AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 4, 1998
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Registration No.333-44409
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 3 TO FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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HOME EQUITY SECURITIZATION CORP.
(Exact Name of Registrant as Specified in its Charter)
<S> <C> <C>
NORTH CAROLINA 301 South College Street 56-2064715
Charlotte, North Carolina 28202-6001
(State or other jurisdiction of (Address, including zip code, and I.R.S. Employer Identification Number)
incorporation or organization) telephone number, including area code, of
registrant's principal executive offices)
Marion A. Cowell, Jr., Esq.
Executive Vice President, Secretary and General Counsel
First Union Corporation
One First Union Center
301 South College Street
Charlotte, North Carolina 28202-6001
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copy to:
Christopher J. DiAngelo
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019-6092
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Approximate Date of Commencement of Proposed Sale to the Public: As
soon as practicable after the effective date of this Registration Statement.
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, 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 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.
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CALCULATION OF REGISTRATION FEE
- ------------------------------ ------------------ -------------------------------- ----------------------------- -------------------
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Title of each class of Amount to be Proposed Maximum Aggregate Proposed Maximum Aggregate Amount of
securities registered Registered Price Per Unit Offering Price Registration Fee
- ------------------------------ ------------------ -------------------------------- ----------------------------- -------------------
Asset Backed Securities $1,000,000 100% $1,000,000(1) $295.00
- ------------------------------ ------------------ -------------------------------- ----------------------------- -------------------
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(1) Estimated solely for the purpose of calculating the registration fee.
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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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
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HOME EQUITY SECURITIZATION CORP.
CROSS REFERENCE SHEET
(PURSUANT TO RULE 404(a) AND ITEM 501 OF REGULATION S-K)
Item Location in Form S-3
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1. Forepart of the Registration Statement and Outside Front Cover Page of
Prospectus........................................................... Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Prospectus.............. Inside Front and Outside Back
Cover Pages**
3. Summary Information; Risk Factors and Ratio of Earnings to Fixed
Charges*............................................................. Prospectus Summary**; Risk
Factors**; *
4. Use of Proceeds...................................................... Use of Proceeds
5. Determination of Offering Price ..................................... *
6. Dilution............................................................. *
7. Selling Security Holders............................................. *
8. Plan of Distribution................................................. Underwriting**
9. Description of Securities to be Registered........................... Outside Front Cover Page**;
Prospectus Summary**;
The Trust Fund**; Description of
Certificates**
10. Interests of Named Experts and Counsel............................... *
11. Material Changes..................................................... *
12. Incorporation of Certain Information by Reference.................... Incorporation of Certain
Documents by Reference
13. Disclosure of Commission Position on Indemnification for Securities Act
Liabilities.......................................................... See Part II
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* Answer negative or item inapplicable.
** To be completed from time to time by Prospectus Supplement
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
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ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses in connection with the offering
described in this registration statement will be as follows:
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Securities and Exchange Commission registration fee.............................................. $295
Printing expenses................................................................................ 35,000
Accounting fees and expenses..................................................................... 30,000
Legal fees and expenses.......................................................................... 200,000
Fees and expenses (including legal fees) for qualifications under state securities laws.......... 10,000
Trustee's fees and expenses...................................................................... 5,000
Rating Agency fees and expenses.................................................................. 40,000
Miscellaneous.................................................................................... 200,000
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Total............................................................................................ $520,295
========
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All amounts except the Securities and Exchange Commission registration
fee are estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 55-8-50 through 55-8-58 of the revised North Carolina Business
Corporation Act (the "NCBCA") contain specific provisions relating to
indemnification of directors and officers of North Carolina corporations. In
general, the statute provides that (i) a corporation must indemnify a director
or officer who is wholly successful in his defense of a proceeding to which he
is a party because of his status as such, unless limited by the articles of
incorporation, and (ii) a corporation may indemnify a director or officer if he
is not wholly successful in such defense, if it is determined as provided in the
statute that the director or officer meets a certain standard of conduct,
provided when a director or officer is liable to the corporation, the
corporation may not indemnify him. The statute also permits a director or
officer of a corporation who is a party to a proceeding to apply to the courts
for indemnification, unless the articles of incorporation provide otherwise, and
the court may order indemnification under certain circumstances set forth in the
statute. The statute further provides that a corporation may in its articles of
incorporation, by contract or by resolution provide indemnification in addition
to that provided by the statute, subject to certain conditions set forth in the
statute.
The Articles of Incorporation of the Registrant provide that the
personal liability of each director of the corporation is eliminated to the
fullest extent permitted by the provisions of the NCBCA, as presently in effect
or as amended. No amendment, modification or repeal of this provision of the
Articles of Incorporation shall adversely affect any right or protection of a
director that exists at the time of such amendment, modification or repeal.
First Union Corporation maintains directors and officers liability
insurance for the benefit of its subsidiaries, which provides coverage of up to
$80,000,000, subject to certain deductible amounts. In general, the policy
insures (i) the Registrant's directors and, in certain cases, its officers
against loss by reason of any of their wrongful acts, and/or (ii) the Registrant
against loss arising from claims against the directors and officers by reason of
their wrongful acts, all subject to the terms and conditions contained in the
policy.
In connection with an agreement between the Registrant and Peter H.
Sorensen,
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an independent director of the Registrant, the Registrant has agreed to
indemnify and hold harmless Peter H. Sorensen from any and all loss, claim,
damage or cause of action, including reasonable attorneys' fees related thereto
(collectively, "Claims"), incurred by Peter H. Sorensen in the performance of
his duties as a director; provided, however, that Peter H. Sorensen shall not be
so indemnified for such Claims if they arise from his own negligence or willful
misconduct.
Under agreements which may be entered into by the Registrant, certain
controlling persons, directors and officers of the Registrant may be entitled to
indemnification by underwriters and agents who participate in the distribution
of Securities covered by the Registration Statement against certain liabilities,
including liabilities under the Securities Act.
ITEM 16. EXHIBIT SCHEDULE
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
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(a) Any required financial statements of a provider of credit
enhancement will be included as an appendix to the related
Prospectus Supplement
1.1 Form of Underwriting Agreement between the Registrant and the
Underwriter named therein, relating to the distribution of the
Securities*
3.1 Certificate of Incorporation of Home Equity Securitization
Corp.*
3.2 By-laws of Home Equity Securitization Corp.*
4.1 Form of Pooling and Servicing Agreement
4.2 Form of Indenture*
4.3 Form of Sale and Servicing Agreement*
4.4 Form of Mortgage Loan Purchase Agreement*
4.5 Form of Trust Agreement*
5.1 Opinion of Dewey Ballantine LLP as to legality of the
Certificates being issued *
5.2 Opinion of Dewey Ballantine LLP as to legality of the
Certificates being issued (contained in Exhibit 5.1)
8.1 Opinion of Dewey Ballantine LLP with respect to tax matters
(contained in Exhibit 5.1)
23.3 Consent of Dewey Ballantine LLP (contained in Exhibit 5.1)
24.1 Power of Attorney (included on signature page of this
Pre-Effective Amendment No. 1 to the Registration Statement)
99.1 Form of Prospectus Supplement
99.2 Form of Prospectus Supplement
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* Filed in previous filing
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
(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. Notwithstanding the foregoing, any
increase or decrease in volume of securities
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offered (if the total dollar value of securities
offered would not exceed that which was registered)
and any deviation from the low or high and of the
estimated maximum offering range may be reflected in
the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20
percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information
with respect to the plan of distribution not
previously disclosed in the registration statement or
any material change to such information in the
registration statement;
provided, however, that paragraphs (i) and (ii) do
not apply if the information required to be included
in the post-effective amendment is contained in
periodic reports filed by the registrant pursuant to
Section 13 or Section 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) The undersigned registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriter to permit prompt delivery to each purchaser.
(c) 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.
(d) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from
the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it
was declared effective.
(2) For the purpose of determining any liability under
the Securities Act of 1933, each post-effective
amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to
the securities offered
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therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide
offering thereof.
(e) The undersigned registrant hereby undertakes to file an
application for the purpose of determining the eligibility of the trustee to act
under subsection (a) of section 310 of the Trust Indenture Act ("Act") in
accordance with the rules and regulations prescribed by the Commission under
section 305(b)(2) of the Act.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Charlotte, North Carolina on the 4th day of
May, 1998.
HOME EQUITY SECURITIZATION CORP.
By: /s/ Wallace Saunders
---------------------------------------
NAME: Wallace Saunders
TITLE Assistant Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 3 to the Registration Statement has been signed by
the following persons in the capacities indicated on May 4, 1998.
SIGNATURE TITLE
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By: *
_________________________
NAME: Brian E. Simpson Chairman and President
By: *
__________________________
NAME:.Carolyn Eskridge Senior Vice President
By: *
___________________________
NAME: Peter H. Sorensen Independent Director
*by Wallace Saunders as his true and lawful attorney-in-fact and agent.
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EXHIBIT INDEX
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
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(a) Any required financial statements of a provider of credit
enhancement will be included as an appendix to the related
Prospectus Supplement
1.1 Form of Underwriting Agreement between the Registrant and the
Underwriter named therein, relating to the distribution of the
Securities*
3.1 Certificate of Incorporation of Home Equity Securitization
Corp.*
3.2 By-laws of Home Equity Securitization Corp.*
4.1 Form of Pooling and Servicing Agreement
4.2 Form of Indenture*
4.3 Form of Sale and Servicing Agreement*
5.1 Opinion of Dewey Ballantine LLP as to legality of the
Certificates being issued*
5.2 Opinion of Dewey Ballantine LLP as to legality of the Notes
being issued (contained in Exhibit 5.1)
8.1 Opinion of Dewey Ballantine LLP with respect to tax matters
(contained in Exhibit 5.1)
23.3 Consent of Dewey Ballantine LLP (contained in Exhibit 5.1)
24.1 Power of Attorney *
99.1 Form of Prospectus Supplement
99.2 Form of Prospectus Supplement
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* Filed in a previous filing
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Exhibit 4.1
Form of Pooling and Servicing Agreement
POOLING AND SERVICING AGREEMENT
Relating to
__________ MORTGAGE LOAN TRUST _____
Among
----------,
as Master Servicer,
HOME EQUITY SECURITIZATION CORP.,
as the Depositor,
and
----------
as Trustee
Dated as of __________
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TABLE OF CONTENTS
(Not a Part of this Agreement)
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Page
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Parties................................................................................................ 1
Recitals............................................................................................... 1
ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION.............................................................1
Section 1.1. Definitions........................................................................1
Section 1.2. Use of Words and Phrases..........................................................30
Section 1.3. Captions; Table of Contents.......................................................30
Section 1.4. Opinions..........................................................................30
Section 1.5. Calculations......................................................................30
ARTICLE II THE TRUST....................................................................................30
Section 2.1. Establishment of the Trust........................................................30
Section 2.2. Office............................................................................30
Section 2.3. Purpose and Powers................................................................30
Section 2.4. Appointment of the Trustee; Declaration of Trust..................................31
Section 2.5. Expenses of the Trust.............................................................31
Section 2.6. Ownership of the Trust............................................................31
Section 2.7. Receipt of Trust Estate...........................................................31
Section 2.8. Miscellaneous REMIC Provisions....................................................31
ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE DEPOSITOR, AND THE MASTER SERVICER;
CONVEYANCE OF MORTGAGE LOANS............................................................................33
Section 3.1. Representations and Warranties of the Depositor and the Master Servicer...........33
Section 3.2. Covenants of the Depositor to Take Certain Actions with Respect to the Mortgage
Loans in Certain Situations.......................................................37
Section 3.3. Conveyance of the Mortgage Loans and Qualified Replacement Mortgages..............46
Section 3.4. Acceptance by Trustee; Certain Substitutions of Mortgage Loans; Certification by
Trustee ..........................................................................48
Section 3.5. Cooperation Procedures............................................................50
ARTICLE IV ISSUANCE AND SALE OF CERTIFICATES............................................................51
Section 4.1. Issuance of Certificates..........................................................51
Section 4.2. Sale of Certificates..............................................................51
ARTICLE V CERTIFICATES AND TRANSFER OF INTERESTS........................................................51
Section 5.1. Terms.............................................................................51
Section 5.2. Forms.............................................................................51
Section 5.3. Execution, Authentication and Delivery............................................52
Section 5.4. Registration and Transfer of Certificates.........................................52
Section 5.5. Mutilated, Destroyed, Lost or Stolen Certificates.................................54
Section 5.6. Persons Deemed Owners.............................................................54
Section 5.7. Cancellation......................................................................54
Section 5.8. Limitation on Transfer of Ownership Rights........................................54
Section 5.9. Assignment of Rights..............................................................55
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ARTICLE VI COVENANTS....................................................................................55
Section 6.1. Distributions.....................................................................55
Section 6.2. Money for Distributions to be Held in Trust; Withholding..........................55
Section 6.3. Protection of Trust Estate........................................................56
Section 6.4. Performance of Obligations........................................................57
Section 6.5. Negative Covenants................................................................57
Section 6.6. No Other Powers...................................................................57
Section 6.7. Limitation of Suits...............................................................57
Section 6.8. Unconditional Rights of Owners to Receive Distributions...........................58
Section 6.9. Rights and Remedies Cumulative....................................................58
Section 6.10. Delay or Omission Not Waiver......................................................58
Section 6.11. Control by Owners.................................................................58
ARTICLE VII ACCOUNTS, FLOW OF FUNDS, DISTRIBUTIONS AND REPORTS..........................................59
Section 7.1. Collection of Money...............................................................59
Section 7.2. Establishment of Accounts.........................................................59
Section 7.3. Flow of Funds.....................................................................59
Section 7.4. Investment of Accounts............................................................62
Section 7.5. Eligible Investments..............................................................63
Section 7.6. Reports by Trustee................................................................64
Section 7.7. Drawings under the Certificate Insurance Policy and Reports by Trustee............67
Section 7.8. Allocation of Realized Losses.....................................................69
Section 7.9. Supplemental Interest Payments....................................................69
ARTICLE VIII TERMINATION OF TRUST.......................................................................70
Section 8.1. Termination of Trust..............................................................70
Section 8.2. Termination Upon Option of the Depositor..........................................70
Section 8.3. Auction Sale......................................................................71
Section 8.4. Disposition of Proceeds...........................................................71
ARTICLE IX THE TRUSTEE..................................................................................72
Section 9.1. Certain Duties and Responsibilities...............................................72
Section 9.2. Removal of Trustee for Cause......................................................74
Section 9.3. Certain Rights of the Trustee.....................................................75
Section 9.4. Not Responsible for Recitals or Issuance of Certificates..........................76
Section 9.5. May Hold Certificates.............................................................76
Section 9.6. Money Held in Trust...............................................................76
Section 9.7. Compensation and Reimbursement....................................................76
Section 9.8. Corporate Trustee Required; Eligibility...........................................76
Section 9.9. Resignation and Removal; Appointment of Successor.................................76
Section 9.10. Acceptance of Appointment by Successor Trustee....................................77
Section 9.11. Merger, Conversion, Consolidation or Succession to Business of the Trustee........78
Section 9.12. Reporting; Withholding............................................................78
Section 9.13. Liability of the Trustee..........................................................78
Section 9.14. Appointment of Co-Trustee or Separate Trustee.....................................79
ARTICLE X SERVICING AND ADMINISTRATION OF MORTGAGE LOANS................................................80
Section 10.1. General Servicing Procedures......................................................80
Section 10.2. Collection of Certain Mortgage Loan Payments......................................82
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Section 10.3. Sub-Servicing Agreements Between Master Servicer and Sub-Servicers................82
Section 10.4. Successor Sub-Servicers...........................................................83
Section 10.5. Liability of Master Servicer......................................................83
Section 10.6. No Contractual Relationship Between Sub-Servicer and Trustee or the Owners........83
Section 10.7. Assumption or Termination of Sub-Servicing Agreement by Trustee...................83
Section 10.8. Principal and Interest Account....................................................83
Section 10.9. Delinquency Advances and Servicing Advances.......................................86
Section 10.10. Compensating Interest.............................................................87
Section 10.11. Maintenance of Insurance..........................................................87
Section 10.12. Due-on-Sale Clauses; Assumption and Substitution Agreements.......................88
Section 10.13. Realization Upon Defaulted Mortgage Loans.........................................89
Section 10.14. Trustee to Cooperate; Release of Files............................................90
Section 10.15. Master Servicing Compensation.....................................................91
Section 10.16. Annual Statement as to Compliance.................................................91
Section 10.17. Annual Independent Certified Public Accountants' Reports..........................91
Section 10.18. Access to Certain Documentation and Information Regarding the Mortgage Loans;
Confidentiality ..................................................................91
Section 10.19. Assignment of Agreement...........................................................92
Section 10.20. Inspections by Certificate Insurer and Account Parties; Errors and Omissions
Insurance ........................................................................92
Section 10.21. Financial Statements..............................................................92
Section 10.22. REMIC.............................................................................93
Section 10.23. The Designated Depository Institution.............................................93
Section 10.24. Appointment of Custodian..........................................................93
ARTICLE XI EVENTS OF DEFAULT; REMOVAL OF MASTER SERVICER; MERGER........................................93
Section 11.1. Removal of Master Servicer; Resignation of Master Servicer........................93
Section 11.2. Trigger Events; Removal of Master Servicer........................................97
Section 11.3. Merger, Conversion, Consolidation or Succession to Business of Master Servicer....98
ARTICLE XII MISCELLANEOUS...............................................................................98
Section 12.1. Compliance Certificates and Opinions..............................................98
Section 12.2. Form of Documents Delivered to the Trustee........................................98
Section 12.3. Acts of Owners....................................................................99
Section 12.4. Notices, etc. to Trustee.........................................................100
Section 12.5. Notices and Reports to Owners; Waiver of Notices.................................100
Section 12.6. Rules by Trustee and Depositor...................................................100
Section 12.7. Successors and Assigns...........................................................100
Section 12.8. Severability.....................................................................100
Section 12.9. Benefits of Agreement............................................................100
Section 12.10. Legal Holidays...................................................................100
Section 12.11. Governing Law....................................................................101
Section 12.12. Counterparts.....................................................................101
Section 12.13. Usury............................................................................101
Section 12.14. Amendment........................................................................101
Section 12.15. REMIC Status; Taxes..............................................................102
Section 12.16. Additional Limitation on Action and Imposition of Tax............................103
Section 12.17. Appointment of Tax Matters Person................................................104
Section 12.18. Reports to the Securities and Exchange Commission................................104
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Section 12.19. Notices..........................................................................104
Section 12.20. Grant of Security Interest.......................................................104
Section 12.21. Indemnification..................................................................105
ARTICLE XIII CERTAIN MATTERS REGARDING THE CERTIFICATE INSURER.........................................107
Section 13.1. Rights of the Certificate Insurer to Exercise Rights of the Owners of the Class A
Certificates ....................................................................107
Section 13.2. Trustee to Act Solely with Consent of the Certificate Insurer....................107
Section 13.3. Trust Fund and Accounts Held for Benefit of the Certificate Insurer..............108
Section 13.4. Claims Upon the Policy; Policy Payments Account..................................108
Section 13.5. Effects of Payments by the Certificate Insurer...................................109
Section 13.6. Notices to the Certificate Insurer...............................................109
Section 13.7. Third-Party Beneficiary..........................................................109
</TABLE>
EXHIBIT A Form of Class A Certificate
EXHIBIT B-1 Form of Class B Certificate
EXHIBIT B-2 Form of Class B-S Certificate
EXHIBIT C-1 Form of Class RL Certificate
EXHIBIT C-2 Form of Class RU Certificate
EXHIBIT D Form of Transfer Certificate
EXHIBIT E Form of Residual Certificate Tax Matters Transfer Certificate
EXHIBIT F Form of Master Servicer's Trust Receipt
EXHIBIT G Form of Liquidation Report
EXHIBIT H Form of Delivery Order
EXHIBIT I Officer's Certificate
EXHIBIT J Form of Certificate Regarding Prepaid Loans
EXHIBIT K Form of Initial Trustee Certification
EXHIBIT L Form of Interim Trustee Certification
EXHIBIT M Form of Final Trustee Certification
EXHIBIT N Auction Procedures
EXHIBIT O Form of Trustee Request for Formula Interest Shortfall
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POOLING AND SERVICING AGREEMENT, relating to __________
MORTGAGE LOAN TRUST _____, dated as of __________, among __________, a
__________ corporation, as the master servicer (in such capacity, the "Master
Servicer"), HOME EQUITY SECURITIZATION CORP., a Delaware corporation, as the
depositor (the "Depositor") and __________, a __________ _________, in its
capacity as trustee (the "Trustee").
WHEREAS, the Depositor wishes to establish a trust and three
sub-trusts and provide for the allocation and sale of the beneficial interests
therein and the maintenance and distribution of the trust estate;
WHEREAS, the Depositor has acquired the Mortgage Loans from
the Company pursuant to the Sale Agreement;
WHEREAS, the Depositor wishes to convey the Mortgage Loans to
the Trust;
WHEREAS, the Master Servicer has agreed to service the
Mortgage Loans, which constitute the principal assets of the trust estate;
WHEREAS, all things necessary to make the Certificates, when
executed and authenticated by the Trustee, valid instruments, and to make this
Agreement a valid agreement, in accordance with their and its terms, have been
done; and
WHEREAS, __________, a __________ _________, is willing to
serve in the capacity of Trustee hereunder.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein contained, the Depositor, the Master Servicer and the
Trustee hereby agree as follows:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
Section 1.1. Definitions. For all purposes of this Agreement,
the following terms shall have the meanings set forth below, unless the context
clearly indicates otherwise:
"Account": The Certificate Account, each Principal and
Interest Account and each Distribution Account including any sub-Accounts
created pursuant to Section 7.2.
"Accrual Period": With respect to the Class A-2 Group I, A-3
Group I, A-4 Group I, and A-5 Group I Certificates and any Payment Date, the
period from and including the second day of the calendar month immediately
preceding such Payment Date to and including the first day of the calendar month
in which such Payment Date occurs; with respect to the Class A-1 Group I, and
A-6 Group II Certificates and any Payment Date, the period from and including
the prior Payment Date (or, in the case of the first Payment Date, from and
including the Startup Day) to and including the day immediately preceding such
Payment Date.
"Affiliate": With respect to any specified Person, any other
Person controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control" when used with respect to
any specified Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by
<PAGE>
contract or otherwise, and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Agreement": This Pooling and Servicing Agreement, as it may
be amended from time to time, and
including the Exhibits hereto.
"Allocable Losses": As defined in Section 7.8 hereof.
"Appraised Value": The appraised value of any Property based
upon the appraisal made at the time of the origination of the related Mortgage
Loan, or, in the case of a Mortgage Loan which is a purchase money mortgage, the
sales price of the Property at such time of origination, if such sales price is
less than such appraised value.
"Auction Sale": The Trustee's solicitation of bids for the
purchase of all Mortgage Loans in the Trust pursuant to Section 8.3 hereof.
"Authorized Officer": With respect to any Person, any person
who is authorized to act for such Person in matters relating to this Agreement,
and whose action is binding upon such Person and, with respect to the Depositor,
the Master Servicer and the Trustee, initially including those individuals whose
names appear on the lists of Authorized Officers delivered on the Startup Day.
"Available Funds": With respect to Group I, the Group I
Available Funds, and with respect to Group II, the Group II Available Funds.
"Base Group I Principal Distribution Amount": As to any
Payment Date, an amount equal to (x) the sum, without duplication, of (i) the
principal portion of all scheduled and unscheduled payments received by the
Master Servicer on the Group I Mortgage Loans during the related Remittance
Period, including any Prepayments and any Net Proceeds, (ii) the principal
portion of all Substitution Amounts and the principal portion of all Loan
Purchase Prices deposited into the Principal and Interest Accounts with respect
to the Group I Mortgage Loans on the related Remittance Date, and (iii) the
proceeds received by the Trustee with respect to the Group I Mortgage Loans in
connection with any termination of the Trust pursuant to Article VIII hereof, to
the extent such proceeds relate to principal, minus (y) the amount of any Group
I Subordination Reduction Amount for such Payment Date.
"Base Group II Principal Distribution Amount": As to any
Payment Date, an amount equal to (x) the sum, without duplication, of (i) the
principal portion of all scheduled and unscheduled payments received by the
Master Servicer on the Group II Mortgage Loans during the related Remittance
Period, including any Prepayments and any Net Proceeds, (ii) the principal
portion of all Substitution Amounts and the principal portion of all Loan
Purchase Prices deposited into the Principal and Interest Accounts with respect
to the Group II Mortgage Loans on the related Remittance Date, and (iii) the
proceeds received by the Trustee with respect to the Group II Mortgage Loans in
connection with any termination of the Trust pursuant to Article VIII hereof, to
the extent such proceeds relate to principal, minus (y) the amount of any Group
II Subordination Reduction Amount for such Payment Date.
"Business Day": Any day that is not a Saturday, Sunday or
other day on which commercial banking institutions in the State of New York, the
state in which the principal corporate office or bank of the Master Servicer is
located or in the state in which the principal corporate trust office of the
Trustee is located, which initially is New York, New York, are authorized or
obligated by law or executive order to be closed.
2
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"Certificate": Any one of the Class A-1 Group I Certificates,
Class A-2 Group I Certificates, Class A-3 Group I Certificates, Class A-4 Group
I Certificates, Class A-5 Group I Certificates, Class A-6 Group II Certificates,
Class B Certificates, Class B-S Certificates or the Residual Certificates.
"Certificate Account": The account designated as the
Certificate Account pursuant to Section 7.2 hereof.
"Certificate Insurance Policy": The financial guaranty
insurance policy number 50590-N issued by the Certificate Insurer to the Trustee
for the benefit of the Owners of the Class A Certificates.
"Certificate Insurer": __________, a __________ __________.
"Certificate Insurer Default": The existence and continuance
of any of the following:
(a) the Certificate Insurer shall have failed to make a
required payment when due under the Certificate Insurance Policy;
(b) the Certificate Insurer shall have (i) filed a petition or
commenced any case or proceeding under any provision or chapter of the United
States Bankruptcy Code, the New York State Insurance Law or any other similar
federal or state law relating to insolvency, bankruptcy, rehabilitation,
liquidation, or reorganization, (ii) made a general assignment for the benefit
of its creditors or (iii) had an order for relief entered against it under the
United States Bankruptcy Code, the New York State Insurance Law or any other
similar federal or state law relating to insolvency, bankruptcy, rehabilitation,
liquidation, or reorganization that is final and nonappealable; or
(c) a court of competent jurisdiction, the New York Department
of Insurance or any other competent regulatory authority shall have entered a
final and nonappealable order, judgment or decree (i) appointing a custodian,
trustee, agent, or receiver for the Certificate Insurer or for all or any
material portion of its property or (ii) authorizing the taking of possession by
a custodian, trustee, agent, or receiver of the Security Insurer or of all or
any material portion of its property.
"Certificate Insurer Premium Rate": ____% per annum.
"Certificate Principal Balance": The Class A-1 Principal
Balance, the Class A-2 Principal Balance, the Class A-3 Principal Balance, the
Class A-4 Principal Balance, the Class A-5 Principal Balance, the Class A-6
Principal Balance or the Class B Principal Balance, as the case may be.
"Certificateholder": As of any date and with respect to any
Certificate, the Person in whose name such Certificate is registered on the
Register on such date.
"Class": All of the Class A-1 Group I Certificates, the Class
A-2 Group I Certificates, the Class A-3 Group I Certificates, the Class A-4
Group I Certificates, the Class A-5 Group I Certificates, the Class A-6 Group II
Certificates, the Class B Certificates, or all of the Residual Certificates, as
applicable.
"Class A Certificate Principal Balance": The sum of the Class
A-1 Principal Balance, the Class A-2 Principal Balance, the Class A-3 Principal
Balance, the Class A-4 Principal Balance, the Class A-5 Principal Balance and
the Class A-6 Principal Balance.
3
<PAGE>
"Class A Certificates": Collectively, the Class A-1 Group I
Certificates, the Class A-2 Group I Certificates, the Class A-3 Group I
Certificates, the Class A-4 Group I Certificates, the Class A-5 Group I
Certificates and the Class A-6 Group II Certificates.
"Class A Distribution Account": The Class A Group I
Distribution Account or the Class A Group II Distribution Account, as the case
may be.
"Class A Group I Certificates": All of the Class A-1 Group I
Certificates, the Class A-2 Group I Certificates, the Class A-3 Group I
Certificates, the Class A-4 Group I Certificates and the Class A-5 Group I
Certificates.
"Class A Group I Distribution Account": The Class A Group I
Distribution Account created pursuant to Section 7.2 hereof.
"Class A Group II Distribution Account": The Class A Group II
Distribution Account created pursuant to Section 7.2 hereof.
"Class A-1 Distribution Amount": As of any Payment Date, the
sum of (i) the Class A-1 Principal Distribution Amount for such Payment Date and
(ii) the Class A-1 Interest Distribution Amount for such Payment Date.
"Class A-1 Group I Certificates": Those certificates in
substantially the form set forth in Exhibit A hereto.
"Class A-1 Interest Distribution Amount": As of any Payment
Date, interest accrued during the related Accrual Period at the Class A-1
Pass-Through Rate on the Class A-1 Principal Balance immediately prior to such
Payment Date. The Class A-1 Interest Distribution Amount does not include
interest shortfalls, if any, on the Mortgage Loans in Group I arising from
Prepayments of principal or Relief Act Shortfalls to the extent such shortfalls
are not covered by Compensating Interest or Group I Available Funds.
"Class A-1 Pass-Through Rate": The lesser of (i) LIBOR as of
the second to last Business Day prior to the immediately preceding Payment Date
(or prior to the Startup Day, in the case of the initial Payment Date) plus
____% per annum or (ii) the Net Weighted Average Coupon Rate for the Group I
Mortgage Loans for such Payment Date.
"Class A-1 Principal Balance": The original Class A-1
Principal Balance of $__________ reduced by the sum of all amounts previously
distributed to the Owners of the Class A-1 Group I Certificates in respect of
principal on all previous Payment Dates, but shall not be reduced below zero.
"Class A-1 Principal Distribution Amount": With respect to any
Payment Date on or prior to the Class A-1 Termination Date, an amount equal to
the lesser of (x) the Remaining Group I Principal Distribution Amount for such
Payment Date and (y) the amount necessary to reduce the Class A-1 Principal
Balance (as it was immediately prior to such Payment Date) to zero. On the Class
A-1 Termination Date any portion of the Remaining Group I Principal Distribution
Amount for such Payment Date remaining on such Payment Date following the
reduction to zero of the Class A-1 Principal Balance shall be distributed as the
initial principal distribution on the Class A-2 Group I Certificates.
4
<PAGE>
"Class A-1 Termination Date": The Payment Date on which the
Class A-1 Principal Balance is reduced to zero.
"Class A-2 Distribution Amount": As of any Payment Date, the
sum of (i) the Class A-2 Principal Distribution Amount for such Payment Date and
(ii) the Class A-2 Interest Distribution Amount for such Payment Date.
"Class A-2 Group I Certificates": Those certificates in
substantially the form set forth in Exhibit A hereto.
"Class A-2 Interest Distribution Amount": As of any Payment
Date, interest accrued during the related Accrual Period at the Class A-2
Pass-Through Rate on the Class A-2 Principal Balance immediately prior to such
Payment Date. The Class A-2 Interest Distribution Amount does not include
interest shortfalls, if any, on the Mortgage Loans in Group I arising from
Prepayments of principal or Relief Act Shortfalls to the extent such shortfalls
are not covered by Compensating Interest or Group I Available Funds.
"Class A-2 Pass-Through Rate": The lesser of (i) ____% per
annum or (ii) the Net Weighted Average Coupon Rate for the Group I Mortgage
Loans for such Payment Date.
"Class A-2 Principal Balance": The original Class A-2
Principal Balance of $__________ reduced by the sum of all amounts previously
distributed to the Owners of the Class A-2 Group I Certificates in respect of
principal on all previous Payment Dates, but shall not be reduced below zero.
"Class A-2 Principal Distribution Amount": With respect to any
Payment Date following the Class A-1 Termination Date, an amount equal to the
lesser of (x) the Remaining Group I Principal Distribution Amount for such
Payment Date and (y) the amount necessary to reduce the Class A-2 Principal
Balance (as it was immediately prior to such Payment Date) to zero. On the Class
A-1 Termination Date any portion of the Remaining Group I Principal Distribution
Amount for such Payment Date remaining on such Payment Date following the
reduction to zero of the Class A-1 Principal Balance shall be distributed as the
initial principal distribution on the Class A-2 Group I Certificates. On the
Class A-2 Termination Date any portion of the Remaining Group I Principal
Distribution Amount remaining on such Payment Date following the reduction to
zero of the Class A-2 Principal Balance shall be distributed as the initial
principal distribution on the Class A-3 Group I Certificates.
"Class A-2 Termination Date": The Payment Date on which the
Class A-2 Principal Balance is reduced to zero.
"Class A-3 Distribution Amount": As of any Payment Date, the
sum of (i) the Class A-3 Principal Distribution Amount for such Payment Date and
(ii) the Class A-3 Interest Distribution Amount for such Payment Date.
"Class A-3 Group I Certificates": Those certificates in
substantially the form set forth in Exhibit A hereto.
"Class A-3 Interest Distribution Amount": As of any Payment
Date, interest accrued during the related Accrual Period at the Class A-3
Pass-Through Rate on the Class A-3 Principal Balance immediately prior to such
Payment Date. The Class A-3 Interest Distribution Amount does not include
interest shortfalls, if any, on the Mortgage Loans in Group I arising from
Prepayments of principal or
5
<PAGE>
Relief Act Shortfalls to the extent such shortfalls are not covered by
Compensating Interest or Group I Available Funds.
"Class A-3 Pass-Through Rate": The lesser of (i) _____% per
annum or (ii) the Net Weighted Average Coupon Rate for the Group I Mortgage
Loans for such Payment Date.
"Class A-3 Principal Balance": The original Class A-3
Principal Balance of $__________ reduced by the sum of all amounts previously
distributed to the Owners of the Class A-3 Group I Certificates in respect of
principal on all previous Payment Dates, but shall not be reduced below zero.
"Class A-3 Principal Distribution Amount": With respect to any
Payment Date following the Class A-2 Termination Date, an amount equal to the
lesser of (x) the Remaining Group I Principal Distribution Amount for such
Payment Date and (y) the amount necessary to reduce the Class A-3 Principal
Balance (as it was immediately prior to such Payment Date) to zero. On the Class
A-2 Termination Date any portion of the Remaining Group I Principal Distribution
Amount for such Payment Date remaining on such Payment Date following the
reduction to zero of the Class A-2 Principal Balance shall be distributed as the
initial principal distribution on the Class A-3 Group I Certificates. On the
Class A-3 Termination Date any portion of the Remaining Group I Principal
Distribution Amount remaining on such Payment Date following the reduction to
zero of the Class A-3 Principal Balance shall be distributed as the initial
principal distribution on the Class A-4 Group I Certificates.
"Class A-3 Termination Date": The Payment Date on which the
Class A-3 Principal Balance is reduced to zero.
"Class A-4 Distribution Amount": As of any Payment Date, the
sum of (i) the Class A-4 Principal Distribution Amount for such Payment Date and
(ii) the Class A-4 Interest Distribution Amount for such Payment Date.
"Class A-4 Group I Certificates": Those certificates in
substantially the form set forth in Exhibit A hereto.
"Class A-4 Interest Distribution Amount": As of any Payment
Date, interest accrued during the related Accrual Period at the Class A-4
Pass-Through Rate on the Class A-4 Principal Balance immediately prior to such
Payment Date. The Class A-4 Interest Distribution Amount does not include
interest shortfalls, if any, on the Mortgage Loans in Group I arising from
Prepayments of principal or Relief Act Shortfalls to the extent such shortfalls
are not covered by Compensating Interest or Group I Available Funds.
"Class A-4 Pass-Through Rate": The lesser of (i) _____% per
annum or (ii) the Net Weighted Average Coupon Rate for the Group I Mortgage
Loans for such Payment Date.
"Class A-4 Principal Balance": The original Class A-4
Principal Balance of $__________ reduced by the sum of all amounts previously
distributed to the Owners of the Class A-4 Group I Certificates in respect of
principal on all previous Payment Dates, but shall not be reduced below zero.
"Class A-4 Principal Distribution Amount": With respect to any
Payment Date following the Class A-3 Termination Date, an amount equal to the
lesser of (x) the Remaining Group I Principal Distribution Amount for such
Payment Date and (y) the amount necessary to reduce the Class A-4 Principal
Balance (as it was immediately prior to such Payment Date) to zero. On the Class
A-3
6
<PAGE>
Termination Date any portion of the Remaining Group I Principal Distribution
Amount for such Payment Date remaining on such Payment Date following the
reduction to zero of the Class A-3 Principal Balance shall be distributed as the
initial principal distribution on the Class A-4 Group I Certificates.
"Class A-5 Distribution Amount": As of any Payment Date, the
sum of (i) the Class A-5 Principal Distribution Amount for such Payment Date and
(ii) the Class A-5 Interest Distribution Amount for such Payment Date.
"Class A-5 Group I Certificates": Those certificates in
substantially the form set forth in Exhibit A hereto.
"Class A-5 Interest Distribution Amount": As of any Payment
Date, interest accrued during the related Accrual Period at the Class A-5
Pass-Through Rate on the Class A-5 Principal Balance immediately prior to such
Payment Date. The Class A-5 Interest Distribution Amount does not include
interest shortfalls, if any, on the Mortgage Loans in Group I arising from
Prepayments of principal or Relief Act Shortfalls to the extent such shortfalls
are not covered by Compensating Interest or Group I Available Funds.
"Class A-5 Lockout Distribution Amount": With respect to any
Payment Date, the product of (i) the applicable Class A-5 Lockout Percentage for
such Payment Date and (ii) the Class A-5 Lockout Pro Rata Distribution Amount
for such Payment Date.
"Class A-5 Lockout Percentage": For each Payment Date shall be
as follows:
Payment Dates Lockout Percentage
------------- ------------------
"Class A-5 Lockout Pro Rata Distribution Amount": For any
Payment Date will be an amount equal to the product of (x) a fraction, the
numerator of which is the Certificate Principal Balance of the Class A-5
Certificates immediately prior to such Payment Date and the denominator of which
is the aggregate Certificate Principal Balance of the Group I Certificates
immediately prior to such Payment Date and (y) the Group I Principal
Distribution Amount for such Payment Date.
"Class A-5 Pass-Through Rate": The lesser of (i) _____% per
annum or (ii) the Net Weighted Average Coupon Rate for the Group I Mortgage
Loans for such Payment Date.
"Class A-5 Principal Balance": The original Class A-5
Principal Balance of $__________ reduced by the sum of all amounts previously
distributed to the Owners of the Class A-5 Group I Certificates in respect of
principal on all previous Payment Dates, but shall not be reduced below zero.
"Class A-5 Principal Distribution Amount": With respect to any
Payment Date prior to the Class A-4 Termination Date, the Class A-5 Lockout
Distribution Amount. With respect to the Payment Date occurring on the Class A-4
Termination Date, the sum of (i) the Class A-5 Lockout Distribution Amount and
(ii) any portion of the Remaining Group I Principal Distribution Amount
remaining on such Payment Date following the reduction to zero of the Class A-4
Principal Balance. With respect to any Payment Date after the Class A-4
Termination Date, the lesser of (x) the Group I Principal Distribution Amount
and (y) the amount necessary to reduce the Class A-5 Principal Balance to zero.
7
<PAGE>
"Class A-6 Distribution Amount": As of any Payment Date, the
sum of (i) the Class A-6 Principal Distribution Amount for such Payment Date,
(ii) the Class A-6 Interest Distribution Amount for such Payment Date and (iii)
the Class A-6 Interest Carry-Forward Amount for such Payment Date.
"Class A-6 Formula Interest Shortfall": As defined in Section
7.9(a) hereof.
"Class A-6 Formula Pass-Through Rate": As of any Payment Date,
the rate described in clause (i) of the definition of "Class A-6 Pass-Through
Rate".
"Class A-6 Full Interest Distribution Amount": With respect to
any Payment Date, the Class A-6 Interest Distribution Amount for such Payment
Date calculated using the Class A-6 Formula Pass-Through Rate for such Payment
Date rather than the Class A-6 Pass-Through Rate for such Payment Date plus, if
the full amount of the Class A-6 Formula Interest Shortfall, if any, was not
funded on any prior Payment Date and remains unpaid on such Payment Date, such
amount, together with interest thereon (from the Payment Date on which such
Class A-6 Formula Interest Shortfall was calculated) at the Class A-6 Formula
Pass-Through Rate for such Payment Date.
"Class A-6 Interest Carry-Forward Amount": As of any Payment
Date, the sum of (i) the amount, if any, by which (x) the Class A-6 Interest
Distribution Amount as of the immediately preceding Payment Date exceeded (y)
the amount of the actual distribution, made to the Owners of the Class A-6 Group
II Certificates pursuant to Section 7.3(c)(ii) hereof on such immediately
preceding Payment Date and allocable to the Class A-6 Interest Distribution
Amount on such immediately preceding Payment Date and (ii) interest on the
amount, if any, described in clause (i) at one-twelfth of the Class A-6
Pass-Through Rate from such immediately preceding Payment Date. The Class A-6
Interest Distribution Amount does not include interest shortfalls, if any, on
the Mortgage Loans in Group II arising from Prepayments of principal or Relief
Act Shortfalls to the extent such shortfalls are not covered by Compensating
Interest or Group II Available Funds.
"Class A-6 Interest Distribution Amount": As of any Payment
Date, interest accrued during the related Accrual Period at the Class A-6
Pass-Through Rate on the Class A-6 Principal Balance immediately prior to such
Payment Date.
"Class A-6 Pass-Through Rate": With respect to any Payment
Date and Accrual Period, the lesser of (i) LIBOR as of the second to last
Business Day prior to the immediately preceding Payment Date (or prior to the
Startup Day, in the case of the initial Payment Date) plus _____% per annum, or
(ii) the Net Weighted Average Coupon Rate for the Group II Mortgage Loans for
such Payment Date.
"Class A-6 Principal Balance": The original Class A-6
Principal Balance of $__________ reduced by the sum of all amounts previously
distributed to the Owners of the Class A-6 Group II Certificates in respect of
principal on all previous Payment Dates, but shall not be reduced below zero.
"Class A-6 Principal Distribution Amount": With respect to any
Payment Date, an amount equal to the lesser of (x) the Group II Principal
Distribution Amount for such Payment Date and (y) the amount necessary to reduce
the Class A-6 Principal Balance (as it was immediately prior to such Payment
Date) to zero.
"Class A-6 Group II Certificates": Those certificates in
substantially the form set forth in Exhibit A hereto.
8
<PAGE>
"Class B Certificates": Those certificates in substantially
the form set forth in Exhibit B-1 hereto.
"Class B Carry-Forward Amount": As of any Payment Date, the
amount, if any, by which (x) the Class B Distribution Amount as of the
immediately preceding Payment Date exceeded (y) the amount of the actual
distribution to the Owners of the Class B Certificates made pursuant to Section
7.3(c)(v) hereof on such immediately preceding Payment Date.
"Class B Distribution Account": The Class B Distribution
Account created pursuant to Section 7.2 hereof.
"Class B Distribution Amount": As of any Payment Date, the sum
of (i) the Class B Interest Distribution Amount for such Payment Date, (ii) the
Group I Subordination Reduction Amount for such Payment Date and the Group II
Subordination Reduction Amount, if any, described in Section 7.3(b)(iii)(E)
hereof and (iv) the Class B Carry-Forward Amount, if any, as of such Payment
Date.
"Class B Interest": As of any Payment Date, the product of (x)
the Class B Pass-Through Rate, times the actual number of days in the related
Remittance Period divided by 365 (or 366, as appropriate), and (y) the Net Pool
Balance as of the opening of business on the first day of such Remittance
Period.
"Class B Interest Distribution Amount": As of any Payment
Date, the Class B Interest for such Payment Date minus the sum of
(i) the amount of any Class B Interest actually paid to the Owners
of the Class A Group I Certificates on such Payment Date as
all or a portion of (x) the Group I Insured Distribution
Amount on such Payment Date, pursuant to Section
7.3(b)(iii)(B) hereof or (y) the portion of any Group I
Subordination Increase Amount allocated to the Class A Group I
Distribution Account with respect to a Group I Subordination
Deficiency on such Payment Date pursuant to Section
7.3(b)(iii)(E) hereof; and
(ii) the amount of any Class B Interest actually paid to the Owners
of the Class A-6 Group II Certificates as all or a portion of
(x) the Group II Insured Distribution Amount on such Payment
Date, pursuant to Section 7.3(b)(iii)(B) hereof or (y) the
portion of any Group II Subordination Increase Amount
allocated to the Class A Group II Distribution Account with
respect to a Group II Subordination Deficiency on such Payment
Date, pursuant to Section 7.3(b)(iii)(E) hereof.
"Class B Pass-Through Rate": With respect to any Payment Date,
the weighted average of the interest rates borne by the LT-1, LT-2, LT-3, LT-4,
LT-5, and LT-7 Lower Tier Interests for the immediately preceding Remittance
Period minus two times the weighted average of the interest rates borne by the
LT-6, LT-8 and LT-9 Lower Tier Interests for such Remittance Period, with the
rate on the LT-9 Lower Tier Interest deemed to be zero for purposes of this
calculation.
"Class B Principal Balance": As of the Startup Day, zero. The
Class B Principal Balance shall be:
(x) increased on each Payment Date by the amounts, if any, of the
Class B Interest (i) actually paid to the Owners of the Class
A Group I Certificates on such Payment Date as all or a
portion of the Group I Principal Distribution Amount or as all
or a portion of the Group I Subordination Increase Amount on
such Payment Date pursuant to Sections
9
<PAGE>
7.3(b)(iii)(A) and 7.3(b)(iii)(E) hereof and (ii) actually
paid to the Owners of the Class A-6 Group II Certificates on
such Payment Date as all or a portion of the Group II
Principal Distribution Amount or as all or a portion of the
Group II Subordination Deficiency Amount on such Payment Date,
pursuant to Sections 7.3(b)(iii)(A) and 7.3(b)(iii)(E) hereof;
and
(y) decreased on each Payment Date by the amounts of (i) any Group
I Subordination Reduction Amount or any Group II Subordination
Reduction Amount paid to the Owners of the Class B
Certificates on such Payment Date pursuant to Section
7.3(b)(iii)(G) hereof and (ii) the amount of any Allocable
Losses allocated as a reduction of the Class B Principal
Balance on such Payment Date pursuant to Section 7.8(a)
hereof. The Class B Principal Balance shall in no event be
less than zero.
"Class B-S Certificate": Any of those Certificates
representing the right to receive excess amounts in the Supplemental Interest
Payment Account, and designated as a "Class B-S Certificate" on the face
thereof, in the form of Exhibit B-2 hereto.
"Class LT-1 Certificates" or "LT-1": The uncertificated class
of interests in the Lower-Tier REMIC, as described in and designated in Section
2.8 hereof.
"Class LT-2 Certificates" or "LT-2": The uncertificated class
of interests in the Lower-Tier REMIC, as described in and designated in Section
2.8 hereof.
"Class LT-3 Certificates" or "LT-3": The uncertificated class
of interests in the Lower-Tier REMIC, as described in and designated in Section
2.8 hereof.
"Class LT-4 Certificates" or "LT-4": The uncertificated class
of interests in the Lower-Tier REMIC, as described in and designated in Section
2.8 hereof.
"Class LT-5 Certificates" or "LT-5": The uncertificated class
of interests in the Lower-Tier REMIC, as described in and designated in Section
2.8 hereof.
"Class LT-6 Certificates" or "LT-6": The uncertificated class
of interests in the Lower-Tier REMIC, as described in and designated in Section
2.8 hereof.
"Class LT-7 Certificates" or "LT-7": The uncertificated class
of interests in the Lower-Tier REMIC, as described in and designated in Section
2.8 hereof.
"Class LT-8 Certificates" or "LT-8": The uncertificated class
of interests in the Lower-Tier REMIC, as described in and designated in Section
2.8 hereof.
"Class LT-9 Certificates" or "LT-9": The uncertificated class
of interests in the Lower-Tier REMIC, as described in and designated in Section
2.8 hereof.
"Class LT-10 Certificates" or "LT-10": The uncertificated
class of interests in the Lower-Tier REMIC, as described in and designated in
Section 2.8 hereof.
"Class LT-11 Certificates" or "LT-11": The uncertificated
class of interests in the Lower-Tier REMIC, as described in and designated in
Section 2.8 hereof.
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<PAGE>
"Class LT-12 Certificates" or "LT-12": The uncertificated
class of interests in the Lower-Tier REMIC, as described in and designated in
Section 2.8 hereof.
"Class RI Certificates": Those certificates representing
certain residual rights to distributions from REMIC I in substantially the form
set forth as Exhibit C-3 hereto.
"Class RL Certificates": Those certificates representing
certain residual rights to distributions from the Lower-Tier REMIC in
substantially the form set forth as Exhibit C-1 hereto.
"Class RU Certificates": Those certificates representing
certain residual rights to distributions from the Upper-Tier REMIC in
substantially the form set forth as Exhibit C-2 hereto.
"Code": The Internal Revenue Code of 1986, as amended.
"Compensating Interest": As defined in Section 10.10 of this
Agreement.
"Coupon Rate": With respect to any Note and Remittance Period,
the rate of interest borne by such Note at the opening of business on the first
day of such Remittance Period.
"Cumulative Loss Percentage": As to any Payment Date and the
Mortgage Loans, the percentage equivalent of the fraction obtained by dividing
(i) the Cumulative Net Realized Losses by (ii) the Original Pool Principal
Balance.
"Cumulative Net Realized Losses": As of any Payment Date, the
sum of all Net Realized Losses with respect to the Mortgage Loans experienced on
all prior Payment Dates.
"Cut-Off Date": The close of business on __________.
"Delinquency Advance": As defined in Section 10.9(a) of this
Agreement.
"Delinquency Percentage": As of the last day of any Remittance
Period and with respect to the Mortgage Loans, the percentage equivalent of a
fraction, the numerator of which is equal to the aggregate Principal Balances of
all Mortgage Loans that are 90 or more days delinquent, in foreclosure or
converted to REO Properties as of such last day of such Remittance Period, and
the denominator of which is the Pool Principal Balance as of the last day of
such Remittance Period.
"Delinquent": A Mortgage Loan is "delinquent" if any payment
due thereon is not made by the close of business on the day such payment is
scheduled to be due. A Mortgage Loan is "30 days delinquent" if such payment has
not been received by the close of business on the corresponding day of the month
immediately succeeding the month in which such payment was due, or, if there is
no such corresponding day (e.g., as when a 30-day month follows a 31-day month
in which a payment was due on the 31st day of such month) then on the last day
of such immediately succeeding month. Similarly for "60 days delinquent," "90
days delinquent" and so on.
"Delivery Order": The Delivery Order from the Depositor to the
Trustee directing the Trustee to issue the Certificates on the Startup Day, in
substantially the form of Exhibit H hereto.
"Depositor": Home Equity Securitization Corp., a __________
corporation.
"Depository": The Depository Trust Company, 55 Water Street,
New York, New York 10041, and any successor depository hereafter named.
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"Designated Depository Institution": With respect to any
Account, an institution whose deposits are insured by the Bank Insurance Fund or
the Savings Association Insurance Fund of the FDIC, the long-term deposits of
which shall be rated A or better by ____ and A1 or better by ____ and in one of
the two highest short-term rating categories by ____ and the highest short-term
rating category by ____, unless otherwise approved in writing by the Certificate
Insurer and each Rating Agency, and which is any of the following: (i) a federal
savings and loan association duly organized, validly existing and in good
standing under the federal banking laws, (ii) an institution duly organized,
validly existing and in good standing under the applicable banking laws of any
state, (iii) a national banking association duly organized, validly existing and
in good standing under the federal banking laws, or (iv) approved in writing by
the Certificate Insurer and the Rating Agencies and, in each case acting or
designated by the Master Servicer or the Trustee as the depository institution
for such Account; provided, however, that any such institution, association or
subsidiary shall have combined capital, surplus and individual profits of at
least $100,000,000. Notwithstanding the foregoing, an Account may be held by an
institution otherwise meeting the preceding requirements except that the only
applicable rating requirement shall be that the unsecured and uncollateralized
debt obligations thereof shall be rated Baa2 or better by ____ and BBB or better
by ____ if such institution has capital and surplus of not less than $50,000,000
and has trust powers and the Account is held by such institution in its trust
capacity and not in its commercial capacity.
"Designated Residual Holder": Home Equity Securitization Corp.
"Determination Date": The second Business Day preceding each
Payment Date.
"Disqualified Organization": Has the meaning set forth from
time to time in the definition thereof at Section 860E(e)(5) of the Code (or any
successor statute thereto) and applicable to the Trust.
"Distribution Accounts": The Class A Group I Distribution
Account and the Class A Group II Distribution Account and the Class B
Distribution Account.
"Eligible Investments": Those investments so designated
pursuant to Section 7.5 hereof.
"ERISA": As defined in Section 5.8(a) hereof.
"Event of Default": As defined in Section 11.1 of this
Agreement.
"Excess Spread Trigger": As such term is defined in the
Insurance and Indemnity Agreement.
"FDIC": The Federal Deposit Insurance Corporation, or any
successor thereto.
"FHLMC": The Federal Home Loan Mortgage Corporation, a
corporate instrumentality of the United States created pursuant to the Emergency
Home Finance Act of 1970, as amended, or any successor thereof.
"File": The documents pertaining to a particular Mortgage Loan
pursuant to Section 3.3(b) hereof and any additional documents required to be
added to the File pursuant to this Agreement.
"First Mortgage Loan": A Mortgage Loan which constitutes a
first priority mortgage lien with respect to any Property as indicated on the
Mortgage Loan Schedules.
"Fiscal Agent": As defined in the Insurance Agreement.
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"FNMA": The Federal National Mortgage Association, a
federally-chartered and privately-owned corporation existing under the Federal
National Mortgage Association Charter Act, as amended, or any successor thereof.
"Full Interest Distribution Amount": The Class A-6 Full
Interest Distribution Amount.
"Group": Group I or Group II, as the case may be.
"Group I": The group of Mortgage Loans that are the Group I
Mortgage Loans.
"Group I Available Funds": As of any Payment Date, the amount
on deposit in the Certificate Account with respect to the Group I Mortgage Loans
on such Payment Date after making the deposits to the Certificate Account
pursuant to Sections 7.3(a)(i) hereof on such Payment Date. The term "Group I
Available Funds" does not include Insured Payments and does not include any
amounts that cannot be distributed to the Owners of the Certificates by the
Trustee as a result of proceedings under the United States Bankruptcy Code.
"Group I Certificates": Any of the Class A-1 Group I
Certificates, the Class A-2 Group I Certificates, the Class A-3 Group I
Certificates, the Class A-4 Group I Certificates and the Class A-5 Group I
Certificates.
"Group I Cumulative Net Realized Losses": As of any Payment
Date, the sum of all Net Realized Losses with respect to the Group I Mortgage
Loans experienced on all prior Payment Dates.
"Group I Excess Subordinated Amount": With respect to any
Payment Date, the excess, if any, of (x) the Group I Subordinated Amount that
would apply on such Payment Date after taking into account the payment of the
Group I Principal Distribution Amount on such Payment Date (except for any
distributions of related Group I Subordination Reduction Amounts on such Payment
Date) over (y) the Group I Specified Subordinated Amount for such Payment Date.
"Group I Insured Distribution Amount": With respect to any
Payment Date, the sum of (i) Group I Insured Interest Distribution Amount for
such Payment Date and (ii) the Group I Insured Principal Distribution Amount for
such Payment Date.
"Group I Insured Interest Distribution Amount": With respect
to any Payment Date, the sum of (i) the Class A-1 Interest Distribution Amount,
(ii) the Class A-2 Interest Distribution Amount, (iii) the Class A-3 Interest
Distribution Amount, (iv) the Class A-4 Interest Distribution Amount and (v) the
Class A-5 Interest Distribution Amount.
"Group I Insured Payment": As of any Payment Date, the sum of
(x) the Group I Shortfall Amount for such Payment Date and (y) any Preference
Amounts with respect to the Group I Certificates with respect to which the
affected Owners have complied with the provisions of Section 7.3(g) hereof
during the related Remittance Period.
"Group I Insured Principal Distribution Amount": With respect
to any Payment Date, the Group I Subordination Deficit for such Payment Date
plus any amounts paid to the Trustee at the option of the Certificate Insurer in
respect of any losses on Liquidated Loans.
"Group I Interest Distribution Amount": As of any Payment
Date, the sum of the Class A-1 Interest Distribution Amount, the Class A-2
Interest Distribution Amount, the Class A-3 Interest
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Distribution Amount, the Class A-4 Interest Distribution Amount and the Class
A-5 Interest Distribution Amount.
"Group I Interest Remittance Amount": For any Remittance Date,
the amount equal to (x) the sum, without duplication, of (i) the aggregate
interest portions of the payments (whether or not collected) becoming due on the
Group I Mortgage Loans during the immediately preceding Remittance Period and
(ii) Compensating Interest with respect to the Group I Mortgage Loans minus (y)
the aggregate Master Servicing Fee due to the Master Servicer with respect to
Group I Mortgage Loans for such Remittance Period to the extent not previously
paid to, or withheld by, the Master Servicer.
"Group I Monthly Remittance": The sum of (i) the Group I
Interest Remittance Amount and the Group I Principal Remittance Amount required
to be remitted to the Trustee on each Remittance Date and (ii) the amount of any
Substitution Amounts and Loan Purchase Prices on deposit in the Principal and
Interest Account with respect to the Group I Mortgage Loans on such Remittance
Date.
"Group I Mortgage Loans": The Mortgage Loans held by the Trust
and assigned to Group I, as indicated on the related Mortgage Loan Schedule, as
supplemented and amended from time to time.
"Group I Pool Principal Balance": As of any date of
determination, the aggregate Principal Balances of all of the Group I Mortgage
Loans as of the close of business on such date.
"Group I Preference Amount": The Preference Amount with
respect to Group I.
"Group I Premium Amount": With respect to each Payment Date,
an amount equal to the product of (x) one twelfth of the Certificate Insurer
Premium Rate and (y) the sum of the Certificate Principal Balances of the Class
A Group I Certificates as of the close of business on the last day of the
preceding Remittance Period.
"Group I Principal Distribution Amount": As of any Payment
Date, the lesser of (A) the Group I Available Funds less the Group I Interest
Distribution Amount, the Group I Trustee's Fee and the Group I Premium Amount
and (B) the sum of (i) the Base Group I Principal Distribution Amount, (ii) the
Group I Subordination Deficit, and (iii) the Group I Subordination Increase
Amount.
"Group I Principal Remittance Amount": For any Remittance
Date, without duplication, the amount equal to the sum of (i) the aggregate
principal portions of the payments received by the Master Servicer with respect
to the Group I Mortgage Loans during the immediately preceding Remittance Period
and (ii) any Prepayments, Net Proceeds (but only to the extent that such Net
Proceeds do not exceed the Principal Balance of the related Mortgage Loan), in
each case described in clauses (i) and (ii) only to the extent collected on the
Group I Mortgage Loans during the preceding Remittance Period.
"Group I Shortfall Amount": As of any Payment Date, the
excess, if any, of (x) the Group I Insured Distribution Amount, as of such
Payment Date over (y) the Group I Total Available Funds on deposit in the Class
A Group I Distribution Account at 12 noon on the related Determination Date.
"Group I Specified Subordinated Amount": As such term is
defined in the Insurance and Indemnity Agreement.
"Group I Stepped Down Required Subordinated Percentage": As
such term is defined in the Insurance and Indemnity Agreement.
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"Group I Subordinated Amount": With respect to any Payment
Date, the excess, if any, of (x) the Group I Pool Principal Balance as of the
close of business on the last day of the preceding Remittance Period over (y)
the sum of the Class A-1 Principal Balance, the Class A-2 Principal Balance, the
Class A-3 Principal Balance, the Class A-4 Principal Balance and the Class A-5
Principal Balance as of such Payment Date (after taking into account the payment
on such Payment Date of the amount set forth in clause (x) of the definition of
"Base Group I Principal Distribution Amount", and the Group I Subordination
Deficit except for any portions thereof related to payment of Group I Insured
Payments applied as payments of the Group I Principal Distribution Amount on
such Payment Date or on any prior Payment Date and not previously reimbursed to
the Certificate Insurer pursuant to Section 7.3 hereof).
"Group I Subordination Deficiency Amount": As of any Payment
Date, the excess, if any, of (i) the Group I Specified Subordinated Amount
applicable to such Payment Date over (ii) the Group I Subordinated Amount
applicable to such Payment Date prior to taking into account the payment of any
related Group I Subordination Increase Amounts on such Payment Date.
"Group I Subordination Deficit": As of any Payment Date, the
excess, if any, of (x) the sum of the Class A-1 Principal Balance, the Class A-2
Principal Balance, the Class A-3 Principal Balance, the Class A-4 Principal
Balance and the Class A-5 Principal Balance after taking into account the amount
otherwise payable as the Group I Principal Distribution Amount on such Payment
Date (i.e., the sum of (i) the Base Group I Principal Distribution Amount and
(ii) the Group I Subordination Increase Amount), over (y) the Group I Pool
Principal Balance as of the close of business on the last day of the preceding
Remittance Period.
"Group I Subordination Increase Amount": With respect to any
Payment Date, the lesser of (x) the Group I Subordination Deficiency Amount as
of such Payment Date and (y) the portion of the Class B Interest allocable to
Group I pursuant to Section 7.3(b)(iii)(E) as of such Payment Date.
"Group I Subordination Reduction Amount": With respect to any
Payment Date, an amount equal to the lesser of (x) the Group I Excess
Subordinated Amount and (y) the amount described in clause (x) of the definition
of Base Group I Principal Distribution Amount, in each case as of such Payment
Date.
"Group I Total Available Funds": As of any Payment Date, the
amount on deposit in the Class A Group I Distribution Account on such Payment
Date after making the allocations, transfers and disbursements from the
Certificate Account pursuant to Section 7.3(b) hereof on such Payment Date. The
term "Group I Total Available Funds" does not include Insured Payments and does
not include any amounts that cannot be distributed to the Owners of the
Certificates by the Trustee as a result of proceedings under the United States
Bankruptcy Code.
"Group I Trustee's Fee": With respect to any Payment Date, the
product of (i) one-twelfth of ____% and (ii) the Group I Pool Principal Balance
as of the last day of the preceding Remittance Period.
"Group II": The group of Mortgage Loans that are the Group II
Mortgage Loans.
"Group II Available Funds": As of any Payment Date, the amount
on deposit in the Certificate Account with respect to the Group II Mortgage
Loans on such Payment Date after making the deposit to the Certificate Account
pursuant to Section 7.3(a)(ii) hereof on such Payment Date. The term "Group II
Available Funds" does not include Insured Payments and does not include any
amounts that cannot be distributed to the Owners of the Certificates by the
Trustee as a result of proceedings under the United States Bankruptcy Code.
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"Group II Certificates": Any of the Class A-6 Group II
Certificates.
"Group II Cumulative Net Realized Losses": As of any Payment
Date, the sum of all Net Realized Losses with respect to the Group II Mortgage
Loans experienced on all prior Payment Dates.
"Group II Excess Subordinated Amount": With respect to any
Payment Date, the excess, if any, of (x) the Group II Subordinated Amount that
would apply on such Payment Date after taking into account the payment of the
Group II Principal Distribution Amount on such Payment Date (except for any
distributions of related Group II Subordination Reduction Amounts on such
Payment Date) over (y) the Group II Specified Subordinated Amount for such
Payment Date.
"Group II Insured Distribution Amount": With respect to any
Payment Date, the sum of (i) Group II Insured Interest Distribution Amount for
such Payment Date and (ii) the Group II Insured Principal Distribution Amount
for such Payment Date.
"Group II Insured Interest Distribution Amount": With respect
to any Payment Date, the sum of (i) the Class A-6 Interest Distribution Amount
and (ii) the Class A-6 Interest Carry-Forward Amount.
"Group II Insured Payment": As of any Payment Date, the sum of
(x) the Group II Shortfall Amount for such Payment Date and (y) any Preference
Amounts with respect to the Class A-6 Group II Certificates with respect to
which the affected Owners have complied with the provisions of Section 7.3(g)
hereof during the related Remittance Period.
"Group II Insured Principal Distribution Amount": With respect
to any Payment Date, the Group II Subordination Deficit for such Payment Date
plus any amounts paid to the Trustee at the option of the Certificate Insurer in
respect of any losses on Liquidated Loans.
"Group II Interest Distribution Amount": As of any Payment
Date, interest accrued during the related Accrual Period at the Class A-6
Pass-Through Rate on the Class A-6 Principal Balance immediately prior to such
Payment Date.
"Group II Interest Remittance Amount": For any Remittance
Date, the amount equal to (x) the sum, without duplication, of (i) the aggregate
interest portions of the payments (whether or not collected) becoming due on the
Group II Mortgage Loans during the immediately preceding Remittance Period and
(ii) Compensating Interest with respect to the Group II Mortgage Loans minus (y)
the aggregate Master Servicing Fee due to the Master Servicer with respect to
the Group II Mortgage Loans for such Remittance Period to the extent not
previously paid to, or withheld by, the Master Servicer.
"Group II Monthly Remittance": The sum of (i) the Group II
Interest Remittance Amount and the Group II Principal Remittance Amount required
to be remitted to the Trustee on each Remittance Date and (ii) the amount of any
Substitution Amounts and Loan Purchase Prices on deposit in the Principal and
Interest Account with respect to the Group II Mortgage Loans on such Remittance
Date.
"Group II Mortgage Loans": The Mortgage Loans held by the
Trust and assigned to Group II, as indicated on the related Mortgage Loan
Schedule, as supplemented and amended from time to time.
"Group II Pool Principal Balance": As of any date of
determination, the aggregate Principal Balances of all of the Group II Mortgage
Loans as of the close of business on such date.
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"Group II Preference Amount": The Preference Amount with
respect to Group II.
"Group II Premium Amount": With respect to each Payment Date,
an amount equal to the product of (x) one twelfth of the Certificate Insurer
Premium Rate and (y) the Certificate Principal Balance of the Class A-6 Group II
Certificates as of the close of business on the last day of the preceding
Remittance Period.
"Group II Principal Distribution Amount": As of any Payment
Date, the lesser of (A) the Group II Available Funds less the Group II Interest
Distribution Amount, the Group II Trustee's Fee and the Group II Premium Amount
and (B) the sum of (i) the Base Group II Principal Distribution Amount, (ii) the
Group II Subordination Deficit, and (iii) the Group II Subordination Increase
Amount in each case for such Payment Date.
"Group II Principal Remittance Amount": For any Remittance
Date, without duplication, the amount equal to the sum of (i) the aggregate
principal portions of the payments received by the Master Servicer with respect
to the Group II Mortgage Loans during the immediately preceding Remittance
Period and (ii) any Prepayments, Net Proceeds (but only to the extent that such
Net Proceeds do not exceed the Principal Balance of the related Mortgage Loan),
in each case described in clauses (i) and (ii) only to the extent collected on
the Group II Mortgage Loans during the preceding Remittance Period.
"Group II Shortfall Amount": As of any Payment Date, the
excess, if any, of (x) the Group II Insured Distribution Amount, as of such
Payment Date, over (y) the Group II Total Available Funds on deposit in the
Class A-6 Group II Distribution Account at 12 noon on the related Determination
Date.
"Group II Specified Subordinated Amount": As such term is
defined in the Insurance and Indemnity Agreement.
"Group II Stepped Down Required Subordinated Percentage": As
such term is defined in the Insurance and Indemnity Agreement.
"Group II Subordinated Amount": With respect to any Payment
Date, the excess, if any, of (x) the Group II Pool Principal Balance as of the
close of business on the last day of the preceding Remittance Period over (y)
the Class A-6 Group II Principal Balance as of such Payment Date (after taking
into account the payment on such Payment Date of the amount set forth in clause
(x) of the definition of "Base Group II Principal Distribution Amount", and the
Group II Subordination Deficit except for any portion thereof related to payment
of Group II Insured Payments applied as payments of the Group II Principal
Distribution Amount on such Payment Date or on any prior Payment Date and not
previously reimbursed to the Certificate Insurer pursuant to Section 7.3
hereof).
"Group II Subordination Deficiency Amount": As of any Payment
Date, the excess, if any, of (i) the Group II Specified Subordinated Amount
applicable to such Payment Date over (ii) the Group II Subordinated Amount
applicable to such Payment Date prior to taking into account the payment of any
related Group II Subordination Increase Amounts on such Payment Date.
"Group II Subordination Deficit": As of any Payment Date, the
excess, if any, of (x) the Class A-6 Group II Principal Balance after taking
into account the amount otherwise payable as the Group II Principal Distribution
Amount on such Payment Date (i.e., the sum of (i) the Base Group II Principal
Distribution Amount and (ii) the Group II Subordination Increase Amount), over
(y) the Group II Pool Principal Balance as of the close of business on the last
day of the preceding Remittance Period.
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"Group II Subordination Increase Amount": With respect to any
Payment Date, the lesser of (x) the Group II Subordination Deficiency Amount as
of such Payment Date and (y) the portion of the Class B Interest allocable to
Group II pursuant to Section 7.3(b)(iii)(E) as of such Payment Date.
"Group II Subordination Reduction Amount": With respect to any
Payment Date, an amount equal to the lesser of (x) the Group II Excess
Subordinated Amount for such Payment Date and (y) the amount described in clause
(x) of the definition of Base Group II Principal Distribution Amount for such
Payment Date.
"Group II Total Available Funds": As of any Payment Date, the
amount on deposit in the Class A Group II Distribution Account on such Payment
Date after making the allocations, transfers and disbursements from the
Certificate Account pursuant to Section 7.3(b) hereof on such Payment Date. The
term "Group II Total Available Funds" does not include Insured Payments and does
not include any amounts that cannot be distributed to the Owners of the
Certificates by the Trustee as a result of proceedings under the United States
Bankruptcy Code.
"Group II Trustee's Fee": With respect to any Payment Date,
the product of (i) one-twelfth of ____% and (ii) the Group II Pool Principal
Balance as of the last day of the preceding Remittance Period.
"Highest Lawful Rate": As defined in Section 12.13.
"Insurance and Indemnity Agreement": The Insurance and
Indemnity Agreement dated as of __________ among the Certificate Insurer, the
Depositor and the Depositor.
"Indemnification Agreement": The Indemnification Agreement
dated as of __________ among the Company, the Master Servicer, the Depositor,
the Underwriters and the Certificate Insurer.
"Insurance Policy": Any hazard or title insurance policy
relating to a Mortgage Loan.
"Insurance Proceeds": The proceeds of any Insurance Policy
relating to a Mortgage Loan, a Property or an REO Property, net of proceeds to
be applied to the repair of the Property or released to the Mortgagor and net of
expenses reimbursable therefrom, but excluding any Insured Payment.
"Insured Distribution Amount": The Group I Insured
Distribution Amount or the Group II Insured Distribution Amount, as the case may
be.
"Insured Payment": The Group I Insured Payment or the Group II
Insured Payment, as the case may be.
"Interest Advance": As defined in Section 7.9(a) hereof.
"Interest Advance Reimbursement Amount": As defined in Section
7.9(b) hereof.
"Interest Determination Date": With respect to any Accrual
Period for the Class A-1 Group I Certificates and the Class A-6 Group II
Certificates, the second London Business Day preceding the first day of such
Accrual Period.
"Late Payment Rate": As defined in the Insurance and Indemnity
Agreement.
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"LIBOR": With respect to any Accrual Period for the Class A-1
Group I Certificates or the Class A-6 Group II Certificates, the rate determined
by the Trustee on the related Interest Determination Date on the basis of the
offered rates of the Reference Banks for one-month U.S. 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, LIBOR for
the related Accrual Period will be established by the Trustee as follows:
(i) If, on such Interest Determination Date, two or more Reference
Banks provide such offered quotations, LIBOR for the related
Accrual 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, LIBOR for the
related Accrual Period shall be the higher of (i) LIBOR as
determined on the previous Interest Determination Date and
(ii) the Reserve Interest Rate.
"Liquidated Loan": As to any Payment Date, (i) any Mortgage
Loan as to which the Master Servicer has determined, in accordance with the
servicing procedures specified herein, during the related Remittance Period that
all Liquidation Proceeds which it expects to recover from or on account of such
Mortgage Loan have been recovered or (ii) any Mortgage Loan as to which the
related REO Property has been held by the Trust for 270 days. Any such
determination shall be evidenced by an Officer's Certificate in the form of
Exhibit I to this Agreement.
"Liquidation Expenses": Expenses which are incurred by the
Master Servicer in connection with the liquidation of any defaulted Mortgage
Loan, such expenses, including, without limitation, legal fees and expenses, and
any unreimbursed Servicing Advances expended by the Master Servicer pursuant to
Sections 10.9(b) and 10.13 of this Agreement with respect to the related
Mortgage Loan.
"Liquidation Proceeds": With respect to any Liquidated Loan,
any amounts (including the proceeds of any Insurance Policy) recovered by the
Master Servicer in connection with such Liquidated Loan, whether through
trustee's sale, foreclosure sale or otherwise, and including, without
limitation, sale proceeds received upon the sale of REO Property.
"Loan Purchase Price": With respect to any Mortgage Loan
purchased from the Trust on a Remittance Date pursuant to Sections 3.2, 3.3,
3.4, or 10.13(f) hereof, an amount equal to the Principal Balance of such
Mortgage Loan as of the date of purchase (after giving effect to the related
Monthly Remittance remitted by the Master Servicer on such Remittance Date),
plus interest on the outstanding Principal Balance thereof as of the beginning
of the preceding Remittance Period computed at the related Coupon Rate less the
rate at which the Master Servicing Fee is calculated, plus the aggregate amounts
of (i) all unreimbursed Reimbursable Advances and (ii) all Delinquency Advances
which the Master Servicer has theretofore failed to remit with respect to such
Mortgage Loan.
"Loan-to-Value Ratio": As of any particular date (i) with
respect to any First Mortgage Loan, the ratio of (A) the original principal
balance of the Note relating to such First Mortgage Loan to (B) the Appraised
Value and (ii) with respect to any Second Mortgage Loan, the ratio of (A) an
amount equal to the sum of (a) the remaining principal balance of the Senior
Lien note relating to such First Mortgage Loan and (b) the original principal
balance of the Note relating to such Second Mortgage Loan to (B) the Appraised
Value as of the date of origination of such Second Mortgage Loan.
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"London Business Day": A day on which banks are open for
dealing in foreign currency and exchange in London and New York City.
"Lower Tier Distribution Amount": As of any Payment Date, the
sum of the Group I Available Funds and the Group II Available Funds.
"Lower-Tier Interests": As defined in Section 2.8(c) hereof.
"Lower-Tier REMIC": The segregated pool of assets held by the
Trust consisting of the REMIC I Regular Interests.
"Lower Tier Required Subordinate Amount": With respect to any
Distribution Date, an amount equal to the product of (a) the product of (i) 0.50
and (ii) the sum of the principal balances of LT-6, LT-8 and LT-9 divided by the
Pool Principal Balance then outstanding and (b) the sum of the Group I, and
Group II Specified Subordinated Amounts.
"Lower Tier Subordinated Amount": As of any date of
determination, (i) 0.50 times the sum of the principal balances of LT-6, LT-8
and LT-9 minus (ii) the sum of the principal balances of LT-6, LT-8 and LT-7, in
each case as of such date of determination.
"Master Servicer": __________, a __________ corporation.
"Master Servicer's Trust Receipt": The Master Servicer's trust
receipt in the form set forth in Exhibit F hereto.
"Master Servicing Fee": With respect to any Mortgage Loan, an
amount retained by the Master Servicer from collections of interest on the
Mortgage Loans as compensation for its servicing duties relating to such
Mortgage Loan pursuant to Section 10.15 hereof and equal to ___% per annum of
the then outstanding principal amount of such Mortgage Loan as of the first day
of each Remittance Period payable on a monthly basis; provided, that if the
Depositor is no longer the Master Servicer, such rate may be increased to a rate
not in excess of ___% and if the Trustee is acting as Master Servicer such rate
shall be equal to ___%.
"Maximum LT-12 Interest Deferral Amount": With respect to any
Distribution Date, the excess of (i) accrued interest at the stated interest
rate applicable to LT-12 for such Distribution Date on a balance equal to the
principal balance of LT-12 minus the Lower Tier Subordinated Amount, in each
case for such Distribution Date over (ii) interest on LT-6, LT-8 and LT-10 for
such Distribution Date.
"Monthly Remittance": The Group I Monthly Remittance or the
Group II Monthly Remittance, as the case may be.
"____": __________.
"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 Note.
"Mortgage Loan": Each of the mortgage loans sold by the
Depositor to the Trust on the Startup Day, together with any Qualified
Replacement Mortgages substituted therefor by the Depositor in accordance with
Section 3.2, 3.3 or 3.4 hereof as from time to time are held as a part of the
Trust Estate, the Mortgage Loans originally so held being identified in the
related Mortgage Loan Schedule. The term "Mortgage Loan" includes the terms
"First Mortgage Loan" and "Second Mortgage Loan". The term
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"Mortgage Loan" includes any Mortgage Loan which is Delinquent, which relates to
a foreclosure or which relates to a Property which is REO Property prior to such
Property's disposition by the Trust. Any mortgage loan which, although intended
by the parties hereto to have been, and which purportedly was, transferred and
assigned to the Trust by the Depositor, in fact was not transferred and assigned
to the Trust for any reason whatsoever, including, without limitation, the
incorrectness of the statement set forth in Section 3.3(b)(i) hereof with
respect to such mortgage loan, shall nevertheless be considered a "Mortgage
Loan" for all purposes of this Agreement.
"Mortgage Loan Group": Each of Group I and Group II.
"Mortgage Loan Schedules": The schedules of Mortgage Loans,
separated by Mortgage Loan Group and by Sub-Servicer, listing each Mortgage Loan
conveyed on the Startup Day and setting forth as to each Mortgage Loan the
following information: (i) the name of the Mortgagor, (ii) the street address of
the Property, (iii) the town or city in which the Property is located, (iv) the
Principal Balance as of the Cut-Off Date, (v) the account number, (vi) the
original principal amount, (vii) the current Coupon Rate, (viii) the first date
on which a scheduled monthly payment is due under the Note, (ix) the original
stated maturity date of the Note, (x) the State in which the Property is
located, (xi) the zip code of the Property, (xii) the Loan-to-Value Ratio,
(xiii) the Loan-to-Value Ratio of any Second Mortgage Loan calculated by
disregarding the amount described in clause (ii)(a) of the definition of
"Loan-to-Value Ratio", (xiv) whether the Property is owner-occupied or non-owner
occupied, (xv) whether the Property is a single family residence, two-to-four
family residence, a condominium, a townhouse or a rowhouse and (xvi) if such
Mortgage Loan is a "balloon loan", the amortization terms (e.g., 30 year
amortization due in 15 years).
"Mortgagor": The obligor on a Note.
"Net Insurance Proceeds": As to any Mortgage Loan, Insurance
Proceeds net of unreimbursed Reimbursable Advances relating thereto. In no event
shall Net Insurance Proceeds with respect to any Mortgage Loan be less than
zero.
"Net Liquidation Proceeds": As to any Liquidated Loan,
Liquidation Proceeds net of unreimbursed Reimbursable Advances relating to such
Mortgage Loan. In no event shall Net Liquidation Proceeds with respect to any
Liquidated Loan be less than zero.
"Net Pool Balance": As of any Payment Date, the sum of the
Pool Principal Balance less the sum of the principal balances of the Class LT-6,
LT-8, and LT-9 Certificates.
"Net Proceeds": The sum of, without duplication, Net
Liquidation Proceeds, Net Insurance Proceeds and Net Released Mortgage Property
Proceeds.
"Net Realized Loss": With respect to any Liquidated Loan the
excess, if any, of (x) the Principal Balance thereof at the time the Mortgage
Loan became a Liquidated Loan over (y) the related Net Liquidation Proceeds.
"Net Released Mortgage Property Proceeds": As to any Mortgage
Loan, Released Mortgage Property Proceeds net of unreimbursed Reimbursable
Advances relating thereto. In no event shall Net Released Mortgage Property
Proceeds with respect to any Mortgage Loan be less than zero.
"Net Weighted Average Coupon Rate": With respect to any
Mortgage Loan Group and Remittance Period, the weighted average Coupon Rates
(weighted by Principal Balances) of the related Mortgage Loans, calculated at
the opening of business on the first day of such Remittance Period, less the
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rate at which the Master Servicing Fee is then calculated and less the Trustee
Fee and Certificate Insurer Premium Rate (in each case, such rates adjusted to
match the Accrual Period of the Certificates in the related Group); and less
interest shortfalls with respect to Mortgage Loans in the related Group as of
the end of the prior Remittance Period arising from Prepayments of principal and
from application of the Relief Act, which shortfalls are not otherwise covered
by Compensating Interest with respect to such Payment Date; and in the case of
Group I only for the first 36 Payment Dates, expressed as a per annum rate on
the aggregate principal balance of the Mortgage Loans in the related Group as of
the opening of business of the first day of the related Remittance Period; and
in the case of Group II only, less (x) __% on the first through ___ Payment
Dates or (y) ___% on the ___ Payment Date and thereafter.
"Nonrecoverable Advances": With respect to any Mortgage Loan,
any Servicing Advance or Delinquency Advance proposed to be made by the Master
Servicer in respect of a Mortgage Loan or REO Property which, in the good faith
business judgment of the Master Servicer, would not be ultimately recoverable
from late collections, Insurance Proceeds, Liquidation Proceeds or Released
Mortgage Property Proceeds on such Mortgage Loan or REO Property or otherwise.
Notwithstanding anything to the contrary contained in this Agreement, no
Delinquency Advance or Servicing Advance shall be required to be made by the
Master Servicer if such Delinquency Advance or Servicing Advance would, if made,
constitute a Nonrecoverable Advance.
"Note": The note or other evidence of indebtedness evidencing
the indebtedness of a Mortgagor under a Mortgage Loan.
"Officer's Certificate": A certificate signed by any
Authorized Officer of any Person delivering such certificate and delivered to
the Trustee.
"Operative Documents": This Agreement, the Sale Agreement, the
Insurance and Indemnity Agreement, the Underwriting Agreement, and the
Indemnification Agreement.
"Original Group I Pool Principal Balance": The aggregate
Principal Balances of all Group I Mortgage Loans as of the Cut-Off Date, i.e.,
$___________.
"Original Group II Pool Principal Balance": The aggregate
Principal Balances of all Group II Mortgage Loans as of the Cut-Off Date, i.e.,
$__________.
"Original Pool Principal Balance": The aggregate Principal
Balances of all Mortgage Loans as of the Cut-Off Date, i.e., $__________.
"Original Principal Balance": With respect to each Note, the
outstanding principal amount of such Note as of the Cut-Off Date.
"Outstanding": With respect to all Certificates of a Class, as
of any date of determination, all such Certificates theretofore executed and
delivered hereunder except:
(i) Certificates theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Certificates or portions thereof for which full and final
payment of money in the necessary amount has been theretofore deposited
with the Trustee in trust for the Owners of such Certificates;
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(iii) Certificates in exchange for or in lieu of which other
Certificates have been executed and delivered pursuant to this Agreement,
unless proof satisfactory to the Trustee is presented that any such
Certificates are held by a bona fide purchaser;
(iv) Certificates alleged to have been destroyed, lost or
stolen for which replacement Certificates have been issued as provided for
in Section 5.5 hereof; and
(v) With respect to voting rights, any Class A Certificates
held by the Depositor, the Master Servicer, the Depositor or any affiliate
of any thereof, unless all other Class A Certificates have been paid in
full.
Any Certificates in which the Certificate Insurer has an
interest pursuant to its right of subrogation shall be "Outstanding
Certificates".
"Owner": The Person in whose name a Certificate is registered
in the Register.
"Payment Date": The 18th day of each month (or, if such day is
not a Business Day, the next following Business Day), commencing in the month
following the Startup Day.
"Percentage Interest": As to any Class A Certificate or Class
B Certificate, that percentage, expressed as a fraction, the numerator of which
is the original principal balance of such Certificate as of the Cut-Off Date and
the denominator of which is the original principal balance of all Certificates
of the same Class as of the Cut-Off Date; as to any Residual Certificate, that
Percentage Interest set forth on such Residual Certificate.
"Person": Any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Pool Delinquency Rate": With respect to any Remittance
Period, the fraction, expressed as a percentage, equal to (x) the aggregate
Principal Balances of all Mortgage Loans 90 or more days Delinquent as of the
close of business on the last day of such Remittance Period over (y) the Pool
Principal Balance as of the close of business on the last day of such Remittance
Period.
"Pool Principal Balance": As to any Payment Date, the
aggregate Principal Balance of the Mortgage Loans as of the close of business on
the last day of the related Remittance Period.
"Pool Rolling Three Month Delinquency Rate": As of any Payment
Date the fraction, expressed as a percentage, equal to the average of the Pool
Delinquency Rates for each of the three (or one and two, in the case of the
first and second Payment Dates), immediately preceding Remittance Periods.
"Preference Amount": As to any Payment Date, with respect to a
Class of Certificates, any amounts included in previous distributions to the
related Certificateholders of Distribution Amounts for such Class (exclusive of
Insured Payments) which are recovered from such Certificateholders as a voidable
preference by a trustee in bankruptcy pursuant to the United States Bankruptcy
Code in accordance with a final, nonappealable order of a court having competent
jurisdiction and which have not theretofore been repaid to such
Certificateholders provided such Certificateholders have complied with the
provisions of Section 7.3(f).
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"Premium Amount": The Group I Premium Amount or the Group II
Premium Amount, as the case may be.
"Prepayment": Any payment of principal of a Mortgage Loan by a
Mortgagor which is received by the Master Servicer in advance of the scheduled
due date for the payment of such principal.
"Prepayment Interest Shortfalls": With respect to each Group,
the sum of the difference (caused by any Prepayments during a calendar month),
if any, for each Mortgage Loan in the related Group, between (i) the interest
collected by the Master Servicer from the Mortgagor during a calendar month, and
(ii) the full month's interest at the related Coupon Rate.
"Preservation Expenses": Expenditures made by the Master
Servicer in connection with a foreclosed Mortgage Loan prior to the liquidation
thereof, including, without limitation, expenditures for real estate property
taxes, hazard insurance premiums, property restoration or preservation.
Preservation Expenses shall constitute "Servicing Advances" for all purposes of
this Agreement.
"Principal and Interest Account": The principal and interest
account created by the Master Servicer pursuant to Section 10.8 hereof.
"Principal Balance": As of any date of calculation and with
respect to each Mortgage Loan, the Original Principal Balance thereof less any
related Principal Remittance Amounts relating to such Mortgage Loan included in
previous related Monthly Remittances and, if applicable, the related Monthly
Remittance as of such date; provided that the Principal Balance for any Mortgage
Loan which has become a Liquidated Loan shall be zero following the date on
which such Mortgage Loan becomes a Liquidated Loan, and at all times thereafter.
"Principal Distribution Amount": The Class A-1 Principal
Distribution Amount, the Class A-2 Principal Distribution Amount, the Class A-3
Principal Distribution Amount, the Class A-4 Principal Distribution Amount, the
Class A-5 Principal Distribution Amount or the Class A-6 Principal Distribution
Amount as the case may be.
"Principal Remittance Amounts": The Group I Principal
Remittance Amount or the Group II Principal Remittance Amount, as the case may
be.
"Prohibited Transaction": Has the meaning as defined in
Section 860F of the Code.
"Property": The underlying real property, including the
improvements thereon, securing a Mortgage Loan.
"Prospectus": The Prospectus dated __________ relating to
Mortgage Loan Asset Backed Securities, issuable in Series.
"Prospectus Supplement": The Prospectus Supplement dated
October 23, 1997 relating to the Class A Certificates.
"Qualified Liquidation": "Qualified Liquidation" shall have
the meaning set forth from time to time in the definition thereof at Section
860F(a)(4) of the Code (or any successor statute thereto) and applicable to the
Trust.
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"Qualified Mortgage": "Qualified mortgage" shall have the
meaning set forth from time to time in the definition thereof at Section
860G(a)(3) of the Code (or any successor statute thereto) and applicable to the
Trust.
"Qualified Replacement Mortgage": A Mortgage Loan substituted
for another by the Depositor pursuant to Section 3.2, 3.3 or 3.4 hereof, which
(i) has a fixed rate of interest if the Mortgage Loan being replaced is a Group
I Mortgage Loan and has a variable rate of interest if the Mortgage Loan being
replaced is a Group II Mortgage Loan, (ii) has a Coupon Rate at least equal to
the Coupon Rate of the Mortgage Loan being replaced (which, in the case of a
Group II Mortgage Loan, shall be deemed to mean the same index and a margin
equal to or greater than the margin applicable to the Mortgage Loan being
replaced), (iii) is of the same or better property type and the same or better
occupancy status as the replaced Mortgage Loan, (iv) shall mature no later than
the latest maturity date of any Mortgage Loan then held in the related Mortgage
Loan Group (v) has a Loan-to-Value Ratio as of the Replacement Cut-Off Date no
higher than the Loan-to-Value Ratio of the replaced Mortgage Loan at such time,
(vi) shall be a First Mortgage Loan if the Mortgage Loan being replaced was a
First Mortgage Loan, and shall have the same or higher lien priority if the
Mortgage Loan being replaced was a junior Mortgage Loan, (vii) has a Principal
Balance as of the related Replacement Cut-Off Date equal to or less than the
Principal Balance of the replaced Mortgage Loan as of such Replacement Cut-Off
Date, (viii) shall be of the same or higher credit quality classification
(determined in accordance with the Depositor's underwriting guidelines) as the
Mortgage Loan which such Qualified Replacement Mortgage replaces, (ix) satisfies
the criteria set forth from time to time in the definition of "qualified
replacement mortgage" at Section 860G(a)(4) of the Code (or any successor
statute thereto) and applicable to the Trust, and (x) complies as of the date of
substitution with each representation and warranty set forth in Section 3.2(b)
hereof, all as evidenced by any Officer's Certificate of the Depositor delivered
to the Trustee prior to any such substitution. In the event that one or more
mortgage loans are proposed to be substituted for one or more Mortgage Loans,
the Certificate Insurer may allow the foregoing tests to be met on a weighted
average basis or other aggregate basis acceptable to the Certificate Insurer, as
evidenced by a written approval delivered to the Trustee by the Certificate
Insurer, except that the requirement of clause (ix) hereof must be satisfied as
to each Qualified Replacement Mortgage.
"Rating Agency": Any nationally recognized statistical credit
rating agency, or its successor, that rates any Certificates at the request of
the Depositor at the time of the initial issuance of the Certificates. If such
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
Depositor, notice of which designation shall be given to the Trustee, the
Certificate Insurer and the Master Servicer. References herein to the highest
rating category of a rating agency shall mean AAA (with respect to long-term
ratings) or A-1+ (with respect to short-term ratings), in the case of ____, and
Aaa (with respect to long-term ratings) or P-1 (with respect to short-term
ratings), in the case of ____, and in the case of any other Rating Agency shall
mean such equivalent ratings.
"Record Date": With respect to the Class A-2, Class A-3, Class
A-4, and Class A-5 Group I Certificates and any Payment Date, the close of
business on the first Business Day of the calendar month in which such Payment
Date occurs. With respect to the Class A-1 and Class A-6 Certificates and any
Payment Date, the close of business on the Business Day immediately preceding
such Payment Date.
"Reference Banks": Bankers Trust Company, Barclay's Bank PLC,
The Bank of Tokyo and National Westminster Bank PLC; provided that if any of the
foregoing banks are not suitable to serve as a Reference Bank, then any leading
banks selected by the Depositor 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 Depositor or any
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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 Trustee.
"Register": The register maintained by the Trustee in
accordance with Section 5.4 hereof, in which the names of the Owners are set
forth.
"Registration Statement": The Depositor's Registration
Statement number 333-07837, filed on Form S-3.
"Reimbursable Advances": As to any Mortgage Loan, all
Delinquency Advances and Servicing Advances made by the Master Servicer with
respect thereto, to the extent not previously paid to or withheld by the Master
Servicer.
"Reimbursement Amount": With respect to any Class of Class A
Certificates and for any Payment Date, the sum of (x)(i) all related Insured
Payments previously received by the Trustee not previously repaid to the
Certificate Insurer pursuant to Section 7.3(b)(iii)(C), together with interest
accrued on each such related Insured Payment not previously repaid calculated
from the date the Trustee received the related Insured Payment at the Late
Payment Rate and (y) any other amounts then due and owing to the Certificate
Insurer relating to such Class A Certificates under the Insurance and Indemnity
Agreement.
"Released Mortgaged Property Proceeds": Proceeds received in
connection with a taking of a Property by condemnation or the exercise of
eminent domain or in connection with a release of part of the Property.
"Relief Act Shortfalls": With respect to each Group, the
aggregate difference (caused by application of the Soldiers' and Sailors' Civil
Relief Act of 1940, as amended) between (i) the interest collected by the Master
Servicer from the related Mortgagor during a calendar month and (ii) the full
month's interest at the related Coupon Rate.
"Remaining Group I Principal Distribution Amount": As of any
Payment Date, the Group I Principal Distribution Amount less the Class A-5
Lockout Distribution Amount.
"REMIC": A "real estate mortgage investment conduit" within
the meaning of Section 860D of the Code.
"REMIC I": The segregated pool of assets held by the Trust
consisting of the Mortgage Loans.
"REMIC I Regular Interests": As defined in Section 2.8(d)
hereof.
"REMIC Provisions": Provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at Sections
860A through 860G of the Code, and related provisions, and regulations and
rulings promulgated thereunder, as the foregoing may be in effect from time to
time.
"REMIC Trust": The segregated pool of assets consisting of the
Trust Estate except for the Supplemental Interest Payment Account.
