<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 13, 1998
REGISTRATION NO. 333-47311
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3/S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMERICAN RESIDENTIAL EAGLE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 33-0787975
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
------------------------
445 MARINE VIEW AVENUE, SUITE 100
DEL MAR, CALIFORNIA 92014
(619) 259-6082
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JAY M. FULLER
AMERICAN RESIDENTIAL INVESTMENT TRUST, INC.
445 MARINE VIEW AVENUE, SUITE 230
DEL MAR, CALIFORNIA 92014
(619) 350-5000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
PHILLIP R. POLLOCK, ESQ. JOHN ARNHOLZ, ESQ.
TOBIN & TOBIN BROWN & WOOD LLP
500 SANSOME STREET, 8TH FLOOR 815 CONNECTICUT AVENUE, NW
SAN FRANCISCO, CALIFORNIA 94111 SUITE 701
(415) 433-1400 WASHINGTON, D.C. 20006-4004
(202) 973-0600
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
From time to time after the effective date of this Registration Statement as
determined by market conditions.
------------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 13, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1998)
$
AMERICAN RESIDENTIAL EAGLE BOND TRUST [199 - ],
BOND ISSUER
COLLATERALIZED [REDEEMABLE] MORTGAGE BONDS
------------------------
The American Residential Eagle Bond Trust [199 - ], Collateralized
[Redeemable] Mortgage Bonds (the "Bonds"), in the aggregate principal amount of
$ , consist of Class A-1, Class B-1 and Class B-2 Bonds. The Bonds will
be collateralized by -year conventional mortgage loans secured by first
liens on one- to four-family residential properties (the "Mortgage Loans"). The
Mortgage Loans will be acquired from [American Residential Investment Trust,
Inc. ("AmREIT")]. The Bond Issuer will also issue an Investor Certificate (the
"Investor Certificate") as described herein. Only the Class A-1 and Class B-1
Bonds (collectively, the "Offered Bonds") are offered hereby. Interest on the
Bonds will be payable [monthly on the th day of each month], or if such day is
not a business day, the next succeeding business day (each, a "Distribution
Date"), commencing on , 199 . Interest on the Bonds will be payable in
an amount equal to the interest accrued during each Interest Accrual Period (as
defined herein). Interest accrued on the Bonds during any Interest Accrual
Period will be calculated on the basis of the related Class Principal Amount (as
defined herein) immediately prior to the related Distribution Date. See
"DESCRIPTION OF THE BONDS -- INTEREST" herein. Payments of principal of the
Bonds on each Distribution Date will be made in the manner described herein
under "DESCRIPTION OF THE BONDS -- PRINCIPAL." The Bonds are redeemable only
under the circumstances described herein. See "INDEX OF CERTAIN DEFINITIONS" on
page S- of this Prospectus Supplement and on page of the Prospectus for the
location of the definitions of certain defined terms.
The Class A-1 Bonds are referred to herein as the "Senior Bonds" and the
Class B-1 and Class B-2 Bonds are referred to herein collectively as the
"Subordinated Bonds." The rights of the holders of the Subordinated Bonds to
receive payments of principal and interest will be subject to the priorities
described herein. See "DESCRIPTION OF THE BONDS -- PRIORITY OF PAYMENTS AND
ALLOCATION OF SHORTFALLS" herein.
FOR A DISCUSSION OF ALL MATERIAL RISK FACTORS RELATING TO INVESTMENTS IN
THE BONDS, SEE "RISK FACTORS" COMMENCING ON PAGE S-12 OF THIS PROSPECTUS
SUPPLEMENT AND ON PAGE 18 OF THE PROSPECTUS.
(Cover continued on next page)
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=======================================================================================================================
ORIGINAL CLASS BOND INTEREST STATED
PRINCIPAL AMOUNT RATE MATURITY(1)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A-1................................... $ (2)
- -----------------------------------------------------------------------------------------------------------------------
Class B-1................................... $ (3)
=======================================================================================================================
</TABLE>
(1) Calculated as described herein under "DESCRIPTION OF THE BONDS -- STATED
MATURITY."
