PROSPECTUS SUPPLEMENT
(To prospectus dated November 10, 1998)
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<TABLE>
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<S> <C>
RBMG FUNDING CO. MORTGAGE LOAN TRUST
1999-1 $125,030,000
ISSUER ASSET-BACKED NOTES, SERIES 1999-1
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
SERVICER
RESIDENTIAL ASSET FUNDING CORPORATION
DEPOSITOR
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RBMG Funding Co. Mortgage Loan Trust 1999-1 will issue two classes of
asset-backed notes backed solely by a pledge of the assets of the trust.
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CONSIDER CAREFULLY THE RISK FACTORS STARTING ON PAGE S-8 OF THIS PROSPECTUS
SUPPLEMENT AND PAGE 17 OF THE PROSPECTUS BEFORE MAKING A DECISION TO INVEST IN
THE NOTES.
The notes represent asset-backed debt secured solely by the mortgage loans held
by the trust. The notes are not interests in or obligations of any other person.
No governmental agency or instrumentality has insured or guaranteed the notes or
the underlying mortgage loans.
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THE NOTES--
The trust will issue two classes of notes offered for sale by this prospectus
supplement.
Interest and principal on each class of notes is scheduled to be paid monthly on
the 25th day of the month or, if such day is not a business day, the business
day immediately following such 25th day. The first scheduled payment date is
July 26, 1999.
CREDIT ENHANCEMENT--
The assets of the trust may exceed the principal balance of the notes and, if
so, will result in overcollateralization which will be available to absorb
losses.
Each class of notes will be unconditionally and irrevocably guaranteed as to the
timely payment of scheduled interest and ultimate principal pursuant to the
terms a financial guarantee insurance policy to be issued by [MBIA Logo].
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OFFERING INFORMATION:
PROCEEDS TO THE
CLASS AGGREGATE NOTE BALANCE PRICE TO PUBLIC UNDERWRITING DISCOUNT DEPOSITOR(1)
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<S> <C> <C> <C> <C>
Class A-1 Notes $ 75,030,000 100.00% 0.25% $ 74,842,425
Class A-2 Notes $ 50,000,000 100.00% 0.25% $ 49,875,000
Total $ 125,030,000 100.00% $ 124,717,425
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(1) Before deducting expenses estimated to be $350,000.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED
IF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
First Union Capital Markets Corp., as underwriter, will offer the notes only
after the notes have been issued by the trust, and delivered to, and accepted
by the underwriter. The underwriter has the right to reject any order. We
expect to deliver the notes on or about June 7, 1999 only through The
Depository Trust Company.
FIRST UNION CAPITAL MARKETS
The date of this prospectus supplement is June 2, 1999
<PAGE>
IMPORTANT NOTICE ABOUT THE INFORMATION PRESENTED IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS
We provide information to you about the offered notes in two separate
documents that progressively provide more detail: (1) the accompanying
prospectus, which provides general information, some of which may not apply to
your series of notes, and (2) this prospectus supplement, which describes the
specific terms of your series of notes.
This prospectus supplement does not contain complete information about
the offering of the offered notes. Additional information is contained in the
prospectus. You are urged to read both this prospectus supplement and the
prospectus in full. We cannot sell the offered notes to you unless you have
received both this prospectus supplement and the prospectus.
TO THE EXTENT THE PROSPECTUS CONTEMPLATES DIFFERENT TYPES OF
SECURITIES, YOU SHOULD RELY ON THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT
WITH RESPECT TO THESE SECURITIES.
The Depositor has filed with the Securities and Exchange Commission
(the "Commission") a registration statement under the Securities Act of 1933, as
amended, with respect to the offered notes offered pursuant to this prospectus
supplement. This prospectus supplement and the prospectus, which form a part of
the registration statement, omit certain information contained in such
registration statement pursuant to the rules and regulations of the Commission.
You may inspect and copy the registration statement at the Public Reference Room
at the Commission at 450 Fifth Street, N.W., Washington, D.C. and the
Commission's regional offices at Seven World Trade Center, 13th Floor, New York,
New York, 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. You can obtain copies of such materials at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. In addition, the Commission
maintains a site on the World Wide Web containing reports, proxy materials,
information statements and other items. The address is http://www.sec.gov.
We include cross-references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
further related discussions. The following table of contents and the table of
contents included in the accompanying prospectus provide the pages on which
these captions are located.
<PAGE>
TABLE OF CONTENTS
TABLE OF CONTENTS.........................................i
SUMMARY.................................................S-1
RISK FACTORS............................................S-8
DESCRIPTION OF THE MORTGAGE POOL.......................S-13
General.............................................S-13
Underwriting Standards..............................S-57
Index Applicable to the Adjustable Rate Loans.......S-62
THE ISSUER.............................................S-62
RBMG...................................................S-63
RBMG FUNDING CO........................................S-66
THE DEPOSITOR..........................................S-66
DESCRIPTION OF THE NOTES...............................S-66
General.............................................S-67
Book-Entry Registration and Definitive Notes........S-68
Assignment of Mortgage Loans........................S-72
Payments on the Notes...............................S-74
Calculation of One-Month LIBOR......................S-81
Note Accounts.......................................S-82
Overcollateralization Feature.......................S-84
Reports to Noteholders..............................S-86
Redemption of the Class A-1 and Class A-2 Notes.....S-87
Payments to the Holder(s) of the Residual Interests.S-88
Optional Purchase of Delinquent Mortgage Loans......S-88
P&I Advances........................................S-88
Compensating Interest Payments......................S-89
Note Events of Default..............................S-89
Rights Upon Event of Default........................S-90
List of Noteholders.................................S-91
The Indenture Trustee...............................S-91
CERTAIN PREPAYMENT AND YIELD CONSIDERATIONS............S-92
General.............................................S-92
Weighted Average Life of the Notes..................S-94
SERVICING OF THE MORTGAGE LOANS.......................S-100
General............................................S-100
Customary Servicing Procedures.....................S-101
The Sub-Servicer...................................S-102
Servicing and Other Compensation and Payment of
Expenses..........................................S-106
Sub-servicers......................................S-107
Standard Hazard Insurance Policies.................S-107
Payments on Mortgage Loans; Collection Account.....S-108
Realization upon Defaulted Mortgage Loans..........S-110
Enforcement of Due-on-Sale Clauses.................S-110
Evidence as to Compliance..........................S-111
Certain Matters Regarding Servicer's Servicing
Obligations.......................................S-111
Amendment of the Servicing Agreement...............S-112
Servicer Events of Default and Termination Event...S-112
Rights Upon Event of Default or Termination Event..S-113
Servicing Obligations; Limitation on Resignation
of the Servicer...................................S-113
Termination........................................S-114
THE INSURANCE POLICY AND THE NOTE INSURER.............S-114
The Insurance Policy...............................S-114
The Note Insurer...................................S-117
Note Insurer Financial Information.................S-117
Where You Can Obtain Additional Information About The
Note Insurer......................................S-118
Year 2000 Readiness Disclosure.....................S-118
Financial Strength Ratings of the Note Insurer.....S-119
Credit Enhancement does not Apply to Prepayment
Risk.............................................S-119
ERISA CONSIDERATIONS..................................S-119
USE OF PROCEEDS.......................................S-121
LEGAL INVESTMENT CONSIDERATIONS.......................S-121
UNDERWRITING..........................................S-121
EXPERTS...............................................S-122
MATERIAL FEDERAL INCOME TAX CONSEQUENCES..............S-122
STATE TAX CONSIDERATIONS..............................S-125
LEGAL MATTERS.........................................S-125
RATING OF THE NOTES...................................S-125
INDEX OF SIGNIFICANT TERMS................................i
ANNEX I.................................................A-1
Initial Settlement...................................A-2
Secondary Market Trading.............................A-3
Certain U.S. Federal Income Tax Documentation
Requirements........................................A-3
i
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SUMMARY
o This summary highlights selected information from this prospectus
supplement and does not contain all of the information that you need to
consider in making your investment decision. To understand all of the terms
of the offering of the offered notes, read carefully this entire prospectus
supplement and the accompanying prospectus.
o This summary provides an overview of certain calculations, cash flow
priorities and other information to aid your understanding and is qualified
by the full description of these calculations, cash flow priorities and
other information in this prospectus supplement and the accompanying
prospectus.
o You can find a listing of the pages where capitalized terms used in this
prospectus supplement summary are defined under the caption "Index of
Significant Terms" beginning on page (i) in this prospectus supplement and
under the caption "Index of Principal Terms" beginning on page (i) in the
accompanying prospectus.
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PARTIES
THE TRUST OR ISSUER
RBMG Funding Co. Mortgage Loan Trust 1999-1 is a Delaware business trust, formed
pursuant to an agreement among Residential Asset Funding Corporation, Wilmington
Trust Company and The Bank of New York.
RBMG OR RESOURCE BANCSHARES MORTGAGE GROUP, INC.
RBMG, a Delaware corporation, has originated or acquired the mortgage loans. It
will convey its interest in the mortgage loans (indirectly through two
affiliated companies) to the Depositor.
THE SERVICER AND THE SUB-SERVICER
RBMG will also act as servicer of the mortgage loans held by the trust and has
engaged Ocwen Federal Bank FSB, a federally-chartered savings bank, to act as
sub-servicer of the mortgage loans.
THE DEPOSITOR
Residential Asset Funding Corporation is a North Carolina corporation. The
depositor will convey the mortgage loans to the trust after acquiring them from
an affiliate of RBMG.
THE NOTE INSURER
MBIA Insurance Corporation is a New York financial guaranty insurance company.
THE INDENTURE TRUSTEE
The Bank of New York is a New York banking corporation.
THE OWNER TRUSTEE
Wilmington Trust Company, a Delaware banking corporation, will act as owner
trustee.
DESCRIPTION OF THE NOTES
THE OFFERED NOTES
The trust will issue its asset-backed notes, designated as the "RBMG Funding Co.
Mortgage Loan Trust 1999-1 Asset-Backed Notes, Series 1999-1 ." There will be
two classes of notes: the Class A-1 Notes and the Class A-2 Notes. The initial
principal amount of each class of notes is indicated on the front cover.
S-1
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THE ASSETS OF THE TRUST
The notes will be backed solely by a pledge of the assets of the trust. The
assets of the trust will consist primarily of (i) two separate groups of fixed
and adjustable rate, residential one- to four-family, first lien mortgage loans
(the mortgage loans in the first group, Group I, securing the Class A-1 Notes
and those in the second group, Group II, securing the Class A-2 Notes); (ii) a
security interest in the related underlying property; (iii) principal and
interest payments on the mortgage loans; (iv) money on deposit in any reserve
account which may be established with respect to the trust; and (v) an interest
rate cap agreement which is designed to provide extra cashflow to be used for
credit enhancement purposes.
THE STATED MATURITY OF THE NOTES
The stated maturity date for both classes of notes, on which final payment of
principal must ultimately be made, is June 25, 2030. We anticipate, however,
that actual final payment of principal and interest on the notes will occur
significantly earlier.
BOOK-ENTRY FORMAT
The offered notes will initially be issued in book-entry form only, through the
facilities of The Depository Trust Company. The offered notes will be issued in
minimum denominations of $1,000 and multiples of $1,000 in excess thereof.
PAYMENTS ON THE NOTES
PAYMENT DATES
Principal and interest is scheduled to be paid to the noteholders on the 25th
day of each month, or, if such day is not a business day, on the next succeeding
business day, commencing on July 26, 1999.
RECORD DATES
The indenture trustee will make payments to the noteholders of record as of the
last business day before the payment date.
DUE PERIODS AND COLLECTION PERIODS
Generally, payments made to noteholders on each payment date will relate to the
collections of principal and interest on the mortgage loans in the due period,
with respect to all scheduled collections of principal and interest, or the
collection period, with respect to all unscheduled collections. The due period
commences on the second day of the calendar month immediately before the month
in which the related payment date occurs and ends on the first day of the
calendar month in which the related payment date occurs. The collection period
is the calendar month before the calendar month in which the related payment
date occurs.
FUNDS AVAILABLE FOR PAYMENT OF INTEREST AND PRINCIPAL
The following funds will generally be available for the payment of interest and
principal on each class of notes:
o collections on the mortgage loans in the related group, net of fees and
expenses;
o any advances made by the servicer in respect of delinquent payments of
principal and interest on mortgage loans in the related group;
o interest payments made by the servicer to compensate in part for any
shortfall in interest payments on the notes caused by a mortgagor prepaying
all or part of a mortgage loan in the related group;
o any amounts resulting from the repurchase, release, removal or substitution
of a mortgage loan in the related group;
o payments received by the indenture trustee under an interest rate cap
agreement;
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o to a limited extent, excess amounts available from the mortgage loans in
the other group, or available from the reserve account and
o amounts deposited in connection with the redemption of the related class of
notes.
INTEREST
Interest on the notes will accrue at the applicable note interest rate during
the interest period. Generally, the interest period will run from each payment
date to and including the day preceding the next payment date. In the case of
the first payment date, interest begins to accrue on the day of the closing.
Interest on the notes will be calculated on the basis of the actual number of
days elapsed in the interest period in a year of 360 days.
NOTE INTEREST RATE AND THE AVAILABLE FUNDS CAP RATE
The rate of interest on the notes for the first interest period will be an
annual rate of one month LIBOR plus 0.26% for the Class A-1 Notes and one month
LIBOR plus 0.29% for the Class A-2 Notes. For each subsequent interest period,
it will be an annual rate equal to the lesser of:
o with respect to the Class A-1 Notes, one-month LIBOR plus 0.26% (for each
interest period ending prior to the date on which the servicer or note
insurer could exercise its option to redeem such notes) or one-month LIBOR
plus 0.52% (for each interest period ending after such date) subject to an
"available funds" interest rate cap;
o with respect to the Class A-2 Notes, one-month LIBOR plus 0.29% (for each
interest period ending prior to the date on which the servicer or note
insurer could exercise its option to redeem such notes) or one-month LIBOR
plus 0.58% (for each interest period ending after such date) subject to an
"available funds" interest rate cap.
If, on any payment date, the available funds interest rate cap limits the
interest rate on a class of notes, the amount of the resulting interest
shortfall will be carried forward and be due and payable on the following
payment date and shall accrue interest at the applicable note interest rate
until paid. The note insurance policy does not guarantee payment of this
interest shortfall.
Although the trust will hold an interest rate cap agreement, any payments
received under the cap agreement are not available to increase the "available
funds" interest rate caps on the notes, or to "uncap" the notes. The interest
rate cap agreement is for credit enhancement purposes only and will be an
additional source of funds in certain circumstances in the event excess cash
decreases as a result of an increase in LIBOR.
PRINCIPAL
On each payment date, the noteholders are scheduled to receive an amount of
principal generally equal to the lesser of:
o the remainder of amounts described above under the heading "Funds Available
for Payment of Interest and Principal" for the related group after
reimbursing the note insurer for amounts paid previously under the note
insurance policy in respect of such class, paying the portion of the
premium for the note insurance policy allocable to the related class and
monthly interest on the related class of notes; and
o the sum of (i) the principal on the mortgage loans in the related group
collected or advanced with respect to the period and (ii) an accelerated
payment of principal used to build the overcollateralization.
P&I ADVANCES
The servicer will make advances in respect of delinquent payments of principal
and interest on
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the mortgage loans in each group in the trust. The servicer, however, is only
required to make such advances if it believes that it can recover the advance
from later proceeds or collections on the related mortgage loan. The purpose of
such advances is to maintain a regular cash flow to the noteholders, rather than
to guarantee or insure against losses. Credit enhancement is intended to protect
the noteholders against any shortfalls resulting from delinquencies of mortgage
loans in the related group for which advances are not made.
COMPENSATING INTEREST PAYMENTS
The servicer will also make interest payments to compensate in part for any
shortfall in interest payments on the notes which result from a mortgagor
prepaying all or part of a mortgage loan. The servicer is not entitled to
recover compensating interest payments from the trust.
APPLICATION OF EXCESS CASH
Generally, because the payments of interest and principal on the mortgage loans
in each group exceed the amounts payable to the note insurer and payments of
monthly interest and principal to the noteholders of the related class notes,
there will be excess cash each month above that required to pay principal and
interest on the notes. Excess cash for each group, plus payments received under
the interest rate cap agreement, will be available to pay down the note balance
of the related class of notes in order to reach the required level of
overcollateralization (see below). Any excess cash remaining after payments on
the related class of notes, payments to the note insurer in respect of such
notes and payment of any required reserve account deposit will be released to
the holder of the residual interests and will not be available for any
subsequent payments to the noteholders or the note insurer. However, if amounts
payable to the note insurer and to the noteholders as interest cannot be paid in
full from funds available from the related group of mortgage loans, then the
shortfall shall be made up from funds available (including amounts of excess
cash and amounts received under the interest rate cap agreement) from the other
group.
TRUST CERTIFICATES
The trust will also issue two trust certificates (also referred to as the
"residual interests"), one with respect to each mortgage group. The trust
certificates represent the ownership interest in the related mortgage loans and
are subordinate to the notes. RBMG Funding Co., an affiliate of RBMG, will hold
the trust certificates. The trust certificates are not offered by this
prospectus supplement and the accompanying prospectus.
CREDIT ENHANCEMENT
Credit enhancement reduces the harm caused to noteholders by shortfalls in
payments received and losses incurred on the mortgage loans. The credit
enhancement available to the noteholders will consist of the note insurance
policy issued by MBIA Insurance Corporation, the note insurer, and the
overcollateralization provisions of the trust.
NOTE INSURANCE POLICY
MBIA Insurance Corporation will issue its note insurance policy on or before
June 7, 1999 for the benefit of the noteholders. The effect of the note
insurance policy is to guaranty the timely payment of interest on, and the
ultimate payment of the principal amounts of each class of notes.
For any payment date, the amount paid by the note insurer will generally equal
the sum of (a) the interest payable on the related class of notes minus any
funds available for payment of principal and interest for such date and (b) the
amount necessary to keep the notes from being
S-4
<PAGE>
undercollateralized (i.e., to ensure that the trust's liabilities do not exceed
its assets).
PAYMENTS NOT INSURED BY THE NOTE INSURANCE POLICY
The note insurance policy does not insure the payment of the following:
o any shortfall arising where the available funds interest rate cap limits
the amount of interest paid on a class of notes;
o any shortfall in compensating interest as a result of prepayments on the
mortgage loans; or
o shortfalls in interest due to the application of the Relief Act (as defined
in this prospectus supplement).
Payments of these amounts may only be funded from any excess cash which would
otherwise be distributed to the holders of the residual interests.
OVERCOLLATERALIZATION
The cash flow provisions of the trust may result in a limited acceleration of
the notes relative to the amortization of the mortgage loans. This acceleration
feature creates overcollateralization which equals the excess of the trust's
assets over the total principal balance of the notes.
As of the closing date, the level of overcollateralization will be approximately
$3,574 with respect to Group I and approximately $2,424 with respect to Group
II; on each payment date, the indenture trustee will apply excess cash from each
group to pay down the note balance of the related class until the required level
of overcollateralization for such class is reached.
The required level of overcollateralization may increase or decrease over time.
Any increase may result in an accelerated amortization of the notes until the
required level is reached. Any decrease will result in slower amortization of
the notes until the required level is reached.
MORTGAGE LOAN POOL
STATISTICAL INFORMATION
Generally, the statistical information on the mortgage loans presented in this
prospectus supplement is based on the pool of mortgage loans (divided into two
groups) as of June 1, 1999, and assuming that all scheduled payments of
principal and interest on the mortgage loans due on or before June 1, 1999 have
been received by the servicer and posted to the related mortgagor's account.
MORTGAGE LOAN DATA
As of the Cut-Off Date, there were 757 mortgage loans in Group I and 393
mortgage loans in Group II secured by mortgages on residential properties,
exclusively, and having the following characteristics:
GROUP I MORTGAGE LOANS
Number of Mortgage Loans 757
Principal Balance
Aggregate Principal
Balance $75,033,573.66
Average Principal
Balance $99,119.65
Range of Principal
Balances $14,981.42 - $238,677.53
Coupon Rates
Weighted Average
Coupon Rate 9.849%
Range of Coupon Rates 7.750% - 14.249%
Remaining Term to Maturity
Weighted Average
Remaining Term to
Maturity 346.16 months
Range of Remaining
Term to Maturity 175 - 359 months
Loan-to-Value Ratio
Weighted Average
Loan-to-Value Ratio 77.64%
S-5
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Range of
Loan-to-Value Ratios 16.13% - 90.00%
Percentage of First Lien
Mortgage Loans 100.00%
GROUP II MORTGAGE LOANS
Number of Mortgage Loans 393
Principal Balance
Aggregate Principal
Balance $50,002,424.38
Average Principal
Balance $127,232.63
Range of Principal
Balances $24,942.19 - $499,479.58
Coupon Rates
Weighted Average
Coupon Rate 9.847%
Range of Coupon Rates 7.750% - 14.125%
Remaining Term to Maturity
Weighted Average
Remaining Term to
Maturity 344.85 months
Range of Remaining
Term to Maturity 170 - 358 months
Loan-to-Value Ratio
Weighted Average
Loan-to-Value Ratio 77.92%
Range of
Loan-to-Value Ratios 16.90% - 90.00%
Percentage of First Lien
Mortgage Loans 100.00%
OPTIONAL REDEMPTION
The servicer and the note insurer have the option to redeem the notes, in full
but not in part, on or after any payment date on which the combined principal
balance of the notes of both classes has declined to less than 10% of the
combined principal balance of the notes of both classes as of the date of
issuance of the notes.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Dewey Ballantine LLP, 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 or as a taxable mortgage pool. The issuer
and the depositor agree and each noteholder, by the acceptance of a note, will
agree to treat the notes as indebtedness for federal income tax purposes.
ERISA CONSIDERATIONS
Subject to the considerations discussed under "ERISA Considerations" herein, the
notes may be acquired and held by employee benefit plans and other retirement
plans and arrangements subject to the provisions of the Employee Retirement
Income Security Act of 1974, as amended, or Section 4975 of the Internal Revenue
Code of 1986, as amended.
LEGAL INVESTMENT
CONSIDERATIONS
The notes will constitute "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984, as amended, for so long as
they are rated in one of the two highest rating categories by one or more
nationally recognized statistical rating organizations.
RATING OF THE OFFERED NOTES
Before the trust can issue the offered notes, each class of notes must receive
at least the following ratings from Standard & Poor's, a division of The
McGraw-Hill Companies, Inc., and Moody's Investors Service, Inc. in order to be
issued:
Rating
---------------------
S&P Moody's
------ --------
Class A-1 AAA Aaa
Class A-2 AAA Aaa
A security rating is not a recommendation to buy, sell or hold securities and
may be subject to
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revision or withdrawal at any time by the assigning rating organization. A
security rating does not address the frequency of principal prepayments, the
corresponding effect on yield to investors or the payment of any shortfall
arising due to the available funds interest rate cap limiting the interest rate
on the notes.
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RISK FACTORS
Prospective investors should consider the following risk
factors (as well as the factors set forth under "Risk Factors" in the
prospectus). Unless otherwise indicated, any statistical information presented
below is based upon the characteristics of the mortgage loans as of June 1,
1999, and assuming that all scheduled payments of principal and interest on the
mortgage loans due on or before June 1, 1999 have been received by the servicer
and posted to the related mortgagor's account. It does not take into account the
fact that certain mortgage loans may prepay in full or be removed from the
mortgage pool prior to the closing date and, consequently, the characteristics
of the mortgage pool as of the closing date may vary from that presented below.
AS A RESULT OF THE UNDERWRITING STANDARDS, THE MORTGAGE LOANS ARE LIKELY TO
EXPERIENCE RATES OF DELINQUENCY, FORECLOSURE AND BANKRUPTCY THAT ARE HIGHER THAN
THOSE EXPERIENCED BY MORTGAGE LOANS UNDERWRITTEN IN A MORE TRADITIONAL MANNER
Substantially all of the mortgage loans included in the trust
have been originated using program criteria and underwriting standards that are
significantly less stringent than those used by other mortgage loan programs
such as those of Fannie Mae or Freddie Mac. The program criteria and
underwriting guidelines used with respect to the mortgage loans in the trust
permit mortgage loans with higher loan-to-value ratios, mortgagors with higher
debt-to-income ratios and less favorable credit histories, and less rigorous
loan documentation than are permitted pursuant to such other programs.
Consequently, levels of delinquencies, foreclosures and bankruptcies may be more
prevalent with respect to the mortgage loans included in the trust than with
respect to mortgage loans originated in accordance with more traditional
underwriting guidelines, such as those of Fannie Mae or Freddie Mac.
GIVEN ITS LIMITED OPERATING HISTORY FOR THE TYPE OF MORTGAGE LOANS IN THE TRUST,
RBMG DOES NOT HAVE ANY SIGNIFICANT HISTORICAL LOSS AND DELINQUENCY DATA RELATING
TO ITS MORTGAGE LOAN PORTFOLIO
RBMG only recently began originating mortgage loans of the
type included in the trust. Accordingly, RBMG does not have representative
historical delinquency, bankruptcy, foreclosure or default experience that may
be referred to for purposes of estimating the future delinquency and loss
experience of the mortgage loans. See "RBMG" herein.
DELINQUENT MORTGAGE LOANS IN THE MORTGAGE POOL MAY RESULT IN HIGHER LOSSES
Approximately 0.50% of the mortgage loans in Group I by group
balance and approximately 2.22% of the mortgage loans in Group II by group
balance are 30-59 days delinquent (i.e., one monthly payment missed) as of May
18, 1999. As a result, the mortgage pool considered in its entirety may contain
more risk than a pool of mortgage loans with otherwise comparable
characteristics but without any delinquencies. Also, approximately 69.80% of the
mortgage loans in Group I by group balance and approximately 30.62% of the
mortgage loans in Group II by group balance will have a first monthly payment
due on or after May 1, 1999. Accordingly, there can be no assurance as to the
likelihood of default or delinquency by these mortgagors
Substantially all of the mortgage loans were originated within
the last six months. Accordingly, no assurance can be given on how likely
delinquencies or defaults by the mortgagors will
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<PAGE>
be. Nor is it possible to predict whether or when any currently delinquent
mortgage loan will become current, or whether the existing delinquency will
continue. Furthermore, no information is available whether a mortgagor that
cures a delinquency is more likely to become delinquent again as compared with a
mortgagor that has never been delinquent.
CERTAIN INTEREST SHORTFALLS ARE NOT COVERED BY INSURANCE POLICY
Generally speaking, each of the note interest rates will be
based upon the level of one-month LIBOR. This bears no relationship to the
methods of calculating the interest rates on the fixed rate mortgage loans or
the adjustable rate mortgage loans in the trust (referred to as the "coupon
rate" to distinguish it from the note interest rate). It is possible, for
instance, that the level of one-month LIBOR may move in one direction during
periods in which the level of the index related to the adjustable rate loans
(i.e., six-month LIBOR) is stable or moving in the opposite direction. It is
also possible that, even if the levels of both one-month LIBOR and the index
used to calculate the interest rate on the adjustable rate mortgage loans move
in the same direction during any period, the extent of the change in the level
of one-month LIBOR may be greater or less than that of such index during the
same period.
These factors may cause the note interest rate to be greater
than the amount of available interest on the mortgage loans. You should be aware
that any resulting shortfall in interest will adversely affect the yield to
maturity on the related class of notes and that the insurance policy will not
cover the interest shortfall resulting from the fact that the applicable
interest rate cap limits the interest rate on the notes.
GEOGRAPHIC CONCENTRATION OF PROPERTIES MAY RESULT IN HIGHER LOSSES IF PARTICULAR
REGIONS EXPERIENCE DOWNTURNS
Of the mortgage loans in Group I by group balance:
approximately 18.98% are secured by mortgaged properties located in California,
approximately 14.21% are secured by mortgaged properties located in Oregon and
approximately 10.94% are secured by mortgaged properties located in Colorado. Of
the mortgage loans in Group II by group balance: approximately 28.59% are
secured by mortgaged properties located in California, approximately 9.19% are
secured by mortgaged properties located in Colorado and approximately 8.66% are
secured by mortgaged properties located in Oregon. In general, declines in the
residential real estate markets in these states may adversely affect the values
of the mortgaged properties securing the mortgage loans with the result that the
principal balance of the mortgage loans will equal or exceed the value of the
related mortgaged properties. In addition, adverse economic conditions in these
states may also affect the mortgagor's ability to pay scheduled payments of
principal and interest on their mortgage loans on time. Consequently, the actual
rates of delinquencies, foreclosures, and losses on such mortgage loans could
increase, and may increase substantially.
THE AGGREGATE POOL CHARACTERISTICS OF THE MORTGAGE LOANS AS OF JUNE 1, 1999 MAY
VARY FROM THE STATISTICAL DISTRIBUTION OF CHARACTERISTICS OF THE MORTGAGE LOANS
PRESENTED HEREIN
The statistical information presented in this prospectus
supplement is based solely on the characteristics of the mortgage loans as of
June 1, 1999, and assuming that all scheduled payments of principal and interest
on the mortgage loans due on or before June 1, 1999 have been received by the
servicer and posted to the related mortgagor's account. It does not take into
account the fact that certain
S-9
<PAGE>
mortgage loans may prepay in full or fail to satisfy the eligibility
requirements for the mortgage loans and thus may not be included in the trust.
As a result, the statistical characteristics of the mortgage loans on the
closing date may vary from the statistical characteristics as of June 1, 1999,
although such variance will not be material.
ADJUSTABLE RATE LOANS IN THE MORTGAGE POOL MAY EXPERIENCE A HIGHER RATE OF
DEFAULT
Because each group of mortgage loans contains adjustable rate
loans, the mortgage pool may experience a higher rate of default than would a
comparable mortgage pool consisting entirely of fixed rate mortgage loans.
Increases in the monthly payments on the adjustable rate loans to amounts in
excess of those applicable at their respective dates of origination may result
in a higher default rate.
YIELD TO MATURITY ON THE NOTES IS SENSITIVE TO VARIOUS FACTORS
The yield on each class of notes will be sensitive in varying
degrees to the default and loss experience on the related mortgage loans and to
the timing of any such defaults or losses. Certain loss scenarios, including a
default by the note insurer as described in this prospectus supplement, could
lead to the failure of investors in the related class of notes to recover their
initial investments.
In addition, the credit enhancement provisions will have the
effect of accelerating the amortization of a class of notes relative to the
amortization of the related mortgage loans because any excess cash will
generally be distributed to the noteholders as principal. This will cause
overcollateralization on the notes to the extent that the balance of the
mortgage loans in the related group exceeds the aggregate note balance for that
class. As a result of such accelerated amortization, the weighted average life
of the notes for that class will be shorter than otherwise would be the case.
See "Description of the Notes--Overcollateralization Feature" and "Certain
Prepayment and Yield Considerations" herein.
PREPAYMENT OF THE MORTGAGE LOANS MAY ADVERSELY AFFECT THE YIELD TO MATURITY OF
THE NOTES
Mortgagors may prepay their mortgage loans in whole or in
part, at any time. However, approximately 99.79% of the mortgage loans in Group
I by group balance and approximately 99.60% of the mortgage loans in Group II by
group balance require the mortgagors to pay a fee in connection with certain
prepayments, which may discourage prepayments. The rate of prepayments may be
affected by a wide variety of general economic, social, competitive and other
factors, including state and federal income tax policies, interest rates, the
availability of alternative financing and homeowner mobility. It is, therefore,
impossible to predict the rate of such prepayments.
The average life of each class of notes, and, if purchased at
other than par, the yields realized by noteholders, will be sensitive to levels
of payments, including prepayments, on the related mortgage loans. In general, a
higher than anticipated level of prepayments will have an adverse affect on the
yield on notes purchased at a premium and a lower than anticipated level of
prepayments will enhance the yield on such notes. Conversely, a higher than
anticipated level of prepayments will enhance the yield on notes purchased at a
discount and a lower than anticipated level will have an adverse affect. See
"Certain Prepayment and Yield Considerations" and "Certain Legal Aspects of the
Mortgage Loans" herein.
S-10
<PAGE>
PAYMENTS OF EXCESS CASH MAY AFFECT THE YIELD TO MATURITY ON THE NOTES
Excess cash will be paid to reduce the note balance of the
related class on each payment date if the level of overcollateralization
required at the time in question exceeds the actual level of
overcollateralization on such payment date. The rate at which excess cash is
paid to noteholders will affect the yield to maturity on a note, if purchased at
a premium or a discount. If the actual rate of such excess cash payments is
slower than the rate anticipated by an investor who purchases a note at a
discount, the actual yield to such investor will be lower than the investor's
anticipated yield. If the actual rate of excess cash payments is faster than the
rate anticipated by an investor who purchases a note at a premium, the actual
yield to such investor will be lower than such investor's anticipated yield.
The amount of excess cash on any payment date will depend on
the actual amount of interest collected on the related mortgage loans during the
related collection period, plus the amount of any payment made under the
interest rate cap agreement held by the indenture trustee. In certain interest
rate environments, excess cash may decrease as a result of a rise in the level
of LIBOR. When certain interest rate thresholds are reached, payments will be
made under the interest rate cap agreement. These payments will, in part, offset
any decrease in excess cash. Collections of interest on the mortgage loans will
be influenced by changes in the weighted average of the coupon rates resulting
from prepayments and liquidations of mortgage loans as well as from adjustments
of coupon rates on the adjustable rate loans. The amount of excess cash payments
and interest rate cap payments applied in reduction of the related note balance
on each payment date will be based on the level of overcollateralization
required at the time in question. The required level of overcollateralization
may increase or decrease over time. Any increase may result in an accelerated
amortization of the related class of notes until the required level is reached.
Any decrease will result in slower amortization of the related class of notes
until the required level is reached. See "Certain Prepayment and Yield
Considerations" herein.
NOTES ARE NON-RECOURSE OBLIGATIONS
The notes will be non-recourse asset-backed obligations solely
of the issuer and will not represent an obligation of or interest in the
depositor, RBMG, RBMG Asset Management Company, Inc., RBMG Funding Co., the
sub-servicer, the servicer, or any of their respective affiliates, except as
described herein. The assets included in the trust and payments under the note
insurance policy will be the sole source of payments on the notes, and there
will be no recourse to the issuer, the depositor, RBMG, RBMG Asset Management
Company, Inc., RBMG Funding Co., the sub-servicer, the servicer, the owner
trustee, the indenture trustee or any of their respective affiliates, or any
other entity, if such assets are insufficient or otherwise unavailable to make
all payments provided for under the notes.
BOOK-ENTRY REGISTRATION MAY REDUCE THE LIQUIDITY OF THE NOTES
Since transactions in the notes can be effected only through
DTC, Cedel, Euroclear, participating organizations, indirect participants and
certain banks, the ability of a Beneficial Owner to pledge a Note to persons or
entities that do not participate in the DTC, Cedel or Euroclear systems, or
otherwise to take actions in respect of such note, may be limited due to lack of
a physical certificate representing such note.
S-11
<PAGE>
POTENTIAL DELAYS IN RECEIPT OF PAYMENTS ON THE NOTES
Beneficial owners may experience some delay in their receipt
of payments of interest of and principal on the notes because such payments will
be forwarded by the indenture trustee to DTC and DTC will credit such payments
to the accounts of its participants, which will thereafter credit them to the
accounts of beneficial owners either directly or indirectly through indirect
participants. See "Description of the Notes--Book-Entry Registration and
Definitive Notes" herein and "ANNEX I: Global Clearance, Settlement and Tax
Documentation Procedures" hereto.
AN INVESTMENT IN THE NOTES MAY BE AN ILLIQUID INVESTMENT
There is currently no secondary market for the notes. The
underwriter currently intends to make a market in the notes, but it is under no
obligation to do so. There can be no assurance that a secondary market will
develop or, if a secondary market does develop, that it will provide the
noteholders with liquidity of investment or that it will continue for the life
of the notes.
YEAR 2000 ISSUE MAY ADVERSELY AFFECT THE DISTRIBUTIONS TO NOTEHOLDERS
As is the case with most companies using computers in their
operations, each of the servicer, the indenture trustee and the sub-servicer is
faced with the task of completing its compliance goals in connection with the
year 2000 issue. The year 2000 issue is the result of prior computer programs
being written using two digits, rather than four digits, to define the
applicable year. Any of these parties' computer programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. Any such occurrence could result in major computer system
failure or miscalculations. Each of these parties is presently expected to be
engaged in various procedures to ensure that its computer systems and software
will be year 2000 compliant. However, in the event that the servicer, indenture
trustee or the sub-servicer, or any of their suppliers, customers, brokers or
agents do not successfully and timely achieve year 2000 compliance, the
performance of their obligations of the transaction agreements could be
materially adversely affected.
S-12
<PAGE>
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Trust will consist primarily of a pool (the "Mortgage
Pool") of fixed and adjustable rate mortgage loans (the "Mortgage Loans")
evidenced by mortgage notes (each, a "Mortgage Note") and secured by first liens
on fee simple interests in one-to four-family residential properties (each, a
"Mortgaged Property"). The Mortgage Loans identified for inclusion in the
Mortgage Pool as of the close of business on June 1, 1999 (the "Cut-Off Date")
are collectively referred to as the "Mortgage Loans."
The Mortgage Pool will be divided into two groups. The Class
A-1 Notes will be principally secured by one group ("Group I") of Mortgage Loans
(the "Group I Mortgage Loans") and the Class A-2 Notes will be principally
secured by the other group ("Group II") of Mortgage Loans (the "Group II
Mortgage Loans"). Payments on the Class A-1 Notes will be made generally from
Available Funds for Group I, and payments on the Class A-2 Notes will be made
generally from Available Funds for Group II. Group I and Group II are referred
to together herein as the "Groups" and each singularly, a "Group."
The following is a brief description of certain
characteristics of the Mortgage Pool as of the close of business on the Cut-Off
Date, assuming that all scheduled payments of principal and interest due on the
Mortgage Loans on or prior to the Cut-Off Date have been received by the
Servicer and applied to the related Mortgagor's account. The statistical
information presented herein does not take into account the fact that certain
Mortgage Loans may prepay in full, or be removed, prior to the date of issuance
of the Notes (the "Closing Date") from the related group and other Mortgage
Loans may be substituted therefor. As a result of the foregoing, the statistical
information regarding the Mortgage Loans set forth herein may vary from
comparable information based on the actual composition of the related group on
the Closing Date, although such variance will not be material. Except as
otherwise indicated, all percentages of the Mortgage Loans described herein as
having certain characteristics are expressed as a percentage of the Group
Balance.
The Group I Mortgage Loans have an aggregate Stated Principal
Balance as of the Cut-Off Date of $75,033,573.66 (the "Group I Initial
Balance"), and the Group II Mortgage Loans have an aggregate Stated Principal
Balance as of the Cut-Off Date of $50,002,424.38 (the "Group II Initial
Balance"; the Group I Initial Balance and the Group II Initial Balance, each an
"Initial Group Balance"). All of the Group I Mortgage Loans have a Stated
Principal Balance of less than $240,000. The Mortgage Loans in both Group I and
Group II will be fixed and adjustable rate mortgage loans and are evidenced by
Mortgage Notes and secured by Mortgaged Properties. The proceeds of the Mortgage
Loans were used by the related borrowers to purchase the related Mortgaged
Property or to refinance existing debt secured by the related Mortgaged
Property. The Mortgage Loans in both Group I and Group II will have original
terms to maturity from the dates of their first scheduled Monthly Payments of
interest and principal of not more than 30 years (each such payment, a "Monthly
Payment"). All of the Mortgage Loans were originated or acquired by RBMG or
Meritage in accordance with the underwriting standards for RBMG's residential
sub-prime credit lending program as described below under "--Underwriting
Standards."
S-13
<PAGE>
RBMG will contribute the Mortgage Loans to RBMG Asset
Management Company, Inc. (the "Company") pursuant to a mortgage loan
contribution agreement between RBMG and the Company to be dated as of June 1,
1999 (the "Contribution Agreement"), the Company will sell the Mortgage Loans to
RBMG Funding Co., a wholly owned subsidiary of the Company, ("Funding Co."),
pursuant to a mortgage loan sale agreement between the Company and Funding Co.
to be dated as of June 1, 1999 (the "Company Sale Agreement"), Funding Co. will
sell the Mortgage Loans to the Depositor pursuant to a mortgage loan sale
agreement between Funding Co. and the Depositor to be dated as of June 1, 1999
(the "Funding Co. Sale Agreement"), the Depositor will sell the Mortgage Loans
to the Issuer pursuant to a mortgage loan sale agreement between the Depositor
and the Issuer to be dated as of June 1, 1999 (the "Depositor Sale Agreement"),
and the Issuer will pledge the Mortgage Loans as security for the Notes to the
Indenture Trustee for the benefit of the Noteholders pursuant to the Indenture.
In general, the Noteholders of each Class of Notes will be entitled to payments
on the Notes from payments and other recoveries on the Mortgage Loans in the
related Group that are received after the relevant Cut-Off Date (other than
amounts received after the relevant Cut-Off Date but due on or prior to the
relevant Cut-Off Date, and any prepayment charges). Insofar as it relates to the
representations and warranties made by RBMG in the Contribution Agreement with
respect to the Mortgage Loans and the remedies provided therein for any breach
of such representations and warranties, the Contribution Agreement will be
assigned by the Company to Funding Co., by Funding Co. to the Depositor and by
the Depositor to the Issuer and pledged as security for the Notes by the Issuer
to the Indenture Trustee for the benefit of the Noteholders pursuant to the
Indenture, as described herein under "Description of the Notes--Assignment of
Mortgage Loans."
Approximately 14.43% of the Group I Mortgage Loans and
approximately 13.63% of the Group II Mortgage Loans have Coupon Rates (each, a
"Coupon Rate") that are fixed at the percentages specified in the related
Mortgage Notes (each such Mortgage Loan, a "Fixed Rate Loan"). Approximately
0.55% of the Group I Mortgage Loans and approximately 0.31% of the Group II
Mortgage Loans are fully amortizing, Fixed Rate Loans with level Monthly
Payments and original terms to maturity of not more than 15 years from the Due
Dates of their first Monthly Payments (each such Mortgage Loan, a "Fixed Rate
15-Year Loan"). Approximately 8.05% of the Group I Mortgage Loans and
approximately 7.14% of the Group II Mortgage Loans are fully-amortizing, Fixed
Rate Loans with level Monthly Payments and original terms to maturity of not
more than 30 years from the Due Dates of their first Monthly Payments (each such
Mortgage Loan, a "Fixed Rate 30-Year Loan"). The remaining 5.83% of the Group I
Mortgage Loans and 6.18% of the Group II Mortgage Loans that are Fixed Rate
Loans each have an original term to maturity of not more than 15 years from the
Due Date of its first Monthly Payment, have level Monthly Payments during the
term thereof as if each such Mortgage Loan were a Fixed Rate 30-Year Loan and
have a final Monthly Payment equal to the outstanding principal balance thereof
on the related maturity date plus interest thereon at the related Coupon Rate
(each such Mortgage Loan with a balloon payment, a "Balloon Loan").
Approximately 85.57% of the Group I Mortgage Loans and 86.37%
of the Group II Mortgage Loans are adjustable rate loans the Coupon Rate of
which is subject to adjustment as described below on the Due Dates in the months
specified in the related Mortgage Note (each such day, an "Adjustment Date") to
equal, as to any such Adjustment Date, the sum (rounded as applicable) of the
related index as described below (the "Index") and the fixed percentage amount
specified in such
S-14
<PAGE>
Mortgage Note (the "Gross Margin") (such sum, the "Fully Indexed Rate" and such
loans "Adjustable Rate Loans "); PROVIDED, that, except as described below, the
Coupon Rate on any Adjustable Rate Loan will not increase or decrease by more
than the percentage specified in the related Mortgage Note (the "Periodic Rate
Cap") on any related Adjustment Date, such Coupon Rate will not exceed the sum
of the initial Coupon Rate thereon and the percentage specified in such Mortgage
Note (such sum, the "Maximum Rate") and such Coupon Rate will not be less than
the percentage specified in such Mortgage Note (the "Minimum Rate"). The Index
for the Adjustable Rate Loans will be the average of interbank offered rates for
six-month United States dollar deposits in the London market based on quotations
of major banks ("Six-Month LIBOR"), as published in THE WALL STREET JOURNAL and
most recently available 45 days prior to such Adjustment Date for which the
related Coupon Rates will be subject to adjustment commencing either
approximately six months, two years or three years after their respective dates
of origination and semi-annually thereafter (generally with an increase in such
Coupon Rates of not more than 3.00% on the initial Adjustment Dates thereof and
for which the related Periodic Rate Caps will range from 1.50% to 3.00% on the
initial adjustment date and will be 1.50% thereafter). Approximately 0.37% of
the Group II Mortgage Loans are Adjustable Rate Loans for which the related
Index is Six-Month LIBOR, for which the related Coupon Rates will be subject to
adjustment commencing approximately six months after their respective dates of
origination and semi-annually thereafter, and for which the original terms to
maturity are not more than 30 years from the Due Dates of their first Monthly
Payments (each such Mortgage Loan, a "6-Month LIBOR Loan"). Approximately 20.14%
of the Group I Mortgage Loans and approximately 26.12% of the Group II Mortgage
Loans are Adjustable Rate Loans for which the related Index is Six-Month LIBOR,
for which the related Coupon Rates will be subject to adjustment commencing
approximately two years after their respective dates of origination and
semi-annually thereafter, and for which the original terms to maturity are not
more than 30 years from the Due Dates of their first Monthly Payments (the "2/6
LIBOR Loans"). Approximately 65.43% of the Group I Mortgage Loans and
approximately 59.88% of the Group II Mortgage Loans are Adjustable Rate Loans
for which the related Index is Six-Month LIBOR, for which the related Coupon
Rates will be subject to adjustment commencing approximately three years after
their respective dates of origination and semi-annually thereafter, and for
which the original terms to maturity are not more than 30 years from the Due
Dates of their first Monthly Payments (the "3/6 LIBOR Loans"). Effective with
the first Monthly Payment due on an Adjustable Rate Loan after any related
Adjustment Date, the amount of the Monthly Payment thereon will be adjusted to
an amount that will fully amortize the principal balance of such Mortgage Loan
over its remaining term and pay interest at the related Coupon Rate as adjusted
on such Adjustment Date.
The weighted average remaining term to maturity of the Group I
Mortgage Loans and the Group II Mortgage Loans is approximately 346 months and
345 months, respectively. All of the Mortgage Loans will have original terms to
maturity from the due date of the first monthly payment of not more than 30
years. None of the Group I Mortgage Loans has a first payment date prior to
October 1, 1997, and none of the Group II Mortgage Loans has a first payment
date prior to July 1, 1998. None of the Group I Mortgage Loans has a remaining
term to maturity of less than approximately 14 years and 7 months, and none of
the Group II Mortgage Loans has a remaining term to maturity of less than
approximately 14 years and 2 months. The latest maturity date of any of the
Group I Mortgage Loans is May 1, 2029. The latest maturity date of any of the
Group II Mortgage Loans is April 1, 2029.
S-15
<PAGE>
A substantial number of Adjustable Rate Loans will have
initial Coupon Rates that are less than the related Fully Indexed Rates at their
respective dates of origination. In addition, the Coupon Rate on any Adjustable
Rate Loan may be less than the Fully Indexed Rate with respect to any related
Adjustment Date because the related Periodic Rate Cap and Maximum Rate will have
the effect of limiting any increase in such Coupon Rate.
Each Mortgage Loan will contain a customary "due-on-sale"
clause. Approximately 0.50% of the Group I Mortgage Loans are 30 to 59 days
delinquent in their Monthly Payments as of May 18, 1999. Approximately 2.22% of
the Group II Mortgage Loans by are 30 to 59 days delinquent in their Monthly
Payments as of May 18, 1999. Investors in the Notes should be aware, however,
that only approximately 30.19% of the Group I Mortgage Loans and only
approximately 69.38% of the Group II Mortgage Loans had a first Monthly Payment
due before May 1, 1999, and therefore, the other Mortgage Loans could not have
been more than thirty days delinquent in payment as of May 18, 1999.
Approximately 99.79% of the Group I Mortgage Loans and approximately 99.60% of
the Group II Mortgage Loans provide for payment of a prepayment charge. Under
the Sub-Servicing Agreement and the Servicing Agreement, respectively, the
Sub-Servicer is entitled to all late payment charges received on the Mortgage
Loans and the Servicer is entitled to all prepayment charges received on the
Mortgage Loans as additional servicing compensation and accordingly, such
amounts will not be available as security for, or for payment, on the Notes.
Pursuant to its terms, each Mortgage Loan is required to be
covered by a standard hazard insurance policy in an amount equal to the lesser
of the original principal balance thereof and the replacement value of the
improvements on the related Mortgaged Property, but in no event lower than the
amount necessary to avoid the application of a co-insurance clause in the
related insurance policy. In addition, the Servicing Agreement will require the
Servicer to cause to be maintained for each Mortgaged Property acquired upon
foreclosure of any Mortgage Loan, or upon deed in lieu of foreclosure, a fire
insurance policy with extended coverage in an amount equal to the replacement
value of the improvements thereon. See "Servicing of the Mortgage
Loans--Standard Hazard Insurance Policies" herein.
Not more than approximately 0.87% of the Group I Mortgage
Loans and not more than approximately 1.50% of the Group II Mortgage Loans are
secured by Mortgaged Properties located in any particular five digit zip code
area.
The Mortgage Loans have been originated using underwriting
standards that are significantly less stringent than the underwriting standards
applied by other first mortgage loan purchase programs such as those of Fannie
Mae or Freddie Mac. See "--Underwriting Standards" and "Risk Factors--As a
Result of the Underwriting Standards, The Mortgage Loans Are Likely to
Experience Rates of Delinquency, Foreclosure and Bankruptcy That Are Higher Than
Those Experienced by The Mortgage Loans Underwritten in a More Traditional
Manner" herein.
The following tables set forth certain characteristics on an
approximate basis with respect to all the Mortgage Loans, the Mortgage Loans
constituting Fixed Rate Loans (the " Fixed Rate Loans") and the Mortgage Loans
constituting Adjustable Rate Loans (the "Adjustable Rate Loans") in each Group.
With respect to any Mortgage Loan, as of any date of determination, the
"Loan-to-Value Ratio" or "LTV" will be the ratio, expressed as a percentage, of
(a) the original principal balance of such
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<PAGE>
Mortgage Loan to (b) the Value (as defined in the Servicing Agreement) of the
related Mortgaged Property.
ALL OF THE GROUP I MORTGAGE LOANS
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of all the Group I Mortgage Loans
having the Coupon Rates in each given range. (The sums of amounts and
percentages in the table below may not be equal to the totals due to rounding.)
COUPON RATES OF ALL THE GROUP I MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF GROUP I
RANGE OF COUPON NUMBER OF AGGREGATE MORTGAGE LOANS BY AGGREGATE
RATES (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------------------- --------------- ----------------------- ---------------------------
<S> <C> <C> <C>
7.501 - 8.000 31 $ 4,494,491.73 5.99%
8.001 - 8.500 81 9,548,026.18 12.73
8.501 - 9.000 65 7,695,385.47 10.26
9.001 - 9.500 101 9,610,046.07 12.81
9.501 - 10.000 125 13,306,080.17 17.73
10.001 - 10.500 114 11,520,274.86 15.35
10.501 - 11.000 104 8,954,990.62 11.93
11.001 - 11.500 57 4,481,732.50 5.97
11.501 - 12.000 26 1,980,440.02 2.64
12.001 - 12.500 22 1,561,942.93 2.08
12.501 - 13.000 20 1,262,755.22 1.68
13.001 - 13.500 7 448,974.20 0.60
13.501 - 14.000 3 139,854.21 0.19
14.001 - 14.500 1 28,579.48 0.04
- -------------------------- ---------------- ---------------------- ------------------------
Totals 757 $ 75,033,573.66 100.00%
========================== ================ ====================== ========================
</TABLE>
With respect to the Group I Mortgage Loans, the weighted
average Coupon Rate, as of the Cut-Off Date, of (a) the Group I Mortgage Loans
was approximately 9.85% per annum, (b) the Fixed Rate Loans, was approximately
10.63% per annum, (c) the Adjustable Rate Loans, was approximately 9.72% per
annum, (d) the Fixed Rate 15-Year Loans, was approximately 10.30% per annum, (e)
the Fixed Rate 30-Year Loans, was approximately 10.40% per annum, (f) the
Balloon Loans, was approximately 10.97% per annum, (g) the 2/6-LIBOR Loans, was
approximately 10.11% per annum and (i) the 3/6-LIBOR Loans, was approximately
9.60% per annum.
S-17
<PAGE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of all the Group I Mortgage Loans
having principal balances in each given range. (The sums of amounts and
percentages in the table below may not equal the totals due to rounding.)
PRINCIPAL BALANCES OF ALL THE GROUP I MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF GROUP I
NUMBER OF AGGREGATE MORTGAGE LOANS BY AGGREGATE
RANGE OF PRINCIPAL BALANCES ($) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------------------------- --------------- ----------------------- -----------------------------
<S> <C> <C> <C>
0.01 - 25,000.00 6 $ 136,288.71 0.18%
25,000.01 - 50,000.00 88 3,486,210.24 4.65
50,000.01 - 75,000.00 180 11,228,121.51 14.96
75,000.01 - 100,000.00 172 14,967,669.41 19.95
100,000.01 - 125,000.00 123 13,752,892.21 18.33
125,000.01 - 150,000.00 77 10,588,392.80 14.11
150,000.01 - 175,000.00 40 6,470,605.47 8.62
175,000.01 - 200,000.00 37 6,929,719.84 9.24
200,000.01 - 225,000.00 21 4,439,289.75 5.92
225,000.01 - 250,000.00 13 3,034,383.72 4.04
- ---------------------------------- --------------- ---------------------- -------------------------
Totals 757 $ 75,033,573.66 100.00%
================================== =============== ====================== =========================
</TABLE>
S-18
<PAGE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of all the Group I Mortgage Loans
having the remaining terms to maturity in each given range. (The sums of amounts
and percentages in the table below may not equal the totals due to rounding.)
REMAINING TERMS TO MATURITY OF ALL
THE GROUP I MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF GROUP I
RANGE OF NUMBER OF AGGREGATE MORTGAGE LOANS BY AGGREGATE
REMAINING TERM (MONTHS) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------- -------------- ------------------- ---------------------------
<S> <C> <C> <C>
171 - 175 2 $ 97,220.00 0.13%
176 - 180 67 4,689,844.79 6.25
336 - 340 1 99,976.69 0.13
346 - 350 1 90,138.08 0.12
351 - 355 6 485,858.06 0.65
356 5 342,744.65 0.46
357 203 20,425,130.61 27.22
358 469 48,597,422.56 64.77
359 3 205,238.22 0.27
- ------------------------------- ------------ ------------------- --------------------------
Totals 757 $ 75,033,573.66 100.00%
=============================== ============ =================== ==========================
</TABLE>
S-19
<PAGE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of the Group I Mortgage Loans having
Loan-to-Value Ratios in each given range at origination. (The sums of amounts
and percentages in the table below may not equal the totals due to rounding.)
LOAN-TO-VALUE RATIOS OF ALL THE GROUP I
MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF GROUP I
MORTGAGE LOANS BY
RANGE OF LOAN-TO-VALUE NUMBER OF AGGREGATE AGGREGATE PRINCIPAL
RATIOS AT ORIGINATION (%) MORTGAGE LOANS PRINCIPAL BALANCE BALANCE WEIGHTED AVERAGE LTV
- ------------------------- --------------- ------------------ --------------------- ---------------------
<S> <C> <C> <C> <C>
15.01 - 20.00 1 $ 14,981.42 0.02% 16.13%
25.01 - 30.00 1 39,967.18 0.05 29.63
30.01 - 35.00 4 170,756.22 0.23 33.18
35.01 - 40.00 4 217,237.45 0.29 37.42
40.01 - 45.00 4 152,999.42 0.20 41.88
45.01 - 50.00 12 757,944.64 1.01 48.86
50.01 - 55.00 10 679,607.56 0.91 53.67
55.01 - 60.00 17 1,841,254.13 2.45 58.41
60.01 - 65.00 54 3,760,289.63 5.01 64.02
65.01 - 70.00 47 3,639,232.69 4.85 68.83
70.01 - 75.00 178 19,628,904.01 26.16 74.71
75.01 - 80.00 205 21,735,028.02 28.97 79.74
80.01 - 85.00 159 16,097,039.80 21.45 84.85
85.01 - 90.00 61 6,298,331.49 8.39 89.97
- ------------------------- --------------- ----------------- ------------------- ---------------------
Totals 757 $75,033,573.66 100.00%
========================= =============== ================= ===================
</TABLE>
The weighted average Loan-to-Value Ratio, at origination, of
the Group I Mortgage Loans was approximately 77.64%.
S-20
<PAGE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of the Group I Mortgage Loans having
each indicated risk classification under RBMG's subprime credit risk residential
lending program. For a description of RBMG's subprime underwriting risk
categories, see "--Underwriting Standards" herein. (The sums of amounts and
percentages in the table below may not equal the totals due to rounding.)
RISK CLASSIFICATIONS OF ALL THE
GROUP I MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF GROUP I
NUMBER OF AGGREGATE MORTGAGE LOANS BY AGGREGATE
RISK CLASSIFICATION MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----------------------------- ---------------- ----------------------- ---------------------------
<S> <C> <C> <C>
A 352 $ 38,993,188.40 51.97%
A- 171 16,631,641.64 22.17
B 136 12,422,531.94 16.56
C 60 4,382,703.47 5.84
C- 1 79,967.16 0.11
D 37 2,523,541.05 3.36
- ------------------------------- --------------- ------------------------ ---------------------------
Totals 757 $ 75,033,573.66 100.00%
=============================== =============== ======================== ===========================
</TABLE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of the Group I Mortgage Loans under
each of RBMG's documentation programs.
For a description of RBMG's subprime underwriting program
classifications, see "--Underwriting Standards" herein. (The sums of the amounts
and percentages in the table below may not equal the total amount due to
rounding.)
PROGRAM CLASSIFICATIONS OF ALL THE
GROUP I MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF GROUP I
NUMBER OF AGGREGATE MORTGAGE LOANS BY AGGREGATE
PROGRAM CLASSIFICATION MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----------------------------- ---------------- ----------------------- ---------------------------
<S> <C> <C> <C>
Alternate 22 $ 2,525,249.15 3.37%
Full 567 55,507,563.41 73.98
No Income Verification 168 17,000,761.10 22.66
- -------------------------------- ---------------- ----------------------- ------------------------
Totals 757 $ 75,033,573.66 100.00%
================================ ================ ======================= ==========================
</TABLE>
S-21
<PAGE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of the Group I Mortgage Loans having
Mortgaged Properties of each given type. (The sums of amounts and percentages in
the table below may not equal the totals due to rounding.)
TYPES OF MORTGAGED PROPERTIES OF ALL THE
GROUP I MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF GROUP I
NUMBER OF AGGREGATE MORTGAGE LOANS BY AGGREGATE
PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----------------------------- ---------------- ---------------------- ---------------------------
<S> <C> <C> <C>
Condominium 16 $ 1,691,830.11 2.25%
Manufactured Home 40 3,536,738.43 4.71
Multi-Family Home 26 2,802,864.93 3.74
Single Family Home 675 67,002,140.19 89.30
- -------------------------------- ---------------- ----------------------- ----------------------------
Totals 757 $ 75,033,573.66 100.00%
================================ ================= ======================= =============================
</TABLE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of the Group I Mortgage Loans having
Mortgaged Properties with each given occupancy status. (The sums of amounts and
percentages in the table below may not equal the totals due to rounding.)
OCCUPANCY STATUS OF THE MORTGAGED PROPERTIES OF ALL THE
GROUP I MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF GROUP I
NUMBER OF AGGREGATE MORTGAGE LOANS BY AGGREGATE
OCCUPANCY STATUS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----------------------------- ---------------- ---------------------- ---------------------------
<S> <C> <C> <C>
Investment 42 $ 2,789,932.02 3.72%
Owner Occupied 712 72,014,642.34 95.98
Second Home 3 228,999.30 0.31
- -------------------------------- ---------------- ----------------------- ----------------------------
Totals 757 $ 75,033,573.66 100.00%
================================ ================= ======================= =============================
</TABLE>
S-22
<PAGE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of the Group I Mortgage Loans having
each indicated purpose. (The sums of amounts and percentages in the table below
may not equal the totals due to rounding.)
USE OF PROCEEDS OF ALL THE GROUP I MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF GROUP I
NUMBER OF AGGREGATE MORTGAGE LOANS BY AGGREGATE
USE OF PROCEEDS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----------------------------- ---------------- ---------------------- ---------------------------
<S> <C> <C> <C>
Purchase 306 $ 30,857,071.19 41.12%
Refinance (Cash Out) 294 28,342,685.74 37.77
Refinance (Rate/Term) 157 15,833,816.73 21.10
- -------------------------------- ---------------- ----------------------- ----------------------------
Totals 757 $ 75,033,573.66 100.00%
================================ ================= ======================= =============================
</TABLE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of the Group I Mortgage Loans having
each indicated number of months from the date of origination to the Cut-Off
Date. (The sums of amounts and percentages in the table below may not equal the
totals due to rounding.)
NUMBER OF MONTHS ELAPSED FROM THE DATE OF ORIGINATION OF ALL
THE GROUP I MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF GROUP I
NUMBER OF AGGREGATE MORTGAGE LOANS BY AGGREGATE
RANGE OF MONTHS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----------------------------- ---------------- ---------------------- ---------------------------
<S> <C> <C> <C>
1 2 $ 61,753.59 0.08%
2 520 51,339,482.06 68.42
3 218 22,346,952.53 29.78
4 - 11 16 1,185,408.79 1.58
12 - 23 1 99,976.69 0.13
- ----------------------------- ---------------- ---------------------- ---------------------------
Totals 757 $ 75,033,573.66 100.00%
============================= ================ ====================== ===========================
</TABLE>
The weighted average number of months since the date of
origination of the Group I Mortgage Loans, as of the Cut-Off Date, was
approximately 2 months.
S-23
<PAGE>
The table below sets forth as of the Cut-Off Date, the
geographic distribution of all the Group I Mortgage Loans by location and the
related number, aggregate principal balance and percentage of the Mortgage Loans
secured by Mortgaged Properties in such locations. (The sum of amounts and
percentages in the table below may not equal the totals due to rounding.)
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION OF THE MORTGAGED PROPERTIES OF ALL THE GROUP I MORTGAGE LOANS
PERCENTAGE OF MORTGAGE
NUMBER OF AGGREGATE GROUP I LOANS BY AGGREGATE
LOCATION MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C>
Alabama 49 $ 3,489,404.09 4.65%
Arizona 49 4,331,416.46 5.77
California 94 14,240,371.31 18.98
Colorado 72 8,208,660.12 10.94
District of Columbia 1 81,538.26 0.11
Florida 22 1,829,681.67 2.44
Georgia 10 867,644.01 1.16
Idaho 11 1,056,171.99 1.41
Illinois 59 4,644,351.80 6.19
Indiana 17 918,218.40 1.22
Kansas 8 507,152.94 0.68
Kentucky 8 555,557.90 0.74
Louisiana 2 168,328.71 0.22
Maryland 17 1,617,213.12 2.16
Michigan 10 794,314.72 1.06
Minnesota 10 1,026,973.67 1.37
Missouri 19 1,264,241.58 1.68
Nevada 18 2,108,161.57 2.81
New Mexico 18 1,316,491.04 1.75
North Carolina 21 1,745,569.50 2.33
Ohio 28 2,141,811.10 2.85
Oklahoma 1 31,461.07 0.04
Oregon 98 10,658,660.64 14.21
South Carolina 5 583,571.17 0.78
Tennessee 13 961,529.99 1.28
Texas 6 350,512.47 0.47
Utah 21 2,165,317.15 2.89
Virginia 9 683,823.28 0.91
Washington 54 6,263,259.48 8.35
West Virginia 1 57,141.99 0.08
Wisconsin 6 365,022.46 0.49
- ---------------------------------- --- ----------------------- ------
Totals 757 $ 75,033,573.66 100.00%
================================== === ======================= ======
</TABLE>
S-24
<PAGE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of all the Group I Mortgage Loans
having a prepayment charge for the years indicated. (The sum of amounts and
percentages in the table below may not equal the totals due to rounding.)
<TABLE>
<CAPTION>
PREPAYMENT CHARGES WITH RESPECT TO ALL THE
GROUP I MORTGAGE LOANS
PERCENTAGE OF GROUP I
NUMBER OF AGGREGATE MORTGAGE LOANS BY AGGREGATE
PREPAYMENT CHARGE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------ -------------- ---------------------- ---------------------------
<S> <C> <C> <C>
1 Year 17 $ 1,919,299.22 2.56%
2 Year 71 7,888,562.28 10.51
3 Year 664 64,667,738.74 86.19
5 Year 3 402,924.54 0.54
None 2 155,048.88 0.21
- ------------------------------ -------------- -------------------- ---------------------------
Totals 757 $ 75,033,573.66 100.00%
============================== ============== ==================== ===========================
</TABLE>
S-25
<PAGE>
FIXED RATE LOANS IN GROUP I
The following table sets forth certain information with respect to all the Fixed
Rate Loans in
Group I.
<TABLE>
<CAPTION>
GROUP I FIXED RATE LOANS
<S> <C>
Number of Group I Fixed Rate Loans 145
Percentage of All Mortgage Loans in
Group I (by number of loans) 19.15%
Aggregate Principal Balance $10,824,272.68
Percentage of All Mortgage Loans in
Group I (by aggregate principal
balance) 14.43%
Principal Balance of Mortgage Loans as
of the Cut-Off Date
Average $74,650.16
Range $14,981.42 - $238,232.67
Coupon Rates
Weighted Average 10.626%
Range 8.250% - 13.875%
Remaining Term to Maturity
(in months)
Weighted Average 278
Range 175 - 358
Loan-to-Value Ratio at Origination
Weighted Average 76.56%
Range 16.13% - 90.00%
</TABLE>
S-26
<PAGE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of the Fixed Rate Loans in Group I
(the "Group I Fixed Rate Loans") having the Coupon Rates in each given range.
(The sums of amounts and percentages in the table below may not be equal to the
totals due to rounding.)
<TABLE>
<CAPTION>
COUPON RATES OF GROUP I THE FIXED RATE LOANS
PERCENTAGE OF FIXED GROUP
NUMBER OF AGGREGATE I RATE LOANS BY AGGREGATE
RANGE OF COUPON RATES (%) FIXED RATE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------- ---------------- ------------------ -------------------------
<S> <C> <C> <C> <C>
8.001 - 8.500 1 $ 51,384.15 0.47%
8.501 - 9.000 6 636,443.11 5.88
9.001 - 9.500 15 1,142,840.53 10.56
9.501 - 10.000 20 1,534,181.14 14.17
10.001 - 10.500 22 1,774,647.45 16.40
10.501 - 11.000 29 2,283,333.48 21.09
11.001 - 11.500 20 1,451,573.60 13.41
11.501 - 12.000 13 891,678.24 8.24
12.001 - 12.500 9 640,739.33 5.92
12.501 - 13.000 6 262,616.02 2.43
13.001 - 13.500 1 14,981.42 0.14
13.501 - 14.000 3 139,854.21 1.29
- ------------------------------- ---------------- ------------------ -------------------------
Totals 145 $ 10,824,272.68 100.00%
=============== ================ ================== ========================
</TABLE>
S-27
<PAGE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of the Group I Fixed Rate Loans
having principal balances in each given range. (The sums of amounts and
percentages in the table below may not equal the totals due to rounding.)
<TABLE>
<CAPTION>
PRINCIPAL BALANCES OF THE GROUP I FIXED RATE LOANS
PERCENTAGE OF GROUP I
FIXED RATE LOANS BY
RANGE OF PRINCIPAL BALANCES NUMBER OF AGGREGATE AGGREGATE
($) FIXED RATE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------- ---------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
0.01 - 25,000.00 4 $ 86,824.20 0.80%
25,000.01 - 50,000.00 33 1,328,560.03 12.27
50,000.01 - 75,000.00 46 2,778,478.55 25.67
75,000.01 - 100,000.00 36 3,055,996.82 28.23
100,000.01 - 125,000.00 14 1,609,669.02 14.87
125,000.01 - 150,000.00 7 952,942.89 8.80
175,000.01 - 200,000.00 3 551,425.36 5.09
200,000.01 - 225,000.00 1 222,143.14 2.05
225,000.01 - 250,000.00 1 238,232.67 2.20
- ------------------------------- ---------------- ------------------- ---------------------
Totals 145 $10,824,272.68 100.00%
=============================== ================ =================== =====================
</TABLE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of the Group I Fixed Rate Loans
having the remaining terms to maturity in each given range. (The sums of amounts
and percentages in the table below may not equal the totals due to rounding.)
REMAINING TERMS TO MATURITY OF THE GROUP I
FIXED RATE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF GROUP I FIXED
NUMBER OF AGGREGATE RATE LOANS BY AGGREGATE
REMAINING TERM (MONTHS) FIXED RATE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------- ---------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
171 - 175 2 $ 97,220.00 0.90%
176 - 180 67 4,689,844.79 43.33
351 - 355 1 31,461.07 0.29
357 25 1,979,011.08 18.28
358 50 4,026,735.74 37.20
- ------------------------------- ---------------- ------------------- ---------------------
Totals 145 $ 10,824,272.68 100.00%
=============================== ================ =================== =====================
</TABLE>
S-28
<PAGE>
ADJUSTABLE RATE LOANS IN GROUP I
The following table sets forth certain information with
request to all the Adjustable Rate Loans in Group I (the "Group I Adjustable
Rate Loans").
<TABLE>
<CAPTION>
GROUP I ADJUSTABLE RATE LOANS
<S> <C>
Number of Group I Adjustable Rate Loans 612
Percentage of All Mortgage Loans in Group I (by
number of loans) 80.85%
Aggregate Principal Balance $64,209,300.98
Percentage of All Mortgage Loans in Group I (by
aggregate principal balance) 85.57%
Principal Balance as of the Cut-Off Date
Average $104,917.16
Range $24,477.03 - $238,677.53
Coupon Rates
Weighted Average 9.718%
Range 7.750% - 14.249%
Remaining Term to Maturity (in months)
Weighted Average 358
Range 339 - 359
Loan-to-Value Ratio at Origination
Weighted Average 77.83%
Range 29.63% - 90.00%
S-29
<PAGE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of the Group I Adjustable Rate Loans
having the Gross Margins in each given range. (The sums of amounts and
percentages in the table below may not equal the totals due to rounding.)
GROSS MARGINS OF THE GROUP I ADJUSTABLE RATE LOANS
PERCENTAGE OF GROUP I
ADJUSTABLE RATE LOANS BY
NUMBER OF AGGREGATE PRINCIPAL AGGREGATE
RANGE OF GROSS MARGINS (%) ADJUSTABLE RATE LOANS BALANCE PRINCIPAL BALANCE
- ---------------------------------- --------------------- ---------------------- -------------------------
5.001 - 5.500 17 $ 1,977,525.34 3.08%
5.501 - 6.000 142 16,782,652.60 26.14
6.001 - 6.500 181 19,180,868.33 29.87
6.501 - 7.000 185 18,763,158.00 29.22
7.001 - 7.500 66 5,758,703.11 8.97
7.501 - 8.000 14 1,090,988.40 1.70
8.001 - 8.500 5 598,806.78 0.93
8.501 - 9.000 2 56,598.42 0.09
- ---------------------------------- --------------------- ---------------------- -------------------------
Totals 612 $ 64,209,300.98 100.00%
================================== ===================== ====================== =========================
</TABLE>
The weighted average gross margin on the Group I Adjustable
Rate Loans, as of the Cut-Off Date, was approximately 6.40% per annum.
S-30
<PAGE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of the Group I Adjustable Rate Loans
having the Coupon Rates in each given range. (The sums of amounts and
percentages in the table below may not equal the totals due to rounding.)
COUPON RATES OF THE GROUP I ADJUSTABLE RATE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF GROUP I
ADJUSTABLE RATE LOANS BY
NUMBER OF AGGREGATE AGGREGATE
RANGE OF COUPON RATES (%) ADJUSTABLE RATE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- --------------------------- --------------------- ----------------- -----------------
<S> <C> <C> <C> <C>
7.501 - 8.000 31 $ 4,494,491.73 7.00%
8.001 - 8.500 80 9,496,642.03 14.79
8.501 - 9.000 59 7,058,942.36 10.99
9.001 - 9.500 86 8,467,205.54 13.19
9.501 - 10.000 105 11,771,899.03 18.33
10.001 - 10.500 92 9,745,627.41 15.18
10.501 - 11.000 75 6,671,657.14 10.39
11.001 - 11.500 37 3,030,158.90 4.72
11.501 - 12.000 13 1,088,761.78 1.70
12.001 - 12.500 13 921,203.60 1.43
12.501 - 13.000 14 1,000,139.20 1.56
13.001 - 13.500 6 433,992.78 0.68
14.001 - 14.500 1 28,579.48 0.04
- --------------------------- --------------------- ------------------- -----------------
Totals 612 $ 64,209,300.98 100.00%
=========================== ===================== =================== =================
</TABLE>
The weighted average of the Coupon Rates on the Group I
Adjustable Rate Loans, as of the Cut-Off Date, was approximately 9.72% per
annum.
S-31
<PAGE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of the Group I Adjustable Rate Loans
having the Maximum Rates in each given range. (The sums of amounts and
percentages in the table below may not equal the totals due to rounding.)
<TABLE>
<CAPTION>
MAXIMUM RATES OF THE GROUP I ADJUSTABLE RATE LOANS
PERCENTAGE OF GROUP I
ADJUSTABLE RATE LOANS BY
NUMBER OF AGGREGATE AGGREGATE
RANGE OF MAXIMUM RATES (%) ADJUSTABLE RATE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------- --------------------- ---------------------- ------------------------
<S> <C> <C> <C> <C>
14.501 - 15.000 31 $ 4,494,491.73 7.00%
15.001 - 15.500 80 9,496,642.03 14.79
15.501 - 16.000 59 7,058,942.36 10.99
16.001 - 16.500 86 8,467,205.54 13.19
16.501 - 17.000 105 11,771,899.03 18.33
17.001 - 17.500 92 9,745,627.41 15.18
17.501 - 18.000 76 6,730,122.55 10.48
18.001 - 18.500 37 3,030,158.90 4.72
18.501 - 19.000 12 1,030,296.37 1.60
19.001 - 19.500 13 921,203.60 1.43
19.501 - 20.000 14 1,000,139.20 1.56
20.001 - 20.500 6 433,992.78 0.68
21.001 - 21.500 1 28,579.48 0.04
- ---------------------------- --------------------- ---------------------- ------------------------
Totals 612 $ 64,209,300.98 100.00%
============================ ===================== ====================== ========================
</TABLE>
The weighted average Maximum Rate of the Group I Adjustable
Rate Loans, as of the Cut-Off Date, was 16.72% per annum.
S-32
<PAGE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of the Group I Adjustable Rate Loans
having the Minimum Rates in each given range. (The sums of amounts and
percentages in the table below may not equal the totals due to rounding.)