"Remittance Date": Any date on which the Master Servicer is
required to remit moneys on deposit in a Principal and Interest Account to the
Trustee, which shall be the 13th day of each month,
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commencing in the month following the Startup Day or if such day is not a
Business Day the following Business Day.
"Remittance Period": The period (inclusive) beginning at the
opening of business on the second day of the calendar month immediately
preceding the calendar month in which a Remittance Date occurs and ending at the
close of business on the first day of the calendar month in which such
Remittance Date occurs.
"REO Property": A Property acquired by the Master Servicer in
the name of and on behalf of the Trust through foreclosure or deed-in-lieu of
foreclosure in connection with a defaulted Mortgage Loan.
"Replacement Cut-Off Date": With respect to any Qualified
Replacement Mortgage, the second day of the calendar month in which such
Qualified Replacement Mortgage is conveyed to the Trust.
"Representation Letter": Letters to, or agreements with, the
Depository to effectuate a book entry system with respect to the Class A
Certificates registered in the Register under the nominee name of the
Depository.
"Representative": Prudential Securities Incorporated.
"Reserve Interest Rate": With respect to any Interest
Determination Date, the rate per annum that the Trustee determines to be either
(i) the arithmetic mean (rounded upwards if necessary to the nearest whole
multiple of 1/16%) of the one-month U.S. dollar lending rates which three New
York City banks selected by the 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 Trustee can determine no
such arithmetic mean, the lowest one-month U.S. dollar lending rate which three
New York City banks selected by the Trustee are quoting on such Interest
Determination Date to leading European banks.
"Residual Certificate": Any Class RL Certificate or any Class
RU Certificate.
"Rolling Delinquency Percentage": For any Distribution Date,
the average of the Delinquency Percentages for the Mortgage Loans as of the last
day of each of the six (or 1, 2, 3, 4, and 5 in the case of the first five
Payment Dates, as applicable) most recently ended Remittance Periods.
"Rolling Loss Percentage": As of any Distribution Date
commencing on the thirteenth Payment Date, the percentage equivalent of a
fraction, the numerator of which is the aggregate amount of Net Realized Losses
incurred during the preceding twelve calendar months, and the denominator of
which is the aggregate Pool Principal Balance as of the first day of the twelfth
preceding calendar month.
"____": __________.
"Sale Agreement": The Purchase and Sale Agreement dated as of
__________ between the Company and the Depositor.
"Second Mortgage Loan": A Mortgage Loan which constitutes a
second priority mortgage lien with respect to the related Property, as
identified in the Mortgage Loan Schedules.
"Depositor": __________, a __________ corporation.
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"Depositor Optional Termination Date": The first Remittance
Date on which the then-outstanding aggregate Principal Balances of the Mortgage
Loans is ten percent or less of the Original Pool Principal Balance.
"Senior Lien": With respect to any Second Mortgage Loan, the
mortgage loan relating to the corresponding Property having a first priority
lien.
"Servicing Advance": As defined in Sections 10.9(b) and 10.13
hereof.
"Servicing Standards": As defined in Section 10.2 hereof.
"Startup Day": October 31, 1997.
"Step-Down Cumulative Loss Test": As such term is defined in
the Insurance and Indemnity Agreement.
"Step-Down Rolling Delinquency Test": As such term is defined
in the Insurance and Indemnity Agreement.
"Step-Down Rolling Loss Test": As such term is defined in the
Insurance and Indemnity Agreement.
"Step-Down Trigger": For any Payment Date after the 30th
Payment Date, the Step-Down Trigger will have occurred if each of the Step-Down
Cumulative Loss Test, the Step-Down Rolling Delinquency Test and the Step-Down
Rolling Loss Test is met. In no event will the Step-Down Trigger be deemed to
have occurred for the 30th Payment Date or any preceding Payment Date.
"Step-Up Cumulative Loss Test": As such term is defined in the
Insurance and Indemnity Agreement.
"Step-Up Rolling Delinquency Test": As such term is defined in
the Insurance and Indemnity Agreement.
"Step-Up Rolling Loss Test": As such term is defined in the
Insurance and Indemnity Agreement.
"Step-Up Trigger": For any Payment Date, the Step-Up Trigger
will have occurred if any one of the Step-Up Cumulative Loss Test, the Step-Up
Rolling Delinquency Test or the Step-Up Rolling Loss Test is met.
"Sub-Servicer": Any Person with whom the Master Servicer has
entered into a Sub-Servicing Agreement and who satisfies the requirements set
forth in Section 10.3 hereof in respect of the qualification of a Sub-Servicer.
"Sub-Servicing Agreement": The written contract between the
Master Servicer and any Sub-Servicer relating to servicing and/or administration
of certain Mortgage Loans as permitted by Section 10.3 hereof.
"Subordination Deficiency Amount": The Group I Subordination
Deficiency Amount or the Group II Subordination Deficiency Amount, as the case
may be.
"Substitution Amount": As defined in Section 3.2(a) hereof.
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"Supplemental Certificates": The Class B-S Certificates.
"Supplemental Interest Payment Account": The Supplemental
Interest Payment Account established in accordance with Section 7.9(a) hereof
and maintained by the Trustee.
"Supplemental Interest Payment Amount": As defined in Section
7.9(a) hereof.
"Supplemental Interest Trust": The Access Financial
Supplemental Interest Trust _____ created pursuant to Section 7.9(a) hereof.
"Tax Matters Person": The tax matters person, as defined in
Section 1.860F-4(d) of the Treasury Regulations, appointed with respect to the
Trust pursuant to Section 12.17 hereof.
"Trigger Event": An Event of Default described in clauses
(viii), (ix) or (x) of Section 11.1.
"Trust": __________ Mortgage Loan Trust _____, the trust
created under Article II of this Agreement.
"Trust Estate": Collectively, all money, instruments, and
other property to the extent such money, instruments and other property, are
subject hereto or intended to be held in trust for the benefit of the Owners,
including all proceeds thereof, including, without limitation, (i) the Mortgage
Loans, (ii) such amounts, including Eligible Investments, as from time to time
may be held by the Trustee in any Account, and by the Master Servicer in the
Principal and Interest Account or otherwise held by the Master Servicer in trust
for the Owners (except as otherwise provided herein), (iii) any Property, the
ownership of which has been effected in the name of the Trust as a result of
foreclosure or acceptance by the Master Servicer of a deed in lieu of
foreclosure and that has not been withdrawn from the Trust, (iv) the rights, if
any, of the Trust in any Insurance Policies relating to the Mortgage Loans, (v)
Net Liquidation Proceeds (but only to the extent that such Net Liquidation
Proceeds do not exceed the Principal Balance of the related Mortgage Loan plus
accrued and unpaid interest on such Mortgage Loan) with respect to any
Liquidated Loan, (vi) Released Mortgaged Property Proceeds and (vii) the
Certificate Insurance Policy.
"Trustee": __________, a __________ _________, located on the
date of execution of this Agreement at 450 West 33rd Street, 15th Floor, New
York, NY 10001, not in its individual capacity but solely as Trustee under this
Agreement, and any successor hereunder.
"Trustee's Fee": The total of the Group I Trustee's Fee and
the Group II Trustee's Fee.
"Underwriters": __________.
"Underwriting Agreement": The Underwriting Agreement dated
__________ among the Depositor and the Underwriters.
"Unregistered Certificates": Certificates which are not
registered as evidenced by inclusion in the Register.
"Upper-Tier REMIC": The segregated pool of assets held by the
Trust consisting of the Lower Tier Interests (except for the RL Lower-Tier
Interest, as set forth in the chart in Section 2.8(c) hereof), the Distribution
Accounts and the Certificate Insurance Policy.
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Section 1.2. Use of Words and Phrases. "Herein", "hereby",
"hereunder", "hereof", "hereinbefore", "hereinafter" and other equivalent words
refer to this Agreement as a whole and not solely to the particular section of
this Agreement in which any such word is used. The definitions set forth in
Section 1.1 hereof include both the singular and the plural. Whenever used in
this Agreement, any pronoun shall be deemed to include both singular and plural
and to cover all genders.
Section 1.3. Captions; Table of Contents. The captions or
headings in this Agreement and the Table of Contents are for convenience only
and in no way define, limit or describe the scope and intent of any provisions
of this Agreement.
Section 1.4. Opinions. Each opinion with respect to the
validity, binding nature and enforceability of documents or Certificates may be
qualified to the extent that the same may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity
(whether considered in a proceeding or action in equity or at law) and may state
that no opinion is expressed on the availability of the remedy of specific
enforcement, injunctive relief or any other equitable remedy. Any opinion
required to be furnished by any Person hereunder must be delivered by counsel
upon whose opinion the addressee of such opinion may reasonably rely, and such
opinion may state that it is given in reasonable reliance upon an opinion of
another, a copy of which must be attached, concerning the laws of a foreign
jurisdiction. Opinions regarding REMIC matters must be furnished by special
counsel to the Depositor.
Section 1.5. Calculations All calculations of accrued interest
made pursuant to the Agreement shall be made assuming a 360-day year consisting
of twelve 30-day months, except for interest on the Class A-1 Group I
Certificates and the Class A-6 Group II Certificates, which calculations shall
be made based on the actual number of days over a 360-day year, or as otherwise
specifically provided herein.
ARTICLE II
THE TRUST
Section 2.1. Establishment of the Trust. The Depositor does
hereby create and establish, pursuant to the laws of the State of New York and
this Agreement, the Trust, which, for convenience, shall be known as "__________
Mortgage Loan Trust _____". The Trust shall be deemed to consist of three
sub-trusts, one with respect to each Mortgage Loan Group.
Section 2.2. Office. The office of the Trust shall be in care
of the Trustee, _______________ or at such other address as the Trustee may
designate by notice to the Company, the Master Servicer, the Depositor, the
Certificate Insurer and the Owners.
Section 2.3. Purpose and Powers. The purpose of the Trust is
to engage in the following activities, and only such activities: (i) the
purchase of the Mortgage Loans; (ii) the holding of the Mortgage Loans and the
Trust Estate related thereto; (iii) the issuance of the Certificates; (iv)
activities that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith, including the
investment of moneys in accordance with this Agreement; and (v) such other
activities as may be required in connection with conservation of the Trust
Estate and distributions to the Owners; provided, however, that nothing
contained herein shall be construed to permit the Trustee to take any action
which would adversely affect the status of any interest held by the Trust which
is intended to be treated as a REMIC.
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Section 2.4. Appointment of the Trustee; Declaration of Trust.
The Depositor hereby appoints the Trustee as trustee of the Trust effective as
of the Startup Day, to have all the rights, powers and duties set forth herein.
The Trustee hereby acknowledges and accepts such appointment, represents and
warrants its eligibility as of the Startup Day to serve as Trustee pursuant to
Section 9.8 hereof and declares that it will hold the Trust Estate in trust upon
and subject to the conditions set forth herein for the benefit of the Owners.
Section 2.5. Expenses of the Trust. The Master Servicer shall
retain its monthly aggregate Master Servicing Fees as provided in Section 10.15
herein; the Trustee's Fee shall be paid monthly as provided in Section 7.3(b)(i)
hereof; and the premiums due to the Certificate Insurer shall be paid monthly as
provided in Section 7.3(b)(iii)(C) hereof; all other expenses of the Trust
including any fees and expenses incurred by the Trustee in connection with a
termination of the Trust pursuant to Article VIII shall be submitted to the
Depositor for its approval, and, if so approved, shall be paid by the Depositor.
The reasonable fees and expenses of the Trustee's counsel in connection with the
review and delivery of this Agreement and related documentation shall be due as
of the Startup Day and shall be paid by the Depositor.
Section 2.6. Ownership of the Trust. On the Startup Day, the
ownership interests in the Trust shall be transferred as set forth in Section
4.2 hereof, such transfer to be evidenced by issuance of the Certificates as
described therein. Thereafter, transfer of any ownership interest shall be
governed by Section 5.4 hereof.
Section 2.7. Receipt of Trust Estate. The Depositor hereby
directs the Trustee to accept the property conveyed to it pursuant to Section
3.3 hereof in connection with the establishment of the Trust, and the Trustee
hereby acknowledges receipt of such property. The Depositor further directs the
Trustee to issue the Certificates, to hold the Class A Certificates as transfer
agent for the Depository as provided in Section 5.4, and to deliver the Class B
Certificates and the Residual Certificates to the Depositor.
Section 2.8. Miscellaneous REMIC Provisions. (a) The Trust
shall elect that each of the Upper-Tier REMIC, the Lower-Tier REMIC and REMIC I
shall be treated as REMICs under Section 860D of the Code. Any inconsistencies
or ambiguities in this Agreement or in the administration of the Trust shall be
resolved in a manner that preserves the validity of such REMIC elections.
(b) The Class A-1 Group I Certificates, the Class A-2 Group I
Certificates, the Class A-3 Group I Certificates, the Class A-4 Group I
Certificates, the Class A-5 Group I Certificates, the Class A-6 Group II
Certificates and the uncertificated right of the Supplemental Interest Account
to receive the distributions described in Section 7.3(c) (the "Uncertificated
Interest") are hereby designated as "regular interests" with respect to the
Upper-Tier REMIC and the Class RU Certificates are hereby designated as the
single class of "residual interest" with respect to the Upper-Tier REMIC.
(c) The Class LT-1, LT-2, LT-3, LT-4, LT-5, LT-6, LT-7, LT-8
and LT-9 Certificates are hereby designated as "regular interests" with respect
to the Lower-Tier REMIC and the Class RL Certificates are hereby designated as
the single class of "residual interest" with respect to the Lower-Tier REMIC.
The beneficial ownership interest of the Lower-Tier REMIC shall be evidenced by
the interests (the "Lower-Tier Interests") having the characteristics and terms
as follows:
<TABLE>
<CAPTION>
Class Companion Original Interest Final
Designation Classes Principal Rate Payment
Balance Date
- ----------------- -------------------- ------------------ ------------- --------------------------
<S> <C> <C> <C> <C>
31
<PAGE>
LT-1 A-1 (1)
LT-2 A-2 (1)
LT-3 A-3 (1)
LT-4 A-4 (1)
LT-5 A-5 (1)
LT-6 (2)
LT-7 A-6 (3)
LT-8 (4)
LT-9 (5)
RL (6)
</TABLE>
(1) The Weighted average of the Class IB Pass-Through Rate and the excess of
the Class IA Pass-Through Rate over (a) 5.00% for the first 36 Payment
Dates and (b) 0.0% thereafter.
(2) The Weighted Average of the Class A-1, A-2, A-3, A-4 and A-5 Pass-Through
Rates.
(3) The Net Weighted Average Coupon Rate of the Group II Mortgage Loans, plus
the Certificate Insurer Premium Rate.
(4) The Class A-6 Pass-Through Rate.
(5) The Net Weighted Average Coupon Rate of the Mortgage Loans, plus the
Certificate Insurer Premium Rate.
(6) The RL Certificate has no principal balance and does not bear interest.
The Lower-Tier Interests LT-1, LT-2, LT-3, LT-4, LT-5, LT-6, LT-7, LT-8, and
LT-9 shall be issued as non-certificated interests and recorded on the records
of the Lower-Tier REMIC as being issued to and held by the Trustee on behalf of
the Upper-Tier REMIC.
On each Payment Date, the Lower Tier Distribution Amount shall
be applied as principal and interest of particular Lower Tier Interests, other
than the RL Certificate, in amounts corresponding to the aggregate respective
amounts required to be applied as principal and interest of their related
Companion Classes (as set forth above) and the Class B Certificates pursuant to
the priorities set forth in section 7.3 hereof and with respect to the Lower
Tier Interests LT-6, LT-8, and LT-9,
(i) the Lower Tier Distribution Amount shall be
applied as interest to LT-6, LT-8, and LT-9 in an amount corresponding to the
interest accrued on the class principal balances of such classes at the interest
rate for such class as stated above; provided, however, that amounts payable as
interest in respect of LT-9 shall be reduced (the "LT-9 Distribution Reduction
Amount") when the Lower Tier Subordinated Amount is less than the Lower Tier
Required Subordinated Amount by the lesser of (x) the amount of such difference
and (y) the Maximum LT-9 Interest Deferral Amount. The LT-9 Distribution
Reduction Amount will be applied to proportionately reduce the principal
balances of LT-6, and LT-8; in the case of LT-6, in proportion to the amount on
such Payment Date of any Group I Subordination Increase Amount, and in the case
of LT-8, in proportion to the amount on such Payment Date of any Group II
Subordination Increase Amount; and
(ii) the remainder of the Lower Tier Distribution
Amount shall be applied as principal to LT-6, LT-8, and LT-9 in the following
percentages:
(a) 50.00% to LT-9; and
(b) 50.00% to LT-6 and LT-8 in proportion to the Group I
Principal Distribution Amount and the Group II Principal
Distribution Amount ; respectively, in each case as of
such Payment Date provided that the Lower Tier
Subordinated
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Amount is less than or equal to the Lower Tier Required
Subordinated Amount. If not, 50.00% divided among LT-6,
LT-8 and LT-9 such that the Lower Tier Subordinated
Amount is equal to the Lower Tier Required Subordinated
Amount.
No distributions will be made on the Class RL Certificate,
except that any distribution of the proceeds of the final remaining assets of
the Lower Tier REMIC shall be distributed to the holder thereof upon
presentation and surrender of the Class RL Certificate.
(d) REMIC I will be evidenced by the Class IA, Class IB, and
Class IC Certificates (the "REMIC I Regular Interests"), which will be
uncertificated and non-transferable and are hereby designated as the "regular
interests" in REMIC I and (y) the Class RI Certificates, which are hereby
designated as the single "residual interest" in REMIC I (the REMIC I Regular
Certificates, together with the Class RI certificates, the "REMIC I
Certificates"). The REMIC I Regular Interests shall be recorded on the records
of the REMIC I as being issued to and held by the Trustee on behalf of the
Lower-Tier REMIC.
The Class IA Certificates shall have an initial principal
balance equal to the initial principal balance of the Class A-5 Certificates
(that is, $__________). The Class IB Certificates shall have an initial
principal balance equal to the excess of the Original Group I Pool Principal
Balance over the initial principal balance of the Class IA Certificates (that
is, $__________). The Class IC Certificates shall have an initial principal
balance equal to the Original Group II Pool Principal Balance.
On each Payment Date, principal collections on the Mortgage
Loans shall be allocated as follows: an amount equal to the principal payable on
the Class A-5 Certificates shall be payable on the Class IA Certificates; the
remaining Group I Principal Distribution Amount shall be payable to the Class IB
Certificates and the Group II Principal Distribution Amount shall be payable on
the Class IC certificates.
The Class IA and Class IB Certificates shall each have
Pass-Through Rates equal to the Net Weighted Average Coupon Rate of the Group I
Loans. The Class IC Certificates shall have a Pass-Through Rate equal to the Net
Weighted Average Coupon Rate of the Group II Loans. The Class RI Certificates
shall have no principal balance and no Pass-Through Rate and shall be entitled
to only those distributable assets, if any remaining in REMIC I on each Payment
Date after all amounts required to be distributed to the Class IA , Class IB ,
and Class IC Certificates after applicable Trust expenses have been paid.
(e) The Startup Day is hereby designated as the "startup day" of each REMIC
within the meaning of Section 860G(a)(9) of the Code.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE DEPOSITOR, AND THE MASTER SERVICER;
CONVEYANCE OF MORTGAGE LOANS
Section 3.1. Representations and Warranties of the Depositor
and the Master Servicer. (a) The Depositor hereby represents, warrants and
covenants to the Master Servicer, the Trustee, the Certificate Insurer and to
the Owners as of the Startup Day that:
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<PAGE>
(i) The Depositor is a corporation duly organized, validly
existing and in good standing under the laws of the State of __________
and is in good standing as a foreign corporation in each jurisdiction in
which the nature of its business, or the properties owned or leased by it
make such qualification necessary. The Depositor has all requisite
corporate power and authority to own and operate its properties, to enable
it to carry out its business as presently conducted in a material manner
and as proposed to be conducted and to enter into and discharge its
obligations under this Agreement and the other Operative Documents to
which it is a party in a material manner.
(ii) The execution and delivery of this Agreement and the
other Operative Documents to which the Depositor is a party, by the
Depositor, and its performance and compliance with the terms of this
Agreement and of the other Operative Documents to which it is a party have
been duly authorized by all necessary corporate action on the part of the
Depositor and will not violate the Depositor's Certificate 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 contract, agreement or other
instrument to which the Depositor is a party or by which the Depositor is
bound, or violate any statute or any order, rule or regulation of any
court, governmental agency or body or other tribunal having jurisdiction
over the Depositor or any of its properties.
(iii) This Agreement and the other Operative Documents to
which the Depositor is a party, assuming due authorization, execution and
delivery by the other parties hereto and thereto, each constitutes a
valid, legal and binding obligation of the Depositor, enforceable against
it in accordance with the terms hereof and thereof, except as the
enforcement hereof and thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally and by general principles of equity (whether
considered in a proceeding or action in equity or at law).
(iv) The Depositor 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 might have consequences
that would materially and adversely affect the condition (financial or
other) or operations of the Depositor or its properties or might have
consequences that would materially and adversely affect its performance
hereunder and under the other Operative Documents to which it is a party.
(v) No litigation is pending or, to the best of the
Depositor's knowledge, threatened against the Depositor which litigation
might have consequences that would prohibit its entering into this
Agreement or any other Operative Document to which it is a party or that
would materially and adversely affect the condition (financial or
otherwise) or operations of the Depositor or its properties or might have
consequences that would materially and adversely affect its performance
hereunder and under the other Operative Documents to which it is a party.
(vi) No certificate of an officer, statement furnished in
writing or report delivered pursuant to the terms hereof by the Depositor
contains any untrue statement of a material fact or omits to state a
material fact necessary to make the certificate, statement or report not
misleading.
(vii) The statements contained in the Registration Statement
which describe the Depositor or matters or activities for which the
Depositor is responsible in accordance with the Operative Documents or
which are attributed to the Depositor therein are true and correct in all
material respects, and the Registration Statement does not contain any
untrue statement of a material fact with respect to the Depositor or omit
to state a material fact required to be stated
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<PAGE>
therein or necessary in order to prevent the statements contained therein
with respect to the Depositor from being misleading. To the best of the
Depositor's knowledge and belief, the Registration Statement does not
contain any untrue statement of a material fact required to be stated
therein or omit to state any material fact required to be stated therein
or necessary to make the statements contained therein not misleading.
(viii) All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and
licenses required to be taken, given or obtained, as the case may be, by
or from any federal, state or other governmental authority or agency
(other than any such actions, approvals, etc. under any state securities
laws, real estate syndication or "Blue Sky" statutes, as to which the
Depositor makes no such representation or warranty), that are necessary or
advisable in connection with the purchase and sale of the Certificates and
the execution and delivery by the Depositor of the Operative Documents to
which it is a party, have been duly taken, given or obtained, as the case
may be, are in full force and effect on the date hereof, are not subject
to any pending proceedings or appeals (administrative, judicial or
otherwise) and either the time within which any appeal therefrom may be
taken or review thereof may be obtained has expired or no review thereof
may be obtained or appeal therefrom taken, and are adequate to authorize
the consummation of the transactions contemplated by this Agreement and
the other Operative Documents on the part of the Depositor and the
performance by the Depositor of its obligations under this Agreement and
such of the other Operative Documents to which it is a party.
(ix) The transactions contemplated by this Agreement are in
the ordinary course of business of the Depositor.
(x) The Depositor received fair consideration and reasonably
equivalent value in exchange for the sale of the interests in the Mortgage
Loans to the Trust.
(xi) The Depositor did not sell any interest in any Mortgage
Loan with any intent to hinder, delay or defraud any of its creditors.
(xii) The Depositor is solvent and the Depositor will not be
rendered insolvent as a result of the sale of the Mortgage Loans to the
Trust.
(b) The Master Servicer hereby represents and warrants to the
Depositor, the Trustee, the Certificate Insurer, and to the Owners as of the
Startup Day that:
(i) The Master Servicer is a corporation duly organized,
validly existing and in good standing under the laws of __________, and
is, or a Sub-Servicer is, in compliance with the laws of each state in
which any Property is located to the extent necessary to enable the Master
Servicer to perform its obligations hereunder. The Master Servicer and
each Sub-Servicer is in good standing as a foreign corporation in each
jurisdiction in which the nature of its business, or the properties owned
or leased by it make such qualification necessary to enable the Master
Servicer to perform its obligations hereunder. The Master Servicer has all
requisite corporate power and authority to own and operate its properties,
to carry out its business as presently conducted and as proposed to be
conducted and to enter into and discharge, either directly or through
Sub-Servicers, its obligations under this Agreement. The Master Servicer
and any Sub-Servicer has equity of at least $__________ as determined in
accordance with generally accepted accounting principles. Each
Sub-Servicer appointed by the Master Servicer will have all requisite
corporate power and authority to own and operate its properties, to carry
out its business as presently conducted and as proposed to be conducted.
35
<PAGE>
(ii) The execution and delivery of this Agreement by the
Master Servicer and its performance and compliance with the terms of this
Agreement and any Sub-Servicing Agreement have been duly authorized by all
necessary corporate action on the part of the Master Servicer and will not
violate the Master Servicer's Certificate 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 contract, agreement or other instrument to which the Master
Servicer is a party or by which the Master Servicer is bound or violate
any statute or any order, rule or regulation of any court, governmental
agency or body or other tribunal having jurisdiction over the Master
Servicer or any of its properties.
(iii) This Agreement and any Sub-Servicing Agreement, assuming
due authorization, execution and delivery by the other parties hereto and
thereto, each constitutes a valid, legal and binding obligation of the
Master Servicer, enforceable against it in accordance with the terms
hereof, except as the enforcement hereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and by general principles of equity
(whether considered in a proceeding or action in equity or at law).
(iv) The Master Servicer 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 might have
consequences that would materially and adversely affect the condition
(financial or other) or operations of the Master Servicer or its
properties or might have consequences that would materially and adversely
affect its performance hereunder and under any Sub-Servicing Agreement.
(v) No litigation is pending or, to the best of the Master
Servicer's knowledge, threatened against the Master Servicer which
litigation might have consequences that would prohibit its entering into
this Agreement or any Sub-Servicing Agreement or that would materially and
adversely affect the condition (financial or otherwise) or operations of
the Master Servicer or its properties or might have consequences that
would materially and adversely affect its performance hereunder.
(vi) Each certificate of an officer, statement furnished in
writing or report delivered pursuant to the terms hereof by the Master
Servicer is true and correct in all material respects.
(vii) The statements contained in the Prospectus Supplement
which describe the Master Servicer under the caption "The Master Servicer"
are true and correct in all material respects.
(viii) The Master Servicing Fee is a "current (normal)
servicing fee rate" as that term is used in Statement of Financial
Accounting Standards No. 65 issued by the Financial Accounting Standards
Board. Neither the Master Servicer nor any affiliate thereof will report
on any financial statements any part of the Master Servicing Fee as an
adjustment to the sales price of the Mortgage Loans.
(ix) All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and
licenses required to be taken, given or obtained, as the case may be, by
or from any federal, state or other governmental authority or agency
(other than any such actions, approvals, etc. under any state securities
laws, real estate syndication or "Blue
36
<PAGE>
Sky" statutes, as to which the Master Servicer makes no
such representation or warranty), that are necessary or advisable in connection
with the execution and delivery by, and the performance of the obligations of,
the Master Servicer, either directly or through a Sub-Servicer, of this
Agreement and each Sub-Servicing Agreement, have been duly taken, given or
obtained, as the case may be, are in full force and effect on the date hereof,
are not subject to any pending proceedings or appeals (administrative, judicial
or otherwise) and either the time within which any appeal therefrom may be taken
or review thereof may be obtained has expired or no review thereof may be
obtained or appeal therefrom taken, and are adequate to authorize the
consummation of the transactions contemplated by this Agreement and each
Sub-Servicing Agreement on the part of the Master Servicer and the performance
by the Master Servicer, either directly or through a Sub-Servicer, of its
obligations under this Agreement and each Sub-Servicing Agreement.
(x) The collection practices used by the Master Servicer with
respect to the Mortgage Loans have been, in all material respects, legal,
proper, prudent and customary in the non-conforming credit residential
loan servicing business.
(xi) The transactions contemplated by this Agreement are in
the ordinary course of business of the Master Servicer.
(c) It is understood and agreed that the representations and
warranties set forth in this Section 3.1 shall survive delivery of the Mortgage
Loans to the Trustee.
Upon discovery by any of the Depositor, the Master Servicer,
the Certificate Insurer or the Trustee of a breach of any of the representations
and warranties set forth in this Section 3.1(c) which materially and adversely
affects the interests of the Owners or of the Certificate Insurer, the party
discovering such breach shall give prompt written notice to the other parties
and the Certificate Insurer; PROVIDED that, the Trustee shall have no duty or
responsibility to inquire, investigate, determine or obtain actual knowledge of
facts or events constituting a breach of any such representations or warranties.
Within 30 days of its discovery or its receipt of notice of breach, the Master
Servicer shall cure such breach in all material respects and, upon the Master
Servicer's continued failure to cure such breach, may thereafter be removed
pursuant to Section 11.1 hereof.
Section 3.2. Covenants of the Depositor to Take Certain
Actions with Respect to the Mortgage Loans in Certain Situations. (a) Upon the
actual knowledge of the Depositor, the Master Servicer, the Certificate Insurer
or the Trustee that the statements set forth in (ii), (x), (xiii), (xix),
(xxxii), (xxxiii) or (xxxix) of subsection (b) below were untrue in any material
respect as of the Startup Day or that any of the other statements set forth in
subsection (b) below were untrue as of the Startup Day with the result that the
interests of the Owners or the interests of the Certificate Insurer are
materially and adversely affected, the party discovering such breach shall give
prompt written notice to the other parties and the Certificate Insurer.
Upon the earliest to occur of the Depositor's discovery, its
receipt of notice of breach from any one of the other parties or the Certificate
Insurer or such time as a situation resulting from an existing statement which
is untrue materially and adversely affects the interests of the Owners or of the
Certificate Insurer as set forth above, the Depositor hereby covenants and
warrants that it shall promptly cure such breach in all material respects or it
shall, subject to the further requirements of this paragraph, on the second
Remittance Date next succeeding such discovery, receipt of notice or such time
(i) substitute in lieu of each Mortgage Loan which has given rise to the
requirement for action by the Depositor a Qualified Replacement Mortgage and, if
the outstanding principal amount of such Qualified Replacement Mortgage as of
the applicable Replacement Cut-Off Date is less than the Principal Balance
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of such Mortgage Loan as of such Replacement Cut-Off Date, deliver an amount
equal to such difference together with accrued and unpaid interest on such
amount calculated at the related Coupon Rate less the rate at which the Master
Servicing Fee is calculated, if any, of the Mortgage Loan being replaced (such
aggregate amount, the "Substitution Amount"), together with the aggregate amount
of all unreimbursed Delinquency Advances and Servicing Advances theretofore made
with respect to such Mortgage Loan to the Master Servicer for deposit in the
Principal and Interest Account or (ii) purchase such Mortgage Loan from the
Trust at a purchase price equal to the Loan Purchase Price thereof, which
purchase price shall be delivered to the Master Servicer for deposit in the
Principal and Interest Account. In connection with any such proposed purchase or
substitution, the Depositor at its expense, shall cause to be delivered to the
Trustee and to the Certificate Insurer an opinion of counsel experienced in
federal income tax matters stating whether or not such a proposed purchase or
substitution would constitute a Prohibited Transaction for the Trust or would
jeopardize the status of any of the REMICs as a REMIC and the Depositor shall
only be required to take either such action to the extent such action would not
constitute a Prohibited Transaction for the Trust or would not jeopardize the
status of any of the Upper-Tier REMIC, the Lower-Tier REMIC or REMIC I as a
REMIC. Notwithstanding the foregoing, the fact that a remedy would constitute a
Prohibited Transaction with respect to a Mortgage Loan shall not reduce the
obligation hereunder of the Depositor to effect another remedy with respect to
such Mortgage Loan. It is understood and agreed that the obligation of the
Depositor so to cure the defect, substitute or purchase any Mortgage Loan as to
which such a statement set forth below is untrue in any material respect and has
not been remedied, along with the indemnification remedy available under Section
12.21(b) shall constitute the sole remedies available to the Owners, the Trustee
or the Certificate Insurer respecting any such statement.
(b) (i) The information with respect to each Mortgage Loan set
forth in the related Mortgage Loan Schedule is true and correct in all
material respects as of the Cut-Off Date;
(ii) Each Mortgage Loan File has been or will be
delivered to the Trustee on the Startup Day;
(iii) Each Mortgage Loan being transferred to the Trustee
is a Qualified Mortgage and is a Mortgage;
(iv) _____% of the Original Group I Pool Principal Balance
and _____% of the Original Group II Pool Principal Balance have
corresponding Properties that are improved by a one-to-four family
residential dwelling and the remaining Mortgage Loans have
corresponding Properties that are improved by modular housing,
manufactured housing, PUD, SF row houses, townhouses or duplexes;
(v) As of the Cut-Off Date, no Mortgage Loan in Group I
had a Loan-to-Value Ratio in excess of ____% and the weighted average
Combined Loan-to-Value Ratio for Group I was approximately ____%, no
Mortgage Loan in Group II had a Loan-to-Value Ratio in excess of ____%
and the weighted average Loan-to-Value Ratio for Group II was
approximately ____%;
(vi) Each Mortgage Loan is being serviced by or on behalf
of the Master Servicer;
(vii) The Note related to each Group I Mortgage Loan bears
a fixed Coupon Rate of at least ____% per annum; the Note related to
each Group II Mortgage Loan bears interest based on an index of
six-month LIBOR, adjusts either every sixth month or every
twenty-fourth month or every thirty-sixth month, has a margin of at
least ____%, an adjustment cap of at least
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____%, a lifetime cap of at least ____% and a Coupon Rate as of the
Cut-Off Date of at least ____%;
(viii) Notes representing not more than ____% of the
Original Group I Pool Principal Balance of the Mortgage Loans provide
for a "balloon" payment at the end of the 15th year (such Mortgage
Loans having 30-year amortization schedules), none of the Group II
Mortgage Loans provide for a "balloon" payment;
(ix) As of the Cut-Off Date, each Mortgage is a valid and
subsisting first or second lien (as identified in the Mortgage Loan
Schedule) of record on the Property subject in the case of any Second
Mortgage Loan only to a Senior Lien on such Property and subject in all
cases to the exceptions to title set forth in the title insurance
policy with respect to the related Mortgage Loan, which exceptions are
generally acceptable to banking institutions in connection with their
regular mortgage lending activities, and such other exceptions to which
similar properties are commonly subject and which do not individually,
or in the aggregate, materially and adversely affect the benefits of
the security intended to be provided by such Mortgage;
(x) Immediately prior to the transfer and assignment
contemplated by the Sale Agreement, the Depositor held good and
indefeasible title to, and was the sole owner of, each Mortgage Loan
conveyed by the Depositor subject to no liens, charges, mortgages,
encumbrances or rights of others except as set forth in paragraph (ix)
or other liens which will be released simultaneously with such transfer
and assignment; and immediately upon the transfer and assignment
contemplated the Trust will hold good and indefeasible title to, and be
the sole owner of, each Mortgage Loan subject to no liens, charges,
mortgages, encumbrances or rights of others except as set forth in
paragraph (ix) or other liens which will be released simultaneously
with such transfer and assignment;
(xi) As of the Cut-Off Date, no Mortgage Loan is more than
59 days delinquent, and Mortgage Loans (in the aggregate) representing
no more than ____% of the Original Group I Pool Principal Balance of
the Mortgage Loans are 30-59 days delinquent, no more than ____% of the
Original Group II Pool Principal Balance of the Mortgage Loans are
30-59 days delinquent;
(xii) As of the Startup Day, each Property is free of
substantial damage and is in good repair;
(xiii) As of the Startup Day, there is no valid and
enforceable offset, defense or counterclaim to any Note or Mortgage,
including the obligation of the related Mortgagor to pay the unpaid
principal of or interest on such Note; (xiv) As of the Startup Day,
there is no delinquent tax or assessment lien on any Property, nor is
there any claim for work, labor or material affecting any Property
which is or may be a lien prior to, or equal with, the lien of the
related Mortgage except, in each case, those which are insured against
by any title insurance policy referred to in paragraph (xvi) below;
(xv) Each Mortgage Loan complies and at the time it was
made complied in all material respects with all applicable state and
federal laws and regulations, including, without limitation, the
federal Truth-in-Lending Act, Real Estate Settlement Procedure Act and
other consumer protection laws, usury, equal credit opportunity,
disclosure and recording laws;
(xvi) With respect to each Mortgage Loan, a lender's title
insurance policy, issued in standard California Land Title Association
form or American Land Title Association form in
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<PAGE>
the state in which the related Property is situated, in an amount at
least equal to the Original Principal Balance of such Mortgage Loan
insuring the mortgagee's interest under the related Mortgage Loan as
the holder of a valid first mortgage lien of record in the case of each
First Mortgage Loan or second mortgage lien of record in the case of
each Second Mortgage Loan on the real property described in the related
Mortgage, as the case may be, subject only to exceptions of the
character referred to in paragraph (ix) above, was effective on the
date of the origination of such Mortgage Loan, and, as of the Startup
Day, such policy will be valid and thereafter such policy shall
continue in full force and effect. The assignment to the Trust of the
benefits of the mortgage title insurance does not require the consent
of or notification to the insurer. No claims have been made under such
mortgage title insurance policies and no prior holder of the related
mortgage has done, by act or omission, anything that would impair the
coverage of such mortgage title insurance policy;
(xvii) At the Startup Day, the improvements upon each
Property are covered by a valid and existing hazard insurance policy
(which may be a blanket policy of the type described in Section
10.11(c) hereof) with a generally acceptable carrier that provides for
fire and extended coverage representing coverage not less than the
least of (A) the outstanding principal balance of the related Mortgage
Loan (together, in the case of a Second Mortgage Loan, with the
outstanding principal balance of the Senior Lien), (B) the minimum
amount required to compensate for damage or loss on a replacement cost
basis or (C) the full insurable value of the Property and in any event
which is not less than the amount necessary to avoid the operation of
any coinsurance provisions with respect to the Property in the event of
any loss less than the amount of the insurance coverage and consistent
with the amount that would have been required as of the date of
origination by the related originator in its normal residential
mortgage lending activities with respect to similar properties in the
same locality. All hazard insurance policies are the valid and binding
obligation of the insurer and contain a standard mortgagee clause
naming the originator, its successors and assigns, as mortgagee. All
premiums thereon have been paid. Such insurance policy requires prior
notice to the insured of termination or cancellation, and no such
notice has been received. 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;
(xviii) If any Property is in an area identified in the
Federal Register by the Federal Emergency Management Agency as having
special flood hazards, a flood insurance policy (which may be a blanket
policy of the type described in Sections 10.11(b) and 10.11(c) hereof)
in a form meeting the requirements of the current guidelines of the
Federal Insurance Administration is in effect with respect to such
Property with a generally acceptable carrier in an amount representing
coverage not less than the least of (A) the outstanding principal
balance of the related Mortgage Loan (together, in the case of a Second
Mortgage Loan, with the outstanding principal balance of the Senior
Lien), (B) the minimum amount required to compensate for damage or loss
on a replacement cost basis or (C) the maximum amount of insurance that
is available under the Flood Disaster Protection Act of 1973, as
amended. All flood insurance policies are the valid and binding
obligation of the insurer and contain a standard mortgagee clause
naming the originator, its successors and assigns, as mortgagee. All
premiums thereon have been paid. Such flood insurance policy requires
prior notice to the insured of termination or cancellation, and no such
notice has been received. The Mortgage obligates the Mortgagor
thereunder to maintain all such flood insurance at the Mortgagor's cost
and expense, and upon the Mortgagor's failure to do so, authorizes the
holder of the Mortgage to obtain and maintain such flood insurance at
the Mortgagor's cost and expense and to seek reimbursement therefor
from the Mortgagor;
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(xix) Each Mortgage and Note is the legal, valid and
binding obligation of the maker thereof and is enforceable in
accordance with its terms, except only as such enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally
and by general principles of equity (whether considered in a proceeding
or action in equity or at law), and all parties to each Mortgage Loan
had full legal capacity to execute all documents relating to such
Mortgage Loan and convey the estate therein purported to be conveyed;
there is only one original Note with respect to each Mortgage Loan;
(xx) The Depositor has caused and will cause to be
performed any and all acts required to be performed to preserve the
rights and remedies of the Trust in any Insurance Policies applicable
to any Mortgage Loans delivered by the Depositor including, to the
extent such Mortgage Loan is not covered by a blanket policy described
in Section 10.11(c) hereof, any necessary notifications of insurers,
assignments of policies or interests therein, and establishments of
co-insured, joint loss payee and mortgagee rights in favor of the
Trustee;
(xxi) Each original Mortgage was recorded or is in the
process of being recorded, and all subsequent assignments of the
original Mortgage have been recorded in the appropriate jurisdictions
wherein such recordation is necessary to perfect the lien thereof for
the benefit of the Trustee (or, subject to Section 3.3 hereof, are in
the process of being recorded);
(xxii) The terms of each Note and each Mortgage have not
been impaired, altered or modified in any respect, except by a written
instrument which has been recorded, if necessary, to protect the
interests of the Owners and which has been delivered to the Trustee.
The substance of any such alteration or modification is reflected on
the related Mortgage Loan Schedule;
(xxiii) The proceeds of each Mortgage Loan have been fully
disbursed, and there is no obligation on the part of the mortgagee to
make future advances thereunder. Any and all requirements as to
completion of any on-site or off-site improvements and as to
disbursements of any escrow funds therefor have been complied with. All
costs, fees and expenses incurred in making or closing or recording
such Mortgage Loans were paid;
(xxiv) No Mortgage Loan was originated under a buydown
plan;
(xxv) No Mortgage Loan has a shared appreciation feature,
or other contingent interest feature;
(xxvi) Each Property is located in the state identified in
the related Mortgage Loan Schedule and consists of one parcel of real
property (or several parcels secured by a blanket mortgage) with a
residential dwelling erected thereon;
(xxvii) Each Mortgage contains a provision for the
acceleration of the payment of the unpaid principal balance of the
related Mortgage Loan in the event the related Property is sold without
the prior consent of the mortgagee thereunder;
(xxviii) Any advances made after the date of origination
of a Mortgage Loan but prior to the Cut-Off Date have been consolidated
with the outstanding principal amount secured by the related Mortgage,
and the secured principal amount, as consolidated, bears a single
interest rate and single repayment term reflected on the Mortgage Loan
Schedule. The consolidated principal amount does not exceed the
original principal amount of the related Mortgage Loan. No
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Note permits or obligates the Master Servicer to make future advances
to the related Mortgagor at the option of the Mortgagor;
(xxix) There is no proceeding pending or threatened for
the total or partial condemnation of any Property, nor is such a
proceeding currently occurring, and each Property is undamaged by
waste, fire, earthquake or earth movement;
(xxx) All of the improvements which were included for the
purposes of determining the Appraised Value of any Property lie wholly
within the boundaries and building restriction lines of such Property,
and no improvements on adjoining properties encroach upon such
Property, except in each case exceptions which are stated in the title
insurance policy and affirmatively insured;
(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 Owners or the Trust to the trustee under the deed of trust, except
in connection with a trustee's sale after default by the related
Mortgagor;
(xxxii) Each Mortgage contains customary and enforceable
provisions which render the rights and remedies of the holder thereof
adequate for the realization against the related Property of the
benefits of the security, including (A) in the case of a Mortgage
designated as a deed of trust, by trustee's sale and (B) otherwise by
judicial foreclosure. There is no homestead or other exemption
available that would materially interfere with the right to sell the
related Property at a trustee's sale or the right to foreclose on the
related Mortgage;
(xxxiii) Except as provided by clause (xi) of this
subsection 3.2(b), there is no default, breach, violation or event of
acceleration existing under any Mortgage or the related Note and no
event which, with the passage of time or with notice and the expiration
of any grace or cure period, would constitute a default, breach,
violation or event of acceleration; and the Depositor has not waived
any default, breach, violation or event of acceleration;
(xxxiv) No instrument of release or waiver has been
executed in connection with any Mortgage Loan, and no Mortgagor has
been released, in whole or in part;
(xxxv) Each Mortgage Loan conforms, and all such Mortgage
Loans in the aggregate conform, in all material respects to the
description thereof set forth in the Registration Statement;
(xxxvi) An appraisal was performed with respect to each
Mortgage Loan; such appraisal was performed in material compliance with
the appraisal description set forth in the Prospectus;
(xxxvii) No more than ____% of the Original Pool Principal
Balance of the Mortgage Loans in Group I is secured by condominiums,
townhouses or rowhouses, no more than ____% of the Original Pool
Principal Balance of the Mortgage Loans in Group II is secured by
condominiums, townhouses or rowhouses;
(xxxviii) The credit underwriting guidelines applicable to
each Mortgage Loan conform in all material respects to the description
thereof set forth in the Prospectus and the Prospectus Supplement and
each Mortgage Loan was underwritten in accordance therewith;
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(xxxix) As of the Startup Day, the Depositor had no actual
knowledge that there exists on any Property any hazardous substances,
hazardous wastes or solid wastes, as such terms are defined in the
Comprehensive Environmental Response Compensation and Liability Act,
the Resource Conservation and Recovery Act of 1976, or other federal,
state or local environmental legislation;
(xl) No more than ____% of the Original Pool Principal
Balance of the Mortgage Loans in Group I is secured by Properties
located within any single zip code area, no more than ____% of the
Original Pool Principal Balance of the Mortgage Loans in Group II is
secured by Properties located within any single zip code area; no more
than ____% of the Original Pool Principal Balance of the Mortgage Loans
in Group I is located within any single state, no more than ____% of
the Original Pool Principal Balance of the Mortgage Loans in Group II
is located within any single state;
(xli) At least ____% of the Original Group I Pool
Principal Balance, at least ____% of the Original Group II Pool
Principal Balance are owner occupied;
(xlii) All taxes, governmental assessments, insurance
premiums, water, sewer and municipal charges, leasehold payments or
ground rents which previously became due and owing have been paid;
(xliii) Except for payments in the nature of escrow
payments, including, without limitation, taxes and insurance payments,
the Depositor 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, except for 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;
(xliv) 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 of the same,
including but not limited to certificates of occupancy and fire
underwriting certificates, have been made or obtained from the
appropriate authorities and the Mortgaged Property is lawfully occupied
under applicable law;
(xlv) The related Mortgage Note is not and has not been
secured by any collateral, pledged account or other security except the
lien of the corresponding Mortgage;
(xlvi) There is no obligation on the part of the
Depositor, the originator, the Master Servicer, the Trustee or any
other Person to make payments in addition to those made by the
Mortgagor;
(xlvii) With respect to each Second Mortgage Loan, the
related Senior Lien requires equal monthly payments, or if it bears an
adjustable interest rate, the monthly payments for the related Senior
Lien may be adjusted no more frequently than monthly;
(xlviii) With respect to each Second Mortgage Loan, either
(i) no consent for the Mortgage Loan is required by the holder of the
related Senior Lien or (ii) such consent has been obtained and is
contained in the File;
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(xlix) With respect to any Senior Lien that provided for
negative amortization or deferred interest, the balance of such Senior
Lien used to calculate the Loan-to-Value Ratio for the Second Mortgage
Loan is based on the maximum amount of negative amortization or
deferred interest possible under such Senior Lien;
(l) The maturity date of each Second Mortgage Loan is
prior to the maturity date of the related Senior Lien if such Senior
Lien provides for a balloon payment;
(li) All parties which have had any interest in the
Mortgage Loan, 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 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 loans
associations or national banks having principal offices in such state
or (D) not doing business in such state so as to require qualification
or licensing;
(lii) All amounts received on and after the Cut-Off Date
with respect to the Mortgage Loans to which the Master Servicer is not
entitled have been deposited into the Principal and Interest Account
and are, as of the Startup Day, in the Principal and Interest Account;
(liii) The Mortgage Loans were not selected for inclusion
in the Trust on any basis intended to adversely affect the Trust;
(liv) With respect to each Property subject to a land
trust (a "Land Trust Mortgage") (a) a trustee, duly qualified under
applicable law to serve as such, has been properly designated and
currently so serves and is named as such in the land trust agreement
and such trustee is named in the Land Trust Mortgage as Mortgagor; (b)
all fees and expenses of the land trustee which have previously become
due and owing have been paid and no fees or expenses are or will become
payable by the Owners or the Trust to the land trustee under the land
trust agreement; (c) the beneficiary is solely obligated to pay any
fees and expenses of the land trustee and the priority of the lien of
the Land Trust Mortgage is not and will not be primed by the land
trustee; (d) the Mortgaged Property is occupied by the beneficiary
under the land trust agreement and, if such land trust agreement
terminates, the beneficiary will become the owner of the Mortgaged
Property; (e) the beneficiary is obligated to make payments under the
Note and will have personal liability for deficiency judgments; (f) the
Land Trust Mortgage and assignment of beneficial interest relating to
such land trust held by the Trust was made in compliance with the
related land trust agreement, was validly entered into by the related
land trust trustee or beneficiary and, does not currently, and will not
in the future, violate any provision of the related land trust
agreement, nor any agreement between or amongst the beneficiaries of
such land trust; (g) a UCC financing statement has been filed,
continued, and will be continued, without intervening liens, as the
first lien upon any assignment of beneficial interest in the Land Trust
Mortgage; (h) the assignment of beneficial interest with respect to
such Land Trust Mortgage held by the Trust was at the time of such
assignment the only assignment of such beneficial interest in the Land
Trust Mortgage, such assignment was accepted by, and noted in the
records of the land trust trustee, subsequent assignment of the
beneficial interest in whole or in part has not been made, and such
subsequent assignment of the beneficial interest or any part thereof is
not permitted pursuant to a written agreement between the respective
beneficiary and the Mortgagee, until the expiration of the Note
relating to the Land Trust Mortgage; (i) the Land Trust Mortgage is the
first or second lien on the Property; no lien is in place against the
beneficial interests, or any part thereof, of such Land Trust Mortgage
or collateral assignment of beneficial interest, which
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liens are superior to the interest held by the Depositor and the
beneficial interest, or any part thereof, of any such Land Trust
Mortgage or collateral assignment of beneficial interest has not been
pledged as security for any other debt; and the beneficiary or land
trust trustee is forbidden, pursuant to a written agreement between the
beneficiary or the land trust trustee (as applicable) and the
Mortgagee, from using the land trust property or beneficial interest,
or any part of either, as security for any other debt until the
expiration date of its respective Note; and (x) the terms and
conditions of the land trust agreement do not prevent the free and
absolute marketability of the Mortgaged Property. As of the Cut-Off
Date, the aggregate Principal Balances of Land Trust Mortgage Loans
with related Mortgaged Properties subject to land trusts does not
exceed ____% of the Original Pool Principal Balance;
(lv) With respect to each Property subject to a ground
lease (a) the current ground lessor has been identified and all ground
rents which previously became due and owing have been paid; (b) the
ground lease term extends, or is automatically renewable, for at least
five years beyond the maturity date of the related Mortgage Loan; (c)
the ground lease has been duly executed and recorded; (d) the amount of
the ground rent and any increases therein are clearly identified in the
lease and are for predetermined amounts at predetermined times; (e) the
ground rent payment is included in the Mortgagor's monthly payment as
an expense item; (f) the Trust has the right to cure defaults on the
ground lease; and (g) the terms and conditions of the leasehold do not
prevent the free and absolute marketability of the Property. As of the
Cut-Off Date, the aggregate Principal Balance of Mortgage Loans with
related Mortgaged Properties subject to ground leases does not exceed
____% of the Original Pool Principal Balance;
(lvi) None of the Mortgage Loans are subject to a plan of
bankruptcy or have borrowers that have sought protection or relief
under any state or federal bankruptcy or insolvency law during the term
of the related Mortgage. With respect to each Mortgage Loan which has
been the subject of bankruptcy or insolvency proceedings, (a) as of the
Cut-Off Date, the Mortgagor is not contractually delinquent more than
30 days with respect to any payment due under the related plan, (b) the
current Loan-to-Value Ratio is less than or equal to ____% and (c)
either (i) if the current Loan-to-Value Ratio is between __% and __%,
as of the Cut-Off Date, the Mortgagor has made at least six consecutive
payments under the related Plan or (ii) if the current Loan-to-Value
Ratio is less than __% as of the Cut-Off Date, the Mortgagor has made
at least three consecutive payments under the related plan; and
(lvii) To the best of the Depositor's knowledge, there is
no error, omission, misrepresentation, fraud or similar occurrence with
respect to a Mortgage Loan has taken place on the part of any person,
including without limitation the Mortgagor, any appraiser, any builder
or developer, or any other party involved in the origination of the
Mortgage Loan or in the application of any insurance in relation to
such Mortgage Loan.
(c) In the event that any Qualified Replacement Mortgage
is delivered by the Depositor to the Trust pursuant to this Section
3.2, the Depositor shall be obligated to take the actions described in
subsection (a) above with respect to such Qualified Replacement
Mortgage upon the discovery by any of the Owners, the Depositor, the
Master Servicer, the Certificate Insurer, any Sub-Servicer or the
Trustee that the statements set forth in subsections (ii), (x), (xiii),
(xix), (xxxii), (xxxiii) or (xxxix) of subsection (b) above are untrue
in any material respect on the date such Qualified Replacement Mortgage
is conveyed to the Trust or that any of the other statements set forth
in subsection (b) hereof are untrue on the date such Qualified
Replacement Mortgage is conveyed to the Trust such that the interests
of the Owners or the Certificate Insurer in the related Qualified
Replacement Mortgage are materially and adversely affected; provided,
however, that for the purposes of this subsection (c) the statements in
subsection (b) hereof referring to items "as of the Cut-Off Date" or
"as of the Startup Day"
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shall be deemed to refer to such items as of the date such Qualified
Replacement Mortgage is conveyed to the Trust.
(d) It is understood and agreed that the covenants set
forth in this Section 3.2 shall survive delivery of the respective
Mortgage Loans (including Qualified Replacement Mortgage Loans) to the
Trustee.
(e) The Depositor hereby assigns to the Trustee on behalf
of the Owners and the Certificate Insurer all of its rights to recovery
for breaches of representations and warranties given by the originators
of such Mortgage Loans that are similar in import to the following (but
only to the extent such representations are given and to the extent
such rights are assignable): no error omission, misrepresentation,
fraud or similar occurrence with respect to a Mortgage Loan has taken
place on the part of any person, including without limitation the
Mortgagor, any appraiser, any builder or developer, or any other party
involved in the origination of the Mortgage Loan or in the application
of any insurance in relation to such Mortgage Loan. Notwithstanding
such assignment, none of the Owners, the Certificate Insurer or the
Trustee may enforce any such remedy except to the extent that the
Depositor is unwilling to enforce the remedy.
Section 3.3. Conveyance of the Mortgage Loans and
Qualified Replacement Mortgages . (a) The Depositor hereby transfers,
assigns, sets over and otherwise conveys without representation,
warranty or recourse, to the Trust, all right, title and interest of
the Depositor in and to each Mortgage Loan listed on the Mortgage Loan
Schedule delivered by the Depositor on the Startup Day, and all its
right, title and interest in and to (i) scheduled payments of interest
due on each Mortgage Loan after the Cut-Off Date, (ii) scheduled
payments of principal due, and unscheduled collections of principal
received, on each Mortgage Loan on and after the Cut-Off Date, and
(iii) its Insurance Policies; such transfer of the Mortgage Loans set
forth on the Mortgage Loan Schedule to the Trust is absolute and is
intended by the Owners and all parties hereto to be treated as a sale
to the Trust.
(b) In connection with the transfer and assignment of the
Mortgage Loans by the Company to the Depositor pursuant to the Sale
Agreement, and by the Depositor to the Trust pursuant to this
Agreement, on the Startup Day, the Depositor agrees to:
(i) deliver, or cause to be delivered, without recourse to
the Trustee on behalf of the Trust on the Startup Day with respect to
each Mortgage Loan listed on the Mortgage Loan Schedule (A) the
original Notes or, if any original Note has been lost or destroyed,
certified copies thereof (together with a lost note affidavit),
endorsed without recourse by the originator (or most recent payee)
thereof "Pay to the order of __________, as Trustee", (B) originals
(subject to the provisions of paragraph (d) below relating to items in
the process of being recorded) of all intervening assignments, showing
a complete chain of assignment from origination to assignment to the
Trustee, including warehousing assignments, with evidence of recording
thereon, (C) originals of all assumption and modification agreements,
if any, and (D) either: (1) the original Mortgage (subject to the
provisions of paragraph (d) below relating to items in the process of
being recorded), with evidence of recording thereon, or (2) a copy of
the Mortgage certified by the public recording office in those
instances where the original recorded Mortgage has been lost and (E)
the original lender's title insurance policy issued on the date of
origination of such Mortgage Loan, together with any endorsements
thereto; provided, however, that, subject to Sections 3.3(d) and
3.4(b), the Depositor shall not be required to prepare an assignment
for any Mortgage as to which the original recording information is
lacking; and provided, further, that pending the issuance of the final
title policy, the Depositor shall deliver the title commitment or title
binder to insure same; and
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(ii) within 10 Business Days following the Startup Day,
assignments of the Mortgages from the related originator to __________
to be submitted for recording in the appropriate jurisdictions to
perfect the Trustee's lien thereunder as against creditors of or
purchasers from the Depositor, provided, however, that the Depositor
need not cause any assignment to be submitted with respect to which the
Depositor provides to the Trustee an opinion of counsel reasonably
acceptable to the Certificate Insurer to the effect that such
recordation is not necessary; the above-listed items constituting the
"File" for the related Mortgage Loan;
(c) Notwithstanding anything to the contrary contained in
this Section 3.3, in those instances where the public recording office
retains the original Mortgage, the assignment of a Mortgage or the
intervening assignments of the Mortgage after it has been recorded, the
Depositor shall be deemed to have satisfied its obligations hereunder
upon delivery to the Trustee of a copy of such Mortgage, such
assignment or assignments of Mortgage certified by the public recording
office to be a true copy of the recorded original thereof.
(d) Not later than ten days following the end of the
10-Business Day period referred to in clause (b)(ii) above, the
Depositor shall deliver, or cause to be delivered, to the Trustee
copies of all Mortgage assignments submitted for recording, together
with a list of all Mortgages for which no Mortgage assignment has yet
been submitted for recording, which list shall state the reason why
such Mortgage assignments have not been submitted for recording. With
respect to any Mortgage assignment disclosed on such list as not yet
submitted for recording for a reason other than a lack of original
recording information, the Trustee shall make an immediate demand on
the Depositor to prepare, or cause to be prepared, such Mortgage
assignments, and shall inform the Certificate Insurer of the
Depositor's failure to prepare such Mortgage assignments. Thereafter,
the Trustee shall cooperate in executing any documents submitted to the
Trustee in connection with this provision. Thereafter, the Depositor
shall prepare, or cause to be prepared, a Mortgage assignment for any
Mortgage for which original recording information is subsequently
received by the Depositor, and shall promptly deliver a copy of such
Mortgage assignment to the Trustee.
Neither the Master Servicer nor the Trustee shall be
responsible for the costs of recording any Mortgage or any assignment of
Mortgage pursuant to this Section 3.3.
Copies of all Mortgage assignments received by the Trustee
shall be kept in the related File. The Depositor shall promptly deliver, or
cause to be delivered, to the Trustee such original Mortgage or intervening
mortgage assignment with evidence of recording indicated thereon upon receipt
thereof from the public recording official. If the Depositor within nine months
from the Startup Day shall not have received such original Mortgage or
intervening mortgage assignment from the public recording official, it shall
obtain and deliver, or cause to be delivered, to the Trustee within ten months
from the Startup Day, a copy of such original Mortgage or mortgage assignment
certified by such public recording official to be a true and complete copy of
such original Mortgage or mortgage assignment as recorded by such public
recording office.
(e) In the case of Mortgage Loans which have been prepaid
in full on or after the Cut-Off Date and prior to the Startup Day, the
Depositor, in lieu of the foregoing, will deliver within 15 days after
the Startup Day to the Trustee a certification of an Authorized Officer
in the form set forth in Exhibit J.
(f) The Depositor (or an affiliate thereof) shall sell,
transfer, assign, set over and otherwise convey without recourse, to
the Trustee all its right, title and interest in and to any Qualified
Replacement Mortgage delivered by it to the Trustee on behalf of the
Trust pursuant to Section 3.2 or 3.4
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hereof and all its right, title and interest to principal collected and interest
accruing on such Qualified Replacement Mortgage on and after the applicable
Replacement Cut-Off Date; provided, however, that the Depositor (or such
affiliate) shall reserve and retain all right, title and interest in and to
payments of principal and interest due on such Qualified Replacement Mortgage
prior to the applicable Replacement Cut-Off Date.
(g) As to each Mortgage Loan released from the Trust in
connection with the conveyance of a Qualified Replacement Mortgage
therefor, the Trustee will transfer, assign, set over and otherwise
convey without representation, warranty or recourse, on the Depositor's
order, all of its right, title and interest in and to such released
Mortgage Loan and all the Trust's right, title and interest in and to
principal collected and interest accruing on such released Mortgage
Loan on and after the applicable Replacement Cut-Off Date; provided,
however, that the Trust shall reserve and retain all right, title and
interest in and to payments of principal collected and interest
accruing on such released Mortgage Loan prior to the applicable
Replacement Cut-Off Date.
(h) In connection with any transfer and assignment of a
Qualified Replacement Mortgage to the Trustee on behalf of the Trust,
the Depositor agrees to deliver to the Trustee the items described in
Section 3.3(b) on the date of such transfer and assignment or, if a
later delivery time is permitted by Section 3.3(b), then no later than
such later delivery time.
(i) As to each Mortgage Loan released from the Trust in
connection with the conveyance of a Qualified Replacement Mortgage the
Trustee shall deliver on the date of conveyance of such Qualified
Replacement Mortgage and on the order of the Depositor (i) the original
Note, or the certified copy, relating thereto, endorsed without
recourse, to the Depositor, and (ii) such other documents as
constituted the File with respect thereto.
(j) If a Mortgage assignment is lost during the process of
recording, or is returned from the recorder's office unrecorded due to
a defect therein, the Depositor shall prepare or cause to be prepared a
substitute assignment or cure such defect, as the case may be, and
thereafter cause each such assignment to be duly recorded.
(k) The Company shall reflect on its records that the
Mortgage Loans have been sold to the Depositor and the Depositor shall
reflect on its records that the Mortgage Loans have been sold to the
Trust.
Section 3.4. Acceptance by Trustee; Certain Substitutions
of Mortgage Loans; Certification by Trustee
.
(a) The Trustee agrees to execute and deliver on the
Startup Day an acknowledgment of receipt of the items delivered by the
Depositor in the form attached as Exhibit K hereto (the "Initial
Trustee Certification"), and declares that it will hold such documents
and any amendments, replacement or supplements thereto, as well as any
other assets included in the definition of Trust Estate and delivered
to the Trustee, as Trustee in trust upon and subject to the conditions
set forth herein for the benefit of the Owners. The Trustee agrees, for
the benefit of the Owners, to review such items within 45 days after
the Startup Day (or, with respect to any document delivered after the
Startup Day, within 45 days of receipt and with respect to any
Qualified Replacement Mortgage, within 45 days after the assignment
thereof) and to deliver to the Depositor, the Master Servicer, any
Sub-Servicer, and the Certificate Insurer a Pool Certification in the
form attached hereto as Exhibit L (the "Interim Trustee
Certification"). Within 12 months from the Startup Day, the Trustee
shall review the contents of the Files and deliver to the Depositor,
the Master Servicer, any Sub-Servicer, and the Certificate Insurer a
Pool Certification in the form attached hereto as Exhibit M (the "Final
Trustee Certification").
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The Trustee shall certify in the Initial Trustee
Certification that it has examined each Note to confirm that except as
otherwise described in such certification it is in possession of an
executed original Note endorsed to the Trustee. The Trustee shall
certify in the Interim and Final Trustee Certifications that except as
described in such certification, 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 are in its possession and
have been executed, (ii) the original Note bearing an original
endorsement to the Trustee from the original payee (or set of original
endorsements evidencing a complete chain of title from the original
payee to the Trustee) is in its possession; (iii) such documents have
been reviewed by it and have not been mutilated, damaged, torn or
otherwise physically altered and relate to such Mortgage Loan
identified in the Mortgage Loan Schedule and (iv) based on its
examination and only as to the foregoing documents, the information set
forth on the Mortgage Loan Schedule as to loan number, name of
mortgagor and address, date of origination, the original stated
maturity date, the Original Principal Balance, the Coupon Rate, the
scheduled monthly payment of principal and interest and the date in
each month or which the related payments are due, accurately reflects
the information set forth in the File. The Trustee shall be under no
duty or obligation pursuant to this Section 3.4 to inspect, review or
examine any such documents, instruments, certificates or other papers
to determine that they are genuine, enforceable, or appropriate for the
represented purpose or that they are other than what they purport to be
on their face, nor shall the Trustee be under any duty to determine
independently whether there are any intervening assignments or
assumption or modification agreements with respect to any Mortgage
Loan. In the Interim and Final Trustee Certifications, the Trustee
based on its examination of the Files shall also either confirm, or
list as an exception that:
(i) each Note and Mortgage bears an original signature or
signatures purporting to be that of the person or persons named as the
maker and mortgagor/trustor;
(ii) the principal amount of the indebtedness secured by
the Mortgage is identical to the original principal amount of the Note;
(iii) the assignment of Mortgage is in the form
"__________, as Trustee" and bears a signature that purports to be the
signature of an authorized officer of the Person which the related File
suggests was the immediately prior record holder of such Mortgage;
(iv) if intervening assignments are included in the File,
each such intervening assignment bears a signature that purports to be
the signature of the mortgagee/beneficiary and/or the assignee;
(v) the address of the real property set forth in the
title insurance policy or preliminary title report or commitment to
issue a title policy is identical to the real property address
contained in the Mortgage and such policy or commitment is for an
amount equal to the original principal amount of the Note; and
(vi) it has received an original Mortgage with evidence of
recordation and assignment, in each case, with evidence of recordation
thereon or a copy thereof certified to be true and correct by the
public recording office in possession of such Mortgage and assignment.
Following the delivery of the Final Trustee Certification, the
Trustee shall provide to the Depositor, the Master Servicer and the Certificate
Insurer no less frequently than monthly, updated certifications indicating the
then current status of exceptions, until all such exceptions have been
eliminated.
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(b) If the Trustee during such 45-day period in connection
with the Interim Trustee Certification, or 12-month period in
connection with the Final Trustee Certification finds any document
constituting a part of a File which is not properly executed, has not
been received, or is unrelated to the Mortgage Loans identified in the
Mortgage Loan Schedule or the Trustee is unable to make any of the
other required certifications, or that any Mortgage Loan does not
conform in a material respect to the description thereof as set forth
in the Mortgage Loan Schedule, the Trustee shall promptly so notify the
Depositor, the Master Servicer and the Certificate Insurer. In
performing any such review, the Trustee may conclusively rely on the
Depositor as to the purported genuineness of any such document and any
signature thereon. It is understood that the scope of the Trustee's
review of the items delivered by the Depositor pursuant to Section
3.3(b)(i) is limited solely to such procedures as are necessary to
enable the Trustee to complete Exhibits K, L and M hereto.
The Depositor agrees to use reasonable efforts to remedy a
material defect in a document constituting part of a File of which it is so
notified by the Trustee. If, however, (i) in the case of a defect consisting of
the failure of the Depositor to deliver an original Mortgage and any intervening
mortgage assignment evidencing a complete chain of title to the Trustee with
evidence of recording thereon, on the first Remittance Date following the 12
month period from the Startup Day and (ii) in the case of all other defects
within 60 days after the Trustee's notice to it respecting such defect the
Depositor has not remedied the defect and the defect materially and adversely
affects the interest in the related Mortgage Loan of the Owners or of the
Certificate Insurer, the Depositor will on the next succeeding Remittance Date
(i) substitute in lieu of such Mortgage Loan a Qualified Replacement Mortgage
and, deliver the Substitution Amount applicable thereto to the Master Servicer
for deposit in the Principal and Interest Account or (ii) purchase such Mortgage
Loan at a purchase price equal to the Loan Purchase Price thereof, which
purchase price shall be delivered to the Master Servicer for deposit in the
Principal and Interest Account.
In connection with any such proposed purchase or substitution
the Depositor shall cause at the Depositor's expense to be delivered to the
Trustee and to the Certificate Insurer an opinion of counsel experienced in
federal income tax matters stating whether or not such a proposed purchase or
substitution would constitute a Prohibited Transaction for the Trust or would
jeopardize the status of any of the Upper-Tier REMIC, the Lower-Tier REMIC or
REMIC I as a REMIC, and the Depositor shall only be required to take either such
action to the extent such action would not constitute a Prohibited Transaction
for any of the Upper-Tier REMIC, the Lower-Tier REMIC or REMIC I as a REMIC or
would not jeopardize the status of any of the Upper-Tier REMIC, the Lower-Tier
REMIC or REMIC I as a REMIC. Any required purchase or substitution, if delayed
by the absence of such opinion shall nonetheless occur upon the earlier of (i)
the occurrence of a default or imminent default with respect to the Mortgage
Loan or (ii) the delivery of such opinion.
Section 3.5. Cooperation Procedures. (a) The Depositor
shall, in connection with the delivery of each Qualified Replacement
Mortgage to the Trustee, provide the Trustee with the information set
forth in the related Mortgage Loan Schedule with respect to such
Qualified Replacement Mortgage.
(b) The Depositor and the Trustee covenant to provide each
other and the Certificate Insurer with all data and information
required to be provided by them hereunder at the times required
hereunder, and additionally covenant reasonably to cooperate with each
other in providing any additional information required by any of them
or the Certificate Insurer in connection with their respective duties
hereunder.
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ARTICLE IV
ISSUANCE AND SALE OF CERTIFICATES
Section 4.1. Issuance of Certificates. On the Startup
Day, upon the Trustee's receipt from the Depositor of an executed Delivery Order
in the form set forth as Exhibit H hereto, the Trustee shall execute,
authenticate and deliver the Certificates on behalf of the Trust in accordance
with the directions set forth in such Delivery Order.
Section 4.2. Sale of Certificates. At 11 a.m. New York
City time on the Startup Day, at the offices of __________, the Company will
sell and convey the Mortgage Loans and the money, instruments and other property
related thereto to the Depositor, and the Depositor will sell and convey such
property to the Trustee, and the Trustee will (i) hold the Class A Certificates
as transfer agent for the Depository, with an aggregate Percentage Interest in
each Class equal to 100%, registered in the name of Cede & Co. or in such other
names as the Underwriters shall direct against payment of the purchase price
thereof by wire transfer of immediately available funds to the Trustee for
disbursement to the Depositor and (ii) deliver to the Depositor, the Class B
Certificates and the Residual Certificates, with an aggregate Percentage
Interest equal to 100%, registered as the Depositor shall request. Upon receipt
of the proceeds of the sale of the Certificates, the Depositor shall (a) pay the
initial premiums due to the Certificate Insurer and (b) pay other fees and
expenses identified by the Depositor.
ARTICLE V
CERTIFICATES AND TRANSFER OF INTERESTS
Section 5.1. Terms. (a) The Certificates are pass-through
securities having the rights described therein and herein. Distributions on the
Certificates are payable solely from payments received on or with respect to the
Mortgage Loans (other than the Master Servicing Fees), moneys in the Certificate
Account, the Principal and Interest Account, the Supplemental Interest Payment
Account, Insured Payments made by the Certificate Insurer, Delinquency Advances
and Compensating Interest payments made by the Master Servicer or otherwise held
by the Master Servicer in trust for the Owners, except as otherwise provided
herein, and from earnings on moneys and the proceeds of property held as a part
of the Trust Estate. Each Certificate entitles the Owner thereof to receive
distributions in accordance with this Agreement and in a specified portion of
the aggregate distribution due to the related Class of Certificates, pro rata in
accordance with such Owner's Percentage Interest and in the case of the Class
A-6 Certificates, certain amounts payable from the related Supplemental Interest
Payment Account.
(b) Each Owner is required, and hereby agrees, to return
to the Trustee any Certificate with respect to which the Trustee has made the
final distribution due thereon. Any such Certificate as to which the Trustee has
made the final distribution thereon shall be deemed cancelled and shall no
longer be Outstanding for any purpose of this Agreement, whether or not such
Certificate is ever returned to the Trustee.
Section 5.2. Forms. The Certificates of each Class shall
be in substantially the forms set forth as the related Exhibits to this
Agreement, with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Agreement or as may in the
Depositor's judgment be necessary, appropriate or convenient to comply, or
facilitate compliance, with applicable laws, and may have such letters, numbers
or other marks of identification and such legends or endorsements placed thereon
as may be required to comply with the rules of any applicable securities
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laws or as may, consistently herewith, be determined necessary by the Authorized
Officer of the Trustee executing such Certificates, as evidenced by his
execution thereof.
Section 5.3. Execution, Authentication and Delivery. Each
Certificate shall be executed on behalf of the Trust, by the manual signature of
one of the Trustee's Authorized Officers and shall be authenticated by the
manual signature of one of the Trustee's Authorized Officers.
Certificates bearing the manual signature of individuals who
were at any time the proper officers of the Trustee shall bind the Trust,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the execution and delivery of such Certificates or did not hold
such offices at the date of authentication of such Certificates.
No Certificate shall be valid until executed and authenticated
as set forth above.
Certificates delivered on the Startup Day shall be dated the
Startup Day; all Certificates delivered thereafter shall be dated the date of
authentication.
Section 5.4. Registration and Transfer of Certificates.
(a) The Trustee shall cause to be kept a register (the "Register") in which,
subject to such reasonable regulations as it may prescribe, the Trustee shall
provide for the registration of Certificates and the registration of transfer of
Certificates.
(b) Subject to the provisions of Section 5.8 hereof with
respect to the Unregistered Certificates, upon surrender for registration of
transfer of any Certificate at the office designated as the location of the
Register, the Trustee shall execute and authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Certificates of a like
Class and in the aggregate principal or notional amount of the Certificate so
surrendered.
(c) At the option of any Owner, Certificates of any Class
owned by such Owner may be exchanged for other Certificates authorized of like
Class, tenor and a like aggregate original principal or notional amount and
bearing numbers not contemporaneously outstanding, upon surrender of the
Certificates to be exchanged at the office designated as the location of the
Register. Whenever any Certificate is so surrendered for exchange, the Trustee
shall execute and authenticate and deliver the Certificate or Certificates which
the Owner making the exchange is entitled to receive.
(d) All Certificates issued upon any registration of
transfer or exchange of Certificates shall be valid evidence of the same
ownership interests in the Trust and entitled to the same benefits under this
Agreement as the Certificates surrendered upon such registration of transfer or
exchange.
(e) Every Certificate presented or surrendered for
registration of transfer or exchange shall be duly endorsed, or be accompanied
by a written instrument of transfer in form satisfactory to the Trustee duly
executed by the Owner thereof or his attorney duly authorized in writing.
(f) No service charge shall be made to an Owner for any
registration of transfer or exchange of Certificates, 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 registration of transfer or
exchange of Certificates; any other expenses in connection with such transfer or
exchange shall be an expense of the Trust.
(g) It is intended that the Class A Certificates be
registered so as to participate in a global book-entry system with the
Depository, as set forth herein. Each Class of Class A Certificates
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shall be initially issued in the form of a single fully registered Class A
Certificate of the related Class with a denomination equal to the original
principal balance of the related Class. Upon initial issuance, the ownership of
such Class A Certificates shall be registered in the Register in the name of
Cede & Co., or any successor thereto, as nominee for the Depository.
The minimum denominations shall be $1,000 for any Class A
Certificate, $100,000 for any Class B Certificate, and 10% Percentage Interest
for any Residual Certificate.
The Depositor and the Trustee are hereby authorized to execute
and deliver the Representation Letter with the Depository.
With respect to Class A Certificates registered in the
Register in the name of Cede & Co., as nominee of the Depository, the Depositor,
the Master Servicer and the Trustee shall have no responsibility or obligation
to the Depository's "Direct Participants" or "Indirect Participants" or
beneficial owners for which the Depository holds Class A Certificates from time
to time as a Depository. Without limiting the immediately preceding sentence,
the Depositor, the Master Servicer and the Trustee shall have no responsibility
or obligation with respect to (i) the accuracy of the records of the Depository,
Cede & Co., or any Direct or Indirect Participant with respect to the ownership
interest in the Class A Certificates, (ii) the delivery to any Direct or
Indirect Participant or any other Person, other than a registered Owner of a
Class A Certificate as shown in the Register, of any notice with respect to the
Class A Certificates or (iii) the payment to, or withholding with respect to,
any Direct or Indirect Participant or any other Person, other than a registered
Owner of a Class A Certificate as shown in the Register, of any amount with
respect to any distribution of principal or interest on the Class A
Certificates. No Person other than a registered Owner of a Class A Certificate
as shown in the Register shall receive a certificate evidencing such Class A
Certificate. The Certificate Issuer shall have no responsibility for or
obligation with respect to the accuracy of the records of the Depository, Cede &
Co., or any Direct or Indirect Participant with respect to the ownership
interest in the Class A Certificates.
Upon delivery by the Depository to the Trustee of written
notice to the effect that the Depository has determined to substitute a new
nominee in place of Cede & Co., and subject to the provisions hereof with
respect to the payment of interest by the mailing of checks or drafts to the
registered Owners of Class A Certificates appearing as registered Owners in the
registration books maintained by the Trustee at the close of business on a
Record Date, the name "Cede & Co." in this Agreement shall refer to such new
nominee of the Depository.
(h) In the event that (i) the Depository or the Depositor advises the Trustee in
writing that the Depository is no longer willing or able to discharge properly
its responsibilities as nominee and depository with respect to the Class A
Certificates and the Depositor is unable to locate a qualified successor, (ii)
the Depositor at its sole option elects to terminate the book-entry system
through the Depository or (iii) after an Event of Default, Owners of
Certificates evidencing at least 51% Percentage Interests of any Class affected
thereby notify the Depositor that the continuation of a book-entry system is not
in the best interests of such Class of Owners, the Class A Certificates or any
Class, as applicable, shall no longer be restricted to being registered in the
Register in the name of Cede & Co. (or a successor nominee) as nominee of the
Depository. At that time, the Class A Certificates shall be registered in the
name of and deposited with a successor depository operating a global book-entry
system, as may be acceptable to the Depositor, or such depository's agent or
designee but, if the Depositor does not select such alternative global
book-entry system, then the Trustee shall notify the Owners of the Class A
Certificates in writing of the termination of the book-entry system and the
Class A Certificates may be registered in whatever name or names registered
Owners of Class A Certificates transferring Class A Certificates shall
designate, in accordance with the provisions hereof.
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(i) Notwithstanding any other provision of this Agreement
to the contrary, so long as any Class A Certificate is registered in the name of
Cede & Co., as nominee of the Depository, all distributions of principal or
interest on such Class A Certificates and all notices with respect to such Class
A Certificates shall be made and given, respectively, in the manner provided in
the Representation Letter.
Section 5.5. Mutilated, Destroyed, Lost or Stolen
Certificates. If (i) any mutilated Certificate is surrendered to the Trustee,
or the Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Certificate, and (ii) in the case of any mutilated Certificate,
such mutilated Certificate shall first be surrendered to the Trustee, and in the
case of any destroyed, lost or stolen Certificate, there shall be first
delivered to the Trustee such security or indemnity as may be reasonably
required by it to hold the Trustee 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 and authenticate and deliver, in exchange for or in
lieu of any such mutilated, destroyed, lost or stolen Certificate, a new
Certificate of like Class, tenor and aggregate principal amount, bearing a
number not contemporaneously outstanding.
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; any other
expense in connection with such issuance shall be an expense of the Owner.
Every new Certificate issued pursuant to this Section in
exchange for or in lieu of any mutilated, destroyed, lost or stolen Certificate
shall constitute evidence of a substitute interest in the Trust, and shall be
entitled to all the benefits of this Agreement equally and proportionately with
any and all other Certificates of the same Class duly issued hereunder and such
mutilated, destroyed, lost or stolen Certificate shall not be valid for any
purpose.
The provisions of this Section 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 Certificates.
Section 5.6. Persons Deemed Owners. The Trustee and the
Certificate Insurer and any of their respective agents may treat the Person in
whose name any Certificate is registered as the Owner of such Certificate for
the purpose of receiving distributions with respect to such Certificate and for
all other purposes whatsoever, and neither the Trustee nor the Certificate
Insurer nor any of their respective agents shall be affected by notice to the
contrary.
Section 5.7. Cancellation. All Certificates surrendered
for registration of transfer or exchange shall, if surrendered to any Person
other than the Trustee, be delivered to the Trustee and shall be promptly
cancelled by it. No Certificate shall be authenticated in lieu of or in exchange
for any Certificate cancelled as provided in this Section, except as expressly
permitted by this Agreement. All cancelled Certificates may be held or destroyed
by the Trustee in accordance with its standard policies.
Section 5.8. Limitation on Transfer of Ownership Rights.
(a) No sale or other transfer of any Unregistered
Certificate (other than the initial sale of the Unregistered Certificates upon
the issuance thereof) shall be made to any Person unless such Person delivers to
the Trustee (i) a completed certificate in the form attached as Exhibit D
hereto, (ii) if required by the terms of such certificate, an opinion to the
effect that such sale or other transfer will not violate any applicable federal
or state securities laws and (iii) an opinion that such transfer will not
jeopardize the REMIC status of any REMIC or the deductibility of interest with
respect to the
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Certificates; no sale or other transfer of any Unregistered Certificate shall be
made to any Person until such Person delivers to the Trustee either (i) an
opinion of counsel from the prospective transferee of such Certificate,
acceptable to, and in form and substance satisfactory to the Depositor, to the
effect that such transferee is not a pension or benefit plan or individual
retirement arrangement that is subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or to Section 4975 of the Code or an
entity whose underlying assets are deemed to be assets of such a plan or
arrangement by reason of such plan's or arrangement's investments in the entity,
as determined under U.S. Department of Labor Regulations 29 C.F.R. ss.
2510.3-101 or otherwise, collectively, a "Plan" or (ii) the representation set
forth in Paragraph D of Exhibit D hereto.
(b) No sale or other transfer of record or beneficial
ownership of a Residual Certificate (whether pursuant to a purchase, a transfer
resulting from a default under a secured lending agreement or otherwise) shall
be made to a Disqualified Organization. The transfer, sale or other disposition
of a Residual Certificate (whether pursuant to a purchase, a transfer resulting
from a default under a secured lending agreement or otherwise) to a Disqualified
Organization shall be deemed to be of no legal force or effect whatsoever and
such transferee shall not be deemed to be an Owner for any purpose hereunder,
including, but not limited to, the receipt of distributions on such Residual
Certificate. Furthermore, in no event shall the Trustee accept surrender for
transfer, registration of transfer, or register the transfer, of any Residual
Certificate nor authenticate and make available any new Residual Certificate
unless the Trustee has received an affidavit from the proposed transferee in the
form attached hereto as Exhibit E. Each holder of a Residual Certificate by his
acceptance thereof, shall be deemed for all purposes to have consented to the
provisions of this Section 5.8(b).
(c) Notwithstanding anything to the contrary herein, no
sale or other transfer of record or beneficial ownership of a Class B
Certificate or a Residual Certificate shall be made to any Person until such
Person delivers to the Trustee either (i) an opinion of counsel from the
prospective transferee of such Certificate, acceptable to, and in form and
substance satisfactory to the Depositor, to the effect that such transferee is
not a Plan or (ii) the representation set forth in Paragraph D of Exhibit D
hereto. Any such Certificateholder desiring to effect such transfer shall, and
does hereby agree to, indemnify the Depositor, the Master Servicer, the
Certificate Insurer and the Trustee against any liability, cost or expense
(including attorney's fees) that may result if the transfer is in violation of
such statute.
Section 5.9. Assignment of Rights. An Owner may pledge,
encumber, hypothecate or assign all or any part of its right to receive
distributions hereunder, but such pledge, encumbrance, hypothecation or
assignment shall not constitute a transfer of an ownership interest sufficient
to render the transferee an Owner of the Trust without compliance with the
provisions of Section 5.4 and Section 5.8 hereof.
ARTICLE VI
COVENANTS
Section 6.1. Distributions. On each Payment Date, the
Trustee will distribute, from funds comprising the Trust Estate, to the Owners
of record of the Certificates as of the related Record Date, such Owners'
Percentage Interests in the amounts required to be distributed to the Owners of
each Class of Certificates on such Payment Date. For so long as the Class A
Certificates are in book-entry form with the Depository, the only "Owner" of the
Class A Certificates will be the Depository.
Section 6.2. Money for Distributions to be Held in Trust;
Withholding . (a) All payments of amounts due and payable with respect to any
Certificate that are to be made from amounts
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withdrawn from the Certificate Account pursuant to Section 7.3 hereof shall be
made by and on behalf of the Trustee.
(b) The Trustee on behalf of the Trust shall comply with
all requirements of the Code and applicable state and local law with respect to
the withholding from any distributions made by it to any Owner of any applicable
withholding taxes imposed thereon and with respect to any applicable reporting
requirements in connection therewith.
(c) Any money held by the Trustee in trust for the payment
of any amount due with respect to any Class A Certificate, Class B Certificate
or Residual Certificate and remaining unclaimed by the Owner of such certificate
for three years after such amount has become due and payable shall be discharged
from such trust and be paid to the Depositor; and the Owner of such Class A
Certificate, Class B Certificate or Residual Certificate shall thereafter, as an
unsecured general creditor, look only to the Depositor for payment thereof (but
only to the extent of the amounts so paid to the Depositor), and all liability
of the Trustee with respect to such trust money shall thereupon cease; provided,
however, that the Trustee, before being required to make any such payment, shall
at the written request and expense of the Depositor cause to be published once,
in the eastern edition of The Wall Street Journal, notice that such money
remains unclaimed and that, after a date specified therein, which shall be not
fewer than 30 days from the date of such publication, any unclaimed balance of
such money then remaining will be paid to the Depositor. The Trustee shall, at
the direction of the Depositor, also adopt and employ, at the expense of the
Depositor, any other reasonable means of notification of such payment
(including, but not limited to, mailing notice of such payment to Owners whose
right to or interest in moneys due and payable but not claimed is determinable
from the records of the Trustee at the last address of record for each such
Owner).
Section 6.3. Protection of Trust Estate. (a) The Trustee
will hold the Trust Estate in trust for the benefit of the Owners and, upon
request of the Certificate Insurer or the Depositor and at the expense of the
Depositor, will from time to time execute and deliver all such supplements and
amendments hereto pursuant to Section 12.14 hereof and all instruments of
further assurance and other instruments, and will take such other action upon
such reasonable request, to:
(i) more effectively hold in trust all or any portion of
the Trust Estate;
(ii) perfect, publish notice of, or protect the validity
of any grant made or to be made by this Agreement;
(iii) enforce any of the Mortgage Loans;
(iv) preserve and defend title to the Trust Estate and the
rights of the Trustee, and the ownership interests of the Owners represented
thereby, in such Trust Estate against the claims of all Persons and parties; or
(v) perfect a security interest in the Mortgage Loans, in
the event that the conveyance by the Depositor did not constitute a sale.
(b) The Trustee shall have the power to enforce, and shall
enforce the obligations of the other parties to this Agreement by action, suit
or proceeding at law or equity, and shall also have the power to enjoin, by
action or suit in equity, any acts or occurrences which may be unlawful or in
violation of the rights of the Owners; provided, however, that nothing in this
Section shall require any action by the Trustee unless the Trustee shall first
(i) have been furnished indemnity satisfactory to it against the costs, expenses
and liabilities to be incurred in compliance with such action and (ii) when
required by this
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Agreement, have been requested to take such action by the Certificate Insurer,
or, with the consent of the Certificate Insurer by a majority of the Percentage
Interests represented by any Class of Class A Certificates, or, if there are no
longer any Class A Certificates then Outstanding, by such percentage of the
Percentage Interests represented by any Class of Class B Certificates then
Outstanding.
(c) The Trustee shall execute any instrument reasonably
required pursuant to this Section so long as such instrument does not conflict
with this Agreement or with the Trustee's fiduciary duties.
Section 6.4. Performance of Obligations. The Trustee will
not take any action that would release the Depositor, the Master Servicer from
any of their respective covenants or obligations under any instrument or
document relating to the Trust Estate or the Certificates or which would result
in the amendment, hypothecation, subordination, termination or discharge of, or
impair the validity or effectiveness of, any such instrument or document, except
with the prior written consent of the Certificate Insurer, or as expressly
provided in this Agreement or such other instrument or document.
Section 6.5. Negative Covenants. The Trustee will not, to
the extent within the control of the Trustee, take any of the following actions:
(i) transfer, exchange or otherwise dispose of any of the
Trust Estate except as expressly permitted by this Agreement;
(ii) credit on or make any deduction from the
distributions payable in respect of the Certificates (other than amounts
properly withheld from such payments under the Code) or assert any claim against
any present or former Owner by reason of the payment of any taxes levied or
assessed upon any of the Trust Estate;
(iii) assume or guaranty on behalf of the Trust any
indebtedness of any Person except pursuant to this Agreement;
(iv) liquidate in whole or in part the Trust Estate,
except pursuant to Article VIII hereof; or
(v) (A) impair the validity or effectiveness of this
Agreement, or release any Person from any covenants or obligations with respect
to the Trust or to the Certificates under this Agreement, except as may be
expressly permitted hereby or (B) create or extend any lien, charge, adverse
claim, security interest, mortgage or other encumbrance to or upon the Trust
Estate or any part thereof or any interest therein or the proceeds thereof.
Section 6.6. No Other Powers. The Trustee will not, to
the extent within the control of the Trustee, permit the Trust to engage in any
business activity or transaction other than those activities permitted by
Section 2.3 hereof.
Section 6.7. Limitation of Suits. No Owner shall have any
right to institute any proceeding, judicial or otherwise, with respect to this
Agreement or the Certificate Insurance Policy, or for the appointment of a
receiver or trustee, or for any other remedy hereunder, unless:
(1) such Owner has previously given written notice to the
Depositor, the Certificate Insurer and the Trustee of such Owner's intention to
institute such proceeding;
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(2) the Owners of not less than 25% of the Percentage
Interests represented by any Class of Class A
Certificates, or, if there are no Class A Certificates
then Outstanding, by such percentage of the Percentage
Interests of any Class of Class B Certificates then
Outstanding, shall have made written request to the
Trustee to institute such proceeding in its own name as
representative of the Owners;
(3) the Trustee for 30 days after its receipt of such
notice, request and offer of indemnity has failed to
institute such proceeding; and
(4) no direction inconsistent with such written request
has been given to the Trustee during such 30-day period by
the Certificate Insurer or by the Owners of a majority of
the Percentage Interests represented by each Class of
Class A Certificates or, if there are no Class A
Certificates then Outstanding, by such percentage of the
Percentage Interests represented by any Class of Class B
Certificates then Outstanding;
it being understood and intended that no one or more Owners shall have any right
in any manner whatever by virtue of, or by availing themselves of, any provision
of this Agreement to affect, disturb or prejudice the rights of any other Owner
of the same Class or to obtain or to seek to obtain priority or preference over
any other Owner of the same Class or to enforce any right under this Agreement,
except in the manner herein provided and for the equal and ratable benefit of
all the Owners of the same Class.
In the event the Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Owners, each
representing less than a majority of the applicable Class of Certificates, the
Trustee shall act at the direction of the Certificate Insurer.
Section 6.8. Unconditional Rights of Owners to Receive
Distributions. Notwithstanding any other provision in this Agreement, the Owner
of any Certificate shall have the right, which is absolute and unconditional, to
receive distributions to the extent provided herein and therein with respect to
such Certificate or to institute suit for the enforcement of any such
distribution, and such right shall not be impaired without the consent of such
Owner.
Section 6.9. Rights and Remedies Cumulative. Except as
otherwise provided herein, no right or remedy herein conferred upon or reserved
to the Depositor, the Master Servicer, the Trustee, to the Owners or to the
Certificate Insurer 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. Except as otherwise
provided herein, 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 6.10. Delay or Omission Not Waiver. No delay of
the Depositor, Master Servicer, the Trustee, or any Owner of any Certificate or
the Certificate Insurer to exercise any right or remedy under this Agreement
shall impair any such right or remedy or constitute a waiver of any such right
or remedy. Every right and remedy given by this Article VI or by law to the
Depositor or to the Owners or the Certificate Insurer may be exercised from time
to time, and as often as may be deemed expedient, by the Depositor or by the
Owners or the Certificate Insurer, as the case may be.
Section 6.11. Control by Owners. Either (x) the
Certificate Insurer or (y) with the consent of the Certificate Insurer, the
Owners of a majority of the Percentage Interests represented by each Class of
Class A Certificates then
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Outstanding or, if there are no Class A Certificates then Outstanding, by such
majority of the Percentage Interests represented by any Class of Class B
Certificates then Outstanding, may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, provided
that:
(1) such direction shall not be in conflict with any rule
of law or with this Agreement;
(2) the Trustee shall have been provided with indemnity
satisfactory to it; and
(3) the Trustee may take any other action deemed proper by
the Trustee which is not inconsistent with such
direction; provided, however, that the Trustee need
not take any action which it determines might involve
it in liability or may be unjustly prejudicial to the
Owners not so directing.
ARTICLE VII
ACCOUNTS, FLOW OF FUNDS,
DISTRIBUTIONS AND REPORTS
Section 7.1. Collection of Money. Except as otherwise
expressly provided herein, the Trustee may demand payment or delivery of all
money and other property payable to or receivable by the Trustee pursuant to
this Agreement, including (a) all payments due on the Mortgage Loans in
accordance with the respective terms and conditions of such Mortgage Loans and
required to be paid over to the Trustee by the Master Servicer, or by any
Sub-Servicer and (b) Insured Payments in accordance with the terms of the
Certificate Insurance Policy. The Trustee shall hold all such money and property
received by it as part of the Trust Estate and shall apply it as provided in
this Agreement.
