credit
Enhancer, the whole amount then due and payable on the Notes for principal and
interest, with interest upon the overdue principal, and in addition thereto such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Indenture Trustee and its agents and counsel.
(b) In case the Issuer shall fail forthwith to pay such amounts upon
such demand, the Indenture Trustee, in its own name and as trustee of an express
trust, subject to the provisions of Section 10.17 hereof may institute a
Proceeding for the collection of the sums so due and unpaid, and may prosecute
such Proceeding to judgment or final decree, and may enforce the same against
the Issuer or other obligor upon the Notes and collect in the manner provided by
law out of the property of the Issuer or other obligor the Notes, wherever
situated, the monies adjudged or decreed to be payable.
(c) If an Event of Default occurs and is continuing, the Indenture
Trustee subject to the provisions of Section 10.17 hereof may, as more
particularly provided in Section 5.04, in its discretion, proceed to protect and
enforce its rights and the rights of the Noteholders and the Credit Enhancer, by
such appropriate Proceedings as the Indenture Trustee shall deem most effective
to protect and enforce any such rights, whether for the specific enforcement of
any covenant or agreement in this Indenture or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy or legal or
equitable right vested in the Indenture Trustee by this Indenture or by law.
(d) In case there shall be pending, relative to the Issuer or any other
obligor upon the Notes or any Person having or claiming an ownership interest in
the Trust Estate, Proceedings under Title 11 of the United States Code or any
other applicable federal or state bankruptcy, insolvency or other similar law,
or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Issuer or its property or such other obligor or Person,
or in case of any other
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comparable judicial Proceedings relative to the Issuer or other obligor upon the
Notes, or to the creditors or property of the Issuer or such other obligor, the
Indenture Trustee, irrespective of whether the principal of any Notes shall then
be due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Indenture Trustee shall have made any demand
pursuant to the provisions of this Section, shall be entitled and empowered, by
intervention in such Proceedings or otherwise:
(i) to file and prove a claim or claims for the whole
amount of principal and interest owing and unpaid in respect of the
Notes and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Indenture Trustee
(including any claim for reasonable compensation to the Indenture
Trustee and each predecessor Indenture Trustee, and their respective
agents, attorneys and counsel, and for reimbursement of all expenses
and liabilities incurred, and all advances made, by the Indenture
Trustee and each predecessor Indenture Trustee, except as a result of
negligence or bad faith) and of the Noteholders allowed in such
Proceedings;
(ii) unless prohibited by applicable law and
regulations, to vote on behalf of the Holders of Notes in any election
of a trustee, a standby trustee or Person performing similar functions
in any such Proceedings;
(iii) to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute all amounts
received with respect to the claims of the Noteholders and of the
Indenture Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims
of the Indenture Trustee or the Holders of Notes allowed in any
judicial proceedings relative to the Issuer, its creditors and its
property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Noteholders to make
payments to the Indenture Trustee, and, in the event that the Indenture Trustee
shall consent to the making of payments directly to such Noteholders, to pay to
the Indenture Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Indenture Trustee, each predecessor Indenture Trustee and
their respective agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the Indenture Trustee and each
predecessor Indenture Trustee except as a result of negligence or bad faith.
(e) Nothing herein contained shall be deemed to authorize the Indenture
Trustee to authorize or consent to or vote for or accept or adopt on behalf of
any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof or to
authorize the Indenture Trustee to vote in respect of the claim of any Note
holder in any such proceeding except, as aforesaid, to vote for the election of
a trustee in bankruptcy or similar Person.
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(f) All rights of action and of asserting claims under this Indenture,
or under any of the Notes, may be enforced by the Indenture Trustee without the
possession of any of the Notes or the production thereof in any trial or other
Proceedings relative thereto, and any such action or proceedings instituted by
the Indenture Trustee shall be brought in its own name as trustee of an express
trust, and any recovery of judgment, subject to the payment of the expenses,
disbursements and compensation of the Indenture Trustee, each predecessor
Indenture Trustee and their respective agents and attorneys, shall be for the
ratable benefit of the Holders of the Notes.
(g) In any Proceedings brought by the Indenture Trustee (and also any
Proceedings involving the interpretation of any provision of this Indenture to
which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Holders of the Notes, and it shall not be necessary to
make any Noteholder a party to any such Proceedings.
Section 5.04. Remedies; Priorities. (a) If an Event of Default shall
have occurred and be continuing, the Indenture Trustee subject to the provisions
of Section 10.17 hereof may do one or more of the following (subject to Section
5.05):
(i) institute Proceedings in its own name and as
trustee of an express trust for the collection of all amounts then
payable on the Notes or under this Indenture with respect thereto,
whether by declaration or otherwise, and all amounts payable under the
Insurance Agreement, enforce any judgment obtained, and collect from
the Issuer and any other obligor upon such Notes monies adjudged due;
(ii) institute Proceedings from time to time for the
complete or partial foreclosure of this Indenture with respect to the
Trust Estate;
(iii) exercise any remedies of a secured party under the
UCC and take any other appropriate action to protect and enforce the
rights and remedies of the Indenture Trustee, the Holders of the Notes
and the Credit Enhancer; and
(iv) sell the Trust Estate or any portion thereof or
rights or interest therein, at one or more public or private sales
called and conducted in any manner permitted by law;
provided, however, that the Indenture Trustee may not sell or otherwise
liquidate the Trust Estate following an Event of Default, unless (A) the
Indenture Trustee obtains the consent of the Holders of 100% of the aggregate
Principal Balances of the Notes and the Credit Enhancer, which consent will not
be unreasonably withheld, (B) the proceeds of such sale or liquidation
distributable to Holders are sufficient to discharge in full all amounts then
due and unpaid upon the Notes for principal and interest and to reimburse the
Credit Enhancer for any amounts drawn under the Credit Enhancement Instrument
and any other amounts due the Credit Enhancer under the Insurance Agreement or
(C) the Indenture Trustee determines that the Mortgage Loans will not continue
to provide sufficient funds for the payment of principal of and interest on the
Notes as they would have become due if the Notes had not been declared due and
payable, and the Indenture Trustee obtains the consent of the Credit Enhancer,
which consent will not be unreasonably withheld, and of the Holders of a
majority of the aggregate Principal Balances of the
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Notes. In determining such sufficiency or insufficiency with respect to clause
(B) and (C), the Indenture Trustee may, but need not, obtain and rely upon an
opinion of an Independent investment banking or accounting firm of national
reputation as to the feasibility of such proposed action and as to the
sufficiency of the Trust Estate for such purpose. Notwithstanding the fore
going, so long as an Event of Servicer Termination has not occurred, any Sale of
the Trust Estate shall be made subject to the continued Servicing of the
Mortgage Loans by the Master Servicer as provided in the Servicing Agreement.
(b) If the Indenture Trustee collects any money or property pursuant to
this Article V, it shall pay out the money or property in the following order:
FIRST: to the Indenture Trustee for amounts due under Section
6.07;
SECOND: to each Class of Noteholders for amounts due and
unpaid on the related Class Notes for interest and to each
Noteholder of such Class in each case, ratably, without
preference or priority of any kind, according to the amounts
due and payable on such Class of Notes for interest from
amounts available in the Trust Estate for such Noteholders;
THIRD: to Holders of each Class of Notes for amounts due and
unpaid on the related Class of Notes for principal, from
amounts available in the Trust Estate for such Noteholders,
and to each Noteholder of such Class in each case ratably,
without preference or priority of any kind, according to the
amounts due and payable on such Class of Notes for principal,
until the Security Balances of each Class of Notes is reduced
to zero;
FOURTH: to the Issuer for amounts required to be distributed
to the Certificateholders in respect of interest and principal
pursuant to the Trust Agreement;
FIFTH: To the payment of all amounts due and owing to the
Credit Enhancer under the Insurance Agreement;
SIXTH: to the Issuer for amounts due under Article VIII of the
Trust Agreement; and
SEVENTH: to the payment of the remainder, if any to the Issuer
or any other person legally entitled thereto.
The Indenture Trustee may fix a record date and payment date for any
payment to Noteholders pursuant to this Section 5.04. At least 15 days before
such record date, the Indenture Trustee shall mail to each Noteholder a notice
that states the record date, the payment date and the amount to be paid.
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Section 5.05. Optional Preservation of the Trust Estate. If the Notes
have been declared to be due and payable under Section 5.02 following an Event
of Default and such declaration and its consequences have not been rescinded and
annulled, the Indenture Trustee may, but need not, elect to take and maintain
possession of the Trust Estate. It is the desire of the parties hereto and the
Noteholders that there be at all times sufficient funds for the payment of
principal of and interest on the Notes and other obligations of the Issuer
including payment to the Credit Enhancer, and the Indenture Trustee shall take
such desire into account when determining whether or not to take and maintain
possession of the Trust Estate. In determining whether to take and maintain
possession of the Trust Estate, the Indenture Trustee may, but need not, obtain
and rely upon an opinion of an Independent investment banking or accounting firm
of national reputation as to the feasibility of such proposed action and as to
the sufficiency of the Trust Estate for such purpose.
Section 5.06. Limitation of Suits. No Holder of any Note shall have any
right to institute any Proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless and subject to the provisions of Section 10.17 hereof:
(i) such Holder has previously given written notice to
the Indenture Trustee of a continuing Event of Default;
(ii) the Holders of not less than 25% of the Security
Balances of the Notes have made written request to the Indenture
Trustee to institute such Proceeding in respect of such Event of
Default in its own name as Indenture Trustee hereunder;
(iii) such Holder or Holders have offered to the Indenture
Trustee reasonable indemnity against the costs, expenses and
liabilities to be incurred in complying with such request;
(iv) the Indenture Trustee for 60 days after its receipt
of such notice, request and offer of indemnity has failed to institute
such Proceedings; and
(v) no direction inconsistent with such written request
has been given to the Indenture Trustee during such 60-day period by
the Holders of a majority of the Security Balances of the Notes.
It is understood and intended that no one or more Holders of Notes shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders of Notes or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Indenture, except in the
manner herein provided.
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Holders of Notes,
each representing less than a majority
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of the Security Balances of the Notes, the Indenture Trustee in its sole
discretion may determine what action, if any, shall be taken, notwithstanding
any other provisions of this Indenture.
Section 5.07. Unconditional Rights of Noteholders To Receive Principal
and Interest. Notwithstanding any other provisions in this Indenture, the Holder
of any Note shall have the right, which is absolute and unconditional, to
receive payment of the principal of and interest, if any, on such Note on or
after the respective due dates thereof expressed in such Note or in this
Indenture and to institute suit for the enforcement of any such payment, and
such right shall not be impaired without the consent of such Holder.
Section 5.08. Restoration of Rights and Remedies. If the Indenture
Trustee or any Noteholder has instituted any Proceeding to enforce any right or
remedy under this Indenture and such Proceeding has been discontinued or
abandoned for any reason or has been determined adversely to the Indenture
Trustee or to such Noteholder, then and in every such case the Issuer, the
Indenture Trustee and the Noteholders shall, subject to any determination in
such Proceeding, be restored severally and respectively to their former
positions hereunder, and thereafter all rights and remedies of the Indenture
Trustee and the Noteholders shall continue as though no such Proceeding had been
instituted.
Section 5.09. Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Indenture Trustee or to the Noteholders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 5.10. Delay or Omission Not a Waiver. No delay or omission of
the Indenture Trustee or any Holder of any Note to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article V or by law to the Indenture
Trustee or to the Noteholders may be exercised from time to time, and as often
as may be deemed expedient, by the Indenture Trustee or by the Noteholders, as
the case may be.
Section 5.11. Control by Noteholders. The Holders of a majority of the
Security Balances of Notes shall have the right to direct the time, method and
place of conducting any Proceeding for any remedy available to the Indenture
Trustee with respect to the Notes or exer cising any trust or power conferred on
the Indenture Trustee; provided that:
(i) such direction shall not be in conflict with any
rule of law or with this Indenture;
(ii) subject to the express terms of Section 5.04, any
direction to the Indenture Trustee to sell or liquidate the Trust
Estate shall be by Holders of Notes representing not less than 100% of
the Security Balances of Notes;
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(iii) if the conditions set forth in Section 5.05 have
been satisfied and the Indenture Trustee elects to retain the Trust
Estate pursuant to such Section, then any direction to the Indenture
Trustee by Holders of Notes representing less than 100% of the Security
Balances of Notes to sell or liquidate the Trust Estate shall be of no
force and effect; and
(iv) the Indenture Trustee may take any other action
deemed proper by the Indenture Trustee that is not inconsistent with
such direction.
Notwithstanding the rights of Noteholders set forth in this Section, subject to
Section 6.01, the Indenture Trustee need not take any action that it determines
might involve it in liability or might materially adversely affect the rights of
any Noteholders not consenting to such action.
Section 5.12. Waiver of Past Defaults. Prior to the declaration of the
acceleration of the maturity of the Notes as provided in Section 5.02, the
Holders of Notes of not less than a majority of the Security Balances of the
Notes may waive any past Event of Default and its consequences except an Event
of Default (a) with respect to payment of principal of or interest on any of the
Notes or (b) in respect of a covenant or provision hereof which cannot be
modified or amended without the consent of the Holder of each Note or (c) the
waiver of which would mate rially and adversely affect the interests of the
Credit Enhancer or modify its obligation under the Credit Enhancement
Instrument. In the case of any such waiver, the Issuer, the Indenture Trustee
and the Holders of the Notes shall be restored to their former positions and
rights hereunder, respectively; but no such waiver shall extend to any
subsequent or other Event of Default or impair any right consequent thereto.
Upon any such waiver, any Event of Default arising therefrom shall be
deemed to have been cured and not to have occurred, for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Event of
Default or impair any right consequent thereto.
Section 5.13. Undertaking for Costs. All parties to this Indenture
agree, and each Holder of any Note by such Holder's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 5.13 shall not apply to (a) any suit instituted by
the Indenture Trustee, (b) any suit instituted by any Noteholder, or group of
Noteholders, in each case holding in the aggregate more than 10% of the Security
Balances of the Notes or (c) any suit instituted by any Noteholder for the
enforcement of the payment of principal of or interest on any Note on or after
the respective due dates expressed in such Note and in this Indenture.
Section 5.14. Waiver of Stay or Extension Laws. The Issuer covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead or in any manner
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whatsoever, claim or take the benefit or advantage of, any stay or extension law
wherever enacted, now or at any time hereafter in force, that may affect the
covenants or the performance of this Indenture; and the Issuer (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law, and covenants that it shall not hinder, delay or impede the
execution of any power herein granted to the Indenture Trustee, but will suffer
and permit the execution of every such power as though no such law had been
enacted.
Section 5.15. Sale of Trust Estate. (a) The power to effect any sale or
other disposition (a "Sale") of any portion of the Trust Estate pursuant to
Section 5.04 is expressly subject to the provisions of Section 5.05 and this
Section 5.15. The power to effect any such Sale shall not be exhausted by any
one or more Sales as to any portion of the Trust Estate remaining unsold, but
shall continue unimpaired until the entire Trust Estate shall have been sold or
all amounts payable on the Notes and under this Indenture and under the
Insurance Agreement shall have been paid. The Indenture Trustee may from time to
time postpone any public Sale by public announcement made at the time and place
of such Sale. The Indenture Trustee hereby expressly waives its right to any
amount fixed by law as compensation for any Sale.
(b) The Indenture Trustee shall not in any private Sale sell the Trust
Estate, or any portion thereof, unless
(1) the Holders of all Notes and the Credit Enhancer
consent to or direct the Indenture Trustee to make, such Sale, or
(2) the proceeds of such Sale would be not less than the
entire amount which would be payable to the Noteholders under the Notes and the
Credit Enhancer in respect of amounts drawn under the Credit Enhancement
Instrument and any other amounts due the Credit Enhancer under the Insurance
Agreement, in full payment thereof in accordance with Section 5.02, on the
Payment Date next succeeding the date of such Sale, or
(3) The Indenture Trustee determines, in its sole discretion,
that the conditions for retention of the Trust Estate set forth in Section 5.05
cannot be satisfied (in making any such determination, the Indenture Trustee may
rely upon an opinion of an Independent investment banking firm obtained and
delivered as provided in Section 5.05), and the Credit Enhancer consents to such
Sale, which consent will not be unreasonably withheld and the Holders
representing at least 66-2/3% of the Security Balances of the Notes consent to
such Sale.
The purchase by the Indenture Trustee of all or any portion of the Trust Estate
at a private Sale shall not be deemed a Sale or other disposition thereof for
purposes of this Section 5.15(b).
(c) Unless the Holders and the Credit Enhancer have otherwise consented
or directed the Indenture Trustee, at any public Sale of all or any portion of
the Trust Estate at which a minimum bid equal to or greater than the amount
described in paragraph (2) of subsection (b) of this Section 5.15 has not been
established by the Indenture Trustee and no Person bids an amount equal to or
greater than such amount, the Indenture Trustee shall bid an amount at least
$1.00 more than the highest other bid.