<TABLE>
<CAPTION>
MINIMUM RATES OF THE GROUP I ADJUSTABLE RATE LOANS
PERCENTAGE OF ADJUSTABLE
NUMBER OF AGGREGATE RATE LOANS BY AGGREGATE
RANGE OF MINIMUM RATES (%) ADJUSTABLE RATE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------- --------------------- ------------------- ------------------------
<S> <C> <C> <C> <C>
7.501 - 8.000 31 $ 4,494,491.73 7.00%
8.001 - 8.500 80 9,496,642.03 14.79
8.501 - 9.000 59 7,058,942.36 10.99
9.001 - 9.500 86 8,467,205.54 13.19
9.501 - 10.000 105 11,771,899.03 18.33
10.001 - 10.500 92 9,745,627.41 15.18
10.501 - 11.000 75 6,671,657.14 10.39
11.001 - 11.500 37 3,030,158.90 4.72
11.501 - 12.000 13 1,088,761.78 1.70
12.001 - 12.500 13 921,203.60 1.43
12.501 - 13.000 14 1,000,139.20 1.56
13.001 - 13.500 6 433,992.78 0.68
14.001 - 14.500 1 28,579.48 0.04
- ------------------------------- --------------------- ------------------- ------------------------
Totals 612 $ 64,209,300.98 100.00%
=============================== ===================== =================== ========================
</TABLE>
The weighted average Minimum Rate of the Adjustable Rate Loans
in Group I, as of the Cut-Off Date, was 9.72% per annum.
S-33
<PAGE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of the Group I Adjustable Rate Loans
having principal balances in each given range. (The sums of amounts and
percentages in the table below may not equal the totals due to rounding.)
<TABLE>
<CAPTION>
PRINCIPAL BALANCES OF THE GROUP I
ADJUSTABLE RATE LOANS
PERCENTAGE OF GROUP I
ADJUSTABLE RATE LOANS BY
NUMBER OF AGGREGATE AGGREGATE
RANGE OF PRINCIPAL BALANCES ($) ADJUSTABLE RATE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------- --------------------- ------------------ ------------------------
<S> <C> <C> <C> <C>
15,000.01 - 25,000.00 2 $ 49,464.51 0.08%
25,000.01 - 50,000.00 55 2,157,650.21 3.36
50,000.01 - 75,000.00 134 8,449,642.96 13.16
75,000.01 - 100,000.00 136 11,911,672.59 18.55
100,000.01 - 125,000.00 109 12,143,223.19 18.91
125,000.01 - 150,000.00 70 9,635,449.91 15.01
150,000.01 - 175,000.00 40 6,470,605.47 10.08
175,000.01 - 200,000.00 34 6,378,294.48 9.93
200,000.01 - 225,000.00 20 4,217,146.61 6.57
225,000.01 - 250,000.00 12 2,796,151.05 4.35
- ------------------------------- --------------------- ------------------ ------------------------
Totals 612 $ 64,209,300.98 100.00%
=============================== ===================== ================== ========================
</TABLE>
S-34
<PAGE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of the Group I Adjustable Rate Loans
having the remaining terms to maturity in each given range. (The sums of amounts
and percentages in the table below may not equal the totals due to rounding.)
<TABLE>
<CAPTION>
REMAINING TERMS TO MATURITY OF THE GROUP I
ADJUSTABLE RATE LOANS
PERCENTAGE OF GROUP I
ADJUSTABLE RATE LOANS BY
NUMBER OF AGGREGATE AGGREGATE
REMAINING TERMS (MONTHS) ADJUSTABLE RATE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------- ---------------------- ------------------ ------------------------
<S> <C> <C> <C> <C>
336 - 340 1 $ 99,976.69 0.16%
346 - 350 1 90,138.08 0.14
351 - 355 5 454,396.99 0.71
356 5 342,744.65 0.53
357 178 18,446,119.53 28.73
358 419 44,570,686.82 69.41
359 3 205,238.22 0.32
- ------------------------------- ---------------------- ------------------ ------------------------
Totals 612 $ 64,209,300.98 100.00%
=============================== ====================== ====================== ========================
</TABLE>
S-35
<PAGE>
The table below sets forth the number, aggregate principal
balance and percentage of the Group I Adjustable Rate Loans having the next
interest Adjustment Date on each date set forth below.
NEXT INTEREST ADJUSTMENT DATE OF THE GROUP I
ADJUSTABLE RATE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF GROUP I
ADJUSTABLE RATE LOANS
NUMBER OF AGGREGATE BY AGGREGATE
NEXT INTEREST ADJUSTMENT DATE ADJUSTABLE RATE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----------------------------- ---------------------- -------------------- ----------------------
<S> <C> <C> <C> <C>
10/01/99 1 $ 99,976.69 0.16%
09/01/00 1 90,138.08 0.14
02/01/01 4 229,864.29 0.36
03/01/01 2 105,584.40 0.16
04/01/01 45 4,647,802.23 7.24
05/01/01 102 9,904,210.26 15.42
06/01/01 1 35,986.44 0.06
02/01/02 1 224,532.70 0.35
03/01/02 3 237,160.25 0.37
04/01/02 133 13,798,317.30 21.49
05/01/02 317 34,666,476.56 53.99
06/01/02 2 169,251.78 0.26
- ----------------------------- ---------------------- -------------------- ----------------------
Totals 612 $ 64,209,300.98 100.00%
============================= ====================== ==================== ======================
</TABLE>
S-36
<PAGE>
ALL OF THE GROUP II MORTGAGE LOANS
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of all the Group II Mortgage Loans
having the Coupon Rates in each given range. (The sums of amounts and
percentages in the table below may not be equal to the totals due to rounding.)
COUPON RATES OF ALL THE GROUP II MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF GROUP II
RANGE OF COUPON NUMBER OF AGGREGATE MORTGAGE LOANS BY AGGREGATE
RATES (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------- -------------- ----------------- ----------------------------
<S> <C> <C> <C> <C>
7.501 - 8.000 8 $ 1,825,416.39 3.65%
8.001 - 8.500 25 5,066,545.41 10.13
8.501 - 9.000 35 4,873,272.40 9.75
9.001 - 9.500 48 8,000,083.26 16.00
9.501 - 10.000 82 10,950,776.24 21.90
10.001 - 10.500 63 7,353,574.82 14.71
10.501 - 11.000 55 5,702,050.30 11.40
11.001 - 11.500 34 3,308,597.76 6.62
11.501 - 12.000 25 2,045,259.57 4.09
12.001 - 12.500 12 651,223.69 1.30
12.501 - 13.000 3 136,553.57 0.27
13.001 - 13.500 2 62,440.18 0.12
14.001 - 14.500 1 26,630.79 0.05
- ------------------------------- -------------- ----------------- ----------------------------
Totals 393 $ 50,002,424.38 100.00%
=============================== ============== ================= ============================
</TABLE>
With respect to the Group II Mortgage Loans, the weighted
average Coupon Rate, as of the Cut-Off Date, of (a) the Group II Mortgage Loans
was approximately 9.85% per annum, (b) the Fixed Rate Loans, was approximately
10.44% per annum, (c) the Adjustable Rate Loans, was approximately 9.75% per
annum, (d) the Fixed Rate 15-Year Loans, was approximately 10.57% per annum, (e)
the Fixed Rate 30-Year Loans, was approximately 10.21% per annum, (f) the
Balloon Loans, was approximately 10.70% per annum, (g) the 6-Month LIBOR Loans,
was approximately 11.02% per annum, (h) the 2/6-LIBOR Loans, was approximately
10.07% per annum and (i) the 3/6-LIBOR Loans, was approximately 9.61% per annum.
S-37
<PAGE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of all the Group II Mortgage Loans
having principal balances in each given range. (The sums of amounts and
percentages in the table below may not equal the totals due to rounding.)
PRINCIPAL BALANCES OF ALL THE GROUP II MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF GROUP II
RANGE OF PRINCIPAL BALANCES NUMBER OF AGGREGATE MORTGAGE LOANS BY AGGREGATE
($) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------- -------------- ----------------- ---------------------------
<S> <C> <C> <C> <C>
15,000.01 - 25,000.00 3 $ 74,843.14 0.15%
25,000.01 - 50,000.00 66 2,602,580.87 5.20
50,000.01 - 75,000.00 81 5,044,850.36 10.09
75,000.01 - 100,000.00 57 4,978,927.13 9.96
100,000.01 - 125,000.00 54 5,968,024.78 11.94
125,000.01 - 150,000.00 26 3,554,825.12 7.11
150,000.01 - 175,000.00 17 2,766,768.40 5.53
175,000.01 - 200,000.00 11 2,055,974.49 4.11
200,000.01 - 225,000.00 9 1,896,499.92 3.79
225,000.01 - 250,000.00 11 2,664,340.53 5.33
250,000.01 - 275,000.00 15 3,925,499.64 7.85
275,000.01 - 300,000.00 17 4,875,263.36 9.75
300,000.01 - 325,000.00 8 2,530,440.98 5.06
325,000.01 - 350,000.00 5 1,711,989.61 3.42
350,000.01 - 375,000.00 4 1,450,556.70 2.90
375,000.01 - 400,000.00 5 1,963,738.99 3.93
425,000.01 - 450,000.00 1 439,272.03 0.88
475,000.01 - 500,000.00 3 1,498,028.33 3.00
- ------------------------------- -------------- ----------------- ----------------------------
Totals 393 $50,002,424.38 100.00%
================================ ============== ================= ============================
</TABLE>
S-38
<PAGE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of all the Group II Mortgage Loans
having the remaining terms to maturity in each given range. (The sums of amounts
and percentages in the table below may not equal the totals due to rounding.)
REMAINING TERMS TO MATURITY OF ALL
THE GROUP II MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF GROUP II
RANGE OF NUMBER OF AGGREGATE MORTGAGE LOANS BY AGGREGATE
REMAINING TERM (MONTHS) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------- -------------- ---------------------- ---------------------------
<S> <C> <C> <C> <C>
166 - 170 1 $ 58,561.89 0.12%
171 - 175 12 1,172,246.95 2.34
176 - 180 35 2,015,077.21 4.03
346 - 350 6 429,966.44 0.86
351 - 355 95 9,779,562.73 19.56
356 67 7,481,625.77 14.96
357 108 14,361,673.67 28.72
358 69 14,703,709.72 29.41
- ------------------------------- -------------- ---------------------- ---------------------------
Totals 393 $ 50,002,424.38 10.00%
=============================== ============== ====================== ===========================
</TABLE>
S-39
<PAGE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of the Group II Mortgage Loans having
Loan-to-Value Ratios in each given range at origination. (The sums of amounts
and percentages in the table below may not equal the totals due to rounding.)
LOAN-TO-VALUE RATIOS OF ALL THE GROUP II
MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF GROUP II
RANGE OF LOAN-TO-VALUE MORTGAGE LOANS BY
RATIOS AT ORIGINATION NUMBER OF AGGREGATE AGGREGATE PRINCIPAL
(%) MORTGAGE LOANS PRINCIPAL BALANCE BALANCE WEIGHTED AVERAGE LTV
- ------------------------- -------------- -------------------- ---------------------- --------------------
<S> <C> <C> <C> <C> <C>
15.01 - 20.00 1 $ 59,784.93 0.12% 16.90%
25.01 - 30.00 3 181,578.54 0.36 29.04
30.01 - 35.00 3 114,822.74 0.23 33.28
35.01 - 40.00 2 209,606.54 0.42 38.37
40.01 - 45.00 1 67,396.98 0.13 45.00
45.01 - 50.00 9 399,644.35 0.80 48.73
50.01 - 55.00 9 462,720.74 0.93 53.67
55.01 - 60.00 11 920,448.68 1.84 58.94
60.01 - 65.00 27 2,671,891.27 5.34 64.65
65.01 - 70.00 26 2,408,934.67 4.82 69.40
70.01 - 75.00 78 10,516,778.89 21.03 74.68
75.01 - 80.00 105 16,138,761.27 32.28 79.44
80.01 - 85.00 82 10,795,366.55 21.59 84.84
85.01 - 90.00 36 5,054,688.23 10.11 89.68
- ------------------------- -------------- -------------------- ---------------------- --------------------
Totals 393 $ 50,002,424.38 100.00%
========================= ============== ==================== ======================
</TABLE>
The weighted average Loan-to-Value Ratio, at origination, of
the Group II Mortgage Loans was approximately 77.92%.
S-40
<PAGE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of the Group II Mortgage Loans having
each indicated risk classification under RBMG's subprime credit risk residential
lending program. For a description of RBMG's subprime underwriting risk
categories, see "--Underwriting Standards" herein. (The sums of amounts and
percentages in the table below may not equal the totals due to rounding.)
RISK CLASSIFICATIONS OF ALL THE
GROUP II MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF GROUP II
NUMBER OF AGGREGATE MORTGAGE LOANS BY AGGREGATE
RISK CLASSIFICATION MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------------------------- -------------- ------------------------ ---------------------------
<S> <C> <C> <C>
A 169 $ 25,603,765.09 51.21%
A- 87 11,805,390.03 23.61
B 82 8,329,061.15 16.66
C 39 3,116,746.77 6.23
D 16 1,147,461.34 2.29
- -------------------------------- -------------- ------------------------ ---------------------------
Totals 393 $ 50,002,424.38 100.00%
================================= =============== ========================= ===========================
</TABLE>
S-41
<PAGE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of the Group II Mortgage Loans under
each of RBMG's documentation programs.
For a description of RBMG's subprime underwriting program
classifications, see "--Underwriting Standards" herein. (The sums of the amounts
and percentages in the table below may not equal the total amount due to
rounding.)
PROGRAM CLASSIFICATIONS OF ALL THE
GROUP II MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF GROUP II
NUMBER OF AGGREGATE MORTGAGE LOANS BY AGGREGATE
PROGRAM CLASSIFICATION MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------------------------- ---------------- ------------------------ ---------------------------
<S> <C> <C> <C>
Alternate 21 $ 3,169,662.34 6.34%
Full Documentation 259 33,597,144.31 67.19
No Income Verification 113 13,235,617.73 26.47
- -------------------------------- ---------------- ------------------------ ---------------------------
Totals 393 $ 50,002,424.38 100.00%
================================= ================ ========================= ===========================
</TABLE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of the Group II Mortgage Loans having
Mortgaged Properties of each given type. (The sums of amounts and percentages in
the table below may not equal the totals due to rounding.)
TYPES OF MORTGAGED PROPERTIES OF ALL THE
GROUP II MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF GROUP II
NUMBER OF AGGREGATE MORTGAGE LOANS BY AGGREGATE
PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------ -------------- ----------------------- ---------------------------
<S> <C> <C> <C>
Condominium 9 $ 1,148,242.05 2.30%
Manufactured Home 16 1,197,137.57 2.39
Multi-Family Home 21 2,958,755.15 5.92
Single Family Home 347 44,698,289.61 89.39
- ------------------------------ -------------- ----------------------- ---------------------------
Totals 393 $ 50,002,424.38 100.00%
============================== =============== ======================= ===========================
</TABLE>
S-42
<PAGE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of the Group II Mortgage Loans having
Mortgaged Properties with each given occupancy status. (The sums of amounts and
percentages in the table below may not equal the totals due to rounding.)
OCCUPANCY STATUS OF THE MORTGAGED PROPERTIES OF ALL THE
GROUP II MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF GROUP II
NUMBER OF AGGREGATE MORTGAGE LOANS BY AGGREGATE
OCCUPANCY STATUS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------ -------------- ----------------------- ---------------------------
<S> <C> <C> <C>
Investment 19 $ 1,798,427.79 3.60%
Owner Occupied 371 47,996,001.55 95.99
Second Home 3 207,995.04 0.42
- ------------------------------ -------------- ----------------------- ---------------------------
Totals 393 $ 50,002,424.38 100.00%
============================== ============== ======================= ===========================
</TABLE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of the Group II Mortgage Loans having
each indicated purpose. (The sums of amounts and percentages in the table below
may not equal the totals due to rounding.)
USE OF PROCEEDS OF ALL THE GROUP II MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF GROUP II
NUMBER OF AGGREGATE MORTGAGE LOANS BY AGGREGATE
USE OF PROCEEDS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------ -------------- -------------------- ---------------------------
<S> <C> <C> <C>
Purchase 128 $ 17,291,914.37 34.58%
Refinance (Cash Out) 166 19,100,811.03 38.20
Refinance (Rate/Term) 99 13,609,698.98 27.22
- ------------------------------ -------------- -------------------- ---------------------------
Totals 393 $ 50,002,424.38 100.00%
============================== ============== ==================== ===========================
</TABLE>
S-43
<PAGE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of the Group II Mortgage Loans having
each indicated number of months from the date of origination to the Cut-Off
Date. (The sums of amounts and percentages in the table below may not equal the
totals due to rounding.)
<TABLE>
<CAPTION>
NUMBER OF MONTHS ELAPSED FROM THE DATE OF ORIGINATION OF ALL THE GROUP II MORTGAGE LOANS
PERCENTAGE OF GROUP II
NUMBER OF AGGREGATE MORTGAGE LOANS BY AGGREGATE
RANGE OF MONTHS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------ -------------- -------------------- ---------------------------
<S> <C> <C> <C>
1 1 $ 62,056.66 0.12%
2 74 14,964,729.14 29.93
3 122 15,151,285.01 30.30
4 - 11 195 19,722,090.42 39.44
12 - 23 1 102,263.15 0.20
- ------------------------------ -------------- -------------------- ---------------------------
Totals 393 $ 50,002,424.38 100.00%
============================== ============== ==================== ===========================
</TABLE>
The weighted average number of months since the date of
origination of the Group II Mortgage Loans, as of the Cut-Off Date, was
approximately 3 months.
S-44
<PAGE>
The table below sets forth as of the Cut-Off Date, the
geographic distribution of all the Group II Mortgage Loans by location and the
related number, aggregate principal balance and percentage of the Mortgage Loans
secured by Mortgaged Properties in such locations. (The sum of amounts and
percentages in the table below may not equal the totals due to rounding.)
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION OF THE MORTGAGED PROPERTIES OF ALL THE GROUP II MORTGAGE LOANS
PERCENTAGE OF MORTGAGE
NUMBER OF AGGREGATE GROUP II LOANS BY
LOCATION MORTGAGE LOANS PRINCIPAL BALANCE AGGREGATE PRINCIPAL BALANCE
- ------------------------------ -------------- ------------------------ ---------------------------
<S> <C> <C> <C>
Alabama 42 $ 3,249,645.96 6.50%
Arizona 29 3,538,878.73 7.08
California 66 14,295,183.28 28.59
Colorado 32 4,595,513.05 9.19
Delaware 2 140,621.12 0.28
District of Columbia 3 352,276.25 0.70
Florida 17 1,361,857.89 2.72
Georgia 4 904,558.72 1.81
Idaho 11 843,706.76 1.69
Illinois 20 2,057,473.12 4.11
Indiana 12 816,296.48 1.63
Kansas 1 87,213.14 0.17
Louisiana 1 33,677.99 0.07
Maryland 13 1,608,178.11 3.22
Minnesota 5 419,150.09 0.84
Missouri 9 1,229,791.48 2.46
Nevada 5 687,699.85 1.38
New Mexico 5 890,029.70 1.78
New York 1 42,932.58 0.09
North Carolina 10 824,944.92 1.65
Ohio 13 848,347.86 1.70
Oregon 31 4,327,958.15 8.66
Tennessee 10 585,457.38 1.17
Texas 5 683,592.91 1.37
Utah 13 1,606,515.62 3.21
Virginia 6 554,053.19 1.11
Washington 24 3,168,133.15 6.34
West Virginia 2 140,975.27 0.28
Wyoming 1 107,761.63 0.22
- ------------------------------ -------------- ------------------------ ---------------------------
Totals 393 $ 50,002,424.38 100.00%
============================== ============== ======================== ===========================
</TABLE>
S-45
<PAGE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of all the Group II Mortgage Loans
having a prepayment charge for the years indicated. (The sum of amounts and
percentages in the table below may not equal the totals due to rounding.)
<TABLE>
<CAPTION>
PREPAYMENT CHARGES WITH RESPECT TO ALL THE
GROUP II MORTGAGE LOANS
PERCENTAGE OF GROUP II
NUMBER OF AGGREGATE MORTGAGE LOANS BY AGGREGATE
PREPAYMENT CHARGE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------ -------------- ------------------------- ---------------------------
<S> <C> <C> <C>
1 Year 6 $ 954,733.13 1.91%
2 Year 56 8,417,226.56 16.83
3 Year 320 39,710,301.35 79.42
5 Year 7 717,689.02 1.44
None 4 202,474.32 0.40
- ------------------------------ -------------- ------------------------- ---------------------------
Totals 393 $ 50,002,424.38 100.00%
============================== ============== ========================= ===========================
</TABLE>
S-46
<PAGE>
FIXED RATE LOANS IN GROUP II
The following table sets forth certain information with
respect to all the Fixed Rate Loans in Group II.
<TABLE>
<CAPTION>
GROUP II FIXED RATE LOANS
<S> <C>
Number of Group II Fixed Rate Loans 86
Percentage of All Mortgage Loans in
Group II (by number of loans) 21.88%
Aggregate Principal Balance $6,817,139.28
Percentage of All Mortgage Loans in
Group II (by aggregate principal
balance) 13.63%
Principal Balance of Mortgage Loans as
of the Cut-Off Date
Average $79,269.06
Range $24,942.19 - $319,115.76
Coupon Rates
Weighted Average 10.440%
Range 8.500% - 14.125%
Remaining Term to Maturity
(in months)
Weighted Average 271
Range 170 - 358
Loan-to-Value Ratio at Origination
Weighted Average 75.34%
Range 29.07% - 90.00%
</TABLE>
S-47
<PAGE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of the Fixed Rate Loans in Group II
(the "Group II Fixed Rate Loans") having the Coupon Rates in each given range.
(The sums of amounts and percentages in the table below may not be equal to the
totals due to rounding.)
COUPON RATES OF GROUP II THE FIXED RATE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF FIXED GROUP II
NUMBER OF AGGREGATE RATE LOANS BY AGGREGATE
RANGE OF COUPON RATES (%) FIXED RATE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------- ------------------ ------------------------ ----------------------------
<S> <C> <C> <C> <C>
8.001 - 8.500 1 $ 43,129.52 0.63%
8.501 - 9.000 4 423,384.54 6.21
9.001 - 9.500 11 1,180,904.19 17.32
9.501 - 10.000 9 702,900.94 10.31
10.001 - 10.500 16 1,736,872.06 25.48
10.501 - 11.000 17 1,075,203.53 15.77
11.001 - 11.500 7 420,665.40 6.17
11.501 - 12.000 13 893,017.72 13.10
12.001 - 12.500 6 284,442.92 4.17
13.001 - 13.500 1 29,987.67 0.44
14.001 - 14.500 1 26,630.79 0.39
- ------------------------------- ------------------ ------------------------ --------------------------
Totals 86 $ 6,817,139.28 100.00%
=============================== ================== ======================== ==========================
</TABLE>
S-48
<PAGE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of the Group II Fixed Rate Loans
having principal balances in each given range. (The sums of amounts and
percentages in the table below may not equal the totals due to rounding.)
<TABLE>
<CAPTION>
PRINCIPAL BALANCES OF THE GROUP II FIXED RATE LOANS
PERCENTAGE OF GROUP II
FIXED RATE LOANS BY
RANGE OF PRINCIPAL BALANCES NUMBER OF AGGREGATE AGGREGATE
($) FIXED RATE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------- ---------------- ------------------- ----------------------
<S> <C> <C> <C> <C>
15,000.01 - 25,000.00 1 $ 24,942.19 0.37%
25,000.01 - 50,000.00 35 1,330,678.91 19.52
50,000.01 - 75,000.00 21 1,238,514.75 18.17
75,000.01 - 100,000.00 11 974,061.88 14.29
100,000.01 - 125,000.00 5 542,087.25 7.95
125,000.01 - 150,000.00 4 562,839.98 8.26
150,000.01 - 175,000.00 3 494,454.18 7.25
200,000.01 - 225,000.00 1 211,699.21 3.11
250,000.01 - 275,000.00 1 259,331.71 3.80
275,000.01 - 300,000.00 3 859,413.46 12.61
300,000.01 - 325,000.00 1 319,115.76 4.68
- ------------------------------- ---------------- ------------------- ----------------------
Totals 86 $ 6,817,139.28 100.00%
=============================== ================ =================== ======================
</TABLE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of the Group II Fixed Rate Loans
having the remaining terms to maturity in each given range. (The sums of amounts
and percentages in the table below may not equal the totals due to rounding.)
<TABLE>
<CAPTION>
REMAINING TERMS TO MATURITY OF THE GROUP II
FIXED RATE LOANS
PERCENTAGE OF GROUP II
NUMBER OF AGGREGATE FIXED RATE LOANS BY
REMAINING TERM (MONTHS) FIXED RATE LOANS PRINCIPAL BALANCE AGGREGATE PRINCIPAL BALANCE
- ------------------------------- ---------------- -------------------- ---------------------------
<S> <C> <C> <C> <C>
166 - 170 1 $ 58,561.89 0.86%
171 - 175 12 1,172,246.95 17.20
176 - 180 35 2,015,077.21 29.56
346 - 350 1 41,847.96 0.61
351 - 355 10 704,095.47 10.33
356 5 488,950.50 7.17
357 12 1,103,278.08 16.18
358 10 1,233,081.22 18.09
- ------------------------------- ---------------- -------------------- ---------------------------
Totals 86 $ 6,817,139.28 100.00%
=============================== ================ ===================== ===========================
</TABLE>
S-49
<PAGE>
ADJUSTABLE RATE LOANS IN GROUP II
The following table sets forth certain information with
request to all the Adjustable Rate Loans in Group II (the "Group II Adjustable
Rate Loans").
<TABLE>
<CAPTION>
GROUP II ADJUSTABLE RATE LOANS
<S> <C>
Number of Group II Adjustable Rate Loans 307
Percentage of All Mortgage Loans in Group II (by
number of loans) 78.12
Aggregate Principal Balance $43,185,285.10
Percentage of All Mortgage Loans in Group II
(by aggregate principal balance) 86.37%
Principal Balance as of the Cut-Off Date %
Average $140,668.68
Range $24,950.20 - $499,479.58
Coupon Rates
Weighted Average 9.753%
Range 7.750 - 13.250%
Remaining Term to Maturity (in months)
Weighted Average 357
Range 348 - 358
Loan-to-Value Ratio at Origination
Weighted Average 78.33%
Range 16.90% - 90.00%
</TABLE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of the Group II Adjustable Rate Loans
having the Gross Margins in each given range. (The sums of amounts and
percentages in the table below may not equal the totals due to rounding.)
S-50
<PAGE>
<TABLE>
<CAPTION>
GROSS MARGINS OF THE GROUP II ADJUSTABLE RATE LOANS
PERCENTAGE OF GROUP II
ADJUSTABLE RATE LOANS BY
NUMBER OF AGGREGATE PRINCIPAL AGGREGATE
RANGE OF GROSS MARGINS (%) ADJUSTABLE RATE LOANS BALANCE PRINCIPAL BALANCE
- ------------------------------------ --------------------- ------------------- -------------------------
<S> <C> <C> <C> <C>
5.001 - 5.500 21 $ 2,918,877.12 6.76%
5.501 - 6.000 46 8,752,434.45 20.27
6.001 - 6.500 69 11,653,914.24 26.99
6.501 - 7.000 106 13,081,669.72 30.29
7.001 - 7.500 43 5,232,455.48 12.12
7.501 - 8.000 19 1,399,563.38 3.24
8.001 - 8.500 3 146,370.71 0.34
- ------------------------------------ --------------------- -------------------- -------------------------
Totals 307 $ 43,185,285.10 100.00%
==================================== ===================== ==================== =========================
</TABLE>
The weighted average gross margin on the Group II Adjustable
Rate Loans, as of the Cut-Off Date, was approximately 6.46% per annum.
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of the Group II Adjustable Rate Loans
having the Coupon Rates in each given range. (The sums of amounts and
percentages in the table below may not equal the totals due to rounding.)
COUPON RATES OF THE GROUP II ADJUSTABLE RATE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF GROUP II
ADJUSTABLE RATE LOANS BY
NUMBER OF AGGREGATE AGGREGATE
RANGE OF COUPON RATES (%) ADJUSTABLE RATE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------- ---------------------- ------------------ -------------------------
<S> <C> <C> <C> <C>
7.501 - 8.000 8 $ 1,825,416.39 4.23%
8.001 - 8.500 24 5,023,415.89 11.63
8.501 - 9.000 31 4,449,887.86 10.30
9.001 - 9.500 37 6,819,179.07 15.79
9.501 - 10.000 73 10,247,875.30 23.73
10.001 - 10.500 47 5,616,702.76 13.01
10.501 - 11.000 38 4,626,846.77 10.71
11.001 - 11.500 27 2,887,932.36 6.69
11.501 - 12.000 12 1,152,241.85 2.67
12.001 - 12.500 6 366,780.77 0.85
12.501 - 13.000 3 136,553.57 0.32
13.001 - 13.500 1 32,452.51 0.08
- ---------------------------- ---------------------- ------------------ -------------------------
Totals 307 $ 43,185,285.10 100.00%
============================ ====================== ================== =========================
</TABLE>
The weighted average of the Coupon Rates on the Group II
Adjustable Rate Loans, as of the Cut-Off Date, was approximately 9.75% per
annum.
S-51
<PAGE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of the Group II Adjustable Rate Loans
having the Maximum Rates in each given range. (The sums of amounts and
percentages in the table below may not equal the totals due to rounding.)
MAXIMUM RATES OF THE GROUP II ADJUSTABLE RATE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF GROUP II
ADJUSTABLE RATE LOANS BY
NUMBER OF AGGREGATE AGGREGATE
RANGE OF MAXIMUM RATES (%) ADJUSTABLE RATE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------- --------------------- --------------------- -------------------------
<S> <C> <C> <C> <C>
14.501 - 15.000 8 $ 1,825,416.39 4.23%
15.001 - 15.500 24 5,023,415.89 11.63
15.501 - 16.000 31 4,449,887.86 10.30
16.001 - 16.500 37 6,819,179.07 15.79
16.501 - 17.000 73 10,247,875.30 23.73
17.001 - 17.500 48 5,680,654.23 13.15
17.501 - 18.000 38 4,626,846.77 10.71
18.001 - 18.500 27 2,887,932.36 6.69
18.501 - 19.000 11 1,088,290.38 2.52
19.001 - 19.500 6 366,780.77 0.85
19.501 - 20.000 3 136,553.57 0.32
20.001 - 20.500 1 32,452.51 0.08
- ------------------------------- --------------------- --------------------- -------------------------
Totals 307 $ 43,185,285.10 100.00%
=============================== ===================== ===================== =========================
</TABLE>
The weighted average Maximum Rate of the Group II Adjustable
Rate Loans, as of the Cut-Off Date, was 16.75% per annum.
S-52
<PAGE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of the Group II Adjustable Rate Loans
having the Minimum Rates in each given range. (The sums of amounts and
percentages in the table below may not equal the totals due to rounding.)
MINIMUM RATES OF THE GROUP II ADJUSTABLE RATE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF ADJUSTABLE
NUMBER OF AGGREGATE RATE LOANS BY AGGREGATE
RANGE OF MINIMUM RATES (%) ADJUSTABLE RATE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------- --------------------- ---------------------- ------------------------
<S> <C> <C> <C> <C>
7.501 - 8.000 8 $ 1,825,416.39 4.23%
8.001 - 8.500 24 5,023,415.89 11.63
8.501 - 9.000 31 4,449,887.86 10.30
9.001 - 9.500 37 6,819,179.07 15.79
9.501 - 10.000 73 10,247,875.30 23.73
10.001 - 10.500 48 5,680,654.23 13.15
10.501 - 11.000 38 4,626,846.77 10.71
11.001 - 11.500 27 2,887,932.36 6.69
11.501 - 12.000 11 1,088,290.38 2.52
12.001 - 12.500 6 366,780.77 0.85
12.501 - 13.000 3 136,553.57 0.32
13.001 - 13.500 1 32,452.51 0.08
- ---------------------------- --------------------- ---------------------- ------------------------
Totals 307 $ 43,185,285.10 100.00%
============================ ===================== ====================== ========================
</TABLE>
The weighted average Minimum Rate of the Adjustable Rate Loans
in Group II, as of the Cut-Off Date, was 9.75% per annum.
S-53
<PAGE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of the Group II Adjustable Rate Loans
having principal balances in each given range. (The sums of amounts and
percentages in the table below may not equal the totals due to rounding.)
PRINCIPAL BALANCES OF THE GROUP II
ADJUSTABLE RATE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF GROUP II
NUMBER OF ADJUSTABLE RATE LOANS BY
ADJUSTABLE RATE AGGREGATE AGGREGATE
RANGE OF PRINCIPAL BALANCES LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----------------------------------- --------------- ------------------- ------------------------
<S> <C> <C> <C> <C>
15,000.01 - 25,000.00 2 $ 49,900.95 0.12%
25,000.01 - 50,000.00 31 1,271,901.96 2.95
50,000.01 - 75,000.00 60 3,806,335.61 8.81
75,000.01 - 100,000.00 46 4,004,865.25 9.27
100,000.01 - 125,000.00 49 5,425,937.53 12.56
125,000.01 - 150,000.00 22 2,991,985.14 6.93
150,000.01 - 175,000.00 14 2,272,314.22 5.26
175,000.01 - 200,000.00 11 2,055,974.49 4.76
200,000.01 - 225,000.00 8 1,684,800.71 3.90
225,000.01 - 250,000.00 11 2,664,340.53 6.17
250,000.01 - 275,000.00 14 3,666,167.93 8.49
275,000.01 - 300,000.00 14 4,015,849.90 9.30
300,000.01 - 325,000.00 7 2,211,325.22 5.12
325,000.01 - 350,000.00 5 1,711,989.61 3.96
350,000.01 - 375,000.00 4 1,450,556.70 3.36
375,000.01 - 400,000.00 5 1,963,738.99 4.55
425,000.01 - 450,000.00 1 439,272.03 1.02
475,000.01 - 500,000.00 3 1,498,028.33 3.47
- ----------------------------------- --------------- ------------------- ------------------------
Totals 307 $ 43,185,285.10 100.00%
=================================== =============== =================== ========================
</TABLE>
S-54
<PAGE>
The table below sets forth as of the Cut-Off Date the number,
aggregate principal balance and percentage of the Group II Adjustable Rate Loans
having the remaining terms to maturity in each given range. (The sums of amounts
and percentages in the table below may not equal the totals due to rounding.)
REMAINING TERMS TO MATURITY OF THE GROUP II
ADJUSTABLE RATE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF GROUP II
ADJUSTABLE RATE LOANS BY
NUMBER OF AGGREGATE AGGREGATE
REMAINING TERMS (MONTHS) ADJUSTABLE RATE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------- --------------------- ------------------- -------------------------
<S> <C> <C> <C> <C>
346 - 350 5 $ 388,118.48 0.90%
351 - 355 85 9,075,467.26 21.02
356 62 6,992,675.27 16.19
357 96 13,258,395.59 30.70
358 59 13,470,628.50 31.19
- ------------------------------- --------------------- ------------------- -------------------------
Totals 307 $ 43,185,285.10 100.00%
=============================== ===================== =================== =========================
</TABLE>
S-55
<PAGE>
The table below sets forth the number, aggregate principal
balance and percentage of the Group II Adjustable Rate Loans having the next
interest Adjustment Date on each date set forth below.
NEXT INTEREST ADJUSTMENT DATE OF THE GROUP II
ADJUSTABLE RATE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF GROUP II
ADJUSTABLE RATE LOANS
NUMBER OF AGGREGATE BY AGGREGATE
NEXT INTEREST ADJUSTMENT DATE ADJUSTABLE RATE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----------------------------- --------------------- ----------------- -----------------
<S> <C> <C> <C> <C>
08/01/99 1 $ 119,614.02 0.28%
09/01/99 1 63,951.47 0.15
07/01/00 1 102,263.15 0.24
08/01/00 2 157,333.58 0.36
09/01/00 1 64,570.28 0.15
10/01/00 1 67,657.69 0.16
12/01/00 2 522,032.27 1.21
01/01/01 9 966,979.76 2.24
02/01/01 29 2,826,683.28 6.55
03/01/01 23 2,458,074.21 5.69
04/01/01 30 4,271,683.93 9.89
05/01/01 9 1,686,500.03 3.91
01/01/02 10 1,126,673.92 2.61
02/01/02 33 3,445,826.32 7.98
03/01/02 39 4,534,601.06 10.50
04/01/02 65 8,736,184.92 20.23
05/01/02 51 12,034,655.21 27.87
- ----------------------------- --------------------- ----------------- -----------------
Totals 307 $ 43,185,285.10 100.00%
============================= ===================== =================== =================
</TABLE>
S-56
<PAGE>
UNDERWRITING STANDARDS
The Mortgage Loans were originated or acquired by RBMG,
directly or indirectly through Meritage Mortgage Corporation ("Meritage"), a
wholly-owned subsidiary of RBMG, and underwritten generally in accordance with
the subprime credit risk guidelines (the "Guidelines") of Meritage. On a
case-by-case basis, exceptions to the Guidelines are made where compensating
factors exist.
The Guidelines are primarily intended to assess the value of
the related mortgaged property and to evaluate the adequacy of such property as
collateral for a mortgage loan and to assess the mortgagor's ability and
willingness to pay creditors. The subprime credit mortgage loans originated or
acquired by RBMG generally will have been underwritten with a view toward the
sale of such mortgage loans in the secondary market. Generally, such mortgage
loans entail a greater degree of risk for prospective investors than mortgage
loans eligible to be purchased by Fannie Mae or Freddie Mac, and such mortgage
loans generally bear higher rates of interest than mortgage loans that are
originated in accordance with the underwriting standards of Fannie Mae or
Freddie Mac. The combination of these factors is likely to result in rates of
delinquency, foreclosure, bankruptcy, and loss that are higher, and which may be
substantially higher, than those experienced by mortgage loans underwritten in
accordance with Fannie Mae and Freddie Mac guidelines.
Each applicant completes a loan application that includes
information with respect to the applicant's liabilities, income, credit history,
employment history and personal information. The Guidelines require a credit
report on each applicant from a credit reporting company. The report typically
contains information relating to such matters as credit history with local and
national merchants and lenders, installment debt payments and any record of
defaults, bankruptcies, repossessions, collections, judgments, charge-offs or
tax liens. Mortgaged properties that are to secure mortgage loans generally are
appraised by state licensed, qualified independent appraisers. Such appraisers
inspect and appraise the subject property and verify that it is in acceptable
condition. Following each appraisal, the appraiser prepares a report which
includes a market value analysis based on recent sales of comparable homes in
the area and, when deemed appropriate, replacement cost analysis based on the
current cost of constructing a similar home. All appraisals are required to
conform to the Uniform Standards of Professional Appraisal Practice adopted by
the Appraisal Standards Board of the Appraisal Foundation and are generally on
forms acceptable to Fannie Mae and Freddie Mac. The Guidelines require a desk or
field review of all appraisals by a qualified appraiser employed or retained by
RBMG or Meritage, as applicable. The value of a mortgaged property as determined
by the appraisal is used for purposes of establishing the maximum permissible
loan-to-value ratio of the mortgage loan. If the value of any mortgaged property
as determined in the review is more than 5% lower than the appraised value, then
RBMG uses such review value for purposes of establishing the maximum permissible
loan-to-value ratio of the related mortgage loan for purposes of RBMG's quality
control procedures. If such value is between 5% and 10% lower than the appraised
value, then RBMG may contact the appraiser for an explanation of the difference
or may reconcile on its own. If such value is more than 10% lower than the
appraised value, then RBMG contacts the appraiser for an explanation of the
difference. RBMG generally refuses to accept appraisals from an appraiser who
does not provide a satisfactory explanation of any such difference.
S-57
<PAGE>
The Mortgage Loans were originated consistent with and
generally conform to the Guidelines' "Full Documentation," "Limited
Documentation," or "Stated Income Documentation" residential loan programs, as
well as the specialty "No Qualifier," "Mortgage Only," and "No Ratio"
residential loan programs. Under each of the programs, RBMG or Meritage, as
applicable, reviews the applicant's source of income, calculates the amount of
income from sources indicated on the loan application or similar documentation,
reviews the credit history of the applicant, calculates the debt
service-to-income ratio to determine the applicant's ability to repay the loan,
reviews the type and use of the property being financed, and reviews the
description of the property for program eligibility. In determining the ability
of the applicant to repay the loan, a rate (the "Qualifying Rate") has been
created under the Guidelines that, with respect to a 6-month adjustable rate
mortgage loan, generally is equal to two percent (2%) above the initial interest
rate on the loan for which the applicant has applied; however, if the LTV is 80%
or less, or if the loan for which the applicant has applied is a "2/6 LIBOR"
loan or a "3/6 LIBOR" loan, the Guidelines allow the applicant to qualify at the
initial interest rate.
The Guidelines require that mortgage loans be underwritten in
a standardized procedure that complies with applicable federal and state laws
and regulations and requires the underwriters to be satisfied that the income of
the applicant and the value of the property being financed, as indicated by an
appraisal and review of the appraisal, currently supports the outstanding
anticipated loan balance of the mortgage loan for which the applicant has
submitted an application. In general, the maximum loan amount for mortgage loans
originated under the Guidelines is $600,000. The Guidelines generally permit
single family loans to have LTV's at origination of generally up to 90%,
depending on, among other things, the purpose of the mortgage loan, a
mortgagor's credit history, repayment ability and debt service-to-income ratio,
as well as the type and use of the property. The Guidelines generally permit all
types of loans to a maximum 90% LTV other than condominium loans, manufactured
home loans and loans secured by 3-4 family properties, which are each limited to
a maximum 85% LTV and non-owner occupied loans, which are limited to a maximum
80% LTV. With respect to mortgage loans secured by mortgaged properties acquired
by a mortgagor under a "lease option purchase," the LTV of the related mortgage
loan is based on the lower of the appraised value of such mortgaged property at
the time of origination, or the sale price of the related mortgaged property if
the "lease option purchase price" was set less than 24 months prior to
origination, and is based on the appraised value at the time of origination if
the "lease option purchase price" was set more than 24 months prior to
origination.
Under the Full Documentation program, applicants generally are
required to submit two written forms of verification of stable income for the
preceding 24 months. Under the Limited Documentation program, one such form of
verification is required for the preceding 12 months (6 months if the LTV is 80%
or less). Under the Stated Income Documentation program, an applicant may be
qualified based upon monthly income as stated on the mortgage loan application
if the applicant meets certain criteria. All the foregoing programs require that
with respect to each applicant, there be a telephone verification of each
applicant's employment within 24 hours prior to closing. Verification of the
source of funds (if any) required to be deposited by the applicant into escrow
in the case of a purchase money loan is generally required. On a case-by-case
basis, exceptions to the Guidelines may be made, as described below under
"--Exceptions."
S-58
<PAGE>
In addition to the above three standard documentation
programs, the Mortgage Loans were also originated in accordance with the
following specialty residential loan programs: "No Qualifier," "Mortgage
Only," and "No Ratio."
Under the "No Qualifier" program, applicants are not required
to document employment or income, and no debt service-to-income ratios are
calculated. The loan application is to be completed with only basic information,
such as name, address, social security number, telephone number, and property
address. A minimum property value of $50,000 is required, and a maximum of 70%
LTV and 80% Combined Loan-to-Value is permitted. The Combined Loan-to-Value
Ratio ("CLTV") of a Mortgage Loan is equal to the ratio (expressed as a
percentage) of (a) the sum of the (i) principal balance of the Mortgage Loan as
of the date of origination and (ii) the outstanding principal balances of any
mortgage loans junior in lien priority and secured by the related Mortgaged
Property as of the date of origination to (b) the Value (as defined in the
Servicing Agreement) of the Mortgaged Property at the time of origination of the
Mortgage Loan.
Under the "Mortgage Only" program, the overall credit profile
of an applicant may be poor. Applicants must provide a previous twelve month
mortgage history (aside from rental history). A maximum 85%LTV and 90% CLTV and
a maximum 50% debt service-to-income ratio are permitted. All existing mortgage
loans must be verified through the lender, a third party servicer, a credit
reporting agency, or canceled checks. Private mortgage loans held by an
individual and verified are acceptable if twelve months of cancelled checks are
provided. An applicant cannot have experienced any rolling mortgage late
payments or foreclosures. Discharged bankruptcies are acceptable, and those
applicants with mortgage loans that are currently delinquent may still be
eligible if the mortgage loan is brought current prior to closing, and the cause
of such delinquency is well documented and satisfactorily explained. Open
charge-offs, collection accounts and judgments may exist if they are not
currently or likely to attach to the property.
Under the "No Ratio" program, applicants are not required to
document employment or income, and no debt service-to-income ratios are
calculated. A minimum property value of $50,000 is required, and a maximum 75%
LTV and 90% CLTV is permitted. The applicant must have an overall good,
established credit history, and meet credit depth requirements of at least five
trade lines, with minimum balances of $1,000, with activity dating back at least
five years. A maximum of two 30-day late payments within the last 12 months is
acceptable on an existing mortgage loan. All borrowers must have a credit score
equal to or greater than 600 (middle score of three).
The three specialty programs described above permit only
owner-occupied, single family residences, with loan amounts between $25,000 to
$350,000. Attached and detached planned unit developments ("PUD's"),
condominiums, two-to-four family properties and manufactured homes are permitted
on a case by case basis. Financing on these properties under the specialty
programs must be in the form of purchases or rate and term or cash-out
refinances. In the case of a refinance mortgage loan, the applicant must have
owned the property for at least twelve months, or if the applicant has owned the
property for less than twelve months, the lesser of the sales price or appraised
value is used to calculate the LTV.
The Guidelines have the following categories and criteria for
grading the potential likelihood that an applicant will satisfy the repayment
obligations of a mortgage loan:
S-59
<PAGE>
"A" RISK. Under the "A" risk category, the applicant must have
generally repaid installment or revolving debt according to its terms.
A maximum of one 30-day late payment, and no 60-day late payments,
within the last 12 months is acceptable on an existing mortgage loan.
Minor derogatory items are allowed on non-mortgage credit, and a letter
of explanation may be required. An existing mortgage loan is not
required to be current at the time the application is submitted.
Generally, no more than $500 of open charge-offs or collection accounts
shall have occurred within the last 12 months. Charge-offs or
collection accounts not affecting title may remain open if they are
over 2 years old or the LTV of the mortgage loan is 70% or less. No
bankruptcy or notice of default filings may have occurred during the
preceding 24 months. The mortgaged property must be in at least average
condition. A maximum LTV of up to 90% for a mortgage loan originated
under the Full Documentation, 85% for Limited Documentation and 85% for
Stated Income Documentation program is permitted on a single family,
owner-occupied property. A maximum LTV of 80% is permitted for a
mortgage loan originated under the Full Documentation program (or 75%
and 70% for mortgage loans originated under the Limited Documentation
or Stated Income Documentation programs, respectively) for a non-owner
occupied property. The debt service-to-income ratio is generally 45% or
less. The Guidelines permit a 50% debt service-to-income ratio with a
$500 disposable monthly income per family member.
"A-" RISK. Under the "A-" risk category, an applicant must
have generally repaid installment or revolving debt according to its
terms. A maximum of two 30-day late payments, and no 60-day late
payments, within the last 12 months is acceptable on an existing
mortgage loan. An existing mortgage loan is not required to be current
at the time the application is submitted. Minor derogatory items are
allowed on non-mortgage credit, and a letter of explanation may be
required. Generally, no more than $1,000 of open charge-offs or
collection accounts shall have occurred within the last 12 months.
Charge-offs, judgments or collection accounts not affecting title may
remain open after funding of the loan if they are over 2 years old or
the LTV of the mortgage loan is 70% or less. No bankruptcy or notice of
default filings may have occurred during the preceding 18 months. The
mortgaged property must be in at least average condition. A maximum LTV
of 90% for a mortgage loan originated under the Full Documentation
program, 85% for a mortgage loan originated under the Limited
Documentation program, or 80% for a mortgage loan originated under the
Stated Income Documentation program, is permitted on owner-occupied
property. A maximum LTV of 80% (or 75% and 70% for a mortgage loan
originated under the Limited Documentation or Stated Income
Documentation programs, respectively) is permitted on a
non-owner-occupied property under the Full Documentation program. The
debt service-to-income ratio is generally 50% or less.
"B" RISK. Under the "B" risk category, an applicant may have
generally repaid installment or revolving debt according to its terms.
A maximum of three 30-day late payments or two 30-day late payments and
one 60-day late payment, within the last 12 months is acceptable on an
existing mortgage loan. An existing mortgage loan is not required to be
current at the time the application is submitted. As to non-mortgage
credit, some prior defaults may have occurred, and a letter of
explanation may be required. Generally, no more than $2,000 of open
charge-offs or collection accounts shall have occurred within the last
12 months. Charge-offs, judgments or
S-60
<PAGE>
open collection accounts not affecting title may remain open after
funding of the loan if they are over 2 years old or the LTV of the
mortgage loan is 80% or less. No bankruptcy or notice of default filing
may have occurred during the preceding 18 months. The mortgaged
property must be in at least average condition. A maximum LTV of 85%
(or 80% and 75% for a mortgage loan originated under the Limited
Documentation and Stated Income Documentation programs, respectively),
is permitted on an owner-occupied property under the Full Documentation
program. A maximum LTV of 75% (or 70% and 65% for a mortgage loan
originated under the Limited Documentation or Stated Income
Documentation programs, respectively), is permitted on a
non-owner-occupied property under the Full Documentation program. The
debt service-to-income ratio is generally 50% or less. The Guidelines
permit a 55% debt service-to-income ratio with a $500 disposable
monthly income per family member.
"C" RISK. Under the "C" risk category, an applicant may have
experienced significant credit problems in the past. A maximum of six
30-day late payments, two 60-day late payments or one 90-day late
payment, within the last 12 months is acceptable on an existing
mortgage loan. An existing mortgage loan is not required to be current
at the time the application is submitted. As to non-mortgage credit,
significant prior defaults may have occurred. Generally, no more than
$4,000 of open charge-offs, judgments or collection accounts shall have
occurred within the last 12 months. Charge-offs or collection accounts
not affecting title may remain open after the funding of the loan. No
bankruptcy or notice of default filings may have occurred during the
preceding 12 months. The mortgaged property must be in average
condition. Generally, a maximum LTV of 80% for a mortgage loan on an
owner-occupied property under the Full Documentation program (or 70%
and 65% for a mortgage loan originated under the Limited Documentation
and Stated Income Documentation programs) is permitted. A maximum LTV
of 70% (or 65% and 60% for a mortgage loan originated under the Limited
Documentation or Stated Income Documentation programs, respectively) is
permitted on a non-owner-occupied property under the Full Documentation
program. The debt service-to-income ratio is generally 55% or less. The
Guidelines require a 50% debt service-to-income ratio at greater than
75% LTV.
"D" RISK. Under the "D" risk category, an applicant will have
experienced significant credit problems in the past. As to mortgage
credit, the applicant may have had a history of being generally 30, 60,
90 or a maximum of 120 days late within the last 12 months. An existing
mortgage loan is not required to be current at the time the application
is submitted. The existing mortgage loan may currently be in
foreclosure and a 5% reduction to the maximum LTV will be imposed. As
to non-mortgage credit, significant prior defaults may have occurred.
No open collection accounts or open charge-offs affecting title may
remain open after funding of the loan. A bankruptcy, notice of default,
notice of sale filing or foreclosure may be permitted, on a
case-by-case basis. The mortgaged property must be in average
condition. A maximum LTV of 70% (or 65% and 55% for a mortgage loan
originated under the Limited Documentation and Stated Income
Documentation programs respectively) is permitted on an owner-occupied
property under the Full Documentation program. A maximum LTV of 60% (or
55% and 50% for mortgage loans originated under the Limited
Documentation or Stated Income Documentation programs, respectively) is
permitted on a non-owner occupied property under the Full Documentation
program. The debt service-to-income ratio generally is 60% or less.
S-61
<PAGE>
EXCEPTIONS. As described above, the foregoing categories and
criteria are guidelines only. On a case-by-case basis, it may be
determined that an applicant warrants a risk category upgrade, a debt
service-to-income ratio exception, a pricing exception, a loan-to-value
exception or an exception from certain requirements of a particular
risk category (collectively, called an "upgrade" or an "exception"). An
upgrade or exception may generally be allowed if the application
reflects certain compensating factors, including, among other things:
low LTV; pride of ownership; a maximum of one 30-day late payment on
all mortgage loans during the last 12 months; stable employment; or
ownership of current residence for five or more years; or, if the
applicant places a down payment through escrow of at least 20% of the
purchase price of the mortgaged property, or if the new loan reduces
the applicant's monthly aggregate mortgage payment by 25% or more. An
upgrade or exception may be permitted if the applicant has no 30 day
mortgage late payments in the past 24 months. Accordingly, certain
applicants may qualify in a more favorable risk category that, in the
absence of such compensating factors, would satisfy only the criteria
of a less favorable risk category. In no event, however, will any
applicant be granted an upgrade into a risk category more than one
level or grade higher than the category into which the applicant, in
the absence of the compensating factor, would have qualified. Certain
of the Mortgage Loans may have been originated in accordance with the
"Meri-Quik" upgrade program. Using the "Meri-Quik" credit scoring
upgrade program, a proposed mortgage loan is underwritten and graded
according to the Guidelines, without the use of any type of formal or
informal upgrade due to compensating factors (the "True Grade") and
then upgraded based on a credit score matrix. The applicant's maximum
debt service-to-income ratio must qualify at the upgraded credit level.
The Meri-Quik program can improve the applicant's credit grade by only
one level. The Meri-Quik upgrade cannot be combined with any other risk
upgrade point system. Only the following standard mortgage loan types
are eligible: 6 Months adjustable rate mortgage loans, 2/6 Libor
mortgage loans, 3/27 Libor mortgage loans and fixed rate mortgage
loans. Only mortgage loans underwritten in accordance with the standard
documentation programs (the Full Documentation, Limited Documentation
and Stated Income Documentation programs) are eligible for Meri-Quik
upgrade. Mortgage loans underwritten in accordance with the specialty
programs (the No Qualifier, No Ratio, and Mortgage Only programs) are
not eligible.
INDEX APPLICABLE TO THE ADJUSTABLE RATE LOANS
With respect to all of the Adjustable Rate Loans and as of any
related Adjustment Date, the Index is Six-Month LIBOR, as published in THE WALL
STREET JOURNAL and most recently available 45 days prior to such Adjustment
Date. If the Index becomes unpublished or is otherwise unavailable, the Servicer
will select an alternative index that is based upon comparable information.
THE ISSUER
RBMG Funding Co. Mortgage Loan Trust 1999-1 (the "Issuer" or
the "Trust) is a Delaware business trust, formed pursuant to a trust agreement
to be dated as of June 1, 1999 (the "Owner Trust Agreement") among Residential
Asset Funding Corporation (the "Depositor"), Wilmington Trust Company, as owner
trustee (the "Owner Trustee") and The Bank of New York, as trust paying agent.
After the Closing Date, the Issuer will also issue instruments evidencing the
residual interest in the Trust
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(the "Residual Interest"), representing all of the beneficial ownership interest
in the Issuer, to Funding Co., a wholly-owned subsidiary of the Company. The
principal office of the Issuer is located in Wilmington, Delaware. The Issuer
does not have, nor is it expected in the future to have, any significant assets,
other than the assets included in the Trust (the "Trust"), consisting primarily
of (i) two groups of fixed and adjustable rate, residential one- to four-family,
first lien mortgage loans (the "Mortgage Loans") to be pledged to the Indenture
Trustee for the benefit of the holders of the Notes (the "Noteholders"), (ii)
all payments in respect of principal and interest on the Mortgage Loans (other
than any principal or interest payments on the Mortgage Loans due on or prior to
the Cut-Off Date), (iii) the Issuer's rights under the Depositor Sale Agreement
and the Servicing Agreement (each as defined herein), (iv) the rights of the
Indenture Trustee under the Insurance Policy, as described herein, and (v)
certain other property.
RBMG
RBMG is a full-service residential mortgage company that
originates and purchases loans through a network of approximately 851
correspondent lenders and 5,313 brokers as of March 31, 1999. RBMG is a publicly
traded company whose shares trade on the NASDAQ under the symbol "RBMG." RBMG's
corporate offices are located at 7909 Parklane Road, Columbia, South Carolina
29223. RBMG pools the mortgages it originates or purchases, creating
mortgage-backed securities through Fannie Mae or FHLMC, and sells these
securities to financial institutions throughout the United States. In the past,
RBMG primarily has originated conforming loans for sale to Fannie Mae and FHLMC
and for pools issued with loans pledged to the Government National Mortgage
Association. RBMG retains in its portfolio or sells to other approved servicers
the mortgage servicing rights associated with the loans it originates or
purchases. In 1997, RBMG began originating mortgage loans of the type included
in the Trust. RBMG originates such loans through its own subprime credit risk
division, which was expanded through the acquisition of Meritage, a subprime
credit risk lending institution in Portland, Oregon. Meritage has traditionally
been in the business of originating or acquiring mortgage loans which have the
same general characteristics as the Mortgage Loans. RBMG operates in 48 states
and the District of Columbia.
A majority of the subprime credit risk mortgage loans
originated or acquired by RBMG, directly or through Meritage, are serviced by
RBMG on an interim basis pending the disposition to a trust in connection with a
securitization, or other disposition on a whole loan basis, of such mortgage
loans. Upon the disposition of such mortgage loans, the servicing for such
mortgage loans either is initially retained by RBMG, pending transfer, pursuant
to arrangements in effect, to a sub-servicer in accordance with an existing
subservicing agreement by and between RBMG and the sub-servicer, or is
transferred as part of such mortgage loans as whole loans in the secondary
mortgage market or concurrently with the securitization of the related mortgage
loans. As a result of being serviced by third parties, substantial information
is not currently available as to the delinquency, foreclosure, bankruptcy or
loss experience of the entire portfolio of mortgage loans originated or acquired
by RBMG. However, see "Servicing of the Mortgage Loans--The Sub-Servicer" below
for information regarding the delinquency, foreclosure, bankruptcy and REO
property experience of the Sub-Servicer.
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The following table sets forth, for the subprime mortgage
loans originated or acquired by RBMG and serviced by the Sub-Servicer (which
does not include all such mortgage loans originated or acquired by RBMG),
certain information relating to the delinquency experience at the end of the
indicated periods. The indicated periods of delinquency are based on the number
of days past due on a contractual basis. No mortgage loan is considered
delinquent for these purposes until it is one month past due on a contractual
basis. The information contained in the monthly remittance reports that will be
sent to investors will be compiled using the same methodology as that used to
compile the information contained in the table below.
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<TABLE>
<CAPTION>
DELINQUENCIES AND FORECLOSURES
(Dollars in Thousands)
As of December 31, 1997 As of December 31, 1998
------------------------------------------ ----------------------------------------------
Percent Percent
-------------------- ------------------ --------------------- ----------------------
By By By
Number By Dollar Number Dollar By Number By Dollar By Number By Dollar
of Loans Amount of Loans Amount of Loans Amount of Loans Amount
-------- --------- -------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Portfolio 1,590 $178,427 100.00% 100.00% 2,548 $281,286 100.00% 100.00%
Period of
Delinquency(1)
30-59 days 28 2,631 2.00 1.79 96 8,841 3.77 3.14
60-89 days 22 1,532 0.78 0.77 30 3,224 1.18 1.15
90 days or more 10 914 1.38 1.59 125 13,196 4.91 4.69
-------- --------- ------ ------- ----- -------- ------ --------
Total Delinquent Loans 60 $5,077 4.17% 4.15% 251 $25,261 9.85% 8.98%
======== ========= ====== ======= ===== ======== ====== ========
Loans in foreclosure(2) 1 $35 1.29% 1.50% 55 $5,778 2.16% 2.05%
======== ========= ====== ======= ===== ======== ====== ========
As of March 31, 1999
-----------------------------------------------------
Percent
--------------------------- -------------------------
By Number By Dollar By Number By Dollar
of Loans Amount of Loans Amount
------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
Total Portfolio 3,657 $404,213 100.00% 100.00%
Period of
Delinquency(1)
30-59 days 94 10,261 2.57 2.54
60-89 days 48 5,839 1.31 1.44
90 days or more 161 16,312 4.40 4.04
-------- --------- -------- --------
Total Delinquent Loans 303 $32,412 8.29% 8.02%
======== ========= ======== ========
Loans in foreclosure(2) 79 $8,452 2.16% 2.09%
======== ========= ======= ========
</TABLE>
- ------------------------
(1) Includes 45 loans totaling $4,862,555 for March 31, 1999, which were
delinquent at the time of transfer to the servicer.
(2) Loans in foreclosure are also included under the heading "Total Delinquent
Loans."
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At March 31, 1999, and December 31, 1998, RBMG had total
assets of approximately $1.73 billion and $1.97 billion, respectively, total
liabilities of approximately $1.49 billion and $1.72 billion, respectively, and
total shareholders' equity of approximately $245.0 million and $252.1 million,
respectively. For the three months ended March 31, 1999 and for the year ended
December 31, 1998, net income (after taxes) was approximately $11.16 million and
$48.67 million, respectively.
No person other than RBMG, the Company, Funding Co., the
Depositor and the Issuer is obligated with respect to the representations and
warranties respecting the Mortgage Loans and the remedies for any breach
thereof.
It is anticipated that Funding Co. will be the holder of the
Residual Interest in the Issuer. Funding Co. may transfer or sell all or a part
of its interest in the Residual Interest at any time, subject to the
restrictions provided in the Owner Trust Agreement.
RBMG FUNDING CO.
RBMG Funding Co. ("Funding Co.) was incorporated in the State
of Nevada on September 26, 1997, and is a wholly-owned subsidiary of RBMG Asset
Management Company, Inc. (the "Company"). The principal executive offices of
Funding Co. are located at 2820 West Charleston Boulevard, Suite 17, Las Vegas,
Nevada 89102.
Funding Co. was organized, among other things, for the
purposes of establishing trusts, selling beneficial interests therein and
acquiring and selling mortgage assets to such trusts. None of Funding Co., RBMG,
the Company or any of Funding Co.'s affiliates will ensure or guarantee payments
on the Notes.
RBMG will convey the Mortgage Loans to the Company, which will
convey the Mortgage Loans to Funding Co., which will convey the Mortgage Loans
to the Depositor.
THE DEPOSITOR
Residential Asset Funding Corporation, a North Carolina
corporation, (the "Depositor") was incorporated in the State of North Carolina
on December 29, 1997, and is a wholly-owned, special purpose subsidiary of First
Union National Bank, a national banking association with its headquarters in
Charlotte, North Carolina. The principal executive offices of the Depositor are
located at 301 South College Street, Charlotte, North Carolina 28202-6001.
The Depositor will convey the Mortgage Loans to the Issuer.
The Issuer then will pledge the Mortgage Loans, without recourse, to the
Indenture Trustee pursuant to the Indenture as security for the Notes.
DESCRIPTION OF THE NOTES
The following summaries describe certain provisions of the
Indenture applicable to the Notes. The description of the Notes and the
Indenture that follows is a summary of certain of the terms and provisions
relating specifically to the Notes, and does not purport to be complete. Such
description is subject to, and is qualified in its entirety by reference to, the
actual terms and provisions of the Indenture
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(including the form of the Notes). For more details regarding the terms of the
Indenture, prospective investors in the Notes are advised to review the
Indenture, a copy of which RBMG will provide (without exhibits) without charge
upon written request addressed to RBMG at 7909 Parklane Road, Columbia, South
Carolina 29223, Attention: Larry Reed.
GENERAL
The Notes will be issued under an indenture, to be dated as of
June 1, 1999 (the "Indenture"), between the Issuer and the Indenture Trustee.
Two classes (each a "Class") of Notes will be issued: the Class A-1 Notes (the
"Class A-1 Notes") and the Class A-2 Notes (the "Class A-2 Notes" and, together
with the Class A-1 Notes, the "Notes"). The holders of the Class A-1 Notes are
referred to herein as the "Class A-1 Noteholders" and the holders of the Class
A-2 Notes are referred to herein as the "Class A-2 Noteholders." The Class A-1
Notes will be principally secured by the Group I Mortgage Loans, and the Class
A-2 Notes will be principally secured by the Group II Mortgage Loans. Payments
on the Class A-1 Notes will be made generally from Available Funds for Group I,
and payments on the Class A-2 Notes will be made generally from Available Funds
for Group II. The Notes represent non-recourse asset-backed obligations of the
Issuer, and proceeds of the assets of the Trust will be the sole source of
payments on the Notes. The Notes will not represent an interest in or obligation
of the Depositor, the Company, the Servicer, the Indenture Trustee, the Owner
Trustee, the Note Insurer, any of their respective affiliates or any other
entity, and will not represent an interest in or recourse obligation of the
Issuer.
All payments on the Notes will be distributed by or on behalf
of the Indenture Trustee to each Noteholder of record on the Record Date for the
related Payment Date. Payments on Notes issued in book-entry form will be made
by or on behalf of the Indenture Trustee to DTC. Payments on Definitive Notes
generally will be made either (i) by check mailed to the address of each
Noteholder as it appears in the register maintained by the Indenture Trustee or
(ii) by wire transfer of immediately available funds to the account of a
Noteholder, if such Noteholder (a) is the registered holder of Definitive Notes
having an initial principal amount of at least $1,000,000 and (b) has provided
the Indenture Trustee with wiring instructions in writing five Business Days
prior to the related Record Date or has provided the Indenture Trustee with such
instructions for any previous Payment Date. A fee may be charged by the
Indenture Trustee to a Noteholder holding Definitive Notes for any payment made
by wire transfer. Notwithstanding the above, the final payment in redemption of
any Definitive Note will be made only upon presentation and surrender of such
Definitive Note at the office or agency designated by the Indenture Trustee for
that purpose.
The Notes will be issued in denominations of not less than
$1,000 principal amount and in integral dollar multiples thereof, with the
exception of one Note of each Class which may be issued in a lesser amount.
The Class A-1 Notes in the aggregate will have an aggregate
original Note Balance of $75,030,000 (the "Original Class A-1 Note Balance").
The Class A-2 Notes in the aggregate will have an aggregate original Note
Balance of $50,000,000 (the "Original Class A-2 Note Balance"). The Note
Interest Rate for each Class is adjustable and is calculated as described under
"--Payment on the Notes" herein. The aggregate Class A-1 Original Note Balance
equals approximately 100% of the sum of the
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Group I Initial Balance. The aggregate Class A-2 Original Note Balance equals
approximately 100% of the sum of the Group II Initial Balance. The primary
source of funds for payment to the Noteholders of each Class of Notes will be
the Mortgage Loans as described under "--Payments on the Notes" herein.
BOOK-ENTRY REGISTRATION AND DEFINITIVE NOTES
The Notes initially will be Book-Entry Notes (the "Book-Entry
Notes"). A person acquiring a beneficial ownership interest in any Note (any
such person, a "Beneficial Owner") will hold such Notes through The Depository
Trust Company ("DTC") in the United States, or Cedel Bank, societe anonyme
("Cedel") or the Euroclear System ("Euroclear") in Europe, if they are
participants of such systems, or indirectly through organizations that are
participants in such systems. The Book-Entry Notes initially will be registered
in the name of Cede & Co., the nominee of DTC. Cedel and Euroclear will hold
omnibus positions on behalf of Cedel Participants and Euroclear Participants,
respectively, through customers' securities accounts in Cedel's and Euroclear's
names on the books of their respective depositaries which in turn will hold such
positions in customers' securities accounts in the depositaries' names on the
books of DTC. Citibank N.A. ("Citibank") will act as depositary for Cedel, and
The Chase Manhattan Bank ("Chase") will act as depositary for Euroclear
(Citibank and Chase, in such capacities, individually the "Relevant Depositary"
and collectively, the "European Depositaries"). Except as described below, no
person acquiring a Book-Entry Note will be entitled to receive a Note in fully
registered, certificated form (a "Definitive Note"). Unless and until Definitive
Notes are issued, it is anticipated that the only "Noteholder" will be Cede &
Co., as nominee of DTC. Beneficial Owners will not be Noteholders as that term
is used in the Indenture. Beneficial Owners are permitted to exercise their
rights only indirectly through DTC and its Participants (including Cedel and
Euroclear).
The beneficial ownership of a Book-Entry Note will be recorded
on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains the
Beneficial Owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Note will be recorded on the records
of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the Beneficial Owner's Financial Intermediary is not a Participant and on the
records of Cedel or Euroclear, as appropriate).
Beneficial Owners will receive all payments of principal of,
and interest on, the Notes from the Indenture Trustee through DTC and its
Participants (including Cedel and Euroclear). 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
is required to make book-entry transfers among Participants on whose behalf it
acts with respect to the Notes and is required to receive and transmit payments
of principal of, and interest on, such Notes. Participants and indirect
participants with whom Beneficial Owners have accounts with respect to
Book-Entry Notes are similarly required to make book-entry transfers and receive
and transmit such payments on behalf of their respective Beneficial Owners.
Accordingly, although Beneficial Owners will not possess certificates, the Rules
provide a mechanism by which Beneficial Owners will receive payments and will be
able to transfer their interests.
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Beneficial Owners will not receive or be entitled to receive
certificates representing their respective interests in the Notes, except under
the limited circumstances described below. Unless and until Definitive Notes are
issued, Beneficial Owners who are not Participants may transfer ownership of
Notes only through Participants and indirect participants by instructing such
Participants and indirect participants to transfer 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, transfers 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 Participants and indirect participants
will make debits or credits, as the case may be, on their records on behalf of
the selling and purchasing Beneficial Owners.
Because of time zone differences, credits of securities
received in Cedel or Euroclear as a result of a transaction with a Participant
will be made during subsequent securities settlement processing and dated the
Business Day following the DTC settlement date. Such credits or any transactions
in such securities settled during such processing will be reported to the
relevant Euroclear Participants or Cedel Participants on such Business Day. Cash
received in Cedel or Euroclear as a result of sales of securities by or through
a Cedel Participant or Euroclear Participant will be received with value on the
DTC settlement date but will be available in the relevant Cedel or Euroclear
cash account only as of the Business Day following settlement in DTC. For
information with respect to tax documentation procedures relating to the Notes,
see "Material Federal Income Tax Consequences--Backup Withholding" and
"Material Federal Income Tax Consequences--Foreign Investors" in the Prospectus
and "ANNEX I: Global Clearance, Settlement and Tax Documentation
Procedures--Certain U.S. Federal Income Tax Documentation Requirements" 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 Depositary; 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 Depositary 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 Depositaries.
DTC, which is a New York-chartered limited purpose trust
company, performs services for its participants ("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 Participant in
the Book-Entry Notes, whether held for its own account or as a nominee for
another person. In general, beneficial
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ownership of Book-Entry Notes will be subject to the rules, regulations and
procedures governing DTC and its 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 participating
organizations ("Cedel Participants") and facilitates the clearance and
settlement of securities transactions between Cedel Participants through
electronic book-entry changes in accounts of Cedel Participants, thereby
eliminating the need for physical movement of certificates. Transactions may be
settled in Cedel in any of 28 currencies, including United States Dollars. Cedel
provides to its Cedel Participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. Cedel interfaces with domestic
markets in several countries. As a professional depositary, 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 its
participants ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants, through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may be settled through Euroclear in any of 32 currencies,
including United States Dollars. Euroclear provides 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 that 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 (the "Federal Reserve Board") 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 to specific securities clearance accounts. The
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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.
Payments on the Book-Entry Notes will be made on each Payment
Date by the Indenture Trustee to DTC. DTC will be responsible for crediting the
amount of such payments to the accounts of the applicable Participants in
accordance with DTC's normal procedures. Each Participant will be responsible
for disbursing such payments to the Beneficial Owners that it represents and to
each Financial Intermediary for which it acts as agent. Each such Financial
Intermediary will be responsible for disbursing funds to the Beneficial Owners
that it represents.
Under a book-entry format, Beneficial Owners may experience
some delay in their receipt of payments because such payments will be forwarded
by the Indenture Trustee to Cede. Payments with respect to Notes 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 Depositary. Such payments
will be subject to tax reporting in accordance with relevant United States tax
laws and regulations. See "Material Federal Income Tax Consequences--Backup
Withholding" and "Material Federal Income Tax Consequences--Taxation of Certain
Foreign Investors" in the Prospectus and "ANNEX I: Global Clearance, Settlement
and Tax Documentation Procedures--Certain U.S. Federal Income Tax Documentation
Requirements" hereto. Because DTC has indicated that it will act only on behalf
of Financial Intermediaries, the ability of Beneficial Owners to pledge
Book-Entry Notes to persons or entities that do not participate in the
depository system or otherwise take actions in respect of such Book-Entry Notes
may be limited due to the lack of physical certificates representing such
Book-Entry Notes. In addition, issuance of the Book-Entry Notes in book-entry
form may reduce the liquidity of such Notes in the secondary market because
certain potential investors may be unwilling to purchase Notes for which they
cannot obtain physical certificates.
The monthly and annual statements with respect to the Mortgage
Loans and the Trust as described under "--Reports to Noteholders" herein will be
provided by the Indenture Trustee to Cede & Co., as nominee of DTC and a
Noteholder, and may be made available by such entity to Beneficial Owners upon
request, in accordance with the Rules, and to the Financial Intermediaries to
whose DTC accounts the related Book-Entry Notes are credited.
DTC has advised the Indenture Trustee that, unless and until
Definitive Notes 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 Financial
Intermediaries to whose DTC accounts the Book-Entry Notes are credited, to the
extent that such actions are taken on behalf of Financial Intermediaries whose
holdings include such Book-Entry Notes. Cedel or the Euroclear Operator, as the
case may be, will take any other action permitted to be taken by a Noteholder
under the Indenture 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 Depositary to effect such actions on its behalf through
DTC. DTC may take actions, at the direction of the related Participants, with
respect to some Notes that conflict with actions taken with respect to other
Notes.
Definitive Notes will be issued in registered form to
Beneficial Owners, or their nominees, rather than to DTC, only if (i) DTC or the
Issuer advises the Indenture Trustee in writing that
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DTC is no longer willing or able to discharge properly its responsibilities as
nominee and depositary with respect to the Notes and the Issuer or the Indenture
Trustee is unable to locate a qualified successor, (ii) the Issuer, at its
option, advises the Indenture Trustee that it elects to terminate the book-entry
system through DTC, or (iii) after a Note Event of Default under the Indenture,
the Beneficial Owners representing not less than 51% of the Note Balance of the
Book-Entry Notes advise the Indenture Trustee and DTC that the book-entry system
is no longer in the best interests of such Beneficial Owners. Upon issuance of
Definitive Notes to Beneficial Owners, such Notes will be transferable directly
(and not exclusively on a book-entry basis) and registered holders will deal
directly with the Indenture Trustee with respect to transfers, notices and
payments.
Upon the occurrence of any of the events described in the
immediately preceding paragraph, the Indenture Trustee will be required to use
its best efforts to notify all Beneficial Owners of the occurrence of such event
and the availability through DTC of Definitive Notes. Upon surrender by DTC of
the global certificates representing the Book-Entry Notes and instructions for
re-registration, the Indenture Trustee will issue Definitive Notes and
thereafter the Indenture Trustee will recognize the holders of such Definitive
Notes as Noteholders under the Indenture.
Although DTC, Cedel and Euroclear have agreed to the foregoing
procedures in order to facilitate transfer of Notes 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.
ASSIGNMENT OF MORTGAGE LOANS
The Mortgage Loans were originated or acquired by RBMG,
directly or through Meritage. On or prior to the Closing Date, RBMG will
contribute the related Mortgage Loans to the Company, the Company will sell the
related Mortgage Loans to Funding Co., Funding Co. will sell the related
Mortgage Loans to the Depositor, the Depositor will sell the related Mortgage
Loans to the Issuer and the Issuer will pledge the related Mortgage Loans to the
Indenture Trustee as security for the Notes.