(2) The Bond Interest Rate for the Senior Bonds (the "Senior Bond Interest
Rate") and any Interest Accrual Period will equal .
(3) The Bond Interest Rate for the Class B-1 Bonds (the "Class B-1 Bond Interest
Rate") and any Interest Accrual Period will equal . Class A-1
Bonds with original principal amount of $ and all of the Class B-1
Bonds (collectively, the "Underwritten Bonds") will be purchased by
(the "Underwriter") from the Bond Issuer and will
be offered by the Underwriter from time to time in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. AmREIT has agreed to purchase Class A-1 Bonds with original principal
amount of $ in a negotiated transaction and will initially pledge
its Class A-1 Bonds to secure indebtedness and may, from time to time, offer
such Class A-1 Bonds for sale to the public in negotiated transactions or
otherwise at varying prices to be determined at the time of sale. Proceeds
to the Bond Issuer from the sale of the Offered Bonds are expected to be
approximately % of the aggregate principal amount of the Offered Bonds
plus accrued interest, before deducting issuance expenses payable by the
Bond Issuer.
The Underwritten Bonds are offered by the Underwriter, subject to prior
sale, when, as and if delivered to and accepted by the Underwriter and subject
to its right to reject orders in whole or in part. It is expected that delivery
of the Offered Bonds will be made in book-entry form only through the facilities
of The Depository Trust Company on or about , 199 .
[UNDERWRITER]
, 199
<PAGE> 3
(Cover continued from previous page)
The Bonds will be issued by American Residential Eagle Bond Trust [199 ]
(the "Bond Issuer"), a Delaware business trust established by American
Residential Eagle, Inc. (the "Company" or the "Depositor"), a wholly owned
subsidiary of AmREIT. Prior to their sale to the Bond Issuer by the Company, the
Mortgage Loans will be held by [AmREIT]. The Bonds represent obligations solely
of the Bond Issuer and are not insured or guaranteed by any government agency or
instrumentality, the Company, AmREIT, or any other person or entity. The Bond
Issuer is not expected to have any significant assets other than those pledged
as collateral to secure the Bonds.
All of the Mortgage Loans bear interest at [fixed] rates [that adjust
[annually] based on changes in the level of the Index (as defined herein)]. The
Bonds also will be secured by the Bond Account and the Distribution Account
described herein. Scheduled net payments on the Mortgage Loans will be
sufficient, irrespective of the rate of prepayments on the Mortgage Loans, to
make timely payments of interest on the Bonds and to retire each Class of Bonds
not later than its Stated Maturity.
THE YIELD TO INVESTORS ON EACH CLASS OF OFFERED BONDS WILL BE SENSITIVE IN
VARYING DEGREES TO, AMONG OTHER THINGS, THE RATE AND TIMING OF PRINCIPAL
PAYMENTS (INCLUDING PREPAYMENTS) OF THE MORTGAGE LOANS AND THE LEVEL OF THE
INDEX, EACH OF] WHICH MAY VARY SIGNIFICANTLY OVER TIME. [THE BOND INTEREST RATE
FOR A CLASS OF OFFERED BONDS MAY ALSO CHANGE FROM DISTRIBUTION DATE TO
DISTRIBUTION DATE BASED ON THE NET MORTGAGE RATES (AS DEFINED HEREIN) AND THE
OUTSTANDING PRINCIPAL BALANCES OF THE MORTGAGE LOANS]. THE YIELD TO MATURITY OF
A CLASS OF OFFERED BONDS PURCHASED AT A DISCOUNT OR PREMIUM WILL BE MORE
SENSITIVE TO THE RATE AND TIMING OF PAYMENTS THEREON. HOLDERS OF THE OFFERED
BONDS SHOULD CONSIDER, IN THE CASE OF ANY SUCH BONDS PURCHASED AT A DISCOUNT,
THE RISK THAT A SLOWER THAN ANTICIPATED RATE OF PRINCIPAL PAYMENTS COULD RESULT
IN AN ACTUAL YIELD THAT IS LOWER THAN THE ANTICIPATED YIELD AND, IN THE CASE OF
ANY OFFERED BONDS PURCHASED AT A PREMIUM, THE RISK THAT A FASTER THAN
ANTICIPATED RATE OF PRINCIPAL PAYMENTS COULD RESULT IN AN ACTUAL YIELD THAT IS
LOWER THAN THE ANTICIPATED YIELD. THE YIELD TO INVESTORS IN THE OFFERED BONDS
ALSO MAY BE ADVERSELY AFFECTED BY NET INTEREST SHORTFALLS (AS DEFINED HEREIN)
AND, PARTICULARLY IN THE CASE OF THE CLASS B-1 BONDS, REALIZED LOSSES (AS
DEFINED HEREIN). NO REPRESENTATION IS MADE AS TO THE ANTICIPATED RATE OF
PREPAYMENTS ON THE MORTGAGE LOANS, THE AMOUNT AND TIMING OF NET INTEREST
SHORTFALLS OR REALIZED LOSSES, OR AS TO THE RESULTING YIELD TO MATURITY OF ANY
CLASS OF OFFERED BONDS.