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(d) In connection with a Sale of all or any portion of the Trust Estate
(1) any Holder or Holders of Notes may bid for and with the
consent of the Credit Enhancer purchase the property offered for sale, and upon
compliance with the terms of sale may hold, retain and possess and dispose of
such property, without further accountability, and may, in paying the purchase
money therefor, deliver any Notes or claims for interest thereon in lieu of cash
up to the amount which shall, upon distribution of the net proceeds of such
sale, be payable thereon, and such Notes, in case the amounts so payable thereon
shall be less than the amount due thereon, shall be returned to the Holders
thereof after being appropriately stamped to show such partial payment;
(2) the Indenture Trustee may bid for and acquire the property
offered for Sale in connection with any Sale thereof, and, subject to any
requirements of, and to the extent permitted by, applicable law in connection
therewith, may purchase all or any portion of the Trust Estate in a private
sale, and, in lieu of paying cash therefor, may make settlement for the purchase
price by crediting the gross Sale price against the sum of (A) the amount which
would be distributable to the Holders of the Notes and Holders of Certificates
and amounts owing to the Credit Enhancer as a result of such Sale in accordance
with Section 5.04(b) on the Payment Date next succeeding the date of such Sale
and (B) the expenses of the Sale and of any Proceedings in connection therewith
which are reimbursable to it, without being required to produce the Notes in
order to complete any such Sale or in order for the net Sale price to be
credited against such Notes, and any property so acquired by the Indenture
Trustee shall be held and dealt with by it in accordance with the provisions of
this Indenture;
(3) the Indenture Trustee shall execute and deliver an
appropriate instrument of conveyance transferring its interest in any portion of
the Trust Estate in connection with a Sale thereof;
(4) the Indenture Trustee is hereby irrevocably appointed the
agent and attorney-in-fact of the Issuer to transfer and convey its interest in
any portion of the Trust Estate in connection with a Sale thereof, and to take
all action necessary to effect such Sale; and
(5) no purchaser or transferee at such a Sale shall be bound
to ascertain the Indenture Trustee's authority, inquire into the satisfaction of
any conditions precedent or see to the application of any monies.
Section 5.16. Action on Notes. The Indenture Trustee's right to seek
and recover judgment on the Notes or under this Indenture shall not be affected
by the seeking, obtaining or application of any other relief under or with
respect to this Indenture. Neither the lien of this Indenture nor any rights or
remedies of the Indenture Trustee or the Noteholders shall be impaired by the
recovery of any judgment by the Indenture Trustee against the Issuer or by the
levy of any execution under such judgment upon any portion of the Trust Estate
or upon any of the assets of the Issuer. Any money or property collected by the
Indenture Trustee shall be applied in accordance with Section 5.04(b).
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Section 5.17. Performance and Enforcement of Certain Obligations. (a)
Promptly following a request from the Indenture Trustee to do so and at the
Administrator's expense, the Issuer in its capacity as holder of the Mortgage
Loans, shall take all such lawful action as the Indenture Trustee may request to
cause the Issuer to compel or secure the performance and observance by the
Seller and the Master Servicer, as applicable, of each of their obligations to
the Issuer under or in connection with the Mortgage Loan Purchase Agreement and
the Servicing Agreement, and to exercise any and all rights, remedies, powers
and privileges lawfully available to the Issuer under or in connection with the
Mortgage Loan Purchase Agreement and the Servicing Agreement to the extent and
in the manner directed by the Indenture Trustee, as pledgee of the Mortgage
Loans, including the transmission of notices of default on the part of the
Seller or the Master Servicer thereunder and the institution of legal or
administrative actions or proceedings to compel or secure performance by the
Seller or the Master Servicer of each of their obligations under the Mortgage
Loan Purchase Agreement and the Servicing Agreement.
(b) If an Event of Default has occurred and is continuing, the
Indenture Trustee, as pledgee of the Mortgage Loans, subject to the rights of
the Credit Enhancer under the Servicing Agreement may, and at the direction
(which direction shall be in writing or by telephone (confirmed in writing
promptly thereafter)) of the Holders of 66-2/3% of the Security Balances of the
Notes shall, exercise all rights, remedies, powers, privileges and claims of the
Issuer against the Seller or the Master Servicer under or in connection with the
Mortgage Loan Purchase Agreement and the Servicing Agreement, including the
right or power to take any action to compel or secure performance or observance
by the Seller or the Master Servicer, as the case may be, of each of their
obligations to the Issuer thereunder and to give any consent, request, notice,
direction, approval, extension or waiver under the Mortgage Loan Purchase
Agreement and the Servicing Agreement, as the case may be, and any right of the
Issuer to take such action shall not be suspended.
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ARTICLE VI
The Indenture Trustee
Section 6.01. Duties of Indenture Trustee. (a) If an Event of Default
has occurred and is continuing, the Indenture Trustee shall exercise the rights
and powers vested in it by this Indenture and use the same degree of care and
skill in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Indenture Trustee undertakes to perform such
duties and only such duties as are specifically set forth in this
Indenture and no implied covenants or obligations shall be read into
this Indenture against the Indenture Trustee; and
(ii) in the absence of bad faith on its part, the
Indenture Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Indenture Trustee and
conforming to the requirements of this Indenture; however, the
Indenture Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Indenture Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph
(b) of this Section 6.01;
(ii) the Indenture Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer unless it
is proved that the Indenture Trustee was negligent in ascertaining the
pertinent facts; and
(iii) the Indenture Trustee shall not be liable with
respect to any action it takes or omits to take in good faith in
accordance with a direction received by it (A) pursuant to Section 5.11
or (B) from the Credit Enhancer, which it is entitled to give under any
of the Basic Documents.
(d) The Indenture Trustee shall not be liable for interest on any money
received by it except as the Indenture Trustee may agree in writing with the
Issuer.
(e) Money held in trust by the Indenture Trustee need not be segregated
from other funds except to the extent required by law or the terms of this
Indenture or the Trust Agreement.
(f) No provision of this Indenture shall require the Indenture Trustee
to expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that
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repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(g) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section and to the provisions of the
TIA.
Section 6.02. Rights of Indenture Trustee. (a) The Indenture Trustee
may rely on any document believed by it to be genuine and to have been signed or
presented by the proper person. The Indenture Trustee need not investigate any
fact or matter stated in the document.
(b) Before the Indenture Trustee acts or refrains from acting, it may
require an Officer's Certificate or an Opinion of Counsel. The Indenture Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on an Officer's Certificate or Opinion of Counsel.
(c) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee, and the Indenture Trustee shall
not be responsible for any misconduct or negligence on the part of, or for the
supervision of, any such agent, attorney, custodian or nominee appointed with
due care by it hereunder.
(d) The Indenture Trustee shall not be liable for any action it takes
or omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Indenture Trustee's conduct does
not constitute willful misconduct, negligence or bad faith.
(e) The Indenture Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this Indenture and
the Notes shall be full and complete authorization and protection from liability
in respect to any action taken, omitted or suffered by it hereunder in good
faith and in accordance with the advice or opinion of such counsel.
Section 6.03. Individual Rights of Indenture Trustee. The Indenture
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise deal with the Issuer or its Affiliates with the same
rights it would have if it were not Indenture Trustee. Any Administrator, Note
Registrar, co-registrar or co-paying agent may do the same with like rights.
However, the Indenture Trustee must comply with Sections 6.11 and 6.12.
Section 6.04. Indenture Trustee's Disclaimer. The Indenture Trustee
shall not be responsible for and makes no representation as to the validity or
adequacy of this Indenture or the Notes, it shall not be accountable for the
Issuer's use of the proceeds from the Notes, and it shall not be responsible for
any statement of the Issuer in the Indenture or in any document issued in
connection with the sale of the Notes or in the Notes other than the Indenture
Trustee's certificate of authentication.
Section 6.05. Notice of Event of Default. If an Event of Default occurs
and is continuing and if it is known to a Responsible Officer of the Indenture
Trustee, the Indenture
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Trustee shall give notice thereof to the Credit Enhancer. The Trustee shall mail
to each Noteholder notice of the Event of Default within 90 days after it
occurs. Except in the case of an Event of Default in payment of principal of or
interest on any Note, the Indenture Trustee may withhold the notice if and so
long as a committee of its Responsible Officers in good faith determines that
withholding the notice is in the interests of Noteholders.
Section 6.06. Reports by Indenture Trustee to Holders. The Indenture
Trustee shall deliver to each Noteholder such information as may be required to
enable such holder to prepare its federal and state income tax returns. In
addition, upon the Issuer's written request, the Indenture Trustee shall
promptly furnish information reasonably requested by the Issuer that is
reasonably available to the Indenture Trustee to enable the Issuer to perform
its federal and state income tax reporting obligations.
Section 6.07. Compensation and Indemnity. The Issuer shall or shall
cause the Administrator to pay to the Indenture Trustee on each Payment Date
reasonable compensation for its services. The Indenture Trustee's compensation
shall not be limited by any law on compensation of a trustee of an express
trust. The Issuer shall or shall cause the Administrator to reimburse the
Indenture Trustee for all reasonable out-of-pocket expenses incurred or made by
it, including costs of collection, in addition to the compensation for its
services. Such expenses shall include the reasonable compensation and expenses,
disbursements and advances of the Indenture Trustee's agents, counsel,
accountants and experts. The Issuer shall or shall cause the Administrator to
indemnify the Indenture Trustee against any and all loss, liability or expense
(including attorneys' fees) incurred by it in connection with the administration
of this trust and the performance of its duties hereunder. The Indenture Trustee
shall notify the Issuer and the Administrator promptly of any claim for which it
may seek indemnity. Failure by the Indenture Trustee to so notify the Issuer and
the Administrator shall not relieve the Issuer or the Administrator of its
obligations hereunder. The Issuer shall or shall cause the Administrator to
defend any such claim, and the Indenture Trustee may have separate counsel and
the Issuer shall or shall cause the Administrator to pay the fees and expenses
of such counsel. Neither the Issuer nor the Administrator need reimburse any
expense or indemnify against any loss, liability or expense incurred by the
Indenture Trustee through the Indenture Trustee's own willful misconduct,
negligence or bad faith.
The Issuer's payment obligations to the Indenture Trustee pursuant to
this Section 6.07 shall survive the discharge of this Indenture. When the
Indenture Trustee incurs expenses after the occurrence of an Event of Default
specified in Section 5.01(iv) or (v) with respect to the Issuer, the expenses
are intended to constitute expenses of administration under Title 11 of the
United States Code or any other applicable federal or state bankruptcy,
insolvency or similar law.
Section 6.08. Replacement of Indenture Trustee. No resignation or
removal of the Indenture Trustee and no appointment of a successor Indenture
Trustee shall become effective until the acceptance of appointment by the
successor Indenture Trustee pursuant to this Section 6.08. The Indenture Trustee
may resign at any time by so notifying the Issuer and the Credit Enhancer. The
Holders of a majority of Security Balances of the Notes may remove the Indenture
Trustee
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by so notifying the Indenture Trustee and the Credit Enhancer and may appoint a
successor Indenture Trustee. The Issuer shall remove the Indenture Trustee if:
(i) the Indenture Trustee fails to comply with Section
6.11;
(ii) the Indenture Trustee is adjudged a bankrupt or
insolvent;
(iii) a receiver or other public officer takes charge of
the Indenture Trustee or its property; or
(iv) the Indenture Trustee otherwise becomes incapable
of acting.
If the Indenture Trustee resigns or is removed or if a vacancy exists
in the office of Indenture Trustee for any reason (the Indenture Trustee in such
event being referred to herein as the retiring Indenture Trustee), the Issuer
shall promptly appoint a successor Indenture Trustee.
A successor Indenture Trustee shall deliver a written acceptance of its
appointment to the retiring Indenture Trustee and to the Issuer. Thereupon, the
resignation or removal of the retiring Indenture Trustee shall become effective,
and the successor Indenture Trustee shall have all the rights, powers and duties
of the Indenture Trustee under this Indenture. The successor Indenture Trustee
shall mail a notice of its succession to Noteholders. The retiring Indenture
Trustee shall promptly transfer all property held by it as Indenture Trustee to
the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within 60 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Issuer or the Holders of a majority of Security Balances
of the Notes may petition any court of competent jurisdiction for the
appointment of a successor Indenture Trustee.
If the Indenture Trustee fails to comply with Section 6.11, any
Noteholder may petition any court of competent jurisdiction for the removal of
the Indenture Trustee and the appointment of a successor Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section, the Issuer's and the Administrator's obligations under Section
6.07 shall continue for the benefit of the retiring Indenture Trustee.
Section 6.09. Successor Indenture Trustee by Merger. If the Indenture
Trustee consolidates with, merges or converts into, or transfers all or
substantially all its corporate trust business or assets to, another corporation
or banking association, the resulting, surviving or transferee corporation
without any further act shall be the successor Indenture Trustee; provided, that
such corporation or banking association shall be otherwise qualified and
eligible under Section 6.11. The Indenture Trustee shall provide the Rating
Agencies prior written notice of any such transaction.
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In case at the time such successor or successors by merger, conversion
or consolidation to the Indenture Trustee shall succeed to the trusts created by
this Indenture any of the Notes shall have been authenticated but not delivered,
any such successor to the Indenture Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of the Indenture Trustee shall have.
Section 6.10. Appointment of Co-Indenture Trustee or Separate Indenture
Trustee. (a) Notwithstanding any other provisions of this Indenture, at any
time, for the purpose of meet ing any legal requirement of any jurisdiction in
which any part of the Trust Estate may at the time be located, the Indenture
Trustee shall have the power and may execute and deliver all instruments to
appoint one or more Persons to act as a co-trustee or co-trustees, or separate
trustee or separate trustees, of all or any part of the Trust, and to vest in
such Person or Persons, in such capacity and for the benefit of the Noteholders,
such title to the Trust Estate, or any part hereof, and, subject to the other
provisions of this Section, such powers, duties, obligations, rights and trusts
as the Indenture Trustee may consider necessary or desirable. No co-trustee or
separate trustee here under shall be required to meet the terms of eligibility
as a successor trustee under Section 6.11 and no notice to Noteholders of the
appointment of any co-trustee or separate trustee shall be required under
Section 6.08 hereof.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred
or imposed upon the Indenture Trustee shall be conferred or imposed
upon and exercised or performed by the Indenture Trustee and such
separate trustee or co-trustee jointly (it being understood that such
separate trustee or co-trustee is not authorized to act separately
without the Indenture Trustee joining in such act), except to the
extent that under any law of any jurisdiction in which any particular
act or acts are to be performed the Indenture Trustee shall be
incompetent or unqualified to perform such act or acts, in which event
such rights, powers, duties and obligations (including the holding of
title to the Trust Estate or any portion thereof in any such
jurisdiction) shall be exercised and performed singly by such separate
trustee or co-trustee, but solely at the direction of the Indenture
Trustee;
(ii) no trustee hereunder shall be personally liable by
reason of any act or omission of any other trustee hereunder; and
(iii) the Indenture Trustee may at any time accept the
resignation of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Indenture Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given
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to each of them. Every instrument appointing any separate trustee or co-trustee
shall refer to this Agreement and the conditions of this Article VI. Each
separate trustee and co-trustee, upon its acceptance of the trusts conferred,
shall be vested with the estates or property specified in its instrument of
appointment, either jointly with the Indenture Trustee or separately, as may be
provided therein, subject to all the provisions of this Indenture, specifically
including every provision of this Indenture relating to the conduct of,
affecting the liability of, or affording protection to, the Indenture Trustee.
Every such instrument shall be filed with the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the
Indenture Trustee, its agent or attorney-in-fact with full power and authority,
to the extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Indenture Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
Section 6.11. Eligibility; Disqualification. The Indenture Trustee
shall at all times satisfy the requirements of TIA ss. 310(a). The Indenture
Trustee shall have a combined capital and surplus of at least [$50,000,000] as
set forth in its most recent published annual report of condition and it or its
parent shall have a long-term debt rating of [Baa3] or better by [Moody's]. The
Indenture Trustee shall comply with TIA ss. 310(b), including the optional
provision permitted by the second sentence of TIA ss. 310(b)(9); provided,
however, that there shall be excluded from the operation of TIA ss. 310(b)(1)
any indenture or indentures under which other securities of the Issuer are
outstanding if the requirements for such exclusion set forth in TIA ss.
310(b)(1) are met.
Section 6.12. Preferential Collection of Claims Against Issuer. The
Indenture Trustee shall comply with TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). An Indenture Trustee who has resigned or
been removed shall be subject to TIA ss. 311(a) to the extent indicated.
Section 6.13. Representation and Warranty. The Indenture Trustee hereby
represents that:
(i) The Indenture Trustee is duly organized and validly
existing as a corporation in good standing under the laws of the State
of ___________, with power and authority to own its properties and to
conduct its business as such properties are currently owned and such
business is presently conducted.
(ii) The Indenture Trustee has the power and authority to
execute and deliver this Indenture and to carry out its terms; and the
execution, delivery and performance of this Indenture have been duly
authorized by the Indenture Trustee by all necessary corporate action.
(iii) The consummation of the transactions contemplated by
this Indenture and the fulfillment of the terms hereof do not conflict
with, result in any breach of any of the terms
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and provisions of, or constitute (with or without notice or lapse of
time) a default under, the articles of incorporation or bylaws of the
Indenture Trustee or any agreement or other instrument to which the
Indenture Trustee is a party or by which it is bound
(iv) To the Indenture Trustee's best knowledge, there are no
proceedings or investigations pending or threatened before any court,
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Indenture Trustee or its
properties: (A) asserting the invalidity of this Indenture (B) seeking
to prevent the consummation of any of the transactions contemplated by
this Indenture or (C) seeking any determination or ruling that might
materially and adversely affect the performance by the Indenture
Trustee of its obligations under, or the validity or enforceability of,
this Indenture.