At the time of issuance of the Notes, the Issuer will pledge
all of its right, title and interest in and to the Mortgage Loans, including all
principal and interest due on each such Mortgage Loan after the Cut-Off Date,
together with its right, title and interest in and to the proceeds of any
related insurance policies received after the Cut-Off Date, without recourse, to
the Indenture Trustee pursuant to the Indenture as security for the Notes;
PROVIDED, HOWEVER, that RBMG, the Company, Funding Co., or the Depositor, as
applicable, will reserve and retain all its right, title and interest in and to
principal and interest due on such Mortgage Loan on or prior to the Cut-Off Date
(whether or not received on or prior to such Cut-Off Date), and to prepayments
and prepayment charges received on or prior to the Cut-Off Date. The Indenture
Trustee, concurrently with the pledge of the Mortgage Loans to the Indenture
Trustee as security for the Notes, will authenticate and deliver the Notes at
the direction of the Issuer in exchange for, among other things, the Mortgage
Loans.
The Indenture will require the Issuer to deliver to the
Indenture Trustee or a custodian on behalf of the Indenture Trustee the Mortgage
Loans, the related Mortgage Notes endorsed by RBMG, or the last holder of
record, without recourse to the Indenture Trustee, the related mortgages or
deeds of trust with evidence of recording thereon, all intervening mortgage
assignments, if any, and certain other documents relating to the Mortgage Loans
(the "Mortgage Files").
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The Indenture Trustee or a custodian on behalf of the
Indenture Trustee will review the Mortgage Files delivered to it on behalf of
the Indenture Trustee on the Closing Date and within 180 days and 270 days after
the Closing Date and if any document required to be included in any Mortgage
File is found to be missing or to be defective in any material respect and such
defect is not cured within 60 days following notification thereof to the
Indenture Trustee, the Issuer, the Depositor, the Company, the Note Insurer and
RBMG by the Indenture Trustee, the Indenture Trustee will require either that
the related Mortgage Loan be removed from the Mortgage Pool or that a Mortgage
Loan conforming to the requirements of the Indenture (a "Qualified Replacement
Mortgage Loan") be substituted for the related Mortgage Loan in the manner
described below.
In connection with the transfer of the Mortgage Loans to the
Company pursuant to the Contribution Agreement, RBMG will make certain
representations and warranties as to the accuracy in all material respects of
the information set forth on a schedule identifying and describing each Mortgage
Loan. In addition, RBMG will make certain other representations and warranties
regarding the Mortgage Loans, including, for instance, that each Mortgage Loan,
at its origination, complied in all material respects with applicable state and
federal laws, that each mortgage is a valid first priority lien, that, as of the
Cut-Off Date, no Mortgage Loan included in the Mortgage Pool as of the Closing
Date was more than 59 days past due, that each Mortgaged Property consists of a
one- to four-family residential property or unit in a condominium or planned
unit development, that RBMG had good title to each Mortgage Loan prior to such
transfer and that the originator was authorized to originate each Mortgage Loan.
The rights of the Company to enforce remedies for breaches of such
representations and warranties in the Contribution Agreement against RBMG will
be assigned to Funding Co. pursuant to the Company Sale Agreement, to the
Depositor pursuant to the Funding Co. Sale Agreement, to the Issuer pursuant to
the Depositor Sale Agreement, and to the Indenture Trustee pursuant to the
Indenture.
If with respect to any Mortgage Loan (1) a defect in any
document constituting a part of the related Mortgage File remains uncured within
the period specified above and materially and adversely affects the value of any
such Mortgage Loan or materially and adversely affects the interest of the
Indenture Trustee therein, the Noteholders or the Note Insurer or (2) a breach
of any representation or warranty made by RBMG relating to such Mortgage Loan
occurs and such breach materially and adversely affects the value of any such
Mortgage Loan or materially and adversely affects the interests of the Indenture
Trustee, the Noteholders or the Note Insurer therein, the Indenture Trustee will
enforce the remedies for such defects or breaches against RBMG by requiring RBMG
to remove the related Mortgage Loan (any such Mortgage Loan, a "Defective
Mortgage Loan") from the Trust by remitting to the Indenture Trustee an amount
equal to the Stated Principal Balance of such Defective Mortgage Loan (plus
certain Realized Losses) together with interest accruing at the Coupon Rate (net
of the applicable Servicing Fee Rate) on such Defective Mortgage Loan from the
date interest was last paid by the related mortgagor to the end of the
Collection Period preceding the 18th day of the month in which such Payment Date
occurs, or if such day is not a Business Day, then the next succeeding Business
Day (the "Servicer Remittance Date"), less any payments received during the
related Collection Period in respect of such Defective Mortgage Loan (the
"Purchase Price"). A "Business Day" is any day other than (i) a Saturday or
Sunday or (ii) a day on which banking institutions in the State of Nevada, the
State of Delaware, the State of New Jersey, the State of New York, the State of
South Carolina or the city in which the corporate trust office of the Indenture
Trustee or in which the Note Insurer's principal office is located are
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authorized or obligated by law, regulation, executive order or governmental
decree to be closed. RBMG will also have the option, but not the obligation, to
substitute for such Defective Mortgage Loan a Qualified Replacement Mortgage
Loan. Upon delivery of a Qualified Replacement Mortgage Loan and deposit of
certain amounts in the Note Account as set forth in the Indenture, or deposit of
the Purchase Price in the Note Account (as hereinafter defined) and receipt by
the Indenture Trustee and the Note Insurer of written notification of any such
substitution or removal, as the case may be, the Indenture Trustee shall execute
and deliver an instrument of transfer or assignment necessary to vest legal and
beneficial ownership of such Defective Mortgage Loan (including any property
acquired in respect thereof or proceeds of any insurance policy with respect
thereto) in RBMG and release such Defective Mortgage Loan from the Trust.
The obligation of RBMG to cure, remove or substitute any
Mortgage Loan as described above will constitute the sole remedy available to
Noteholders, the Note Insurer (with certain exceptions) or the Indenture Trustee
for a Defective Mortgage Loan.
PAYMENTS ON THE NOTES
Payments on the Notes will be distributed by the Indenture
Trustee (in such capacity, the "Paying Agent") on each Payment Date, commencing
with the Payment Date in July 1999, to Noteholders as of the related Record Date
in an amount equal to the product of such Noteholders' Percentage Interest and
the amount paid in respect of the Notes of the related Class. Payments on the
Class A-1 Notes will be made generally from Available Funds for Group I, and
payments on the Class A-2 Notes will be made generally from Available Funds for
Group II. The "Percentage Interest" represented by any Note will be equal to the
percentage obtained by dividing the aggregate principal balance of such Note by
the related Note Balance.
On each Payment Date, the Paying Agent will be required to
distribute with respect to each Class of Notes, the following amounts, in the
following order of priority, out of Available Funds in the related Note Account
for such Class unless otherwise specified:
(a) to the Note Insurer, out of amounts on deposit in the Note
Account for such Class, the aggregate amount necessary to reimburse the
Note Insurer for any unreimbursed payments of Insured Payments and
unpaid Note Insurer Premiums (together with interest thereon at the
Late Payment Rate specified in the Insurance Agreement to be dated as
of June 1, 1999, among the Issuer, the Depositor, the Company, RBMG,
the Servicer, the Indenture Trustee, Funding Co., First Union
Corporation, the Sub-Servicer and the Note Insurer (the "Insurance
Agreement") (and to the extent not covered by Available Funds for one
Group, from the Available Funds with respect to the other Group for any
unreimbursed payments of Insured Payments and unpaid Note Insurer
Premiums, together with interest thereon at the Late Payment Rate
specified in the Insurance Agreement; PROVIDED, HOWEVER, that the Note
Insurer shall be paid unreimbursed Insured Payments and unpaid related
Note Insurer Premiums (and any interest thereon) only after each Class
of Noteholders has received Note Interest and any Overcollateralization
Deficit with respect to such Payment Date;
(b) to the Class A-1 or Class A-2 Noteholders, the Note
Interest for such Class out of amounts then on deposit in the related
Note Account, with respect to such Payment Date;
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(c) to the Class A-1 or Class A-2 Noteholders, out of amounts
then on deposit in the Note Account for such Class, the amount of
applicable Monthly Principal for the Notes of such Class with respect
to such Payment Date, to reduce the related Note Balance until such
Note Balance is reduced to zero;
(d) to the Noteholders of the other Class, out of amounts then
on deposit in the Note Account not related to the Class to be paid, any
Note Interest for such other Class remaining unpaid after application
of clause (b) above;
(e) to the Class A-1 or Class A-2 Noteholders, out of amounts
then on deposit in the other Note Account, an amount equal to any
Overcollateralization Deficit for such Class (computed as if the
Monthly Principal for such Class and Excess Cash for such Group on such
Payment Date had been paid) to reduce the related Note Balance of such
Class until such Note Balance is reduced to zero;
(f) to the Note Insurer, any amounts due and owing under the
Insurance Agreement that are not described in clause (a) above;
(g) to the Class A-1 or Class A-2 Noteholders, out of amounts
then on deposit in the Note Account for such Class, to reduce the Note
Balance for such Class, the amount, if any, equal to the lesser of (A)
Excess Cash with respect to the related Group for such Payment Date,
and (B) the lesser of (1) the amount necessary for the
Overcollateralization Amount for such Class to equal the Required
Overcollateralization Amount for such Class on such Payment Date (after
paying the Monthly Principal to the related Class for such Payment
Date) and (2) the amount necessary to reduce the related Note Balance
to zero;
(h) to the Reserve Account, in the event that the
Overcollateralization Amount with respect to Class A-1 or Class A-2 is
less than the Required Overcollateralization Amount for such Class, out
of amounts on deposit in the Note Account related to the other Class,
to the extent of any such shortfall;
(i) to the Class A-1 or Class A-2 Noteholders, the Available
Funds Cap Carry Forward Amount related to such Class for such Payment
Date; and
(j) to the Class A-1 or Class A-2 Noteholders, any amounts due
them as a result of Prepayment Interest Shortfalls and shortfalls in
interest resulting from application of the Soldiers' and Sailors' Civil
Relief Act of 1940, as amended (the "Relief Act") with respect to
Mortgage Loans in the related Group;
(k) to the Class A-1 or Class A-2 Noteholders, out of amounts
then on deposit on the other Note Account, an amount equal to any
remaining shortfall in the amounts described in clauses (i) and (j)
preceding, in that order, with respect to such Class;
(l) to the Indenture Trustee, the Owner Trustee, the Servicer
and the Issuer, certain amounts reimbursable to them with respect to
the related Group pursuant to the Indenture, the Owner Trust Agreement,
or the Servicing Agreement.
Any Available Funds remaining after application in the manner
specified above will be released to the holder(s) of the Residual Interests on
such Payment Date, free from the lien of the
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Indenture, and such amounts will not be available to make payments on the Notes
or payments to the Note Insurer on any subsequent Payment Date.
In the event that, with respect to a particular Payment Date,
Available Funds for a Group (or, to the limited extent provided herein, from
Available Funds for the other Group) on such date are not sufficient to pay any
portion of Note Interest for the related Class of Notes, the Indenture Trustee
will file a claim on the Insurance Policy in an amount equal to such deficiency
and apply the Insured Payment in respect of such claim to the payment of the
deficiency in such Note Interest. In addition, the Indenture Trustee will file a
claim on the Insurance Policy in an amount equal to any Overcollateralization
Deficit for a Class on a Payment Date (after taking into account payments in
respect of Monthly Principal and Excess Cash on such Payment Date from either
Group and funds applied from the Reserve Account) and apply the portion of the
Insured Payment related to such Overcollateralization Deficit to reduce the Note
Balance on such Payment Date by the amount of such Overcollateralization
Deficit. Any Insured Payment paid in respect of a Class of Notes to make up any
Overcollateralization Deficit will be paid to the related Noteholders, to reduce
the related Note Balance, until such Note Balance is reduced to zero.
In no event will the aggregate payments of principal to
Noteholders of a Class exceed the Original Note Balance of such Class. All
calculations of interest on the Notes will be computed on the basis of the
actual number of days elapsed in the related Interest Period and in a year of
360 days.
"NOTES" means the RBMG Funding Co. Mortgage Loan Trust 1999-1
Asset-Backed Notes, Series 1999-1, Class A-1 and Class A-2, offered by this
Prospectus Supplement and the accompanying Prospectus and issued pursuant to the
Indenture.
"NOTE INSURER DEFAULT" is defined under the Indenture
generally as the existence and continuance of (x) the failure by the Note
Insurer to make a required payment under the Insurance Policy or (y) the
bankruptcy or insolvency of the Note Insurer.
"NOTE INTEREST" for a Class of Notes and any Payment Date will
be an amount equal to interest accrued during the related Interest Period at the
Note Interest Rate on the related Note Balance as of the preceding Payment Date
(after giving effect to the payment, if any, in reduction of principal made on
such Notes on such preceding Payment Date), less the amount of any Prepayment
Interest Shortfalls and shortfalls in interest due to application of the Relief
Act with respect to Mortgage Loans in the related Group.
The "NOTE INTEREST RATE" will be: (1) with respect to the
Class A-1 Notes, (a) for the initial Interest Period, a per annum rate equal to
One-Month LIBOR (set two Business Days prior to the Closing Date) plus 0.26% and
(b) for each subsequent Interest Period, a per annum rate equal to the lesser of
(i) for each Interest Period ending prior to the Redemption Date, One-Month
LIBOR plus 0.26%, and for each Interest Period thereafter, One-Month LIBOR plus
0.52% (the "Class A-1 Note Formula Rate"), and (ii) the related "Available Funds
Cap Rate"; and (2) with respect to the Class A-2 Notes, (a) for the initial
Interest Period, a per annum rate equal to One-Month LIBOR (set two Business
Days prior to the Closing Date) plus 0.29% and (b) for each subsequent Interest
Period, a per annum rate equal to the lesser of (i) for each Interest Period
ending prior to the Redemption Date, One-Month LIBOR plus 0.29%, and for each
Interest Period thereafter, One-Month LIBOR plus 0.58% and (ii) the Available
Funds Cap Rate
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(the applicable rate described in this clause (i) the "Class A-2 Note Formula
Rate" and collectively with the Class A-1 Note Formula Rate, the "Note Formula
Rate").
The "AVAILABLE FUNDS CAP RATE" for a Class of Notes and any
Payment Date is a rate per annum equal to the fraction, expressed as a
percentage, the numerator of which is (i) an amount equal to (A) 1/12 of the
aggregate scheduled principal balance of the then outstanding Mortgage Loans and
REO Properties in the related Group multiplied by the weighted average of the
Expense Adjusted Coupon Rates on the then outstanding Mortgage Loans and REO
Properties in the related Group minus (B) the amount of the Note Insurer Premium
allocable to the related Group for such Payment Date, and the denominator of
which is (ii) an amount equal to (A) the then outstanding aggregate Note Balance
of the related Class multiplied by (B) the actual number of days elapsed in the
related Interest Period divided by 360. Payments received by the Indenture
Trustee under the interest rate cap agreement (the "Cap Agreement"") held by the
Indenture Trustee do not increase the Available Funds Cap Rate.
The "EXPENSE ADJUSTED COUPON RATE" on any Mortgage Loan is
equal to the then applicable Coupon Rate thereon minus the sum of (i) the
Minimum Spread (ii) the Servicing Fee Rate and (iii) the Indenture Trustee Fee
Rate. For any Payment Date occurring from the Closing Date through and including
the twelfth Payment Date, the Minimum Spread is equal to 0.00% per annum. For
any Payment Date occurring after the twelfth Payment Date the Minimum Spread is
equal to 0.50% per annum. For any Payment Date, the Servicing Fee Rate (the
"Servicing Fee Rate") is equal to 0.44% per annum; PROVIDED, HOWEVER, that if
necessary to obtain the appointment of a successor servicer or successor
sub-servicers, the Servicing Fee Rate may increase up to 0.50% per annum. The
payment of any increased Servicing Fee would reduce the amount of Excess Cash.
See "Servicing of the Mortgage Loans--Servicing and Other Compensation and
Payment of Expenses" herein. For any Payment Date, the Indenture Trustee Fee
Rate (the "Indenture Trustee Fee Rate") is equal to 0.0175% per annum.
If, on any Payment Date, the Available Funds Cap Rate limits
the related Note Interest Rate (I.E., the rate set by the related Available
Funds Cap Rate is less than the related Note Formula Rate), the amount of any
such shortfall if not covered by payments of Excess Cash from the other Group
will be carried forward and be due and payable on the following Payment Date and
shall accrue interest at the Note Interest Rate, until paid (such shortfall,
together with such accrued interest, the "Available Funds Cap Carry Forward
Amount"). The Insurance Policy does not cover the Available Funds Cap Carry
Forward Amount; the payment of such amount may be funded only from any Excess
Cash that would otherwise be paid to the holder(s) of the Residual Interests.
The ratings assigned to the Notes do not address the payment of the Available
Funds Cap Carry Forward Amount.
"EXCESS CASH" with respect to a Group on any Payment Date will
be equal to Available Funds for such Group and Payment Date, reduced by the sum
of (i) any amounts payable to the Note Insurer for Insured Payments (as defined
herein) with respect to either Group paid on prior Payment Dates and not yet
reimbursed and for any unpaid Note Insurer Premiums for such Group on prior
Payment Dates (in each case with interest thereon at the Late Payment Rate as
defined and set forth in the Insurance Agreement) (and such amounts with respect
to the other Group, to the extent not completely covered by the Available Funds
for the other Group) and certain other amounts payable to the Note Insurer,
(ii) the Note Interest for the related Class and Payment Date (and the portion
of such amounts with respect to the other Group, to the extent not completely
covered by Available Funds for the other
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Group), (iii) any amounts payable for any Overcollateralization Deficit for
either Class, and (iv) the Monthly Principal for the related Class and Payment
Date.
"NOTE BALANCE" with respect to the Class A-1 or Class A-2
Notes will be equal, as of any Payment Date, to the Original Note Balance of
such Class less all Monthly Principal and Excess Cash paid to the related
Noteholders on previous Payment Dates to reduce the Note Balance of such Class
(exclusive, for the sole purpose of effecting the Note Insurer's subrogation
rights, of payments made by the Note Insurer in respect of any
Overcollateralization Deficit related to such Class of Notes and such Payment
Date under the Insurance Policy, except to the extent reimbursed to the Note
Insurer pursuant to the Indenture).
"MONTHLY PRINCIPAL" for each Class of Notes and any Payment
Date will be an amount equal to the lesser of (a) the excess of Available Funds
in the related Note Account over the amounts described in clauses (a) and (b)
above under the heading "Payments on the Notes" with respect to such Class, and
(b) the aggregate of (i) all scheduled payments of principal received or
advanced with respect to the Mortgage Loans in the related Group and due during
the related Due Period and all other amounts collected, received or otherwise
recovered in respect of principal on such Mortgage Loans (including Principal
Prepayments, but not including Payments Ahead (as defined herein) during or in
respect of the related Collection Period, and (ii) the aggregate of the amounts
allocable to principal paid to the Indenture Trustee for deposit in the related
Note Account on the related Servicer Remittance Date by the Issuer, the
Depositor, the Company, Funding Co., the Servicer, the Note Insurer or RBMG in
connection with a repurchase, release, removal or substitution of any Mortgage
Loans in the related Group pursuant to the Indenture, reduced by (c) the amount
of any Overcollateralization Surplus related to such Class of Notes and such
Payment Date.
"DETERMINATION DATE" means, as to any Payment Date, the
fifteenth (15th) day of the month in which such Payment Date occurs, or if such
fifteenth day is not a Business Day, then the preceding Business Day.
"DUE PERIOD," with respect to any Payment Date, means the
period commencing on the second day of the calendar month preceding the calendar
month in which such Payment Date occurs (or with respect to the first Payment
Date after a Mortgage Loan constitutes part of the Trust, commencing on the day
following the Cut-Off Date for each Mortgage Loan) and ending on the first day
of the calendar month in which such Payment Date occurs.
"COLLECTION PERIOD" with respect to any Payment Date and a
Mortgage Loan, means the calendar month preceding the month in which such
Payment Date occurs (or, in the case of the first Payment Date after a Mortgage
Loan constitutes part of the Trust, during the period beginning on the day
following the Cut-Off Date through and including the last day of the month prior
to the month in which the Payment Date occurs).
"PAYMENTS AHEAD" means any payment of one or more scheduled
Monthly Payments remitted by a mortgagor with respect to a Mortgage Note in
excess of the scheduled Monthly Payment due during the related Due Period with
respect to such Mortgage Note, which sums the related mortgagor has instructed
the Servicer to apply to scheduled Monthly Payments due in one or more
subsequent Due
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Periods. Payments Ahead will be deemed received in the Due Period in which they
would have become due had they not been paid in advance.
"PRINCIPAL PREPAYMENT" means any mortgagor payment or other
recovery in respect of principal on a Mortgage Loan (including Net Liquidation
Proceeds (as defined herein) and Insurance Proceeds (as defined herein)
allocable to principal) which, in the case of a mortgagor payment, is received
in advance of its scheduled due date and is not accompanied by an amount as to
interest representing scheduled interest for any month subsequent to the month
of such payment, or that is accompanied by instructions from the related
mortgagor directing the Servicer to apply such payment to the principal balance
of such Mortgage Loan currently.
"LIQUIDATED MORTGAGE LOAN" means, as to any Payment Date, any
Mortgage Loan as to which the Servicer has determined during the related
Collection Period, in accordance with its customary servicing procedures, that
all Liquidation Proceeds (as defined herein) which it expects to recover from or
on account of such Mortgage Loan have been recovered.
"AVAILABLE FUNDS" with respect to a Group and any Payment
Date, will consist of the sum of the amounts described in clauses (a) through
(h) below, together with amounts withdrawn from the Reserve Account for the
benefit of such Group on such Payment Date, less (i) the Administrative Fee
Amount for such Group in respect of such Payment Date, (ii) P&I Advances and
Servicing Advances (as defined herein) for such Group previously made that are
reimbursable to the Servicer (other than those included in liquidation expenses
for any Liquidated Mortgage Loan in such Group and already reimbursed from the
related Liquidation Proceeds) in such Collection Period to the extent permitted
by the Servicing Agreement and certain other amounts for which the Indenture
Trustee, the Servicer and the Issuer are permitted to be reimbursed, (iii) the
aggregate amounts (A) deposited into the Collection Account or into the related
Note Account and allocable to the related Group that may not be withdrawn
therefrom pursuant to a final and nonappealable order of a United States
bankruptcy court of competent jurisdiction imposing a stay pursuant to Section
362 of the United States Bankruptcy Code and that would otherwise have been
included in Available Funds on such Payment Date and (B) received by the
Indenture Trustee that are recoverable and sought to be recovered from the
Issuer as a voidable preference by a trustee in bankruptcy pursuant to the
United States Bankruptcy Code (11 U.S.C.) (the "Bankruptcy Code") in accordance
with a final nonappealable order of a court of competent jurisdiction and (iv)
any other costs, expenses, liabilities and losses borne by the Trust, which are
not otherwise reimbursable to the Trust:
(a) all scheduled payments of interest received with respect
to the Mortgage Loans in such Group and due during the related Due
Period and all other interest payments on or in respect of the Mortgage
Loans in such Group received by or on behalf of the Servicer during the
related Collection Period, net of amounts representing interest accrued
on such Mortgage Loans in respect of any period prior to the Cut-Off
Date, plus any Compensating Interest Payments made by the Servicer in
respect of the related Mortgage Loans and any net income from related
REO Properties for such Collection Period;
(b) all scheduled payments of principal received with respect
to the Mortgage Loans in such Group and due during the related Due
Period and all other principal payments (including Principal
Prepayments, but excluding amounts described elsewhere in this
definition) received or
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deemed to be received during the related Collection Period in respect
of the Mortgage Loans in such Group;
(c) the aggregate of any proceeds from or in respect of any
policy of insurance covering a Mortgaged Property securing a Mortgage
Loan in such Group that are received during the related Collection
Period and applied by the Servicer to reduce the Stated Principal
Balance of the related Mortgage Loan ("Insurance Proceeds") (which
proceeds will not include any amounts applied to the restoration or
repair of the related Mortgaged Property or released to the related
mortgagor in accordance with applicable law, the Servicer's customary
servicing procedures or the terms of the related Mortgage Loan);
(d) the aggregate of any other proceeds received by the
Servicer during the related Collection Period in connection with the
liquidation of any Mortgaged Property securing a Mortgage Loan in such
Group, whether through trustee's sale, foreclosure, condemnation,
taking by eminent domain or otherwise (including any Insurance Proceeds
to the extent not duplicative of amounts in clause (c) above)
("Liquidation Proceeds"), less unreimbursed P&I Advances, Servicing
Advances and expenses incurred by the Servicer in connection with the
liquidation of such Mortgage Loan ("Net Liquidation Proceeds");
(e) the aggregate of the amounts received in respect of any
Mortgage Loans in such Group that are required or permitted to be
repurchased, released, removed or substituted by any of RBMG, the
Company, the Depositor, Funding Co., the Servicer, the Note Insurer or
the Issuer during the related Collection Period as described in
"--Assignment of Mortgage Loans" and "Servicing of the Mortgage Loans"
herein, to the extent such amounts are received by the Indenture
Trustee on or before the related Servicer Remittance Date;
(f) the amount of any P&I Advances with respect to such Group
made for such Payment Date;
(g) the amount of any payments ("Cap Payments") received with
respect to such Group for such Payment Date under the Cap Agreement
held by the Indenture Trustee; and
(h) the aggregate of amounts deposited in the related Note
Account by the Issuer, the Servicer or the Note Insurer, as the case
may be, during such Collection Period in connection with redemption of
the Notes as described under "--Redemption of the Notes" herein.
"ADMINISTRATIVE FEE AMOUNT," with respect to any Payment Date,
the sum of the Servicing Fee, the Indenture Trustee Fee, and the Note Insurer
Premium relating to such Payment Date and allocable to such Group.
"INDENTURE TRUSTEE FEE," the amount payable monthly on each
Payment Date to the Indenture Trustee, which shall be equal to one-twelfth of
0.0175% of the related Mortgage Group Balance.
"MORTGAGE GROUP BALANCE" is the outstanding aggregate Stated
Principal Balance of the Mortgage Loans in the related Group as of the first day
of the related Due Period.
"MORTGAGE POOL BALANCE" is the outstanding aggregate Stated
Principal Balance of the Mortgage Loans in Group I and Group II as of the first
day of the related Due Period.
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"STATED PRINCIPAL BALANCE," with respect to any Mortgage Loan,
as of any date of determination, is equal to the scheduled principal balance
thereof as of the Cut-Off Date, after application of all scheduled principal
payments due on or before the Cut-Off Date, reduced by the sum of the principal
portion of each Monthly Payment due on such Mortgage Loan subsequent to the
Cut-Off Date received by the Indenture Trustee or advanced to the Indenture
Trustee, reduced by all other amounts allocable to principal that have been
received by the Indenture Trustee with respect to such Mortgage Loan on or
before such date, and as further reduced to the extent that any Realized Loss
thereon has been allocated to such Mortgage Loan on or before the date of
determination.
"TOTAL AVAILABLE FUNDS", as to any Payment Date and with
respect to either Class of Notes, is the sum of (i) Available Funds for the
related Group, (ii) Available Funds for the unrelated Group which are available
for payment of Note Interest or Overcollateralization Deficit, and (iii) certain
amounts in the Reserve Account.
CALCULATION OF ONE-MONTH LIBOR
On the second business day preceding each Payment Date (each
such date, an "Interest Determination Date"), the Indenture Trustee will
determine the London interbank offered rate for one-month U.S. dollar deposits
("One-Month LIBOR") for the next Interest Period on the basis of the offered
rate for one-month U.S. dollar deposits, as such rate appears on page 3750 of
Telerate, 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; "page 3750
of Telerate" means the display designated as page 3750 on the Dow Jones Telerate
Service (or such other page as may replace page 3750 on that service for the
purpose of displaying London interbank offered rates of major banks); and
"Reference Banks" means leading banks selected by the Indenture Trustee and
engaged in transactions in Eurodollar deposits in the international Eurocurrency
market (i) with an established place of business in London, (ii) whose
quotations appear on page 3750 of Telerate on the Interest Determination Date in
question, (iii) which have been designated as such by the Indenture Trustee and
(iv) not controlling, controlled by, or under common control with, the Issuer or
RBMG or affiliates thereof.
If such rate does not appear on page 3750 of Telerate, on any
Interest Determination Date, One-Month LIBOR for the related Interest Period
will be established by the Indenture Trustee as follows:
(a) If on such Interest Determination Date two or more
Reference Banks provide such offered quotations, One-Month LIBOR for
the related Interest Period shall be the arithmetic mean of such
offered quotations (rounded upwards if necessary to the nearest whole
multiple of 0.0625%).
(b) If on such Interest Determination Date fewer than two
Reference Banks provide such offered quotations, One-Month LIBOR for
the related Interest Period shall be the higher of (x) One-Month LIBOR
as determined on the previous Interest Determination Date and (y) the
Reserve Interest Rate. The "Reserve Interest Rate" shall be the rate
per annum that the Indenture Trustee determines to be either (i) the
arithmetic mean (rounded upwards if necessary to the nearest whole
multiple of 0.0625%) of the one-month U.S. dollar lending rates which
New York
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City banks selected by the Indenture Trustee are quoting on the
relevant Interest Determination Date to the principal London
offices of leading banks in the London interbank market or, in the
event that the Indenture 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 Indenture Trustee are quoting on such Interest
Determination Date to leading European banks or (iii) in the event the
New York City banks are not offering quotes, One-Month LIBOR for the
Interest Period in which such Interest Determination Date occurs.
The establishment of One-Month LIBOR on each Interest
Determination Date by the Indenture Trustee and the Indenture Trustee's
calculation of the rate of interest applicable to the Notes for the related
Interest Period shall (in the absence of manifest error) be final and binding.
NOTE ACCOUNTS
Pursuant to the Indenture, the Indenture Trustee shall
establish and maintain an account (with respect to each Class of Notes (each, a
"Note Account") from which all payments with respect to such Notes will be made.
As described below, not later than the Servicer Remittance Date, the Servicer
will be required pursuant to the Servicing Agreement to wire transfer to the
Indenture Trustee for deposit in the appropriate Note Account the sum (without
duplication) of all amounts on deposit in the Collection Account (as defined
herein) that constitute any portion of Available Funds for the related Payment
Date.
All or a portion of each Note Account may be invested and
reinvested by the Indenture Trustee in one or more Permitted Investments (as
defined herein) bearing interest or sold at a discount. The Indenture Trustee or
any affiliate thereof may be the obligor on any investment in the Note Accounts
which otherwise qualifies as a Permitted Investment. No investment in the Note
Accounts may mature later than the Business Day preceding the Payment Date.
The Indenture Trustee will not in any way be held liable by
reason of any insufficiency in the Note Accounts resulting from any loss on any
Permitted Investment included therein (except to the extent the Indenture
Trustee is the obligor thereon).
All income or other gain from investments in each Note Account
will not be available to Noteholders or otherwise subject to any claims or
rights of the Noteholders and will be held in such Note Account for the benefit
of the Servicer and the Indenture Trustee in such proportion as is specified in
the Indenture, subject to withdrawal from time to time as permitted by the
Indenture. Any loss resulting from such investments will be for the account of
the Issuer. The Issuer will be required to deposit the amount of any such loss
immediately upon the realization of such loss to the extent such loss will not
be offset by other income or gain from investments in such Note Account and then
available for such application.
PERMITTED INVESTMENTS. The Indenture will define "Permitted
Investments" generally as follows:
(a) direct obligations of, and obligations fully guaranteed
by, the United States of America, Fannie Mae, Freddie Mac, the Federal
Home Loan Banks or any agency or instrumentality of the United States
of America, the obligations of which are backed by the full faith and
credit of the United States of America;
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(b) (i) demand and time deposits in, certificates of deposit
of, banker's acceptances issued by or federal funds sold by any
depository institution or trust company (including the Indenture
Trustee or its agent acting in their respective commercial capacities)
incorporated under the laws of the United States of America or any
state thereof and subject to supervision and examination by federal
and/or state authorities, so long as, at the time of such investment or
contractual commitment providing for such investment, such depository
institution or trust company or its ultimate parent has a short-term
unsecured debt rating in one of the two highest available rating
categories of S&P and the highest available rating category of Moody's
and provided that each such investment has an original maturity of no
more than 365 days, and (ii) any other demand or time deposit or
deposit which is fully insured by the Federal Deposit Insurance
Corporation;
(c) repurchase obligations with a term not to exceed 30 days
with respect to any security described in clause (a) above and entered
into with a depository institution or trust company (acting as a
principal) rated "A" or higher by "S&P" and rated "A2" or higher by
Moody's; PROVIDED, HOWEVER, that collateral transferred pursuant to
such repurchase obligation must be of the type described in clause (a)
above and must (i) be valued daily at current market price plus accrued
interest, (ii) pursuant to such valuation, be equal, at all times, to
at least 105% of the cash transferred by the Indenture Trustee in
exchange for such collateral and (iii) be delivered to the Indenture
Trustee or, if the Indenture Trustee is supplying the collateral, an
agent for the Indenture Trustee, in such a manner as to accomplish
perfection of a security interest in the collateral by possession of
certificated securities;
(d) securities bearing interest or sold at a discount issued
by any corporation incorporated under the laws of the United States of
America or any state thereof which has a long-term unsecured debt
rating in the highest available rating category of each of the Rating
Agencies at the time of such investment;
(e) commercial paper having an original maturity of less than
365 days and issued by an institution having a short-term unsecured
debt rating in the highest available rating category of each of the
Rating Agencies at the time of such investment;
(f) a guaranteed investment contract approved by each of the
Rating Agencies and the Note Insurer and issued by an insurance company
or other corporation having a long-term unsecured debt rating in the
highest available rating category of each of the Rating Agencies at the
time of such investment;
(g) money market funds having ratings in one of the two
highest available rating categories of S&P and Moody's at the time of
such investment which invest only in other Permitted Investments (any
such money market funds which provide for demand withdrawals being
conclusively deemed to satisfy any maturity requirements for Permitted
Investments set forth herein), including money market funds of the
Indenture Trustee and any such funds that are managed by the Indenture
Trustee or its affiliates or for which the Indenture Trustee or any
affiliate acts as advisor as long as such money market funds satisfy
the criteria of this subparagraph (g); and
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(h) any investment approved in writing by the Note Insurer and
written evidence that any such investment will not result in a
downgrading or withdrawal of the rating by each Rating Agency on the
Notes.
The Indenture Trustee may purchase from or sell to itself or
an affiliate, as principal or agent, the Permitted Investments listed above. All
Permitted Investments in a trust account under the Indenture shall be made in
the name of the Indenture Trustee for the benefit of the Noteholders and the
Note Insurer.
OVERCOLLATERALIZATION FEATURE
Credit enhancement with respect to each Class of Notes will be
provided in part by overcollateralization resulting from the Group Balance for
the related Group as of the end of each Due Period exceeding the related Note
Balance for the related Payment Date. On the Closing Date, the initial
Overcollateralization Amount for each Class of Notes will be approximately
$3,574 with respect to Group I and approximately $2,424 with respect to Group
II. The Indenture requires that the Overcollateralization Amount for each Class
of Notes be increased to, and thereafter maintained at, the related Required
Overcollateralization Amount. This increase and subsequent maintenance is
intended to be accomplished by the application of monthly Excess Cash with
respect to a Group to accelerate the pay down of the related Note Balance until
the related Overcollateralization Amount reaches the related Required
Overcollateralization Amount. Such applications of Excess Cash, because they
consist of interest collections on the Mortgage Loans, plus amounts received
under the Cap Agreement but are distributed as principal on the Notes, will
increase the related Overcollateralization Amount.
The "Overcollateralization Amount" with respect to a Class of
Notes and any Payment Date is the amount, if any, by which (x) the aggregate
Stated Principal Balance of the Mortgage Loans in the related Group as of the
end of the related Due Period exceeds (y) the Note Balance of the related Class
of Notes as of such Payment Date after taking into account payments of Monthly
Principal (disregarding any permitted reduction in Monthly Principal due to an
Overcollateralization Surplus) made on such Payment Date. The required level of
the Overcollateralization Amount with respect to each Class of Notes and any
Payment Date (the "Required Overcollateralization Amount") will be equal to the
amount specified as such in the Indenture. The Indenture generally provides that
the related Required Overcollateralization Amount may, over time, decrease or
increase, subject to certain floors, caps and triggers, including triggers that
allow the related Required Overcollateralization Amount for a Class of Notes to
decrease or "step down" based on the performance of the Mortgage Loans in the
related Group with respect to certain delinquency rate tests specified in the
Indenture. In addition, Excess Cash for a Group will be paid to reduce the
related Note Balance during the period that the Mortgage Loans in the related
Group are unable to meet certain tests specified in the Insurance Agreement
based on delinquency rates. Any increase in the applicable Required
Overcollateralization Amount may result in an accelerated amortization of the
related Notes until such Required Overcollateralization Amount is reached.
Conversely, any decrease in the Required Overcollateralization Amount for a
Class of Notes will result in a decelerated amortization of the related Notes
until such Required Overcollateralization Amount is reached.
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The application of Excess Cash for a Group to reduce the Note
Balance for the related Class of Notes on any Payment Date will have the effect
of accelerating the amortization of such Notes relative to the amortization of
the Mortgage Loans in the related Group.
If on any Payment Date the Overcollateralization Amount with
respect to a Group is below the Required Overcollateralization Amount for that
Group, after taking into account the application of that Group's Excess Cash,
the other Group's Available Funds remaining after application as described above
in paragraphs (a) to (g) under "Description of Notes--Payments on the Notes" may
be deposited into a reserve account (the "Reserve Account"). Once an amount is
deposited into the Reserve Account, it may be used for the benefit of either
Group to fund fees, Note Interest and the amount of any Overcollateralization
Deficit, as may be directed by the Note Insurer.
In the event that the Required Overcollateralization Amount
for a Class of Notes is permitted to decrease or "step down" on any Payment Date
in the future, the Indenture will provide that all or a portion of the Excess
Cash for the related Group that would otherwise be paid to the related Notes on
any such Payment Date to reduce the related Note Balance will be released to the
holder(s) of the Residual Interests to the extent not required to be deposited
in the Reserve Account.
The "OVERCOLLATERALIZATION SURPLUS" with respect to a Class of
Notes and any Payment Date, is the amount, if any, by which (x) the
Overcollateralization Amount for such Class of Notes and Payment Date exceeds
(y) the then applicable Required Overcollateralization Amount for such Class of
Notes and Payment Date. In the absence of Realized Losses, as Excess Cash for a
Group is applied to accelerate amortization of the related Notes and the related
Required Overcollateralization Amount is reached and maintained, because the
related Note Balance will be less than the aggregate Stated Principal Balance of
the Mortgage Loans in the related Group, cashflow from the Mortgage Loans in
such Group will be available to be paid to the Holders of the Residual
Interests. Such amounts if not paid would otherwise cause an
Overcollateralization Surplus.
The Indenture will provide that, on any Payment Date, all
amounts collected on the Mortgage Loans in a Group in respect of principal to be
paid on such Payment Date will be paid to Noteholders of the related Class of
Notes to reduce the related Note Balance on such Payment Date, except as
provided above with respect to any Payment Date for which there exists or would
otherwise exist an Overcollateralization Surplus for such Class of Notes. If any
Mortgage Loan became a Liquidated Mortgage Loan during such prior Collection
Period, the Net Liquidation Proceeds related thereto and allocated to principal
may be less than the Stated Principal Balance of the related Mortgage Loan; the
amount of any such deficiency is a "Realized Loss." In addition, the Indenture
will provide that the Stated Principal Balance of any Mortgage Loan that becomes
a Liquidated Mortgage Loan will equal zero. The Indenture will not require that
the amount of any Realized Loss be paid to Noteholders of the related Class on
the Payment Date following the event of loss. However, the occurrence of a
Realized Loss may reduce the Overcollateralization Amount for the related Class
of Notes, and may result in more Excess Cash, if any, being paid on such Notes
to reduce the related Note Balance on subsequent Payment Dates than would be the
case in the absence of such Realized Loss.
OVERCOLLATERALIZATION AND THE CAP AGREEMENT. The Cap Agreement
has been entered into for the benefit of the Indenture Trustee on behalf of the
Noteholders and the Note Insurer for the purpose of increasing the amount of
Excess Cash for each Group which will be available to support the
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overcollateralization feature. Amounts received under the Cap Agreement are not
available to increase the Available Funds Cap Rate for either Class of Notes, or
to "uncap" either Class of Notes. However, the interest rate cap agreement will
be an additional source of funds in certain circumstances in the event excess
cash decreases as a result of an increase in LIBOR.
OVERCOLLATERALIZATION AND THE INSURANCE POLICY. The Indenture
will require the Indenture Trustee to file a claim for an Insured Payment under
the Insurance Policy not later than 12:00 noon (New York City time) on the third
Business Day prior to any Payment Date as to which the Indenture Trustee has
determined that an Overcollateralization Deficit will occur. With respect to a
Class and any Payment Date, an "Overcollateralization Deficit" will mean the
amount, if any, by which (x) the related Note Balance, after taking into account
all payments to be made on such Payment Date in reduction thereof, including any
Excess Cash payments related to such Class, exceeds (y) the sum of (i) the
aggregate Stated Principal Balance of the Mortgage Loans in the related Group as
of the end of the applicable Due Period. Accordingly, the Insurance Policy is
similar to the provisions described above with respect to the
overcollateralization provisions insofar as the Insurance Policy guarantees
ultimate payment of the full amount of the related Note Balance, rather than
current payments of the amounts of any Realized Losses to the Noteholders.
Investors in the Notes should realize that, under certain loss or delinquency
scenarios, they may temporarily receive no payments to reduce the related Note
Balance.
REPORTS TO NOTEHOLDERS
Concurrently with each payment to the Noteholders, the
Indenture Trustee will mail a statement to each Noteholder, the Note Insurer,
the Issuer and the Underwriter in the form required by the Indenture and setting
forth the following information available to the Indenture Trustee:
(a) the amount of such payment to the Noteholders of each
Class on the related Payment Date allocable to (i) Monthly Principal
(separately setting forth Principal Prepayments) and (ii) any Excess
Cash payment;
(b) the amount of such payment to the Noteholders of each
Class on such Payment Date allocable to (i) Note Interest and (ii) the
Available Funds Cap Carry Forward Amount;
(c) the Note Balance for each Class after giving effect to the
payment of Monthly Principal and any Excess Cash applied to reduce the
Note Balance on such Payment Date;
(d) the aggregate Stated Principal Balance of the Mortgage
Loans in each Group as of the end of the related Due Period;
(e) the amount of P&I Advances made with respect to each Group
and such Payment Date and the aggregate amount of unreimbursed P&I
Advances and Servicing Advances for such Group, if any;
(f) the number and the aggregate of the Stated Principal
Balances of the Mortgage Loans in each Group delinquent (i) one month,
(ii) two months and (iii) three or more months as of the end of the
related Collection Period;
(g) the aggregate of the Stated Principal Balances of the
Mortgage Loans in each Group in foreclosure or other similar
proceedings or in which the mortgagor is in bankruptcy and
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the book value of any real estate acquired through foreclosure or grant
of a deed in lieu of foreclosure during the related Collection Period;
(h) the aggregate of the Stated Principal Balances of the
Mortgage Loans in each Group repurchased by RBMG, the Company, the
Depositor, the Servicer, the Issuer or the Note Insurer, separately
setting forth the aggregate of the Stated Principal Balances of related
Mortgage Loans delinquent for three consecutive monthly installments
purchased by the holder of the majority of the Residual Interests, the
Servicer or the Note Insurer at their option pursuant to the Servicing
Agreement;
(i) the Insured Payment, if any, for each Group and such
Payment Date;
(j) the amount of the aggregate Servicing Fee paid to or
retained by the Servicer with respect to each Group and such Payment
Date; and
(k) the Overcollateralization Amount, the then applicable
Required Overcollateralization Amount, the Overcollateralization
Surplus, if any, and the Overcollateralization Deficit, if any, with
respect to each Class of Notes and such Payment Date.
In the case of information furnished pursuant to clauses (a)
and (b) above, the amounts will be expressed as a dollar amount per Note with a
$1,000 principal denomination.
Within 90 days after the end of each calendar year, the
Indenture Trustee will mail to each person who at any time during such calendar
year was a Noteholder and to the Issuer and the Underwriter, if requested in
writing by any such person, a statement containing the information set forth in
clauses (a) and (b) above, aggregated for such calendar year or, in the case of
each person who was a Noteholder for a portion of such calendar year, setting
forth such information for each month thereof. Such obligation of the Indenture
Trustee shall be deemed to have been satisfied to the extent that substantially
comparable information shall be prepared and furnished by the Indenture Trustee
to Noteholders pursuant to any requirements of the Code as are in force from
time to time.
Note factor information may be obtained from the Indenture
Trustee by placing a telephone call to (212) 815-2297. In addition, if the
Issuer so directs the Indenture Trustee on terms acceptable to the Indenture
Trustee, the Indenture Trustee will make available through its electronic
bulletin board system, on a confidential basis, certain information related to
the Mortgage Loans.
REDEMPTION OF THE CLASS A-1 AND CLASS A-2 NOTES
The Notes will be subject to redemption, in whole but not in
part, at the option of the Servicer or the Note Insurer, on or after the Payment
Date on which the aggregate outstanding Note Balance of the Class A-1 Notes and
the Class A-2 Notes has declined to less than 10% of the aggregate Note Balance
of the Class A-1 Notes and the Class A-2 Notes as of the Closing Date. The date
upon which such option may be exercised is referred to herein as the "Redemption
Date."
The Notes will be redeemed at a redemption price of 100% of
the then outstanding Note Balance of the Class A-1 Notes and the Class A-2 Notes
plus accrued but unpaid interest thereon (including any Available Funds Cap
Carry Forward Amount) through the end of the Interest Period preceding the
related Payment Date, plus any amounts owing to the Indenture Trustee and the
Servicer;
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PROVIDED, HOWEVER, that no redemption may take place unless, in connection with
such redemption, any amounts due and owing to the Note Insurer under the
Insurance Agreement are paid in full to the Note Insurer. There will be no
prepayment premium due in connection with such a redemption. Notice of an
optional redemption of the Notes must be mailed by the Indenture Trustee to the
Noteholders and the Note Insurer at least ten days prior to the Payment Date set
for such redemption.
The payment on the final Payment Date in connection with the
redemption of the Notes shall be in lieu of the payment otherwise required to be
made on such Payment Date in respect of the Notes.
PAYMENTS TO THE HOLDER(S) OF THE RESIDUAL INTERESTS
On each Payment Date, any portion of Available Funds for each
Group remaining after making payments of interest and principal due on the
related Notes and other payments required on such Payment Date will be released
to the holder(s) of the Residual Interests, free of the lien of the Indenture.
Such amounts will not be available to make payments on the Notes or payments to
the Note Insurer on any subsequent Payment Date.
OPTIONAL PURCHASE OF DELINQUENT MORTGAGE LOANS
The Servicer will have the option to purchase any Mortgage
Loan that is 90 days or more delinquent (I.E., any Mortgage Loan on which the
related mortgagor has failed to make three or more consecutive Monthly Payments)
upon a determination by, and notice by, the Servicer that such Mortgage Loan
will otherwise become subject to foreclosure proceedings. The purchase price to
be paid to the Indenture Trustee to release any such Mortgage Loan from the
Trust will equal the Stated Principal Balance of such Mortgage Loan, plus
accrued and unpaid interest thereon to the Due Date related to, but not
including, the Payment Date on which the amount of such purchase price will be
paid to the Holders of the related Class of Notes plus unreimbursed P&I Advances
and Servicing Advances.
P&I ADVANCES
Subject to the following limitations, the Servicer will be
obligated to advance or cause to be advanced on or before each Servicer
Remittance Date from its own funds, or funds in the Collection Account that are
Payments Ahead, in an amount equal to the aggregate of all payments of principal
and interest, net of the Servicing Fee, that were due during the related Due
Period on the Mortgage Loans and that were delinquent on the related
Determination Date, plus certain amounts representing assumed payments not
covered by any current net income on the Mortgaged Properties acquired by
foreclosure or deed in lieu of foreclosure (a "REO Property" and any such
advance, a "P&I Advance"). Notwithstanding the foregoing, the Servicer is not
required to make an advance of any delinquent balloon payment owing on a Balloon
Loan. The Servicer will, however, make monthly P&I Advances with respect to
Balloon Loans with delinquent balloon payments, in each case in an amount equal
to the assumed monthly principal and interest payment that would have been due
on the related Due Date based on the original assumed hypothetical principal
amortization schedule for the applicable Balloon Loan.
P&I Advances are required to be made only to the extent they
are deemed by the Servicer to be recoverable from related late collections,
Insurance Proceeds or Liquidation Proceeds. The purpose of making such P&I
Advances is to maintain a regular cashflow to the Noteholders, rather than to
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guarantee or insure against losses. The Servicer will not be required to make
any P&I Advances with respect to reductions in the amount of the Monthly
Payments on the Mortgage Loans due to bankruptcy proceedings or the application
of the Relief Act.
All P&I Advances will be reimbursable to the Servicer from
late collections, Insurance Proceeds and Liquidation Proceeds from the Mortgage
Loan as to which such unreimbursed P&I Advance was made. In addition, any P&I
Advances previously made in respect of any Mortgage Loan that are deemed by the
Servicer to be nonrecoverable from related late collections, Insurance Proceeds
or Liquidation Proceeds may be reimbursed to the Servicer out of any funds in
the Collection Account prior to the payments on the Notes. In the event the
Servicer fails in its obligation to make any such P&I Advance, the Indenture
Trustee, to the extent it has been appointed as successor to the Servicer, will
be obligated to make any such P&I Advance to the extent required in the
Servicing Agreement. In such event, the Indenture Trustee will be reimbursed for
P&I Advances in the same manner described above with respect to the Servicer.
COMPENSATING INTEREST PAYMENTS
With respect to any Mortgage Loan as to which a prepayment in
whole or in part was received, the Servicer will be required with respect to
such Payment Date to remit to the related Note Account, no later than the
related Servicer Remittance Date, from amounts otherwise payable to the Servicer
as its Servicing Fee for the related Collection Period, an amount equal to the
excess, if any, of (a) 30 days' interest on the Stated Principal Balance of each
such Mortgage Loan (immediately prior to such payment) at the related Coupon
Rate, less (b) the amount of interest actually received on such Mortgage Loan
during the related Due Period (each such amount, a "Compensating Interest
Payment") for payment on the related Notes on such Payment Date to insure that
the related Noteholders do not incur a shortfall in interest as a result of such
prepayment (such shortfall, a "Prepayment Interest Shortfall"). The Servicer
will not be entitled to be reimbursed from collections on the Mortgage Loans or
any assets of the Trust for any Compensating Interest Payments made.
NOTE EVENTS OF DEFAULT
An Event of Default ("Event of Default") with respect to each
Class of Notes will occur: (a) if, on any Payment Date, after taking into
account all Issuer payments made in respect of such Class of Notes on such
Payment Date, the interest on such Class of Notes at the respective Note Formula
Rate or the Monthly Principal with respect to such Class of Notes on such
Payment Date remains unpaid or the Notes of such Class are not paid in full on
or before the Final Maturity Date; (b) if certain negative covenants in the
Indenture or certain covenants relating to redemption of the Notes are not
observed; (c) if any other covenant of the Issuer set forth in the Indenture,
the Servicing Agreement, the Depositor Sale Agreement, or the Insurance
Agreement is not observed and such failure continues for a period of sixty days
after notice to the Issuer by the Indenture Trustee or to the Issuer and the
Indenture Trustee by the Noteholders evidencing at least 25% in aggregate Note
Balance of the related Class; (d) if any representation or warranty made by the
Issuer in the Indenture, the Servicing Agreement, the Depositor Sale Agreement,
or the Insurance Agreement or in any certificate delivered pursuant thereto is
incorrect in a material respect as of the time made, and the circumstance in
respect of which such representation or warranty is incorrect is not cured
within thirty days after notice thereof is given to the Issuer by the
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Indenture Trustee or by the Noteholders evidencing at least 25% in aggregate
Note Balance of the related Class; or (e) upon the occurrence of certain events
of bankruptcy, insolvency, receivership or reorganization of the Issuer. In the
absence of a failure by the Note Insurer to pay Insured Payments, no
acceleration of the maturity of the Notes will be permitted without the consent
of the Note Insurer.
RIGHTS UPON EVENT OF DEFAULT
In case an Event of Default should occur and be continuing,
the Indenture Trustee may, and on request of Noteholders evidencing more than
50% in aggregate Note Balance of the related Class of Notes shall, declare the
principal of such Notes to be due and payable. Such declaration may under
certain circumstances be rescinded by the Noteholders evidencing a majority in
Note Balance of the related Class of Notes.
If, following an Event of Default, the Notes of the related
Class have been declared to be due and payable, the Indenture Trustee may in its
discretion, with the consent of the Note Insurer, (provided that the Noteholders
of the related Class of the Notes have not directed the Indenture Trustee to
sell the Mortgage Loans in the related Group included in the Trust), refrain
from selling such Mortgage Loans and continue to apply all amounts received on
such Mortgage Loans to payments due on the related Class of Notes in accordance
with their terms, notwithstanding the acceleration of the maturity of the
related Class of Notes. In addition, upon an Event of Default the Indenture
Trustee may, with the consent of the Note Insurer, in its discretion (PROVIDED
that, unless the Event of Default relates to a default in payment of principal
or interest, the Indenture Trustee must receive the consent of all Noteholders
of the related Class, and certain other conditions must be met), sell the
Mortgage Loans included in the related Group, in which event the related Class
of Notes will be payable, without regard to their Stated Maturity, out of the
collections on, or the proceeds from the sale of, the related Mortgage Loans and
any overdue installments of interest on the related Class of Notes will, to the
extent permitted by applicable law, bear interest at the highest stated interest
rate borne by any Note. The "Stated Maturity" for the Class A-1 Notes and Class
A-2 Notes is June 25, 2030 which has been determined by adding 13 months to the
last Payment Date possible for a Mortgage Loan that has a first Payment Date of
June 1, 1999 and a stated final maturity of 30 years. It is anticipated that the
actual final Payment Date for each Class of Notes will occur significantly
earlier than the Stated Maturity.
Subject to the provisions of the Indenture relating to the
duties of the Indenture Trustee, in case an Event of Default shall occur and be
continuing, the Indenture Trustee shall be under no obligation to exercise any
of the rights and powers under the Indenture at the request or direction of the
Note Insurer or any of the Noteholders, unless the Note Insurer or such
Noteholders have offered to the Indenture Trustee reasonable security or
indemnity satisfactory to it against the costs, expenses and liabilities which
might be incurred by it in compliance with such request or direction. Subject to
such provisions for indemnification and certain limitations contained in the
Indenture, the Noteholders evidencing at least a majority in Note Balance of the
related Class of Notes will have the right to direct the time, method, and place
of conducting any proceeding or any remedy available to the Indenture Trustee or
exercising any trust or power conferred on the Indenture Trustee with respect to
such Notes; and the Noteholders evidencing a majority in Note Balance of the
related Class of Notes may, in certain cases, waive any default with respect
thereto, except a default in the payment of principal or interest or a default
in respect of a covenant or provision of the Indenture that cannot be modified
without the waiver
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or consent of each Noteholder of the related Class of Notes affected thereby;
PROVIDED, HOWEVER, that in the absence of a failure by the Note Insurer to pay
Insured Payments, the Note Insurer has all rights of the Noteholders, including
the right to consent to actions.
LIST OF NOTEHOLDERS
Three or more Noteholders (each of whom has owned a Note for
at least six months) may, by written request to the Indenture Trustee, obtain
access to the list of all Noteholders maintained by the Indenture Trustee for
the purpose of communicating with other Noteholders with respect to their rights
under the Indenture. The Indenture Trustee may elect not to afford the
requesting Noteholders access to the list of Noteholders if it agrees to mail
the desired communication or proxy, on behalf of the requesting Noteholders, to
all Noteholders.
THE INDENTURE TRUSTEE
The Bank of New York, a New York chartered banking
corporation, will act as Indenture Trustee for the Notes pursuant to the
Indenture. The Indenture Trustee's offices for notices under the Indenture are
located at 101 Barclay Street, 12th Floor, New York, New York 10268, Attention:
Corporate Trust Administration, RBMG Funding Co. Mortgage Loan Trust 1999-1.
The Indenture will provide that the Indenture Trustee is
entitled to the Indenture Trustee's Fee and reimbursement of certain expenses.
The Indenture Trustee will, upon termination of the Servicer under the Servicing
Agreement, be obligated to succeed to the obligations of the Servicer or to
appoint an eligible successor servicer.
The Indenture will provide that the Indenture Trustee and any
director, officer, employee or agent of the Indenture Trustee will be
indemnified by the Trust and will be held harmless against any loss, liability
or expense (not including expenses, incurred in the ordinary course of the
Indenture Trustee's performance in accordance with the provisions of the
Indenture) incurred by the Indenture Trustee arising out of or in connection
with the acceptance or administration of its obligations and duties under the
Indenture and the other documents to which it is a party, other than any loss,
liability or expense incurred by reason of willful misfeasance, bad faith or
negligence in the performance of the Indenture Trustee's duties under the
Indenture as a result of a breach, or by reason of reckless disregard, of the
Indenture Trustee's obligations and duties under the Indenture.
The Indenture Trustee is eligible to serve as such under the
Indenture only if it is a corporation or banking association organized and doing
business under the laws of the United States or any state thereof, authorized
under such laws to exercise corporate trust powers and subject to supervision or
examination by federal or state authority and has combined capital and surplus
of at least $50,000,000.
The Indenture Trustee may, upon written notice to the
Servicer, the Issuer and all Noteholders, resign at any time, in which event the
Servicer will be obligated to appoint a successor Indenture Trustee. If no
successor Indenture Trustee has been appointed and has accepted appointment
within 30 days after giving such notice of resignation, the resigning Indenture
Trustee may petition any court of competent jurisdiction for appointment of a
successor Indenture Trustee. Any such successor Indenture Trustee must be
approved by the Note Insurer and each Rating Agency. The Indenture Trustee may
also be removed at any time (i) by the Issuer or the Note Insurer, if the
Indenture Trustee ceases to be
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eligible to continue as such as described above or if the Indenture Trustee
shall be adjudged bankrupt or insolvent or a receiver with respect to it or its
property is appointed, (ii) by Noteholders evidencing at least 51% of the
aggregate Note Balance with the consent of the Note Insurer or (iii) by the Note
Insurer. Any removal or resignation of the Indenture Trustee and appointment of
a successor Indenture Trustee as described above will not become effective until
acceptance of appointment by the successor Indenture Trustee.
CERTAIN PREPAYMENT AND YIELD CONSIDERATIONS
GENERAL
The yield to maturity and the aggregate amount of payments on
each Class of Notes will be affected by, among other things, the rate and timing
of principal payments on the Mortgage Loans in the related Group, and the amount
and timing of mortgagor defaults resulting in Realized Losses in such Group.
Such yield may be adversely affected by a higher or lower than anticipated rate
of principal payments on the Mortgage Loans in the related Group. The rate of
principal payments on such Mortgage Loans will in turn be affected by the
amortization schedules of the Mortgage Loans, the rate and timing of principal
prepayments thereon by the mortgagors, liquidations of defaulted Mortgage Loans
and repurchases of Mortgage Loans due to certain breaches of representations and
warranties, and purchases by the Note Insurer or the Servicer. The timing of
changes in the rate of prepayments, liquidations, repurchases and purchases of
the Mortgage Loans may, and the timing of Realized Losses will, significantly
affect the yield to an investor, even if the average rate of principal payments
experienced over time is consistent with an investor's expectation. Certain loss
scenarios could lead to the failure of Noteholders to fully recover their
initial investments. Since the rate and timing of principal payments on the
Mortgage Loans will depend on future events and on a variety of factors (as
described more fully herein), no assurance can be given as to such rate or as to
the timing of principal prepayments on the Notes.
The Mortgage Loans may be prepaid by the mortgagors at any
time; however, in certain circumstances, the Mortgage Loans will be subject to a
prepayment charge. See "Description of the Mortgage Pool" herein. All of the
Mortgage Loans contain due-on-sale clauses. Prepayments, liquidations,
repurchases and purchases of the Mortgage Loans by the Note Insurer or the
Servicer will result in payments to Noteholders of the related Class of Notes of
principal amounts that otherwise would be paid over the remaining terms of the
related Mortgage Loans. Factors affecting prepayment (including defaults and
liquidations) of mortgage loans include changes in mortgagors' housing needs,
job transfers, unemployment, mortgagors' net equity in the mortgaged properties,
changes in the value of the mortgaged properties, mortgage market interest rates
and servicing decisions. Each group of Mortgage Loans consists of Fixed Rate
Loans and Adjustable Rate Loans. If prevailing mortgage rates fell significantly
below the Coupon Rates on the Fixed Rate Loans, the rate of prepayments
(including from refinancing) on such Mortgage Loans would be expected to
increase. Conversely, if prevailing mortgage rates rose significantly above the
Coupon Rates, the rate of prepayments on such Mortgage Loans would be expected
to decrease. Although the Coupon Rates on the Adjustable Rate Loans may change
from time to time, such Coupon Rates might not be consistent with prevailing
rates because of the manner in which such Coupon Rates are computed. In
addition, the Index on such Mortgage Loans may not rise and fall
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consistently with mortgage interest rates generally. Accordingly, the Coupon
Rates on the Adjustable Rate Loans may be higher than mortgage rates generally,
resulting in prepayments when the Coupon Rates on such Mortgage Loans are
increasing.
In addition to the foregoing, the allocation of Excess Cash
for a Group in respect of principal will have the effect of accelerating the
amortization of the related Notes relative to the amortization of the related
Mortgage Loans. This will cause the related Notes to be overcollateralized by
the related Mortgage Loans to the extent that the aggregate Stated Principal
Balance of such Mortgage Loans exceeds the outstanding Note Balance of the
related Notes, and as a result of such accelerated amortization, the weighted
average life of such Notes will be shorter than otherwise would be the case. The
yield to maturity on each Class of Notes will depend on the availability of
Excess Cash for each Group and, consequently, will be sensitive to the rate and
timing of principal payments (including prepayments, repurchases, purchases,
defaults and liquidations) on the Mortgage Loans and to fluctuations in the
level of One-Month LIBOR, which may vary significantly over time. To the extent
that any modification of a Mortgage Loan permitted to be made by the Servicer
pursuant to the Servicing Agreement provides the related mortgagor with a lower
Coupon Rate, Maximum Rate or Monthly Payment than otherwise would be the case,
such modification could cause a corresponding reduction in the amount of the
Excess Cash for the Group available, because the respective amounts of interest
and principal to be distributed on the Notes will be calculated without regard
to such modification and, further, because the Servicer will not be required to
disregard such modification for purposes of making P&I Advances. Any such
reduction in the availability of the Excess Cash for a Group will cause the
amount by which the related Notes are overcollateralized to increase more slowly
than otherwise would be the case.
Because it is impossible to accurately predict the timing and
dollar amount of principal prepayments on the Mortgage Loans, if any, that will
be made, the Noteholders may find it difficult to analyze the effect of
principal prepayments on the yields and weighted average life of the Notes.
The yield to maturity on the Notes will be affected by the
level of One-Month LIBOR, which bears no relationship to the Coupon Rates
applicable to the Fixed Rate Loans and which is different than the Index
applicable to the Adjustable Rate Loans. To the extent that the amount of
interest otherwise payable in respect of the Notes is greater than the amount of
available interest on the Mortgage Loans with respect to any Payment Date,
shortfalls may occur in respect of the Notes. Although the Noteholders will be
entitled to be reimbursed for any such shortfalls as and to the extent described
herein, the yield to Noteholders may be adversely affected by the occurrence of
such shortfalls. See "Risk Factors--Prepayment of the Mortgage Loans May Affect
the Yield to Maturity of the Notes" herein.
The rate of defaults on the Mortgage Loans also will affect
the rate and timing of principal payments on the Mortgage Loans. In general,
defaults on mortgage loans are expected to occur with greater frequency in their
early years. Increases in the Monthly Payments on the Adjustable Rate Loans to
an amount in excess of the Monthly Payment required at their respective dates of
origination may result in a default rate higher than that on level payment
mortgage loans, and the repayment of the Adjustable Rate Loans will be dependent
on the ability of the related mortgagors to make larger Monthly Payments as a
result of increases in the related Coupon Rates. In addition, there is a risk
that the Balloon Loans may default at maturity because the ability of a
mortgagor to make a balloon payment typically
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will depend upon the mortgagor's ability either to refinance the related Balloon
Loan or to sell the related Mortgaged Property. Furthermore, the rate of default
on Mortgage Loans that are refinancings or that were not originated under RBMG's
or Meritage's Full Documentation program also may be higher than for other types
of Mortgage Loans. See "Risk Factors" herein. As a consequence of the
underwriting standards for RBMG's subprime credit risk residential lending
program, the Mortgage Loans are likely to experience rates of delinquency,
foreclosure, bankruptcy and loss that are higher, and, that may be substantially
higher, than those experienced by mortgage loans underwritten in accordance with
the guidelines of Fannie Mae and FHLMC. See "Description of the Mortgage
Pool--Underwriting Standards" herein. Because of such underwriting criteria and
their likely effect on the delinquency, foreclosure, bankruptcy and loss
experience of the Mortgage Loans, the Mortgage Loans will be serviced in a
manner intended to result in a faster exercise of remedies, including
foreclosure, in the event Mortgage Loan delinquencies and defaults occur than
would be the case if the Mortgage Loans were serviced in a more conventional
manner. The rate and timing of prepayments, defaults and liquidations on the
Mortgage Loans will be affected by the general economic condition of the region
of the country in which the related Mortgaged Properties are located. The risk
of delinquencies and loss is greater and prepayments are less likely in regions
where a weak or deteriorating economy or real estate market exists, as may be
evidenced by, among other factors, increasing unemployment or falling property
values.
When a principal prepayment in full is made on a Mortgage
Loan, the mortgagor is charged interest only for the period from the Due Date of
the preceding Monthly Payment up to, but not including, the date of such
prepayment, instead of for a full month. Partial principal prepayments are
applied as of the Due Date on or prior to the date of receipt, with a resulting
reduction in interest payable on the succeeding Due Date. Full or partial
prepayments (or other liquidations) received in any calendar month will be
distributed to Noteholders of the related Class of Notes on the Payment Date in
the month following the month of receipt. With respect to such full or partial
prepayments (or other liquidations), the Servicer is obligated to fund
shortfalls in collection of one full month's interest (adjusted to the related
Net Coupon Rate) but only to the extent of the Servicing Fee otherwise payable
to the Servicer for the related Due Period. Accordingly, to the extent any such
shortfall in interest collections exceeds the amount that the Servicer is
obligated to fund, the effect of any such principal prepayment will be to reduce
the aggregate amount of interest that is available for payment to the
Noteholders. "Net Coupon Rate" means, with respect to any Mortgage Loan, a per
annum rate of interest equal to the applicable Coupon Rate minus the Servicing
Fee Rate.
In addition, the yield to maturity of each Class of Notes will
depend on the prices paid by the Noteholders and the related Note Interest Rate.
The extent to which the yield to maturity of a Note is sensitive to prepayments
will depend upon the degree to which it is purchased at a discount or premium.
WEIGHTED AVERAGE LIFE OF THE NOTES
Weighted average life refers to the average amount of time
that will elapse from the date of issuance of a security to the date of payment
to the investor of each dollar paid in reduction of principal of such security
(assuming no losses). The weighted average life of each Class of Notes will be
influenced by, among other things, the rate at which principal of the related
Mortgage Loans is paid, which may be in the form of scheduled amortization,
prepayments or liquidations.
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<PAGE>
The model used in this Prospectus Supplement is a prepayment
assumption (the "Prepayment Assumption") which represents an assumed rate of
prepayment each month relative to the then outstanding principal balance of a
pool of mortgage loans for the life of such mortgage loans. The tables relating
to the Fixed Rate Loans are modeled at various Home Equity Prepayment ("HEP")
assumptions. HEP assumes that a pool of loans prepays in the first month at a
constant prepayment rate ("CPR") that corresponds in CPR to one-tenth the given
HEP percentage and increases by an additional one-tenth each month thereafter
until the tenth month, where it remains at a CPR equal to the given HEP
percentage. With respect to Fixed Rate Loans, the "100% Prepayment Assumption"
assumes a CPR of 2.5% of the then outstanding principal balance of the
respective Fixed Rate Loans in the first month of the life of such Mortgage
Loans and an additional 2.5% per annum, respectively, in each month thereafter
until the tenth month. Beginning in the tenth month and in each month thereafter
during the life of the respective Mortgage Loans, the "100% Prepayment
Assumption" with respect to the Fixed Rate Loans assumes a CPR of 25% per annum.
With respect to the Adjustable Rate Loans, the "100% Prepayment Assumption"
assumes a CPR of 27% per annum of the then outstanding principal balance of the
Adjustable Rate Loans each month. As used in the table below, 0% Prepayment
Assumption assumes prepayment rates equal to 0% of the Prepayment Assumption,
i.e., no prepayments on the Mortgage Loans having the characteristics described
below. Correspondingly, 100% Prepayment Assumption assumes prepayment rates
equal to 100% of the related Prepayment Assumption, 125% Prepayment Assumption
assumes 125% of each of the rates described above; 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,
including the related mortgage loans.
The tables below have been prepared assuming (i) all
distributions with respect to the Notes will be made at the scheduled times as
described below under "Description of the Notes--Payments on the Notes," (ii)
distributions on the Notes are received in cash on the 25th day of each month,
commencing in July 1999, (iii) prepayments represent payment in full of
individual Mortgage Loans and are received on the last day of each month
(commencing in June 1999) and include 30 days' interest thereon, (iv) the
Servicing Fee for each Loan will be 0.44% per annum of the principal balance
thereof and that all other fees will be as set forth in the Agreement, (v) no
delinquencies or defaults in payments by mortgagors of principal and interest on
the Mortgage Loans are experienced, (vi) no right of optional termination is
exercised except as noted in the tables below, (vii) the Notes are purchased on
June 7, 1999, (viii) with respect to the Mortgage Loans, six-month LIBOR remains
constant at 5.17938%, (ix) with respect to the Notes, one-month LIBOR remains
constant at 4.9175%, (x) the Coupon Rates on the Adjustable Rate Loans in each
type are adjusted on the respective due dates specified in the columns entitled
"Number of Months until Next Interest Rate Adjustment," and thereafter with the
frequency indicated in the columns entitled "Frequency of Rate Adjustment in
Months," to equal the sum of the related Index and Gross Margin, subject to the
related Periodic Rate Caps, Maximum Rates and Minimum Rates, (xi) all of the
Mortgage Loans prepay at the indicated percentage of the related Prepayment
Assumption (such assumptions, collectively, the "Structuring Assumptions").
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<PAGE>
GROUP I MORTGAGE LOANS: ASSUMED COLLATERAL CHARACTERISTICS
<TABLE>
<CAPTION>
Remaining
Term to Remaining Original
Aggregate Maturity Amortization Amortization
Principal Gross in Term in Term in Minimum
Loan Type Balance Coupon Months Months Months Rate
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
15 Yr Fixed $ 415,318.42 10.3001% 177 177 180 N/A
30 Yr Fixed 6,037,207.89 10.3973 358 358 360 N/A
30 Yr Balloon 4,371,746.37 10.9729 178 358 360 N/A
2 Yr/6 Mth 15,113,562.39 10.1058 357 357 360 10.1058%
3 Yr/6 Mth 49,095,738.59 9.5985 358 358 360 9.5985
<CAPTION>
Number of
Months
Until
Next Frequency
Initial Subsequent Interest of Rate
Periodic Periodic Maximum Gross Rate Adjustment
Loan Type Rate Cap Rate Cap Rate Margin Adjustment in Months
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
15 Yr Fixed N/A N/A N/A N/A N/A N/A
30 Yr Fixed N/A N/A N/A N/A N/A N/A
30 Yr Balloon N/A N/A N/A N/A N/A N/A
2 Yr/6 Mth 3.0000% 1.5000% 17.1058% 6.6489% 22 6
3 Yr/6 Mth 3.0000 1.5000 16.5975 6.3278 35 6
</TABLE>
<TABLE>
<CAPTION>
GROUP II MORTGAGE LOANS: ASSUMED COLLATERAL CHARACTERISTICS
Remaining Remaining Original
Aggregate Term to Amortization Amortization
Principal Gross Maturity Term in Term in Minimum
Loan Type Balance Coupon in Months Months Months Rate
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
15 Yr Fixed $ 155,649.44 10.5732% 174 174 180 N/A
30 Yr Fixed 3,571,253.23 10.2075 357 357 360 N/A
30 Yr Balloon 3,090,236.61 10.7014 176 356 360 N/A
6 Mth LIBOR 183,565.49 11.0169 353 353 360 10.4944%
2 Yr/6 Mth 13,123,778.18 10.0699 356 356 360 10.0699
3 Yr/6 Mth 29,877,941.43 9.6059 357 357 360 9.6059
<CAPTION>
Number of
Months
Until
Next Frequency
Initial Subsequent Interest of Rate
Periodic Periodic Maximum Gross Rate Adjustment
Loan Type Rate Cap Rate Cap Rate Margin Adjustment in Months
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
15 Yr Fixed N/A N/A N/A N/A N/A N/A
30 Yr Fixed N/A N/A N/A N/A N/A N/A
30 Yr Balloon N/A N/A N/A N/A N/A N/A
6 Mth LIBOR 1.5000% 1.5000% 17.4944% 6.9944% 2 6
2 Yr/6 Mth 3.0000 1.5000 17.0699 6.5709 21 6
3 Yr/6 Mth 3.0000 1.5000 16.6059 6.4121 34 6
</TABLE>
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<PAGE>
The actual characteristics and performance of the Mortgage
Loans will differ from the assumptions used in constructing the tables set forth
below, which are hypothetical in nature and are provided only to give a general
sense of how the principal cashflows might behave under varying prepayment
scenarios. For example, the Servicer might exercise its option to purchase the
Mortgage Loans as described under "Servicing of the Mortgage Loans--Termination"
herein, and it is very unlikely that the Mortgage Loans will prepay at a
constant prepayment assumption until maturity or that all of the Mortgage Loans
will prepay at the same percentage of the related Prepayment Assumption.
Moreover, the diverse remaining terms to maturity of the Mortgage Loans could
produce slower or faster principal payments than indicated in the tables at the
various prepayment assumptions specified, even if the various weighted average
remaining terms to maturity of the Mortgage Loans are as assumed. Any difference
between such assumptions and the actual characteristics and performance of the
Mortgage Loans, or the actual prepayment or loss experience, will affect the
percentages of Original Note Balance outstanding over time and the weighted
average life of the Notes.
Subject to the foregoing discussion and assumptions, the
tables below indicate the weighted average life of the Notes and sets forth the
percentages of the Original Note Balance that would be outstanding after each of
the Payment Dates shown at various percentages of the related Prepayment
Assumption.