Section 7.2. Establishment of Accounts. The Trustee shall
establish and maintain, at the corporate trust office of the Trustee, a
Certificate Account, a Class A Group I Distribution Account, a Class A Group II
Distribution Account and a Class B Distribution Account, each to be held by the
Trustee as a segregated trust account so long as the Trustee qualifies as a
Designated Depository Institution and if the Trustee does not so qualify, then
by any Designated Depository Institution in the name of the Trust for the
benefit of the Owners of the Certificates and the Certificate Insurer, as their
interests may appear.
In administering the Accounts the Trustee may establish
such sub-Accounts as the Trustee deems desirable.
Section 7.3. Flow of Funds. (a) The Trustee shall deposit
to the Certificate Account:
(i) with respect to the Group I Mortgage Loans, without
duplication, upon receipt, each Group I Monthly
Remittance remitted by the Master Servicer or any
Sub-Servicer, together with any amounts received by
the Trustee in connection with the termination of the
Trust insofar as such amounts relate to the Group I
Mortgage Loans; and
(ii) with respect to the Group II Mortgage Loans, without
duplication, upon receipt, each Group II Monthly
Remittance remitted by the Master Servicer or any
Sub-Servicer, together with any amounts received by
the Trustee in connection with the
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termination of the Trust, insofar as such amounts
relate to the Group II Mortgage Loans.
(b) On each Payment Date, the Trustee shall make the
following allocations, disbursements and transfers from the Group I Available
Funds and from the Group II Available Funds in the following order of priority,
and each such allocation, transfer and disbursement shall be treated as having
occurred only after all preceding allocations, transfers and disbursements have
occurred:
(i) first, the Trustee shall pay first, to itself the
related Trustee's Fee then due;
(ii) [Reserved];
(iii) second, the Trustee shall allocate the following
amounts in the following order of priority:
(A) from the Available Funds then on deposit in the
Certificate Account with respect to each Group, the
lesser of (x) the Available Funds with respect to
such Group and (y) the Insured Distribution Amount
with respect to such Group shall be allocated to
the Class A Distribution Account with respect to
such Group;
(B) from the remaining Available Funds then on deposit
in the Certificate Account with respect to each
Group, the lesser of (x) such remaining Available
Funds, and (y) the excess of (i) the Insured
Distribution Amount with respect to the either of
the other two Groups over (ii) the amount then on
deposit in the Class A Distribution Account with
respect to such Group (such excess, the "Insured
Shortfall" with respect to such Group), shall be
allocated to the Class A Distribution Accounts for
the other Groups; if both of the other Groups have
an Insured Shortfall on such Payment Date, such
remaining amount will be applied to both other
Groups pro rata in proportion to the relative
amounts of their respective Insured Shortfalls;
(C) (i) from the remaining Available Funds then on
deposit in the Certificate Account with respect to
each Group to the Certificate Insurer, the lesser
of (x) such remaining Available Funds with respect
to each Group and (y) the Premium Amount and any
Reimbursement Amount then due to the Certificate
Insurer;
(ii) from the remaining Available Funds then on
deposit in the Certificate Account with respect to
each Group to the Certificate Insurer, the lesser
of (x) such remaining Available Funds and (y) any
amounts remaining due to the Certificate Insurer
after application of (c)(i) above with respect to
the other Groups (such amount, a "Reimbursement
Shortfall" with respect to a Group) shall be paid
to the Certificate Insurer on behalf of the other
Groups; if both of the other Groups have a
Reimbursement Shortfall on such Payment Date, such
remaining amount will be applied to both other
Groups pro rata in proportion to the relative
amounts of their respective Reimbursement
Shortfalls;
(iii) from the Available Funds then on deposit in
the Certificate Account with respect to each Group,
the lesser of (x) the Available Funds with respect
to
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such Group and (y) the excess of (i) the Interest
Distribution Amount with respect to such Group over
(ii) the Insured Interest Distribution Amount with
respect to such Group shall be allocated to the
Class A Distribution Account with respect to such
Group;
(D) from the remaining Available Funds then on deposit
in the Certificate Account with respect to such
Group, the lesser of (x) such remaining Available
Funds with respect to such Group and (y) the excess
of (i) the Principal Distribution Amount applicable
to such Group and Payment Date over (ii) all
amounts then on deposit in the respective Class A
Distribution Account that are allocable to
principal, shall be allocated to such Class A
Distribution Account;
(E) from the remaining Available Funds then on deposit
in the Certificate Account with respect to each
Group, the lesser of (x) such remaining Available
Funds and (y) the Subordination Deficiency Amount
applicable to the other Groups on such Payment
Date, shall be allocated to the respective Class A
Distribution Account as a Subordination Increase
Amount; if both of the other Groups have an
Subordination Deficiency Amount on such Payment
Date, such remaining amount will be applied to both
other Groups pro rata in proportion to the relative
amounts of their respective Subordination
Deficiency Amount;
(F) from the remaining Available Funds then on deposit
in the Certificate Account with respect to each
Group, the lesser of (x) such remaining Available
Funds with respect to such Group and (y) the Class
B Interest, shall be allocated to the Class B
Distribution Account and applied as a distribution
of interest on account of the Class B Certificates;
(G) from the remaining Available Funds then on deposit
in the Certificate Account with respect to such
Group, the lesser of (x) such remaining Available
Funds and (y) the Class B Principal Balance as of
such Payment Date, assuming that the amount then on
deposit in the Class B Distribution Account as a
result of the application of clause (F) above has
been applied as a distribution of principal on
account of the Class B Principal Balance on such
Payment Date, shall be allocated to the Class B
Distribution Account and applied as a distribution
of principal on the Class B Principal Balance; and
(H) all amounts then remaining on deposit in the
Certificate Account shall be distributed to the
Owners of the Residual Certificates on such Payment
Date.
(c) On each Payment Date, the Trustee shall make the
following disbursements from amounts deposited in the Distribution Accounts
pursuant to Subsection (b) above, together with the amount of any Insured
Payment with respect to a Group deposited to the respective Distribution
Account:
(i) the Trustee shall pay, pari passu from the amount
then on deposit in the Class A Group I Distribution
Account:
(A) to the Owners of the Class A-1 Group I
Certificates, the Class A-1 Distribution Amount for
such Payment Date;
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(B) to the Owners of the Class A-2 Group I
Certificates, the Class A-2 Distribution Amount for
such Payment Date;
(C) to the Owners of the Class A-3 Group I
Certificates, the Class A-3 Distribution Amount for
such Payment Date; and
(D) to the Owners of the Class A-4 Group I
Certificates, the Class A-4 Distribution Amount for
such Payment Date; and
(E) to the Owners of the Class A-5 Group I
Certificates, the Class A-5 Distribution Amount for
such Payment Date;
provided, however, that if, on any Payment Date, (x)
the Certificate Insurer is then in default under the
Certificate Insurance Policy and (y) a Group I
Subordination Deficit exists, then any distribution
of the Group I Principal Distribution Amount on such
Payment Date shall be made pro rata to the Owners of
each of the Class A-1 Group I Certificates, the Class
A-2 Group I Certificates, the Class A-3 Group I
Certificates, the Class A-4 Group I Certificates and
the Class A-5 Group I Certificates on such Payment
Date;
(ii) the Trustee shall pay from the amount then on deposit
in the Class A Group II Distribution Account, to the
Owners of the Class A-6 Group II Certificates, the
Class A-6 Distribution Amount for such Payment Date;
and
(iii) the Trustee shall transfer from the amounts then on
deposit in the Class B Distribution Account, to the
Supplemental Interest Payment Account, the Class B
Distribution Amount for such Payment Date; such
transfer shall be deemed a distribution on the Class
B Certificates.
(d) Any amounts properly distributed to the Owners of the
Class B Certificates or to the Owners of the Residual Certificates pursuant to
the terms of this Agreement shall be distributed free of the subordination
described herein, and any such amounts shall in no event be required to be
returned to the Trustee or paid over to the Owners of the Class A Certificates.
(e) Whenever, during the administration of the Trust,
there comes into the possession of the Trustee any money or property which this
Agreement does not otherwise require to be distributed on account of the Class A
Certificates or the Class B Certificates or to the Certificate Insurer, the
Trustee shall distribute such money or other property to the Owners of the Class
RU Certificates.
(f) Each Owner of a Class A Certificate which pays any
Preference Amounts theretofore received by such Owner on account of such Class A
Certificate will be entitled to receive reimbursement for such amounts from the
Certificate Insurer in accordance with the terms of the Certificate Insurance
Policy, but only after (i) delivering a copy to the Trustee of a final,
nonappealable order (a "Preference Order") of a court having competent
jurisdiction under the United States Bankruptcy Code demanding payment of such
amount to the bankruptcy court and (ii) irrevocably assigning such Owner's claim
with respect to such Preference Order to the Certificate Insurer in such form as
is required by the Certificate Insurer. In no event shall the Certificate
Insurer pay more than one Insured Payment in respect of any Preference Amount.
Section 7.4. Investment of Accounts .(a) All or a portion
of any Account held by the Trustee shall be invested and reinvested by the
Trustee in the name of the Trustee for the benefit of the
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Owners, as described in Section 7.4(c) hereof. No investment in any Account
shall mature later than the Business Day immediately preceding the next Payment
Date and shall be held until maturity.
(b) Subject to Section 9.1 hereof, the Trustee shall not
in any way be held liable by reason of any insufficiency in any Account held by
the Trustee resulting from any loss on any Eligible Investment included therein
(except to the extent that the bank serving as Trustee is the obligor thereon).
(c) Until it is directed in writing by the Depositor to
invest in another Eligible Investment, the Trustee shall invest in Eligible
Investments described in paragraph (h) of Section 7.5 hereof.
(d) All income or other gain from investments in any
Account held by the Trustee shall be deposited in such Account immediately on
receipt, and any loss resulting from such investments shall be charged to such
Account.
Section 7.5. Eligible Investments . The following are
Eligible Investments:
(a) Direct general obligations of the United States or the
obligations of any agency or instrumentality of the United States, the timely
payment or the guarantee of which constitutes a full faith and credit obligation
of the United States.
(b) FHLMC senior debt obligations, but excluding any such
securities whose terms do not provide for payment of a fixed dollar amount upon
maturity or call for redemption.
(c) FNMA senior debt obligations, but excluding any such
securities whose terms do not provide for payment of a fixed dollar amount upon
maturity or call for redemption.
(d) Federal funds, certificates of deposit, time and
demand deposits, and bankers' acceptances (having original maturities of not
more than 365 days) of any domestic bank (which may include the Trustee or its
affiliate), the short-term debt obligations of which have been rated A-1 or
better by ____ and P-1 by ____.
(e) Deposits of any bank or savings and loan association
which has combined capital, surplus and undivided profits of at least
$50,000,000 which deposits are not in excess of the applicable limits insured by
the Bank Insurance Fund or the Savings Association Insurance Fund of the FDIC,
provided that the long-term deposits of such bank or savings and loan
association are rated at least "BBB" by ____ and "Baa3" by ____.
(f) Commercial paper (having original maturities of not
more than 270 days) rated A-1 or better by ____ and P-1 by ____.
(g) Investments in money market funds (including those of
the Trustee or its affiliates (for which separate compensation may be received))
rated at least AAAm or AAAm-G by ____ and Aaa by ____.
(h) Such other investments as have been approved in
writing by ____, ____ and the Certificate Insurer;
provided that no instrument described above is permitted to evidence
either the right to receive (a) only interest with respect to obligations
underlying such instrument or (b) both principal and interest payments derived
from obligations underlying such instrument and the interest and principal
payments with respect
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to such instrument provide a yield to maturity at par greater than 120% of the
yield to maturity at par of the underlying obligations; and provided, further,
that no instrument described above may be purchased at a price greater than par.
Any Eligible Investment may be purchased by or through the Trustee or any of its
affiliates. The Trustee or its affiliates may act as sponsor, manager,
depository or advisor with regard to any Eligible Investment.
Section 7.6. Reports by Trustee. (a) On each Payment Date
the Trustee shall report in writing to each Owner and to the Depositor and the
Master Servicer, with a copy to the Certificate Insurer, ____ and ____:
(i) amount of the distribution with respect to each Class
of Certificates;
(ii) amount of such distributions allocable to principal,
separately identifying the aggregate amount of any Prepayments or other
unscheduled recoveries of principal included therein;
(iii) amount of such distributions allocable to interest;
(iv) amount of such distributions allocable to any
Carry-Forward Amount;
(v) then-outstanding principal balance of each Class of
Class A Certificates as of such Payment Date, together with the principal
amount, by class, of each Class A Certificate (based on a Certificate in the
original principal amount of $1,000) then Outstanding, in each case after giving
effect to any payment of principal on such Payment Date;
(vi) then-outstanding principal balance of each class of
Class B Certificates, together with the principal amount, by class, of each
Class B Certificate (based on a Certificate in the original principal amount of
$1,000) then Outstanding, in each case after giving effect to any payment of
principal on such Payment Date;
(vii) total of any Substitution Amounts and any Loan
Purchase Prices included in such distribution;
(viii) amount of any Supplemental Interest Payment Amount,
Class B-S Certificate distribution and any Interest Advance on such Payment
Date, together with the amount of any unreimbursed Interest Advance then owed to
the Designated Residual Owner;
(ix) amount of the Master Servicing Fee paid with respect
to each of the three Mortgage Loan Groups with respect to the related Remittance
Period;
(x) amount of any Group I Insured Payment and any Group II
Insured Payment made with respect to such Payment Date; and
(xi) of such Payment Date, the Group I Subordinated Amount
and the Group II Subordinated Amount.
In preparing the report under this Section 7.6, the Trustee
shall rely solely upon the electronic report described in Section 10.8(d)(ii)
hereof being received from the Master Servicer or any Sub-Servicer. The Trustee
shall not be responsible for its obligations under this Section 7.6 unless and
until it receives such report from the Master Servicer.
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(b) On each Payment Date the Trustee will additionally
inform the Depositor, the Master Servicer, the Certificate Insurer, ____ and
____ with respect to the following:
(i) the Group I Available Funds and the Group II Available
Funds for the related Payment Date;
(ii) the Pool Principal Balance with respect to the three
Mortgage Loan Groups as of the end of the related Remittance Period;
(iii) the number and Principal Balances of all Mortgage
Loans in the three Mortgage Loan Groups which were the subject of Prepayments
during the related Remittance Period;
(iv) the total amount of payments in respect of or
allocable to interest on the Mortgage Loans in the three Mortgage Loan Groups
received or deemed to have been received from the related Mortgagors by the
Master Servicer or any Sub-Servicer during the related Remittance Period
(including any net income from REO Properties received during the related
Remittance Period);
(v) the aggregate of all principal payments received or
deemed to have been received from the related Mortgagors in the three Mortgage
Loan Groups by the Master Servicer or any Sub-Servicer during the related
Remittance Period;
(vi) the aggregate of any Insurance Proceeds received or
deemed to have been received by the Master Servicer or any Sub-Servicer during
the related Remittance Period with respect to the three Mortgage Loan Groups;
(vii) the aggregate of any Released Mortgaged Property
Proceeds received or deemed to have been received by the Master Servicer or any
Sub-Servicer during the related Remittance Period with respect to the three
Mortgage Loan Groups;
(viii) the aggregate of any Liquidation Proceeds,
Liquidation Expenses and Net Liquidation Proceeds received or deemed to have
been received by the Master Servicer or any Sub-Servicer, and Net Realized
Losses incurred, during the related Remittance Period with respect to the three
Mortgage Loan Groups, the Group I Cumulative Net Realized Losses, the Group II
Cumulative Net Realized Losses and the aggregate Cumulative Net Realized Losses
since the Startup Day and during the prior 12-month period and the Pool Rolling
Three Month Delinquency Rate;
(ix) the total amount of Compensating Interest payments
paid or to be paid by the Master Servicer or any Sub-Servicer pursuant to
Section 10.10 hereof with respect the three Mortgage Loan Groups;
(x) the amount of Delinquency Advances made by the Master
Servicer or any Sub-Servicer pursuant to Section 10.9 hereof with respect to
such Payment Date with respect to the three Mortgage Loan Groups;
(xi) the monthly Master Servicing Fee and any additional
servicing fees paid to the Master Servicer or any Sub-Servicer pursuant to
Section 10.15 hereof with respect to the three Mortgage Loan Groups;
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(xii) the amount of Delinquency Advances with respect to
the three Mortgage Loan Groups reimbursable to the Master Servicer or any
Sub-Servicer during such Remittance Period pursuant to Section 10.9 hereof and
not previously reimbursed;
(xiii) the amount of any Servicing Advance made by the
Master Servicer or any Sub-Servicer pursuant to Sections 10.9 and 10.13 hereof
with respect to the three Mortgage Loan Groups and not previously reimbursed;
(xiv) the Class A-1 Distribution Amount, the Class A-2
Distribution Amount, the Class A-3 Distribution Amount, the Class A-4
Distribution Amount, the Class A-5 Distribution Amount, the Class A-6
Distribution Amount and the Class B Distribution Amount, with the components
thereof stated separately;
(xv) the weighted average remaining term to maturity and
Net Weighted Average Coupon Rate of the Mortgage Loans with respect to the three
Mortgage Loan Groups as of the close of business on the last day of the related
Remittance Period;
(xvi) the Group I Subordinated Amount, Group I
Subordination Deficiency Amount, Group I Specified Subordinated Amount, Group I
Subordination Increase Amount, Group II Subordinated Amount, Group II
Subordination Deficiency Amount, Group II Specified Subordinated Amount, Group
II Subordination Increase Amount;
(xvii) the Group I Excess Subordinated Amount, Group I
Subordination Reduction Amount, Group II Excess Subordinated Amount, Group II
Subordination Reduction Amount, for the related Payment Date;
(xviii) the number of Mortgage Loans in the three Mortgage
Loan Groups at the beginning and end of the related Remittance Period;
(xix) the Group I Shortfall Amount and the Group II
Shortfall Amount for the related Payment Date;
(xx) such other information as the Certificate Insurer or
the Depositor may reasonably request and which is derived from information which
is produced or available in the ordinary course of the Master Servicer's or any
Sub-Servicer's business or which otherwise materially relates to the
transactions contemplated hereby and is provided to the Trustee by the
electronic report described in Section 10.8(d)(ii) hereof; and
(xxi) the number and Principal Balance of any Mortgage
Loans repurchased during the related Remittance Period pursuant to Section
10.13(f) and the number and cumulative Principal Balance of all Mortgage Loans
so repurchased since the Cut-Off Date.
(c) In addition, on each Payment Date the Trustee will
disseminate to each Owner, the Depositor and the Master Servicer with a copy to
the Certificate Insurer, ____ and ____, together with the information described
in Subsection (a) preceding, the following information with respect to the three
Mortgage Loan Groups as of the close of business on the last day of the related
Remittance Period, which is required to be prepared by the Master Servicer or a
Sub-Servicer and furnished to the Trustee pursuant to Section 10.8(d)(ii) hereof
for such purpose on or prior to the related Remittance Date:
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(i) total number of Mortgage Loans and the aggregate
Principal Balances thereof, together with the number and aggregate principal
balances of Mortgage Loans (a) 30-59 days Delinquent, (b) 60-89 days Delinquent
and (c) 90 or more days Delinquent;
(ii) number and aggregate principal balances of all
Mortgage Loans in foreclosure proceedings (and whether any such Mortgage Loans
are also included in any of the statistics described in the foregoing clause
(i));
(iii) number and aggregate principal balances of all
Mortgage Loans relating to Mortgagors in bankruptcy proceedings (and whether any
such Mortgage Loans are also included in any of the statistics described in the
foregoing clauses (i) and (ii));
(iv) number and aggregate principal balances of all
Mortgage Loans relating to REO Properties (and whether any such Mortgage Loans
are also included in any of the statistics described in the foregoing clauses
(i), (ii) and (iii));
(v) number and aggregate principal balances of all
Mortgage Loans as to which foreclosure proceedings were commenced during the
prior Remittance Period;
(vi) schedule regarding cumulative foreclosures since the
Cut-Off Date; and
(vii) book value of any REO Property and any income
received from REO Properties during the prior Remittance Period.
The Depositor, the Master Servicer, and the Trustee on behalf
of Certificateholders and the Trust (the "Trust Parties") hereby authorize the
Certificate Insurer to include the information contained in reports provided to
the Certificate Insurer hereunder (the "Information") on Bloomberg, an on-line
computer based information network maintained by Bloomberg L.P. ("Bloomberg"),
or in other electronic or print information services. The Trust Parties agree
not to commence any actions or proceedings, or otherwise assert any claims,
against the Certificate Insurer or its affiliates or any of the Certificate
Insurer's or its affiliates' respective agents, representatives, directors,
officers or employees (collectively, the "Certificate Insurer Parties"), arising
out of, or related to or in connection with the dissemination and/or use of any
Information by the Certificate Insurer, including, but not limited to, claims
based on allegations of inaccurate, incomplete or erroneous transfer of
information by the Certificate Insurer to Bloomberg or otherwise (other than in
connection with the Certificate Insurer's gross negligence or willful
misconduct). The Trust Parties waive their rights to assert any such claims
against the Certificate Insurer Parties and fully and finally release the
Certificate Insurer Parties from any and all such claims, demands, obligations,
actions and liabilities (other than in connection with the Certificate Insurer's
gross negligence or willful misconduct). The Certificate Insurer makes no
representations or warranties, expressed or implied, of any kind whatsoever with
respect to the accuracy, adequacy, timeliness, completeness, merchantability or
fitness for any particular purpose of any Information in any form or manner. The
Certificate Insurer reserves the right at any time to withdraw or suspend the
dissemination of the Information by the Certificate Insurer. The authorizations,
covenants and obligations of the Trust Parties under this section shall be
irrevocable and shall survive the termination of this Agreement.
Section 7.7. Drawings under the Certificate Insurance
Policy and Reports by Trustee.
(a) On each Determination Date the Trustee shall
determine, no later than 12:00 noon on such Determination Date, whether a Group
I Shortfall Amount or a Group II Shortfall Amount has theretofore occurred and
will remain uncured on the following Payment Date, and whether a Group I
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Shortfall Amount or a Group II Shortfall Amount with respect to the Group I
Mortgage Loans or the Group II Mortgage Loans will occur on the following
Payment Date. If the Trustee determines that a Group I Shortfall Amount or a
Group II Shortfall Amount will, based on the amount then on deposit in the
Certificate Account and amounts to be deposited in the Certificate Account prior
to such Payment Date on account of the Trustee's advancing obligations as
successor Master Servicer as set forth in Section 11(j) hereof, occur on the
following Payment Date, the Trustee shall furnish the Certificate Insurer and
the Depositor with a completed Notice in the form set forth as Exhibit A to the
Certificate Insurance Policy. The Notice shall specify the amount of the Insured
Payment and shall constitute a claim for an Insured Payment pursuant to the
Certificate Insurance Policy.
(b) The Trustee shall report to the Depositor, the Master
Servicer and the Certificate Insurer with respect to the amounts then held in
each Account held by the Trustee and the identity of the investments included
therein, as the Depositor, the Master Servicer or the Certificate Insurer may
from time to time request. Without limiting the generality of the foregoing, the
Trustee shall, at the request of the Depositor, the Master Servicer or the
Certificate Insurer transmit promptly to the Depositor, the Master Servicer, and
the Certificate Insurer copies of all accountings of receipts in respect of the
Mortgage Loans furnished to it by the Master Servicer or a Sub-Servicer.
(c) Upon receipt of Insured Payments from the Certificate
Insurer under the Certificate Insurance Policy, the Trustee shall deposit such
Insured Payments in the Policy Payments Account. The Trustee shall withdraw
Insured Payments from the Policy Payments Account in accordance with section
13.4(a). The Trustee shall distribute all Insured Payments received, or the
proceeds thereof, in accordance with Section 7.3(b) and 7.3(c) to the Owners of
the Class A Certificates of the related Class.
(d) The Trustee shall (i) receive Insured Payments as
attorney-in-fact of each Owner of the Class A Certificates of the related Class
receiving any Insured Payment from the Certificate Insurer and (ii) disburse
such Insured Payment to the Owners of the related Class A Certificates as set
forth in Section 7.3(b) and 7.3(c). The Certificate Insurer shall be entitled to
receive the related Reimbursement Amount pursuant to Section 7.3(b)(iii)(C)
hereof with respect to each Insured Payment made by the Certificate Insurer. The
Trustee hereby agrees on behalf of each Owner of Class A Certificates and the
Trust for the benefit of the Certificate Insurer that it recognizes that to the
extent the Certificate Insurer makes Insured Payments, either directly or
indirectly (as by paying through the Trustee), to the Owners of such Class A
Certificates, the Certificate Insurer will be entitled to receive the related
Reimbursement Amount pursuant to Section 7.3(b)(iii)(C) hereof.
(e) Insured Payments disbursed by the Trustee from
proceeds of the Certificate Insurance Policy shall not be considered payment by
the Trust Fund nor shall such payments discharge the obligation of the Trust
Fund with respect to the related Class A Certificates, and the Certificate
Insurer shall become the owner of such unpaid amounts due from the Trust Fund in
respect of the related Class A Certificates. The Trustee hereby agrees on behalf
of each Holder of a related Class A Certificate for the benefit of the
Certificate Insurer that it recognizes that to the extent the Certificate
Insurer makes Insured Payments, either directly or indirectly (as by paying
through the Trustee), to the Owners of any Class A Certificates, the Certificate
Insurer will be subrogated to the rights of such Owners with respect to such
Insured Payment, shall be deemed to the extent of payments so made to be a
registered Owner of such Class A Certificates and shall receive all future
distributions (subject to the priority set forth in 7.3(b)(iii)) until all such
Insured Payments by the Certificate Insurer, together with interest thereon at
the interest rate borne by the related Class A Certificates, have been fully
reimbursed. To evidence such subrogation, the Trustee shall note the Certificate
Insurer's rights as subrogee on the registration books maintained by the Trustee
upon receipt from the Certificate Insurer of proof of payment of any Insured
Payment.
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Section 7.8. Allocation of Realized Losses. If, on any
Payment Date, following the making of all allocations, transfers and
distributions (other than as provided in this Section) on such Payment Date (x)
the sum of the Class A-1 Principal Balance, the Class A-2 Principal Balance, the
Class A-3 Principal Balance, the Class A-4 Principal Balance, the Class A-5
Principal Balance, the Class A-6 Principal Balance, and the Class B Principal
Balance exceeds (y) the Pool Principal Balance as of the close of business on
the last day of the related Remittance Period (any such excess, "Allocable
Losses"), such Allocable Losses shall be applied as a reduction of the Class B
Principal Balance until the Class B Principal Balance has been reduced to zero.
Section 7.9. Supplemental Interest Payments.
(a) The parties hereto do hereby create and establish a
trust, the "Access Financial Supplemental Interest Trust _____" (the
"Supplemental Interest Trust"). The Supplemental Interest Trust shall hold two
trust accounts, each a "Supplemental Interest Payment Account", to be held by
the Trustee in its name on behalf of the Supplemental Interest Trust.
If, on any Determination Date, the Trustee determines that the
amount to be available on the next Payment Date in a Supplemental Interest
Payment Account with respect to Class A-6 (such amount, the "Supplemental
Interest Payment Amount") is less than the excess of (i) the Full Interest
Distribution Amount for such Class over (ii) the Interest Distribution Amount
for such Class as of such Payment Date (the difference, if any, between the
Supplemental Interest Payment Amount and such excess, the "Class A-6 Formula
Interest Shortfall"), the Trustee shall deliver a notice in the form of Exhibit
O hereto to the Designated Residual Owner demanding that the Designated Residual
Owner fund such Formula Interest Shortfall on the related Payment Date. The
amount so funded by the Designated Residual Owner on any such Payment Date is
the "Interest Advance" with respect to the related Class for such Payment Date.
The Trustee shall deposit any Interest Advance received by it in the amount of
the Formula Interest Shortfall for such Class into the Class A Group II
Distribution Account.
On each Payment Date, the Trustee shall withdraw from the
related Supplemental Interest Payment Account and deposit the Class A-6 Formula
Interest Shortfall in the Class A Group II Distribution Account; provided that
the amount to be withdrawn may not exceed the related Supplemental Interest
Payment Amount (such amount, the "Funded Amount").
(b) Any portion of the related Supplemental Interest
Payment Amount after application of clause (a) above (the "Remaining Amount")
shall be applied in the following order of priority:
(i) to the Designated Residual Owner, as reimbursement for
unpaid Interest Advances, together with interest thereon (the "Interest Advance
Reimbursement Amount"), with the earliest Interest Advances being deemed to be
paid first; and
(ii) to the Owners of the Class B-S Certificates, all
remaining amounts then on deposit in the Supplemental Interest Payment Account,
to such Owners pro rata in accordance with the Percentage Interests.
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ARTICLE VIII
TERMINATION OF TRUST
Section 8.1. Termination of Trust. The Trust created
hereunder and all obligations created by this Agreement will terminate upon the
earlier of (i) the payment to the Owners of all Certificates of all amounts held
by the Trustee and required to be paid to such Owners pursuant to this Agreement
upon the later to occur of (a) the final payment or other liquidation (or any
advance made with respect thereto) of the last Mortgage Loan in the Trust Estate
or (b) the disposition of all property acquired in respect of any Mortgage Loan
remaining in the Trust Estate or (ii) at any time when a Qualified Liquidation
of the Trust is effected as described below. To effect a termination of this
Agreement pursuant to clause (b) above, the Owners of all Certificates then
Outstanding shall (x) unanimously direct the Trustee on behalf of the Trust to
adopt a plan of complete liquidation with respect to each REMIC, as contemplated
by Section 860F(a)(4) of the Code and (y) provide to the Trustee an opinion of
counsel experienced in federal income tax matters to the effect that such
liquidation constitutes a Qualified Liquidation and the Trustee either shall
sell the Mortgage Loans and distribute the proceeds of the liquidation of the
Trust Estate, or shall distribute equitably in kind all of the assets of the
Trust Estate to the remaining Owners of the Certificates each in accordance with
such plan, so that the liquidation or distribution of the Trust Estate, the
distribution of any proceeds of the liquidation and the termination of this
Agreement occur no later than the close of the 90th day after the date of
adoption of the plan of liquidation and such liquidation qualifies as a
Qualified Liquidation. In no event, however, will the Trust created by this
Agreement continue beyond the expiration of twenty-one (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 United Kingdom, living on the date
hereof. The Trustee shall give written notice of termination of the Agreement to
the Certificate Insurer and each Owner in the manner set forth in Section 12.5
hereof.
Section 8.2. Termination Upon Option of the Depositor.
(a) On any Remittance Date on or after the Remittance Date
on which the then-outstanding aggregate Principal Balances of the Mortgage Loans
is ten percent or less of the Original Pool Principal Balance, the Depositor may
determine to purchase and may cause the purchase from the Trust of all (but not
fewer than all) Mortgage Loans and all property theretofore acquired in respect
of any Mortgage Loan by foreclosure, deed in lieu of foreclosure, or otherwise
then remaining in the Trust Estate at a price equal to 100% of the aggregate
Principal Balances of the related Mortgage Loans as of the day of termination
minus amounts remitted from the Principal and Interest Account to the
Certificate Account representing collections of principal on the Mortgage Loans
during the current Remittance Period, plus (i) one month's interest on such
amount computed at the weighted average Coupon Rate for the related Mortgage
Loan Group, (ii) the aggregate amount of any unreimbursed Delinquency Advances
and Servicing Advances, including amounts which would be Delinquency Advances
which the Master Servicer has theretofore failed to remit, (iii) any amount
owing to the Trustee, (iv) any Reimbursement Amount owing to the Certificate
Insurer and the Trustee, (v) any Insured Payment due on the related Payment
Date, (vi) the amount of any unpaid Interest Advances and (vii) the aggregate
amount of any unpaid Supplemental Interest Payment Amounts. The Depositor shall
pay such termination price to the Trustee for deposit in the Certificate
Account. In connection with such termination, the Master Servicer shall remit to
the Trustee all amounts (net of investment earnings and providing for investment
losses pursuant to Section 10.8(b) hereof, net of the Master Servicing Fee and
net of amounts reimbursable for Delinquency Advances and Servicing Advances)
then on deposit in the Principal and Interest Account for deposit to the
Certificate Account, which deposit shall be deemed to have occurred immediately
preceding such purchase.
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(b) In connection with any such purchase, the Depositor
shall provide to the Trustee an opinion of counsel experienced in federal income
tax matters to the effect that such purchase constitutes a Qualified Liquidation
with respect to each REMIC.
(c) Promptly following any such purchase, the Trustee will
release the Files, with appropriate endorsements and transfer documents, to the
Depositor or otherwise upon its order.
Section 8.3. Auction Sale. If the Depositor fails, by the
ninetieth day following the first Remittance Date on which such option may be
exercised, to exercise its purchase option pursuant to Section 8.2 hereof, then
upon receipt of written notice and direction from the Depositor, the Trustee
will notify the Representative (or, if the Representative is unable or
unwilling, another investment banking or whole-loan trading firm selected by the
Depositor (the Representative or such other investment bank or trading firm, the
"Advisor") who will solicit on behalf of the Trustee competitive bids for the
purchase of the Mortgage Loans for fair market value. Such solicitation shall be
conducted substantially in the manner described in Exhibit N hereto. In the
event that satisfactory bids are received as described below, the proceeds of
the sale of such assets shall be deposited into the Certificate Account. The
Trustee will ask the Advisor to solicit, on behalf of the Trustee, good-faith
bids from no fewer than two prospective purchasers that are considered at the
time to be competitive participants in the home equity market. The Advisor will
consult with any securities brokerage houses identified by the Depositor as then
making a market in the Class A Certificates to obtain a determination as to
whether the fair market value of such assets has been offered.
Any purchaser of such Mortgage Loans must agree to the
continuation of the Master Servicer or any successor Master Servicer as servicer
of the assets on terms substantially similar to those in this Agreement.
If the highest good-faith bid received by the Advisor from a
qualified bidder is, in the judgment of the Representative, not less than the
fair market value of such Mortgage Loans and if such bid would equal the amount
set forth in the following sentence, the Trustee, following consultation with
and written direction from the Advisor and the Depositor, will sell and assign
such Mortgage Loans without representation, warranty or recourse to such highest
bidder and will redeem the Class A Certificates. For the Trustee to consummate
the sale, the bid must be at least equal to the termination price set forth in
Section 8.2(a) hereof. In addition, the bid must be in an amount sufficient to
pay the fees and expenses of the Trustee owing hereunder. If such conditions are
not met, the Trustee will, following consultation with the Advisor and the
Depositor, decline to consummate such sale. In addition, the Trustee will
decline to consummate such sale unless it receives from the Advisor an opinion
of counsel addressed to it and the Certificate Insurer that such sale will not
give rise either to any "prohibited transaction" tax under section 860F(a)(1) of
the Code or to any tax on contributions to any REMIC after the "startup day"
under section 860G(d)(1) of the Code. In the event such sale is not consummated
in accordance with the foregoing, the Trustee will not be under any obligation
to solicit any further bids or otherwise to negotiate any further sale of the
Mortgage Loans. In such event, however, if directed by the Depositor, the
Trustee may solicit bids from time to time in the future for the purchase of the
Mortgage Loans upon the same terms described above. The Trustee may consult with
the Advisor and the advice of the Advisor shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder. The Depositor shall reimburse the Trustee for any fees incurred
under this Section 8.3 if a sale is not consummated.
Section 8.4. Disposition of Proceeds. The Trustee shall,
upon receipt thereof, deposit the proceeds of any liquidation or termination of
the Trust Estate pursuant to this Article VIII to the Certificate Account for
application as provided in Section 7.3 hereof.
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ARTICLE IX
THE TRUSTEE
Section 9.1. Certain Duties and Responsibilities.
(a) The Trustee (i) except during the continuance of an
Event of Default, undertakes to perform such duties and only such duties as are
specifically set forth in this Agreement, and no implied covenants or
obligations shall be read into this Agreement against the Trustee and (ii) in
the absence of bad faith on its part, may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished pursuant to and conforming to the
requirements of this Agreement; but in the case of any such certificates or
opinions which by any provision hereof are specifically required to be furnished
to the Trustee, shall be under a duty to examine the same to determine whether
or not they conform to the requirements of this Agreement.
During the continuance of an Event of Default, the Trustee
shall exercise such of the rights and powers vested in it by this Agreement, and
use the same degree of care and skill in their exercise as a prudent person
would exercise or use under the circumstances with respect to such person's
property or affairs.
(b) Notwithstanding the retention of the Master Servicer
pursuant hereto and subject to the provisions of Section 11.1 hereof, the
Trustee is hereby empowered (but not obligated) to perform the duties of the
Master Servicer hereunder following the failure of the Master Servicer to
perform pursuant hereto. Specifically, and not in limitation of the foregoing,
the Trustee shall have the power (but not the obligation):
(i) to collect Mortgagor payments;
(ii) to foreclose on defaulted Mortgage Loans;
(iii) to enforce due-on-sale clauses and to enter into
assumption and substitution agreements as permitted by Article X hereof;
(iv) to deliver instruments of satisfaction pursuant to
Article X hereof;
(v) to enforce the Mortgage Loans; and
(vi) to make Delinquency Advances and Servicing Advances
and to pay Compensating Interest, in the manner required by this Agreement.
(c) No provision of this Agreement shall be construed to
relieve the Trustee from liability for its own negligent action, its own
negligent failure to act or its own willful misconduct, except that:
(i) this subsection shall not be construed to limit the
effect of clause (a) of this Section;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by an Authorized Officer, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts;
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(iii) the Trustee shall not be liable with respect to any
action taken, suffered or omitted to be taken by it in good faith in accordance
with the direction of the Depositor or the Certificate Insurer or, with the
Certificate Insurer's consent, of the Owners of a majority in Percentage
Interest of the Certificates of the affected Class or Classes 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 relating to such Certificates;
(iv) the Trustee shall not be required to take notice or
be deemed to have notice or knowledge of any default by the Depositor or by the
Master Servicer unless the Trustee shall have received written notice thereof.
In the absence of actual receipt of such notice, the Trustee may conclusively
assume that there is no such default; and
(v) Subject to the other provisions of this Agreement and
without limiting the generality of this Section, the Trustee shall have no duty
(A) to see to any recording, filing, or depositing of this Agreement, any
Mortgage or any agreement referred to herein or any financing statement or
continuation statement evidencing a security interest, or to see to the
maintenance of any such recording or filing or depositing or to any rerecording,
refiling or redepositing of any thereof, (B) to see to any insurance, (C) to see
the payment or discharge of any tax, assessment, or other governmental charge or
any lien or encumbrance of any kind owing with respect to, assessed or levied
against, any property of the Trust, (D) to confirm or verify the contents of any
reports or certificates of the Master Servicer or any Sub-Servicer delivered to
the Trustee pursuant to this Agreement or any Sub-Servicing Agreement believed
by the Trustee to be genuine and to have been signed or presented by the proper
party or parties.
(d) Whether or not therein expressly so provided, every
provision of this Agreement relating to the conduct or affecting the liability
of or affording protection to the Trustee shall be subject to the provisions of
this Section.
(e) No provision of this Agreement shall require the
Trustee to expend or risk its own funds or otherwise incur any 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 for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it and none of the provisions
contained in this Agreement shall in any event require the Trustee to perform,
or be responsible for the manner of performance of, any of the obligations of
the Master Servicer hereunder except during such time, if any, as the Trustee
shall be the successor to, and be vested with the rights, duties and powers and
privileges of, the Master Servicer in accordance with the terms of this
Agreement.
(f) The permissive right of the Trustee to take actions
enumerated in this Agreement shall not be construed as a duty and the Trustee
shall not be answerable for other than its own negligence or willful misconduct.
(g) The Trustee shall be under no obligation to institute
any suit, or to take any remedial proceeding under this Agreement, or to take
any steps in the execution of the trusts hereby created or in the enforcement of
any rights and powers hereunder until it shall be indemnified to its reasonable
satisfaction against any and all costs and expenses, outlays and counsel fees
and other
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reasonable disbursements and against all liability, except liability
which is adjudicated to have resulted from its negligence or willful misconduct,
in connection with any action so taken.
Section 9.2. Removal of Trustee for Cause . (a) The
Trustee may be removed pursuant to clause (b) hereof upon the occurrence of any
of the following events (whatever the reason for such event 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):
(1) the Trustee shall fail to distribute to the Owners
entitled thereto on any Payment Date amounts
available for distribution in accordance with the
terms hereof; or
(2) the Trustee shall fail in the performance of, or
breach, any covenant or agreement of the Trustee in
this Agreement, or if any representation or warranty
of the Trustee made in this Agreement or in any
certificate or other writing delivered pursuant
hereto or in connection herewith shall prove to be
incorrect in any material respect as of the time when
the same shall have been made, and such failure or
breach shall continue or not be cured for a period of
30 days after there shall have been given, by
registered or certified mail, to the Trustee by the
Depositor or the Certificate Insurer or by the Owners
of at least 25% of the aggregate Percentage Interest
represented by any Class of Class A Certificates, or,
if there are no Class A Certificates then
Outstanding, by such Percentage Interest represented
by any Class of Class B Certificates, a written
notice specifying such failure or breach and
requiring it to be remedied (unless the Trustee is
aware of such breach as evidenced by notice from the
Trustee pursuant to Section 9.2(b) in which case the
30 day cure period shall begin at the time such
notice was given); or
(3) a decree or order of a court or agency or supervisory
authority having jurisdiction for 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 Trustee, and such
decree or order shall have remained in force
undischarged or unstayed for a period of 60 days; or
(4) a conservator or receiver or liquidator or
sequestrator or custodian of the property of the
Trustee is appointed in any insolvency, readjustment
of debt, marshalling of assets and liabilities or
similar proceedings of or relating to the Trustee or
relating to all or substantially all of its property;
or
(5) the Trustee shall become insolvent (however
insolvency is evidenced), generally fail to pay its
debts as they come due, file or consent to the filing
of a petition to take advantage of any applicable
insolvency or reorganization statute, make an
assignment for the benefit of its creditors,
voluntarily suspend payment of its obligations, or
take corporate action for the purpose of any of the
foregoing.
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(b) The Depositor and the Trustee shall give notice to
each other, to the Certificate Insurer, and to each Owner if it becomes aware
that an event described in Subsection (a) has occurred and is continuing.
(c) If any event described in Subsection (a) occurs and is
continuing, then and in every such case (x) the Depositor or the Certificate
Insurer or (y) with the consent of the Certificate Insurer, the Owners of a
majority of the Percentage Interest represented by any Class of Class A
Certificates, or, if there are no Class A Certificates then Outstanding, by such
Percentage Interest represented by any Class of Class B Certificates then
Outstanding, may, whether or not the Trustee resigns pursuant to Section 9.9
hereof, immediately, concurrently with the giving of notice to the Trustee,
appoint a successor trustee pursuant to the terms of Section 9.9 hereof.
Section 9.3. Certain Rights of the Trustee . Except as
otherwise provided in Section 9.1 hereof:
(a) the Trustee may rely and shall be protected in acting
or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
note or other paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties;
(b) any request or direction of the Depositor or the
Owners of any Class of Certificates mentioned herein shall be sufficient if
evidenced in writing;
(c) whenever in the administration of this Agreement the
Trustee shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith on
its part, rely upon an Officer's Certificate;
(d) the Trustee may consult with counsel, and the written
advice of such counsel shall be full and complete authorization and protection
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reasonable reliance thereon;
(e) the Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Agreement at the request or
direction of any of the Owners pursuant to this Agreement, unless such Owners
shall have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance with
such request or direction;
(f) 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, direction, consent,
order, bond, note or other paper or document, but the Trustee in its discretion
may make such further inquiry or investigation into such facts or matters as it
may see fit;
(g) 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 and the Trustee shall not be responsible for any misconduct
or negligence on the part of any agent or attorney appointed with due care by it
hereunder; and
(h) the Trustee shall not be liable for any action it
takes or omits to take in good faith which it reasonably believes to be
authorized by the Authorized Officer of any Person or within
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its rights or powers under this Agreement other than as to validity and
sufficiency of its authentication of the Certificates.
Section 9.4. Not Responsible for Recitals or Issuance of
Certificates . The recitals contained herein and in the Certificates, except any
such recitals relating to the Trustee, shall be taken as the statements of the
Depositor and the Master Servicer and the Trustee assumes no responsibility for
their correctness. The Trustee makes no representation as to the validity or
sufficiency of this Agreement, any offering materials relating to the
Certificates, or of the Certificates other than as to the validity and
sufficiency of its authentication of the Certificates.
Section 9.5. May Hold Certificates. The Trustee or any
other agent of the Trust, in its individual or any other capacity, may become an
Owner or pledgee of Certificates and may otherwise deal with the Trust with the
same rights it would have if it were not Trustee or such other agent.
Section 9.6. Money Held in Trust. Money held by the
Trustee in trust hereunder need not be segregated from other trust funds except
to the extent required herein or required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Depositor and except to the extent of income or other gain on
investments which are deposits in or certificates of deposit of the Trustee in
its commercial capacity and income or other gain actually received by the
Trustee on Eligible Investments.
Section 9.7. Compensation and Reimbursement . The Trustee
shall receive compensation for fees and reimbursement for expenses pursuant to
Section 2.5 hereof and Section 7.3(b)(i) hereof. The Trustee shall have no lien
on the Trust Estate for the payment of such fees and expenses.
Section 9.8. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a corporation or
association acceptable to the Certificate Insurer and organized and doing
business under the laws of the United States of America or of any State
authorized under such laws to exercise corporate trust powers, having a combined
capital and surplus of at least $100,000,000, subject to supervision or
examination by the United States of America, having a rating or ratings
acceptable to the Depositor and having a long-term deposit rating of at least
BBB from ____ and Baa2 from ____ (or such lower rating as may be acceptable to
____, ____ and the Certificate Insurer). If such Trustee 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 or association
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. If at any time the Trustee shall cease
to be eligible in accordance with the provisions of this Section, it shall, upon
the request of the Depositor or the Certificate Insurer resign immediately in
the manner and with the effect hereinafter specified in this Article IX.
Section 9.9. Resignation and Removal; Appointment of
Successor. (a) No resignation or removal of the Trustee and no appointment of a
successor trustee pursuant to this Article IX shall become effective until the
acceptance of appointment by the successor trustee under Section 9.10 hereof.
(b) The Trustee, or any trustee or trustees hereafter
appointed, may resign at any time by giving written notice of resignation to the
Certificate Insurer, the Depositor and the Master Servicer and by mailing notice
of resignation by first-class mail, postage prepaid, to the Owners at their
addresses appearing on the Register. Upon receiving notice of resignation, the
Depositor shall promptly appoint a successor trustee or trustees satisfying the
eligibility requirements of Section 9.8 by written
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instrument, in duplicate, executed on behalf of the Trust by an Authorized
Officer of the Depositor, one copy of which instrument shall be delivered to the
Trustee so resigning and one copy to the successor trustee or trustees. If no
successor trustee shall have been appointed and have accepted appointment within
30 days after the giving of such notice of resignation, the resigning trustee
may petition any court of competent jurisdiction for the appointment of a
successor trustee, or any Owner may, on behalf of himself and all others
similarly situated, petition any such court for the appointment of a successor
trustee. Such court may thereupon, after such notice, if any, as it may deem
proper and prescribed, appoint a successor trustee.
(c) If at any time the Trustee shall cease to be eligible
under Section 9.8 hereof and shall fail to resign after written request therefor
by the Depositor or the Certificate Insurer, the Depositor or the Certificate
Insurer may remove the Trustee and the Depositor, with the consent of the
Certificate Insurer, or the Certificate Insurer may appoint a successor trustee
by written instrument, in duplicate, executed on behalf of the Trust by an
Authorized Officer of the Depositor or the Certificate Insurer, one copy of
which instrument shall be delivered to the Trustee so removed and one copy to
the successor trustee.
(d) The Owners of a majority of the Percentage Interests
represented by any Class of Class A Certificates with the consent of the
Certificate Insurer, or, if there are no Class A Certificates then Outstanding,
by such Percentage Interest represented by any Class of Class B Certificates
then Outstanding, may at any time remove the Trustee and appoint a successor
trustee by delivering to the Trustee to be removed, to the successor trustee so
appointed, to the Depositor and to the Certificate Insurer, copies of the record
of the act taken by the Owners, as provided for in Section 12.3 hereof.
(e) If the Trustee fails to perform its duties in
accordance with the terms of this Agreement or becomes ineligible to serve as
Trustee, the Depositor or the Certificate Insurer may remove the Trustee and the
Depositor, with the consent of the Certificate Insurer, or the Certificate
Insurer may appoint a successor trustee by written instrument, in triplicate,
signed by the Depositor or the Certificate Insurer duly authorized, one complete
set to the Depositor, one complete set to the Trustee so removed and one
complete set to the successor trustee so appointed. (f) If the Trustee shall
resign, be removed or become incapable of acting, or if a vacancy shall occur in
the office of the Trustee for any cause, the Depositor shall promptly appoint a
successor trustee satisfying the eligibility requirements of Section 9.8.
(g) The Depositor shall give notice of any removal of the
Trustee by mailing notice of such event by first-class mail, postage prepaid, to
the Owners as their names and addresses appear in the Register. Each notice
shall include the name of the successor trustee and the address of its corporate
trust office.
Section 9.10. Acceptance of Appointment by Successor
Trustee. Every successor trustee appointed hereunder shall execute, acknowledge
and deliver to the Depositor on behalf of the Trust and to its predecessor
Trustee an instrument accepting such appointment hereunder and stating its
eligibility to serve as Trustee hereunder, and thereupon the resignation or
removal of the predecessor Trustee shall become effective and such successor
trustee, without any further act, deed or conveyance, shall become vested with
all the rights, powers, trusts, duties and obligations of its predecessor
hereunder; but, on request of the Depositor or the successor trustee, such
predecessor Trustee shall, upon payment of its charges then unpaid, execute and
deliver an instrument transferring to such successor trustee all of the rights,
powers and trusts of the Trustee so ceasing to act, and shall duly assign,
transfer and deliver to such successor trustee all property and money held by
such trustee so ceasing to act hereunder. Upon request of any such successor
trustee, the Depositor on behalf of the Trust shall execute any and all
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instruments for more fully and certainly vesting in and confirming to such
successor trustee all such rights, powers and trusts. The Depositor shall
reimburse the Trustee for any costs reasonably incurred hereunder resulting from
the Trustee's removal under Section 9.09(d) hereof.
Upon acceptance of appointment by a successor Trustee as
provided in this Section, the Depositor shall mail notice thereof by first-class
mail, postage prepaid, to the Owners at their last addresses appearing in the
Register. The Depositor shall send a copy of such notice to the Rating Agencies.
If the Depositor 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 Depositor.
No successor trustee shall accept its appointment unless at
the time of such acceptance such successor shall be qualified and eligible under
this Article IX.
Section 9.11. Merger, Conversion, Consolidation or
Succession to Business of the Trustee. Any corporation or association into
which the Trustee may be merged or converted or with which it may be
consolidated, or any corporation or association resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation or association succeeding to all or substantially all of the
corporate trust business of the Trustee, shall be the successor of the Trustee
hereunder, without the execution or filing of any paper or any further act on
the part of any of the parties hereto; provided, however, that such corporation
or association shall be otherwise qualified and eligible under this Article IX.
In case any Certificates have been executed, but not delivered, by the Trustee
then in office, any successor by merger, conversion or consolidation to such
Trustee may adopt such execution and deliver the Certificates so executed with
the same effect as if such successor Trustee had itself executed such
Certificates.
Section 9.12. Reporting; Withholding. (a) The Trustee
shall timely provide to the Owners the Internal Revenue Service's Form 1099 and
any other statement required by applicable Treasury regulations as determined by
the Depositor, and shall withhold, as required by applicable law, federal, state
or local taxes, if any, applicable to distributions to the Owners, including but
not limited to backup withholding under Section 3406 of the Code and the
withholding tax on distributions to foreign investors under Sections 1441 and
1442 of the Code.
(b) The Trustee shall timely file all reports required to
be filed by the Trust with any federal, state or local governmental authority
having jurisdiction over the Trust, including other reports that must be filed
with the Owners, such as the Internal Revenue Service's Form 1066 and Schedule Q
and the form required under Section 6050K of the Code, if applicable.
Furthermore, the Trustee shall report to Owners, if required, with respect to
the allocation of expenses pursuant to Section 212 of the Code in accordance
with the specific instructions to the Trustee by the Depositor with respect to
such allocation of expenses. The Trustee shall collect any forms or reports from
the Owners determined by the Depositor to be required under applicable federal,
state and local tax laws.
(c) The Trustee shall provide to the Internal Revenue
Service and to persons described in section 860(E)(e)(3) and (6) of the Code the
information described in Treasury Regulation section 1.860D-1(b)(5)(ii), or any
successor regulation thereto. Such information will be provided in the manner
described in Treasury Regulation section 1.860E-2(a)(5), or any successor
regulation thereto. Section
9.13. Liability of the Trustee. The Trustee shall be
liable in accordance herewith only to the extent of the obligations specifically
imposed upon and undertaken by the Trustee herein. Neither the Trustee nor any
of the directors, officers, employees or agents of the Trustee shall be under
any liability on any Certificate or otherwise to any Account, the Depositor, the
Master Servicer, any Sub-
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Servicer or any Owner 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 Trustee
or any such Person against any liability which would otherwise be imposed by
reason of negligent action, negligent failure to act or bad faith in the
performance of duties or by reason of reckless disregard of obligations and
duties hereunder. Subject to the foregoing sentence, the Trustee shall not be
liable for losses on investments of amounts in any Account (except for any
losses on obligations on which the bank serving as Trustee is the obligor). In
addition, the Depositor covenants and agrees to indemnify the Trustee, and when
the Trustee is acting as Master Servicer, the Trustee in its capacity as Master
Servicer, from, and hold it harmless against, any and all losses, liabilities,
damages, claims or expenses (including reasonable and documented legal fees and
expenses) other than those resulting from the negligence or bad faith of the
Trustee. The Trustee and any director, officer, employee or agent of the Trustee
may rely and shall be protected in acting or refraining from acting in good
faith on any certificate, notice or other document of any kind prima facie
properly executed and submitted by the Authorized Officer of any Person
respecting any matters arising hereunder.
Section 9.14. Appointment of Co-Trustee or Separate
Trustee. Notwithstanding any other provisions of this Agreement, at any time,
for the purpose of meeting any legal requirements of any jurisdiction in which
any part of the Trust Estate or any Property may at the time be located, the
Master Servicer and the Trustee acting jointly and with the consent of the
Certificate Insurer 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, of all or any part of the
Trust Estate or separate Trustee or separate Trustees of any part of the Trust
Estate, and to vest in such Person or Persons, in such capacity and for the
benefit of the Owners and the Certificate Insurer, such title to the Trust
Estate, or any part thereof, and, subject to the other provisions of this
Section 9.14, such powers, duties, obligations, rights and trusts as the Master
Servicer and the Trustee may consider necessary or desirable. If the Master
Servicer shall not have joined in such appointment within 15 days after the
receipt by it of a request so to do, or in the case any event indicated in
Section 9.2 of this Agreement shall have occurred and be continuing, the Trustee
alone (with the consent of the Certificate Insurer) 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 9.8 and no
notice to Owners of the appointment of any co-Trustee or separate Trustee shall
be required under Section 9.9.
Every separate Trustee and co-Trustee shall, to the extent
permitted, be appointed and act subject to the following provisions and
conditions:
(i) 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 (it
being understood that such separate Trustee or co-Trustee is not authorized to
act separately without the Trustee joining in such act), except to the extent
that under any law of any jurisdiction in which any particular act or acts are
to be performed (whether as Trustee hereunder or as successor to the Master
Servicer hereunder), the Trustee shall be incompetent or unqualified to perform
such act or acts, in which event such rights, powers, duties and obligations
(including the holding of title to the 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 Trustee;
(ii) No co-Trustee hereunder shall be held personally
liable by reason of any act or omission of any other co-Trustee hereunder; and
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(iii) The Master Servicer and the Trustee acting jointly
with the consent of the Certificate Insurer 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 Trustee
shall be deemed to have been given to each of the then separate Trustees and
co-Trustees, as effectively as if given to each of them. Every instrument
appointing any separate Trustee or co-Trustee shall refer to this Agreement and
the conditions of this Section 9.14. Each separate Trustee and co-Trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Trustee or separately, as may be provided therein, subject to all the provisions
of this Agreement, specifically including every provision of this Agreement
relating to the conduct of, affecting the liability of, or affording protection
to, the Trustee. Every such instrument shall be filed with the Trustee and a
copy thereof given to the Master Servicer.
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.
ARTICLE X
SERVICING AND ADMINISTRATION
OF MORTGAGE LOANS
Section 10.1. General Servicing Procedures . (a) Acting
directly or through one or more Sub-Servicers as provided in Section 10.3, the
Master Servicer shall service and administer the Mortgage Loans in accordance
with this Agreement and shall have full power and authority, acting alone, to do
or cause to be done any and all things in connection with such servicing and
administration which it may deem necessary or desirable and consistent with the
terms of this Agreement. Notwithstanding any provision to the contrary elsewhere
in this Agreement, the Master Servicer shall not have any duties,
responsibilities, or fiduciary relationship with the parties hereto except those
expressly set forth herein, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or shall otherwise exist against the Master Servicer.
(b) The Master Servicer may, and is hereby authorized to,
perform any of its servicing responsibilities with respect to all or certain of
the Mortgage Loans through a Sub-Servicer as it may from time to time designate,
but no such designation of a Sub-Servicer shall serve to release the Master
Servicer from any of its obligations under this Agreement. Such Sub-Servicer
shall have all the rights and powers of the Master Servicer with respect to such
Mortgage Loans under this Agreement.
(c) Without limiting the generality of the foregoing, but
subject to the provisions of this Article X, the Master Servicer in its own name
or in the name of a Sub-Servicer hereby is authorized and empowered, which
authorization may further be evidenced, at the reasonable request of the Master
Servicer, by a power of attorney executed and delivered by the Trustee, on
behalf of itself, the Owners and the Trustee or any of them, (i) to execute and
deliver 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 Properties, (ii) to institute
foreclosure proceedings or obtain a deed in lieu of foreclosure so as to effect
ownership of any Property in the name of the Trust, and (iii) to
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hold title in the name of the Trust to any Property upon such foreclosure or
deed in lieu of foreclosure on behalf of the Trustee; provided, however, that to
the extent any instrument described in clause (i) preceding would be delivered
by the Master Servicer outside of its ordinary procedures for mortgage loans
held for its own account the Master Servicer shall, prior to executing and
delivering such instrument, obtain the prior written consent of the Certificate
Insurer, and provided further, however, that Section 10.14(a) shall constitute a
power of attorney from the Trustee to the Master Servicer to execute an
instrument of satisfaction (or assignment of mortgage without recourse) with
respect to any Mortgage Loan paid in full (or with respect to which payment in
full has been escrowed). Subject to Sections 10.13 and 10.14, the Trustee shall
execute any powers of attorney and other documents as the Master Servicer or
such Sub-Servicer shall reasonably request and that are provided to the Trustee
to enable the Master Servicer and such Sub-Servicer to carry out their
respective servicing and administrative duties hereunder. The costs to the
Master Servicer of delivering any satisfactions described in clause (i) above
shall be paid by the Master Servicer to the extent not recoverable from the
related Mortgagor under applicable state law.
(d) The Master Servicer, with the approval of the
Depositor, shall have the right to approve requests of Mortgagors for consent to
(i) partial releases of Mortgages and (ii) alterations and removal, demolition
or division of Properties subject to Mortgages. No such request shall be
approved by the Master Servicer unless: (1) (x) the provisions of the related
Note and Mortgage have been complied with; (y) the Loan-to-Value Ratio (which
may, for this purpose, be determined at the time of any such action in a manner
reasonably acceptable to the Certificate Insurer) after any release does not
exceed the Loan-to-Value Ratio set forth for such Mortgage Loan in the Mortgage
Loan Schedule; and (z) the lien priority, monthly payment, Coupon Rate or
maturity date of the related Mortgage is not affected (except in accordance with
Section 10.2) or (2) the Certificate Insurer shall have approved the granting of
such request and shall not unreasonably withhold such approval.
(e) The Master Servicer shall give prompt notice to the
Depositor, the Trustee and to the Certificate Insurer of any action, of which
the Master Servicer has actual knowledge, to (i) assert a claim against the
Trust or (ii) assert jurisdiction over the Trust.
(f) Servicing Advances incurred by the Master Servicer or
any Sub-Servicer in connection with the servicing of the Mortgage Loans
(including any penalties in connection with the payment of any taxes and
assessments or other charges) on any Property shall be recoverable by the Master
Servicer or such Sub-Servicer to the extent described in this Agreement.
(g) Each of the Depositor, the Master Servicer, any
Sub-Servicer, the Trustee and the Certificate Insurer shall be entitled to rely,
and shall be fully protected in relying, upon any promissory note, writing,
resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document reasonably believed by it to be genuine and correct and to have been
signed, sent or made by the proper person or persons and upon advice and
statements of legal counsel (including, without limitation, counsel to the
Mortgagor(s)), independent accountants and other experts selected by the
Depositor, the Master Servicer, each Sub-Servicer, the Trustee or the
Certificate Insurer. The Master Servicer shall be fully justified in failing or
refusing to take any action under this Agreement for which failure or refusal it
has sought and received instructions from the Owners and which failure or
refusal has been consented to by the Certificate Insurer. The Master Servicer
shall in all cases be fully protected in acting, or in refraining from acting,
under this Agreement and the Mortgage Loans in accordance with an express
written request of the Owners to which the Certificate Insurer has consented,
and such request and any action taken or failure to act pursuant thereto shall
be binding upon the Depositor, the Master Servicer, the Trustee, the Certificate
Insurer and all Owners. In the event of any conflicting instructions or
requests, the instructions or requests delivered by
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the Certificate Insurer shall prevail, unless such instructions or requests
violate the express terms of this Agreement or violate applicable law.
(h) The Master Servicer shall have no liability to the
Depositor, the Trustee, the Certificate Insurer, the Owners or any other Person
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 the foregoing shall not apply to any breach of representations or
warranties made by the Master Servicer herein, or to any specific liability
imposed upon the Master Servicer pursuant to this Agreement or any liability
that would otherwise be imposed upon the Master Servicer by reason of its
willful misconduct, bad faith or negligence in the performance of its duties
hereunder or by reason of its reckless disregard of its obligations or duties
hereunder.
Section 10.2. Collection of Certain Mortgage Loan
Payments. The Master Servicer shall generally service the Mortgage Loans in a
prudent manner consistent with the Master Servicer's Servicing and Collection
Guide (the "Servicing Standards"), and agrees to 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, follow collection procedures for all Mortgage Loans at least as
rigorous as those the Master Servicer would take in servicing similar mortgage
loans and in collecting payments thereunder for its own account. Consistent with
the foregoing, the Master Servicer may (i) in its discretion waive or permit to
be waived any late payment charge or assumption fee or any other fee or charge
which the Master Servicer would be entitled to retain pursuant to Section 10.15
as servicing compensation, (ii) extend the due date for payments due on a Note
for a period (with respect to each payment as to which the due date is extended)
not greater than 125 days after the initially scheduled due date for such
payment and (iii) amend any Note to extend the maturity thereof, provided that
no maturity shall be extended beyond the maturity date of the Mortgage Loan with
the latest maturity date and that no more than ____% of the Original Pool
Principal Balance of the Mortgage Loans shall have a maturity date which has
been extended beyond the maturity date thereof at the Cut-off Date; provided
further, with respect to clauses (i), (ii) and (iii), that such action does not
violate applicable REMIC provisions. In the event the Master Servicer shall
consent to the deferment of the due dates for payments due on a Note, the Master
Servicer shall nonetheless make payment of any required Delinquency Advance with
respect to the payments so extended to the same extent as if such installment
were due, owing and Delinquent and had not been deferred, and shall be entitled
to reimbursement therefor in accordance with Sections 10.8(d)(i)(D) and 10.9(a)
hereof.
The Master Servicer may not waive prepayment charges or
penalty interest in connection with Prepayments. Any such amounts so received
shall be paid over to the Depositor as received.
Section 10.3. Sub-Servicing Agreements Between Master
Servicer and Sub-Servicers. The Master Servicer may enter into Sub-Servicing
Agreements for any servicing and administration of Mortgage Loans with any
institution which is in compliance with the laws of each state necessary to
enable it to perform its obligations under such Sub-Servicing Agreement and
which (i) has been designated an approved seller-servicer by FHLMC or FNMA for
first and second mortgage loans and (ii) has equity of at least $__________, as
determined in accordance with generally accepted accounting principles, and
(iii) must have demonstrated proficiency in the servicing of mortgage loans
having similar characteristics (including credit characteristics) to the
Mortgage Loans. The Master Servicer shall give notice to the Depositor, the
Trustee, ____, ____ and the Certificate Insurer of the removal or appointment of
any Sub-Servicer; no such removal or appointment shall be effective unless the
Trustee shall have received the prior consent of ____, the Certificate Insurer
and ____. Any such Sub-Servicing Agreement shall be consistent with and not
violate the provisions of this Agreement. For purposes of this Agreement, the
Master Servicer shall be deemed to have received payments on or with respect to
Mortgage Loans when any Sub-Servicer has received such payments. For purposes of
this Agreement,
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the Master Servicer shall be deemed to have made a payment required to be made
by it hereunder when any Sub-Servicer has made such payment in the manner
required of the Master Servicer hereunder. For purposes of this Agreement, the
Master Servicer shall be deemed to have delivered any document required to be
delivered by it hereunder when any Sub-Servicer has delivered such document in
the manner required of the Master Servicer hereunder. As of the Startup Day, the
only Sub-Servicer is LSI Financial Group.
Section 10.4. Successor Sub-Servicers. Each Sub-Servicing
Agreement shall expressly provide that the Master Servicer or the Trustee shall
be entitled to terminate any Sub-Servicing Agreement in accordance with the
terms and conditions of such Sub-Servicing Agreement and to enter into a
Sub-Servicing Agreement with a successor Sub-Servicer which qualifies under
Section 10.3. The Trustee shall have no duty or obligation hereunder to monitor
or supervise the performance of any Sub-Servicer.
Section 10.5. Liability of Master Servicer. The Master
Servicer shall not be relieved of its obligations under this Agreement
notwithstanding any Sub-Servicing Agreement or any of the provisions of this
Agreement relating to agreements or arrangements between the Master Servicer and
a Sub-Servicer or otherwise, and the Master Servicer shall be obligated to the
same extent and under the same terms and conditions as if it alone were
servicing and administering the Mortgage Loans. 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 such
Sub-Servicing Agreement shall be deemed to limit or modify this Agreement.
Section 10.6. No Contractual Relationship Between
Sub-Servicer and Trustee or the Owners. Any Sub-Servicing Agreement and any
other transactions or services relating to the Mortgage Loans involving a
Sub-Servicer (other than the Sub-Servicing Agreement dated the date hereof among
the Master Servicer, LSI Financial Group and the Trustee) shall be deemed to be
between the Sub-Servicer, the Master Servicer and any other parties thereto
alone and the Trustee and the Owners shall not be deemed parties thereto and
shall have no claims, rights, obligations, duties or liabilities with respect to
any Sub-Servicer except as set forth in Sections 10.4 and 10.7, unless expressly
made a party thereto.
Section 10.7. Assumption or Termination of Sub-Servicing
Agreement by Trustee. In connection with the assumption of the responsibilities,
duties and liabilities and of the authority, power and rights of the Master
Servicer hereunder by the Trustee pursuant to Section 11.1, it is understood and
agreed that the Master Servicer's rights and obligations under any Sub-Servicing
Agreement then in force between the Master Servicer and a Sub-Servicer may be
assumed or terminated by the Trustee at its option, and the Master Servicer
shall cause each Sub-Servicing Agreement to so provide. Each Sub-Servicing
Agreement shall contain term provisions at least as restrictive as those
contained herein with respect to the Master Servicer.
The Master Servicer shall, upon request of the Trustee, but at
the expense of the Master Servicer, deliver to the assuming party documents and
records relating to each Sub-Servicing Agreement and an accounting of amounts
collected and held by it and otherwise use its best reasonable efforts to effect
the orderly and efficient transfer of the Sub-Servicing Agreements to the
assuming party.
Section 10.8. Principal and Interest Account.
(a) The Master Servicer shall establish and maintain at
one or more Designated Depository Institutions the Principal and Interest
Account as a segregated account.
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Subject to Subsections (c) and (d) below, the Master Servicer
and any Sub-Servicer shall deposit all collections (other than amounts escrowed
for taxes and insurance) related to the Mortgage Loans to the Principal and
Interest Account on a daily basis (but no later than the first Business Day
after receipt).
On or before the Startup Day, the Master Servicer shall
deposit to the Principal and Interest Account (i) all scheduled payments due and
collected (other than amounts escrowed for taxes and insurance) on the Mortgage
Loans after the Cut-Off Date and prior to the Startup Day and (ii) all
unscheduled collections (other than amounts escrowed for taxes and insurance) on
the Mortgage Loans received on or after the Cut-Off Date and prior to the
Startup Day.
(b) All funds in the Principal and Interest Account shall
be invested in Eligible Investments maturing not later than the Business Day
immediately preceding the related Remittance Date; provided, however, in the
event that Trustee is acting as Successor Master Servicer, such amounts may be
held uninvested. The Principal and Interest Account shall be held in trust in
the name of the Trustee for the benefit of the Owners. Any investment earnings
on funds held in the Principal and Interest Account shall be for the account of
the Master Servicer and may only be withdrawn from the Principal and Interest
Account by the Master Servicer immediately following the remittance of the
Monthly Remittances by the Master Servicer. Any investment losses shall be paid
by the Master Servicer to the Principal and Interest Account from the Master
Servicer's own funds. Any references herein to amounts on deposit in the
Principal and Interest Account shall refer to amounts net of such investment
earnings and to additional amounts in respect of investment losses. The Trustee
shall have no responsibility or liability for actions taken by the Master
Servicer, including withdrawals, with respect to the Principal and Interest
Accounts.
(c) The Master Servicer shall deposit to the Principal and
Interest Account all principal and interest payments from the related Mortgagors
received by the Master Servicer (including any Prepayments), Net Proceeds, other
recoveries or amounts related to the Mortgage Loans received by the Master
Servicer, Compensating Interest, Delinquency Advances together with any amounts
which are reimbursable to the Master Servicer from the Principal and Interest
Account, the amount of any Loan Purchase Price received or paid by the Master
Servicer, the amount of any Substitution Amount received by the Master Servicer,
REO income pursuant to Section 10.13(c) hereof, and amounts required to be
deposited therein pursuant to Section 10.11 hereof in connection with blanket
insurance policies and any proceeds received by the Master Servicer in
connection with the termination of the Trust, but net of (i) the Master
Servicing Fee with respect to each Mortgage Loan and other servicing
compensation to the Master Servicer as permitted by Section 10.15 hereof, (ii)
Net Proceeds to the extent such Net Proceeds exceed the sum of (I) the Principal
Balance of the related Mortgage Loan, plus (II) accrued and unpaid interest on
such Mortgage Loan at the Coupon Rate applicable to the related Remittance
Period (net of the Master Servicing Fee) and (iii) prepayment charges and
similar amounts to be paid over to the Depositor pursuant to Section 10.2
hereof. Amounts described in clause (ii) of the preceding sentence shall be
retained by the Master Servicer as additional servicing compensation or paid
over to the related Mortgagor if required by law.
(d)(i) The Master Servicer may make withdrawals from the
Principal and Interest Account only for the following purposes:
(A) to effect the timely remittance to the Trustee of
the related Monthly Remittance due on each
Remittance Date;
(B) to withdraw investment earnings on amounts on
deposit in the Principal and Interest Account;
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(C) to withdraw amounts that have been deposited to
the Principal and Interest Account in error;
(D) to reimburse itself for amounts which represent
Reimbursable Advances made by the Master Servicer
from its own funds and subsequently collected
from the related Mortgagor; and
(E) to clear and terminate the Principal and Interest
Account in connection with the termination of the
Trust.
(ii) On the tenth day of each month (or the immediately
following Business Day if the tenth day does not fall on a Business Day), the
Master Servicer shall send to the Trustee a report, in such electronic form as
may be agreed upon by the Master Servicer, the Depositor, the Certificate
Insurer and the Trustee, detailing the payments on the Mortgage Loans for each
of the Mortgage Loan Groups during the prior Remittance Period. Such report
shall be in the form and have the specifications as may be agreed to between the
Master Servicer, the Depositor, and the Trustee from time to time and, in any
event, shall have such information as shall be necessary to enable the Trustee
to perform its obligations hereunder.
In addition, on or prior to each Remittance Date, the Master
Servicer will furnish to the Depositor, the Trustee and to the Certificate
Insurer the following information for the three Mortgage Loan Groups as of the
close of business on the first business day of the current calendar month:
(A) the total number of Mortgage Loans and the
aggregate Principal Balances thereof, together
with the number and aggregate principal balances
of Mortgage Loans (a) 30-59 days Delinquent, (b)
60-89 days Delinquent and (c) 90 or more days
Delinquent;
(B) the number and aggregate principal balances of
all Mortgage Loans in foreclosure proceedings
(and whether any such Mortgage Loans are also
included in any of the statistics described in
the foregoing clause (A));
(C) the number and aggregate principal balances of
all Mortgage Loans relating to Mortgagors in
bankruptcy proceedings (and whether any such
Mortgage Loans are also included in any of the
statistics described in the foregoing clauses (A)
and (B));
(D) the number and aggregate principal balances of
all Mortgage Loans relating to REO Properties
(and whether any such Mortgage Loans are also
included in any of the statistics described in
the foregoing clauses (A), (B) and (C));
(E) the number and aggregate principal balances of
all Mortgage Loans as to which foreclosure
proceedings were commenced during the prior
Remittance Period;
(F) a schedule regarding cumulative foreclosures
since the Cut-Off Date;
(G) a schedule regarding the Group I Cumulative Net
Realized Losses, the Group II Cumulative Net
Realized Losses and the Cumulative Net Realized
Losses;
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(H) the book value of any REO Property and any income
received from REO Properties during the prior
Remittance Period;
(I) such other information as the Trustee, the
Depositor or the Certificate Insurer may
reasonably request and as is produced by the
Master Servicer in the ordinary course of its
business; and
(J) the number and Principal Balance of any Mortgage
Loans repurchased during the related Remittance
Period pursuant to Section 10.13(f) and the
number and cumulative Principal Balance of all
Mortgage Loans so repurchased since the Cut-Off
Date.
(iii) On each Remittance Date the Master Servicer shall
remit the Group I Monthly Remittance and the Group II Monthly Remittance to the
Trustee by wire transfer, or otherwise make funds available in immediately
available funds.
(e) In connection with any exercise by the Depositor of
its option and related termination under Article VIII hereof, upon written
request of the Depositor, the Master Servicer shall remit to the Trustee all
amounts (net of investment earnings and providing for investment losses pursuant
to Section 10.8(b), net of the Master Servicing Fee and net of amounts
reimbursable for Delinquency Advances and Servicing Advances) then on deposit in
the Principal and Interest Account for deposit to the Certificate Account, which
deposit shall be deemed to have occurred immediately preceding such purchase.
Section 10.9. Delinquency Advances and Servicing Advances.
(a) If the amount on deposit in the Principal and Interest Account with respect
to any Mortgage Loan Group as of any Remittance Date is less than the related
Monthly Remittance for such Remittance Date, the Master Servicer shall deposit
to the Principal and Interest Account with respect to such Mortgage Loan Group a
sufficient amount of its own funds to make such amount equal to the related
Monthly Remittance for such Remittance Date. Such amounts of the Master
Servicer's own funds so deposited are "Delinquency Advances". Any Delinquency
Advances funded by the Master Servicer from its own funds are reimbursable from
subsequent collections on or with respect to the related Mortgage Loan,
including Liquidation Proceeds, Insurance Proceeds, Released Mortgaged Property
Proceeds, and payments from the related Mortgagor. Notwithstanding anything to
the contrary contained in this Agreement, no Delinquency Advance or Servicing
Advance shall be required to be made by the Master Servicer if such Delinquency
Advance or Servicing Advance would, if made, constitute a Nonrecoverable
Advance.
The Master Servicer shall be permitted to fund its payment of
Delinquency Advances on any Remittance Date from collections on any Mortgage
Loan deposited to the Principal and Interest Account subsequent to the related
Remittance Period, and shall deposit to the Certificate Account with respect to
Delinquency Advances funded from amounts on deposit in the Principal and
Interest Account (i) collections from the Mortgagor whose delinquency gave rise
to the shortfall which resulted in such Delinquency Advance and (ii) Net
Liquidation Proceeds recovered on account of the related Mortgage Loan to the
extent of the amount of aggregate Delinquency Advances related thereto. In any
event, to the extent the Master Servicer uses such funds, the Master Servicer
must reimburse the Principal and Interest Account by the next Remittance Date to
the extent necessary to provide for the related Monthly Remittance.
(b) The Master Servicer will pay all reasonable and
customary "out-of-pocket" costs and expenses (including reasonable legal fees)
incurred in the performance of its servicing obligations including, but not
limited to, the cost of (i) Preservation Expenses, (ii) any enforcement or
judicial
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proceedings, including foreclosures, (iii) the management and liquidation of REO
Property (including, without limitation, realtors' commissions) and (iv)
advances made for taxes, insurance and other charges against the Property. Each
such expenditure will constitute a "Servicing Advance". The Master Servicer may
recover Servicing Advances from the Mortgagors to the extent permitted by the
Mortgage Loans or, if not theretofore recovered from the Mortgagor on whose
behalf such Servicing Advance was made, from Liquidation Proceeds, Insurance
Proceeds and/or Released Mortgage Property Proceeds realized with respect to the
related Mortgage Loan. In no case may the Master Servicer recover Servicing
Advances from the principal and interest payments on any Mortgage Loan or from
any amounts relating to any other Mortgage Loan.
Section 10.10. Compensating Interest. If a Prepayment in
full of the outstanding principal balance of a Mortgage Loan occurs during any
calendar month, any difference between the interest collected from the Mortgagor
during such calendar month and the full month's interest at the related Coupon
Rate less the Master Servicing Fee with respect to such Mortgage Loan
("Compensating Interest") that is due, then prior to the Remittance Date the
Master Servicer shall deposit the Compensating Interest to the Principal and
Interest Account which amount shall be included in the related Monthly
Remittance to be made available to the Trustee on the next succeeding Remittance
Date; provided, however, that Compensating Interest due from the Master Servicer
on any Remittance Date will not exceed the monthly Servicing Fee. The Master
Servicer shall not be entitled to reimbursement for Compensating Interest
payments.
Section 10.11. Maintenance of Insurance.
(a) The Master Servicer shall cause to be maintained with
respect to each Mortgage Loan a hazard insurance policy with a generally
acceptable carrier licensed in the state in which the Property is located that
provides for fire and extended coverage, and which provides for a recovery by
the Trust of insurance proceeds relating to such Mortgage Loan in an amount not
less than the least of (i) the outstanding principal balance of the Mortgage
Loan (together in the case of a Second Mortgage Loan, with the outstanding
principal balance of the Senior Lien), (ii) the minimum amount required to
compensate for loss or damage on a replacement cost basis and (iii) the full
insurable value of the premises and which otherwise conforms to the description
thereof set forth in clause (xvii) of Section 3.2(b). The Master Servicer shall
indemnify the Trust out of the Master Servicer's own funds for any loss to the
Trust resulting from the Master Servicer's failure to maintain the insurance
required by this paragraph.
(b) If the Mortgage Loan at the time of origination
relates to a Property in an area identified in the Federal Register by the
Federal Emergency Management Agency as having special flood hazards, the Master
Servicer will cause to be maintained with respect thereto a flood insurance
policy in a form meeting the requirements of the current guidelines of the
Federal Insurance Administration with a generally acceptable carrier, and which
provides for a recovery by the Master Servicer on behalf of the Trust of
insurance proceeds relating to such Mortgage Loan of not less than the least of
(i) the outstanding principal balance of the Mortgage Loan, (ii) the minimum
amount required to compensate for damage or loss on a replacement cost basis and
(iii) the maximum amount of insurance that is available under the Flood Disaster
Protection Act of 1973, as amended and which otherwise conforms to the
description thereof set forth in clause (xviii) of Section 3.2(b). The Master
Servicer shall indemnify the Trust and the Certificate Insurer out of the Master
Servicer's own funds for any loss to the Trust and the Certificate Insurer
resulting from the Master Servicer's failure to maintain the insurance required
by this Section.
(c) In the event that the Master Servicer shall obtain and
maintain a blanket policy with an insurer acceptable to the Certificate Insurer
insuring against fire and hazards of extended coverage on all of the Mortgage
Loans, then, to the extent such policy names the Master Servicer as loss
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payee and provides coverage in an amount equal to the aggregate unpaid principal
balance on the Mortgage Loans with co-insurance, and otherwise complies with the
requirements of this Section 10.11, the Master Servicer shall be deemed
conclusively to have satisfied its obligations with respect to fire and hazard
insurance coverage under this Section 10.11, it being understood and agreed that
such blanket 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 Property a policy complying with subsection (a) of this Section 10.11,
and there shall have been a loss which would have been covered by such policy,
deposit in the Principal and Interest Account from the Master Servicer's own
funds the difference, if any, between the amount that would have been payable
under a policy complying with subsection (a) of this Section 10.11 and the
amount paid under such blanket policy. Upon the request of the Trustee, the
Master Servicer shall cause to be delivered to the Trustee, a certified true
copy of such policy.
(d) The Depositor shall indemnify the Master Servicer for
any loss to the Master Servicer if any Mortgage Loan does not, at the time the
Master Servicer assumed the servicing of such Mortgage Loan, have in place the
insurance described in Sections 3.2(b)(xvi) and (xvii) hereof and described
herein and, if applicable, Section 3.2(b)(xviii) hereof. Without limiting the
obligations of the Depositor pursuant to Section 3.2, the Master Servicer shall
only be required to maintain insurance on any Property if such insurance was in
place at the time the Master Servicer assumed the servicing of the related
Mortgage Loan.
Section 10.12. Due-on-Sale Clauses; Assumption and
Substitution Agreements.
(a) When a Property has been or is about to be conveyed by
the Mortgagor, the Master Servicer shall, to the extent it has knowledge of such
conveyance or prospective conveyance, exercise its rights to accelerate the
maturity of the related Mortgage Loan under any "due on sale" clause contained
in the related Mortgage or Note; provided, however, that the Master Servicer
shall not exercise any such right if the "due on sale" clause, in the reasonable
belief of the Master Servicer, is not enforceable under applicable law; and
provided, further, that the Master Servicer may refrain from exercising any such
right if the Certificate Insurer gives its prior consent to such
non-enforcement.
(b) The Mortgage Loan, if assumed, shall conform in all
respects to the requirements, representations and warranties of this Agreement.
The Master Servicer shall notify the Trustee in writing that any applicable
assumption or substitution agreement has been completed and shall forward to the
Trustee the original recorded copy of such assumption or substitution agreement,
which copy shall be added by the Trustee in writing to the related File and
which shall, for all purposes, be considered a part of such File to the same
extent as all other documents and instruments constituting a part thereof. The
Master Servicer shall be responsible for recording any such assumption or
substitution agreements. In connection with any such assumption or substitution
agreement, the required monthly payment on the related Mortgage Loan shall not
be changed but shall remain as in effect immediately prior to the assumption or
substitution, the stated maturity or outstanding principal amount of such
Mortgage Loan shall not be changed, the Coupon Rate shall not be changed nor
shall any required monthly payments of principal or interest be deferred or
forgiven. Any fee collected by the Master Servicer or the Sub-Servicer for
consenting to any such conveyance or entering into an assumption or substitution
agreement shall be retained by or paid to the Master Servicer as additional
servicing compensation.
(c) Notwithstanding the foregoing clauses (a) and (b) 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 which the Master Servicer may be restricted by law from preventing,
for any reason whatsoever.
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Section 10.13. Realization Upon Defaulted Mortgage Loans.
(a) The Master Servicer shall foreclose upon or otherwise
comparably effect the ownership in the name of the Trust of Properties relating
to defaulted Mortgage Loans as to which no satisfactory arrangements can be made
for collection of Delinquent payments and which the Master Servicer has not
purchased pursuant to Section 10.13(f), unless the Master Servicer reasonably
believes that Net Liquidation Proceeds with respect to such Mortgage Loan would
not be increased as a result of such foreclosure or other action, in which case
such Mortgage Loan will be charged-off and will become a Liquidated Loan. The
Master Servicer shall have no obligation to purchase any Property at any
foreclosure sale. The Master Servicer will give notice of any such charge-off to
the Certificate Insurer by delivery of a Liquidation Report in the form attached
as Exhibit G hereto. In connection with such foreclosure or other conversion,
the Master Servicer shall exercise foreclosure procedures with the same degree
of care and skill in their exercise or use, as it would exercise or use under
the circumstances in the conduct of its own affairs. Any amounts, including
Liquidation Expenses, advanced by the Master Servicer in connection with such
foreclosure or other action shall constitute "Servicing Advances" within the
meaning of Section 10.9(b) hereof.
(b) The Master Servicer shall sell any REO Property within
23 months of its acquisition by the Trust, unless the Master Servicer obtains
for the Trustee an opinion of counsel experienced in federal income tax matters,
addressed to the Trustee, the Certificate Insurer and the Master Servicer, to
the effect that the holding by the Trust of such REO Property for a greater
specified period will not result in the imposition of taxes on "Prohibited
Transactions" of the Trust as defined in Section 860F of the Code or cause the
REMICs to fail to qualify under the REMIC Provisions at any time that any
Certificates are outstanding.
(c) Notwithstanding the generality of the foregoing
provisions, the Master Servicer shall manage, conserve, protect and operate each
REO Property for the Owners 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) of the Code or
result in the receipt by the Trust of any "income from non-permitted assets"
within the meaning of Section 860F(a)(2)(B) of the Code or any "net income from
foreclosure 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
conservation and protection of the interests of the Owners and the Certificate
Insurer, rent the same, or any part thereof, as the Master Servicer deems to be
in the best interest of the Owners and the Certificate Insurer for the period
prior to the sale of such REO Property. The net income from the sale of an REO
Property shall be deposited in the Principal and Interest Account.
(d) If the Master Servicer has reason to believe that a
Property which the Master Servicer is contemplating acquiring in foreclosure or
by deed in lieu of foreclosure contains environmental or hazardous waste risks
known to the Master Servicer, the Master Servicer shall notify the Depositor,
the Trustee and the Certificate Insurer prior to acquiring the Property. The
Master Servicer shall not institute foreclosure actions with respect to such a
property if it reasonably believes that such action would not be consistent with
the Servicing Standards, and the Master Servicer is not permitted to take any
action with respect to such a Property without the prior written approval of the
Depositor, the Trustee, and the Certificate Insurer, and in no event shall the
Master Servicer be required to manage, operate or take any other action with
respect thereto which the Master Servicer in good faith believes will result in
"clean-up" or other liability under applicable law, unless the Master Servicer
receives an indemnity acceptable to it in its sole discretion.
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(e) The Master Servicer shall determine, with respect to
each defaulted Mortgage Loan, when it has recovered, whether through trustee's
sale, foreclosure sale or otherwise, all amounts, if any, it expects to recover
from or on account of such defaulted Mortgage Loan, whereupon such Mortgage Loan
shall become a "Liquidated Loan". The Master Servicer shall deliver to the
Depositor, the Trustee and the Certificate Insurer on each Remittance Date a
Liquidation Report in the form annexed as Exhibit G hereto with respect to each
Mortgage Loan as to which the Master Servicer made a determination that such
Mortgage Loan has become a Liquidated Loan during the related Remittance Period.
(f) The Master Servicer has the right and the option, but
not the obligation, to purchase for its own account any Mortgage Loan which
becomes Delinquent, in whole or in part, as to four consecutive monthly
installments or any Mortgage Loan as to which enforcement proceedings have been
brought by the Master Servicer pursuant to this Section 10.13 or which is in
default or as to which a default is imminent. Any such Mortgage Loan so
purchased shall be purchased on a Remittance Date at a purchase price equal to
the Loan Purchase Price thereof, which purchase price shall be deposited in the
Principal and Interest Account.
(g) The Master Servicer shall consult with the Depositor
with respect to its obligations under this Section 10.13.
Section 10.14. Trustee to Cooperate; Release of Files.
(a) Upon the payment in full of any Mortgage Loan (including the repurchase of
any Mortgage Loan or any liquidation of such Mortgage Loan through foreclosure
or otherwise), or the receipt by the Master Servicer of a notification that
payment in full will be escrowed in a manner customary for such purposes, the
Master Servicer shall deliver to the Trustee a Master Servicer's Trust Receipt.
Upon receipt of such Master Servicer's Trust Receipt, the Trustee shall promptly
release the related File, in trust to (i) the Master Servicer, (ii) an escrow
agent or (iii) any employee, agent or attorney of the Trustee, in each case
pending its release by the Master Servicer, such escrow agent or such employee,
agent or attorney of the Trustee, as the case may be. Upon any such payment in
full, or the receipt of such notification that such funds have been placed in
escrow, the Master Servicer is authorized to give, as attorney-in-fact for the
Trustee and the mortgagee under the Mortgage which secured the Note, an
instrument of satisfaction (or assignment of Mortgage without recourse)
regarding the Property relating to such Mortgage, which instrument of
satisfaction or assignment, as the case may be, shall be delivered to the Person
or Persons entitled thereto against receipt therefor of payment in full, it
being understood and agreed that no expense incurred in connection with such
instrument of satisfaction or assignment, as the case may be, shall be
chargeable to the Principal and Interest Account. In lieu of executing any such
satisfaction or assignment, as the case may be, the Master Servicer may prepare
and submit to the Trustee, a satisfaction (or assignment without recourse, if
requested by the Person or Persons entitled thereto) in form for execution by
the Trustee with all requisite information completed by the Master Servicer; in
such event, the Trustee shall execute and acknowledge such satisfaction or
assignment, as the case may be, and deliver the same with the related File, as
aforesaid.
(b) From time to time and as appropriate in the servicing
of any Mortgage Loan, including, without limitation, foreclosure or other
comparable conversion of a Mortgage Loan or collection under any applicable
Insurance Policy, the Trustee shall (except in the case of the payment or
liquidation pursuant to which the related File is released to an escrow agent or
an employee, agent or attorney of the Trustee), promptly upon request of the
Master Servicer and delivery to the Trustee of a Master Servicer's Trust
Receipt, release the related File to the Master Servicer and shall execute such
documents as shall be reasonably necessary to the prosecution of any such
proceedings, including, without limitation, an assignment without recourse of
the related Mortgage to the Master Servicer. The Trustee shall complete in the
name of the Trustee any endorsement in blank on any Note prior to releasing
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such Note to the Master Servicer. Such receipt shall obligate the Master
Servicer to return the File to the Trustee when the need therefor by the Master
Servicer no longer exists unless the Mortgage Loan shall be liquidated, in which
case, upon receipt of the liquidation information, in physical or electronic
form, the Master Servicer's Trust Receipt shall be released by the Trustee to
the Master Servicer.
Notwithstanding the foregoing, at no time shall the Trustee
release to the Master Servicer pursuant to this Section 10.14 a quantity of
Files in excess of 10% of the number of Mortgage Loans within the Pool,
excluding Files relating to Mortgage Loans which have been paid in full or have
become Liquidated Loans (unless otherwise approved by the Certificate Insurer).
(c) In all cases where the Master Servicer needs the
Trustee to sign any document or to release a File within a particular period of
time, the Master Servicer shall notify an Authorized Officer of the Trustee by
telephone or telecopy of such need and the Trustee shall thereupon use its best
efforts to comply with the Master Servicer's needs, but in any event will comply
within two Business Days of such request.
Section 10.15. Master Servicing Compensation. As
compensation for its activities hereunder, the Master Servicer shall be entitled
to retain the amount of the Master Servicing Fee with respect to each Mortgage
Loan. Additional servicing compensation in the form of release and satisfaction
fees (to the extent allowed by law), bad check charges, assumption fees, late
payment charges, and any other servicing-related fees, Net Proceeds not required
to be deposited in the Principal and Interest Account pursuant to Section
10.8(c)(ii) and similar items may, to the extent collected from Mortgagors, be
retained by the Master Servicer.
Section 10.16. Annual Statement as to Compliance. The
Master Servicer, at its own expense, will deliver to the Depositor, the Trustee,
the Certificate Insurer, ____ and ____ annually, commencing in ____, an
Officer's Certificate stating, as to each signer thereof, that (i) a review of
the activities of the Master Servicer during such preceding fiscal year and of
performance under this Agreement has been made under such officer's supervision,
and (ii) to the best of such officer's knowledge, based on such review, the
Master Servicer has fulfilled all its obligations under this Agreement for such
year, or, if there has been a default in the fulfillment of one or more such
obligations, specifying each such default known to such officer and the nature
and status thereof including the steps being taken by the Master Servicer to
remedy such default. Any Sub-Servicer which is not a Master Servicer Affiliate
also shall deliver an annual statement as to compliance in the form described
above or the Master Servicer shall cover their performance in their statement.
These statements shall be available to Owners upon written request.
Section 10.17. Annual Independent Certified Public
Accountants' Reports. Annually, commencing in ____, the Master Servicer, at its
own expense, shall cause to be delivered to the Depositor, the Trustee, the
Certificate Insurer, ____ and ____ a letter or letters of a firm of independent,
nationally recognized certified public accountants reasonably acceptable to the
Certificate Insurer stating that such firm has, with respect to the Master
Servicer's overall servicing operations (i) performed applicable tests in
accordance with the compliance testing procedures as set forth in Appendix 3 of
the "Audit Guide for Audits of HUD Approved Non-Supervised Mortgages" or (ii)
examined such operations in accordance with the requirements of the Uniform
Single Attestation Program for Mortgage Bankers, and stating such firm's
conclusions relating thereto. These reports will be made available to Owners
upon written request.