Section 6.14. Directions to Indenture Trustee. The Indenture Trustee is
hereby directed:
(a) to accept the pledge of the Mortgage Loans and hold the assets of
the Trust in trust for the Noteholders;
(b) to issue, execute and deliver the Notes substantially in the form
prescribed by Exhibit A in accordance with the terms of this Indenture; and
(c) to take all other actions as shall be required to be taken by the
terms of this Indenture.
[Section 6.15. No Consent to Certain Acts of Depositor. The Indenture
Trustee shall not consent to any action proposed to be taken by the Depositor
pursuant to Article [---------] of the Depositor's Restated Certificate of
Incorporation.]
Section 6.16. Indenture Trustee May Own Securities. The Indenture
Trustee, in its individual or any other capacity may become the owner or pledgee
of Securities with the same rights it would have if it were not Indenture
Trustee.
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ARTICLE VII
Noteholders' Lists and Reports
Section 7.01. Issuer To Furnish Indenture Trustee Names and Addresses
of Noteholders. The Issuer will furnish or cause to be furnished to the
Indenture Trustee (a) not more than five days after each Record Date, a list, in
such form as the Indenture Trustee may reasonably require, of the names and
addresses of the Holders of Notes as of such Record Date, (b) at such other
times as the Indenture Trustee and the Credit Enhancer may request in writing,
within 30 days after receipt by the Issuer of any such request, a list of
similar form and content as of a date not more than 10 days prior to the time
such list is furnished; provided, however, that so long as the Indenture Trustee
is the Note Registrar, no such list shall be required to be furnished.
Section 7.02. Preservation of Information; Communications to
Noteholders. (a) The Indenture Trustee shall preserve, in as current a form as
is reasonably practicable, the names and addresses of the Holders of Notes
contained in the most recent list furnished to the Indenture Trustee as provided
in Section 7.01 and the names and addresses of Holders of Notes received by the
Indenture Trustee in its capacity as Note Registrar. The Indenture Trustee may
destroy any list furnished to it as provided in such Section 7.01 upon receipt
of a new list so furnished.
(b) Noteholders may communicate pursuant to TIA ss. 312(b) with other
Noteholders with respect to their rights under this Indenture or under the
Notes.
(c) The Issuer, the Indenture Trustee and the Note Registrar shall have
the protection of TIA ss. 312(c).
Section 7.03. Reports by Issuer. (a) The Issuer shall:
(i) file with the Indenture Trustee, within 15 days
after the Issuer is required to file the same with the Commission,
copies of the annual reports and of the information, documents and
other reports (or copies of such portions of any of the foregoing as
the Commission may from time to time by rules and regulations
prescribe) that the Issuer may be required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act;
(ii) file with the Indenture Trustee, and the Commission
in accordance with rules and regulations prescribed from time to time
by the Commission such additional information, documents and reports
with respect to compliance by the Issuer with the conditions and
covenants of this Indenture as may be required from time to time by
such rules and regulations; and
(iii) supply to the Indenture Trustee (and the Indenture
Trustee shall transmit by mail to all Noteholders described in TIA ss.
313(c)) such summaries of any information, documents and reports
required to be filed by the Issuer pursuant to clauses (i) and (ii) of
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this Section 7.03(a) and by rules and regulations prescribed from time
to time by the Commission.
(b) Unless the Issuer otherwise determines, the fiscal year of the
Issuer shall end on December 31 of each year.
Section 7.04. Reports by Indenture Trustee. If required by TIA ss.
313(a), within 60 days after each January 1 beginning with January 1, 199_, the
Indenture Trustee shall mail to each Noteholder as required by TIA ss. 313(c)
and to the Credit Enhancer a brief report dated as of such date that complies
with TIA ss. 313(a). The Indenture Trustee also shall comply with TIA ss.
313(b).
A copy of each report at the time of its mailing to Noteholders shall
be filed by the Indenture Trustee with the Commission and each stock exchange,
if any, on which the Notes are listed. The Issuer shall notify the Indenture
Trustee if and when the Notes are listed on any stock exchange.
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ARTICLE VIII
Accounts, Disbursements and Releases
Section 8.01. Collection of Money. Except as otherwise expressly
provided herein, the Indenture Trustee may demand payment or delivery of, and
shall receive and collect, directly and without intervention or assistance of
any fiscal agent or other intermediary, all money and other property payable to
or receivable by the Indenture Trustee pursuant to this Indenture. The Indenture
Trustee shall apply all such money received by it as provided in this Indenture.
Except as otherwise expressly provided in this Indenture, if any default occurs
in the making of any payment or performance under any agreement or instrument
that is part of the Trust Estate, the Indenture Trustee may take such action as
may be appropriate to enforce such payment or performance, including the
institution and prosecution of appropriate Proceedings. Any such action shall be
without prejudice to any right to claim a Default or Event of Default under this
Indenture and any right to proceed thereafter as provided in Article V.
Section 8.02. Trust Accounts. (a) On or prior to the Closing Date, the
Issuer shall cause the Indenture Trustee to establish and maintain, in the name
of the Indenture Trustee, for the benefit of the Noteholders and the Certificate
Paying Agent, on behalf of the Certificateholders and the Credit Enhancer, the
Payment Account as provided in Section 3.01 of this Indenture.
(b) All monies deposited from time to time in the Payment Account
pursuant to the Servicing Agreement and all deposits therein pursuant to this
Indenture are for the benefit of the Noteholders and the Certificate Paying
Agent, on behalf of the Certificateholders and all investments made with such
monies including all income or other gain from such investments are for the
benefit of the Master Servicer as provided by the Servicing Agreement.
On each Payment Date during the Funding Period the Indenture Trustee
shall withdraw Net Principal Collections from the Payment Account and deposit
Net Principal Collections to the Funding Account.
On each Payment Date, the Indenture Trustee shall distribute all
amounts on deposit in the Payment Account (after giving effect to the withdrawal
referred to in the preceding paragraph) to Noteholders in respect of the Notes
and in its capacity as Certificate Paying Agent to Certificateholders in the
order of priority set forth in Section 3.05 (except as otherwise provided in
Section 5.04(b).
The Master Servicer may direct the Indenture Trustee to invest any
funds in the Payment Account in Eligible Investments maturing no later than the
Business Day preceding each Payment Date and shall not be sold or disposed of
prior to the maturity. Unless otherwise instructed by the Master Servicer, the
Indenture Trustee shall invest all funds in the Payment Account in Eligible
Investments.
(c) On or before the Closing Date the Issuer shall open, at the
Corporate Trust Office, an account which shall be the "Funding Account". The
Master Servicer may direct the Indenture
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Trustee to invest any funds in the Funding Account in Eligible Investments
maturing no later than the Business Day preceding each Payment Date and shall
not be sold or disposed of prior to the maturity. Unless otherwise instructed by
the Master Servicer, the Indenture Trustee shall invest all funds in the Payment
Account in its Corporate Trust Short Term Investment Fund so long as it is an
Eligible Investment. During the Funding Period, any amounts received by the
Indenture Trustee in respect of Net Principal Collections for deposit in the
Funding Account, together with any Eligible Investments in which such monies are
or will be invested or reinvested during the term of the Notes, shall be held by
the Indenture Trustee in the Funding Account as part of the Trust Estate,
subject to disbursement and withdrawal as herein provided: Amounts on deposit in
the Funding Account in respect of Net Principal Collections may be withdrawn on
each Deposit Date and (1) paid to the Issuer in payment for Additional Loans by
the deposit of such amount to the Collection Account and (2) at the end of the
Funding Period any amounts remaining in the Funding Account after the withdrawal
called for by clause (1) shall be deposited in the Payment Account to be
included in the payment of principal on the Payment Date that is the last day of
the Funding Period.
(d) (i) Any investment in the institution with which the Funding
Account is maintained may mature on such Payment Date and (ii) any other
investment may mature on such Payment Date if the Indenture Trustee shall
advance funds on such Payment Date to the Funding Account in the amount payable
on such investment on such Payment Date, pending receipt thereof to the extent
necessary to make distributions on the Notes and the Certificates) and shall not
be sold or disposed of prior to maturity.
Section 8.03. Officer's Certificate. The Indenture Trustee shall
receive at least [seven] days notice when requested by the Issuer to take any
action pursuant to Section 8.05(a), accompanied by copies of any instruments to
be executed, and the Indenture Trustee shall also require, as a condition to
such action, an Officer's Certificate, in form and substance satisfactory to the
Indenture Trustee, stating the legal effect of any such action, outlining the
steps required to complete the same, and concluding that all conditions
precedent to the taking of such action have been complied with.
Section 8.04. Termination Upon Distribution to Noteholders. This
Indenture and the respective obligations and responsibilities of the Issuer and
the Indenture Trustee created hereby shall terminate upon the distribution to
Noteholders, Certificate Paying Agent, on behalf of the Certificateholders and
the Indenture Trustee of all amounts required to be distributed pursuant to
Article III; provided, however, that in no event shall the trust created hereby
continue beyond the expiration of 21 years from the death of the survivor of the
descendants of Joseph P. Kennedy, the late ambassador of the United States to
the Court of St. James, living on the date hereof.
Section 8.05. Release of Trust Estate. (a) Subject to the payment of
its fees and expenses, the Indenture Trustee may, and when required by the
provisions of this Indenture shall, execute instruments to release property from
the lien of this Indenture, or convey the Indenture Trustee's interest in the
same, in a manner and under circumstances that are not inconsistent with the
provisions of this Indenture. No party relying upon an instrument executed by
the Indenture
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Trustee as provided in Article VIII hereunder shall be bound to ascertain the
Indenture Trustee's authority, inquire into the satisfaction of any conditions
precedent, or see to the application of any monies.
(b) The Indenture Trustee shall, at such time as (i) there are no Notes
Outstanding, (ii) all sums due the Indenture Trustee pursuant to this Indenture
have been paid, and (iii) all sums due the Credit Enhancer have been paid,
release any remaining portion of the Trust Estate that secured the Notes from
the lien of this Indenture.
[(c) The Indenture Trustee shall release property from the lien of this
Indenture pursuant to this Section 8.05 only upon receipt of an request from the
Issuer accompanied by an [Officers' Certificate], [an Opinion of Counsel,] and a
letter from the Credit Enhancer, stating that the Credit Enhancer has no
objection to such request from the Issuer.]
Section 8.06. Surrender of Notes Upon Final Payment. By acceptance of
any Note, the Holder thereof agrees to surrender such Note to the Indenture
Trustee promptly, prior to such Noteholder's receipt of the final payment
thereon.
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ARTICLE IX
Supplemental Indentures
Section 9.01. Supplemental Indentures Without Consent of Noteholders.
(a) Without the consent of the Holders of any Notes but with the consent of the
Credit Enhancer and prior notice to the Rating Agencies and the Credit Enhancer,
the Issuer and the Indenture Trustee, when authorized by an Issuer Request, at
any time and from time to time, may enter into one or more indentures
supplemental hereto (which shall conform to the provisions of the Trust
Indenture Act as in force at the date of the execution thereof), in form
satisfactory to the Indenture Trustee, for any of the following purposes:
(i) to correct or amplify the description of any property
at any time subject to the lien of this Indenture, or better to assure,
convey and confirm unto the Indenture Trustee any property subject or
required to be subjected to the lien of this Indenture, or to subject
to the lien of this Indenture additional property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another person to the Issuer, and the
assumption by any such successor of the covenants of the Issuer herein
and in the Notes contained;
(iii) to add to the covenants of the Issuer, for the
benefit of the Holders of the Notes, or to surrender any right or power
herein conferred upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any
property to or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement any
provision herein or in any supplemental indenture that may be
inconsistent with any other provision herein or in any supplemental
indenture
(vi) to make any other provisions with respect to matters
or questions arising under this Indenture or in any supplemental
indenture; provided, that such action shall not materially and
adversely affect the interests of the Holders of the Notes;
(vii) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with respect to the Notes
and to add to or change any of the provisions of this Indenture as
shall be necessary to facilitate the administration of the trusts
hereunder by more than one trustee, pursuant to the requirements of
Article VI; or
(viii) to modify, eliminate or add to the provisions of
this Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under the TIA or under any similar
federal statute hereafter enacted and to add to this Indenture such
other provisions as may be expressly required by the TIA;
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provided, however, that no such indenture supplements shall be entered into
unless the Indenture Trustee shall have received an Opinion of Counsel that
entering into such indenture supplement will not have any material adverse tax
consequences to the Noteholders.
The Indenture Trustee is hereby authorized to join in the execution of
any such supplemental indenture and to make any further appropriate agreements
and stipulations that may be therein contained.
(b) The Issuer and the Indenture Trustee, when authorized by an Issuer
Request, may, also without the consent of any of the Holders of the Notes but
with the consent of the Credit Enhancer and prior notice to the Rating Agencies
and the Credit Enhancer, enter into an indenture or indentures supplemental
hereto for the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, this Indenture or of modifying in any
manner the rights of the Holders of the Notes under this Indenture; provided,
however, that such action shall not, as evidenced by an Opinion of Counsel, (i)
adversely affect in any material respect the interests of any Noteholder or (ii)
cause the Issuer to be subject to an entity level tax.
Section 9.02. Supplemental Indentures With Consent of Noteholders. The
Issuer and the Indenture Trustee, when authorized by an Issuer Request, also
may, with prior notice to the Rating Agencies and, with the written consent of
the Credit Enhancer and with the consent of the Holders of not less than a
majority of the Security Balances of each Class of Notes affected thereby, by
Act of such Holders delivered to the Issuer and the Indenture Trustee, enter
into an indenture or indentures supplemental hereto for the purpose of adding
any provisions to, or changing in any manner or eliminating any of the
provisions of, this Indenture or of modifying in any manner the rights of the
Holders of the Notes under this Indenture; provided, however, that no such
supplemental indenture shall, without the consent of the Holder of each Note
affected thereby:
(i) change the date of payment of any installment of
principal of or interest on any Note, or reduce the principal amount
thereof or the interest rate thereon, change the provisions of this
Indenture relating to the application of collections on, or the
proceeds of the sale of, the Trust Estate to payment of principal of or
interest on the Notes, or change any place of payment where, or the
coin or currency in which, any Note or the interest thereon is payable,
or impair the right to institute suit for the enforcement of the
provisions of this Indenture requiring the application of funds
available therefor, as provided in Article V, to the payment of any
such amount due on the Notes on or after the respective due dates
thereof;
(ii) reduce the percentage of the Security Balances of
the Notes, the consent of the Holders of which is required for any such
supplemental indenture, or the consent of the Holders of which is
required for any waiver of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences provided
for in this Indenture;
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(iii) modify or alter the provisions of the proviso to the
definition of the term "Outstanding" or modify or alter the exception
in the definition of the term "Holder";
(iv) reduce the percentage of the Security Balances of
the Notes required to direct the Indenture Trustee to direct the Issuer
to sell or liquidate the Trust Estate pursuant to Section 5.04;
(v) modify any provision of this Section 9.02 except to
increase any percentage specified herein or to provide that certain
additional provisions of this Indenture or the Basic Documents cannot
be modified or waived without the consent of the Holder of each Note
affected thereby;
(vi) modify any of the provisions of this Indenture in
such manner as to affect the calculation of the amount of any payment
of interest or principal due on any Note on any Payment Date (including
the calculation of any of the individual components of such
calculation); or
(vii) permit the creation of any lien ranking prior to or
on a parity with the lien of this Indenture with respect to any part of
the Trust Estate or, except as otherwise permitted or contemplated
herein, terminate the lien of this Indenture on any property at any
time subject hereto or deprive the Holder of any Note of the security
provided by the lien of this Indenture; and provided, further, that
such action shall not, as evidenced by an Opinion of Counsel, cause the
Issuer to be subject to an entity level tax.
The Indenture Trustee may in its discretion determine whether or not
any Notes would be affected by any supplemental indenture and any such
determination shall be conclusive upon the Holders of all Notes, whether
theretofore or thereafter authenticated and delivered hereunder. The Indenture
Trustee shall not be liable for any such determination made in good faith.
It shall not be necessary for any Act of Noteholders under this Section
9.02 to approve the particular form of any proposed supplemental indenture, but
it shall be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Issuer and the Indenture Trustee of
any supplemental indenture pursuant to this Section 9.02, the Indenture Trustee
shall mail to the Holders of the Notes to which such amendment or supplemental
indenture relates a notice setting forth in general terms the substance of such
supplemental indenture. Any failure of the Indenture Trustee to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such supplemental indenture.
Section 9.03. Execution of Supplemental Indentures. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modification thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.01 and 6.02, shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or
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permitted by this Indenture. The Indenture Trustee may, but shall not be
obligated to, enter into any such supplemental indenture that affects the
Indenture Trustee's own rights, duties, liabilities or immunities under this
Indenture or otherwise.
Section 9.04. Effect of Supplemental Indenture. Upon the execution of
any supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and shall be deemed to be modified and amended in accordance therewith
with respect to the Notes affected thereby, and the respective rights,
limitations of rights, obligations, duties, liabilities and immunities under
this Indenture of the Indenture Trustee, the Issuer and the Holders of the Notes
shall thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the terms and conditions
of any such supplemental indenture shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.