The Underwriter intends to make a secondary market in the Offered Bonds,
but has no obligation to do so. There is currently no secondary market for the
Offered Bonds and there can be no assurance that such a market will develop or,
if it does develop, that it will continue or that it will provide Bondholders
with a sufficient level of liquidity of investment. The Bonds will not be listed
on any national securities exchange.
------------------------
This Prospectus Supplement does not contain complete information about the
offering of the Offered Bonds. Additional information is contained in the
Prospectus of the Company dated , 199 and purchasers are urged to
read both this Prospectus Supplement and the Prospectus in full. Sales of the
Bonds may not be consummated unless the purchaser has received both this
Prospectus Supplement and the Prospectus.
The Company will provide without charge to each person to whom this
Prospectus Supplement is delivered, on the written or oral request of such
person, a copy of any or all of the documents referred to in the Prospectus
under "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" that have been or may be
incorporated by reference in the Prospectus (not including exhibits to the
information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that the Prospectus
incorporates). Such requests should be directed to the Company at 445 Marine
View Avenue, Suite 100, Del Mar, California 92014, telephone: (619) 259-6082,
facsimile number: (619) 350-6484.
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE OFFERED BONDS, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
S-2
<PAGE> 4
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms used in this Summary are
defined elsewhere in this Prospectus Supplement or in the Prospectus. See "INDEX
OF CERTAIN DEFINITIONS" on page S-42 of this Prospectus Supplement and page 96
of the Prospectus for the location of the definitions of certain capitalized
terms.
Offered Bonds...................... American Residential Eagle Bond Trust
[199 - ], Collateralized [Redeemable]
Mortgage Bonds, Class A-1 and Class B-1
Bonds (collectively, the "Offered
Bonds"). Only the Offered Bonds are
offered hereby.
Securities Other than the Offered
Bonds.............................. In addition to the Offered Bonds, the
Class B-2 Bonds and the Investor
Certificate will be issued in the initial
amounts and will bear interest at the
interest rates indicated below, but are
not offered hereby:
<TABLE>
<CAPTION>
INITIAL INTEREST
AMOUNT RATE
------- --------
<S> <C> <C>
Class B-2 Bonds(1)............. $ (2)
Investor Certificate(1)........ $ (3)
</TABLE>
-------------------------------------------------------
(1) The Class B-2 Bonds and the Investor
Certificate will provide limited
credit support for the Offered Bonds
as described herein.
(2) The interest rate for the Class B-2
Bonds (the "Class B-2 Bond Interest
Rate") and any Interest Accrual
Period will equal.
(3) The interest rate for the Investor
Certificate (the "Certificate
Interest Rate") and any Interest
Accrual Period will equal.
Any information contained herein with
respect to the Class B-2 Bonds or the
Investor Certificate is provided only to
permit a better understanding of the
Offered Bonds.
Designations:
Senior Bonds..................... Class A-1 Bonds.
Subordinated Bonds............... Class B-1 and Class B-2 Bonds.
Offered Bonds.................... The Senior Bonds and the Class B-1 Bonds.