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<PAGE>
<TABLE>
<CAPTION>
CLASS A-1 NOTES PERCENTAGE OF ORIGINAL NOTE BALANCE
OUTSTANDING AT THE FOLLOWING PREPAYMENT ASSUMPTIONS
Payment Date PPA (1) 0% 75% 100% 125% 150% 175%
- ------------------------------ ------------- ------------ ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage 100 100 100 100 100 100
June 25, 2000 96 77 70 64 58 51
June 25, 2001 93 58 48 39 31 24
June 25, 2002 93 45 34 24 16 10
June 25, 2003 92 36 25 17 12 7
June 25, 2004 92 29 19 12 7 4
June 25, 2005 91 23 13 8 4 2
June 25, 2006 90 18 10 5 2 0
June 25, 2007 89 14 7 3 1 0
June 25, 2008 88 11 5 2 0 0
June 25, 2009 87 9 3 1 0 0
June 25, 2010 85 7 2 0 0 0
June 25, 2011 84 5 1 0 0 0
June 25, 2012 82 4 1 0 0 0
June 25, 2013 80 3 0 0 0 0
June 25, 2014 73 2 0 0 0 0
June 25, 2015 71 1 0 0 0 0
June 25, 2016 69 1 0 0 0 0
June 25, 2017 66 1 0 0 0 0
June 25, 2018 63 0 0 0 0 0
June 25, 2019 60 0 0 0 0 0
June 25, 2020 56 0 0 0 0 0
June 25, 2021 52 0 0 0 0 0
June 25, 2022 47 0 0 0 0 0
June 25, 2023 42 0 0 0 0 0
June 25, 2024 36 0 0 0 0 0
June 25, 2025 30 0 0 0 0 0
June 25, 2026 24 0 0 0 0 0
June 25, 2027 16 0 0 0 0 0
June 25, 2028 8 0 0 0 0 0
June 25, 2029 0 0 0 0 0 0
Weighted Average Life to
Maturity in Years (2) 20.15 4.02 2.98 2.32 1.87 1.54
Weighted Average Life To
Call in Years (2) 20.10 3.69 2.73 2.13 1.72 1.36
- ---------------------------
</TABLE>
(1) The percentage of the related prepayment assumption ("PPA") for the Fixed
Rate Mortgage Loans and the Adjustable Rate Mortgage Loans.
(2) The weighted average life of a Note is determined by (i) multiplying the
amount of each payment in reduction of the Note Balance by the number of
years from the date of issuance of the Note to the related Payment Date,
(ii) adding the results and (iii) dividing the sum by the Original Note
Balance of the Note.
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<PAGE>
<TABLE>
<CAPTION>
CLASS A-2 NOTES PERCENTAGE OF ORIGINAL NOTE BALANCE
OUTSTANDING AT THE FOLLOWING PREPAYMENT ASSUMPTIONS
Payment Date PPA (1) 0% 75% 100% 125% 150% 175%
- ------------------------------ ------------- ------------ ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage 100 100 100 100 100 100
June 25, 2000 96 76 70 64 57 51
June 25, 2001 94 58 48 39 31 24
June 25, 2002 93 45 34 24 16 10
June 25, 2003 92 36 25 17 11 7
June 25, 2004 92 28 18 11 7 3
June 25, 2005 91 23 13 8 4 1
June 25, 2006 90 18 10 5 2 0
June 25, 2007 89 14 7 3 1 0
June 25, 2008 88 11 5 2 0 0
June 25, 2009 87 9 3 1 0 0
June 25, 2010 85 7 2 0 0 0
June 25, 2011 84 5 1 0 0 0
June 25, 2012 82 4 1 0 0 0
June 25, 2013 80 3 0 0 0 0
June 25, 2014 73 2 0 0 0 0
June 25, 2015 71 1 0 0 0 0
June 25, 2016 69 1 0 0 0 0
June 25, 2017 66 1 0 0 0 0
June 25, 2018 63 0 0 0 0 0
June 25, 2019 59 0 0 0 0 0
June 25, 2020 56 0 0 0 0 0
June 25, 2021 51 0 0 0 0 0
June 25, 2022 46 0 0 0 0 0
June 25, 2023 41 0 0 0 0 0
June 25, 2024 36 0 0 0 0 0
June 25, 2025 30 0 0 0 0 0
June 25, 2026 23 0 0 0 0 0
June 25, 2027 15 0 0 0 0 0
June 25, 2028 7 0 0 0 0 0
June 25, 2029 0 0 0 0 0 0
Weighted Average Life to
Maturity in Years (2) 20.09 4.00 2.96 2.31 1.85 1.52
Weighted Average Life To
Call in Years (2) 20.05 3.67 2.72 2.12 1.71 1.35
</TABLE>
- ---------------------------
(1) The percentage of the related prepayment assumption ("PPA") for the Fixed
Rate Mortgage Loans and the Adjustable Rate Mortgage Loans.
(2) The weighted average life of a Note is determined by (i) multiplying the
amount of each payment in reduction of the Note Balance by the number of
years from the date of issuance of the Note to the related Payment Date,
(ii) adding the results and (iii) dividing the sum by the Original Note
Balance of the Note.
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<PAGE>
SERVICING OF THE MORTGAGE LOANS
GENERAL
RBMG will act as servicer (in such capacity, the "Servicer")
of the Mortgage Loans and, in such capacity, will have limited obligations that
arise pursuant to certain representations and warranties and to its contractual
servicing obligations under the servicing agreement (the "Servicing Agreement")
to be entered into among the Servicer, the Issuer and the Indenture Trustee,
including the obligation to advance delinquent payments of principal and
interest on the Mortgage Loans to the extent provided herein. RBMG has engaged
Ocwen Federal Bank FSB to act as its sub-servicer (the "Sub-Servicer") to
perform the servicing of the Mortgage Loans on its behalf. The Sub-Servicer will
commence servicing of the Mortgage Loans on or before June 24, 1999, pursuant to
a sub-servicing agreement between the Sub-Servicer and the Servicer (the
"Sub-Servicing Agreement"). Reference is made to the Servicing Agreement for
important information in addition to that set forth herein regarding the terms
and conditions of the Servicing Agreement.
Under the terms of the Servicing Agreement, the Servicer is to
service and administer the Mortgage Loans in accordance with the policies,
procedures and practices customarily employed by the Servicer in servicing other
comparable mortgage loans and pursuant to the provisions of the Servicing
Agreement. The Servicer plans to effect the servicing of the Mortgage Loans
through the engagement of the Sub-Servicer pursuant to the Sub-Servicing
Agreement. Under the Sub-Servicing Agreement, the Sub-Servicer will perform most
of the tasks specified to be performed by the Servicer in this Prospectus
Supplement and in the Prospectus and shall be entitled to certain of the same
rights of the Servicer set forth in the Servicing Agreement. As such, references
herein and in the Prospectus to certain actions to be performed by the Servicer
shall be deemed to include those actions performed by the Sub-Servicer as well.
Accordingly, the standards to be observed by the Servicer in the performance of
its duties under the Servicing Agreement shall also include the standards
customarily observed by the Sub-Servicer in the performance of its servicing
functions with respect to Mortgage Loans for its own account. Moreover, the
servicing performance history of the Sub-Servicer may be of relevance to an
assessment of the performance of the Mortgage Loans in the Trust.
Generally, servicing includes, but is not limited to,
post-origination loan processing, customer service, remittance handling,
collections and liquidations. Consistent with the servicing standard described
in the foregoing paragraph, the Servicer in its own name may (a) waive any
assumption fees, late payment charges, charges for checks returned for
insufficient funds or other fees that may be collected in the ordinary course of
servicing a Mortgage Loan, (b) arrange a schedule for the payment of delinquent
payments on the related Mortgage Loan, subject to conditions set forth in the
Servicing Agreement, if a mortgagor is in default or about to be in default
because of such mortgagor's financial condition, or (c) modify Monthly Payments
on Mortgage Loans in accordance with the Servicer's general policy on Mortgage
Loans subject to the Relief Act; PROVIDED, HOWEVER, the Servicer may not,
without the prior consent of the Note Insurer, permit any waiver, modification
or variance of a Mortgage Loan which would (i) change the Coupon Rate, (ii)
forgive the payment of any principal or interest, (iii) lessen the lien priority
of the Mortgage Loan or (iv) extend the final maturity date on a Mortgage Loan
past twelve months prior to the maturity date of the Notes, in any case except
to the extent
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<PAGE>
required under the Relief Act. The Servicer, acting as agent for the Indenture
Trustee, will not consent to the subsequent placement of a deed of trust or
mortgage, as applicable, on any Mortgaged Property that is of equal or higher
priority to that of the lien securing the related Mortgage Loan unless such
Mortgage Loan is prepaid in full and thereby removed from the related Group.
CUSTOMARY SERVICING PROCEDURES
The procedures of the Servicer with respect to day to day
servicing of the Mortgage Loans may vary considerably depending on the
particular Mortgage Loan, the Mortgaged Property, the mortgagor, the
availability of an acceptable party to assume a Mortgage Loan and the laws of
the jurisdiction in which the Mortgaged Property is located. Although mortgagors
generally make loan payments within ten to fifteen days after the due date, if a
mortgagor fails to pay the Monthly Payment within such time period, the Servicer
will commence collection efforts by notifying the mortgagor of the delinquency.
Under the terms of each Mortgage Loan, the mortgagor agrees to pay a late charge
(which the Servicer is entitled to retain as additional servicing compensation
under the Servicing Agreement) if a Monthly Payment on a Mortgage Loan is not
received within the number of days specified in the Mortgage Note after its Due
Date. If the Mortgage Loan remains delinquent, the Servicer will attempt to
contact the mortgagor to determine the cause of the delinquency and to obtain a
commitment to cure the delinquency at the earliest possible time.
As a general matter, if efforts to obtain payment have not
been successful shortly after the Due Date of the next subsequently scheduled
installment, a pre-foreclosure notice will be sent to the mortgagor providing 30
days' notice of impending foreclosure action. During the 30-day notice period,
collection efforts continue. However, if no substantial progress has been made
in obtaining delinquent monies from the mortgagor, foreclosure proceedings will
be commenced.
Regulations and practices regarding foreclosure vary greatly
from state to state. Generally, the Servicer will have commenced foreclosure
proceedings prior to the time when a loan is 90 days delinquent. If the Servicer
determines that purchasing a Mortgaged Property securing a Mortgage Loan will
minimize the loss associated with such defaulted loan, the Servicer may bid at
the foreclosure sale for such Mortgaged Property or accept a deed in lieu of
foreclosure. After the Servicer converts title to a Mortgaged Property into the
name of the Indenture Trustee on behalf of the Noteholders and the Note Insurer
by foreclosure or deed in lieu of foreclosure, a real estate broker will be
selected to market the Mortgaged Property.
Generally, the Servicer in its own name will be authorized and
empowered pursuant to the Servicing Agreement (i) to execute and deliver on
behalf or in the name of the Indenture Trustee (or procure the execution and
delivery by the Indenture Trustee of) any and all instruments of satisfaction or
cancellation or of partial or full release or discharge and all other comparable
instruments with respect to the Mortgage Loans and with respect to the Mortgaged
Properties and (ii) to institute foreclosure proceedings or obtain deeds in lieu
of foreclosure so as to convert title to any Mortgaged Property in the name of
the Indenture Trustee on behalf of the Noteholders and the Note Insurer.
S-101
<PAGE>
THE SUB-SERVICER
The information set forth in the following paragraphs has been
provided by Ocwen Federal Bank FSB. None of the Issuer, RBMG, the Company,
Funding Co., the Depositor, the Indenture Trustee, the Owner Trustee, the Note
Insurer or any of their respective affiliates have made or will make any
representation as to the accuracy or completeness of such information.
The Sub-Servicer is a federally-chartered savings bank, with
its home office in Fort Lee, New Jersey and its servicing operations and
corporate offices in West Palm Beach, Florida. The Sub-Servicer is a
wholly-owned subsidiary of Ocwen Financial Corporation, a public financial
services holding company. As of March 31, 1999, the Sub-Servicer had
approximately $2.27 billion in assets, approximately $2.02 billion in
liabilities and approximately $251.2 million in equity. As of March 31, 1999,
the Sub-Servicer's tangible and leveraged capital ratio was approximately 10.83%
and its risk-based capital ratio was approximately 19.35%. For the three months
ended March 31, 1999, the Sub-Servicer's net income was approximately $13.2
million.
The major business of the Sub-Servicer has been the resolution
of non-performing single-family, multi-family and commercial mortgage loan
portfolios acquired from the Resolution Trust Corporation, from private
investors, and most recently, from the Department of Housing and Urban
Development ("HUD") through HUD's auction of defaulted Federal Housing
Administration loans.
The following table sets forth, for the non-conforming credit
mortgage loans (the "BCD Mortgage Loan Servicing Portfolio") serviced by the
Sub-Servicer, certain information relating to the delinquency experience
(including loans in foreclosure included in the Sub-Servicer's servicing
portfolio (which portfolio does not include mortgage loans that are sub-serviced
by others)) at the end of the indicated periods. The indicated periods of
delinquency are based on the number of days past due on a contractual basis. No
mortgage loan is considered delinquent for these purposes until it is one month
past due on a contractual basis. The information contained in the monthly
remittance reports that will be sent to investors will be compiled using the
same methodology as that used to compile the information contained in the table
below.
S-102
<PAGE>
<TABLE>
<CAPTION>
DELINQUENCIES AND FORECLOSURES
(Dollars in Thousands)
As of December 31, 1997 As of December 31, 1998
----------------------- -----------------------
Percent Percent
------- -------
By By By By
By Number Dollar By Number Dollar By Number Dollar By Number Dollar
of Loans Amount of Loans Amount of Loans Amount of Loans Amount
-------- ------ -------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Portfolio 21,827 $2,318,261 100.00% 100.00% 68,274 $6,099,336 100.00% 100.00%
Period of Delinquency (1)
30-59 days 437 $ 41,429 2.00% 1.79% 3,325 $ 265,396 4.87% 4.35%
60-89 days 171 $ 17,803 0.78% 0.77% 1,555 $ 129,439 2.28% 2.12%
90 days or more 302 $ 36,878 1.38% 1.59% 6,322 $ 561,709 9.26% 9.21%
Total Delinquent Loans (1) 910 $ 96,110 4.17% 4.15% 11,202 $ 956,545 16.41% 15.68%
Loans in Foreclosure (2) 281 $ 34,663 1.29% 1.50% 3,158 $ 297,859 4.63% 4.88%
<CAPTION>
As of March 31, 1999
Percent
-------
By By
By Number Dollar By Number Dollar
of Loans Amount of Loans Amount
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Total Portfolio 62,980 $5,654,764 100.00% 100.00%
Period of Delinquency (1)
30-59 days 2,594 $ 219,799 4.12% 3.89%
60-89 days 1,214 $ 107,992 1.93% 1.91%
90 days or more 7,570 $ 677,256 12.02% 11.97%
Total Delinquent Loans (1) 11,378 $1,005,047 18.07% 17.77%
Loans in Foreclosure (2) 4,001 $ 371,726 6.35% 6.57%
</TABLE>
(1) Includes 8,429 loans totaling $674,818,182 for March 31,1999 which were
delinquent at the time of transfer to the Sub-Servicer.
(2) Loans in foreclosure are also included under the heading "Total Delinquent
Loans."
The following tables set forth, for the BCD Mortgage Loan
servicing portfolio serviced by the Sub-Servicer, certain information relating
to the foreclosure experience of the mortgage loans included therein (which
portfolio does not include mortgage loans that are sub-serviced by others) at
the end of the indicated periods.
S-103
<PAGE>
<TABLE>
<CAPTION>
REAL ESTATE OWNED
(Dollars in Thousands)
As of December 31, 1997 As of December 31, 1998 As of March 31, 1999
----------------------- ----------------------- --------------------
By Number of By Dollar By Number of By Dollar By Number of By Dollar
Loans Amount Loans Amount Loans Amount
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio 21,827 $ 2,318,261 68,274 $ 6,099,336 62,980 $ 5,654,764
Foreclosed Loans (1, 2) 66 $ 7,387 808 $ 70,592 998 $ 91,127
Foreclosure Ratio (3) 0.30% 0.32% 1.18% 1.16% 1.58% 1.61%
- ------------------------
</TABLE>
(1) For the purposes of these tables, "Foreclosed Loans" means the principal
balance of mortgage loans secured by mortgaged properties the title to
which has been acquired by the Sub-Servicer.
(2) The "Foreclosure Ratio" is equal to the aggregate principal balance or
number of Foreclosed Loans divided by the aggregate principal balance, or
number, as applicable, of mortgage loans in the Total Portfolio at the end
of the indicated period.
<TABLE>
<CAPTION>
LOAN GAIN/(LOSS) EXPERIENCE
(Dollars in Thousands)
As of As of As of
December 31, 1997 December 31, 1998 March 31, 1999
----------------- ----------------- --------------
<S> <C> <C> <C>
Total Portfolio (1) $2,318,261 $6,099,336 $5,654,764
Net Gain/(Losses) (2, 3) ($1,209) ($26,068) ($42,713)
Net Gain/(Losses) as a Percentage of Total
Portfolio -0.05% -0.43% -0.76%
</TABLE>
--------------------
(1) "Total Portfolio" on the date stated above is the principal balance of
the mortgage loans outstanding on the last day of the period.
(2) "Net Gain/(Losses)" are actual gains or losses incurred on liquidated
properties and shortfall payoffs for each respective period. Gains or
losses on liquidated properties are calculated as net sales proceeds
less book value (exclusive of loan purchase premium or discount).
Shortfall payoffs are calculated as the difference between principal
payoff amount and unpaid principal at the time of payoff.
(3) Includes $14,536,232 as of March 31, 1999 of losses attributable to
loans which were delinquent at the time of transfer to the
Sub-Servicer.
S-104
<PAGE>
<TABLE>
<CAPTION>
RBMG SUBPRIME PORTFOLIO
DELINQUENCIES AND FORECLOSURES
(Dollars in Thousands)
As of December 31, 1997
-----------------------
By Percent Percent
No. By By
of By Dollar Number Dollar
Loans Amount of Loans Amount
<S> <C> <C> <C> <C>
Total Portfolio 1,590 $ 178,427 100.00% 100.00%
Period of Delinquency(1)
30-59 Days 28 $ 2,631 2.00% 1.79%
60-89 Days 22 $ 1,532 0.78% 0.77%
90 Days or More 10 $ 914 1.38% 1.59%
Total Delinquent Loans 60 $, 5,077 4.17% 4.15%
Loans in Foreclosure (2) 1 $ 35 1.29% 1.50%
<CAPTION>
As of December 31, 1998 As of March 31, 1999
----------------------- --------------------
By No. Percent Percent
of By By Percent Percent By
Loans By Dollar Number Dollar By No. By Dollar By Number Dollar
Amount of Loans Amount of Loans Amount of Loans Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Portfolio 3,513 $ 392,766 100.00% 100.00% 3,657 $ 404,213 100.00% 100.00%
Period of Delinquency(1)
30-59 Days 96 $ 8,841 2.73% 2.25% 94 $ 10,261 2.57% 2.54%
60-89 Days 30 $ 3,224 0.85% 0.82% 48 $ 5,839 1.31% 1.44%
90 Days or More 125 $ 13,196 3.56% 3.36% 161 $ 16,312 4.40% 4.04%
Total Delinquent Loans 251 $ 25,261 7.14% 6.43% 303 $ 32,412 8.28% 8.02%
Loans in Foreclosure (2) 55 $ 5,778 1.57% 1.47% 79 $ 8,452 2.16% 2.09%
</TABLE>
(1) Includes 45 loans totaling $4,862,555 for March 31, 1999 which were
delinquent at the time of transfer to the Sub-Servicer
(2) Loans in foreclosure are also included under the heading "Total Delinquent
Loans."
S-105
<PAGE>
It is unlikely that the delinquency experience of the Mortgage
Loans will correspond to the delinquency experience of the Sub-Servicer's BCD
Mortgage Loan Portfolio set forth in the foregoing tables. It should be noted
that if the residential real estate market should experience an overall decline
in property values, the actual rates of delinquencies and foreclosures could be
higher than those previously experienced by the Sub-Servicer. In addition,
adverse economic conditions may affect the timely payment by Mortgagors of
scheduled payments of principal and interest and payments of arrearages on the
Mortgage Loans and, accordingly, the actual rates of delinquencies and
foreclosures with respect to the Mortgage Pool.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The primary compensation payable to the Servicer on each
Payment Date (the "Servicing Fee") will equal one-twelfth (1/12) of the product
of (a) the Servicing Fee Rate and (b) the aggregate Mortgage Pool Balance of
both Groups as of the first day of the related Due Period. The Servicer shall be
entitled to retain the Servicing Fee from amounts to be deposited in the
Collection Account. As additional servicing compensation, the Servicer will be
entitled to retain all assumption fees, prepayment charges and late payment
charges and certain other amounts and charges, to the extent collected from
mortgagors, together with any interest or other income earned on funds held in
the Collection Account and any escrow accounts. The Sub-Servicing Agreement
shall provide for the compensation of the Sub-Servicer.
For any Payment Date for so long as RBMG is the Servicer, the
Servicing Fee Rate is equal to 0.44% per annum; provided, however, that if
necessary to obtain the appointment of a successor servicer or successor
sub-servicer, the Servicing Fee Rate may increase up to 0.50% per annum. The
payment of any increased Servicing Fee would reduce the amount of Excess Cash.
With respect to any full or partial prepayments (or other
liquidations), the Servicer is obligated on any Payment Date to fund shortfalls
in collection of one full month's interest (adjusted to the related Net Coupon
Rate) but only to the extent of the Servicing Fee otherwise payable to the
Servicer for the related Due Period.
Subject to its right to refuse to make Nonrecoverable Advances
as described herein, the Servicer will be required to pay all reasonable and
customary "out-of-pocket" costs and expenses incurred in the performance of its
servicing obligations, including, but not limited to, the payment of fees for
any sub-servicer, including the Sub-Servicer, and the cost of (i) any
enforcement or judicial proceedings relating to the mortgagors, including
foreclosures, and (ii) the management and liquidation of Mortgaged Properties
acquired in satisfaction of the related Mortgage Loans. Such expenditures (each,
a "Servicing Advance") may include costs of collection efforts, reappraisals,
forced placement of hazard insurance if a mortgagor allows his hazard policy to
lapse, legal fees in connection with foreclosure actions, advancing delinquent
property taxes and upkeep and maintenance of the Mortgaged Property if it is
acquired through foreclosure, and similar types of expenses.
The Servicing Agreement provides that the Servicer may pay all
or a portion of any Servicing Advance out of amounts on deposit in the
Collection Account that are being held for payment
S-106
<PAGE>
on a subsequent Payment Date relating to such Collection Period; any such
amounts so used are required to be replaced by the Servicer by deposit to the
Collection Account on or before the Servicer Remittance Date relating to such
subsequent Payment Date.
The Servicer may recover Servicing Advances, if not
theretofore recovered from the mortgagor on whose behalf such Servicing Advance
was made, from subsequent collections on the related Mortgage Loan, including
Liquidation Proceeds, Insurance Proceeds and such other amounts as may be
collected by the Servicer from the mortgagor or otherwise relating to the
Mortgage Loan. To the extent the Servicer, in its good faith business judgment
determines that any Servicing Advance will be or has become a Nonrecoverable
Advance, the Servicer may reimburse itself for such advance from the Collection
Account.
The Servicer will not be required to make any Servicing
Advance that it determines would be a Nonrecoverable Advance if made.
SUB-SERVICERS
The Servicer is permitted under the Servicing Agreement to
enter into servicing arrangements with sub-servicers meeting the requirements of
the Servicing Agreement. Notwithstanding any sub-servicing arrangements, the
Servicer will not be relieved of its obligations to the Indenture Trustee and
the Noteholders under the Servicing Agreement and the 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. On the Closing Date,
the Servicer shall enter into the Sub-Servicing Agreement with the Sub-Servicer
described above under "--General."
STANDARD HAZARD INSURANCE POLICIES
The terms of the Mortgage Loans require each mortgagor to
maintain a hazard insurance policy. Additionally, the Servicing Agreement will
require the Servicer to cause to be maintained on property acquired upon
foreclosure, or in deed-in-lieu of foreclosure, of any Mortgage Loan, fire
insurance with extended coverage in an amount at least equal to the lesser of
the unpaid principal balance of the Mortgage Loan and the replacement value of
the improvements securing the Mortgage Loan, but in no event lower than the
amount necessary to avoid the application of a co-insurance clause in the
related insurance policy.
As set forth in the Servicing Agreement, all amounts collected
by the Servicer under any insurance policy (except for amounts to be applied to
the restoration or repair of the Mortgaged Property or released to the mortgagor
in accordance with the Servicer's normal servicing procedures) will be deposited
initially in the Collection Account, subject to withdrawal in accordance with
the Servicing Agreement. The Servicing Agreement provides that the Servicer may
satisfy its obligation to cause hazard policies to be maintained by maintaining
a blanket policy insuring against losses on the Mortgage Loans. If such blanket
policy contains a deductible clause the Servicer will deposit in the Collection
Account all sums that would have been deposited therein but for such clause.
In general, the standard form of fire and extended coverage
policy covers physical damage to or destruction of the improvements on the
property by fire, lightning, explosion, smoke, windstorm, hail, riot, strike and
civil commotion, subject to the conditions and exclusions specified in
S-107
<PAGE>
each policy. Although the policies relating to the Mortgage Loans will be
underwritten by different insurers under different state laws in accordance with
different applicable state forms and therefore will not contain identical terms
and conditions, the basic terms thereof are dictated by respective state laws,
and most such policies typically do not cover any physical damage resulting from
the following: war, revolution, government actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and
mudflows), nuclear reactions, wet or dry rot, vermin, rodents, insects or
domestic animals, theft, mortgagor waste and, in certain cases, vandalism. The
foregoing list is merely indicative of certain kinds of uninsured risks and is
not intended to be all-inclusive. Whenever the improvements securing a Mortgage
Loan are located in a federally designated special flood hazard area, the
Servicing Agreement requires the Servicer to cause to be maintained for each
such Mortgage Loan serviced, flood insurance (to the extent available) in an
amount equal in general to the lesser of the amount required to compensate for
any loss on a replacement cost basis or the maximum insurance available under
the federal flood insurance program.
Pursuant to the terms of the Mortgage Loans, mortgagors
generally are required to present claims to insurers under hazard insurance
policies maintained on the Mortgaged Properties. The Servicer, on behalf of the
Indenture Trustee and Noteholders, is obligated to present claims under any
blanket insurance policy insuring against hazard losses on the Mortgaged
Properties. However, the ability of the Servicer to present such claims is
dependent upon the extent to which information in this regard is furnished to
the Servicer or any sub-servicer by mortgagors.
PAYMENTS ON MORTGAGE LOANS; COLLECTION ACCOUNT
The Servicer will establish and maintain one or more accounts
(collectively, the "Collection Account") in which the Servicer will deposit or
cause to be deposited on a daily basis, or as and when received from
sub-servicers or deposited directly by sub-servicers, the following payments and
collections received or made by or on behalf of it subsequent to the Cut-Off
Date, or received by it prior to the Cut-Off Date but allocable to a period
subsequent thereto (other than in respect of principal and interest on the
Mortgage Loans due on or before the Cut-Off Date):
(i) all payments on account of principal, including
principal prepayments, on the Mortgage Loans in
each Group;
(ii) all payments on account of interest on the
Mortgage Loans, net of the related Servicing Fee
in each Group;
(iii) all Insurance Proceeds and Liquidation Proceeds,
other than proceeds that represent reimbursement
of costs and expenses incurred by the Servicer
in connection with presenting claims under the
related Insurance Policies, Liquidation Proceeds
and REO Proceeds;
(iv) all proceeds of any Mortgage Loan or REO
Property in each Group repurchased or purchased
in accordance with the Servicing Agreement;
(v) any amounts required to be deposited pursuant to
the Servicing Agreement; and
(vi) all amounts transferred from the Note Accounts
to the Collection Account in accordance with the
Servicing Agreement.
S-108
<PAGE>
Notwithstanding the foregoing, the Servicer may make
withdrawals from the Collection Account (or net amounts prior to making deposits
in the Collection Account) only for the following purposes: (a) to make deposits
into the Note Accounts on each Servicer Remittance Date as described in the
Servicing Agreement; (b) to pay itself any related monthly Servicing Fees and
other items of servicing compensation and investment income on Permitted
Investments to the extent permitted by the Servicing Agreement; (c) to make any
Servicing Advance to the extent permitted by the Servicing Agreement or to
reimburse itself for any Servicing Advance or P&I Advance previously made to the
extent permitted by the Servicing Agreement; (d) to withdraw amounts that have
been deposited into the Collection Account in error; (e) to clear and terminate
the Collection Account and (f) to reimburse the Indenture Trustee, the Servicer
and the Issuer for certain amounts to the extent permitted under the Servicing
Agreement or the Indenture.
All or a portion of the Collection Account may be invested and
reinvested in one or more Permitted Investments bearing interest or sold at a
discount, at the Servicer's direction. The Indenture Trustee, the Servicer or
any affiliate thereof may be the obligor on any investment in any Collection
Account that otherwise qualifies as a Permitted Investment. No investment in the
Collection Account may mature later than the Servicer Remittance Date next
succeeding the date of investment.
The Indenture Trustee will not in any way be held liable by
reason of any insufficiency in the Collection Account resulting from any loss on
any Permitted Investment included therein (except to the extent the Indenture
Trustee is the obligor thereon).
All income or other gain from investments in the Collection
Account will be held in the Collection Account for the benefit of the Servicer
and will be subject to withdrawal from time to time as permitted by the
Servicing Agreement. Any loss resulting from such investments will be for the
account of the Servicer. The Servicer will be required to deposit the amount of
any such loss immediately upon the realization of such loss to the extent such
loss will not be offset by other income or gain from investments in the
Collection Account and then available for such application.
Each of the Collection Account and the Note Accounts must meet
the following criteria (an "Eligible Account"): (i) an account maintained with a
federal or state chartered depository institution or trust company, the
short-term obligations of which are rated by each Rating Agency in its highest
rating category and the long-term unsecured obligations of which are rated in at
least the second highest category at the time of any deposit therein, (ii) an
account or accounts, the deposits of which are fully insured by the FDIC (to the
limits established by such corporation), the uninsured deposits in which account
are otherwise secured such that the Noteholders will have a claim with respect
to the funds in such account and a perfected first priority security interest
against any collateral (which will be limited to Permitted Investments),
securing such funds that is superior to claims of any other depositors or
general creditors of the depositary institution with which such account is
maintained or (iii) a trust account or accounts maintained with a federal or
state chartered depositary institution or trust company with trust powers acting
in its fiduciary capacity acceptable to each Rating Agency and the Note Insurer
and having capital and surplus of not less than $100,000,000. The collateral
that is eligible to secure amounts in an Eligible Account is limited to
Permitted Investments.
S-109
<PAGE>
REALIZATION UPON DEFAULTED MORTGAGE LOANS
The Servicing Agreement will require the Servicer, acting as
agent of the Indenture Trustee, to foreclose upon or otherwise comparably
convert to ownership in the name of the Indenture Trustee, on behalf of the
Noteholders and the Note Insurer, Mortgaged Properties securing such of the
Mortgage Loans as come into default, as to which no satisfactory arrangements
can be made for the collection of delinquent payments and which the Servicer has
not reacquired pursuant to the option described below; PROVIDED, HOWEVER, that
if the Servicer has actual knowledge or cause to believe that any Mortgaged
Property is contaminated by hazardous or toxic wastes or substances, the
Servicer will cause an environmental inspection of the Mortgaged Property that
complies with Fannie Mae's selling and servicing guide applicable to single
family homes and its servicing procedures to be conducted. If the environmental
inspection reveals any potentially hazardous substances, the Servicer will
notify the Note Insurer, and the Servicer will not foreclose or accept a deed in
lieu of foreclosure on the Mortgaged Property without the consent of the Note
Insurer. In connection with such foreclosure or other conversion, the Servicer
will follow such practices as it deems necessary or advisable and as are in
keeping with its general mortgage loan servicing activities; PROVIDED, HOWEVER,
that the Servicer will not be required to expend its own funds in connection
with foreclosure or other conversion, correction of a default or restoration of
any Mortgaged Property unless the Servicer determines that such foreclosure,
correction or restoration will increase Net Liquidation Proceeds.
In servicing the Mortgage Loans, the Servicer will be required
to 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 will be charged off and will become
a Liquidated Mortgage Loan.
ENFORCEMENT OF DUE-ON-SALE CLAUSES
In any case in which the Servicer becomes aware that a
Mortgaged Property has been or is about to be voluntarily conveyed by the
related mortgagor, the Servicer may enter into an assumption agreement with the
person to whom such property has been or is about to be conveyed, pursuant to
which such person becomes liable under the related promissory note and, to the
extent permitted by applicable law or the mortgage documents, the mortgagor
remains liable thereon. In addition, the Servicer may enter into a substitution
of liability agreement with such person, pursuant to which the original
mortgagor is released from liability and such person is substituted as mortgagor
and becomes liable under the Mortgage Note. The Servicing Agreement will
prohibit the Servicer from entering into an assumption or substitution of
liability agreement unless permitted by applicable law and unless the Servicer
determines that the assuming party would not fall within a lower RBMG risk
category than the original mortgagor and such assumption or substitution of
liability agreement would not materially increase the risk of default or
delinquency on, or materially decrease the security for, such Mortgage Loan.
Notwithstanding any of the foregoing, the Servicer will not enter into any
assumption agreement unless such assumption agreement is pursuant to its
standard servicing procedure and the Servicer would enter into such assumption
agreement with respect to a mortgage loan in its own portfolio. Any fees
collected by the Servicer for entering into an assumption or substitution of
liability agreement will be retained by the Servicer as additional servicing
compensation. In the event the Servicer does not approve an assumption, the
Servicing Agreement will require the Servicer to enforce the rights of the
Indenture Trustee as the
S-110
<PAGE>
mortgagee of record to accelerate the maturity of the related Mortgage Loan
under any due-on-sale clause contained in the related Mortgage or Mortgage Note
to the extent permitted by the related Mortgage Note and Mortgage and applicable
law or regulation, but only to the extent the Servicer does not believe that
such enforcement will (i) adversely affect or jeopardize coverage under any
related insurance policy, (ii) result in legal action by the mortgagor or (iii)
materially increase the risk of default or delinquency on, or materially impair
the security for, such Mortgage Loan.
EVIDENCE AS TO COMPLIANCE
The Servicing Agreement will provide that on or before a
specified date in each year, a firm of independent public accountants will
furnish to the Servicer a report to the effect that (i) on the basis of an
examination by such firm conducted substantially in compliance with the Uniform
Single Attestation Program for Mortgage Bankers ("USAP") or the Audit Program
for Mortgages serviced by FHLMC, the Servicer has complied with certain minimum
residential mortgage loan servicing standards identified therein, and such
examination disclosed no significant exceptions or errors which, in the opinion
of such firm, such firm is required to report under USAP or the Audit Program,
except for such exceptions as will be referred to in the report, and (ii) on the
basis of an examination conducted by such firm in accordance with standards
established by the American Institute of Certified Public Accountants, such
representation is fairly stated in all material respects subject to such
exceptions and other qualifications that may be appropriate. The Servicing
Agreement will provide that the Servicer will be required to deliver such report
to the Indenture Trustee, the Rating Agencies and the Note Insurer on or before
a specified date in each year.
CERTAIN MATTERS REGARDING SERVICER'S SERVICING OBLIGATIONS
The Servicing Agreement will also provide that neither the
Servicer, nor any of its directors, officers, employees or agents, will be
liable to the Indenture Trustee, the Trust or the Noteholders for any action
taken or for refraining from the taking of any action by the Servicer pursuant
to the Servicing Agreement, or for errors in judgment; PROVIDED, HOWEVER, that
neither the Servicer nor any such person will be protected against any liability
that would otherwise be imposed by reason of willful misfeasance, bad faith or
gross negligence in the performance of its duties by the Servicer, or by reason
of reckless disregard of obligations and duties of the Servicer, thereunder.
In addition, the Servicing Agreement will provide that the
Servicer will not be under any obligation to appear in, prosecute or defend any
legal action that is not incidental to its duties to service the Mortgage Loans
under the Servicing Agreement and which in its opinion may involve it in any
expense or liability.
The Servicing Agreement will provide that any corporation or
other entity (a) into which the Servicer may be merged or consolidated, (b) that
may result from any merger, conversion or consolidation to which the Servicer
shall be a party or (c) that may succeed to all or substantially all of the
business of the Servicer, will, in any case where an assumption is not effected
by operation of law, execute an agreement of assumption to perform every
obligation of the Servicer, respectively, under the Servicing Agreement, and
will be the successor to the Servicer, respectively, thereunder without the
execution or filing of any document or any further act by any of the parties to
the Servicing Agreement; PROVIDED, HOWEVER, that if the Servicer in any of the
foregoing cases is not the surviving entity, the
S-111
<PAGE>
surviving entity shall execute an agreement of assumption to perform every
obligation of the Servicer thereunder and the corporation or other entity shall
satisfy the eligibility requirements for a successor to the Servicer.
AMENDMENT OF THE SERVICING AGREEMENT
The Servicing Agreement may be amended from time to time by
the Issuer, the Servicer and the Indenture Trustee without the consent of any of
the Noteholders but with the prior written consent of the Note Insurer, (i) to
cure any ambiguity, or (ii) to correct, modify or supplement any provisions
therein; provided that such action will not, as evidenced by an opinion of
counsel delivered to the Indenture Trustee and the Note Insurer, adversely
affect in any material respect the interests of any Noteholders or the Note
Insurer.
The Servicing Agreement may also be amended from time to time
by the Issuer, the Servicer and the Indenture Trustee with the consent of the
Note Insurer and of the holders of the Notes evidencing at least 66% of the
aggregate Note Balance for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of the Servicing Agreement or
of modifying in any manner the rights of the Noteholders; PROVIDED, HOWEVER,
that no such amendment will (i) reduce in any manner the amount of, or delay the
timing of, payments received on Notes that are required to be paid on any Note
without the consent of the holder of such Note, (ii) adversely affect in any
material respect the interests of the Noteholders in a manner other than as
described in clause (i), without the consent of the holders of Notes evidencing
at least 66% of the aggregate Note Balance, or (iii) modify the aforesaid
percentage of Notes the holders of which are required to consent to any such
amendment, without the consent of the Note Insurer and the holders of all Notes
then outstanding.
SERVICER EVENTS OF DEFAULT AND TERMINATION EVENT
Events of default ("Servicer Events of Default") under the
Servicing Agreement will consist of (i) any failure by the Servicer to remit to
the Indenture Trustee for payment to the Noteholders any required payment that
continues unremedied for one Business Day after the giving of written notice of
such failure to the Servicer by the Indenture Trustee, the Issuer, or the Note
Insurer, or to the Servicer, the Issuer, the Note Insurer and the Indenture
Trustee by the holders of Notes evidencing not less than 25% of the aggregate
Note Balance; (ii) any failure by the Servicer duly to observe or perform in any
material respect any of its other covenants or agreements in the Servicing
Agreement which continues unremedied for thirty days after the giving of written
notice of such failure to the Servicer by the Indenture Trustee, the Issuer or
the Note Insurer or to the Servicer, the Issuer, the Note Insurer and the
Indenture Trustee by the holders of Notes evidencing not less than 25% of the
aggregate Note Balance; (iii) certain events of insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceedings and certain
actions by or on behalf of the Servicer indicating its insolvency or inability
to pay its obligations; and (iv) any failure of the Servicer to make any P&I
Advance as required that is not remedied one Business Day after the related
Servicer Remittance Date. Unless a Note Insurer Default exists, the Note Insurer
will have all voting rights otherwise allocated to the Noteholders, including
the rights upon the occurrence of a Servicer Event of Default. "Note Insurer
Default" is defined under the Indenture generally as the existence and
continuance of (x) the failure by the Note Insurer to make a required payment
under the Insurance Policy or (y) the bankruptcy or insolvency of the Note
Insurer.
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A termination event ("Termination Event") under the Servicing
Agreement will be deemed to occur if the delinquency or loss experience of the
Mortgage Pool exceeds certain levels specified in the Servicing Agreement.
RIGHTS UPON EVENT OF DEFAULT OR TERMINATION EVENT
So long as a Servicer Event of Default under the Servicing
Agreement as described in clauses (i), (ii) or (iii) of the second preceding
paragraph remains unremedied, the Note Insurer or the Indenture Trustee, with
the consent of the Note Insurer so long as no Note Insurer Default is then
continuing, may, and at the direction of holders of Notes evidencing at least
51% of the aggregate Note Balances of both Classes of Notes shall, by notice in
writing to the Servicer (and to the Issuer, and the Note Insurer if given by the
Indenture Trustee or to the Indenture Trustee if given by the Issuer or the Note
Insurer) terminate all of the rights and obligations of the Servicer under the
Servicing Agreement and in and to the Trust. If a Servicer Event of Default
under the Servicing Agreement as described in clause (iv) of the second
preceding paragraph shall occur, the Indenture Trustee will, by notice to the
Servicer, the Note Insurer and the Issuer, terminate all of the rights and
obligations of the Servicer under the Servicing Agreement and in and to the
Trust. If a Termination Event under the Servicing Agreement as described in the
preceding paragraph shall occur, the Note Insurer may require the Indenture
Trustee to terminate all rights and obligations of the Servicer under the
Servicing Agreement and in and to the Trust. Upon receipt by the Servicer of
notice of termination, the Indenture Trustee will succeed to all the
responsibilities, duties and liabilities of the Servicer under the Servicing
Agreement. In the event that the Indenture Trustee is unwilling, it may, or if
it is unable or if prohibited by law from making P&I Advances regarding
delinquent Mortgage Loans, or if the Holders of Notes evidencing at least 51% of
the aggregate Note Balances of both Classes of Notes request in writing, it
shall, appoint with the written consent of the Note Insurer or petition a court
of competent jurisdiction for the appointment of a mortgage loan servicing
institution with a net worth of at least $15,000,000 to act as successor to the
Servicer under the Servicing Agreement. Pending such appointment, the Indenture
Trustee is obligated to act in such capacity. The Indenture Trustee and such
successor may agree upon the servicing compensation to be paid, which in no
event may be greater than the compensation permitted to the Servicer (including
any successor servicer) under the Servicing Agreement. In addition, holders of
Notes evidencing at least 66% of the aggregate Note Balance of Notes affected by
a Servicer Event of Default may waive such Servicer Event of Default; PROVIDED,
HOWEVER, that a Servicer Event of Default with respect to the Servicer's
obligation to make P&I Advances or to remit to the Indenture Trustee for payment
to the Noteholders any payment required to be made may be waived only by all of
the holders of Notes affected by such Event of Default with the written consent
of the Note Insurer.
SERVICING OBLIGATIONS; LIMITATION ON RESIGNATION OF THE SERVICER
For a detailed description of the obligations of the Servicer
in respect of the Mortgage Loans as well as for information regarding the
circumstances under which the Servicer may resign or be removed, reference is
made to the Servicing Agreement. The Servicer may resign from its obligations
and duties under the
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Servicing Agreement only upon a determination that its duties under the
Servicing Agreement are no longer permissible under applicable law or with the
prior written consent of the Note Insurer. In the event the rights and
obligations of the Servicer in its capacity as Servicer under the Servicing
Agreement are terminated by the Indenture Trustee due to a Servicer Event of
Default, the Indenture Trustee shall become the Servicer under the Servicing
Agreement. If the Indenture Trustee is unwilling or unable to so act, or if the
Note Insurer or the Noteholders evidencing at least 51% of the aggregate Note
Balances of both Classes of Notes so request, the Indenture Trustee will appoint
a successor, which proposed successor must be an established mortgage loan
servicing institution acceptable to the Note Insurer and each Rating Agency. No
such resignation or appointment of successor will become effective until the
Indenture Trustee or a successor servicer has assumed the Servicer's
responsibilities.
TERMINATION
The obligations created by the Servicing Agreement will
terminate upon payment to the Noteholders of all amounts held in the Note
Account required to be paid to the Noteholders pursuant to the Indenture,
following the earlier of (i) the final payment or other liquidation of the last
Mortgage Loan remaining in the Trust or the disposition of all REO Properties
and (ii) the purchase of all of the assets of the Trust by the Servicer or the
Note Insurer when the combined outstanding aggregate Note Balance of the Class
A-1 Notes and the Class A-2 Notes is less than 10% of the combined aggregate
Note Balance of the Class A-1 Notes and the Class A-2 Notes as of the Closing
Date, pursuant to a provision of the Indenture. The exercise of the right to
purchase the assets of the Trust as set forth in clause (ii) will effect early
retirement of the Notes. The Note Insurer will have the right to consent to any
Optional Redemption, if such event would result in a draw under the Insurance
Policy.
In general, any such purchase of Mortgage Loans and property
acquired in respect of the Mortgage Loans will be made at a price equal to the
sum of the Stated Principal Balance of each outstanding Mortgage Loan as of the
day of such repurchase, plus accrued interest thereon at the Coupon Rate, to the
first day of the month of such purchase, plus any unreimbursed P&I Advances and
Servicing Advances.
THE INSURANCE POLICY AND THE NOTE INSURER
The following information has been supplied by the Note
Insurer. The Note Insurer does not accept any responsibility for the accuracy or
completeness of this Prospectus Supplement or any information or disclosure
contained herein, or omitted herefrom, other than with respect to the accuracy
of the information regarding the Insurance Policy and the Note Insurer set forth
under the heading "THE INSURANCE POLICY AND THE NOTE INSURER" (other than
information under the sub-caption "CREDIT ENHANCEMENT DOES NOT APPLY TO
PREPAYMENT RISK"). Additionally, the Note Insurer makes no representations
regarding the Notes or the advisability of investing in the Notes.
THE INSURANCE POLICY
The Note Insurer, in consideration of the payment of the
premium and subject to the terms of the Insurance Policy, thereby
unconditionally and irrevocably guarantees to any Owner (as defined below) that
an amount equal to each full and complete Insured Payment (as defined below)
will be received by the Indenture Trustee or its successor as trustee for the
Owners from the Note Insurer, on behalf of the Owners from the Note Insurer for
payment by the Indenture Trustee to each Owner of each
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Owner's proportionate share of the Insured Payment. The Note Insurer's
obligations under the Insurance Policy with respect to a particular Insured
Payment shall be discharged to the extent funds equal to the applicable Insured
Payment are received by the Indenture Trustee, whether or not such funds are
properly applied by the Indenture Trustee. Insured Payments shall be made only
at the time set forth in the Insurance Policy and no accelerated Insured
Payments shall be made regardless of any acceleration of the Notes, unless such
acceleration is at the sole option of the Note Insurer.
Notwithstanding the foregoing paragraph, the Insurance Policy
does not cover shortfalls, if any, attributable to the liability of the Trust or
the Indenture Trustee for withholding taxes, if any (including interest and
penalties in respect of any such liability).
The Note Insurer will pay any Insured Payment that is a
Preference Amount on the Business Day following receipt on a Business Day by the
fiscal agent for the Note Insurer (as described below) of
o a certified copy of the order requiring the return of a preference
payment,
o an opinion of counsel satisfactory to the Note Insurer that such order
is final and not subject to appeal,
o an assignment in such form as is reasonably required by the Note
Insurer, irrevocably assigning to the Note Insurer all rights and
claims of the Owner relating to, or arising under the Notes against the
debtor which made such preference payment or otherwise with respect to
such preference payment and
o appropriate instruments to effect the appointment of the Note Insurer
as agent for such Owner in any legal proceeding related to such
preference payment, such instruments being in a form satisfactory to
the Note Insurer, provided that if such documents are received after
12:00 noon New York City time on such Business Day, they will be deemed
to be received on the following Business Day. Such payments will be
disbursed to the receiver or trustee in bankruptcy named in the final
order to the court exercising jurisdiction on behalf of the Owner and
not such Owner directly unless such Owner has returned principal or
interest paid on the Notes to such receiver or trustee in bankruptcy,
in which case such payment shall be disbursed to such Owner.
The Note Insurer will pay any other amount payable under the
Insurance Policy no later than 12:00 noon New York City time on the later of the
Payment Date on which the related Deficiency Amount is due or the third Business
Day following receipt in New York, New York on a Business Day by State Street
Bank and Trust Company, N.A., as fiscal agent for the Note Insurer or any
successor fiscal agent appointed by the Note Insurer of a Notice (as described
below); provided that if such Notice is received after 12:00 noon New York City
time on such Business Day, it will be deemed to be received on the following
Business Day. If any such Notice received by the fiscal agent for the Note
Insurer is not in proper form or is otherwise insufficient for the purpose of
making a claim under the Insurance Policy, it shall be deemed not to have been
received by the fiscal agent for the Note Insurer for purposes of this
paragraph, and the Note Insurer or the fiscal agent for the Note Insurer, as the
case may be, shall promptly so advise the Indenture Trustee and the Indenture
Trustee may submit an amended Notice.
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Insured Payments due under the Insurance Policy, unless
otherwise stated in the Insurance Policy, will be disbursed by the fiscal agent
for the Note Insurer to the Indenture Trustee on behalf of the Owners by wire
transfer of immediately available funds in the amount of the Insured Payment
less, in respect of Insured Payments related to Preference Amounts, any amount
held by the Indenture Trustee for the payment of such Insured Payment and
legally available therefor.
The fiscal agent for the Note Insurer is the agent of the Note
Insurer only and the fiscal agent for the Note Insurer shall in no event be
liable to Owners for any acts of the fiscal agent for the Note Insurer or any
failure of the Note Insurer to deposit, or cause to be deposited, sufficient
funds to make payments due under the Insurance Policy.
As used in the Insurance Policy, the following terms shall
have the following meanings:
"Agreement" means the Indenture dated as of June 1, 1999,
among RBMG Funding Co. Mortgage Loan Trust 1999-1, as Issuer and The
Bank of New York, as Indenture Trustee, without regard to any amendment
or supplement thereto unless the Note Insurer shall have consented in
writing thereto.
"Business Day" means any day other than (i) a Saturday or a
Sunday, (ii) a day on which the Note Insurer is closed or (iii) banking
institutions in New Jersey, New York City, Las Vegas, Nevada,
Wilmington, Delaware, or in the city in which the corporate trust
office of the Indenture Trustee under the Indenture is located are
authorized or obligated by law or executive order to close.
"Deficiency Amount" means with respect to a Class of Notes and
any Payment Date the sum of (a) the related Note Interest minus Total
Available Funds for the related Group and (b) the then existing
Overcollateralization Deficit for the related Group, if any, after
application of Total Available Funds for the related Group to reduce
such Note Balance on such Payment Date.
"Insured Payment" means as of any Payment Date, any related
Deficiency Amount and (ii) any related Preference Amount.
"Notice" means the telephonic or telegraphic notice, promptly
confirmed in writing by facsimile, substantially in the form of Exhibit
A attached to the Insurance Policy, the original of which is
subsequently delivered by registered or certified mail, from the
Indenture Trustee specifying the Insured Payment which shall be due and
owing on the applicable Payment Date.
"Owner" means each "Holder" as defined in the Agreement (other
than the Indenture Trustee, RBMG, the Issuer, Funding Co., the
Depositor, the Company, the Sub-Servicer or the Servicer), who on the
applicable Payment Date, is entitled under the terms of the Notes to
payment thereunder.
"Preference Amount" means, for any Class of Notes any amount
previously distributed to an Owner of a Note that is recoverable and
sought to be recovered as a voidable preference by a trustee in
bankruptcy pursuant to the Bankruptcy Code, as amended from time to
time, in accordance with a final nonappealable order of a court having
competent jurisdiction.
Capitalized terms used in the Insurance Policy and not
otherwise defined in the Insurance Policy shall have the respective meanings set
forth in the Agreement as of the date of execution of the Insurance Policy,
without giving effect to any subsequent amendment or modification to the
Indenture unless such amendment or modification has been approved in writing by
the Note Insurer.
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Any notice under the Insurance Policy or service of process on
the fiscal agent for the Note Insurer may be made at the address listed below
for the fiscal agent for the Note Insurer or such other address as the Note
Insurer shall specify in writing to the Indenture Trustee.
The notice address of the fiscal agent for the Note Insurer is
61 Broadway, 15th Floor, New York, New York 10006, Attention: Municipal
Registrar and Paying Agency, or such other address as the fiscal agent for the
Note Insurer shall specify to the Indenture Trustee in writing.
The Insurance Policy is being issued under and pursuant to,
and shall be construed under, the laws of the State of New York, without giving
effect to the conflict of laws principles thereof.
THE INSURANCE PROVIDED BY THE INSURANCE POLICY IS NOT COVERED
BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE
NEW YORK INSURANCE LAW.
The Insurance Policy is not cancelable for any reason. The
premium on the Insurance Policy is not refundable for any reason including
payment, or provision being made for payment, prior to the maturity of the
Notes.
THE NOTE INSURER
The Note Insurer is the principal operating subsidiary of MBIA
Inc., a New York Stock Exchange listed company ("MBIA Inc."). MBIA Inc. is not
obligated to pay the debts of or claims against the Note Insurer. The Note
Insurer is domiciled in the State of New York and licensed to do business in,
and is subject to regulation under the laws of all 50 states, the District of
Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern
Mariana Islands, the Virgin Islands of the United States and the Territory of
Guam. The Note Insurer has two European branches, one in the Republic of France
and the other in the Kingdom of Spain. New York has laws prescribing minimum
capital requirements, limiting classes and concentrations of investments and
requiring the approval of policy rates and forms. State laws also regulate the
amount of both the aggregate and individual risks that may be insured, the
payment of dividends by the Note Insurer, changes in control and transactions
among affiliates. Additionally, the Note Insurer is required to maintain
contingency reserves on its liabilities in certain amounts and for certain
periods of time.
NOTE INSURER FINANCIAL INFORMATION
The consolidated financial statements of the Note Insurer, a
wholly owned subsidiary of MBIA Inc., and its subsidiaries as of December 31,
1998 and December 31, 1997 and for each of the three years in the period ended
December 31, 1998, prepared in accordance with generally accepted accounting
principles, included in the Annual Report on Form 10-K of MBIA Inc. for the year
ended December 31, 1998 and the consolidated financial statements of the Note
Insurer and its subsidiaries as of March 31, 1999 and for the three month
periods ended March 31, 1999 and March 31, 1998, included in the Quarterly
Report on Form 10-Q of MBIA Inc. for the period ended March 31, 1999, are hereby
incorporated by reference into this Prospectus Supplement and shall be deemed to
be a part hereof. Any statement contained in a document incorporated by
reference herein shall be modified or superseded for purposes of this Prospectus
Supplement to the extent that a statement contained herein or in any other
subsequently filed document which also is incorporated by reference herein
modifies or supersedes such
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statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus
Supplement.
All financial statements of the Note Insurer and its
subsidiaries included in documents filed by MBIA Inc. pursuant to Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended,
subsequent to the date of this Prospectus Supplement and prior to the
termination of the offering of the Notes shall be deemed to be incorporated by
reference into this Prospectus Supplement and to be a part hereof from the
respective dates of filing such documents.
The tables below present selected financial information of the
Note Insurer determined in accordance with statutory accounting practices
prescribed or permitted by insurance regulatory authorities ("SAP") and
generally accepted accounting principles ("GAAP"):
<TABLE>
<CAPTION>
SAP
December 31, 1998 March 31, 1999
(Audited) (Unaudited)
(In millions)
<S> <C> <C>
Admitted Assets $ 6,521 $ 6,742
Liabilities 4,231 4,412
Capital and Surplus 2,290 2,330
GAAP
December 31, 1998 March 31, 1999
(Audited) (Unaudited)
(In millions)
Assets $ 7,488 $ 7,625
Liabilities 3,211 3,370
Shareholder's Equity 4,277 4,255
</TABLE>
WHERE YOU CAN OBTAIN ADDITIONAL INFORMATION ABOUT THE NOTE INSURER
Copies of the financial statements of the Note Insurer,
incorporated by reference herein and copies of the Note Insurer's 1998 year-end
audited financial statements prepared in accordance with statutory accounting
practices are available, without charge, from the Note Insurer. The address of
the Note Insurer is 113 King Street, Armonk, New York 10504. The telephone
number of the Note Insurer is (914) 273-4545.
YEAR 2000 READINESS DISCLOSURE
MBIA Inc. is actively managing a high-priority Year 2000 (Y2K)
program. MBIA Inc. has established an independent Y2K testing lab in its Armonk
headquarters, with a committee of business unit managers overseeing the project.
MBIA Inc. has a budget of $1.13 million for its 1998-2000 Y2K efforts.
Expenditures are proceeding as anticipated, and MBIA Inc. does not expect the
project budget to
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materially exceed this amount. MBIA Inc. has initiated a comprehensive Y2K plan
that includes assessment, remediation, testing and contingency planning. This
plan covers "mission-critical" internally developed systems, vendor software,
hardware and certain third-party entities through which MBIA Inc. conducts its
business. Testing to date indicates that functions critical to the financial
guarantee business, both domestic and international, were Y2K-ready as of
December 31, 1998. Additional testing will continue throughout 1999.
FINANCIAL STRENGTH RATINGS OF THE NOTE INSURER
Moody's rates the financial strength of the Note Insurer
"Aaa."
S&P rates the financial strength of the Note Insurer "AAA."
Fitch IBCA, Inc. (formerly known as Fitch Investors Service,
L.P.) rates the financial strength of the Note Insurer "AAA."
Each rating of the Note Insurer should be evaluated
independently. The ratings reflect the respective rating agency's current
assessment of the creditworthiness of the Note Insurer and its ability to pay
claims on its policies of insurance. Any further explanation as to the
significance of the above ratings may be obtained only from the applicable
rating agency.
The above ratings are not recommendations to buy, sell or hold
the Notes, and such ratings may be subject to revision or withdrawal at any time
by the rating agencies. Any downward revision or withdrawal of any of the above
ratings may have an adverse effect on the market price of the Notes. The Note
Insurer does not guaranty the market price of the Notes, nor does it guaranty
that the ratings on the Notes will not be revised or withdrawn.
CREDIT ENHANCEMENT DOES NOT APPLY TO PREPAYMENT RISK
In general, the protection afforded by the Insurance Policy is
protection for credit risk and not for prepayment risk. A claim may not be made
under the Insurance Policy in an attempt to guarantee or insure that any
particular rate of prepayment is experienced by the Trust.
ERISA CONSIDERATIONS
Section 406 of Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and Section 4975 of the Internal Revenue Code of
1986, as amended, (the "Code") prohibit a pension, profit sharing or other
employee benefit plan, as well as individual retirement accounts and annuities
and certain Keogh Plans, and entities deemed to hold assets of such plans (each,
a "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 such Plan. A violation of these "prohibited
transaction rules" may generate excise tax and other penalties and liabilities
under ERISA and the Code for such persons. Title I of ERISA also requires that
fiduciaries of a Plan subject to ERISA make investments that are prudent,
diversified (except if prudent not to do so) and in accordance with governing
plan documents.
Under regulations of the Department of Labor set forth in 29
C.F.R. ss. 2510.3-101 (the "Plan Asset Regulations"), the assets of a Plan
generally include not only securities held by a Plan but
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also the underlying assets of the issuer of any equity securities (the
"Look-Through Rule") unless one or more exceptions specified in the Plan Asset
Regulations are satisfied. For purposes of those Regulations, an equity security
is a security other than a security that is treated as debt under applicable
local law and that has no substantial equity features. The Issuer believes that
the Notes will be treated as debt obligations without significant equity
features for purposes of the Plan Asset Regulations. Accordingly, a Plan that
acquires a Note should not be treated as having acquired a direct interest in
the assets of the Issuer. However, there can be no complete assurance that the
Notes will be treated as debt obligations without significant equity features
for purposes of the Plan Asset Regulations. If the Notes are treated as having
substantial equity features, the purchaser of a Note could be treated as having
acquired a direct interest in the Mortgage Loans securing the Notes. In that
event, the purchase, holding, or resale of the Notes could result in a
transaction that is prohibited under ERISA or the Code.
However, even if the Notes are treated as debt for such
purposes, the acquisition or holding of Notes by or on behalf of a Plan could be
considered to give rise to a prohibited transaction if the Issuer or any of its
affiliates is or becomes a "party in interest" under ERISA or a "disqualified
person" under the Code with respect to such Plan. In such case, certain
exemptions from the prohibited transaction rules could be applicable depending
on the type and circumstances of the plan fiduciary making the decision to
acquire Notes. Included among these exemptions are: Prohibited Transaction Class
Exemption ("PTCE") 96-23, regarding transactions effected by "in-house asset
managers"; 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;
and PTCE 84-14, regarding transactions effected by "qualified professional asset
managers". A purchaser of a Note should be aware, however, that even if the
conditions specified in one or more exemptions are met, the scope of the relief
provided by an exemption might not cover all acts that might be construed as
prohibited transactions. The purchase of a Note will be deemed a representation
by the acquirer that either (i) it is not, and is not purchasing a Note on
behalf of, or with the assets of, a Plan, or (ii) the acquisition and holding of
a Note by the acquirer qualifies for exemptive relief under PTCE 95-60, PTCE
96-23, PTCE 91-38, PTCE 90- 1, PTCE 84-14 or another Department of Labor Class
Exemption.
A governmental plan as defined in Section 3(32) of ERISA is
not subject to Title I of ERISA or Section 4975 of the Code. However, such a
governmental plan may be subject to a federal, state, or local law which is, to
a material extent, similar to the foregoing provisions of ERISA or the Code
("Similar Law"). A fiduciary of a governmental plan should make its own
determination as to the need for and the availability of any exemptive relief
under Similar Law.
A Plan fiduciary considering the purchase of Notes should
consult its tax and/or legal advisors regarding the applicability of the
fiduciary responsibility provisions of ERISA to such investment, whether the
assets of the Issuer would be considered plan assets, the possibility of
exemptive relief from the prohibited transaction rules, and other related issues
and their potential consequences. The sale of Notes to a Plan is in no respect a
representation by the Issuer or the Underwriter that this investment meets all
relevant legal requirements with respect to investments by Plans generally or
any particular Plan, or that this investment is appropriate for Plans generally
or any particular Plan. See "ERISA Considerations" in the Prospectus.
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USE OF PROCEEDS
The Issuer intends to use the net proceeds to be received from
the sale of the Notes to acquire the Mortgage Loans from the Depositor and to
pay other expenses associated with the pooling of the Mortgage Loans and the
issuance of the Notes.
LEGAL INVESTMENT CONSIDERATIONS
The Notes will constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA").
Institutions whose activities are subject to review by federal or state
regulatory authorities may be or may become subject to restrictions, which may
be retroactively imposed by such regulatory authorities, on the investment by
such institutions in certain forms of mortgage related securities. See "Legal
Investment" in the Prospectus.
UNDERWRITING
The Notes will be purchased by First Union Capital Markets
Corp., (the "Underwriter"), from the Issuer and will be offered by the
Underwriter from time to time to the public in negotiated transactions or
otherwise at varying prices to be determined at the time of sale. Under the
terms set forth in the Underwriting Agreement, dated the date hereof (the
"Underwriting Agreement"), the Depositor has agreed to cause the Issuer to sell,
and the Underwriter has agreed, subject to the terms and conditions set forth
therein, to purchase the entire principal amount of the Notes.
The Underwriter has informed the Depositor that it proposes to
offer the Notes for sale from time to time in one or more negotiated
transactions, or otherwise, at varying prices to be determined, in each case, at
the time of the related sale. The Underwriter may effect such transactions by
selling the Notes to or through dealers, and such dealers may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Underwriter. 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 compensation. The Underwriter and any dealers that participate with
the Underwriter in the distribution of the Notes may be deemed to be
underwriters and any commissions received by them and any profit on the resale
of the Notes by them may be deemed to be underwriting discounts and commissions
under the Securities Act of 1933, as amended (the "Securities Act").
The Depositor and RBMG have agreed to indemnify the
Underwriter against certain liabilities including liabilities under the
Securities Act.
The Depositor has been advised by the Underwriter that the
Underwriter intends to make a market in the Notes, as permitted by applicable
laws and regulations and subject to the provisions of Rule 104 of Regulation M.
The Underwriter is not obligated, however, to make a market in the Notes and
such market-making may be discontinued at any time at the sole discretion of the
Underwriter. Accordingly, no assurance can be given as to the liquidity of, or
trading markets for, the Notes.
The Underwriter, or affiliates of the Underwriter provide
warehouse financing facilities to RBMG.
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All of the Mortgage Loans included in the Trust will have been
acquired in a privately negotiated transaction with RBMG.
EXPERTS
The consolidated balance sheets of MBIA Insurance Corporation
and Subsidiaries as of December 31, 1998 and December 31, 1997 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 December 31, 1998,
incorporated by reference in this Prospectus Supplement, have been incorporated
herein in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion, when read in
conjunction with the discussion of "Material Federal Income Tax Consequences" in
the Prospectus, 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 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
Notes.
The Notes will not represent "real estate assets" for purposes
of Section 856(c)(4)(A) of the Code or "[l]oans . . . principally secured by an
interest in real property" within the meaning of Section 7701(a)(19)(C) of the
Code.
TREATMENT OF THE NOTES AS INDEBTEDNESS. RBMG, the Depositor
and the Issuer agree, 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 the Depositor ("Tax Counsel"), is of the opinion that, for federal
income tax purposes, the Notes will be treated as indebtedness, and not as an
ownership interest in the Mortgage Loans, or an equity interest in the Trust or
in a separate association taxable as a corporation or other taxable entity.
Further, Tax Counsel is of the opinion that the Issuer will not be
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<PAGE>
characterized as an association (or a publicly traded partnership) taxable as a
corporation or as a taxable mortgage pool. See "Material Federal Income
Consequences -- Debt Securities" in the Prospectus.
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 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 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. 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 foreign persons are strongly advised 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, and this
discussion assumes, 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 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 purposes
of computing original issue discount, if any, for federal income tax purposes is
the Prepayment Assumption. See "Material Federal Income Consequences -- Discount
and Premium -- Original Issue Discount" in the Prospectus.
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
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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. See "Material Federal Income Consequences -- Discount and Premium --
Market Discount" in the Prospectus.
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. 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). 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. See "Material Federal Income Consequences -- Discount and Premium --
Securities Issued at a Premium" in the Prospectus.
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
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<PAGE>
"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. See
"Material Federal Income Consequences -- Debt Securities" in the Prospectus.
TAXATION OF CERTAIN FOREIGN INVESTORS. Interest payments
(including OID, if any) 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.
See "Material Federal Income Consequences -- Foreign Investors" in the
Prospectus.
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. See "Material Federal Income
Consequences -- Backup Withholding" in the Prospectus.
STATE 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
should consult their own tax advisors with respect to the various state and
local tax consequences of an investment in the Notes.
LEGAL MATTERS
Certain legal matters will be passed upon for the Servicer by
Graham & James LLP, New York, New York. Dewey Ballantine LLP, New York, New York
or Dewey Ballantine LLP, Washington, D.C., will act as counsel for the
Underwriter, the Depositor and the Issuer and will pass upon certain federal
income tax matters for the Issuer. Certain legal matters relating to the Note
Insurer and the Insurance Policy will be passed upon for the Note Insurer by
Kutak Rock, Omaha, Nebraska.
RATING OF THE NOTES
It is a condition to the issuance of the Notes that the Class
A-1 Notes shall be rated "Aaa" by Moody's Investors Service, Inc. ("Moody's")
and "AAA" by Standard & Poor's Ratings Services, a
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<PAGE>
Division of The McGraw-Hill Companies, Inc. ("S&P" and, collectively with
Moody's, the "Rating Agencies" ) and the Class A-2 Notes be rated Aaa by Moody's
and AAA by S&P.
Explanations of the significance of such ratings may be
obtained from Moody's, 99 Church Street, New York, New York 10007, and Standard
& Poor's, 25 Broadway, New York, New York 10004. Each rating will be the view
only of the assigning Rating Agency.
The ratings on the Notes are based in substantial part on the
claims-paying ability of the Note Insurer. Any changes in the ratings of the
Note Insurer by the Rating Agencies may result in a change in the ratings of the
Notes.
The ratings assigned to the Notes do not represent any
assessment of the likelihood or rate of Prepayments and do not address the
possibility that Noteholders might suffer a lower than anticipated yield.
There is no assurance that any rating assigned to the Notes
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 or liquidity of the Notes.
The ratings of the Notes should be evaluated independently
from similar ratings on other types of securities. A security rating is not a
recommendation to buy, sell or hold securities.
There can be no assurances as to whether any other rating
agency will rate either Class of the Notes, or, if one does, what rating will be
assigned by such other rating agency. A rating on a Class of the Notes by
another rating agency, if assigned at all, may be lower than the ratings
assigned to the applicable Class of Notes by Moody's or Standard & Poor's.
S-126
<PAGE>
<TABLE>
<CAPTION>
INDEX OF SIGNIFICANT TERMS
DEFINITIONS PAGE
<S> <C>
2/6 LIBOR Loan............................................................................................S-59
2/6 LIBOR Loans...........................................................................................S-15
3/6 LIBOR Loan............................................................................................S-59
3/6 LIBOR Loans...........................................................................................S-15
6-Month LIBOR Loan........................................................................................S-15
Adjustable Rate Loans.....................................................................................S-15
Adjustable Rate Loans.........................................................................S-17, S-30, S-51
Adjustment Date...........................................................................................S-15
Administrative Fee Amount.................................................................................S-82
Agreement................................................................................................S-118
Available Funds...........................................................................................S-80
Available Funds Cap Carry Forward Amount..................................................................S-78
Available Funds Cap Rate..................................................................................S-78
Balloon Loan..............................................................................................S-14
Bankruptcy Code...........................................................................................S-80
BCD Mortgage Loan Servicing Portfolio....................................................................S-104
Beneficial Owner..........................................................................................S-69
Book-Entry Notes..........................................................................................S-69
Business Day.................................................................................S-75, S-82, S-118
Cap Agreement.............................................................................................S-78
Cap Payments..............................................................................................S-81
Cedel.....................................................................................................S-69
Cedel Participants........................................................................................S-71
Chase.....................................................................................................S-69
Citibank..................................................................................................S-69
Class.....................................................................................................S-68
Class A-1 Note Formula Rate...............................................................................S-78
Class A-1 Noteholders.....................................................................................S-68
Class A-1 Notes...........................................................................................S-68
Class A-2 Note Formula Rate...............................................................................S-78
Class A-2 Noteholders.....................................................................................S-68
Class A-2 Notes...........................................................................................S-68
Closing Date..............................................................................................S-13
Code.....................................................................................................S-121
Collection Account.......................................................................................S-110
Collection Period.........................................................................................S-80
Company.............................................................................................S-14, S-67
Company Sale Agreement....................................................................................S-14
Compensating Interest Payment.............................................................................S-91
Contribution Agreement....................................................................................S-14
Cooperative...............................................................................................S-71
Coupon Rate...............................................................................................S-14
Cut-Off Date..............................................................................................S-13
Defective Mortgage Loan...................................................................................S-74
Deficiency Amount........................................................................................S-118
Definitive Note...........................................................................................S-69
Depositor......................................................................................S-1, S-63, S-67
</TABLE>
S-i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Depositor Sale Agreement..................................................................................S-14
Determination Date........................................................................................S-79
DTC.......................................................................................................S-69
Due Period................................................................................................S-79
Eligible Account.........................................................................................S-111
ERISA....................................................................................................S-121
Euroclear.................................................................................................S-69
Euroclear Operator........................................................................................S-71
Euroclear Participants....................................................................................S-71
European Depositaries.....................................................................................S-69
Event of Default..........................................................................................S-91
Excess Cash...............................................................................................S-79
Expense Adjusted Coupon Rate..............................................................................S-78
Federal Reserve Board.....................................................................................S-71
Financial Intermediary....................................................................................S-69
Fixed Rate 15-Year Loan...................................................................................S-14
Fixed Rate Loan...........................................................................................S-14
Fixed Rate Loans..............................................................................S-17, S-28, S-49
Fully Indexed Rate........................................................................................S-15
Funding Co............................................................................................S-14, 67
Funding Co. Sale Agreement................................................................................S-14
GAAP.....................................................................................................S-120
Global Securities..........................................................................................S-1
Gross Margin..............................................................................................S-15
Group I Initial Balance...................................................................................S-13
Group II Initial Balance..................................................................................S-13
HUD......................................................................................................S-104
Indenture.................................................................................................S-68
Indenture Trustee....................................................................................S-1, S-93
Indenture Trustee Fee.....................................................................................S-82
Indenture Trustee Fee Rate................................................................................S-78
Index.....................................................................................................S-15
Initial Group Balance.....................................................................................S-13
Insurance Agreement.......................................................................................S-75
Insurance Policy...........................................................................................S-4
Insurance Proceeds........................................................................................S-81
Insured Payment..........................................................................................S-118
Interest Determination Date...............................................................................S-82
Issuer...............................................................................................S-1, S-63
Liquidated Mortgage Loan..................................................................................S-80
Liquidation Proceeds......................................................................................S-81
Loan-to-Value Ratio.......................................................................................S-17
LTV.......................................................................................................S-17
Maximum Rate..............................................................................................S-15
Minimum Rate..............................................................................................S-15
Monthly Payment...........................................................................................S-13
Monthly Principal.........................................................................................S-79
Mortgage Files............................................................................................S-74
Mortgage Group Balance....................................................................................S-82
Mortgage Loans......................................................................................S-13, S-64
Mortgage Note.............................................................................................S-13
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Mortgage Pool.............................................................................................S-13
Mortgage Pool Balance.....................................................................................S-82
Mortgaged Property........................................................................................S-13
Net Coupon Rate...........................................................................................S-96
Net Liquidation Proceeds..................................................................................S-81
Non-U.S. Person............................................................................................S-4
Note Account..............................................................................................S-83
Note Balance..............................................................................................S-79
Note Formula Rate.........................................................................................S-78
Note Insurer...............................................................................................S-1
Note Insurer Default...............................................................................S-77, S-114
Note Interest.............................................................................................S-77
Note Interest Rate........................................................................................S-77
Noteholder................................................................................................S-69
Notes......................................................................................................S-1
Notes...............................................................................................S-68, S-77
Notice...................................................................................................S-118
One-Month LIBOR...........................................................................................S-82
Original Class A-1 Note Balance...........................................................................S-68
Original Class A-2 Note Balance...........................................................................S-68
Overcollateralization Amount..............................................................................S-85
Overcollateralization Deficit.............................................................................S-87
Overcollateralization Surplus.............................................................................S-86
Owner....................................................................................................S-118
Owner Trust Agreement.....................................................................................S-63
Owner Trustee........................................................................................S-1, S-63
P&I Advance...............................................................................................S-90
Participants..............................................................................................S-70
Paying Agent..............................................................................................S-75
Payment Date...............................................................................................S-2
Payments Ahead............................................................................................S-80
Percentage Interest.......................................................................................S-75
Periodic Rate Cap.........................................................................................S-15
Plan.....................................................................................................S-121
Preference Amount........................................................................................S-118
Prepayment Interest Shortfall.............................................................................S-91
Principal Prepayment......................................................................................S-80
PUD's.....................................................................................................S-60
Purchase Price............................................................................................S-75
Qualified Replacement Mortgage Loan.......................................................................S-74
Qualifying Rate...........................................................................................S-59
Rating Agencies..........................................................................................S-128
RBMG.......................................................................................................S-1
RBMG Guidelines...........................................................................................S-58
Redemption Date...........................................................................................S-89
Relevant Depositary.......................................................................................S-69
Relief Act................................................................................................S-76
REO Property..............................................................................................S-90
Required Overcollateralization Amount.....................................................................S-86
Reserve Account...........................................................................................S-86
Reserve Interest Rate.....................................................................................S-83
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Residual Interest.........................................................................................S-64
Rules.....................................................................................................S-69
S&P................................................................................................S-84, S-128
SAP......................................................................................................S-120
Servicer.................................................................................................S-102
Servicer Events of Default...............................................................................S-114
Servicer Remittance Date..................................................................................S-75
Servicing Advance........................................................................................S-108
Servicing Agreement......................................................................................S-102
Servicing Fee Rate........................................................................................S-78
Six-Month LIBOR...........................................................................................S-15
Stated Maturity......................................................................................S-2, S-92
Stated Principal Balance..................................................................................S-82
Structuring Assumptions...................................................................................S-97
Sub-Servicer........................................................................................S-1, S-102
Sub-Servicing Agreement..................................................................................S-102
Termination Event........................................................................................S-115
Terms and Conditions......................................................................................S-71
Total Available Funds.....................................................................................S-82
Trust..........................................................................................S-1, S-63, S-64
Underwriter..............................................................................................S-123
Underwriting Agreement...................................................................................S-123
USAP.....................................................................................................S-113
</TABLE>
iv
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered
Asset-Backed Notes, Series 1999-1 (the "Global Securities"), will be available
only in book-entry form. Investors in the Global Securities may hold such Global
Securities through DTC, Cedel or Euroclear. The Global Securities will be
tradable as home market instruments in both the European and U.S. domestic
markets. Initial settlement and all secondary trades will settle in same-day
funds.