Section 9.05. Conformity with Trust Indenture Act. Every amendment of
this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the requirements of the Trust Indenture Act as then
in effect so long as this Indenture shall then be qualified under the Trust
Indenture Act.
Section 9.06. Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Inden ture
Trustee shall so determine, new Notes so modified as to conform, in the opinion
of the Indenture Trustee and the Issuer, to any such supplemental indenture may
be prepared and executed by the Issuer and authenticated and delivered by the
Indenture Trustee in exchange for Outstanding Notes.
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ARTICLE X
Miscellaneous
Section 10.01. Compliance Certificates and Opinions, etc. (a) Upon any
application or request by the Issuer to the Indenture Trustee to take any action
under any provision of this Indenture, the Issuer shall furnish to the Indenture
Trustee and to the Credit Enhancer (i) an Officer's Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with and (ii) an Opinion of Counsel stating
that in the opinion of such counsel all such conditions precedent, if any, have
been complied with, except that, in the case of any such application or request
as to which the furnishing of such documents is specifically required by any
provision of this Indenture, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each signatory of such certificate or
opinion has read or has caused to be read such covenant or condition
and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such signatory,
such signatory has made such examination or investigation as is
necessary to enable such signatory to express an informed opinion as to
whether or not such covenant or condition has been complied with;
(4) a statement as to whether, in the opinion of each such
signatory, such condition or covenant has been complied with; and
(5) if the Signer of such Certificate or Opinion is required
to be Independent, the Statement required by the definition of the term
"Independent".
(b) (i) Prior to the deposit of any Collateral or other property or
securities with the Indenture Trustee that is to be made the basis for the
release of any property or securities subject to the lien of this Indenture, the
Issuer shall, in addition to any obligation imposed in Section 10.01(a) or
elsewhere in this Indenture, furnish to the Indenture Trustee an Officer's
Certificate certifying or stating the opinion of each person signing such
certificate as to the fair value (within 90 days of such deposit) to the Issuer
of the Collateral or other property or securities to be so deposited.
(ii) Whenever the Issuer is required to furnish to the
Indenture Trustee an Officer's Certificate certifying or stating the opinion of
any signer thereof as to the matters
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described in clause (i) above, the Issuer shall also deliver to the Indenture
Trustee an Independent Certificate as to the same matters, if the fair value to
the Issuer of the securities to be so deposited and of all other such securities
made the basis of any such withdrawal or release since the commencement of the
then-current fiscal year of the Issuer, as set forth in the certificates
delivered pursuant to clause (i) above and this clause (ii), is 10% or more of
the Security Balances of the Notes, but such a certificate need not be furnished
with respect to any securities so deposited, if the fair value thereof to the
Issuer as set forth in the related Officer's Certificate is less than $25,000 or
less than one percent of the Security Balances of the Notes.
(iii) Whenever any property or securities are to be
released from the lien of this Indenture, the Issuer shall also furnish to the
Indenture Trustee an Officer's Certificate certifying or stating the opinion of
each person signing such certificate as to the fair value (within 90 days of
such release) of the property or securities proposed to be released and stating
that in the opinion of such person the proposed release will not impair the
security under this Indenture in contravention of the provisions hereof.
(iv) Whenever the Issuer is required to furnish to the
Indenture Trustee an Officer's Certificate certifying or stating the opinion of
any signer thereof as to the matters described in clause (iii) above, the Issuer
shall also furnish to the Indenture Trustee an Independent Certificate as to the
same matters if the fair value of the property or securities and of all other
property, other than property as contemplated by clause (v) below or securities
released from the lien of this Indenture since the commencement of the
then-current calendar year, as set forth in the certificates required by clause
(iii) above and this clause (iv), equals 10% or more of the Security Balances of
the Notes, but such certificate need not be furnished in the case of any release
of property or securities if the fair value thereof as set forth in the related
Officer's Certificate is less than $25,000 or less than one percent of the then
Security Balances of the Notes.
(v) Notwithstanding any provision of this Indenture, the
Issuer may, without compliance with the requirements of the other provisions of
this Section 10.01, (A) collect, sell or otherwise dispose of the Mortgage Loans
as and to the extent permitted or required by the Basic Documents or (B) make
cash payments out of the Payment Account as and to the extent permitted or
required by the Basic Documents [, so long as the Issuer shall deliver to the
Indenture Trustee every six months, commencing _____________, an Officer's
Certificate of the Issuer stating that all the dispositions of Collateral
described in clauses (A) or (B) above that occurred during the preceding six
calendar months were in the ordinary course of the Issuer's business and that
the proceeds thereof were applied in accordance with the Basic Documents].
Section 10.02. Form of Documents Delivered to Indenture Trustee. In any
case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.
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Any certificate or opinion of an Authorized Officer of the Issuer may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate of an Authorized Officer or
Opinion of Counsel may be based, insofar as it relates to factual matters, upon
a certificate or opinion of, or representations by, an officer or officers of
the Seller, the Issuer or the Administrator, stating that the information with
respect to such factual matters is in the possession of the Seller, the Issuer
or the Administrator, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article VI.
Section 10.03. Acts of Noteholders. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Noteholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Noteholders in person or by agents duly appointed in writing; and except as
herein otherwise expressly provided such action shall become effective when such
instrument or instruments are delivered to the Indenture Trustee, and, where it
is hereby expressly required, to the Issuer. Such instrument or instruments (and
the action embodied therein and evidenced thereby) are herein sometimes referred
to as the "Act" of the Noteholders signing such instrument or instruments. Proof
of execution of any such instrument or of a writing appointing any such agent
shall be sufficient for any purpose of this Indenture and (subject to Section
6.01) conclusive in favor of the Indenture Trustee and the Issuer, if made in
the manner provided in this Section 10.03.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.
(c) The ownership of Notes shall be proved by the Note Registrar.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Notes shall bind the Holder of every
Note issued upon the registration
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thereof or in exchange therefor or in lieu thereof, in respect of anything done,
omitted or suffered to be done by the Indenture Trustee or the Issuer in
reliance thereon, whether or not notation of such action is made upon such Note.
Section 10.04. Notices, etc., to Indenture Trustee, Issuer, Credit
Enhancer and Rating Agencies. Any request, demand, authorization, direction,
notice, consent, waiver or Act of Note holders or other documents provided or
permitted by this Indenture shall be in writing and if such request, demand,
authorization, direction, notice, consent, waiver or act of Noteholders is to be
made upon, given or furnished to or filed with:
(i) the Indenture Trustee by any Noteholder or by the
Issuer shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Indenture Trustee at the
Corporate Trust Office. The Indenture Trustee shall promptly transmit
any notice received by it from the Noteholders to the Issuer, or
(ii) the Issuer by the Indenture Trustee or by any
Noteholder shall be sufficient for every purpose hereunder if in
writing and mailed first-class, postage prepaid to the Issuer addressed
to: WMC MBN Trust Series 199_ - ______, in care of [Name of Owner
Trustee] _________________, __________, ______________, Attention of
_________________________________________ with a copy to the
Administrator at ________________ Attention: __________
__________________________, or at any other address previously
furnished in writing to the Indenture Trustee by the Issuer or the
Administrator. The Issuer shall promptly transmit any notice received
by it from the Noteholders to the Indenture Trustee, or
(iii) the Credit Enhancer by the Issuer, the Indenture
Trustee or by any Noteholders shall be sufficient for every purpose
hereunder to in writing and mailed, first-class postage pre-paid, or
personally delivered or telecopied to: [Name of Credit Enhancer],
________________, ________, _______________, Attention:
_________________, ___________________________, Telephone
______________. Telecopier ______________. The Credit Enhancer shall
promptly transmit any notice received by it from the Issuer, the
Indenture Trustee or the Noteholders to the Issuer or Indenture
Trustee, as the case may be.
Notices required to be given to the Rating Agencies by the Issuer, the
Indenture Trustee or the Owner Trustee shall be in writing, personally delivered
or mailed by certified mail, return receipt requested, to (i) in the case of
[Moody's], at the following address: [Moody's Investors Service, Inc., ABS
Monitoring Department, 99 Church Street, New York, New York 10007] and (ii) in
the case of [Standard & Poor's], at the following address: [Standard & Poor's
Ratings Group, 26 Broadway (15th Floor), New York, New York 10004, Attention of
Asset Backed Surveillance Department]; or as to each of the foregoing, at such
other address as shall be designated by written notice to the other parties.
Section 10.05. Notices to Noteholders; Waiver. Where this Indenture
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein
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expressly provided) if in writing and mailed, first-class, postage prepaid to
each Noteholder affected by such event, at such Person's as it appears on the
Note Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. In any case where notice to
Noteholders is given by mail, neither the failure to mail such notice nor any
defect in any notice so mailed to any particular Noteholder shall affect the
sufficiency of such notice with respect to other Noteholders, and any notice
that is mailed in the manner herein provided shall conclusively be presumed to
have been duly given regardless of whether such notice is in fact actually
received.
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Indenture Trustee shall be deemed to
be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any circumstance constitute an Event of
Default.
Section 10.06. Alternate Payment and Notice Provisions. Notwithstanding
any provision of this Indenture or any of the Notes to the contrary, the Issuer
may enter into any agreement with any Holder of a Note providing for a method of
payment, or notice by the Indenture Trustee or any Administrator to such Holder,
that is different from the methods provided for in this Indenture for such
payments or notices. The Issuer shall furnish to the Indenture Trustee a copy of
each such agreement and the Indenture Trustee shall cause payments to be made
and notices to be given in accordance with such agreements.
Section 10.07. Conflict with Trust Indenture Act. If any provision
hereof limits, qualifies or conflicts with another provision hereof that is
required to be included in this Indenture by any of the provisions of the Trust
Indenture Act, such required provision shall control.
The provisions of TIA ss.ss. 310 through 317 that impose duties on any
Person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
Section 10.08. Effect of Headings. The Article and Section headings
herein are for convenience only and shall not affect the construction hereof.
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Section 10.09. Successors and Assigns. All covenants and agreements in
this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Indenture Trustee in
this Indenture shall bind its successors, co- trustees and agents.
Section 10.10. Separability. In case any provision in this Indenture or
in the Notes shall be invalid, illegal or unenforceable, the validity, legality,
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
Section 10.11. Benefits of Indenture. The Credit Enhancer and its
successors and assigns shall be a third-party beneficiary to the provisions of
this Indenture. Nothing in this Indenture or in the Notes, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder, and the Noteholders, and any other party secured hereunder, and any
other Person with an ownership interest in any part of the Trust Estate, any
benefit or any legal or equitable right, remedy or claim under this Indenture.
Section 10.12. Legal Holidays. In any case where the date on which any
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
Section 10.13. GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 10.14. Counterparts. This Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
Section 10.15. Recording of Indenture. If this Indenture is subject to
recording in any appropriate public recording offices, such recording is to be
effected by the Issuer and at its expense accompanied by an Opinion of Counsel
(which may be counsel to the Indenture Trustee or any other counsel reasonably
acceptable to the Indenture Trustee) to the effect that such recording is
necessary either for the protection of the Noteholders or any other Person
secured hereunder or for the enforcement of any right or remedy granted to the
Indenture Trustee under this Indenture.
Section 10.16. Issuer Obligation. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer, the Owner Trustee or
the Indenture Trustee on the Notes or under this Indenture or any certificate or
other writing delivered in connection herewith or therewith, against (i) the
Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any
owner of a beneficial interest in the Issuer or (iii) any partner, owner,
beneficiary, agent,
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officer, director, employee or agent of the Indenture Trustee or the Owner
Trustee in its individual capacity, any holder of a beneficial interest in the
Issuer, the Owner Trustee or the Indenture Trustee or of any successor or assign
of the Indenture Trustee or the Owner Trustee in its individual capacity, except
as any such Person may have expressly agreed (it being understood that the
Indenture Trustee and the Owner Trustee have no such obligations in their
individual capacity) and except that any such partner, owner or beneficiary
shall be fully liable, to the extent provided by applicable law, for any unpaid
consideration for stock, unpaid capital contribution or failure to pay any
installment or call owing to such entity. For all purposes of this Indenture, in
the performance of any duties or obligations of the Issuer hereunder, the Owner
Trustee shall be subject to, and entitled to the benefits of, the terms and
provisions of Article VI, VII and VIII of the Trust Agreement.
Section 10.17. No Petition. The Indenture Trustee, by entering into
this Indenture, and each Noteholder, by accepting a Note, hereby covenant and
agree that they will not at any time institute against the Depositor or the
Issuer, or join in any institution against the Depositor or the Issuer of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations relating to the Notes, this
Indenture or any of the Basic Documents.
Section 10.18. Inspection. The Issuer agrees that, on reasonable prior
notice, it shall permit any representative of the Indenture Trustee, during the
Issuer's normal business hours, to examine all the books of account, records,
reports and other papers of the Issuer, to make copies and extracts therefrom,
to cause such books to be audited by Independent certified public accountants,
and to discuss the Issuer's affairs, finances and accounts with the Issuer's
officers, employees, and Independent certified public accountants, all at such
reasonable times and as often as may be reasonably requested. The Indenture
Trustee shall and shall cause its representatives to hold in confidence all such
information except to the extent disclosure may be required by law (and all
reasonable applications for confidential treatment are unavailing) and except to
the extent that the Indenture Trustee may reasonably determine that such
disclosure is consistent with its obligations hereunder.
Section 10.19. Authority of the Administrator. Each of the parties to
this Indenture acknowledges that the Issuer and the Owner Trustee have each
appointed the Administrator to act as its agent to perform the duties and
obligations of the Issuer hereunder. Unless otherwise instructed by the Issuer
or the Owner Trustee, copies of all notices, requests, demands and other
documents to be delivered to the Issuer or the Owner Trustee pursuant to the
terms hereof shall be delivered to the Administrator. Unless otherwise
instructed by the Issuer or the Owner Trustee, all notices, requests, demands
and other documents to be executed or delivered, and any action to be taken, by
the Issuer or the Owner Trustee pursuant to the terms hereof may be executed,
delivered and/or taken by the Administrator pursuant to the Administration
Agreement.
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IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused
their names to be signed hereto by their respective officers thereunto duly
authorized, all as of the day and year first above written.
WMC MBN Trust Series 199_ - _____,
as Issuer
By: _______________________________
not in its individual capacity
but solely as Owner Trustee
By:
Name:
Title:
___________________________________,
as Indenture Trustee, as Certificate
Paying Agent and as Note Registrar
By: ______________________________
Name: _________________________
Title: ________________________
- ---------------------------------
hereby accepts the appointment as
Cer tificate Paying Agent
pursuant to Section 3.03 hereof
and as Certificate Registrar
pursuant to Section 4.02 hereof.
_____________________________________
By: _________________________________
Title: ______________________________
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ____ day of __________, before me personally appeared
______________, to me known, who being by me duly sworn, did depose and say,
that he resides at_________________, __________________, that he is the of the
Owner Trustee, one of the corpo rations described in and which executed the
above instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the Board of Directors of said corporation; and that he signed his name
thereto by like order.
---------------------------
Notary Public
[NOTARIAL SEAL]
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ____ day of __________, before me personally appeared
_______________, to me known, who being by me duly sworn, did depose and say,
that he resides at ___________________ , that he is the ______________ of
________________, as Indenture Trustee, one of the corporations described in and
which executed the above instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by order of the Board of Directors of said corporation; and that he
signed his name thereto by like order.
---------------------------
Notary Public
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ____ day of __________, before me personally appeared
___________, to me known, who being by me duly sworn, did depose and say, that
he resides at ________________, that he is an ________________ of
_______________, as Indenture Trustee, one of the corporations described in and
which executed the above instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by order of the Board of Directors of said corporation; and that he
signed his name thereto by like order.
---------------------------
Notary Public
[NOTARIAL SEAL]
<PAGE>
APPENDIX A
DEFINITIONS
ADJUSTABLE RATE MORTGAGE LOAN: A Mortgage Loan with a Mortgage
Rate that is subject to periodic adjustment calculated on the basis of the
Index, plus an applicable Gross Margin. Each Adjustable Rate Mortgage Loan is
secured by a first lien on the related Mortgaged Property.
ADJUSTMENT DATE: As to each Adjustable Rate Mortgage Loan,
each date set forth in the related Mortgage Note on which an adjustment to the
interest rate on such Mortgage Loan becomes effective.
ADMINISTRATIVE FEE: The amount of the fee payable to the Owner
Trustee together with the amount of the premium payable to the Note Insurer,
which will accrue at ______% per annum based on the Note Principal Balance of
the Notes.
ADVANCE: As to any Mortgage Loan, any advance made by the
Master Servicer, pursuant to Section 4.04 of the Servicing Agreement.
AFFILIATE: With respect to any Person, any other Person
controlling, controlled by or under common control with such Person. For
purposes of this definition, "control" means the power to direct the management
and policies of a Person, directly or indirectly, whether through ownership of
voting securities, by contract or otherwise and "controlling" and "controlled"
shall have meanings correlative to the foregoing.
APPRAISED VALUE: The appraised value of a Mortgaged Property
based upon the lesser of (i) the appraisal made at the time of the origination
of the related Mortgage Loan, or (ii) the sales price of such Mortgaged Property
at such time of origination. With respect to a Mortgage Loan the proceeds of
which were used to refinance an existing mortgage loan, the appraised value of
the Mortgaged Property based upon the appraisal (as reviewed and approved by the
Seller) obtained at the time of refinancing.