Book-Entry Bonds................. All Classes of Offered Bonds.
Bond Issuer........................ The Bond Issuer, American Residential
Eagle Bond Trust [199 - ], is a statutory
business trust established under the laws
of the State of Delaware by the Deposit
Trust Agreement (as defined herein) for
the sole purpose of issuing the Bonds and
the Investor Certificate. The settlor and
sole beneficiary of the Bond Issuer is
American Residential Eagle, Inc., a
Delaware corporation (the "Company" or
the "Depositor"), and a wholly owned
subsidiary of American Residential
Investment Trust,
S-3
<PAGE> 5
Inc., a Maryland corporation ("AmREIT").
The Owner Trustee of the Bond Issuer is
. AmREIT will be the
manager of the Bond Issuer pursuant to a
management agreement (the "Management
Agreement") entered into with the Issuer.
None of the Company, AmREIT or the Owner
Trustee has guaranteed or is otherwise
obligated with respect to payment of the
Bonds, and no person or entity other than
the Bond Issuer is obligated to pay the
Bonds. See "THE BOND ISSUER" herein.
Bond Trustee....................... , a banking
corporation organized under the laws of
(the "Bond Trustee").
Owner Trustee...................... , a banking
corporation organized under the laws of
the State of Delaware (the "Owner
Trustee").
Master Servicing Agreement......... The Mortgage Loans will be serviced
pursuant to a master servicing agreement
dated as of 1, 199 (the
"Master Servicing Agreement") among the
Bond Issuer, the Bond Trustee and the
Master Servicer.
Master Servicer.................... will act as Master
Servicer for the Mortgage Loans (the
"Master Servicer"). On or prior to the
Closing Date, as to any Mortgage Loans
not being directly serviced by the Master
Servicer, the Master Servicer will enter
into or be assigned mortgage servicing
agreements (each, a "Servicing
Agreement") with certain servicers (each,
a "Servicer") pursuant to which each
Servicer will perform certain servicing
functions with respect to the Mortgage
Loans. See "SERVICING OF THE MORTGAGE
LOANS -- THE MASTER SERVICER" herein. The
Master Servicer will administer and
supervise the performance of each
Servicer, who may in turn be
administering and supervising the
performance of one or more subservicers
of the Mortgage Loans. The Master
Servicer will receive the Master
Servicing Fee, and each Servicer will
receive the related Servicing Fee, from
interest collected on the Mortgage Loans.
The Master Servicer will be obligated to
perform the obligations of a terminated
Servicer or appoint a successor Servicer.
See "SERVICING OF THE MORTGAGE
LOANS -- SERVICING COMPENSATION AND
PAYMENT OF EXPENSES" herein.
Deposit Trust Agreement............ The Bond Issuer will be established and
the Investor Certificate will be issued
pursuant to an amended and restated
deposit trust agreement dated as of
, 199 (the "Deposit
Trust Agreement") among the Company and
the Owner Trustee.
Cut-off Date....................... 1, 199 .
Closing Date....................... On or about , 19 .
S-4
<PAGE> 6
Determination Date................. The day of each [month] or, if such day
is not a business day, the first business
day thereafter.
Distribution Date.................. The th day of each [month] or, if such
day is not a business day, the first
business day thereafter, commencing in
, 199 (each, a "Distribution
Date"). Payments on each Distribution
Date will be made to Bondholders of
record as of the related Record Date,
except that the final payment on the
Bonds will be made only upon presentment
and surrender of the Bonds at the
Corporate Trust Office of the Bond
Trustee.
Record Date........................ The Record Date for any Distribution Date
will be the last business day of the
month preceding the month of such
Distribution Date.