Section 10.18. Access to Certain Documentation and
Information Regarding the Mortgage Loans; Confidentiality. The Master Servicer
shall provide to the Depositor, the Trustee, the Certificate Insurer, and the
supervisory agents and examiners (as required in the latter case by applicable
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state and federal regulations) of each of the foregoing access to the
documentation regarding the Mortgage Loans, such access being afforded without
charge but only upon reasonable request and during normal business hours at the
offices of the Master Servicer designated by it.
Upon any change in the format of the computer tape maintained
by the Master Servicer in respect of the Mortgage Loans, the Master Servicer
shall deliver a copy of such computer tape to the Trustee and the Depositor and
in addition shall provide a copy of such computer tape to the Trustee and the
Depositor at such other times as the Trustee and the Depositor may request.
The Master Servicer, the Trustee, and the Certificate Insurer
shall keep confidential (including from affiliates thereof) information
concerning the Mortgage Loans and the underwriting criteria for the Mortgage
Loans, except as required by law.
Each of the Depositor, the Trustee and the Certificate Insurer
acknowledges the proprietary nature of the software, software procedures,
software development tools, know-how, methodologies, processes and technologies
of the Master Servicer and any Sub-Servicer and agrees (i) that it shall use the
same means as it uses to protect its own confidential information, but in no
event less than reasonable means, to avoid disclosure by it or its agents or
employees to any third party of any confidential or proprietary information of
the Master Servicer or any Sub-Servicer, and (ii) that all such software,
software procedures, software development tools, know-how, methodologies,
process and technologies that are based upon trade secrets or proprietary
information of the Master Servicer or any Sub-Servicer shall be and remain the
property of the Master Servicer or any Sub-Servicer and that each of the
Depositor, the Trustee and the Certificate Insurer will have no interest therein
or claim thereto. Each Sub-Servicer shall be a third-party beneficiary of this
paragraph.
Section 10.19. Assignment of Agreement. The Master
Servicer may not assign its obligations under this Agreement, in whole or in
part, unless it shall have first obtained (i) the written consent of the
Depositor, the Trustee and Certificate Insurer and (ii) the Trustee and
Certificate Insurer shall have received a confirmation letter from each Rating
Agency confirming the rating of the Class A Certificates as AAA or its
equivalent; provided, however, that any assignee must meet the eligibility
requirements set forth in Section 11.1(g) hereof for a successor servicer.
Section 10.20. Inspections by Certificate Insurer and
Account Parties; Errors and Omissions Insurance. (a) At any reasonable time and
from time to time upon reasonable notice, the Depositor, the Certificate
Insurer, the Trustee, or any agents or representatives thereof may inspect the
Master Servicer's servicing operations and discuss the servicing operations of
the Master Servicer. The out-of-pocket costs and expenses incurred by the Master
Servicer or its agents or representatives in connection with any such
examinations or discussions shall be paid by the requesting party prior to the
occurrence and continuance of an Event of Default, and by the Master Servicer
after the occurrence and during the continuance of an Event of Default.
(b) The Master Servicer agrees to maintain or cause a
Sub-Servicer to maintain errors and omissions coverage and a fidelity bond, each
at least to the extent required by Section 305 of Part I of FNMA Guide or any
successor provision thereof or such other insurance arrangements reasonably
satisfactory to the Certificate Insurer.
Section 10.21. Financial Statements. The Master Servicer
understands that, in connection with the transfer of the Certificates, Owners
may request that the Master Servicer make available upon written request to
prospective Owners any publicly available annual audited financial statements of
the Master Servicer for one or more of the most recently completed four fiscal
years for
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which such statements are available, which request shall not be unreasonably
denied. Such financial statements shall also be supplied to the Certificate
Insurer.
The Master Servicer also agrees to make available on a
reasonable basis to the Depositor, the Trustee, the Certificate Insurer, any
Owner or any prospective Owner a knowledgeable financial or accounting officer
for the purpose of answering reasonable questions respecting recent developments
affecting the Master Servicer or the financial statements of the Master Servicer
and to permit the Depositor, the Trustee, the Certificate Insurer, any Owner or
any prospective Owner to inspect the Master Servicer's servicing facilities
during normal business hours for the purpose of satisfying the Depositor, the
Trustee, the Certificate Insurer, any Owner or such prospective Owner that the
Master Servicer has the ability to service the Mortgage Loans in accordance with
this Agreement.
Each requesting party shall use the same means as it uses to
protect its own confidential information, but in no event less than reasonable
means, to avoid disclosure by it or its agents or employees to any third party
of any confidential or proprietary information of the Master Servicer.
Section 10.22. REMIC. The Master Servicer covenants and
agrees for the benefit of the Owners (i) to take no action which would result in
the termination of REMIC status for any of the REMICs, (ii) not to engage in any
"prohibited transaction", as such term is defined in Section 860F(a)(2) of the
Code and (iii) not to engage in any other action which may result in the
imposition of any other taxes under the Code.
Section 10.23. The Designated Depository Institution. The
Master Servicer shall give the Depositor, the Trustee and the Certificate
Insurer (a) at least thirty days' prior written notice of any anticipated change
of the Designated Depository Institution at which the Principal and Interest
Account is maintained and (b) written notice of any change in the ratings of
such Designated Depository Institution of which the Master Servicer is aware,
within two Business Days after discovery.
Section 10.24. Appointment of Custodian. If the Master
Servicer determines that the Trustee is unable to deliver Files to the Master
Servicer as required pursuant to Section 10.14 hereof, the Master Servicer shall
so notify the Depositor, the Trustee, the Certificate Insurer, ____ and ____,
and make request that a custodian acceptable to the Depositor, the Master
Servicer and the Certificate Insurer be appointed to retain custody of the Files
on behalf of the Trustee. The Depositor and the Trustee agree to co-operate
reasonably with the Master Servicer in connection with the appointment of such
custodian. The Trustee shall pay from the Trustee's Fee all reasonable fees and
expenses of such custodian, in an amount not to exceed 1 basis point of the Pool
Principal Balance.
ARTICLE XI
EVENTS OF DEFAULT; REMOVAL OF MASTER SERVICER; MERGER
Section 11.1. Removal of Master Servicer; Resignation of
Master Servicer. (a) The Certificate Insurer (or, with the consent of the
Certificate Insurer, the Depositor or the Owners of Class A Certificates
evidencing at least a majority in Percentage Interest of all Class A
Certificates) may remove the Master Servicer upon the occurrence of any of the
following events (each, an "Event of Default"):
(i) The Master Servicer shall (I) apply for or consent to
the appointment of a receiver, trustee, liquidator or custodian or similar
entity with respect to itself or its property, (II) admit in writing its
inability to pay its debts generally as they become due, (III) make a general
assignment for the benefit of creditors, (IV) be adjudicated a bankrupt or
insolvent, (V)
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commence a voluntary case under the federal bankruptcy laws of the United States
of America or file a voluntary petition or answer seeking reorganization, an
arrangement with creditors or an order for relief or seeking to take advantage
of any insolvency law or file an answer admitting the material allegations of a
petition filed against it in any bankruptcy, reorganization or insolvency
proceeding or (VI) cause corporate action to be taken by it for the purpose of
effecting any of the foregoing; or
(ii) If without the application, approval or consent of
the Master Servicer, a proceeding shall be instituted in any court of competent
jurisdiction, under any law relating to bankruptcy, insolvency, reorganization
or relief of debtors, seeking in respect of the Master Servicer an order for
relief or an adjudication in bankruptcy, reorganization, dissolution, winding
up, liquidation, a composition or arrangement with creditors, a readjustment of
debts, the appointment of a trustee, receiver, conservator, liquidator or
custodian or similar entity with respect to the Master Servicer or of all or any
substantial part of its assets, or other like relief in respect thereof under
any bankruptcy or insolvency law, and, if such proceeding is being contested by
the Master Servicer in good faith, the same shall (A) result in the entry of an
order for relief or any such adjudication or appointment or (B) continue
undismissed or pending and unstayed for any period of sixty (60) consecutive
days; or
(iii) The Master Servicer shall fail to perform any one or
more of its obligations hereunder (other than its obligations referenced in
clauses (vi) and (vii) below) and shall continue in default thereof for a period
of thirty (30) days after the earlier to occur of (x) the date on which an
Authorized Officer of the Master Servicer knows or reasonably should know of
such failure or (y) receipt by the Master Servicer of a written notice from the
Trustee, any Owner, the Depositor or the Certificate Insurer of said failure; or
(iv) The Master Servicer shall fail to cure any breach of
any of its representations and warranties set forth in Section 3.1(c) which
materially and adversely affects the interests of the Owners or Certificate
Insurer for a period of thirty (30) days after the earlier of (x) the date on
which an Authorized Officer of the Master Servicer knows or reasonably should
know of such breach or (y) receipt by the Master Servicer of a written notice
from the Trustee, any Owner, the Depositor or the Certificate Insurer of such
breach; or
(v) If the Certificate Insurer pays out any money under
the Certificate Insurance Policy, or if the Certificate Insurer otherwise funds
any shortfall with its own money, because the amounts available to the Trustee
(other than from the Certificate Insurer) are insufficient to make required
distributions on the Class A Certificates; or
(vi) The failure by the Master Servicer to make any
required Servicing Advance for a period of 30 days following the earlier of (x)
the date on which an Authorized Officer of the Master Servicer knows or
reasonably should know of such failure or (y) receipt by the Master Servicer of
a written notice from the Trustee, any Owner, the Depositor or the Certificate
Insurer of such failure; or
(vii) The failure by the Master Servicer to make any
required Delinquency Advance, to pay any Compensating Interest or to pay over
any Monthly Remittance or other amounts required to be remitted by the Master
Servicer pursuant to this Agreement; or
(viii) If on any Payment Date the Pool Rolling Three Month
Delinquency Rate (including all foreclosures and REO Properties) exceeds ____%
during the period __________ through __________, ____% during
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the period __________ through __________, ____% during the period __________
through ___________, ____% during the period __________ through __________,
____% during the period __________ through __________ or ____% after __________;
or
(ix) If on any Payment Date occurring in __________ of any
year, commencing in __________, the aggregate Pool Cumulative Net Realized
Losses over the prior twelve month period exceed ____% of the average Pool
Principal Balance as of the close of business on the last day of each of the
twelve preceding Remittance Periods; or
(x) If on any Payment Date the aggregate Pool Cumulative
Net Realized Losses for all prior Remittance Periods since the Startup Day
exceed ____% of the Original Pool Principal Balance;
provided, however, that (x) prior to any removal of the Master Servicer pursuant
to clauses (ii) through (iv) and (vi) of this Section 11.1(a), any applicable
grace period granted by any such clause shall have expired prior to the time
such occurrence shall have been remedied and (y) in the event of the refusal or
inability of the Master Servicer to comply with its obligations described in
clause (vii) above, such removal shall be effective (without the requirement of
any action on the part of the Depositor, the Certificate Insurer or of the
Trustee) at 4 p.m. New York City time on the second Business Day following the
day on which the Trustee notifies an Authorized Officer of the Master Servicer
that a required amount described in clause (vii) above has not been received by
the Trustee, unless the required amount described in clause (vii) above is paid
by the Master Servicer prior to such time or the Certificate Insurer grants an
extension of time for such payment. Upon the Trustee's obtaining actual
knowledge that a required amount described in clause (vii) above has not been
made by the Master Servicer, the Trustee shall so notify an Authorized Officer
of the Master Servicer, and the Certificate Insurer, as soon as is reasonably
practical.
(b) Upon the occurrence of an Event of Default as
described in clauses (viii), (ix) or (x) of Section 11.1(a), the Certificate
Insurer may remove the Master Servicer; provided, however, that if such
occurrence of an Event of Default is the result of circumstances beyond the
Master Servicer's control, the Master Servicer shall not be removed, and
provided further, that in the event of any disagreement between the Depositor
and the Certificate Insurer, the decision of the Certificate Insurer shall
control.
(c) The Master Servicer shall not resign from the
obligations and duties hereby imposed on it, except upon determination that its
duties hereunder are no longer permissible under applicable law or are in
material conflict by reason of applicable law with any other activities carried
on by it, the other activities of the Master Servicer so causing such a conflict
being of a type and nature carried on by the Master Servicer at the date of this
Agreement. Any such determination permitting the resignation of the Master
Servicer shall be evidenced by an opinion of counsel to such effect which shall
be delivered to the Depositor, the Trustee and the Certificate Insurer.
(d) No removal or resignation of the Master Servicer shall
become effective until the Trustee or a successor Master Servicer acceptable to
the Certificate Insurer shall have assumed the Master Servicer's
responsibilities and obligations in accordance with this Section.
(e) Upon removal or resignation of the Master Servicer,
the Master Servicer also shall promptly deliver or cause to be delivered to a
successor Master Servicer or the Trustee all the books and records (including,
without limitation, records kept in electronic form) that the Master Servicer
has maintained for the Mortgage Loans, including all tax bills, assessment
notices, insurance premium notices and all other documents as well as all
original documents then in the Master Servicer's possession.
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(f) Any collections received by the Master Servicer after
removal or resignation shall be endorsed by it to the Trustee and remitted
directly and immediately to the Trustee or the successor Master Servicer.
(g) Upon removal or resignation of the Master Servicer,
the Trustee (x) may solicit bids for a successor Master Servicer as described
below, and (y) pending the appointment of a successor Master Servicer as a
result of soliciting such bids, shall serve as Master Servicer; provided,
however, that the Trustee shall not be liable for any acts, omissions or
obligations of the Master Servicer prior to such succession or for any breach by
the Master Servicer of any of its representations and warranties contained in
this Agreement or in any related document or agreement. The Trustee shall, if it
is unable to obtain a qualifying bid and is prevented by law from acting as
Master Servicer, appoint, or petition a court of competent jurisdiction to
appoint, any housing and home finance institution, bank or mortgage servicing
institution which (i) has been designated as an approved seller-servicer by FNMA
or FHLMC for first and second mortgage loans, (ii) has equity of not less than
$__________, as determined in accordance with generally accepted accounting
principles, and (iii) must have demonstrated proficiency in the servicing of
mortgage loans having similar characteristics (including credit characteristics)
to the Mortgage Loans, (iv) and must be acceptable to the Certificate Insurer 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.
The compensation of any successor Master Servicer (including,
without limitation, the Trustee) so appointed shall be the aggregate Master
Servicing Fees, together with the other servicing compensation in the form of
assumption fees, late payment charges or otherwise as provided in Sections 10.8
and 10.15.
(h) In the event the Trustee solicits bids as provided
above, the Trustee shall solicit, by public announcement, bids from housing and
home finance institutions, banks and mortgage servicing institutions meeting the
qualifications set forth above. Such public announcement shall specify that the
successor Master Servicer shall be entitled to the full amount of the aggregate
Master Servicing Fees as servicing compensation (including the servicing
compensation received in the form of assumption fees, late payment charges or
otherwise) as provided in Sections 10.8 and 10.15. Within thirty days after any
such public announcement, the Trustee shall, with the consent of the Certificate
Insurer, negotiate and effect the sale, transfer and assignment of the servicing
rights and responsibilities hereunder to the qualified party submitting the
highest satisfactory bid. The Trustee shall deduct from any sum received by the
Trustee from the successor to the Master Servicer in respect of such sale,
transfer and assignment all costs and expenses of any public announcement and of
any sale, transfer and assignment of the servicing rights and responsibilities
hereunder. After such deductions, the remainder of such sum shall be paid by the
Trustee to the Master Servicer at the time of such sale, transfer and assignment
to the successor Master Servicer.
(i) The Trustee and such successor Master Servicer shall
take such action, consistent with this Agreement, as shall be necessary to
effectuate any such succession. The Master Servicer agrees to cooperate with the
Trustee and any successor Master Servicer in effecting the termination of the
Master Servicer's servicing responsibilities and rights hereunder and shall
promptly provide the Trustee or such successor Master Servicer, as applicable,
all documents and records reasonably requested by it to enable it to assume the
Master Servicer's functions hereunder and shall promptly also transfer to the
Trustee or such successor Master Servicer, as applicable, all amounts which then
have been or should have been deposited in the Principal and Interest Account by
the Master Servicer or which are thereafter received with respect to the
Mortgage Loans. Neither the Trustee nor any other successor Master Servicer
shall be held liable by reason of any failure to make, or any delay in making,
any distribution hereunder or any portion thereof caused by (i) the failure of
the Master Servicer to deliver, or any delay in delivering, cash,
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documents or records to it, or (ii) restrictions imposed by any regulatory
authority having jurisdiction over the Master Servicer.
(j) The Trustee or any other successor Master Servicer,
upon assuming the duties of Master Servicer hereunder, shall immediately make
all Delinquency Advances and pay all Compensating Interest which the Master
Servicer has theretofore failed to remit with respect to the Mortgage Loans;
provided, however, that if the Trustee is acting as successor Master Servicer or
another successor Master Servicer has become the Master Servicer, the Trustee or
such other successor Master Servicer, as the case may be, shall only be required
to make Delinquency Advances (including the Delinquency Advances described in
this clause (j)) if, in the Trustee's or such other successor Master Servicer's,
as the case may be, reasonable good faith judgment, such Delinquency Advances
will ultimately be recoverable from the related Mortgage Loans. The Trustee,
while acting as Master Servicer hereunder, shall only be obligated to make
payments with respect to Compensating Interest to the extent of its Master
Servicing Fee.
(k) The Master Servicer that is being removed or is
resigning shall give notice to the Mortgagors and to the Rating Agencies of the
transfer of the servicing to the successor Master Servicer.
(l) Any successor Master Servicer shall assume all rights
and obligations of the predecessor Master Servicer under this Agreement, except
those arising before succession (other than the obligation to make Delinquency
Advances) and under Section 3.1(b) (insofar as such provisions relate to the
predecessor Master Servicer).
(m) If the Master Servicer is removed pursuant to Section
11.1(a) or the first paragraph of Section 11.1(b) hereof the Master Servicer
shall remain entitled to reimbursement for Reimbursable Advances to the extent
that the related amounts are thereafter recovered with respect to the related
Mortgage Loans.
Section 11.2. Trigger Events; Removal of Master Servicer.
(a) Upon determination by the Certificate Insurer that a
Trigger Event has occurred, the Certificate Insurer shall give notice of such
Trigger Event to the Master Servicer, the Depositor, the Trustee and to ____ and
____.
(b) At any time after such determination and while a
Trigger Event is continuing, the Certificate Insurer may direct the Trustee to
remove the Master Servicer if the Certificate Insurer makes a determination that
the manner of master servicing was a factor contributing to the end of the
delinquencies or losses incurred in the Trust Fund.
(c) Upon receipt of directions to remove the Master
Servicer pursuant to the preceding clause (b), the Trustee shall notify the
Master Servicer that it has been terminated and the Master Servicer shall be
terminated in the same manner as specified in Section 11.1.
(d) After notice of occurrence of a Trigger Event has been
given and while a Trigger Event is continuing, until and unless the Master
Servicer has been removed as provided in clause (b), the Master Servicer
covenants and agrees to act as the Master Servicer for a term from the
occurrence of the Trigger Event to the end of the calendar quarter in which such
Trigger Event occurs, which term may at the Certificate Insurer's discretion be
extended by notice to the Trustee for successive terms of three (3) calendar
months each, until the termination of the Trust Fund. The Master Servicer will,
upon the receipt of each such notice of extension (a "Master Servicer Extension
Notice") become bound for the duration of the term covered by such Master
Servicer Extension Notice to continue as Master Servicer subject to and in
accordance with this Agreement. If, as of the fifteenth (15th) day prior to the
last day of any term as
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the Master Servicer, the Trustee shall not have received any Master Servicer
Extension Notice from the Certificate Insurer, the Trustee shall, within five
(5) days thereafter, give written notice of such nonreceipt to the Certificate
Insurer and the Master Servicer. If any such term expires without a Master
Servicer Extension Notice then the Trustee shall act as Master Servicer as
provided in Section 11.1.
(e) No provision of this Section 11.2 shall have the
effect of limiting the rights of the Company, the Trustee, the
Certificateholders or the Certificate Insurer under Section 11.1.
Section 11.3. Merger, Conversion, Consolidation or
Succession to Business of Master Servicer. Subject to the immediately succeeding
sentence, any corporation into which the Master 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 Master Servicer shall
be a party, or any corporation succeeding to all or substantially all of the
business of the Master Servicer, shall be the successor of the Master Servicer
hereunder, without the execution or filing of any paper or any further act on
the part of any of the parties hereto provided (x) that such corporation meets
the qualifications set forth in Section 11.1(g) and (y) that any successor
Master Servicer must meet the qualifications set forth in Section 11.1(g). Any
Affiliate into which the Master Servicer may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation of the Master Servicer and an Affiliate, or any
Affiliate succeeding to all or substantially all of the business of the Master
Servicer, shall be the successor of the Master Servicer hereunder, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto.
ARTICLE XII
MISCELLANEOUS
Section 12.1. Compliance Certificates and Opinions. Upon
any application or request by the Depositor or the Owners to the Trustee to take
any action under any provision of this Agreement, the Depositor or the Owners,
as the case may be, shall furnish to the Trustee a certificate stating that all
conditions precedent, if any, provided for in this Agreement relating to the
proposed action have been complied with, except that in the case of any such
application or request as to which the furnishing of any documents is
specifically required by any provision of this Agreement relating to such
particular application or request, no additional certificate need be furnished.
Except as otherwise specifically provided herein, each
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Agreement shall include:
(a) a statement that each individual signing such
certificate or opinion has read such covenant or condition and the definitions
herein relating thereto;
(b) 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; and
(c) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 12.2. Form of Documents Delivered to the 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
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with respect to some matters and one or more other such Persons as to other
matters, and any such Person may certify or give an opinion as to such matters
in one or several documents.
Any certificate of an Authorized Officer of the Trustee may be
based, insofar as it relates to legal matters, upon an opinion of counsel,
unless such Authorized Officer knows, or in the exercise of reasonable care
should know, that the opinion is erroneous. Any such certificate of an
Authorized Officer of the Trustee or any opinion of counsel may be based,
insofar as it relates to factual matters upon a certificate or opinion of, or
representations by, one or more Authorized Officers of the Depositor, the Master
Servicer, stating that the information with respect to such factual matters is
in the possession of the Depositor, the Master Servicer, unless such Authorized
Officer or 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. Any opinion of counsel may also be based, insofar as it relates
to factual matters, upon a certificate or opinion of, or representations by, an
Authorized Officer of the Trustee, stating that the information with respect to
such matters is in the possession of the Trustee, 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. Any opinion of
counsel may be based on the written opinion of other counsel, in which event
such opinion of counsel shall be accompanied by a copy of such other counsel's
opinion and shall include a statement to the effect that such counsel believes
that such counsel and the Trustee may reasonably rely upon the opinion of such
other counsel.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Agreement, they may, but need not, be consolidated
and form one instrument.
Section 12.3. Acts of Owners. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Agreement to be given or taken by the Owners may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Owners in person or by agent 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 Trustee, and, where it is
hereby expressly required, delivered to and with the consent of the Depositor
and the Certificate Insurer. Such instrument or instruments (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as the
"act" of the Owners 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 Agreement and conclusive in favor of the
Trustee and the Trust, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of
any such instrument or writing may be proved by the affidavit of a witness of
such execution or by the certificate of any notary public or other officer
authorized by law to take acknowledgments of deeds, certifying that the
individual signing such instrument or writing acknowledged to him the execution
thereof. Whenever such execution is by an officer of a corporation or a member
of a partnership on behalf of such corporation or partnership, such certificate
or affidavit shall also constitute sufficient proof of his authority.
(c) The ownership of Certificates shall be proved by the
Register.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or other action by the Owner of any Certificate shall bind the
Owner of every Certificate issued upon the registration of transfer thereof or
in exchange therefor or in lieu thereof, in respect of anything done, omitted or
suffered to be done by the Trustee or the Trust in reliance thereon, whether or
not notation of such action is made upon such Certificates.
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Section 12.4. Notices, etc. to Trustee. Any request,
demand, authorization, direction, notice, consent, waiver or act of the Owners
or other documents provided or permitted by this Agreement to be made upon,
given or furnished to, or filed with the Trustee by any Owner or by the
Depositor shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with and received by the Trustee at its
corporate trust office as set forth in Section 12.19 hereof.
Section 12.5. Notices and Reports to Owners; Waiver of
Notices. Where this Agreement provides for notice to Owners of any event or the
mailing of any report to Owners, such notice or report shall be sufficiently
given (unless otherwise herein expressly provided) if mailed, first-class
postage prepaid, to each Owner affected by such event or to whom such report is
required to be mailed, at the address of such Owner as it appears on the
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice or the mailing of such report. In
any case where a notice or report to Owners is mailed in the manner provided
above, neither the failure to mail such notice or report nor any defect in any
notice or report so mailed to any particular Owner shall affect the sufficiency
of such notice or report with respect to other Owners, and any notice or report
which is mailed in the manner herein provided shall be conclusively presumed to
have been duly given or provided.
Where this Agreement 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 Owners shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such 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 Owners when such notice is required
to be given pursuant to any provision of this Agreement, then any manner of
giving such notice as the Depositor shall direct to the Trustee shall be deemed
to be a sufficient giving of such notice.
Where this Agreement provides for notice to any rating agency
that rated any Certificates, failure to give such notice shall not affect any
other rights or obligations created hereunder.
Section 12.6. Rules by Trustee and Depositor. The Trustee
may make reasonable rules for any meeting of Owners. The Depositor may make
reasonable rules and set reasonable requirements for its functions.
Section 12.7. Successors and Assigns. All covenants and
agreements in this Agreement by any party hereto shall bind its successors and
assigns, whether so expressed or not.
Section 12.8. Severability. In case any provision in this
Agreement or in the Certificates 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 12.9. Benefits of Agreement. Nothing in this
Agreement or in the Certificates, expressed or implied, shall give to any
Person, other than the Owners, the Certificate Insurer and the parties hereto
and their successors hereunder, any benefit or any legal or equitable right,
remedy or claim under this Agreement.
Section 12.10. Legal Holidays. In any case where the date
of any Remittance Date, any Payment Date, any other date on which any
distribution to any Owner is proposed to be paid, or any date on which a notice
is required to be sent to any Person pursuant to the terms of this Agreement
shall not be
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a Business Day, then (notwithstanding any other provision of the Certificates or
this Agreement) payment or mailing 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 or mailed on the nominal date of any such Remittance Date, such Payment
Date, or such other date for the payment of any distribution to any Owner or the
mailing of such notice, as the case may be, and no interest shall accrue for the
period from and after any such nominal date, provided such payment is made in
full on such next succeeding Business Day.
Section 12.11. Governing Law. This Agreement and each
Certificate shall be construed in accordance with and governed by the laws of
the State of New York applicable to agreements made and to be performed therein.
Section 12.12. 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 12.13. Usury. The amount of interest payable or
paid on any Certificate under the terms of this Agreement shall be limited to an
amount which shall not exceed the maximum nonusurious rate of interest allowed
by the applicable laws of the State of New York or any applicable law of the
United States permitting a higher maximum nonusurious rate that preempts such
applicable New York laws, which could lawfully be contracted for, charged or
received (the "Highest Lawful Rate"). In the event any payment of interest on
any Certificate exceeds the Highest Lawful Rate, the Trust stipulates that such
excess amount will be deemed to have been paid to the Owner of such Certificate
as a result of an error and the Owner receiving such excess payment shall
promptly, upon discovery of such error or upon notice thereof from the Trustee
on behalf of the Trust, refund the amount of such excess or, at the option of
such Owner, apply the excess to the payment of principal of such Certificate, if
any, remaining unpaid. In addition, all sums paid or agreed to be paid to the
Trustee for the benefit of Owners of Certificates for the use, forbearance or
detention of money shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term of such
Certificates.
Section 12.14. Amendment. The Depositor, the Master
Servicer and the Trustee, may at any time and from time to time, with the prior
written consent of the Certificate Insurer but without the consent of the
Owners, amend this Agreement, and the Trustee shall consent to such amendment,
for the purpose of (i) curing any ambiguity, or correcting or supplementing any
provision hereof which may be inconsistent with any other provision hereof, or
to add provisions hereto which are not inconsistent with the provisions hereof,
(ii) upon receipt of an opinion of counsel experienced in federal income tax
matters to the effect that no entity-level tax will be imposed on the Trust or
upon the transferor of a Residual Certificate as a result of the ownership of
any Residual Certificate by a Disqualified Organization, removing the
restriction on transfer set forth in Section 5.8(b) hereof or (iii) complying
with the requirements of the Code and the regulations proposed or promulgated
thereunder; provided, however, that any such action shall not, as evidenced by
an opinion of counsel delivered to the Trustee, materially and adversely affect
the interests of any Owner or materially and adversely affect (without its
written consent) the rights and interests of the Certificate Insurer.
This Agreement may also be amended by the Depositor, the
Master Servicer and the Trustee at any time and from time to time, with the
prior written approval of the Certificate Insurer and of not less than 66 2/3%
of the Percentage Interest represented by each affected Class of Certificates
then Outstanding, for the purpose of adding any provisions or changing in any
manner or eliminating any of the provisions of this Agreement or of modifying in
any manner the rights of the Owners hereunder; provided, however, that no such
amendment shall (a) change in any manner the amount of, or change the timing of,
payments which are required to be distributed to any Owner without the consent
of the Owner of such Certificate or (b) reduce the aforesaid percentages of
Percentage Interests which are required to
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consent to any such amendments, without the consent of the Owners of all
Certificates of the Class or Classes affected then Outstanding.
The Trustee shall be entitled to receive upon request, and
shall be fully protected in relying in good faith upon, an opinion of counsel
reasonably acceptable to the Trustee stating that the execution of such
amendment is authorized or permitted by this Agreement.
Promptly after the execution of any such amendment, the
Trustee shall furnish written notification of the substance of such amendment to
each Owner and to the Rating Agencies.
The Certificate Insurer and the Owners, if they so request,
shall be provided with copies of any amendments to this Agreement, together with
copies of any opinions or other documents or instruments executed in connection
therewith.
The Trustee shall not be required to enter into any amendment
which affects its rights or obligations hereunder.
The definitions of "Group I Specified Subordinated Amount" and
"Group II Specified Subordinated Amount" may be amended by the Depositor, the
Master Servicer and the Trustee, with the consent of the Certificate Insurer, in
any respect without the consent of, or notice to, the Owners of any
Certificates; provided, (x) that the Certificate Insurer is not then in default,
(y) that the effect of such change would not be to alter materially (in the
judgment of the Depositor) the weighted average life of the related Class A
Certificates and (z) the then-current ratings on the related Class A
Certificates are not thereby reduced.
Section 12.15. REMIC Status; Taxes. (a) The Tax Matters
Person shall prepare and file or cause to be filed with the Internal Revenue
Service Federal tax or information returns with respect to each REMIC and the
Certificates containing such information and at the times and in such manner as
may be required by the Code or applicable Treasury regulations, and shall
furnish to Owners such statements or information at the times and in such manner
as may be required thereby. For this purpose, the Tax Matters Person may, but
need not, rely on any proposed regulations of the United States Department of
the Treasury. The Tax Matters Person shall indicate the election to treat each
REMIC as a REMIC (which election shall apply to the taxable period ending
December 31, 1996 and each calendar year thereafter) in such manner as the Code
or applicable Treasury regulations may prescribe. The Trustee, as Tax Matters
Person appointed pursuant to Section 12.17 hereof shall sign all tax information
returns filed pursuant to this Section 12.16. The Tax Matters Person shall
provide information necessary for the computation of tax imposed on the transfer
of a Residual Certificate to a Disqualified Organization, or an agent of a
Disqualified Organization, or a pass-through entity in which a Disqualified
Organization is the record holder of an interest. The Trustee shall not be
required to file a separate tax return for the Supplemental Interest Trust.
(b) The Tax Matters Person shall timely file all reports
required to be filed by the Trust with any federal, state or local governmental
authority having jurisdiction over the Trust, including other reports that must
be filed with the Owners, such as the Internal Revenue Service's Form 1066 and
Schedule Q and the form required under Section 6050K of the Code, if applicable
to REMICs. Furthermore, the Tax Matters Person shall report to Owners, if
required, with respect to the allocation of expenses pursuant to Section 212 of
the Code in accordance with the specific instructions to the Tax Matters Person
by the Depositor with respect to such allocation of expenses. The Tax Matters
Person shall collect any forms or reports from the Owners determined by the
Depositor to be required under applicable federal, state and local tax laws.
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(c) The Tax Matters Person shall provide to the Internal
Revenue Service and to persons described in Section 860E(e)(3) and (6) of the
Code the information described in Treasury Regulation Section
1.860D-1(b)(5)(ii), or any successor regulation thereto. Such information will
be provided in the manner described in Treasury Regulation Section
1.860E-2(a)(5), or any successor regulation thereto.
(d) The Depositor covenants and agrees to within ten
Business Days after the Startup Day provide to the Trustee any information
necessary to enable the Trustee to meet its obligations under subsections (b)
and (c) above.
(e) The Trustee, the Depositor and the Master Servicer
each covenants and agrees for the benefit of the Owners (i) to take no action
which would result in the termination of "REMIC" status for any of the REMICs,
(ii) not to engage in any "prohibited transaction", as such term is defined in
Section 860F(a)(2) of the Code and (iii) not to engage in any other action which
may result in the imposition on the Trust of any other taxes under the Code,
including, without limitation, for purposes of this paragraph any alteration,
modification, amendment, extension, waiver or forbearance with respect to any
Mortgage Loan.
(f) The Trust shall, for federal income tax purposes,
maintain books on a calendar year basis and report income on an accrual basis.
(g) No Eligible Investment shall be sold prior to its
stated maturity (unless sold pursuant to a plan of liquidation in accordance
with Article VIII hereof).
(h) Neither the Depositor nor the Trustee shall enter into
any arrangement by which the Trustee will receive a fee or other compensation
for services rendered pursuant to this Agreement, which fee or other
compensation is paid from the Trust Estate, other than as expressly contemplated
by this Agreement.
(i) Notwithstanding the foregoing clauses (g) and (h), the
Trustee, the Depositor may engage in any of the transactions prohibited by such
clauses, provided that the Trustee shall have received an opinion of counsel
experienced in federal income tax matters to the effect that such transaction
does not result in a tax imposed on the Trust or cause a termination of REMIC
status for any of the REMICs; provided, however, that such transaction is
otherwise permitted under this Agreement.
Section 12.16. Additional Limitation on Action and
Imposition of Tax. (a) Any provision of this Agreement to the contrary
notwithstanding, the Trustee shall not, without having obtained an opinion of
counsel experienced in federal income tax matters to the effect that such
transaction does not result in a tax imposed on the Trust or cause a termination
of REMIC status for either REMIC, (i) sell any assets in the Trust Estate, (ii)
accept any contribution of assets after the Startup Day or (iii) agree to any
modification of this Agreement.
(b) In the event that any tax is imposed on "prohibited
transactions" as defined in Section 860F(a)(2) of the Code, on the "net income
from foreclosure property" as defined in Section 860G(c) of the Code, on any
contribution to either REMIC after the Startup Day pursuant to Section 860G(d)
of the Code, or any other tax is imposed, such tax shall be paid by (i) the
Trustee, if such tax arises out of or results from the Trustee's negligence or
willful misconduct, (ii) the Master Servicer, if such tax arises out of or
results from a breach by the Master Servicer of any of its obligations under
this Agreement, or otherwise (iii) the Owners of the Residual Certificates in
proportion to their Percentage Interests. To the extent such tax is chargeable
against the Owners of the Residual Certificates,
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notwithstanding anything to the contrary contained herein, the Trustee is hereby
authorized to retain from amounts otherwise distributable to the Owners of the
Residual Certificates on any Payment Date sufficient funds for the payment of
such tax.
Section 12.17. Appointment of Tax Matters Person. A Tax
Matters Person will be appointed by the Owners of the Residual Certificates for
all purposes of the Code and such Tax Matters Person will perform, or cause to
be performed, such duties and take, or cause to be taken, such actions, as are
required to be performed or taken by the Tax Matters Person under the Code. The
Trustee hereby agrees to act as the Tax Matters Person (and the Trustee is
hereby appointed by the Owners of the Residual Certificates as the Tax Matters
Person) for each REMIC held by the Trust.
Section 12.18. Reports to the Securities and Exchange
Commission. The Trustee shall, on behalf of the Trust, cause to filed with the
Securities and Exchange Commission any periodic reports required to be filed
under the provisions of the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Securities and Exchange Commission thereunder. Upon
the request of the Trustee, each of the Master Servicer and the Depositor shall
cooperate with the Trustee in the preparation of any such report and shall
provide to the Trustee in a timely manner all such information as the Trustee
may reasonably request in connection with the performance of its duties and
obligations under this Section.
Section 12.19. Notices. All notices hereunder shall be
given as follows, until any superseding instructions are given to all other
Persons listed below:
The Master
Servicer:
The Depositor: Home Equity Securitization Corp.
The Trustee:
The Certificate
Insurer:
Underwriters:
Section 12.20. Grant of Security Interest. It is the
express intent of the parties hereto that the conveyance of the Mortgage Loans
and all other assets constituting the Trust Estate by the Depositor to the Trust
be, and be construed as, a sale of the Mortgage Loans and such other assets
constituting the Trust Estate by the Depositor and not a pledge by the Depositor
to secure a debt or other obligation of the Depositor. However, in the event
that, notwithstanding the aforementioned intent of the parties, the Mortgage
Loans and other assets constituting the Trust Estate are held to be property of
the Depositor, then (a) it is the express intent of the parties that such
conveyance be deemed as a pledge of the Mortgage Loans and all other assets
constituting the Trust Estate to the Trust to secure a debt or other obligation
of the Depositor and this Agreement shall be deemed to be a security agreement
within the meaning of the Uniform Commercial Code and the conveyance provided
for in Section 3.3 hereof shall be deemed a grant by the Depositor to the Trust
of a security interest in all of the Depositor's right, title and interest in
and to the Mortgage Loans and all other assets constituting the Trust Estate.
Accordingly, the Depositor hereby grants to the Trustee a
security interest in the Mortgage Loans and all other assets constituting the
Trust Estate for the purpose of securing to the Trust
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the performance by the Depsitor of the obligations under this Agreement.
Notwithstanding the foregoing, the parties hereto intend the conveyance pursuant
to Section 3.3 to be a true, absolute and unconditional sale of the Mortgage
Loans and all other assets constituting the Trust Estate by the Depositor to the
Trust. The Depositor shall take such actions, and the Trustee shall take such
actions as directed in writing by the Depositor, as may be necessary to ensure
that if this Agreement were deemed to create a security interest, such security
interest would be deemed to be a perfected security interest of first priority
under applicable law and will be maintained as such for the term of this
Agreement. Without limiting the generality of the foregoing, the Depositor shall
file, or shall cause to be filed, all filings necessary to maintain the
effectiveness of any original filings necessary under the Uniform Commercial
Code to perfect the Trustee's security interest in or lien on the Mortgage Loans
for the benefit of the Owners, including, without limitation, (x) continuation
statements and (y) such other statements as may be occasioned by (i) any change
of name of the Depositor or Trustee, (ii) any change of location of the place of
business or the chief executive office of the Depositor or (iii) any transfer of
any interest of the Depositor in any Mortgage Loan; provided, however, that with
respect to clauses (i) through (iii) above, the Depositor shall notify the
Trustee of any changes related thereto.
Section 12.21. Indemnification.
(a) The Master Servicer agrees to indemnify and hold the
Trustee, the Depositor, the Certificate Insurer, each Certificateholder harmless
against any and all claims, losses, penalties, fines, forfeitures, reasonable
legal fees and related costs, judgments, and any other reasonable costs, fees
and expenses that were caused by (i) the failure of the Master Servicer to
perform its duties and service the Mortgage Loans in compliance with the terms
of this Agreement and the Servicing Standards and (ii) a breach of any of the
Master Servicer's representations, covenants and warranties contained in this
Agreement. This indemnity shall survive the termination of this Agreement and
the payment of the Mortgage Loans, provided, that the Master Servicer shall have
no liability to indemnify any such indemnified party under this Agreement to the
extent that any such losses, penalties, fines, forfeitures, costs, fees,
judgments, liabilities, damages, claims or expenses were caused by the
negligence, willful misconduct or bad faith of such indemnified party. If the
Master Servicer shall have made any indemnity payment pursuant to this Section
12.21(a) and the recipient thereafter collects from another Person any amount
relating to the matters covered by the foregoing indemnity, the recipient shall
promptly repay such amount to the Master Servicer.
Promptly after receipt by any of the above-mentioned
indemnified parties of notice of any claim or commencement of any action
discussed above, such indemnified party shall, if a claim in respect thereof is
to be made against the Master Servicer, promptly notify the Master Servicer in
writing of the claim or the commencement of that action; provided, however, that
the failure to notify the Master Servicer shall not relieve it from any
liability which it may have under this Section 12.21(a) except to the extent it
has been materially prejudiced by such failure; and provided, further, that the
failure to notify the Master Servicer shall not relieve it from any liability
which it may have to the above-mentioned indemnified parties otherwise than
under this Section 12.21(a).
(b) The Depositor agrees to indemnify and hold the Master
Servicer, the Depositor, the Certificate Insurer, the Trustee, each
Certificateholder harmless against any and all claims, losses, penalties, fines,
forfeitures, reasonable legal fees and related costs, judgments and other
reasonable costs, fees and expenses that were caused by (i) the failure of the
Depositor to perform its duties in accordance with the terms of this Agreement
or (ii) a breach of any of the Depositor's representations, covenants, and
warranties contained in this Agreement. This indemnity shall survive the
termination of this Agreement, the payment of the Mortgage Loans and the removal
or resignation of the Trustee; provided, that the Depositor shall have no
liability to indemnify any such indemnified party under this Agreement to the
extent that any such losses, penalties, fines, forfeitures, costs, fees and
judgments, liabilities, damages,
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claims or expenses were caused by the negligence, willful misconduct or bad
faith of such indemnified party. If the Depositor shall have made any indemnity
payment pursuant to this Section 12.21 and the recipient thereafter collects
from another Person any amount relating to the matters covered by the foregoing
indemnity, the recipient shall promptly repay such amount to the Depositor.
Promptly after receipt by any of the above-mentioned
indemnified parties of notice of any claim or commencement of any action
discussed above, such indemnified party shall, if a claim in respect thereof is
to be made against the Depositor, promptly notify the Depositor in writing of
the claim or the commencement of that action; provided, however, that the
failure to notify the Depositor shall not relieve it from any liability which it
may have under this Section 12.21(b) except to the extent it has been materially
prejudiced by such failure; and provided, further, that the failure to notify
the Depositor shall not relieve it from any liability which it may have to the
above-mentioned indemnified parties otherwise than under this Section 12.21(b).
(c) The Depositor hereby covenants and agrees to
indemnify, exonerate and hold the Master Servicer, the Depositor, the Trustee,
the Trust Estate, the Owners, the Certificate Insurer, their respective
directors, officers, agents and employees (collectively, the "Indemnified
Persons") harmless from and against any and all damages, losses, liabilities,
obligations, penalties, fines, claims, litigation, demands, defenses, judgments,
suits, proceedings, costs, disbursements or expenses (including, without
limitation, reasonable attorneys' and experts' fees and disbursements as they
become due and without waiting for the ultimate outcome of the matter) of any
kind or of any nature whatsoever which may at any time be imposed upon, incurred
by or asserted or awarded against any Indemnified Person arising from or out of
any Hazardous Substances (as defined below) on, in, under or affecting all or
any portion of any of the Properties. The matters covered by the foregoing
indemnity shall include, without limitation, all of the following: (i) the costs
of removal of any and all Hazardous Substances from all or any portion of the
Properties or any adjacent property, (ii) the costs required to take necessary
precautions to protect against the release of Hazardous Substances on, in, under
or affecting any of the Properties into the air, ground, water, other public
domain or any adjacent property to the extent required by applicable
Environmental Laws or any governmental authority, including, without limitation,
the costs and expenses of environmental testing and assessments, and (iii) the
costs incurred to comply, in connection with all or any portion of the
Properties, with all applicable Environmental Laws, including without limitation
fines, penalties, and administrative and overhead costs charged by any
governmental entity.
The obligations of the Depositor under this Section to
compensate the Indemnified Persons and to reimburse them for expenses
(including, without limitation, litigation expenses), disbursements and advances
shall survive the termination of this Agreement and the resignation or removal
of the Trustee, and continue thereafter for so long as any liability or expenses
indemnified against may be imposed under applicable Environmental Law (as
defined below) against any Indemnified Person.
(d) In no event shall any Person be indemnified for any
losses, expenses, damages, claims or liabilities incurred by such Person by
reason of such Person's (or such Person's agents) willful malfeasance, bad faith
or negligence.
"Hazardous Substance" shall include, without limitation: (i)
those substances included within the definitions of one or more of the terms
"hazardous substances," "hazardous materials" and "toxic substances" in CERCLA,
RCRA, and the Hazardous Materials Transportation Act, as amended, 49 U.S.C.
ss.ss. 1801 et seq., and in the regulations promulgated pursuant to said laws
under applicable law; (ii) those substances listed in the United States
Department of Transportation Table (49 CFR 172 1 01 and amendments thereto) or
by the Environmental Protection Agency (or any successor agency) as hazardous
substances (40 CFR Part 302 and amendments thereto); (iii) such other
substances, materials and wastes
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as are or become regulated under applicable local, state or Federal laws or
regulations, or which are classified as hazardous or toxic under Federal, state,
or local laws or regulations; and (iv) any material, waste or substance which is
(a) petroleum; (b) friable asbestos; (c) polychlorinated biphenyls; (d)
designated as a "Hazardous Substance" pursuant to Section 311 of the Clean Water
Act, as amended, 13 U.S.C. ss.ss. 1321 et seq. (33 U.S.C. ss.ss. 1321) or
designated as "toxic pollutants" subject to Chapter 26 of the Clean Water Act
pursuant to Section 307 of the Clean Water Act (33 U.S.C. ss.ss. 1317); (e)
flammable explosive; or (f) radioactive materials.
"Environmental Law" shall mean any Federal, state or local
statute, law, regulation, order, consent decree, judgment, permit, license,
code, covenant, deed restriction, common law, ordinance or other requirement
relating to public health, safety or the environment, including, without
limitation, those relating to releases, discharges or emissions to air, water,
land or ground water, to the withdrawal or use of groundwater, to the use and
handling of polychlorinated biphenyls or asbestos, to the disposal, treatment,
storage or management of hazardous or solid waste, or Hazardous Substances or
crude oil, or any fraction thereof, or to exposure to toxic hazardous materials,
to the handling, transportation, discharge or release of gaseous or liquid
Hazardous Substances and any regulation, order, notice or demand issued pursuant
to such law, statute or ordinance, in each case applicable to the property of
Borrower or the operation, construction or modification of any thereof,
including without limitation the following: CERCLA, the Solid Waste Disposal
Act, as amended by the Resource Conservation and Recovery Act of 1976 and the
Hazardous and Solid Waste Amendments of 1984, the Hazardous Materials
Transportation Act, as amended, the Federal Water Pollution Control Act, as
amended by the Clean Water Act of 1976, the Safe Drinking Water Control Act, the
Clean Air Act of 1966, as amended, the Toxic Substances Control Act of 1976, the
Occupational Safety and Health Act of 1977, as amended, the Emergency Planning
and Community Right-to-Know Act of 1986, the National Environmental Policy Act
of 1975 and the Oil Pollution Act of 1990 and any similar or implementing state
law, and any state statute and any further amendments to these laws, providing
for financial responsibility for cleanup or other actions with respect to the
release or threatened release of Hazardous Substances or crude oil, or any
fraction thereof and all rules, regulations, guidance documents and publication
promulgated thereunder.
ARTICLE XIII
CERTAIN MATTERS REGARDING THE CERTIFICATE INSURER
Section 13.1. Rights of the Certificate Insurer to
Exercise Rights of the Owners of the Class A Certificates. By accepting its
Certificate, each Owner of a Class A Certificate agrees that unless a
Certificate Insurer Default exists, the Certificate Insurer shall be deemed to
be the Class A Certificateholders for all purposes (other than with respect to
payment on the Class A Certificates) and will be entitled to exercise all rights
of the Class A Certificateholders under this Agreement.
In addition, each Owner of a Class A Certificate agrees that,
unless a Certificate Insurer Default exists, the rights specifically set forth
above may be exercised by the Owners of Class A Certificates only with the prior
written consent of the Certificate Insurer.
Section 13.2. Trustee to Act Solely with Consent of the
Certificate Insurer. Unless a Certificate Insurer Default exists, the Trustee
shall not:
(i) agree to any amendment to this Agreement; or
(ii) undertake any litigation pursuant to or in connection
with this Agreement; or
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(iii) terminate or assume any Sub-Servicing Agreement
pursuant to this Agreement;
without the prior written consent of the Certificate Insurer which consent shall
not be unreasonably withheld; provided, however, if a Certificate Insurer
Default occurs hereunder, the Trustee shall act hereunder without Certificate
Insurer consent.
Section 13.3. Trust Fund and Accounts Held for Benefit of
the Certificate Insurer. The Trustee shall hold the Trust Estate and the
Mortgage Files for the benefit of the Owners and the Certificate Insurer and all
references in this Agreement and in the Certificates to the benefit of Owners of
the Certificates shall be deemed to include the Certificate Insurer. The Trustee
shall cooperate in all reasonable respects with any reasonable request by the
Certificate Insurer for action to preserve or enforce the Certificate Insurer's
rights or interests under this Agreement and the Certificates.
The Master Servicer hereby acknowledges and agrees that it
shall service and administer the Mortgage Loans and any REO Properties, and
shall maintain the Principal and Interest Account, for the benefit of the Owners
and for the benefit of the Certificate Insurer, and all references in this
Agreement to the benefit of or actions on behalf of the Owners shall be deemed
to include the Certificate Insurer.
Section 13.4. Claims Upon the Policy; Policy Payments
Account. (a) The Trustee shall establish a separate special purpose trust
account for the benefit of Owners of the Class A Certificates and the
Certificate Insurer referred to herein as the "Policy Payments Account" over
which the Trustee shall have exclusive control and sole right of withdrawal. The
Trustee shall deposit any amount paid under the Certificate Insurance Policy in
the Policy Payments Account and distribute such amount only for purposes of
payment to Owners of Class A Certificates of the Insured Payments for which a
claim was made and such amount may not be applied to satisfy any costs, expenses
or liabilities of the Master Servicer, the Trustee or the Trust. Amounts paid
under the Certificate Insurance Policy shall be transferred to the related Class
A Distribution Account in accordance with the next succeeding paragraph and
disbursed by the Trustee to Owners of Class A Certificates in accordance with
Section 7.3. It shall not be necessary for such payments to be made by checks or
wire transfers separate from the checks or wire transfers used to pay the
Insured Payments with other funds available to make such payment. However, the
amount of any payment of principal of or interest on the Class A Certificates to
be paid from funds transferred from the Policy Payments Account shall be noted
as provided in paragraph (b) below in the Register and in the statement to be
furnished to Owners of the Certificates pursuant to Section 7.6. Funds held in
the Policy Payments Account shall not be invested by the Trustee.
On any Payment Date with respect to which a claim has been
made under the Certificate Insurance Policy, the amount of any funds received by
the Trustee as a result of any claim under the Certificate Insurance Policy, to
the extent required to pay the related Insured Distribution Amount on such
Payment Date shall be withdrawn from the Policy Payments Account and deposited
in the related Distribution Account and applied by the Trustee, together with
the other funds to be withdrawn from the related Distribution Account pursuant
to this Agreement, directly to the payment in full of the related Insured
Distribution Amount due on the related Class A Certificates. Funds received by
the Trustee as a result of any claim under the Certificate Insurance Policy
shall be deposited by the Trustee in the Policy Payments Account and used solely
for payment to the Owners of the Class A Certificates and may not be applied to
satisfy any costs, expenses or liabilities of the Master Servicer, the Trustee
or the Trust Fund. Any funds remaining in the Policy Payments Account on the
first Business Day following a Payment Date shall be remitted to the Certificate
Insurer, pursuant to the instructions of the Certificate Insurer, by the end of
such Business Day.
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(b) The Trustee shall keep a complete and accurate record
of the amount of interest and principal paid in respect of any Class A
Certificate from moneys received under the Certificate Insurance Policy. The
Certificate Insurer shall have the right to inspect such records at reasonable
times during normal business hours upon one Business Day's prior notice to the
Trustee.
(c) The Trustee shall promptly notify the Certificate
Insurer and Fiscal Agent of any proceeding or the institution of any action, of
which a Responsible Officer of the Trustee has actual knowledge, seeking the
avoidance as a preferential transfer under applicable bankruptcy, insolvency,
receivership or similar law (a "Preference Claim") of any distribution made with
respect to the Class A Certificates. Each Owner of a Class A Certificate, by its
purchase of Class A Certificates, the Master Servicer and the Trustee hereby
agree that, the Certificate Insurer (so long as no Certificate Insurer Default
exists) may at any time during the continuation of any proceeding relating to a
Preference Claim direct all matters relating to such Preference Claim,
including, without limitation, (i) the direction of any appeal of any order
relating to such Preference Claim and (ii) the posting of any surety,
supersedeas or performance bond pending any such appeal. In addition and without
limitation of the foregoing, the Certificate Insurer shall be subrogated to the
rights of the Master Servicer, the Trustee and each Owner of a Class A
Certificate in the conduct of any such Preference Claim, including, without
limitation, all rights of any party to an adversary proceeding action with
respect to any court order issued in connection with any such Preference Claim.
Section 13.5. Effects of Payments by the Certificate
Insurer. To the extent that the Certificate Insurer makes Insured Payments it
will be entitled to receive the related Reimbursement Amounts, pursuant to
Section 7.3(b)(iii)(C) hereof.
The Trustee and the Master Servicer shall cooperate in all
respects with any reasonable request by the Certificate Insurer for action to
preserve or enforce the Certificate Insurer's rights or interests under this
Agreement without limiting the rights or affecting the interests of the Owners
as otherwise set forth herein.
Section 13.6. Notices to the Certificate Insurer. All
notices, statements, reports, certificates or opinions required by this
Agreement to be sent to any other party hereto or to any of the Owners shall
also be sent to the Certificate Insurer.
Section 13.7. Third-Party Beneficiary. Subject to the
provisions below, the Certificate Insurer is a third party beneficiary of each
provision of this Agreement that creates a right of or benefit to the
Certificate Insurer. Any right conferred to the Certificate Insurer shall not
arise until the issuance by the Certificate Insurer of the Certificate Insurance
Policy and shall be suspended during any Certificate Insurer Default described
in clause (a) of the definition thereof (except that subrogation rights which
have previously arisen shall not be so suspended). During the period of any such
suspension, such rights shall vest in the Owners of the Class A Certificates,
and may be exercised by the Owners of a majority in Percentage Interest of each
Class of Class A Certificates then Outstanding or, if there are no Class A
Certificates then Outstanding, by such Percentage Interest represented by the
Class B Certificates then Outstanding.
[Except for these words (and the accompanying punctuation)
the rest of this page has been intentionally left blank.]
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IN WITNESS WHEREOF, the Depositor, the Master Servicer and the
Trustee have caused this Agreement to be duly executed by their respective
officers thereunto duly authorized, all as of the day and year first above
written.
----------,
as Depositor
By: _________________________________
Name:
Title:
----------,
as Master Servicer
By: _________________________________
Name:
Title:
HOME EQUITY SECURITIZATION CORP.,
as Depositor
By: _________________________________
Name:
Title:
----------,
as Trustee
By: _________________________________
Name:
Title:
[Pooling and Servicing Agreement]
<PAGE>
<TABLE>
<S> <C>
Exhibit 99.1 Form of Prospectus Supplement
PROSPECTUS SUPPLEMENT
(To Prospectus Dated _________)
====================================================================================================================================
$--------
__________ MORTGAGE LOAN TRUST_____
MORTGAGE LOAN PASS-THROUGH CERTIFICATES, SERIES _____
- ------------------------------------------------------------------------------------------------------------------------------------
$__________ CLASS A-1 GROUP I CERTIFICATES, VARIABLE PASS-THROUGH RATE
$__________ CLASS A-2 GROUP I CERTIFICATES, _____% PASS-THROUGH RATE
$__________ CLASS A-3 GROUP I CERTIFICATES, _____% PASS-THROUGH RATE
$__________ CLASS A-4 GROUP I CERTIFICATES, _____% PASS-THROUGH RATE
$__________ CLASS A-5 GROUP I CERTIFICATES, _____% PASS-THROUGH RATE
$__________ CLASS A-6 GROUP II CERTIFICATES, VARIABLE PASS-THROUGH RATE
- ------------------------------------------------------------------------------------------------------------------------------------
LOGO HOME EQUITY SECURITIZATION CORP.
DEPSOITOR
====================================================================================================================================
The __________Mortgage Loan Asset Backed Certificates, Series _____ (the
"Certificates") will consist of six classes of offered certificates, the Class
A-1 Group I Certificates, the Class A-2 Group I Certificates, the Class A-3
Group I Certificates, the Class A-4 Group I Certificates, the Class A-5 Group I
Certificates, (collectively, the "Class A Group I Certificates" or the "Group I
Certificates"), and the Class A-6 Group II Certificates (the "Class A-6 Group II
Certificates" or the "Group II Certificates", together with the Group I
Certificates and the Group II Certificates, the "Class A Certificates") which
represent beneficial ownership interests in __________ Mortgage Loan Trust _____
(the "Trust"). The assets of the Trust consist primarily of a pool (the "Pool")
of fixed and adjustable rate, amortizing mortgage loans which are secured by
first or second liens on residential properties (the "Mortgage Loans") and the
Certificate Insurance Policy (as defined below; see the Index of Principal
Definitions on page i hereof) covering the Class A Certificates.
The Company has obtained a financial guaranty insurance policy (the "Certificate
Insurance Policy") from ____________________ (the "Certificate Insurer") which
will unconditionally and irrevocably guarantee payment of certain amounts due to
the Owners of the Class A Certificates to the extent described herein; see "The
Certificate Insurance Policy and the Certificate Insurer -- The Certificate
Insurance Policy" in this Prospectus Supplement.
INSURER LOGO (Cover continued on next page)
- ------------------------------------------------------------------------------------------------------------------------------------
FOR A DISCUSSION OF CERTAIN RISK FACTORS REGARDING AN INVESTMENT IN THE CLASS A
CERTIFICATES, SEE "RISK FACTORS" ON PAGE HEREIN AND ON PAGE __ OF THE
ACCOMPANYING PROSPECTUS.
- ------------------------------------------------------------------------------------------------------------------------------------
__________ and ___________ (the "Underwriters") have agreed to purchase from the
Trust the Class A-1 Group I Certificates at an aggregate price of _____% of the
principal amount thereof, the Class A-2 Group I Certificates at an aggregate
price of _____% of the principal amount thereof, the Class A-3 Group I
Certificates at an aggregate price of _____% of the principal amount thereof,
the Class A-4 Group I Certificates at an aggregate price of _____% of the
principal amount thereof, the Class A-5 Group I Certificates at an aggregate
price of _____% of the principal amount thereof, and the Class A-6 Group II
Certificates at an aggregate price of _____% of the principal amount thereof,
(representing $__________ aggregate proceeds to the Company before deducting
expenses payable by the Company, estimated at $______) plus accrued interest, if
any, from __________ for the Class A-2, A-3, A-4 and A-5 Group I Certificates
(together, the "Class A Fixed Rate Certificates") subject to the terms and
conditions set forth in the Underwriting Agreement dated __________ among the
Underwriters and the Company. See "Underwriting" in this 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 NOR 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 Class A Certificates are offered hereby by the Underwriters when, as and if
issued by the Trust, delivered and accepted by the Underwriters and subject to
their right to reject orders in whole or in part. It is expected that delivery
of the Class A Certificates will be made in book-entry form only through the
facilities of The Depository Trust Company, CEDEL, S.A. and Euroclear on or
about __________ against payment in immediately available funds.
- ---------- ----------
</TABLE>
<PAGE>
(COVER CONTINUED FROM PREVIOUS PAGE)
The Underwriters propose to offer the Class A Certificates from time to time for
sale in negotiated transactions or otherwise, at market prices prevailing at the
time of sale or at negotiated prices. For further information with respect to
the plan of distribution and any discounts, commissions or profits on resale
that may be deemed underwriting discounts or commissions, see "Underwriting" in
this Prospectus Supplement.
The Class A Group I Certificates will represent undivided ownership interests in
a group ("Group I") of Mortgage Loans in the Trust which bear fixed rates of
interest, and the Class A-6 Group II Certificates will represent undivided
ownership interests in a group ("Group II") of Mortgage Loans in the Trust which
bear adjustable rates of interest. Group I and Group II are collectively
referred to herein as the "Mortgage Loan Groups" and each singularly, a
"Mortgage Loan Group".
The Certificates will be issued pursuant to a Pooling and Servicing Agreement
(the "Pooling and Servicing Agreement") among Home Equity Securitization Corp.
as the Depositor (the "Depositor"), __________, as Master Servicer (the "Master
Servicer"), and __________ (the "Trustee"). On or prior to the Closing Date, the
Company will acquire the Mortgage Loans from the Originators, as described
herein. Pursuant to a Purchase and Sale Agreement dated as of __________ (the
"Sale Agreement"), the Company will sell the Mortgage Loans to the Depositor.
The Depositor will in turn sell the Mortgage Loans to the Trust pursuant to the
Pooling and Servicing Agreement. In addition to the Class A Certificates, the
Trust will also issue a subordinate Class of Certificates with respect to Group
I and Group II (the "Class B Certificates"), and one or more Classes of Residual
Certificates. Only the Class A Certificates are offered hereby. Distributions of
interest on the Class A Certificates are of an equal priority to the extent
described herein, and distributions on the Class B Certificates and on the
Residual Certificates are subordinate to distributions on the Class A
Certificates to the extent described herein. See "Description of the
Certificates" herein.
All of the Mortgage Loans were originated under the Company's Mortgage Loan
Program by unaffiliated originators (the "Originators"). Except for certain
representations and warranties relating to the Mortgage Loans and certain other
matters, Home Equity Securitization Corp., __________, ________________, the
Master Servicer, any Sub-Servicers and the Originators will have no obligations
with respect to the Certificates.
Distributions of principal and interest on the Class A Certificates will be made
to the extent funds are available therefor on the __ day of each month or if
such day is not a business day, on the next succeeding business day commencing
___________ (each, a "Payment Date") to holders of record as of the close of
business on the first business day of the current calendar month (with respect
to the Class A Fixed Rate Certificates) or as of the close of business on the
business day immediately preceding such Payment Date (with respect to the Class
A-1 Group I Certificates and the Class A-6 Group II Certificates), except in the
case of the first Payment Date, on which distributions will be made to holders
of record as of the Closing Date (each such date being the applicable "Record
Date").
An ERISA Plan purchasing the Class A Certificates should consult with its legal
advisors concerning the impact of ERISA and the Code with respect to such
purchase. See "Risk Factors" and "ERISA Considerations" herein.
There is currently no secondary market for any Class of the Class A
Certificates. There can be no assurance that a secondary market for any of the
Class A Certificates will develop, or if it does develop, that it will continue.
One or more elections will be made to treat certain assets of the Trust as "real
estate mortgage investment conduits" ("REMICs") for federal income tax purposes,
pursuant to the Internal Revenue Code of 1986, as amended (the "Code"). See
"Federal Tax Consequences" herein.
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THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE SECURITIES. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE SECURITIES MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A
CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THE CLASS A CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT
REPRESENT INTERESTS IN OR OBLIGATIONS OF HOME EQUITY SECURITIZATION CORP.,
__________, THE TRUSTEE, THE CERTIFICATE INSURER, ANY SUB-SERVICER OR ANY OF
THEIR RESPECTIVE AFFILIATES, EXCEPT TO THE EXTENT DESCRIBED HEREIN. THE CLASS A
CERTIFICATES AND THE MORTGAGE LOANS ARE NOT INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY, NOR HAS ANY GOVERNMENTAL AGENCY PASSED UPON THE ACCURACY OF
THE INFORMATION CONTAINED IN THIS PROSPECTUS.
AVAILABLE INFORMATION
The Depositor has filed a Registration Statement under the Securities
Act of 1933, as amended, (the "1933 Act") with the Securities and Exchange
Commission (the "Commission") on behalf of the Trust with respect to the Class A
Certificates offered pursuant to this Prospectus Supplement and the related
Prospectus. For further information, reference is made to the Registration
Statement and amendments thereof and to the exhibits thereto, which are
available for inspection without charge at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549;
7 World Trade Center, 13th Floor, New York, New York 10048; and 500 West Madison
Street, Chicago, Illinois 60661. Copies of the Registration Statement and
amendments thereof and exhibits thereto may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. In addition, the Commission maintains a site on the
World Wide Web at http://www.sec.gov containing reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.
REPORTS TO THE HOLDERS
So long as the Class A Certificates are in book-entry form, monthly and
annual reports concerning such Certificates and the Trust will be sent by the
Trustee to Cede & Co. ("Cede"), as the nominee of The Depository Trust Company
("DTC") and as registered holder of the Class A Certificates pursuant to the
Pooling and Servicing Agreement. DTC will forward such reports to the
Participants and indirect participants by mail for forwarding to the Owner of
any Class A Certificates (the "Owner" or "Certificateholder"). See "Risk
Factors" and "Description of the Certificates -- Reports to Owners". The Trust
will not provide any financial information to the Owners which has been examined
and reported upon, with an opinion expressed by, an independent public
accountant. The Company and the Depositor have determined that their respective
financial statements are not material to the offering made hereby. The Trust
will have no assets or obligations prior to issuance of the Certificates and
will engage in no activities other than those described herein. Accordingly, no
financial statements with respect to the Trust are included in this Prospectus
Supplement and the related Prospectus.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
In addition to the documents described in the accompanying Prospectus
under "Incorporation of Certain Documents by Reference," the financial
statements of the Certificate Insurer included in, or as exhibits to, the
following documents which have been filed with the Commission by ___________ are
hereby incorporated by reference in the Registration Statement of which this
Prospectus and Prospectus Supplement form a part:
(i) Annual Report on Form 10-K for the year ended __________,
(ii) Quarterly Report on Form 10-Q for the period ended
__________, and
(iii) Quarterly Report on Form 10-Q for the period ended
__________.
The Depositor will provide, without charge, to any person to whom this
Prospectus Supplement is delivered, upon oral or written request of such person,
a copy of any or all of the foregoing financial statements incorporated by
reference. Requests for such copies should be sent to Home Equity Securitization
Corp., attention: Law Department, __________. All financial statements of the
Certificate Insurer included in documents filed by Holdings pursuant to Section
13(a), 14 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act")
subsequent to the date of this Prospectus Supplement and prior to the
termination of the offering of the Securities shall be deemed to be incorporated
by reference into this Prospectus Supplement and to be a part hereof from the
respective dates of filing of such documents.
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SUMMARY
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Reference is made to the Indices of Principal
Definitions for the location in either the Prospectus or this Prospectus
Supplement of the definitions of certain capitalized terms.
<TABLE>
<S> <C>
Issuer __________ Mortgage Loan Trust _____ (the "Trust").
Securities Offered $________ aggregate principal amount of Class A-1
Group I Certificates, Variable Pass-Through Rate; $________ aggregate
principal amount of Class A-2 Group I Certificates, _____% Pass-Through
Rate; $_________ aggregate principal amount of Class A-3 Group I
Certificates, _____% Pass-Through Rate; $________ aggregate principal
amount of Class A-4 Group I Certificates, _____% Pass-Through Rate;
$_________ aggregate principal amount of Class A-5 Group I
Certificates, _____% Pass-Through Rate; and $________ aggregate
principal amount of Class A-6 Group II Certificates.
Company ___________ (the "Company").
Depositor Home Equity Securitization Corp., a Delaware corporation (the
"Depositor").
Master Servicer __________, a __________ corporation (the "Master
Servicer").
Trustee __________ (the "Trustee").
Originators of the Mortgage Loans The Mortgage Loans to be acquired by
the Trust have been acquired by the Company from the Originators, in
accordance with the Company's underwriting criteria.
Original Pool Principal Balance $___________ as of the close of business on the Cut-Off Date.
Original Group I Pool Principal Balance $___________ as of the close of business on the Cut-Off Date.
Original Group II Pool Principal Balance $___________ as of the close of business on the Cut-Off Date.
Closing Date On or about __________.
Cut-Off Date ___________.
Description of the Certificates The Certificates will be issued by the Trust pursuant to a Pooling
and Servicing Agreement to be dated as of ___________ (the "Pooling
and Servicing Agreement") among the Master Servicer, the Depositor
and the Trustee. The $________ aggregate principal amount of Class A
Group I Certificates (collectively, the "Class A Group I
Certificates" or the "Group I Certificates"), and the $________
aggregate principal amount of Class A-6 Group II Certificates (the
"Class A-6 Group II Certificates" or the "Group II
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Certificates"), are senior certificates as described herein.
The assets of the Trust initially will include two groups (each, a
"Mortgage Loan Group") of closed-end mortgage loans (the "Mortgage
Loans") secured by mortgages or deeds of trust (the "Mortgages") on
one-to-four family residential properties (the "Mortgaged Properties")
to be conveyed to the Trust on the Closing Date. The Group I
Certificates will represent undivided ownership interests in a group of
fixed-rate Mortgage Loans ("Group I"). The Group II Certificates will
represent undivided ownership interests in a group of adjustable-rate
Mortgage Loans ("Group II").
The Trust will issue a subordinate Class of Certificates with respect
to Group I and Group II (the "Class B Certificates"), which are
subordinated to the Class A Group I Certificates and the Class A-6
Group II Certificates. The Class B Certificates are not being offered
hereby. The Trust will also issue one residual class of Certificates
with respect to each REMIC election made by the Trust (the "Residual
Certificates") which are not being offered hereby and will initially be
retained by the Depositor or its affiliates. The Class A Group I
Certificates, the Class A-6 Group II Certificates, the Class B
Certificates and the Residual Certificates are collectively referred to
as the "Certificates". The Class A Group I Certificates and the Class
A-6 Group II Certificates are collectively referred to as the "Class A
Certificates"
A. Class A Group I The Class A Group I Certificates represent senior
beneficial ownership interests in Group I. One hundred percent (100%)
Certificates of the Group I Insured Distribution Amount (as described herein under
"Description of the Certificates") due to the Owners of the Class A
Group I Certificates on each Payment Date is guaranteed by the
Certificate Insurer. The final scheduled Payment Date for the Class A-1
Group I Certificates is ___________, for the Class A-2 Group I
Certificates is _______, for the Class A-3 Group I Certificates is
_______, for the Class A-4 Group I Certificates is _________ and for
the Class A-5 Group I Certificates is _______. Each Class of Class A
Group I Certificates is issuable in original principal amounts of
$1,000 and integral multiples thereof except that one certificate for
each Class of Class A Group I Certificates may be issued in a different
amount
B. Class A-6 Group The Class A-6
Group II Certificates represent
senior beneficial ownership
interests in Group II. One hundred
percent (100%) of the
II Certificates Group II Insured Distribution Amount (as described herein under
"Description of the Certificates") due to the Owners of the Class A-6
Group II Certificates on each Payment Date is guaranteed by the
Certificate Insurer. The final scheduled Payment Date for the Class
A-6 Group II Certificates is _______. The Class A-6 Group II
Certificates are issuable in original principal amounts of $1,000 and
integral multiples thereof except that one certificate may be issued
in a different amount.
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The Mortgage Loan Pool The statistical information concerning the Pool
of Mortgage Loans is based upon Pool information as of the close of
business on ___________ (the "Cut-Off Date").
The Pool of Mortgage Loans consists of Notes secured by mortgages,
deeds of trust or other instruments creating liens or estates in fee
simple interests ("Mortgages") on one- to four-family residential
properties, including investment properties. The Mortgage Loans will
not be insured by primary mortgage insurance policies, nor will any
pool insurance insure the Mortgage Loans. The Mortgage Loans are not
guaranteed by the Company, the Depositor, the Master Servicer, the
Sub-Servicers, the Trustee or any of their respective affiliates. The
Mortgage Loans will be serviced by the Master Servicer on a
"scheduled/actual" basis (i.e., "scheduled" interest and "actual"
principal receipts are required to be remitted by the Master Servicer
to the Trustee each month).
Each Mortgage Loan in the Trust will be assigned to one of two mortgage
loan groups ("Group I" or "Group II", each, a "Mortgage Loan Group")
comprised of Mortgage Loans which bear fixed-interest rates only in the
case of Group I, and Mortgage Loans which bear adjustable interest
rates only in the case of Group II. As of the Cut-Off Date, the
Mortgage Loans in Group I had an aggregate principal balance of
approximately $________ (the "Original Group I Pool Principal Balance")
and the Mortgage Loans in Group II had an aggregate principal balance
of approximately $________ (the "Original Group II Pool Principal
Balance"). The sum of the Original Group I Pool Principal Balance and
the Original Group II Pool Principal Balance is equal to the "Original
Pool Principal Balance".
The Pool of Mortgage Loans in Group I consists of approximately _____
Mortgages secured by Mortgaged Properties located in __ states and the
District of Columbia. The Pool of Mortgage Loans in Group I consists as
of the Cut-Off Date and as a percentage of the Original Group I Pool
Principal Balance, of approximately _____% of loans secured by first
liens on the related Mortgaged Properties and approximately ____% of
loans secured by second liens on the related Mortgaged Properties. The
Pool of Mortgage Loans in Group I consists of approximately _____% of
loans secured by primary residences. _____% of the Mortgage Loans in
Group I will be fully amortizing and _____% of the Mortgage Loans in
Group I are partially amortizing loans ("Balloon Loans"). The weighted
average Combined Loan-to-Value Ratio (with property values calculated
as of the time of origination of the related Mortgage Loan) of the Pool
of Mortgage Loans in Group I is approximately _____% with a range from
approximately ______% to approximately ______%; the weighted average
stated remaining term to maturity is approximately ___ months, with a
range from ___ months to ___ months; the weighted average number of
months since origination is approximately _ months; the average
principal balance of the Mortgage Loans in Group I is
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approximately $______, the highest principal balance is approximately
$______ and the lowest principal balance is approximately $________;
the coupon rates (the "Coupon Rates") of the Mortgage Loans in Group I
range from ___% per annum to ______% per annum, with a weighted average
Coupon Rate of approximately ____% per annum.
The Pool of Mortgage Loans in Group II consists of approximately _____
Mortgages secured by Mortgaged Properties located in __ states and the
District of Columbia. The Pool of Mortgage Loans in Group II consists
as of the Cut-Off Date and as a percentage of the Original Group II
Pool Principal Balance, of ___% of loans secured by first liens on the
related Mortgaged Properties. The Pool of Mortgage Loans in Group II
consists of approximately ____% of loans secured by primary residences.
_____% of the Mortgage Loans in Group II will be fully amortizing and
_____% of the Mortgage Loans in Group II are Balloon Loans. The
weighted average Loan-to-Value Ratio (with property values calculated
as of the time of origination of the related Mortgage Loan) of the Pool
of Mortgage Loans in Group II is approximately _____% with a range from
approximately _____% to approximately ______%; the weighted average
stated remaining term to maturity is approximately ____ months, with a
range from ___ months to ___ months; the weighted average number of
months since origination is approximately _ month; the average
principal balance of the Mortgage Loans in Group II is approximately
$_____, the highest principal balance is approximately $______ and the
lowest principal balance is approximately $______; the Coupon Rates of
the Mortgage Loans in Group II range from ____% per annum to ____% per
annum, with a weighted average Coupon Rate of approximately ____% per
annum; the margins of the Mortgage Loans in Group II range from ____%
to ____% with a weighted average margin of approximately ____% per
annum. The Coupon Rates of Mortgage Loans in Group II bear interest
rates that adjust semi-annually based on six-month LIBOR. In general
the interest rates on the Mortgage Loans in Group II are subject to
periodic interest rate caps and lifetime interest rate ceilings. ____%
of the aggregate principal balance of the Mortgage Loans in Group II
were fixed rate loans that, in 2 years from origination, will be
converted into variable rate loans and ____% of the aggregate principal
balance of the Mortgage Loans in Group II were fixed rate loans that,
in 3 years from origination, will be converted into variable rate
loans.
Class A-1 Pass- On each Payment Date, the "Class A-1 Pass-Through Rate" will be equal to
Through Rate the lesser of (i) the London interbank offered rate for one-month United
States dollar deposits ("LIBOR") (calculated as described under
"Description of the Certificates -- Calculation of LIBOR") as of the
second to last business day prior to the immediately preceding Payment
Date (or as of the second to the last business day prior to the Closing
Date in the case of the first Payment Date) plus ____% per annum and (ii)
the weighted average net coupon rate (i.e., the weighted average coupon
rate
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on the Mortgage Loans in Group I less the sum of the per annum rates at
which the Servicing Fees, Trustee fees and Certificate Insurer premiums
are calculated, which sum shall not exceed ___% for any Payment Date)
for Group I for such Payment Date (the "Group I Available Funds
Pass-Through Rate").
Class A-2 Pass-Through Rate _____% per annum.
Class A-3 Pass-Through Rate _____% per annum.
Class A-4 Pass-Through Rate _____% per annum; provided, that on no Payment Date will the Class
A-4 Pass-Through Rate be greater than the Group I Available Funds
Pass-Through Rate.
Class A-5 Pass-Through Rate ____% per annum.
Class A-6 Pass-Through Rate On each Payment Date, the "Class A-6 Pass-Through Rate" will be equal
to the lesser of (i) LIBOR as of the second to last business day
prior to the immediately preceding Payment Date (or as of the second
to the last business day prior to the Closing Date in the case of the
first Payment Date) plus ____% per annum, and (ii) the weighted
average net coupon rate (i.e., the weighted average coupon rate on
the Mortgage Loans in Group II less the sum of the per annum rates at
which the Servicing Fees, Trustee fees and Certificate Insurer
premiums are calculated, which sum shall not exceed ___% for any
Payment Date) for Group II for such Payment Date and less ___% on the
___ Payment Date and thereafter (the "Class A-6 Available Funds
Pass-Through Rate").
The "Class A-6 Formula Pass-Through Rate" for a Payment Date is the
rate described in clause (i) of the definition of "Class A-6 Group II
Pass-Through Rate" on such Payment Date. The excess, if any, of (x) the
interest due on the Class A-6 Certificates on any Payment Date
calculated at the Class A-6 Formula Pass-Through Rate over (y) the
interest due on the Class A-6 Certificates calculated at the Class A-6
Available Funds Pass-Through Rate is the "Group II Supplemental
Interest Amount" for such Payment Date.
If, on any Payment Date, there is a Group II Supplemental Interest
Amount calculated for any Payment Date, such amount shall be payable
from amounts that would otherwise be distributed to the Owners of the
Class B Certificates, and the Owners of certain of the Class R
Certificates have agreed to pay any remaining amounts. If the full
amount of the Group II Supplemental Interest Amount is not paid on a
Payment Date, then the amount not paid will accrue interest at the
Class A-6 Formula Pass-Through Rate until actual payment.
The Certificate Insurer does not guarantee the payment of, nor do the
ratings assigned to the Class A-6 Certificates address the likelihood
of the payment of, any Supplemental Interest Amount.
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Payment Dates, Record Dates On the __ day of each month, or, if such day is not a
and Accrual Periods business day, then the next succeeding business day, commencing
___________ (each such day being a "Payment Date"), the Trustee will be
required to distribute to the Owners of record of the Certificates as of
the close of business on the first business day of the current calendar
month (with respect to the Class A Fixed Rate Certificates) or as of the
close of business on the business day immediately preceding such Payment
Date (with respect to the Class A-1 Group I Certificates and the Class A-6
Group II Certificates), except in the case of the first Payment Date, on
which distributions will be made to holders of record as of the Closing
Date (each such date being the applicable "Record Date") such Owners'
Percentage Interests in the amounts required to be distributed to the
Owners of each Class of Certificates on such Payment Date.
Interest will accrue on each Class A-2, A-3, A-4 and A-5 Group I
Certificate during the period from and including the second day of the
month preceding the month in which a Payment Date occurs through and
including the first day of the month in which such Payment Date occurs
and on each Class A-1 Group I Certificate and Class A-6 Group II
Certificate from and including each Payment Date (or the Closing Date,
with respect to the initial Payment Date) to and including the day
preceding the current Payment Date. Each period referred to in the
immediately preceding sentence relating to the accrual of interest is
the "Accrual Period" for the related Class of Certificates. Interest
will be calculated on the basis of a 360-day year consisting of twelve
30-day months for the Class A-2, A-3, A-4 and A-5 Group I Certificates.
Interest for the Class A-1 Group I Certificates and the Class A-6 Group
II Certificates will be calculated based upon the actual number of days
in the related Accrual Period, divided by 360.
Distributions on the Certificates
A. Priority of Distributions As more fully described herein, each Class of Certificates has a
specified priority to the collections on the Pool of Mortgage Loans
which comprise the related Mortgage Loan Group, subject to the credit
enhancement and cross-collateralization provisions hereinafter
described. In addition, ________________, as Certificate Insurer, is
required pursuant to the Certificate Insurance Policy to make
available to the Trustee on each Payment Date 100% of the related
Class A Insured Distribution Amount for the related Mortgage Loan
Group to the extent that available funds remaining after payment of
the Trustee's fee are insufficient to cover such amount.
The Owners of the Class A Group I Certificates and the Class A-6 Group
II Certificates will receive certain monthly distributions of principal
on each Payment Date which generally reflect
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collections of principal during the prior Remittance Period with
respect to the related Mortgage Loan Group. The Certificate Insurance
Policy only guarantees the amount by which the sum of the related
Interest Distribution Amount and the related Subordination Deficit, if
any, exceeds Total Available Funds.
B. Distributions on the Class A
Certificates
1.Interest Distributions Interest will accrue on each Class of Class A Certificates at the related
Class A Pass-Through Rate during each Accrual Period for such Class of
Certificates, and will be distributed, to the extent of the Total
Available Funds for the related Mortgage Loan Group plus the proceeds of
any Insured Payments, on each Payment Date. Interest accruing during the
related Accrual Period at the related Class A Pass-Through Rate on the
related Class A Principal Balance immediately preceding such Payment Date
is referred to herein as the "Class A Interest Distribution Amount" for
the related Class of Class A Certificates. The "Class A Interest
Distribution Amount" does not include the amounts, if any, of the
Supplemental Interest Amount applicable to the Class A-6 Group II
Certificates. See "Description of the Certificates -- Flow of Funds and
Distributions on the Class A Certificates" herein.
2.Principal Distributions The Holders of the Class A Certificates
issued with respect to each Mortgage Loan Group will be entitled to
receive on each Payment Date a distribution allocable to principal (the
"Class A Principal Distribution Amount" for such Mortgage Loan Group
and Payment Date) which will be equal to the lesser of:
(a) the Total Available Funds for the related Mortgage Loan Group plus
any related Insured Payment minus the interest then due on account of
the related Class A Certificates; and
(b) (i) the sum, without duplication, of:
(x) for the Mortgage Loans in the related Mortgage Loan Group, the sum
of (i) the principal portion of all scheduled and unscheduled payments
received on the Mortgage Loans during the related Remittance Period,
including (a) any full or partial principal prepayments of any Mortgage
Loans ("Prepayments") received during the related Remittance Period,
(b) the proceeds received on any insurance policy relating to a
Mortgage Loan, a Mortgaged Property or a REO Property, net of proceeds
to be applied to the repair of the Mortgaged Property or released to
the Mortgagor (as defined herein) and net of expenses reimbursable
therefrom ("Insurance Proceeds"), (c) proceeds received in connection
with the liquidation of any defaulted Mortgage Loans, whether by
trustee's sale, foreclosure sale or otherwise ("Liquidation Proceeds"),
net of fees and advances reimbursable therefrom ("Net Liquidation
Proceeds") and (d) proceeds received in connection with a taking of a
Mortgaged Property by condemnation or the exercise of eminent domain or
in
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connection with a release of part of the Mortgaged Property from the
related lien ("Released Mortgaged Property Proceeds"), (ii) the
principal portion of all amounts deposited into the Principal and
Interest Account on the related Remittance Date in connection with the
repurchase of, or the substitution of a substantially similar mortgage
loan for, a Mortgage as to which there is defective documentation or a
breach of a representation or warranty contained in the Pooling and
Servicing Agreement, and (iii) the proceeds received by the Trustee in
connection with any termination of the Trust, to the extent that such
proceeds relate to principal.
(y) the amount of any Subordination Deficit with respect to the related
Mortgage Loan Group for such Payment Date; and
(z) the amount of any Subordination Increase Amount with respect to the
related Mortgage Loan Group for such Payment Date;
minus
(ii) the amount of any Subordination Reduction Amount with respect to
the related Mortgage Loan Group for such Payment Date.
The amount of any Subordination Deficit or Subordination Increase
Amount to be paid to the Holders of the Class A Certificates will be
paid to the Holders of the Class A Certificates then entitled to
receive distributions of principal. Similarly, the amount of any
Subordination Reduction Amount to be deducted from the Class A
Principal Distribution Amount for the Class A Certificates will be
deducted from such amounts otherwise due to the Holders of the Class A
Certificates then entitled to receive distributions of principal.
The amount of any loss on a Liquidated Mortgage Loan in the related
Mortgage Loan Group (i.e., a Realized Loss) may or may not be allocated
to the Owners of the Class A Certificates issued with respect to such
Mortgage Loan Group on the Payment Date which immediately follows the
event of loss. However, the Owners of each Class of the Class A
Certificates are entitled to receive ultimate recovery of 100% of the
original principal balance for such Class.
Principal distributions with respect to the Class A Group I
Certificates will generally be distributed in a sequential-pay fashion,
subject to the "lockout" provisions applicable to the Class A-5 Group I
Certificates.
The Owners of the Class A-5 Group I Certificates are entitled to
receive payments of the Class A-5 Lockout Distribution Amount specified
herein; provided, that if on any Payment Date the Class A-4 Certificate
Principal Balance is zero, the Owners of the Class
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A-5 Group I Certificates will be entitled to receive the entire Class A
Principal Distribution Amount for Group I for such Payment Date.
The "Class A-5 Lockout Distribution Amount" for any Payment Date will
be the product of (i) the applicable Class A-5 Lockout Percentage for
such Payment Date and (ii) the Class A-5 Lockout Pro Rata Distribution
Amount for such Payment Date.
The "Class A-5 Lockout Percentage" for each Payment Date shall be as
follows:
Payment Dates Lockout Percentage
The "Class A-5 Lockout Pro Rata Distribution Amount" for any Payment
Date will be an amount equal to the product of (x) a fraction, the
numerator of which is the Certificate Principal Balance of the Class
A-5 Group I Certificates immediately prior to such Payment Date and the
denominator of which is the aggregate Certificate Principal Balance of
all Classes of the Group I Certificates immediately prior to such
Payment Date and (y) the Class A Principal Distribution Amount for
Group I for such Payment Date.
After payment of the Class A-5 Lockout Distribution Amount, the
remaining Class A Principal Distribution Amount for Group I shall be
paid to the Owners of the other Classes of Class A Group I Certificates
sequentially, such that the Class A-4 Group I Certificates are entitled
to receive no principal distributions until the Class A-3 Certificate
Principal Balance has been reduced to zero, the Class A-3 Group I
Certificates are entitled to receive no principal distributions until
the Class A-2 Certificate Principal Balance has been reduced to zero,
the Class A-2 Group I Certificates are entitled to receive no principal
distributions until the Class A-1 Certificate Principal Balance has
been reduced to zero.
As of any Payment Date, the "Class A Certificate Principal Balance" for
a Class of Class A Certificates, prior to any distribution on such
Payment Date, will equal the original Class A Certificate Principal
Balance of such Class less the sum of all
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amounts previously distributed to the Owners of the related Class of
Class A Certificates on account of principal. "Class A Group I
Certificate Principal Balance" refers to the Class A Group I
Certificates and the "Class A Group II Certificate Principal Balance"
refers to the Class A-6 Group II Certificates.
C. Class A Distribution Amounts and The "Class A Distribution Amount" with respect to each Class of Class
Class A Insured Distribution Amounts Insured Distribution Amounts A Certificates and Payment Date is the
sum, without duplication, of (x) the Class A Interest Distribution Amount
with respect to such Class and Payment Date, (y) the Class A Principal
Distribution Amount, if any, with respect to such Class and Payment Date
and (z) the Class A Carry-Forward Amount, if any, with respect to such
Class and Payment Date.
The "Class A Carry-Forward Amount" means, with respect to each Class of
Class A Certificates and Payment Date, the sum, without duplication, of
(a) the amount, if any, by which (x) the Class A Distribution Amount
for the related Class of Class A Certificates as of the immediately
preceding Payment Date exceeded (y) the amount of the actual
distribution, exclusive of any portion thereof representing the
proceeds of an Insured Payment, to the Owners of the related Class of
Class A Certificates on such immediately preceding Payment Date and (b)
interest on the amount, if any, described in clause (a) at the related
Class A Pass-Through Rate from such immediately preceding Payment Date.
The "Class A Insured Distribution Amount" with respect to each Class of
Class A Certificates and Payment Date is the sum, without duplication,
of (x) the Class A Interest Distribution Amount with respect to such
Class and Payment Date, less interest shortfalls arising from
Prepayments of principal and from application of the Soldiers' and
Sailors' Civil Relief Act of 1940, as amended (the "Relief Act") and
(y) the amount of any Subordination Deficit with respect to such Class
and Payment Date.
To the extent that the Certificate Insurer pays Insured Payments the
Certificate Insurer, as subrogee, will be entitled to receive the Class
A Carry-Forward Amount.
The Pooling and Servicing Agreement provides that to the extent any
portion of a Class A Carry-Forward Amount relates to principal such
portion shall be treated as a distribution of principal, with any
portion which relates to interest being treated as a distribution of
interest.
Registration of the Class A Certificates The Class A Certificates will initially be issued in book-entry
form. Persons acquiring beneficial ownership interests in such Class
A Certificates ("Beneficial Certificate Owners") may elect to hold
their interests through The Depository Trust Company ("DTC"), in the
United States, or Centrale de Livraison de Valeurs Mobiliers, S.A.
("CEDEL") or the Euroclear System ("Euroclear"), in Europe.
Transfers within DTC, CEDEL or Euroclear, as the case may be, will be
in accordance with the usual rules and operating
S-14
<PAGE>
procedures of the relevant system. So long as the Class A Certificates
are book-entry certificates, such Class A Certificates will be
evidenced by one or more Class A Certificates registered in the name of
Cede & Co. ("Cede"), as the nominee of DTC or one of the relevant
depositories (collectively, the "European Depositories"). Cross-market
transfers between persons holding directly or indirectly through DTC,
on the one hand, and counterparties holding directly or indirectly
through CEDEL or Euroclear, on the other, will be effected in DTC
through Citibank N.A. ("Citibank") or The Chase Manhattan Bank
("Chase"), the relevant depositories of CEDEL or Euroclear,
respectively, and each a participating member of DTC. The Class A
Certificates will initially be registered in the name of Cede. The
interests of the Owners of such Class A Certificates will be
represented by book-entries on the records of DTC and participating
members thereof. No Beneficial Certificate Owner will be entitled to
receive a definitive certificate representing such person's interest,
except in the event that Definitive Certificates (as defined herein)
are issued under the limited circumstances described herein. All
references herein to any Class A Certificates reflect the rights of
Beneficial Certificate Owners only as such rights may be exercised
through DTC and its participating organizations for so long as such
Class A Certificates are held by DTC. See "Risk Factors" and
"Description of the Certificates -- Book-Entry Registration of the
Class A Certificates" herein.
Servicing of the Mortgage Loans The Master Servicer has agreed to service the Mortgage Loans in accordance
with the Pooling and Servicing Agreement. In certain limited circumstances
and with the consent of the Certificate Insurer, the Master Servicer may
be removed as Master Servicer under the Pooling and Servicing Agreement.
In the event that Home Equity Securitization Corp. is removed as Master
Servicer under the Pooling and Servicing Agreement, a successor Master
Servicer will be appointed thereunder. See "Servicing" herein.
Monthly Servicing Fee The Master Servicer will retain fees not in excess of ___% per annum (the
"Servicing Fee"), payable monthly at one-twelfth the annual rate, of the
then outstanding principal amount of each Mortgage Loan serviced by it as
of the close of business on the first day of the preceding calendar month.
Subordination of Class B Certificates The Class B Certificates are subordinated to the Class A Certificates.
Such subordination is intended to enhance the likelihood that the Owners
of the Class A Certificates will receive full and timely receipt of all
amounts due to them. See "Description of the Certificates -- Subordination
of Class B Certificates" herein.
Certificate Insurer ________________, a ___________________.
CertificateInsurance Policy Pursuant to an Insurance and Indemnity Agreement dated as of
__________ (the "Insurance Agreement"), the Depositor will obtain the
Certificate Insurance Policy, which is non-cancelable,
S-15
<PAGE>
in favor of the Trustee on behalf of the Owners of the Class A
Certificates. On each Payment Date, the Certificate Insurer is required to
make available to the Trustee the amount of any insufficiency in Total
Available Funds for the related Mortgage Loan Group as of such Payment
Date necessary, after the application of the cross-collateralization
provisions described herein, to distribute the Class A Insured
Distribution Amount with respect to the related Mortgage Loan Group. The
Certificate Insurance Policy does not guarantee any specified rate of
Prepayments. See "The Certificate Insurance Policy and the Certificate
Insurer" and "Description of the Certificates -- Subordination of Class B
Certificates" herein.