ASSIGNMENT OF MORTGAGE: An assignment of Mortgage, notice of
transfer or equivalent instrument, in recordable form, which is sufficient under
the laws of the jurisdiction wherein the related Mortgaged Property is located
to reflect of record the sale of the Mortgage, which assignment, notice of
transfer or equivalent instrument may be in the form of one or more blanket
assignments covering Mortgages secured by Mortgaged Properties located in the
same county, if permitted by law.
AUTHORIZED NEWSPAPER: A newspaper of general circulation in
the Borough of Manhattan, The City of New York, printed in the English language
and customarily published on each Business Day, whether or not published on
Saturdays, Sundays or holidays.
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AUTHORIZED OFFICER: With respect to the Issuer, any officer of
the Owner Trustee who is authorized to act for the Owner Trustee in matters
relating to the Issuer and who is identi fied on the list of Authorized Officers
delivered by the Owner Trustee to the Indenture Trustee on the Closing Date (as
such list may be modified or supplemented from time to time thereafter).
AVAILABLE FUNDS: As to any Payment Date, an amount equal to
the amount on deposit in the Payment Account on such Payment Date and available
for distribution to the Noteholders (minus, if the Notes have been declared due
and payable following an Event of Default on such Payment Date, any amounts owed
to the Indenture Trustee by the Issuer pursuant to Section 6.07 of the
Indenture).
AVAILABLE FUNDS CAP CARRY-FORWARD AMOUNT: With respect to the
Notes and any Payment Date, an amount equal to the sum of (x) the amount, if
any, by which (a) the lesser of (1) the amount payable if clause (i) of the
definition of Note Interest Rate is used to calculate interest and (2) the
amount payable if the Maximum Note Interest Rate is used to calculate interest
exceeds (b) the amount payable if clause (ii) of the definition of Note Interest
Rate is used to calculate interest and (y) the interest accrued during the prior
Interest Period on the amount of any Available Funds Cap Carry-Forward Amount
immediately prior to such Payment Date, calculated on the basis of a 360-day
year and the actual number of days elapsed and using the Note Interest Rate
applicable to such Payment Date minus (z) the aggregate of all amounts
distributed to the Noteholders on all prior Payment Dates pursuant to Section
3.05(v) of the Indenture.
AVAILABLE FUNDS INTEREST RATE: As to any Payment Date, a per
annum rate equal to the lesser of (x) the fraction, expressed as a percentage,
the numerator of which is (i) an amount equal to (A) 1/12 of the aggregate
Principal Balance of the then outstanding Mortgage Loans times the weighted
average of the Expense Adjusted Mortgage Rates on the then outstanding Mortgage
Loans minus (B) the Administrative Fee for such Payment Date, and the
denominator of which is (ii) an amount equal to (A) the then outstanding
aggregate Note Principal Balance of the Notes multiplied by (B) the actual
number of days elapsed in the related Interest Period divided by 360 and (y) the
Maximum Note Interest Rate.
BANKRUPTCY CODE: The Bankruptcy Code of 1978, as amended.
BASIC DOCUMENTS: The Trust Agreement, the Certificate of
Trust, the Indenture, the Mortgage Loan Purchase Agreement, the Insurance
Agreement, the Servicing Agreement, and the other documents and certificates
delivered in connection with any of the above.
BENEFICIAL OWNER: With respect to any Note, the Person who is
the beneficial owner of such Note as reflected on the books of the Depository or
on the books of a Person maintaining an account with such Depository (directly
as a Depository Participant or indirectly through a Depository Participant, in
accordance with the rules of such Depository).
BOOK-ENTRY NOTES: Beneficial interests in the Notes, ownership
and transfers of which shall be made through book entries by the Depository as
described in Section 4.06 of the Indenture.
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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, Delaware or
California or in the city in which the corporate trust offices of the Indenture
Trustee or the Note Insurer are located, are required or authorized by law to be
closed.
BUSINESS TRUST STATUTE: Chapter 38 of Title 12 of the Delaware
Code, 12 DEL. Code ss.ss.3801 ET SEQ., as the same may be amended from time to
time.
CASH LIQUIDATION: As to any defaulted Mortgage Loan other than
a Mortgage Loan as to which an REO Acquisition occurred, a determination by the
Master Servicer that it has received all Insurance Proceeds, Liquidation
Proceeds and other payments or cash recoveries which the Master Servicer
reasonably and in good faith expects to be finally recoverable with respect to
such Mortgage Loan.
CERTIFICATE DISTRIBUTION ACCOUNT: The account or accounts
created and maintained pursuant to Section 3.10(d) of the Trust Agreement. The
Certificate Distribution Account shall be an Eligible Account.
CERTIFICATE PAYING AGENT: The meaning specified in Section
3.10 of the Trust Agreement.
CERTIFICATE PERCENTAGE INTEREST: With respect to each
Certificate, the Certificate Percentage Interest on the face thereof.
CERTIFICATE REGISTER: The register maintained by the
Certificate Registrar in which the Certificate Registrar shall provide for the
registration of Certificates and of transfers and exchanges of Certificates.
CERTIFICATE REGISTRAR: Initially, the Indenture Trustee, in
its capacity as Certificate Registrar, or any successor to the Indenture Trustee
in such capacity.
CERTIFICATE OF TRUST: The Certificate of Trust filed for the
Trust pursuant to Section 3810(a) of the Business Trust Statute.
CERTIFICATES: The WMC Secured Assets Corp., Mortgage-Backed
Certificates, Series 199_-_, evidencing the beneficial ownership interest in the
Issuer and executed by the Owner Trustee in substantially the form set forth in
Exhibit A to the Trust Agreement.
CERTIFICATEHOLDER: The Person in whose name a Certificate is
registered in the Certificate Register. Owners of Certificates that have been
pledged in good faith may be regarded as Holders if the pledgee establishes to
the satisfaction of the Indenture Trustee or the Owner Trustee, as the case may
be, the pledgee's right so to act with respect to such Certificates and that the
pledgee is not the Issuer, any other obligor upon the Certificates or any
Affiliate of any of the foregoing Persons.
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CLOSING DATE: ______ __, 199_.
CODE: The Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
COLLATERAL: The meaning specified in the Granting Clause of
the Indenture.
COLLECTION ACCOUNT: The account or accounts created and
maintained pursuant to Section 3.06(d) of the Servicing Agreement. The
Collection Account shall be an Eligible Account.
COMBINED LOAN-TO-VALUE RATIO: With respect to any Mortgage
Loan and any date, the percentage equivalent of a fraction, the numerator of
which is the Cut-Off Date Principal Balance of such Mortgage Loan and the
denominator of which is the outstanding principal balance as of the date of the
origination of such Mortgage Loan of any mortgage loan or mortgage loans that
are secured by liens on the Mortgaged Property that are senior or subordinate to
the Mortgage and the denominator of which is the Appraised Value of the related
Mortgaged Property.
COMPENSATING INTEREST: With respect to any Determination Date,
an amount equal to the lesser of (i) the aggregate amount of Prepayment Interest
Shortfall for the related Prepayment Period and (ii) the Servicing Fee for such
Determination Date.
CONVERTED MORTGAGE LOAN: Any Convertible Mortgage Loan with
respect to which the interest rate borne by such Mortgage Loan has been
converted from an adjustable interest rate to a fixed interest rate.
CONVERTIBLE MORTGAGE LOAN: Any Adjustable Rate Mortgage Loan
which by its terms grants to the related Mortgagor the option to convert the
interest rate borne by such Mortgage Loan from an adjustable interest rate to a
fixed interest rate.
CONVERTING MORTGAGE LOAN: Any Convertible Mortgage Loan with
respect to which the related Mortgagor has given notice of his intent to convert
from an adjustable interest rate to a fixed interest rate and prior to the
conversion of such Mortgage Loan.
CORPORATE TRUST OFFICE: With respect to the Indenture Trustee,
Certificate Registrar, Certificate Paying Agent and Paying Agent, the principal
corporate trust office of the Indenture Trustee and Note Registrar at which at
any particular time its corporate trust business shall be administered, which
office at the date of the execution of this instrument is located at
____________, __________, ______, __________ _____, Attention: ________ ___
______, except that for purposes of Section 4.02 of the Indenture and Section
3.09 of the Trust Agreement, such term shall include the Indenture Trustee's
office or agency at _______________, ________, ________ _____, Attention:
___________ _________. With respect to the Owner Trustee, the principal
corporate trust office of the Owner Trustee at which at any particular time its
corporate trust business shall be administered, which office at the date of the
execution of this Trust Agreement is located at ________________________, ______
____________,
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________________________, __________, ________ _____,
Attention: --------------------------------.
CUT-OFF DATE: With respect to the Mortgage Loans, ______ 1,
199_.
CUT-OFF DATE PRINCIPAL BALANCE: With respect to any Mortgage
Loan, the unpaid principal balance thereof as of the opening of business on the
last day of the related Due Period immediately prior to the Cut-Off Date.
DEBT SERVICE REDUCTION: With respect to any Mortgage Loan, a
reduction in the scheduled Monthly Payment for such Mortgage Loan by a court of
competent jurisdiction in a proceeding under the Bankruptcy Code, except such a
reduction constituting a Deficient Valuation or any reduction that results in a
permanent forgiveness of principal.
DEFAULT: Any occurrence which is or with notice or the lapse
of time or both would become an Event of Default.
DEFICIENCY AMOUNT: The meaning provided in the Note Insurance
Policy.
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 Monthly Payment that constitutes a permanent forgiveness of principal,
which valuation or reduction results from a proceeding under the Bankruptcy
Code.
DEFINITIVE NOTES: The meaning specified in Section 4.06 of the
Indenture.
DELETED MORTGAGE LOAN: A Mortgage Loan replaced or to be
replaced with an Eligible Substitute Mortgage Loan.
DEPOSITOR: WMC Secured Assets Corp., a Delaware corporation,
or its successor in interest.
DEPOSITORY OR DEPOSITORY AGENCY: The Depository Trust Company
or a successor appointed by the Indenture Trustee with the approval of the
Depositor. Any successor to the Depository shall be an organization registered
as a "clearing agency" pursuant to Section 17A of the Exchange Act and the
regulations of the Securities and Exchange Commission thereunder.
DEPOSITORY PARTICIPANT: A Person for whom, from time to time,
the Depository effects book-entry transfers and pledges of securities deposited
with the Depository.
DETERMINATION DATE: With respect to any Payment Date, the 15th
of the related month, or if the 15th day of such month is not a Business Day,
the immediately preceding Business Day.
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DUE DATE: The first day of the month of the related Payment
Date.
DUE PERIOD: With respect to any Mortgage Loan and Due Date,
the period commencing on the second day of the month preceding the month of such
Payment Date (or, with respect to the first Due Period, the day following the
Cut-Off Date) and ending on the related Due Date.
ELIGIBLE ACCOUNT: An account that is any of the following: (i)
maintained with a depository institution the short term deposits of which have
been rated by each Rating Agency in its highest rating available, or (ii) an
account or accounts in a depository institution in which such accounts are fully
insured to the limits established by the FDIC, PROVIDED that any deposits not so
insured shall, to the extent acceptable to the Note Insurer and each Rating
Agency, as evidenced in writing, be maintained such that (as evidenced by an
Opinion of Counsel delivered to the Indenture Trustee, the Note Insurer and each
Rating Agency) the Indenture Trustee have a claim with respect to the funds in
such account or a perfected first security interest against any collateral
(which shall be limited to Eligible Investments) securing such funds that is
superior to claims of any other depositors or creditors of the depository
institution with which such account is main tained, or (iii) in the case of the
Collection Account, either (A) a trust account or accounts maintained at the
Corporate Trust Department of the Indenture Trustee or (B) an account or
accounts maintained at the Corporate Trust Department of the Indenture Trustee,
as long as its short term debt obligations are rated P-1 by Moody's and A-1 by
Standard & Poor's or better and its long term debt obligations are rated A2 by
Moody's and A by Standard & Poor's or better, or (iv) in the case of the
Collection Account and the Payment Account, a trust account or accounts
maintained in the corporate trust division of the Indenture Trustee, or (v) an
account or accounts of a depository institution acceptable to each Rating Agency
as evidenced in writing by each Rating Agency that use of any such account as
the Collection Account or the Payment Account will not reduce the rating
assigned to any of the Securities by such Rating Agency below investment grade
without taking into account the Note Insurance Policy and acceptable to the Note
Insurer as evidenced in writing.
ELIGIBLE INVESTMENTS: One or more of the following:
(i) direct obligations of, and obligations fully
guaranteed by, the United States of America, the Federal Home Mortgage
Corporation, the Federal National Mortgage Association, the Federal
Home Loan Banks or any agency or instrumentality of the United States
of America the obligations of which are backed by the full faith and
credit of the United States of America;
(ii) (A) demand and time deposits in, certificates of
deposit of, banker's acceptances issued by or federal funds sold by any
depository institution or trust company (including the Indenture
Trustee or its agent acting in their respective commercial capacities)
incorporated under the laws of the United States of America or any
State thereof and subject to supervision and examination by federal
and/or state authorities, so long as at the time of such investment or
contractual commitment providing for such investment, such depository
institution or trust company has a short term unsecured debt rating in
the
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highest available rating category of each of the Rating Agencies and
provided that each such investment has an original maturity of no more
than 365 days, and (B) any other demand or time deposit or deposit
which is fully insured by the Federal Deposit Insurance Corporation;
(iii) repurchase obligations with a term not to exceed 30
days with respect to any security described in clause (i) above and
entered into with a depository institution or trust company (acting as
a principal) rated "A" or higher by S&P and A2 or higher by Moody's;
provided, however, that collateral transferred pursuant to such
repurchase obligation must (A) be valued weekly at current market price
plus accrued interest, (B) pursuant to such valuation, equal, at all
times, 105% of the cash transferred by the Indenture Trustee in
exchange for such collateral and (C) be delivered to the Indenture
Trustee or, if the Indenture Trustee is supplying the collateral, an
agent for the Indenture Trustee, in such a manner as to accomplish
perfection of a security interest in the collateral by possession of
certificated securities.
(iv) securities bearing interest or sold at a discount
issued by any corporation incorporated under the laws of the United
States of America or any State thereof which has a long term unsecured
debt rating in the highest available rating category of each of the
Rating Agencies at the time of such investment;
(v) commercial paper having an original maturity of
less than 365 days and issued by an institution having a short term
unsecured debt rating in the highest available rating category of each
of the Rating Agencies at the time of such investment;
(vi) a guaranteed investment contract approved by each
of the Rating Agencies and the Note Insurer and issued by an insurance
company or other corporation having a long term unsecured debt rating
in the highest available rating category of each of the Rating Agencies
at the time of such investment;
(vii) money market funds having ratings in the highest
available long-term rating category of each of the Rating Agencies at
the time of such investment; any such money market funds which provide
for demand withdrawals being conclusively deemed to satisfy any
maturity requirement for Eligible Investments set forth in the
Indenture; and
(viii) any investment approved in writing by each of the
Rating Agencies and the Note Insurer.
The Indenture Trustee may purchase from or sell to itself or an affiliate, as
principal or agent, the Eligible Investments listed above.
PROVIDED, HOWEVER, that each such instrument shall be acquired in an arm's
length transaction and no such instrument shall be an Eligible Investment if it
represents, either (1) the right to receive only interest payments with respect
to the underlying debt instrument or (2) the right to receive both principal and
interest payments derived from obligations underlying such instrument and the
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principal and interest payments with respect to such instrument provide a yield
to maturity greater than 120% of the yield to maturity at par of such underlying
obligations; PROVIDED FURTHER, HOWEVER, that each such instrument acquired shall
not be acquired at a price in excess of par.
ELIGIBLE 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 an Officer's Certificate delivered to the
Indenture Trustee, (i) have an outstanding principal balance, after deduction of
the principal portion of the monthly payment due in the month of substitution
(or in the case of a substitution of more than one Mortgage Loan for a Deleted
Mortgage Loan, an aggregate outstanding principal balance, after such
deduction), not in excess of the outstanding principal balance of the Deleted
Mortgage Loan (the amount of any shortfall to be deposited by the Seller in the
Collection Account in the month of substitution); (ii) comply with each
representa tion and warranty set forth in clauses (ii) through (lxxvii) of
Section 3.1(b) of the Mortgage Loan Purchase Agreement other than clauses (ii),
(iii), (v)-(xi), (xiii)-(xiv), (l), (lxvi), (lxviii), (lxxi)- (lxxiii); (iii)
have a Mortgage Rate and Gross Margin no lower than and not more than 1% per
annum higher than the Mortgage Rate and Gross Margin, respectively, of the
Deleted Mortgage Loan as of the date of substitution; (iv) have a Combined
Loan-to-Value Ratio at the time of substitution no higher than that of the
Deleted Mortgage Loan at the time of substitution; (v) have a remaining term to
stated maturity not greater than (and not more than one year less than) that of
the Deleted Mortgage Loan and (vi) not be 30 days or more delinquent.
ERISA: The Employee Retirement Income Security Act of 1974, as
amended.