Priority of Payments............... Payments will be made on each
Distribution Date from Available Funds in
the following order of priority: (i) to
interest on the Senior Bonds; (ii) to
principal of the Senior Bonds; (iii) to
interest on the Class B-1 Bonds; (iv) to
principal of the Class B-1 Bonds; (v) to
interest on the Class B-2 Bonds; (vi) to
principal of the Class B-2 Bonds; (vii)
to interest on the Investor Certificate;
(viii) to principal of the Investor
Certificate; and (ix) to the holder of
the Investor Certificate, all remaining
Available Funds. Under certain
circumstances described herein, (i)
payments from Available Funds for a
Distribution Date that would otherwise be
made on the Subordinated Bonds may be
made instead on the Senior Bonds, and
(ii) payments from Available Funds for a
Distribution Date that would otherwise be
made on the Class B-2 Bonds may be made
instead on the Class B-1 Bonds. In
addition, under certain circumstances
described herein, payments from Available
Funds for a Distribution Date that would
otherwise be made on the Investor
Certificate may be made instead on the
Senior Bonds and the Subordinated Bonds.
See "DESCRIPTION OF THE BONDS -- PRIORITY
OF PAYMENTS AND ALLOCATION OF SHORTFALLS"
herein.
Payments of Interest............... To the extent funds are available
therefor, each Class of Bonds will be
entitled to receive interest in the
amount of the Interest Payment Amount for
such Class. See "DESCRIPTION OF THE
BONDS -- INTEREST" herein.
A. Interest Payment Amount....... For each Class of Bonds, the amount of
interest accrued during the related
Interest Accrual Period at the applicable
Bond Interest Rate. With respect to each
Distribution Date, the "Interest Accrual
Period" for each Class of Bonds will be
the calendar [month] preceding the month
of such Distribution Date.
B. Bond Interest Rate............ The Bond Interest Rate for each Class of
Bonds for each Distribution Date will be
as described herein or on the cover page
hereof.
S-5
<PAGE> 7
Payments of Principal.............. On each Distribution Date, to the extent
funds are available therefor, principal
payments in reduction of the Class
Principal Amount of each Class of Bonds
will be made in the order and subject to
the priorities set forth herein under
"DESCRIPTION OF THE BONDS -- PRINCIPAL"
in an amount equal to such Class'
allocable portion of the Principal
Payment Amount.
Stated Maturity.................... The Stated Maturity for each Class of
Bonds is the date determined by the
Company which is years after the
Distribution Date immediately following
the latest maturity date of any Mortgage
Loan. The Stated Maturity for each Class
of Bonds is , 20 . See
"DESCRIPTION OF THE BONDS -- STATED
MATURITY" and "-- WEIGHTED AVERAGE LIVES
OF THE OFFERED BONDS" herein.
Optional Redemption of Bonds....... The Bonds may be redeemed in whole, but
not in part, at the Bond Issuer's option,
on any Distribution Date on or after the
earlier of (a) years after the initial
issuance of the Bonds and (b) the
Distribution Date on which the sum of (i)
the Senior Class Principal Amount, (ii)
the Class B-1 Principal Amount, (iii) the
Class B-2 Principal Amount and (iv) the
Invested Amount, in each case after
giving effect to payments to be made on
such Distribution Date, is % or less of
the aggregate of the Stated Principal
Balances of the Mortgage Loans as of the
Cut-off Date, at a redemption price equal
to 100% of the unpaid principal amount of
such Bonds (including, in the case of any
Class of Subordinated Bonds, any unpaid
Class Principal Carryover Shortfall
relating thereto), plus accrued and
unpaid interest thereon at the applicable
Bond Interest Rate through the month
preceding the month in which such
optional redemption date occurs. The
Bonds are not otherwise subject to
redemption or call at the option of the
Bond Issuer nor are they subject to
special redemption. See "DESCRIPTION OF
THE BONDS -- REDEMPTION AT THE OPTION OF
THE BOND ISSUER" [and "RISK FACTORS --
YIELD, PREPAYMENT AND MATURITY RISKS"]
herein.
Credit Enhancement Subordination... Credit enhancement for the Senior Bonds
will be provided by the Subordinated
Bonds and by the Investor Certificate.
Credit enhancement for the Class B-1
Bonds will be provided by the Class B-2
Bonds and the Investor Certificate.
Credit enhancement for the Class B-2
Bonds will be provided by the Investor
Certificate.