The Trustee or paying agent will (i) receive as attorney-in-fact of each
Owner of the Class A Certificates, any Insured Payment from the
Certificate Insurer and (ii) disburse the same to each Owner of the
related Class A Certificates in accordance with the Pooling and Servicing
Agreement. The Pooling and Servicing Agreement will provide that to the
extent the Certificate Insurer makes Insured Payments, either directly or
indirectly (as by paying through the Trustee or a paying agent), to the
Owners of any Class A Certificates, the Certificate Insurer will be
subrogated to the rights of such Owners of such Class A Certificates with
respect to such Insured Payments. The Certificate Insurer will receive
reimbursement for such Insured Payments, but only from the sources and in
the manner provided in the Pooling and Servicing Agreement. Such
subrogation and reimbursement will have no effect on the Certificate
Insurer's obligations under the Certificate Insurance Policy.
Optional Termination The Depositor will have the right to purchase all the Mortgage Loans
on any Payment Date when the aggregate principal balances of the
Mortgage Loans has declined to ten percent or less of the Original
Pool Principal Balance (the "Depositor Optional Termination Date"),
subject to the consent of the Certificate Insurer in certain
circumstances. See "Description of the Certificates -- Optional
Termination by the Depositor" herein.
Auction Sale The Pooling and Servicing Agreement requires that, within ninety days
following the Depositor Optional Termination Date, if the Depositor has
not exercised its optional termination right by such date, the Trustee
solicit bids for the purchase of all Mortgage Loans remaining in the
Trust. In the event that satisfactory bids are received as described in
the Pooling and Servicing Agreement, the net sale proceeds will be
distributed to Certificateholders, in the same order of priority as
collections received in respect of the Mortgage Loans. If satisfactory
bids are not received, the Trustee shall decline to sell the Mortgage
Loans and shall not be under any obligation to solicit any further bids or
otherwise negotiate any further sale of the Mortgage Loans. Such sale and
consequent termination of the Trust must constitute a "qualified
liquidation" of each REMIC established by the Trust under Section 860F of
the Internal Revenue Code of 1986, as
S-16
<PAGE>
amended, including, without limitation, the requirement that the qualified
liquidation takes place over a period not to exceed 90 days. Such sale
shall be subject to the consent of the Certificate Insurer in certain
circumstances.
Ratings It is a condition of the original issuance of the Class A Certificates
that the Class A Certificates receive ratings of ___ or ___ by __________
("___") and __________ ("___"), respectively. 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 entity.
Such ratings address credit risk, but do not purport to address any
prepayment risk associated with the Class A Certificates, nor do such
ratings cover the payment of the Supplemental Interest Amounts.
Federal Income One or more elections will be made to treat certain assets of the Trust as
one or more REMICs for federal income tax purposes. Each
Tax Consequences Class of the Class A Certificates will be designated as a "regular
interest" in a REMIC and a separate class of certificates will be
designated as the "residual interest" with respect to each REMIC.
Certificateholders that would otherwise report income under a cash method
of accounting will be required to include in income interest on the Class
A Certificates (including original issue discount, if any) in accordance
with an accrual method of accounting. See "Federal Income Tax
Consequences" herein and in the Prospectus.
ERISA Considerations As described under "ERISA Considerations" herein, the Class A Certificates
may be purchased by a pension or other employee benefit plan subject to
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
or by individual retirement accounts or Keogh plans covering only a sole
proprietor or partner which are not subject to ERISA but are subject to
Section 4975 of the Code ("Plans"). See "ERISA Considerations" herein and
in the Prospectus.
Legal Investment Considerations The Class A Certificates will not constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984
("SMMEA"). Accordingly, many institutions may not be legally authorized to
invest in the Class A Certificates.
Risk Factors For a discussion of certain factors that should be considered by
prospective investors in the Class A Certificates, see "Risk Factors"
herein and in the accompanying Prospectus.
</TABLE>
S-17
<PAGE>
RISK FACTORS
Prospective investors should consider, among other things, the
following factors (as well as the factors set forth under "Risk Factors" in the
accompanying Prospectus) in connection with the purchase of the Class A
Certificates.
MATURITY AND PREPAYMENT CONSIDERATIONS. All of the Mortgage Loans are
prepayable in full or in part at any time. The rate of Prepayments on the
Mortgage Loans may be influenced by a variety of economic, social and other
factors, including interest rates, the availability of alternative financing and
homeowner mobility. Although there is little significant data available on the
effects of interest rates on prepayment rates for non-purchase money,
non-conforming credit mortgage loans, a number of factors suggest that the
prepayment behavior of a pool of such mortgage loans may be significantly
different from that of a pool of purchase money, conforming-credit mortgage
loans. One such factor is the typically smaller principal balance of the average
non-purchase money mortgage loan than that of the average purchase money
mortgage conventional loan in the typical pool. A smaller principal balance is
easier for a borrower to prepay than a larger balance and therefore a higher
prepayment rate may result for a non-purchase money mortgage loan pool than for
a pool of purchase money mortgage loans, irrespective of the relative average
interest rates in the two pools and the general interest rate environment. A
small principal balance, however, also may make refinancing a non-purchase money
mortgage loan at a lower loan rate less attractive to the borrower relative to
refinancing a larger principal balance non-purchase money mortgage loan, as the
perceived impact to the borrower of lower interest rates on the size of the
monthly payment on a mortgage loan is much less than for a larger principal
balance non-purchase money mortgage loan. Other factors that might be expected
to affect the prepayment rate of a pool of mortgage loans include the amounts
of, and interest rates on, the related senior mortgage loans, if one exists, and
the use of the first mortgage loans as long-term financing for home purchase and
junior mortgage loans as shorter-term financing for a variety of purposes,
including debt consolidation, home improvement, education expenses and purchases
of consumer durables such as automobiles. See "Risk Factors" in the accompanying
Prospectus.
The weighted average life of a pool of loans is the average amount of
time for which each dollar of principal on such loans is outstanding. Because it
is expected that there will be payments of principal of Mortgage Loans in
advance of the scheduled due date for the payments of such principal (the
"Prepayments") and defaults on the Mortgage Loans, the actual weighted average
life of the Mortgage Loans is expected to vary substantially from the weighted
average life of the Mortgage Loans based upon their amortization schedules.
Prepayments may result from voluntary early payments by borrowers (including
payments in connection with refinancings of the related first mortgage loans or
the Mortgage Loan itself), the sale of Properties subject to due-on-sale
clauses, and liquidations due to default, as well as the receipt of proceeds
from physical damage insurance policies. In addition, repurchases of Mortgage
Loans from the Trust will have the same effect as Prepayments of the related
Mortgage Loans. Substantially all of the Mortgage Loans contain "due-on-sale"
provisions, and the Pooling and Servicing Agreement generally requires the
Master Servicer to enforce such provisions unless such enforcement is not
permitted by applicable law. See "Description of the Certificates --Flow of
Funds and Distributions on the Class A Certificates", " -- General Servicing
Procedures", " --Termination of the Trust", "Legal Investment Considerations",
and "Maturity, Prepayment and Yield Considerations" herein.
RISK OF HIGHER DEFAULT RATES FOR MORTGAGE LOANS WITH BALLOON PAYMENTS.
_____% of the Original Group I Pool Principal Balance of the Mortgage Loans in
Group I, and ___% of the Original Group II Pool Principal Balance of the
Mortgage Loans in Group II are Balloon Loans. See "Risk Factors" in the
accompanying Prospectus.
GEOGRAPHIC CONCENTRATION OF MORTGAGE LOANS. Approximately ___% of the
Original Group I Pool Principal Balance represents Mortgage Loans relating to
Mortgaged Properties located in five states: Florida
S-18
<PAGE>
_____%, Michigan _____%, Ohio _____%, Georgia _____% and North Carolina _____%.
Approximately _____% of the Original Group II Pool Principal Balance represents
Mortgage Loans relating to Mortgaged Properties located in five states: Michigan
_____%, Minnesota _____%, Wisconsin _____%, Illinois ____% and Texas _____%. See
"Risk Factors" in the Prospectus.
RISK OF HIGHER DEFAULT RATES FOR JUNIOR LIEN LOANS. ____% of the
Original Group I Pool Principal Balance of the Mortgage Loans relates to
Mortgage Loans secured by liens which are in a second position. See "Risk
Factors" in the Prospectus.
RISK OF POTENTIAL TERMINATION OF TRUST. The Trust may be terminated
subject to the consent of the Certificate Insurer in certain circumstances, when
the aggregate principal balances of the Mortgage Loans has declined to ten
percent or less of the Original Pool Principal Balance, either by the Depositor,
exercising its optional termination right, or pursuant to the Auction Sale. See
"Description of Certificates -- Optional Termination by the Depositor" and
"Description of the Certificates -- Auction Sale". Such a termination would be
the equivalent of a prepayment of all the Mortgage Loans. The Owners of the
Class A Certificates would receive from the proceeds resulting from any such
termination, any interest accrued and unpaid, together with any distribution of
principal owed and unpaid, in the order of priority set forth under "Description
of Certificates -- Distributions on the Class A Certificates". Any such
termination of the Trust will reduce the yield to maturity on Class A
Certificates purchased at a premium. See "Description of the Certificates --
Termination of the Trust" herein.
EFFECT OF MORTGAGE LOAN YIELD ON CLASS A-1 AND CLASS A-6 PASS-THROUGH
RATE. The Class A-1 Pass-Through Rate is based upon the value of an adjustable
index (one-month LIBOR), while the Coupon Rates on the Group I Mortgage Loans
are fixed. Consequently, the interest which becomes due on such Mortgage Loans
in Group I (net of the Servicing Fees, the Trustee fees and the Certificate
Insurer premiums) during any Remittance Period may be less than the amount of
interest that would accrue at one-month LIBOR plus the margin on the Class A-1
Group I Certificates, during the related Accrual Period, and will be limited to
such lower amount. The Class A-1 Group I Certificates do not contain any
"carry-forward" or "catch-up" feature if the amount of interest paid is so
limited.
The Class A-6 Group II Pass-Through Rate is based upon the value of an
index (one-month LIBOR) which is different from the value of the indices
applicable to the Mortgage Loans in Group II, as described under "The Mortgage
Pool -- Group II" (either as a result of the use of a different index, rate
determination date, rate adjustment date or rate cap or floor). The Mortgage
Loans in Group II primarily adjust semi-annually based upon a six-month LIBOR
index whereas the Class A-6 Group II Pass-Through Rate adjusts monthly based on
a one-month LIBOR index and is limited by the Class A-6 Available Funds
Pass-Through Rate, unless Supplemental Interest Amounts (the payment of which is
not insured by the Certificate Insurer and which is not rated) are funded in
full. Consequently the actual Class A-6 Pass-Through Rate for a Payment Date may
not equal the Class A-6 Formula Pass-Through Rate, for such Payment Date. In
particular, the interest rates on the Mortgage Loans in Group II adjust less
frequently, with the result that the actual Class A-6 Pass-Through Rate may be
lower than the Class A-6 Formula Pass-Through Rate, for extended periods in a
rising interest rate environment. In addition, one-month LIBOR and six-month
LIBOR may respond to different economic and market factors, and there is not
necessarily any correlation between them. Thus, it is possible, for example,
that one-month LIBOR may rise during periods in which one or more Indices are
falling or that, even if both one-month LIBOR and six-month LIBOR Indices rise
during the same period, one-month LIBOR may rise much more rapidly than
six-month LIBOR. See "Class A-6 Pass-Through Rate" in the Summary for this
Prospectus Supplement.
USE OF PROCEEDS
The Trust will acquire the Mortgage Loans from the Depositor (the
Depositor having obtained the Mortgage Loans from the Company) concurrently with
the sale of the Certificates and the net proceeds from
S-19
<PAGE>
the sale of the Certificates will be paid to the Depositor. Such net proceeds
will, in effect, represent the purchase price paid by the Trust to the Depositor
for the Mortgage Loans. The net proceeds, after funding transaction costs, to be
received from the sale of the Mortgage Loans will be added to the Depositor's
general funds and will be available for general corporate purposes.
THE COMPANY
[description]
SERVICING
THE MASTER SERVICER
As Master Servicer, __________ will be obligated to service the
Mortgage Loans pursuant to the Pooling and Servicing Agreement. See "Description
of the Certificates -- General Servicing Procedures" herein.
<TABLE>
<CAPTION>
DELINQUENCY EXPERIENCE ON THE COMPANY'S PORTFOLIO OF MORTGAGE LOANS
AS OF
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
<S> <C>
Number of Mortgage
Loans................
Dollar amount of
Mortgage Loans.......
DELINQUENCY
Period30-59 Days
% of number of
loans (1)........
% of dollar
amount of loans
(2)..............
60-89 days
% of number of
loans (1)........
% of dollar
amount of loans
(2)..............
90 days and over
% of number of
loans (1)........
% of dollar
amount of loans
(2)..............
Foreclosed
Properties
% of number of
loans (1)........
% of dollar
amount of loans
(2)..............
</TABLE>
(1) The number of delinquent Mortgage Loans or the number of foreclosed
properties as a percentage of the total "Number of Mortgage Loans" as of
the date indicated.
(2) The dollar amount of delinquent Mortgage Loans or the dollar amount of
foreclosed properties as a percentage of the total "Dollar amount of
Mortgage Loans" as of the date indicated.
S-20
<PAGE>
<TABLE>
<CAPTION>
LOAN LOSS EXPERIENCE ON THE COMPANY'SPORTFOLIO OF MORTGAGE LOANS
-------------------------------- -----------------------------------
<S> <C>
Average amount outstanding(1).............
Gross losses(2)...........................
Recoveries(3).............................
Net losses(4).............................
Net losses as a percentage of average amount
outstanding ..............................
</TABLE>
(1) "Average Amount Outstanding" during the period is the arithmetic average
of the principal balances of the mortgage loans outstanding on the last
business day of each month during the period.
(2) "Gross Losses" are the principal amounts of the mortgage loans for each
respective period which have been determined to be uncollectible.
(3) "Recoveries" represent the excess of (x) the sum of recoveries from
liquidation proceeds and deficiency judgments over (y) the sum of expenses
and accrued interest.
(4) "Net Losses" represents "Gross Losses" minus "Recoveries".
While the above delinquency and loan loss experience represents the
recent experience of the Company's portfolio of Mortgage Loans, there can be no
assurance that the future delinquency and loan loss experience on the Mortgage
Loans included in the Pool will be similar. The Company can neither quantify the
impact of any recent property value declines on the Mortgage Loans nor predict
whether, to what extent or how long such declines may continue. In a period of
such decline, the rates of delinquencies, foreclosures and losses on the
Mortgage Loans could be higher than those heretofore experienced in the mortgage
lending industry in general. In addition, adverse economic conditions (which may
or may not affect real property values) may affect the timely payment by
borrowers of scheduled payments of principal and interest on the Mortgage Loans
and, accordingly, the actual rates of delinquencies, foreclosures and losses.
THE MORTGAGE LOAN POOL
GENERAL
The statistical information concerning the Pool of Mortgage Loans is
based upon Pool information as of the close of business on ___________ (the
"Cut-Off Date").
The Mortgage Loans consist of _____ mortgage loans evidenced by
promissory notes (the "Notes") secured by deeds of trust, security deeds or
mortgages on the properties (the "Properties" or "Mortgaged Properties"), which
are located in __ states and the District of Columbia. The Properties securing
the Mortgage Loans consist of one- to four-family residences (which may be
detached, part of a one- to four-family dwelling, a manufactured home, modular
housing, a condominium unit, a townhouse, rowhouse or a unit in a planned unit
development). The Properties may be owner-occupied (which includes second and
vacation homes) and non-owner occupied investment properties.
Each Mortgage Loan in the Trust will be assigned to one of two mortgage
loan groups: "Group I" or "Group II", (each a "Mortgage Loan Group") comprised
of Mortgage Loans which bear fixed interest rates only, in the case of Group I,
and Mortgage Loans which bear adjustable interest rates only, in the case of
Group II. The Class A Group I Certificates will be issued in respect of Group I,
and the Class A-6 Group II Certificates will be issued in respect of Group II.
S-21
<PAGE>
The Mortgage Loans in Group I consist of _____% of fully amortizing
mortgage loans and ______% of Balloon Loans; consist of approximately _____% of
loans secured by first liens on the related Properties, with the remainder
representing second liens; and consist of approximately _____% of loans secured
by primary residences. No Group I Mortgage Loan is more than 60 days
contractually delinquent as of the Cut-Off Date.
The Mortgage Loans in Group II consist of _____% of fully amortizing
mortgage loans and _____% of Balloon Loans; consist of _____% of loans secured
by first liens on the related Properties; and consist of approximately _____% of
Loans secured by primary residences. No Group II Mortgage Loan is more than 60
days contractually delinquent as of the Cut-Off Date.
GROUP I
The Mortgage Loans in Group I consist of approximately _____ loans
under which the related Mortgaged Properties are located in __ states and the
District of Columbia as set forth herein. As of the Cut-Off Date, the Mortgage
Loans in Group I had an aggregate principal balance of $______, the maximum
principal balance of any of the Mortgage Loans in Group I was $_______, the
minimum principal balance thereof was $______, and the principal balance of the
Mortgage Loans in Group I averaged $_______. As of the Cut-Off Date, Coupon
Rates on the Mortgage Loans in Group I ranged from _____% to ______% per annum,
and the weighted average Coupon Rate of the Mortgage Loans in Group I was _____%
per annum. As of the Cut-Off Date, the original term to stated maturity of the
Mortgage Loans in Group I ranged from __ months to ___ months, the remaining
term to stated maturity ranged from __ months to ___ months, the weighted
average original term to stated maturity was ___ months and the weighted average
remaining term to stated maturity was ___ months. No Mortgage Loan in Group I
had a stated maturity later than ________. ______% of the aggregate principal
balance of the Mortgage Loans in Group I require monthly payments of principal
that will fully amortize the Mortgage Loans by their respective maturity dates,
and _____% of the aggregate principal balance of the Mortgage Loans in Group I
are Balloon Loans.
The sum of the percentage columns set forth in the following tables may
not equal 100% due to rounding.
S-22
<PAGE>
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION
GROUP I
Aggregate Unpaid
Number Principal Balance % of
of as of the Aggregate
State Mortgage Loans Cut-Off Date Principal Balance
----- -------------- ------------ -----------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
================================================================================================
</TABLE>
The Combined Loan-to-Value Ratios shown above were calculated based
upon the appraised values of the Properties at the time of origination of the
Mortgage Loans or in the case of a purchase money mortgage loan the lesser of
the purchase price or the appraised value at the time of origination (the
"Appraised Values"). No assurance can be given that values of the Properties
have remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. If the residential real estate market should experience
an overall decline in property values such that the unpaid principal balances of
the Mortgage Loans, together with the unpaid principal balances of any senior
mortgage loans, become equal to or greater than the value of the Properties, the
actual rates of delinquencies, foreclosures and losses could be higher than
those now generally experienced in the mortgage lending industry.
S-23
<PAGE>
<TABLE>
<CAPTION>
COMBINED LOAN-TO-VALUE RATIO DISTRIBUTION
GROUP I
Aggregate Unpaid
Number of Principal Balance
Range of Combined Loan-to-Value Mortgage as of the % of Aggregate
Ratios Loans Cut-Off Date Principal Balance
------ ----- ------------ -----------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
================================================================================================
</TABLE>
The Combined Loan-to-Value Ratios shown above were calculated based
upon the appraised values of the Properties at the time of origination of the
Mortgage Loans or in the case of a purchase money mortgage loan the lesser of
the purchase price or the appraised value at the time of origination (the
"Appraised Values"). No assurance can be given that values of the Properties
have remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. If the residential real estate market should experience
an overall decline in property values such that the unpaid principal balances of
the Mortgage Loans, together with the unpaid principal balances of any senior
mortgage loans, become equal to or greater than the value of the Properties, the
actual rates of delinquencies, foreclosures and losses could be higher than
those now generally experienced in the mortgage lending industry.
S-24
<PAGE>
<TABLE>
<CAPTION>
COUPON RATE DISTRIBUTION
GROUP I
NUMBER AGGREGATE UNPAID
OF PRINCIPAL BALANCE % OF
RANGE OF MORTGAGE AS OF THE AGGREGATE
COUPON RATES (%) LOANS CUT-OFF DATE PRINCIPAL BALANCE
---------------- ----- ------------ -----------------
<S> <C> <C> <C>
</TABLE>
S-25
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF UNPAID PRINCIPAL BALANCES AS OF THE CUT-OFF DATE
GROUP I
AGGREGATE UNPAID
NUMBER PRINCIPAL BALANCE % OF
RANGE OF UNPAID OF AS OF THE AGGREGATE
PRINCIPAL BALANCES ($) MORTGAGE LOANS CUT-OFF DATE PRINCIPAL BALANCE
- ---------------------------------------- ------------------------ -------------------------- -------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
====================================================================================================================
LIEN STATUS AND OCCUPANCY STATUS
GROUP I
NUMBER AGGREGATE UNPAID
OF PRINCIPAL BALANCE % OF
LIEN STATUS AND MORTGAGE AS OF THE AGGREGATE
OCCUPANCY STATUS LOANS CUT-OFF DATE PRINCIPAL BALANCE
- ------------------------------------- -------------------- ----------------------------- -----------------------
- --------------------------------------------------------------------------------------------------------------------
====================================================================================================================
DISTRIBUTION OF AGE (IN MONTHS) FROM ORIGINATION TO THE CUT-OFF DATE
GROUP I
NUMBER AGGREGATE UNPAID PRINCIPAL
OF BALANCE % OF
MONTHS ELAPSED MORTGAGE AS OF THE AGGREGATE
SINCE ORIGINATION LOANS CUT-OFF DATE PRINCIPAL BALANCE
----------------- ----- ------------ -----------------
- ---------------------------------------------------------------------------------------------------------------------
=====================================================================================================================
</TABLE>
S-26
<PAGE>
<TABLE>
<CAPTION>
PROPERTY TYPE
GROUP I
NUMBER AGGREGATE UNPAID
OF PRINCIPAL BALANCE % OF
MORTGAGE AS OF THE AGGREGATE
PROPERTY TYPE LOANS CUT-OFF DATE PRINCIPAL BALANCE
------------- ----- ------------ -----------------
DISTRIBUTION OF REMAINING TERM TO MATURITY(IN MONTHS) AS OF THE CUT-OFF DATE
GROUP I
NUMBER AGGREGATE UNPAID
OF PRINCIPAL BALANCE % OF
MONTHS REMAINING MORTGAGE AS OF THE AGGREGATE
TO MATURITY LOANS CUT-OFF DATE PRINCIPAL BALANCE
----------- ----- ------------ -----------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
S-27
<PAGE>
GROUP I
The Mortgage Loans in Group II consist of approximately _____ loans
under which the related Mortgaged Properties are located in __ states and the
District of Columbia as set forth herein. As of the Cut-Off Date, the Mortgage
Loans in Group II had an aggregate principal balance of $_________, the maximum
principal balance of any of the Mortgage Loans in Group II was $__________, the
minimum principal balance thereof was $_________ and the principal balance of
the Mortgage Loans in Group II averaged $_________. As of the Cut-Off Date,
Coupon Rates of the Mortgage Loans in Group II ranged from _____% per annum to
_____% per annum. As of the Cut-Off Date, the weighted average Coupon Rate of
the Mortgage Loans in Group II was ______%. As of the Cut-Off Date, margins of
the Mortgage Loans in Group II ranged from _____% per annum to _____% per annum,
and the weighted average margin was _____%. As of the Cut-Off Date, the maximum
coupons of the Mortgage Loans in Group II ranged from _____% per annum to
______% per annum, and the weighted average maximum coupon was ______%. _____%
of the aggregate principal balance of the Mortgage Loans in Group II had a
periodic interest rate cap of ____% and ____% of the aggregate principal balance
of the Mortgage Loans in Group II had a periodic interest rate cap of ____%.
_____% of the aggregate principal balance of the Mortgage Loans in Group II were
fixed rate loans that, in 2 years from origination, will be converted into
variable rate loans with an interest rate cap of ____% on the date of such
conversion and with a periodic interest rate cap of ___% or ___% thereafter.
____% of the aggregate principal balance of the Mortgage Loans in Group II were
fixed rate loans that, in 3 years from origination, will be converted into
variable rate loans with an interest rate cap of ___% on the date of such
conversion and with a periodic interest rate cap of ____% thereafter.
As of the Cut-Off Date, the original term to stated maturity of the
Mortgage Loans in Group II ranged from ___ months to ___ months, the remaining
term to stated maturity ranged from ___ months to ___ months, the weighted
average original term to stated maturity was ___ months and the weighted average
remaining term to stated maturity was ___ months. No Mortgage Loan in Group II
had a stated maturity later than May _______. _____% of the aggregate principal
balance of the Mortgage Loans in Group II require monthly payments of principal
that will fully amortize the Mortgage Loans by their respective dates and 0.04%
of the aggregate principal balance of the Mortgage Loans in Group II are Balloon
Loans.
The Coupon Rates of the Mortgage Loans in Group II adjust semi-annually
based on six month LIBOR.
S-28
<PAGE>
The sum of the percentage columns set forth on the following tables may
not equal 100% due to rounding.
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION
GROUP II
NUMBER AGGREGATE UNPAID
OF PRINCIPAL BALANCE % OF
MORTGAGE AS OF THE AGGREGATE
STATE LOANS CUT-OFF DATE PRINCIPAL BALANCE
----- ----- ------------ -----------------
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
TOTAL
- ---------------------------------------------------------------------------------------------
</TABLE>
S-29
<PAGE>
The combined loan-to-value ratio of a Mortgage Loan is equal to the ratio
(expressed as a percentage) of (x) the sum of the (i) original principal balance
of such Mortgage Loan and (ii) the outstanding principal balances of any senior
mortgage loans (computed at the date of origination of such Mortgage Loan) to
(y) the appraised value of the related Mortgaged Property at the time of
origination or in the case of a purchase money mortgage loan the lesser of the
purchase price or the appraised value at the time of origination (the "Combined
Loan-to-Value Ratio"). The Combined Loan-to-Value Ratios are distributed as
follows:
<TABLE>
<CAPTION>
COMBINED LOAN-TO-VALUE RATIO DISTRIBUTION
GROUP II
NUMBER AGGREGATE UNPAID
OF PRINCIPAL BALANCE % OF
RANGE OF COMBINED MORTGAGE AS OF THE AGGREGATE
LOAN-TO-VALUE RATIOS LOANS CUT-OFF DATE PRINCIPAL BALANCE
-------------------- ----- ------------ -----------------
<S> <C> <C> <C>
</TABLE>
The Combined Loan-to-Value Ratios shown above were calculated based
upon the appraised values of the Properties at the time of origination of the
Mortgage Loans or in the case of a purchase money mortgage loan the lesser of
the purchase price or the appraised value at the time of origination (the
"Appraised Values"). No assurance can be given that values of the Properties
have remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. If the residential real estate market should experience
an overall decline in property values such that the unpaid principal balances of
the Mortgage Loans, together with the unpaid principal balances of any senior
mortgage loans, become equal to or greater than the value of the Properties, the
actual rates of delinquencies, foreclosures and losses could be higher than
those now generally experienced in the mortgage lending industry.
S-30
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF UNPAID PRINCIPAL BALANCES AS OF THE CUT-OFF DATE
GROUP II
AGGREGATE UNPAID % OF
NUMBER OF PRINCIPAL BALANCE AGGREGATE
RANGE OF UNPAID MORTGAGE AS OF THE PRINCIPAL
PRINCIPAL BALANCES ($) LOANS CUT-OFF DATE BALANCE
---------------------- ----- ------------ -------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
LIEN STATUS AND OCCUPANCY STATUS
GROUP II
NUMBER AGGREGATE UNPAID
OF PRINCIPAL BALANCE % OF
LIEN STATUS AND MORTGAGE AS OF THE AGGREGATE
OCCUPANCY STATUS LOANS CUT-OFF DATE PRINCIPAL BALANCE
---------------- ----- ------------ -----------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTION OF AGE (IN MONTHS) FROM ORIGINATION TO THE CUT-OFF DATE
GROUP II
NUMBER AGGREGATE UNPAID
OF PRINCIPAL BALANCE % OF
MONTHS ELAPSED MORTGAGE AS OF THE AGGREGATE
SINCE ORIGINATION LOANS CUT-OFF DATE PRINCIPAL BALANCE
----------------- ----- ------------ -----------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
S-31
<PAGE>
<TABLE>
<CAPTION>
PROPERTY TYPE
GROUP II
NUMBER AGGREGATE UNPAID
OF PRINCIPAL BALANCE % OF
MORTGAGE AS OF THE AGGREGATE
PROPERTY TYPE LOANS CUT-OFF DATE PRINCIPAL BALANCE
------------- ----- ------------ -----------------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTION OF REMAINING TERM TO MATURITY
(IN MONTHS) AS OF THE CUT-OFF DATE
GROUP II
NUMBER AGGREGATE UNPAID
OF PRINCIPAL BALANCE % OF
MONTHS REMAINING MORTGAGE AS OF THE AGGREGATE
TO MATURITY LOANS CUT-OFF DATE PRINCIPAL BALANCE
----------- ----- ------------ -----------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTION OF CURRENT COUPON RATES
AS OF THE CUT OFF DATE
GROUP II
NUMBER AGGREGATE UNPAID
OF PRINCIPAL BALANCE
MORTGAGE AS OF THE % OF AGGREGATE
CURRENT COUPON RATES (%) LOANS CUT-OFF DATE PRINCIPAL BALANCE
------------------------ ----- ------------ -----------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
S-32
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF MAXIMUM COUPON RATES
GROUP II
AGGREGATE UNPAID
NUMBER OF PRINCIPAL BALANCE % OF AGGREGATE
MORTGAGE AS OF THE PRINCIPAL
MAXIMUM COUPON RATES (%) LOANS CUT-OFF DATE BALANCE
------------------------ ----- ------------ -------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTION OF MARGINS
AS OF THE CUT OFF DATE
GROUP II
AGGREGATE UNPAID
NUMBER OF PRINCIPAL BALANCE
MORTGAGE AS OF THE % OF ORIGINAL POOL
MARGINS (%) LOANS CUT-OFF DATE PRINCIPAL BALANCE
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
S-33
<PAGE>
<TABLE>
<CAPTION>
NEXT INTEREST ADJUSTMENT DATE
GROUP II
NUMBER AGGREGATE UNPAID
OF PRINCIPAL BALANCE
NEXT INTEREST MORTGAGE AS OF THE % OF AGGREGATE
ADJUSTMENT DATE LOANS CUT-OFF DATE PRINCIPAL BALANCE
--------------- ----- ------------ -----------------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTION OF MINIMUM
COUPON RATES
GROUP II
AGGREGATE UNPAID
NUMBER OF PRINCIPAL BALANCE
MINIMUM MORTGAGE AS OF THE % OF AGGREGATE
COUPON RATES (%) LOANS CUT-OFF DATE PRINCIPAL BALANCE
---------------- ----- ------------ -----------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
S-34
<PAGE>
THE MORTGAGE LOAN PROGRAM -- UNDERWRITING STANDARDS; REPRESENTATIONS
[DESCRIBE]
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
CLASS A CERTIFICATES
The weighted average life of, and, if purchased at other than par, the
yield to maturity on, a Class A Certificate will be directly related to the rate
of payment of principal of the Mortgage Loans in the related Mortgage Loan
Group, including for this purpose Prepayments, liquidations due to defaults,
casualties and condemnations, and repurchases of Mortgage Loans by the Company,
or purchases of Mortgage Loans by the Master Servicer or a Sub-Servicer. The
Mortgage Loans in the related Mortgage Loan Group may be prepaid by the related
obligors on the Notes ("Mortgagors") at any time. The actual rate of principal
prepayments on pools of mortgage loans is influenced by a variety of economic,
tax, geographic, demographic, social, legal and other factors and has fluctuated
considerably in recent years. In addition, the rate of principal prepayments may
differ among pools of mortgage loans at any time because of specific factors
relating to the mortgage loans in the particular pool, including, among other
things, the age of the mortgage loans, the geographic locations of the
properties securing the loans, the extent of the mortgagors' equity in such
properties, and changes in the mortgagors' housing needs, job transfers and
unemployment.
Generally, however, because the Mortgage Loans in Group I bear interest
at fixed rates, and the rate of prepayment on fixed rate mortgage loans is
sensitive to prevailing interest rates, if prevailing interest rates were to
fall, the Mortgage Loans in Group I may be subject to higher prepayment rates.
Conversely, if prevailing interest rates were to rise, the rate of prepayments
on Mortgage Loans in Group I would be likely to decrease.
If purchased at other than par, the yield to maturity on a Class A
Certificate will be affected by the rate of the payment of principal of the
Mortgage Loans in the related Mortgage Loan Group. If the actual rate of
payments on the Mortgage Loans in the related Mortgage Loan Group is slower than
the rate anticipated by an investor who purchases a Class A Certificate at a
discount, the actual yield to such investor will be lower than such investor's
anticipated yield. If the actual rate of payments on the Mortgage Loans in the
related Mortgage Loan Group is faster than the rate anticipated by an investor
who purchases a Class A Certificate at a premium, the actual yield to such
investor will be lower than such investor's anticipated yield.
All of the Mortgage Loans in Group II are adjustable rate mortgage
loans. As is the case with conventional fixed rate mortgage loans, adjustable
rate mortgage loans may be subject to a greater rate of principal prepayments in
a declining interest rate environment. For example, if prevailing interest rates
fall significantly, adjustable rate mortgage loans could be subject to higher
prepayment rates than if prevailing interest rates remain constant because the
availability of fixed rate mortgage loans at competitive interest rates may
encourage Mortgagors to refinance their adjustable rate mortgage loans to "lock
in" a lower fixed interest rate. However, no assurance can be given by the
Company as to the level of prepayments that the Mortgage Loans in Group II will
experience.
The final scheduled Payment Date for the A-1 Group I Certificates is
______________, for the Class A-2 Group I Certificates is _____________, for the
Class A-3 Group I Certificates is ________________, for the A-4 Group I
Certificates is _____________, for the A-5 Group I Certificates is
_____________, and for the Class A-6 Group II Certificates is ____________. Such
dates are the dates on which the related Class A Certificate Principal Balance
would be reduced to zero, assuming, among other things that with respect to the
Class A-1 Group I Certificates, the Class A-2 Group I Certificates and the Class
A-3 Group I Certificates (i) no Prepayments are received on any of the Mortgage
Loans, (ii) distributions of principal and interest on each of the Mortgage
Loans is timely received, (iii) Class B Interest will not be used to make
accelerated payments of principal (i.e. Subordination Increase Amounts) to the
Holders of the Class A Certificates and (iv) the
S-35
<PAGE>
Mortgage Loans in each Mortgage Loan Group have the applicable characteristics
set forth in the "Weighted Average Lives of Class A Certificates" section
herein. The final scheduled Payment Date for the Class A-4 Group I Certificates
and the Class A-5 Group I Certificates is the Payment Date in the calendar month
after the month in which the stated maturity of the Mortgage Loan in the related
Mortgage Loan Group having the latest stated maturity occurs. The final
scheduled Payment Date for the Class A-6 Group II Certificates is the Payment
Date in the calendar month in which the stated maturity of the Mortgage Loan in
Group II having the last stated maturity occurs. The weighted average life of
the Class A Certificates of each Class is likely to be shorter than would be the
case if payments actually made on the Mortgage Loans in the related Mortgage
Loan Group conformed to the foregoing assumptions, and the final Payment Dates
with respect to the Class A Certificates of each Class could occur significantly
earlier than such final scheduled Payment Dates because (i) Prepayments are
likely to occur, (ii) the Company may repurchase Mortgage Loans in the related
Mortgage Loan Group in the event of breaches of representations and warranties
and (iii) subject to the Certificate Insurer's consent in certain circumstances,
the Depositor may cause, and the Trustee may, pursuant to the Auction Sale,
cause a termination of the Trust when the Pool Principal Balance has declined to
ten percent or less of the Original Pool Principal Balance.
"Weighted average life" refers to the average amount of time from the
date of issuance of a security until each dollar of principal of such security
will be repaid to the investor. The weighted average lives of the Classes of
Class A Certificates will be influenced by the rate at which principal payments
(including scheduled payments and prepayments) on the Mortgage Loans in the
related Mortgage Loan Group are made. Principal payments on Mortgage Loans may
be in the form of scheduled amortization or prepayments (for this purpose, the
term "prepayment" includes prepayments and liquidations due to a default or
other dispositions of the Mortgage Loans). The weighted average lives of the
Class A Certificates will also be influenced by delays associated with realizing
on defaulted Mortgage Loans in the related Mortgage Loan Group. The model used
in this Prospectus Supplement assumes that, (i) with respect to Group I, the
pool of loans prepays in the first month at a constant prepayment rate of 2.4%
and increases by an additional 2.4% each month thereafter until the tenth month,
where it remains at a constant prepayment rate equal to 24% (the "Home Equity
Prepayment" Model or "HEP"), and (ii) with respect to Group II, the pool of
loans prepays a constant prepayment rate equal to 26% ("CPR") ((i) and (ii)
together, the "Prepayment Assumption"). HEP represents an assumed annualized
rate of prepayment relative to the then outstanding principal balance on a pool
of new mortgage loans.
WEIGHTED AVERAGE LIVES OF CLASS A CERTIFICATES
For the purpose of the tables below, it is assumed that: (i) the
Mortgage Loans of each Mortgage Loan Group consist of pools of loans with
level-pay and balloon amortization methodologies, Cut-Off Date principal
balances, gross coupon rates, net coupon rates, original and remaining terms to
maturity, and original amortization terms as applicable, as set forth below,
(ii) the Closing Date for the Certificates occurs on __________, (iii)
distributions on the Certificates are made on the __ day of each month
regardless of the day on which the Payment Date actually occurs, commencing in
__________ in accordance with the priorities described herein, (iv) the
difference between the gross coupon rate and the net coupon rate is sufficient
to pay Servicer Fees, Trustee fees and Certificate Insurer premiums (the sum of
which is assumed to be ___%), (v) the Mortgage Loans' prepayment rates are a
multiple of the Prepayment Assumption, (vi) prepayments include 30 days'
interest thereon, (vii) optional termination is not exercised, (viii) the
Specified Subordinated Amount for each Mortgage Loan Group is set initially as
specified in the Insurance Agreement and thereafter changes in accordance with
the provisions of the Insurance Agreement, (ix) no delinquencies in the payment
by Mortgagors of principal and interest on the Mortgage Loans are experienced,
(x) no Mortgage Loan is repurchased for breach of a representation and warranty
or otherwise, (xi) the Coupon Rate for each Mortgage Loan in Group II is
adjusted on its next rate adjustment date (and on subsequent rate adjustment
dates, if necessary) to equal the sum of (a) an assumed level of the applicable
index (_____%) and (b) the respective gross margin (such sum being subject to
the applicable periodic adjustment cap and maximum interest rate), (xii) the
Class A-1 Group I Pass-Through Rate remains constant at ____%, and (xiii) the
Class A-6 Group II Pass-Through Rate remains constant at ______%.
S-36
<PAGE>
<TABLE>
<CAPTION>
GROUP I CHARACTERISTICS
-----------------------
ORIGINAL REMAINING ORIGINAL
TERM TO TERM TO AMORTIZATION
POOL GROSS COUPON NET COUPON MATURITY MATURITY TERM AMORTIZATION
NUMBER PRINCIPAL BALANCE RATE (%) RATE (%) (IN MONTHS) (IN MONTHS) (IN MONTHS) METHOD
- ------------ ------------------ ------------------ -------------- ---------------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
GROUP II CHARACTERISTICS
------------------------
NET ORIGINAL REMAINING
GROSS MONTHS TO MAXIMUM TERM TO TERM TO
PRINCIPAL COUPON NET COUPON RATE INTEREST MATURITY MATURITY
POOL NUMBER BALANCE (1) RATE (%) RATE (%) CHANGE MARGIN (%) RATE (%) (IN MONTHS) (IN MONTHS)
- ------------ -------------- ------------ ------------- ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
ORIGINAL
AMORTIZATION
TERM PERIODIC AMORTIZATION
(IN MONTHS) CAP (%) METHOD
- ------------- ------------- -------------
<C> <C> <C>
- -----------------------------------------------------
</TABLE>
S-37
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF CERTIFICATE PRINCIPAL BALANCE
-------------------------------------------
CLASS A-1 GROUP I CERTIFICATES CLASS A-2 GROUP I CERTIFICATES CLASS A-3 GROUP I CERTIFICATES
HEP HEP HEP
PAYMENT DATE
<S> <C> <C> <C>
</TABLE>
- -----------------------------------------------------
(1) For purposes of calculating the percentages and the weighted average lives
with respect to the Group I Certificates, the Mortgage Loans in Group II
are assumed to prepay at 26% CPR and for purposes of calculating the
percentages and the weighted average lives with respect to the Group II
Certificates, the Mortgage Loans in Group I are assumed to prepay at 24%
HEP.
(2) The weighted average life of the Class A Certificates is determined by (i)
multiplying the amount of each principal payment by the number of years
from the Closing Date to the related Payment Date, (ii) adding the results,
and (iii) dividing the sum by the initial respective Certificate Principal
Balance for such Class of Class A Certificates.
S-38
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF CERTIFICATE PRINCIPAL BALANCE (1)-
------------------------------------------------
CLASS A-4 GROUP I CERTIFICATES CLASS A-5 GROUP I CERTIFICATES CLASS A-6 GROUP I CERTIFICATES
HEP HEP HEP
PAYMENT DATE
<S> <C> <C> <C>
</TABLE>
- -----------------------------------------------------
(1) For purposes of calculating the percentages and the weighted average lives
with respect to the Group I Certificates, the Mortgage Loans in Group II
are assumed to prepay at 26% CPR and for purposes of calculating the
percentages and the weighted average lives with respect to the Group II
Certificates, the Mortgage Loans in Group I are assumed to prepay at 24%
HEP.
(2) The weighted average life of the Class A Certificates is determined by (i)
multiplying the amount of each principal payment by the number of years
from the Closing Date to the related Payment Date, (ii) adding the results,
and (iii) dividing the sum by the initial respective Certificate Principal
Balance for such Class of Class A Certificates.
S-39
<PAGE>
The Mortgage Loans will not have the characteristics assumed above, and
there can be no assurance that (i) the Mortgage Loans will prepay at any of the
rates shown in the table or at any other particular rate or will prepay
proportionately or (ii) the weighted average lives of each Class of the Class A
Group I Certificates, or the weighted average life of the Class A-6 Group II
Certificates will be as calculated above. Because the rate of distributions of
principal of the Class A Certificates will be a result of the actual
amortization (including prepayments) of the Mortgage Loans in the related
Mortgage Loan Group, which will include Mortgage Loans that have remaining terms
to stated maturity shorter or longer than those assumed and Coupon Rates higher
or lower than those assumed, the weighted average lives of the Class A Group I
Certificates and the Class A-6 Group II Certificates will differ from those set
forth above, even if all of the Mortgage Loans in the related Mortgage Loan
Group prepay at the indicated constant prepayment rates.
PAYMENT DELAY FEATURE OF CLASS A-2, A-3, A-4 AND A-5 GROUP I CERTIFICATES
The effective yield to the Owners of the Class A-2, A-3, A-4 and A-5
Group I Certificates will be lower than the yield which would otherwise apply
because distributions will not be payable to such Owners until at least the __
day of the month in which the related Accrual Period ends, without any
additional distribution of interest or earnings thereon in respect of such
delay.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued in classes (each, a "Class") pursuant
to a Pooling and Servicing Agreement to be dated as of __________ (the "Pooling
and Servicing Agreement") among the Master Servicer, the Depositor and the
Trustee. The Trustee will make available for inspection a copy of the Pooling
and Servicing Agreement (without exhibits or schedules) to the Owners of the
Certificates on written request. The following describes certain terms of the
Pooling and Servicing Agreement, but does not purport to be complete and is
qualified in its entirety by reference to the Pooling and Servicing Agreement.
The Class A-1 Group I Certificates, the Class A-2 Group I Certificates,
the Class A-3 Group I Certificates, the Class A-4 Group I Certificates, the
Class A-5 Group I Certificates and the Class A-6 Group II Certificates are
senior certificates as described herein. The Class B Certificates are not being
offered hereby. Each Class of Class A Certificates will be issued in original
principal amounts of $1,000 and integral multiples thereof, except that one
certificate for each class of Class A Certificates may be issued in a different
amount. The Trust will also issue a residual class in each REMIC created by the
Trust (the "Residual Certificates") which are not being offered hereby and will
initially be retained by the Company or its affiliates. The Class A
Certificates, the Class B Certificates and the Residual Certificates are
collectively referred to as the "Certificates".
PAYMENT DATES AND DISTRIBUTIONS
On the __ day of each month, or, if such day is not a business day then
the next succeeding business day, commencing ___________ (each such day being a
"Payment Date"), the Trustee will be required to distribute to the Owners of
record of the Certificates as of the related Record Date, such Owners'
Percentage Interest in the amounts required to be distributed to the Owners of
each Class of Certificates on such Payment Date. For so long as any Class A
Certificate is in book-entry form with DTC, the only "Owner" of such Class A
Certificates will be Cede. See " -- Book-Entry Registration of the Class A
Certificates" herein.
S-40
<PAGE>
Each Owner of record of a Certificate as of each Record Date will be
entitled to receive such Owner's Percentage Interest in the amounts due on the
related Payment Date to the Owners of the related Class of Certificates. The
"Percentage Interest" of each Class A Certificate as of any date of
determination will be equal to the percentage obtained by dividing the principal
balance of such Class A Certificate as of the Cut-Off Date by the related Class
A Certificate Principal Balance as of the Cut-Off Date.
FLOW OF FUNDS AND DISTRIBUTIONS ON THE CLASS A CERTIFICATES
THE PRINCIPAL AND INTEREST ACCOUNT. The Pooling and Servicing Agreement
requires the Master Servicer to establish a custodial account (the "Principal
and Interest Account") on behalf of the Trustee at a depository institution
meeting the requirements set forth in the Pooling and Servicing Agreement. The
Pooling and Servicing Agreement requires the Master Servicer to deposit all
collections (other than amounts escrowed for taxes and insurance) related to the
Mortgage Loans to the Principal and Interest Account on a daily basis (but no
later than the first business day after receipt). All funds in the Principal and
Interest Account can only be invested in Eligible Investments. Investment
earnings on funds held in the Principal and Interest Account are for the account
of the Master Servicer, and the Master Servicer will be responsible for any
losses.
The Master Servicer is required pursuant to the Pooling and Servicing
Agreement on the thirteenth day or, if such day is not a business day, on the
next following business day (the "Remittance Date") of each month to remit to
the Trustee the following amounts with respect to the Mortgage Loans in each
Mortgage Loan Group: (i) an amount equal to the sum, without duplication, of (x)
the aggregate portions of the interest payments (whether or not collected)
becoming due on the Mortgage Loans during the immediately preceding Remittance
Period, and (y) any Compensating Interest calculated at the Coupon Rate on the
related Mortgage Loan, less the Servicing Fee with respect to the Mortgage Loans
serviced by the Master Servicer due with respect to such Mortgage Loans with
respect to the immediately preceding Remittance Period (the amount described in
this clause (i) for the Mortgage Loans in Group I being the "Group I Interest
Remittance Amount" and the amount in this clause (i) for the Mortgage Loans in
Group II being the "Group II Interest Remittance Amount"), (ii) an amount equal
to the sum, without duplication, of (x) the aggregate portions of the scheduled
principal payments, but only to the extent collected, on the Mortgage Loans
during the immediately preceding Remittance Period, (y) any Prepayments,
Insurance Proceeds and Net Liquidation Proceeds (but only to the extent that
such Net Liquidation Proceeds do not exceed the principal balance of the related
Mortgage Loan) and Released Mortgaged Property Proceeds, in each case only to
the extent collected on the Mortgage Loans during the preceding Remittance
Period and (z) all Loan Purchase Prices and Substitution Amounts with respect to
the related Mortgage Loans at such Remittance Date paid or received by the
Master Servicer for deposit to the Principal and Interest Account (the amount
described in this clause (ii) for the Mortgage Loans in Group I being the "Group
I Principal Remittance Amount", and the amount described in this clause (ii) for
the Mortgage Loans in Group II being the "Group II Principal Remittance Amount".
For any Remittance Date, the sum of the Group I Interest Remittance Amount and
the Group I Principal Remittance Amount is the "Group I Monthly Remittance" for
such Remittance Date and the sum of the Group II Interest Remittance Amount and
the Group II Principal Remittance Amount is the "Group II Monthly Remittance"
for such Remittance Date. The sum of the Group I Interest Remittance Amount and
the Group II Interest Remittance Amount is the "Interest Remittance Amount". The
sum of the Group I Principal Remittance Amount and the Group II Principal
Remittance Amount is equal to the "Principal Remittance Amount". For any
Remittance Date, the sum of the Interest Remittance Amount and the Principal
Remittance Amount is the "Monthly Remittance" for such Remittance Date.
A "Remittance Period" is the period commencing at the opening of
business on the second day of each month and ending at the close of business on
the first day of the following month.
S-41
<PAGE>
DELINQUENCY ADVANCES. The Pooling and Servicing Agreement requires that
if, on any Remittance Date, the amount then on deposit in the Principal and
Interest Account from Mortgage Loan collections and relating to interest is less
than the Interest Remittance Amount applicable to such Remittance Period, then
the Master Servicer is required to deposit into the Principal and Interest
Account a sufficient amount of its own funds ("Delinquency Advances") to make
such amount equal to such Interest Remittance Amount. The Master Servicer is not
required to make a Delinquency Advance if it believes that such Delinquency
Advance will not be recoverable from the related Mortgage Loan. The Trustee, as
successor Master Servicer, will not be required to make a Delinquency Advance if
it believes that such Delinquency Advance will not be recoverable from the
related Mortgage Loan.
THE CERTIFICATE ACCOUNT. The Pooling and Servicing Agreement provides
that the Trustee shall create and maintain one or more accounts for the purpose
of funding distributions to the Owners (collectively, the "Certificate
Account"). The Pooling and Servicing Agreement provides that the Trustee shall
deposit to the Certificate Account monthly, the Monthly Remittance received from
the Master Servicer on the related Remittance Date.
THE POLICY PAYMENTS ACCOUNT. The Pooling and Servicing Agreement
requires that the Trustee shall establish a separate special purpose trust
account for the benefit of Owners of the Class A Certificates and the
Certificate Insurer (the "Policy Payments Account"). On the second business day
prior to each Payment Date, in preparation of making distributions on such
Payment Date, if the Trustee determines with respect to either Mortgage Loan
Group that the Total Available Funds to be on deposit in the Certificate Account
with respect to such Mortgage Loan Group will be insufficient to pay the full
amount of the related Insured Distribution Amount and the fees of the Trustee
for such Payment Date, the Trustee will then be required to make a draw on the
Certificate Insurance Policy for the deficiency (the amount of any such
deficiency being the amount of the "Insured Payment" required to be made) and to
deposit the amount received with respect to such draw into the Policy Payments
Account. The Trustee will then distribute such amount only for purposes of
payment to Owners of Class A Certificates of the Insured Payments for which a
claim was made.
THE SUPPLEMENTAL INTEREST ACCOUNT. The Pooling and Servicing Agreement
also establishes the "Group II Supplemental Interest Account" (the "Supplemental
Interest Account") which is held in trust by the Trustee, but does not
constitute a part of the Trust. The Supplemental Interest Account will hold
certain amounts and other property relating to the funding of Supplemental
Interest Amounts, if any, to the Owners of the Class A-6 Group II Certificates.
"Group II Supplemental Interest Amounts" are payments due on any Payment Date
which result from any shortfall between Class A-6 Group II Certificate interest
calculated at the Class A-6 Formula Pass-Through Rate, and such interest
calculated at the Class A-6 Available Funds Pass-Through Rate.
DISTRIBUTIONS ON THE CLASS A CERTIFICATES. On each Payment Date, the
Trustee shall be required to make the following disbursements and transfers from
the Certificate Account in the following order of priority, and each such
transfer and disbursement shall be treated as having occurred only after all
preceding transfers and disbursements have occurred:
(i) first, the Trustee shall pay first, to itself the
Trustee's fees then due;
(ii) second, the Trustee shall pay to the Certificate Insurer
the premium amount then due and any other amounts then due the
Certificate Insurer under the Insurance Agreement;
(iii) third, the Trustee shall pay, pari passu, to the Owners
of each of the Class A Certificates, the related Class A Distribution
Amount for such Class and such Payment Date; and
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(iv) fourth, the Trustee shall distribute any remaining amount
in the Certificate Account to the Owners of the related Class B
Certificates and as otherwise required by the Pooling and Servicing
Agreement.
Principal distributions with respect to the Class A Group I
Certificates will generally be distributed in a sequential-pay fashion, subject
to the "lockout" provisions applicable to the Class A-5 Group I Certificates.
The Owners of the Class A-5 Group I Certificates are entitled to
receive payments of the Class A-5 Lockout Distribution Amount specified herein;
provided, that if on any Payment Date the Class A-4 Certificate Principal
Balance is zero, the Owners of the Class A-5 Group I Certificates will be
entitled to receive the entire Class A Principal Distribution Amount for Group I
for such Payment Date.
The "Class A-5 Lockout Distribution Amount" for any Payment Date will
be the product of (i) the applicable Class A-5 Lockout Percentage for such
Payment Date and (ii) the Class A-5 Lockout Pro Rata Distribution Amount for
such Payment Date.
The "Class A-5 Lockout Percentage" for each Payment Date shall be as
follows:
PAYMENT DATES LOCKOUT PERCENTAGE
------------- ------------------
The "Class A-5 Lockout Pro Rata Distribution Amount" for any Payment
Date will be an amount equal to the product of (x) a fraction, the numerator of
which is the Certificate Principal Balance of the Class A-5 Group I Certificates
immediately prior to such Payment Date and the denominator of which is the
aggregate Certificate Principal Balance of all Classes of the Group I
Certificates immediately prior to such Payment Date and (y) the Class A
Principal Distribution Amount for Group I for such Payment Date.
After payment of the Class A-5 Lockout Distribution Amount, the
remaining Class A Principal Distribution Amount for Group I shall be paid to the
Owners of the other Classes of Class A Group I Certificates sequentially, such
that the Class A-4 Group I Certificates are entitled to receive no principal
distributions until the Class A-3 Certificate Principal Balance has been reduced
to zero, the Class A-3 Group I Certificates are entitled to receive no principal
distributions until the Class A-2 Certificate Principal Balance has been reduced
to zero, and the Class A-2 Group I Certificates are entitled to receive no
principal distributions until the Class A-1 Certificate Principal Balance has
been reduced to zero.
The Pooling and Servicing Agreement provides that to the extent the
Certificate Insurer makes Insured Payments, the Certificate Insurer will be
subrogated to the rights of the Owners of the related Class A Certificates with
respect to such Insured Payments and shall be deemed, to the extent of the
payments so made, to be a registered Owner of Class A Certificates and shall be
entitled to reimbursement for such Insured Payments, as provided in the Pooling
and Servicing Agreement.
CALCULATION OF LIBOR
On the second business day preceding each Payment Date or, in the case
of the first Payment Date, on the second business day preceding the Closing Date
(each such date, an "Interest Determination Date"),
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the Trustee will determine the London interbank offered rate for one-month U.S.
dollar deposits ("LIBOR") for the next Accrual Period for the Class A-1 Group I
Certificates and the Class A-6 Group II Certificates on the basis of the offered
rates of the Reference Banks for one-month U.S. 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. 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; "Reuters Screen LIBO Page" means the display designated as
page "LIBO" on the Reuter 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 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 Reuters Screen LIBO Page
on the Interest Determination Date in question, (iii) which have been designated
as such by the Trustee and (iv) not controlling, controlled by, or under common
control with, the Company or the Trustee.
On each Interest Determination Date, LIBOR for the related Accrual
Period for the Class A-1 Group I Certificates and the Class A-6 Group II
Certificates will be established by the Trustee as follows:
(a) If on such Interest Determination Date two or more Reference Banks
provide such offered quotations, LIBOR for the related Accrual Period for the
Class A-1 Group I and the Class A-6 Group II Certificates shall be the
arithmetic mean of such offered quotations (rounded upwards if necessary to the
nearest whole multiple of 1/16%).
(b) If on such Interest Determination Date fewer than two Reference
Banks provide such offered quotations, LIBOR for the related Accrual Period for
the Class A-1 Group I and the Class A-6 Group II Certificates shall be the
higher of (x) 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 Trustee determines to be either (i) the arithmetic mean
(rounded upwards if necessary to the nearest whole multiple of 1/16%) of the
one-month U.S. dollar lending rates which New York City banks selected by the
Trustee are quoting on the relevant Interest Determination Date to the principal
London offices of leading banks in the London interbank market or, in the event
that the Trustee can determine no such arithmetic mean, (ii) the lowest
one-month U.S. dollar lending rate which New York City banks selected by the
Trustee are quoting on such Interest Determination Date to leading European
banks.
The establishment of LIBOR on each Interest Determination Date by the
Trustee and the Trustee's calculation of the rate of interest applicable to the
Class A-1 Group I and the Class A-6 Group II Certificates for the related
Accrual Period shall (in the absence of manifest error) be final and binding.
Each such rate of interest may be obtained by telephoning the Trustee at
__________.
SUBORDINATION OF CLASS B CERTIFICATES
The Class B Certificates are subordinated to the Class A Certificates.
Such subordination is intended to enhance the likelihood that the Owners of the
Class A Certificates will receive full and timely receipt of all amounts due to
them.
The Pooling and Servicing Agreement requires that the excess of the
aggregate principal balance of the Mortgage Loans in Group I over the Class A
Certificate Principal Balance for all Classes of the Class A Group I
Certificates be maintained at a certain amount (which amount may vary over time)
over the life of the transaction, which amount is specified by the Certificate
Insurer. The actual amount of this excess is the "Subordinated Amount" for Group
I, and the specified target amount of the excess at a point in time is the
"Specified Subordinated Amount" for Group I.
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Similarly, the Pooling and Servicing Agreement requires that the excess
of the Group II Pool Principal Balance over the Class A Certificate Principal
Balance for the Class A-6 Group II Certificates be maintained at a certain
amount (which amount may vary over time) over the life of the transaction, which
amount is specified by the Certificate Insurer. The actual amount of this excess
is the "Subordinated Amount" for Group II, and the specified target amount of
the excess at a point in time is the "Specified Subordinated Amount" for Group
II.
The Certificate Insurer may permit the reduction of the Specified
Subordinated Amount without the consent of, or the giving of notice to, the
Owners of the related Class A Certificates; provided, that the Certificate
Insurer is not then in default; and provided, further, that such reduction would
not change materially the weighted average life of the related Class A
Certificates or the current rating thereof.
The Pooling and Servicing Agreement generally provides that the Owners
of the Class B Certificates will only receive distributions of principal to the
extent that the actual related Subordinated Amount exceeds the then related
Specified Subordinated Amount; i.e., to the extent that there is a level of
subordination greater than that required by the Certificate Insurer, as will be
the case when the Specified Subordinated Amount decreases or "steps down" in
accordance with its terms. Consequently, unless there exists on any particular
Payment Date such related excess subordination, the Owners of the related Class
A Certificates will be entitled to receive 100% of the principal to be
distributed on such Payment Date with respect to the related Mortgage Loan
Group.
Subject to the prior rights of the Owners of the Class A Certificates
to receive Class B Interest as discussed below, the Class B Certificates are
also entitled to receive all excess interest available on any Payment Date for
the related Mortgage Loan Group, i.e., the interest remitted by the Master
Servicer to the Trustee relating to the prior Remittance Period (which interest
remittance is itself net of the aggregate monthly Servicing Fees) less the
interest due and payable to the Owners of the related Class A Certificates,
together with the fees and premium due and payable to the Trustee and the
Certificate Insurer (such interest to which the related Class B Certificates are
entitled, the "Class B Interest" for the related Mortgage Loan Group).
On each Payment Date the Class B Interest will be used, to the extent
available and prior to any distribution thereof to the Class B Certificates, to
fund any shortfalls in amounts due to the Owners of the Class A Certificates on
such Payment Date. In addition, to the extent that the related Specified
Subordinated Amount increases or "steps up" due to the effect of the triggers
set forth in the definition thereof, or if, due to Realized Losses, the related
Subordinated Amount has been reduced below the related Specified Subordinated
Amount, the Pooling and Servicing Agreement requires that Class B Interest be
used to make payments of principal to the Owners of the Class A Group I
Certificates and the Class A-6 Group II Certificates for the purposes of
accelerating the amortization thereof relative to the amortization of the
Mortgage Loans in the related Mortgage Loan Group. Such accelerated payments of
principal will be made to the extent necessary to increase the related
Subordinated Amount to its then-applicable Specified Subordinated Amount. To the
extent that, on any Payment Date, the actual related Subordinated Amount is less
than the related Specified Subordinated Amount, a "Subordination Deficiency"
will exist. The Insurance Agreement defines a "Group I Subordination Deficit"
with respect to a Payment Date to be the amount, if any, by which (x) the
aggregate Certificate Principal Balance of the Class A Group I Certificates 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 Certificate Insurance Policy), exceeds (y) an amount equal to
the aggregate principal balances of the Mortgage Loans in Group I as of the
close of business on the last day of the preceding Remittance Period and a
"Group II Subordination Deficit" with respect to a Payment Date is the amount,
if any, by which (x) the aggregate Certificate Principal Balance of the Class
A-6 Group II Certificates 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 Certificate
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Insurance Policy) exceeds (y) the aggregate principal balances of the Mortgage
Loans in Group II as of the close of business on the last day of the preceding
Remittance Period.
"Subordination Increase Amount" means, as of any Payment Date and with
respect to the related Mortgage Loan Group, the lesser of (i) the Subordination
Deficiency applicable to such Mortgage Loan Group as of such Payment Date and
(ii) the sum of (x) the actual amount available to pay the Class B Interest on
the related Mortgage Loan Group and (y) the actual amount allocable to the Class
A Certificates for such Mortgage Loan Group from the Class B Interest with
respect to the other Mortgage Loan Group, on such Payment Date.
"Subordination Reduction Amount" means, with respect to any Payment
Date and with respect to the related Mortgage Loan Group, an amount equal to the
lesser of (x) the excess of the actual Subordinated Amount applicable to such
Mortgage Loan Group over the Specified Subordinated Amount for such Payment Date
and (y) the amount described in clause (b)(i)(x) of the definition of Class A
Principal Distribution Amount for such Payment Date.
OVERCOLLATERALIZATION AND THE CERTIFICATE INSURANCE POLICY. The Pooling
and Servicing Agreement requires the Trustee to make a claim for an Insured
Payment under the Certificate Insurance Policy not later than 12:00 p.m., New
York City time on the second business day prior to any Payment Date as to which
the Trustee has determined that a Subordination Deficit will occur for the
purpose of applying the proceeds of such Insured Payment to the extent of such
Subordination Deficit as a payment of principal to the Owners of the Class A
Group I Certificates or the Class A-6 Group II Certificates, as the case may be,
on such Payment Date. Investors in the Class A Group I Certificates of each
Class and the Class A-6 Group II Certificates should realize that, under extreme
loss or delinquency scenarios applicable to the related Mortgage Loan Pool, they
may temporarily receive no distributions of principal.
CROSSCOLLATERALIZATION PROVISIONS
The Pooling and Servicing Agreement provides that the Class B Interest
generated by a Mortgage Loan Group may be used to fund certain shortfalls with
respect to the other Mortgage Loan Group, provided that such Class B Interest
must first be applied to fund certain required payments with respect to the
related Mortgage Loan Group. Specifically, the Class B Interest generated by one
Mortgage Loan Group is to be applied in the following order of priority: (i)
first, to fund a Subordination Increase Amount payment in response to a
Subordination Deficit in the related Mortgage Loan Group; (ii) second, to fund a
Subordination Increase Amount payment in response to a Subordination Deficit or
interest shortfall in the other Mortgage Loan Group; (iii) third, to fund a
Subordination Increase Amount payment in response to a Subordination Deficiency
in the related Mortgage Loan Group; and (iv) fourth, to fund a Subordination
Increase Amount payment in response to a Subordination Deficiency with respect
to the other Mortgage Loan Group.
CREDIT ENHANCEMENT DOES NOT APPLY TO PREPAYMENT RISK
In general, the protection afforded by the subordination provisions and
by the Certificate Insurance Policy is protection for credit risk and not for
prepayment risk. The subordination provisions may not be adjusted, nor may a
claim be made under the Certificate Insurance Policy to guarantee or insure that
any particular rate of prepayment is experienced by either of the two Mortgage
Loan Groups.
CLASS A CERTIFICATE DISTRIBUTIONS AND INSURED PAYMENTS
No later than the second business day prior to each Payment Date the
Trustee will be required to determine the amounts to be on deposit in the
Certificate Account on such Payment Date, following (i)
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payment of the applicable Trustee's fee and the premiums due the Certificate
Insurer and (ii) the application of the cross-collateralization provisions
described above with respect to each of the two Mortgage Loan Groups, such
amounts being the "Group I Total Available Funds" and the "Group II Total
Available Funds", respectively, or, collectively, the "Total Available Funds".
If the aggregate Class A Insured Distribution Amount related to the Class A
Group I Certificates for any Payment Date exceeds the Group I Total Available
Funds for such Payment Date and the amounts available by reason of the
application of the cross-collateralization provisions described above, the
Trustee will be required to draw the amount of such insufficiency from the
Certificate Insurer under the Certificate Insurance Policy. If on any Payment
Date the Class A Insured Distribution Amount related to the Class A-6 Group II
Certificates exceeds the Group II Total Available Funds for such Payment Date
and the amounts available by reason of the application of the
cross-collateralization provisions described above, the Trustee will be required
to draw the amount of such insufficiency from the Certificate Insurer under the
Certificate Insurance Policy. The Trustee will be required to deposit to the
Policy Payments Account the amount of any Insured Payment made by the
Certificate Insurer. The Pooling and Servicing Agreement provides that amounts
which cannot be distributed to the Owners of the Certificates as a result of
final, non-appealable proceedings under the United States Bankruptcy Code or
similar insolvency laws will not be considered in determining the amount of
Total Available Funds with respect to any Payment Date.
BOOK-ENTRY REGISTRATION OF THE CLASS A CERTIFICATES
The Class A Certificates will be book-entry certificates (the
"Book-Entry Certificates"). The Beneficial Certificate Owners may elect to hold
their Class A Certificates through DTC in the United States, or CEDEL or
Euroclear (in Europe) if they are participants of such systems ("Participants"),
or indirectly through organizations which are Participants in such systems. The
Book-Entry Certificates will be issued in one or more certificates per class of
Class A Certificates which in the aggregate equal the principal balance of such
Class A Certificates and will initially be registered in the name of Cede, the
nominee of DTC. CEDEL and Euroclear will hold omnibus positions on behalf of
their Participants through customers' securities accounts in CEDEL's and
Euroclear's names on the books of their respective depositories which in turn
will hold such positions in customers' securities accounts in the depositories'
names on the books of DTC. Citibank will act as depository for CEDEL and Chase
will act as depository for Euroclear (in such capacities, individually the
"Relevant Depository" and collectively the "European Depositories"). Investors
may hold such beneficial interests in the Book-Entry Certificates in minimum
denominations representing principal amounts of $1,000. Except as described
below, no Beneficial Certificate Owner will be entitled to receive a physical
certificate representing such Certificate (a "Definitive Certificate"). Unless
and until Definitive Certificates are issued, it is anticipated that the only
"Owner" of such Class A Certificates will be Cede, as nominee of DTC. Beneficial
Certificate Owners will not be Owners as that term is used in the Pooling and
Servicing Agreement. Beneficial Certificate Owners are only permitted to
exercise their rights indirectly through Participants and DTC.
The Beneficial Certificate Owner's ownership of a Book-Entry
Certificate will be recorded on the records of the brokerage firm, bank, thrift
institution or other financial intermediary (each, a "Financial Intermediary")
that maintains the Beneficial Certificate Owner's account for such purpose. In
turn, the Financial Intermediary's Ownership of such Book-Entry Certificate will
be recorded on the records of DTC (or of a participating firm that acts as agent
for the Financial Intermediary, whose interest will in turn be recorded on the
records of DTC, or, if the Beneficial Certificate Owner's Financial Intermediary
is not a DTC Participant, then on the records of CEDEL or Euroclear, as
appropriate).
Beneficial Certificate Owners will receive all distributions of
principal of, and interest on, the Class A Certificates from the Trustee through
DTC and DTC Participants. While such Class A Certificates are outstanding
(except under the circumstances described below), under the rules, regulations
and procedures
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creating and affecting DTC and its operations (the "Rules"), DTC is required to
make book-entry transfers among Participants on whose behalf it acts with
respect to such Class A Certificates and is required to receive and transmit
distributions of principal of, and interest on, such Class A Certificates.
Participants and indirect participants with whom Beneficial Certificate Owners
have accounts with respect to Class A Certificates are similarly required to
make book-entry transfers and receive and transmit such distributions on behalf
of their respective Beneficial Certificate Owners. Accordingly, although
Beneficial Certificate Owners will not possess certificates, the Rules provide a
mechanism by which Beneficial Certificate Owners will receive distributions and
will be able to transfer their interest.
Beneficial Certificate Owners will not receive or be entitled to
receive certificates representing their respective interests in the Class A
Certificates, except under the limited circumstances described below. Unless and
until Definitive Certificates are issued, Beneficial Certificate Owners who are
not Participants may transfer ownership of Class A Certificates only through
Participants and indirect participants by instructing such Participants and
indirect participants to transfer such Class A Certificates, by book-entry
transfer, through DTC for the account of the purchasers of such Class A
Certificates, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of such Class A Certificates will be executed through DTC and the
accounts of the respective Participants at DTC will be debited and credited.
Similarly, the Participants and indirect participants will make debits or
credits, as the case may be, on their records on behalf of the selling and
purchasing Beneficial Certificate Owners.
Because of time zone differences, credits of securities received in
CEDEL or Euroclear as a result of a transaction with a Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or CEDEL Participants on such business day. Cash received in CEDEL or
Euroclear as a result of sales of securities by or through a CEDEL Participant
(as defined below) or Euroclear Participant (as defined below) to a DTC
Participant will be received with value on the DTC settlement date but will be
available in the relevant CEDEL or Euroclear cash account only as of the
business day following settlements in DTC. For information with respect to tax
documentation procedures relating to the Certificates, see "Federal Income Tax
Consequences -- Foreign Investors" and " -- Backup Withholding" in the
Prospectus and "Global Clearance, Settlement and Tax Documentation Procedures
- --Certain U.S. Federal Income Tax Documentation Requirements" in Annex I hereto.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depository; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depository to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. CEDEL Participants and Euroclear Participants may not deliver instructions
directly to the European Depositories.
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DTC, which is a New York-chartered limited purpose trust company,
performs services for its Participants ("DTC Participants"), some of which
(and/or their representatives) own DTC. In accordance with its normal
procedures, DTC is expected to record the positions held by each DTC Participant
in the Book-Entry Certificates, whether held for its own account or as a nominee
for another person. In general, beneficial ownership of Book-Entry Certificates
will be subject to the rules, regulations and procedures governing DTC and DTC
Participants as in effect from time to time.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participant organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 31 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear Securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries. Indirect access to Euroclear is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
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Distributions on the Book-Entry Certificates will be made on each
Payment Date by the Trustee to DTC. DTC will be responsible for crediting the
amount of such payments to the accounts of the applicable DTC Participants in
accordance with DTC's normal procedures. Each DTC Participant will be
responsible for disbursing such payment to the Beneficial Certificate Owners of
the Book-Entry Certificates that it represents and to each Financial
Intermediary for which it acts as agent. Each such Financial Intermediary will
be responsible for disbursing funds to the Beneficial Certificate Owners of the
Book-Entry Certificates that it represents.
Under a book-entry format, Beneficial Certificate Owners of the
Book-Entry Certificates may experience some delay in their receipt of payments,
since such payments will be forwarded by the Trustee to Cede. Distributions with
respect to Class A Certificates held through CEDEL or Euroclear will be credited
to the cash accounts of CEDEL Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by the Relevant Depository. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
Because DTC can only act on behalf of Financial Intermediaries, the ability of a
Beneficial Certificate Owner to pledge Book-Entry Certificates, to persons or
entities that do not participate in the Depository system, or otherwise take
actions in respect of such Book-Entry Certificates, may be limited due to the
lack of physical certificates for such Book-Entry Certificates. In addition,
issuance of the Book-Entry Certificates in book-entry form may reduce the
liquidity of such Certificates in the secondary market since certain potential
investors may be unwilling to purchase Certificates for which they cannot obtain
physical certificates.
Monthly and annual reports on the Trust provided by the Master Servicer
to Cede, as nominee of DTC, may be made available to Beneficial Certificate
Owners upon request, in accordance with the rules, regulations and procedures
creating and affecting the Depository, and to the Financial Intermediaries to
whose DTC accounts the Book-Entry Certificates of such Beneficial Certificate
Owners are credited.
DTC has advised the Trustee that, unless and until Definitive
Certificates are issued, DTC will take any action permitted to be taken by the
holders of the Book-Entry Certificates under the Pooling and Servicing Agreement
only at the direction of one or more Financial Intermediaries to whose DTC
accounts the Book-Entry Certificates are credited, to the extent that such
actions are taken on behalf of Financial Intermediaries whose holdings include
such Book-Entry Certificates. CEDEL or the Euroclear Operator, as the case may
be, will take any action permitted to be taken by an Owner under the Pooling and
Servicing Agreement on behalf of a CEDEL Participant or Euroclear Participant
only in accordance with its relevant rules and procedures and subject to the
ability of the Relevant Depository to effect such actions on its behalf through
DTC. DTC may take actions, at the direction of the related Participants, with
respect to some Class A Certificates which conflict with actions taken with
respect to other Class A Certificates.
Definitive Certificates will be issued to Beneficial Certificate Owners
of the Book-Entry Certificates, or their nominees, rather than to DTC, only if
(a) DTC or the Depositor advises the Trustee in writing that DTC is no longer
willing, qualified or able to discharge properly its responsibilities as a
nominee and depository with respect to the Book-Entry Certificates and the
Depositor or the Trustee is unable to locate a qualified successor, (b) the
Depositor, at its sole option, elects to terminate a book-entry system through
DTC or (c) DTC, at the direction of the Beneficial Certificate Owners
representing a majority of the outstanding Percentage Interests of the Class A
Certificates, advises the Trustee in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in the best
interests of Beneficial Certificate Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all Beneficial
Certificate Owners of the occurrence of such event and the availability through
DTC of Definitive Certificates. Upon surrender by DTC of the global certificate
or
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certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, and thereafter
the Trustee will recognize the holders of such Definitive Certificates as Owners
under the Pooling and Servicing Agreement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Certificates among Participants
of DTC, CEDEL and Euroclear, they are under no obligation to perform or continue
to perform such procedures and such procedures may be discontinued at any time.
CERTAIN ACTIVITIES
The Trust has not and will not: (i) issue securities (except for the
Certificates); (ii) borrow money; (iii) make loans; (iv) invest in securities
for the purpose of exercising control; (v) underwrite securities; (vi) except as
provided in the Pooling and Servicing Agreement, engage in the purchase and sale
(or turnover) of investments; (vii) offer securities (except the Certificates)
in exchange for property; or (viii) repurchase or otherwise reacquire its
securities. See "Reports to the Holders" for information regarding reports to
the Certificateholders.
GENERAL SERVICING PROCEDURES
Acting directly or through one or more sub-servicers, __________ (the
"Master Servicer") is required to service and administer the Mortgage Loans in
accordance with the Pooling and Servicing Agreement.
The Master Servicer in its own name or in the name of a sub-servicer is
authorized and empowered pursuant to the Pooling and Servicing Agreement (i) to
execute and deliver 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 Properties, (ii) to
institute foreclosure proceedings or obtain a deed in lieu of foreclosure so as
to effect ownership of any Property in its own name on behalf of the Trustee,
and (iii) to hold title in the name of the Trust to any Property upon such
foreclosure or deed in lieu of foreclosure on behalf of the Trustee; provided,
however, that to the extent any instrument described in clause (i) would be
delivered by the Master Servicer outside of its ordinary procedures for mortgage
loans held for its own account, the Master Servicer is required, prior to
executing and delivering such instrument, to obtain the prior written consent of
the Certificate Insurer.
The Master Servicer, in its own name or in the name of a Sub-Servicer,
has the right to approve requests of Mortgagors for consent to (i) partial
releases of Mortgages and (ii) alterations, removal, demolition or division of
Properties subject to Mortgages. The Pooling and Servicing Agreement provides
that no such request shall be approved by the Master Servicer unless: (i) (x)
the provisions of the related Note and Mortgage have been complied with, (y) the
Combined Loan-to-Value Ratio (which may, for this purpose, be determined at the
time of any such action in a manner reasonably acceptable to the Certificate
Insurer) after any release does not exceed the Combined Loan-to-Value Ratio set
forth for such Mortgage Loan in the Schedule of Mortgage Loans, and (z) the lien
priority of the related Mortgage is not affected; or (ii) the Certificate
Insurer shall have approved the granting of such request.
On the tenth day of each month (or the immediately following business
day if the tenth day does not fall on a business day), the Master Servicer or
Sub-Servicer shall send to the Trustee a report detailing the payments on the
Mortgage Loans serviced by it in each of the two Mortgage Loan Groups during the
prior Remittance Period.
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COLLECTION OF CERTAIN MORTGAGE LOAN PAYMENTS
The Master Servicer is required generally to service the Mortgage Loan
Pool in a prudent manner consistent with its general servicing standards for
similar mortgage loans and to 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 the provisions of the
Pooling and Servicing Agreement, follow collection procedures for all Mortgage
Loans at least as rigorous as those the Master Servicer would take in servicing
loans and in collecting payments thereunder for its own account.
Consistent with the foregoing, the Master Servicer, in its own name or
in the name of a Sub-Servicer, may (i) in its discretion waive or permit to be
waived any late payment charge or assumption fee or any other fee or charge
which the Master Servicer would be entitled to retain as servicing compensation,
(ii) extend the due date for payments due on a Note for a period (with respect
to each payment as to which the due date is extended) not greater than 125 days
after the initially scheduled due date for such payment, and (iii) amend any
Note to extend the maturity thereof, provided that no maturity shall be extended
beyond the maturity date of the Mortgage Loan with the latest maturity date and
that no more than 1.0% of the Original Pool Balance of the Mortgage Loans shall
have a maturity date which has been extended beyond the maturity date thereof at
the Cut-Off Date; provided that such action does not violate applicable REMIC
provisions. In the event the Master Servicer, in its own name or in the name of
a Sub-Servicer, consents to the deferment of the due dates for payments due on a
Note, the Master Servicer or Sub-Servicer is nonetheless required to make
payment of any required Delinquency Advance with respect to the payments so
extended to the same extent as if such installment were due, owing and
delinquent and had not been deferred.
Generally the Class A Certificate Owners would prefer that
"due-on-sale" clauses be waived in the event of a sale of the underlying
Mortgaged Property, that extensions and accommodations be made with delinquent
Mortgagors, and that liquidations of Mortgage Loans be deferred, since upon
prepayment due to sale or upon liquidation such Owners will receive a payment of
principal in connection with such prepayment or liquidation. If attractive
re-investment opportunities are available at the time, Class A Certificate
Owners may prefer that "due-on-sale" clauses not be waived and that no such
extensions, accommodations or deferments be made, thus hastening the return of
principal to such Owners.
Owners do not have the right under the Pooling and Servicing Agreement
to make decisions with respect to Mortgagor accounts. Such decisions are in the
nature of mortgage servicing and the Master Servicer generally has the right to
make such decisions without the requirement of consent of the Owners, the
Trustee or the Certificate Insurer. The Master Servicer will generally be
required under the Pooling and Servicing Agreement to enforce "due-on-sale"
clauses, and will make decisions with respect to liquidations in accordance with
the Pooling and Servicing Agreement.
Under certain limited circumstances the Pooling and Servicing Agreement
may require the Master Servicer to obtain the consent of the Certificate Insurer
before taking certain actions with respect to defaulted Mortgage Loans and in
connection with the waiver of "due-on-sale" clauses. Since the Certificate
Insurer's exposure increases, to the extent of interest accrued, the longer the
liquidation process, it is likely to be the case that the Certificate Insurer
will favor quick liquidations in those situations in which its consent is
required. Similarly, the Certificate Insurer would favor the enforcement of a
"due-on-sale" clause, since a prepayment in the event of a sale also reduces its
exposure by limiting the accrual of interest.
PRINCIPAL AND INTEREST ACCOUNT
The Master Servicer, in its own name or in the name of a Sub-Servicer,
is required to deposit to the Principal and Interest Account all collections on
the Mortgage Loans, certain proceeds received by the Master
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Servicer in connection with the termination of the Trust, Loan Purchase Prices
and Substitution Amounts received or paid by the Master Servicer, insurance and
condemnation proceeds received by the Master Servicer, other amounts related to
the Mortgage Loans received by the Master Servicer, including any income from
REO Properties (net of Servicing Advances made with respect to such REO
Properties), and Delinquency Advances together with any amounts which are
reimbursable from the Principal and Interest Account, but net of the Servicing
Fee with respect to each Mortgage Loan serviced by the Master Servicer and other
servicing compensation to the Master Servicer as permitted by the Pooling and
Servicing Agreement.
The Master Servicer or Sub-Servicer may make withdrawals from the
Principal and Interest Account only for the following purposes: (a) to effect
the timely remittance to the Trustee of the Monthly Remittance due on the
Remittance Date; (b) to withdraw investment earnings on amounts on deposit in
the Principal and Interest Account; (c) to withdraw amounts that have been
deposited to the Principal and Interest Account in error; (d) to pay certain
miscellaneous amounts over to the Depositor and (e) to clear and terminate the
Principal and Interest Account.
On each Remittance Date the Master Servicer and any Sub-Servicer is
required to remit the Monthly Remittance amount inclusive of all Delinquency
Advances and Compensating Interest to the Trustee by wire transfer, or otherwise
make funds available in immediately available funds.
SERVICING ADVANCES
The Pooling and Servicing Agreement obligates the Master Servicer to
pay all reasonable and customary "out-of-pocket" costs and expenses (including
reasonable legal fees) incurred in the performance of its servicing obligations
including, but not limited to, the cost of (i) preservation expenses, (ii) any
enforcement or judicial proceedings, including foreclosures, (iii) the
management and liquidation of REO Property (including, without limitation,
realtors' commissions) and (iv) advances made for taxes, insurance and other
charges against a Property. Each such expenditure will constitute a "Servicing
Advance". The Master Servicer may recover Servicing Advances from the Mortgagors
to the extent permitted by the Mortgage Loans or, if not theretofore recovered
from the Mortgagor on whose behalf such Servicing Advance was made, from
Liquidation Proceeds realized upon the liquidation of the related Mortgage Loan.
In no case may the Master Servicer recover Servicing Advances from the principal
and interest payments on any Mortgage Loan or from any amounts relating to any
other Mortgage Loan. The Master Servicer is not required to make a Servicing
Advance if it believes that such Servicing Advance will not be recoverable from
the related Mortgage Loan.
COMPENSATING INTEREST
A full month's interest on each Mortgage Loan, calculated at a rate
equal to such Mortgage Loan's Coupon Rate less the Servicing Fee is due to the
Trustee on the outstanding principal balance of each Mortgage Loan as of the
beginning of each Remittance Period. If a Prepayment of a Mortgage Loan occurs
during any calendar month, any difference between the interest collected from
the Mortgagor during such calendar month and the full month's interest at such
rate ("Compensating Interest") that is due is required to be deposited by the
Master Servicer to the Principal and Interest Account (without any right of
reimbursement therefor) and shall be included in the Monthly Remittance and made
available to the Trustee on the next succeeding Remittance Date.
MAINTENANCE OF INSURANCE
The Master Servicer is required to cause to be maintained with respect
to each Mortgage Loan that it services and related Property a hazard insurance
policy with a carrier licensed in the state in which such
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Property is located that provides for fire and extended coverage, and which
provides for a recovery by the Trust of insurance proceeds relating to such
Mortgage Loan in an amount not less than the least of (i) the outstanding
principal balance of the Mortgage Loan (together in the case of a Junior
Mortgage, with the outstanding principal balance of the senior lien), or (ii)
the minimum amount required to compensate for loss or damage on a replacement
cost basis, or (iii) the full insurable value of the premises.
If a Mortgage Loan relates to a Mortgaged Property in an area
identified at the time of origination thereof in the Federal Register by the
Federal Emergency Management Agency as having special flood hazards, the Master
Servicer, in its own name or in the name of a Sub-Servicer, will be required to
maintain with respect thereto a flood insurance policy in a form meeting the
requirements of the then-current guidelines of the Federal Insurance
Administration with a generally acceptable carrier in an amount representing
coverage, and which provides for recovery by the Master Servicer or a
Sub-Servicer on behalf of the Trust of insurance proceeds relating to such
Mortgage Loan, of not less than the least of (i) the outstanding principal
balance of the Mortgage Loan, or (ii) the minimum amount required to compensate
for damage or loss on a replacement cost basis, or (iii) the maximum amount of
insurance that is available under the Flood Disaster Protection Act of 1973, as
amended.
In the event that the Master Servicer or a Sub-Servicer obtains and
maintains a blanket policy insuring against fire and other hazards with extended
coverage and against flood hazards on all of the Mortgage Loans that it
services, then, to the extent such policy names the Master Servicer or a
Sub-Servicer as loss payee and provides coverage in an amount equal to the
aggregate unpaid principal balance on the Mortgage Loans without co-insurance,
and otherwise complies with the requirements of the Pooling and Servicing
Agreement, the Master Servicer shall be deemed conclusively to have satisfied
its obligations with respect to fire and hazard insurance coverage under the
Pooling and Servicing Agreement. Such blanket policy may contain a deductible
clause, in which case the Master Servicer will be required, in the event that
there shall not have been maintained on the related Mortgaged Property a policy
complying with the Pooling and Servicing Agreement, and there shall have been a
loss that would have been covered by such policy, to deposit in the Principal
and Interest Account from the Master Servicer's own funds the difference, if
any, between the amount that would have been payable under a policy complying
with the Pooling and Servicing Agreement and the amount paid under such blanket
policy.
Pursuant to the Pooling and Servicing Agreement, the Master Servicer
will be required to indemnify the Trust out of its own funds for any loss to the
Trust resulting from the Master Servicer's failure to maintain any required
insurance.
DUE-ON-SALE CLAUSES
When a Property has been or is about to be conveyed by the Mortgagor,
the Master Servicer or a Sub-Servicer, to the extent it has knowledge of such
conveyance or prospective conveyance, is required to exercise its rights to
accelerate the maturity of the related Mortgage Loan under any "due on sale"
clause contained in the related Mortgage or Note; provided, however, that the
Master Servicer will not be required to exercise any such right if the
"due-on-sale" clause, in the reasonable belief of the Master Servicer, is not
enforceable under applicable law; and provided further, that the Master Servicer
may refrain from exercising any such right if the Certificate Insurer gives its
prior consent to such non-enforcement.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
The Master Servicer, in its own name or in the name of a Sub-Servicer,
is required to foreclose upon or otherwise comparably effect the ownership in
the name of the Trust, on behalf of the Trustee, of Properties relating to
defaulted Mortgage Loans that it services as to which no satisfactory
arrangements can be made for
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collection of delinquent payments and which the Master Servicer has not
purchased pursuant to its purchase option described below, unless the Master
Servicer reasonably believes that Net Liquidation Proceeds with respect to such
Mortgage Loan would not be increased as a result of such foreclosure or other
action, in which case such Mortgage Loan will be charged off and will become a
Liquidated Mortgage Loan. In connection with such foreclosure or other
conversion, the Master Servicer is required to exercise or use foreclosure
procedures with the same degree of care and skill as it would exercise or use
under the circumstances in the conduct of its own affairs. Any amounts advanced
in connection with such foreclosure or other action shall constitute "Servicing
Advances".
The Master Servicer, in its own name or in the name of a Sub-Servicer,
is required to sell any REO Property within 23 months of its acquisition by the
Trustee, unless the Master Servicer obtains for the Trustee an opinion of
counsel experienced in federal income tax matters, addressed to the Trustee and
the Master Servicer, to the effect that the holding by the Trust of such REO
Property for a greater specified period will not result in the imposition of
taxes on "prohibited transactions" of the Trust as defined in Section 860F of
the Code or cause the Trust to fail to qualify as a REMIC.
In accordance with the Pooling and Servicing Agreement, if the Master
Servicer has actual knowledge that a Property which it is contemplating
acquiring in foreclosure or by deed in lieu of foreclosure contains
environmental or hazardous waste risks known to it, the Master Servicer shall
notify the Certificate Insurer and the Trustee prior to acquiring the Property.
The Master Servicer is not permitted to take any action with respect to such a
Property without the prior written approval of the Certificate Insurer.
The Master Servicer is required to determine, with respect to each
defaulted Mortgage Loan that it services, when it has recovered, whether through
trustee's sale, foreclosure sale or otherwise, all amounts, if any, it expects
to recover from or on account of such defaulted Mortgage Loan, whereupon such
Mortgage Loan shall become a "Liquidated Mortgage Loan".
SERVICING COMPENSATION
As compensation for its servicing activities under the Pooling and
Servicing Agreement, the Master Servicer shall be entitled to retain the amount
of the Servicing Fee with respect to each Mortgage Loan that it services.
Additional servicing compensation in the form of release fees, bad check
charges, assumption fees, late payment charges, and any other servicing-related
fees, and similar items may, to the extent collected from Mortgagors, be
retained by the Master Servicer.
ANNUAL STATEMENT AS TO COMPLIANCE
The Master Servicer is required to deliver, on its own behalf, to the
Trustee, the Depositor, the Company and the Certificate Insurer, annually,
commencing in 1998, an Officer's Certificate stating, as to each signer thereof,
that (i) a review of the activities of the Master Servicer during such preceding
calendar year and of performance under the Pooling and Servicing Agreement has
been made under such officer's supervision, and (ii) to the best of such
officer's knowledge, based on such review, the Master Servicer has fulfilled all
its obligations under the Pooling and Servicing Agreement for such year, or, if
there has been a default in the fulfillment of all such obligations, specifying
each such default known to such officer and the nature and status thereof
including the steps being taken by the Master Servicer to remedy such default.
ANNUAL INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORTS
Annually, commencing in 1998, the Master Servicer is required to cause
to be delivered, on its own behalf, to the Trustee and the Certificate Insurer a
letter or letters of a firm of independent, nationally
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recognized certified public accountants reasonably acceptable to the Certificate
Insurer stating that such firm has, with respect to the Master Servicer's
overall servicing operations (i) performed applicable tests in accordance with
the compliance testing procedures as set forth in Appendix 3 of the Audit Guide
for Audits of HUD Approved Nonsupervised Mortgagees or (ii) examined such
operations in accordance with the requirements of the Uniform Single Attestation
Program for Mortgage Bankers, and stating such firm's conclusions relating
thereto.
ASSIGNMENT OF AGREEMENT
The Master Servicer may not assign its obligations under the Pooling
and Servicing Agreement, in whole or in part, unless it shall have first
obtained the written consent of the Depositor, the Company, the Trustee and the
Certificate Insurer; provided, however, that any assignee must meet the
eligibility requirements set forth in the Pooling and Servicing Agreement for a
successor Master Servicer.
REMOVAL AND RESIGNATION OF THE MASTER SERVICER; EVENTS OF DEFAULT
The Certificate Insurer, or with the consent of the Certificate
Insurer, the Depositor or the Owners of Class A Certificates owning a majority
in Percentage Interest in the Class A Certificates may remove the Master
Servicer upon the occurrence of any of the following events (each, an "Event of
Default"):
(i) The Master Servicer shall (I) apply for or consent to the
appointment of a receiver, trustee, liquidator or custodian or similar
entity with respect to itself or its property, (II) admit in writing
its inability to pay its debts generally as they become due, (III) make
a general assignment for the benefit of creditors, (IV) be adjudicated
bankrupt or insolvent, (V) commence a voluntary case under the federal
bankruptcy laws of the United States of America or file a voluntary
petition or answer seeking reorganization, an arrangement with
creditors or an order for relief or seeking to take advantage of any
insolvency law or file an answer admitting the material allegations of
a petition filed against it in any bankruptcy, reorganization or
insolvency proceeding or (VI) cause corporate action to be taken by it
for the purpose of effecting any of the foregoing; or
(ii) If without the application, approval or consent of the
Master Servicer, a proceeding shall be instituted in any court of
competent jurisdiction, under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking in respect of
the Master Servicer an order for relief or an adjudication in
bankruptcy, reorganization, dissolution, winding up, liquidation, a
composition or arrangement with creditors, a readjustment of debts, the
appointment of a trustee, receiver, liquidator or custodian or similar
entity with respect to the Master Servicer or of all or any substantial
part of its assets, or other like relief in respect thereof under any
bankruptcy or insolvency law, and, if such proceeding is being
contested by the Master Servicer in good faith, the same shall (A)
result in the entry of an order for relief or any such adjudication or
appointment or (B) continue undismissed or pending and unstayed for any
period of sixty (60) consecutive days; or
(iii) The Master Servicer shall fail to perform any one or
more of its obligations under the Pooling and Servicing Agreement
(other than its obligations referenced in clauses (vi) and (vii) below)
and shall continue in default thereof for a period of thirty (30) days
after the earlier to occur of (x) the date on which an authorized
officer of the Master Servicer knows or reasonably should know of such
failure or (y) receipt by the Master Servicer of a written notice by
the Trustee, any Owner, the Depositor or the Certificate Insurer of
said failure; or
(iv) The Master Servicer shall fail to cure any breach of any
of its representations and warranties set forth in the Pooling and
Servicing Agreement which materially and adversely affects
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the interests of the Owners or Certificate Insurer for a period of
thirty (30) days after the earlier of (x) the date on which an
authorized officer of the Master Servicer knows or reasonably should
know of such breach or (y) receipt by the Master Servicer of a written
notice from the Trustee, any Owner, the Depositor or the Certificate
Insurer of such breach;
(v) If the Certificate Insurer pays out any money under the
Certificate Insurance Policy, or if the Certificate Insurer otherwise
funds any shortfall with its own money, because the amounts available
to the Trustee (other than from the Certificate Insurer) are
insufficient to make required distributions on the Class A
Certificates;
(vi) The failure by the Master Servicer to make any required
Servicing Advance for a period of 30 days following the earlier of (x)
the date on which an authorized officer of the Master Servicer knows or
reasonably should know of such failure or (y) receipt by the Master
Servicer of a written notice from the Trustee, any Owner, the Depositor
or the Certificate Insurer of such failure;
(vii) The failure by the Master Servicer to make any required
Delinquency Advance or to pay any Compensating Interest or to pay over
the Monthly Remittance;
(viii) If the delinquency or loss levels applicable to the
Mortgage Loans serviced by the Master Servicer exceed certain "trigger"
levels set forth in the Insurance Agreement; or
(ix) An "Event of Default" exists and is continuing under the
Insurance Agreement;
provided, however, that (x) prior to any removal of the Master Servicer pursuant
to clauses (ii) through (iv) and (vi) above, any applicable grace period granted
by any such clause shall have expired prior to the time such occurrence shall
have been remedied and (y) in the event of the refusal or inability of the
Master Servicer to comply with its obligations described in clause (vii) above,
such removal shall be effective (without the requirement of any action on the
part of the Depositor, the Trustee or the Certificate Insurer) at 4 p.m. (New
York City time) on the second business day following the day on which the
Trustee notifies the Master Servicer that a required amount described in clause
(vii) above has not been received by the Trustee, unless the required amount
described in clause (vii) above is paid by the Master Servicer prior to such
time or the Certificate Insurer grants an additional grace period for such
payment. Upon the Trustee's determination that a required amount described in
clause (vii) above has not been made by the Master Servicer, the Trustee shall
so notify the Master Servicer, the Depositor and the Certificate Insurer as soon
as is reasonably practical.