EVENT OF DEFAULT: With respect to the Indenture, any one of
the following events (whatever the reason for such Event of Default and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(i) a default in (a) the payment of the Interest
Payment Amount or the Principal Payment Amount with respect to a
Payment Date on such Payment Date or (b) the Subordination Increase
Amount or the Available Funds Cap Carry-Forward Amount, but only, with
respect to clause (b), to the extent funds are available to make such
payment as provided in the Indenture; or
(ii) the failure by the Issuer on the Final Scheduled
Payment Date to reduce the Note Principal Balance to zero; or
(iii) there occurs a default in the observance or
performance of any covenant or agreement of the Issuer made in the
Indenture, or any representation or warranty of the Issuer made in the
Indenture or in any certificate or other writing delivered pursuant
hereto or in connection herewith proving to have been incorrect in any
material respect as of the time when the same shall have been made, and
such default shall continue or not be cured, or the circumstance or
condition in respect of which such representation or warranty was
incorrect shall not have been eliminated or otherwise cured, for a
period of 30 days after there shall have been given, by registered or
certified mail, to the Issuer
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by the Indenture Trustee or to the Issuer and the Indenture Trustee by
the Note Insurer, or if a Note Insurer Default exists the Holders of at
least 25% of the Outstanding Amount of the Notes, a written notice
specifying such default or incorrect representation or warranty and
requiring it to be remedied and stating that such notice is a notice of
default hereunder; or
(iv) there occurs the filing of a decree or order for
relief by a court having jurisdiction in the premises in respect of the
Issuer or any substantial part of the Trust Estate in an involuntary
case under any applicable federal or state bankruptcy, insolvency or
other similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Issuer or for any substantial part of the Trust Estate,
or ordering the winding-up or liquidation of the Issuer's affairs, and
such decree or order shall remain unstayed and in effect for a period
of 60 consecutive days; or
(v) there occurs the commencement by the Issuer of a
voluntary case under any applicable federal or state bankruptcy,
insolvency or other similar law now or hereafter in effect, or the
consent by the Issuer to the entry of an order for relief in an
involuntary case under any such law, or the consent by the Issuer to
the appointment or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the
Issuer or for any substantial part of the assets of the Trust Estate,
or the making by the Issuer of any general assignment for the benefit
of creditors, or the failure by the Issuer generally to pay its debts
as such debts become due, or the taking of any action by the Issuer in
furtherance of any of the foregoing.
EVENT OF SERVICER TERMINATION: With respect to the Servicing
Agreement, a Servicing Default as defined in Section 6.01 of the Servicing
Agreement.
EXCESS SUBORDINATION AMOUNT: With respect to any Payment Date,
the excess, if any, of (a) the Subordination Amount that would apply on such
Payment Date after taking into account all distributions to be made on such
Payment Date (exclusive of any reductions thereto attributable to Subordination
Reduction Amounts on such Payment Date) over (b) the Required Subordination
Amount for such Payment Date.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
EXPENSE ADJUSTED MORTGAGE RATE: For any Mortgage Loan, the
rate equal to the then applicable Mortgage Rate thereon minus the sum of (i) the
Minimum Spread and (ii) the Servicing Fee Rate and (iii) the Indenture Trustee
Fee Rate.
EXPENSES: The meaning specified in Section 7.02 of the Trust
Agreement.
FDIC: The Federal Deposit Insurance Corporation or any
successor thereto.
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FHLMC: The Federal Home Loan Mortgage Corporation, or any
successor thereto.
FINAL SCHEDULED PAYMENT DATE: The Payment Date occurring in
_________ 202_.
FIXED RATE MORTGAGE LOAN: Any Mortgage Loan with a fixed rate
of interest.
FNMA: The Federal National Mortgage Association, or any
successor thereto.
FORECLOSURE PROFIT: With respect to a Liquidated Mortgage
Loan, the amount, if any, by which (i) the aggregate of its Net Liquidation
Proceeds exceeds (ii) the related Principal Balance (plus accrued and unpaid
interest thereon at the applicable Mortgage Rate from the date interest was last
paid through the date of receipt of the final Liquidation Proceeds) of such
Liquidated Mortgage Loan immediately prior to the final recovery of its
Liquidation Proceeds.
GRANT: Pledge, bargain, sell, warrant, alienate, remise,
release, convey, assign, transfer, create, and grant a lien upon and a security
interest in and right of set-off against, deposit, set over and confirm pursuant
to the Indenture. A Grant of the Collateral or of any other agreement or
instrument shall include all rights, powers and options (but none of the
obligations) of the granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of such collateral or other agreement or
instrument and all other moneys payable thereunder, to give and receive notices
and other communications, to make waivers or other agreements, to exercise all
rights and options, to bring proceedings in the name of the granting party or
otherwise, and generally to do and receive anything that the granting party is
or may be entitled to do or receive thereunder or with respect thereto.
GROSS MARGIN: With respect to any Adjustable Rate Mortgage
Loan, the percentage set forth as the "Gross Margin" for such Mortgage Loan on
the Mortgage Loan Schedule, as adjusted from time to time in accordance with the
terms of the Servicing Agreement.
INDEMNIFIED PARTY: The meaning specified in Section 7.02 of
the Trust Agreement.
INDENTURE: The indenture dated as of ______ 1, 199_, between
the Issuer, as debtor, and the Indenture Trustee, as Indenture Trustee.
INDENTURE TRUSTEE: _________________________________________,
a national banking association, and its successors and assigns or any successor
indenture trustee appointed pursuant to the terms of the Indenture.
INDENTURE TRUSTEE FEE: With respect to each Mortgage Loan and
any Payment Date the product of (i) the Indenture Trustee Fee Rate divided by 12
and (ii) the Principal Balance of such Mortgage Loans as of such date.
INDENTURE TRUSTEE FEE RATE: _____% per annum.
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INDEPENDENT: When used with respect to any specified Person,
the Person (i) is in fact independent of the Issuer, any other obligor on the
Notes, the Seller, the Issuer, the Depositor and any Affiliate of any of the
foregoing Persons, (ii) does not have any direct financial interest or any
material indirect financial interest in the Issuer, any such other obligor, the
Seller, the Issuer, the Depositor or any Affiliate of any of the foregoing
Persons and (iii) is not connected with the Issuer, any such other obligor, the
Seller, the Issuer, the Depositor or any Affiliate of any of the foregoing
Persons as an officer, employee, promoter, underwriter, trustee, partner,
director or person performing similar functions.
INDEPENDENT CERTIFICATE: A certificate or opinion to be
delivered to the Indenture Trustee under the circumstances described in, and
otherwise complying with, the applicable requirements of Section 10.01 of the
Indenture, made by an Independent appraiser or other expert appointed by an
Issuer Order and approved by the Indenture Trustee in the exercise of reasonable
care, and such opinion or certificate shall state that the signer has read the
definition of "Independent" in this Indenture and that the signer is Independent
within the meaning thereof.
INDEX: With respect to any Adjustable Rate Mortgage Loan,
index for the adjustment of the Mortgage Rate set forth as such on the related
Mortgage Note.
INITIAL NOTE PRINCIPAL BALANCE: With respect to the Notes,
$______________.
INITIAL SUBSERVICER: _____________, a __________ corporation.
INSOLVENCY EVENT: With respect to a specified Person, (a) the
filing of a decree or order for relief by a court having jurisdiction in the
premises in respect of such Person or any substantial part of its property in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official for such Person or for any
substantial part of its property, or ordering the winding-up or liquidation of
such Person's affairs, and such decree or order shall remain unstayed and in
effect for a period of 60 consecutive days; or (b) the commencement by such
Person of a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or the consent by such Person to the
entry of an order for relief in an involuntary case under any such law, or the
consent by such Person to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official for
such Person or for any substantial part of its property, or the making by such
Person of any general assignment for the benefit of creditors, or the failure by
such Person generally to pay its debts as such debts become due or the admission
by such Person in writing (as to which the Indenture Trustee shall have notice)
of its inability to pay its debts generally, or the adoption by the Board of
Directors or managing member of such Person of a resolution which authorizes
action by such Person in furtherance of any of the foregoing.
INSURANCE AGREEMENT: The insurance and reimbursement agreement
dated as of _____ 1, 199_, among the Master Servicer, the Seller, the Depositor,
the Issuer, Indenture Trustee and the Note Insurer, including any amendments and
supplements thereto.
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INSURANCE PROCEEDS: Proceeds paid by any insurer (other than
the Note Insurer) pursuant to any insurance policy covering a Mortgage Loan
which are required to be remitted to the Master Servicer, or amounts required to
be paid by the Master Servicer pursuant to the Servicing Agreement, net of any
component thereof (i) covering any expenses incurred by or on behalf of the
Master Servicer in connection with obtaining such proceeds, (ii) that is applied
to the restoration or repair of the related Mortgaged Property, (iii) released
to the Mortgagor in accordance with the Master Servicer's normal servicing
procedures or (iv) required to be paid to any holder of a mortgage senior to
such Mortgage Loan.
INSURED PAYMENT: Shall have the meaning set forth in the Note
Insurance Policy.
INTEREST DETERMINATION DATE: With respect to any Interest
Period, the second London Business Day preceding the commencement of such
Interest Period.
INTEREST PAYMENT AMOUNT: With respect to any Payment Date, an
amount equal to interest accrued during the related Interest Period on the Note
Principal Balance thereof at the then-applicable Note Interest Rate, minus any
Prepayment Interest Shortfalls and Relief Act Shortfalls to the extent not
covered by the Master Servicer by Compensating Interest for such Payment Date.
INTEREST PERIOD: With respect to any Payment Date other than
the first Payment Date, the period beginning on the preceding Payment Date and
ending on the day preceding such Payment Date, and in the case of the first
Payment Date, the period beginning on the Closing Date and ending on the day
preceding the first Payment Date.
INTEREST RATE ADJUSTMENT DATE: With respect to each Mortgage
Loan, the date or dates on which the Mortgage Rate is adjusted in accordance
with the related Mortgage Note.
ISSUER: The WMC MBN Trust Series 199_-1, a Delaware business
trust, or its successor in interest.
ISSUER REQUEST: A written order or request signed in the name
of the Issuer by any one of its Authorized Officers and approved in writing by
the Note Insurer, so long as no Note Insurer Default exists and delivered to the
Indenture Trustee.
LIBOR BUSINESS DAY: Any day other than (i) a Saturday or a
Sunday or (ii) a day on which banking institutions in the State of New York,
Delaware or California, or in the city of London, England are required or
authorized by law to be closed.
LIEN: Any mortgage, deed of trust, pledge, conveyance,
hypothecation, assignment, participation, deposit arrangement, encumbrance, lien
(statutory or other), preference, priority right or interest or other security
agreement or preferential arrangement of any kind or nature whatsoever,
including, without limitation, any conditional sale or other title retention
agree ment, any financing lease having substantially the same economic effect as
any of the foregoing
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and the filing of any financing statement under the UCC (other than any such
financing statement filed for informational purposes only) or comparable law of
any jurisdiction to evidence any of the foregoing; PROVIDED, HOWEVER, that any
assignment pursuant to Section 6.02 of the Servicing Agreement shall not be
deemed to constitute a Lien.
LIFETIME RATE CAP: With respect to each Mortgage Loan with
respect to which the related Mortgage Note provides for a lifetime rate cap, the
maximum Mortgage Rate permitted over the life of such Mortgage Loan under the
terms of such Mortgage Note, as set forth on the Mortgage Loan Schedule and
initially as set forth on Exhibit A to the Servicing Agreement.
LIQUIDATED MORTGAGE LOAN: With respect to any Payment Date,
any Mortgage Loan in respect of which the Master Servicer has determined, in
accordance with the servicing procedures specified in the Servicing Agreement,
as of the end of the related Prepayment Period that substantially all
Liquidation Proceeds which it reasonably expects to recover with respect to the
disposition of the related REO Property have been recovered.
LIQUIDATION EXPENSES: Out-of-pocket expenses (exclusive of
overhead) which are incurred by or on behalf of the Master Servicer in
connection with the liquidation of any Mortgage Loan and not recovered under any
insurance policy, such expenses including, without limitation, legal fees and
expenses, any unreimbursed amount expended (including, without limitation,
amounts advanced to correct defaults on any mortgage loan which is senior to
such Mortgage Loan and amounts advanced to keep current or pay off a mortgage
loan that is senior to such Mortgage Loan) respecting the related Mortgage Loan
and any related and unreimbursed expenditures for real estate property taxes or
for property restoration, preservation or insurance against casualty loss or
damage.
LIQUIDATION PROCEEDS: Proceeds (including Insurance Proceeds
but not including amounts drawn under the Note Insurance Policy) received in
connection with the liquidation of any Mortgage Loan or related REO Property,
whether through trustee's sale, foreclosure sale or otherwise.
LOAN YEAR: With respect to any Mortgage Loan, the one year
period commencing on the day succeeding the origination of such Mortgage Loan
and ending on the anniversary date of such Mortgage Loan, and each annual period
thereafter.
LONDON BUSINESS DAY: Any day on which banks in the City of
London, England are open and conducting transactions in United States dollars.
LOST NOTE AFFIDAVIT: With respect to any Mortgage Loan as to
which the original Mortgage Note has been permanently lost or destroyed and has
not been replaced, an affidavit from the Seller certifying that the original
Mortgage Note has been lost, misplaced or destroyed (together with a copy of the
related Mortgage Note).
MASTER SERVICER: _______________________, a __________
corporation, and its successors and assigns.
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MASTER SERVICING FEE: With respect to each Mortgage Loan and
any Payment Date the product of (i) the Master Servicing Fee Rate divided by 12
and (ii) the Principal Balance of such Mortgage Loans as of such date.
MASTER SERVICING FEE RATE: With respect to each Mortgage Loan,
____% per annum.
MAXIMUM NOTE INTEREST RATE: With respect to any Payment Date,
the per annum rate equal to the fraction, expressed as a percentage, the
numerator of which is (i) an amount equal to (A) 1/12 of the aggregate Principal
Balance of the then outstanding Mortgage Loans times the weighted average of the
Expense Adjusted Maximum Mortgage Rates on the then outstanding Mortgage Loans
minus (B) the Administrative Fee for such Payment Date, and the denominator of
which is (ii) an amount equal to (A) the aggregate Note Principal Balance of the
Notes multiplied by (B) the actual number of days elapsed in the related
Interest Period divided by 360.
MAXIMUM MORTGAGE RATE: With respect to each Adjustable Rate
Mortgage Loan, the maximum Mortgage Rate.
MINIMUM MORTGAGE RATE: With respect to each Adjustable Rate
Mortgage Loan, the minimum Mortgage Rate.
MINIMUM SPREAD: ____% per annum.
MONTHLY PAYMENT: With respect to any Mortgage Loan (including
any REO Property) and any Due Date, the payment of principal and interest due
thereon in accordance with the amortization schedule at the time applicable
thereto (after adjustment, if any, for partial Prepayments and for Deficient
Valuations occurring prior to such Due Date but before any adjustment to such
amortization schedule by reason of any bankruptcy, other than a Deficient
Valuation, or similar proceeding or any moratorium or similar waiver or grace
period).
MOODY'S: Moody's Investors Service, Inc. or its successor in
interest.
MORTGAGE: The mortgage, deed of trust or other instrument
creating a first or second lien on an estate in fee simple interest in real
property securing a Mortgage Loan.
MORTGAGE FILE: The file containing the Related Documents
pertaining to a particular Mortgage Loan and any additional documents required
to be added to the Mortgage File pursuant to the Mortgage Loan Purchase
Agreement or the Servicing Agreement.
MORTGAGE LOAN PURCHASE AGREEMENT: The Mortgage Loan Purchase
Agreement, dated as of the Cut-Off Date, between the Seller, as seller, and the
Purchaser, as purchaser, with respect to the Mortgage Loans, dated as of ______
1, 199_.
MORTGAGE LOAN SCHEDULE: With respect to any date, the schedule
of Mortgage Loans held by the Issuer on such date. The initial schedule of
Mortgage Loans as of the Cut-Off
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Date is the schedule set forth in Exhibit A of the Servicing Agreement, which
schedule sets forth as to each Mortgage Loan
(i) the loan number and name of the Mortgagor;
(ii) the street address, city, state and zip code of the
Mortgaged Property;
(iii) the Mortgage Rate;
(iv) the Maximum Rate;
(v) the maturity date;
(vi) the original principal balance;
(vii) the first payment date;
(viii) the type of Mortgaged Property;
(ix) the Monthly Payment in effect as of the Cut-Off Date;
(x) the Cut-off Date Principal Balance;
(xi) the occupancy status;
(xii) the purpose of the Mortgage Loan;
(xiii) the Appraised Value of the Mortgaged Property;
(xiv) the original term to maturity;
(xv) the paid-through date of the Mortgage Loan;
(xvi) the Loan-to-Value Ratio; and
(xvii) whether or not the Mortgage Loan was underwritten
pursuant to a limited documentation program.
The Mortgage Loan Schedule shall also set forth the total of
the amounts described under (ix) above for all of the Mortgage Loans.
MORTGAGE LOANS: At any time, collectively, all Mortgage Loans
that have been sold to the Depositor under the Mortgage Loan Purchase Agreement
or substituted for pursuant to Section 2.1 and 3.1 of the Mortgage Loan Purchase
Agreement and transferred and conveyed to
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the Issuer, in each case together with the Related Documents, and that remain
subject to the terms thereof.