The rights of holders of the Subordinated
Bonds and the Investor Certificate to
receive payments with respect to the
Mortgage Loans will be subordinated to
such rights of the holders of the Senior
Bonds, the rights of the holders of the
Class B-2 Bonds and the Investor
Certificate will be further subordinated
to such rights of the holders of the
S-6
<PAGE> 8
Class B-1 Bonds, and the rights of the
holder of the Investor Certificate will
be further subordinated to such rights of
the holders of the Class B-2 Bonds, in
each case to the extent described herein.
See "DESCRIPTION OF THE BONDS -- PRIORITY
OF PAYMENTS AND ALLOCATION OF SHORTFALLS"
and "CREDIT ENHANCEMENT" herein.
Advances........................... The Master Servicer is obligated to make
cash advances ("Advances") with respect
to delinquent payments of principal and
interest on any Mortgage Loan to the
extent described herein. The Bond Trustee
will be obligated to make any such
Advance if the Master Servicer fails in
its obligation to do so, to the extent
provided in the Master Servicing
Agreement. See "SERVICING OF THE MORTGAGE
LOANS" herein.
Certain Prepayment and Yield
Considerations and Risks;
Reinvestment Risk................ The effective yields to the holders of
the Offered Bonds will be lower than the
yields otherwise produced by the
applicable rate at which interest is paid
to such holders and the purchase price of
such Offered Bonds because [monthly]
distributions will not be payable to such
holders until the th day (or, if such
day is not a business day, the following
business day) of the month following the
[month] in which interest accrues on the
Mortgage Loans (without any additional
payment of interest or earnings thereon
in respect of such delay). The rate of
principal payments on the Offered Bonds,
the aggregate amount of payments on the
Offered Bonds and the yields to maturity
of the Offered Bonds will be related to
the rate and timing of payments of
principal on the Mortgage Loans [and the
level of the Index]. [In addition, the
aggregate payments on the Offered Bonds
and the yields to maturity of the Offered
Bonds will be affected by whether the
Bond Issuer elects to exercise its option
to redeem the Bonds.]
Since the rate of payment of principal on
the Mortgage Loans will depend on future
events, no assurance can be given as to
such rate or the rate of principal
prepayments. The extent to which the
yield to maturity of a Class of Offered
Bonds may vary from the anticipated yield
may depend upon the degree to which it is
purchased at a discount or premium, and
the degree to which the timing of
payments thereon is sensitive to
prepayments, liquidations and purchases
of the Mortgage Loans. Further, an
investor should consider the risk that,
in the case of any Offered Bond purchased
at a discount, a slower than anticipated
rate of principal payments (including
prepayments) on the Mortgage Loans could
result in an actual yield to such
investor that is lower than the
anticipated yield and, in the case of any
Offered Bond purchased at a premium, a
faster than anticipated rate of principal
payments on the Mortgage Loans could
result in an actual
S-7
<PAGE> 9
yield to such investor that is lower than
the anticipated yield.
Because the Mortgage Loans may be prepaid
at any time, it is not possible to
predict the rate at which payments of
principal of the Offered Bonds will be
received. [In addition, it is not
possible to predict when or if the Bond
Issuer will elect to exercise its option
to redeem the Bonds. Since prevailing
interest rates are subject to
fluctuation, there can be no assurance
that investors in the Offered Bonds will
be able to reinvest the payments thereon
at yields equaling or exceeding the
yields on such Bonds. It is possible that
yields on any such reinvestments will be
lower, and may be significantly lower,
than the yields on the Offered Bonds. See
"RISK FACTORS -- YIELD, PREPAYMENT AND
MATURITY RISKS" herein and "RISK
FACTORS -- PREPAYMENT AND YIELD
CONSIDERATIONS; REINVESTMENT RISK" in the
Prospectus.
Security for the Bonds............. The Bonds will be secured by collateral
(the "Trust Fund Assets") consisting of
the items set forth below:
A. Mortgage Loans................ The Mortgage Loans will consist primarily
of a pool (the "Mortgage Loan Pool") of
-year conventional mortgage loans
secured by first liens on one- to
four-family residential properties. Such
Mortgage Loans will bear interest at
[fixed] rates [that adjust [annually]
based on changes in the level of the
Index (as defined herein)]. Payments of
principal and interest on the Bonds will
be based on payments received on the
Mortgage Loans, as described herein. See
"DESCRIPTION OF THE BONDS -- INTEREST"
and " -- PRINCIPAL" herein and "TRUST
FUND ASSETS -- THE MORTGAGE LOANS" herein
and in the Prospectus.