The Master Servicer may not resign from the obligations and duties
imposed on it under the Pooling and Servicing Agreement, except upon
determination that its duties thereunder are no longer permissible under
applicable law or are in material conflict by reason of applicable law with any
other activities carried on by it, the other activities of the Master Servicer
so causing such a conflict being of a type and nature carried on by the Master
Servicer at the date of the Pooling and Servicing Agreement. Any such
determination permitting the resignation of the Master Servicer shall be
evidenced by an opinion of counsel to such effect which shall be delivered to
the Trustee, the Depositor and the Certificate Insurer.
No removal or resignation of the Master Servicer shall become effective
until the Trustee or a successor servicer shall have assumed the Master
Servicer's responsibilities and obligations in accordance with the Pooling and
Servicing Agreement.
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SUCCESSOR MASTER SERVICER
Upon removal or resignation of Home Equity Securitization Corp. as
Master Servicer under the Pooling and Servicing Agreement, the Trustee (x) may
solicit bids for a successor Master Servicer under the Pooling and Servicing
Agreement, which successor Master Servicer must be acceptable to the Certificate
Insurer, and (y) pending the appointment of a successor Master Servicer under
the Pooling and Servicing Agreement, as a result of soliciting such bids, is
required to serve as Master Servicer under the Pooling and Servicing Agreement,
unless Home Equity Securitization Corp. has been removed without cause, in which
event the Trustee prior to any such removal must designate a successor Master
Servicer under the Pooling and Servicing Agreement acceptable to the Certificate
Insurer. The Trustee, if it is unable to obtain a qualifying bid and is
prevented by law from acting as Master Servicer under the Pooling and Servicing
Agreement, may appoint, or petition a court of competent jurisdiction to
appoint, any housing and home finance institution, bank or mortgage servicing
institution which has been designated as an approved seller-servicer by FNMA or
FHLMC for first and second mortgage loans and having equity of not less than
$15,000,000, as determined in accordance with generally accepted accounting
principles, and acceptable to the Certificate Insurer.
The Trustee, or any other successor Master Servicer, upon assuming the
duties of the Master Servicer, is required immediately to make payment of all
Compensating Interest and all Delinquency Advances which the Master Servicer has
theretofore failed to remit with respect to the Mortgage Loans; provided,
however, that if the Trustee is acting as successor Master Servicer, the Trustee
is only required to make Delinquency Advances (including the Delinquency
Advances described in this sentence) if, in the Trustee's reasonable good faith
judgment, such Delinquency Advances will ultimately be recoverable from the
related Mortgage Loans.
INVESTMENT OF ACCOUNTS
All or a portion of the Principal and Interest Account, the Certificate
Account and any other account which may be created by the Trustee (each, an
"Account"), may be invested and reinvested in an Eligible Investment bearing
interest or sold at a discount. The bank serving as Trustee or any affiliate
thereof, may be the obligor on any investment in any Account which otherwise
qualifies as an Eligible Investment. No investment in any Account held by the
Trustee may mature later than the business day immediately preceding the next
succeeding Payment Date; provided, however, that if the investment is an
investment of the bank serving as Trustee, then it may mature on the Payment
Date.
The Trustee will not in any way be held liable by reason of any
insufficiency in any Account resulting from any loss on any Eligible Investment
included therein (except to the extent that the bank serving as Trustee is the
obligor thereon).
All income or other gain from investments in any Account will be
required to be deposited in such Account immediately upon receipt, and any loss
resulting from such investments will be required to be charged to such Account
(except with respect to the Principal and Interest Account, as to which the
Master Servicer is entitled to retain any gain from investments and is required
to deposit an amount equal to any loss into the Principal and Interest Account
from its own funds).
ELIGIBLE INVESTMENTS
The following are "Eligible Investments":
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(a) Direct general obligations of the United States or the obligations
of any agency or instrumentality of the United States, the timely payment or the
guarantee of which constitutes a full faith and credit obligation of the United
States;
(b) Federal Housing Administration debentures, but excluding any such
securities whose terms do not provide for payment of a fixed dollar amount upon
maturity or call for redemption;
(c) FHLMC senior debt obligations, but excluding any such securities
whose terms do not provide for payment of a fixed dollar amount upon maturity or
call for redemption;
(d) FNMA senior debt obligations, but excluding any such securities
whose terms do not provide for payment of a fixed dollar amount upon maturity or
call for redemption;
(e) Federal funds, certificates of deposit, time and demand deposits,
and bankers' acceptances (having original maturities of not more than 365 days)
of any domestic bank, the short-term debt obligations of which have been rated
___ or better by ___ and ___ by ___;
(f) Deposits of any bank or savings and loan association which has
combined capital, surplus and undivided profits of at least $50,000,000 which
deposits are not in excess of the applicable limits insured by the Bank
Insurance Fund or the Savings Association Insurance Fund of the FDIC, provided
that the long-term deposits of such bank or savings and loan association are
rated at least ___ by ___ and ___ by ___;
(g) Commercial paper (having original maturities of not more than 270
days) rated ___ or better by ___ and ___ by ___;
(h) Investments in money market funds rated ___ or ___ by ___ and ___
or ___ by ___; and
(i) Such other investments as have been approved in writing by ___, ___
and the Certificate Insurer;
provided that no instrument described above is permitted to evidence either the
right to receive (a) only interest with respect to obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments with respect
to such instrument provided a yield to maturity at par greater than 120% of the
yield to maturity at par of the underlying obligations; and provided, further,
that no instrument described above may be purchased at a price greater than par
if such instrument may be prepaid or called at a price less than its purchase
price prior to stated maturity.
AMENDMENTS
The Trustee, the Master Servicer and the Depositor may at any time and
from time to time, with the prior written consent of the Certificate Insurer but
without the consent of the Owners, amend the Pooling and Servicing Agreement,
for the purposes of (a) curing any ambiguity, or correcting or supplementing any
provision of any such agreement which may be inconsistent with any other
provision of such agreement, (b) if accompanied by an approving opinion of
counsel experienced in federal income tax matters, removing the restriction
against the transfer of a Residual Certificate to a Disqualified Organization
(as such term is defined in the Code) or (c) complying with the requirements of
the Code; provided, however, that such action shall not, as evidenced by an
opinion of counsel delivered to the Trustee, materially and adversely affect the
interests of any Owner or materially and adversely affect (without its written
consent) the rights and interests of the Certificate Insurer.
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The Pooling and Servicing Agreement may also be amended by the Trustee,
the Master Servicer and the Depositor, as applicable, at any time and from time
to time, with the prior written approval of the Certificate Insurer and of not
less than 66 2/3% of the Percentage Interest represented by each affected Class
of Certificates then outstanding, for the purpose of adding any provisions or
changing in any manner or eliminating any of the provisions thereof or of
modifying in any manner the rights of the Owners thereunder; provided, however,
that no such amendment shall (a) change in any manner the amount of, or delay
the timing of, payments which are required to be distributed to any Owner
without the consent of the Owner of such Certificate or (b) change the aforesaid
percentages of Percentage Interest which are required to consent to any such
amendments, without the consent of the Owners of all Certificates of the Class
or Classes affected then outstanding. Any such amendment must be accompanied by
an opinion of tax counsel as to REMIC matters.
The Trustee will be required to furnish a copy of any such amendment to
each Owner in the manner set forth in the Pooling and Servicing Agreement.
TERMINATION OF THE TRUST
The Pooling and Servicing Agreement provides that the Trust will
terminate upon the payment to the Owners of all Certificates from amounts other
than those available under the Certificate Insurance Policy all amounts required
to be paid to such Owners upon the final payment and other liquidation (or any
advance made with respect thereto) of the last Mortgage Loan.
OPTIONAL TERMINATION BY THE DEPOSITOR
At its option, but subject to the consent of the Certificate Insurer in
certain circumstances, the Depositor may purchase from the Trust all (but not
fewer than all) remaining Mortgage Loans and other property, acquired by
foreclosure, deed in lieu of foreclosure, or otherwise, then constituting the
Trust Estate, and thereby effect early retirement of the Certificates, on any
Payment Date when the Pool Principal Balance has declined to ten percent or less
of the Original Pool Principal Balance.
The termination of the Trust by the preceding method is equivalent to a
prepayment of all the Mortgage Loans and a liquidation of the Trust. The Owners
of the Class A Certificates would receive from the proceeds of such purchase any
interest owed (including any accrued but unpaid Supplemental Interest Amounts)
and the Owners of the Class A Certificates would receive any principal not yet
paid, in the order of priority set forth under "Description of Certificates --
Distributions on Class A Certificates". Consequently, a termination of the Trust
pursuant to the preceding methods, if such Certificates were purchased at a
price in excess of par, reduces the yield to maturity on the Class A
Certificates.
AUCTION SALE
The Pooling and Servicing Agreement requires that, within ninety days
following the Depositor Optional Termination Date, if the Depositor has not
exercised its optional termination right by such date, the Trustee solicit bids
for the purchase of all Mortgage Loans remaining in the Trust. In the event that
satisfactory bids are received as described in the Pooling and Servicing
Agreement, the net sale proceeds will be distributed to Certificateholders, in
the same order of priority as collections received in respect of the Mortgage
Loans. If satisfactory bids are not received, the Trustee shall decline to sell
the Mortgage Loans and shall not be under any obligation to solicit any further
bids or otherwise negotiate any further sale of the Mortgage Loans. Such sale
and consequent termination of the Trust must constitute a "qualified
liquidation" of each REMIC established by the Trust under Section 860F of the
Internal Revenue Code of 1986, as amended, including, without limitation, the
requirement that the qualified liquidation takes place over a
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period not to exceed 90 days. Such Auction Sale shall be subject to the consent
of the Certificate Insurer in certain circumstances.
TRUSTEE
Pursuant to the Pooling and Servicing Agreement, The Chase Manhattan
Bank will serve as trustee of the Trust. The Pooling and Servicing Agreement
sets forth provisions regarding the Trustee, certain of which are described
below.
CERTAIN COVENANTS OF THE TRUSTEE
WITHHOLDING. The Trustee is required to comply with all requirements of
the Code or any applicable state or local law with respect to the withholding
from any distributions made by it to any Owner of any applicable withholding
taxes imposed thereon and with respect to any applicable reporting requirements
in connection therewith.
UNCLAIMED MONEYS. Any money held by the Trustee in trust for the
payment of any amount due with respect to any Class A Certificate and remaining
unclaimed for the period then specified in the escheat laws of the State of New
York after such amount has become due and payable will be discharged from such
trust and be paid to the Company, and the Owner of such Class A Certificate
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof (but only to the extent of the amounts so paid to the Company),
and all liability of the Trustee with respect to such trust money will thereupon
cease; provided, however, that the Trustee, before being required to make any
such payment, may at the expense of the Company cause to be published once, in
the eastern edition of The Wall Street Journal, notice that such money remains
unclaimed and that, after a date specified therein, which shall be not less than
30 days from the date of such publication, any unclaimed balance of such money
then remaining will be paid to the Company. The Trustee may also adopt and
employ, at the expense of the Company, any other reasonable means of
notification of such payment (including but not limited to mailing notice of
such payment to Owners whose right to or interest in moneys due and payable but
not claimed is determinable from the Register at the last address of record for
each such Owner).
PROTECTION OF TRUST ESTATE. The trust estate (the "Trust Estate") of
the Trust primarily consists of (i) the Mortgage Loans, (ii) all moneys held in
the Accounts and (iii) the Certificate Insurance Policy. The Trustee is required
to hold the Trust Estate in Trust for the benefit of the Owners and, upon
request of and at the expense of the Company and at the expense of the
requesting party, will from time to time execute and deliver all such
supplements and amendments to the Pooling and Servicing Agreement, instruments
of further assurance and other instruments, and will take such other action upon
such request as it deems reasonably necessary or advisable, to more effectively
hold in trust all or any portion of the Trust Estate.
The Trustee has the power to enforce, and is required to enforce the
obligations of the other parties to the Pooling and Servicing Agreement by
action, suit or proceeding at law or equity, and also has the power to enjoin,
by action or suit, any acts or occurrences which may be unlawful or in violation
of the rights of the Owners; provided, however, that nothing in the Pooling and
Servicing Agreement requires any action by the Trustee unless the Trustee shall
first (i) have been furnished indemnity satisfactory to it and (ii) when
required by the Pooling and Servicing Agreement, have been requested to take
such action by the Owners and provided, further, that certain obligations may be
enforced by the Trustee only with the consent of the Certificate Insurer.
PERFORMANCE AND ENFORCEMENT OF OBLIGATIONS. The Pooling and Servicing
Agreement provides that the Trustee is under no obligation to exercise any of
the rights or powers vested in it by the Pooling and
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Servicing Agreement at the request or direction of any of the Owners, unless
such Owners shall have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
compliance with such request or direction.
The Trustee may execute any of the rights or powers granted by the
Pooling and Servicing Agreement or perform any duties thereunder either directly
or by or through agents or attorneys, and the Trustee is responsible for any
misconduct or negligence on the part of any agent or attorney appointed and
supervised with due care by it thereunder.
Pursuant to the Pooling and Servicing Agreement, the Trustee is not
liable for any action it takes or omits to take in good faith which it
reasonably believes to be authorized by an authorized officer of any person or
within its rights or powers under the Pooling and Servicing Agreement.
The Pooling and Servicing Agreement provides that no Owner has any
right to institute any proceeding, judicial or otherwise, with respect to the
Pooling and Servicing Agreement or the Certificate Insurance Policy, or for the
appointment of a receiver or trustee under the Pooling and Servicing Agreement,
unless:
(1) such Owner has previously given written notice to the
Depositor, the Certificate Insurer and the Trustee of such Owner's
intention to institute such proceeding, and the Certificate Insurer
consents thereto;
(2) the Owners of not less than 25% of the Percentage
Interests represented by any Class of Class A Certificates then
outstanding or, if there are no Class A Certificates then outstanding,
by such Percentage Interest represented by the Class B Certificates
then outstanding, shall have made written request to the Trustee to
institute such proceeding in its own name as representative of the
Owners;
(3) such Owner or Owners have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 30 days after its receipt of such notice,
request and offer of indemnity, has failed to institute such
proceeding; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Owners of a
majority of the Percentage Interests represented by each Class of Class
A Certificates then outstanding or, if there are no Class A
Certificates then outstanding, by a majority of the Percentage
Interests represented by the Class B Certificates then outstanding.
The Pooling and Servicing Agreement provides that no one or more Owners
shall have any right in any manner whatever by virtue of, or by availing
themselves of, any provision of the Pooling and Servicing Agreement to affect,
disturb or prejudice the rights of any other Owner of the same Class or to
obtain or to seek to obtain priority or preference over any other Owner of the
same Class or to enforce any right under the Pooling and Servicing Agreement,
except in the manner herein provided and for the equal and ratable benefit of
all the Owners of the same Class.
In the event the Trustee receives conflicting or inconsistent requests
and indemnity from two or more groups of Owners, each representing less than a
majority of the applicable Class of Certificates, the Trustee shall follow the
directions of the Certificate Insurer.
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The Certificate Insurer or, with the consent of the Certificate
Insurer, the Owners of a majority of the Percentage Interests represented by
each Class of Class A Certificates then outstanding or, if there are no Class A
Certificates then outstanding, by such majority of the Percentage Interests
represented by the Class B Certificates then outstanding, may direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee with respect to the Certificates or exercising any trust or power
conferred on the Trustee with respect to the Certificates or the Trust Estate
provided that: (1) such direction is not in conflict with any rule of law or
with the Pooling and Servicing Agreement; (2) the Trustee has been provided with
indemnity satisfactory to it; and (3) the Trustee may take any other action
deemed proper by the Trustee which is not inconsistent with such direction;
provided, however, that the Trustee need not take any action which it determines
might involve it in liability or may be unjustly prejudicial to the Owners not
so directing.
DISPOSITION OF TRUST ESTATE. The Trustee covenants not to permit the
Trust to sell, transfer, exchange or otherwise dispose of any of the Trust
Estate except as expressly permitted by the Pooling and Servicing Agreement.
REPORTING REQUIREMENTS. On each Payment Date the Trustee is required to
report in writing to each Owner and to the Certificate Insurer, among other
things: (i) the amount of the distribution with respect to the Class A
Certificates, the Class B Certificates and the Residual Certificates; (ii) the
amount of such distributions allocable to principal, separately identifying the
aggregate amount of any Prepayments or other recoveries of principal included
therein; (iii) the amount of such distributions allocable to interest; (iv) the
amount of such distributions allocable to the Class A Carry-Forward Amount or
the Class B Carry-Forward Amount; (v) the amount of any Insured Payment made
with respect to such Payment Date; (vi) the Class A Principal Balance as of such
Payment Date, together with the principal amount of each Class A Certificate
(based on a Certificate in the original principal amount of $1,000) then
outstanding, in each case after giving effect to any payment of principal on
such Payment Date; (vii) the Class B Principal Balance as of such Payment Date,
together with the principal amount of each Class B Certificate (based on a
Certificate in the original principal amount of $1,000) then outstanding, in
each case after giving effect to any payment of principal on such Payment Date;
(viii) the total of any Substitution Amounts and any Loan Purchase Prices
included in such distribution; (ix) the amount of the Servicing Fee paid with
respect to such Payment Date; and (x) the Subordinated Amount as of such Payment
Date.
REMOVAL OF TRUSTEE FOR CAUSE
The Trustee may be removed upon the occurrence of any of the following
events (whatever the reason for such event 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):
(1) the Trustee shall fail to distribute to the Owners
entitled thereto on any Payment Date amounts available for distribution
in accordance with the terms of the Pooling and Servicing Agreement; or
(2) the Trustee shall fail in the performance of, or breach,
any covenant or agreement of the Trustee in the Pooling and Servicing
Agreement, or if any representation or warranty of the Trustee made in
the Pooling and Servicing Agreement or in any certificate or other
writing delivered pursuant thereto or in connection therewith shall
prove to be incorrect in any material respect as of the time when the
same shall have been made, and such failure or breach shall continue or
not be cured for a period of 30 days after, there shall have been
given, by registered or certified mail, to the Trustee by the Depositor
or by the Certificate Insurer or by the Owners of at least 25% of the
aggregate Percentage Interest represented by any Class of Class A
Certificates then outstanding, or, if
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there are no Class A Certificates then outstanding, by such Percentage
Interest represented by the Class B Certificates then outstanding, a
written notice specifying such failure or breach and requiring it to be
remedied; or
(3) certain insolvency events related to the Trustee.
If any event described above occurs and is continuing, then and in
every such case (x) the Depositor or the Certificate Insurer or (y) with the
consent of the Certificate Insurer, the Owners of a majority Percentage Interest
represented by any Class of Class A Certificates or, if there are no Class A
Certificates then outstanding, by such Percentage Interest represented by the
Class B Certificates then outstanding, may immediately appoint a successor
trustee.
LIABILITY OF THE 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 the
Pooling and Servicing Agreement. If an Event of Default has occurred and has not
been cured or waived, the Trustee shall exercise such of the rights and powers
vested in it by the Pooling and Servicing Agreement, and use the same degree of
care and skill in its exercise as a prudent person would exercise or use under
the circumstances in the conduct of such person's own affairs. Prior to the
occurrence of an Event of Default, and after the curing of all such Events of
Default which may have occurred, the Trustee (i) undertakes to perform such
duties and only such duties as are specifically set forth in the Pooling and
Servicing Agreement, and no implied covenants or obligations shall be read into
the Pooling and Servicing Agreement against the Trustee and (ii) in the absence
of bad faith on its part, may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished pursuant to and conforming to the
requirements of the Pooling and Servicing Agreement; provided, however, that
such provisions do not protect the Trustee or any such person against any
liability which would otherwise be imposed by reason of negligent action,
negligent failure to act or willful misconduct in the performance of duties or
by reason of reckless disregard of obligations and duties thereunder.
The Trustee and any director, officer, employee or agent of the Trustee
may rely and will be protected in acting or refraining from acting in good faith
in reliance on any certificate, notice or other document of any kind prima facie
properly executed and submitted by the authorized officer of any person
respecting any matters arising under the Pooling and Servicing Agreement.
THE CERTIFICATE INSURANCE POLICY AND THE CERTIFICATE INSURER
CERTIFICATE INSURER
[describe]
THE CERTIFICATE INSURANCE POLICY
The Depositor will obtain the Certificate Insurance Policy, issued by
the Certificate Insurer, in favor of the Owners of the Class A Certificates. The
Certificate Insurance Policy provides for 100% coverage of the related Insured
Distribution Amount.
The Certificate Insurance Policy unconditionally guarantees the payment
of Insured Payments on the Class A Certificates. The Certificate Insurer is
required to make Insured Payments to the Trustee for the benefit of the Class A
Certificateholders on the later of the Payment Date or on the second Business
Day next
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following the day on which the Certificate Insurer and its fiscal agent, if any,
shall have received an appropriate written notice of claim from the Trustee that
an Insured Payment is due.
If payment of any amount avoided as a preference under applicable
bankruptcy, insolvency, receivership or similar law is required to be made under
the Certificate Insurance Policy, the Certificate Insurer will cause such
payment to be made on the later of (a) the date when due to be paid pursuant to
the Order referred to below or (b) the first to occur of (i) the fourth Business
Day following Receipt by the Certificate Insurer from the Trustee of (A) a
certified copy of the order (the "Order") of the court or other governmental
body which exercised jurisdiction to the effect that the applicable Owner of the
Class A Certificates is required to return the amount of any Class A Insured
Distribution Amount distributed with respect to the Class A Certificates during
the term of the Certificate Insurance Policy because such distributions were
avoidable as preference payments under applicable bankruptcy law, (B) a
certificate of such Owner of the Class A Certificates that the Order has been
entered and is not subject to any stay and (C) an assignment duly executed and
delivered by such Owner of the Class A Certificates, in such form as is
reasonably required by the Certificate Insurer and provided to such Owner of the
Class A Certificates by the Certificate Insurer, irrevocably assigning to the
Certificate Insurer all rights and claims of such Owner of the Class A
Certificates relating to or arising under the Class A Certificates against the
debtor which made the preference payment or otherwise with respect to such
preference payment, or (ii) the date of Receipt by the Certificate Insurer from
the Trustee of the items referred to in clauses (A), (B) and (C) above if, at
least four Business Days prior to such date of Receipt, the Certificate Insurer
has Received written notice from the Trustee that such items were to be
delivered on such date and such date was specified in such notice. Such payment
will be disbursed to the receiver, conservator, debtor-in-possession or trustee
in bankruptcy named in the Order and not to the Trustee or any Owner of the
Class A Certificates directly (unless an Owner of the Class A Certificates has
previously paid such amount to the receiver, conservator, debtor-in-possession
or trustee in bankruptcy named in the Order, in which case such payment will be
disbursed to the Trustee for distribution to such Owner of the Class A
Certificates upon proof of such payment reasonably satisfactory to the
Certificate Insurer).
The terms "Receipt" and "Received," with respect to the Certificate
Insurance Policy, shall mean actual delivery to the Certificate Insurer and to
the fiscal agent, if any, prior to 12:00 noon, New York City time, on a Business
Day; delivery either on a day that is not a Business Day or after 12:00 noon,
New York City time, shall be deemed to be Received on the next Business Day. If
any notice or certificate given under the Certificate Insurance Policy by the
Trustee is not in proper form or is not properly completed, executed or
delivered, it shall be deemed not to have been Received, and the Certificate
Insurer or its fiscal agent will promptly so advise the Trustee and the Trustee
may submit an amended notice.
Under the Certificate Insurance Policy, "Business Day" means any day
other than a Saturday, Sunday or other day on which commercial banking
institutions or trust companies in New York, New York, or the principal place of
business of any successor Trustee is authorized or required to be closed.
The Certificate Insurance Policy is noncancelable.
THE CERTIFICATE INSURANCE POLICY IS NOT COVERED BY THE
PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW
YORK INSURANCE LAW.
The Certificate Insurer's obligation under the Certificate Insurance
Policy will be discharged to the extent that funds are received by the Trustee
for distribution to the Class A Certificateholders, whether or not such funds
are properly distributed by the Trustee.
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The Certificate Insurance Policy does not guarantee to the Owners of
the Class A Certificates any specific rate of prepayments of principal of the
Mortgage Loans. Also, the Certificate Insurance Policy does not guarantee the
payment of any Group II Supplemental Interest Amount and does not cover interest
shortfalls arising from Prepayments or the application of the Relief Act.
Claims under the Certificate Insurance Policy will rank equally with
any other unsecured debt and unsubordinated obligations of the Certificate
Insurer except for certain obligations in respect of tax and other payments to
which preference is or may become afforded by statute. Claims against the
Certificate Insurer under the Certificate Insurance Policy constitute pari passu
claims against the general assets of the Certificate Insurer. The terms of the
Certificate Insurance Policy cannot be modified or altered by any other
agreement or instrument, or by the merger, consolidation or dissolution of the
Depositor. The Certificate Insurance Policy may not be cancelled or revoked
prior to payment in full of the Class A Certificates.
Pursuant to the terms of the Pooling and Servicing Agreement, unless a
Certificate Insurer default exists, the Certificate Insurer shall be deemed to
be the Certificateholders for all purposes (other than with respect to payment
on the Certificates), will be entitled to exercise all rights of the Class A
Certificateholders thereunder, without the consent of such Certificateholders,
and the Class A Certificateholders may exercise such rights only with the prior
written consent of the Certificate Insurer. In addition, the Certificate Insurer
will, as a third party beneficiary to the Pooling and Servicing Agreement, have
among others, the following rights: (i) the right to give notices of breach or
to terminate the rights and obligations of the Master Servicer under the Pooling
and Servicing Agreement in the event of an Event of Default by the Master
Servicer; (ii) the right to direct the actions of the Trustee during the
continuation of a Master Servicer default; (iii) the right to require the
Company to repurchase Mortgage Loans for breach of representation and warranty
or defect in documentation; and (iv) the right to direct foreclosures upon the
failure of the Master Servicer to do so in accordance with the Pooling and
Servicing Agreement. The Certificate Insurer's consent will be required prior
to, among other things, (i) the appointment of any successor Trustee or Master
Servicer or (ii) any amendment to the Pooling and Servicing Agreement (which
consent will not be unreasonably withheld).
Pursuant to the Pooling and Servicing Agreement, the Certificate
Insurer is subrogated to the rights of the Owners of the Class A Certificates to
the extent of any such payment under the Certificate Insurance Policy.
CREDIT ENHANCEMENT DOES NOT APPLY TO PREPAYMENT RISK
In general, the protection afforded by the Certificate Insurance Policy
is protection for credit risk and not for prepayment risk. A claim may not be
made under the Certificate Insurance Policy in an attempt to guarantee or insure
that any particular rate of prepayment is experienced by the Trust.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the material federal income tax
consequences of the purchase, ownership and disposition of the Class A
Certificates is to be considered only in connection with "Federal Income Tax
Considerations" in the Prospectus. The discussion herein and in the Prospectus
is based upon laws, regulations, rulings and decisions now in effect, all of
which are subject to change. The discussion below and in the Prospectus does not
purport to deal with all federal tax consequences applicable to all categories
of investors, some of which may be subject to special rules. Investors should
consult their own tax advisors in determining the federal, state, local and any
other tax consequences to them of the purchase, ownership and disposition of the
Class A Certificates.
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REMIC ELECTION
The Trustee will cause one or more elections to be made with respect to
certain specified assets of the Trust as real estate mortgage investment
conduits ("REMICs") within the meaning of Code Section 860D. Dewey Ballantine,
special tax counsel, will advise that, in its opinion, for federal income tax
purposes, assuming the REMIC elections are made and compliance with the Pooling
and Servicing Agreement, each Class of Class A Certificates will be treated as a
"regular interest" in a REMIC.
For federal income tax purposes, regular interests in a REMIC are
treated as debt instruments issued by the REMIC on the date on which those
interests are created, and not as ownership interests in the REMIC or its
assets. Owners of Class A Certificates that otherwise report income under a cash
method of accounting will be required to report income with respect to such
Certificates under an accrual method. The prepayment assumption that will be
used in determining the rate of accrual of original issue discount on the Class
A Certificates is the "Prepayment Assumption." See "Maturity, Prepayment and
Yield Considerations" herein and "Federal Income Tax Considerations -- Discount
and Premium" in the Prospectus.
The Owners of the Class A-6 Group II Certificates will be treated for
tax purposes as owning two separate investments: (i) Class A-6 Group II
Certificates, without the right to receive Supplemental Interest Amounts, and
(ii) the right to receive Supplemental Interest Amounts. The Owners of the Class
A-6 Group II Certificates must allocate the purchase price of their Certificates
between these two investments based on their relative fair market values. The
purchase price allocated to the first investment will be the issue price of the
Class A-6 Group II Certificates for calculating accruals of OID (if any). See
"Federal Income Tax Consequences--Discount and Premium" in the Prospectus.
An Owner of a Class A-6 Group II Certificate and the related rights to
receive Supplemental Interest Amounts will be treated for federal income tax
purposes as having entered into a notional principal contract on the date that
it purchases its Certificate. Treasury Regulations under Section 446 of the Code
relating to notional principal contracts (the "Notional Principal Contract
Regulations") provide that taxpayers must recognize periodic payments with
respect to a notional principal contract under the accrual method of accounting.
Any Supplemental Interest Amounts will be periodic payments. Income with respect
to periodic payments under a notional principal contract for a taxable year
should constitute ordinary income. The purchase price allocated to the right to
receive the related Supplemental Interest Amounts will be treated as a
nonperiodic payment under the Notional Principal Contract Regulations. Such a
nonperiodic payment may be amortized using several methods, including the level
payment method described in the Notional Principal Contract Regulations.
The right to receive the Supplemental Interest Amounts will not
constitute: (i) a "real estate asset" within the meaning of section 858(c)(5)(A)
of the Internal Revenue Code (the "Code") if held by a real estate investment
trust; (ii) a "qualified mortgage" within the meaning of section 860G(a)(3) of
the Code or a "permitted investment" within the meaning of section 860G(a)(5) of
the Code if held by a REMIC, or (iii) an asset described in section
7701(a)(19)(C)(xi) of the Code if held by a thrift. Moreover, other special
rules may apply to certain investors, including dealers in securities and
dealers in notional principal contracts.
TAXATION OF FOREIGN INVESTORS
In general, foreign investors will not be subject to U.S. withholding
on income from the Class A Certificates. See "Federal Income Tax Considerations
- -- Foreign Investors -- Grantor Trust Securities and REMIC Regular Securities"
in the Prospectus.
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain requirements on those employee benefit plans to which
it applies ("ERISA Plan") and on those persons who are fiduciaries with respect
to such ERISA Plans. Certain employee benefit plans, such as governmental plans
(as defined in ERISA Section 3(32)) and certain church plans (as defined in
ERISA Section 3(33)), are not subject to ERISA. In accordance with ERISA's
general fiduciary standards, before investing in a Class A Certificate, an ERISA
Plan fiduciary should determine whether such an investment is permitted under
the governing ERISA Plan instruments and is appropriate for the ERISA Plan in
view of its overall investment policy and the composition and diversification of
its portfolio.
In addition, provisions of ERISA, and the corresponding provisions of
the Code, prohibit a broad range of transactions involving assets of ERISA
Plans, individual retirement accounts, and Keogh plans covering only a sole
proprietor or partners (collectively, the "Plans") and persons having certain
specified relationships to such a Plan ("parties in interest" and "disqualified
persons"). Such transactions are treated as "prohibited transactions" under
Sections 406 and 407 of ERISA and excise taxes are imposed upon such persons by
Section 4975 of the Code. Certain affiliates of the Originators, the Company,
the Master Servicer, the Depositor, any Sub-Servicer, and of the Trustee might
be considered "parties in interest" or "disqualified persons" with respect to a
Plan. If so, the acquisition or holding of Class A Certificates by or on behalf
of such Plan could be considered to give rise to a "prohibited transaction"
within the meaning of ERISA or the Code unless an exemption is available.
Furthermore, if an investing Plan's assets were deemed to include an interest in
the assets of the Mortgage Loans which constitute the Trust Estate and not
merely an interest in the Class A Certificates, transactions occurring in the
servicing of the Mortgage Loans might constitute prohibited transactions unless
an administrative exemption applies.
The DOL has issued to __________ an administrative exemption,
Prohibited Transaction Exemption ____ (the "Exemption"), which generally exempts
from the application of the prohibited transaction provisions of Section 406(a),
Section 406(b)(1) and Section 406(b)(2) of ERISA and the excise taxes imposed
pursuant to Sections 4975(a) and (b) of the Code, certain transactions relating
to the servicing and operation of asset pools, including pools of mortgage
loans, and the purchase, sale and holding of asset-backed pass-through
certificates, including pass-through certificates evidencing interests in
mortgage loans, such as the Class A Certificates underwritten by __________ and
certain of its affiliates, provided that certain conditions set forth in the
Exemption are satisfied.
If the general conditions of Section II of the Exemption are satisfied,
the Exemption may provide an exemption from the restrictions imposed by Sections
406(a) and 407(a) of ERISA (as well as the excise taxes imposed by Sections
4975(a) and (b) of the Code by reason of Section 4975(c)(1)(A) through (D) of
the Code) in connection with the direct or indirect sale, exchange or transfer
of Class A Certificates by Plans in the initial issue of Certificates, the
holding of Class A Certificates by Plans or the direct or indirect acquisition
or disposition in the secondary market of Class A Certificates by Plans.
However, no exemption is provided from the restrictions of Section 406(a)(1)(E),
406(a)(2) and 407 of ERISA for the acquisition or holding of a Class A
Certificate on behalf of an "Excluded Plan" (defined below) by any person who
has discretionary authority or renders investment advice with respect to the
assets of such Excluded Plan. For purposes of the Class A Certificates, an
Excluded Plan is a Plan sponsored by (1) the Underwriters, (2) the Master
Servicer and any Sub-Servicer, (3) the Certificate Insurer, (4) the Trustee, (5)
the Company, (6) the Depositor, (7) any Mortgagor with respect to Mortgage Loans
constituting more than 5 percent of the aggregate unamortized principal balance
of the Mortgage Loans as of the date of initial issuance and (8) any affiliate
or successor of a person described in (1) to (7) above (the "Restricted Group").
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If the specific conditions of paragraph I.B of Section I 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 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 Class A Certificates in the initial issuance of Class A
Certificates between the Depositor, the Underwriters and a Plan when the person
who has discretionary authority or renders investment advice with respect to the
investment of Plan assets in Class A Certificates is (a) a mortgagor with
respect to 5 percent or less of the fair market value of the Mortgage Loans or
(b) an affiliate of such a person, (2) the direct or indirect acquisition or
disposition in the secondary market of Class A Certificates by Plans and (3) the
holding of Class A Certificates by Plans.
If the specific conditions of paragraph I.C of Section I of the
Exemption are satisfied, the Exemptions may provide an exemption from the
restrictions imposed by Sections 406(a), 406(b) and 407(a) of ERISA, and the
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.
The Exemption may provide an exemption from the restrictions imposed by
Section 406(a) and 407(a) of ERISA, and the taxes imposed by Sections 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" or a "disqualified person" 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
such Plan's ownership of Class A Certificates.
The Exemption sets forth the following seven general conditions which
must be satisfied for a transaction to be eligible for exemptive relief
thereunder.
(1) The acquisition of the certificates by a Plan is on terms
(including the price for the certificates) that are at least as
favorable to the Plan as they would be in an arm's length transaction
with an unrelated party;
(2) The rights and interests evidenced by the certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other certificates of the trust;
(3) The certificates acquired by the Plan have received a
rating at the time of such acquisition that is one of the three highest
generic rating categories from either Standard & Poor's, a division of
the McGraw-Hill Companies ("S&P"), Moody's Investors Service, Inc.
("Moody's"), Duff & Phelps Rating Co. ("D&P") or Fitch Investors
Service, Inc. ("Fitch");
(4) The trustee is not an affiliate of any other member of the
Restricted Group (as defined above);
(5) The sum of all payments made to and retained by the
Underwriters in connection with the distribution of certificates
represents not more than reasonable compensation for underwriting the
certificates. The sum of all payments made and retained by the seller
pursuant to the assignment of the loans to the trust fund represents
not more than the fair market value of such loans. The sum of all
payments made to and retained by the servicer represents not more than
reasonable compensation for such person's services under the pooling
and servicing agreement and reimbursement of such person's reasonable
expenses in connection therewith; and
(6) The Plan investing in the certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the
Commission under the Securities Act of 1933.
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<PAGE>
(7) The trust fund must also meet the following requirements:
(i) the corpus of the trust fund must consist solely
of assets of the type that have been included in other
investment pools;
(ii) certificates in such other investment pools must
have been rated in one of the three highest generic rating
categories of S&P, Moody's, Fitch or D&P for at least one year
prior to the Plan's acquisition of certificates; and
(iii) certificates evidencing interests in such other
investment pools must have been purchased by investors other
than Plans for at least one year prior to any Plan's
acquisition of certificates.
It is a condition of issuance of the Class A Certificates that they be
rated ___ or ___ by ___ and ___, respectively. Before purchasing a Class A
Certificate, based on the Exemption, a fiduciary of a Plan should itself confirm
(1) that such Certificate constitutes a "certificate" for purposes of the
Exemption and (2) that the specific conditions set forth in Section I of the
Exemption, the general conditions set forth in Section II of the Exemption and
the other requirements set forth in the Exemption would be satisfied.
Any person purchasing a Class A-6 Group II Certificate and the related
right to receive Supplemental Interest Amounts will have acquired for purposes
of ERISA and for federal income tax purposes, such Class A-6 Group II
Certificate without the right to receive the Supplemental Interest Amounts,
together with the right to receive the Supplemental Interest Amounts. The
Exemption does not apply to the acquisition, holding or resale of the right to
receive the Supplemental Interest Amounts. Accordingly, the acquisition of the
right to receive the Supplemental Interest Amounts by a Plan could result in a
prohibited transaction unless another administrative exemption to ERISA's
prohibited transaction rules is applicable. One or more alternative exemptions
may be available with respect to certain prohibited transaction rules of ERISA
that might apply in connection with the initial purchase, holding and resale of
the right to receive the Supplemental Interest Amounts, including, but not
limited to: (i) Prohibited Transaction Class Exemption ("PTCE") 91-38, regarding
investments by bank collective investment funds; (ii) PTCE 90-1, regarding
investments by insurance company pooled separate accounts; (iii) PTCE 84-14,
regarding transactions negotiated by qualified professional asset managers; or
(iv) PTCE 75-1, Part II, regarding principal transactions by broker-dealers (the
"Principal Transactions Exemption"). It is believed that the conditions of the
Principal Transactions Exemption will be met with respect to the acquisition of
a right to receive the Supplemental Interest Amounts by a Plan, so long as such
Underwriter is not a fiduciary with respect to the Plan (and is not a party in
interest with respect to the Plan by reason of being a participating employer or
affiliate thereof). Before purchasing Class A-6 Group II Certificates based on
an administrative exemption (or exemptions), a fiduciary of a Plan should
determine whether the conditions of such exemption (or exemptions) would be met
and whether the scope of the relief provided by such exemption (or exemptions)
would cover all acts that might be construed as prohibited transactions.
Prospective Plan investors in the Class A Certificates should consult
with their legal advisors concerning the impact of ERISA and the Code, the
applicability of the Exemption, and the potential consequences in their specific
circumstances, prior to making an investment in the Class A Certificates.
Moreover, each Plan fiduciary should determine whether under the general
fiduciary standards of investment prudence and diversification an investment in
the Class A Certificates is appropriate for the Plan, taking into account the
overall investment policy of the Plan and the composition of the Plan's
investment portfolio.
In addition to the matters described above, purchasers of a Class A
Certificate that are insurance companies should consult with their counsel with
respect to the United States Supreme Court case
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<PAGE>
interpreting the fiduciary responsibility rules of ERISA, John Hancock Mutual
Life Insurance Co. v. Harris Trust and Savings Bank, 114 S.CT. 517 (1993). In
John Hancock, the Supreme Court ruled that assets held in an insurance company's
general account may be deemed to be "plan assets" for ERISA purposes under
certain circumstances. Prospective purchasers using insurance company general
account assets should determine whether the decision affects their ability to
make purchases of the Class A Certificates.
NON-ERISA PLANS
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and certain 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 Class A Certificates without regard to the ERISA
restrictions described above, subject to applicable provisions of other federal
and state laws.
RATINGS
Ratings which are assigned to securities such as the Class A
Certificates generally evaluate the ability of the issuer (i.e., the Trust) and
any guarantor (i.e., the Certificate Insurer) to make timely payment when such
payments are due, as required by such securities. The amounts which are "due"
with respect to the Class A Certificates consist of principal and interest. In
general, ratings address credit risk and not prepayment risk. The ratings issued
with respect to the Class A-6 Group II Certificates do not cover the payment of
the Supplemental Interest Amounts.
It is a condition of the original issuance of the Class A Certificates
that they receive ratings of ___ or ___ by ___ and ___, respectively.
Explanations of the significance of such rating may be obtained from such rating
agency. The ratings will be the views only of such rating agencies. There is no
assurance that any such ratings will continue for any period of time or that
such ratings will not be revised or withdrawn. Any such revision or withdrawal
of such ratings may have an adverse effect on the market price of the Class A
Certificates. A security rating is not a recommendation to buy, sell or hold
securities.
LEGAL INVESTMENT CONSIDERATIONS
The Class A Certificates will not constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA"). Accordingly, many institutions may not be legally authorized to
invest in the Class A Certificates.
UNDERWRITING
Under the terms and subject to the conditions contained in an
Underwriting Agreement dated __________ (the "Underwriting Agreement"),
__________ and ___________ (together, the "Underwriters") have agreed to
purchase, and the Depositor has agreed to sell, the Class A Certificates offered
hereby.
In the Underwriting Agreement, each of the Underwriters has agreed,
subject to the terms and conditions set forth therein, to purchase, the
principal amount of the Class A Certificates set forth opposite its name below.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF CLASS
UNDERWRITER A CERTIFICATES
----------- --------------
<S> <C>
- ----------..........................................
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<PAGE>
- -----------.........................................
Total......................................
</TABLE>
The Underwriters have advised the Depositor that they propose to offer
the Class A Certificates for sale from time to time in one or more transactions
(which may include block transactions), in negotiated transactions or otherwise,
or a combination of such methods of sale, at market prices prevailing at the
time of sale or at negotiated prices. The Underwriters may effect such
transactions by selling the Class A Certificates to or through dealers, and such
dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Underwriters and/or the purchasers of the
Class A Certificates for whom they may act as agents. In connection with the
sale of the Class A Certificates, the Underwriters may be deemed to have
received compensation from the Depositor in the form of underwriting discounts,
and the Underwriters may also receive commissions from purchasers of the Class A
Certificates for whom it may act as agent. The Underwriters and any dealers that
participate with the Underwriters in the distribution of the Class A
Certificates may be deemed to be underwriters, and any discounts or commissions
received by them and any profit on the resale of the Class A Certificates by
them may be deemed to be underwriting discounts or commissions.
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all the Class A Certificates offered
hereby if any are purchased.
The Class A Certificates are a new issue of securities with no
established trading market. The Underwriters have advised the Depositor that
they intend to act as market makers for the Class A Certificates. However, the
Underwriters are not obligated to do so and may discontinue any market making at
any time without notice. No assurance can be given as to the liquidity of the
trading market for the Class A Certificates.
The Depositor has agreed to indemnify each Underwriter against certain
liabilities, including civil liabilities under the Securities Act of 1933, or
contribute to payments which either Underwriter may be required to make in
respect thereof.
EXPERTS
The consolidated balance sheets of ________________ and Subsidiaries,
as of __________ and ____ and the related consolidated statements of income,
changes in shareholder's equity and cash flows for each of the three years in
the period ended __________, incorporated by reference in this Prospectus
Supplement, have been incorporated herein in reliance upon the report of
__________, independent accountants, given on the authority of that firm as
experts in accounting and auditing.
CERTAIN LEGAL MATTERS
Certain legal matters concerning the issuance of the Certificates will
be passed upon by __________.
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<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered
__________ Mortgage Loan Trust _____ Class A Certificates (the "Global
Securities") will be available only in book-entry form. Investors in the Global
Securities may hold such Global Securities through any of DTC, CEDEL or
Euroclear. The Global Securities will be tradeable as home market instruments in
both the European and U.S. domestic markets. settlement and all secondary trades
will settle in same-day funds.
Secondary market trading between investors through CEDEL and Euroclear
will be conducted in the ordinary way in accordance with the normal rules and
operating procedures of CEDEL and Euroclear and in accordance with conventional
eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors through DTC will be
conducted according to DTC's rules and procedures applicable to U.S. corporate
debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositories of CEDEL and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the
name of Cede as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect Participants in DTC. As a result, CEDEL and Euroclear will
hold positions on behalf of their participants through their Relevant Depository
which in turn will hold such positions in their accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow DTC settlement practices. Investor securities custody accounts will be
credited with their holdings against payment in same-day funds on the settlement
date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
i
<PAGE>
TRADING BETWEEN DTC PARTICIPANTS. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior home
equity loan asset-backed certificates issues in same-day funds.
TRADING BETWEEN CEDEL AND/OR EUROCLEAR PARTICIPANTS. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
TRADING BETWEEN DTC, COMPANY AND CEDEL OR EUROCLEAR PARTICIPANTS. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a CEDEL Participant or a Euroclear Participant, the purchaser
will send instructions to CEDEL or Euroclear through a CEDEL Participant or
Euroclear Participant at least one business day prior to settlement. CEDEL or
Euroclear will instruct the Relevant Depository, as the case may be, to receive
the Global Securities against payment. Payment will include interest accrued on
the Global Securities from and including the last coupon payment date to and
excluding the settlement date, on the basis of the actual number of days in such
accrual period and a year assumed to consist of 360 days. For transactions
settling on the 31st of the month, payment will include interest accrued to and
excluding the first day of the following month. Payment will then be made by the
Relevant Depository to the DTC Participant's account against delivery of the
Global Securities. After settlement has been completed, the Global Securities
will be credited to the respective clearing system and by the clearing system,
in accordance with its usual procedures, to the CEDEL Participant's or Euroclear
Participant's account. The securities credit will appear the next day (European
time) and the cash debt will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the CEDEL or Euroclear cash debt
will be valued instead as of the actual settlement date.
CEDEL Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within CEDEL or Euroclear. Under this
approach, they may take on credit exposure to CEDEL or Euroclear until the
Global Securities are credited to their account one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit
to them, CEDEL Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, CEDEL Participants or Euroclear Participants
purchasing Global Securities would incur overdraft charges for one day, assuming
they cleared the overdraft when the Global Securities were credited to their
accounts. However, interest on the Global Securities would accrue from the value
date. Therefore, in many cases the investment income on the Global Securities
earned during that one-day period may substantially reduce or offset the amount
of such overdraft charges, although the result will depend on each CEDEL
Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for crediting Global
Securities to the respective European Depository for the benefit of CEDEL
Participants or Euroclear Participants. The sale proceeds will be available to
the DTC seller on the settlement date. Thus, to the DTC Participants a
cross-market transaction will settle no differently than a trade between two DTC
Participants.
TRADING BETWEEN CEDEL OR EUROCLEAR COMPANY AND DTC PURCHASER. Due to
time zone differences in their favor, CEDEL Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the
ii
<PAGE>
respective Depository, to a DTC Participant. The seller will send instructions
to CEDEL or Euroclear through a CEDEL Participant or Euroclear Participant at
least one business day prior to settlement. In these cases CEDEL or Euroclear
will instruct the respective Depository, as appropriate, to credit the Global
Securities to the DTC Participant's account against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment to and excluding the settlement date on the basis of the actual
number of days in such accrual period and a year assumed to consist of 360 days.
For transactions settling on the 31st of the month, payment will include
interest accrued to and excluding the first day of the following month. The
payment will then be reflected in the account of CEDEL Participant or Euroclear
Participant the following day, and receipt of the cash proceeds in the CEDEL
Participant's or Euroclear Participant's account would be back-valued to the
value date (which would be the preceding day, when settlement occurred in New
York). In the event that the CEDEL Participant or Euroclear Participant have a
line of credit with its respective clearing system and elect to be in debt in
anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft incurred over that one-day period. If settlement
is not completed on the intended value date (i.e., the trade fails), receipt of
the cash proceeds in the CEDEL Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase
Global Securities from DTC Participants for delivery to CEDEL Participants or
Euroclear Participants should note that these trades would automatically fail on
the sale side unless affirmative action is taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the
purchase side of the trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their CEDEL or Euroclear account
in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at least one
day prior to the value date for the sale to the CEDEL Participant or Euroclear
Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
CEDEL or Euroclear (or through DTC if the holder has an address outside the
U.S.) will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons (as defined below), unless (i) each clearing system, bank
or other financial institution that holds customers' securities in the ordinary
course of its trade or business in the chain of intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes one
of the following steps to obtain an exemption or reduced tax rate:
EXEMPTION FOR NON-U.S. Persons (Form W-8). Beneficial Certificate
Owners of Global Securities that are Non-U.S. Persons (as defined below) can
obtain a complete exemption from the withholding tax by filing a signed Form W-8
(Certificate of Foreign Status). If the information shown on Form W-8 changes, a
new Form W-8 must be filed within 30 days of such change.
iii
<PAGE>
EXEMPTION FOR NON-U.S. Persons with effectively connected income (Form
4224). A Non-U.S. Person (as defined below), including a non-U.S. corporation or
bank with a U.S. branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a Trade
or Business in the United States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons residing in a country that has a tax
treaty with the United States can obtain an exemption or reduced tax rate
(depending on the treaty terms) by filing Form 1001 (Ownership, Exemption or
Reduced Rate Certificate). If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer alternatively
files Form W-8. Form 1001 may be filed by Certificate Owners or their agent.
EXEMPTION FOR U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Owner of a Global
Security or, in the case of a Form 1001 or a Form 4224 filer, his agent, files
for exemption by submitting the appropriate form to the person through whom it
holds (the clearing agency, in the case of persons holding directly on the books
of the clearing agency). Form W-8 and Form 1001 each are effective for three
calendar years and Form 4224 is effective for one calendar year.
On April 22, 1996 the IRS issued proposed regulations relating to (i)
withholding income tax on U.S.-source income paid to Non-U.S. Persons; (ii)
claiming Non-U.S. Person status to avoid backup withholding; and (iii) reporting
to the IRS of payments to Non-U.S. Persons. The proposed regulations would
substantially revise some aspects of the current system for withholding on and
reporting amounts paid to Non-U.S. Persons. The regulations unify current
certification procedures and forms and reliance standards are clarified. Most
forms are proposed to be combined into a single form: Form W-8. The regulations
are proposed to be effective for payments made after December 31, 1997.
Certificates issued, however, on or before the date that is 60 days after the
proposed regulations are made final will continue to be valid until they expire.
All proposed regulations are subject to change before adoption in their final
form. No reliable prediction can be made as to when, if ever, the proposed
regulations will be made final and if so, as to their final form.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity organized in or under
the laws of the United States or any political subdivision thereof, (iii) an
estate that is subject to U.S. federal income tax regardless of the source of
its income or (iv) a trust if a court within the United States can exercise
primary supervision over its administration and at least one United States
fiduciary has the authority to control all substantial decisions of the trust.
The term "Non-U.S. Person" means any person who is not a U.S. Person. This
discussion does not deal with all aspects of U.S. Federal income tax withholding
that may be relevant to foreign holders of the Global Securities. Investors are
advised to consult their own tax advisors for specific tax advice concerning
their holding and disposing of the Global Securities.
iv
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
------------------------------
Term Page
- ---- ----
1933 Act............................................4
Account............................................61
Appraised Values...........................25, 26, 32
Balloon Loans.......................................8
Beneficial Certificate Owners......................16
Book-Entry Certificates............................50
business day.......................................47
Cede............................................4, 16
CEDEL..............................................16
CEDEL Participants.................................52
Certificate Account................................45
Certificate Insurance Policy........................1
Certificate Insurer.................................1
Certificateholder...................................4
Certificates.....................................1, 6
Chase..............................................16
Citibank...........................................16
Class..............................................43
Class A Carry-Forward Amount.......................15
Class A Certificate Principal Balance..............14
Class A Certificates.............................1, 6
Class A Distribution Amount........................15
Class A Group I Certificate Principal Balance......14
Class A Group I Certificates.....................1, 6
Class A Group II Certificate Principal Balance.....14
Class A Insured Distribution Amount................15
Class A Principal Distribution Amount..............12
Class A-1 Pass-Through Rate........................10
Class A-2 Pass-Through Rate........................10
Class A-3 Pass-Through Rate........................10
Class A-4 Pass-Through Rate........................10
Class A-5 Lockout Distribution Amount..........12, 46
Class A-5 Lockout Percentage.......................12
Class A-5 Lockout Pro Rata
Distribution Amount.........................14, 46
Class A-5 Pass-Through Rate........................10
Class A-6 Available Funds Pass-Through Rate........10
Class A-6 Formula Pass-Through Rate................10
Class A-6 Group II Certificates..................1, 6
Class A-6 Pass-Through Rate........................10
Class B Certificates.............................3, 6
Code................................................3
Combined Loan-to-Value Ratio.......................32
Commission..........................................4
Company.............................................6
Term Page
- ---- ----
Cooperative........................................52
Coupon Rates........................................8
CPR................................................38
Cut-Off Date........................................8
D&P................................................73
Definitive Certificate.............................51
Delinquency Advances...............................45
Depositor........................................3, 6
Depositor Optional Termination Date................18
DTC.............................................4, 16
DTC Participants...................................52
Eligible Investments...............................62
ERISA..........................................19, 71
ERISA Plan.........................................71
Euroclear..........................................16
Euroclear Operator.................................52
Euroclear Participants.............................52
European Depositories..........................16, 50
Exchange Act........................................5
Exemption..........................................71
Financial Intermediary.............................51
Fitch..............................................73
Global Securities..................................76
Group I...................................3, 6, 8, 23
Group I Available Funds Pass-Through Rate..........10
Group I Certificates.............................1, 6
Group I Monthly Remittance.........................44
Group I Principal Remittance Amount................44
Group I Subordination Deficit......................49
Group I Total Available Funds......................50
Group II..................................3, 6, 8, 23
Group II Certificates............................1, 6
Group II Monthly Remittance........................44
Group II Principal Remittance Amount...............44
Group II Subordination Deficit.....................49
Group II Supplemental Interest Amount..............10
Group II Supplemental Interest Amounts.............45
Group II Total Available Funds.....................50
HEP................................................38
Home Equity Prepayment.............................38
Insurance Agreement................................17
Insurance Proceeds.................................12
Interest Determination Date........................47
i
<PAGE>
Interest Remittance Amount.........................44
LIBOR..............................................10
Liquidation Proceeds...............................12
Master Servicer..............................3, 6, 54
Monthly Remittance.................................44
Moody's............................................73
Mortgage Loan Group.......................3, 6, 8, 23
Mortgage Loan Groups................................3
Mortgage Loans...................................1, 6
Mortgaged Properties................................6
Mortgages........................................6, 8
Mortgagors.........................................37
Net Liquidation Proceeds...........................12
Notional Principal Contract Regulations............70
Original Group I Pool Principal Balance.............8
Original Group II Pool Principal Balance............8
Original Pool Principal Balance.....................8
Originators.........................................3
Owner...............................................4
Participants.......................................50
Payment Date................................3, 11, 43
Plans..........................................19, 71
Policy Payments Account............................45
Pool................................................1
Pooling and Servicing Agreement..............3, 6, 43
Prepayment Assumption..........................38, 70
Prepayments........................................12
Principal and Interest Account.....................44
Principal Remittance Amount........................44
Record Date.........................................3
Reference Banks....................................47
Released Mortgaged Property Proceeds...............12
Relief Act.........................................15
REMICs..............................................3
Remittance Period..................................45
Residual Certificates...........................6, 43
Restricted Group...................................72
Reuters Screen LIBO Page...........................47
Rules..............................................51
S&P................................................72
Sale Agreement......................................3
Servicing Fee......................................17
SMMEA..............................................19
Specified Subordinated Amount......................48
Subordinated Amount................................48
Subordination Deficiency...........................49
Subordination Increase Amount......................49
Subordination Reduction Amount.....................49
Supplemental Interest Account......................45
Terms and Conditions...............................53
Total Available Funds..............................50
Trust............................................1, 6
Trust Estate.......................................65
Trustee..........................................3, 6
U.S. Person.........................................v
Underwriters....................................1, 75
Underwriting Agreement.............................75
Weighted average life..............................38
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
=========================================================== ===========================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY __________
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS Mortgage Loan Trust
SUPPLEMENT AND THE PROSPECTUS, IF GIVEN OR MADE, SUCH _____
INFORMATION OR REPRESENTATIONS MAY NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE DEPOSITOR, 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 SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. MORTGAGE LOAN PASS-THROUGH
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR CERTIFICATES,
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE Series _____
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY, THE MASTER SERVICER, THE DEPOSITOR, OR THE
CERTIFICATE INSURER SINCE SUCH DATE.
$__________ Class A-1 Group I Certificates,
- ------------------------------------------ Variable Pass-Through Rate
TABLE OF CONTENTS --------------
PROSPECTUS SUPPLEMENT $__________ Class A-2 Group I Certificates,
PAGE _____% Pass-Through Rate
Available Information..........................4 --------------
Reports to the Holders.........................4 $__________ Class A-3 Group I Certificates,
Incorporation of Certain Documents by Reference5 _____% Pass-Through Rate
Summary........................................6 --------------
Risk Factors..................................20 $_________ Class A-4 Group I Certificates,
Use of Proceeds...............................21 _____% Pass-Through Rate
The Company...................................22 --------------
Servicing.....................................22 $__________ Class A-5 Group I Certificates,
Loan Loss Experience on the Company's _____% Pass-Through Rate
portfolio of Mortgage Loans................23 --------------
The Mortgage Loan Pool........................23 $__________ Class A-6 Group II Certificates,
Description of the Certificates...............43 Variable Pass-Through Rate
Trustee.......................................64
The Certificate Insurance Policy and --------------
the Certificate Insurer....................68
Federal Income Tax Consequences...............70 __________
Erisa Considerations..........................71 Company
Ratings.......................................74
Legal Investment Considerations...............75 -------------------------------------------------
Underwriting..................................75 PROSPECTUS SUPPLEMENT
Experts.......................................76 -------------------------------------------------
Certain Legal Matters.........................76
------------------------------------------ ----------
PROSPECTUS __________
Summary of Prospectus...........................
Risk Factors....................................
Prospectus Supplement........................... __________
Reports to Holders..............................
Available Information...........................
Incorporation of Certain Documents by Reference.
The Mortgage Loan Pool..........................
Summary of Prospectus...........................
Description of the Securities.................43
The Trust Funds...............................64
Credit Enhancement............................68
Servicing of Loans............................70
The Agreements................................71
Certain Legal Aspects.........................74
Legal Investment Considerations...............75
Underwriting..................................75
Experts.......................................76
Certain Legal Matters.........................76
- ------------------------------------------
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS
SUPPLEMENT, ALL DEALERS EFFECTING TRANSACTIONS IN THE
CLASS A CERTIFICATES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS SUPPLEMENT OR A PROSPECTUS. THIS 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.
=========================================================== ===========================================================
</TABLE>
<PAGE>
EXHIBIT 99.2
FORM OF PROSPECTUS SUPPLEMENT
PROSPECTUS SUPPLEMENT
(To Prospectus dated ___________)
_______________ TRUST ______
$__________ Class A-1 ____% Home Loan Asset Backed Notes
$__________ Class A-2 ____% Home Loan Asset Backed Notes
$__________ Class A-3 ____% Home Loan Asset Backed Notes
$__________ Class A-4 ____% Home Loan Asset Backed Notes
$__________ Class M-1 ____% Home Loan Asset Backed Notes
$__________ Class M-2 ____% Home Loan Asset Backed Notes
$__________ Class B ____% Home Loan Asset Backed Notes
Home Loan Asset Backed Notes
Distributions payable on the 25th day of each month, commencing in ___________
HOME EQUITY SECURITIZATION CORP.
as Depositor
[_______________]
as Servicer
The _______________ Trust _______ (the "Trust") will be formed pursuant to
a trust agreement to be dated as of _____________ (the "Trust Agreement") and
entered into by Home Equity Securitization Corp., as depositor (the
"Depositor"), __________________, as owner trustee (the "Owner Trustee"), and
__________________, as co-owner trustee (in such capacity, the "Co-Owner
Trustee"). The Trust will issue $____________ aggregate principal amount of Loan
Asset Backed Notes (the "Notes") pursuant to an indenture to be dated as of
______________ (the "Indenture"), between the Trust and ___________________, as
indenture trustee (in such capacity, the "Indenture Trustee"). The Trust will
also issue instruments evidencing in the aggregate the entire residual interest
in the Trust (each a "Residual Interest"). Only the Notes are offered hereby.
<TABLE>
<CAPTION>
=====================================================================================================
Price to Public Underwriting Discount Proceeds to Depositor (2)
<S> <C> <C> <C>
Class A-1 Notes (1) ...... % % %
Class A-2 Notes (1) ...... % % %
Class A-3 Notes (1) ...... % % %
Class A-4 Notes (1) ...... % % %
Class M-1 Notes (1) ...... % % %
Class M-2 Notes (1) ...... % % %
Class B Notes (1) ........ % % %
Total .................... $ $ $
=====================================================================================================
</TABLE>
(1) Plus accrued interest, if any, at the applicable rate from _______________
(2) Before deducting expenses, estimated to be $____________
FOR A DISCUSSION OF MATERIAL RISKS ASSOCIATED WITH AN INVESTMENT IN THE
NOTES, SEE THE INFORMATION HEREIN UNDER "RISK FACTORS" BEGINNING ON PAGE [___]
AND IN THE PROSPECTUS BEGINNING ON PAGE [__].
THE NOTES REPRESENT INTERESTS IN OR OBLIGATIONS OF THE TRUST ONLY AND DO
NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR, SERVICER, OWNER
TRUSTEE, INDENTURE TRUSTEE OR ANY AFFILIATE THEREOF, EXCEPT TO THE EXTENT
PROVIDED HEREIN. NEITHER THE LOANS NOR THE NOTES ARE INSURED OR GUARANTEED BY
ANY GOVERNMENTAL AGENCY.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL
<PAGE>
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 yield to maturity of any Notes may vary from the anticipated yields to
the extent such Notes are purchased at a discount or premium and to the extent
the rate and timing of payments thereof are sensitive to the rate and timing of
0principal payments (including prepayments) of the Loans. Noteholders should
consider, in the case of any Notes purchased at a discount, the risk that a
lower than anticipated rate of principal payments could result in an actual
yield that is lower than the anticipated yield and, in the case of any Notes
purchased at a premium, the risk that a faster than anticipated rate of
principal payments could result in an actual yield that is lower than the
anticipated yield.
The Trust will consist of a pool (the "Pool") of home loans (the "Loans")
secured by either mortgages, deeds of trust or other similar security
instruments (the "Mortgages") as described herein under "The Loans." Loans
expected to have an aggregate unpaid principal balance as of the close of
business on _______________ (the "Initial Cut-Off Date") of approximately
$_____________ (the "Initial Loans") will be designated for inclusion in the
Pool. On or prior to______________, the Trust may purchase additional loans (the
"Subsequent Loans") having an aggregate unpaid principal balance of up to
$______________ (as adjusted pursuant to the immediately following sentence, the
"Original Pre-Funded Amount") with amounts on deposit in an account (the
"Pre-Funding Account") established for such purpose on the Closing Date. To the
extent that the aggregate unpaid principal balance (as of the Initial Cut-Off
Date) of the Initial Loans actually delivered on the Closing Date is more or
less than the amount set forth in the second preceding sentence, the Original
Pre-Funded Amount will be decreased or increased by a corresponding amount
provided that the amount of any such adjustment shall not exceed
$_______________.
Distributions on the Notes will be made to the holders of the Notes (the
"Noteholders") on the 25th day of each month or, if such day is not a Business
Day (as defined below), the next succeeding Business Day (each, a "Distribution
Date"), beginning in _____________. The Notes are secured by the assets of the
Trust pursuant to the Indenture. On each Distribution Date, the Noteholders will
be entitled to receive, from and to the extent that funds are available therefor
in the Note Distribution Account, distributions with respect to interest and
principal calculated as described herein under "Description of the
Notes--Distributions on the Notes." Distributions of interest on the Class B
Notes will be subordinated in priority to distributions of interest on the Class
M-1 and Class M-2 Notes (together, the "Mezzanine Notes") which, in turn, will
be subordinated in priority to distributions of interest on the Class A-1, Class
A-2, Class A-3 and Class A-4 Notes (the "Senior Notes") as described herein.
Distributions of principal on the Class B Notes will be subordinated in priority
to distributions of principal on the Mezzanine Notes which, in turn, will be
subordinated in priority to distributions of principal of the Senior Notes as
described herein. "Business Day" means any day other than (i) a Saturday or a
Sunday or (ii) a day on which banking institutions in New York City or in the
city in which the corporate trust office of the Indenture Trustee is located are
authorized or obligated by law or executive order to be closed.
________________ (the "Underwriter") intends to make a secondary market in
the Notes but has no obligation to do so. There is currently no secondary market
for the Notes and there can be no assurance that such a market will develop or,
if it does develop, that it will continue.
The Notes are offered by the Underwriter, subject to prior sale, when, as
and if delivered to and accepted by the Underwriter and subject to approval of
certain legal matters by counsel. It is expected that delivery of the Notes will
be made in book-entry form only through the facilities of The Depository Trust
Company (the "Depository") on or about _________________.
Certain persons participating in this offering may engage in transactions
that stabilize, maintain, or otherwise affect the price of the Notes. Such
transactions may include stabilizing and the purchase of Notes to cover
syndicate short positions. For a description of these activities, see "Method of
Distribution" herein.
This Prospectus Supplement does not contain complete information about the
offering of the Notes. Additional information is contained in the Prospectus
dated _____________ (the "Prospectus") which accompanies this Prospectus
Supplement and purchasers are urged to read both this Prospectus Supplement and
the Prospectus in full. Sales of the Notes may not be consummated unless the
purchaser has received both this Prospectus Supplement and the Prospectus.
Upon written request, [ ]. will make available its most recent
audited financial statements. Requests should be directed to [ ].,
_____________________, Attention:
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. This is in addition to the obligation of dealers to deliver a
Prospectus Supplement and the Prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
2
<PAGE>
To the extent statements contained herein do not relate to historical or
current information, this Prospectus Supplement may be deemed to consist of
forward looking statements that involve risks and uncertainties that may
adversely affect the distributions to be made on, or the yield of, the Notes,
which risks and uncertainties are discussed under "Risk Factors" and "Prepayment
and Yield Considerations." As a consequence, no assurance can be given as to the
actual distributions on, or the yield of, any Class of Notes.
3
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
There are incorporated herein by reference all documents filed by the
Depositor with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended, on or subsequent to the date of
this Prospectus Supplement and prior to the termination of the offering of the
Notes. The Depositor will provide without charge to each person to whom this
Prospectus Supplement and Prospectus are delivered, on request of such person, a
copy of any or all of the documents incorporated herein by reference other than
the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Requests should be made in writing
to ______________, _________________ of Home Equity Securitization Corp., at
.301 South College Street, Charlotte, North Carolina 28202-6001
SUMMARY
The following summary of certain pertinent information is qualified in its
entirety by reference to the detailed information appearing elsewhere in this
Prospectus Supplement and in the accompanying Prospectus. Certain capitalized
terms used herein are defined elsewhere in the Prospectus Supplement or in the
Prospectus.
Trust ......................... _______________ Trust ________ (the "Trust"
or the "Issuer"), a Delaware business trust,
will be established pursuant to a trust
agreement to be dated as of ______________
(the "Trust Agreement"), among the
Depositor, the Owner Trustee, and the
Co-Owner Trustee.
Depositor ..................... Home Equity Securitization Corp.. (the
"Depositor"), a North Carolina corporation.
The Depositor is a wholly owned, special
purpose subsidiary of First Union National
Bank, a national banking association with
its headquarters in Charlotte, North
Carolina. See "The Company" in the
Prospectus and "Method of Distribution"
herein. None of the Depositor, the Servicer,
the Indenture Trustee, or any of their
respective affiliates has guaranteed or is
otherwise obligated with respect to the
Notes.
Servicer ...................... _______________________, ("_____" or as
servicer, the "Servicer"), in its capacity
as servicer of the Loans.
Owner Trustee and Co-Owner
Trustee ....................... __________________, a _____________ banking
corporation, as owner trustee under the
Trust Agreement (the "Owner Trustee") and
_________________________, as co-owner
trustee under the Trust Agreement (in such
capacity, the "Co-Owner Trustee").
Indenture Trustee ............ ________________________, a national banking
association, as the indenture trustee (in
such capacity, the "Indenture Trustee")
under an indenture to be dated as of
__________________ (the "Indenture") between
the Trust and the Indenture Trustee.
Custodian ..................... ________________________, as the custodian
(the "Custodian") under the Custodial
Agreement to be dated as of _____________,
______ by and among the Trust, the
Depositor, the Servicer, the Indenture
Trustee and the Custodian.
Closing Date .................. On or about __________________.
Cut-Off Date .................. With respect to the Initial Loans, the close
of business on __________________ (the
"Initial Cut-Off Date"). With respect to the
Subsequent Loans, the close of business on
the date specified as such in the related
subsequent transfer agreement (as defined
herein).
Distribution Date ............. The 25th day of each month or, if such day
is not a Business Day, the next succeeding
Business Day, commencing in
_________________ (each, a "Distribution
Date").
Due Period .................... With respect to a Distribution Date the
calendar month immediately preceding such
Distribution Date (each, a "Due Period").
4
<PAGE>
Determination Date ............ The fourteenth calendar day of each month
or, if such day is not a Business Day, the
immediately preceding Business Day (each, a
"Determination Date").
Record Date ................... With respect to each Distribution Date
(other than the first Distribution Date),
the close of business on the last Business
Day of the month immediately preceding the
month in which each Distribution Date occurs
and, with respect to the first Distribution
Date, the Cut-off Date (each, a "Record
Date").
The Notes ..................... The Trust will issue the Classes of Notes
pursuant to the Indenture in the respective
aggregate initial principal amounts
specified on the cover hereof (each such
aggregate principal amount being the
"Original Class Principal Balance" for the
related Class). The Notes will be secured by
the assets of the Trust pursuant to the
Indenture and will be senior in right of
payment to the Residual Interests. In
addition, as described herein, the Class
A-1, Class A-2, Class A-3 and Class A-4
Notes (the "Senior Notes") will also be
senior in the right to receive certain
payments relative to the Class M-1 and Class
M-2 Notes (together, the "Mezzanine Notes"),
which will be senior in the right to receive
certain payments relative to the Class B
Notes. Payments in respect of interest on
the Notes will be made prior to payments of
principal of the Notes. Interest will accrue
on each Class of Notes at the following
applicable per annum rate (as to each such
Class, the "Note Interest Rate"):
Class A-1 Notes _____
Class A-2 Notes _____
Class A-3 Notes _____
Class A-4 Notes _____
Class M-1 Notes _____
Class M-2 Notes _____
Class B Notes _____
Interest on the Notes will accrue on the
basis of a 360-day year consisting of twelve
30-day months. See "Description of the
Notes/Distributions on the Notes" herein.
Priority of Distributions
Regular Distribution
Amount ........................ The Regular Distribution Amount (as defined
herein) will be distributed on each
Distribution Date in the following order of
priority: (i) to pay accrued and unpaid
interest on the Senior Notes (as defined
herein) pro rata, based on the amount of
interest distributable in respect of each
such Class calculated at the related Note
Interest Rate; (ii) to pay accrued and
unpaid interest, first, on the Class M-1
Notes and, second, on the Class M-2 Notes;
(iii) to pay accrued and unpaid interest on
the Class B Notes; (iv) to pay as principal
of the Class A-1, Class A-2, Class A-3 and
Class A-4 Notes, in that order, until the
respective Class Principal Balances thereof
are reduced to zero, the amount necessary to
reduce the aggregate Class Principal Balance
of the Senior Notes to the Senior Optimal
Principal Balance (as defined herein); (v)
to pay as principal of the Class M-1 and
Class M-2 Notes, in that order, the amount
necessary to reduce the Class Principal
Balances thereof to the Class M-1 and Class
M-2 Optimal Principal Balances,
respectively; (vi) to pay as principal of
the
5
<PAGE>
Class B Notes, the amount necessary to
reduce the Class Principal Balance thereof
to zero; (vii) to pay to the Class M-1,
Class M-2 and Class B Notes, in that order,
their respective Loss Reimbursement
Deficiencies (as defined herein), if any;
and (viii) to pay any remaining amount to
the holders of the Residual Interests.
Excess Spread ................ The Excess Spread (as defined below) will be
distributed on each Distribution Date in the
following order of priority (after giving
effect to all distributions specified above
under "--Regular Distribution Amount"): (i)
prior to the termination of the Spread
Deferral Period (as defined below), to be
deposited in the Certificate Distribution
Account for distribution to the holders of
the Residual Interests; (ii) upon the
termination of the Spread Deferral Period,
(A) in an amount equal to the
Overcollateralization Deficiency Amount (as
defined below), if any, as follows: (1) to
pay as principal of the Class A-1, Class
A-2, Class A-3 and Class A-4 Notes, in that
order, until the respective Class Principal
Balances thereof are reduced to zero, the
amount necessary to reduce the aggregate
Class Principal Balance of the Senior Notes
to the Senior Optimal Principal Balance; (2)
to pay as principal of the Class M-1 and
Class M-2 Notes, in that order, the amount
necessary to reduce the Class Principal
Balances thereof to the Class M-1 Optional
Principal Balance (as defined herein) and
Class M-2 Optimal Principal Balance (as
defined herein), respectively; and (3) to
pay as principal of the Class B Notes, the
amount necessary to reduce the Class
Principal Balance thereof to zero; (B) to
pay to the Class M-1, Class M-2 and Class B
Notes, in that order, their respective Loss
Reimbursement Deficiencies, if any; and (C)
to pay any remaining amount to the holders
of the Residual Interests. "Excess Spread."
means with respect to any Distribution Date,
the excess of (a) the Available Distribution
Amount over (b) the Regular Distribution
Amount. "Spread Deferral Period" means the
period beginning on the Closing Date and
ending as soon as Excess Spread in an amount
equal to _________ has been deposited in the
Certificate Distribution Account for
distribution to the holders of the Residual
Interests. "Overcollateralization Deficiency
Amount" means with respect to any date of
determination, the excess, if any, of the
Overcollateralization Amount (such
Overcollateralization Amount) to be
calculated after giving effect to all
payments of the Regular Distribution Amount
on the Notes and the Residual Interests on
such Distribution Date).
Final Maturity Dates The Class Principal Balance of each Class of
Notes, to the extent not previously paid,
will be payable in full on the Final
Maturity Dates set forth below (each a
"Final Maturity Date"), although it is
anticipated that the actual final
Distribution Date for each Class of Notes
will occur significantly earlier than its
respective Final Maturity Date.
Final
Maturity Date
Class A-1 Notes _____________
Class A-2 Notes _____________
Class A-3 Notes _____________
Class A-4 Notes _____________
Class M-1 Notes _____________
Class M-2 Notes _____________
6
<PAGE>
Class B Notes
========
Form and Registration of
the Notes ..................... The Notes will be available in book-entry
form. Persons acquiring beneficial ownership
interests in the Notes ("Note Owners") will
hold such Notes through the book-entry
facilities of The Depository Trust Company
("DTC"). Transfers within DTC will be in
accordance with the usual rules and
operating procedures of DTC. So long as each
Class of Notes is in book-entry form, each
such Class will be evidenced by one or more
certificates registered in the name of the
nominee of DTC. The interests of the Note
Owners will be represented by book-entries
on the records of DTC and participating
members thereof. No Note Owner will be
entitled to receive a definitive certificate
representing such person's interest, except
in the event that Definitive Securities are
issued under the limited circumstances
described herein. "Definitive Securities"
are Notes issued in fully registered,
certificated form, as set forth in the
Indenture. All references in this Prospectus
Supplement to any Class of Notes reflect the
rights of the Note Owners of such Class only
as such rights may be exercised through DTC
and its participating members so long as
such Class of Notes is held by DTC. See "The
Agreements Book-Entry Securities" in the
Prospectus and "Description of the
Notes--Book-Entry Registration" herein. The
Note Owners' interests in each Class of
Notes will be held only in minimum
denominations of $100,000 and integral
multiples of $1,000 on excess thereof.
Assets of the Trust ........... On the Closing Date, the Trust will purchase
from the Depositor a pool of home loans (the
"Initial Loans") expected to have an
aggregate unpaid principal balance of
approximately $_____________ as of the
Initial Cut-Off Date (the actual aggregate
unpaid principal balance (as of the Initial
Cut-off Date) of the Initial Loans, the
"Original Pool Principal Balance") pursuant
to a Sale and Servicing Agreement to be
dated as of _________________ (the "Sale and
Servicing Agreement") among the Trust, the
Depositor, the Servicer, the Indenture
Trustee and the Co-Owner Trustee. On or
prior to ______________, the Trust may
purchase additional loans (the "Subsequent
Loans," and together with the Initial Loans,
the "Loans") having an aggregate unpaid
principal balance of up to approximately
$_____________ (as adjusted pursuant to the
immediately following sentence, the
"Original Pre-Funded Amount"). To the extent
that the Original Pool Principal Balance is
more or less than the amount set forth in
the second preceding sentence, the Original
Pre-Funded Amount will be decreased or
increased by a corresponding amount provided
that the amount of any such adjustment shall
not exceed $_____________. The Loans will be
secured by mortgages, deeds of trust or
other similar security instruments (the
"Mortgages").
The Initial Loans are expected to consist
of approximately _______ loans, having an
Original Pool Principal Balance of
approximately $_________. See "The Loans"
herein. The statistical information
presented in this Prospectus Supplement
regarding the Loans is based only on the
Initial Loans identified as of the date of
this Prospectus Supplement, and does not
take into account any additional Initial
Mortgage Loans identified after the date of
this Prospectus Supplement or any
Subsequent Loans that may be sold to the
Trust during the Pre-Funding Period through
application of amounts in the Pre-Funding
Account. In addition, prior to the Closing
Date, ______ may remove any of the home
loans intended to be sold to the Trust,
substitute comparable loans therefor, or
add comparable loans thereto; however, the
aggregate principal balance of such loans
so replaced, added or removed may not
exceed ______% of the Original Pool
Principal Balance. If, prior to the Closing
Date, loans are removed (or added) as
described herein, an amount equal to the
aggregate principal balances of such loans
will be added to (or deducted from) the
Original Pre-Funded Amount on the Closing
Date. As a result of the foregoing, the
7
<PAGE>
statistical information presented herein
regarding the Loans expected to be sold to
the Trust as of the date of this Prospectus
Supplement (1) does not take into account
any (a) additional Initial Mortgage Loans
not identified as of the date of this
Prospectus Supplement and (b) Subsequent
Loans that may be sold to the Trust during
the Pre-Funding Period through the
application of amounts in the Pre-Funding
Account and (2) may vary in certain respects
from comparable information based on the
actual composition of Loans at the Closing
Date or any Subsequent Transfer Date. See
"Risk Factors--Acquisition of Subsequent
Loans" and "The Loans" herein.
The assets of the Trust will consist of the
Loans. The assets of the Trust will also
include (i) payments of interest and
principal received in respect of the Loans
after the related Cut-Off Date; (ii) amounts
on deposit in the Collection Account, Note
Distribution Account, Pre-Funding Account,
Capitalized Interest Account and Certificate
Distribution Account; and (iii) certain
other ancillary or incidental funds, rights
and properties related to the foregoing. See
"The Trust--General" herein. The Trust will
include the unpaid principal balance of each
Loan as of its applicable Cut-Off Date (the
"Cut-Off Date Principal Balance"). With
respect to any date, the "Pool Principal
Balance" will be equal to the aggregate of
the Principal Balances of all Loans as of
the last day of the immediately preceding
Due Period (as defined herein). The
Principal Balance of any Loan will be
calculated as described herein under "The
Trust--General."
The Trust will also issue instruments
evidencing in the aggregate the entire
residual interest in the assets of the Trust
(each a "Residual Interest"), which is not
being offered hereby. The Residual Interests
are subordinate in right of payment to the
Notes.
The Loans ..................... All of the Loans will be home loans that are
not insured or guaranteed by a governmental
agency the related proceeds of which were
used to finance (i) property improvements,
(ii) the acquisition of personal property
such as home appliances or furnishings,
(iii) debt consolidation, (iv) the partial
refinancing of one- to two-family
residential properties (which may include
cash-out to the borrower), (v) a combination
of property improvements, debt consolidation
and other consumer purposes or (vi) to
purchase the related mortgaged property.
Substantially all of the Mortgages for the
Loans will be junior (i.e., second) in
priority to a senior lien on the related
mortgaged properties (each a "Mortgaged
Property"), which will consist of
owner-occupied single-family residences.
Substantially all of the Loans will be
secured by liens on Mortgaged Properties in
which the borrowers have little or no equity
(i.e., the related Combined Loan-to-Value
Ratios exceed 100%) at the time of
origination. See "Risk Factors--Adequacy of
the Mortgaged Properties as Security for the
Loans" and "The Loans" herein and "The Trust
Funds--The Loans" in the Prospectus.
"Combined Loan-to-Value Ratio" means, with
respect to any Loan, the fraction, expressed
as a percentage, the numerator of which is
the principal balance of such Loan at
origination plus, in the case of a junior
lien Loan, the aggregate outstanding
principal balance of the related senior
liens on the date of origination of such
Loan, and the denominator of which is the
appraised value of the related Mortgaged
Property at the time of origination of such
Loan (determined as described herein under
"_______________--Underwriting Guidelines").
The Initial Loans are expected to consist of
approximately _______ loans having an
Original Pool Principal Balance expected to
be approximately $_____________. More or
fewer Initial Loans having an Original Pool
Principal Balance of greater or less than
such amount may actually constitute the
Initial Loans provided that the amount of
any such variance
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<PAGE>
in the Original Pool Principal Balance
shall not exceed $__________. See "The
Loans" herein.
_______ and the Depositor will be obligated
either to repurchase any Loan as to which
(i) a representation or warranty has been
breached or (ii) a document deficiency
exists, which breach or deficiency remains
uncured for a period of 60 days and has a
materially adverse effect on the interests
of the Noteholders in such Loan (each, a
"Defective Loan") or to remove such
Defective Loan and substitute a Qualified
Substitute Loan. In addition, ______ may at
its option purchase or remove from the Trust
and, if not purchased, substitute for such
Loan a qualified Substitute Loan, any Loan
that is 90 days or more delinquent and which
_____ determines in good faith would
otherwise become subject to foreclosure
proceedings so long as the aggregate of such
purchases does not exceed 10% of the Maximum
Collateral Amount. As used herein, a
"Qualified Substitute Loan" will have
characteristics that are substantially
similar to the characteristics of the Loan
which it replaces. The repurchase of any
Loan (rather than the replacement thereof
through substitution) will result in
accelerated payments of principal
distributions on the Notes. See
"_________________--Repurchase or Substitut-
ution of Loans" herein.
With respect to any date, the "Maximum
Collateral Amount" shall equal the sum of
the (i) the Original Pool Principal Balance
and (ii) the aggregate Cut-Off Date
Principal Balances of all Subsequent Loans
transferred to the Trust on or prior to
such date.
Credit Enhancement ............ Credit enhancement with respect to the Notes
will be provided by (i) the subordination of
distributions in respect of the Residual
Interests (as well as the subordination of
certain Classes of Notes to other Classes of
Notes, as described herein), and (ii) the
Overcollateralization Amount which results
from (a) the excess of the sum of the
Original Pool Principal Balance and the
Original Pre-Funding Amount over the
aggregate of the Class Principal Balances of
all Classes of Notes and (b) following the
Spread Deferral Period, the limited
acceleration of the principal amortization
of the Notes relative to the amortization of
the Loans by the application of Excess
Spread, as described herein.
Subordination ............... The rights of the holders of the Class M-1
Notes to receive distributions of interest
on each Distribution Date will be
subordinated to such rights of the holders
of the Senior Notes, the rights of the
holders of the Class M-2 Notes to receive
distributions of interest on each
Distribution Date will be subordinated to
such rights of the holders of the Class M-1
Notes and the Senior Notes, and the rights
of the holders of the Class B Notes to
receive distributions of interest on each
Distribution Date will be subordinated to
such rights of the holders of all other
Classes of Notes. In addition, the rights of
the holders of the Class M-1 Notes to
receive distributions of principal on each
Distribution Date generally will be
subordinated to such rights of the holders
of the Senior Notes, and the rights of the
holders of the Class M-2 Notes to receive
distributions of principal on each
Distribution Date generally will be
subordinated to such rights of the holders
of the Senior Notes and the Class M-1 Notes.
The rights of the holders of the Class B
Notes to receive distributions of principal
on each Distribution Date generally will be
subordinated to such rights of the holders
of all other Classes of Notes. In addition,
the rights of the holders of the Residual
Interests to receive any distributions from
amounts available on each Distribution Date
will be subordinated to such rights of the
holders of all Classes of Notes. The
subordination described above is intended to
enhance the likelihood of regular receipt by
the holders of the Notes of the full amount
of interest and principal distributions due
to such holders and to afford such holders
protection against losses on the Loans.
9
<PAGE>
See "Description of Credit Enhancement--
Subordination and Allocation of Losses"
herein.
Overcollateralization ......... As of any date of determination, the
"Overcollateralization Amount" will equal
the excess of (A) the sum of (i) the Pool
Principal Balance as of the end of the
immediately preceding Due Period and (ii)
the Pre-Funded Amount as of the end of the
immediately preceding Due Period over (B)
the aggregate of the Class Principal
Balances of the Notes. On the Closing Date,
the Overcollateralization Amount will be
$___________, which is equal to ______% of
the sum of the Original Pool Principal
Balance and the Original Pre-Funded Amount.
As a result of the application of Excess
Spread in reduction of the Class Principal
Balances of the Notes following the end of
the Spread Deferral Period, the
Overcollateralization Amount is expected to
increase over time until such amount is
equal to the Overcollateralization Target
Amount.
The "Spread Deferral Period" will begin on
the Closing Date and end as soon as Excess
Spread in an amount equal to $____________
has been deposited in the Certificate
Distribution Account for distribution to the
holders of the Residual Interests. The
"Overcollateralization Target Amount" will
equal (A) with respect to any Distribution
Date occurring prior to the Stepdown Date
(as defined below), the greater of (x)
____% of the Maximum Collateral Amount and
(y) the Net Delinquency Calculation Amount
(as defined below), and (B) with respect to
any other Distribution Date, the greater of
(x) ____% of the Pool Principal Balance as
of the end of the preceding Due Period and
(y) the Net Delinquency Calculation Amount;
provided, however, that the
Overcollateralization Target Amount will in
no event be less than ____% of the Maximum
Collateral Amount. "Net Delinquency
Calculation Amount" means with respect to
any Distribution Date, the excess, if any,
of (x) the product of 2.5 and the Six-Month
Rolling Delinquency Average over (y) the
aggregate of the amounts of Excess Spread
for the three preceding Distribution Dates.
While the distribution of Excess Spread
following the Spread Deferral Period to
holders of the Notes in reduction of their
respective Class Principal Balances has been
designed to produce and maintain a given
level of overcollateralization with respect
to the Notes, there can be no assurance that
Excess Spread will be generated in
sufficient amounts to ensure that such
overcollateralization level will be achieved
or maintained at all times. See "Description
of Credit Enhancement--Subordination and
Allocation of Losses" and "Risk
Factors--Adequacy of Credit Enhancement"
herein.
Application of Allocable Loss
Amounts ....................... In the event that (a) the aggregate of the
Class Principal Balances of all Classes of
Notes on any Distribution Date (after giving
effect to all distributions on such date)
exceeds (b) the sum of the Pool Principal
Balance and the Pre-Funded Amount, each as
of the end of the immediately preceding Due
Period (such excess, an "Allocable Loss
Amount"), such Allocable Loss Amount will be
applied, sequentially, in reduction of the
Class Principal Balances of the Class B,
Class M-2 and Class M-1 Notes, in that
order, until the respective Class Principal
Balances thereof have been reduced to zero.
Allocable Loss Amounts will not be applied
to the reduction of the Class Principal
Balance of any Class of Senior Notes.
Allocable Loss Amounts applied to any
applicable Class of Notes will entitle such
Class to reimbursement (such entitlement, a
"Loss Reimbursement Deficiency") under the
circumstances and to the extent provided
herein. See "Description of the
Notes--Application of Allocable Loss
Amounts" herein.
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<PAGE>
Fees and Expenses of
the Trust ..................... As compensation for its services pursuant to
the Sale and Servicing Agreement, the
Servicer will be entitled to receive a fee
(the "Servicing Fee") and the additional
compensation described under "Description of
Transfer and Servicing Agreements--
Servicing" (together, the "Servicing
Compensation"). As compensation for their
services pursuant to the Indenture, the Sale
and Servicing Agreement, the Administration
Agreement, the Custodial Agreement and the
Trust Agreement as applicable (the "Transfer
and Servicing Agreements") the Indenture
Trustee will be entitled to its accrued and
unpaid fee (the "Indenture Trustee Fee") and
the Owner Trustee will be entitled to its
accrued and unpaid fee (the "Owner Trustee
Fee"). The Servicing Compensation, the
Indenture Trustee Fee and the Owner Trustee
Fee are collectively referred to as the
"Trust Fees and Expenses."
Pre-Funding Account ........... On the Closing Date, the Original Pre-Funded
Amount will be deposited in the Pre-Funding
Account, which account will be in the name
of the Indenture Trustee, will form part of
the Trust and will be used to acquire
Subsequent Loans. The Original Pre-Funded
Amount is expected to equal $____________ on
the Closing Date but such account may be
increased or decreased to by an amount equal
to the amount by which the Original Pool
Principal Balance falls short of or exceeds
$___________; provided that the amount of
any such increase or decrease shall not
exceed $___________. During the Pre-Funding
Period (as defined below), the amount on
deposit in the Pre-Funding Account (net of
investment earnings thereon) (the
"Pre-Funded Amount") will be reduced by the
amount thereof used to purchase Subsequent
Loans in accordance with the Sale and
Servicing Agreement. The "Pre-Funding
Period" is the period commencing on the
Closing Date and ending generally on the
earlier to occur of (i) the date on which
the amount on deposit in the Pre-Funding
Account (net of any investment earnings
thereon) is less than $_________ and (ii)
______________. On the Distribution Date
following the Due Period in which the
termination of the Pre-Funding Period
occurs, if the Pre-Funded Amount at the end
of the Pre-Funding Period is less than
$___________, any such Pre-Funded Amount
will be distributed to holders of the
Classes of Notes then entitled to receive
principal on such Distribution Date in
reduction of the related Class Principal
Balances, thus resulting in a partial
redemption of the related Notes on such
date. On the Distribution Date following the
Due Period in which the termination of the
Pre-Funding Period occurs, if the Pre-Funded
Amount at the end of the Pre-Funding Period
is greater than or equal to $__________
(such event, a "Pre-Funding Pro Rata
Distribution Trigger"), such Pre-Funded
Amount will be distributed to the holders of
all Classes of Notes and the Residual
Interests (which initially are represented
by the Overcollateralization Amount on the
Closing Date), pro rata, based on the
Original Class Principal Balances thereof
and the Residual Interests in relation to
the sum of the Original Pool Principal
Balance and the Original Pre-Funded Amount.
Capitalized Interest Account .. On the Closing Date, a portion of the sales
proceeds of the Notes will be deposited in
an account (the "Capitalized Interest
Account") for application by the Indenture
Trustee on the Distribution Dates in
______________, _____________ and
_______________ to cover shortfalls in
interest on the Notes that may arise due to
the utilization of the Pre-Funding Account
as described herein. Any amounts remaining
in the Capitalized Interest Account at the
end of the Pre-Funding Period will be paid
to ______.