MORTGAGE NOTE: The note or other evidence of the indebtedness
of a Mortgagor under a Mortgage Loan.
MORTGAGE RATE: With respect to any Mortgage Loan, the annual
rate at which interest accrues on such Mortgage Loan.
MORTGAGED PROPERTY: The underlying property, including real
property and improvements thereon, securing a Mortgage Loan.
MORTGAGOR: The obligor or obligors under a Mortgage Note.
NET LIQUIDATION PROCEEDS: With respect to any Liquidated
Mortgage Loan, Liquidation Proceeds net of Liquidation Expenses.
NET MONTHLY EXCESS CASHFLOW: For any Payment Date, the amount
of Available Funds and any Insured Payment remaining after distributions
pursuant to clauses (i) through (iii) of Section 3.05 of the Indenture (minus
any Insured Payment and any Subordination Reduction Amount).
NET MORTGAGE RATE: With respect to any Mortgage Loan and any
day, the related Mortgage Rate less the sum of the related Servicing Fee Rate,
the Administrative Fee Rate and the Indenture Trustee Fee Rate.
NONRECOVERABLE ADVANCE: Any advance (i) which was previously
made or is proposed to be made by the Master Servicer; and (ii) which, in the
good faith judgment of the Master Servicer, will not or, in the case of a
proposed advance, would not, be ultimately recoverable by the Master Servicer
from Liquidation Proceeds, Insurance Proceeds or future payments on any Mortgage
Loan.
NOTE INSURANCE POLICY: The bond guaranty insurance policy
number 21885, issued by the Note Insurer to the Indenture Trustee for the
benefit of the Noteholders.
NOTE INSURER: MBIA Insurance Corporation, a New York insurance
company, any successor thereto or any replacement bond insurer substituted
pursuant to Section 3.29 of the Indenture.
NOTE INSURER DEFAULT: The existence and continuance of any of
the following: (a) a failure by the Note Insurer to make a payment required
under the Note Insurance Policy in accordance with its terms; or (b)(i) the Note
Insurer (A) files any petition or commences any case or proceeding under any
provision or chapter of the Bankruptcy Code or any other similar federal or
state law relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization, (B) makes a general assignment for the benefit of its creditors,
or (C) has an order for relief entered
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against it under the Bankruptcy Code or any other similar federal or state law
relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization which is final and nonappealable; or (ii) a court of competent
jurisdiction, the New York Department of Insurance or other competent regulatory
authority enters a final and nonappealable order, judgment or decree (A)
appointing a custodian, trustee, agent or receiver for the Note Insurer or for
all or any material portion of its property or (B) authorizing the taking of
possession by a custodian, trustee, agent or receiver of the Note Insurer (or
the taking of possession of all or any material portion of the property of the
Note Insurer).
NOTE INTEREST RATE: With respect to each Payment Date after
the first Payment Date, a floating rate equal to the lesser of (i) with respect
to each Payment Date up to and including the Payment Date in _________ 200_,
One-Month LIBOR plus ____%, and with respect to each Payment Date thereafter,
One-Month LIBOR plus ____% and (ii) the Available Funds Interest Rate with
respect to such Payment Date. The Note Interest Rate for the first Payment Date
will equal ____% per annum.
NOTE OWNER: The Beneficial Owner of a Note.
NOTE PERCENTAGE: With respect to any Payment Date and any
Note, the ratio expressed as a percentage of the Note Principal Balance of such
Note to the aggregate Note Principal Balance of all Notes immediately prior to
such Payment Date.
NOTE PRINCIPAL BALANCE: With respect to any Note, the initial
Note Principal Balance thereof minus all amounts distributed in respect of
principal with respect to such Note.
NOTE REGISTER: The register maintained by the Note Registrar
in which the Note Registrar shall provide for the registration of Notes and of
transfers and exchanges of Notes.
NOTE REGISTRAR: The Indenture Trustee, in its capacity as Note
Registrar.
NOTEHOLDER: The Person in whose name a Note is registered in
the Note Register, except that, any Note registered in the name of the
Depositor, the Issuer or the Indenture Trustee or any Affiliate of any of them
shall be deemed not to be outstanding and the registered holder will not be
considered a Noteholder or holder for purposes of giving any request, demand,
authorization, direction, notice, consent or waiver under the Indenture or the
Trust Agreement provided that, in determining whether the Indenture Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes that the Indenture Trustee or
the Owner Trustee knows to be so owned shall be so disregarded. Owners of Notes
that have been pledged in good faith may be regarded as Holders if the pledgee
establishes to the satisfaction of the Indenture Trustee or the Owner Trustee
the pledgee's right so to act with respect to such Notes and that the pledgee is
not the Issuer, any other obligor upon the Notes or any Affiliate of any of the
foregoing Persons. Any bonds on which payments are made under the Note Insurance
Policy shall be deemed Outstanding until the Note Insurer has been reimbursed
with respect thereto and the Note Insurer shall be deemed the Noteholder thereof
to the extent of such unreimbursed payment.
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NOTES: The Notes designated as the "Notes" in the Indenture.
OFFICER'S CERTIFICATE: With respect to the Master Servicer, a
certificate signed by the President, Managing Director, a Director, a Vice
President or an Assistant Vice President, of the Master Servicer and delivered
to the Indenture Trustee. With respect to the Issuer, a certificate signed by
any Authorized Officer of the Issuer, under the circumstances described in, and
otherwise complying with, the applicable requirements of Section 10.01 of the
Indenture, and delivered to the Indenture Trustee. Unless otherwise specified,
any reference in the Indenture to an Officer's Certificate shall be to an
Officer's Certificate of any Authorized Officer of the Issuer.
ONE-MONTH LIBOR: With respect to any Interest Period, the rate
determined by the Indenture Trustee on the related Interest Determination Date
on the basis of the offered rates of the Reference Banks for one-month United
States dollar deposits, as such rates appear on the Reuters Screen LIBO Page, as
of 11:00 a.m. (London time) on such Interest Determination Date. On each
Interest Determination Date, One-Month LIBOR for the related Interest Period
will be established by the Indenture Trustee as follows:
(i) If on such Interest Determination Date two or more
Reference Banks provide such offered quotations,
One-Month LIBOR for the related Interest Period shall
be the arithmetic mean of such offered quotations
(rounded upwards if necessary to the nearest whole
multiple of 1/16%).
(ii) If on such Interest Determination Date fewer than two
Reference Banks provide such offered quotations,
One-Month LIBOR for the related Interest Period shall
be the higher of (i) One-Month LIBOR as determined on
the previous Interest Determination Date and (ii) the
Reserve Interest Rate.
OPINION OF COUNSEL: A written opinion of counsel acceptable to
Note Insurer who may be in-house counsel for the Master Servicer if acceptable
to the Indenture Trustee, the Note Insurer and the Rating Agencies or counsel
for the Depositor, as the case may be.
ORIGINAL SPECIFIED SUBORDINATION AMOUNT: An amount equal to
____% of the aggregate Principal Balance of the Mortgage Loans as of the Cut-Off
Date.
ORIGINAL VALUE: Except in the case of a refinance Mortgage
Loan, the lesser of the Appraised Value or sales price of Mortgaged Property at
the time a Mortgage Loan is closed, and for a refinance Mortgage Loan, the
Original Value is the value of such property set forth in an appraisal
acceptable to the Master Servicer.
OUTSTANDING: With respect to the Notes, as of the date of
determination, all Notes theretofore executed, authenticated and delivered under
this Indenture except:
(i) Notes theretofore canceled by the Note Registrar or delivered
to the Indenture Trustee for cancellation; and
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(ii) Notes in exchange for or in lieu of which other
Notes have been executed, authenticated and delivered pursuant to the
Indenture unless proof satisfactory to the Indenture Trustee is
presented that any such Notes are held by a holder in due course;
all Notes that have been paid with funds provided under the Note Insurance
Policy shall be deemed to be Outstanding until the Note Insurer has been
reimbursed with respect thereto.
OWNER TRUST : The WMC MBN Trust Series 199_-1 to be created
pursuant to the Trust Agreement.
OWNER TRUST ESTATE: The corpus of the Issuer created by the
Trust Agreement which consists of items in Section 2.01 of the Trust Agreement.
OWNER TRUSTEE: ________________________ and its successors and
assigns or any successor owner trustee appointed pursuant to the terms of the
Trust Agreement.
OWNER TRUSTEE FEE:
OWNER TRUSTEE FEE RATE: ______% per annum.
PAYING AGENT: Any paying agent or co-paying agent appointed
pursuant to Section 3.03 of the Indenture, which initially shall be the
Indenture Trustee.
PAYMENT ACCOUNT: The account established by the Indenture
Trustee pursuant to Section 8.02 of the Indenture and Section 4.03 of the
Servicing Agreement. The Payment Account shall be an Eligible Account.
PAYMENT DATE: The 25th day of each month, or if such day is
not a Business Day, then the next Business Day.
PERCENTAGE INTEREST: With respect to any Note, the percentage
obtained by dividing the Note Principal Balance of such Note by the aggregate of
the Note Principal Balances of all Notes. With respect to any Certificate, the
percentage on the face thereof.
PERSON: Any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
POOL BALANCE: With respect to any date, the aggregate of the
Principal Balances of all Mortgage Loans as of such date.
PREFERENCE AMOUNT: Any amount previously distributed to an
Owner on the Notes that is recoverable and sought to be recovered as a voidable
preference by a trustee in bankruptcy
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pursuant to the United States Bankruptcy Code (11 U.S.C.), as amended from time
to time, in accordance with a final nonappealable order of a court having
competent jurisdiction.
PREMIUM AMOUNT: The amount of premium due to the Note Insurer
in accordance with the terms of the Insurance Agreement.
PREPAYMENT INTEREST SHORTFALL: As to any Payment Date and any
Mortgage Loan (other than a Mortgage Loan relating to an REO Property) that was
the subject of (a) a Principal Prepayment in full during the related Prepayment
Period, an amount equal to the excess of interest accrued during the related
Prepayment Period at the Net Mortgage Rate on the Principal Balance of such
Mortgage Loan over the amount of interest (adjusted to the Net Mortgage Rate)
paid by the Mortgagor for such Prepayment Period to the date of such Principal
Prepayment in full or (b) a partial Prepayment during the prior calendar month,
an amount equal to interest accrued during the related Prepayment Period at the
Net Mortgage Rate on the amount of such partial Prepayment.
PREPAYMENT PERIOD: As to any Payment Date, the calendar month
preceding the month of distribution.
PRIMARY INSURANCE POLICY: Each primary policy of mortgage
guaranty insurance issued by a Qualified Insurer or any replacement policy
therefor.
PRINCIPAL BALANCE: With respect to any Mortgage Loan or
related REO Property, at any given time, (i) the Cut-off Date Principal Balance
of the Mortgage Loan, minus (ii) the sum of (a) the principal portion of the
Monthly Payments due with respect to such Mortgage Loan or REO Property during
each Due Period ending prior to the most recent Payment Date which were received
or with respect to which an Advance was made, and (b) all Principal Prepayments
with respect to such Mortgage Loan or REO Property, and all Insurance Proceeds,
Liquidation Proceeds and REO Proceeds, to the extent applied by the Master
Servicer as recoveries of principal in accordance with the Servicing Agreement
with respect to such Mortgage Loan or REO Property, and (c) any Realized Loss
with respect thereto for any previous Payment Date.
PRINCIPAL PAYMENT AMOUNT: With respect to any Payment Date (a)
other than the Final Scheduled Payment Date, and the first Payment Date
following any acceleration of the Notes following an Event of Default, the
lesser of (a) the sum of the Available Funds remaining after distributions
pursuant to clause (i) of Section 3.05 of the Indenture and any portion of any
Insured Payment for such Payment Date representing a Subordination Deficit and
(b) the sum of:
(1) the principal portion of all Monthly
Payments received during the related Due
Period or advanced on each Mortgage Loan;
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(2) the Principal Balance of any Mortgage Loan
repurchased during the related Prepayment Period (or
deemed to have been so repurchased) pursuant to the
Mortgage Loan Purchase Agreement or Section 3.18 of
the Servicing Agreement and the amount of any
Substitution Adjustment Amounts during the related
Prepayment Period;
(3) the principal portion of all other unscheduled
collections (including, without limitation, Principal
Prepayments in full, partial Prepayments, Insurance
Proceeds, Liquidation Proceeds and REO Proceeds)
received during the related Prepayment Period to the
extent applied by the Master Servicer as payments or
recoveries of principal of the related Mortgage Loan;
(4 any Insured Payment made with respect to any
Subordination Deficit; and
MINUS
(5) the amount of any Subordination Reduction Amount
for such Payment Date;
and (b) with respect to the Final Scheduled Payment Date, and the first Payment
Date following any acceleration of the Notes following an Event of Default, the
amount necessary to reduce the Note Principal Balance to zero.
PRINCIPAL PREPAYMENT: Any payment of principal made by the
Mortgagor on a Mortgage Loan which is received in advance of its scheduled Due
Date and which is not accompanied by an amount of interest representing
scheduled interest due on any date or dates in any month or months subsequent to
the month of prepayment.
PROCEEDING: Any suit in equity, action at law or other
judicial or administrative proceeding.
PURCHASE PRICE: The meaning specified in Section 2.2(a) of the
Mortgage Loan Purchase Agreement.
PURCHASER: WMC Secured Assets Corp., a Delaware corporation,
and its successors and assigns.
QUALIFIED INSURER: A mortgage guaranty insurance company duly
qualified as such under the laws of the state of its principal place of business
and each state having jurisdiction over such insurer in connection with the
insurance policy issued by such insurer, duly authorized and licensed in such
states to transact a mortgage guaranty insurance business in such states and to
write the insurance provided by the insurance policy issued by it, approved as
an insurer by the Master Servicer and as a FNMA-approved mortgage insurer.
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RATING AGENCY: Any nationally recognized statistical rating
organization, or its successor, that rated the Notes at the request of the
Depositor at the time of the initial issuance of the Notes. Initially, Moody's
or Standard & Poor's. If such organization or a successor is no longer in
existence, "Rating Agency" shall be such nationally recognized statistical
rating organization, or other comparable Person, designated by the Note Insurer
so long as no Note Insurer Default exists, notice of which designation shall be
given to the Indenture Trustee. References herein to the highest short term
unsecured rating category of a Rating Agency shall mean A-1 or better in the
case of Standard & Poor's and P-1 or better in the case of Moody's and in the
case of any other Rating Agency shall mean such equivalent ratings. References
herein to the highest long-term rating category of a Rating Agency shall mean
"AAA" in the case of Standard & Poor's and "Aaa" in the case of Moody's and in
the case of any other Rating Agency, such equivalent rating.
REALIZED LOSS: With respect to each Mortgage Loan (or REO
Property) as to which a Cash Liquidation or REO Disposition has occurred, an
amount (not less than zero) equal to (i) the Principal Balance of the Mortgage
Loan (or REO Property) as of the date of Cash Liquidation or REO Disposition,
plus (ii) interest (and REO Imputed Interest, if any) at the Net Mortgage Rate
from the Due Date as to which interest was last paid or advanced to Noteholders
up to the last day of the month in which the Cash Liquidation (or REO
Disposition) occurred on the Principal Balance of such Mortgage Loan (or REO
Property) outstanding during each Due Period that such interest was not paid or
advanced, minus (iii) the proceeds, if any, received during the month in which
such Cash Liquidation (or REO Disposition) occurred, to the extent applied as
recoveries of interest at the Net Mortgage Rate and to principal of the Mortgage
Loan, net of the portion thereof reimbursable to the Master Servicer or any
Subservicer with respect to related Advances or expenses as to which the Master
Servicer or Subservicer is entitled to reimbursement thereunder but which have
not been previously reimbursed. With respect to each Mortgage Loan which has
become the subject of a Deficient Valuation, 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
object of a Debt Service Reduction, the amount of such Debt Service Reduction.
RECORD DATE: With respect to the Notes and any Payment Date,
the last day of the calendar month preceding such Payment Date.
REFERENCE BANKS: Bankers Trust Company, Barclay's Bank PLC,
The Bank of Tokyo and National Westminster Bank PLC and their successors in
interest; PROVIDED that if any of the foregoing banks are not suitable to serve
as a Reference Bank, then any leading banks selected by the Indenture Trustee
which are engaged in transactions in Eurodollar deposits in the international
Eurocurrency market (i) with an established place of business in London, (ii)
not controlling, under the control of or under common control with the Company
or any Affiliate thereof, (iii) whose quotations appear on the Reuters Screen
LIBO Page on the relevant Interest Determination Date and (iv) which have been
designated as such by the Indenture Trustee.
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REGISTERED HOLDER: The Person in whose name a Note is
registered in the Note Register on the applicable Record Date.
RELATED DOCUMENTS: With respect to each Mortgage Loan, the
documents specified in Section 2.1(b) of the Mortgage Loan Purchase Agreement
and any documents required to be added to such documents pursuant to the
Mortgage Loan Purchase Agreement, the Trust Agree ment, Indenture or the
Servicing Agreement.
RELIEF ACT: The Soldiers' and Sailors' Civil Relief Act of
1940, as amended.
RELIEF ACT SHORTFALL: For any Payment Date, As to any Payment
Date and any Mortgage Loan (other than a Mortgage Loan relating to an REO
Property) any shortfalls relating to the Relief Act or similar legislation or
regulations.