[The Mortgage Rate for each Mortgage Loan
will adjust [annually] based on (the
"Index"). See "TRUST FUND ASSETS -- THE
MORTGAGE LOANS -- GENERAL", and " -- THE
INDEX" herein.]
B. Bond Account.................. On or prior to the Closing Date, the
Master Servicer will establish and
maintain or cause to be established and
maintained a separate account or accounts
for the collection of payments on the
Mortgage Loans (the "Bond Account"). See
"DESCRIPTION OF THE BONDS -- PAYMENTS ON
MORTGAGE LOANS; ACCOUNTS" herein and
"SERVICING OF THE MORTGAGE LOANS" herein
and in the Prospectus.
C. Distribution Account.......... On or prior to the Closing Date, the Bond
Trustee will establish an account (the
"Distribution Account") which will be
maintained with the Bond Trustee for the
benefit of the Bondholders. On or prior
to the business day immediately preceding
each Distribution Date, the Master
Servicer will withdraw from the Bond
Account the Bond
S-8
<PAGE> 10
Distribution Amount (as defined herein)
for such Distribution Date, to the extent
of Available Funds on deposit therein,
and will deposit such amount in the
Distribution Account. See "DESCRIPTION OF
THE BONDS -- PAYMENTS ON MORTGAGE LOANS;
ACCOUNTS" herein and "SERVICING OF THE
MORTGAGE LOANS" herein and in the
Prospectus.
Federal Income Tax Consequences.... The Bonds will be treated as indebtedness
for federal income tax purposes, and
interest, including original issue
discount with respect to any Class of
Bonds issued with original issue
discount, will be taxable to non-exempt
Bondholders. The prepayment rate used by
the Bond Issuer for purposes of
determining the amount and rate of
accrual of original issue discount on the
Bonds assumes that the Mortgage Loans are
prepaid at a rate of % of the
Prepayment Assumption. Based upon the
assumed prepayment rate and the expected
price to the public of each Class of
Bonds as of the date hereof (including
interest accrued before the Closing Date,
if any), the Senior Bonds will not be
issued with original issue discount and
the Subordinated Bonds will be treated as
issued with original issue discount.
Pursuant to applicable regulations, the
Bond Issuer intends to treat the stated
interest on the Bonds as "qualified
stated interest payments" (as such term
is defined in the Prospectus under
"FEDERAL INCOME TAX CONSEQUENCES").
Notwithstanding the use of the Prepayment
Assumption in pricing the Offered Bonds,
no representation is made that the
Mortgage Loans will actually prepay at
such assumed prepayment rate or at any
other rate. The amount of original issue
discount, if any, and certain other
information with respect to each Offered
Bond will be set forth on the face of
such Offered Bond as required by
applicable regulations. Payments on
Offered Bonds held by foreign persons
will generally be exempt from United
States withholding tax, subject to
compliance with applicable certification
procedures. Tax Counsel to the Bond
Issuer has advised the Bond Issuer that
in its opinion the Offered Bonds will be
treated as debt for federal income tax
purposes. The Bond Issuer will not elect
to treat the segregated pool of assets
securing the Bonds as a "real estate
mortgage investment conduit" or a
"financial asset securitization
investment trust" for federal income tax
purposes. See "FEDERAL INCOME TAX
CONSEQUENCES" in the Prospectus.
Offered Bonds owned by a real estate
investment trust will not be treated as
"real estate assets" or "Government
securities" and interest on the Offered
Bonds will not be considered "interest on
obligations secured by mortgages on real
property or on interests in real
property." Similarly, the Offered Bonds
will not constitute "qualifying real
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<PAGE> 11
property loans" for mutual savings banks
or domestic building and loan
associations and will not constitute
"loans secured by an interest in real
property" or "obligations of the United
States" for domestic building and loan
associations. In addition, Offered Bonds
held by a regulated investment company
will not constitute "Government
securities." See "FEDERAL INCOME TAX
CONSEQUENCES" in the Prospectus.