Optional Termination .......... The holders of Residual Interests exceeding
in the aggregate a 50% percentage interest
(the "Majority Residual Interestholders")
may, at their option, effect an early
termination of the Trust on or after any
Distribution Date on which the Pool
Principal Balance declines to ____% or less
of the Maximum Collateral Amount, by
purchasing all of the Loans at a price
11
<PAGE>
equal to or greater than the Termination
Price. The "Termination Price" shall be on
an amount equal to the sum of (i) the then
outstanding Principal Balances of the Loans
plus all accrued and unpaid interest
thereon, (ii) any Trust Fees Expenses due
and unpaid on such date and (iii) any
unreimbursed Servicing Advances including
such Servicing Advances deemed to be
nonrecoverable. "Servicing Advances" are
reasonable and customary expense advances
with respect to such loan. The proceeds from
such sale will be distributed in the order
and priority set forth above under
"Distribution Priorities." The proceeds from
any such sale will be distributed in the
amounts and subject to the priorities
described herein under "Description of the
Notes--Distributions on the Notes." See
"Description of the Notes--Optional
Termination of the Trust" herein.
Tax Status .................... In the opinion of (Dewey Ballantine LLP "Tax
Counsel" herein) for Federal income tax
purposes, the Notes will be characterized as
debt and the Trust will not be characterized
as an association (or a publicly traded
partnership) taxable as a corporation. Each
Noteholder, by the acceptance of a Note,
will agree to treat the Notes as
indebtedness for Federal income tax
purposes. Alternative characterizations of
the Trust are possible, but would not result
in materially adverse tax consequences to
Noteholders. See "Certain Federal Income Tax
Consequences" herein and "Certain Federal
Income Tax Consequences" in the Prospectus
for additional information concerning the
application of Federal income tax laws to
the Trust and the Notes.
ERISA ......................... Subject to the considerations discussed
under "ERISA Considerations" herein and in
the Prospectus, plans that are subject to
the requirements of the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), and the Internal Revenue Code of
1986, as amended (the "Code"), may purchase
the Notes. Any fiduciary considering whether
to purchase the Notes on behalf of such a
plan must determine that the purchase of a
Note is consistent with its fiduciary duties
under ERISA and does not result in a
nonexempt prohibited transaction as defined
in Section 406 of ERISA or Section 4975 of
the Code.
See "ERISA Considerations" herein and in the
Prospectus.
Servicing of the Loans ........ The Servicer will perform the loan servicing
functions with respect to the Loans pursuant
to the Sale and Servicing Agreement and will
be entitled to receive a fee (the "Servicing
Fee") and other servicing compensation
(collectively, the "Servicing
Compensation"), payable monthly, as
described herein (See "Description of the
Transfer and Servicing
Agreements--Servicing" herein). The Servicer
may subcontract its servicing obligations
and duties with respect to certain Loans to
certain qualified servicers pursuant to one
or more subservicing agreements (each such
servicer, in this capacity, a
"Subservicer"). However, the Servicer will
not be relieved of its servicing obligations
and duties with respect to any subserviced
Loans. In addition, the Servicer will be
responsible for paying the fees of any such
Subservicer.
Legal Investment .............. The Notes will not constitute "mortgage
related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of
1984 "SMMEA"), because some of the Mortgages
securing the Loans are not first mortgages.
Accordingly, many institutions with legal
authority to invest in comparably rated
securities based solely on first mortgages
may not be legally authorized to invest in
the Notes. See "Legal Investment Matters"
herein and "Legal Investment" in the
Prospectus.
Ratings of the Notes .......... It is a condition to the issuance of the
Notes that each of the Senior Notes be rated
"[AAA]" by [Fitch Investors Service, L.P.
("Fitch")] and "[Aaa]"
12
<PAGE>
by [Moody's Investor Service] ["Moody's" and
together with Fitch,] the "Rating
Agencies"), and that the Class M-1 Notes be
rated "[AA]" by [Fitch] and "[A2]" by
[Moody's], the Class M-2 Notes be rated
"[A]" by Fitch] and "[A2]" by [Moody's] and
the Class [B] Notes be rated "[BBB]" by
[Fitch] and "[Baa3]" by [Moody's]. A
security rating does not address the
frequency of principal prepayments or the
corresponding effect on yield to holders of
the Notes. The security rating does not
address the ability of the Trust to acquire
Subsequent Loans, any potential redemption
with respect thereto or the effect on yield
resulting therefrom. None of the Depositor,
Servicer, Indenture Trustee, Owner Trustee,
Co-Owner Trustee or any other person is
obligated to maintain the rating on any
Class of Notes.
13
<PAGE>
RISK FACTORS
For a discussion of all material risk factors in connection with the
purchase of the Notes, prospective investors in the Notes should consider the
following risk factors (as well as the factors set forth under "Risk Factors" in
the Prospectus). These factors are intended to identify the significant sources
of risk affecting an investment in the Notes. Unless the context indicates
otherwise, any numerical or statistical information presented in this Prospectus
Supplement is based upon the characteristics of the Initial Loans identified as
of ______________ (such date, the "Statistic Calculation Date").
The Statistical Distribution of Characteristics As Of The Initial Cut-Off Date
For The Initial Loans will Vary Somewhat From The Statiscal Distribution Of Such
Characteristics As Of The Statistic Calculation Date.
The statistical information presented in this Prospectus Supplement
concerning the Initial Loans is based on the characteristics of a portion of
such Initial Loans as of Statistic Calculation Date. Such portion aggregated $
_______________ as of the Statistic Calculation Date. _____ expects that the
actual aggregate principal balance of the Initial Loans as of the Initial
Cut-Off Date will be approximately $_____________. The additional Initial Loans
will represent Loans originated by or on behalf of ______ or purchased and
re-underwritten by ______ in accordance with ______'s program on or prior to the
Initial Cut-Off Date. Moreover, certain Initial Loans included as of the
Statistic Calculation Date may prepay in full, or may be determined not to meet
the eligibility requirements for the Loans, and thus not be included as Initial
Loans. As a result of the foregoing, the statistical distribution of
characteristics as of the Initial Cut-Off Date for the Initial Loans will vary
somewhat from the statistical distribution of such characteristics as of the
Statistic Calculation Date as presented in this Prospectus Supplement, although
such variance will not be material.
Variation in Credit Quality May Affect the Ability of _____________ to Acquire
or Originate Subsequent Loans
The ability of ______ to acquire or originate loans subsequent to the
Closing Date and on or prior to ___________________ that meet the requirements
for transfer during the Pre-Funding Period under the Sale and Servicing
Agreement is and will be affected by a variety of factors, including interest
rates, employment levels, the rate of inflation and consumer perception of
economic conditions generally. On the Distribution Date following the Due Period
in which the termination of the Pre-Funding Period occurs, if the Pre-Funded
Amount at the end of the Pre-Funding Period is less than $_________, any such
Pre-Funded Amount will be distributed to holders of the Classes of Notes then
entitled to receive principal on such Distribution Date in reduction of the
related Class Principal Balances, thus resulting in a partial redemption of the
related Notes on such date. On the Distribution Date following the Due Period in
which the termination of the Pre-Funding Period occurs, if the Pre-Funded Amount
at the end of the Pre-Funding Period is greater than or equal to $___________
(such event, a "Pre-Funding Pro Rata Distribution Trigger"), such Pre-Funded
Amount will be distributed to the holders of all Classes of Notes and the
Residual Interests (which initially represent the Overcollateralization Amount
on the Closing Date), pro rata, based on the Original Class Principal Balances
of the Notes and original balance of the Residual Interests in relation to the
sum of the Original Pool Principal Balance and the Original Pre-Funded Amount.
Any conveyance of Subsequent Loans is subject to the conditions set forth
in the Sale and Servicing Agreement, which conditions include among others: (i)
each Subsequent Loan must satisfy the representations and warranties specified
in the Sale and Servicing Agreement; (ii) ______ will not select Subsequent
Loans in a manner that it believes is adverse to the interests of the
Noteholders; and (iii) as of the related Cut-Off Date, all of the Loans,
including the Subsequent Loans to the conveyed to the Trust by the Depositor as
of such Cut-Off Date, must satisfy certain statistical criteria set forth in the
Sale and Servicing Agreement. Although each Subsequent Loan must satisfy the
eligibility criteria referred to above at the time of its transfer to the Trust,
the Subsequent Loans may have been originated or purchased by ______ using
credit criteria different from those which were applied to the Initial Loans and
may be of a different credit quality and have different loan characteristics
from the Initial Loans. After the transfer of the Subsequent Loans to the Trust,
the aggregate statistical characteristics of the Loan Pool may vary from those
of the Initial Loans that have been identified as of the Statistic Calculation
Date as described herein. See "The Loans Initial Loan Statistics", and
"Conveyance of Subsequent Loans" herein.
Prepayment May Affect the Yield to Maturity of the Notes
All of the Loans may be prepaid in whole or in part at any time; however,
with respect to certain Loans, a prepayment charge, as permitted by applicable
law, may apply to full and partial prepayments during the first three years
after origination as described below under "Prepayment and Yield
Considerations." Home loans, such as the Loans, have been originated in
significant volume only during the past few years and neither the Depositor nor
the Servicer is aware of any publicly available studies or statistics on the
rate of prepayment of such loans. The Trust's prepayment experience may be
affected by a wide variety of factors, including general economic conditions,
interest rates, the availability of alternative financing, homeowner mobility
and the Combined Loan-to-Value Ratios of the
14
<PAGE>
Loans. In addition, substantially all of the Loans contain due-on-sale
provisions and the Servicer intends to enforce such provisions unless (i) the
Servicer, in a manner consistent with accepted servicing practices, permits the
purchaser of the related Mortgaged Property to assume the Loan or (ii) such
enforcement is not permitted by applicable law. To the extent permitted by
applicable law, such assumption will not release the original borrower from its
obligation under any such Loan. See "Certain Legal Aspects of the
Loans--Due-on-Sale Clauses in Mortgage Loans" in the Prospectus.
In certain cases, the Servicer may, in a manner consistent with its
servicing practices, permit a borrower who is selling his principal residence
and purchasing a new one to substitute the new Mortgaged Property as collateral
for the related Loan. In such event, the Servicer will generally require the
borrower to make a partial prepayment in reduction of the principal balance of
the Loan to the extent that the borrower has received proceeds from the sale of
the prior residence that will not be applied to the purchase of the new
residence.
The extent to which the yield to maturity of a Note may vary from the
anticipated yield will depend upon (i) the degree to which it is purchased at a
premium or discount, (ii) the degree to which the timing of distributions to
holders thereof is sensitive to scheduled payments, prepayments, liquidations,
defaults, delinquencies, substitutions, modifications and repurchases of Loans
and to the distribution of Excess Spread and (iii) the application of Allocable
Loss Amounts to certain Classes of Notes as specified herein. In the case of any
Note purchased at a discount, an investor should consider the risk that a slower
than anticipated rate of principal distributions to the holder of such Note
(including without limitation principal prepayments on the Loans) could result
in an actual yield to such investor that is lower than the anticipated yield
and, in the case of any Note purchased at a premium, the risk that a faster than
anticipated rate of principal distributions to the holder of such Note
(including without limitation principal prepayments on the Loans) could result
in an actual yield to such investor that is lower than the anticipated yield. On
each Distribution Date following the Spread Deferral Period and until the
Overcollateralization Amount is at least equal to the Overcollateralization
Target Amount, the allocation of the Excess Spread for such Distribution Date as
an additional distribution of principal of the Notes will accelerate the
amortization of the Notes relative to the amortization of the Loans. Further, in
the event that significant distributions of principal are made to holders of the
Notes as a result of prepayments, liquidations, repurchases and purchases of the
Loans or distributions of Excess Spread, there can be no assurance that holders
of the Notes will be able to reinvest such distributions in a comparable
alternative investment having a comparable yield. See "Risk Factors--Prepayment
and Yield Considerations" herein.
In The Event Of Higher Rates Of Delinquencies, Defaults And Losses, The Amounts
Available From the Credit Enhancement May Not Be Adequate For Cover The Delays
Or Short Falls in Distributions To The Holders Of The Notes
Credit enhancement with respect to the Notes will be provided by (i) the
subordination of distributions in respect of the Residual Interests (as well as
the subordination of certain Classes of Notes to other Classes of Notes, as
described herein), and (ii) the Overcollateralization Amount which results from
(a) the excess of the sum of the Original Pool Principal Balance and the
Original Pre-Funded Amount over the aggregate of the Class Principal Balances
for all Classes as of Notes and (b) following the Spread Deferral Period, the
limited acceleration of the principal amortization of the Notes relative to the
amortization of the Loans by the application of Excess Spread, as described
herein. If the Loans experience higher rates of delinquencies, defaults and
losses than initially anticipated in connection with the ratings of the Notes,
or if the Loan Rates on those Initial Loans which have adjustable interest rates
("Adjustable Rate Loans") decrease, the amounts available from the credit
enhancement may not be adequate to cover the delays or shortfalls in
distributions to the holders of the Notes that result from such higher
delinquencies, defaults and losses. If the amounts available from the credit
enhancement are inadequate, the holders of the Notes will bear the risk of any
delays and losses resulting from the delinquencies, defaults and losses on the
Loans.
The rights of the holders of the Class M-1 Notes to receive distributions
of interest on each Distribution Date generally will be subordinated to such
rights of the holders of the Senior Notes, the rights of the holders of the
Class M-2 Notes to receive distributions of interest on each Distribution Date
generally will be subordinated to such rights of the holders of the Class M-1
Notes and the Senior Notes, and the rights of the holders of the Class B Notes
to receive distributions of interest on each Distribution Date generally will be
subordinated to such rights of the holders of all other Classes of Notes. In
addition, the rights of the holders of the Class M-1 Notes to receive
distributions of principal on each Distribution Date generally will be
subordinated to such rights of the holders of the Senior Notes, and the rights
of the holders of the Class M-2 Notes to receive distributions of principal on
each Distribution Date generally will be subordinated to such rights of the
holders of the Senior Notes and the Class M-1 Notes. Further, distributions of
principal of the Class B Notes generally will be subordinated in priority of
payment to all other Classes of Notes. See "Description of Credit
Enhancement--Subordination and Allocation of Losses" herein.
While the distribution of Excess Spread to the holders of the Notes in the
manner specified herein has been designed to produce and maintain a given level
of overcollateralization with respect to the Notes, there can be no assurance
that Excess Spread will be generated in sufficient amounts to ensure that such
overcollateralization level will be achieved or maintained at all times. In
particular, as a result of delinquencies on the Loans during any Due Period,
the amount of interest received on the Loans during such Due Period may be less
than the amount of interest distributable on the Notes on the related
Distribution Date. Such an occurrence will cause the Class Principal Balances of
the Classes of Notes to decrease at a slower rate relative to the
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Pool Principal Balance, resulting in a reduction of the Overcollateralization
Amount and, in some circumstances, an Allocable Loss Amount.
The holders of the Residual Interests will not be required to refund any
amounts previously distributed to them pursuant to the Transfer and Servicing
Agreements, including any distributions of Excess Spread, regardless of whether
there are sufficient funds on a subsequent Distribution Date to make a full
distribution to holders of the Notes.
The Mortgaged Properties May Not Provide Adequate Security For The Loans
As of the Statistic Calculation Date, the Combined Loan-to-Value Ratios for
the Initial Loans ranged from approximately ______% to _______%, with
approximately ______% of the Statistic Principal Balance consisting of Loans
having Combined-Loan-to-Value Ratios in excess of _______%. As of the Statistic
Calculation Date the weighted average Combined Loan-to-Value Ratio of the
Initial Loans was ________%. As a result of the foregoing, the Mortgaged
Properties may not provide adequate security for the Loans. Even assuming that a
Mortgaged Property provides adequate security for the related Loan, substantial
delays could be encountered in connection with the liquidation of a Loan that
would result in current shortfalls in distributions to the Noteholders to the
extent such shortfalls are not covered by the credit enhancement described
herein. In addition, liquidation expenses relating to any Liquidated Loan (such
as legal fees, real estate taxes, and maintenance and preservation expenses)
would reduce the liquidation proceeds otherwise payable to the Noteholders. In
the event that any Mortgaged Property fails to provide adequate security for the
related Loan, any losses in connection with such Loan will be borne by
Noteholders as described herein to the extent that the credit enhancement
described herein is insufficient to absorb all such losses.
Should The Loan Rates On The Adjustable Loans Decrease, The Amount Available For
Distribution May Be Lessened
While all of the Notes are fixed rate obligations, as of the Statistic
Calculation Date, Initial Loans representing approximately ______% of the
Statistic Principal Balance, are Adjustable Rate Loans. Should the Loan Rates on
the Adjustable Rate Loans decrease, the amount of Excess Spread available for
deposit to the Certificate Distribution Account to cause the termination of the
Spread Deferral Period and then to make payments to achieve the required
Overcollateralization Amount will be lessened. See "Prepayment and Yield
Considerations--Excess Spread and Reduction of Overcollateralization Amount."
Book-Entry Registration of Notes May Reduce The Liquidity Of Such Notes In The
Secondary Trading Market
Issuance of the Notes in book-entry form may reduce the liquidity of such
Notes in the secondary trading market because investors may be unwilling to
purchase Notes for which they cannot obtain physical certificates. Moreover,
because transactions in the Notes can be effected only through DTC,
participating organizations, indirect participants and certain banks, the
ability of a beneficial owner of a Note to pledge its interest in a Note to
persons or entities that do not participate in the DTC system, or otherwise to
take actions in respect of such Note, may be limited due to lack of a physical
certificate representing such Note.
Additional Factors Affecting Delinquencies, Defaults and Losses on Loans
Underwriting Guidelines May Not Consider The Adequacy Of The Value Of The
Related Mortgage Property
The evaluation of the adequacy of the value of the related Mortgaged
Property in relation to the Loan, together with the amount of all liens senior
to the Loan, is given less and in some cases no consideration in underwriting
the Loans. Although the creditworthiness of the related borrowers is the primary
consideration in the underwriting of the Loans, no assurance can be given that
such creditworthiness of the borrowers will not deteriorate as a result of
future economic and social factors, which deterioration may result in a
delinquency or default by such borrowers on the related Loans. In general, the
credit quality of the borrowers on the Loans as well as the Loans is lower than
that of borrowers and mortgage loans conforming to the Federal National Mortgage
Association ("FMNA") or Federal Home Loan Corporation ("FHLMC") underwriting
guidelines for first-lien, single-family mortgage loans. Accordingly, the Loans
are likely to experience higher rates of delinquencies, defaults and losses
(which rates could be substantially higher) than those rates that would be
experienced by similar types of loans underwritten in a manner which is more
similar to the FNMA or FHLMC underwriting guidelines.
In response to changes and developments in the consumer finance area as
well as the refinement of ______'s credit evaluation methodology, ______'s
underwriting requirements for certain types of home loans may change from time
to time, which in certain instances may result in more stringent and, in other
instances, less stringent underwriting requirements. Depending upon the date on
which the Loans were originated or purchased by ______, such Loans may have been
originated or purchased by ______ under different underwriting requirements, and
accordingly, certain Loans may be of a different credit
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quality and have different characteristics than other Loans. Furthermore, to the
extent that certain Loans were originated or purchased by ______ under less
stringent underwriting requirements, such Loans may be more likely to experience
higher rates of delinquencies, defaults and losses than those Loans originated
or purchased under more stringent underwriting requirements.
Geographic Concentration Of The Loans Within Certain States May Mean That
Delinquencies And Losses On The Loans May Be Higher
Approximately ______%, ______%, ______%, ______%, ______%,
______%,______% and ____% of the Statistic Principal Balance consisted of
Initial Loans that are secured by Mortgaged Properties located in the States of
__________, ____________, ___________, __________, ___________, ____________ and
__________, respectively. Because of the relative geographic concentration of
the Loans within these States, delinquencies and losses on the Loans may be
higher than would be the case if the Loans were more geographically diversified.
Adverse economic conditions in these States or geographic regions (which may or
may not affect real property values) may affect the ability of the related
borrowers to make timely payments of their scheduled monthly payments of
principal and interest and, accordingly, the actual rates of delinquencies,
defaults and losses on such Loans could be higher than those currently
experienced in the home lending industry for similar types of loans. In
addition, with respect to the Loans in these States, certain of the Mortgaged
Properties may be more susceptible to certain types of special hazards that are
not covered by any casualty insurance, such as earthquakes, floods and other
natural disasters and major civil disturbances, than residential properties
located in other parts of the country. In general, declines in one or more of
the related residential real estate markets may adversely affect the values of
the Mortgaged Properties securing such Loans such that the outstanding principal
balances of such Loans, together with the outstanding principal amount of any
senior lien mortgage loans on such Mortgaged Properties, will exceed the value
of such Mortgaged Properties to an increasing degree. Accordingly, the actual
rates of delinquencies, foreclosures and losses on such Loans could be higher
than those currently experienced in the home lending industry in general.
Reloading of Debt Could Impair The Ability Of Certain Borrowers To Service
Their Debts, which In Turn Could Result In Higher Rates Of Delinquencies,
Defaults And Losses On The Loans
With respect to Loans which in combination with superior liens have
loan-to-value ratios in excess of 100%, there is a risk that if the related
borrowers relocate, such borrowers will be unable to discharge the Loans in full
from the sale proceeds of the related Mortgaged Properties and any other funds
available to these borrowers, in which case the pool of Loans sold to the Trust
could experience higher rates of delinquencies, defaults and losses. With
respect to Loans, the proceeds of which were used in whole or in part for debt
consolidation, there can be no assurance that, following the debt consolidation,
the related borrower will not incur further consumer debt to third party
lenders. This reloading of debt could impair the ability of such borrowers to
service their debts, which in turn could result in higher rates of
delinquencies, defaults and losses on the Loans.
Loans Acquired From Third Parties May Be Subject To A Higher Incidence Of
Delinquency of Default
Substantially all of the Loans will have been either originated by or on
behalf of ______ or purchased and re-underwritten by ______ in accordance with
_________________________. A significant portion of the Loans will have been
acquired by ______ through purchases from a network of correspondent lenders or
through a portfolio acquisition program. See "The Loans General" herein. All of
such Loans will have been re-underwritten and reviewed for compliance with
______'s underwriting guidelines. ______ may have acquired certain Loans which
were originated by originators that, at the time of origination thereof, were
not approved Federal Housing Administration ("FHA") lenders or approved FNMA or
FHLMC seller/servicers, and therefore did not have an internal quality control
program substantially similar to the FNMA or FHLMC required quality control
programs with respect to the underwriting and origination of such Loans. Such
Loans may be subject to a higher incidence of delinquency or default. As
described herein, ______ will make certain representations and warranties
regarding each Loan and, in the event of a breach of any such representation or
warranty that materially and adversely affects the Noteholders, ______ will be
required either to cure such breach, repurchase the related Loan or Loans or
substitute one or more Qualified Substitute Loans therefor.
Because The Servicer Is under Not Obligation To Advance Scheduled
Monthly Payments Of Principal Or Interest with Respect to Delinquent Loans. The
Amount of Interest Received May Be Less Than The Amount Of Interest
Distributable On The Notes.
In the event of a delinquency or a default with respect to a Loan, the
Servicer will have no obligation to advance scheduled monthly payments of
principal or interest with respect to such Loan. As a result of the foregoing,
the amount of interest received on the Loans during any Due Period may be less
than the amount of interest distributable on the Notes on the related
Distribution Date. Such an occurrence will cause the Class Principal Balances of
the Classes of Notes to decrease at a slower rate relative to the Pool Principal
Balance, resulting in a reduction of the Overcollateralization Amount and, in
some circumstances, an Allocable Loss Amount. However, the Servicer will make
such reasonable and customary expense advances
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with respect to the Loans as generally would be required in accordance with its
servicing practices. See "Description of the Transfer and Servicing
Agreements--Servicing" herein.
The Manner In Which The Servicer Performs Its Servicing Obligations Will
Affect the Amount And Timing Of The Principal And Interest Payments Received On
The Loans
Pursuant to the Sale and Servicing Agreement, the Servicer will perform the
daily loan servicing functions for the Loans that include, without limitation,
the collection of payments from the Loans, the remittance of funds from such
collections for distribution to the holders of the Notes, the bookkeeping and
accounting for such collections, all other servicing activities relating to the
Loans, the preparation of the monthly servicing and remittance reports pursuant
to the Sale and Servicing Agreement and the maintenance of all records and files
pertaining to such servicing activities. Upon the Servicer's failure to remedy
an Event of Default under the Sale and Servicing Agreement, a majority of the
holders of the Notes or the Indenture Trustee or the Owner Trustee on behalf of
the Trust may remove the Servicer and appoint a successor servicer pursuant to
the terms of the Sale and Servicing Agreement. Absent such a replacement, the
holders of the Notes will be dependent upon the Servicer to adequately and
timely perform its servicing obligations and remit to the Indenture Trustee the
funds from the payments of principal and interest received on the Loans. The
manner in which the Servicer, and each Subservicer, as applicable, performs its
servicing obligations will affect the amount and timing of the principal and
interest payments received on the Loans. The principal and interest payments
received on the Loans are the sole source of funds for the distributions due to
the holders of the Notes under the Sale and Servicing Agreement. Accordingly,
the holders of the Notes will be dependent upon the Servicer to adequately and
timely perform its servicing obligations and such performance will affect the
amount and timing of distributions to the holders of the Notes. See "______
_____________, _____________________ The Servicer" and "_____________________
____________________ Delinquency and Loan Loss Experience" herein.
No Assurance Can Be Given That Any Proceeds Or A Significant Amount Of
Proceeds Will Be Recovered From The Liquidation Of Defaulted Loans
Substantially all of the Loans are secured by junior liens, and the related
loans secured by senior liens are not included in the Pool. The primary risk
with respect to any Loan secured by a junior lien is the possibility that
adequate funds will not be received in connection with a foreclosure of the
related Mortgaged Property to satisfy fully both any loan(s) secured by senior
lien(s) and the Loan. In accordance with the loan servicing practices of the
Servicer for home loans secured by junior liens, the Servicer may, in connection
with any Defaulted Loan, (i) pursue the foreclosure of a Defaulted Loan, (ii)
satisfy the senior mortgage(s) at or prior to the foreclosure sale of the
Mortgaged Property, or (iii) advance funds to keep the senior mortgage(s)
current. The Trust will have no source of funds to satisfy the senior
mortgage(s) or make payments due to the senior mortgagee(s), and, therefore,
holders of the Notes should not expect that any senior mortgage(s) will be
satisfied or kept current by the Trust for the purpose of protecting any junior
lien Loan. See "Certain Legal Aspects of the Loans--Junior Mortgages; Rights of
Senior Mortgages" in the Prospectus. Furthermore, it is unlikely that any of the
foregoing methods of realizing upon a defaulted junior lien Loan will be an
economically viable alternative with respect to any Loans having a Combined
Loan-to-Value Ratio that exceeds 100% at the time of default. As a result, the
Servicer may, in accordance with accepted servicing procedures, pursue
alternative methods of servicing Defaulted Loans to maximize proceeds therefrom,
including without limitation, the modification of Defaulted Loans, which, among
other things, may include the abatement of accrued interest or the reduction of
a portion of the outstanding Principal Balance of such Defaulted Loans. The
costs incurred in the collection and liquidation of Defaulted Loans in relation
to the smaller Principal Balances thereof are proportionately higher than with
respect to first-lien single-family mortgage loans, and because substantially
all of the Loans will have Combined Loan-to-Value Ratios at the time of
origination that exceed 100%, losses sustained from Defaulted Loans are likely
to be more severe (and could be total losses) in relation to the outstanding
Principal Balance of such Defaulted Loans. In fact, no assurance can be given
that any proceeds, or a significant amount of proceeds will be recovered from
the liquidation of Defaulted Loans.
There is Limited Historical Delinquency, Loss and Prepayment Information
Since January 1996, the Servicer has substantially increased the volume of
conventional home loans that it has originated, purchased, sold and/or serviced,
and thus, it has limited historical experience with respect to the performance,
including the delinquency and loss experience and the rate of prepayments, of
these conventional home loans, with respect to its entire portfolio of loans and
in particular with respect to such increased volume. Accordingly, it is possible
that neither the delinquency experience and loan loss and liquidation experience
set forth under " _________________ Delinquency and Loss Experience" herein nor
the prepayment scenarios set forth under "Prepayment and Yield Considerations
Weighted Average Lives of the Notes" herein will be indicative of the
performance of the Loans. Prospective investors should make their investment
determination based on the Loan underwriting criteria, the availability of the
credit enhancement described herein, the characteristics of the initial Loans
and other information provided here, and not based on any prior delinquency
experience and loan loss and liquidation experience information set forth herein
or any rate of prepayment assumed herein.
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A Deterioration In Economic Conditions May Affect The Ability Of Borrowers
To Repay Their Loans
For the limited period of time during which loans in the nature of the
Loans have been originated, economic conditions nationally and in most regions
of the country have been generally favorable. A deterioration in economic
conditions could be expected to adversely affect the ability and willingness of
borrowers to repay their Loans; however, because of lenders' limited experience
with loans similar to the Loans, no prediction can be made as to the severity of
the effect of a general economic downturn on the rate of delinquencies and
defaults on the Loans. Because borrowers under the Loans generally have little
or no equity in the related Mortgaged Properties, any significant increase in
the rate of delinquencies and defaults could result in substantial losses to
holders of Notes, in particular the Class B Notes, the Class M-2 Notes and the
Class M-1 Notes. See "Adequacy of the Mortgaged Properties as Security for the
Loans" and "Additional Factors Affecting Delinquencies, Defaults and Losses on
Loans" and "Prepayment and Yield Considerations" above.
Recharacterization Of The Sale Of The Loans As A Borrowing Secured By A
Pledge Could Result In Possible Reductions In The Amounts Available For
Distribution On The Notes.
The Initial Loans have been transferred from ______ to the Depositor, an
affiliate of ______. Each such transfer will be treated by ______ as a sale of
the Initial Loans. ______ has warranted that its transfer to the Depositor is a
sale of ______'s interest in the Loans. The Depositor has warranted that its
transfer to the Trust is a sale of the Depositor interest in the Initial Loans.
In the event of an insolvency of ______ or the Depositor, the receiver or
bankruptcy trustee of such entity may attempt to recharacterize the related sale
of the Initial Loans as a borrowing by such entity secured by a pledge of the
Initial Loans and possible reductions could occur in the amounts thereof
available for distribution on the Notes.
The Underwriting Origination, Servicing And Collection Of The Loans Are
Subject To A Variety Of State And Federal Laws, Public Policies And Principles
Of Equity And May Affect Distributions To The Holders Of The Notes
The underwriting, origination, servicing and collection of the Loans are
subject to a variety of State and Federal laws, public policies and principles
of equity. For example, the Federal District Court for the Eastern District of
Virginia recently announced a decision indicating that Federal law prohibited
lenders from paying independent mortgage brokers a premium for loans with
above-market interest rates. Depending on the provisions of applicable law and
the specific facts and circumstances involved, violations of these laws,
policies or principles may limit the ability of the Servicer to collect all or
part of the principal or interest on the Loans, may entitle the borrower to a
refund of amounts previously paid, and, in addition, could subject the Servicer
to damages and administrative sanctions. If the Servicer is unable to collect
all or part of the principal or interest on any Loans because of a violation of
the aforementioned laws, public policies or general principles of equity, then
the Trust may be delayed or unable to make all distributions owed to the holders
of the Notes to the extent any related losses are not otherwise covered by
amounts available from the credit enhancement provided for the Notes.
Furthermore, depending upon whether damages and sanctions are assessed against
the Servicer or the Depositor, such violations may materially impact (i) the
financial ability of the Servicer to continue to act in such capacity or (ii)
the ability of the Depositor or ______ to repurchase or replace Defective Loans.
See "Risk Factors Consumer Protection Laws" in the Prospectus. ______ will be
required to repurchase or replace any Loan which did not comply with applicable
State and Federal laws and regulations as of the Closing Date. See "Limitations
on Repurchase or Replacement of Defective Loans" below.
The National Bankruptcy Review Commission (the "Bankruptcy Commission"), an
independent commission established under the Bankruptcy Reform Act of 1994 to
study issues and make recommendations relating to the United States Bankruptcy
Code (the "Bankruptcy Code"), recently indicated that it may recommend that
debtors in proceedings under Chapter 13 of the Bankruptcy Code be permitted to
treat the portion of any mortgage debt that exceeds the value of the real
property securing such debt as an unsecured claim if such mortgage is not a
first lien mortgage. If such a change in the Bankruptcy Code were to be enacted,
and if such change were to apply to loans originated prior to enactment, a
substantial majority of the Loans would likely be treated as unsecured debt in a
case under Chapter 13 of the Bankruptcy Code. As a consequence, borrowers who
become Chapter 13 debtors would have substantially less incentive to make
arrangements for repayment of their Loans, and the likelihood that the Trust
Fund would recover any amounts in respect of the related Loans would be remote.
The Bankruptcy Commission is required to submit a report on its findings,
including recommendations for legislation to effect changes to the Bankruptcy
Code, to the President and Congress no later than October 20, 1997. The
Bankruptcy Commission's recommendations will be advisory only; any change in the
Bankruptcy Code must be effected through Congressional action.
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As A Result Of Non-Recordation Of Assignments In Some States, Some
Noteholders Could Lose The Right To Future Payments Of Principal And Interest
From Such Loans And Could Suffer A Loss Of Principal And Interest On The Notes
Subject to confirmation by the Rating Agencies, with respect to the Loans
secured by Mortgaged Properties located in certain states where ______ has been
advised by counsel that recordation of an assignment of mortgage is not
necessary in order to perfect an interest in a Loan, ______ will not be required
to record assignments to the Indenture Trustee of the Mortgages in the real
property records of these states for such Loans, but rather ______, in its
capacity as the Servicer, will retain record title to such Mortgages on behalf
of the Indenture Trustee, then the Noteholders could lose the right to future
payments of principal and interest from such Loans and could suffer a loss of
principal and interest to the extent that such loss is not otherwise covered by
amounts available from the credit enhancement provided for such Notes.
Although the recordation of the assignments of the Mortgages in favor of
the Indenture Trustee is not necessary to effect a transfer of the Loans to the
Indenture Trustee, If ______ or the Depositor were to sell, assign, satisfy or
discharge any Loan prior to recording the related assignments in favor of the
Indenture Trustee, the other parties to such sale, assignment, satisfaction or
discharge may have rights superior to those of the Indenture Trustee. In some
states, in the absence of such recordation of the assignments of the Mortgages,
the transfer to the Indenture Trustee of the Loans may not be effective against
certain creditors or purchasers from ______ or, a trustee in bankruptcy of
______ . In such other parties, creditors or purchasers have rights to the Loans
that are superior to those of the Indenture Trustee, then the Noteholders could
lose the right to future payments of principal and interest from such Loans and
could suffer a loss of principal and interest to the extent that such loss is
not otherwise covered by amounts available from the credit enhancement provided
for such Notes.
Limitations on Repurchase or Replacement of Defective Loans will Mean That
Resulting Losses Will Be Borne By The Holders Of The Notes
Pursuant to the Sale and Servicing Agreement, each of the Depositor and
______ has agreed to cure in all material respects any breach of its respective
representations and warranties set forth in the Sale and Servicing Agreement
with respect to Defective Loans. If the Depositor or ______ cannot cure such
breach within a specified period of time, it will be required to repurchase such
Defective Loans from the Trust or substitute other loans for such Defective
Loans. Although a significant portion of the Loans will have been acquired from
unaffiliated correspondent lenders, the Depositor and ______ will make the
representations and warranties with respect to each Loan. For a summary
description of the Depositor's or ______'s representations and warranties, See
"The Agreements Assignment of Primary Assets" in the Prospectus.
No assurance can be given that, at any particular time, the Depositor or
______ will be capable, financially or otherwise, of repurchasing or replacing
any Defective Loan(s) in the manner described above. If ______ repurchases, or
is obligated to repurchase, any defective home loan(s) from any other series of
asset backed securities, its financial ability to repurchase any Defective
Loan(s) from the Trust may be adversely affected. In addition, other events
relating to the Depositor or ______ and its home lending can occur that would
adversely affect its financial ability to repurchase Defective Loans from the
Trust, including, without limitation, the sale or other disposition of all or
any significant portion of its assets. If the Depositor or ______ is unable to
repurchase or replace a Defective Loan, then the Servicer, on behalf of the
Trust, will utilize customary servicing practices to recover the maximum amount
possible with respect to such Defective Loan, and any resulting loss will be
borne by the holders of the Notes to the extent that such loss is not otherwise
covered by amounts available from the credit enhancement provided for the Notes.
______, in its capacity as seller of the Loans to the Depositor, has agreed to
be bound by the same requirements as the Depositor with respect to Defective
Loans. See "______ Savings Bank, Federal Savings Bank" herein.
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THE TRUST
General
The Trust, _______________ Trust ________, will be a business trust formed
under the laws of the State of Delaware pursuant to the Trust Agreement for the
transactions described in this Prospectus Supplement. After its formation, the
Trust will not engage in any activity other than (i) acquiring, holding and
managing the Loans and the other assets of the Trust and proceeds therefrom,
(ii) issuing the Notes and any Residual Interest, (iii) making payments on the
Notes and any Residual Interest and (iv) engaging in other activities that are
necessary, suitable or convenient to accomplish the foregoing or are incidental
thereto or in connection therewith.
The Residual Interests in the aggregate represent the entire residual
interest in the assets of the Trust. The Residual Interests, together with the
Notes, will be delivered by the Trust to the Depositor as consideration for the
delivery of the Initial Loans and the deposit of the Original Pre-Funded Amount
pursuant to the Sale and Servicing Agreement.
On the Closing Date, the Trust will purchase Initial Loans expected to have
an aggregate principal balance of approximately $___________ as of the Initial
Cut-Off Date (the actual aggregate unpaid principal balance (as of the Initial
Cut-Off Date) of the Initial Loans, the "Original Pool Principal Balance") from
the Depositor pursuant to a sale and servicing agreement dated as of
______________ (the "Sale and Servicing Agreement"), among the Trust, the
Depositor, the Servicer, the Indenture Trustee and the Co-Owner Trustee. On or
prior to _______________, the Trust may purchase additional loans (the
"Subsequent Loans" and together with the Initial Loans, the "Loans") having an
aggregate unpaid principal balance of up to $_______________ (as adjusted
pursuant to the immediately following sentence, the "Original Pre-Funded
Amount"). To the extent that the Original Pool Principal Balance is more or less
than the amount set forth in the second preceding sentence, the Original
Pre-Funded Amount will be decreased or increased by a corresponding amount
provided that the amount of any such adjustment shall not exceed $____________.
The assets of the Trust will consist of the Loans secured by Mortgages. See
"The Loans" herein. The assets of the Trust will also include (i) payments of
interest and principal received after the applicable Cut-Off Date in respect of
the Loans; (ii) amounts on deposit in the Collection Account (excluding
investment earnings thereon), Note Distribution Account, Pre-Funding Account,
Capitalized Interest Account and Certificate Distribution Account; and (iii)
certain other ancillary or incidental funds, rights and properties related to
the foregoing.
The Trust will include the unpaid Principal Balance of each Loan as of its
applicable Cut-Off Date (the "Cut-Off Date Principal Balance"). With respect to
any date, the "Pool Principal Balance" will be equal to the aggregate of the
Principal Balances of all Loans as of the last day of the preceding Due Period.
The "Principal Balance" of a Loan on any day is equal to the outstanding unpaid
principal balance of the Loan as of the close of business on the last day of the
preceding Due Period (after giving effect to all payments received thereon and
the allocation of any Net Loan Losses thereto pursuant to clause (B) of the
definition thereof); provided, however, that any Loan that became a Liquidated
Loan during the preceding Due Period shall have a Principal Balance of zero.
With respect to any Distribution Date, any Loans repurchased in the month of
such Distribution Date prior to the related Determination Date in such month
shall be deemed (i) to have been repurchased during the related Due Period and
(ii) to have a Principal Balance of zero as of the end of such related Due
Period.
The Servicer will service the Loans pursuant to the Sale and Servicing
Agreement (collectively with the Indenture, the Administration Agreement and the
Trust Agreement, the "Transfer and Servicing Agreements") and will be
compensated for such services as described under "Description of the Transfer
and Servicing Agreements--Servicing" herein.
The Trust's principal offices are located in ___________, Delaware, in care
of ____________________, as Owner Trustee, at the address set forth below under
"--The Owner Trustee and Co-Owner Trustee."
The Owner Trustee and Co-Owner Trustee
______________________will act as the Owner Trustee under the Trust
Agreement. __________________ is a _______________ banking corporation and its
principal offices are located at _____________________.
Certain functions of the Owner Trustee under the Trust Agreement and the
Sale and Servicing Agreement will be performed by _________________________
___________, in its capacity as Co-Owner Trustee under the Trust Agreement and
the Sale and Servicing Agreement, including maintaining the Certificate
Distribution Account and making distributions therefrom. However, upon the
occurrence and continuation of an event of default under the Indenture, the
Co-Owner Trustee will resign and the Owner Trustee will assume the duties of the
Co-Owner Trustee under the Trust Agreement and the Sale and Servicing Agreement.
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THE LOANS
General
All of the Loans will be home loans (i.e., not insured or guaranteed by a
governmental agency) for which the related proceeds were used to finance (i)
property improvements, (ii) the acquisition of personal property such as home
appliances or furnishings, (iii) debt consolidation, (iv) the refinancing of
one- to four-family residential properties (which may include cash-out to the
borrower) or (v) a combination of property improvements, debt consolidation and
other consumer purposes. Substantially all of the Mortgages for the Loans will
be junior (i.e., second, third, etc.) in priority to one or more senior liens on
the related Mortgaged Properties, which will consist primarily of owner-occupied
single-family residences. As of the Statistic Calculation Date, approximately
_______% of the Loans will be secured by liens on Mortgaged Properties in which
the borrowers have little or no equity therein (i.e., the related Combined
Loan-to-Value Ratios equal or exceed ____%) at the time of origination of such
Loans. The characteristics of the Initial Loans actually delivered on the
Closing Date are not expected to vary materially from the characteristics of
those of such Loans that have been identified on the Statistic Calculation Date
and the characteristics of the Subsequent Loans are not expected to vary
materially from those of the Initial Loans.
______ originates and purchases loans principally through its nationwide
network of correspondents, other third party originators and independent
mortgage brokers.
For a description of the underwriting criteria applicable to the Loans, See
"_________________, ______________________ Underwriting Guidelines" herein. All
of the Initial Loans will be sold by ______ to the Depositor, whereupon the
Depositor will sell the Loans to the Trust pursuant to the Sale and Servicing
Agreement. All of the Subsequent Loans will be sold by ______ to the Depositor
for and by the Depositor to the Trust pursuant to a Subsequent Transfer
Agreement. Pursuant to the Indenture, the Trust will pledge and assign the Loans
to the Indenture Trustee for the benefit of the holders of the Notes. The Trust
will be entitled to all payments of interest and principal received in respect
of the Loans after the applicable Cut-Off Dates.
Payments on the Loans
The Loans generally provide for a schedule of payments which, if timely
paid, will be sufficient to amortize fully the principal balance of the related
Loan on or before its maturity date. The Loans have scheduled monthly payment
dates which occur throughout a month. Interest with respect to the Loans will
accrue on an "actuarial interest" method. No Loan provides for deferred interest
or negative amortization.
The actuarial interest method provides that interest is charged and
payments are due as of a scheduled day of each month which is fixed at the time
of origination, and payments received after a grace period following such
scheduled day are subject to late charges. For example, a scheduled payment on a
Loan received either earlier or later (other than delinquent) than the scheduled
due date thereof will not affect the amortization schedule or the relative
application of such payment to principal and interest in respect of such Loan.
Characteristics of Loans
The following is a brief description of certain terms of those of the
Initial Loans that have been identified as of the Statistic Calculation Date.
Neither the characteristics of the Initial Loans as of the Closing Date nor the
characteristics of the Subsequent Loans are expected to vary materially from the
characteristics of those of the Initial Loans that have been identified as of
the Statistic Calculation Date.
The Initial Loans will have the characteristics set forth below and in the
tables that follow.
This description does not take into account any (a) Initial Loans not
identified as of the date of this Prospectus Supplement and (b) Subsequent Loans
that may be sold to the Trust during the Pre-Funding Period through the
application of amounts on deposit in the Pre-Funding Account. In addition, prior
to the Closing Date, ______ may remove any of the Initial Loans intended to be
transferred to the Trust, substitute comparable loans therefor, or add
comparable loans thereto; provided, however, that the aggregate principal
balance of Initial Loans so replaced, added or removed will not exceed ____% of
the Original Pool Principal Balance. To the extent that, prior to the Closing
Date, Loans are removed from or sold to the Trust, an amount equal to the
aggregate principal balances of such Loans will be added to or deducted from,
respectively, the Original Pre-Funding Amount on the Closing Date; provided that
the amount of any such adjustment may not exceed $____________. As a result, the
statistical information presented below regarding the characteristics of the
Initial Loans expected to be sold to the Trust as of the date of this Prospectus
Supplement may vary in certain respects from comparable information based on the
actual Initial Loans sold to the Trust on the Closing Date. In addition, after
the _____________ Cut-Off Date, the characteristics of the actual Loans may vary
from the information below due to a number of factors, including prepayments
after the ____________ Cut-Off
22
<PAGE>
Date or the purchase of any Subsequent Loans after the Closing Date. See
"Conveyance of Subsequent Loans" below. A schedule of the Initial Loans sold to
the Trust as of the Closing Date will be attached to the Sale and Servicing
Agreement. A current report on Form 8-K containing a description of the Loans as
of the end of the Pre-Funding Period will be filed with the Commission.
Initial Loan Statistics
As of the Statistic Calculation Date, the Initial Loans consisted of
_______ Loans secured by mortgages or deeds of trust on Mortgaged Properties
located in ___ States and the District of Columbia. As of the Statistic
Calculation Date, the aggregate of the Principal Balances of the Initial Loans
was approximately $_______________ (the "Statistic Principal Balance"). As of
the Statistic Calculation Date, Initial Loans representing ________% of the
Statistic Principal Balance were secured by first liens, Initial Loans
representing approximately _______% of the Statistic Principal Balance were
secured by second liens. As of the Statistic Calculation Date, Adjustable Rate
Loans represented ______% of the Statistic Principal Balance and the remainder
of the Initial Loans have fixed Loan Rates ("Fixed Rate Loans"). The lowest
Statistic Calculation Date principal balance of any Initial Loan was $__________
and the highest was $___________. The average Statistic Calculation Date
principal balance of the Initial Loans was approximately $___________. The
weighted average remaining term to stated maturity of the Initial Loans as of
the Statistic Calculation Date was approximately ______ months. As of the
Statistic Calculation Date, the weighted average number of months that have
elapsed since origination of the Initial Loans was approximately 1 month. The
lowest and highest Combined Loan-to-Value Ratios of the Initial Loans at
origination were ______% and ____%, respectively. As of the Statistic
Calculation Date approximately ____ Loans representing approximately ______% of
the Statistic Principal Balance had a combined Loan-to-Value Ratio of less than
_____%. The weighted average Combined Loan-to-Value Ratio of the Initial Loans
as of the Statistic Calculation Date was approximately _______%.
Each Adjustable Rate Loan bears interest at an adjustable rate. The
interest rate borne by each Adjustable Rate Loan first adjusts on the date set
forth in the related Note for the Adjustable Rate Loans and then every six
months thereafter (each such date thereafter, a "Change Date"). The Loan Rate
with respect to each Adjustable Rate Loan will adjust on each applicable Change
Date to equal the sum of (i) the London Interbank Offered Rate for six-month
U.S. dollar deposits (the "LIBOR Index") either as announced by FNMA, and
available as of the date 45 days before each Change Date, or as published in The
Wall Street Journal generally on a day of the month preceding the month of the
Change Date and (ii) the gross margin (the "Gross Margin") set forth in the
related Note subject to rounding and to the effects of the Periodic Rate Cap (as
defined below), the applicable ______time Cap (as defined below) and the
applicable ______time Floor (as defined below).
The Initial Loans that are Fixed Rate Loans bear interest at fixed Loan
Rates that ranged from approximately ____% to approximately _______% per annum
as of the Statistic Calculation Date. The weighted average Loan Rate for the
Initial Loans that are Fixed Rate Loans was approximately _______% per annum as
of the Statistic Calculation Date.
As of the Statistic Calculation Date, the Loan Rates for the Adjustable
Rate Loans ranged from _______% to ______% and the Gross Margins for the
Adjustable Rate Loans ranged from ______% to ______%. As of the Statistic
Calculation Date, the weighted average Loan Rate of the Adjustable Rate Loans
was _______% and the weighted average Gross Margin of the Adjustable Rate Loans
was approximately _______%. The "Periodic Rate Cap" limits changes in the Rate
for each Adjustable Rate Loan on each Change Date to 100 to 150 basis points in
the case of Adjustable Rate Loans based on a LIBOR Index. The "______time Cap"
for each Adjustable Rate Loan is the rate which is generally 600 to 700 basis
points greater than the initial Loan Rate for such Adjustable Rate Loan, and the
______time Floor is the lowest rate to which the Loan Rate can adjust for such
Adjustable Rate Loan. As of the Statistic Calculation Date the ______time Caps
of the Adjustable Rate Loans ranged from ______% to ______% and the ______time
Floors of the Adjustable Rate Loans ranged from ______% to _______%. As of the
Statistic Calculation Date, the weighted average ______time Cap of the
Adjustable Rate Loans was approximately ______% and the weighted average
______time Floor was approximately ______%. As of the Statistic Calculation
Date, the number of months to the next Change Date of the Adjustable Rate Loans
ranged from two months to six months. As of the Statistic Calculation Date, the
weighted average months to next Change Date was approximately _____ months. The
Adjustable Rate Loans do not provide for negative amortization.
As of the Statistic Calculation Date, approximately _____% by principal
balance of the Initial Loans (each of which was a Fixed Rate Loan) had final
payments substantially in excess of the other monthly payments (the "Balloon
Loans") and the remainder of the Initial Loans were fully amortizing loans
having original stated maturities of not more than 30 years. As of the Statistic
Calculation Date, no Initial Loan was scheduled to mature later than September
_____.
As of the Closing Date, no Initial Loan will be 30 or more days past due.
As of the Statistic Calculation Date, _______% of the Mortgaged Properties
by principal balance of the related Loan were owner-occupied (based on
representations of the related borrowers at origination). As of the Statistic
Calculation Date, the obligors on Initial Loans representing approximately
89.08% of the Statistic Principal Balance had "A", "A+", "Ax" or "A-"
23
<PAGE>
credit ratings, under ______'s programs, the obligors on Initial Loans
representing approximately 10.82% of the Statistic Principal Balance had "B" or
"B+" credit ratings under ______'s programs and the obligors on Initial Loans
representing approximately _______% of the Statistic Principal Balance had "C"
or "Cx" credit ratings under ______'s programs.
The following tables are based on certain statistical characteristics with
respect to those of the Initial Loans that have been identified as of the
Statistic Calculation Date. The sum of the percentages in the following tables
may not equal the total due to rounding.
24
<PAGE>
FIXED RATE LOANS
Geographic Distribution of the Mortgaged Properties
% of Aggregate
Principal Balance
Number of Aggregate of Fixed Rate
State Initial Loans Principal Balance Loans
- ----------------- --------------- ----------------- -----------------
_________________ _____ $ _______ ______%
_________________ _____ _______ ______
_________________ _____ _______ ______
_________________ _____ _______ ______
_________________ _____ _______ ______
_________________ _____ _______ ______
_________________ _____ _______ ______
_________________ _____ _______ ______
_________________ _____ _______ ______
_________________ _____ _______ ______
_________________ _____ _______ ______
_________________ _____ _______ ______
_________________ _____ _______ ______
_________________ _____ _______ ______
_________________ _____ _______ ______
_________________ _____ _______ ______
_________________ _____ _______ ______
25
<PAGE>
% of Aggregate
Principal Balance
Number of Aggregate of Fixed Rate
State Initial Loans Principal Balance Loans
- - ----------------- -------------- ----------------- ---------------
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
-------------- ----------------- -----------------
Total ....... _____ $ _______ ______%
============== ================= =================
26
<PAGE>
Loan Rates
% of Aggregate
Principal Balance
Range of Number of Aggregate of Fixed Rate
Loan Rates Initial Loans Principal Balance Loans
- - ------------------------ -------------- ----------------- ---------------
8.000% to 8.999% ...... _____ $_______ ______%
9.000% to 9.999% ...... _____ _______ ______
10.000% to 10.999% ..... _____ _______ ______
11.000% to 11.999% ..... _____ _______ ______
12.000% to 12.999% ..... _____ _______ ______
13.000% to 13.999% ..... _____ _______ ______
14.000% to 14.999% ..... _____ _______ ______
15.000% to 15.999% ..... _____ _______ ______
16.000% to 16.999% ..... _____ _______ ______
17.000% to 17.999% ..... _____ _______ ______
-------------- ----------------- -----------------
Total ....... _____ $ _______ ______%
============== ================= =================
As of the Statistic Calculation Date, the weighted average Loan Rate of the
Initial Loans that are Fixed Rate Loans was approximately _________% per annum.
Mortgaged Property Types
% of Aggregate
Mortgaged Principal Balance
Property Number of Aggregate of Fixed Rate
Types Initial Loans Principal Balance Loans
- - ------------------------ -------------- ----------------- ---------------
One Family ............. _____ $_______ ______%
Two- to Four- Family ... _____ _______ ______
Condominium ............ _____ _______ ______
PUD .................... _____ _______ ______
-------------- ----------------- -----------------
Total ....... _____ $ _______ ______%
============== ================= =================
27
<PAGE>
Combined Loan-to-Value Ratios***
<TABLE>
<CAPTION>
Range of % of Aggregate
Combined Aggregate Average Principal Balance
Loan-to-Value Number of Principal Principal of Fixed Rate
Ratios Initial Loans Balance Balance Loans
- - -------------------------------- -------------- --------- --------- -----------------
<S> <C> <C> <C> <C>
less than or equal to 49.99% ... ________ $______ _______ _______%
50.00% to 59.99% ............... ________ ______ _______ _______
60.00% to 69.99% ............... ________ ______ _______ _______
70.00% to 79.99% ............... ________ ______ _______ _______
80.00% to 89.99% ............... ________ ______ _______ _______
90.00% to 99.99% ............... ________ ______ _______ _______
100.00% to 109.99% ............. ________ ______ _______ _______
110.00% to 119.99% ............. ________ ______ _______ _______
120.00% to 125.00% ............. ________ ______ _______ _______
-------------- --------- --------- -----------------
Total ................ $______ _______ 100.00%
============== ========= ========= =================
</TABLE>
As of the Statistic Calculation Date, the weighted average combined
loan-to-value ratio of the Initial Loans that are Fixed Rate Loans was ________.
FICO Scores
<TABLE>
<CAPTION>
Weighted % of Aggregate
Aggregate Average Principal Balance
Number of Principal FICO of Fixed Rate
Range of FICO Scores Initial Loans Balance Scores Loans
- - -------------------------------- -------------- --------- --------- -----------------
<S> <C> <C> <C> <C>
600 to 619 ..................... ________ $______ _______ _______%
620 to 639 ..................... ________ ______ _______ _______
640 to 659 ..................... ________ ______ _______ _______
660 to 679 ..................... ________ ______ _______ _______
680 to 699 ..................... ________ ______ _______ _______
700 to 719 ..................... ________ ______ _______ _______
</TABLE>
28
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
720 to 739 ..................... ________ ______ _______ _______
740 to 759 ..................... ________ ______ _______ _______
760 to 779 ..................... ________ ______ _______ _______
780 to 799 ..................... ________ ______ _______ _______
800 to 819 ..................... ________ ______ _______ _______
-------------- --------- --------- -----------------
Total .................... ________ $______ _______ 100.00%
============== ========= ========= =================
</TABLE>
As of the Statistic Calculation Date, the weighted average FICO scores of
the Initial Loans that are Fixed Rate Loans was _______.
29
<PAGE>
Occupancy
% of Aggregate
Principal Balance
Number of Aggregate of Fixed Rate
Initial Loans Principal Balance Loans
- - ---------------------- -------------- ----------------- ---------------
Non-Owner-Occupied ... _____ $_______ ______%
Owner-Occupied ....... _____ _______ ______
-------------- ----------------- -----------------
Total _____ $_______ 100.00%
============== ================= =================
Purpose of Loan
% of Aggregate
Principal Balance
Number of Aggregate of Fixed Rate
Purpose of Loan Initial Loans Principal Balance Loans
- - ---------------------- -------------- ----------------- ---------------
Cash Out ............. _____ $_______ ______%
Purchase ............. _____ _______ ______
Refinance ............ _____ _______ ______
-------------- ----------------- -----------------
Total ................ _____ $_______ 100.00%
============== ================= =================
30
<PAGE>
FIXED RATE TABLE Principal Balances
% of Aggregate
Aggregate
Number of Principal Balance
Range of Initial Principal of Fixed Rate
Principal Balances Loans Balance Loans
- - ------------------------------------ --------- --------- ---------------
Less than or equal to $15,000.00 ... _______ $______ __________%
$15,000.01 to $20,000.00 ........... _______ ______ __________
$20,000.01 to $25,000.00 ........... _______ ______ __________
$25,000.01 to $30,000.00 ........... _______ ______ __________
$30,000.01 to $35,000.00 ........... _______ ______ __________
$35,000.01 to $40,000.00 ........... _______ ______ __________
$40,000.01 to $45,000.00 ........... _______ ______ __________
$45,000.01 to $50,000.00 ........... _______ ______ __________
$50,000.01 to $55,000.00 ........... _______ ______ __________
$55,000.01 to $60,000.00 ........... _______ ______ __________
$60,000.01 to $65,000.00 ........... _______ ______ __________
$65,000.01 to $70,000.00 ........... _______ ______ __________
$70,000.01 to $75,000.00 ........... _______ ______ __________
$75,000.01 to $80,000.00 ........... _______ ______ __________
$80,000.01 to $85,000.00 ........... _______ ______ __________
Greater than or equal to $85,000.01 _______ ______ __________
--------- --------- -----------------
Total _______ $______ 100.00%
========= ========= =================
31
<PAGE>
Remaining Terms to Maturity
% of Aggregate
Number of Aggregate
Initial Principle Balance
Range of Remaining Principal of Fixed Rate
Terms to Maturity Loans Balance Loans
- - ------------------------------------ --------- --------- ---------------
Less than or equal to 149 Months ... _______ $______ __________%
150 to 179 Months .................. _______ ______ __________
180 to 209 Months .................. _______ ______ __________
210 to 239 Months .................. _______ ______ __________
240 to 269 Months .................. _______ ______ __________
270 to 299 Months .................. _______ ______ __________
300 to 329 Months .................. _______ ______ __________
--------- --------- -----------------
Total .................. _______ $______ 100.00%
========= ========= =================
As of the Statistic Calculation Date, the weighted average original term to
maturity of the Initial Loans that are Fixed Rate Loans was _______ months.
As of the Statistic Calculation Date, the weighted average remaining term
to maturity of the Initial Loans that are Fixed Rate Loans was _______ months.
32
<PAGE>
ADJUSTABLE RATE SECTION ADJUSTABLE RATE LOANS
Geographic Distribution of the Mortgaged Properties
% of Aggregate
Number of
Initial Principal Balance
Aggregate of Fixed Rate
State Loans Principal Balance Loans
- - ----------------- --------------- ----------------- ---------------
____________ _____ $ _______ ______%
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
33
<PAGE>
% of Aggregate
Number of
Initial Principal Balance
Aggregate of Adjustable Rate
State Loans Principal Balance Loans
- - ----------------- --------------- ----------------- ---------------
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
-------------- ----------------- -----------------
Total ....... _____ $ _______ 100.00%
============== ================= =================
34
<PAGE>
Loan Rates (as of the Statistic Calculation Date)
% of Aggregate
Number of Aggregate
Initial Principal Principal Balance
Range of of Adjustable Rate
Loan Rates Loans Balance Loans
- - ------------------------ -------------- ----------------- ---------------
9.000% to 9.999% ...... _____ $_______ ______%
10.000% to 10.999% ..... _____ _______ ______
11.000% to 11.999% ..... _____ _______ ______
12.000% to 12.999% ..... _____ _______ ______
13.000% to 13.999% ..... _____ _______ ______
14.000% to 14.999% ..... _____ _______ ______
-------------- ----------------- -----------------
TOTAL ....... _____ $_______ ______%
============== ================= =================
As of the Statistic Calculation Date, the weighted average Loan Rate of the
Initial Loans that are Adjustable Rate Loans was _______%.
Gross Margins
% of Aggregate
Principal Balance
Number of Aggregate of Adjustable Rate
Margin Initial Loans Principal Balance Loans
- - --------------------- --------------- ----------------- ---------------
4.000% to 4.999% .... _____ $_______ ______%
5.000% to 5.999% .... _____ _______ ______
6.000% to 6.999% .... _____ _______ ______
7.000% to 7.999% .... _____ _______ ______
8.000% to 8.999% .... _____ _______ ______
--------------- ----------------- -----------------
TOTAL ..... _____ $_______ 100.00%
=============== ================= =================
As of the Statistic Calculation Date, the weighted average Gross Margin for
the Initial Loans that are Adjustable Rate Loans was _____%.
35
<PAGE>
______time Caps
% of Aggregate
Aggregate Principal Balance
Number of Principal of Adjustable Rate
Lifetime Cap Initial Loans Balance Loans
- - -------------------------- ------------- ---------- --------------
15.001% to 16.000% ....... _____ $_______ ______%
16.001% to 17.000% ....... _____ _______ ______
17.001% to 18.000% ....... _____ _______ ______
18.001% to 19.000% ....... _____ _______ ______
19.001% to 20.000% ....... _____ _______ ______
Greater than 20.00% ...... _____ _______ ______
------------- ---------- ----------------
TOTAL .................... _____ $_______ 100.00%
============= ========== ================
As of the Statistic Calculation Date, the weighted average Lifetime Cap for
the Initial Loans that are Adjustable Rate Loans was ______%.
Lifetime Floors
% of Aggregate
Aggregate Principal Balance
Number of Principal of Adjustable Rate
Lifetime Floor Initial Loans Balance Loans
- - --------------------------------- ------------- ---------- --------------
less than or equal to 11.000% ... _____ $_______ ______%
11.001% to 12.000% .............. _____ _______ ______
12.001% to 13.000% .............. _____ _______ ______
13.001% to 14.000% .............. _____ _______ ______
Greater than 14.000% ............ _____ _______ ______
------------- ---------- ----------------
TOTAL ........................... _____ $_______ 100.00%
============= ========== ================
As of the Statistic Calculation Date, the weighted average Lifetime Floor
for the Initial Loans that are Adjustable Rate Loans was _____%
36
<PAGE>
Mortgaged Property Types
Number of % of Aggregate
Initial
Mortgaged Aggregate Principal Balance
Property of Adjustable Rate
Types Loans Principal Balance Loans
- - ------------------------ -------------- ----------------- --------------
One Family ............. _____ $_______ ______%
Two- to Four- Family ... _____ _______ ______
Condominium ............ _____ _______ ______
-------------- ----------------- -----------------
Total ....... _____ $ _______ 100.00%
============== ================= =================
Combined Loan-to-Value Ratios
<TABLE>
<CAPTION>
% of Aggregate
Range of
combined Aggregate Average Principal Balance
Loan-to-Value Number of Principal Principal of Adjustable Rate
Ratios Initial Loans Balance Balance Loans
- - -------------------------------- -------------- --------- --------- -----------------
<S> <C> <C> <C> <C>
70.00% to 79.99% ............... ________ $______ $_______ _______%
80.00% to 89.99% ............... ________ ______ _______ _______
90.00% to 99.99% ............... ________ ______ _______ _______
100.00% to 109.99% ............. ________ ______ _______ _______
110.00% to 119.99% ............. ________ ______ _______ _______
120.00% to 125.00% ............. ________ ______ _______ _______
-------------- --------- --------- -----------------
Total ................ $______ $_______
============== ========= ========= =================
</TABLE>
As of the Statistic Calculation Date, the weighted average Combined
Loan-to-Value Ratio of the Initial Loans that are Adjustable Rate Loans was
_______%.
37
<PAGE>
FICO Scores
<TABLE>
<CAPTION>
% of Aggregate
Weighted
Aggregate Average Principal Balance
Number of Principal FICO of Adjustable Rate
Range of FICO Scores Initial Loans Balance Scores Loans
- - -------------------------------- -------------- --------- --------- -----------------
<S> <C> <C> <C> <C>
600 to 619 ..................... ________ $______ _______ _______%
620 to 639 ..................... ________ ______ _______ _______
640 to 659 ..................... ________ ______ _______ _______
660 to 679 ..................... ________ ______ _______ _______
680 to 699 ..................... ________ ______ _______ _______
700 to 719 ..................... ________ ______ _______ _______
720 to 739 ..................... ________ ______ _______ _______
740 to 759 ..................... ________ ______ _______ _______
760 to 779 ..................... ________ ______ _______ _______
780 to 799 ..................... ________ ______ _______ _______
800 to 819 ..................... ________ ______ _______ _______
-------------- --------- --------- -----------------
Total .................... ________ $______ _______ _______%
============== ========= ========= =================
</TABLE>
As of the Statistic Calculation Date, the weighted average FICO scores of
the Initial Loans that are Adjustable Rate Loans was ________.
38
<PAGE>
Occupancy
The Mortgaged Property relating to each of the Adjustable Rate Loans was,
based on representations made by the borrower at the closing of the Loan, owner
occupied.
% of Aggregate
Principal Balance
Number of Aggregate of Adjustable Rate
Purpose of Loan Initial Loans Principal Balance Loans
- - ---------------------- -------------- ----------------- ---------------
Cash Out ............. _____ $_______ ______%
Purchase ............. _____ _______ ______
Refinance ............ _____ _______ ______
-------------- ----------------- -----------------
Total ................ _____ $_______ 100.00%
============== ================= =================
Principal Balances
% of Aggregate
Aggregate
Number of Principal Balance
Range of Initial Principal of Adjustable Rate
Principal Balances Loans Balance Loans
- - ------------------------------------ --------- --------- ---------------
Less than or equal to $20,000.00 ... _______ $______ __________%
$20,000.01 to $25,000.00 ........... _______ ______ __________
$25,000.01 to $30,000.00 ........... _______ ______ __________
$30,000.01 to $35,000.00 ........... _______ ______ __________
$35,000.01 to $40,000.00 ........... _______ ______ __________
$40,000.01 to $45,000.00 ........... _______ ______ __________
greater than $50,000.00 ........... _______ ______ __________
--------- --------- -----------------
Total _______ $______ 100.00%
========= ========= =================
39
<PAGE>
Remaining Terms to Maturity
% of Aggregate
Aggregate
Number of Principal Balance
Range of Remaining Initial Principal of Adjustable Rate
Terms to Maturity Loans Balance Loans
- - ------------------------------------ --------- --------- ----------------
___________ ........................ _______ $______ __________%
___________ ........................ _______ ______ __________
___________ ........................ _______ ______ __________
___________ ........................ _______ ______ __________
___________ ........................ _______ ______ __________
___________ ........................ _______ ______ __________
--------- --------- -----------------
_______ $______ 100.00%
========= ========= =================
As of the Statistic Calculation Date, the weighted average original term to
maturity for the Initial Loans that are Adjustable Rate Loans was ______ months.
As of the Statistic Calculation Date, the weighted average remaining term
for the Initial Loans that are Adjustable Rate Loans was _______ months.
40
<PAGE>
Conveyance of Subsequent Loans
The Sale and Servicing Agreement permits the Trust to purchase from ______,
subsequent to the Closing Date and prior to _______________, Subsequent Loans in
an amount not to exceed the Original Pre-Funded Amount in aggregate principal
balance for inclusion in the Trust. Accordingly, the statistical characteristics
of the Loans after giving effect to the acquisition of any Subsequent Loans will
likely differ from the information specified above (which is based exclusively
on the Initial Loans as of the Statistic Calculation Date). The date or dates on
which the Trust acquires the Subsequent Loans are referred to herein as
"Subsequent Transfer Dates." Any Subsequent Loans conveyed to the Trust Fund
will be subject to the approval of and must satisfy criteria established by the
Rating Agencies and are not expected to cause the characteristics of the Loans
to vary materially in the aggregate from the characteristics of the Initial
Loans.
[Description of the Servicer]
Delinquency and Loan Loss Experience
The following tables set forth information relating to the delinquency and
loan loss experience on the mortgage loans included in the Servicer's servicing
portfolio for the periods shown. The delinquency and loan loss experience
represents the historical experience of the Servicer, and there can be no
assurance that the future experience on the Loans in the Trust will be the same
as, or more favorable than, that of the total mortgage loans in the Servicer's
servicing portfolio. See "Risk Factors--Additional Factors Affecting
Delinquencies, Defaults and Losses on Loans -- Limited Historical Delinquency,
Loss and Prepayment Information."
Delinquency and Foreclosure Experience
(Dollars in Thousands)
<TABLE>
<CAPTION>
At _______________ At ________________ At ________________
---------------------------------------------------------------------------------------------------------------------
Number % of % of Number % of % of Number % of
Delinquency of Loans Loans Amount Amount of Loans Loans Amount Amount of Loans Loans
Status (1) Serviced Serviced Serviced Serviced Serviced Serviced Serviced Serviced Serviced Serviced
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
30 to 59 _____ _____% $_____ _____% _____ _____% _____ _____% _____ _____%
60 to 89 _____ _____ _____ _____ _____ _____ _____ _____ _____ _____
90 + (2) _____ _____ _____ _____ _____ _____ _____ _____ _____ _____
Bankruptcy _____ _____ _____ _____ _____ _____ _____ _____ _____ _____
Foreclosure _____ _____ _____ _____ _____ _____ _____ _____ _____ _____
REO (3) _____ _____ _____ _____ _____ _____ _____ _____ _____ _____
====================================================================================================================================
Total _____ _____% $_____ _____% _____ _____% $_____ _____% _____ _____%
</TABLE>
- - ----------
(1) The past due period is based on the actual number of days that a
payment is contractually past due. A loan as to which a monthly
payment was due 60-89 days prior to the reporting period is considered
60-89 days past due, etc.
(2) Statistic for 90+ delinquencies does not include loans in bankruptcy
or foreclosure.
(3) An "REO Property" is a property acquired and held as a result of
foreclosure or deed in lieu of foreclosure.
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<PAGE>
Total Servicing Portfolio
(Dollars in Thousands)
At Or For The
At Or For The At Or For The Six Months
Year Ended Year Ended
__________ __________ __________
_____________ _____________ _____________
Servicing portfolio at period end $__________ $__________ $__________
Average outstanding (1) $__________ $__________ $__________
Number of loans outstanding __________ __________ __________
Owned Portfolio and
Loan Charge-Off Experience
(Dollars in Thousands)
At Or For The
At Or For The At Or For The Six Months
Year Ended Year Ended Ended
__________ __________ __________
_____________ _____________ _____________
Owned portfolio at period end $__________ $__________ $__________
Average outstanding owned
portfolio $__________ $__________ $__________
Loan charge-offs __________ __________ __________
Loan recoveries __________ __________ __________
Net loan charge-offs __________ __________ __________
Net loan charge-offs as a
percentage of the average
outstanding (2) __________% __________% __________%
Net loan charge-offs as a
percentage of the portfolio
at period end (2) __________% __________% __________%
- - ----------
(1) "Average outstanding" presented is the arithmetic average of the end of
month principal balances of the loans in __________'s servicing portfolio
outstanding at the close of business for each period.
(2) Percentages presented are for the Servicer's owned portfolio only. The loss
percentages for loans serviced for others is not available because in many
instances the servicing client handles the disposition of foreclosed
property.
While the above delinquency and foreclosure and loan charge-off experience
reflect the Servicer's historical experiences at the dates and for the periods
indicated, there can be no assurance that the delinquency and foreclosure and
loan charge-off experience of the Loans will be similar. See "Risk
Factors--Additional Factors Affecting Delinquencies, Defaults and Losses on
Loans -- Limited Historical Delinquency, Loss and Prepayment Information."
Accordingly, the information should not be considered to reflect the credit
quality of the Loans included in the Trust or
used as a basis of assessing the likelihood, amount or severity of losses on the
Loans. The statistical data in the tables are based on all of the loans in the
Servicer's servicing
42
<PAGE>
portfolio. The Loans are likely to have characteristics which distinguish them
from the majority of the loans in the Servicer's servicing portfolio.
The Servicer may resign its obligations to service the Loans only in
accordance with the terms of the Sale and Servicing Agreement. No removal or
resignation will become effective until the Indenture Trustee or a successor
servicer has assumed the Servicer's responsibilities and obligations in
accordance therewith.
The Servicer may not assign its obligations under the Sale and Servicing
Agreement unless it first obtains the written consent of the Indenture Trustee;
provided, however, that any assignee must meet the eligibility requirements for
a successor servicer set forth in the Sale and Servicing Agreement.
Notwithstanding anything in the preceding sentence to the contrary, the Servicer
may delegate certain of its obligations to a sub-servicer pursuant to one or
more sub-servicing agreements. A sub-servicer must meet certain eligibility
requirements, as set forth in the Sale and Servicing Agreement, and each
sub-servicing agreement shall require servicing of the Loans consistent with the
terms of the Sale and Servicing Agreement.
Repurchase or Substitution of Loans
Each of __________ and the Depositor is required (i) within 60 days after
discovery or notice thereof to cure in all material respects any breach of the
representations or warranties made with respect to any Loan or any document
deficiency with respect to any Loan (each, a "Defective Loan") or (ii) on or
before the Determination Date next succeeding the end of such 60-day period, to
repurchase such Defective Loan at a price (the "Purchase Price") equal to the
Principal Balance of such Defective Loan as of the date of repurchase, plus all
accrued and unpaid interest on such Defective Loan to but not including the due
date in the Due Period relating to the Distribution Date on which such Purchase
Price is to be distributed, computed at the Loan Rate. In addition, __________
may at its option purchase from the Trust any Loan that is 90 days or more
delinquent and which __________ determines in good faith would otherwise become
subject to foreclosure proceedings so long as the aggregate of such purchases
does not exceed 10% of the Maximum Collateral Amount. In lieu of repurchasing a
Defective Loan, each of __________ and the Depositor may replace such Defective
Loan with one or more Qualified Substitute Loans. If the aggregate outstanding
principal balance of the Qualified Substitute Loan(s) is less than the
outstanding Principal Balance of the Defective Loan(s), either __________ or the
Depositor will also remit for distribution to the holders of the Notes an amount
(a "Substitution Adjustment") equal to such shortfall, which will result in a
prepayment of principal on the Notes for the amount of such shortfall. As used
herein, a "Qualified Substitute Loan" is a home loan that (i) has an interest
rate which differs by no more than two percentage points from the Loan Rate for
the Defective Loan which it replaces (each, a "Deleted Loan"), (ii) has a
principal balance (after application of all payments received on or prior to the
date of such substitution) equal to or less than the Principal Balance of the
Deleted Loan as of such date, (iii) has a lien priority no lower than that of
the Deleted Loan, (iv) complies as of the date of substitution with each
representation and warranty set forth in the Sale and Servicing Agreement with
respect to the Loans, and (v) has a borrower with a credit grade classification
comparable to that of the borrower with respect to the Deleted Loan.
No assurance can be given that, at any particular time, __________ will be
capable, financially or otherwise, of repurchasing Defective Loans or
substituting Qualified Substitute Loans for Defective Loans in the manner
described above. If __________ or the Depositor repurchases, or is obligated to
repurchase, Defective Loans from any additional series of asset backed
securities, its financial ability to repurchase Defective Loans from the Trust
may be adversely affected. In addition, other events relating to the Depositor,
__________ and __________'s mortgage lending and consumer finance operations can
occur that would adversely affect the financial ability of __________ or the
Depositor to repurchase Defective Loans from the Trust, including without
limitation the sale or other disposition of all or any significant portion of
its assets. If __________ or the Depositor is unable to repurchase or replace a
Defective Loan, the Servicer, on behalf of the Trust, will make other customary
and reasonable efforts to recover the maximum amount possible with respect to
such Defective Loan. If the Servicer is unable to collect all amounts due to the
Trust with respect to such Defective Loan, the resulting loss will be borne by
the holders of the Notes to the extent that such loss is not otherwise covered
by amounts available from the credit enhancement provided for the Notes. See
"Risk Factors --Adequacy of Credit Enhancement" and "Risk Factors--Additional
Factors Affecting Delinquencies, Defaults and Losses on Loans "Limitations on
Repurchase or Replacement of Defective Loans" herein.
DESCRIPTION OF CREDIT ENHANCEMENT
Credit enhancement with respect to the Notes will be provided by (i) the
subordination of distributions in respect of the Residual Interests (as well as
the subordination of certain Classes of Notes to other Classes of Notes, as
described herein), and (ii) the Overcollateralization Amount which results from
(a) the excess of the sum of the Original Pool Principal Balance and the
Original Pre-Funded Amount over the aggregate of the Class Principal
Balances for all Classes as of Notes and (b) following the Spread Deferral
Period, the limited acceleration of the principal amortization of the Notes
relative to the amortization of the Loans by the application of Excess Spread,
as described herein.
43
<PAGE>
Subordination and Allocation of Losses
Distributions of interest on the Notes will be made first to the Senior
Notes and then to the Class M-1, Class M-2 and Class B Notes, in that order,
such that no interest will be paid on the Class B Notes until all required
interest payments have been made on the Mezzanine and Senior Notes and no
interest will be paid on the Mezzanine Notes until all required interest
payments have been made on the Senior Notes. In addition, distributions of
principal of the Notes will be made first to the Senior Notes, then to the Class
M-1, Class M-2 Notes and Class B Notes, in that order. Any distributions of
principal to the Classes of Senior Notes will be made sequentially in the order
of increasing numerical Class designations. All Allocable Loss Amounts applied
in reduction of the Class Principal Balances of the Mezzanine Notes will be
applied first to the Class M-2 Notes and then to the Class M-1 Notes, until
their respective Class Principal Balances have been reduced to zero. In
addition, no Allocable Loss Amounts will be applied in reduction of the Class
Principal Balance of any Class of Mezzanine Notes until the Class Principal
Balance of the Class B Notes has been reduced to zero. Further, no Allocable
Loss Amounts will be applied in reduction of the Class Principal Balance of the
Class B Notes until the Overcollateralization Amount has been reduced to zero.
No Allocable Loss Amounts will be applied to the Classes of Senior Notes. The
rights of the holders of the Residual Interests to receive any distributions on
any Distribution Date generally will be subordinated to the rights of the
holders of the Notes. The subordination described above is intended to enhance
the likelihood of the regular receipt of interest and principal due to the
holders of the Classes of Notes and to afford such holders protection against
losses on the Loans, with the greatest amount of such enhancement and protection
being provided to the Classes of Senior Notes, a lesser amount of such
enhancement and protection being provided to the Class M-1 and, in particular,
the Class M-2 Notes, and the least amount of such enhancement and protection
being provided to the Class B Notes. See "Risk Factors--Adequacy of Credit
Enhancement" herein.
On each Distribution Date, the "Allocable Loss Amount" will be equal to the
excess, if any, of (a) the aggregate of the Class Principal Balances of all
Classes of Notes (after giving effect to all distributions on such Distribution
Date) over (b) the sum of the Pool Principal Balance and the Pre-Funded Amount
as of the end of the immediately preceding Due Period.
On each Distribution Date, the "Net Loan Losses" will be equal to the sum
of (A) with respect to the Loans that will have become Liquidated Loans during
the immediately preceding Due Period, an amount (but not less than zero)
determined as of the related Determination Date equal to: (i) the aggregate
uncollected Principal Balances of such Liquidated Loans as of the last day of
such Due Period, minus (ii) the aggregate amount of any recoveries attributable
to principal from whatever source received during any Due Period, with respect
to such Liquidated Loans, including any Due Period subsequent to the Due Period
wherein such Loan became a Liquidated Loan, and including without limitation any
Net Liquidation Proceeds, any Insurance Proceeds, any Released Mortgaged
Property Proceeds, any post-liquidation proceeds, any payments from the related
Obligor and any payments made in connection with the repurchase of or
substitution for a Defective Loan, less the amount of any expenses incurred in
connection with such recoveries; and (B) any reduction to the Principal Balances
of any Loans resulting from an order issued by a court of appropriate
jurisdiction in an insolvency proceeding.
Overcollateralization
As of any Distribution Date, the "Overcollateralization Amount" will equal
the excess of the sum of the Pool Principal Balance as of the end of the
immediately preceding Due Period and the Pre-Funded Amount as of the end of the
immediately preceding Due Period over the aggregate of the Class Principal
Balances of all Classes of Notes (after giving effect to all distributions of
the Regular Distribution Amount on such Distribution Date). On the Closing Date,
the Overcollateralization Amount is expected to equal $__________. Following the
termination of the Spread Deferral Period, limited acceleration of the principal
amortization of the Notes relative to the principal amortization of the Loans
has been designed to increase the Overcollateralization Amount over time by
making additional distributions of principal to the holders of the Notes from
the distribution of Excess Spread until the Overcollateralization Amount is at
least equal to the Overcollateralization Target Amount.
The "Spread Deferral Period" will begin on the Closing Date and end as soon
as Excess Spread in an amount equal to $____________ has been deposited in the
Certificate Distribution Account for distribution to the holders of the Residual
Interests. The "Overcollateralization Target Amount" will equal (A) with respect
to any Distribution Date occurring prior to the Stepdown Date, the greater of
(x) ___% of the Maximum Collateral Amount and (y) the Net Delinquency
Calculation Amount, and (B) with respect to any other Distribution Date, the
greater of (x) ______% of the Pool Principal Balance as of the end of the
related Due Period and (y) the Net Delinquency Calculation Amount; provided,
however, that the Overcollateralization Target Amount will in no event be less
than _____% of the Maximum Collateral Amount.
If on any Distribution Date an Overcollateralization Deficiency (as defined
herein) exists, distributions of Excess Spread, if any, will be made as an
additional distribution of principal to the holders of the Notes, to be
allocated among the Classes of Notes in the order of priority set forth under
"Description of the Notes--Distributions on the Notes" herein. Such
distributions of Excess Spread are intended to accelerate the amortization of
the Class Principal Balances of all Classes of Notes relative to the
amortization of the Loans, thereby increasing the Overcollateralization Amount.
The relative percentage of the
44
<PAGE>
aggregate of the Class Principal Balances of the Classes of Notes to the sum of
the Pool Principal Balance and Pre-Funded Amount will decrease as a result of
the application of Excess Spread to reduce such Class Principal Balances.
On any Distribution Date (i) prior to the termination of the Spread
Deferral Period or (ii) with respect to which the Overcollateralization
Deficiency Amount is equal to zero, all or a portion of the Excess Spread may be
distributed to the holders of the Residual Interests rather than as principal to
the holders of the Notes, thereby ceasing the acceleration of principal
amortization of the Notes in relation to the principal amortization of the
Loans, until such time as the Overcollateralization Deficiency Amount is greater
than zero (i.e., due to a reduction in the Overcollateralization Amount as a
result of Net Loan Losses or delinquencies or due to an increase in the
Overcollateralization Target Amount as a result of the failure to satisfy
certain delinquency criteria).
While the application of Excess Spread in the manner specified above has
been designed to produce and maintain a given level of overcollateralization,
there can be no assurance that Excess Spread will be generated in sufficient
amounts to ensure that such overcollateralization level will be achieved or
maintained at all times. In particular, a high rate of delinquencies on the
Loans during any Due Period could cause the amount of interest received on the
Loans during such Due Period to be less than the amount of interest
distributable on the Notes on the related Distribution Date. In such a case, the
Class Principal Balances of the Classes of Notes would decrease at a slower rate
relative to the Pool Principal Balance, resulting in a reduction of the
Overcollateralization Amount and, in some circumstances, an Allocable Loss
Amount. In addition, Net Loan Losses will reduce the Overcollateralization
Amount to zero before Allocable Loss Amounts are applied in reduction of the
Class Principal Balances of certain Classes of Notes. See "Risk
Factors--Adequacy of Credit Enhancement" herein.
DESCRIPTION OF THE NOTES
General
The _______________ Trust ________ (the "Trust") will issue ________
Classes of Asset Backed Notes (collectively, the "Notes") having the
designations and aggregate initial principal amounts specified on the cover
hereof pursuant to an Indenture to be dated as of _______________ (the
"Indenture"), between the Trust and the Indenture Trustee. The Trust will also
issue instruments representing the residual interest (each a "Residual
Interest") in the Trust pursuant to the terms of a Trust Agreement dated as of
_____________ (the "Trust Agreement"), among the Depositor, the Co-Owner Trustee
and the Owner Trustee. The Notes are secured by the assets of the Trust pursuant
to the Indenture.
The Notes offered hereby will be issued pursuant to the terms of the
Indenture. The following summary describes certain terms of the Notes and the
Indenture. It does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Notes and
the Indenture.
Beneficial ownership interests in each Class of Notes will be held in
minimum denominations of $_________ and integral multiples of $1,000 in excess
thereof in book-entry form only. Persons acquiring beneficial interests in the
Notes will hold their interests through DTC.
Book-Entry Registration
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to Section 17A of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). DTC accepts securities for deposit
from its participating organizations Participants") and facilitates the
clearance and settlement of transactions in such securities between Participants
through electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks and trust companies and clearing
corporations and may include certain other organizations. Indirect access to the
DTC system is also available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants").
Noteholders which are not Participants or Indirect Participants but desire
to purchase, sell or otherwise transfer ownership of Notes may do so only
through Participants or Indirect Participants (unless and until Definitive
Securities (as defined herein) are issued). In addition, Noteholders will
receive all distributions of principal and interest on the Notes through DTC and
its Participants. Under a book-entry format, Noteholders may experience some
delay in their receipt of payments, since such payments will be forwarded by the
Indenture Trustee to Cede & Co. ("Cede"), as nominee for DTC. DTC will forward
such payments to its Participants which thereafter will forward them to Indirect
Participants or Noteholders. Noteholders will not be recognized by the Indenture
Trustee as Noteholders, as such term will be used in the Indenture, and
Noteholders will only be permitted to exercise the rights of Noteholders
indirectly through DTC and its Participants. Noteholders will not receive or be
45
<PAGE>
entitled to receive Definitive Securities representing their respective
interests in the Notes, except under the limited circumstances described below.
While the Notes are outstanding (except under the circumstances described
below), under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC will be required to make book-entry
transfers among Participants on whose behalf it acts with respect to the Notes
and will be required to receive and transmit distributions of principal and
interest on the Notes. Participants and Indirect Participants with which
Noteholders have accounts with respect to the Notes will similarly be required
to make book-entry transfers and receive and transmit such payments on behalf of
their respective Noteholders.
Because DTC can only act on behalf of Participants, which in turn act on
behalf of Indirect Participants, the ability of a Noteholder to pledge Notes to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of such Notes, may be limited due to the lack of physical
certificates for such Notes.
Unless and until Definitive Securities are issued, Noteholders which are
not Participants may transfer ownership of Notes only through Participants by
instructing such Participants to transfer such Notes, by book-entry transfer,
through DTC for the account of the purchasers of such Notes, which account is
maintained with their respective Participants. Under the Rules and in accordance
with DTC's normal procedures, transfer of ownership of Notes will be executed
through DTC and the accounts of the respective Participants at DTC will be
debited and credited. Similarly, the respective Participants will make debits or
credits, as the case may be, on their records on behalf of the selling and
purchasing Noteholders.
DTC has advised the Issuer and the Indenture Trustee that, unless and until
Definitive Securities are issued, DTC will take any action permitted to be taken
by a Noteholder under the Indenture only at the direction of one or more
Participants to whose DTC accounts the Notes are credited. DTC may take
conflicting actions with respect to different undivided interests as a result of
different directions from Participants whose holdings include such undivided
interests.
Neither the Issuer nor the Indenture Trustee will have any liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests of the Notes held by Cede, as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
Definitive Securities
Under certain circumstances set forth in the Indenture, the Notes will be
issued in fully registered, certificated form ("Definitive Securities") to the
Noteholders of a given series or their nominees, rather than to DTC or its
nominee, only if (i) the Servicer, in respect of the Notes, advises the
Indenture Trustee in writing that DTC is no longer willing or able to discharge
properly its responsibilities as depository with respect to such Notes, and the
Servicer is unable to locate a qualified successor, (ii) the Servicer, at its
option advises the Indenture Trustee in writing that it elects to terminate the
book-entry system through DTC or (iii) after the occurrence of an Event of
Default under the Indenture Noteholders representing beneficial interests
aggregating at least a majority of the outstanding amount of the Notes advise
the DTC in writing that the continuation of the book-entry system through DTC
(or a successor thereto) is no longer in the best interests of the Noteholders.
Upon the occurrence of any event described in the immediately preceding
paragraph, DTC will be required to notify all Noteholders and the Indenture
Trustee of the availability of Definitive Notes. Upon surrender to the Indenture
Trustee of the typewritten Notes representing book-entry Notes and receipt of
instructions for registration, the Issuer shall execute and the Indenture
Trustee shall authenticate the Definitive Notes in accordance with the
instructions of DTC.
Distributions of principal of, and interest on, such Notes will thereafter
be made by the Indenture Trustee in accordance with the procedures set forth in
the Indenture directly to Noteholders in whose names the Definitive Notes were
registered at the close of business on the applicable Record Date specified for
such Notes.
Distributions on the Notes
For the definitions of certain of the defined terms used in the following
subsections, See "--Related Definitions" below.
On the 25th day of each month or, if such day is not a Business Day, the
first Business Day immediately following, commencing in ______________ (each
such date, a "Distribution Date"), the Indenture Trustee or its designee will
distribute to the persons in whose names the Notes are registered on the related
Record Date the portion of the aggregate distribution to be made to each
Noteholder as described below. The "Record Date" with respect to any
Distribution Date shall be the close of business on the last Business Day of the
month preceding the month in which such Distribution Date occurs. Prior to any
46
<PAGE>
termination of the book-entry provisions, distributions on the book-entry Notes
will be made to beneficial owners of interests therein only through DTC and its
Participants. See "Description of the Notes--Book-Entry Registration" herein.
Available Collection Amount. Distributions on the Notes on each
Distribution Date will be made from the Available Collection Amount. The
Servicer will calculate the Available Collection Amount on the fourteenth
calendar day of each month or, if such day is not a Business Day, then the
immediately preceding Business Day (each such day, a "Determination Date"). With
respect to each Distribution Date, the "Available Collection Amount" is the sum
of (i) all amounts received on the Loans or required to be paid by __________ or
the Depositor during the related Due Period (exclusive of such amounts not
required to be deposited by the Servicer in the Collection Account and amounts
permitted to be withdrawn by the Indenture Trustee from the Collection Account)
as reduced by any portion thereof that may not be withdrawn therefrom pursuant
to an order of a United States bankruptcy court of competent jurisdiction
imposing a stay pursuant to Section 362 of the United States Bankruptcy Code;
(ii) with respect to the final Distribution Date for the Class B Notes or an
early redemption or termination of the Notes pursuant to the Sale and Servicing
Agreement, the Termination Price; (iii) the Purchase Price paid for any Loans
required to be purchased and the Substitution Adjustment to be deposited to the
Collection Account in connection with any substitution, in each case prior to
the related Determination Date; and (iv) the Capitalized Interest Requirement
(as defined herein), if any, with respect to such Distribution Date.
Distributions of Interest. Interest on the Class Principal Balance of each
Class of Notes will accrue thereon at the applicable Note Interest Rate, and
will be payable to the holders of such Class of Notes monthly on each
Distribution Date, commencing in ___________. Interest on each Class of Notes
will be calculated on the basis of a 360-day year of twelve 30-day months.
With respect to any Distribution Date, interest distributions on the Notes
will be made from the Available Collection Amount (plus, if applicable, the
amount, if any, of Pre-Funding Earnings and, on the Distribution Date relating
to the Due Period in which the termination of the Pre-Funding Period occurred,
the amount on deposit in the Pre-Funding Account at such time) net of the Trust
Fees and Expenses (the "Available Distribution Amount"). Interest payments will
be made, first, to the Classes of Senior Notes, pro rata, based on the amount of
interest distributable in respect of each such Class calculated at the related
Note Interest Rate, second, to the Classes of Mezzanine Notes, sequentially, in
the order of their numerical Class designation, and then to the Class B Notes.
Under certain circumstances, the amount available for interest payments could be
less than the amount of interest payable on all Classes of Notes on any
Distribution Date. In such event, each affected Class will receive its ratable
share (based upon the aggregate amount of interest due to such Class) of the
remaining amount available to be distributed as interest after the payment of
all interest due on each Class having a higher interest payment priority. In
addition, any such interest deficiency will be carried forward as a Noteholders'
Interest Carry-Forward Amount (as defined herein) for such Class and will be
distributed to holders of each such Class of Notes on subsequent Distribution
Dates to the extent that sufficient funds are available. Any such interest
deficiency could occur, for example, if delinquencies or losses realized on the
Loans were exceptionally high or were concentrated in a particular month. No
interest will accrue on any Noteholders' Interest Carry-Forward Amount for any
Class.
Distributions of Principal. Principal distributions will be made to the
holders of the Notes on each Distribution Date in an amount generally equal to
the sum of (i) the Regular Principal Distribution Amount (less, in certain
circumstances, the excess of the Overcollateralization Amount over the
Overcollateralization Target Amount) and (ii) to the extent of the
Overcollateralization Deficiency Amount, any Excess Spread for such Distribution
Date.
A. On each Distribution Date, the Regular Distribution Amount will be
distributed in the following order of priority:
Distribution Priorities.