Secondary market trading between investors holding Global
Securities through Cedel and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in accordance
with conventional eurobond practice (I.E., seven calendar day settlement).
Secondary market trading between investors holding Global
Securities through DTC will be conducted according to the rules and procedures
applicable to U.S. corporate debt obligations.
Secondary cross-market trading between participants of Cedel
or Euroclear and Participants holding Notes will be effected on a
delivery-against-payment basis through the Relevant Depositaries of Cedel and
Euroclear (in such capacity) and as 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.
INITIAL 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 Depositaries, which in turn will hold such positions in accounts as
Participants.
Investors selecting to hold their Global Securities through
DTC will follow DTC settlement practice. 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
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Because 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.
S-1
<PAGE>
TRADING BETWEEN PARTICIPANTS. Secondary market trading between
Participants will be settled using the procedures applicable to prior
asset-backed note 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 SELLER AND CEDEL OR EUROCLEAR
PARTICIPANTS. When Global Securities are to be transferred from the account of a
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 respective Depositary, 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 respective Depositary to the 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 accounts 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 clear the overdraft when the Global Securities are 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 this result will depend on each Cedel
Participant's or Euroclear Participant's particular cost of funds.
Because the settlement is taking place during New York
business hours, Participants can employ their usual procedures for sending
Global Securities to the respective European Depositary for the benefit of Cedel
Participants or Euroclear Participants. The sale proceeds will be available to
the DTC
A-2
<PAGE>
seller on the settlement date. Thus, to the Participants a cross-market
transaction will settle no differently than a trade between two Participants.
TRADING BETWEEN CEDEL OR EUROCLEAR SELLER 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 respective Depositary, to a 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 Relevant Depositary, as appropriate, to deliver
the Global Securities to the 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 the 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). Should 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 Participants for delivery to Cedel Participants
or Euroclear Participants should note that these trades would automatically fail
on the sale side unless affirmative action were 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 day 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
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 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, 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
A-3
<PAGE>
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 owners
of Global Securities that are Non-U.S. Persons 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.
EXEMPTION FOR NON-U.S. PERSONS WITH EFFECTIVELY CONNECTED
INCOME (FORM 4224). A non-U.S. Person, 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 of 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 the beneficial owners or their agents.
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 beneficial
owner of a Global Security or, in the case of a Form 1001 or a Form
4224 filer, his agent, files 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 are effective for three calendar years, and Form 4224 is
effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the
United States, (ii) a corporation or partnership organized in or under the laws
of the United States or any political subdivision thereof, (iii) an estate that
is subject to United States federal income tax, regardless of the source of its
income or (iv) a trust if (a) a court in the United States is able to exercise
primary supervision over the administration of the trust, and (b) one or more
United States persons have 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 summary does not deal with all aspects of U.S. federal income tax
withholding that may be relevant to foreign holders of Global Securities or with
the application of recently issued Treasury Regulations relating to tax
documentation requirements that are generally effective with respect to payments
made after December 31, 2000. Investors are advised to consult their own tax
advisors for specific tax advice concerning their holding and disposing of
Global Securities.
A-4
<PAGE>
PROSPECTUS
Asset Backed Notes and Asset Backed Certificates, issuable in Series
Residential Asset Funding Corporation
(Depositor)
Residential Asset Funding Corporation (the "Depositor") may offer from
time to time under this Prospectus and the related prospectus supplements (the
related "Prospectus Supplements") the Asset-Backed Notes (the "Notes") and the
Asset-Backed Certificates (the "Certificates" and, together with the Notes, the
"Securities") which may be sold from time to time in one or more series (each, a
"Series").
The Certificates of a Series will evidence undivided interests in
certain assets deposited into a trust (each, a "Trust Fund") by the Depositor
pursuant to a Pooling and Servicing Agreement or a Trust Agreement (an
"Agreement"), as described herein. The Notes of a Series will be issued and
secured pursuant to an Indenture and will represent indebtedness secured the
related Trust Fund. The Trust Fund for a Series of Securities will include
assets originated or acquired by the originator or originators (the
"Originator") specified in the related Prospectus Supplement composed of (a)
primary assets, which may include one or more pools (each, a "Pool") of (i)
loans (the "Mortgage Loans") that are secured by mortgages on residential
properties and that may be secured by fixtures, as further described herein and
(ii) manufactured housing conditional sale contracts and installment agreements
(the "Contracts") that are secured by Manufactured Homes, as further described
herein, and (iii) securities backed or secured by Mortgage Loans and/or
Contracts (collectively, the "Primary Assets"), (b) all monies due thereunder
net, if and as provided in the related Prospectus Supplement, of certain amounts
payable to the servicer of the Mortgage Loans, and/or Contracts, which servicer
may also be the related Originator, specified in the related Prospectus
Supplement (the "Servicer"), (c) as more fully described in the related
Prospectus Supplement, funds on deposit in one or more pre-funding amounts
and/or capitalized interest accounts and (d) reserve funds, letters of credit,
surety bonds, insurance policies or other forms of credit support as described
herein and in the related Prospectus Supplement. The Mortgage Loans will be
secured by mortgages and deeds of trust or other similar security instruments
creating a lien on a Mortgaged Property, which may be subordinated to one or
more senior liens on the Mortgaged Property. The Contracts will be secured by
security interests taken in the Manufactured Homes.
(cover continued on next page)
NOTES OF A GIVEN SERIES REPRESENT OBLIGATIONS SECURED BY, AND
CERTIFICATES OF A SERIES EVIDENCE BENEFICIAL INTERESTS IN, THE RELATED TRUST
FUND ONLY AND ARE NOT GUARANTEED BY ANY GOVERNMENTAL AGENCY OR BY THE DEPOSITOR,
THE RELATED ORIGINATOR, THE TRUSTEE, THE SERVICER OR BY ANY OF THEIR RESPECTIVE
AFFILIATES. THE DEPOSITOR'S ONLY OBLIGATIONS WITH RESPECT TO ANY SERIES OF
SECURITIES WILL BE PURSUANT TO CERTAIN REPRESENTATIONS AND WARRANTIES SET FORTH
IN THE RELATED AGREEMENT AS DESCRIBED HEREIN OR IN THE RELATED PROSPECTUS
SUPPLEMENT.
--------------------
For a discussion of material risks associated with an investment in the
Securities, see the information herein under "Risk Factors" beginning on page
17.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR THE PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------
The Securities offered by this Prospectus and by the related Prospectus
Supplement are offered by First Union Capital Markets, a division of Wheat First
Securities, Inc. and the other underwriters set forth in the related Prospectus
Supplement, if any, subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, to delivery to and acceptance by First
Union Capital Markets and the other underwriters, if any, and certain further
conditions. Retain this Prospectus for future reference. This Prospectus may not
be used to consummate sales of the Securities offered hereby unless accompanied
by a Prospectus Supplement.
--------------------
First Union Capital Markets
November 10, 1998
<PAGE>
(Continued from previous page)
Each Series of Securities will be issued in one or more classes (each,
a "Class"). Interest on and principal of the Securities of a Series will be
payable on each distribution date specified in the related Prospectus Supplement
(the "Distribution Date"), at the times, at the rates, in the amounts and in the
order of priority set forth in the related Prospectus Supplement.
If a Series includes multiple Classes, such Classes may vary with
respect to the amount, percentage and timing of distributions of principal,
interest or both and one or more Classes may be subordinated to other Classes
with respect to distributions of principal, interest or both as described herein
and in the related Prospectus Supplement. The Primary Assets and other assets
comprising the Trust Fund may be divided into one or more Asset Groups and each
Class of the related Series will evidence beneficial ownership of the
corresponding Asset Group, as applicable.
The rate of reduction of the aggregate principal balance of each Class
of a Series may depend principally upon the rate of payment (including
prepayments) with respect to the Mortgage Loans or Underlying Loans, Contracts
relating to the Private Securities, as applicable. A rate of prepayment lower or
higher than anticipated will affect the yield on the Securities of a Series in
the manner described herein and in the related Prospectus Supplement. Under
certain limited circumstances described herein and in the related Prospectus
Supplement, a Series of Securities may be subject to termination or redemption
under the circumstances described herein and in the related Prospectus
Supplement.
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<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Securities to be
offered hereunder will, among other things, set forth with respect to such
Series of Securities: (i) the aggregate principal amount, interest rate, and
authorized denominations of each Class of such Securities; (ii) certain
information concerning the Primary Assets, the Originator and any Servicer;
(iii) the terms of any credit enhancement with respect to such Series; (iv) the
terms of any insurance related to the Primary Assets; (v) information concerning
any other assets in the related Trust Fund, including any Reserve Fund; (vi) the
final scheduled distribution date of each Class of such Securities; (vii) the
method to be used to calculate the amount of principal required to be applied to
the Securities of each Class of such Series on each Distribution Date, the
timing of the application of principal and the order of priority of the
application of such principal to the respective Classes and the allocation of
principal to be so applied; (viii) the Distribution Dates and any Assumed
Reinvestment Rate (as defined herein); (ix) additional information with respect
to the plan of distribution of such Securities; and (x) the federal income tax
characterization of the Securities.
REPORTS TO HOLDERS
Periodic and annual reports concerning the related Trust Fund for a
Series of Securities are required under the related Agreement to be forwarded to
holders of the related Series of Securities (the "Holders"). If the Securities
are issued in book-entry form, (i) owners of beneficial interests in such
Securities will not be considered "Holders" under the Agreements and will not
receive such reports directly from the related Trust Fund; rather, such reports
will be furnished to such owners through the participants and indirect
participants of the applicable book-entry system and (ii) references herein to
the rights of "Holders" shall refer to the rights of such owners as they may be
exercised indirectly through such participants. See "THE AGREEMENTS-- Reports to
Holders" herein.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission
(the "Commission ") a Registration Statement under the Securities Act of 1933,
as amended, with respect to the Securities. This Prospectus, which forms a part
of the Registration Statement, and the Prospectus Supplement relating to each
Series of Securities contain summaries of the material terms of the documents
referred to herein and therein, but do not contain all of the information set
forth in the Registration Statement pursuant to the Rules and Regulations of the
Commission. For further information, reference is made to such Registration
Statement and the exhibits thereto. Such Registration Statement and exhibits can
be inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at its Public Reference Section, 450 Fifth Street,
NW, Washington, D.C. 20549, and at its Regional Office located as follows,
Midwest Regional Office, 500 West Madison Street, Chicago, Illinois 60661; and
Northeast Regional Office, Seven World Trade Center, New York, New York 10048.
In addition, the Commission maintains a World Wide Web site at
http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants, including the Depositor, that file
electronically with the Commission.
Each Trust Fund will be required to file certain reports with the
Commission pursuant to the requirements of the Securities Exchange Act of 1934,
as amended. The Depositor intends to cause each Trust Fund to suspend filing
such reports if and when such reports are no longer required under said Act.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Securities offered
hereby and thereby nor an offer of the Securities to any person in any state or
other jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus at any time does not imply that information herein is correct as of
any time subsequent to its date.
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<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by or on behalf of the Trust Fund
referred to in the accompanying Prospectus Supplement with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), after the date of this Prospectus and
prior to the termination of any offering of the Securities issued by such Trust
Fund shall be deemed to be incorporated by reference in this Prospectus and to
be a part of this Prospectus from the date of the filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for all purposes
of this Prospectus to the extent that a statement contained herein (or in the
accompanying Prospectus Supplement) or in any other subsequently filed document
which also is or is deemed to be incorporated by reference modifies or replaces
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Depositor on behalf of any Trust Fund will provide without charge
to each person to whom this Prospectus is delivered, on the written or oral
request of such person, a copy of any or all of the documents referred to above
that have been or may be incorporated by reference in this Prospectus (not
including exhibits to the information that is incorporated by reference unless
such exhibits are specifically incorporated by reference into the information
that this Prospectus incorporates). Such requests should be directed to the
Depositor at One First Union Center, 301 S. College Street, Charlotte, North
Carolina 28288-0630.
4
<PAGE>
SUMMARY OF PROSPECTUS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to each Series of Securities contained in the
Prospectus Supplement to be prepared and delivered in connection with the
offering of Securities of such Series. Capitalized terms used and not otherwise
defined herein or in the related Prospectus Supplement shall have the meanings
set forth in the "GLOSSARY OF TERMS" herein.
<TABLE>
<S> <C>
Securities Offered...................................Asset-Backed Certificates (the "Certificates") and
Asset-Backed Notes (the "Notes"). Certificates are issuable
from time to time in Series pursuant to a Pooling and
Servicing Agreement or Trust Agreement (the related
"Agreement"). Each Certificate of a Series will evidence an
interest in the Trust Fund for such Series, or in an Asset
Group specified in the related Prospectus Supplement. Notes
are issuable from time to time in Series pursuant to an
Indenture between the Issuer and the related trustee (the
"Trustee") whereby the Issuer will pledge the Trust Fund to
secure the Notes under the lien of the Indenture. Each
series of Notes will represent the indebtedness of the
Issuer. Each Series of Securities will consist of one or
more Classes, one or more of which may be Classes of
compound interest securities, planned amortization class
("PAC") securities, variable interest securities, zero coupon
securities, principal only securities, interest only
securities, participating securities, senior securities or
subordinate securities. Each Class may differ in, among
other things, the amounts allocated to and the priority of
principal and interest payments, final scheduled
distribution dates, Distribution Dates and interest rates.
The Securities of each Class will be issued in fully
registered form in the denominations specified in the
related Prospectus Supplement. The Securities or certain
Classes of such Securities offered thereby may be available
in book-entry form only.
Depositor ...........................................Residential Asset Funding Corporation (the "Depositor") was
incorporated in the State of North Carolina in December
1997, and is a wholly-owned, special purpose subsidiary of
First Union National Bank, a national banking association
with its headquarters in Charlotte, North Carolina. Neither
First Union National Bank nor any other affiliate of the
Depositor, the Servicer, the Trustee or the Originator has
guaranteed or is otherwise obligated with respect to the
Securities of any Series. See "THE DEPOSITOR" herein.
Issuer ..............................................With respect to each series of Notes, the issuer (the
"Issuer") will be an owner trust (the "Owner Trust")
established for the purpose of issuing such series of
Notes. Each such Owner Trust will be created pursuant to
the Trust Agreement (the "Trust Agreement") between the
Depositor and the Owner Trustee. With respect to each series
of Certificates, the Issuer will be the Trust established
pursuant to the related Agreement.
Trustees ............................................The trustee or indenture trustee (each, the "Trustee") for each
series of Certificates and Notes, respectively, will be named
in the related Prospectus Supplement. The Owner Trustee (the
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<PAGE>
"Owner Trustee") for each series of Notes will be named in the
related Prospectus Supplement. See "The Agreements--The
Trustee" herein.
Interest Payments ...................................Interest payments on the Securities of a Series entitled by
their terms to receive interest will be made on each
Distribution Date, to the extent set forth in, and at the
applicable rate specified in (or determined in the manner
set forth in), the related Prospectus Supplement. The
interest rate on Securities of a Series may be variable or
change with changes in the rates of interest on the related
Mortgage Loans, Contracts or Underlying Loans relating to
the Private Securities, as applicable and/or as prepayments
occur with respect to such Mortgage Loans, Contracts or
Underlying Loans, as applicable. Interest Only Securities
may be assigned a "Notional Amount" set forth in the related
Prospectus Supplement which is used solely for convenience
in expressing the calculation of interest and for certain
other purposes and does not represent the right to receive
any distributions allocable to principal. Principal Only
Securities may not be entitled to receive any interest
payments or may be entitled to receive only nominal interest
payments. Interest payable on the Securities of a Series on
a Distribution Date will include all interest accrued during
the period specified in the related Prospectus Supplement.
See "DESCRIPTION OF THE SECURITIES--Payments of Interest"
herein.
Principal Payments ..................................All payments of principal of a Series of Securities will be
made in an aggregate amount determined as set forth in the
related Prospectus Supplement and will be paid at the times
and will be allocated among the Classes of such Series in
the order and amounts, and will be applied either on a pro
rata or a random lot basis among all Securities of any such
Class, all as specified in the related Prospectus
Supplement.
Final Scheduled Distribution Date of the
Securities ..........................................The "Final Scheduled Distribution Date" with respect to each
Class of Notes is the date no later than which principal
thereof will be fully paid and with respect to each Class of
Certificates is the date after which no Certificates of such
Class are expected to remain outstanding, in each case
calculated on the basis of the assumptions applicable to such
Series described in the related Prospectus Supplement. The
Final Scheduled Distribution Date of a Class may equal the
maturity date of the Primary Asset in the related Trust Fund
which has the latest stated maturity or will be determined as
described herein and in the related Prospectus Supplement.
The actual final Distribution Date of the Securities of a
Series will depend primarily upon the rate of payment
(including prepayments, liquidations due to default, the
receipt of proceeds from casualty insurance policies and
repurchases) of the Mortgage Loans, Contracts or Underlying
Loans relating to the Private Securities, as applicable, in the
related Trust Fund. The actual final Distribution Date of a
Security may occur substantially earlier or may occur later
than its Final
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<PAGE>
Scheduled Distribution Date as a result of the application of
prepayments to the reduction of the principal balances of the
Securities and as a result of defaults on the Primary Assets.
The rate of payments on the Mortgage Loans, Contracts or
Underlying Loans relating to the Private Securities, as
applicable, in the Trust Fund for a Series will depend on a
variety of factors, including certain characteristics of such
Mortgage Loans, Contracts or Underlying Loans, as applicable,
and the prevailing level of interest rates from time to time,
as well as on a variety of economic, demographic, tax, legal,
social and other factors. No assurance can be given as to the
actual prepayment experience with respect to a Series. See
"RISK FACTORS--Yield May Vary" and "DESCRIPTION OF THE
SECURITIES--Weighted Average Life of the Securities" herein.
Optional Termination.................................One or more Classes of Securities of any Series may be redeemed
or repurchased in whole or in part, at such time, by the
related Originator, Servicer, Credit Enhancer, or an affiliate
thereof at the price set forth in the related Agreement (which
would not be less than an amount necessary to pay all principal
and interest on the securities outstanding). Each such
redemption or repurchase may occur on or after such time as the
aggregate principal balance of the Securities of the Series or
the Primary Assets relating to such Series is less than the
percentage (which percentage shall not exceed 20%) specified in
the related Agreement. See "DESCRIPTION OF THE
SECURITIES--Optional Redemption, Purchase or Termination"
herein.
Mandatory Termination; Auction Sale .................The Trustee, the Servicer or the related Originator may be
required to effect early retirement of a series of
Securities by soliciting competitive bids for the purchase
of the related Primary Assets or otherwise, under other
circumstances and in the manner specified in "THE
AGREEMENTS--Termination" and in the related Agreement.
A mandatory termination may take the form of an auction sale.
Within a certain period following the failure of the holder of
the optional termination right to exercise such right, the
required party shall solicit bids for the purchase of all
Mortgage Loans and/or Contracts remaining in the Trust. In the
event that satisfactory bids are received (which would not be
less than an amount necessary to pay all principal and interest
on the securities outstanding), the net sale proceeds will be
distributed to Holders, in the same order of priority as
collections received in respect of the Mortgage Loans and/or
Contracts. If satisfactory bids are not received, such party
shall decline to sell the Mortgage Loans and/or Contracts and
shall not be under any obligation to solicit any further bids
or otherwise negotiate any further sale of the Mortgage Loans
and/or Contracts. 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
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<PAGE>
limitation, the requirement that the qualified liquidation
takes place over a period not to exceed 90 days.
The Trust Fund.......................................The Trust Fund for a Series of Securities will consist of
one or more of the assets described below, as described in
the related Prospectus Supplement.
A. Primary Assets..............................The Primary Assets for a Series may consist of any
combination of the following assets, to the extent and as
specified in the related Prospectus Supplement. The Primary
Assets will be acquired by the related Trust Fund from the
related Originator, or may be acquired in the open market or
in privately negotiated transactions.
(1) Mortgage Loans..............................The Primary Assets for a Series will consist, in whole or in
part, of loans which are secured by mortgages on residential
properties and which may be secured by fixtures (the
"Mortgage Loans"). Some Mortgage Loans may be delinquent to
the extent specified in the related Prospectus Supplement.
The percentage of those Mortgage Loans which are delinquent
shall not exceed 10% of the aggregate principal balance of
the Primary Assets as of the cut-off date for that Series
(the "Cut-Off Date").
The Mortgage Loans will generally consist of what are commonly
referred to as "purchase money" loans, as distinguished from
"home equity" loans. Both of these concepts refer to the use
of proceeds made by the related borrower, rather than to any
legal or other documentary differences between the two types
of loans, except that "home equity" loans are usually (but not
always) secured by mortgages which are in a subordinate lien
position while "purchase money" loans are usually (but not
always) secured by mortgages which are in a senior lien
position, and "home equity" loans are typically (but not
always) shorter in maturity than "purchase money" loans (i.e.,
fifteen rather than thirty years). The Mortgage Loans, in
addition to being secured by mortgages on real estate, may
also be secured by "fixtures" treated as personal property
under local state law. Although fixtures may turn up more
frequently in the case of loans in which the proceeds are used
to fund home improvements, fixtures as a part of the
collateral package may be a part of either a "home equity" or
"purchase money" loan.
A "purchase money" mortgage is a loan the proceeds of which
are used to purchase the related mortgaged property; the
proceeds of a "home equity" loan are not applied to the
purchase of the related mortgaged property.
Payment Features of Mortgage Loans; Balloon Loans. The Trust
Fund may contain loans which have various payment
characteristics, including balloon or other non-traditional
payment features, and may accrue interest at a fixed rate or
an adjustable rate. Balloon loans do not amortize their entire
principal balance by their stated maturity in accordance with
their terms and require a balloon payment of the remaining
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<PAGE>
principal balance at maturity (each such Mortgage Loan, a
"Balloon Loan"). See "RISK FACTORS--Balloon Loans" and
"DESCRIPTION OF THE SECURITIES--Weighted Average Life of the
Securities" herein.
The Mortgage Loans will be secured by mortgages and deeds of
trust or other similar security instruments creating a lien on
a Mortgaged Property, which may be subordinated to one or more
senior liens on the Mortgaged Property. The related Prospectus
Supplement will describe certain characteristics of the
Mortgage Loans for a Series, including, without limitation,
and to the extent relevant: (a) the aggregate unpaid principal
balance of the Mortgage Loans (or the aggregate unpaid
principal balance included in the Trust Fund for the related
Series); (b) the range and weighted average interest rate (the
"Loan Rate") on the loans and in the case of adjustable rate
loans, the range and weighted average of the current rate of
interest borne by such loans (the "Current Interest Rates")
and any maximum lifetime interest rates thereon (the "Lifetime
Rate Caps"); (c) the range and the average outstanding
principal balance of the Mortgage Loans; (d) the weighted
average original and remaining term-to-stated maturity of the
Mortgage Loans and the range of original and remaining
terms-to-stated maturity, if applicable; (e) the range and
combined loan-to-value ratios (each a "Combined Loan-to-Value
Ratio") or loan-to-value ratios, (each a "Loan-to-Value
Ratio") as applicable, of the Mortgage Loans, computed in the
manner described in the related Prospectus Supplement; (f) the
percentage (by principal balance as of the Cut-off Date) of
Mortgage Loans that accrue interest at adjustable or fixed
interest rates; (g) any Credit Enhancement relating to the
Mortgage Loans; (h) the geographic distribution of any
Mortgaged Properties securing the Mortgage Loans; (i) the use
and type of each Mortgaged Property securing a Mortgage Loan;
(j) the lien priority of the Mortgage Loans; and (k) the
delinquency status and year of origination of the Mortgage
Loans.
(2) Contracts Each Contract Pool (as defined herein) will consist of fixed
or adjustable rate manufactured housing installment sales
contracts and installment loan agreements. Each Contract
may be secured by a new or used Manufactured Home (as
defined herein).
(3) Private Securities..................... Primary Assets for a Series may consist, in whole or in
part, of Private Securities which include (a) pass-through
certificates representing beneficial interests in loans of
the type that would otherwise be eligible to be Mortgage
Loans and/or Contracts (the "Underlying Loans") or (b)
collateralized obligations secured by Underlying Loans.
Such pass-through certificates or collateralized obligations
will have previously been (a) offered and distributed to the
public pursuant to an effective registration statement and
not purchased as part of the original distribution or (b)
acquired in a transaction not involving any public offering
from a person who is not an affiliate of the issuer of such
securities at the
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time of transfer (nor an affiliate thereof at any time during
the three preceding months); provided a period of three years
has elapsed since the later of the date the securities were
acquired from the issuer or an affiliate thereof. Although
individual Underlying Loans may be insured or guaranteed by
the United States or an agency or instrumentality thereof,
they need not be, and the Private Securities themselves will
not be so insured or guaranteed. See "THE TRUST FUNDS--Private
Securities" herein.
The related Prospectus Supplement for a Series will specify
(such disclosure may be on an approximate basis, as described
above and will be as of the date specified in the related
Prospectus Supplement) to the extent relevant and to the
extent such information is reasonably available to the
Depositor and the Depositor reasonably believes such
information to be reliable: (i) the aggregate approximate
principal amount and type of any Private Securities to be
included in the Trust Fund for such Series; (ii) certain
characteristics of the Underlying Loans including (A) the
payment features of such Underlying Loans (i.e., whether they
are fixed rate or adjustable rate and whether they provide for
fixed level payments, negative amortization or other payment
features), (B) the approximate aggregate principal amount of
such Underlying Loans which are insured or guaranteed by a
governmental entity, (C) the servicing fee or range of
servicing fees with respect to such Underlying Loans, (D) the
minimum and maximum stated maturities of such Underlying Loans
at origination, (E) the lien priority of such Underlying
Loans, and (F) the delinquency status and year of origination
of such Underlying Loans; (iii) the maximum original
term-to-stated maturity of the Private Securities; (iv) the
weighted average term-to-stated maturity of the Private
Securities; (v) the pass-through or certificate rate or ranges
thereof for the Private Securities; (vi) the sponsor or
depositor of the Private Securities (the "PS Sponsor"), the
servicer of the Private Securities (the "PS Servicer") and the
trustee of the Private Securities (the "PS Trustee"); (vii)
certain characteristics of Credit Enhancement, if any, such as
reserve funds, insurance policies, letters of credit or
guarantees, relating to the Mortgage Loans underlying the
Private Securities, or to such Private Securities themselves;
(viii) the terms on which the Underlying Loans may, or are
required to, be repurchased prior to stated maturity; (ix) the
terms on which substitute Underlying Loans may be delivered to
replace those initially deposited with the PS Trustee; and (x)
a description of the limited purpose and business of the
issuer of the Private Securities, the availability of public
information concerning such issuer and market information with
respect to the Private Securities. See "THE TRUST
FUNDS--Additional Information" herein.
B. Collection and Distribution
Accounts....................................All payments on or with respect to the Primary Assets for a
Series will be remitted directly to an account (the
"Collection Account") to be established for such Series with
the Trustee or
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the Servicer, in the name of the Trustee. The Trustee shall be
required to apply a portion of the amount in the Collection
Account, together with reinvestment earnings from eligible
investments specified in the related Prospectus Supplement, to
the payment of certain amounts payable to the Servicer under
the related Agreement and any other person specified in the
Prospectus Supplement, and to deposit a portion of the amount
in the Collection Account into a separate account (the
"Distribution Account") to be established for such Series,
each in the manner and at the times established in the related
Prospectus Supplement. The amounts deposited in such
Distribution Account will be available for (i) application to
the payment of principal of and interest on such Series of
Securities on the next Distribution Date, (ii) the making of
adequate provision for future payments on certain Classes of
Securities and (iii) any other purpose specified in the
related Prospectus Supplement. After applying the funds in the
Collection Account as described above, any funds remaining in
the Collection Account may be paid over to the Servicer, the
Depositor, any provider of Credit Enhancement with respect to
such Series (a "Credit Enhancer") or any other person entitled
thereto in the manner and at the times established in the
related Prospectus Supplement.
C. Pre-Funding and Capitalized Interest
Accounts....................................A Trust Fund may include one or more segregated trust accounts
(each, a "Pre-Funding Account") established and maintained
with the Trustee for the related Series. On the closing date
for such Series, a portion of the proceeds of the sale of the
Securities of such Series (such amount, the "Pre-Funded
Amount") will be deposited in the Pre-Funding Account and may
be used to purchase additional Primary Assets during the
period of time specified in the related Prospectus Supplement
(the "Pre-Funding Period"). If any Pre-Funded Amount remains
on deposit in the Pre-Funding Account at the end of the
Pre-Funding Period, such amount will be applied in the manner
specified in the related Prospectus Supplement to prepay the
Notes and/or the Certificates of the applicable Series. If a
Trust Fund includes a Pre-Funding Account and the principal
balance of additional Primary Assets delivered to the Trust
Fund during the Pre-Funding Period is less than the original
Pre-Funded Amount, the Holders of the Securities of the
related Series will receive a prepayment of principal as and
to the extent described in the related Prospectus Supplement.
Any such principal prepayment may adversely affect the yield
to maturity of the applicable Securities.
If a Pre-Funding Account is established, (a) the Pre-Funding
Period will not exceed 90 days from the related closing date,
(b) the additional Primary Assets to be acquired during the
Pre-Funding Period will be subject to the same representations
and warranties and satisfy the same eligibility requirements
as the Primary Assets included in the related Trust Fund on
the closing date, subject to such exceptions as are expressly
stated in such Prospectus Supplement, (c) the Pre-Funding
Amount
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will not exceed 25% of the principal amount of the Securities
issued pursuant to a particular offering and (d) prior to the
investment of the Pre-Funded Amount in additional Primary
Assets, such Pre-Funded Amount will be invested in one or more
"Eligible Investments" specified in the related Agreement and
described herein under "THE TRUST FUNDS -- Collection and
Distribution Accounts." Any Eligible Investment must mature no
later than the Business Day prior to the next Distribution
Date. "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 the Trustee are closed.
If a Pre-Funding Account is established, one or more
segregated trust accounts (each, a "Capitalized Interest
Account") may be established and maintained with the Trustee
for the related Series. On the closing date for such Series, a
portion of the proceeds of the sale of the Securities of such
Series will be deposited in the Capitalized Interest Account
and used to fund the excess, if any, of (x) the sum of (i) the
amount of interest accrued on the Securities of such Series
and (ii) certain fees or expenses during the Pre-Funding
Period such as trustee fees and credit enhancement fees, over
(y) the amount of interest available therefor from the Primary
Assets in the Trust Fund. Any amounts on deposit in the
Capitalized Interest Account at the end of the Pre-Funding
Period that are not necessary for such purposes will be
distributed to the person specified in the related Prospectus
Supplement. See "THE TRUST FUNDS--Pre-Funding Account" herein.
Credit Enhancement...................................If stated in the Prospectus Supplement relating to a Series,
the Depositor will obtain an irrevocable letter of credit,
surety bond, certificate insurance policy, insurance policy
or other form of credit support (collectively, "Credit
Enhancement") in favor of the Trustee on behalf of the
Holders of such Series and any other person specified in
such Prospectus Supplement from an institution (a "Credit
Enhancer") acceptable to the rating agency or agencies
identified in the related Prospectus Supplement as rating
such Series of Securities (collectively, the "Rating
Agency") for the purposes specified in such Prospectus
Supplement. The Credit Enhancement will support the
payments on the Securities and may be used for other
purposes, to the extent and under the conditions specified
in such Prospectus Supplement. See "CREDIT ENHANCEMENT"
herein. Credit Enhancement for a Series may include one or
more of the following types of Credit Enhancement, or such
other type of Credit Enhancement specified in the related
Prospectus Supplement.
A. Subordinate Securities......................Credit Enhancement for a Series may consist of one or more
Classes of Subordinate Securities. The rights of Holders of
such Subordinate Securities to receive distributions on any
Distribution Date will be subordinate in right and priority
to the rights of holders of Senior Securities of the Series,
but
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only to the extent described in the related Prospectus
Supplement.
B. Insurance...................................Credit Enhancement for a Series may consist of special hazard
insurance policies, bankruptcy bonds and other types of
insurance supporting payments on the Securities.
C. Reserve Funds...............................If stated in the Prospectus Supplement, the Depositor may
deposit cash, a letter or letters of credit, short-term
investments, or other instruments acceptable to the Rating
Agency in one or more reserve funds to be established in the
name of the Trustee (each a "Reserve Fund"), which will be
used by the Trustee to make required payments of principal
of or interest on the Securities of such Series, to make
adequate provision for future payments on such Securities or
for any other purpose specified in the Agreement, with
respect to such Series, to the extent that funds are not
otherwise available. In the alternative or in addition to
such deposit, a Reserve Fund for a Series may be funded
through application of all or a portion of the excess cash
flow from the Primary Assets for such Series, to the extent
described in the related Prospectus Supplement.
D. Minimum Principal Payment
Agreement...................................If stated in the Prospectus Supplement relating to a Series
of Securities, the Depositor will enter into a minimum
principal payment agreement (the "Minimum Principal Payment
Agreement") with an entity meeting the criteria of the
Rating Agency, pursuant to which such entity will provide
funds in the event that aggregate principal payments on the
Primary Assets for such Series are not sufficient to make
certain payments. See "CREDIT ENHANCEMENT--Minimum
Principal Payment Agreement" herein.
E. Deposit Agreement...........................If stated in the Prospectus Supplement, the Depositor and
the Trustee will enter into a guaranteed investment contract
or an investment agreement (the "Deposit Agreement")
pursuant to which all or a portion of amounts held in the
Collection Account, the Distribution Account or in any
Reserve Fund will be invested with the entity specified in
such Prospectus Supplement. The Trustee will be entitled to
withdraw amounts so invested, plus interest at a rate equal
to the Assumed Reinvestment Rate, in the manner specified in
the Prospectus Supplement. See "CREDIT ENHANCEMENT--Deposit
Agreement" herein.
Servicing............................................The Servicer will be responsible for servicing, managing and
making collections on the Mortgage Loans and/or Contracts
for a Series. In addition, the Servicer may act as
custodian and be responsible for maintaining custody of the
Mortgage Loans and/or Contracts and related documentation on
behalf of the Trustee. Advances with respect to delinquent
payments of principal or interest on a Mortgage Loan and/or
Contracts will be made by the Servicer only to the extent
described in the related Prospectus Supplement. Such
advances will be intended to provide liquidity only and the
related Prospectus
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Supplement will specify the extent to which they are
reimbursable to the Servicer from scheduled payments of
principal and interest, late collections, or from the proceeds
of liquidation of the related Mortgage Loans and/or Contracts
or from other recoveries relating to such Mortgage Loan or
Contract (including any insurance proceeds or payments from
other credit support). In performing these functions, the
Servicer will exercise the same degree of skill and care that
it customarily exercises with respect to similar receivables
or Mortgage Loans and/or Contracts owned or serviced by it.
Under certain limited circumstances, the Servicer may resign
or be removed, in which event either the Trustee or a
third-party servicer will be appointed as successor servicer.
The Servicer will receive a periodic fee as servicing
compensation (the "Servicing Fee") and may, as specified
herein and in the related Prospectus Supplement, receive
certain additional compensation. See "SERVICING OF MORTGAGE
LOANS -- Servicing Compensation and Payment of Expenses"
herein.
Material Federal Income
Tax Consequences.....................................Securities of each series offered hereby will, for federal
income tax purposes, constitute either (i) interests ("Grantor
Trust Securities") in a Trust treated as a grantor trust under
applicable provisions of the Code, (ii) "regular interests"
("REMIC Regular Securities") or "residual interests" ("REMIC
Residual Securities") in a Trust treated as a real estate
mortgage investment conduit ("REMIC") (or, in certain
instances, containing one or more REMICs) under Sections 860A
through 860G of the Code, (iii) debt issued by an Issuer
("Debt Securities") (iv) interests in an Issuer which is
treated as a partnership ("Partnership Interests"), or (v)
"regular interests" ("FASIT Regular Securities"), "high-yield
interests" ("FASIT High-Yield Securities") or an ownership
interest ("FASIT Ownership Security") in a Trust treated as a
financial asset securitization investment conduit ("FASIT")
(or, in certain circumstances containing one or more FASITs)
under Sections 860H through 860L of the Code. In the event
that FASIT securities are issued, any revolving period, or
addition or substitution of collateral provisions otherwise
available by means of the FASIT election will be restricted so
as to conform to the requirements of REMICs.
Dewey Ballantine LLP, special tax counsel to the Depositor,
will render an opinion upon issuance of a series of Securities
which will be filed with the Commission as an exhibit to a
post-effective amendment or in a current report on Form 8-K.
Investors are urged to consult their tax advisors and to
review "Material Federal Income Tax Consequences" herein and
in the related Prospectus Supplement.
ERISA Considerations.................................A fiduciary of any employee benefit plan subject to the
Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or the Code should carefully review with its own
legal advisors whether the purchase or holding of Securities
could give rise to a transaction prohibited or otherwise
impermissible under ERISA or the Code. A
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violation of the prohibited transaction rules may generate
excise tax and other liabilities under ERISA and the Code. If
the Securities offered are Certificates, an individual
prohibited transaction exemption issued by the Department of
Labor to various underwriters may exempt the purchase, holding
and resale of such Certificates. In addition, Prohibited
Transaction Class Exemption 83-1 may exempt the sale or
exchange of the Certificates. If the Securities offered are
Notes which are treated as indebtedness without substantial
equity features for purposes of ERISA, various Department of
Labor Class Exemptions may exempt the purchase and holding of
such Notes, and each purchaser and transferee of such Notes
may be required to represent and warrant that such an
exemption is applicable to its purchase and holding of the
Notes. See "ERISA CONSIDERATIONS" herein.
Legal Investment.....................................The related Prospectus Supplement will state whether or not
the Securities of each Series offered by this Prospectus and
the related Prospectus Supplement will constitute "mortgage
related securities" under the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"). Investors whose
investment authority is subject to legal restrictions should
consult their own legal advisors to determine whether and to
what extent the Securities constitute legal investments for
them. See "LEGAL INVESTMENT" herein.
Use of Proceeds......................................The net proceeds from the sale of each Series will be
applied to one or more of the following purposes: (i) to
the acquisition of the related Primary Assets, (ii) to repay
indebtedness which has been incurred to obtain funds to
acquire such Primary Assets, (iii) to establish any Reserve
Funds described in the related Prospectus Supplement and
(iv) to pay costs of structuring and issuing such
Securities, including the costs of obtaining Credit
Enhancement, if any. The acquisition of the Primary Assets
for a Series may be effected by an exchange of Securities
with the Originator of such Primary Assets. See "USE OF
PROCEEDS" herein.
Ratings..............................................It will be a requirement for issuance of any Series that the
Securities offered by this Prospectus and the related
Prospectus Supplement be rated by at least one Rating Agency
in one of its four highest applicable rating categories.
The rating or ratings applicable to Securities of each
Series offered hereby and by the related Prospectus
Supplement will be as set forth in the related Prospectus
Supplement. A securities rating should be evaluated
independently of similar ratings on different types of
securities. A securities rating is not a recommendation to
buy, hold or sell securities and does not address the effect
that the rate of prepayments on Mortgage Loans, Contracts or
Underlying Loans relating to Private Securities, as
applicable, for a Series may have on the yield to investors
in the Securities of such Series. See "RISK
FACTORS--Ratings Are Not Recommendations" herein.
Absence of Market....................................The Securities will be a new issue of securities with no
established trading market. The Issuer does not expect to
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apply for listing of the Securities on any national
securities exchange or quote the Securities in the automated
quotation system of a registered securities association.
The Underwriter(s) specified in the related Prospectus
Supplement expects to make a secondary market in the
Securities, but has no obligation to do so. See "RISK
FACTORS" herein.
Risk Factors........................................ There are material risks associated with an investment in the
Securities. For a discussion of all material factors that
should be considered by prospective investors in the
Securities, see "RISK FACTORS" herein and in the related
Prospectus Supplement.
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RISK FACTORS
For a discussion of all material risk factors that could make the
offering of the Securities speculative or one of high risk, Investors should
consider the following factors and "Risk Factors" in the related Prospectus
Supplement.
An Investment in Any Security May Be an Illiquid Investment, which May Result in
the Holder Holding such Investment to Maturity.
There will be no market for the Securities of any Series prior to the
issuance thereof, and there can be no assurance that a secondary market will
develop or, if it does develop, that it will provide Holders with liquidity of
investment or will continue for the life of the Securities of such Series. The
Underwriter(s) specified in the related Prospectus Supplement expects to make a
secondary market in the Securities, but has no obligation to do so.
The Assets of the Trust Fund, as Well as Any Applicable Credit Enhancement, Will
Be Limited and, if such Assets and/or Credit Enhancement Become Insufficient to
Service the Related Securities, Losses May Result.
The Securities of a Series will be payable solely from the assets of
the Trust Fund for such Securities. There will be no recourse to the Depositor
or any other person for any default on the Notes or any failure to receive
distributions on the Certificates. Further, at the times and to the extent set
forth in the related Prospectus Supplement, certain Primary Assets and/or any
balance remaining in the Collection Account or Distribution Account immediately
after making all payments due on the Securities of such Series and other
payments specified in the related Prospectus Supplement, may be promptly
released or remitted to the Depositor, the Servicer, the Credit Enhancer or any
other person entitled thereto and will no longer be available for making
payments to Holders. Consequently, Holders of Securities of each Series must
rely solely upon payments with respect to the Primary Assets and the other
assets constituting the Trust Fund for a Series of Securities, including, if
applicable, any amounts available pursuant to any Credit Enhancement for such
Series, for the payment of principal of and interest on the Securities of such
Series.
Holders of Notes will be required under the Indenture to proceed only
against the Primary Assets and other assets constituting the related Trust Fund
in the case of a default with respect to such Notes and may not proceed against
any assets of the Depositor. There is no assurance that the market value of the
Primary Assets or any other assets for a Series will at any time be equal to or
greater than the aggregate principal amount of the Securities of such Series
then outstanding, plus accrued interest thereon. Moreover, upon an event of
default under the Indenture for a Series of Notes and a sale of the assets in
the Trust Fund or upon a sale of the assets of a Trust Fund for a Series of
Certificates, the Trustee, the Servicer, if any, the Credit Enhancer and any
other service provider specified in the related Prospectus Supplement generally
will be entitled to receive the proceeds of any such sale to the extent of
unpaid fees and other amounts owing to such persons under the related Agreement
prior to distributions to Holders of Securities. Upon any such sale, the
proceeds thereof may be insufficient to pay in full the principal of and
interest on the Securities of such Series.
The only obligations, if any, of the Depositor with respect to the
Securities of any Series will be pursuant to certain representations and
warranties. See "THE AGREEMENTS--Assignment of Primary Assets" herein.
Credit Enhancement Will Be Limited in Amount and Scope of Coverage and May Not
be Sufficient to Cover Losses.
Although any Credit Enhancement is intended to reduce the risk of
delinquent payments or losses to Holders entitled to the benefit thereof, the
amount of such Credit Enhancement will be limited and will decline and could be
depleted under certain circumstances prior to the payment in full of the related
Series of Securities, and as a result Holders may suffer losses. Furthermore,
such Credit Enhancement may provide only very limited coverage as to certain
types of losses and may provide no coverage as to certain other types of losses.
Generally, Credit Enhancements do not directly or indirectly guarantee to the
holders of Securities, any specific rate of prepayment. See "CREDIT ENHANCEMENT"
herein.
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The Timing of Principal Payments May Adversely Affect the Yield to Maturity of
the Securities.
The yield to maturity experienced by a Holder of Securities may be
affected by the rate of payment of principal of the Mortgage Loans or Underlying
Loans relating to the Private Securities, as applicable. The timing of principal
payments of the Securities of a Series will be affected by a number of factors,
including the following: (i) the extent of prepayments of the Mortgage Loans,
Contracts or Underlying Loans relating to the Private Securities, as applicable;
(ii) the manner of allocating principal payments among the Classes of Securities
of a Series as specified in the related Prospectus Supplement; (iii) the
exercise by the party entitled thereto of any right of optional termination;
(iv) liquidations due to defaults and (v) repurchases of Mortgage Loans,
Contracts or Underlying Loans due to conversion of adjustable-rate loans ("ARM
Loans") to fixed-rate loans or breaches of the related Originator's or
Servicer's representations and warranties). See "DESCRIPTION OF THE
SECURITIES--Weighted Average Life of Securities.".
Interest payable on the Securities of a Series on a Distribution Date
will include all interest accrued during the period specified in the related
Prospectus Supplement. In the event interest accrues during the calendar month
prior to a Distribution Date, the effective yield to Holders will be reduced
from the yield that would otherwise be obtainable if interest payable on the
Security were to accrue through the day immediately preceding each Distribution
Date, and the effective yield (at par) to Holders will be less than the
indicated coupon rate. See "DESCRIPTION OF THE SECURITIES--Payments of
Interest."
Prepayments May Adversely Affect the Yield to Maturity of the Securities.
The yield to maturity of the Securities of each series may be adversely
affected by a higher or lower than anticipated rate of prepayments on the
related Mortgage Loans and/or Contracts. The yield to maturity on interest-only
Private Securities or Private Securities purchased at premiums or discounted to
par will be extremely sensitive to the rate of prepayments on the related
Mortgage Loans and/or Contracts. In addition, the yield to maturity on certain
other types of classes of Securities, including certain classes in a series
including more than one class of Securities, may be relatively more sensitive to
the rate of prepayment on the related Mortgage Loans and/or Contracts than other
classes of Securities.
The Mortgage Loans and/or Contracts may be prepaid in full or in part
at any time; however, a prepayment penalty or premium may be imposed in
connection therewith. Unless so specified in the related Prospectus Supplement,
such penalties will not be property of the related Trust. The rate of
prepayments of the Mortgage Loans and/or Contracts cannot be predicted and is
influenced by a wide variety of economic, social and other factors, including
prevailing mortgage market interest rates, the availability of alternative
financing, local and regional economic conditions and homeowner mobility.
Therefore, no assurance can be given as to the level of prepayments that a Trust
will experience.
Prepayments may result from mandatory prepayments relating to unused
monies held in Pre-Funding Accounts, if any, voluntary early payments by
borrowers (including payments in connection with refinancings of the related
senior Mortgage Loan or Loans and/or Contracts), sales of Mortgaged Properties
subject to "due-on-sale" provisions and liquidations due to default, as well as
the receipt of proceeds from physical damage, credit life and disability
insurance policies. In addition, repurchases or purchases from a Trust of
Mortgage Loans and/or Contracts or substitution adjustments required to be made
under the Pooling and Servicing Agreement will have the same effect on the
Securityholders as a prepayment of such Mortgage Loans and/or Contracts. The
related Prospectus Supplement will specify whether any or all of the Mortgage
Loans contain "due-on-sale" provisions.
Collections on the Mortgage Loans and/or Contracts may vary due to the
level of incidence of delinquent payments and of prepayments. Collections on the
Mortgage Loans and/or Contracts may also vary due to seasonal purchasing and
payment habits of borrowers.
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As a Result of Optional Redemption or Repurchase or Auction Sale, Holders Could
Be Fully Paid Significantly Earlier than Would Otherwise Be the Case.
One or more Classes of Securities of any Series may be subject to
optional redemption or repurchase, in whole or in part, on or after such time as
the aggregate outstanding principal amount of the Primary Assets is less than
the amount or percentage specified in the related Agreement, (such amount or
percentage not to exceed 20% of the aggregate principal balance of the Primary
Assets as of the Cut-off Date for that Series). Neither the Trust nor the
Holders will have any continuing liability under such optional redemption or
repurchase. If the optional termination is not exercised, then one or more
Classes of Securities may be subject to early retirement by an auction sale. See
"THE AGREEMENTS--Termination" herein. The risk of reinvesting unscheduled
distributions resulting from redemption or repurchase of the Securities will be
borne by the Holders. See "DESCRIPTION OF THE SECURITIES--Optional Redemption,
Purchase or Termination." The optional termination and mandatory termination
described herein are the only circumstances in which the Securities could be
retired earlier than would be the case if the Trust were allowed to go to term.
Mortgage Loans with Balloon and Non-Traditional Payment Methods May Create
Greater Default Risk.
A portion of the aggregate principal balance of the Mortgage Loans at
any time may be Balloon Loans that provide for the payment of the unamortized
principal balance of such Mortgage Loan in a single payment at maturity Such
Balloon Loans provide for equal monthly payments, consisting of principal and
interest, generally based on a 30-year amortization schedule, and a single
payment of the remaining balance of the Balloon Loan generally 5, 7, 10, or 15
years after origination. Amortization of a Balloon Loan based on a scheduled
period that is longer than the term of the loan results in a remaining principal
balance at maturity that is substantially larger than the regular scheduled
payments. The Depositor does not have any information regarding the default
history or prepayment history of payments on Balloon Loans. Because borrowers of
Balloon Loans are required to make substantial single payments upon maturity, it
is possible that the default risk associated with the Balloon Loans is greater
than that associated with fully-amortizing Mortgage Loans.
Other types of loans that may be included in the Trust Fund may involve
additional uncertainties not present in traditional types of loans. For example,
certain of the Mortgage Loans may provide for escalating or variable payments by
the borrower under the Mortgage Loan, as to which the borrower is generally
qualified on the basis of the initial payment amount. In some instances the
borrower's income may not be sufficient to enable them to continue to make their
loan payments as such payments increase and thus the likelihood of default will
increase. The Depositor does not have any information regarding the default
history or prepayment history of payments on these non-traditional loans
Junior Liens May Experience Higher Rates of Delinquencies and Losses.
If the Mortgages in a Trust Fund are primarily junior liens subordinate
to the rights of the mortgagee under the related senior mortgage or mortgages,
the proceeds from any liquidation, insurance or condemnation proceedings will be
available to satisfy the outstanding balance of such junior mortgage only to the
extent that the claims of such senior mortgagees have been satisfied in full,
including any related foreclosure costs. In addition, a junior mortgagee may not
foreclose on the Mortgaged Property securing a junior mortgage unless it
forecloses subject to the senior mortgages, in which case it must either pay the
entire amount due on the senior mortgages to the senior mortgagees at or prior
to the foreclosure sale or undertake the obligation to make payments on the
senior mortgages in the event the mortgagor is in default thereunder. The Trust
Fund will not have any source of funds to satisfy the senior mortgages or make
payments due to the senior mortgagees.
Property Values May Decline, Leading to Higher Losses.
There are several factors that could adversely affect the value of
Mortgaged Properties such that the outstanding balance of the related Mortgage
Loan, together with any senior financing on the Mortgaged Properties, would
equal or exceed the value of the Mortgaged Properties. Among the factors that
could adversely affect the value of the Mortgaged Properties are an overall
decline in the residential real estate market in the areas in which the
Mortgaged Properties are located or a decline in the general condition of the
Mortgaged Properties as a result of failure of borrowers to maintain adequately
the Mortgaged Properties or of natural disasters that are not necessarily
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covered by insurance, such as earthquakes and floods. Any such decline could
extinguish the value of a junior interest in a Mortgaged Property before having
any effect on the related senior interest therein. If such a decline occurs, the
actual rates of delinquencies, foreclosure and losses on the junior loans could
be higher than those currently experienced in the mortgage lending industry in
general.
Geographic Concentration of Mortgaged Properties May Result in Higher Losses, if
Particular Regions Experience Downturns.
Certain geographic regions from time to time will experience weaker
regional economic conditions and housing markets than will other regions, and,
consequently, will experience higher rates of loss and delinquency on mortgage
loans generally. The Mortgage Loans underlying certain Series of Securities may
be concentrated in such regions, and such concentrations may present risk
considerations in addition to those generally present for similar mortgage loan
asset-backed securities without such concentrations. Information with respect to
geographic concentration of Mortgaged Properties that is known at the time of
the offering will be specified in the related Prospectus Supplement.
Pre-Funding May Adversely Affect Investment.
If a Trust Fund includes a Pre-Funding Account and the principal
balance of additional Primary Assets delivered to the Trust Fund during the
Pre-Funding Period is less than the original Pre-Funded Amount, the Holders of
the Securities of the related Series will receive a prepayment of principal as
and to the extent described in the related Prospectus Supplement. Any such
principal prepayment may adversely affect the yield to maturity of the
applicable Securities. Since prevailing interest rates are subject to
fluctuation, there can be no assurance that investors will be able to reinvest
such a prepayment at yields equaling or exceeding the yields on the related
Securities. It is possible that the yield on any such reinvestment will be
lower, and may be significantly lower, than the yield on the related Securities.
Each additional Primary Asset must satisfy the eligibility criteria
specified in the related Prospectus Supplement and the related agreements. Such
eligibility criteria will be determined in consultation with each Rating Agency
(and/or Credit Enhancer) prior to the issuance of the related Series and are
designed to ensure that if such additional Primary Asset were included as part
of the initial Trust Fund, the credit quality of such assets would be consistent
with the initial rating of each Class of Securities of such Series. Following
the transfer of additional Primary Assets to the Trust, the aggregate
characteristics of the Primary Assets then held in the Trust may vary from those
of the initial Primary Assets of such Trust. As a result, the additional Primary
Assets may adversely affect the performance of the related Securities
The ability of a Trust to invest in additional Primary Assets during
the related Pre-Funding Period will be dependant on the ability of the
Originator to originate or acquire Primary Assets that satisfy the requirements
for transfer to the Trust Fund. The ability of the Originator to originate or
acquire such Primary Assets will be affected by a variety of social and economic
factors, including the prevailing level of market interest rates, unemployment
levels and consumer perceptions of general economic conditions.
Environmental Conditions on the Mortgaged Property May Give Rise to Liability.
Real property pledged as security to a lender may be subject to certain
environmental risks. Under the laws of certain states, contamination of a
Mortgaged Property may give rise to a lien on the Mortgaged Property to assure
the costs of clean-up. In several states, such a lien has priority over the lien
of an existing mortgage or owner's interest against such Mortgaged Property. In
addition, under the laws of some states and under the federal Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), a
lender may be liable, as an "owner" or "operator," for costs of addressing
releases or threatened releases of hazardous substances that require remedy at a
property, if agents or employees of the lender have become sufficiently involved
in the operations of the borrower, regardless of whether or not the
environmental damage or threat was caused by a prior owner. A lender also risks
such liability on foreclosure of the Mortgaged Property.
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Security Interests in the Manufactured Homes may not be perfected and the Trust
Fund may not realize upon the full amount due under the related Contract.
Each Contract is secured by a security interest in a Manufactured Home
together with, in the case of land secured contracts, the real estate on which
the related Manufactured home is located (such Contracts, the "Land Secured
Contracts"). Perfection of security interests in the Manufactured Homes and
enforcement of rights to realize upon the value of the Manufactured Homes as
collateral for the Contracts are subject to a number of federal and state laws,
including the Uniform Commercial Code (the "UCC") as adopted in the states in
which the Manufactured Homes are located and such states' certificate of title
statutes, but generally not their real estate laws. Under such federal and state
laws, a number of factors may limit the ability of a holder of a perfected
security interest in Manufactured Homes to realize upon such Manufactured Homes
or may limit the amount realized to less than the amount due under the related
Contract.
In addition, because of the expense and administrative inconvenience
involved, the seller of the Manufactured Home ("Seller") may not amend any
certificates of the title related to any Manufactured Home to change the
lienholder specified therein to the Trustee, and may not execute any transfer
instrument (including, among other instruments, UCC-3 assignments) relating to
any Manufactured Home in favor of the Trustee or note thereon the Trustee's
interest. Such amendment would require, consistent with the law of the related
State, filings at the state or county level for each Contract. As a result, the
Seller will remain the lienholder on the certificate of title relating to the
Manufactured Home. In some states, in the absence of such an amendment,
execution or notation, the assignment to the Trustee of the security interest in
the Manufactured Homes located therein may not be effective or such security
interest may not be perfected. If any otherwise effectively assigned security
interest in favor of the Trustee is not perfected, such assignment of the
security interest to the Trustee may not be effective against creditors of the
Seller to the extent it continues to be specified as lienholder on any
certificate of title or as secured party on any UCC filing, or against a trustee
in bankruptcy of the Seller.
Each Contract (other than a Land Secured Contract) will be "chattel
paper" as defined in the UCC in effect in the jurisdiction in which the related
Manufactured Home was located at origination. Under the UCC as in effect in each
such jurisdiction, the sale of chattel paper is treated in a manner similar to
perfection of a security interest in chattel paper. Under the related Agreement,
the Trustee will have possession of the Contracts. In addition, the Seller will
make appropriate filings of UCC-1 financing statements in the office of the
Secretary of State of the state where its principal place of business is located
to give notice of the Trustee's ownership of the Contracts. The Trustee's
interest in the Contracts could, through the fraud or negligence of the Trustee,
be defeated if a subsequent purchaser were able to take physical possession of
the Contracts without notice of such assignment.
Further, because of the expenses and administrative inconvenience
involved, the assignment of mortgages or deeds of trust to the Trustee may not
be recorded with respect to the mortgages or deeds of trust securing each Land
Secured Contract. Recordation of such assignments would require the Seller to
retain counsel in the respective state, and make the appropriate filing at the
local level. The failure to record the assignments to the Trustee of the
mortgage securing Land Secured Contracts may result in the sale of such
Contracts or the Trustee's rights in the land secured by the mortgage being
ineffective against creditors of the Seller or against a trustee in bankruptcy
of the Seller or against a subsequent purchaser of such Contracts from the
Seller, without notice of the sale to the Trustee.
State and Federal Credit Protection Laws May Limit Collection of Principal and
Interest on the Mortgage Loans.
Applicable state laws generally regulate interest rates and other
charges and require certain disclosures. In addition, other state laws, public
policy and general principles of equity relating to the protection of consumers,
unfair and deceptive practices and debt collection practices may apply to the
origination, servicing and collection of the Mortgage Loans.
The Mortgage Loans may also be subject to Federal laws, including: (i)
the Federal Truth in Lending Act and Regulation Z promulgated thereunder, which
require certain disclosures to the borrowers regarding the terms of the Mortgage
Loans; (ii) the Equal Credit Opportunity Act and Regulation B promulgated
thereunder, which prohibit discrimination on the basis of age, race, color, sex,
religion, marital status, national origin, receipt of public assistance or the
exercise of any right under the Consumer Credit Protection Act, in the extension
of credit; and (iii)
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the Fair Credit Reporting Act, which regulates the use and reporting of
information related to the borrower's credit experience.
Depending on the provisions of the applicable law and the specific
facts and circumstances involved, violations of these laws, policies and
principles may limit the ability of the Servicer to collect all or part of the
principal of or interest on the Mortgage Loans, may entitle the borrower to a
refund of amounts previously paid and, in addition, could subject the owner of
the Mortgage Loan to damages and administrative enforcement.
See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS" herein.
Ratings Are Not Recommendations. A Reduction in the Rating of Any Credit
Enhancer Would Likely Adversely Impact the Rating of the Securities.
It will be a condition to the issuance of a Series of Securities that
they be rated in one of the four highest rating categories by the Rating Agency
identified in the related Prospectus Supplement. Any such rating would be based
on, among other things, the adequacy of the value of the Primary Assets and any
Credit Enhancement with respect to such Series. Such rating should not be deemed
a recommendation to purchase, hold or sell Securities, inasmuch as it does not
address market price or suitability for a particular investor.
A Reduction in the Rating of Any Credit Enhancer Would Likely Adversely Impact
the Rating of the Securities.
There is also no assurance that any such rating will remain in effect
for any given period of time or may not be lowered or withdrawn entirely by the
Rating Agency if in its judgment circumstances in the future so warrant. In
addition to being lowered or withdrawn due to any erosion in the adequacy of the
value of the Primary Assets, such rating might also be lowered or withdrawn,
among other reasons, because of an adverse change in the financial or other
condition of a Credit Enhancer or a change in the rating of such Credit
Enhancer's long term debt.
ERISA May Restrict the Acquisition, Ownership and Disposition of Securities.
Generally, ERISA applies to investments made by benefit plans and
transactions involving the assets of such plans. Due to the complexity of
regulations which govern such plans, prospective investors that are subject to
ERISA are urged to consult their own counsel regarding consequences under ERISA
of acquisition, ownership and disposition of Securities. See "ERISA
CONSIDERATIONS" herein.
DESCRIPTION OF THE SECURITIES
General
Each Series of Notes will be issued pursuant to an indenture (the
"Indenture") between the related Issuer and the entity named in the related
Prospectus Supplement as trustee (the "Trustee") with respect to such Series. A
form of Indenture has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. The Certificates will also be issued in
Series pursuant to separate agreements (each, a "Pooling and Servicing
Agreement" or a "Trust Agreement") among the Depositor, the Servicer, if the
Series relates to Mortgage Loans and/or Contracts, and the Trustee. A form of
Pooling and Servicing Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. A Series may consist of both
Notes and Certificates.
The Originator may agree to reimburse the Depositor for certain fees
and expenses of the Depositor incurred in connection with the offering of the
Securities.
The following summaries describe certain provisions in the Agreements
common to each Series of Securities. The summaries do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, the
provisions of the Agreements and the Prospectus Supplement relating to each
Series of Securities. Where particular provisions or terms used in the
Agreements are referred to, the actual provisions (including definitions of
terms) are incorporated herein by reference as part of such summaries.
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Each Series of Securities will consist of one or more Classes of
Securities, one or more of which may be compound interest securities, variable
interest securities, PAC securities, zero coupon securities, principal only
securities, interest only securities or participating securities. A Series may
also include one or more Classes of subordinate securities. The Securities of
each Series will be issued only in fully registered form, without coupons, in
the authorized denominations for each Class specified in the related Prospectus
Supplement. Upon satisfaction of the conditions, if any, applicable to a Class
of a Series, the transfer of the Securities may be registered and the Securities
may be exchanged at the office of the Trustee specified in the Prospectus
Supplement without the payment of any service charge other than any tax or
governmental charge payable in connection with such registration of transfer or
exchange. One or more Classes of a Series may be available in book-entry form
only.
Payments of principal of and interest on a Series of Securities will be
made on the Distribution Dates specified in the Prospectus Supplement relating
to such Series by check mailed to Holders of such Series, registered as such at
the close of business on the record date specified in the related Prospectus
Supplement applicable to such Distribution Dates at their addresses appearing on
the security register, except that (a) payments may be made by wire transfer (at
the expense of the Holder requesting payment by wire transfer) in certain
circumstances described in the related Prospectus Supplement and (b) final
payments of principal in retirement of each Security will be made only upon
presentation and surrender of such Security at the office of the Trustee
specified in the Prospectus Supplement. Notice of the final payment on a
Security will be mailed to the Holder of such Security before the Distribution
Date on which the final principal payment on any Security is expected to be made
to the holder of such Security.
Payments of principal of and interest on the Securities will be made by
the Trustee, or a paying agent on behalf of the Trustee, as specified in the
related Prospectus Supplement. Payments with respect to the Primary Assets for a
Series, together with reinvestment income thereon, amounts withdrawn from any
Reserve Fund, and amounts available pursuant to any other Credit Enhancement
will be deposited into the Collection Account. Such amounts may be net of
certain amounts payable to the related Servicer and any other person specified
in the Prospectus Supplement. Such amounts thereafter will be deposited into the
Distribution Account and will be available to make payments on the Securities of
such Series on the next Distribution Date. See "THE TRUST FUNDS--Collection and
Distribution Accounts" herein.
Payments of Interest
The Securities of each Class by their terms entitled to receive
interest will bear interest from the date and at the rate per annum specified,
or calculated in the method described in the related Prospectus Supplement.
Interest on such Securities of a Series will be payable on the Distribution Date
specified in the related Prospectus Supplement. The rate of interest on
Securities of a Series may be variable or may change with changes in the annual
percentage rates of the Mortgage Loans, Contracts or Underlying Loans relating
to the Private Securities, as applicable included in the related Trust Fund
and/or as prepayments occur with respect to such Mortgage Loans, Contracts or
Underlying Loans, as applicable. Principal Only Securities may not be entitled
to receive any interest distributions or may be entitled to receive only nominal
interest distributions. Any interest on Zero Coupon Securities that is not paid
on the related Distribution Date will accrue and be added to the principal
thereof on such Distribution Date.
Interest payable on the Securities on a Distribution Date will include
all interest accrued during the period specified in the related Prospectus
Supplement. In the event interest accrues during the calendar month preceding a
Distribution Date, the effective yield to Holders will be reduced from the yield
that would otherwise be obtainable if interest payable on the Securities were to
accrue through the day immediately preceding such Distribution Date.
Payments of Principal
On each Distribution Date for a Series, principal payments will be made
to the Holders of the Securities of such Series on which principal is then
payable, to the extent set forth in the related Prospectus Supplement. Such
payments will be made in an aggregate amount determined as specified in the
related Prospectus Supplement and will be allocated among the respective Classes
of a Series in the manner, at the times and in the priority (which may, in
certain cases, include allocation by random lot) set forth in the related
Prospectus Supplement.
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Final Scheduled Distribution Date
The Final Scheduled Distribution Date with respect to each Class of
Notes is the date no later than which the principal thereof will be fully paid
and with respect to each Class of a Series of Certificates will be the date on
which the entire aggregate principal balance of such Class is expected to be
reduced to zero, in each case calculated on the basis of the assumptions
applicable to such Series described in the related Prospectus Supplement. The
Final Scheduled Distribution Date for each Class of a Series will be specified
in the related Prospectus Supplement. Since payments on the Primary Assets will
be used to make distributions in reduction of the outstanding principal amount
of the Securities, it is likely that the actual final Distribution Date of any
such Class will occur earlier, and may occur substantially earlier, than its
Final Scheduled Distribution Date.
Furthermore, with respect to a Series of Certificates, as will be
further described in the related Prospectus Supplement, as a result of
delinquencies, defaults and liquidations of the Primary Assets in the Trust
Fund, the actual final Distribution Date of any Certificate may occur later than
its Final Scheduled Distribution Date. No assurance can be given as to the
actual prepayment experience with respect to a Series. See "Weighted Average
Life of the Securities" below.
Optional Redemption, Purchase or Termination
One or more Classes of Securities of any Series may be subject to
optional redemption or repurchase, in whole or in part, on any Distribution Date
by the related Originator, Servicer or Credit Enhancer or an affiliate thereof.
Such redemption or repurchase may occur or on or after a date specified in the
related Prospectus Supplement, or on or after such time as the aggregate
outstanding principal amount of the Securities or Primary Assets, is less than a
percentage not to exceed 20% of the aggregate principal balance of the Primary
Assets as of the Cut-off Date for that Series. Notice of such redemption,
purchase or termination must be given by the Depositor or the Trustee prior to
the related date. The redemption, purchase or repurchase price (which would not
be less than an amount necessary to pay all principal and interest on the
securities outstanding) will be set forth in the related Prospectus Supplement.
In the event that a REMIC election has been made, the Trustee shall receive a
satisfactory opinion of counsel that the optional redemption, purchase or
termination will be conducted so as to constitute a "qualified liquidation"
under Section 860F of the Code. The risk of reinvesting unscheduled
distributions resulting form prepayments of the Securities will be borne by the
Holders. Neither the Trust nor the Holders will have any continuing liability
under such optional redemption or repurchase.
In addition, the Trustee, the Servicer or certain other entities
specified in the related Prospectus Supplement may be required to effect early
retirement of a series of Securities by soliciting competitive bids for the
purchase of the related Primary Assets or otherwise, under other circumstances
and in the manner specified in "THE AGREEMENTS--Termination " herein.
Weighted Average Life of the Securities
Weighted average life refers to the average amount of time that will
elapse from the date of issue of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average life of the
Securities of a Class will be influenced by the rate at which the amount
financed under Primary Assets included in the Trust Fund for a Series is paid.
Such repayment may be in the form of scheduled amortization or prepayments.
Prepayments on loans and other receivables can be measured relative to
a prepayment standard or model. The Prospectus Supplement for a Series of
Securities will describe the prepayment standard or model, if any, used and may
contain tables setting forth the projected weighted average life of each Class
of Securities of such Series and the percentage of the original principal amount
of each Class of Securities of such Series that would be outstanding on
specified Distribution Dates for such Series based on the assumptions stated in
such Prospectus Supplement, including assumptions that prepayments on the
Mortgage Loans or Underlying Loans relating to the Private Securities, as
applicable, included in the related Trust Fund are made at rates corresponding
to various percentages of the prepayment standard or model specified in such
Prospectus Supplement.
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There is, however, no assurance that prepayment of the Mortgage Loans,
Contracts or Underlying Loans relating to the Private Securities, as applicable,
included in the related Trust Fund will conform to any level of any prepayment
standard or model specified in the related Prospectus Supplement. The rate of
principal prepayments on pools of loans may be influenced by a variety of
factors, including job related factors such as transfers, layoffs or promotions
and personal factors such as divorce, disability or prolonged illness. Economic
conditions, either generally or within a particular geographic area or industry,
also may affect the rate of principal prepayments. Demographic and social
factors may influence the rate of principal prepayments in that some borrowers
have greater financial flexibility to move or refinance than do other borrowers.
The deductibility of mortgage interest payments, servicing decisions and other
factors also affect the rate of principal prepayments. As a result, there can be
no assurance as to the rate or timing of principal prepayments of the Mortgage
Loans or Underlying Loans either from time to time or over the lives of such
Mortgage Loans or Underlying Loans.
The rate of prepayments of conventional housing loans and other
receivables has fluctuated significantly in recent years. In general, however,
if prevailing interest rates fall significantly below the interest rates on the
Mortgage Loans, Contracts or Underlying Loans relating to the Private
Securities, as applicable, for a Series, such loans are likely to prepay at
rates higher than if prevailing interest rates remain at or above the interest
rates borne by such loans. In this regard, it should be noted that the Mortgage
Loans, Contracts or Underlying Loans, as applicable, for a Series may have
different interest rates. In addition, the weighted average life of the
Securities may be affected by the varying maturities of the Mortgage Loans,
Contracts or Underlying Loans relating to the Private Securities, as applicable.
If any Mortgage Loans, Contracts or Underlying Loans relating to the Private
Securities, as applicable, for a Series have actual terms-to-stated maturity of
less than those assumed in calculating the Final Scheduled Distribution Date of
the related Securities, one or more Classes of the Series may be fully paid
prior to their respective Final Scheduled Distribution Date, even in the absence
of prepayments and a reinvestment return higher than the Assumed Reinvestment
Rate.
THE TRUST FUNDS
General
The Notes of each Series will be secured by the pledge of the assets of
the related Trust Fund, and the Certificates of each Series will represent
interests in the assets of the related Trust Fund. The Trust Fund of each Series
will include assets acquired from the Originator composed of (i) the Primary
Assets, (ii) any Credit Enhancement, (iii) any Mortgaged Property that secured a
Mortgage Loan but which is acquired by foreclosure or deed in lieu of
foreclosure or repossession and (iv) any Manufactured Home which initially
secured a Contract and which is acquired by repossession and (v) the amount, if
any, initially deposited in the Collection Account or Distribution Account for a
Series as specified in the related Prospectus Supplement. A maximum of 5% (by
Cut-off Date Principal Balance) of the aggregate Primary Assets that are
included in a Trust Fund as such Trust Fund will be constituted at the closing
date will deviate from the characteristics that are described in the related
Prospectus Supplement.
The Securities will be non-recourse obligations secured by the related
Trust Fund. Holders of a Series of Notes may only proceed against such
collateral securing such Series of Notes in the case of a default with respect
to such Series of Notes and may not proceed against any assets of the Depositor
or the related Trust Fund not pledged to secure such Notes.
The Primary Assets for a Series will be acquired by the related Trust
Fund from the related Originator, or may be acquired in the open market or in
privately negotiated transactions. Mortgage Loans and/or Contracts relating to a
Series will be serviced by the Servicer, which may be the Originator, specified
in the related Prospectus Supplement, pursuant to a Pooling and Servicing
Agreement, with respect to a Series of Certificates or a servicing agreement
(each, a "Servicing Agreement") between the Trust Fund and Servicer, with
respect to a Series of Notes.
As used herein, "Agreement" means, with respect to a Series of
Certificates, the Pooling and Servicing Agreement or Trust Agreement, and with
respect to a Series of Notes, the Indenture and the Servicing Agreement, as the
context requires.
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A Trust Fund relating to a Series of Securities may be a business trust
formed under the laws of the state specified in the related Prospectus
Supplement pursuant to a trust agreement (each, a "Trust Agreement") between the
Depositor and the trustee of such Trust Fund specified in the related Prospectus
Supplement
With respect to each Trust Fund, prior to the initial offering of the
related Series of Securities, the Trust Fund will have no assets or liabilities.
No Trust Fund is expected to engage in any activities other than acquiring,
managing and holding the related Primary Assets and other assets contemplated
herein and in the related Prospectus Supplement and the proceeds thereof,
issuing Securities and making payments and distributions thereon and certain
related activities. No Trust Fund is expected to have any source of capital
other than its assets and any related Credit Enhancement.
Primary Assets included in the Trust Fund for a Series may consist of
any combination of Mortgage Loans, Contracts and Private Securities, to the
extent and as specified in the related Prospectus Supplement. Some of the
Mortgage Loans and/or Contracts may be delinquent to the extent and as specified
in the related Prospectus Supplement. The percentage of those Mortgage Loans
and/or Contracts which are delinquent shall not exceed 10% of the aggregate
principal balance of the Primary Assets as of the Cut-off Date for that Series.
The following is a brief description of the Mortgage Loans and/or Contracts
expected to be included in the related Trusts.
The Mortgage Loans
Mortgage Loans. The Primary Assets for a Series may consist, in whole
or in part, of loans (the "Mortgage Loans") secured by mortgages on one- to
four-family residential housing ("Single Family Properties"), including
condominium units ("Condominium Units") and cooperative dwellings ("Cooperative
Dwellings") which may be subordinated to other mortgages on the same Mortgaged
Property. The Mortgage Loans may have fixed interest rates or adjustable
interest rates and may provide for other payment characteristics as described
below and in the related Prospectus Supplement.
The Mortgage Loans will generally consist of what are commonly
referred to as "purchase money" loans, as distinguished from "home equity"
loans. Both of these concepts refer to the use of proceeds made by the related
borrower, rather than to any legal or other documentary differences between the
two types of loans, except that "home equity" loans are usually (but not always)
secured by mortgages which are in a subordinate lien position while "purchase
money" loans are usually (but not always) secured by mortgages which are in a
senior lien position, and "home equity" loans are typically (but not always)
shorter in maturity than "purchase money" loans (i.e., fifteen rather than
thirty years). The Mortgage Loans, in addition to being secured by mortgages on
real estate, may also be secured by "fixtures" treated as personal property
under local state law. Although fixtures may turn up more frequently in the case
of loans in which the proceeds are used to fund home improvements, fixtures as a
part of the collateral package may be a part of either a "home equity" or
"purchase money" loan.