REO ACQUISITION: The acquisition by the Master Servicer on
behalf of the Indenture Trustee for the benefit of the Noteholders of any REO
Property pursuant to Section 3.13 of the Servicing Agreement.
REO DISPOSITION: As to any REO Property, a determination by
the Master Servicer that it has received substantially all Insurance Proceeds,
Liquidation Proceeds, REO Proceeds and other payments and recoveries (including
proceeds of a final sale) which the Master Servicer expects to be finally
recoverable from the sale or other disposition of the REO Property.
REO IMPUTED INTEREST: As to any REO Property, for any period,
an amount equivalent to interest (at the Net Mortgage Rate that would have been
applicable to the related Mortgage Loan had it been outstanding) on the unpaid
principal balance of the Mortgage Loan as of the date of acquisition thereof for
such period.
REO PROCEEDS: Proceeds, net of expenses, received in respect
of any REO Property (including, without limitation, proceeds from the rental of
the related Mortgaged Property) which proceeds are required to be deposited into
the Collection Account only upon the related REO Disposition.
REO PROPERTY: A Mortgaged Property that is acquired by the
Issuer in foreclosure or by deed in lieu of foreclosure.
REPURCHASE EVENT: With respect to any Mortgage Loan, either
(i) a discovery that, as of the Closing Date the related Mortgage was not a
valid lien on the related Mortgaged Property subject only to (A) the lien of any
prior mortgage indicated on the Mortgage Loan Schedule, (B) the lien of real
property taxes and assessments not yet due and payable, (C) covenants,
conditions, and restrictions, rights of way, easements and other matters of
public record as of the date of recording of such Mortgage and such other
permissible title exceptions as are permitted and (D) other matters to which
like properties are commonly subject which do not materially adversely affect
the value, use, enjoyment or marketability of the related Mortgaged Property or
(ii) with respect to any Mortgage Loan as to which the Seller delivers an
affidavit certifying that the
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original Mortgage Note has been lost or destroyed, a subsequent default on such
Mortgage Loan if the enforcement thereof or of the related Mortgage is
materially and adversely affected by the absence of such original Mortgage Note.
REPURCHASE PRICE: With respect to any Mortgage Loan required
to be repurchased on any date pursuant to the Mortgage Loan Purchase Agreement
or purchased by the Master Servicer pursuant to the Servicing Agreement, an
amount equal to the sum, without duplication, of (i) 100% of the Principal
Balance thereof (without reduction for any amounts charged off) and (ii) unpaid
accrued interest at the Mortgage Rate on the outstanding principal balance
thereof from the Due Date to which interest was last paid by the Mortgagor to
the first day of the month following the month of purchase plus (iii) the amount
of Advances and any unreimbursed Servicing Advances or unreimbursed Advances
made with respect to such Mortgage Loan plus (iv) any other amounts owed to the
Master Servicer or the Subservicer pursuant to Section 3.07 of the Servicing
Agreement not included in clause (iii) of this definition.
REQUIRED SUBORDINATION AMOUNT: With respect to any Payment
Date occurring from the initial Payment Date and ending on the later of (i) the
date on which the aggregate Principal Balance of the Mortgage Loans is 50% of
the initial aggregate Principal Balance of the Mortgage Loans and (ii) the 30th
Payment Date, the greater of:
(a) the Original Specified Subordination Amount; and
(b) two times the excess of (1) 50% of the aggregate Principal Balance
of the Mortgage Loans which are 91 or more days delinquent (including Mortgage
Loans in foreclosure and REO Properties) as of such date over (2) two times the
current Net Monthly Excess Cash Flow for such Payment Date; and
with respect to any Payment Date thereafter, the greatest of:
(a) the lesser of (1) the Original Specified Subordination Amount and
(2) two times ____% times the aggregate Note Principal Balance as of such
Payment Date;
(b) two times the excess of (A) 50% of the aggregate Principal Balance
of the Mortgage Loans which are 91 or more days delinquent (including Mortgage
Loans in foreclosure and REO Properties) as of such date over (B) two times the
current Net Monthly Excess Cash Flow for such Payment Date;
(c) 0.5% of the Cut-Off Date Principal Balance of the Mortgage Loans;
and
(d) an amount equal to the outstanding balance of the four largest
Mortgage Loans as of the Cut-Off Date;
PROVIDED, HOWEVER, that if (x) a Servicer Default has occurred and is continuing
as of such Payment Date, and such Servicer Default has not been waived by the
Note Insurer or (y) a claim
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has been made on the Note Insurance Policy by the Indenture Trustee, the
Required Subordination Amount shall not decrease on any Payment Date.
RESERVE INTEREST RATE: With respect to any Interest
Determination Date, the rate per annum that the Indenture Trustee determines to
be either (i) the arithmetic mean (rounded upwards if necessary to the nearest
whole multiple of 1/16%) of the three-month United States dollar lending rates
which New York City banks selected by the Indenture Trustee are quoting on the
relevant Interest Determination Date to the principal London offices of leading
banks in the London interbank market or (ii) in the event that the Indenture
Trustee can determine no such arithmetic mean, the lowest three-month United
States dollar lending rate which New York City banks selected by the Indenture
Trustee are quoting on such Interest Determination Date to leading European
banks.
RESPONSIBLE OFFICER: With respect to the Indenture Trustee,
any officer of the Indenture Trustee with direct responsibility for the
administration of the Trust Agreement and also, with respect to a particular
matter, any other officer to whom such matter is referred because of such
officer's knowledge of and familiarity with the particular subject.
SECURITIES ACT: The Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
SECURITY: Any of the Certificates or Notes.
SECURITYHOLDER or HOLDER: Any Noteholder or a
Certificateholder.
SECURITY INSTRUMENT: A written instrument creating a valid
first lien on a Mortgaged Property securing a Mortgage Note, which may be any
applicable form of mortgage, deed of trust, deed to secure debt or security
deed, including any riders or addenda thereto.
SELLER: _______________________, a __________ corporation, and
its successors and assigns.
SERVICING ACCOUNT: The separate trust account created and
maintained by the Master Servicer or each Subservicer with respect to the
Mortgage Loans or REO Property, which shall be an Eligible Account, for
collection of taxes, assessments, insurance premiums and comparable items as
described in Section 3.08 of the Servicing Agreement.
SERVICING ADVANCES: All customary, reasonable and necessary
"out of pocket" costs and expenses incurred in connection with a default,
delinquency or other unanticipated event in the performance by the Master
Servicer of its servicing obligations, including, without duplication, but not
limited to, the cost of (i) the preservation, restoration and protection of a
Mortgaged Property, (ii) any enforcement or judicial proceedings, including
foreclosures, (iii) the management and liquidation of any REO Property and (iv)
compliance with the obligations under Sections 3.10, 3.11, 3.13 of the Servicing
Agreement.
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SERVICING AGREEMENT: The Servicing Agreement dated as of
______ 1, 199_, between the Master Servicer and the Issuer.
SERVICING CERTIFICATE: A certificate completed and executed by
a Servicing Officer on behalf of the Master Servicer in accordance with Section
4.01 of the Servicing Agreement.
SERVICING DEFAULT: The meaning assigned in Section 6.01 of the
Servicing Agreement.
SERVICING FEE: With respect to any Mortgage Loan, the sum of
the related Master Servicing Fee and the related Subservicing Fee.
SERVICING FEE RATE: With respect to any Mortgage Loan, the sum
of the related Master Servicing Fee Rate and the Subservicing Fee Rate.
SERVICING OFFICER: Any officer of the Master Servicer involved
in, or responsible for, the administration and servicing of the Mortgage Loans
whose name and specimen signature appear on a list of servicing officers
furnished to the Indenture Trustee (with a copy to the Note Insurer) by the
Master Servicer, as such list may be amended from time to time.
SINGLE NOTE: A Note in the amount of $1,000.
STANDARD & POOR'S: Standard & Poor's Ratings Service, or its
successor in interest.
SUBORDINATION AMOUNT: As of any Payment Date, the excess, if
any, of (x) the sum of the aggregate Principal Balances of the Mortgage Loans as
of the close of business on the last day of the related Due Period as of such
Payment Date over (y) the Note Principal Balance of the Notes as of such Payment
Date (and following the making of all distributions on such Payment Date)
SUBORDINATION DEFICIT: With respect to any Payment Date, the
amount, if any, by which (x) the aggregate Note Principal Balance of the Notes
as of such Payment Date, and following the making of all distributions to be
made on such Payment Date (except for any payment to be made as to principal
from proceeds of the Note Insurance Policy), exceeds (y) the aggregate Principal
Balances of the Mortgage Loans as of the close of business on the preceding Due
Date on such Payment Date.
SUBORDINATION INCREASE AMOUNT: With respect to any Payment
Date, the amount of any Net Monthly Excess Cashflow (including any Subordination
Reduction Amount) available in the Payment Account to increase the Subordination
Amount up to the Required Subordination Amount.
SUBORDINATION REDUCTION AMOUNT: With respect to any Payment
Date, an amount equal to the lesser of (a) the Excess Subordination Amount and
(b) the principal collections received by the Master Servicer with respect to
the prior Due Period.
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SUBSERVICER: Any Person with whom the Master Servicer has
entered into a Subservicing Agreement as a Subservicer by the Master Servicer
and acceptable to the Note Insurer and the Indenture Trustee, including the
Initial Subservicers.
SUBSERVICING ACCOUNT: An Eligible Account established or
maintained by a Sub servicer as provided for in Section 3.06(e) of the Servicing
Agreement.
SUBSERVICING AGREEMENT: The written contract between the
Master Servicer and any Subservicer relating to servicing and administration of
certain Mortgage Loans as provided in Section 3.02 of the Servicing Agreement.
SUBSERVICING FEE: With respect to each Mortgage Loan and any
date of determination, the product of (i) the Subservicing Fee Rate divided by
12 and (ii) the Principal Balance of such Mortgage Loans as of such date.
SUBSERVICING FEE RATE: For any date of determination, ____%
per annum.
SUBSTITUTION ADJUSTMENT AMOUNT: With respect to any Eligible
Substitute Mortgage Loan, the amount as defined in Section 2.03 of the Servicing
Agreement.
TELERATE SCREEN PAGE 3750: The display designated as page 3750
on the Telerate Service (or such other page as may replace page 3750 on that
service for the purpose of displaying London interbank offered rates of major
banks). If such rate does not appear on such page (or such other page as may
replace that page on that service, or if such service is no longer offered, such
other service for displaying One-Month LIBOR or comparable rates as may be
selected by the Issuer after consultation with the Indenture Trustee), the rate
will be the Reference Bank Rate.
TREASURY REGULATIONS: Regulations, including proposed or
temporary Regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
TRUST AGREEMENT: The Trust Agreement dated as of ______ 1,
199_ between the Owner Trustee and the Depositor.
TRUST ESTATE: The meaning specified in the Granting Clause of
the Indenture.
TRUST INDENTURE ACT OR TIA: The Trust Indenture Act of 1939,
as amended from time to time, as in effect on any relevant date.
UCC: The Uniform Commercial Code, as amended from time to
time, as in effect in any specified jurisdiction.
WEIGHTED AVERAGE NET MORTGAGE RATE: With respect to the
Mortgage Loans in the aggregate, and any Due Date, the average of the Net
Mortgage Rate for each Mortgage Loan as
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of the last day of the related Due Period weighted on the basis of the related
Principal Balances outstanding as of the last day of the related Due Period for
each Mortgage Loan as determined by the Master Servicer in accordance with the
Master Servicer's normal servicing procedures.
28
Exhibits 5.1, 8.1 and 23.1
--------------------------
November 26, 1997
WMC Secured Assets Corp.
6320 Canoga Avenue
Woodland Hills, California 91367
Re: WMC Secured Assets Corp.
Mortgage-Backed Certificates and Notes
Registration Statement on Form S-3
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Dear Sirs:
We are counsel to WMC Secured Assets Corp., a Delaware
corporation (the "Registrant"), in connection with the registration under the
Securities Act of 1933, as amended (the "Act"), of Mortgage- Backed Certificates
("Certificates") and Mortgage-Backed Notes ("Notes"; and together with
Certificates, "Securities"), and the related preparation and filing of a
Registration Statement on Form S-3 (the "Registration Statement"). The
Certificates are issuable in series under separate pooling and servicing
agreements (each such agreement, a "Pooling and Servicing Agreement"), among the
Registrant, a master servicer to be identified in the prospectus supplement for
such series of Certificates and a trustee to be identified in the prospectus
supplement for such series of Certificates. Each Pooling and Servicing Agreement
will be substantially in the forms filed as an Exhibit to the Registration
Statement. The Notes are issuable in series pursuant to separate indentures
(each such indenture, an "Indenture"), between an issuer and an indenture
trustee, each to be identified in the prospectus supplement for such series of
Notes. Each Indenture will be substantially in the form filed as an Exhibit to
the Registration Statement.
In connection with rendering this opinion letter, we
have examined the forms of the Pooling and Servicing Agreements and Indenture
contained as Exhibits in the Registration Statement, the Registration Statement
and such records and other documents as we have deemed necessary. As to matters
of fact, we have examined and relied upon representations or certifications of
officers of the Registrant or public officials. We have assumed the authenticity
of all documents submitted to us as originals, the genuineness of all
signatures, the legal capacity of natural persons and the conformity to the
originals of all documents. We have assumed that all parties, other than the
Registrant, had the corporate power and authority to enter into and perform all
obligations thereunder, and, as to such parties, we also have assumed the
enforceability of such documents.
<PAGE>
WMC Secured Assets Corp.
November 26, 1997 Page 2.
In rendering this opinion letter, we express no
opinion as to the laws of any jurisdiction other than the laws of the State of
New York, nor do we express any opinion, either implicitly or otherwise, on any
issue not expressly addressed below. In rendering this opinion letter, we have
not passed upon and do not pass upon the application of "doing business" or the
securities laws of any jurisdiction. This opinion letter is further subject to
the qualification that enforceability may be limited by (i) bankruptcy,
insolvency, liquidation, receivership, moratorium, reorganization or other laws
affecting the enforcement of the rights of creditors generally and (ii) general
principles of equity, whether enforcement is sought in a proceeding in equity or
at law.
Based on the foregoing, we are of the opinion that:
1. When a Pooling and Servicing Agreement for a
series of Certificates has been duly authorized by all necessary action and duly
executed and delivered by the parties thereto, such Pooling and Servicing
Agreement will be a legal and valid obligation of the Registrant.
2. When an Indenture for a series of Notes has
been duly authorized by all necessary action and duly executed and delivered by
the parties thereto, such Indenture will be a legal and valid obligation of the
applicable issuer.
3. When a Pooling and Servicing Agreement for a
series of Certificates has been duly authorized by all necessary action and duly
executed and delivered by the parties thereto, and when the Certificates of such
series have been duly executed and authenticated in accordance with the
provisions of that Pooling and Servicing Agreement, and issued and sold as
contemplated in the Registration Statement and the prospectus and prospectus
supplement delivered in connection therewith, such Certificates will be legally
and validly issued and outstanding, fully paid and non-assessable, and the
holders of such Certificates will be entitled to the benefits of that Pooling
and Servicing Agreement.
4. When an Indenture for a series of Notes has
been duly authorized by all necessary action and duly executed and delivered by
the parties thereto, and when the Notes of such series have been duly executed
and authenticated in accordance with the provisions of that Indenture, and
issued and sold as contemplated in the Registration Statement and the prospectus
and prospectus supplement delivered in connection therewith, such Notes will be
legally and validly issued and outstanding, fully paid and non-assessable, and
will be binding obligations of the applicable issuer, and the holders of such
Notes will be entitled to the benefits of that Indenture.
5. The description of federal income tax
consequences appearing under the heading "Certain Federal Income Tax
Consequences" in the prospectus contained in the Registration Statement, while
not purporting to discuss all possible federal income tax consequences of an
investment in Securities, is accurate with respect to those tax consequences
which are discussed.
<PAGE>
WMC Secured Assets Corp.
November 26, 1997 Page 3.
We hereby consent to the filing of this opinion
letter as an Exhibit to the Registration Statement, and to the use of our name
in the prospectus and prospectus supplement included in the Registration
Statement under the heading "Legal Matters", and in the prospectus included in
the Registration Statement under the heading "Certain Federal Income Tax
Consequences", without admitting that we are "experts" within the meaning of the
Act, and the rules and regulations thereunder, with respect to any part of the
Registration Statement, including this Exhibit.
Very truly yours,
THACHER PROFFITT & WOOD
By /s/ Thacher Proffitt & Wood
EXHIBIT 24.1
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WMC SECURED ASSETS CORP.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints any of Scott A. McAfee, Todd Wallace or
Steve Wright as his true and lawful attorney-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities (including his capacity as director and/or officer of WMC
Secured Assets Corp.), to sign any or all amendments (including post-effective
amendments) to the Registration Statement on Form S-3, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
SIGNATURE
TITLE
DATE
/s/ Scott A. McAfee President & Director November 26, 1997
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Scott A. McAfee
/s/ Todd Wallace Vice-President, Treasurer November 26, 1997
- -------------------------- & Director
Todd Wallace
/s/ Steve Wright Vice-President, Secretary & November 26, 1997
- -------------------------- Director
Steve Wright