(i) to the holders of the Senior Notes, the Senior Noteholders'
Interest Distributable Amount for such Distribution Date allocated to each Class
of Senior Notes, pro rata, based on the amount of interest distributable in
respect of each such Class calculated at the related Note Interest Rate;
(ii) sequentially, to the holders of the Class M-1 and Class M-2
Notes, in that order, the Class M-1 Noteholders' Interest Distributable Amount
and the Class M-2 Noteholders' Interest Distributable Amount, respectively, for
such Distribution Date;
(iii) to the holders of the Class B Notes, the Class B Noteholders'
Interest Distributable Amount for such Distribution Date;
(iv) if with respect to such Distribution Date the Pre-Funding Pro
Rata Distribution Trigger has occurred, the amount on deposit in the Pre-Funding
Account at the end of the Pre-Funding Period will be distributed as principal
47
<PAGE>
to all Classes of Notes and the Residual Interests (which initially represent
the Overcollateralization Amount on the Closing Date), pro rata, based on the
Original Class Principal Balances thereof and the Residual Interests in relation
to the sum of the Original Pool Principal Balance and the Original Pre-Funded
Amount;
(v) to the holders of the Class A-1, Class A-2, Class A-3 and Class
A-4 Notes, in that order, until the respective Class Principal Balances thereof
are reduced to zero, in an amount necessary to reduce the aggregate Class
Principal Balance of the Senior Notes to the Senior Optimal Principal Balance
for such Distribution Date,
(vi) sequentially, to the holders of the Class M-1 and Class M-2
Notes, in that order, in an amount necessary to reduce the Class Principal
Balances thereof to the Class M-1 Optimal Principal Balance and the Class M-2
Optimal Principal Balance, respectively, for such Distribution Date;
(vii) to the holders of the Class B Notes, in an amount necessary to
reduce the Class Principal Balance thereof to zero;
(viii) sequentially, to the Class M-1, Class M-2 and Class B Notes, in
that order, until their respective Loss Reimbursement Deficiencies have been
paid in full; and
(ix) any remaining amount to the holders of the Residual Interests.
B. On each Distribution Date, the Indenture Trustee shall distribute the
Excess Spread, if any, in the following order of priority (in each
case after giving effect to all payments specified in paragraph A.
above):
(i) prior to the termination of the Spread Deferral Period, to the
Certificate Distribution Account for distribution to the holders of the Residual
Interests;
(ii) upon the termination of the Spread Deferred Period, (A) in an
amount equal to the Overcollateralization Deficiency Amount, if any, as follows:
(1) to the holders of the Class A-1, Class A-2, Class A-3 and Class
A-4 Notes, in that order, until the respective Class Principal Balances thereof
are reduced to zero, in an amount necessary to reduce the aggregate Class
Principal Balance of the Senior Notes to the Senior Optimal Principal Balance
for such Distribution Date;
(2) sequentially, to the holders of the Class M-1 and Class M-2 Notes,
in that order, until the respective Class Principal Balances thereof have been
reduced to the Class M-1 Optimal Principal Balance and Class M-2 Optimal
Principal Balance, respectively, for such Distribution Date; and
(3) to the holders of the Class B Notes until the Class Principal Balance
thereof has been reduced to zero; and
C. sequentially, to the Class M-1, Class M-2 and Class B Notes, in that
order, until their respective Loss Reimbursement Deficiencies, if any,
have been paid in full; and
D. any remaining amount to the holders of the Residual Interests.
Notwithstanding the priorities specified above, on any Distribution Date as
to which the Class Principal Balances of each of the Class M-1, Class M-2 and
Class B Notes and the Overcollateralization Amount have been reduced to zero,
distributions of principal on the Classes of Senior Notes on such Distribution
Date will be applied to such Classes pro rata based on their respective Class
Principal Balances.
Related Definitions
For purposes hereof, the following terms shall have the following meanings:
Business Day: Any day other than (i) a Saturday or a Sunday or (ii) a day
on which banking institutions in New York City or in the city in which the
corporate trust office of the Indenture Trustee is located are authorized or
obligated by law or executive order to be closed.
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Class A Excess Spread Distribution Amount: With respect to any Distribution
Date, the least of (i) the excess of (x) the Class Principal Balance of all
Senior Notes (after giving effect to all distributions of the Regular
Distribution Amount) over (y) the Senior Optimal Principal Balance for such
Distribution Date, (ii) the Overcollateralization Deficiency Amount for such
Distribution Date, and (iii) the Excess Spread for such Distribution Date.
Class A Principal Distribution Amount: With respect to any Distribution
Date, the lesser of (i) the Regular Principal Distribution Amount and (ii) the
excess of (x) the aggregate Class Principal Balance of all Senior Notes (prior
to giving effect to distributions on such Distribution Date, other than any
distributions in respect of the Pre-Funded Amount on the Distribution Date on
which a Pre-Funding Pro Rata Distribution Trigger has occurred) over (y) the
Senior Optimal Principal Balance for such Distribution Date.
Class B Noteholders' Interest Carry-Forward Amount: With respect to any
Distribution Date and the Class B Notes, the excess of (A) the Class B
Noteholders' Monthly Interest Distributable Amount for the preceding
Distribution Date and any outstanding Class B Noteholders' Interest
Carry-Forward Amount for such preceding Distribution Date over (B) the amount in
respect of interest that is actually distributed to such Notes on such preceding
Distribution Date.
Class B Noteholders' Interest Distributable Amount: With respect to any
Distribution Date and the Class B Notes, the sum of the Class B Noteholders'
Monthly Interest Distributable Amount for such Distribution Date and the Class B
Noteholders' Interest Carry-Forward Amount for such Distribution Date.
Class B Noteholders' Monthly Interest Distributable Amount: With respect to
each Distribution Date and the Class B Notes, the aggregate amount of interest
accrued during the related Interest Period at the Class B Note Interest Rate on
the sum of (i) the Class Principal Balance of the Class B Notes immediately
preceding such Distribution Date and (ii) any Class B Noteholders' Interest
Carry-Forward Amount remaining outstanding for such Distribution Date.
Class M-1 Noteholders' Interest Carry-Forward Amount: With respect to any
Distribution Date and the Class M-1 Notes, the excess of (A) the Class M-1
Noteholders' Monthly interest Distributable Amount for the preceding
Distribution Date and any outstanding Class M-1 Noteholders' Interest
Carry-Forward Amount for such preceding Distribution Date over (B) the amount in
respect of interest that is actually distributed to such Notes on such preceding
Distribution Date.
Class M-1 Noteholders' Interest Distributable Amount: With respect to any
Distribution Date and the Class M-1 Notes, the sum of the Class M-1 Noteholders'
Monthly Interest Distributable Amount for such Distribution Date and the Class
M-1 Noteholders' Interest Carry-Forward Amount for such Distribution Date.
Class M-1 Noteholders' Monthly Interest Distributable Amount: With respect
to each Distribution Date and the Class M-1 Notes, the aggregate amount of
interest accrued during the related Interest Period at the Class M-1 Note
Interest Rate on the sum of (i) the Class Principal Balance of the Class M-1
Notes immediately preceding such Distribution Date and (ii) any Class M-1
Noteholders' Interest Carry-Forward Amount remaining outstanding for such
Distribution Date.
Class M-1 Optimal Principal Balance: With respect to any Distribution Date
prior to the Stepdown Date, zero; and with respect to any other Distribution
Date, the Pool Principal Balance as of the preceding Determination Date minus
the sum of (i) the aggregate Class Principal Balance of the Senior Notes (after
taking into account distributions made on such Distribution Date in reduction of
the Class Principal Balances of the Classes of Senior Notes made prior to such
determination) and (ii) the greater of (x) the sum of (1) ___% of the Pool
Principal Balance as of the preceding Determination Date and (2) the
Overcollateralization Target Amount for such Distribution Date (calculated
without giving effect to the proviso in the definition thereof) and (y) ____% of
the Maximum Collateral Amount; provided, however, that the Class M-1 Optimal
Principal Balance shall never be less than zero or greater than the Original
Class Principal Balance of the Class M-1 Notes.
Class M-2 Noteholders' Interest Carry-Forward Amount: With respect to any
Distribution Date and the Class M-2 Notes, the excess of (A) the Class M-2
Noteholders' Monthly Interest Distributable Amount for the preceding
Distribution Date and any outstanding Class M-2 Noteholders' Interest
Carry-Forward Amount for such preceding Distribution Date over (B) the amount in
respect of interest that is actually distributed to such Notes on such preceding
Distribution Date.
Class M-2 Noteholders' Interest Distributable Amount: With respect to any
Distribution Date and the Class M-2 Notes, the sum of the Class M-2 Noteholders'
Monthly Interest Distributable Amount for such Distribution Date and the Class
M-2 Noteholders' Interest Carry-Forward Amount for such Distribution Date.
Class M-2 Noteholders' Monthly Interest Distributable Amount: With respect
to each Distribution Date (other than the first Distribution Date) and the Class
M-2 Notes, the aggregate amount of interest accrued during the related Interest
Period at the Class M-2 Note Interest Rate on the sum of (i) the Class Principal
Balance of the Class M-2 Notes immediately preceding such
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Distribution Date and (ii) any Class M-2 Noteholders' Interest Carry-Forward
Amount remaining outstanding for such Distribution Date.
Class M-2 Optimal Principal Balance: With respect to any Distribution Date
prior to the Stepdown Date, zero; and with respect to any other Distribution
Date, the Pool Principal Balance as of the preceding Determination Date minus
the sum of (i) the aggregate Class Principal Balance of the Senior Notes (after
taking into account any distributions made on such Distribution Date in
reduction of the Class Principal Balances of the Classes of Senior Notes made
prior to such determination) plus the Class Principal Balance of the Class M-1
Notes (after taking into account any distributions made on such Distribution
Date in reduction of the Class Principal Balance of the Class M-1 Notes prior to
such determination) and (ii) the greater of (x) the sum of (1) ___% of the Pool
Principal Balance as of the preceding Determination Date and (2) the
Overcollateralization Target Amount for such Distribution Date (without giving
effect to the proviso in the definition thereof) and (y) ______% of the Maximum
Collateral Amount; provided, however, that the Class M-2 Optimal Principal
Balance shall never be less than zero or greater than the Original Class
Principal Balance of the Class M-2 Notes.
Excess Spread: With respect to any Distribution Date, the excess of (a) the
Available Distribution Amount over (b) the Regular Distribution Amount.
Insurance Proceeds: With respect to any Loan, the proceeds paid to the
Servicer by any insurer pursuant to any insurance policy covering a Loan,
Mortgaged Property or REO Property or any other insurance policy that relates to
a Loan, net of any expenses which are incurred by the Servicer in connection
with the collection of such proceeds and not otherwise reimbursed to the
Servicer, but excluding the proceeds of any insurance policy that are to be
applied to the restoration or repair of the Mortgaged Property or released to
the borrower in accordance with accepted loan servicing procedures.
Interest Period: With respect to any Distribution Date and each Class of
Notes, the calendar month preceding the month of such Distribution Date based on
a 360-day year consisting of twelve 30-day months.
Liquidated Loan: With respect to any date of determination and any Loan as
to which the Servicer has determined that all recoverable liquidation and
insurance proceeds have been received, which will be deemed to occur upon the
earliest of: (a) the liquidation of the related Mortgaged Property acquired
through foreclosure or similar proceedings, (b) the Servicer's determination in
accordance with customary accepted practices that no further amounts are
collectible from the Loan and (c) any portion of a scheduled monthly payment of
principal and interest is past due in excess of 180 days.
Loss Reimbursement Deficiency: As of any date of determination and as to
the Class M-1 Notes, Class M-2 Notes or Class B Notes, the amount of Allocable
Loss Amounts, together with interest thereon, applied to the reduction of the
Class Principal Balance of such Class and not reimbursed pursuant to the Sale
and Servicing Agreement.
Net Delinquency Calculation Amount: With respect to any Distribution Date,
the excess, if any, of (x) the product of 2.5 and the Six-Month Rolling
Delinquency Average over (y) the aggregate of the amounts of Excess Spread for
the three preceding Distribution Dates.
Net Liquidation Proceeds: With respect to any Distribution Date, any cash
amounts received from Liquidated Loans during the related Due Period, whether
through trustee's sale, foreclosure sale, disposition of Mortgaged Properties or
otherwise (other than Insurance Proceeds and Released Mortgaged Property
Proceeds), and any other cash amounts received in connection with the management
of the Mortgaged Properties related to Defaulted Loans, in each case, net of any
reimbursements made to the Servicer from such amounts for any unreimbursed
Servicing Compensation and Servicing Advances (including nonrecoverable
Servicing Advances) made and any other fees and expenses paid by the Servicer in
connection with the foreclosure, conservation and liquidation of the related
Liquidated Loans or Mortgaged Properties pursuant to the Sale and Servicing
Agreement.
Note Interest Rate: With respect to each Class of Notes, the interest rate
per annum set forth or described below:
Class A-1: ________%
Class A-2: ________%
Class A-3: ________%
Class A-4: ________%
Class M-1: ________%
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Class M-2: ________%
Class B: ________%
Noteholders' Interest Carry-Forward Amount: With respect to any
Distribution Date, any of the Senior Noteholders' Interest Carry-Forward Amount,
the Class M-1 Interest Carry-Forward Amount, the Class M-2 Interest
Carry-Forward Amount or the Class B Interest Carry-Forward Amount.
Noteholders' Interest Distributable Amount: With respect to any
Distribution Date, the sum of the Senior Noteholders' Interest Distributable
Amount, the Class M-1 Interest Distributable Amount, the Class M-2 Interest
Distributable Amount and the Class B Interest Distributable Amount.
Overcollateralization Amount: With respect to any Distribution Date, the
amount equal to the excess of (a) the sum of the Pool Principal Balance as of
the end of the immediately preceding Due Period and the Pre-Funded Amount as of
such Distribution Date over (b) the aggregate of the Class Principal Balances of
the Classes of Notes (after giving effect to distributions on the Notes and the
Residual Interests on such Distribution Date).
Overcollateralization Deficiency Amount: With respect to any date of
determination, the excess, if any, of the Overcollateralization Target Amount
over the Overcollateralization Amount (such Overcollateralization Amount to be
calculated after giving effect to all payments of the Regular Distribution
Amount on the Notes and the Residual Interests on such Distribution Date).
Overcollateralization Target Amount: (A) With respect to any Distribution
Date occurring prior to the Stepdown Date, an amount equal to the greater of (x)
______% of the Maximum Collateral Amount and (y) the Net Delinquency
Calculation; and (B) with respect to any other Distribution Date, an amount
equal to the greater of (x) 14% of the Pool Principal Balance as of the end of
the related Due Period and (y) the Net Delinquency Calculation Amount; provided,
however, that the Overcollateralization Target Amount shall in no event be less
than _____% of the Maximum Collateral Amount.
Regular Distribution Amount: With respect to any Distribution Date, the
lesser of (a) the Available Distribution Amount and (b) the sum of (i) the
aggregate of the Noteholders' Interest Distributable Amounts, (ii) the Regular
Principal Distribution Amount and (iii) if such Distribution Date relates to the
Due Period in which the Pre-Funding Period ended and at the termination of such
Pre-Funding Period a Pre-Funding Pro Rata Distribution Trigger had occurred, the
amount on deposit in the Pre-Funding Account on such date.
Regular Principal Distribution Amount: On each Distribution Date, an amount
equal to the lesser of:
A. the sum of (i) each payment of principal collected by the Servicer
during the related Due Period, (ii) all partial and full principal prepayments
applied by the Servicer during such related Due Period, (iii) the principal
portion of all Net Liquidation Proceeds, Insurance Proceeds and Released
Mortgaged Property Proceeds received during the related Due Period, (iv) that
portion of the purchase price of any repurchased Loan which represents
principal, (v) the principal portion of any Substitution Adjustments required to
be deposited in the Collection Account as of the related Determination Date,
(vi) on the Distribution Date in which the Trust is to be terminated pursuant to
the Sale and Servicing Agreement, that portion of the Termination Price to be
applied to the payment of principal of the Notes and (v) if such Distribution
Date relates to the Due Period in which the Pre-Funding Period ended and at the
termination of such Pre-Funding Period a Pre-Funding Pro Rata Distribution
Trigger had not occurred, the amount on deposit in the Pre-Funding Account on
such date; and
B. the aggregate of the Class Principal Balances of the Classes of Notes
immediately prior to such Distribution Date.
Released Mortgaged Property Proceeds: With respect to any Distribution
Date, the proceeds received by the Servicer in connection with (i) a taking of
an entire Mortgaged Property by exercise of the power of eminent domain or
condemnation or (ii) any release of part of the Mortgaged Property from the lien
of the related Mortgage, whether by partial condemnation, sale or otherwise,
which in either case are not released to the related borrower in accordance with
applicable law, accepted mortgage servicing procedures and the Sale and
Servicing Agreement.
Senior Noteholders' Interest Carry-Forward Amount: With respect to any
Distribution Date and the Senior Notes, the excess of (A) the Senior
Noteholders' Monthly Interest Distributable Amount for the preceding
Distribution Date and any outstanding Senior Noteholders' Interest Carry-Forward
Amount for such preceding Distribution Date over (B) the amount in respect of
interest that is actually distributed to such Notes on such preceding
Distribution Date.
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Senior Noteholders' Interest Distributable Amount: With respect to any
Distribution Date and the Senior Notes, the sum of the Senior Noteholders'
Monthly Interest Distributable Amount for such Distribution Date and the Senior
Noteholders' Interest Carry-Forward Amount for such Distribution Date.
Senior Noteholders' Monthly Interest Distributable Amount: With respect to
each Distribution Date and the Classes of Senior Notes, the aggregate amount of
interest accrued during the related Interest Period at the respective Note
Interest Rates on the sum of (i) the Class Principal Balance of the Classes of
Senior Notes immediately preceding such Distribution Date and (ii) any Senior
Noteholders' Interest Carry-Forward Amount remaining outstanding for such
Distribution Date.
Senior Optimal Principal Balance: With respect to any Distribution Date
prior to the Stepdown Date, zero; with respect to any other Distribution Date,
an amount equal to the Pool Principal Balance as of the preceding Determination
Date minus the greater of (a) the sum of (1) _____% of the Pool Principal
Balance as of the preceding Determination Date and (2) the Overcollateralization
Target Amount for such Distribution Date (without giving effect to the proviso
in the definition thereof) and (b) ______% of the Maximum Collateral Amount;
provided, however, that the Senior Optimal Principal Balance shall never be less
than zero or greater than aggregate Class Principal Balance of the Senior Notes
as of the Closing Date.
Six-Month Rolling Delinquency Average: With respect to any Distribution
Date, the average of the applicable 60-Day Delinquency Amounts for each of the
six immediately preceding Due Periods, where the 60-Day Delinquency Amount for
any Due Period is the aggregate of the Principal Balances of all Loans that are
60 or more days delinquent, in foreclosure or REO Property as of the end of such
Due Period.
Spread Deferral Period: The period beginning on the Closing Date and ending
as soon as Excess Spread in an amount equal to $______ has been deposited in the
Certificate Distribution Account for distribution to the holders of the Residual
Interests.
Stepdown Date: The first Distribution Date occurring after __________ as to
which all of the following conditions exist:
(1) the Pool Principal Balance has been reduced to an amount less than or
equal to ____% of the Maximum Collateral Amount;
(2) the Net Delinquency Calculation Amount is less than ____% of the
Maximum Collateral Amount; and
(3) the aggregate Class Principal Balance of the Senior Notes (after giving
effect to distributions of principal on such Distribution Date) will be able to
be reduced on such Distribution Date (such determination to be made by the
Indenture Trustee prior to making actual distributions on such Distribution
Date) to an amount equal to the excess of (i) the Pool Principal Balance as of
the preceding Determination Date over (ii) the greater of (a) the sum of (1)
_____% of the Pool Principal Balance as of the preceding Determination Date and
(2) the Overcollateralization Target Amount for such Distribution Date (such
Overcollateralization Target Amount calculated without giving effect to the
proviso in the definition thereof and calculated pursuant only to clause (B) in
the definition thereof) and (b) _____% of the Maximum Collateral Amount.
Application of Allocable Loss Amounts
Following any reduction of the Overcollateralization Amount to zero, any
Allocable Loss Amounts will be applied, sequentially, in reduction of the Class
Principal Balances of the Class B, Class M-2 and Class M-1 Notes, in that order,
until their respective Class Principal Balances have been reduced to zero. The
Class Principal Balances of the Classes of Senior Notes will not be reduced by
any application of Allocable Loss Amounts. The reduction of the Class Principal
Balance of any applicable Class of Notes by the application of Allocable Loss
Amounts entitles such Class to reimbursement in an amount equal to the Loss
Reimbursement Deficiency. Each such Class of Notes will be entitled to receive
its Loss Reimbursement Deficiency, or any portion thereof, in accordance with
the payment priorities specified herein. Payment in respect of Loss
Reimbursement Deficiencies will not reduce the Class Principal Balance of each
related Class. The Loss Reimbursement Deficiency with respect to any Class will
remain outstanding until the earlier of (x) the payment in full of such amount
to the holders of such Class and (y) the occurrence of the applicable Final
Maturity Date (although there is no guarantee that such amounts will be paid on
such date).
Pre-Funding Account
On the Closing Date, $_________ (as adjusted pursuant to the immediately
following sentence, the "Original Pre-Funded Amount") will be deposited in an
account (the "Pre-Funding Account"), which account will be in the name of the
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Indenture Trustee and shall be part of the Trust and be used to acquire
Subsequent Loans. To the extent that the Original Pool Principal Balance is more
or less than $_________, the Original Pre-Funded Amount will be decreased or
increased by a corresponding amount provided that the amount of any such
adjustment shall not exceed $_________. During the Pre-Funding Period, the
amount on deposit in the Pre-Funding Account (net of investment earnings
thereon) (the "Pre-Funded Amount") will be reduced by the amount thereof used to
purchase Subsequent Loans in accordance with the Sale and Servicing Agreement.
The "Pre-Funding Period" is the period commencing on the Closing Date and ending
generally on the earlier to occur of (i) the date on which the amount on deposit
in the Pre-Funding Account (net of any investment earnings thereon) is less than
$________ and (ii) _________. On the Distribution Date following the Due Period
in which the termination of the Pre-Funding Period occurs, if the Pre-Funded
Amount at the end of the Pre-Funding Period is less than $__________, any such
Pre-Funded Amount will be distributed to holders of the Classes of Notes then
entitled to receive principal on such Distribution Date in reduction of the
related Class Principal Balances, thus resulting in a partial redemption of the
related Notes on such date. On the Distribution Date following the Due Period in
which the termination of the Pre-Funding Period occurs, if the Pre-Funded Amount
at the end of the Pre-Funding Period is greater than or equal to $__________
(such event, a "Pre-Funding Pro Rata Distribution Trigger"), such Pre-Funded
Amount will be distributed to the holders of all Classes of Notes and the
Residual Interests (which initially represent the Overcollateralization Amount
on the Closing Date), pro rata, based on the Original Class Principal Balances
thereof and the Residual Interests in relation to the sum of the Original Pool
Principal Balance and the Original Pre-Funded Amount.
Amounts on deposit in the Pre-Funding Account will be invested in eligible
investments. All interest and any other investment earnings on amounts on
deposit in the Pre-Funding Account will be deposited in the Note Distribution
Account.
Capitalized Interest Account
On the Closing Date, a portion of the sales proceeds of the Notes will be
deposited in an account (the "Capitalized Interest Account") for application by
the Indenture Trustee on the Distribution Dates in ___________, _____________
and __________________1997 to cover shortfalls in interest on the Notes that may
arise due to the utilization of the Pre-Funding Account as described herein. Any
amounts remaining in the Capitalized Interest Account at the end of the
Pre-Funding Period will be paid to ______.
Optional Termination of the Trust
The holders of an aggregate percentage interest in the Residual Interests
in excess of ___% (the "Majority Residual Interestholders") may, at their
option, effect an early termination of the Trust on or after any Distribution
Date on which the Pool Principal Balance declines to ____% or less of the
Maximum Collateral Amount, by purchasing all of the Loans at a price equal to or
greater than the Termination Price. The "Termination Price" shall be an amount
equal to the sum of (i) the then outstanding Principal Balances of the Loans
plus all accrued and unpaid interest thereon, (ii) any Trust Fees and Expenses
due and unpaid on such date and (iii) any unreimbursed Servicing Advances
including such Servicing Advances deemed to be nonrecoverable. The proceeds from
such sale will be distributed in the order and priority set forth above under
"Distribution Priorities".
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of the Indenture, the Sale
and Servicing Agreement, the Administration Agreement, the Custodial Agreement
and the Trust Agreement (collectively, the "Transfer and Servicing Agreements").
Forms of certain of the Transfer and Servicing Agreements have been filed as
exhibits to the Registration Statement. Copies of the Transfer and Servicing
Agreements will be filed with the Commission following the issuance of the
Notes. The summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all the provisions of the Transfer
and Servicing Agreements. The following summary supplements, and to the extent
inconsistent therewith replaces, the description of the general terms and
provisions of the Transfer and Servicing Agreements set forth under the headings
"The Agreements" in the Prospectus, to which description reference is hereby
made.
Sale and Assignment of the Loans
On the Closing Date, the Depositor will sell, convey, transfer and assign
the Initial Loans to the Trust. The Trust, concurrently with the sale,
conveyance, transfer and assignment of the Initial Loans, will deliver (or cause
to be delivered) to the Depositor the Notes in exchange for the Loans. The Trust
will pledge and assign the Loans (including any rights it may acquire from time
to time in the Subsequent Loans) to the Indenture Trustee in exchange for the
Notes. Each Loan will be identified in a schedule appearing as an exhibit to the
Sale and Servicing Agreement delivered to the Indenture Trustee as such Schedule
may from time to time be amended (the "Loan Schedule").
In addition, the Depositor will deliver (or cause to be delivered), as to
each Loan, to the Indenture Trustee or to the Custodian, the related Note
endorsed in blank or to the order of the Indenture Trustee, without recourse,
any assumption and modification agreements and the Mortgage with evidence of
recording indicated thereon (except for any Mortgage not returned
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from the public recording office), an assignment of the Mortgage in blank or in
the name of the Indenture Trustee, in recordable form, and any intervening
assignments of the Mortgage (collectively, as to each Loan, an "Indenture
Trustee's Loan File"). Subject to confirmation by the Rating Agencies, with
respect to Loan secured by Mortgaged Properties located in certain states where
______ has been advised by counsel that recordation of an assignment of mortgage
is not necessary in order to perfect an interest in a Loan, assignments of
Mortgage will not be filed to reflect the transfer of the Loans to the Trust and
the pledge of the Loans to Indenture Trustee. Rather, ______ in its capacity as
the Servicer will retain record title to such mortgages on behalf of the
Indenture Trustee and the Noteholders. See "Risk Factors--Additional Factors
Affecting Delinquencies, Defaults and Losses on Loans--Non-recordation of
Assignments". In all other cases, assignments to the Indenture Trustee of the
Mortgages will be recorded in order to protect the Trust and the Indenture
Trustee's interest in the Loans against the claims of certain creditors of
______ or subsequent purchasers. ______ will deliver or cause to be delivered to
the Indenture Trustee after recordation the assignments of the Mortgages and the
Mortgages. In the event that ______ cannot deliver the Mortgage or any
assignment with evidence of recording thereon concurrently with the conveyance
thereof under the Sale and Servicing Agreement because it has or they have not
yet been returned by the public recording office or because such office retains
the original thereof, then ______ will deliver or cause to be delivered to the
Indenture Trustee or the Custodian a certified true photocopy of such Mortgage
or assignment. ______ will deliver or cause to be delivered to the Indenture
Trustee or the Custodian any such Mortgage or assignment with evidence of
recording indicated thereon upon receipt thereof from the public recording
office. The Indenture Trustee or the Custodian will agree, for the benefit of
the holders of the Notes, to review (or cause to be reviewed) each Indenture
Trustee's Loan File within 30 days after the conveyance of the related Loan to
the Trust to ascertain that all required documents have been executed and
received, subject to the applicable cure period in the Transfer and Servicing
Agreements.
Trust Fees and Expenses
As compensation for its services pursuant to the Sale and Servicing
Agreement, the Servicer is entitled to the Servicing Fee and additional
servicing compensation and reimbursement as described under "Servicing" below.
As compensation for their services pursuant to the applicable Transfer and
Servicing Agreements, the Indenture Trustee is entitled to the Indenture Trustee
Fee and the Owner Trustee is entitled to the Owner Trustee Fee.
Servicing
In consideration for the performance of the daily loan servicing functions
for the Loans, the Servicer is entitled to a monthly fee (the "Servicing Fee")
equal to 1.00% (100 basis points) per annum (the "Servicing Fee Rate") of the
Pool Principal Balance as of the first day of the immediately preceding Due
Period. See "Risk Factors-- Additional Factors Affecting Delinquencies, Defaults
and Losses on Loans - Dependence on Servicer for Servicing Loans" herein. The
Servicer will pay the fees of any Subservicer out of the amounts it receives as
the Servicing Fee. In addition to the Servicing Fee, the Servicer is entitled to
retain additional servicing compensation in the form of assumption and other
administrative fees, release fees, insufficient funds charges, late payment
charges and any other servicing-related penalties and fees (such additional
compensation and Servicing Fee, collectively the "Servicing Compensation").
In the event of a delinquency or a default with respect to a Loan, the
Servicer will have no obligation to advance scheduled monthly payments of
principal or interest with respect to such Loan. However, the Servicer will make
reasonable and customary expense advances with respect to the Loans (each, a
"Servicing Advance") in accordance with their servicing obligations under the
Sale and Servicing Agreement and will be entitled to receive reimbursement for
such Servicing Advances as described herein. For example, with respect to a
Loan, such Servicing Advances may include costs and expenses advanced for the
preservation, restoration and protection of any Mortgaged Property, including
advances to pay delinquent real estate taxes and assessments. Any Servicing
Advances previously made and determined by the Servicer to be nonrecoverable, in
accordance with accepted servicing procedures will be reimbursable from amounts
in the Collection Account prior to distributions to Noteholders.
Collection Account, Note Distribution Account and Certificate Distribution
Account
The Servicer is required to use its best efforts to deposit in a segregated
account (the "Collection Account"), within two Business Days of receipt, all
payments received after the Cut-Off Date on account of principal and interest,
all Net Liquidation Proceeds, Insurance Proceeds, Released Mortgaged Property
Proceeds, post-liquidation proceeds, any amounts payable in connection with the
repurchase or substitution of any Loan and any amount required to be deposited
in the Collection Account in connection with the termination of the Notes. The
foregoing requirements for deposit in the Collection Account will be exclusive
of payments on account of principal and interest collected on the Loans on or
before the applicable Cut-Off Date. Withdrawals will be made from the Collection
Account only for the purposes specified in the Sale and Servicing Agreement
(including the payment of Servicing Compensation). The Collection Account may be
maintained at any depository institution which satisfies the requirements set
forth in the definition of "Eligible Account" in the Sale and Servicing
Agreement.
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The Servicer will establish and maintain with the Indenture Trustee an
account, in the name of the Indenture Trustee on behalf of the Noteholders, into
which amounts released from the Collection Account for distribution to the
Noteholders will be deposited and from which all distributions to the
Noteholders will be made (the "Note Distribution Account").
On the Business Day prior to each Distribution Date, the Indenture Trustee
will deposit the Available Collection Amount into the Note Distribution Account
by making the appropriate withdrawals from the Collection Account. On each
Distribution Date, the Indenture Trustee will make withdrawals from the Note
Distribution Account for application of the amounts specified below in the
following order of priority:
(i) to provide for the payment of certain fees of the Trust in the
following order: (a) to the Indenture Trustee, an amount equal to the
Indenture Trustee Fee and all unpaid Indenture Trustee Fees from prior Due
Periods and (b) to the Servicer on behalf of the Owner Trustee, an amount
equal to the Owner Trustee Fee and all unpaid Owner Trustee Fees from prior
Due Periods; and
(ii) to provide for the payments to the holders of the Notes, the
holders of the Residual Interests and the Servicer of the amounts specified
herein under "Description of the Notes--Distributions on the Notes."
Income from Accounts
So long as no Event of Default shall have occurred and be continuing,
amounts on deposit in the Note Distribution Account (together with the
Collection Account, the "Accounts") will be invested by the Indenture Trustee,
as directed by the Servicer, in one or more Permitted Investments (as defined in
the Sale and Servicing Agreement) bearing interest or sold at a discount. No
such investment in any Account will mature later than the Business Day
immediately preceding the next Distribution Date. All income or other gain from
investments in any Account will be deposited in such Account immediately on
receipt, unless otherwise specified herein. Income from investments of amounts
on deposit in the Note Distribution Account will be for the benefit of and
withheld by the Indenture Trustee.
Withdrawals from the Collection Account
The Indenture Trustee, at the direction of the Servicer, shall make the
following withdrawals from the Collection Account, in no particular order of
priority: (i) to withdraw any amount not required to be deposited in the
Collection Account or deposited therein in error; (ii) on each Distribution
Date, to pay to the Servicer any accrued and unpaid Servicing Compensation not
otherwise withheld as permitted by the Sale and Servicing Agreement; (iii) on
each Distribution Date, to pay to the Servicer any unreimbursed Servicing
Advances; provided, however, that, except as set forth in clause (iv) below, the
Servicer's right to reimbursement for unreimbursed Servicing Advances shall be
limited to late collections on the related Loans, including, without limitation,
late collections constituting Liquidation Proceeds, Released Mortgaged Property
Proceeds, Insurance Proceeds, post-liquidation proceeds and such other amounts
as may be collected by the Servicer from the related Obligor or otherwise
relating to the Loan in respect of which such unreimbursed amounts are owed;
(iv) on each Distribution Date, to reimburse the Servicer for any Servicing
Advances determined by the Servicer in good faith to have become nonrecoverable
Servicing Advances; and (v) make payments as set forth in the Sale and Servicing
Agreement.
The Owner Trustee and the Indenture Trustee
The Owner Trustee, the Indenture Trustee and any of their respective
affiliates may hold Notes in their own names or as pledgees. For the purpose of
meeting the legal requirements of certain jurisdictions, the Servicer, the
Owner Trustee and the Indenture Trustee acting jointly (or in some instances,
the Owner Trustee or the Indenture Trustee acting alone) will have the power to
appoint co-trustees or separate trustees of all or any part of the Trust. In the
event of such an appointment, all rights, powers, duties and obligations
conferred or imposed upon the Owner Trustee by the Trust Agreement and upon the
Indenture Trustee by the Sale and Servicing Agreement and the Indenture will be
conferred or imposed upon the Owner Trustee and the Indenture Trustee,
respectively, and in each such case such separate trustee or co-trustee jointly,
or, in any jurisdiction in which the Owner Trustee or the Indenture Trustee will
be incompetent or unqualified to perform certain acts, singly upon such separate
trustee or co-trustee who will exercise and perform such rights, powers, duties
and obligations solely at the direction of the Owner Trustee or the Indenture
Trustee, respectively.
The Owner Trustee and the Indenture Trustee may resign at any time, in
which event the Servicer will be obligated to appoint a successor thereto. The
Servicer may remove the Owner Trustee or the Indenture Trustee if either ceases
to be eligible to continue as such under the Trust Agreement, the Sale and
Servicing Agreement or the Indenture, as the case may be, or becomes legally
unable to act or becomes insolvent. In such circumstances, the Servicer will be
obligated to appoint a successor Owner Trustee or a successor Indenture Trustee,
as applicable. Any resignation or removal of the Owner Trustee or the Indenture
Trustee and appointment of a successor thereto will not become effective until
acceptance of the appointment by such successor. Upon the occurrence and
continuation of an event of default under the Indenture, the Co-Owner Trustee
will resign
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and the Owner Trustee will assume the duties of the Co-Owner Trustee under the
Trust Agreement and the Sale and Servicing Agreement.
The Trust Agreement and Indenture will provide that the Owner Trustee and
the Indenture Trustee will be entitled to indemnification by the Depositor or
______, and will be held harmless against, any loss, liability or expense
incurred by the Owner Trustee or the Indenture Trustee not resulting from its
own willful misfeasance, bad faith or negligence (other than by reason of a
breach of any of its representations or warranties to be set forth in the Trust
Agreement, the Indenture or the Sale and Servicing Agreement, as the case may
be).
Duties of the Owner Trustee and the Indenture Trustee
The Owner Trustee will make no representations as to the validity or
sufficiency of the Trust Agreement, the Notes or of any Loans or related
documents, and will not be accountable for the use or application by the
Depositor or the Servicer of any funds paid to the Depositor or the Servicer in
respect of the Notes, the Loans, or the investment of any monies by the Servicer
before such monies are deposited into the Accounts. So long as no Event of
Default has occurred and is continuing, the Owner Trustee will be required to
perform only those duties specifically required of it under the Trust Agreement.
Generally, those duties will be limited to the receipt of the various
certificates, reports or other instruments required to be furnished to the Owner
Trustee under the Trust Agreement, in which case it will only be required to
examine them to determine whether they conform to the requirements of the Trust
Agreement. The Owner Trustee will not be charged with knowledge of a failure by
the Servicer to perform its duties under the Trust Agreement or the Sale and
Servicing Agreement which failure constitutes an Event of Default unless the
Owner Trustee obtains actual knowledge of such failure as will be specified in
the Trust Agreement or the Sale and Servicing Agreement.
The Indenture Trustee will make no representations as to the validity or
sufficiency of the Indenture, the Sale and Servicing Agreement, the Notes (other
than the execution and authentication thereof) or of any Loans or related
documents, and will not be accountable for the use or application by the
Depositor or the Servicer of any funds paid to the Depositor or the Servicer in
respect of the Notes or the Loans, or the investment of any monies by the
Servicer before such monies are deposited into any of the Accounts. So long as
no Event of Default under the Indenture or the Sale and Servicing Agreement has
occurred and is continuing, the Indenture Trustee will be required to perform
only those duties specifically required of it under the Indenture or the Sale
and Servicing Agreement. Generally, those duties will be limited to the receipt
of the various certificates, reports or other instruments required to be
furnished to the Indenture Trustee under the Indenture, in which case it will
only be required to examine them to determine whether they conform to the
requirements of the Indenture. The Indenture Trustee will not be charged with
knowledge of a failure by the Servicer to perform its duties under the Trust
Agreement, Sale and Servicing Agreement or Administration Agreement which
failure constitutes an Event of Default under the Indenture or the Sale and
Servicing Agreement unless the Indenture Trustee obtains actual knowledge of
such failure as will be specified in the Indenture or the Sale and Servicing
Agreement.
The Indenture Trustee will be under no obligation to exercise any of the
rights or powers vested in it by the Indenture or the Sale and Servicing
Agreement or to make any investigation of matters arising thereunder or to
institute, conduct or defend any litigation thereunder or in relation thereto at
the request, order or direction of any of the Noteholders, unless such
Noteholders have offered to the Indenture Trustee reasonable security or
indemnity against the costs, expenses and liabilities that may be incurred
therein or thereby. No Noteholder will have any right under the Indenture or the
Sale and Servicing Agreement to institute any proceeding with respect to the
Indenture or the Sale and Servicing Agreement, unless such holder previously
shall have given to the Indenture Trustee written notice of the occurrence of an
Event of Default and (i) the Event of Default arises from the Servicer's failure
to remit payments when due or (ii) Noteholders evidencing not less than 25% of
the voting interests of each Class of Notes, acting together as a single class,
shall have made written request upon the Indenture Trustee to institute such
proceeding in its own name as the Indenture Trustee thereunder and offered to
the Indenture Trustee reasonable indemnity and the Indenture Trustee for 30 days
shall have neglected or refused to institute any such proceedings.
PREPAYMENT AND YIELD CONSIDERATIONS
Except as otherwise provided herein, no principal distributions will be
made on any Class of Senior Notes until the Class Principal Balance of each
Class of Senior Notes having a lower numerical designation has been reduced to
zero, and no principal distributions will be made on the Mezzanine Notes until
all required principal distributions have been made in respect of the Senior
Notes. In addition, except as otherwise provided, no distributions of principal
with respect to the Class B Notes will be made until the required principal
distributions have been made in respect of all Classes of Senior Notes and
Mezzanine Notes. See "Description of the Notes--Distributions on the Notes"
herein. As the rate of payment of principal of each Class of Notes depends
primarily on the rate of payment (including prepayments) of the Loans, final
payment of any Class of Notes could occur significantly earlier than its Final
Maturity Date. Holders of the Notes will bear the risk of being able to reinvest
principal payments on the Notes at yields at least equal to the yields on their
respective Notes. No prediction can be made as to the rate of prepayments on the
Loans in either stable or changing interest rate environments. Any reinvestment
risk resulting from the rate
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of prepayment of the Loans and the distribution of such payments to the holders
of the Notes will be borne entirely by the holders of the Notes.
The subordination of the Class B Notes to the Senior Notes and Mezzanine
Notes will provide limited protection to the holders of the Senior and Mezzanine
Notes against losses on the Loans. Accordingly, the yield on the Class B Notes
(and to a lesser extent, the Mezzanine Notes and Senior Notes) will be extremely
sensitive to the delinquency and loss experience of the Loans, the timing of any
such delinquencies and losses, the weighted average coupon of the Loans
(including the Adjustable Rate Loans) as well as the amount of Excess Spread
from time to time. If the actual rate and amount of delinquencies and losses
experienced by the Loans exceed the rate and amount of such delinquencies and
losses assumed by an investor or the actual weighted average coupon of the Loans
(including the Adjustable Rate Loans) is less than the weighted average coupon
assumed by an investor, the yield to maturity on the Notes may be lower than
anticipated.
The effective yield to the holders of any Class of Notes will be lower than
the yield otherwise produced by the applicable Note Interest Rate, because the
distribution of the interest accrued during each Interest Period (a calendar
month consisting of thirty days) will not be made until the Distribution Date
occurring in the month following such Due Period. See "Description of the
Notes--Distributions on the Notes" herein. This delay will result in funds being
passed through to the holders of the Notes approximately 25 days after the end
of the monthly accrual period, during which 25-day period no interest will
accrue on such funds. As discussed in greater detail below, greater than
anticipated distributions of principal can also affect the yield on Notes
purchased at a price greater or less than par.
The rate of principal payments on the Notes, the aggregate amount of each
interest payment on the Notes and the yield to maturity on the Notes will be
directly related to and affected by the rate and timing of principal reductions
on the Loans, the application of Excess Spread to reduce the Class Principal
Balances of the Notes to the extent described herein under "Description of
Credit Enhancement--Overcollateralization," and, under certain circumstances,
the delinquency rate experienced by and the weighted average coupon of the
Loans. The reductions in principal of such Loans may be in the form of scheduled
amortization payments or unscheduled payments or reductions, which may include
prepayments, repurchases and liquidations or write-offs due to default,
casualty, insurance or other dispositions. On or after any Distribution Date on
which the Pool Principal Balance declines to ____% or less of the Maximum
Collateral Amount, the Majority Residual Interestholders may effect an early
termination of the Trust, resulting in a redemption of the Notes. See
"Description of the Notes--Optional Termination of the Trust" herein.
The "weighted average life" of a Note refers to the average amount of time
that will elapse from ______________ (the "Closing Date") to the date on which
each dollar in respect of principal of such Note will have repaid. The weighted
average lives of the Notes will be influenced by the rate at which principal
reductions occur on the Loans, the extent to which high rates of delinquencies
on the Loans during any Due Period result in interest collections on the Loans
in amounts less than the amount of interest distributable on the Notes, the rate
at which Excess Spread is distributed to holders of the Notes as described
herein, and the extent to which any reduction of the Overcollateralization
Amount is paid to the holders of the Residual Interests as described herein. If
substantial principal prepayments on the Loans are received from unscheduled
prepayments, liquidations or repurchases, then the distributions to the holders
of the Notes resulting from such prepayments may significantly shorten the
actual average lives of the Notes. If the Loans experience delinquencies and
certain defaults in the payment of principal, then the holders of the Notes will
similarly experience a delay in the receipt of principal distributions
attributable to such delinquencies and default, which in certain instances may
result in longer actual average lives of the Notes than would otherwise be the
case. However, to the extent that the Principal Balances of Liquidated Loans are
included in the principal distributions on the Notes, then the holders of the
Notes will experience an acceleration in the receipt of principal distributions
which in certain instances may result in shorter actual average lives of the
Notes than would otherwise be the case. Interest shortfalls on the Loans due to
principal prepayments in full and in part and any resulting shortfall in amounts
distributable on the Notes will be covered to the extent of amounts available
from the credit enhancement provided for the Notes. See "Risk Factors--Adequacy
of Credit Enhancement" herein.
The rate and timing of principal reductions on the Loans will be influenced
by a variety of economic, geographic, social and other factors. These factors
may include changes in borrowers' housing needs, job transfers, unemployment,
borrowers' net equity, if any, in the Mortgaged Properties, servicing decisions,
homeowner mobility, the existence and enforceability of "due-on-sale" clauses,
seasoning of Loans, market interest rates for similar types of loans and the
availability of funds for such loans. Each of the Loans may be assumed, with the
Servicer's consent, upon the sale of the related Mortgaged Property. Certain of
the Loans are subject to prepayment penalties, which may reduce the amount or
the likelihood of prepayments on such Loans. The remaining Loans may be prepaid
in full or in part at any time without penalty. As with fixed rate obligations,
generally, the rate of prepayment on a pool of loans is likely to be affected by
prevailing market interest rates for similar types of loans of a comparable term
and risk level. If prevailing interest rates were to fall significantly below
the respective Loan Rates on the Loans, the rate of prepayment (and refinancing)
would be expected to increase. Conversely, if prevailing interest rates were to
rise significantly above the respective Loan Rates on the Loans, the rate of
prepayment on the Loans would be expected to decrease. In addition, depending on
prevailing market interest rates, the future outlook for market interest rates
and economic
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conditions generally, some borrowers may sell or refinance mortgaged properties
in order to realize their equity in the mortgaged properties, if any, to meet
cash flow needs or to make other investments. In addition, any future
limitations on the rights of borrowers to deduct interest payments on mortgage
loans for Federal income tax purposes may result in a higher rate of prepayment
on the Loans. ______ makes no representations as to the particular factors that
will affect the prepayment of the Loans, as to the relative importance of such
factors, or as to the percentage of the Principal Balances of the Loans that
will be paid as of any date.
Distributions of principal to holders of the Notes at a faster rate than
anticipated will increase the yields on Notes purchased at discounts but will
decrease the yields on Notes purchased at premiums, which distributions of
principal may be attributable to scheduled payments and prepayments of principal
as a result of repurchases and liquidations or write-offs due to default,
casualty or insurance on the Loans and to the application of Excess Spread. The
effect on an investor's yield due to distributions of principal to the holders
of the Notes (including, without limitation, prepayments on the Loans) occurring
at a rate that is faster (or slower) than the rate anticipated, by the investor
during any period following the issuance of the Notes will not be offset
entirely by a subsequent like reduction (or increase) in the rate of such
distributions of principal during any subsequent period.
The rate of delinquencies and defaults on the Loans and the recoveries, if
any, on Defaulted Loans and foreclosed properties will also affect the rate and
timing of principal payments on the Loans, and accordingly, the weighted average
lives of the Notes, and could cause a delay in the payment of principal or a
slower rate of principal amortization to the holders of Notes. Certain factors
may influence such delinquencies and defaults, including origination and
underwriting standards, Combined Loan-to-Value Ratios and delinquency history.
In general, defaults on home loans are expected to occur with greater frequency
in their early years, although few data are available with respect to the rate
of default on home loans similar to the Loans. The rate of default on Loans with
high Combined Loan-to-Value Ratios, secured by junior liens may be higher than
that on home loans with lower Combined Loan-to-Value Ratios or secured by first
liens on comparable properties. Furthermore, the rate and timing of prepayments,
defaults and liquidations on the Loans will be affected by the general economic
conditions of the regions of the country in which the related Mortgaged
Properties are located or the related borrower is residing. See "The Loans"
herein. The risk of delinquencies and loss is greater and voluntary principal
prepayments are less likely in regions where a weak or deteriorating economy
exists, as may be evidenced by increasing unemployment or falling property
values.
Because principal distributions generally are paid to certain Classes of
Notes before other Classes, holders of the Class B Notes and, to a lesser
extent, the Classes of Mezzanine Notes bear a greater risk of losses from
delinquencies and defaults on the Loans than holders of the Classes of Notes
having higher priorities for payment of principal. See "Description of Credit
Enhancement--Subordination and Allocation of Losses" herein.
Although some data have been published with respect to the historical
prepayment experience of certain residential mortgage loans, such mortgage loans
may differ in material respects from the Loans and such data may not be
reflective of conditions applicable to the Loans. No prepayment history is
generally available with respect to the types of Loans included in the Pool or
similar types of loans, and there can be no assurance that the Loans will
achieve or fail to achieve any particular rate of principal prepayment. A number
of factors suggest that the prepayment experience of the Pool may be
significantly different from that of a pool of conventional first-lien, single
family mortgage loans with equivalent interest rates and maturities. One such
factor is that the Principal Balance of the average Loan is smaller than that of
the average conventional first-lien mortgage loan. A smaller principal balance
may be easier for a borrower to prepay than a larger balance and, therefore, a
higher prepayment rate may result for the Pool than for a pool of first-lien
mortgage loans, irrespective of the relative average interest rates and the
general interest rate environment. In addition, in order to refinance a
first-lien mortgage loan, the borrower must generally repay any junior liens.
However, a small Principal Balance may make refinancing a Loan at a lower
interest rate less attractive to the borrower as the perceived impact to the
borrower of lower interest rates on the size of the monthly payment may not be
significant. Other factors that might be expected to affect the prepayment rate
of the Pool include general economic conditions, the amounts of and interest
rates on the underlying senior mortgage loans, and the tendency of borrowers to
use real property mortgage loans as long-term financing for home purchase and
junior liens as shorter-term financing for a variety of purposes, which may
include the direct or indirect financing of home improvement, education
expenses, debt consolidation, purchases of consumer durables such as
automobiles, appliances and furnishings and other consumer purposes.
Furthermore, because at origination a substantial majority of the Loans had
combined loan-to-value ratios that exceeded 100%, the related borrowers for
these Loans will generally have significantly less opportunity to refinance the
indebtedness secured by the related Mortgaged Properties and, therefore, a lower
prepayment rate may be experienced by the Pool than for a pool of mortgage
(including first or junior lien) loans that have combined loan-to-value ratios
less than 100%. Given these characteristics, the Loans may experience a higher
or lower rate of prepayment than first-lien mortgage loans.
Excess Spread and Reduction of Overcollateralization Amount
An overcollateralization feature has been designed to accelerate the
principal amortization of the Notes relative to the principal amortization of
the Loans. If on any Distribution Date following the termination of the Spread
Deferral Period, the
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Overcollateralization Target Amount exceeds the Overcollateralization Amount,
any Excess Spread will be distributed to the holders of the Classes of Notes in
the order and amounts specified herein under "Description of the
Notes--Distributions on the Notes--Distribution Priorities." Prior to the
termination of the Spread Deferral Period or if the Overcollateralization Amount
equals the Overcollateralization Target Amount for such Distribution Date,
Excess Spread otherwise distributable to the holders of the Notes as described
above will instead be distributed in respect of Loss Reimbursement Deficiencies,
if any, and thereafter to the holders of the Residual Interests. On the Stepdown
Date and on each Distribution Date thereafter as to which the
Overcollateralization Amount is or, after taking into account all other
distributions to be made on such Distribution Date, would be at least equal to
the Overcollateralization Target Amount, amounts otherwise distributable as
principal to the holders of the Notes on such Distribution Date in reduction of
their Class Principal Balances may, under certain circumstances, instead be
distributed in respect of the applicable Classes in payment of their respective
Loss Reimbursement Deficiencies and thereafter to the holders of the Residual
Interests, thereby reducing the rate of and under certain circumstances delaying
the principal amortization with respect to the Notes, until the
Overcollateralization Amount is reduced to the Overcollateralization Target
Amount.
While all of the Notes are fixed rate obligations, ______% of the Original
Pool Principal Balance consists of Adjustable Rate Loans. If the Loan Rates on
the Adjustable Rate Loans decrease, the amount of the Excess Spread available
(i) to cause the termination of the Spread Deferral Period and then (ii) to
achieve the required Overcollateralization Amount will be lessened.
In addition, high rates of delinquencies on the Loans during any Due Period
may cause the amount of interest received on the Loans during such Due Period to
be less than the amount of interest distributable on the Notes on the related
Distribution Date. Such an occurrence will cause the Class Principal Balances of
the Notes to decrease at a slower rate relative to the Pool Principal Balance,
resulting in a reduction of the Overcollateralization Amount and, in some
circumstances, an Allocable Loss Amount. As described herein, the yield to
maturity on a Note purchased at a premium or a discount will be affected by the
extent to which any amounts are paid to the holders of the Residual Interests in
lieu of payment to the holders of the Classes of Notes in reduction of their
Class Principal Balances. If the actual distributions of any such amounts to the
holders of the Residual Interests occur sooner than anticipated by an investor
who purchases a Note at a discount, the actual yield to such investor may be
lower than such investor's anticipated yield. If the actual distributions of any
such amounts to the holders of the Residual Interests occur later than
anticipated by an investor who purchases a Note at a premium, the actual yield
to such investor may be lower than such investor's anticipated yield. The amount
payable to the holders of the Residual Interests in reduction of the
Overcollateralization Amount, if any, on any Distribution Date will be affected
by the Overcollateralization Target Amount and by the actual default and
delinquency experience of the Pool and the principal amortization of the Pool.
Reinvestment Risk
The reinvestment risk with respect to an investment in the Notes will be
affected by the rate and timing of principal payments (including prepayments) in
relation to the prevailing interest rates at the time of receipt of such
principal payments. For example, during periods of falling interest rates,
holders of the Notes are likely to receive an increased amount of principal
payments from the Loans at a time when such holders may be unable to reinvest
such payments in investments having a yield and rating comparable to those of
the Notes. Conversely, during periods of rising interest rates, holders of the
Notes are likely to receive a decreased amount of principal prepayments from the
Loans at a time when such holders may have an opportunity to reinvest such
payments in investments having a higher yield than, and a comparable rating to,
those of the Notes.
Final Maturity Dates
The "Final Maturity Date" for each Class of Notes as set forth in the
"Summary of Terms" herein has been calculated as the thirteenth Distribution
Date following the Due Period in which the Class Principal Balance of such Class
of Notes would be reduced to zero assuming no losses or prepayments and that no
Excess Spread is applied to reduce the principal balance of such Class of Notes.
The actual maturity of any Class of Notes may be substantially earlier than its
Final Maturity Date set forth herein.
Weighted Average Lives of the Notes
The following information is given solely to illustrate the effect of
prepayments of the Loans on the weighted average lives of the Notes under
certain stated assumptions and is not a prediction of the prepayment rate that
might actually be experienced by the Loans. Weighted average life refers to the
average amount of time that will elapse from the date of delivery of a security
until each dollar of principal of such security will be repaid to the investor.
The weighted average lives of the Notes will be influenced by the rate at which
principal of the Loans is paid, which may be in the form of scheduled
amortization or prepayments (for this purpose, the term "prepayment" includes
reductions of principal, including without limitation those resulting from
unscheduled full or partial prepayments, refinancings, liquidations and
write-offs due to defaults, casualties, insurance or other dispositions,
substitutions and repurchases by or on behalf of the Depositor or ______), the
rate at which
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Excess Spread is distributed to holders of the Notes as described herein, the
delinquency rate of the Loans from time to time and the extent to which any
amounts are distributed to the holders of the Residual Interests as described
herein.
Prepayments on loans such as the Loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement is
the prepayment assumption (the "Prepayment Assumption"), which represents an
assumed rate of prepayment each month relative to the then outstanding principal
balance of the pool of loans for the life of such loans. A 100% Prepayment
Assumption assumes a constant prepayment rate ("CPR") of _____% per annum of the
outstanding principal balance of such loans in the first month of the life of
the loans and an additional approximate ______% (expressed as a percentage per
annum) in each month thereafter until the twelfth month; beginning in the
twelfth month and in each month thereafter during the life of the loans, a CPR
of _______% each month is assumed. As used in the table below, 0% Prepayment
Assumption assumes prepayment rates equal to 0% of the Prepayment Assumption
(i.e., no prepayments). Correspondingly, ____% Prepayment Assumption assumes
prepayment rates equal to ____% of the Prepayment Assumption, and so forth. The
Prepayment Assumption does not purport to be a historical description of
prepayment experience or a prediction of the anticipated rate of prepayment of
any pool of loans, including the Loans. None of ______ or the Depositor makes
any representations about the appropriateness of the Prepayment Assumption or
the CPR model.
Modeling Assumptions. For purposes of preparing the tables below, the
following assumptions (the "Modeling Assumptions") have been made:
(i) all scheduled principal and interest payments on the Loans are
timely received on the first day of a Due Period, which will begin on the first
day of each month and end on the last day of the month (with the first Due
Period commencing on __________________), no delinquencies or losses occur on
the Loans and all Loans have a first payment date that occurs thirty (30) days
after the origination thereof; it is assumed that the scheduled payments of
interest include 30 days' accrued interest;
(ii) the scheduled payments on the Loans have been calculated on the
outstanding Principal Balance (prior to giving effect to prepayments), the Loan
Rate and the remaining term to stated maturity such that the Loans (other than
the Balloon Loans) will fully amortize by their remaining term to stated
maturity and the Balloon Loans will amortize according to their terms and the
balloon payment will be made on the final payment date;
(iii) all scheduled payments of interest and principal in respect of
the Loans have been made through the applicable Cut-Off Date for purposes of
calculating remaining term to stated maturity;
(iv) all Loans prepay monthly at the specified percentages of the
Prepayment Assumption, no optional or other early termination of the Notes
occurs (except with respect to the calculation of the Weighted Average Life - To
Call (Years) figures in the following tables) and no substitutions or
repurchases of the Loans occur;
(v) all prepayments in respect of the Loans are received on the last
day of each month commencing in the month of the Closing Date and include 30
days of interest thereon;
(vi) the Closing Date for the Notes is ______________ and each year
will consist of 360 days;
(vii) cash distributions are received by the holders of the Notes on
the 25th day of each month, commencing in _____________;
(viii) the Overcollateralization Target Amount will be as defined
herein;
(ix) the Pre-Funding Pro Rata Distribution Trigger does not occur;
(x) the Note Interest Rate for each Class of Notes is as set forth
herein;
(xi) the additional fees deducted from the interest collections in
respect of the Loans include the Indenture Trustee Fee, the Custodian Fee, the
Owner Trustee Fee and the Servicing Fee;
(xii) no reinvestment income from any Account is earned and available
for distribution;
(xiii) Sub-Pools 11, 12 and 13 (specified in the table below) are
transferred to the Trust in ____________ with principal payments on such Loans
being received by the Servicer in ____________ and passed through to holders of
the Notes on the Distribution Date in _________________;
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(xiv) sufficient funds will be available in the Capitalized Interest
Account to cover any shortfalls in interest due to the Pre-Funding Account and
the transfer of Loans described in clause (xiii);
(xv) interest will accrue on the Notes for each related Distribution
Date at the related Note Interest Rate and based on the related Interest Period;
(xvi) all of the Original Pre-Funded Amount is used to acquire
Subsequent Loans as set forth in clause (xiii); and
(xvii) each Adjustable Rate Loan adjusts every six months following
its initial adjustment date and the Pool consists of thirteen Loans having the
following additional characteristics:
61
<PAGE>
Assumed Loan Characteristics
<TABLE>
<CAPTION>
Number of
Remaining Months to
Cut-Off Date Original Term to Final
Principal Term Maturity Balloon Gross Lifetime Lifetime
Sub-Pool Loan Rate Balance (Months) (Months) Payment Margin Cap Floor
- --------- ---------- ------------ --------- --------- ------- ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 ________% $________ ________ _________ ________ ______ ________ ________
2 ________ ________ ________ _________ ________ ______ ________ ________
3 ________ ________ ________ _________ ________ ______ ________ ________
4 ________ ________ ________ _________ ________ ______ ________ ________
5 ________ ________ ________ _________ ________ ______ ________ ________
6 ________ ________ ________ _________ ________ ______ ________ ________
7 ________ ________ ________ _________ ________ ______ ________ ________
8 ________ ________ ________ _________ ________ ______ ________ ________
9 ________ ________ ________ _________ ________ ______ ________ ________
10 ________ ________ ________ _________ ________ ______ ________ ________
11 ________ ________ ________ _________ ________ ______ ________ ________
12 ________ ________ ________ _________ ________ ______ ________ ________
13 ________ ________ ________ _________ ________ ______ ________ ________
14 ________ ________ ________ _________ ________ ______ ________ ________
<CAPTION>
Months to
Next
Sub-Pool Periodic Cap Adjustment
- --------- ------------ ----------
<S> <C> <C>
1 ____________ __________
2 ____________ __________
3 ____________ __________
4 ____________ __________
5 ____________ __________
6 ____________ __________
7 ____________ __________
8 ____________ __________
9 ____________ __________
10 ____________ __________
11 ____________ __________
12 ____________ __________
13 ____________ __________
14 ____________ __________
</TABLE>
The tables on the following pages indicate the weighted average lives of
each Class of Notes corresponding to the specified percentages of the Prepayment
Assumption.
These tables have been prepared based on the Modeling Assumptions
(including the assumptions regarding the characteristics and performance of the
Loans which may differ from the actual characteristics and performance thereof)
and should be read in conjunction therewith.
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<PAGE>
Percent of Original Class Principal Balance Outstanding
at the Following Percentages of Prepayment Assumption(1)
Class A-1 Notes: $________________
-----------------------------------------------------------
Date 0% 50% 75% 100% 125% 150%
---- ----- ----- ----- ----- ----- -----
Initial Percent ... _____ _____ _____ _____ _____ _____
______ ............ _____ _____ _____ _____ _____ _____
______ ............ _____ _____ _____ _____ _____ _____
______ ............ _____ _____ _____ _____ _____ _____
______ ............ _____ _____ _____ _____ _____ _____
______ ............ _____ _____ _____ _____ _____ _____
______ ............ _____ _____ _____ _____ _____ _____
______ ............ _____ _____ _____ _____ _____ _____
Weighted Average Life
_____ _____ _____ _____ _____ _____
To Maturity (Years)
_____ _____ _____ _____ _____ _____
- -----------
(1) The percentages in this table have been rounded to the nearest whole
number.
(2) The weighted average life of a Class is determined by (a) multiplying the
amount of each distribution of principal thereof by the number of years
from the date of issuance to the related Distribution Date, (b) summing the
results and (c) dividing the sum by the aggregate distributions of
principal referred to in clause (a) and rounding to one decimal place.
63
<PAGE>
Percent of Original Class Principal Balance Outstanding
at the Following Percentages of Prepayment Assumption(1)
Class A-2 Notes: $________________
-----------------------------------------------------------
Date 0% 50% 75% 100% 125% 150%
---- ----- ----- ----- ----- ----- -----
Initial Percent _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
Weighted Average Life
To Maturity (Years)_____ _____ _____ _____ _____ _____
- ------------
(1) The percentages in this table have been rounded to the nearest whole
number.
(2) The weighted average life of a Class is determined by (a) multiplying the
amount of each distribution of principal thereof by the number of years
from the date of issuance to the related Distribution Date, (b) summing the
results and (c) dividing the sum by the aggregate distributions of
principal referred to in clause (a) and rounding to one decimal place.
64
<PAGE>
Percent of Original Class Principal Balance Outstanding
at the Following Percentages of Prepayment Assumption(1)
Class A-3 Notes: $________________
-----------------------------------------------------------
Date 0% 50% 75% 100% 125% 150%
---- ----- ----- ----- ----- ----- -----
Initial Percent _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
Weighted Average Life
To Maturity (Years)_____ _____ _____ _____ _____ _____
- - ----------
(1) The percentages in this table have been rounded to the nearest whole
number.
(2) The weighted average life of a Class is determined by (a) multiplying the
amount of each distribution of principal thereof by the number of years
from the date of issuance to the related Distribution Date, (b) summing the
results and (c) dividing the sum by the aggregate distributions of
principal referred to in clause (a) and rounding to one decimal place.
65
<PAGE>
Percent of Original Class Principal Balance Outstanding
at the Following Percentages of Prepayment Assumption(1)
Class A-4 Notes: $________________
-----------------------------------------------------------
Date 0% 50% 75% 100% 125% 150%
---- ----- ----- ----- ----- ----- -----
Initial Percent _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
66
<PAGE>
Class A-4 Notes: $________________
-----------------------------------------------------------
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
Weighted Average Life
To Maturity (Years)_____ _____ _____ _____ _____ _____
- - ----------
(1) The percentages in this table have been rounded to the nearest whole
number.
(2) The weighted average life of a Class is determined by (a) multiplying the
amount of each distribution of principal thereof by the number of years
from the date of issuance to the related Distribution Date, (b) summing the
results and (c) dividing the sum by the aggregate distributions of
principal referred to in clause (a) and rounding to one decimal place.
67
<PAGE>
Percent of Original Class Principal Balance Outstanding
at the Following Percentages of Prepayment Assumption(1)
Class M-1 Notes: $________________
-----------------------------------------------------------
Date 0% 50% 75% 100% 125% 150%
---- ----- ----- ----- ----- ----- -----
Initial Percent _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
68
<PAGE>
Class M-1 Notes: $________________
-----------------------------------------------------------
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
Weighted Average Life
To Maturity (Years)_____ _____ _____ _____ _____ _____
- - ----------
(1) The percentages in this table have been rounded to the nearest whole
number.
(2) The weighted average life of a Class is determined by (a) multiplying the
amount of each distribution of principal thereof by the number of years
from the date of issuance to the related Distribution Date, (b) summing the
results and (c) dividing the sum by the aggregate distributions of
principal referred to in clause (a) and rounding to one decimal place.
69
<PAGE>
Percent of Original Class Principal Balance Outstanding
at the Following Percentages of Prepayment Assumption(1)
Class M-2 Notes: $________________
-----------------------------------------------------------
Date 0% 50% 75% 100% 125% 150%
---- ----- ----- ----- ----- ----- -----
Initial Percent ... _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
70
<PAGE>
Class M-2 Notes: $________________
-----------------------------------------------------------
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
Weighted Average Life
To Maturity (Years)_____ _____ _____ _____ _____ _____
- - ----------
(1) The percentages in this table have been rounded to the nearest whole
number.
(2) The weighted average life of a Class is determined by (a) multiplying the
amount of each distribution of principal thereof by the number of years
from the date of issuance to the related Distribution Date, (b) summing the
results and (c) dividing the sum by the aggregate distributions of
principal referred to in clause (a) and rounding to one decimal place.
71
<PAGE>
Percent of Original Class Principal Balance Outstanding
at the Following Percentages of Prepayment Assumption(1)
Class B Notes: $________________
-----------------------------------------------------------
Date 0% 50% 75% 100% 125% 150%
---- ----- ----- ----- ----- ----- -----
Initial Percent _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
72
<PAGE>
Class B Notes: $________________
-----------------------------------------------------------
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
Weighted Average Life
To Maturity (Years)_____ _____ _____ _____ _____ _____
- -----------
(1) The percentages in this table have been rounded to the nearest whole
number.
(2) The weighted average life of a Class is determined by (a) multiplying the
amount of each distribution of principal thereof by the number of years
from the date of issuance to the related Distribution Date, (b) summing the
results and (c) dividing the sum by the aggregate distributions of
principal referred to in clause (a) and rounding to one decimal place.
73
<PAGE>
The amortization scenarios for the Notes set forth in the foregoing tables
are subject to significant uncertainties and contingencies (including those
discussed above under "Prepayment and Yield Considerations"). As a result, there
can be no assurance that any of the foregoing amortization scenarios and the
Modeling Assumptions on which they were made will prove to be accurate or that
the actual weighted average lives of the Notes will not vary from those set
forth in the foregoing tables, which variations may be shorter or longer, and
which variations may be greater with respect to later years. Furthermore, it is
unlikely that the Loans will prepay at a constant rate or that all of the Loans
will prepay at the same rate. Moreover, the Loans actually included in the Pool,
the payment experience of such Loans and certain other factors affecting the
distributions on the Notes will not conform to the Modeling Assumptions made in
preparing the above tables. In fact, the characteristics and payment experience
of the Loans will differ in many respects from such Modeling Assumptions. See
"The Loans" herein. To the extent that the Loans actually included in the Pool
have characteristics and a payment experience that differ from those assumed in
preparing the foregoing tables, the Notes are likely to have weighted average
lives that are shorter or longer than those set forth in the foregoing tables.
See "Risk Factors--Prepayment and Yield Considerations" herein.
In light of the uncertainties inherent in the foregoing paydown scenarios,
the inclusion of the weighted average lives of the Notes in the foregoing tables
should not be regarded as a representation by the Servicer, the Depositor, the
Underwriter, or any other person that such weighted average lives will be
achieved or that any of the foregoing paydown scenarios will be experienced.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the material anticipated federal
income tax considerations to investors of the purchase, ownership and
disposition of the securities offered hereby. The discussion is based upon laws,
regulations, rulings and decisions now in effect, all of which are subject to
change. The discussion below does not purport to deal with all federal tax
considerations applicable to all categories of investors, some of which may be
subject to special rules. Investors are urged to consult their own tax advisors
in determining the federal, state, local and any other tax consequences to them
of the purchase, ownership and disposition of the Notes.
Treatment of the Notes as Indebtedness. The Depositor agrees, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for all federal, state and local income tax purposes. There are no regulations,
published rulings or judicial decisions involving the characterization for
federal income tax purposes of securities with terms substantially the same as
the Notes. In general, whether instruments such as the Notes constitute
indebtedness for federal income tax purposes is a question of fact, the
resolution of which is based primarily upon the economic substance of the
instruments and the transaction pursuant to which they are issued rather than
merely upon the form of the transaction or the manner in which the instruments
are labeled. The Internal Revenue Service (the "IRS") and the courts have set
forth various factors to be taken into account in determining, for federal
income tax purposes, whether or not an instrument constitutes indebtedness and
whether a transfer of property is a sale because the transferor has relinquished
substantial incidents of ownership in the property or whether such transfer is a
borrowing secured by the property. On the basis of its analysis of such factors
as applied to the facts and its analysis of the economic substance of the
contemplated transaction, Dewey Ballantine LLP, tax counsel to ______ ("Tax
Counsel") will conclude that, for federal income tax purposes, the Notes will be
treated as indebtedness of the Trust, and not as an ownership interest in the
Loans, or an equity interest in the Trust or in a separate association taxable
as a corporation or other taxable entity.
If the Notes are characterized as indebtedness, interest paid or accrued on
a Note will be treated as ordinary income to the Noteholders and principal
payments on a Note will be treated as a return of capital to the extent of the
Noteholder's basis in the Note allocable thereto. An accrual method taxpayer
will be required to include in income interest on the Notes when earned, even if
not paid, unless it is determined to be uncollectible. The Trust will report to
Noteholders of record and the Internal Revenue Service (the "IRS") in respect of
the interest paid and original issue discount, if any, accrued on the Notes to
the extent required by law.
Although, as described above, it is the opinion of Tax Counsel that, for
federal income tax purposes, the Notes will be characterized as debt, such
opinion is not binding on the IRS and thus no assurance can be given that such a
characterization will prevail. If the IRS successfully asserted that one or more
Classes of the Notes did not represent debt for federal income tax purposes,
holders of the Notes would likely be treated as owning an interest in a
partnership and not an interest in an association (or publicly traded
partnership) taxable as a corporation. If the Noteholders were treated as owning
an equitable interest in a partnership, the partnership itself would not be
subject to federal income tax; rather each partner would be taxed individually
on their respective distributive share of the partnership's income, gain, loss,
deductions and credits. The amount, timing and characterization of items of
income and deductions for a Noteholder would differ if the Notes were held to
constitute partnership interests, rather than indebtedness and would cause a
tax-exempt entity subject to tax on unrelated business taxable income ("UBTI")
(including an individual retirement account) to recognize UBTI under the Code.
Since the parties will treat the Notes as indebtedness for federal income tax
purposes, none of the Servicer, the Indenture Trustee or the Owner Trustee will
attempt to satisfy the tax reporting requirements that would apply under this
alternative characterization of the Notes. Investors that are
74
<PAGE>
foreign persons are strongly urged to consult their own tax advisors in
determining the federal, state, local and other tax consequences to them of the
purchase, ownership and disposition of the Notes.
Original Issue Discount. It is anticipated that the Notes will not have any
original issue discount ("OID") other than possibly OID within a de minimis
exception and that accordingly the provisions of sections 1271 through 1273 and
1275 of the Internal Revenue Code of 1986, as amended (the "Code"), generally
will not apply to the Notes. OID will be considered de minimis if it is less
than 0.25% of the principal amount of a Note multiplied by its expected weighted
average life. The prepayment assumption that will be used for purpose of
computing original issue discount, if any, for federal income tax purposes is
100% of the Prepayment Assumption.
Market Discount. A subsequent purchaser who buys a Note for less than its
principal amount may be subject to the "market discount" rules of Section 1276
through 1278 of the Code. If a subsequent purchaser of a Note disposes of such
Note (including certain nontaxable dispositions such as a gift), or receives a
principal payment, any gain upon such sale or other disposition will be
recognized, or the amount of such principal payment will be treated, as ordinary
income to the extent of any "market discount" accrued for the period that such
purchaser holds the Note. Such holder may instead elect to include market
discount in income as it accrues with respect to all debt instruments acquired
in the year of acquisition of the Notes and thereafter. Market discount
generally will equal the excess, if any, of the then current unpaid principal
balance of the Note over the purchaser's basis in the Note immediately after
such purchaser acquired the Note. In general, market discount on a Note will be
treated as accruing over the term of such Note in the ratio of interest for the
current period over the sum of such current interest and the expected amount of
all remaining interest payments, or at the election of the holder, under a
constant yield method (taking into account the Prepayment Assumption). At the
request of a holder of a Note, information will be made available that will
allow the holder to compute the accrual of market discount under the first
method described in the preceding sentence.
The market discount rules also provide that a holder who incurs or
continues indebtedness to acquire a Note at a market discount may be required to
defer the deduction of all or a portion of the interest on such indebtedness
until the corresponding amount of market discount is included in income.
Notwithstanding the above rules, market discount on a Note will be
considered to be zero if it is less than a de minimis amount, which is 0.25% of
the remaining principal balance of the Note multiplied by its expected weighted
average remaining life. If OID or market discount is de minimis, the actual
amount of discount must be allocated to the remaining principal distributions on
the Notes and, when each such distribution is received, capital gain equal to
the discount allocated to such distribution will be recognized.
Market Premium. A subsequent purchaser who buys a Note for more than its
principal amount generally will be considered to have purchased the Note at a
premium. Such holder may amortize such premium, using a constant yield method,
over the remaining term of the Note and, except as future regulations may
otherwise provide, may apply such amortized amounts to reduce the amount of
interest reportable with respect to such Note over the period from the purchase
date to the date of maturity of the Note. Legislative history to the Tax Reform
Act of 1986 indicates that the amortization of such premium on an obligation
that provides for partial principal payments prior to maturity should be
governed by the methods for accrual of market discount on such an obligation
(described above). Proposed regulations implementing the provisions of the Tax
Reform Act of 1986 provide for the use of the constant yield method to determine
the amortization of premiums. Such proposed regulations will apply to bonds
acquired on or after 60 days after the final regulations are published. A holder
that elects to amortize premium must reduce the tax basis in the related
obligation by the amount of the aggregate deductions (or interest offsets)
allowable for amortizable premium. If a debt instrument purchased at a premium
is redeemed in full prior to its maturity, a purchaser who has elected to
amortize premium should be entitled to a deduction for any remaining unamortized
premium in the taxable year of redemption.
Sale or Redemption of Notes. If a Note is sold or retired, the seller will
recognize gain or loss equal to the difference between the amount realized on
the sale and such holder's adjusted basis in the Note. Such adjusted basis
generally will equal the cost of the Note to the seller, increased by any
original issue discount included in the seller's gross income in respect of the
Note (and by any market discount which the taxpayer elected to include in income
or was required to include in income), and reduced by payments other than
payments of qualified stated interest in respect of the Note received by the
seller and by any amortized premium. Similarly, a holder who receives a payment
other than a payment of qualified stated interest in respect of a Note, either
on the date on which such payment is scheduled to be made or as a prepayment,
will recognize gain equal to the excess, if any, of the amount of the payment
over his adjusted basis in the Note allocable thereto. A Noteholder who receives
a final payment which is less than his adjusted basis in the Note will generally
recognize a loss in the amount of the shortfall on the last day of his taxable
year. Generally, any such gain or loss realized by an investor who holds a Note
as a "capital asset" within the meaning of Code Section 1221 should be capital
gain or loss, except as described above in respect of market discount and except
that a loss attributable to accrued but unpaid interest may be an ordinary loss.
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<PAGE>
Taxation of Certain Foreign Investors. Interest payments (including OID) on
the Notes made to a Noteholder who is a nonresident alien individual, foreign
corporation or other non-United States person (a "foreign person") generally
will be "portfolio interest" which is not subject to United States tax if such
payments are not effectively connected with the conduct of a trade or business
in the United States by such foreign person and if the Trust (or other person
who would otherwise be required to withhold tax from such payments) is provided
with an appropriate statement that the beneficial owner of the Note identified
on the statement is a foreign person.
Backup Withholding. Distributions of interest and principal as well as
distributions of proceeds from the sale of the Notes, may be subject to the
"backup withholding tax" under Section 3406 of the Code at rate of 31% if
recipients of such distributions 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 distributions that is required to supply information
but does not do so in the proper manner.
STATE AND LOCAL TAX CONSIDERATIONS
Potential Noteholders should consider the state and local income tax
consequences of the purchase, ownership and disposition of the Notes. State and
local income tax laws may differ substantially from the corresponding federal
law, and this discussion does not purport to describe any aspect of the income
tax laws of any state or locality. Therefore, potential Noteholders are urged to
consult their own tax advisors with respect to the various state and local tax
consequences of an investment in the Notes.
STATE TAX CONSEQUENCES
In addition to the Federal income tax consequences described in "Material
Federal Income Tax Consequences" herein, potential investors should consider the
state income tax consequences of the acquisition, ownership, and disposition of
the Notes. State income tax law may differ substantially from the corresponding
Federal tax law, and this discussion does not purport to describe any aspect of
the income tax laws of any state. Therefore, potential investors are urged to
consult their own tax advisors with respect to the various tax consequences of
investments in the Notes.
ERISA CONSIDERATIONS
Section 406 of ERISA and/or Section 4975 of the Code prohibit a pension,
profit sharing, or other employee benefit plan, as well as individual retirement
accounts and certain types of Keogh Plans, and entities deemed to hold assets of
such plans (each, a "Benefit Plan") from engaging in certain transactions
involving "plan assets" with persons that are "parties in interest" under ERISA
or "disqualified persons" under the Code with respect to the plan. A violation
of these "prohibited transaction" rules may generate excise tax and other
liabilities under ERISA and the Code for such persons. ERISA also imposes
certain duties on persons who are fiduciaries of plans subject to ERISA Under
ERISA, any person who exercises any authority or control respecting the
management or disposition of the assets of a plan is considered to be a
fiduciary of such plan (subject to certain exceptions not here relevant).
In addition to the matters described below, purchasers of Notes that are
insurance companies are urged to consult with their counsel with respect to the
United States Supreme Court case interpreting the fiduciary responsibility rules
of ERISA, John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings
Bank 510 U.S. 86 (1993). In John Hancock, the Supreme Court ruled that assets
held in an insurance company's general account may be deemed to be "plan assets"
for ERISA purposes under certain circumstances. Prospective purchasers should
determine whether the decision affects their ability to make purchases of the
Class A Notes.
Certain transactions involving the Issuer might be deemed to constitute
prohibited transactions under ERISA and the Code if assets of the Issuer were
deemed to be "plan assets" of a Benefit Plan. Under a regulation issued by the
United States Department of Labor (the "Plan Assets Regulation"), the assets of
the Issuer would be treated as plan assets of a Benefit Plan for the purposes of
ERISA and the Code only if the Benefit Plan acquired an "equity interest" in the
Issuer and none of the exceptions contained in the Plan Assets Regulation is
applicable. An equity interest is defined under the Plan Assets Regulation as an
interest other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features. Although
there is little guidance on the subject, the Issuer believes that the Notes
should be treated as indebtedness without substantial equity features for
purposes of the Plan Assets Regulation. This determination is based in part upon
the traditional debt features of the Notes, including the reasonable expectation
of purchasers of Notes that the Notes will be repaid when due, as well as the
absence of conversion rights, warrants and other typical equity features. The
debt treatment of the Notes for ERISA purposes could change if the Issuer
incurred losses. However, without regard to whether the Notes are
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<PAGE>
treated as an equity interest for such purposes, the acquisition or holding of
Notes by or on behalf of a Benefit Plan could be considered to give rise to a
prohibited transaction if the Issuer or any affiliate thereof, is or becomes a
party in interest or a disqualified person with respect to such Benefit Plan. In
such case, certain exemptions from the prohibited transaction rules could be
applicable depending on the type and circumstances of the Benefit Plan fiduciary
making the decision to acquire a Note. Included among these exemptions are:
Prohibited Transaction Class Exemption ("PTCE") 90-1, regarding investments by
insurance company pooled separate accounts; PTCE 95-60, regarding investments by
insurance company general accounts; PTCE 91-38, regarding investments by bank
collective investment funds; PTCE 96-23, regarding transactions effected by
"in-house asset managers"; and PTCE 84-14, regarding transactions effected by
"qualified professional asset managers" Each investor using the assets of a
Benefit Plan that acquires notes, or to whom the Notes are transferred, will be
deemed to have represented that the acquisition and continued holding of the
Notes will be covered by one of the exemptions listed above or by another
Department of Labor Class Exemption.
Employee plans that are government plans (as defined in Section 3(32) of
ERISA) and certain church plans (as defined in Section 3(33) of ERISA are not
subject to ERISA; however, such plans may be subject to comparable restrictions
under applicable law.
Any Benefit Plan fiduciary considering the purchase of a Note is urged to
consult with its counsel with respect to the potential applicability of ERISA
and the Code to such investment, including the need for and availability of
exemptive relief from the prohibited transaction rules. Moreover, each fiduciary
of a Benefit Plan subject to ERISA should determine whether, under the general
fiduciary standards of investment prudence and diversification, an investment in
the Notes is appropriate for the Benefit Plan, taking into account the overall
investment policy of the Benefit Plan and the composition of the Benefit Plan's
investment portfolio.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting Agreement
between the Depositor and _______________________ (an affiliate of the
Depositor), the Depositor has agreed to sell to the Underwriter, and the
Underwriter has agreed to purchase from the Depositor, the principal amount of
the Notes set forth on the cover hereof. Distribution of the Notes will be made
by the Underwriter from time to time in negotiated transactions or otherwise at
varying prices to be determined at the time of sale. In connection with the sale
of the Notes, the Underwriter may be deemed to have received compensation from
the Depositor in the form of underwriting discounts.
The Depositor has been advised by the Underwriter that it intends to make a
market in the Notes; however, the Underwriter has no obligation to do so.
Accordingly, there can be no assurance that a secondary market for the Notes
will develop or, if it does develop, that it will continue.
The Underwriter proposes to offer the Notes in part directly to purchasers
at the initial public offering prices set forth on the cover page of this
Prospectus Supplement and in part to certain securities dealers at such prices
less concessions not to exceed _______%, ________%, ______%, ______%, ______%,
_____% and _______% of the respective Class Principal Balances of the Class A-1,
Class A-2, Class A-3, Class A-4, Class M-1, Class M-2 and Class B Notes. The
Underwriter may allow, and such dealers may reallow, concessions not to exceed
_______%, ______%, _______%, ______%, ______%, ______% and ______% of the
respective Class Principal Balances of the Class A-1, Class A-2, Class A-3,
Class A-4, Class M-1, Class M-2 and Class B Notes to certain brokers and
dealers. After the Notes are released for sale to the public, the offering price
and other selling terms may be varied by the Underwriter.
Until the distribution of the Notes, is completed, rules of the Commission
may limit the ability of the Underwriter and certain selling group members to
bid for and purchase the Notes. As an exception to these rules, the Underwriter
is permitted to engage in certain transactions that stabilize the price of the
Notes. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Notes.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
Neither the Depositor nor the Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the prices of the Notes. In addition, neither the
Depositor nor the Underwriter makes any representation that the Underwriter will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
After the initial public offering of the Notes, the public offering price
and such concessions may be changed.
77
<PAGE>
The Depositor has agreed to indemnify the Underwriter against, or make
contributions to the Underwriter with respect to, certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
An affiliate of the Underwriter and the Depositor has significant
contractual relations with ______ and provides periodic funding of its
origination of mortgage loans, including the Loans. Accordingly, a portion of
the proceeds payable to ______ will be paid to such affiliate in connection with
the sale of the Loans.
LEGAL INVESTMENT MATTERS
The Notes will not constitute "mortgage related securities" under the
Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") because a
substantial number of the Loans are secured by liens on real estate that are not
first liens. Accordingly, many institutions with legal authority to invest in
"mortgage related securities" may not be legally authorized to invest in the
Notes.
There may be restrictions on the ability of certain investors, including
depository institutions, either to purchase the Notes or to purchase Notes
representing more than a specified percentage of the investor's assets.
Investors are urged to consult their own legal advisors in determining whether
and to what extent the Notes constitute legal investments for such investors.
LEGAL MATTERS
Certain legal matters will be passed upon for the Underwriter by
_______________________. Certain legal matters will be passed upon for the
Depositor and for ______ by ____________________________________.
RATINGS
It is a condition to the issuance of the Notes that each of the Class A-1,
Class A-2, Class A-3, and Class A-4 Notes be rated "[AAA]" by [Fitch] and
"[Aaa]" by [Moody's]; and that the Class M-1 Notes be rated "[AA]" by [Fitch]
and "[A2]" by [Moody's], the Class M-2 Notes be rated "[A]" by [Fitch] and
"[A2]" by [Moody's] and the Class B Notes be rated "[BBB]" by [Fitch] and
"[Baa3]" by [Moody's].
The ratings on the Notes address the likelihood of the receipt by the
holders of the Notes of all distributions on the Loans to which they are
entitled. The ratings on the Notes also address the structural, legal and
issuer-related aspects associated with the Notes, including the nature of the
Loans. In general, the ratings on the Notes address credit risk and not
prepayment risk. The ratings on the Notes do not represent any assessment of the
likelihood that principal prepayments of the Loans will be made by borrowers or
the degree to which the rate of such prepayments might differ from that
originally anticipated. As a result, the initial ratings assigned to the Notes
do not address the possibility that holders of the Notes might suffer a lower
than anticipated yield in the event of principal payments on the Notes resulting
from rapid prepayments of the Loans or the application of Excess Spread as
described herein, or in the event that the Trust is terminated prior to the
Final Maturity Date of the Classes of Notes. The ratings on the Notes do not
address the ability of the Trust to acquire Subsequent Loans, any potential
redemption with respect thereto or the effect on yield resulting therefrom.
The Depositor has not solicited ratings on the Notes with any rating agency
other than the Rating Agencies. 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. Any rating on the Notes by another
rating agency, if assigned at all, may be lower than the ratings assigned to the
Notes by the Rating Agencies.
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 any
of the Notes by the Rating Agencies are subsequently lowered for any reason, no
person or entity is obligated to provide any additional support or credit
enhancement with respect to such Notes.
78
<PAGE>
INDEX
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Page
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- --
______ time cap...............................................................23
A
Adjustable Rate Loans.........................................................15
Allocable Loss Amount.........................................................10
B
Bankruptcy Code...............................................................19
Bankruptcy Commission.........................................................19
Benefit Plan..................................................................76
Business Day...................................................................2
C
Capitalized Interest Account..................................................11
Cede..........................................................................45
Change Date...................................................................23
Class M-1 Optimal Principal Balance............................................6
Class M-2 Optimal Principal Balance............................................6
Closing Date..................................................................57
Code..........................................................................12
Combined Loan-to-Value Ratio...................................................8
Co-Owner Trustee...............................................................1
Custodian......................................................................4
Cut-Off Date Principal Balance.................................................8
D
Defective Loan.................................................................9
Definitive Notes..............................................................46
Definitive Securities..........................................................7
Deleted Loan..................................................................43
Depositor......................................................................1
Depository.....................................................................2
Determination Date.............................................................5
Distribution Date..............................................................2
DTC............................................................................7
Due Period.....................................................................4
E
ERISA.........................................................................12
Excess Spread..................................................................6
Exchange Act..................................................................45
F
FHA...........................................................................17
FHLMC.........................................................................16
Final Maturity Date............................................................6
Fitch.........................................................................12
FNMA..........................................................................16
G
Gross Margin..................................................................23
I
Indenture......................................................................1
Indenture Trustee..............................................................1
Indenture Trustee Fee.........................................................11
Indenture Trustee's Loan File.................................................54
[CAPTION]
Page
----
Indirect Participants.........................................................45
Initial Cut-Off Date...........................................................2
Initial Loans..................................................................2
Interest Carry-Forward Amount.................................................47
Issuer.........................................................................4
L
LIBOR Index...................................................................23
Loan Schedule.................................................................53
Loans..........................................................................2
Loss Reimbursement Deficiency.................................................10
M
Majority Residual Interestholders.............................................11
Maximum Collateral Amount......................................................9
Mezzanine Notes................................................................2
Modeling Assumptions..........................................................60
Moody's.......................................................................12
Mortgaged Property.............................................................8
Mortgages......................................................................2
N
Net Delinquency Calculation Amount............................................10
Net Loan Losses...............................................................44
Note Interest Rate.............................................................5
Noteholders....................................................................2
Notes..........................................................................1
O
OID...........................................................................75
Original Class Principal Balance...............................................5
Original Pool Principal Balance................................................7
Original Pre-Funded Amount.....................................................2
Overcollateralization Amount..................................................10
Overcollateralization Deficiency Amount........................................6
Overcollateralization Target Amount...........................................10
Owner Trustee..................................................................1
Owner Trustee Fee.............................................................11
P
Participants..................................................................45
Periodic Rate Cap.............................................................23
Plan Assets Regulation........................................................76
Pool...........................................................................2
Pool Principal Balance.........................................................8
Pre-Funded Amount.............................................................11
Prefunding Account.............................................................2
Pre-Funding Period............................................................11
Pre-Funding Pro Rata Distribution Trigger.....................................11
Prepayment Assumption.........................................................60
Prospectus.....................................................................2
PTCE..........................................................................77
Q
Qualified Substitute Loan......................................................9
R
Record Date....................................................................5
Regular Distribution Amount....................................................5
Residual Interest..............................................................1
i
<PAGE>
INDEX
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Page
----
Rules.........................................................................46
S
Sale and Servicing Agreement...................................................7
Senior Notes...................................................................2
Senior Optimal Principal Balance...............................................5
Servicer.......................................................................4
Servicing Advances............................................................12
Servicing Compensation........................................................11
Servicing Fee.................................................................11
Servicing Fee Rate............................................................54
SMMEA.........................................................................12
Spread Deferral Period.........................................................6
Statistic Calculation Period..................................................14
Page
----
Statistic Principal Balance...................................................23
Subsequent Loans...............................................................2
Subservicer...................................................................12
T
Tax Counsel...................................................................12
Termination Price.............................................................12
Transfer and Servicing Agreements.............................................11
Trust..........................................................................1
Trust Agreement................................................................1
U
Underwriter....................................................................2
<PAGE>
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No dealer , salesman or other person has been authorized to give any information
or to make any representations other than those contained in or incorporated by
reference in this Prospectus Supplement or the Prospectus and, if given or made,
such information or representations must not be relied upon. This Prospectus
Supplement and the Prospectus do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the securities in any
state or jurisdiction in which, or to any person to whom, such offer would be
unlawful. The delivery of this Prospectus Supplement or the Prospectus at any
time does not imply that information herein or therein is correct as of any time
subsequent to its date.
--------------------
TABLE OF CONTENTS
Page
----
Prospectus Supplement
Incorporation of Certain Documents by Reference ..........................
Summary ..................................................................
Risk Factors .............................................................
The Trust ................................................................
The Pool .................................................................
- - -------------------.......................................................
- - ---------- ...............................................................
Description of Credit Enhancement ........................................
Description of the Notes .................................................
Description of Transfer and Servicing Agreement ..........................
Prepayment and Yield Considerations ......................................
Material Federal Income Tax Consequences .................................
State Tax Consequences ...................................................
ERISA Considerations .....................................................
Method of Distribution ...................................................
Legal Investment Matters .................................................
Legal Investment Matter ..................................................
Legal Matters ............................................................
Ratings ..................................................................
Prospectus
Summary of Prospectus .................................................... 5
Risk Factors .............................................................
Prospectus Supplement .................................................... 3
Reports to Holders ....................................................... 3
Available Information .................................................... 3
Incorporation of Certain Documents by Reference .......................... 4
Summary of Prospectus .................................................... 5
Risk Factors ............................................................. 15
Description of the Securities ............................................ 18
The Trust Funds .......................................................... 22
Credit Enhancement ....................................................... 27
Servicing of Loans ....................................................... 30
The Agreements ........................................................... 36
Certain Legal Aspects of the Loans ....................................... 43
The Depositor ............................................................ 51
Use of Proceeds .......................................................... 51
Material Federal Income Tax Consequences ................................. 51
State Tax Considerations ................................................. 63
ERISA Considerations ..................................................... 63
Legal Investment ......................................................... 66
Plan of Distribution ..................................................... 66
Legal Matters ............................................................ 66
Glossary of Terms ........................................................ 67
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_______________ TRUST ________
$________ Class A-1,
________% Home Loan Asset Backed Notes
$________ Class A-2,
________% Home Loan Asset Backed Notes
$________ Class A-3,
________% Home Loan Asset Backed Notes
$________ Class A-4,
________% Home Loan Asset Backed Notes
$________ Class M-1,
________% Home Loan Asset Backed Notes
$________ Class M-2,
________% Home Loan Asset Backed Notes
$________ Class B,
________% Home Loan Asset Backed Notes
________% Home Loan Asset Backed Notes
HOME EQUITY SECURITIZATION CORP.
(DEPOSITOR)
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PROSPECTUS SUPPLEMENT
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