A "purchase money" mortgage is a loan the proceeds of which are used
to purchase the related mortgaged property; the proceeds of a "home equity" loan
are not applied to the purchase of the related mortgaged property.
The Mortgage Loans may be (i) "conventional" loans, that is, they will
not be insured or guaranteed by any governmental agency, (ii) insured by the
Federal Housing Authority ("FHA") or (iii) partially guaranteed by the Veteran's
Administration, as specified in the related Prospectus Supplement. The Mortgage
Loans may be either "closed-end" loans (i.e., loans which do not permit the
related borrower to obtain the proceeds of future advances) or "open-end" loans
(i.e., loans structured as lines of credit, which permit the related borrower,
subject to a maximum dollar amount, to obtain more than one advance of
proceeds). The Mortgage Loans will be secured by first, second or more junior
liens on fee simple or leasehold interests in one- to four-family residential
properties. The principal and interest on the Mortgage Loans included in the
Trust for a Series of Securities will be payable either on the first day of each
month or on different scheduled days throughout each month, and the interest
will be calculated either on a simple interest, actuarial method or "Rule of
78s" method, as described herein and in the related Prospectus Supplement. When
a full principal prepayment is paid on a Mortgage Loan during a month, the
Mortgagor is generally charged interest only on the days of the month actually
elapsed up to the date of such prepayment, at a daily interest rate that is
applied to the principal amount of the Mortgage Loan so prepaid.
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Payment Terms. The payment terms of the Mortgage Loans to be included
in a Trust for a Series will be described in the related Prospectus Supplement
and may include any of the following features of combinations thereof or other
features described in the related Prospectus Supplement:
(a) Interest may be payable at a fixed rate, a rate
adjustable from time to time in relation to an index (which will be
specified in the related Prospectus Supplement), a rate that is fixed
for a period of time or under certain circumstances and is followed by
an adjustable rate, a rate that otherwise varies from time to time, or
a rate that is convertible from and adjustable rate to a fixed rate.
Changes to an adjustable rate may be subject to periodic limitations,
maximum rates, minimum rates or a combination of such limitations.
Accrued interest may be deferred and added to the principal of a
Mortgage Loan for such periods and under such circumstances as may be
specified in the related Prospectus Supplement. Mortgage Loans may
provide for the payment of interest at a rate lower than the specified
Loan Rate for a period of time of for the life of the Mortgage Loan,
and the amount of any difference may be contributed from funds supplied
by the seller of the Mortgaged Property or another source.
(b) Principal may be payable on a level debt service
basis to fully amortize the Mortgage Loan over its term, may be
calculated on the basis of an assumed amortization schedule that is
significantly longer than the original term to maturity or on an
interest rate that is different from the Loan Rate or may not be
amortized during all or a portion of the original term. Payment of all
or a substantial portion of the principal may be due on maturity.
Principal may include interest that has been deferred and added to the
principal balance of the Mortgage Loan.
(c) Monthly Payments of principal and interest may be
fixed for the life of the Mortgage Loan, may increase over a specified
period of time or may change from period to period. Mortgage Loans may
include limits on periodic increases or decreases in the amount of
Monthly Payments and may include maximum or minimum amounts of Monthly
Payments.
(d) Prepayments of principal may be subject to a
prepayment fee, which may be fixed for the life of the Mortgage Loan or
may decline over time, and may be prohibited for the life of the
Mortgage Loan or for certain periods. Certain Mortgage Loans may permit
prepayments after expiration of the applicable lockout period and may
require the payment of a prepayment fee in connection with any such
subsequent prepayment. Other Mortgage Loans may permit prepayments
without payment of a fee unless the prepayment occurs during specified
time periods. The Mortgage Loans may include "due on sale" clauses
which permit the mortgagee to demand payment of the entire Mortgage
Loan in connection with the sale or certain transfers of the related
Mortgaged Property. Other Mortgage Loans may be assumable by persons
meeting the then applicable underwriting standards of the Originator.
Amortization of the Mortgage Loans. The Mortgage Loans will provide for
payments that are allocated to principal and interest according to either the
actuarial method (an "Actuarial Mortgage Loan"), the simple interest method (a
"Simple Interest Mortgage Loan") or the "Rule of 78s" method (a "Rule of 78s
Mortgage Loan"), as set forth in the related Prospectus Supplement. The related
Prospectus Supplement will set forth whether any of the Mortgage Loans will
provide for deferred interest or negative amortization.
An Actuarial Mortgage Loan provides for payments in level monthly
installments (except, in the case of a Balloon Loan, the final payment)
consisting of interest equal to one-twelfth of the applicable Loan Rate times
the unpaid principal balance, with the remainder of such payment applied to
principal.
A Simple Interest Mortgage Loan provides for the amortization of the
amount financed under such Mortgage Loan over a series of equal Monthly Payments
(except, in the case of a Balloon Loan, the final payment). Each Monthly Payment
consists of an installment of interest which is calculated on the basis of the
outstanding principal balance of the Mortgage Loan being multiplied by the
stated Loan Rate and further multiplied by a fraction, the numerator of which is
the number of days in the period elapsed since the preceding payment of interest
was made and the denominator of which is the number of days in the annual period
for which interest accrues on such Mortgage Loan. As payments are received under
a Simple Interest Mortgage Loan, the amount received is applied first to
interest accrued to the date of payment and the balance is applied to reduce the
unpaid principal balance. Accordingly, if a borrower pays a fixed monthly
installment on a Simple Interest Mortgage Loan before its
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scheduled due date, the portion of the payment allocable to interest for the
period since the preceding payment was made will be less than it would have been
had the payment been made as scheduled, and the portion of the payment applied
to reduce the unpaid principal balance will be correspondingly greater. However,
the next succeeding payment will result in an allocation of a greater amount to
interest if such payment is made on its scheduled due date.
Conversely, if a borrower pays a fixed monthly installment after its
scheduled due date, the portion of the payment allocable to interest for the
period since the preceding payment was made will be greater than it would have
been had the payment been made as scheduled, and the remaining portion, if any,
of the payment applied to reduce the unpaid principal balance will be
correspondingly less. If each scheduled payment under a Simple Interest Mortgage
Loan is made on or prior to its scheduled due date, the principal balance of the
Mortgage Loan will amortize in the manner described in the preceding paragraph.
However, if the borrower consistently makes scheduled payments after the
scheduled due date, the Mortgage Loan will amortize more slowly than scheduled.
If a Simple Interest Mortgage Loan is prepaid, the borrower is required to pay
interest only to the date of prepayment.
Certain of the Mortgage Loans contained in a Trust may be loans insured
under the FHA Title I credit insurance program created pursuant to Sections 1
and 2(a) of the National Housing Act of 1934 (the "Title I Program"). Under the
Title I Program, the FHA is authorized and empowered to insure qualified lending
institutions against losses on eligible loans. The Title I Program operates as a
coinsurance program in which the FHA insures up to 90% of certain losses
incurred on an individual insured loan, including the unpaid principal balance
of the loan, but only to the extent of the insurance coverage available in the
lender's FHA insurance coverage reserve account. The owner of the loan bears the
uninsured loss on each loan.
The Mortgaged Properties will include Single Family Property (i.e.,
one-to four-family residential housing, including Condominium Units and
Cooperative Dwellings) The Mortgaged Properties may consist of detached
individual dwellings, individual condominiums, townhouses, duplexes, row houses,
individual units in planned unit developments and other attached dwelling units.
Each Single Family Property will be located on land owned in fee simple by the
borrower or on land leased by the borrower for a term at least equal to the term
of the related Mortgage. Attached dwellings may include owner-occupied
structures where each borrower owns the land upon which the unit is built, with
the remaining adjacent land owned in common or dwelling units subject to a
proprietary lease or occupancy agreement in a cooperatively owned apartment
building.
The related Prospectus Supplement will specify whether or not Mortgages
on Cooperative Dwellings consist of a lien on the shares issued by such
Cooperative Dwelling and the proprietary lease or occupancy agreement relating
to such Cooperative Dwelling.
The aggregate principal balance of Mortgage Loans secured by Mortgaged
Properties that are owner-occupied will be disclosed in the related Prospectus
Supplement. The sole basis for a representation that a given percentage of the
Mortgage Loans are secured by Single Family Property that is owner-occupied will
be either (i) the making of a representation by the Mortgagor at origination of
the Mortgage Loan either that the underlying Mortgaged Property will be used by
the Mortgagor for a period of at least six months every year or that the
Mortgagor intends to use the Mortgaged Property as a primary residence, or (ii)
a finding that the address of the underlying Mortgaged Property is the
Mortgagor's mailing address as reflected in the Servicer's records. To the
extent specified in the related Prospectus Supplement, the Mortgaged Properties
may include non-owner occupied investment properties and vacation and second
homes.
The initial Combined Loan-to-Value Ratio of a Mortgage Loan is computed
in the manner described in the related Prospectus Supplement, taking into
account the amounts of any related senior loans.
Additional Information. The selection criteria which will apply with
respect to the Mortgage Loans, including, but not limited to, the Combined
Loan-to-Value Ratios or Loan-to-Value Ratios, as applicable, original terms to
maturity and delinquency information, will be specified in the related
Prospectus Supplement.
The Mortgage Loans for a Series may include Mortgage Loans that do not
amortize their entire principal balance by their stated maturity in accordance
with their terms and require a balloon payment of the remaining
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principal balance at maturity, as specified in the related Prospectus
Supplement. The Mortgage Loans for a Series may include loans that do not have a
specified stated maturity.
The related Prospectus Supplement for each Series will provide
information with respect to the Mortgage Loans that are Primary Assets as of the
Cut-off Date, including, among other things, and to the extent relevant: (a) the
aggregate unpaid principal balance of the Mortgage Loans; (b) the range and
weighted average Loan Rate on the Mortgage Loans, and, in the case of adjustable
rate loans, the range and weighted average of the current Loan Rates and the
Lifetime Rate Caps, if any; (c) the range and average outstanding principal
balance of the Loans; (d) the weighted average original and remaining
term-to-stated maturity of the Mortgage Loans and the range of original and
remaining terms-to-stated maturity, if applicable; (e) the range and weighted
average of Combined Loan-to-Value Ratios or Loan-to-Value Ratios for the
Mortgage Loans, as applicable; (f) the percentage (by outstanding principal
balance as of the Cut-off Date) of Mortgage Loans that accrue interest at
adjustable or fixed interest rates; (g) any special hazard insurance policy or
bankruptcy bond or other Credit Enhancement relating to the Mortgage Loans; (h)
the geographic distribution of any Mortgaged Properties securing the Mortgage
Loans; (i) the percentage of Mortgage Loans (by principal balance as of the
Cut-off Date) that are secured by Single Family Mortgaged Properties, shares
relating to Cooperative Dwellings, Condominium Units, investment property and
vacation or second homes; (j) the lien priority of the Mortgage Loans; (k) year
of origination of the Mortgage Loans; and (l) the delinquency status of Mortgage
Loans, including the duration and history of such delinquencies and the
percentage of the of Mortgage Loans (by principal balance as of the Cut-off
Date) that are delinquent. The related Prospectus Supplement will also specify
any other limitations on the types or characteristics of Mortgage Loans for a
Series.
If specific information respecting the Mortgage Loans is not known at
the time the related series of Securities initially is offered, information of
the nature described above will be provided in the Prospectus Supplement, and
specific information will be set forth in a report on Form 8-K to be filed with
the Commission within fifteen days after the initial issuance of such
Securities. A copy of the Pooling and Servicing Agreement with respect to each
Series of Securities will be attached to the Form 8-K and will be available for
inspection at the corporate trust office of the Trustee specified in the related
Prospectus Supplement. A schedule of the Mortgage Loans relating to such Series
will be attached to the Pooling and Servicing Agreement delivered to the Trustee
upon delivery of the Securities.
The Contracts
Contracts. Each Pool of Contracts in a Trust Fund ("Contract Pool")
will consist of conventional manufactured housing installment sales contracts
and installment loan agreements (collectively, the "Contracts") originated by a
manufactured housing dealer in the ordinary course of business and purchased by
the Seller. Each Contract will be secured by Manufactured Homes (as defined
below), each of which will be located in any of the fifty states or the District
of Columbia. The Contracts will be fully amortizing and will bear interest at a
fixed or adjustable annual percentage rate (the "APR" or "Contract Rate"). The
Contract Pool may include Contracts with respect to which a Fixed Retained Yield
has been retained, in which event references herein to Contracts and payments
thereon shall mean the Contracts exclusive of such Fixed Retained Yield. The
Prospectus Supplement for a Series will specify whether there will be any Fixed
Retained Yield in any Contract, and if so, the owner thereof. A "Fixed Retained
Yield" in a Contract represents a specified portion of the interest payable
thereon.
The Seller of the Contracts will represent that the Manufactured Homes
securing the Contracts consist of manufactured homes within the meaning of 42
United States Code, Section 5402(6), which defines a "manufactured home" as "a
structure, transportable in one or more sections, which in the traveling mode,
is eight body feet or more in width or forty body feet or more in length, or,
when erected on site, is three hundred twenty or more square feet, and which is
built on a permanent chassis designed to be used as a dwelling with or without a
permanent foundation when connected to the required utilities, and includes the
plumbing, heating, air-conditioning, and electrical systems contained therein;
except that such term shall include any structure which meets all the
requirements of [this] paragraph except the size requirements and with respect
to which the manufacturer voluntarily files a certification required by the
Secretary of Housing and Urban Development and complies with the standards
established under [this] chapter."
Manufactured Homes, unlike site-built homes, generally depreciate in
value. Consequently, at any time after origination it is possible, especially in
the case of Contracts with high Loan-to-Value Ratios at origination, that
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the market value of a Manufactured Home may be lower than the principal amount
outstanding under the related Contract.
The Prospectus Supplement for each Series will set forth certain
characteristics of the related Contracts, which may include the aggregate
principal balance of the Contracts in the Contract Pool underlying such Series
as of the Cut-Off Date for such Series (the "Cut-Off Date Aggregate Principal
Balance"), the range of original terms to maturity of the Contracts in the
Contract Pool, the weighted average remaining term to stated maturity at the
Cut-Off Date of such Contracts, the earliest and latest origination dates of
such Contracts, the range of Contract Rates and net contract rates borne by such
Contracts ("Net Contract Rates"), the weighted average Net Contract Rate at the
Cut-Off Date of such Contracts, the range of such Contracts which had
Loan-to-Value Ratios at the time of origination of the Contracts and the highest
outstanding principal balance at origination of any such Contract.
The "Loan-to-Value Ratio" is the ratio, expressed as a percentage, of
the principal amount of the Contract outstanding at the origination of such loan
divided by the fair market value of the Manufactured Home. The fair market value
of the Manufactured Home securing any Contract is, unless otherwise specified in
the applicable Prospectus Supplement, either (x) the appraised value of the
related Manufactured Home determined in an appraisal obtained by the originator
at origination and (y) the sale price for such property, plus, in either case,
sales and other taxes and, to the extent financed, filing and recording fees
imposed by law, premiums for related insurance and prepaid finance charges. A
maximum of 5% (by Cut-Off Date Aggregate Principal Balance) of the aggregate
Contracts that are included in a Trust Fund will deviate from the
characteristics that are described in the related Prospectus Supplement.
The Contracts in a Trust Fund will generally have monthly payments due
on the first of each month (each, a "Due Date") and will be fully-amortizing
Contracts. Contracts may have Due Dates which occur on a date other than the
first of each month. The Contract Pools may include adjustable rate Contracts
that provide for payment adjustments to be made less frequently than adjustments
in the Contract Rates. Each adjustment in the Contract Rate which is not made at
the time of a corresponding adjustment in payments (and which adjusted amount of
interest is not paid currently on a voluntary basis by the obligor) will result
in a decrease (if the Contract Rate rises) or an increase (if the Contract Rate
declines) in the rate of amortization of the Contract. Moreover, such payment
adjustments on the Contracts may be subject to certain limitations, as specified
in the Prospectus Supplement, which may also affect the rate of amortization on
the Contract. As a result of such provisions, the amount of interest accrued in
any month may equal or exceed the scheduled monthly payment on the Contract. In
any such month, no principal would be payable on the Contract, and if the
accrued interest exceeded the scheduled monthly payment, such excess interest
due would become "Deferred Interest" that is added to the principal balance of
the Contract. Deferred Interest will bear interest at the Contract Rate until
paid. If such limitations prevent the payments from being sufficient to amortize
fully the Contract by its stated maturity date, a lump sum payment equal to the
remaining unpaid principal balance will be due on such stated maturity date.
The geographic distribution of Manufactured Homes will be set forth in
the Prospectus Supplement. Each Prospectus Supplement will set forth the
percentage of the Cut-Off Date Aggregate Principal Balance of any Contracts in
the Contract Pool which are secured by Manufactured Homes which have become
permanently affixed to real estate. Each Prospectus Supplement will also set
forth the percentage of the Cut-Off Date Aggregate Principal Balance of the
Contracts in the related Contract Pool representing the refinancing of existing
mortgage indebtedness.
If specific information respecting the Contracts to be included in a
Trust Fund is not known to the Sponsor at the time the Securities of a Series
are initially offered, more general information of the nature described above
will be provided in the Prospectus Supplement and final specific information
will be set forth in a Current Report on Form 8-K to be available to investors
on the date of issuance thereof and to be filed with the Commission promptly
after the initial issuance of such Securities.
Private Securities
General. Primary Assets for a Series may consist, in whole or in part,
of Private Securities which include pass-through certificates representing
beneficial interests in loans of the type that would otherwise be eligible to be
Mortgage Loans and/or Contracts (the "Underlying Loans") or (b) collateralized
obligations secured by Underlying
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Loans. Such pass-through certificates or collateralized obligations will have
previously been (a) offered and distributed to the public pursuant to an
effective registration statement and not purchased as part of the original
distribution or (b) acquired in a transaction not involving any public offering
from a person who is not an affiliate of the issuer of such securities at the
time of transfer (nor an affiliate thereof at any time during the three
preceding months); provided a period of three years elapsed since the later of
the date the securities were acquired from the issuer or an affiliate thereof.
Although individual Underlying Loans may be insured or guaranteed by the United
States or an agency or instrumentality thereof, they need not be, and Private
Securities themselves will not be so insured or guaranteed.
Private Securities will have been issued pursuant to a pooling and
servicing agreement, a trust agreement or similar agreement (a "PS Agreement").
The seller/servicer of the Underlying Loans will have entered into the PS
Agreement with the trustee under such PS Agreement (the "PS Trustee"). The PS
Trustee or its agent, or a custodian, will possess the Underlying Loans.
Underlying Loans will be serviced by a servicer (the "PS Servicer") directly or
by one or more sub-servicers who may be subject to the supervision of the PS
Servicer.
The sponsor of the Private Securities (the "PS Sponsor") will be a
financial institution or other entity engaged generally in the business of
lending; a public agency or instrumentality of a state, local or federal
government; or a limited purpose corporation organized for the purpose of, among
other things, establishing trusts and acquiring and selling loans to such
trusts, and selling beneficial interests in such trusts. The PS Sponsor may be
an affiliate of the Depositor. The obligations of the PS Sponsor will generally
be limited to certain representations and warranties with respect to the assets
conveyed by it to the related trust. Additionally, although the Underlying Loans
may be guaranteed by an agency or instrumentality of the United States, the
Private Securities themselves will not be so guaranteed.
Distributions of principal and interest will be made on the Private
Securities on the dates specified in the related Prospectus Supplement. The
Private Securities may be entitled to receive nominal or no principal
distributions or nominal or no interest distributions. Principal and interest
distributions will be made on the Private Securities by the PS Trustee or the PS
Servicer. The PS Sponsor or the PS Servicer may have the right to repurchase the
Underlying Loans after a certain date or under other circumstances specified in
the related Prospectus Supplement.
The Underlying Loans may be fixed rate, level payment, fully amortizing
loans or adjustable rate loans or loans having balloon or other irregular
payment features. Such Underlying Loans will be secured by mortgages on
Mortgaged Properties.
Credit Support Relating to Private Securities. Credit support in the
form of Reserve Funds, subordination of other private securities issued under
the PS Agreement, guarantees, letters of credit, cash collateral accounts,
insurance policies or other types of credit support may be provided with respect
to the Underlying Loans or with respect to the Private Securities themselves.
The type, characteristics and amount of credit support will be a function of
certain characteristics of the Underlying Loans and other factors and will have
been established for the Private Securities on the basis of requirements of the
nationally recognized statistical rating organization that rated the Private
Securities.
Additional Information. The Prospectus Supplement for a Series for
which the Primary Assets include Private Securities will specify (such
disclosure may be on an approximate basis and will be as of the date specified
in the related Prospectus Supplement), to the extent relevant and to the extent
such information is reasonably available to the Depositor and the Depositor
reasonably believes such information to be reliable: (i) the aggregate
approximate principal amount and type of the Private Securities to be included
in the Trust Fund for such Series; (ii) certain characteristics of the
Underlying Loans including (A) the payment features of such Underlying Loans
(i.e., whether they are fixed rate or adjustable rate and whether they provide
for fixed level payments or other payment features), (B) the approximate
aggregate principal balance, if known, of such Underlying Loans insured or
guaranteed by a governmental entity, (C) the servicing fee or range of servicing
fees with respect to the Underlying Loans, (D) the minimum and maximum stated
maturities of such Underlying Loans at origination, (E) the lien priority of
such Underlying Loans, and (F) the delinquency status and year of origination of
such Underlying Loans; (iii) the maximum original term-to-stated maturity of the
Private Securities; (iv) the weighted average term-to-stated maturity of the
Private Securities; (v) the pass-through or certificate rate or ranges thereof
for the Private Securities;
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(vi) the PS Sponsor, the PS Servicer (if other than the PS Sponsor) and the PS
Trustee for such Private Securities; (vii) certain characteristics of credit
support if any, such as Reserve Funds, insurance policies, letters of credit or
guarantees relating to such Mortgage Loans underlying the Private Securities or
to such Private Securities themselves; (viii) the terms on which Underlying
Loans may, or are required to, be purchased prior to their stated maturity or
the stated maturity of the Private Securities; and (ix) the terms on which
Underlying Loans may be substituted for those originally underlying the Private
Securities.
If information of the nature described above representing the Private
Securities is not known to the Depositor at the time the Securities are
initially offered, approximate or more general information of the nature
described above will be provided in the Prospectus Supplement and the additional
information, if available, will be set forth in a Current Report on Form 8-K to
be available to investors on the date of issuance of the related Series and to
be filed with the Commission within 15 days of the initial issuance of such
Securities.
Collection and Distribution Accounts
A separate Collection Account will be established by the Trustee or the
Servicer, in the name of the Trustee, for each Series of Securities for receipt
of the amount of cash, if any, specified in the related Prospectus Supplement to
be initially deposited therein by the Depositor, all amounts received on or with
respect to the Primary Assets and any income earned thereon. Certain amounts on
deposit in such Collection Account and certain amounts available pursuant to any
Credit Enhancement will be deposited in a related Distribution Account, which
will also be established by the Trustee for each such Series of Securities, for
distribution to the related Holders. The Trustee may invest the funds in the
Collection and Distribution Accounts in eligible investments maturing, with
certain exceptions, not later, in the case of funds in the Collection Account,
than the day preceding the date such funds are due to be deposited in the
Distribution Account or otherwise distributed and, in the case of funds in the
Distribution Account, than the day preceding the next Distribution Date for the
related Series of Securities. "Eligible Investments" include, among other
investments, obligations of the United States and certain agencies thereof,
federal funds, certificates of deposit, commercial paper, demand and time
deposits and banker's acceptances, certain repurchase agreements of United
States government securities and certain guaranteed investment contracts, in
each case, acceptable to the Rating Agency.
Notwithstanding any of the foregoing, amounts may be deposited and
withdrawn pursuant to any Deposit Agreement or Minimum Principal Payment
Agreement as specified in the related Prospectus Supplement.
Pre-Funding Accounts
A Trust Fund may include one or more segregated trust accounts (each, a
"Pre-Funding Account") established and maintained with the Trustee for the
related Series. On the closing date for such Series, a portion of the proceeds
of the sale of the Securities of such Series (such amount, the "Pre-Funded
Amount") will be deposited in the Pre-Funding Account and may be used to acquire
additional Primary Assets during the period of time specified in the related
Prospectus Supplement (the "Pre-Funding Period"). If any Pre-Funded Amount
remains on deposit in the Pre-Funding Account at the end of the Pre-Funding
Period, such amount will be applied in the manner specified in the related
Prospectus Supplement to prepay the Notes and/or the Certificates of the
applicable Series.
If a Pre-Funding Account is established, (a) the Pre-Funding Period
will not exceed 90 days from the related closing date, (b) the additional
Primary Assets to be acquired during the Pre-Funding Period will be subject to
the same representations and warranties and satisfy the same eligibility
requirements as the Primary Assets included in the related Trust Fund on the
closing date, subject to such exceptions as are expressly stated in such
Prospectus Supplement, (c) the Pre-Funding Amount will not exceed 25% of the
principal amount of the Securities issued pursuant to a particular offering and
(d) prior to the investment of the Pre-Funded Amount in additional Primary
Assets, such Pre-Funded Amount will be invested in one or more Eligible
Investments. Any Eligible Investment must mature no later than the Business Day
prior to the next Distribution Date.
If a Pre-Funding Account is established, one or more segregated trust
accounts (each, a "Capitalized Interest Account") may be established and
maintained with the Trustee for the related Series. On the closing date for such
Series, a portion of the proceeds of the sale of the Securities of such Series
will be deposited in the Capitalized Interest Account and used to fund the
excess, if any, of the sum of (i) the amount of interest accrued on
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the Securities of such Series and (ii) certain fees or expenses during the
Pre-Funding Period, over the amount of interest available therefor from the
Primary Assets in the Trust Fund. Any amounts on deposit in the Capitalized
Interest Account at the end of the Pre-Funding Period that are not necessary for
such purposes will be distributed to the person specified in the related
Prospectus Supplement.
If a Trust Fund includes a Pre-Funding Account and the principal
balance of additional Primary Assets delivered to the Trust Fund during the
Pre-Funding Period is less than the original Pre-Funded Amount, the Holders of
the Securities of the related Series will receive a prepayment of principal as
and to the extent described in the related Prospectus Supplement. Any such
principal prepayment may adversely affect the yield to maturity of the
applicable Securities. Since prevailing interest rates are subject to
fluctuation, there can be no assurance that investors will be able to reinvest
such a prepayment at yields equaling or exceeding the yields on the related
Securities. It is possible that the yield on any such reinvestment will be
lower, and may be significantly lower, than the yield on the related Securities.
CREDIT ENHANCEMENT
If stated in the Prospectus Supplement relating to a Series of
Securities, simultaneously with the Depositor's assignment of the Primary Assets
to the Trustee, the Depositor will obtain an irrevocable letter of credit,
surety bond or insurance policy, issue Subordinate Securities or obtain any
other form of credit enhancement or combination thereof (collectively, "Credit
Enhancement") in favor of the Trustee on behalf of the Holders of the related
Series or designated Classes of such Series from an institution or by other
means acceptable to the Rating Agency. The Credit Enhancement will support the
payment of principal and interest on the Securities, and may be applied for
certain other purposes to the extent and under the conditions set forth in such
Prospectus Supplement. Credit Enhancement for a Series may include one or more
of the following forms, or such other form as may be specified in the related
Prospectus Supplement. Credit Enhancement may be structured so as to protect
against losses relating to more than one Trust Fund, in the manner described
therein.
Subordinate Securities
Credit Enhancement for a Series may consist of one or more Classes of
Subordinate Securities. The rights of holders of such Subordinate Securities to
receive distributions on any Distribution Date will be subordinate in right and
priority to the rights of Holders of Senior Securities of the Series, but only
to the extent described in the related Prospectus Supplement.
Insurance
Credit Enhancement for a Series may consist of special hazard insurance
policies, bankruptcy bonds and other types of insurance relating to the Primary
Assets, as described below and in the related Prospectus Supplement.
Pool Insurance Policy. The related Prospectus Supplement will describe
any pool insurance policy obtained by the Depositor for the Mortgage Loans
and/or Contracts in the related Trust Fund. The pool insurance policy will cover
any loss (subject to the limitations described in a related Prospectus
Supplement) by reason of default. but will not cover the portion of the
principal balance of any Mortgage Loan that is required to be covered by any
primary mortgage insurance policy. The amount and terms of any such coverage
will be set forth in the related Prospectus Supplement.
Special Hazard Insurance Policy. Although the terms of such policies
vary to some degree, a special hazard insurance policy typically provides that,
where there has been damage to Mortgaged Property securing a defaulted or
foreclosed Mortgage Loan or the Manufactured Home underlying a Contract (title
to which has been acquired by the insured) and to the extent such damage is not
covered by the standard hazard insurance policy or any flood insurance policy,
if applicable, required to be maintained with respect to such Mortgaged
Property, or Manufactured Home, or in connection with partial loss resulting
from the application of the coinsurance clause in a standard hazard insurance
policy, the special hazard insurer will pay the lesser of (i) the cost of repair
or replacement of such Mortgaged Property Manufactured Home or (ii) upon
transfer of such Mortgaged Property or
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Manufactured Home to the special hazard insurer, the unpaid principal balance of
such Mortgage Loan or Contract at the time of acquisition of such Mortgaged
Property by foreclosure or deed in lieu of foreclosure, plus accrued interest to
the date of claim settlement and certain expenses incurred by the Servicer with
respect to such Mortgaged Property. If the unpaid principal balance plus accrued
interest and certain expenses is paid by the special hazard insurer, the amount
of further coverage under the special hazard insurance policy will be reduced by
such amount less any net proceeds from the sale of such Mortgaged Property or
Manufactured Home. Any amount paid as the cost of repair of such Mortgaged
Property or Manufactured Home will reduce coverage by such amount. Special
hazard insurance policies typically do not cover losses occasioned by war, civil
insurrection, certain governmental actions, errors in design, faulty workmanship
or materials (except under certain circumstances), nuclear reaction, flood (if
the Mortgaged Property is in a federally designated flood area), chemical
contamination and certain other risks.
Restoration of the Mortgaged Property or replacement of the
Manufactured Home with the proceeds described under (i) above is expected to
satisfy the condition under any pool insurance policy that such Mortgaged
Property be restored or Manufactured Home replaced before a claim under such
pool insurance policy may be validly presented with respect to the defaulted
Mortgage Loan or Contract secured by such Mortgaged Property or Manufactured
Home, as applicable. The payment described under (ii) above will render
unnecessary presentation of a claim in respect of such Mortgage Loan or Contract
under any pool insurance policy. Therefore, so long as such pool insurance
policy remains in effect, the payment by the special hazard insurer of the cost
of repair or of the unpaid principal balance of the related Mortgage Loan or
Contract plus accrued interest and certain expenses will not affect the total
insurance proceeds paid to Holders of the Securities, but will affect the
relative amounts of coverage remaining under the special hazard insurance policy
and pool insurance policy.
Bankruptcy Bond. In the event of a bankruptcy of a borrower, the
bankruptcy court may establish the value of the Mortgaged Property securing the
related Mortgage Loan or the Manufactured Home securing the Contract at an
amount less than the then-outstanding principal balance of such Mortgage Loan or
Contract. The amount of the secured debt could be reduced to such value, and the
holder of such Mortgage Loan or Contract thus would become an unsecured creditor
to the extent the outstanding principal balance of such Mortgage Loan or
Contract exceeds the value so assigned to the Mortgaged Property or the
Manufactured Home by the bankruptcy court. In addition, certain other
modifications of the terms of a Mortgage Loan or Contract can result from a
bankruptcy proceeding. See "CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS" herein. If
so provided in the related Prospectus Supplement, the Depositor or other entity
specified in the related Prospectus Supplement will obtain a bankruptcy bond or
similar insurance contract (the "bankruptcy bond") covering losses resulting
from proceedings with respect to borrowers under the Bankruptcy Code. The
bankruptcy bond will cover certain losses resulting from a reduction by a
bankruptcy court of scheduled payments of principal of and interest on a
Mortgage Loan or Contract or a reduction by such court of the principal amount
of a Mortgage Loan or Contract and will cover certain unpaid interest on the
amount of such a principal reduction from the date of the filing of a bankruptcy
petition.
The bankruptcy bond will provide coverage in the aggregate amount
specified in the related Prospectus Supplement for all Mortgage Loans and/or
Contracts in the Trust Fund for such Series. Such amount will be reduced by
payments made under such bankruptcy bond in respect of such Mortgage Loans
and/or Contracts, and will not be restored.
Reserve Funds
The Depositor may deposit into one or more funds to be established with
the Trustee as part of the Trust Fund for such Series or for the benefit of any
Credit Enhancer with respect to such Series (the "Reserve Funds") cash, a letter
or letters of credit, cash collateral accounts, Eligible Investments, or other
instruments meeting the criteria of the Rating Agency rating any Series of the
Securities in the amount specified in such Prospectus Supplement. In the
alternative or in addition to such deposit, a Reserve Fund for a Series may be
funded over time through application of all or a portion of the excess cash flow
from the Primary Assets for such Series, to the extent described in the related
Prospectus Supplement. If applicable, the initial amount of the Reserve Fund and
the Reserve Fund maintenance requirements for a Series of Securities will be
described in the related Prospectus Supplement.
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Amounts withdrawn from any Reserve Fund will be applied by the Trustee
to make payments on the Securities of a Series, to pay expenses, to reimburse
any Credit Enhancer or for any other purpose, in the manner and to the extent
specified in the related Prospectus Supplement.
Amounts deposited in a Reserve Fund will be invested by the Trustee, in
Eligible Investments maturing no later than the day specified in the related
Prospectus Supplement.
Minimum Principal Payment Agreement
If stated in the Prospectus Supplement relating to a Series of
Securities, the Depositor will enter into a Minimum Principal Payment Agreement
with an entity meeting the criteria of the Rating Agency pursuant to which such
entity will provide certain payments on the Securities of such Series in the
event that aggregate scheduled principal payments and/or prepayments on the
Primary Assets for such Series are not sufficient to make certain payments on
the Securities of such Series, as provided in the Prospectus Supplement.
Deposit Agreement
The Depositor and the Trustee for such Series of Securities will enter
into a Deposit Agreement with the entity specified in such Prospectus Supplement
on or before the sale of such Series of Securities. The purpose of a Deposit
Agreement would be to accumulate available cash for investment so that such
cash, together with income thereon, can be applied to future distributions on
one or more Classes of Securities. The Prospectus Supplement for a Series of
Securities pursuant to which a Deposit Agreement is used will contain a
description of the terms of such Deposit Agreement.
SERVICING OF MORTGAGE LOANS
General
Customary servicing functions with respect to Mortgage Loans and/or
Contracts comprising the Primary Assets in the Trust Fund will be provided by
the Servicer directly pursuant to the related Servicing Agreement or Pooling and
Servicing Agreement, as the case may be, with respect to a Series of Securities.
Collection Procedures; Escrow Accounts
The Servicer will make reasonable efforts to collect all payments
required to be made under the Mortgage Loans and/or Contracts and will,
consistent with the terms of the related Agreement for a Series and any
applicable Credit Enhancement, follow such collection procedures as it follows
with respect to comparable loans held in its own portfolio. Consistent with the
above, the Servicer may, in its discretion, (i) waive any assumption fee, late
payment charge, or other charge in connection with a Mortgage Loan or Contract
and (ii) to the extent provided in the related Agreement arrange with an obligor
a schedule for the liquidation of delinquencies by extending the dates on which
the related payments (the "Scheduled Payments") are due (the "Due Dates") on
such Mortgage Loan or Contract.
The Servicer, to the extent permitted by law, will establish and
maintain escrow or impound accounts ("Escrow Accounts") with respect to Mortgage
Loans and/or Contracts in which payments by obligors to pay taxes, assessments,
mortgage and hazard insurance premiums, and other comparable items will be
deposited. Mortgage Loans and/or Contracts may not require such payments under
the loan related documents, in which case the Servicer would not be required to
establish any Escrow Account with respect to such Mortgage Loans and/or
Contracts. Withdrawals from the Escrow Accounts are to be made to effect timely
payment of taxes, assessments and mortgage and hazard insurance, to refund to
obligors amounts determined to be overages, to pay interest to obligors on
balances in the Escrow Account to the extent required by law, to repair or
otherwise protect the Mortgaged Property securing the related Mortgage Loan or
Manufactured Home securing the related Contract and to clear and terminate such
Escrow Account. The Servicer will be responsible for the administration of the
Escrow Accounts and generally will make advances to such accounts when a
deficiency exists therein.
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Deposits to and Withdrawals from the Collection Account
The Trustee or the Servicer will establish a separate account (the
"Collection Account") in the name of the Trustee. The Collection Account will be
an account maintained (i) at a depository institution, the long-term unsecured
debt obligations of which at the time of any deposit therein are rated by each
Rating Agency rating the Securities of such Series at levels satisfactory to
each Rating Agency or (ii) in an account or accounts the deposits in which are
insured to the maximum extent available by the Federal Deposit Insurance
Corporation ("FDIC") or which are secured in a manner meeting requirements
established by each Rating Agency.
The funds held in the Collection Account may be invested, pending
remittance to the Trustee, in Eligible Investments. The Servicer will be
entitled to receive as additional compensation any interest or other income
earned on funds in the Collection Account.
The Servicer, the Depositor, the Trustee or the Originator, as
appropriate, will deposit into the Collection Account for each Series on the
Business Day following the Closing Date any amounts representing Scheduled
Payments due after the related Cut-off Date but received by the Servicer on or
before the Closing Date, and thereafter, within two business days after the date
of receipt thereof, the following payments and collections received or made by
it (other than in respect of principal of and interest on the related Primary
Assets due on or before such Cut-off Date):
(i) All payments on account of principal, including
prepayments, on such Primary Assets;
(ii) All payments on account of interest on such Primary
Assets after deducting therefrom, at the discretion of the Servicer but
only to the extent of the amount permitted to be withdrawn or withheld
from the Collection Account in accordance with the related Agreement,
the Servicing Fee in respect of such Primary Assets;
(iii) All amounts received by the Servicer in connection with
the liquidation of Primary Assets or property acquired in respect
thereof, whether through foreclosure sale, repossession or otherwise,
including payments in connection with such Primary Assets received from
the obligor, other than amounts required to be paid or refunded to the
obligor pursuant to the terms of the applicable loan documents or
otherwise pursuant to law ("Liquidation Proceeds"), exclusive of, in
the discretion of the Servicer, but only to the extent of the amount
permitted to be withdrawn from the Collection Account in accordance
with the related Agreement, the Servicing Fee, if any, in respect of
the related Primary Asset;
(iv) All proceeds under any title insurance, hazard insurance
or other insurance policy covering any such Primary Asset, other than
proceeds to be applied to the restoration or repair of the related
Mortgaged Property or Manufactured Home or released to the obligor in
accordance with the related Agreement;
(v) All amounts required to be deposited therein from any
applicable Reserve Fund for such Series pursuant to the related
Agreement;
(vi) All Advances made by the Servicer required pursuant to
the related Agreement; and
(vii) All repurchase prices of any such Primary Assets
repurchased by the Depositor, the Servicer or the Originator pursuant
to the related Agreement.
The Servicer may be permitted, from time to time, to make withdrawals
from the Collection Account for each Series for the following purposes:
(i) to reimburse itself for Advances for such Series made by
it pursuant to the related Agreement; the Servicer's right to reimburse
itself is limited to amounts received on or in respect of particular
Mortgage Loans and/or Contracts (including, for this purpose,
Liquidation Proceeds and amounts representing proceeds of insurance
policies covering the related Mortgaged Property or Manufactured
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Home, as applicable) which represent late recoveries of Scheduled
Payments respecting which any such Advance was made;
(ii) to the extent provided in the related Agreement, to
reimburse itself for any Advances for such Series that the Servicer
determines in good faith it will be unable to recover from amounts
representing late recoveries of Scheduled Payments respecting which
such Advance was made or from Liquidation Proceeds or the proceeds of
insurance policies;
(iii) to reimburse itself from Liquidation Proceeds for
liquidation expenses and for amounts expended by it in good faith in
connection with the restoration of damaged Mortgaged Property or
Manufactured Home and, in the event deposited in the Collection Account
and not previously withheld, and to the extent that Liquidation
Proceeds after such reimbursement exceed the outstanding principal
balance of the related Mortgage Loan or Contract, together with accrued
and unpaid interest thereon to the Due Date for such Mortgage Loan next
succeeding the date of its receipt of such Liquidation Proceeds, to pay
to itself out of such excess the amount of any unpaid Servicing Fee and
any assumption fees, late payment charges, or other charges on the
related Mortgage Loan or Contract;
(iv) in the event it has elected not to pay itself the
Servicing Fee out of the interest component of any Scheduled Payment,
late payment or other recovery with respect to a particular Mortgage
Loan or Contract prior to the deposit of such Scheduled Payment, late
payment or recovery into the Collection Account, to pay to itself the
Servicing Fee, as adjusted pursuant to the related Agreement, from any
such Scheduled Payment, late payment or such other recovery, to the
extent permitted by the related Agreement;
(v) to reimburse itself for expenses incurred by and
recoverable by or reimbursable to it pursuant to the related Agreement;
(vi) to pay to the applicable person with respect to each
Primary Asset or Mortgaged Properties acquired through or in lieu of
foreclosure (each, an "REO Property") acquired in respect thereof that
has been repurchased or removed from the Trust Fund by the Depositor,
the Servicer or the Originator pursuant to the related Agreement, all
amounts received thereon and not distributed as of the date on which
the related repurchase price was determined;
(vii) to make payments to the Trustee of such Series for
deposit into the Distribution Account, if any, or for remittance to the
Holders of such Series in the amounts and in the manner provided for in
the related Agreement; and
(viii) to clear and terminate the Collection Account pursuant
to the related Agreement.
In addition, if the Servicer deposits in the Collection Account for a
Series any amount not required to be deposited therein, it may, at any time,
withdraw such amount from such Collection Account.
Advances and Limitations Thereon
The related Prospectus Supplement will describe the circumstances, if
any, under which the Servicer will make Advances with respect to delinquent
payments on Mortgage Loans and/or Contracts. The Servicer will be obligated to
make Advances, and such obligation may be limited in amount, or may not be
activated until a certain portion of a specified Reserve Fund is depleted.
Advances are intended to provide liquidity and, except to the extent specified
in the related Prospectus Supplement, not to guarantee or insure against losses.
Accordingly, any funds advanced are recoverable by the Servicer out of amounts
received on particular Mortgage Loans and/or Contracts which represent late
recoveries of principal or interest, proceeds of insurance policies or
Liquidation Proceeds respecting which any such Advance was made. If an Advance
is made and subsequently determined to be nonrecoverable from late collections,
proceeds of insurance policies, or Liquidation Proceeds from the related
Mortgage Loan or Contract, the Servicer may be entitled to reimbursement from
other funds in the Collection Account or Distribution Account, as the case may
be, or from a specified Reserve Fund as applicable, to the extent specified in
the related Prospectus Supplement.
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Maintenance of Insurance Policies and other Servicing Procedures
Standard Hazard Insurance; Flood Insurance. The related Prospectus
Supplement will specify the extent to which the Servicer will be required to
maintain or to cause the obligor on each Mortgage Loan or Contract to maintain a
standard hazard insurance policy providing coverage of the standard form of fire
insurance with extended coverage for certain other hazards as is customary in
the state in which the related Mortgaged Property or Manufactured Home is
located. The standard hazard insurance policies will provide for coverage at
least equal to the applicable state standard form of fire insurance policy with
extended coverage for property of the type securing the related Mortgage Loans
and/or Contracts. In general, the standard form of fire and extended coverage
policy will cover physical damage to or destruction of, the related Mortgaged
Property or Manufactured Home caused by fire, lightning, explosion, smoke,
windstorm, hail, riot, strike and civil commotion, subject to the conditions and
exclusions particularized in each policy. Because the standard hazard insurance
policies relating to the Mortgage Loans and/or Contracts will be underwritten by
different hazard insurers and will cover Mortgaged Properties and Manufactured
Homes located in various states, such policies will not contain identical terms
and conditions. The basic terms, however, generally will be determined by state
law and generally will be similar. Most such policies typically will not cover
any physical damage resulting from war, revolution, governmental actions, floods
and other water-related causes, earth movement (including earthquakes,
landslides and mudflows), nuclear reaction, wet or dry rot, vermin, rodents,
insects or domestic animals, theft and, in certain cases, vandalism. The
foregoing list is merely indicative of certain kinds of uninsured risks and is
not intended to be all inclusive. Uninsured risks not covered by a special
hazard insurance policy or other form of Credit Enhancement will adversely
affect distributions to Holders. When a Mortgaged Property securing a Mortgage
Loan is located in a flood area identified by HUD pursuant to the Flood Disaster
Protection Act of 1973, as amended, the Servicer will be required to cause flood
insurance to be maintained with respect to such Mortgaged Property, to the
extent available.
The standard hazard insurance policies covering Mortgaged Properties
securing Mortgage Loans or Manufactured Home Securing a Contract typically will
contain a "coinsurance" clause which, in effect, will require the insured at all
times to carry hazard insurance of a specified percentage (generally 80% to 90%)
of the full replacement value of the Mortgaged Property or Manufactured Home,
including the improvements on any Mortgaged Property or Manufactured Home, in
order to recover the full amount of any partial loss. If the insured's coverage
falls below this specified percentage, such clause will provide that the hazard
insurer's liability in the event of partial loss will not exceed the greater of
(i) the actual cash value (the replacement cost less physical depreciation) of
the Mortgaged Property or Manufactured Home, including the improvements, if any,
damaged or destroyed or (ii) such proportion of the loss, without deduction for
depreciation, as the amount of insurance carried bears to the specified
percentage of the full replacement cost of such Mortgaged Property or
Manufactured Home and improvements. Since the amount of hazard insurance to be
maintained on the improvements securing the Mortgage Loans and Manufactured
Homes declines as the principal balances owing thereon decrease, and since the
value of the Mortgaged Properties or Manufactured Home will fluctuate in value
over time, the effect of this requirement in the event of partial loss may be
that hazard insurance proceeds will be insufficient to restore fully the damage
to the affected Mortgaged Property or Manufactured Home.
Generally, coverage will be in an amount at least equal to the greater
of (i) the amount necessary to avoid the enforcement of any co-insurance clause
contained in the policy or (ii) the outstanding principal balance of the related
Mortgage Loan or Contract. The Servicer may also maintain on REO Property that
secured a defaulted Mortgage Loan and that has been acquired upon foreclosure,
deed in lieu of foreclosure, or repossession, a standard hazard insurance policy
in an amount that is at least equal to the maximum insurable value of such REO
Property. No earthquake or other additional insurance will be required of any
obligor or will be maintained on REO Property acquired in respect of a defaulted
Mortgage Loan, other than pursuant to such applicable laws and regulations as
shall at any time be in force and shall require such additional insurance.
Any amounts collected by the Servicer under any such policies of
insurance (other than amounts to be applied to the restoration or repair of the
Mortgaged Property or Manufactured Home, released to the obligor in accordance
with normal servicing procedures or used to reimburse the Servicer for amounts
to which it is entitled to reimbursement) will be deposited in the Collection
Account. In the event that the Servicer obtains and maintains a blanket policy
insuring against hazard losses on all of the Mortgage Loans and/or Contracts,
written by an insurer then acceptable to each Rating Agency which assigns a
rating to such Series, it will conclusively be deemed to have satisfied its
obligations to cause to be maintained a standard hazard insurance policy for
each Loan or related REO
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Property. This blanket policy may contain a deductible clause, in which case the
Servicer will be required, in the event that there has been a loss that would
have been covered by such policy absent such deductible clause, to deposit in
the Collection Account the amount not otherwise payable under the blanket policy
because of the application of such deductible clause.
Realization upon Defaulted Mortgage Loans
The Servicer will use its reasonable best efforts to foreclose upon,
repossess or otherwise comparably convert the ownership of the Mortgaged
Properties securing the related Mortgage Loans or possession of the Manufactured
Homes securing the Contracts as come into and continue in default and as to
which no satisfactory arrangements can be made for collection of delinquent
payments. In connection with such foreclosure, repossession or other conversion,
the Servicer will follow such practices and procedures as it deems necessary or
advisable and as are normal and usual in its servicing activities with respect
to comparable loans serviced by it. However, the Servicer will not be required
to expend its own funds in connection with any foreclosure or repossession or
towards the restoration of the Mortgaged Property or Manufactured Home unless it
determines that (i) such restoration, repossession or foreclosure will increase
the Liquidation Proceeds in respect of the related Mortgage Loan or Contract
available to the Holders after reimbursement to itself for such expenses and
(ii) such expenses will be recoverable by it either through Liquidation Proceeds
or the proceeds of insurance. Notwithstanding anything to the contrary herein,
in the case of a Trust Fund for which a REMIC election has been made, the
Servicer will be required to liquidate any Mortgaged Property acquired through
foreclosure within two years after the acquisition of the beneficial ownership
of such Mortgaged Property. While the holder of a Mortgaged Property acquired
through foreclosure can often maximize its recovery by providing financing to a
new purchaser, the Trust Fund, if applicable, will have no ability to do so and
neither the Servicer nor the Depositor will be required to do so.
The Servicer may arrange with the obligor on a defaulted Mortgage Loan
or Contract a modification of such Mortgage Loan or Contract (a "Modification")
to the extent provided in the related Prospectus Supplement. Such Modifications
may only be entered into if they meet the underwriting policies and procedures
employed by the Servicer in servicing receivables for its own account and meet
the other conditions set forth in the related Prospectus Supplement.
Enforcement of Due-On-Sale Clauses
When any Mortgaged Property is about to be conveyed by the obligor, the
Servicer may, to the extent it has knowledge of such prospective conveyance and
prior to the time of the consummation of such conveyance, exercise its rights to
accelerate the maturity of the related Mortgage Loan under the applicable
"due-on-sale" clause, if any, unless it reasonably believes that such clause is
not enforceable under applicable law or if the enforcement of such clause would
result in loss of coverage under any primary mortgage insurance policy. In such
event, the Servicer is authorized to accept from or enter into an assumption
agreement with the person to whom such Mortgaged Property has been or is about
to be conveyed, pursuant to which such person becomes liable under the Mortgage
Loan and pursuant to which the original obligor is released from liability and
such person is substituted as the obligor and becomes liable under the Mortgage
Loan. Any fee collected in connection with an assumption will be retained by the
Servicer as additional servicing compensation. The terms of a Mortgage Loan may
not be changed in connection with an assumption.
Servicing Compensation and Payment of Expenses
The Servicer will be entitled to a periodic fee as servicing
compensation (the "Servicing Fee") in an amount to be determined as specified in
the related Prospectus Supplement. The Servicing Fee may be fixed or variable,
as specified in the related Prospectus Supplement. In addition, the Servicer
will be entitled to servicing compensation in the form of assumption fees, late
payment charges and similar items, or excess proceeds following disposition of
Mortgaged Property in connection with defaulted Mortgage Loans or Manufactured
Homes in connection with a defaulted Contract, as will be further specified in
the related Prospectus Supplement,.
The Servicer may pay certain expenses incurred in connection with the
servicing of the Mortgage Loans, including, without limitation, the payment of
the fees and expenses of the Trustee and independent accountants,
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payment of insurance policy premiums and the cost of credit support, if any, and
payment of expenses incurred in preparation of reports to Holders.
When an obligor makes a principal prepayment in full between Due Dates
on the related Mortgage Loan or Contract, the obligor will generally be required
to pay interest on the amount prepaid only to the date of prepayment. If and to
the extent provided in the related Prospectus Supplement in order that one or
more Classes of the Holders of a Series will not be adversely affected by any
resulting shortfall in interest, the amount of the Servicing Fee may be reduced
to the extent necessary to include in the Servicer's remittance to the Trustee
for deposit into the Distribution Account an amount equal to one month's
interest on the related Mortgage Loan or Contract (less the Servicing Fee). If
the aggregate amount of such shortfalls in a month exceeds the Servicing Fee for
such month, a shortfall to Holders may occur.
The Servicer will be entitled to reimbursement for certain expenses
incurred by it in connection with the liquidation of defaulted Mortgage Loans or
Contracts. The related Holders will suffer no loss by reason of such expenses to
the extent expenses are covered under related insurance policies or from excess
Liquidation Proceeds. If claims are either not made or paid under the applicable
insurance policies or if coverage thereunder has been exhausted, the related
Holders will suffer a loss to the extent that Liquidation Proceeds, after
reimbursement of the Servicer's expenses, are less than the outstanding
principal balance of and unpaid interest on the related Mortgage Loan or
Contract which would be distributable to Holders. In addition, the Servicer will
be entitled to reimbursement of expenditures incurred by it in connection with
the restoration of property securing a defaulted Mortgage Loan or Contract, such
right of reimbursement being prior to the rights of the Holders to receive any
related proceeds of insurance policies, Liquidation Proceeds or amounts derived
from other Credit Enhancement. The Servicer is generally also entitled to
reimbursement from the Collection Account for Advances.
The rights of the Servicer to receive funds from the Collection Account
for a Series, whether as the Servicing Fee or other compensation, or for the
reimbursement of Advances, expenses or otherwise, may be subordinate to the
rights of Holders of such Series as set forth in the related Agreement.
Evidence as to Compliance
The applicable Agreement for each Series will provide that each year, a
firm of independent public accountants will furnish a statement to the Trustee
to the effect that such firm has examined certain documents and records relating
to the servicing of the Mortgage Loans and/or Contracts by the Servicer and
that, on the basis of such examination, such firm is of the opinion that the
servicing has been conducted in compliance with such Agreement, except for (i)
such exceptions as such firm believes to be immaterial and (ii) such other
exceptions as are set forth in such statement.
The applicable Agreement for each Series will also provide for delivery
to the Trustee for such Series of an annual statement signed by an officer of
the Servicer to the effect that the Servicer has fulfilled its obligations under
such Agreement throughout the preceding calendar year.
Certain Matters Regarding the Servicer
The Servicer for each Series will be identified in the related
Prospectus Supplement. The Servicer may be an affiliate of the Depositor and may
have other business relationships with the Depositor and its affiliates.
If an event of default ("Event of Default") occurs under either a
Servicing Agreement or a Pooling and Servicing Agreement, the Servicer may be
replaced by the Trustee or a successor Servicer. Such Events of Default and the
rights of the Trustee upon such a default under the Agreement for the related
Series will be substantially similar to those described under "THE AGREEMENTS--
Events of Default; Rights Upon Events of Default--Pooling and Servicing
Agreement; Servicing Agreement" herein.
The related Agreement will specify the circumstances under which the
Servicer may assign its rights and delegate its duties and obligations
thereunder for each Series, which generally will require that the successor
Servicer accepting such assignment or delegation (i) services similar loans in
the ordinary course of its business, (ii)
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is reasonably satisfactory to the Trustee for the related Series, (iii) has a
net worth of not less than the amount specified in the related Prospectus
Supplement, (iv) would not cause any Rating Agency's rating of the Securities
for such Series in effect immediately prior to such assignment, sale or transfer
to be qualified, downgraded or withdrawn as a result of such assignment, sale or
transfer and (v) executes and delivers to the Trustee an agreement, in form and
substance reasonably satisfactory to the Trustee, which contains an assumption
by such Servicer of the due and punctual performance and observance of each
covenant and condition to be performed or observed by the Servicer under the
related Agreement from and after the date of such agreement. No such assignment
will become effective until the Trustee or a successor Servicer has assumed the
servicer's obligations and duties under the related Agreement. To the extent
that the Servicer transfers its obligations to a wholly-owned subsidiary or
affiliate, such subsidiary or affiliate need not satisfy the criteria set forth
above; however, in such instance, the assigning Servicer will remain liable for
the servicing obligations under the related Agreement. Any entity into which the
Servicer is merged or consolidated or any successor corporation resulting from
any merger, conversion or consolidation will succeed to the Servicer's
obligations under the related Agreement provided that such successor or
surviving entity meets the requirements for a successor Servicer set forth
above.
Except to the extent otherwise provided therein, each Agreement will
provide that neither the Servicer, nor any director, officer, employee or agent
of the Servicer, will be under any liability to the related Trust Fund, the
Depositor or the Holders for any action taken or for failing to take any action
in good faith pursuant to the related Agreement, or for errors in judgment;
provided, however, that neither the Servicer nor any such person will be
protected against any breach of warranty or representations made under such
Agreement or the failure to perform its obligations in compliance with any
standard of care set forth in such Agreement, or liability which would otherwise
be imposed by reason of willful misfeasance, bad faith or negligence in the
performance of their duties or by reason of reckless disregard of their
obligations and duties thereunder. Each Agreement will further provide that the
Servicer and any director, officer, employee or agent of the Servicer is
entitled to indemnification from the related Trust Fund and will be held
harmless against any loss, liability or expense incurred in connection with any
legal action relating to the Agreement or the Securities, other than any loss,
liability or expense incurred by reason of willful misfeasance, bad faith or
negligence in the performance of duties thereunder or by reason of reckless
disregard of obligations and duties thereunder. In addition, the related
Agreement will provide that the Servicer is not under any obligation to appear
in, prosecute or defend any legal action which is not incidental to its
servicing responsibilities under such Agreement which, in its opinion, may
involve it in any expense or liability. The Servicer may, in its discretion,
undertake any such action which it may deem necessary or desirable with respect
to the related Agreement and the rights and duties of the parties thereto and
the interests of the Holders thereunder. In such event the legal expenses and
costs of such action and any liability resulting therefrom may be expenses,
costs, and liabilities of the Trust Fund and the Servicer may be entitled to be
reimbursed therefor out of the Collection Account.
THE AGREEMENTS
The following summaries describe certain provisions of the Agreements.
The summaries do not purport to be complete and are subject to, and qualified in
their entirety by reference to, the provisions of the Agreements. Where
particular provisions or terms used in the Agreements are referred to, such
provisions or terms are as specified in the related Agreements.
Assignment of Primary Assets
General. At the time of issuance of the Securities of a Series, the
Originator will transfer, convey and assign to the Trust Fund all right, title
and interest of the Originator in the Primary Assets and other property to be
transferred to the Trust Fund for a Series. Such assignment will include all
principal and interest due on or with respect to the Primary Assets after the
Cut-off Date specified in the related Prospectus Supplement (except for any
interests in the Trust Fund retained by the Depositor or its affiliate
("Retained Interests")). The Trustee will, concurrently with such assignment,
execute and deliver the Securities.
Assignment of Mortgage Loans. The Depositor will, as to each Mortgage
Loan, deliver or cause to be delivered to the Trustee, or, as specified in the
related Prospectus Supplement a custodian on behalf of the Trustee (the
"Custodian"), the Mortgage Note endorsed without recourse to the order of the
Trustee or in blank, the original Mortgage with evidence of recording indicated
thereon (except for any Mortgage not returned from the public
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recording office, in which case a copy of such Mortgage will be delivered,
together with a certificate that the original of such Mortgage was delivered to
such recording office) and an assignment of the Mortgage in recordable form. The
Trustee or the Custodian will hold such documents in trust for the benefit of
the Holders.
With respect to Mortgage Loans secured by Mortgages and to the extent
described in the related Prospectus Supplement, the Depositor will, at the time
of issuance of the Securities, cause assignments to the Trustee of the Mortgages
relating to the Mortgage Loans for a Series to be recorded in the appropriate
public office for real property records, except in states where, in the opinion
of counsel acceptable to the Trustee, such recording is not required to protect
the Trustee's interest in the related Mortgage Loans. The Depositor will cause
such assignments to be so recorded within the time after issuance of the
Securities as is specified in the related Prospectus Supplement, in which event,
the Agreement may require the Originator to repurchase from the Trustee any
Mortgage Loan the related Mortgage of which is not recorded within such time, at
the price described below with respect to repurchases by reason of defective
documentation. The related Prospectus Supplement will specify whether or not the
enforcement of the repurchase obligation would constitute the sole remedy
available to the Holders or the Trustee for the failure of a Mortgage to be
recorded.
Each Mortgage Loan will be identified in a schedule appearing as an
exhibit to the related Agreement (the "Loan Schedule"). Such Loan Schedule will
specify with respect to each Mortgage Loan: the original principal amount and
unpaid principal balance as of the Cut-off Date; the current interest rate; the
current Scheduled Payment of principal and interest; the maturity date, if any,
of the related Mortgage Note; if the Mortgage Loan is an adjustable rate
Mortgage Loan, the Lifetime Rate Cap, if any, and the current index.
Assignment of Private Securities. The Depositor will cause Private
Securities to be registered in the name of the Trustee (or its nominee or
correspondent). The Trustee (or its nominee or correspondent) will have
possession of any certificated Private Securities. The related Prospectus
Supplement will specify whether or not the Trustee will be in possession of or
be assignee of record of any underlying assets for a Private Security. See "THE
TRUST FUNDS--Private Securities" herein. Each Private Security will be
identified in a schedule appearing as an exhibit to the related Agreement (the
"Certificate Schedule"), which will specify the original principal amount,
outstanding principal balance as of the Cut-off Date, annual pass-through rate
or interest rate and maturity date for each Private Security conveyed to the
Trust Fund. In the Agreement, the Depositor will represent and warrant to the
Trustee regarding the Private Securities: (i) that the information contained in
the Certificate Schedule is true and correct in all material respects; (ii)
that, immediately prior to the conveyance of the Private Securities, the
Depositor had good title thereto, and was the sole owner thereof (subject to any
Retained Interest); (iii) that there has been no other sale by it of such
Private Securities; and (iv) that there is no existing lien, charge, security
interest or other encumbrance (other than any Retained Interest) on such Private
Securities.
Repurchase and Substitution of Non-Conforming Primary Assets. If any
document required to be in the file relating to the Primary Assets delivered by
the Depositor to the Trustee (or Custodian) is found by the Trustee within a
period not to exceed 90 days of the execution of the related Agreement (or
promptly after the Trustee's receipt of any document permitted to be delivered
after the Closing Date) to be defective in any material respect and the
Depositor or Originator does not cure such defect within a period not to exceed
90 days, the Depositor or Originator will, not later than a period not to exceed
90 days after the Trustee's notice to the Depositor or the Originator, as the
case may be, of the defect, repurchase the related Primary Asset or any property
acquired in respect thereof from the Trustee at a price generally equal to, (a)
the lesser of (i) the outstanding principal balance of such Primary Asset and
(ii) the Trust Fund's federal income tax basis in the Primary Asset and (b)
accrued and unpaid interest to the date of the next scheduled payment on such
Primary Asset at the rate set forth in the related Agreement, provided, however,
the purchase price shall not be limited in (i) above to the Trust Fund's federal
income tax basis if the repurchase at a price equal to the outstanding principal
balance of such Primary Asset will not result in any prohibited transaction tax
under Section 860F(a) of the Code.
The Depositor or Originator, as the case may be, may, rather than
repurchase the Primary Asset as described above, remove such Primary Asset from
the Trust Fund (the "Deleted Primary Asset") and substitute in its place one or
more other Primary Assets (each, a "Qualifying Substitute Primary Asset")
provided, however, that (i) with respect to a Trust Fund for which no REMIC
election is made, such substitution must be effected within 120 days of the date
of initial issuance of the Securities and (ii) with respect to a Trust Fund for
which a REMIC election is made, after a specified time period, the Trustee must
have received a satisfactory opinion of counsel that such
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substitution will not cause the Trust Fund to lose its status as a REMIC or
otherwise subject the Trust Fund to a prohibited transaction tax.
Any Qualifying Substitute Primary Asset will have, on the date of
substitution, (i) an outstanding principal balance, after deduction of all
Scheduled Payments due in the month of substitution, not in excess of the
outstanding principal balance of the Deleted Primary Asset (the amount of any
shortfall to be deposited to the Collection Account in the month of substitution
for distribution to Holders), (ii) an interest rate not less than the interest
rate of the Deleted Primary Asset, (iii) a remaining term-to-stated maturity not
greater than that of the Deleted Primary Asset, and will comply with all of the
representations and warranties set forth in the applicable Agreement as of the
date of substitution.
The above-described cure, repurchase or substitution obligations
constitute the sole remedies available to the Holders or the Trustee for a
material defect in a document for a Primary Asset.
The Depositor or another entity will make representations and
warranties with respect to Primary Assets for a Series. If the Depositor or such
entity cannot cure a breach of any such representations and warranties in all
material respects within the time period specified in the related Prospectus
Supplement after notification by the Trustee of such breach, and if such breach
is of a nature that materially and adversely affects the value of such Primary
Asset, the Depositor or such entity is obligated to repurchase the affected
Primary Asset or, if provided in the related Prospectus Supplement, provide a
Qualifying Substitute Primary Asset therefor, subject to the same conditions and
limitations on purchases and substitutions as described above.
The Depositor's only source of funds to effect any cure, repurchase or
substitution will be through the enforcement of the corresponding obligations,
if any, of the responsible originator or Originator of such Primary Assets. See
"SPECIAL CONSIDERATIONS--Limited Assets" herein.
No Holder of Securities of a Series, solely by virtue of such Holder's
status as a Holder, will have any right under the applicable Agreement for such
Series to institute any proceeding with respect to such Agreement, unless such
Holder previously has given to the Trustee for such Series written notice of
default and unless the Holders of Securities evidencing not less than 51% of the
aggregate voting rights of the Securities for such Series have made written
request upon the Trustee to institute such proceeding in its own name as Trustee
thereunder and have offered to the Trustee reasonable indemnity, and the Trustee
for 60 days has neglected or refused to institute any such proceeding.
Reports to Holders
The Trustee or other entity specified in the related Prospectus
Supplement will prepare and forward to each Holder on each Distribution Date, or
as soon thereafter as is practicable, a statement setting forth, to the extent
applicable to any Series, among other things:
(i) the amount of principal distributed to Holders of the
related Securities and the outstanding principal balance of such
Securities following such distribution;
(ii) the amount of interest distributed to Holders of the
related Securities and the current interest on such Securities;
(iii) the amounts of (a) any overdue accrued interest included
in such distribution, (b) any remaining overdue accrued interest with
respect to such Securities or (c) any current shortfall in amounts to
be distributed as accrued interest to Holders of such Securities;
(iv) the amounts of (a) any overdue payments of scheduled
principal included in such distribution, (b) any remaining overdue
principal amounts with respect to such Securities, (c) any current
shortfall in receipt of scheduled principal payments on the related
Primary Assets or (d) any realized losses or Liquidation Proceeds to be
allocated as reductions in the outstanding principal balances of such
Securities;
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(v) the amount received under any related Credit Enhancement,
and the remaining amount available under such Credit Enhancement;
(vi) the amount of any delinquencies with respect to payments
on the related Primary Assets;
(vii) the book value of any REO Property acquired by the
related Trust Fund; and
(viii) such other information as specified in the related
Agreement.
In addition, within a reasonable period of time after the end of each
calendar year, the Trustee will furnish to each Holder of record at any time
during such calendar year (a) the aggregate of amounts reported pursuant to (i),
(ii), and (iv)(d) above for such calendar year and (b) such information
specified in the related Agreement to enable Holders to prepare their tax
returns including, without limitation, the amount of original issue discount
accrued on the Securities, if applicable. Information in the Distribution Date
and annual statements provided to the Holders will not have been examined and
reported upon by an independent public accountant. However, the Servicer will
provide to the Trustee a report by independent public accountants with respect
to the Servicer's servicing of the Mortgage Loans. See "SERVICING OF MORTGAGE
LOANS --Evidence as to Compliance" herein.
A Series of Securities or one or more Classes of such Series may be
issued in book-entry form. In such event, owners of beneficial interests in such
Securities will not be considered Holders and will not receive such reports
directly from the Trustee. The Trustee will forward such reports only to the
entity or its nominee which is the registered holder of the global certificate
which evidences such book-entry securities. Beneficial owners will receive such
reports from the participants and indirect participants of the applicable
book-entry system in accordance with the practices and procedures of such
entities.
Events of Default; Rights Upon Event of Default
Pooling and Servicing Agreement; Servicing Agreement. Events of Default
under the Pooling and Servicing Agreement for each Series of Certificates
relating to Mortgage Loans and/or Contracts generally include (i) any failure by
the Servicer to deposit amounts in the Collection Account and Distribution
Account to enable the Trustee to distribute to Holders of such Series any
required payment, which failure continues unremedied for the number of days
specified in the related Prospectus Supplement after the giving of written
notice of such failure to the Servicer by the Trustee for such Series, or to the
Servicer and the Trustee by the Holders of such Series evidencing not less than
25% of the aggregate voting rights of the Securities for such Series, (ii) any
failure by the Servicer duly to observe or perform in any material respect any
other of its covenants or agreements in the applicable Agreement which continues
unremedied for the number of days specified in the related Prospectus Supplement
after the giving of written notice of such failure to the Servicer by the
Trustee, or to the Servicer and the Trustee by the Holders of such Series
evidencing not less than 25% of the aggregate voting rights of the Securities
for such Series, and (iii) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings and certain actions
by the Servicer indicating its insolvency, reorganization or inability to pay
its obligations.
The related Agreement will specify the circumstances under which the
Trustee of the Holders of Securities may remove the Servicer upon the occurrence
and continuance of an Event of Default thereunder relating to the servicing of
Mortgage Loans and/or Contracts (other than its right to recovery of other
expenses and amounts advanced pursuant to the terms of such Agreement which
rights the Servicer will retain under all circumstances), whereupon the Trustee
will succeed to all the responsibilities, duties and liabilities of the Servicer
under such Agreement and will be entitled to reasonable servicing compensation
not to exceed the applicable servicing fee, together with other servicing
compensation in the form of assumption fees, late payment charges or otherwise
as provided in such Agreement.
In the event that the Trustee is unwilling or unable so to act, it may
select, or petition a court of competent jurisdiction to appoint, a finance
institution, bank or loan servicing institution with a net worth specified in
the related Prospectus Supplement to act as successor Servicer under the
provisions of the applicable Agreement. The successor Servicer would be entitled
to reasonable servicing compensation in an amount not to exceed the Servicing
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Fee as set forth in the related Prospectus Supplement, together with the other
servicing compensation in the form of assumption fees, late payment charges or
otherwise, as provided in such Agreement.
During the continuance of any Event of Default of a Servicer under an
Agreement for a Series of Securities, the Trustee for such Series will have the
right to take action to enforce its rights and remedies and to protect and
enforce the rights and remedies of the Holders of such Series, and Holders of
Securities evidencing not less than 51% of the aggregate voting rights of the
Securities for such Series may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred upon that Trustee. However, the Trustee will not be under any
obligation to pursue any such remedy or to exercise any of such trusts or powers
unless such Holders have offered the Trustee reasonable security or indemnity
against the cost, expenses and liabilities which may be incurred by the Trustee
therein or thereby. The Trustee may decline to follow any such direction if the
Trustee determines that the action or proceeding so directed may not lawfully be
taken or would involve it in personal liability or be unjustly prejudicial to
the nonassenting Holders.
Indenture. Events of Default under the Indenture for each Series of
Notes generally include: (i) a default in the payment of any principal of or
interest on any Note of such Series, which continues for the period of time
specified in the related Prospectus Supplement; (ii) failure to perform any
other covenant of the Depositor or the Trust Fund in the Indenture which
continues for the period of time specified in the related Prospectus Supplement
after notice thereof is given in accordance with the procedures described in the
related Prospectus Supplement; (iii) any representation or warranty made by the
Depositor or the Trust Fund in the Indenture or in any certificate or other
writing delivered pursuant thereto or in connection therewith with respect to or
affecting such Series having been incorrect in a material respect as of the time
made, and such breach is not cured within the period of time specified in the
related Prospectus Supplement after notice thereof is given in accordance with
the procedures described in the related Prospectus Supplement; (iv) certain
events of bankruptcy, insolvency, receivership or liquidation of the Depositor
or the Trust Fund; or (v) any other Event of Default provided with respect to
Notes of that Series.
If an Event of Default with respect to the Notes of any Series at the
time outstanding occurs and is continuing, either the Trustee or the Holders of
a majority of the then aggregate outstanding amount of the Notes of such Series
may declare the principal amount (or, if the Notes of that Series are Zero
Coupon Securities, such portion of the principal amount as may be specified in
the terms of that Series, as provided in the related Prospectus Supplement) of
all the Notes of such Series to be due and payable immediately. Such declaration
may, under certain circumstances, be rescinded and annulled by the Holders of a
majority in aggregate outstanding amount of the Notes of such Series.
If, following an Event of Default with respect to any Series of Notes,
the Notes of such Series have been declared to be due and payable, the Trustee
may, in its discretion, notwithstanding such acceleration, elect to maintain
possession of the collateral securing the Notes of such Series and to continue
to apply distributions on such collateral as if there had been no declaration of
acceleration if such collateral continues to provide sufficient funds for the
payment of principal of and interest on the Notes of such Series as they would
have become due if there had not been such a declaration. In addition, the
Trustee may not sell or otherwise liquidate the collateral securing the Notes of
a Series following an Event of Default other than a default in the payment of
any principal or interest on any Note of such Series for thirty (30) days or
more, unless (a) the Holders of 100% of the then aggregate outstanding amount of
the Notes of such Series consent to such sale, (b) the proceeds of such sale or
liquidation are sufficient to pay in full the principal of and accrued interest
due and unpaid on the outstanding Notes of such Series at the date of such sale
or (c) the Trustee determines that such collateral would not be sufficient on an
ongoing basis to make all payments on such Notes as such payments would have
become due if such Notes had not been declared due and payable, and the Trustee
obtains the consent of the Holders of 66 2/3% of the then aggregate outstanding
amount of the Notes of such Series.
In the event that the Trustee liquidates the collateral in connection
with an Event of Default involving a default for thirty (30) days or more in the
payment of principal of or interest on the Notes of a Series, the Indenture
provides that the Trustee will have a prior lien on the proceeds of any such
liquidation for unpaid fees and expenses. As a result, upon the occurrence of
such an Event of Default, the amount available for distribution to the
Noteholders may be less than would otherwise be the case. However, the Trustee
may not institute a proceeding for
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the enforcement of its lien except in connection with a proceeding for the
enforcement of the lien of the Indenture for the benefit of the Noteholders
after the occurrence of such an Event of Default.
In the event the principal of the Notes of a Series is declared due and
payable, as described above, the Holders of any such Notes issued at a discount
from par may be entitled to receive no more than an amount equal to the unpaid
principal amount thereof less the amount of such discount which is unamortized.
Subject to the provisions of the Indenture relating to the duties of
the Trustee, in case an Event of Default shall occur and be continuing with
respect to a Series of Notes, the Trustee will be under no obligation to
exercise any of the rights or powers under the Indenture at the request or
direction of any of the Holders of Notes of such Series, unless such Holders
offered to the Trustee security or indemnity satisfactory to it against the
costs, expenses and liabilities which might be incurred by it in complying with
such request or direction. Subject to such provisions for indemnification and
certain limitations contained in the Indenture, the Holders of a majority of the
then aggregate outstanding amount of the Notes of such Series shall have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
the Trustee with respect to the Notes of such Series, and the Holders of a
majority of the then aggregate outstanding amount of the Notes of such Series
may, in certain cases, waive any default with respect thereto, except a default
in the payment of principal or interest or a default in respect of a covenant or
provision of the Indenture that cannot be modified without the waiver or consent
of all the Holders of the outstanding Notes of such Series affected thereby.
The Trustee
The identity of the commercial bank, savings and loan association or
trust company named as the Trustee for each Series of Securities will be set
forth in the related Prospectus Supplement. The entity serving as Trustee may
have normal banking relationships with the Depositor or the Servicer. In
addition, for the purpose of meeting the legal requirements of certain local
jurisdictions, the Trustee will have the power to appoint co-trustees or
separate trustees of all or any part of the Trust Fund relating to a Series of
Securities. In the event of such appointment, all rights, powers, duties and
obligations conferred or imposed upon the Trustee by the Agreement relating to
such Series will be conferred or imposed upon the Trustee and each such separate
trustee or co-trustee jointly, or, in any jurisdiction in which the Trustee
shall 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 Trustee. The
Trustee may also appoint agents to perform any of the responsibilities of the
Trustee, which agents will have any or all of the rights, powers, duties and
obligations of the Trustee conferred on them by such appointment; provided that
the Trustee will continue to be responsible for its duties and obligations under
the Agreement.
Duties of the Trustee
The Trustee will not make any representations as to the validity or
sufficiency of the Agreement, the Securities or of any Primary Asset or related
documents. If no Event of Default (as defined in the related Agreement) has
occurred, the Trustee is required to perform only those duties specifically
required of it under the Agreement. Upon receipt of the various certificates,
statements, reports or other instruments required to be furnished to it, the
Trustee is required to examine them to determine whether they are in the form
required by the related Agreement. However, the Trustee will not be responsible
for the accuracy or content of any such documents furnished to it by the Holders
or the Servicer under the Agreement.
The Trustee may be held liable for its own negligent action or failure
to act, or for its own misconduct; provided, however, that the Trustee will not
be personally liable with respect to any action taken, suffered or omitted to be
taken by it in good faith in accordance with the direction of the Holders in an
Event of Default. The Trustee is not required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
under the Agreement, or in the exercise of any of its rights or powers, if it
has reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
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Resignation of Trustee
The Trustee may, upon written notice to the Depositor, resign at any
time, in which event the Depositor will be obligated to use its best efforts to
appoint a successor Trustee. If no successor Trustee has been appointed and has
accepted the appointment within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for appointment of a successor Trustee. The Trustee may also be
removed at any time (i) if the Trustee ceases to be eligible to continue as such
under the Agreement, (ii) if the Trustee becomes insolvent or (iii) by the
Holders of Securities evidencing over 50% of the aggregate voting rights of the
Securities in the Trust Fund upon written notice to the Trustee and to the
Depositor. Any resignation or removal of the Trustee and appointment of a
successor Trustee will not become effective until acceptance of the appointment
by the successor Trustee.
Amendment of Agreement
The Agreement for each Series of Securities may be amended by the
Depositor, the Servicer (with respect to a Series relating to Mortgage Loans
and/or Contracts), and the Trustee with respect to such Series, without notice
to or consent of the Holders (i) to cure any ambiguity, (ii) to correct any
defective provisions or to correct or supplement any provision therein, (iii) to
add to the duties of the Depositor, the Trust Fund or Servicer, (iv) to add any
other provisions with respect to matters or questions arising under such
Agreement or related Credit Enhancement, (v) to add or amend any provisions of
such Agreement as required by a Rating Agency in order to maintain or improve
the rating of the Securities (it being understood that none of the Depositor,
the Originator, the Servicer or Trustee is obligated to maintain or improve such
rating), or (vi) to comply with any requirements imposed by the Code; provided
that any such amendment except pursuant to clause (vi) above will not adversely
affect in any material respect the interests of any Holders of such Series, as
evidenced by an opinion of counsel. Any such amendment except pursuant to clause
(vi) of the preceding sentence shall be deemed not to adversely affect in any
material respect the interests of any Holder if the Trustee receives written
confirmation from each Rating Agency rating such Securities that such amendment
will not cause such Rating Agency to reduce the then current rating thereof. The
Agreement for each Series may also be amended by the Trustee, the Servicer, if
applicable, and the Depositor with respect to such Series with the consent of
the Holders possessing not less than 66 2/3% of the aggregate outstanding
principal amount of the Securities of such Series or, if only certain Classes of
such Series are affected by such amendment, 66 2/3% of the aggregate outstanding
principal amount of the Securities of each Class of such Series affected
thereby, for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of such Agreement or modifying in any
manner the rights of Holders of such Series; provided, however, that no such
amendment may (a) reduce the amount or delay the timing of payments on any
Security without the consent of the Holder of such Security; or (b) reduce the
aforesaid percentage of the aggregate outstanding principal amount of Securities
of each Class, the Holders of which are required to consent to any such
amendment without the consent of the Holders of 100% of the aggregate
outstanding principal amount of each Class of Securities affected thereby.
Voting Rights
The related Prospectus Supplement will set forth the method of
determining allocation of voting rights with respect to a Series.
List of Holders
Upon written request of three or more Holders of record of a Series for
purposes of communicating with other Holders with respect to their rights under
the Agreement, which request is accompanied by a copy of the communication which
such Holders propose to transmit, the Trustee will afford such Holders access
during business hours to the most recent list of Holders of that Series held by
the Trustee.
No Agreement will provide for the holding of any annual or other
meeting of Holders.
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Form of Securities
The Securities in each Series will either be issued as physical
certificates or in uncertificated book-entry form. Physical certificates
("Physical Certificates") in fully registered form only in the denominations
specified in the related Prospectus Supplement, and will be transferable and
exchangeable at the corporate trust office of the registrar of the Securities
(the "Security Registrar") named in the related Prospectus Supplement. No
service charge will be made for any registration of exchange or transfer of
Securities, but the Trustee may require payment of a sum sufficient to cover any
tax or other government charge.
If so specified in the related Prospectus Supplement, specified classes
of a series of Securities will be issued in uncertificated book-entry form
("Book-Entry Securities"), and will be registered in the name of Cede & Co.
("Cede"), the nominee of DTC. 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 Uniform Commercial Code
("UCC") and a "clearing agency" registered pursuant to the provisions of Section
17A of the Securities Exchange Act of 1934, as amended. DTC was created to hold
securities for its participating organizations ("Participants") and facilitate
the clearance and settlement of securities transactions between Participants
through electronic book-entry changes in their accounts, thereby eliminating the
need for physical movement of certificates. Participants include securities
brokers and dealers, banks, trust companies and clearing corporations and may
include certain other organizations. Indirect access to the DTC system also is
available to others such as brokers, dealers, banks and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly ("Indirect Participant").
Under a book-entry format, Holders that are not Participants or
Indirect Participants but desire to purchase, sell or otherwise transfer
ownership of the Securities registered in the name of Cede, as nominee of DTC,
may do so only through Participants and Indirect Participants. In addition, such
Holders will receive all distributions of principal of and interest on the
Securities from the Trustee through DTC and its Participants. Under a book-entry
format, Holders will receive payments after the related Payment Date because,
while payments are required to be forwarded to Cede, as nominee for DTC, on each
such date, DTC will forward such payments to its Participants, which thereafter
will be required to forward such payments to Indirect Participants or Holders.
Unless and until Physical Securities are issued, it is anticipated that the only
Holder will be Cede, as nominee of DTC, and that the beneficial holders of
Securities will not be recognized by the Trustee as Holders under the Pooling
and Servicing Agreement. The beneficial holders of such Securities will only be
permitted to exercise the rights of Holders under the Pooling and Servicing
Agreement indirectly through DTC and its Participants who in turn will exercise
their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Securities and is
required to receive and transmit payments of principal of and interest on the
Securities. Participants and Indirect Participants with which Holders have
accounts with respect to their Securities similarly are required to make
book-entry transfers and receive and transmit such payments on behalf of their
respective Holders. Accordingly, although Holders will not process Securities,
the rules provide a mechanism by which Holders will receive distributions and
will be able to transfer their interests.
Unless and until Physical Certificates are issued, Holders who are not
Participants may transfer ownership of Securities only through Participants by
instructing such Participants to transfer Securities, by book-entry transfer,
through DTC for the account of the purchasers of such Securities, which account
is maintained with their respective Participants. Under the Rules and in
accordance with DTC's normal procedures, transfers of ownership of Securities
will be executed through DTC and the accounts of the respective 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 Holders.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Holder to
pledge Securities to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such Securities may be limited
due to the lack of a Physical Certificate for such Securities.
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DTC in general advises that it will take any action permitted to be
taken by a Holder under a Pooling and Servicing Agreement only at the direction
of one or more Participants to whose account with DTC the related Securities are
credited. Additionally, DTC in general advises that it will take such actions
with respect to specified percentages of the Holders only at the direction of
and on behalf of Participants whose holdings include current principal amounts
of outstanding Securities that satisfy such specified percentages. DTC may take
conflicting actions with respect to other current principal amounts of
outstanding Securities to the extent that such actions are taken on behalf of
Participants whose holdings include such current principal amounts of
outstanding Securities.
Any Securities initially registered as Physical Certificates in the
name of Cede, as nominee of DTC, will be issued in fully registered,
certificated form to Holders or their nominees, rather than to DTC or its
nominee only under the events specified in the related Pooling and Servicing
Agreement and described in the related Prospectus Supplement. Upon the
occurrence of any of the events specified in the related Pooling and Servicing
Agreement and the Prospectus Supplement, DTC will be required to notify all
Participants of the availability through DTC of Physical Certificates. Upon
surrender by DTC of the securities representing the Securities and instruction
for re-registration, the Trustee will take the Securities in the form of
Physical Certificates, and thereafter the Trustee will recognize the holders of
such Physical Certificates as Holders. Thereafter, payments of principal of and
interest on the Securities will be made by the Trustee directly to Holders in
accordance with the procedures set forth herein and in the Pooling and Servicing
Agreement. The final distribution of any Security (whether Physical Certificates
or Securities registered in the name of Cede), however, will be made only upon
presentation and surrender of such Securities on the final Payment Date at such
office or agency as is specified in the notice of final payment to Holders.
REMIC Administrator
For any Series with respect to which a REMIC election is made,
preparation of certain reports and certain other administrative duties with
respect to the Trust Fund may be performed by a REMIC administrator, who may be
an affiliate of the Depositor.
Termination
Pooling and Servicing Agreement; Trust Agreement. The obligations
created by the Pooling and Servicing Agreement or Trust Agreement for a Series
will terminate upon the distribution to Holders of all amounts distributable to
them pursuant to such Agreement after the earlier of (i) the later of (a) the
final payment or other liquidation of the last Primary Asset remaining in the
Trust Fund for such Series and (b) the disposition of all property acquired upon
foreclosure or deed in lieu of foreclosure or repossession in respect of any
Primary Asset; (ii) the repurchase, as described below, by the Servicer or other
entity specified in the related Prospectus Supplement from the Trustee for such
Series of all Primary Assets and other property at that time subject to such
Agreement; or (iii) the mandatory termination of the Trust by the Trustee, the
Servicer or certain other entities specified in the related Prospectus
Supplement by soliciting competitive bids for the purchase of the Primary Assets
of the related Trust Fund
Repurchase of the Remaining Primary Assets. The Agreement for each
Series may permit, but not require, the Servicer or other entity specified in
the related Prospectus Supplement to purchase from the Trust Fund for such
Series all remaining Primary Assets at a price equal to 100% of the aggregate
Principal Balance of such Primary Assets plus, with respect to any property
acquired in respect of a Primary Asset, if any, the outstanding Principal
Balance of the related Primary Asset at the time of foreclosure, less, in either
case, related unreimbursed Advances (in the case of the Primary Assets, only to
the extent not already reflected in the computation of the aggregate Principal
Balance of such Primary Assets) and unreimbursed expenses (that are reimbursable
pursuant to the terms of the Pooling and Servicing Agreement) plus, in either
case, accrued interest thereon at the weighted average rate on the related
Primary Assets through the last day of the Due Period in which such repurchase
occurs; provided, however, that if an election is made for treatment as a REMIC
under the Code, the repurchase price may equal the greater of (a) 100% of the
aggregate Principal Balance of such Primary Assets, plus accrued interest
thereon at the applicable net rates on the Primary Assets through the last day
of the month of such repurchase and (b) the aggregate fair market value of such
Primary Assets plus the fair market value of any property acquired in respect of
a Primary Asset and remaining in the Trust Fund. The exercise of such right will
effect early retirement of the Securities of such Series, but such entity's
right to so purchase is subject to the aggregate Principal Balance of the
Primary Assets
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at the time of repurchase being less than a fixed percentage, to be set forth in
the related Prospectus Supplement, of the aggregate Principal Balance of the
Primary Assets as of the Cut-off Date.
Mandatory Termination; Auction Sale. The Trustee, the Servicer or the
related Originator may be required to effect early retirement of a series of
Securities by soliciting competitive bids for the purchase of the related Trust
Estate.
The mandatory termination may take the form of an auction sale. Within
a certain period following the failure of the holder of the optional termination
right to exercise such right, the required party shall solicit bids for the
purchase of all Mortgage Loans remaining in the Trust. In the event that
satisfactory bids (which would not be less than an amount necessary to pay all
principal and interest on the securities outstanding) are received as specified
in the related Agreement, the net sale proceeds will be distributed to Holders,
in the same order of priority as collections received in respect of the Mortgage
Loans and/or Contracts. If satisfactory bids are not received, such party shall
decline to sell the Mortgage Loans and/or Contracts and shall not be under any
obligation to solicit any further bids or otherwise negotiate any further sale
of the Mortgage Loans and/or Contracts. 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 period not to exceed 90 days.
In no event, however, will the trust created by the Agreement continue
beyond the expiration of 21 years from the death of the last survivor of certain
persons identified therein. For each Series, the Servicer or the Trustee, as
applicable, will give written notice of termination of the Agreement to each
Holder, and the final distribution will be made only upon surrender and
cancellation of the Securities at an office or agency specified in the notice of
termination. The Depositor or another entity may effect an optional termination
of the Trust Fund under the circumstances described in such Prospectus
Supplement. See "DESCRIPTION OF THE SECURITIES--Optional Redemption, Purchase or
Termination" herein.
Indenture. The Indenture will be discharged with respect to a Series of
Notes (except with respect to certain continuing rights specified in the
Indenture) upon the delivery to the Trustee for cancellation of all the Notes of
such Series or, with certain limitations, upon deposit with the Trustee of funds
sufficient for the payment in full of all of the Notes of such Series.
In addition to such discharge with certain limitations, the Indenture
will provide that, if so specified with respect to the Notes of any Series, the
related Trust Fund will be discharged from any and all obligations in respect of
the Notes of such Series (except for certain obligations relating to temporary
Notes and exchange of Notes, to register the transfer of or exchange Notes of
such Series, to replace stolen, lost or mutilated Notes of such Series, to
maintain paying agencies and to hold monies for payment in trust) upon the
deposit with the Trustee, in trust, of money and/or direct obligations of or
obligations guaranteed by the United States of America which, through the
payment of interest and principal in respect thereof in accordance with their
terms, will provide money in an amount sufficient to pay the principal of and
each installment of interest on the Notes of such Series on the Final Scheduled
Distribution Date for such Notes and any installment of interest on such Notes
in accordance with the terms of the Indenture and the Notes of such Series. In
the event of any such defeasance and discharge of Notes of such Series, holders
of Notes of such Series would be able to look only to such money and/or direct
obligations for payment of principal and interest, if any, on their Notes until
maturity.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
Mortgage Loans and Contracts, which are general in nature. Because certain of
such legal aspects are governed by applicable state law (which laws may differ
substantially), the summaries do not purport to be complete nor reflect the laws
of any particular state, nor encompass the laws of all states in which the
properties securing the Mortgage Loans are situated.
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General
The Mortgage Loans will be represented by a Note and an accompanying
Mortgage. Pursuant to the Note, the related borrower is personally liable to
repay the indebtedness evidenced by the Mortgage Loan; pursuant to the Mortgage,
such indebtedness is secured by a lien on the related Mortgaged Property.
Enforcement of the Note
Pursuant to the Note, the related borrower is personally liable to
repay the indebtedness evidenced by the Mortgage Loan. In certain states, the
lender on a note secured by a lien on real property has the option of bringing a
personal action against the borrower on the debt without first exhausting such
security; however, in some of these states the lender, following judgment on
such personal action, may be deemed to have elected a remedy and may be
precluded from exercising remedies with respect to the related property
security. Consequently, the practical effect of the election requirement, in
those states permitting such election, is that lenders will usually proceed
against the property first rather than bringing a personal action against the
borrower on the Note.
Certain states have imposed statutory prohibitions that limit the
remedies of a beneficiary under a deed of trust or a mortgagee under a mortgage.
In some states, including California, statutes limit the right of the
beneficiary or mortgagee to obtain a deficiency judgment against the borrower
following foreclosure. A deficiency judgment is a personal judgment against the
former borrower equal in most cases to the difference between the amount due to
the lender and the net amount realized upon the public sales of the real
property. In the case of a Mortgage Loan secured by a property owned by a trust
where the Mortgage Note is executed on behalf of the trust, a deficiency
judgment against the trust following foreclosure or sale under a deed of trust,
even if obtainable under applicable law, may be of little value to the mortgagee
or beneficiary if there are no trust assets against which such deficiency
judgment may be executed. Other statutes require the beneficiary or mortgagee to
exhaust the security afforded under a deed of trust or mortgage by foreclosure
in an attempt to satisfy the full debt before bringing a personal action against
the borrower. Finally, in certain other states, statutory provisions limit any
deficiency judgment against the former borrower following a foreclosure to the
excess of the outstanding debt over the fair value of the property at the time
of the public sale. The purpose of these statutes is generally to prevent a
beneficiary or mortgagee from obtaining a large deficiency judgment against the
former borrower as a result of low or no bids at the judicial sale.
In addition to laws limiting or prohibiting deficiency judgments,
numerous other federal and state statutory provisions, including the federal
bankruptcy laws and state laws affording relief to debtors, may interfere with
or affect the ability of the secured mortgage lender to realize upon collateral
or enforce a deficiency judgment. For example, with respect to federal
bankruptcy law, a court with federal bankruptcy jurisdiction may permit a debtor
through his or her Chapter 11 or Chapter 13 rehabilitative plan to cure a
monetary default in respect of a loan on a debtor's residence by paying
arrearages within a reasonable time period and reinstating the original loan
payment schedule even though the lender accelerated the loan and final judgment
of foreclosure had been entered in state court (provided no sale of the
residence had yet occurred) prior to the filing of the debtor's petition. Some
courts with federal bankruptcy jurisdiction have approved plans, based on the
particular facts of the reorganization case, that effected the curing of a loan
default by paying arrearages over a number of years.
Court with federal bankruptcy jurisdiction also have indicated that the
terms of a loan secured by property of the debtor may be modified. These courts
have allowed modifications that include reducing the amount of each monthly
payment, changing the rate of interest, altering the repayment schedule,
forgiving all or a portion of the debt and reducing the lender's security
interest to the value of the residence, thus leaving the lender a general
unsecured creditor for the difference between the value of the residence and the
outstanding balance of the loan.
Certain states have imposed general equitable principles upon judicial
foreclosure. These equitable principles are generally designed to relieve the
borrower from the legal effect of the borrower's default under the related loan
documents. Examples of judicial remedies that have been fashioned include
judicial requirements that the lender undertake affirmative and expensive
actions to determine the causes for the borrower's default and the likelihood
that the borrower will be able to reinstate the loan. In some cases, lender have
been required to reinstate loans or recast payment schedules in order to
accommodate borrowers who are suffering from temporary financial disabilities.
In other cases, such courts have limited the right of the lender to foreclose if
the default under the loan
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is not monetary, such as the borrower failing to adequately maintain the
property or the borrower executing a second deed of trust affecting the
property.
Certain tax liens arising under the Internal Revenue Code of 1986, as
amended, may in certain circumstances provide priority over the lien of a
mortgage or deed of trust. In addition, substantive requirements are imposed
upon mortgage lenders in connection with the origination and the servicing of
loans by numerous federal and some state consumer protection laws. These laws
include, by example, the federal Truth-in-Lending Act, Real Estate Settlement
Procedures Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair
Credit Reporting Act and related statutes and state laws, such a s the
California Fair Debt Collection Practices Act. These laws and regulations impose
specific statutory liabilities upon lenders who originate loans and fail to
comply with the provisions of the law. In some cases, this liability may affect
assignees of the loans.
Security Interests
Real Estate Mortgages. The Mortgage Loans for a Series will be secured
by either mortgages or deeds of trust or deeds to secure debt depending upon the
prevailing practice in the state in which the Mortgaged Property subject to a
Mortgage Loan is located. The filing of a mortgage, deed of trust or deed to
secure debt creates a lien or title interest upon the real property covered by
such instrument and represents the security for the repayment of an obligation
that is customarily evidenced by a promissory note. It is not prior to the lien
for real estate taxes and assessments or other charges imposed under
governmental police powers and may also be subject to other liens pursuant to
the laws of the jurisdiction in which the Mortgaged Property is located.
Priority with respect to such instruments depends on their terms, the knowledge
of the parties to the mortgage and generally on the order of recording with the
applicable state, county or municipal office. There are two parties to a
mortgage, the mortgagor, who is the borrower/property owner or the land trustee
(as described below), and the mortgagee, who is the lender. Under the mortgage
instrument, the mortgagor delivers to the mortgagee a note or bond and the
mortgage. In the case of a land trust, there are three parties because title to
the Mortgaged Property is held by a land trustee under a land trust agreement of
which the borrower/property owner is the beneficiary; at origination of a
Mortgage Loan, the borrower executes a separate undertaking to make payments on
the mortgage note. A deed of trust transaction normally has three parties: The
trustor, who is the borrower/property owner; the beneficiary, who is the lender;
and the trustee, a third-party grantee. Under a deed of trust, the trustor
grants the Mortgaged Property, irrevocably until the debt is paid, in trust,
generally with a power of sale, to the trustee to secure payment of the
obligation. The mortgagee's authority under a mortgage and the trustee's
authority under a deed of trust are governed by the law of the state in which
the real property is located, the express provisions of the mortgage or deed of
trust, and, in some cases, in deed of trust transactions, the directions of the
beneficiary.
Foreclosure on Mortgages. Foreclosure of a mortgage is generally
accomplished by judicial action. Generally, the action is initiated by the
service of legal pleadings upon all parties having an interest of record in the
real property. Delays in completion of the foreclosure occasionally may result
from difficulties in locating necessary parties defendant. When the mortgagee's
right to foreclosure is contested, the legal proceedings necessary to resolve
the issue can be time-consuming and expensive. After the completion of a
judicial foreclosure proceeding, the court may issue a judgment of foreclosure
and appoint a receiver or other officer to conduct the sale of the Mortgaged
Property. In some states, mortgages may also be foreclosed by advertisement,
pursuant to a power of sale provided in the mortgage. Foreclosure of a mortgage
by advertisement is essentially similar to foreclosure of a deed of trust by
nonjudicial power of sale.
Foreclosure of a deed of trust is generally accomplished by a
nonjudicial trustee's sale under a specific provision in the deed of trust which
authorizes the trustee to sell the Mortgaged Property upon any default by the
borrower under the terms of the note or deed of trust. In certain states, such
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states, the trustee must record a notice
of default and send a copy to the borrower-trustor and to any person who has
recorded a request for a copy of a notice of default and notice of sale. In
addition, the trustee in some states must provide notice to any other individual
having an interest in the real property, including any junior lienholders. If
the deed of trust is not reinstated within any applicable cure period, a notice
of sale must be posted in a public place and, in most states, published for a
specified period of time in one or more newspapers. In addition, some state laws
require that a copy of the notice of sale be posted on the Mortgaged Property
and sent to all parties having an interest of record in the Mortgaged Property.
The trustor, borrower, or any person having a junior encumbrance on the real
estate, may,
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during a reinstatement period, cure the default by paying the entire amount in
arrears plus the costs and expenses incurred in enforcing the obligation.
Generally, state law controls the amount of foreclosure expenses and costs,
including attorney's fees, which may be recovered by a lender. If the deed of
trust is not reinstated, a notice of sale must be posted in a public place and,
in most states, published for a specified period of time in one or more
newspapers. In addition, some state laws require that a copy of the notice of
sale be posted on the Mortgaged Property, recorded and sent to all parties
having an interest in the real property.
An action to foreclose a mortgage is an action to recover the mortgage
debt by enforcing the mortgagee's rights under the mortgage. It is regulated by
statutes and rules and subject throughout to the court's equitable powers.
Generally, a mortgagor is bound by the terms of the related mortgage note and
the mortgage as made and cannot be relieved from his default if the mortgagee
has exercised his rights in a commercially reasonable manner. However, since a
foreclosure action historically was equitable in nature, the court may exercise
equitable powers to relieve a mortgagor of a default and deny the mortgagee
foreclosure on proof that either the mortgagor's default was neither willful nor
in bad faith or the mortgagee's action established a waiver, fraud, bad faith,
or oppressive or unconscionable conduct such as to warrant a court of equity to
refuse affirmative relief to the mortgagee. Under certain circumstances a court
of equity may relieve the mortgagor from an entirely technical default where
such default was not willful.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses or counterclaims are interposed, sometimes requiring
up to several years to complete. Moreover, a non-collusive, regularly conducted
foreclosure sale may be challenged as a fraudulent conveyance, regardless of the
parties' intent, if a court determines that the sale was for less than fair
consideration and such sale occurred while the mortgagor was insolvent and
within one year (or within the state statute of limitations if the trustee in
bankruptcy elects to proceed under state fraudulent conveyance law) of the
filing of bankruptcy. Similarly, a suit against the debtor on the related
mortgage note may take several years and, generally, is a remedy alternative to
foreclosure, the mortgagee being precluded from pursuing both at the same time.
In the case of foreclosure under either a mortgage or a deed of trust,
the sale by the referee or other designated officer or by the trustee is a
public sale. However, because of the difficulty potential third party purchasers
at the sale have in determining the exact status of title and because the
physical condition of the Mortgaged Property may have deteriorated during the
foreclosure proceedings, it is uncommon for a third party to purchase the
Mortgaged Property at a foreclosure sale. Rather, it is common for the lender to
purchase the Mortgaged Property from the trustee or referee for an amount which
may be equal to the unpaid principal amount of the mortgage note secured by the
mortgage or deed of trust plus accrued and unpaid interest and the expenses of
foreclosure, in which event the mortgagor's debt will be extinguished or the
lender may purchase for a lesser amount in order to preserve its right against a
borrower to seek a deficiency judgment in states where such a judgment is
available. Thereafter, subject to the right of the borrower in some states to
remain in possession during the redemption period, the lender will assume the
burdens of ownership, including obtaining hazard insurance, paying taxes and
making such repairs at its own expense as are necessary to render the Mortgaged
Property suitable for sale. The lender will commonly obtain the services of a
real estate broker and pay the broker's commission in connection with the sale
of the Mortgaged Property. Depending upon market conditions, the ultimate
proceeds of the sale of the Mortgaged Property may not equal the lender's
investment in the Mortgaged Property. Any loss may be reduced by the receipt of
any mortgage guaranty insurance proceeds.
Rights of Redemption. In some states, after sale pursuant to a deed of
trust or foreclosure of a mortgage, the trustor or mortgagor and foreclosed
junior lienors are given a statutory period in which to redeem the Mortgaged
Property from the foreclosure sale. The right of redemption should be
distinguished from the equity of redemption, which is a non-statutory right that
must be exercised prior to the foreclosure sale. In some states, redemption may
occur only upon payment of the entire principal balance of the loan, accrued
interest and expenses of foreclosure. In other states, redemption may be
authorized if the former borrower pays only a portion of the sums due. The
effect of a statutory right of redemption is to diminish the ability of the
lender to sell the foreclosed Mortgaged Property. The exercise of a right of
redemption would defeat the title of any purchaser at a foreclosure sale, or of
any purchaser from the lender subsequent to foreclosure or sale under a deed of
trust. Consequently the practical effect of a right of redemption is to force
the lender to retain the Mortgaged Property and pay the expenses of ownership
until the redemption period has run. In some states, there is no right to redeem
Mortgaged Property after a trustee's sale under a deed of trust.
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Junior Mortgages; Rights of Senior Mortgages. The Mortgage Loans
comprising or underlying the Primary Assets included in the Trust Fund for a
Series will be secured by mortgages or deeds of trust which may be second or
more junior mortgages to other mortgages held by other lenders or institutional
investors. The rights of the Trust Fund (and therefore the Holders), as
mortgagee under a junior mortgage, are subordinate to those of the mortgagee
under the senior mortgage, including the prior rights of the senior mortgagee to
receive hazard insurance and condemnation proceeds and to cause the Mortgaged
Property securing the Mortgage Loan to be sold upon default of the mortgagor,
thereby extinguishing the junior mortgagee's lien unless the junior mortgagee
asserts its subordinate interest in the Mortgaged Property in foreclosure
litigation and, possibly, satisfies the defaulted senior mortgage. A junior
mortgagee may satisfy a defaulted senior loan in full and, in some states, may
cure such default and bring the senior loan current, in either event adding the
amounts expended to the balance due on the junior loan. In most states, absent a
provision in the mortgage or deed of trust, no notice of default is required to
be given to a junior mortgagee.
The standard form of the mortgage used by most institutional lenders
confers on the mortgagee the right both to receive all proceeds collected under
any hazard insurance policy and all awards made in connection with condemnation
proceedings, and to apply such proceeds and awards to any indebtedness secured
by the mortgage, in such order as the mortgagee may determine. Thus, in the
event improvements on the Mortgaged Property are damaged or destroyed by fire or
other casualty, or in the event the Mortgaged Property is taken by condemnation,
the mortgagee or beneficiary under underlying senior mortgages will have the
prior right to collect any insurance proceeds payable under a hazard insurance
policy and any award of damages in connection with the condemnation and to apply
the same to the indebtedness secured by the senior mortgages. Proceeds in excess
of the amount of senior mortgage indebtedness, in most cases, may be applied to
the indebtedness of a junior mortgage.
Another provision sometimes found in the form of the mortgage or deed
of trust used by institutional lenders obligates the mortgagor to pay before
delinquency all taxes and assessments on the Mortgaged Property and, when due,
all encumbrances, charges and liens on the Mortgaged Property which appear prior
to the mortgage or deed of trust, to provide and maintain fire insurance on the
Mortgaged Property, to maintain and repair the Mortgaged Property and not to
commit or permit any waste thereof, and to appear in and defend any action or
proceeding purporting to affect the Mortgaged Property or the rights of the
mortgagee under the mortgage. Upon a failure of the mortgagor to perform any of
these obligations, the mortgagee is given the right under certain mortgages to
perform the obligation itself, at its election, with the mortgagor agreeing to
reimburse the mortgagee for any sums expended by the mortgagee on behalf of the
mortgagor. All sums so expended by the mortgagee become part of the indebtedness
secured by the mortgage.
Due-On-Sale Clauses in Mortgage Loans. Due-on-sale clauses permit the
lender to accelerate the maturity of the loan if the borrower sells or
transfers, whether voluntarily or involuntarily, all or part of the real
Mortgaged Property securing the loan without the lender's prior written consent.
The enforceability of these clauses has been the subject of legislation or
litigation in many states, and in some cases, typically involving single family
residential mortgage transactions, their enforceability has been limited or
denied. In any event, the Garn-St. Germain Depository Institutions Act of 1982
(the "Garn-St. Germain Act") preempts state constitutional, statutory and case
law that prohibits the enforcement of due-on-sale clauses and permits lenders to
enforce these clauses in accordance with their terms, subject to certain
exceptions. As a result, due-on-sale clauses have become generally enforceable
except in those states whose legislatures exercised their authority to regulate
the enforceability of such clauses with respect to loans that were (i)
originated or assumed during the "window period" under the Garn-St. Germain Act
which ended in all cases not later than October 15, 1982, and (ii) originated by
lenders other than national banks, federal savings institutions and federal
credit unions. The Federal Home Loan Mortgage Corporation ("FHLMC") has taken
the position in its published mortgage servicing standards that, out of a total
of eleven "window period states," five states (Arizona, Michigan, Minnesota, New
Mexico and Utah) have enacted statutes extending, on various terms and for
varying periods, the prohibition on enforcement of due-on-sale clauses with
respect to certain categories of window period loans. Also, the Garn-St. Germain
Act does "encourage" lenders to permit assumption of loans at the original rate
of interest or at some other rate less than the average of the original rate and
the market rate.
In addition, under federal bankruptcy law, due-on-sale clauses may not
be enforceable in bankruptcy proceedings and may, under certain circumstances,
be eliminated in any modified mortgage resulting from such bankruptcy
proceeding.
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Enforceability of Prepayment and Late Payment Fees. Forms of notes,
mortgages and deeds of trust used by lenders may contain provisions obligating
the borrower to pay a late charge if payments are not timely made, and in some
circumstances may provide for prepayment fees or penalties if the obligation is
paid prior to maturity. In certain states, there are or may be specific
limitations, upon the late charges which a lender may collect from a borrower
for delinquent payments. Certain states also limit the amounts that a lender may
collect from a borrower as an additional charge if the loan is prepaid. Late
charges and prepayment fees are typically retained by servicers as additional
servicing compensation.
Equitable Limitations on Remedies. In connection with lenders' attempts
to realize upon their security, courts have invoked general equitable
principles. The equitable principles are generally designed to relieve the
borrower from the legal effect of his defaults under the loan documents.
Examples of judicial remedies that have been fashioned include judicial
requirements that the lender undertake affirmative and expensive actions to
determine the causes of the borrower's default and the likelihood that the
borrower will be able to reinstate the loan. In some cases, courts have
substituted their judgment for the lender's judgment and have required that
lenders reinstate loans or recast payment schedules in order to accommodate
borrowers who are suffering from temporary financial disability. In other cases,
courts have limited the right of a lender to realize upon his security if the
default under the security agreement is not monetary, such as the borrower's
failure to adequately maintain the Mortgaged Property or the borrower's
execution of secondary financing affecting the Mortgaged Property. Finally, some
courts have been faced with the issue of whether or not federal or state
constitutional provisions reflecting due process concerns for adequate notice
require that borrowers under security agreements receive notices in addition to
the statutorily-prescribed minimums. For the most part, these cases have upheld
the notice provisions as being reasonable or have found that, in cases involving
the sale by a trustee under a deed of trust or by a mortgagee under a mortgage
having a power of sale, there is insufficient state action to afford
constitutional protections to the borrower.
Most conventional single-family loans may be prepaid in full or in part
without penalty. The regulations of the Office of Thrift Supervision (the "OTS")
prohibit the imposition of a prepayment penalty or equivalent fee for or in
connection with the acceleration of a loan by exercise of a due-on-sale clause.
A mortgagee to whom a prepayment in full has been tendered may be compelled to
give either a release of the mortgage or an instrument assigning the existing
mortgage. The absence of a restraint on prepayment, particularly with respect to
loans having higher mortgage rates, may increase the likelihood of refinancing
or other early retirements of such loans.
Applicability of Usury Laws. Title V of the Depository Institutions
Deregulation and Monetary Control Act of 1980, enacted in March 1980 ("Title
V"), provides that state usury limitations shall not apply to certain types of
residential first loans originated by certain lenders after March 31, 1980.
Similar federal statutes were in effect with respect to loans made during the
first three months of 1980. The OTS, as successor to the Federal Home Loan Bank
Board, is authorized to issue rules and regulations and to publish
interpretations governing implementation of Tide V. Tide V authorizes any state
to reimpose interest rate limits by adopting, before April 1, 1983, a state law,
or by certifying that the voters of such state have voted in favor of any
provision, constitutional or otherwise, which expressly rejects an application
of the federal law. Fifteen states adopted such a law prior to the April 1, 1983
deadline. In addition, even where Title V is not so rejected, any state is
authorized by the law to adopt a provision limiting discount points or other
charges on loans covered by Title V.
Security Interests in Personal Property and Fixtures. A portion of each
Mortgaged Property may consist of property which is "personal property" or a
"fixture" under local state law. This will most commonly occur when the proceeds
of the related Mortgage Loan were applied to property improvements, although any
Mortgaged Property may have some personal property components. A financing
statement generally is not required to be filed to perfect a purchase money
security interest in consumer goods. Such purchase money security interests are
assignable. In general, a purchase money security interest grants to the holder
a security interest that has priority over a conflicting security interest in
the same collateral and the proceeds of such collateral. However, to the extent
that the collateral subject to a purchase money security interest becomes a
fixture, in order for the related purchase money security interest to take
priority over a conflicting interest in the fixture, the holder's interest in
such personal property must generally be perfected by a timely fixture filing.
In general, under the Uniform Commercial Code (the "UCC"), a security interest
does not exist under the UCC in ordinary building material incorporated into an
improvement on land. Contracts that finance lumber, bricks, other types of
ordinary building material or other goods that are deemed
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to lose such characterization, upon incorporation of such materials into the
related property, will not be secured by a purchase money security interest in
the personal property being financed.
Enforcement of Security Interest in Personal Property. So long as the
personal property has not become subject to the real estate law, a creditor can
repossess such property securing a contract by voluntary surrender, by
"self-help" repossession that is "peaceful" (i.e., without breach of the peace)
or, in the absence of voluntary surrender and the ability to repossess without
breach of the peace, by judicial process. The holder of a contract must give the
debtor a number of days' notice, which varies from 10 to 30 days depending on
the state, prior to commencement of any repossession. The UCC and consumer
protection laws in most states place restrictions on repossession sales,
including requiring prior notice to the debtor and commercial reasonableness in
effecting such a sale. The law in most states also requires that the debtor be
given notice of any sale prior to resale of the unit that the debtor may redeem
it at or before such resale.
Under the laws applicable in most states, a creditor is entitled to
obtain a deficiency judgement from a debtor for any deficiency on repossession
and resale of the property securing the debtor's loan. However, some states
impose prohibitions or limitations on deficiency judgements, and in many cases
the defaulting borrower would have no assets with which to pay a judgement.
Certain other statutory provisions, including federal and state
bankruptcy and insolvency laws and general equitable principles, may limit or
delay the ability of a lender to repossess and resell collateral or enforce a
deficiency judgement.
Consumer Protection Laws. The so-called "Holder-in-Due-Course" rule of
the Federal Trade Commission is intended to defeat the ability of the transferor
of a consumer credit contract which is the seller of goods which gave rise to
the transaction (and certain related lenders and assignees) to transfer such
contract free of notice of claims by the debtor thereunder. The effect of this
rule is to subject the assignee of such a contract to all claims and defenses
which the debtor could assert against the seller of goods. Liability under this
rule is limited to amounts paid under a contract; however, the obligor also may
be able to assert the rule to set off remaining amounts due as a defense against
a claim brought by the Trustee against such obligor. Numerous other federal and
state consumer protection laws impose requirements applicable to the origination
and lending pursuant to the contracts, including the Truth in Lending Act, the
Federal Trade Commission Act, the Fair Credit Billing Act, the Fair Credit
Reporting Act, the Equal Credit Opportunity Act, the Fair Debt Collection
Practices Act and the Uniform Consumer Credit Code. In the case of some of these
laws, the failure to comply with their provisions may affect the enforceability
of the related contract.
General -- Contracts
General
As a result of the assignment of the Contracts to the Trustee, the
Trust Fund will succeed collectively to all of the rights (including the right
to receive payment on the Contracts) and will assume the obligations of the
obligee under the Contracts. Each Contract evidences both (a) the obligation of
the obligor to repay the loan evidenced thereby, and (b) the grant of a security
interest in the Manufactured Home to secure repayment of such loan. Certain
aspects of both features of the Contracts are described more fully below.
The Contracts generally are "chattel paper" as defined in the Uniform
Commercial Code (the "UCC") in effect in the states in which the Manufactured
Homes initially were registered. Pursuant to the UCC, the sale of chattel paper
is treated in a manner similar to perfection of a security interest in chattel
paper. Under the Pooling and Servicing Agreement, the Servicer will transfer
physical possession of the Contracts to the Trustee or a designated custodian or
may retain possession of the Contracts as custodian for the Trustee. In
addition, the Servicer will make an appropriate filing of a UCC-1 financing
statement in the appropriate states to give notice of the Trustee's ownership of
the Contracts. Unless otherwise specified in the related Prospectus Supplement,
the Contracts will not be stamped or marked otherwise to reflect their
assignment from the Sponsor to the Trustee. Therefore, if through negligence,
fraud or otherwise, a subsequent purchaser were able to take physical possession
of the Contracts without notice of such assignment, the Trustee's interest in
Contracts could be defeated.
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Security Interests in the Manufactured Homes
The Manufactured Homes securing the Contracts may be located in all 50
states. Security interests in manufactured homes may be perfected either by
notation of the secured party's lien on the certificate of title or by delivery
of the required documents and payment of a fee to the state motor vehicle
authority, depending on state law. In some non-title states, perfection pursuant
to the provisions of the UCC is required. The Servicer may effect such notation
or delivery of the required documents and fees, and obtain possession of the
certificate of title, as appropriate under the laws of the state in which any
manufactured home securing a manufactured housing conditional sales contract is
registered. In the event the Servicer fails, due to clerical errors, to effect
such notation or delivery, or files the security interest under the wrong law
(for example, under a motor vehicle title statute rather than under the UCC, in
a few states), the securityholders may not have a first priority security
interest in the Manufactured Home securing a Contract. As manufactured homes
have become larger and often have been attached to their sites without any
apparent intention to move them, courts in many states have held that
manufactured homes, under certain circumstances, may become subject to real
estate title and recording laws. As a result, a security interest in a
manufactured home could be rendered subordinate to the interests of other
parties claiming an interest in the home under applicable state real estate law.
In order to perfect a security interest in a manufactured home under real estate
laws, the secured party must file either a "fixture filing" under the provisions
of the UCC or a real estate mortgage under the real estate laws of the state
where the home is located. These filings must be made in the real estate records
office of the county where the home is located. Substantially all of the
Contracts contain provisions prohibiting the borrower from permanently attaching
the Manufactured Home to its site. So long as the borrower does not violate this
agreement, a security interest in the Manufactured Home will be governed by the
certificate of title laws or the UCC, and the notation of the security interest
on the certificate of title or the filing of a UCC financing statement will be
effective to maintain the priority of the security interest in the Manufactured
Home. If, however, a Manufactured Home is permanently attached to its site,
other parties could obtain an interest in the Manufactured Home which is prior
to the security interest originally retained by the Seller and transferred to
the Sponsor. With respect to a Series of Securities and if so described in the
related Prospectus Supplement, the Servicer may be required to perfect a
security interest in the Manufactured Home under applicable real estate laws.
The Servicer will represent that at the date of the initial issuance of the
related Securities it has obtained a perfected first priority security interest
by proper notation or delivery of the required documents and fees with respect
to substantially all of the Manufactured Homes securing the Contracts.
The Sponsor will cause the security interests in the Manufactured Homes
to be assigned to the Trustee on behalf of the securityholders. Unless otherwise
specified in the related Prospectus Supplement, neither the Sponsor nor the
Trustee will amend the Certificates of title to identify the Trustee or the
Trust Fund as the new secured party, and neither the Sponsor nor the Servicer
will deliver the Securities of title to the Trustee or note thereon the interest
of the Trustee. Accordingly, the Servicer (or the seller) which continue to be
named as the secured party on the certificate of title relating to the
Manufactured Homes. In many states, such assignment is an effective conveyance
of such security interest without amendment of any lien noted on the related
certificate of title and the new secured party succeeds to the Sponsor's rights
as the secured party. However, in some states there exists a risk that, in the
absence of an amendment to the certificate of title, such assignment of the
security interest in the Manufactured Home might not be effective or perfected
or that, in the absence of such notation or delivery to the Trustee, the
assignment of the security interest in the Manufactured Home might not be
effective against creditors of the Servicer (or the Seller) or a trustee in
bankruptcy of the Servicer (or the Seller).
In the absence of fraud, forgery or permanent affixation of the
Manufactured Home to its site by the Manufactured Home owner, or administrative
error by state recording officials, the notation of the lien of the Servicer (or
the Seller) on the certificate of title or delivery of the required documents
and fees will be sufficient to protect the securityholders against the rights of
subsequent purchasers of a Manufactured Home or subsequent lenders who take a
security interest in the Manufactured Home. If there are any Manufactured Homes
as to which the security interest assigned to the Trustee is not perfected, such
security interest would be subordinate to, among others, subsequent purchasers
for value of Manufactured Homes and holders of perfected security interests.
There also exists a risk in not identifying the Trustee as the new secured party
on the certificate of title that, through fraud or negligence, the security
interest of the Securityholders could be released.
In the event that the owner of a Manufactured Home moves it to a state
other than the state in which such Manufactured Home initially is registered,
under the laws of most states the perfected security interest in the
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Manufactured Home would continue for four months after such relocation and
thereafter until the owner re-registers the Manufactured Home in such state. If
the owner were to relocate a Manufactured Home to another state and not
re-register the Manufactured Home in such state, and if steps are not taken to
re-perfect the Trustee's security interest in such state, the security interest
in the Manufactured Home would cease to be perfected. A majority of states
generally require surrender of a certificate of title to re-register a
Manufactured Home; accordingly, the Trustee must surrender possession if it
holds the certificate of title to such Manufactured Home or, in the case of
Manufactured Homes registered in states which provide for notation of lien, the
Servicer would receive notice of surrender if the security interest in the
Manufactured Home is noted on the certificate of title. Accordingly, the Trustee
would have the opportunity to re-perfect its security interest in the
Manufactured Home in the state of relocation. In states which do not require a
certificate of title for registration of a manufactured home, re-registration
could defeat perfection. In the ordinary course of servicing the manufactured
housing conditional sales contracts, the Servicer takes steps to effect such
re-perfection upon receipt of notice of registration or information from the
obligor as to relocation. Similarly, when an obligor under a manufactured
housing conditional sales contract sells a manufactured home, the Trustee (or
its custodian) must surrender possession of the certificate of title or the
Servicer will receive notice as a result of its lien noted thereon and
accordingly will have an opportunity to require satisfaction of the related
manufactured housing conditional sales contract before release of the lien.
Under the Pooling and Servicing Agreement, the Servicer is obligated to take
steps, at the Servicer's expense, as are necessary to maintain perfection of
security interests in the Manufactured Homes.
Under the laws of most states, liens for repairs performed on a
Manufacturer Home and liens for personal property taxes take priority over a
perfected security interest. The Seller will represent in the Pooling and
Servicing Agreement that it has no knowledge of any such liens with respect to
any Manufactured Home securing payment on any Contract. However, such liens
could arise at any time during the term of a Contract. No notice will be given
to the Trustee or Securityholders in the event such a lien arises.
Enforcement of Security Interests in Manufactured Homes
The Servicer on behalf of the Trustee, to the extent required by the
related Pooling and Servicing Agreement, may take action to enforce the
Trustee's security interest with respect to Contracts in default by repossession
and resale of the Manufactured Homes securing such defaulted Contracts. So long
as the Manufactured Home has not become subject to the real estate law, a
creditor can repossess a Manufactured Home securing a Contract by voluntary
surrender, by "self-help" repossession that is "peaceful" (i.e., without breach
of the peace) or, in the absence of voluntary surrender and the ability to
repossess without breach of the peace, by judicial process. The holder of a
Contract must give the debtor a number of days' notice, which varies from 10 to
30 days depending on the state, prior to commencement of any repossession. The
UCC and consumer protection laws in most states place restrictions on
repossession sales, including requiring prior notice to the debtor and
commercial reasonableness in effecting such a sale. The law in most states also
requires that the debtor be given notice of any sale prior to resale of the unit
so that the debtor may redeem at or before such resale. In the event of such
repossession and resale of a Manufactured Home, the Trustee would be entitled to
be paid out of the sale proceeds before such proceeds could be applied to the
payment of the claims of unsecured creditors or the holders of subsequently
perfected security interests or, thereafter, to the debtor.
Under the laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from a debtor for any deficiency on repossession
and resale of the manufactured home securing such a debtor's loan. However, some
states impose prohibitions or limitations on deficiency judgments, and in many
cases the defaulting borrower would have no assets with which to pay a judgment.
Certain other statutory provisions, including federal and state
bankruptcy and insolvency laws and general equitable principles, may limit or
delay the ability of a lender to repossess and resell collateral or enforce a
deficiency judgment.
Consumer Protection Laws
The so-called "Holder-in-Due-Course" rule of the Federal Trade
Commission is intended to defeat the ability of the transferor of a consumer
credit contract which is the seller of goods which gave rise to the transaction
(and certain related lenders and assignees) to transfer such contract free of
notice of claims by the debted thereunder.
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The effect of this rule is to subject the assignee of such a contract to all
claims and defenses which the debtor could assert against the seller of goods.
Liability under this rule is limited to amounts paid under a Contract; however,
the obligor also may be able to asset the rule to set off remaining amounts due
as a defense against a claim brought by the Trustee against such obligor.
Numerous other federal and state consumer protection laws impose requirements
applicable to the origination and lending pursuant to the Contracts, including
the Truth in Lending Act, the Federal Trade Commission Act, the Fair Credit
Billing Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act,
the Fair Debt Collection Practices Act and the Uniform Consumer Credit Code. In
the case of some of these laws, the failure to comply with their provisions may
affect the enforceability of the related Contract.
Transfers of Manufactured Homes; Enforceability of "Due-on-Sale" Clauses
The Contracts, in general, prohibit the sale or transfer of the related
Manufactured Homes without the consent of the Servicer and permit the
acceleration of the maturity of the Contracts by the Servicer upon any such sale
or transfer that is not consented to.
In the case of a transfer of a Manufactured Home after which the
Servicer desires to accelerate the maturity of the related Contract, the
Servicer's ability to do so will depend on the enforceability under state law of
the "due-on-sale" clause. The Garn-St Germain Depository Institutions Act of
1982 preempts, subject to certain exceptions and conditions, state laws
prohibiting enforcement of "due-on-sale" clauses applicable to the Manufactured
Homes. Consequently, in some states the Servicer may be prohibited from
enforcing a "due-on-sale" clause in respect of certain Manufactured Homes.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, as amended ("Title V"), provides that, subject to the
following conditions, state usury limitations shall not apply to any loan which
is secured by a first lien on certain kinds of manufactured housing. The
Contracts would be covered if they satisfy certain conditions, among other
things, governing the terms of any prepayments, late charges and deferral fees
and requiring a 30-day notice period prior to instituting any action leading to
repossession of the related unit.
Title V authorized any state to reimpose limitations on interest rates
and finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen states
adopted such a law prior to the April 1, 1983 deadline. In addition, even where
Title V was not so rejected, and state is authorized by the law to adopt a
provision limiting discount points or other charges on loans covered by Title V.
The Seller will represent that all of the Contracts comply with applicable usury
law.
Formaldehyde Litigation with Respect to Contracts
A number of lawsuits have been brought in the United States alleging
personal injury from exposure to the chemical formaldehyde, which is preset in
many building materials, including such components of manufactured housing as
plywood flooring and wall paneling. Some of these lawsuits were brought against
manufacturers of manufactured housing, suppliers of component parts, and related
persons in the distribution process. Sponsor is aware of a limited number of
cases in which plaintiffs have won judgments in these lawsuits.
The holder of any Contract secured by a Manufactured Home with respect
to which a formaldehyde claim has been successfully asserted may be liable to
the obligor for the amount paid by the obligor on the related Contract and may
be unable to collect amounts still due under the Contract. The successful
assertion of such claim constitutes a breach of a representation or warranty of
the person specified in the related Prospectus Supplement, and the
Securityholders would suffer a loss only to the extent that (i) such person
breached its obligation to repurchase the Contract in the event an obligor is
successful in asserting such a claim, and (ii) such person, the Servicer or the
Trustee were unsuccessful in asserting any claim of contribution or subrogation
on behalf of the Securityholders against the manufacturer or other persons who
were directly liable to the plaintiff for the damages. Typical products
liability insurance policies held by manufacturers and component suppliers of
manufactured homes may not cover liabilities arising from formaldehyde in
manufactured housing, with the result that recoveries
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from such manufacturers, suppliers or other persons may be limited to their
corporate assets without the benefit of insurance.
Soldiers' and Sailors' Civil Relief Act of 1940
Under the Soldiers' and Sailors' Civil Relief Act of 1940, members of
all branches of the military on active duty, including draftees and reservists
in military service, (i) are entitled to have interest rates reduced and capped
at 6% per annum, on obligations (including Mortgage Loans) incurred prior to the
commencement of military service for the duration of military service, (ii) may
be entitled to a stay of proceedings on any kind of foreclosure or repossession
action in the case of defaults on such obligations entered into prior to
military service for the duration of military service and (iii) may have the
maturity of such obligations incurred prior to military service extended, the
payments lowered and the payment schedule readjusted for a period of time after
the completion of military service. However, the benefits of (i), (ii), or (iii)
above are subject to challenge by creditors and if, in the opinion of the court,
the ability of a person to comply with such obligations is not materially
impaired by military service, the court may apply equitable principles
accordingly. If a borrower's obligation to repay amounts otherwise due on a
Mortgage Loan included in a Trust Fund for a Series is relieved pursuant to the
Soldiers' and Sailors' Civil Relief Act of 1940, none of the Trust Fund, the
Servicer, the Depositor nor the Trustee will be required to advance such
amounts, and any loss in respect thereof may reduce the amounts available to be
paid to the Holders of the Securities of such Series. Any shortfalls in interest
collections on Mortgage Loans, Contracts or Underlying Loans relating to the
Private Securities, as applicable, included in a Trust Fund for a Series
resulting from application of the Soldiers' and Sailors' Civil Relief Act of
1940 will be allocated in the manner set forth in the related Agreement.
THE DEPOSITOR
General
The Depositor was incorporated in the State of North Carolina. in
December 1997, and is a wholly-owned subsidiary of First Union National Bank, a
national banking association with its headquarters in Charlotte, North Carolina.
The Depositor's principal executive offices are located at One First Union
Center, 301 S. College Street, Charlotte, North Carolina 28288-0630. Its
telephone number is (704) 373-6611.
The Depositor will not engage in any activities other than to
authorize, issue, sell, deliver, purchase and invest in (and enter into
agreements in connection with), and/or to engage in the establishment of one or
more trusts which will issue and sell, bonds, notes, debt or equity securities,
obligations and other securities and instruments ("Depositor Securities")
collateralized or otherwise secured or backed by, or otherwise representing an
interest in, among other things, receivables or pass-through certificates, or
participations or certificates of participation or beneficial ownership in one
or more pools of receivables, and the proceeds of the foregoing, that arise in
connection with loans secured by certain first or junior mortgages on real
estate or manufactured housing and any and all other commercial transactions and
commercial, sovereign, student or consumer loans or indebtedness and, in
connection therewith or otherwise, purchasing, acquiring, owning, holding,
transferring, conveying, servicing, selling, pledging, assigning, financing and
otherwise dealing with such receivables, pass-through certificates, or
participations or certificates of participation or beneficial ownership. Article
Third of the Depositor's Certificate of Incorporation limits the Depositor's
activities to the above activities and certain related activities, such as
credit enhancement with respect to such Depositor Securities, and to any
activities incidental to and necessary or convenient for the accomplishment of
such purposes.
USE OF PROCEEDS
The net proceeds from the sale of each Series of Securities will be
applied to one or more of the following purposes: (i) to acquire the related
Primary Assets, (ii) to repay indebtedness which has been incurred to obtain
funds to acquire such Primary Assets, (iii) to establish any Reserve Funds
described in the related Prospectus Supplement and (iv) to pay costs of
structuring and issuing such Securities, including the costs of obtaining Credit
Enhancement, if any. The acquisition of the Primary Assets for a Series may be
effected by an exchange of Securities with the Originator of such Primary
Assets.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
General
The following is a general discussion of the material anticipated
federal income tax consequences 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
consequences 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 particular federal, state and local consequences to them of
the purchase, ownership and disposition of the Securities.
The following discussion addresses securities of five general types:
(i) securities ("Grantor Trust Securities") representing interests in a trust (a
"Grantor Trust") which the Company will covenant not to elect to have treated as
a real estate mortgage investment conduit ("REMIC") or a financial asset
securitization investment trust ("FASIT"); (ii) securities ("REMIC Securities")
representing interests in a trust, or a portion thereof, which the Company will
covenant to elect to have treated as a REMIC under sections 860A through 860G of
the Internal Revenue Code of 1986, as amended (the "Code"); (iii) securities
("Debt Securities") that are intended to be treated for federal income tax
purposes as indebtedness secured by the underlying loans; (iv) securities
("Partnership Interests") representing interests in a trust (a "Partnership")
that is intended to be treated as a partnership under the Code; and (v)
securities ("FASIT Securities") representing interests in a trust, or portion
thereof, which the Company will covenant to elect to have treated as a FASIT
under sections 860H through 860L of the Code. The Prospectus Supplement for each
series of Securities will indicate whether a REMIC or FASIT election (or
elections) will be made for the related trust and, if a REMIC or FASIT election
is to be made, will identify all "regular interests" and "residual interests" in
the REMIC or all "regular interests," "high-yield interests" or the "ownership
interest" in the FASIT.
The Taxpayer Relief Act of 1997 adds provisions to the Code that
require the recognition of gain upon the "constructive sale of an appreciated
financial position." A constructive sale of an appreciated financial position
occurs if a taxpayer enters into certain transactions or series of such
transactions with respect to a financial instrument that have the effect of
substantially eliminating the taxpayer's risk of loss and opportunity for gain
with respect to the financial instrument. These provisions apply only to Classes
of Securities that do not have a principal balance.
Grantor Trust Securities
With respect to each series of Grantor Trust Securities, Dewey
Ballantine LLP, special tax counsel to the Company, will deliver its opinion to
the Company that the related Grantor Trust will be classified as a grantor trust
and not as a partnership or an association taxable as a corporation. Such
opinion shall be attached on Form 8-K to be filed with the Commission within
fifteen days after the initial issuance of such Securities or filed with the
Commission as a post-effective amendment to the Prospectus. Accordingly, each
beneficial owner of a Grantor Trust Security will generally be treated as the
owner of an interest in the Mortgage Loans and/or Contracts included in the
Grantor Trust.
For purposes of the following discussion, a Grantor Trust Security
representing an undivided equitable ownership interest in the principal of the
Mortgage Loans and/or Contracts constituting the related Grantor Trust, together
with interest thereon at a pass-through rate, will be referred to as a "Grantor
Trust Fractional Interest Security." A Grantor Trust Security representing
ownership of all or a portion of the difference between interest paid on the
Mortgage Loans and/or Contracts constituting the related Grantor Trust and
interest paid to the beneficial owners of Grantor Trust Fractional Interest
Securities issued with respect to such Grantor Trust will be referred to as a
"Grantor Trust Strip Security."
Taxation of Beneficial Owners of Grantor Trust Securities
Beneficial owners of Grantor Trust Fractional Interest Securities
generally will be required to report on their federal income tax returns their
respective shares of the income from the Mortgage Loans and/or Contracts
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(including amounts used to pay reasonable servicing fees and other expenses but
excluding amounts payable to beneficial owners of any corresponding Grantor
Trust Strip Securities) and, subject to the limitations described below, will be
entitled to deduct their shares of any such reasonable servicing fees and other
expenses. If a beneficial owner acquires a Grantor Trust Fractional Interest
Security for an amount that differs from its outstanding principal amount, the
amount includible in income on a Grantor Trust Fractional Interest Security may
differ from the amount of interest distributable thereon. See "Discount and
Premium," below. Individuals holding a Grantor Trust Fractional Interest
Security directly or through certain pass-through entities will be allowed a
deduction for such reasonable servicing fees and expenses only to the extent
that the aggregate of such beneficial owner's miscellaneous itemized deductions
exceeds 2% of such beneficial owner's adjusted gross income. Further, beneficial
owners (other than corporations) subject to the alternative minimum tax may not
deduct miscellaneous itemized deductions in determining alternative minimum
taxable income.
Beneficial owners of Grantor Trust Strip Securities generally will be
required to treat such Securities as "stripped coupons" under section 1286 of
the Code. Accordingly, such a beneficial owner will be required to treat the
excess of the total amount of payments on such a Security over the amount paid
for such Security as original issue discount and to include such discount in
income as it accrues over the life of such Security. See "--Discount and
Premium," below.
Grantor Trust Fractional Interest Securities may also be subject to the
coupon stripping rules if a class of Grantor Trust Strip Securities is issued as
part of the same series of Securities. The consequences of the application of
the coupon stripping rules would appear to be that any discount arising upon the
purchase of such a Security (and perhaps all stated interest thereon) would be
classified as original issue discount and includible in the beneficial owner's
income as it accrues (regardless of the beneficial owner's method of
accounting), as described below under "--Discount and Premium." The coupon
stripping rules will not apply, however, if (i) the pass-through rate is no more
than 100 basis points lower than the gross rate of interest payable on the
underlying Mortgage Loans and/or Contracts and (ii) the difference between the
outstanding principal balance on the Security and the amount paid for such
Security is less than 0.25% of such principal balance times the weighted average
remaining maturity of the Security.
Sales of Grantor Trust Securities
Any gain or loss recognized on the sale of a Grantor Trust Security
(equal to the difference between the amount realized on the sale and the
adjusted basis of such Grantor Trust Security) will be capital gain or loss,
except to the extent of accrued and unrecognized market discount, which will be
treated as ordinary income, and in the case of banks and other financial
institutions except as provided under section 582(c) of the Code. The adjusted
basis of a Grantor Trust Security will generally equal its cost, increased by
any income reported by the Originator (including original issue discount and
market discount income) and reduced (but not below zero) by any previously
reported losses, any amortized premium and by any distributions of principal.
Grantor Trust Reporting
The Trustee will furnish to each beneficial owner of a Grantor Trust
Fractional Interest Security with each distribution a statement setting forth
the amount of such distribution allocable to principal on the underlying
Mortgage Loans and/or Contracts and to interest thereon at the related interest
rate. In addition, within a reasonable time after the end of each calendar year,
based on information provided by the Master Servicer, the Trustee will furnish
to each beneficial owner during such year such customary factual information as
the Master Servicer deems necessary or desirable to enable beneficial owners of
Grantor Trust Securities to prepare their tax returns and will furnish
comparable information to the Internal Revenue Service (the "IRS") as and when
required to do so by law.
REMIC Securities
If provided in a related Prospectus Supplement, an election will be
made to treat a Trust as a REMIC under the Code. Qualification as a REMIC
requires ongoing compliance with certain conditions. With respect to each series
of Securities for which such an election is made, Dewey Ballantine LLP, special
tax counsel to the Company, will deliver its opinion to the Company that,
assuming compliance with the Pooling and Servicing Agreement, the trust will be
treated as a REMIC for federal income tax purposes. A Trust for which a REMIC
election is made will
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be referred to herein as a "REMIC Trust." The Securities of each class will be
designated as "regular interests" in the REMIC Trust except that a separate
class will be designated as the "residual interest" in the REMIC Trust. The
Prospectus Supplement for each series of Securities will state whether
Securities of each class will constitute a regular interest (a REMIC Regular
Security) or a residual interest (a REMIC Residual Security). Such opinion shall
be attached on Form 8-K to be filed with the Commission within fifteen days
after the initial issuance of such Securities or filed with the Commission as a
post-effective amendment to the Prospectus.
A REMIC Trust will not be subject to federal income tax except with
respect to income from prohibited transactions and in certain other instances
described below. See "--Taxes on a REMIC Trust." Generally, the total income
from the Mortgage Loans in a REMIC Trust will be taxable to the beneficial
owners of the Securities of that series, as described below.
Regulations issued by the Treasury Department on December 23, 1992 (the
"REMIC Regulations") provide some guidance regarding the federal income tax
consequences associated with the purchase, ownership and disposition of REMIC
Securities. While certain material provisions of the REMIC Regulations are
discussed below, investors should consult their own tax advisors regarding the
possible application of the REMIC Regulations in their specific circumstances.
Special Tax Attributes
REMIC Regular Securities and REMIC Residual Securities will be "regular
or residual interests in a REMIC" within the meaning of section
7701(a)(19)(C)(xi) of the Code and "real estate assets" within the meaning of
section 856(c)(5)(A) of the Code. If at any time during a calendar year less
than 95% of the assets of a REMIC Trust consist of "qualified mortgages" (within
the meaning of section 860G(a)(3) of the Code) then the portion of the REMIC
Regular Securities and REMIC Residual Securities that are qualifying assets
under those sections during such calendar year may be limited to the portion of
the assets of such REMIC Trust that are qualified mortgages. Similarly, income
on the REMIC Regular Securities and REMIC Residual Securities will be treated as
"interest on obligations secured by mortgages on real property" within the
meaning of section 856(c)(3)(B) of the Code, subject to the same limitation as
set forth in the preceding sentence. For purposes of applying this limitation, a
REMIC Trust should be treated as owning the assets represented by the qualified
mortgages. The assets of the Trust Estate will include, in addition to the
Mortgage Loans, payments on the Mortgage Loans held pending distribution on the
REMIC Regular Securities and REMIC Residual Securities and any reinvestment
income thereon. REMIC Regular Securities and REMIC Residual Securities held by a
financial institution to which section 585, 586 or 593 of the Code applies will
be treated as evidences of indebtedness for purposes of section 582(c)(1) of the
Code. REMIC Regular Securities will also be qualified mortgages with respect to
other REMICs.
Taxation of Beneficial Owners of REMIC Regular Securities
Except as indicated below in this federal income tax discussion, the
REMIC Regular Securities will be treated for federal income tax purposes as debt
instruments issued by the REMIC Trust on the date such Securities are first sold
to the public (the "Settlement Date") and not as ownership interests in the
REMIC Trust or its assets. beneficial owners of REMIC Regular Securities that
otherwise report income under a cash method of accounting will be required to
report income with respect to such Securities under an accrual method. For
additional tax consequences relating to REMIC Regular Securities purchased at a
discount or with premium, see "--Discount and Premium," below.
Taxation of Beneficial Owners of REMIC Residual Securities
Daily Portions. Except as indicated below, a beneficial owner of a
REMIC Residual Security for a REMIC Trust generally will be required to report
its daily portion of the taxable income or net loss of the REMIC Trust for each
day during a calendar quarter that the beneficial owner owned such REMIC
Residual Security. For this purpose, the daily portion shall be determined by
allocating to each day in the calendar quarter its ratable portion of the
taxable income or net loss of the REMIC Trust for such quarter and by allocating
the amount so allocated among the Residual beneficial owners (on such day) in
accordance with their percentage interests on such day. Any amount included in
the gross income or allowed as a loss of any Residual beneficial owner by virtue
of this paragraph will be treated as ordinary income or loss.
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The requirement that each beneficial owner of a REMIC Residual Security
report its daily portion of the taxable income or net loss of the REMIC Trust
will continue until there are no Securities of any class outstanding, even
though the beneficial owner of the REMIC Residual Security may have received
full payment of the stated interest and principal on its REMIC Residual
Security.
The Trustee will provide to beneficial owners of REMIC Residual
Securities of each series of Securities (i) such information as is necessary to
enable them to prepare their federal income tax returns and (ii) any reports
regarding the Securities of such series that may be required under the Code.
Taxable Income or Net Loss of a REMIC Trust. The taxable income or net
loss of a REMIC Trust will be the income from the qualified mortgages it holds
and any reinvestment earnings less deductions allowed to the REMIC Trust. Such
taxable income or net loss for a given calendar quarter will be determined in
the same manner as for an individual having the calendar year as the taxable
year and using the accrual method of accounting, with certain modifications. The
first modification is that a deduction will be allowed for accruals of interest
(including any original issue discount, but without regard to the investment
interest limitation in section 163(d) of the Code) on the REMIC Regular
Securities (but not the REMIC Residual Securities), even though REMIC Regular
Securities are for non-tax purposes evidences of beneficial ownership rather
than indebtedness of a REMIC Trust. Second, market discount or premium equal to
the difference between the total stated principal balances of the qualified
mortgages and the basis to the REMIC Trust therein generally will be included in
income (in the case of discount) or deductible (in the case of premium) by the
REMIC Trust as it accrues under a constant yield method, taking into account the
"Prepayment Assumption" (as defined in the Related Prospectus Supplement, see
"--Discount and Premium--Original Issue Discount," below). The basis to a REMIC
Trust in the qualified mortgages is the aggregate of the issue prices of all the
REMIC Regular Securities and REMIC Residual Securities in the REMIC Trust on the
Settlement Date. If, however, a substantial amount of a class of REMIC Regular
Securities or REMIC Residual Securities has not been sold to the public, then
the fair market value of all the REMIC Regular Securities or REMIC Residual
Securities in that class as of the date of the Prospectus Supplement should be
substituted for the issue price.
Third, no item of income, gain, loss or deduction allocable to a
prohibited transaction (see "--Taxes on a REMIC Trust--Prohibited Transactions"
below) will be taken into account. Fourth, a REMIC Trust generally may not
deduct any item that would not be allowed in calculating the taxable income of a
partnership by virtue of section 703(a)(2) of the Code. Finally, the limitation
on miscellaneous itemized deductions imposed on individuals by section 67 of the
Code will not be applied at the REMIC Trust level to any servicing and guaranty
fees. (See, however, "--Pass-Through of Servicing and Guaranty Fees to
Individuals" below.) In addition, under the REMIC Regulations, any expenses that
are incurred in connection with the formation of a REMIC Trust and the issuance
of the REMIC Regular Securities and REMIC Residual Securities are not treated as
expenses of the REMIC Trust for which a deduction is allowed. If the deductions
allowed to a REMIC Trust exceed its gross income for a calendar quarter, such
excess will be a net loss for the REMIC Trust for that calendar quarter. The
REMIC Regulations also provide that any gain or loss to a REMIC Trust from the
disposition of any asset, including a qualified mortgage or "permitted
investment" (as defined in section 860G(a)(5) of the Code) will be treated as
ordinary gain or loss.
A beneficial owner of a REMIC Residual Security may be required to
recognize taxable income without being entitled to receive a corresponding
amount of cash. This could occur, for example, if the qualified mortgages are
considered to be purchased by the REMIC Trust at a discount, some or all of the
REMIC Regular Securities are issued at a discount, and the discount included as
a result of a prepayment on a Mortgage Loan that is used to pay principal on the
REMIC Regular Securities exceeds the REMIC Trust's deduction for unaccrued
original issue discount relating to such REMIC Regular Securities. Taxable
income may also be greater in earlier years because interest expense deductions,
expressed as a percentage of the outstanding principal amount of the REMIC
Regular Securities, may increase over time as the earlier classes of REMIC
Regular Securities are paid, whereas interest income with respect to any given
Mortgage Loan expressed as a percentage of the outstanding principal amount of
that Mortgage Loan, will remain constant over time.
Basis Rules and Distributions. A beneficial owner of a REMIC Residual
Security has an initial basis in its Security equal to the amount paid for such
REMIC Residual Security. Such basis is increased by amounts included in the
income of the beneficial owner and decreased by distributions and by any net
loss taken into account with respect to such REMIC Residual Security. A
distribution on a REMIC Residual Security to a beneficial owner is not included
in gross income to the extent it does not exceed such beneficial owner's basis
in the REMIC Residual
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Security (adjusted as described above) and, to the extent it exceeds the
adjusted basis of the REMIC Residual Security, shall be treated as gain from the
sale of the REMIC Residual Security.
A beneficial owner of a REMIC Residual Security is not allowed to take
into account any net loss for any calendar quarter to the extent such net loss
exceeds such beneficial owner's adjusted basis in its REMIC Residual Security as
of the close of such calendar quarter (determined without regard to such net
loss). Any loss disallowed by reason of this limitation may be carried forward
indefinitely to future calendar quarters and, subject to the same limitation,
may be used only to offset income from the REMIC Residual Security.
Excess Inclusions. Any excess inclusions with respect to a REMIC
Residual Security are subject to certain special tax rules. With respect to a
beneficial owner of a REMIC Residual Security, the excess inclusion for any
calendar quarter is defined as the excess (if any) of the daily portions of
taxable income over the sum of the "daily accruals" for each day during such
quarter that such REMIC Residual Security was held by such beneficial owner. The
daily accruals are determined by allocating to each day during a calendar
quarter its ratable portion of the product of the "adjusted issue price" of the
REMIC Residual Security at the beginning of the calendar quarter and 120% of the
"federal long-term rate" in effect on the Settlement Date, based on quarterly
compounding, and properly adjusted for the length of such quarter. For this
purpose, the adjusted issue price of a REMIC Residual Security as of the
beginning of any calendar quarter is equal to the issue price of the REMIC
Residual Security, increased by the amount of daily accruals for all prior
quarters and decreased by any distributions made with respect to such REMIC
Residual Security before the beginning of such quarter. The issue price of a
REMIC Residual Security is the initial offering price to the public (excluding
bond houses and brokers) at which a substantial number of the REMIC Residual
Securities was sold. The federal long-term rate is a blend of current yields on
Treasury securities having a maturity of more than nine years, computed and
published monthly by the IRS.
In general, beneficial owners of REMIC Residual Securities with excess
inclusion income cannot offset such income by losses from other activities. For
beneficial owners that are subject to tax only on unrelated business taxable
income (as defined in section 511 of the Code), an excess inclusion of such
beneficial owner is treated as unrelated business taxable income. With respect
to variable contracts (within the meaning of section 817 of the Code), a life
insurance company cannot adjust its reserve to the extent of any excess
inclusion, except as provided in regulations. The REMIC Regulations indicate
that if a beneficial owner of a REMIC Residual Security is a member of an
affiliated group filing a consolidated income tax return, the taxable income of
the affiliated group cannot be less than the sum of the excess inclusions
attributable to all residual interests in REMICs held by members of the
affiliated group. For a discussion of the effect of excess inclusions on certain
foreign investors that own REMIC Residual Securities, see "--Foreign Investors"
below.
The Treasury Department also has the authority to issue regulations
that would treat all taxable income of a REMIC Trust as excess inclusions if the
REMIC Residual Security does not have "significant value." Although the Treasury
Department did not exercise this authority in the REMIC Regulations, future
regulations may contain such a rule. If such a rule were adopted, it is unclear
how significant value would be determined for these purposes. If no such rule is
applicable, excess inclusions should be calculated as discussed above.
In the case of any REMIC Residual Securities that are held by a real
estate investment trust, the aggregate excess inclusions with respect to such
REMIC Residual Securities reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of section 857(b)(2) of the
Code, excluding any net capital gain) will be allocated among the shareholders
of such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Security as if held directly by such
shareholder. Similar rules will apply in the case of regulated investment
companies, common trust funds and certain cooperatives that hold a REMIC
Residual Security.
Pass-Through of Servicing and Guaranty Fees to Individuals. A
beneficial owner of a REMIC Residual Security who is an individual will be
required to include in income a share of any servicing and guaranty fees. A
deduction for such fees will be allowed to such beneficial owner only to the
extent that such fees, along with certain of such beneficial owner's other
miscellaneous itemized deductions exceed 2% of such beneficial owner's adjusted
gross income. In addition, a beneficial owner of a REMIC Residual Security may
not be able to deduct any portion of such fees in computing such beneficial
owner's alternative minimum tax liability. A beneficial owner's share of such
fees will generally be determined by (i) allocating the amount of such expenses
for each calendar quarter on a
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pro rata basis to each day in the calendar quarter, and (ii) allocating the
daily amount among the beneficial owners in proportion to their respective
holdings on such day.
Taxes on a REMIC Trust
Prohibited Transactions. The Code imposes a tax on a REMIC equal to
100% of the net income derived from "prohibited transactions." In general, a
prohibited transaction means the disposition of a qualified mortgage other than
pursuant to certain specified exceptions, the receipt of investment income from
a source other than a Mortgage Loan or certain other permitted investments, the
receipt of compensation for services, or the disposition of an asset purchased
with the payments on the qualified mortgages for temporary investment pending
distribution on the regular and residual interests.
Contributions to a REMIC after the Startup Day. The Code imposes a tax
on a REMIC equal to 100% of the value of any property contributed to the REMIC
after the "startup day" (generally the same as the Settlement Date). Exceptions
are provided for cash contributions to a REMIC (i) during the three month period
beginning on the startup day, (ii) made to a qualified reserve fund by a
beneficial owner of a residual interest, (iii) in the nature of a guarantee,
(iv) made to facilitate a qualified liquidation or clean-up call, and (v) as
otherwise permitted by Treasury regulations.
Net Income from Foreclosure Property. The Code imposes a tax on a REMIC
equal to the highest corporate rate on "net income from foreclosure property."
The terms "foreclosure property" (which includes property acquired by deed in
lieu of foreclosure) and "net income from foreclosure property" are defined by
reference to the rules applicable to real estate investment trusts. Generally,
foreclosure property would be treated as such for a period of three years, with
a possible extension. Net income from foreclosure property generally means gain
from the sale of foreclosure property that is inventory property and gross
income from foreclosure property other than qualifying rents and other
qualifying income for a real estate investment trust.
Sales of REMIC Securities
General. Except as provided below, if a Regular or REMIC Residual
Security is sold, the seller will recognize gain or loss equal to the difference
between the amount realized in the sale and its adjusted basis in the Security.
The adjusted basis of a REMIC Regular Security generally will equal the cost of
such Security to the seller, increased by any original issue discount or market
discount included in the seller's gross income with respect to such Security and
reduced by distributions on such Security previously received by the seller of
amounts included in the stated redemption price at maturity and by any premium
that has reduced the seller's interest income with respect to such Security. See
"--Discount and Premium." The adjusted basis of a REMIC Residual Security is
determined as described above under "--Taxation of Beneficial Owners of REMIC
Residual Securities--Basis Rules and Distributions." Except as provided in the
following paragraph or under section 582(c) of the Code, any such gain or loss
will be capital gain or loss, provided such Security is held as a "capital
asset" (generally, property held for investment) within the meaning of section
1221 of the Code.
Gain from the sale of a REMIC Regular Security that might otherwise be
capital gain will be treated as ordinary income to the extent that such gain
does not exceed the excess, if any, of (i) the amount that would have been
includible in the income of the beneficial owner of a REMIC Regular Security had
income accrued at a rate equal to 110% of the "applicable federal rate"
(generally, an average of current yields on Treasury securities) as of the date
of purchase over (ii) the amount actually includible in such beneficial owner's
income. In addition, gain recognized on such a sale by a beneficial owner of a
REMIC Regular Security who purchased such a Security at a market discount would
also be taxable as ordinary income in an amount not exceeding the portion of
such discount that accrued during the period such Security was held by such
beneficial owner, reduced by any market discount includible in income under the
rules described below under "--Discount and Premium."
If a beneficial owner of a REMIC Residual Security sells its REMIC
Residual Security at a loss, the loss will not be recognized if, within six
months before or after the sale of the REMIC Residual Security, such beneficial
owner purchases another residual interest in any REMIC or any interest in a
taxable mortgage pool (as defined in section 7701(i) of the Code) comparable to
a residual interest in a REMIC. Such disallowed loss would be allowed upon the
sale of the other residual interest (or comparable interest) if the rule
referred to in the preceding sentence
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does not apply to that sale. While this rule may be modified by Treasury
regulations, no such regulations have yet been published.
Transfers of REMIC Residual Securities. Section 860E(e) of the Code
imposes a substantial tax, payable by the transferor (or, if a transfer is
through a broker, nominee, or other middleman as the transferee's agent, payable
by that agent) upon any transfer of a REMIC Residual Security to a disqualified
organization and upon a pass-through entity (including regulated investment
companies, real estate investment trusts, common trust funds, partnerships,
trusts, estates, certain cooperatives, and nominees) that owns a REMIC Residual
Security if such pass-through entity has a disqualified organization as a
record-holder. For purposes of the preceding sentence, a transfer includes any
transfer of record or beneficial ownership, whether pursuant to a purchase, a
default under a secured lending agreement or otherwise.
The term "disqualified organization" includes the United States, any
state or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of the foregoing
(other than certain taxable instrumentalities), any cooperative organization
furnishing electric energy or providing telephone service to persons in rural
areas, or any organization (other than a farmers' cooperative) that is exempt
from federal income tax, unless such organization is subject to the tax on
unrelated business income. Moreover, an entity will not qualify as a REMIC
unless there are reasonable arrangements designed to ensure that (i) residual
interests in such entity are not held by disqualified organizations and (ii)
information necessary for the application of the tax described herein will be
made available. Restrictions on the transfer of a REMIC Residual Security and
certain other provisions that are intended to meet this requirement are
described in the Pooling and Servicing Agreement, and will be discussed more
fully in the related Prospectus Supplement relating to the offering of any REMIC
Residual Security. In addition, a pass-through entity (including a nominee) that
holds a REMIC Residual Security may be subject to additional taxes if a
disqualified organization is a record-holder therein. A transferor of a REMIC
Residual Security (or an agent of a transferee of a REMIC Residual Security, as
the case may be) will be relieved of such tax liability if (i) the transferee
furnishes to the transferor (or the transferee's agent) an affidavit that the
transferee is not a disqualified organization, and (ii) the transferor (or the
transferee's agent) does not have actual knowledge that the affidavit is false
at the time of the transfer. Similarly, no such tax will be imposed on a
pass-through entity for a period with respect to an interest therein owned by a
disqualified organization if (i) the record-holder of such interest furnishes to
the pass-through entity an affidavit that it is not a disqualified organization,
and (ii) during such period, the pass-through entity has no actual knowledge
that the affidavit is false.
The Taxpayer Relief Act of 1997 adds provisions to the Code that will
apply to an "electing large partnership." If an electing large partnership holds
a Residual Certificate, all interests in the electing large partnership are
treated as held by disqualified organizations for purposes of the tax imposed
upon a pass-through entity by section 860E(e) of the Code. An exception to this
tax, otherwise available to a pass-through entity that is furnished certain
affidavits by record holders of interests in the entity and that does not know
such affidavits are false, is not available to an electing large partnership.
Under the REMIC Regulations, a transfer of a "noneconomic residual
interest" to a U.S. Person (as defined below in "--Foreign Investors--Grantor
Trust Securities and REMIC Regular Securities") will be disregarded for all
federal tax purposes unless no significant purpose of the transfer is to impede
the assessment or collection of tax. A REMIC Residual Security would be treated
as constituting a noneconomic residual interest unless, at the time of the
transfer, (i) the present value of the expected future distributions on the
REMIC Residual Security is no less than the product of the present value of the
"anticipated excess inclusions" with respect to such Security and the highest
corporate rate of tax for the year in which the transfer occurs, and (ii) the
transferor reasonably expects that the transferee will receive distributions
from the applicable REMIC Trust in an amount sufficient to satisfy the liability
for income tax on any "excess inclusions" at or after the time when such
liability accrues. Anticipated excess inclusions are the excess inclusions that
are anticipated to be allocated to each calendar quarter (or portion thereof)
following the transfer of a REMIC Residual Security, determined as of the date
such Security is transferred and based on events that have occurred as of that
date and on the Prepayment Assumption. See "--Discount and Premium" and
"--Taxation of Beneficial Owners of REMIC Residual Securities--Excess
Inclusions."
The REMIC Regulations provide that a significant purpose to impede the
assessment or collection of tax exists if, at the time of the transfer, a
transferor of a REMIC Residual Security has "improper knowledge" (i.e., either
knew, or should have known, that the transferee would be unwilling or unable to
pay taxes due on its share of
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the taxable income of the REMIC Trust). A transferor is presumed not to have
improper knowledge if (i) the transferor conducts, at the time of a transfer, a
reasonable investigation of the financial condition of the transferee and, as a
result of the investigation, the transferor finds that the transferee has
historically paid its debts as they come due and finds no significant evidence
to indicate that the transferee will not continue to pay its debts as they come
due in the future; and (ii) the transferee makes certain representations to the
transferor in the affidavit relating to disqualified organizations discussed
above. Transferors of a REMIC Residual Security should consult with their own
tax advisors for further information regarding such transfers.
Reporting and Other Administrative Matters. For purposes of the
administrative provisions of the Code, each REMIC Trust will be treated as a
partnership and the beneficial owners of REMIC Residual Securities will be
treated as partners. The Trustee will prepare, sign and file federal income tax
returns for each REMIC Trust, which returns are subject to audit by the IRS.
Moreover, within a reasonable time after the end of each calendar year, the
Trustee will furnish to each beneficial owner that received a distribution
during such year a statement setting forth the portions of any such
distributions that constitute interest distributions, original issue discount,
and such other information as is required by Treasury regulations and, with
respect to beneficial owners of REMIC Residual Securities in a REMIC Trust,
information necessary to compute the daily portions of the taxable income (or
net loss) of such REMIC Trust for each day during such year. The Trustee will
also act as the tax matters partner for each REMIC Trust, either in its capacity
as a beneficial owner of a REMIC Residual Security or in a fiduciary capacity.
Each beneficial owner of a REMIC Residual Security, by the acceptance of its
REMIC Residual Security, agrees that the Trustee will act as its fiduciary in
the performance of any duties required of it in the event that it is the tax
matters partner.
Each beneficial owner of a REMIC Residual Security is required to treat
items on its return consistently with the treatment on the return of the REMIC
Trust, unless the beneficial owner either files a statement identifying the
inconsistency or establishes that the inconsistency resulted from incorrect
information received from the REMIC Trust. The IRS may assert a deficiency
resulting from a failure to comply with the consistency requirement without
instituting an administrative proceeding at the REMIC Trust level.
Termination
In general, no special tax consequences will apply to a beneficial
owner of a REMIC Regular Security upon the termination of a REMIC Trust by
virtue of the final payment or liquidation of the last Mortgage Loan remaining
in the Trust Estate. If a beneficial owner of a REMIC Residual Security's
adjusted basis in its REMIC Residual Security at the time such termination
occurs exceeds the amount of cash distributed to such beneficial owner in
liquidation of its interest, although the matter is not entirely free from
doubt, it would appear that the beneficial owner of the REMIC Residual Security
is entitled to a loss equal to the amount of such excess.
Debt Securities
General
With respect to each series of Debt Securities, Dewey Ballantine LLP,
special tax counsel to the Company, will deliver its opinion to the Company that
the Securities will be classified as debt secured by the related Mortgage Loans
and/or Contracts. Consequently, the Debt Securities will not be treated as
ownership interests in the Mortgage Loans and/or Contracts or the Trust.
Beneficial owners will be required to report income received with respect to the
Debt Securities in accordance with their normal method of accounting. For
additional tax consequences relating to Debt Securities purchased at a discount
or with premium, see "--Discount and Premium," below.
Special Tax Attributes
As described above, REMIC Securities will possess certain special tax
attributes by virtue of the REMIC provisions of the Code. In general, Debt
Securities will not possess such special tax attributes. Investors to whom such
attributes are important should consult their own tax advisors regarding
investment in Debt Securities.
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Sale or Exchange
If a beneficial owner of a Debt Security sells or exchanges such
Security, the beneficial owner will recognize gain or loss equal to the
difference, if any, between the amount received and the beneficial owner's
adjusted basis in the Security. The adjusted basis in the Security generally
will equal its initial cost, increased by any original issue discount or market
discount previously included in the seller's gross income with respect to the
Security and reduced by the payments previously received on the Security, other
than payments of qualified stated interest, and by any amortized premium.
In general (except as described in "--Discount and Premium--Market
Discount," below), except for certain financial institutions subject to section
582(c) of the Code, any gain or loss on the sale or exchange of a Debt Security
recognized by an investor who holds the Security as a capital asset (within the
meaning of section 1221 of the Code), will be capital gain or loss and will be
long-term or short-term depending on whether the Security has been held for more
than one year.
Partnership Interests
With respect to each series of Partnership Interests, Dewey Ballantine
LLP, special tax counsel to the Company, will deliver its opinion to the Company
that the trust will be treated as a partnership and not an association taxable
as a corporation for federal income tax purposes. Such opinion shall be attached
on Form 8-K to be filed with the Commission within fifteen days after the
initial issuance of such Securities or filed with the Commission as a
post-effective amendment to the Prospectus. Accordingly, each beneficial owner
of a Partnership Interest will generally be treated as the owner of an interest
in the Mortgage Loans and/or Contracts.
Special Tax Attributes
As described above, REMIC Securities will possess certain special tax
attributes by virtue of the REMIC provisions of the Code. In general,
Partnership Interests will not possess such special tax attributes. Investors to
whom such attributes are important should consult their own tax advisors
regarding investment in Partnership Interests.
Taxation of Beneficial Owners of Partnership Interests
If the Trust is treated as a partnership for Federal Income Tax
Purposes, the Trust will not be subject to federal income tax. Instead, each
beneficial owner of a Partnership Interest will be required to separately take
into account an allocable share of income, gains, losses, deductions, credits
and other tax items of the Trust. These partnership allocations are made in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the Trust Agreement and related documents).
The Trust's assets will be the assets of the partnership. The Trust's
income will consist primarily of interest and finance charges earned on the
underlying Mortgage Loans. The Trust's deductions will consist primarily of
interest accruing with respect to any indebtedness issued by the Trust,
servicing and other fees, and losses or deductions upon collection or
disposition of the Trust's assets.
In certain instances, the Trust could have an obligation to make
payments of withholding tax on behalf of a beneficial owner of a Partnership
Interest. (See "Backup Withholding" and "Foreign Investors" below).
Substantially all of the taxable income allocated to a beneficial owner
of a Partnership Interest that is a pension, profit sharing or employee benefit
plan or other tax-exempt entity (including an individual retirement account)
will constitute "unrelated business taxable income" generally taxable to such a
holder under the Code.
Under section 708 of the Code, the Trust will be deemed to terminate
for federal income tax purposes if 50% or more of the capital and profits
interests in the Trust are sold or exchanged within a 12-month period. Under the
final regulations issued on May 9, 1997 if such a termination occurs, the Trust
is deemed to contribute all of its assets and liabilities to a newly formed
partnership in exchange for a partnership interest. Immediately thereafter,
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the terminated partnership distributes interests in the new partnership to the
purchasing partner and remaining partners in proportion to their interests in
liquidation of the terminated partnership.
Sale or Exchange of Partnership Interests
Generally, capital gain or loss will be recognized on a sale or
exchange of Partnership Interests in an amount equal to the difference between
the amount realized and the seller's tax basis in the Partnership Interests
sold. A beneficial owner of a Partnership Interest's tax basis in a Partnership
Interest will generally equal the beneficial owner's cost increased by the
beneficial owner's share of Trust income (includible in income) and decreased by
any distributions received with respect to such Partnership Interest. In
addition, both the tax basis in the Partnership Interest and the amount realized
on a sale of a Partnership Interest would take into account the beneficial
owner's share of any indebtedness of the Trust. A beneficial owner acquiring
Partnership Interests at different prices may be required to maintain a single
aggregate adjusted tax basis in such Partnership Interest, and upon sale or
other disposition of some of the Partnership Interests, allocate a portion of
such aggregate tax basis to the Partnership Interests sold (rather than
maintaining a separate tax basis in each Partnership Interest for purposes of
computing gain or loss on a sale of that Partnership Interest).
Any gain on the sale of a Partnership Interest attributable to the
beneficial owner's share of unrecognized accrued market discount on the assets
of the Trust would generally be treated as ordinary income to the holder and
would give rise to special tax reporting requirements. If a beneficial owner of
a Partnership Interest is required to recognize an aggregate amount of income
over the life of the Partnership Interest that exceeds the aggregate cash
distributions with respect thereto, such excess will generally give rise to a
capital loss upon the retirement of the Partnership Interest. If a beneficial
owner sells its Partnership Interest at a profit or loss, the transferee will
have a higher or lower basis in the Partnership Interests than the transferor
had. The tax basis of the Trust's assets will not be adjusted to reflect that
higher or lower basis unless the Trust files an election under section 754 of
the Code.
Partnership Reporting Matters
The Owner Trustee is required to (i) keep complete and accurate books
of the Trust, (ii) file a partnership information return (IRS Form 1065) with
the IRS for each taxable year of the Trust and (iii) report each beneficial
owner of a Partnership Interest's allocable share of items of Trust income and
expense to beneficial owners and the IRS on Schedule K-1. The Trust will provide
the Schedule K-1 information to nominees that fail to provide the Trust with the
information statement described below and such nominees will be required to
forward such information to the beneficial owners of the Partnership Interests.
Generally, beneficial owners of a Partnership Interests must file tax returns
that are consistent with the information return filed by the Trust or be subject
to penalties unless the beneficial owner of a Partnership Interest notifies the
IRS of all such inconsistencies.
Under section 6031 of the Code, any person that holds Partnership
Interests as a nominee at any time during a calendar year is required to furnish
the Trust with a statement containing certain information on the nominee, the
beneficial owners and the Partnership Interests so held. Such information
includes (i) the name, address and taxpayer identification number of the nominee
and (ii) as to each beneficial owner (x) the name, address and identification
number of such person, (y) whether such person is a United States person, a
tax-exempt entity or a foreign government, and international organization, or
any wholly owned agency or instrumentality of either of the foregoing, and (z)
certain information on Partnership Interests that were held, bought or sold on
behalf of such person throughout the year. In addition, brokers and financial
institutions that hold Partnership Interests through a nominee are required to
furnish directly to the Trust information as to themselves and their ownership
of Partnership Interests. A clearing agency registered under section 17A of the
Exchange Act is not required to furnish any such information statement to the
Trust. Nominees, brokers and financial institutions that fail to provide the
Trust with the information described above may be subject to penalties.
The Code provides for administrative examination of a partnership as if
the partnership were a separate and distinct taxpayer. Generally, the statute of
limitations for partnership items does not expire before three years after the
date on which the partnership information return is filed. Any adverse
determination following an audit of the return of the Trust by the appropriate
taxing authorities could result in an adjustment of the returns of the
beneficial owner of a Partnership Interests, and, under certain circumstances, a
beneficial owner of a Partnership Interest may be precluded from separately
litigating a proposed adjustment to the items of the Trust. An adjustment could
also
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result in an audit of the beneficial owner of a Partnership Interest's
returns and adjustments of items note related to the income and losses of the
Trust.
FASIT Securities
If provided in a related Prospectus Supplement, an election will be
made to treat the Trust as a FASIT within the meaning of Code Section 860L(a).
Qualification as a FASIT requires ongoing compliance with certain conditions.
With respect to each series of Securities for which an election is made, Dewey
Ballantine LLP, special tax counsel to the Company, will deliver its opinion to
the Company that, assuming compliance with the Pooling and Servicing Agreement,
the trust will be treated as a FASIT for federal income tax purposes. A Trust
for which a FASIT election is made will be referred to herein as a "FASIT
Trust." The Securities of each class will be designated as "regular interests"
or "high-yield regular interests" in the FASIT Trust except that one separate
class will be designated as the "ownership interest" in the FASIT Trust. The
Prospectus Supplement for each series of Securities will state whether
Securities of each class will constitute either a regular interest or a
high-yield regular interest (a FASIT Regular Security) or an ownership interest
(a FASIT Ownership Security). Such opinion shall be attached on Form 8-K to be
filed with the Commission within fifteen days after the initial issuance of such
Securities or filed with the Commission as a post-effective amendment to the
Prospectus.
Special Tax Attributes
FASIT Securities held by a real estate investment trust will constitute
"real estate assets" within the meaning of Code Sections 856(c)(5)(A) and
856(c)(6) and interest on the FASIT Regular Securities will be considered
"interest on obligations secured by mortgages on real property or on interests
in real property" within the meaning of Code Section 856(c)(3)(B) in the same
proportion that, for both purposes, the assets of the FASIT Trust and the income
thereon would be so treated. FASIT Regular Securities held by a domestic
building and loan association will be treated as "regular interest[s] in a
FASIT" under Code Section 7701(a)(19)(C)(xi), but only in the proportion that
the FASIT Trust holds "loans . . . secured by an interest in real property which
is . . . residential real property" within the meaning of Code Section
7701(a)(19)(C)(v). If at all times 95% or more of the assets of the FASIT Trust
or the income thereon qualify for the foregoing treatments, the FASIT Regular
Securities will qualify for the corresponding status in their entirety. For
purposes of Code Section 856(c)(5)(A), payments of principal and interest on a
Mortgage Loan that are reinvested pending distribution to holders of FASIT
Regular Securities should qualify for such treatment. FASIT Regular Securities
held by a regulated investment company will not constitute "government
securities" within the meaning of Code Section 851(b)(4)(A)(i). FASIT Regular
Securities held by certain financial institutions will constitute an "evidence
of indebtedness" within the meaning of Code Section 582(c)(1).
Taxation of Beneficial Owners of FASIT Regular Securities
A FASIT Trust will not be subject to federal income tax except with
respect to income from prohibited transactions and in certain other instances as
described below. The FASIT Regular Securities generally will be treated for
federal income tax purposes as newly-originated debt instruments. In general,
interest, original issue discount ("OID") and market discount on a FASIT Regular
Security will be treated as ordinary income to the beneficial owner, and
principal payments (other than principal payments that do not exceed accrued
market discount) on an FASIT Regular Security will be treated as a return of
capital to the extent of the beneficial owner's basis allocable thereto.
Beneficial owners must use the accrual method of accounting with respect to
FASIT Regular Securities, regardless of the method of accounting otherwise used
by such beneficial owners. See discussion of "Discount and Premium" below.
In order for the FASIT Trust to qualify as a FASIT, there must be
ongoing compliance with the requirements set forth in the Code. The FASIT must
fulfill an asset test, which requires that substantially all the assets of the
FASIT, as of the close of the third calendar month beginning after the "Startup
Day" (which for purposes of this discussion is the date of the initial issuance
of the FASIT Securities) and at all times thereafter, must consist of cash or
cash equivalents, certain debt instruments (other than debt instruments issued
by the owner of the FASIT or a related party) and hedges (and contracts to
acquire the same), foreclosure property and regular interests in another FASIT
or in a REMIC. Based on identical statutory language applicable to REMICs, it
appears that the "substantially all" requirement should be met if at all times
the aggregate adjusted basis of the nonqualified assets is
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less than one percent of the aggregate adjusted basis of all the FASIT's assets.
The FASIT provisions of the Code (sections 860H through 860L) also require the
FASIT ownership interest and certain "high-yield regular interests" (described
below) to be held only by certain fully taxable domestic corporations.
Permitted debt instruments must bear interest, if any, at a fixed or
qualified variable rate. Permitted hedges include interest rate or foreign
currency notional principal contracts, letters of credit, insurance, guarantees
of payment default and similar instruments to be provided in regulations, and
which are reasonably required to guarantee or hedge against the FASIT's risks
associated with being the obligor on interests issued by the FASIT. Foreclosure
property is real property acquired by the FASIT in connection with the default
or imminent default of a qualified mortgage, provided the Depositor had no
knowledge or reason to know as of the date such asset was acquired by the FASIT
that such a default had occurred or would occur.
In addition to the foregoing requirements, the various interests in a
FASIT also must meet certain requirements. All of the interests in a FASIT must
be either of the following: (a) one or more classes of regular interests or (b)
a single class of ownership interest. A regular interest is an interest in a
FASIT that is issued on or after the Startup Day with fixed terms, is designated
as a regular interest, and (i) unconditionally entitles the holder to receive a
specified principal amount (or other similar amount), (ii) provides that
interest payments (or other similar amounts), if any, at or before maturity
either are payable based on a fixed rate or a qualified variable rate, (iii) has
a stated maturity of not longer than 30 years, (iv) has an issue price not
greater than 125% of its stated principal amount, and (v) has a yield to
maturity not greater than 5 percentage points higher than the related applicable
Federal rate (as defined in Code section 1274(d)). In order to meet the 30 year
maturity requirement, the FASIT Regular Securities will be retired and replaced,
to the extent then-outstanding, with new regular interests on the 30th
anniversary of the date of issuance of the FASIT Regular Securities. A regular
interest that is described in the preceding sentence except that if fails to
meet one or more of requirements (i), (ii) (iv) or (v) is a "high-yield regular
interest." A high-yield regular interest that fails requirement (ii) must
consist of a specified, nonvarying portion of the interest payments on the
permitted assets, by reference to the REMIC rules. An ownership interest is an
interest in a FASIT other than a regular interest that is issued on the Startup
Day, is designated an ownership interest and is held by a single, fully-taxable,
domestic corporation. An interest in a FASIT may be treated as a regular
interest even if payments of principal with respect to such interest are
subordinated to payments on other regular interests or the ownership interest in
the FASIT, and are dependent on the absence of defaults or delinquencies on
permitted assets lower than reasonably expected returns on permitted assets,
unanticipated expenses incurred by the FASIT or prepayment interest shortfalls.
If an entity fails to comply with one or more of the ongoing
requirements of the Code for status as a FASIT during any taxable year, the Code
provides that the entity or applicable potion thereof will not be treated as a
FASIT thereafter. In this event, any entity that holds Mortgage Loans and is the
obligor with respect to debt obligations with two or more maturities, such as
the Trust Fund, may be treated as a separate association taxable as a
corporation, and the FASIT Regular Securities may be treated as equity interests
therein. The legislative history to the FASIT Provisions indicates, however,
that an entity can continue to be a FASIT if loss of its status was inadvertent,
it takes prompt steps to requalify and other requirements that may be provided
in Treasury regulations are met. Loss of FASIT status results in retirement of
all regular interests and their reissuance. If the resulting instruments would
be treated as equity under general tax principles, cancellation of debt income
may result.
Taxes on a FASIT Trust
Income from certain transactions by a FASIT, called prohibited
transactions, are taxable to the holder of the ownership interest in a FASIT at
a 100% rate. Prohibited transactions generally include (i) the disposition of a
permitted asset other than for (a) foreclosure, default, or imminent default of
a qualified mortgage, (b) bankruptcy or insolvency of the FASIT, (c) a qualified
(complete) liquidation, (d) substitution for another permitted debt instrument
or distribution of the debt instrument to the holder of the ownership interest
to reduce overcollateralization, but only if a principal purpose of acquiring
the debt instrument which is disposed of was not the recognition of gain (or the
reduction of a loss) on the withdrawn asset as a result of an increase in the
market value of the asset after its acquisition by the FASIT or (e) the
retirement of a Class of FASIT regular interests; (ii) the receipt of income
from nonpermitted assets; (iii) the receipt of compensation for services; or
(iv) the receipt of any income derived from a loan originated by the FASIT. It
is unclear the extent to which tax on such transactions
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could be collected from the FASIT Trust directly under the applicable statutes
rather than from the holder of the FASIT Residual Security.
DUE TO THE COMPLEXITY OF THESE RULES, THE ABSENCE OF TREASURY
REGULATIONS AND THE CURRENT UNCERTAINTY AS TO THE MANNER TO THEIR APPLICATION TO
THE TRUST AND TO HOLDERS OF FASIT SECURITIES, IT IS PARTICULARLY IMPORTANT THAT
POTENTIAL INVESTORS CONSULT THEIR OWN TAX ADVISORS REGARDING THE TAX TREATMENT
OF THEIR ACQUISITION OWNERSHIP AND DISPOSITION OF THE FASIT REGULAR SECURITIES.
Discount and Premium
A Security purchased for an amount other than its outstanding principal
amount will be subject to the rules governing original issue discount, market
discount or premium. In addition, all Grantor Trust Strip Securities and certain
Grantor Trust Fractional Interest Securities will be treated as having original
issue discount by virtue of the coupon stripping rules in section 1286 of the
Code. In very general terms, (i) original issue discount is treated as a form of
interest and must be included in a beneficial owner's income as it accrues
(regardless of the beneficial owner's regular method of accounting) using a
constant yield method; (ii) market discount is treated as ordinary income and
must be included in a beneficial owner's income as principal payments are made
on the Security (or upon a sale of a Security); and (iii) if a beneficial owner
so elects, premium may be amortized over the life of the Security and offset
against inclusions of interest income. These tax consequences are discussed in
greater detail below.
Original Issue Discount
In general, a Security will be considered to be issued with original
issue discount equal to the excess, if any, of its "stated redemption price at
maturity" over its "issue price." The issue price of a Security is the initial
offering price to the public (excluding bond houses and brokers) at which a
substantial number of the Securities was sold. The issue price also includes any
accrued interest attributable to the period between the beginning of the first
Remittance Period and the Settlement Date. The stated redemption price at
maturity of a Security that has a notional principal amount or receives
principal only or that is or may be an Accrual Security is equal to the sum of
all distributions to be made under such Security. The stated redemption price at
maturity of any other Security is its stated principal amount, plus an amount
equal to the excess (if any) of the interest payable on the first Payment Date
over the interest that accrues for the period from the Settlement Date to the
first Payment Date.
Notwithstanding the general definition, original issue discount will be
treated as zero if such discount is less than 0.25% of the stated redemption
price at maturity multiplied by its weighted average life. The weighted average
life of a Security is apparently computed for this purpose as the sum, for all
distributions included in the stated redemption price at maturity of the amounts
determined by multiplying (i) the number of complete years (rounding down for
partial years) from the Settlement Date until the date on which each such
distribution is expected to be made under the assumption that the Mortgage Loans
prepay at the rate specified in the related Prospectus Supplement (the
"Prepayment Assumption") by (ii) a fraction, the numerator of which is the
amount of such distribution and the denominator of which is the Security's
stated redemption price at maturity. If original issue discount is treated as
zero under this rule, the actual amount of original issue discount must be
allocated to the principal distributions on the Security and, when each such
distribution is received, gain equal to the discount allocated to such
distribution will be recognized.
Section 1272(a)(6) of the Code contains special original issue discount
rules directly applicable to REMIC Securities and Debt Securities. The Taxpayer
Relief Act of 1997 extends application of Section 1272(a)(6) to the Grantor
Trust Securities for tax years beginning after August 5, 1997. Under these rules
(described in greater detail below), (i) the amount and rate of accrual of
original issue discount on each series of Securities will be based on (x) the
Prepayment Assumption, and (y) in the case of a Security calling for a variable
rate of interest, an assumption that the value of the index upon which such
variable rate is based remains equal to the value of that rate on the
Settlement Date, and (ii) adjustments will be made in the amount of discount
accruing in each taxable year in which the actual prepayment rate differs from
the Prepayment Assumption.
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Section 1272(a)(6)(B)(iii) of the Code requires that the prepayment
assumption used to calculate original issue discount be determined in the manner
prescribed in Treasury regulations. To date, no such regulations have been
promulgated. The legislative history of this Code provision indicates that the
assumed prepayment rate must be the rate used by the parties in pricing the
particular transaction. The Depositor anticipates that the Prepayment Assumption
for each series of Securities will be consistent with this standard. The
Depositor makes no representation, however, that the Mortgage Loans for a given
series will prepay at the rate reflected in the Prepayment Assumption for that
series or at any other rate. Each investor must make its own decision as to the
appropriate prepayment assumption to be used in deciding whether or not to
purchase any of the Securities.
Each beneficial owner must include in gross income the sum of the
"daily portions" of original issue discount on its Security for each day during
its taxable year on which it held such Security. For this purpose, in the case
of an original beneficial owner, the daily portions of original issue discount
will be determined as follows. A calculation will first be made of the portion
of the original issue discount that accrued during each "accrual period." The
Trustee will supply, at the time and in the manner required by the IRS, to
beneficial owners, brokers and middlemen information with respect to the
original issue discount accruing on the Securities. The Trustee will report
original issue discount based on accrual periods of no longer than one year
either (i) beginning on a payment date (or, in the case of the first such
period, the Settlement Date) and ending on the day before the next payment date
or (ii) beginning on the next day following a payment date and ending on the
next payment date.
Under section 1272(a)(6) of the Code, the portion of original issue
discount treated as accruing for any accrual period will equal the excess, if
any, of (i) the sum of (A) the present values of all the distributions remaining
to be made on the Security, if any, as of the end of the accrual period and (B)
the distribution made on such Security during the accrual period of amounts
included in the stated redemption price at maturity, over (ii) the adjusted
issue price of such Security at the beginning of the accrual period. The present
value of the remaining distributions referred to in the preceding sentence will
be calculated based on (i) the yield to maturity of the Security, calculated as
of the Settlement Date, giving effect to the Prepayment Assumption, (ii) events
(including actual prepayments) that have occurred prior to the end of the
accrual period, (iii) the Prepayment Assumption, and (iv) in the case of a
Security calling for a variable rate of interest, an assumption that the value
of the index upon which such variable rate is based remains the same as its
value on the Settlement Date over the entire life of such Security. The adjusted
issue price of a Security at any time will equal the issue price of such
Security, increased by the aggregate amount of previously accrued original issue
discount with respect to such Security, and reduced by the amount of any
distributions made on such Security as of that time of amounts included in the
stated redemption price at maturity. The original issue discount accruing during
any accrual period will then be allocated ratably to each day during the period
to determine the daily portion of original issue discount.
In the case of Grantor Trust Strip Securities and certain REMIC
Securities, the calculation described in the preceding paragraph may produce a
negative amount of original issue discount for one or more accrual periods. No
definitive guidance has been issued regarding the treatment of such negative
amounts. The legislative history to section 1272(a)(6) indicates that such
negative amounts may be used to offset subsequent positive accruals but may not
offset prior accruals and may not be allowed as a deduction item in a taxable
year in which negative accruals exceed positive accruals. Beneficial owners of
such Securities should consult their own tax advisors concerning the treatment
of such negative accruals.
A subsequent purchaser of a Security that purchases such Security at a
cost less than its remaining stated redemption price at maturity also will be
required to include in gross income for each day on which it holds such
Security, the daily portion of original issue discount with respect to such
Security (but reduced, if the cost of such Security to such purchaser exceeds
its adjusted issue price, by an amount equal to the product of (i) such daily
portion and (ii) a constant fraction, the numerator of which is such excess and
the denominator of which is the sum of the daily portions of original issue
discount on such Security for all days on or after the day of purchase).
Market Discount
A beneficial owner that purchases a Security at a market discount, that
is, at a purchase price less than the remaining stated redemption price at
maturity of such Security (or, in the case of a Security with original issue
discount, its adjusted issue price), will be required to allocate each principal
distribution first to accrued market discount on the Security, and recognize
ordinary income to the extent such distribution does not exceed the
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aggregate amount of accrued market discount on such Security not previously
included in income. With respect to Securities that have unaccrued original
issue discount, such market discount must be included in income in addition to
any original issue discount. A beneficial owner that incurs or continues
indebtedness to acquire a Security at a market discount may also 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. In
general terms, market discount on a Security may be treated as accruing either
(i) under a constant yield method or (ii) in proportion to remaining accruals of
original issue discount, if any, or if none, in proportion to remaining
distributions of interest on the Security, in any case taking into account the
Prepayment Assumption. The Trustee will make available, as required by the IRS,
to beneficial owners of Securities information necessary to compute the accrual
of market discount.
Notwithstanding the above rules, market discount on a Security will be
considered to be zero if such discount is less than 0.25% of the remaining
stated redemption price at maturity of such Security multiplied by its weighted
average remaining life. Weighted average remaining life presumably would be
calculated in a manner similar to weighted average life, taking into account
payments (including prepayments) prior to the date of acquisition of the
Security by the subsequent purchaser. If market discount on a Security is
treated as zero under this rule, the actual amount of market discount must be
allocated to the remaining principal distributions on the Security and, when
each such distribution is received, gain equal to the discount allocated to such
distribution will be recognized.
Securities Purchased at a Premium
A purchaser of a Security that purchases such Security at a cost
greater than its remaining stated redemption price at maturity will be
considered to have purchased such Security (a "Premium Security") at a premium.
Such a purchaser need not include in income any remaining original issue
discount and may elect, under section 171(c)(2) of the Code, to treat such
premium as "amortizable bond premium." If a beneficial owner makes such an
election, the amount of any interest payment that must be included in such
beneficial owner's income for each period ending on a Payment Date will be
reduced by the portion of the premium allocable to such period based on the
Premium Security's yield to maturity. Such premium amortization should be made
using constant yield principles. If such election is made by the beneficial
owner, the election will also apply to all bonds the interest on which is not
excludible from gross income ("fully taxable bonds") held by the beneficial
owner at the beginning of the first taxable year to which the election applies
and to all such fully taxable bonds thereafter acquired by it, and is
irrevocable without the consent of the IRS. If such an election is not made, (i)
such a beneficial owner must include the full amount of each interest payment in
income as it accrues, and (ii) the premium must be allocated to the principal
distributions on the Premium Security and, when each such distribution is
received, a loss equal to the premium allocated to such distribution will be
recognized. Any tax benefit from the premium not previously recognized will be
taken into account in computing gain or loss upon the sale or disposition of the
Premium Security.
Some Securities may provide for only nominal distributions of principal
in comparison to the distributions of interest thereon. It is possible that the
IRS or the Treasury Department may issue guidance excluding such Securities from
the rules generally applicable to debt instruments issued at a premium. In
particular, it is possible that such a Security will be treated as having
original issue discount equal to the excess of the total payments to be received
thereon over its issue price. In such event, section 1272(a)(6) of the Code
would govern the accrual of such original issue discount, but a beneficial owner
would recognize substantially the same income in any given period as would be
recognized if an election were made under section 171(c)(2) of the Code. Unless
and until the Treasury Department or the IRS publishes specific guidance
relating to the tax treatment of such Securities, the Trustee intends to furnish
tax information to beneficial owners of such Securities in accordance with the
rules described in the preceding paragraph.
Special Election
For any Security acquired on or after April 4, 1994, a beneficial owner
may elect to include in gross income all "interest" that accrues on the Security
by using a constant yield method. For purposes of the election, the term
"interest" includes stated interest, acquisition discount, original issue
discount, de minimis original issue discount, market discount, de minimis market
discount and unstated interest as adjusted by any amortizable bond premium or
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acquisition premium. A beneficial owner should consult its own tax advisor
regarding the time and manner of making and the scope of the election and the
implementation of the constant yield method.
Backup Withholding
Distributions of interest and principal, as well as distributions of
proceeds from the sale of Securities, may be subject to the "backup withholding
tax" under section 3406 of the Code at a 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 that does not do so in
the proper manner.
The Internal Revenue Service recently issued final regulations (the
"Withholding Regulations"), which change certain of the rules relating to
certain presumptions currently available relating to information reporting and
backup withholding. The Withholding Regulations would provide alternative
methods of satisfying the beneficial ownership certification requirement. The
Withholding Regulations are effective January 1, 1999, although valid
withholding certificates that are held on December 31, 1998 remain valid until
the earlier of December 31, 1999 or the due date of expiration of the
certificate under the rules as currently in effect.
Foreign Investors
The Withholding Regulations would require, in the case of Securities
held by a foreign partnership, that (x) the certification described above be
provided by the partners rather than by the foreign partnership and (y) the
partnership provide certain information, including a United States taxpayer
identification number. See "--Backup Withholding" above. A look-through rule
would apply in the case of tiered partnerships. Non-U.S. Persons should consult
their own tax advisors regarding the application to them of the Withholding
Regulations.
Grantor Trust Securities and REMIC Regular Securities
Distributions made on a Grantor Trust Security, Debt Security or a
REMIC Regular Security to, or on behalf of, a beneficial owner that is not a
U.S. Person generally will be exempt from U.S. federal income and withholding
taxes. The term "U.S. Person" means a citizen or resident of the United States,
a corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, an estate that
is subject to U.S. federal income tax regardless of the source of its income, or
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. This exemption is
applicable provided (a) the beneficial owner is not subject to U.S. tax as a
result of a connection to the United States other than ownership of the
Security, (b) the beneficial owner signs a statement under penalties of perjury
that certifies that such beneficial owner is not a U.S. Person, and provides the
name and address of such beneficial owner, and (c) the last U.S. Person in the
chain of payment to the beneficial owner receives such statement from such
beneficial owner or a financial institution holding on its behalf and does not
have actual knowledge that such statement is false. Beneficial owners should be
aware that the IRS might take the position that this exemption does not apply to
a beneficial owner that also owns 10% or more of the REMIC Residual Securities
of any REMIC trust, or to a beneficial owner that is a "controlled foreign
corporation" described in section 881(c)(3)(C) of the Code.
REMIC Residual Securities and FASIT Ownership Securities
Amounts distributed to a beneficial owner of a REMIC Residual Security
that is a not a U.S. Person generally will be treated as interest for purposes
of applying the 30% (or lower treaty rate) withholding tax on income that is not
effectively connected with a U.S. trade or business. Temporary Treasury
Regulations clarify that amounts not constituting excess inclusions that are
distributed on a REMIC Residual Security or a FASIT Ownership Security to a
beneficial owner that is not a U.S. Person generally will be exempt from U.S.
federal income and withholding tax, subject to the same conditions applicable to
distributions on Grantor Trust Securities, Debt Securities and REMIC Regular
Securities, as described above, but only to the extent that the obligations
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directly underlying the REMIC or FASIT Trust that issued the REMIC Residual
Security or FASIT Ownership Security (e.g., Mortgage Loans or regular interests
in another REMIC or FASIT) were issued after July 18, 1984. In no case will any
portion of REMIC or FASIT income that constitutes an excess inclusion be
entitled to any exemption from the withholding tax or a reduced treaty rate for
withholding. See "--REMIC Securities--Taxation of Beneficial Owners of REMIC
Residual Securities--Excess Inclusions" herein.
Partnership Interests
Depending upon the particular terms of the Trust Agreement and Sale and
Servicing Agreement, a Trust may be considered to be engaged in a trade or
business in the United States for purposes of federal withholding taxes with
respect to non-U.S. persons. If the Trust is considered to be engaged in a trade
or business in the United States for such purposes and the Trust is treated as a
partnership, the income of the Trust distributable to a non-U.S. person would be
subject to federal withholding tax. Also, in such cases, a non-U.S. beneficial
owner of a Partnership Interest that is a corporation may be subject to the
branch profits tax. If the Trust is notified that a beneficial owner of a
Partnership Interest is a foreign person, the Trust may withhold as if it were
engaged in a trade or business in the United States in order to protect the
Trust from possible adverse consequences of a failure to withhold. A foreign
holder generally would be entitled to file with the IRS a claim for refund with
respect to withheld taxes, taking the position that no taxes were due because
the Trust was not in a U.S. trade or business.
FASIT Regular Securities
Certain "high-yield" FASIT Regular Securities may not be sold to or
beneficially owned by Non-U.S. Persons. Any such purported transfer will be null
and void and, upon the Trustee's discovery of any purported transfer in
violation of this requirement, the last preceding owner of such high-yield FASIT
Regular Securities will be restored to ownership thereof as completely as
possible. Such last preceding owner will, in any event, be taxable on all income
with respect to such high-yield FASIT Regular Securities for federal income tax
purposes. The Pooling and Servicing Agreement will provide that, as a condition
to transfer of a high-yield FASIT Regular Security, the proposed transferee must
furnish an affidavit as to its status as a U.S. Person and otherwise as a
permitted transferee.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in
"Material Federal Income Tax Consequences," potential investors should consider
the state and local income tax consequences of the acquisition, ownership, and
disposition of the Securities. State and local income tax law may differ
substantially from the corresponding federal law, and this discussion does not
purport to describe any aspect of the income tax laws of any state or locality.
Therefore, potential investors should consult their own tax advisors with
respect to the various state and local tax consequences of an investment in the
Securities.
ERISA CONSIDERATIONS
GENERAL
Section 406 of ERISA and Section 4975 of the Code prohibit a pension,
profit sharing or other employee benefit plan (a "Plan") and certain individual
retirement arrangements 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, unless a statutory or
administrative exemption applies to the transaction. ERISA and the Code also
prohibit generally certain actions involving conflicts of interest by persons
who are fiduciaries of such Plans or arrangements. A violation of these
"prohibited transaction" rules may generate excise tax and other liabilities
under ERISA and the Code for such persons. In addition, investments by Plans are
subject to ERISA's general fiduciary requirements, including the requirement of
investment prudence and diversification and the requirement that a Plan's
investments be made in accordance with the documents governing the Plan.
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 Securities without regard to the ERISA considerations discussed
below, subject to the provisions of
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other applicable federal, state and local law. Any such plan which is qualified
and exempt from taxation under Section 401(a) and 501(a) of the Code, however,
is subject to the prohibited transaction rules set forth in Section 503 of the
Code.
Certain transactions involving the Trust might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Plan
(including an individual retirement arrangement) that purchased Securities, if
the assets of the Trust were deemed to be assets of the Plan. Under a regulation
(the "Plan Assets Regulation") issued by the United States Department of Labor
(the "DOL"), the assets of the Trust would be treated as plan assets of a Plan
for the purposes of ERISA and the Code only if the Plan acquired an equity
interest in the Trust and none of the exceptions contained in the Plan Assets
Regulation were 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. In addition, in John Hancock Mutual Life Insurance Co. v. Harris Trust
and Savings Bank, 510 U.S. 86 (1993), the United States 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. Therefore, in the
absence of an exemption, the purchase, sale or holding of a Security by a Plan
(including certain individual retirement arrangements) subject to Section 406 of
ERISA or Section 4975 of the Code might result in prohibited transactions and
the imposition of excise taxes and civil penalties.
CERTIFICATES
The DOL has issued to various underwriters individual prohibited
transaction exemptions (the "Underwriter Exemptions"), which generally exempt
from the application of the prohibited transaction provisions of Section 406(a),
Section 406(b)(1), Section 406(b)(2) and Section 407(a) of ERISA and the excise
taxes imposed pursuant to Sections 4975(a) and (b) of the Code, certain
transactions with respect to the initial purchase, the holding and the
subsequent resale by Plans of certificates in pass-through trusts that consist
of secured receivables, secured loans and other secured obligations that meet
the conditions and requirements of the Underwriter Exemptions. The Underwriter
Exemptions will only be available for Securities that are Certificates.
Among the conditions that must be satisfied in order for the
Underwriter Exemptions to apply to offered certificates are the following:
(1) the acquisition of the certificates by a Plan is on terms
(including the price for the certificates) that are at least
as favorable to the Plan as they would be in an arm's-length
transaction with an unrelated party;
(2) the rights and 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 Standard & Poor's,
Moody's, Duff & Phelps Credit Rating Co. ("D&P") or Fitch;
(4) the Trustee is not an affiliate of any other member of the
Restricted Group (as defined below);
(5) the sum of all payments made to and retained by the
underwriters in connection with the distribution of the
certificates represents not more than reasonable compensation
for underwriting the certificates; the sum of all payments
made to and retained by the originators and the sponsor
pursuant to the assignment of the loans to the trust estate
represents not more than the fair market value of such loans;
the sum of all payments made to and retained by any 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;
(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; and
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(7) in the event that all of the obligations used to fund the
trust have not been transferred to the trust on the closing
date, additional obligations of the types specified in the
prospectus supplement and/or pooling and servicing agreement
having an aggregate value equal to no more than 25% of the
total principal amount of the certificates being offered by
the trust may be transferred to the trust, in exchange for
amounts credited to the account funding the additional
obligations, within a funding period of no longer than 90 days
or 3 months following the closing date.
The trust estate must also meet the following requirements:
(i) the corpus of the trust estate must consist solely of assets
of the type that have been included in other investment pools;
(ii) certificates in such other investment pools must have been
rated in one of the three highest rating categories of
Standard & Poor's, 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 the Plan's acquisition of
certificates.
Moreover, the Underwriter Exemptions provide relief from certain
self-dealing/conflict of interest prohibited transactions that may occur when
the Plan fiduciary causes a Plan to acquire certificates in a trust in which the
fiduciary (or its affiliate) is an obligor on the receivables held in the trust;
provided that, among other requirements, (i) in the case of an acquisition in
connection with the initial issuance of certificates, at least fifty percent of
each class of certificates in which Plans have invested is acquired by persons
independent of the Restricted Group and at least fifty percent of the aggregate
interest in the trust is acquired by persons independent of the Restricted
Group; (ii) such fiduciary (or its affiliate) is an obligor with respect to five
percent or less of the fair market value of the obligations contained in the
trust; (iii) the Plan's investment in certificates of any class does not exceed
twenty-five percent of all of the certificates of that class outstanding at the
time of the acquisition; and (iv) immediately after the acquisition, no more
than twenty-five percent of the assets of the Plan with respect to which such
person is a fiduciary are invested in certificates representing an interest in
one or more trusts containing assets sold or serviced by the same entity. The
Underwriter Exemptions do not apply to Plans sponsored by the Depositor, the
Underwriters, the Trustee, the Master Servicer, any other servicer, any obligor
with respect to Mortgage Loans included in the Trust Estate constituting more
than five percent of the aggregate unamortized principal balance of the assets
in the Trust Estate, or any affiliate of such parties (the "Restricted Group").
In addition to the Underwriter Exemptions, the DOL has issued
Prohibited Transaction Class Exemption ("PTCE") 83-1 which provides an exemption
for certain transactions involving the sale or exchange of certain residential
mortgage pool pass-through certificates by Plans and for transactions in
connection with the servicing and operation of the mortgage pool.
NOTES
The Underwriter Exemptions will not be available for Securities which
are Notes. However, if the Notes are treated as indebtedness without substantial
equity features, the Trust's assets would not be deemed assets of a Plan. If the
Notes are treated as having substantial equity features, the purchase, holding
and resale of the Notes could result in a transaction that is prohibited under
ERISA or the Code. The acquisition or holding of the Notes by or on behalf of a
Plan could nevertheless give rise to a prohibited transaction, if such
acquisition and holding of Notes by or on behalf of a Plan were deemed to be a
prohibited loan to a party in interest with respect to such Plan. Certain
exemptions from such prohibited transaction rules could be applicable to the
purchase and holding of Notes by a Plan, depending on the type and circumstances
of the plan fiduciary making the decision to acquire such Notes. Included among
these exemptions are: PTCE 84-14, regarding certain transactions effected by
"qualified professional asset managers"; PTCE 90-1, regarding certain
transactions entered into by insurance company pooled separate accounts; PTCE
91-38, regarding certain transactions entered into by bank collective investment
funds; PTCE 95-60, regarding certain transactions entered into by insurance
company general accounts; and PTCE 96-23, regarding certain transactions
effected by "in-house asset managers". Each purchaser and each transferee of a
Note that is treated as debt for purposes of the Plan Assets Regulation may be
required to represent and warrant that its
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purchase and holding of such Note will be covered by one of the exemptions
listed above or by another Department of Labor Class Exemption.
CONSULTATION WITH COUNSEL
The Prospectus Supplement for each series of Securities will provide
further information which Plans should consider before purchasing the offered
Securities. A Plan fiduciary considering the purchase of Securities should
consult its tax and/or legal advisors regarding whether the assets of the Trust
would be considered plan assets, the possibility of exemptive relief from the
prohibited transaction rules and other ERISA issues and their potential
consequences. Moreover, each Plan fiduciary should determine whether under the
general fiduciary standards of investment prudence and diversification, an
investment in the Securities is appropriate for the Plan, taking into account
the overall investment policy of the Plan and the composition of the Plan's
investment portfolio. The sale of Securities to a Plan is in no respect a
representation by the Sponsor or the Underwriters that this investment meets all
relevant requirements with respect to investments by Plans generally or any
particular Plan or that this investment is appropriate for Plans generally or
any particular Plan.
LEGAL INVESTMENT
The related Prospectus Supplement will describe whether or not the
Securities will constitute "mortgage-related securities" within the meaning of
SMMEA. Accordingly, investors whose investment authority is subject to legal
restrictions should consult their own legal advisors to determine whether and to
what extent the Securities constitute legal investments for them.
PLAN OF DISTRIBUTION
The Depositor may offer each Series of Securities through First Union
Capital Markets, a division of Wheat First Securities, Inc. ("First Union") or
one or more other firms that may be designated at the time of each offering of
such Securities. The participation of First Union in any offering will comply
with Schedule E to the bylaws of the National Association of Securities Dealers,
Inc. The Prospectus Supplement relating to each Series of Securities will set
forth the specific terms of the offering of such Series of Securities and of
each Class within such Series, the names of the underwriters, the purchase price
of the Securities, the proceeds to the Depositor from such sale, any securities
exchange on which the Securities may be listed, and, if applicable, the initial
public offering prices, the discounts and commissions to the underwriters and
any discounts and concessions allowed or reallowed to certain dealers. The place
and time of delivery of each Series of Securities will also be set forth in the
Prospectus Supplement relating to such Series. First Union is an affiliate of
the Depositor.
LEGAL MATTERS
Certain legal matters in connection with the Securities will be passed
upon for the Depositor by Dewey Ballantine LLP, New York, New York or such other
counsel identified in the related Prospectus Supplement.
FINANCIAL INFORMATION
The Depositor has determined that its financial statements are not
material to the offering made hereby.
A new Trust will be formed to own the Primary Assets and to issue each
Series of Securities. Each such Trust will have no assets or obligations prior
to the issuance of the Securities and will not engage in any activities
other than those described herein. Accordingly, no financial statements with
respect to such Trusts will be included in this Prospectus or any Prospectus
Supplement.
A Prospectus Supplement and the related Form 8-K (which will be
incorporated by reference to the Registration Statement) may contain financial
statements of the related Credit Enhancer, if any.
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GLOSSARY OF TERMS
The following are abbreviated definitions of certain capitalized terms
used in this Prospectus. The definitions may vary from those in the related
Agreement for a Series and the related Agreement for a Series generally provides
a more complete definition of certain of the terms. Reference should be made to
the related Agreement for a Series for a more compete definition of such terms.
"Accrual Termination Date" means, with respect to a Class of Compound
Interest Securities, the Distribution Date specified in the related Prospectus
Supplement.
"Advance" means cash advanced by the Servicer in respect of delinquent
payments of principal of and interest on a Mortgage Loan and for any other
purposes in servicing such Mortgage Loan.
"Agreement" means, with respect to a Series of Certificates, the
Pooling and Servicing Agreement or Trust Agreement, and, with respect to a
Series of Notes, the Indenture and the Servicing Agreement, as the context
requires.
"Appraised Value" means, with respect to property securing a Mortgage
Loan, the lesser of the appraised value determined in an appraisal obtained at
origination of the Mortgage Loan or sales price of such property at such time.
"Asset Group" means, with respect to the Primary Assets and other
assets comprising the Trust Fund of a Series, a group of such Primary Assets and
other assets having the characteristics described in the related Prospectus
Supplement.
"Assumed Reinvestment Rate" means, with respect to a Series, the per
annum rate or rates specified in the related Prospectus Supplement for a
particular period or periods as the "Assumed Reinvestment Rate" for funds held
in any fund or account for the Series.
"Available Distribution Amount" means the amount in the Distribution
Account (including amounts deposited therein from any reserve fund or other fund
or account) eligible for distribution to Holders on a Distribution Date.
"Bankruptcy Code" means the federal bankruptcy code, 11 United States
Code 101 et seq., and related rules and regulations promulgated thereunder.
"Business Day" means a day that, in the City of New York or in the city
or cities in which the corporate trust office of the Trustee are located, is
neither a legal holiday nor a day on which banking institutions are authorized
or obligated by law, regulations or executive order to be closed.
"Certificate" means the Asset-Backed Certificates.
"Class" means a Class of Securities of a Series.
"Closing Date" means, with respect to a Series, the date specified in
the related Prospectus Supplement as the date on which Securities of such Series
are first issued.
"Code" means the Internal Revenue Code of 1986, as amended, and
regulations (including proposed regulations) or other pronouncements of the
Internal Revenue Service promulgated thereunder.
"Collection Account" means, with respect to a Series, the account
established in the name of the Servicer for the deposit by the Servicer of
payments received from the Primary Assets.
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"Combined Loan-to-Value Ratio" means, with respect to a Mortgage Loan,
the ratio determined as set forth in the related Prospectus Supplement taking
into account the amounts of any related senior loans on the related Mortgaged
Property.
"Commission" means the Securities and Exchange Commission.
"Compound Interest Security" means any Security of a Series on which
all or a portion of the interest accrued thereon is added to the principal
balance of such Security on each Distribution Date, through the Accrual
Termination Date, and with respect to which no interest shall be payable until
such Accrual Termination Date, after which interest payments will be made on the
Compound Value thereof.
"Compound Value" means, with respect to a Class of Compound Interest
Securities, the original principal balance of such Class, plus all accrued and
unpaid interest, if any, previously added to the principal balance thereof and
reduced by any payments of principal previously made on such Class of Compound
Interest Securities.
"Condominium" means a form of ownership of real property wherein each
owner is entitled to the exclusive ownership and possession of his or her
individual Condominium Unit and also owns a proportionate undivided interest in
all parts of the Condominium Building (other than the individual Condominium
Units) and all areas or facilities, if any, for the common use of the
Condominium Units.
"Condominium Association" means the person(s) appointed or elected by
the Condominium Unit owners to govern the affairs of the Condominium.
"Condominium Building" means a multi-unit building or buildings, or a
group of buildings whether or not attached to each other, located on property
subject to Condominium ownership.
"Condominium Loan" means a Mortgage Loan secured by a Mortgage on a
Condominium Unit (together with its appurtenant interest in the common
elements).
"Condominium Unit" means an individual housing unit in a Condominium
Building.
"Cooperative" means a corporation owned by tenant-stockholders who,
through the ownership of stock, shares or membership securities in the
corporation, receive proprietary leases or occupancy agreements which confer
exclusive rights to occupy specific units and which is described in Section 216
of the Code.
"Cooperative Dwelling" means an individual housing unit in a building
owned by a Cooperative.
"Cooperative Loan" means a housing loan made with respect to a
Cooperative Dwelling and secured by an assignment by the borrower
(tenant-stockholder) or security interest in shares issued by the applicable
Cooperative.
"Credit Enhancement" means the credit enhancement for a Series, if any,
specified in the related Prospectus Supplement.
"Cut-off Date" means the date designated as such in the related
Prospectus Supplement for a Series.
"Debt Securities" means Securities characterized as indebtedness for
federal income tax purposes, and Regular Interest Securities.
"Deferred Interest" means the excess of the interest accrued on the
outstanding principal balance of a Mortgage Loan during a specified period over
the amount of interest required to be paid by an obligor on such Mortgage Loan
on the related Due Date.
"Deposit Agreement" means a guaranteed investment contract or
reinvestment agreement providing for the investment of funds held in a fund or
account, guaranteeing a minimum or a fixed rate of return on the investment of
moneys deposited therein.
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"Depositor" means Residential Asset Funding Corporation
"Disqualified Organization" means the United States, any State or
political subdivision thereof, any possession of the United States, any foreign
government, any international organization, or any agency or instrumentality of
any of the foregoing, a rural electric or telephone cooperative described in
section 1381(a)(2)(C) of the Code, or any entity exempt from the tax imposed by
sections 1-1399 of the Code, if such entity is not subject to tax on its
unrelated business income.
"Distribution Account" means, with respect to a Series, the account
established in the name of the Trustee for the deposit of remittances received
from the Servicer with respect to the Primary Assets.
"Distribution Date" means, with respect to a Series or Class of
Securities, each date specified as a distribution date for such Series or Class
in the related Prospectus Supplement.
"Due Date" means each date, as specified in the related Prospectus
Supplement for a Series, on which any payment of principal or interest is due
and payable by the obligor on any Primary Asset pursuant to the terms thereof.
"Eligible Investments" means any one or more of the obligations or
securities described as such in the related Agreement.
"Credit Enhancer" means the provider of the Credit Enhancement for a
Series specified in the related Prospectus Supplement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Account" means an account, established and maintained by the
Servicer for a Mortgage Loan, into which payments by borrowers to pay taxes,
assessments, mortgage and hazard insurance premiums and other comparable items
required to be paid to the mortgagee are deposited.
"FHLMC" means the Federal Home Loan Mortgage Corporation.
"Final Scheduled Distribution Date" means, with respect to a Class of
Notes of a Series, the date no later than which principal thereof will be fully
paid and with respect to a Class of Certificates of a Series, the date after
which no Certificates of such Class will remain outstanding, in each case based
on the assumptions set forth in the related Prospectus Supplement.
"FNMA" means the Federal National Mortgage Association.
"Holder" means the person or entity in whose name a Security is
registered.
"Home Improvements" means the home improvements financed by a Mortgage
Loan.
"HUD" means the United States Department of Housing and Urban
Development.
"Indenture" means the indenture relating to a Series of Notes between
the Trust Fund and the Trustee.
"Insurance Policies" means certain mortgage insurance, hazard insurance
and other insurance policies required to be maintained with respect to Mortgage
Loans.
"Insurance Proceeds" means amount paid by the insurer under any of the
Insurance Policies covering any Mortgage Loan or Mortgaged Property.
"Interest Only Securities" means a Class of Securities entitled solely
or primarily to distributions of interest and which is identified as such in the
related Prospectus Supplement.
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"IRS" means the Internal Revenue Service.
"Lifetime Rate Cap" means the lifetime limit if any, on the Loan Rate
during the life of each adjustable rate Mortgage Loan.
"Liquidation Proceeds" means amounts received by the Servicer in
connection with the liquidation of a Mortgage Loan, net of liquidation expenses.
"Loan Rate" means the interest rate borne by a Mortgage Loan.
"Loan-to-Value Ratio" means, with respect to a Mortgage Loan, the ratio
determined as set forth in the related Prospectus Supplement.
"Minimum Rate" means the lifetime minimum Loan Rate during the life of
each adjustable rate Loan.
"Minimum Principal Payment Agreement" means a minimum principal payment
agreement with an entity meeting the criteria of the Rating Agencies.
"Modification" means a change in any term of a Mortgage Loan.
"Mortgage" means the mortgage, deed of trust or other similar security
instrument securing a Mortgage Note.
"Mortgaged Property" means residential properties securing a Mortgage
Loan.
"Mortgage Loan" means a loan secured by a Mortgaged Property.
"Mortgage Note" means the note or other evidence of indebtedness of a
Mortgagor under the Mortgage Loan.
"Mortgagor" means the obligor on a Mortgage Note.
"1986 Act" means the Tax Reform Act of 1986.
"Notes" means the Asset-Backed Notes.
"Notional Amount" means the amount set forth in the related Prospectus
Supplement for a Class of Interest Only Securities.
"PAC" ("Planned Amortization Class Securities") means a Class of
Securities of a Series on which payments of principal are made in accordance
with a schedule specified in the related Prospectus Supplement, based on certain
assumptions stated therein.
"Participating Securities" means Securities entitled to receive
payments of principal and interest and an additional return on investment as
described in the related Prospectus Supplement.
"Pass-Through Security" means a security representing an undivided
beneficial interest in a pool of assets, including the right to receive a
portion of all principal and interest payments relating to those assets.
"Pay Through Security" means Regular Interest Securities and certain
Debt Securities that are subject to acceleration due to prepayment on the
underlying Primary Assets.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust (including any beneficiary thereof),
unincorporated organization, or government or any agency or political
subdivision thereof.
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"Pooling and Servicing Agreement" means the pooling and servicing
agreement relating to a Series of Certificates among the Depositor, the Servicer
(if such Series relates to Mortgage Loans) and the Trustee.
"Primary Assets" means the Private Securities, the Mortgage Loans, as
the case may be, which are included in the Trust Fund for such Series. A Primary
Asset refers to a specific Private Security or Mortgage Loan, as the case may
be.
"Principal Balance" means, with respect to a Primary Asset and as of a
Due Date, the original principal amount of the Primary Asset, plus the amount of
any Deferred Interest added to such principal amount, reduced by all payments,
both scheduled or otherwise, received on such Primary Asset prior to such Due
Date and applied to principal in accordance with the terms of the Primary Asset.
"Principal Only Securities" means a Class of Securities entitled solely
or primarily to distributions of principal and identified as such in the
Prospectus Supplement.
"Private Security" means a participation or pass-through certificate
representing a fractional, undivided interest in Underlying Loans or
collateralized obligations secured by Underlying Loans.
"PS Agreement" means the pooling and servicing agreement, indenture,
trust agreement or similar agreement pursuant to which a Private Security is
issued.
"PS Servicer" means the servicer of the Underlying Loans.
"PS Sponsor" means, with respect to Private Securities, the sponsor or
depositor under a PS Agreement.
"PS Trustee" means the trustee designated under a PS Agreement.
"Qualified Insurer" means a mortgage guarantee or insurance company
duly qualified as such under the laws of the states in which the Mortgaged
Properties are located duly authorized and licensed in such states to transact
the applicable insurance business and to write the insurance provided.
"Rating Agency" means the nationally recognized statistical rating
organization (or organizations) which was (or were) requested by the Depositor
to rate the Securities upon the original issuance thereof.
"Regular Interest" means a regular interest in a REMIC.
"REMIC" means a real estate mortgage investment conduit.
"REMIC Administrator" means the Person, if any, specified in the
related Prospectus Supplement for a Series for which a REMIC election is made,
to serve as administrator of the Series.
"REMIC Provisions" means the provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at sections
860A through 860G of Subchapter M of Chapter 1 of the Code, and related
provisions, and regulations, including proposed regulations and rulings, and
administrative pronouncements promulgated thereunder, as the foregoing may be in
effect from time to time.
"REO Property" means real property which secured a defaulted Mortgage
Loan, beneficial ownership of which has been acquired upon foreclosure, deed in
lieu of foreclosure, repossession or otherwise.
"Reserve Fund" means, with respect to a Series, any Reserve Fund
established pursuant to the related Agreement.
"Residual Interest" means a residual interest in a REMIC.
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"Retained Interest" means, with respect to a Primary Asset, the amount
or percentage specified in the related Prospectus Supplement which is not
included in the Trust Fund for the related Series.
"Scheduled Payments" means the scheduled payments of principal and
interest to be made by the borrower on a Primary Asset.
"Securities" means the Notes or the Certificates.
"Originator" means the originator or acquiror of the Primary Assets to
the Depositor identified in the related Prospectus Supplement for a Series.
"Senior Securityholder" means a holder of a Senior Security.
"Senior Securities" means a Class of Securities as to which the
holders' rights to receive distributions of principal and interest are senior to
the rights of holders of Subordinate Securities, to the extent specified in the
related Prospectus Supplement.
"Series" means a separate series of Securities sold pursuant to this
Prospectus and the related Prospectus Supplement.
"Servicer" means, with respect to a Series relating to Mortgage Loans,
the Person if any, designated in the related Prospectus Supplement to service
Mortgage Loans for that Series, or the successors or assigns of such Person.
"Single Family Property" means property securing a Mortgage Loan
consisting of one-to four-family attached or detached residential housing,
including Cooperative Dwellings.
"Stripped Securities" means Pass-Through Securities representing
interests in Primary Assets with respect to which all or a portion of the
principal payments have been separated from all or a portion of the interest
payments.
"Subordinate Securityholder" means a Holder of a Subordinate Security.
"Subordinated Securities" means a Class of Securities as to which the
rights of holders to receive distributions of principal, interest or both is
subordinated to the rights of holders of Senior Securities, and may be allocated
losses and shortfalls prior to the allocation thereof to other Classes of
Securities, to the extent and under the circumstances specified in the related
Prospectus Supplement.
"Trustee" means the trustee under the applicable Agreement and its
successors.
"Trust Fund" means, with respect to any Series of Securities, the trust
holding all money, instruments, securities and other property, including all
proceeds thereof, which are, with respect to a Series of Certificates, held for
the benefit of the Holders by the Trustee under the Pooling and Servicing
Agreement or Trust Agreement or, with respect to a Series of Notes, pledged to
the Trustee under the Indenture as a security for such Notes, including, without
limitation, the Primary Assets (except any Retained Interests), all amounts in
the Distribution Account Collection Account or Reserve Funds, distributions on
the Primary Assets (net of servicing fees), and reinvestment earnings on such
net distributions and any Credit Enhancement and all other property and interest
held by or pledged to the Trustee pursuant to the related Agreement for such
Series.
"UCC" means the Uniform Commercial Code.
"Underlying Loans" means loans of the type eligible to be Mortgage
Loans underlying or securing Private Securities.
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"Variable Interest Security" means a Security on which interest accrues
at a rate that is adjusted, based upon a predetermined index, at fixed periodic
intervals, all as set forth in the related Prospectus Supplement.
"Zero Coupon Security" means a Security entitled to receive payments of
principal only.
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TABLE OF CONTENTS
Page
SUMMARY OF PROSPECTUS.........................................................5
RISK FACTORS.................................................................17
DESCRIPTION OF THE SECURITIES................................................23
THE TRUST FUNDS..............................................................26
CREDIT ENHANCEMENT...........................................................34
SERVICING OF MORTGAGE LOANS..................................................36
THE AGREEMENTS...............................................................42
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS......................................51
THE DEPOSITOR................................................................61
USE OF PROCEEDS..............................................................61
MATERIAL FEDERAL INCOME TAX CONSEQUENCES.....................................62
STATE TAX CONSIDERATIONS.....................................................78
ERISA CONSIDERATIONS.........................................................79
LEGAL INVESTMENT.............................................................81
PLAN OF DISTRIBUTION.........................................................81
LEGAL MATTERS................................................................82
FINANCIAL INFORMATION........................................................82
GLOSSARY OF TERMS............................................................83
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INDEX OF PRINCIPAL TERMS
Unless the context indicates otherwise, the following terms shall have
the meanings set forth on the page indicated below:
Actuarial Mortgage Loan..................................................27
Agreement.................................................................5
APR......................................................................29
ARM Loans................................................................18
Balloon Loan..............................................................9
bankruptcy bond..........................................................34
Book-Entry Securities....................................................48
Business Day.............................................................12
Capitalized Interest Account.............................................12
Cede.....................................................................48
CERCLA...................................................................20
Certificate Schedule.....................................................42
Certificates...........................................................1, 5
Class.....................................................................2
Code.....................................................................61
Collection Account.......................................................11
Combined Loan-to-Value Ratio..............................................9
Commission................................................................3
Condominium Units........................................................26
Contract Rate............................................................29
Contracts................................................................29
Cooperative Dwellings....................................................26
Credit Enhancement.......................................................12
Credit Enhancer..........................................................11
Current Interest Rates....................................................9
Custodian................................................................42
Cut-Off Date..............................................................8
Cut-Off Date Aggregate Principal Balance.................................30
D&P......................................................................79
Debt Securities......................................................14, 61
Deferred Interest........................................................30
Deleted Primary Asset....................................................43
Deposit Agreement........................................................13
Depositor.................................................................1
Depositor Securities.....................................................60
Distribution Account.....................................................11
Distribution Date.........................................................2
DOL......................................................................78
Due Date.................................................................30
Eligible Investments.................................................12, 32
ERISA....................................................................15
Escrow Accounts..........................................................35
Event of Default.........................................................40
Exchange Act..............................................................4
FASIT................................................................15, 61
FASIT High-Yield Securities..............................................14
FASIT Ownership Security.................................................14
FASIT Regular Securities.................................................14
FASIT Securities.........................................................61
FDIC.....................................................................36
FHA......................................................................26
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FHLMC....................................................................54
Final Scheduled Distribution Date.........................................6
First Union..............................................................80
fully taxable bonds......................................................75
Garn-St. Germain Act.....................................................54
Grantor Trust............................................................61
Grantor Trust Securities.................................................14
Holders...................................................................3
Indenture................................................................22
Indirect Participant.....................................................48
IRS......................................................................62
Issuer....................................................................5
Lifetime Rate Caps........................................................9
Liquidation Proceeds.....................................................36
Loan Rate.................................................................9
Loan Schedule............................................................42
Loan-to-Value Ratio...................................................9, 30
Minimum Principal Payment Agreement......................................13
Modification.............................................................39
Mortgage Loans.....................................................1, 8, 26
Notes..................................................................1, 5
Notional Amount...........................................................6
Originator................................................................1
OTS......................................................................55
Owner Trust...............................................................5
Owner Trustee.............................................................6
PAC.......................................................................5
Participants.............................................................48
Partnership..............................................................61
Partnership Interests................................................14, 61
Physical Certificates....................................................48
Plan.....................................................................78
Plan Assets Regulation...................................................78
Pool......................................................................1
Pooling and Servicing Agreement..........................................22
Pre-Funded Amount........................................................11
Pre-Funding Account......................................................11
Pre-Funding Period.......................................................11
Premium Security.........................................................75
Prepayment Assumption....................................................73
Primary Assets............................................................1
Prospectus Supplements....................................................1
PS Agreement.............................................................31
PS Servicer..............................................................10
PS Sponsor...............................................................10
PS Trustee...............................................................10
PTCE.....................................................................79
Qualifying Substitute Primary Asset......................................43
Rating Agency............................................................13
REMIC................................................................14, 61
REMIC Regular Securities.................................................14
REMIC Regulations........................................................63
REMIC Residual Securities................................................14
REMIC Securities.........................................................61
REO Property.............................................................37
Reserve Fund.............................................................13
ii
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Restricted Group.........................................................79
Retained Interests.......................................................42
Rule of 78s Mortgage Loan................................................27
Securities................................................................1
Security Registrar.......................................................48
Series....................................................................1
Servicer..................................................................1
Servicing Agreement......................................................25
Servicing Fee............................................................14
Settlement Date..........................................................63
Simple Interest Mortgage Loan............................................27
Single Family Properties.................................................26
SMMEA....................................................................15
Title I Program..........................................................28
Title V..............................................................55, 59
Trust Agreement...........................................................5
Trust Fund................................................................1
Trustee................................................................5, 6
UCC..................................................................48, 56
Underlying Loans.........................................................10
Underwriter Exemptions...................................................78
iii
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You should rely only on the information contained in this document or that we
have referred you to. We have not authorized any person to provide you with
information that is different. The information in this document speaks only as
of its date, and may not be accurate at any time after its date. This document
is not an offer to sell these securities, and it is not soliciting an offer to
buy these securities in any state where the offer or sale is not permitted.
- -------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Summary................................................S-1
Risk Factors...........................................S-8
Description Of The Mortgage Pool......................S-13
The Issuer............................................S-62
RBMG..................................................S-63
RBMG Funding Co.......................................S-66
The Depositor.........................................S-66
Description Of The Notes..............................S-66
Certain Prepayment And Yield Considerations...........S-92
Servicing Of The Mortgage Loans......................S-100
The Insurance Policy And The Note Insurer............S-114
ERISA Considerations.................................S-119
Use Of Proceeds......................................S-121
Legal Investment Considerations......................S-121
Underwriting.........................................S-121
Experts..............................................S-122
Material Federal Income Tax Consequences.............S-122
Legal Matters........................................S-125
State Tax Considerations.............................S-125
Rating Of The Notes..................................S-125
Index Of Significant Terms...............................i
Annex I................................................A-1
PROSPECTUS
Summary Of Prospectus...................................5
Risk Factors...........................................17
Description Of The Securities..........................22
The Trust Funds........................................25
Credit Enhancement.....................................33
Servicing Of Mortgage Loans............................35
The Agreements.........................................41
Certain Legal Aspects Of Home
Mortgage Loans.........................................50
The Depositor..........................................60
Use Of Proceeds........................................60
Material Federal Income Tax
Consequences...........................................61
State Tax Considerations...............................77
ERISA Considerations...................................77
Legal Investment.......................................80
Plan Of Distribution...................................80
Legal Matters..........................................80
Financial Information..................................80
Glossary Of Terms......................................81
Until 90 days after the date of this prospectus supplement, all
dealers that effect transactions in these securities, whether or PROSPECTUS
SUPPLEMENT not participating in this offering, may be required to deliver a
prospectus supplement and the prospectus to which it relates. This is in
addition to the dealers' obligation to deliver a FIRST UNION CAPITAL MARKETS
prospectus supplement and the related prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions
$125,030,000
RBMG FUNDING CO.
MORTGAGE LOAN
TRUST 1999-1
ISSUER
ASSET-BACKED NOTES,
SERIES 1999-1
$75,030,000 CLASS A-1 NOTES
$50,000,000 CLASS A-2 NOTES
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
SERVICER
RESIDENTIAL ASSET FUNDING CORPORATION
DEPOSITOR
PROSPECTUS SUPPLEMENT
FIRST UNION CAPITAL
MARKETS
JUNE 2, 1999
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