ERISA Matters...................... Fiduciaries of the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), and corresponding provisions
of the Internal Revenue Code of 1986, as
amended (the "Code"), impose certain
restrictions on employee benefit plans
and certain other retirement plans and
arrangements that are subject to ERISA
including individual retirement accounts
and annuities, Keogh plans and collective
investment funds in which such plans,
accounts, annuities or arrangements are
invested (any of the foregoing a "Plan"),
persons acting on behalf of a Plan, or
persons using the assets of a Plan ("Plan
Investors"). The purchase or holding of
the Offered Bonds could either give rise
to a transaction that is prohibited under
ERISA or the Code or cause the Mortgage
Loans securing the Offered Bonds to be
treated as "plan assets" for purposes of
regulations of the Department of Labor
set forth in 29 C.F.R. 2510.3-101 (the
"Plan Asset Regulations"). See "ERISA
MATTERS" herein and in the Prospectus.
Although not entirely free from doubt,
the Bond Issuer has been advised by tax
counsel that the Offered Bonds will be
treated as debt obligations without
significant equity features for purposes
of the Plan Asset Regulations.
Accordingly, a Plan that acquires the
Offered Bonds should not be treated as
having acquired a direct interest in the
assets of the Bond Issuer. See "ERISA
MATTERS" herein and in the Prospectus.
However, there can be no complete
assurance that the Offered Bonds will be
treated as debt obligations without
significant equity features for purposes
of the Plan Asset Regulations.
Legal Investment................... The Offered Bonds will constitute
"mortgage related securities" for
purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA") so long
as they are rated in one of the two
highest rating categories by at least one
nationally recognized statistical rating
organization and, as such, are legal
investments for certain entities to the
extent provided for in SMMEA. See "LEGAL
INVESTMENT" in the Prospectus.
Ratings............................ It is a condition of the issuance of the
Senior Bonds that they be rated [AAA] by
(" ") and [AAA] by
(" " and, together
with, the "Rating Agencies"). It is a
condition to the issuance of the Class
B-1 Bonds that they be rated [AA] by
. The ratings of the
Offered Bonds of
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<PAGE> 12
any Class should be evaluated
independently from similar ratings on
other types of securities. A rating is
not a recommendation to buy, sell or hold
securities and may be subject to revision
or withdrawal at any time by the Rating
Agencies. See "RATINGS" herein.
The Bond Issuer has not requested a
rating of the Offered Bonds by any rating
agency other than the Rating Agencies;
there can be no assurance, however, as to
whether any other rating agency will rate
the Offered Bonds or, if it does, what
rating would be assigned by such other
rating agency. The rating assigned by
such other rating agency to the Offered
Bonds could be lower than the respective
ratings assigned by the Rating Agencies.
Use of Proceeds.................... The Bond Issuer intends to distribute all
of the net proceeds of the issuance of
the Bonds to the Company which will apply
such proceeds to the purchase of the
Mortgage Loans. The Mortgage Loans were
purchased by the Company from [AmREIT]
and sold to the Bond Issuer by the
Company. See "USE OF PROCEEDS" herein and
in the Prospectus and "METHOD OF
DISTRIBUTION" herein.
Risk Factors....................... For a discussion of all material risks
associated with an investment in the
Bonds, see "RISK FACTORS" commencing on
page S- herein and on page in the
Prospectus.
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<PAGE> 13
RISK FACTORS
YIELD, PREPAYMENT AND MATURITY RISKS
EFFECT OF DELAYS ON PAYMENT ON THE BONDS. The effective yields to the
holders of the Offered Bonds will be lower than the yields otherwise produced by
the applicable rate at which interest is paid to such holders and the purchase
price of such Offered Bonds because [monthly] payments will not be payable to
such holders until the th day (or, if such day is not a business day, the
following business day) of the month following the month] in which interest
accrues on the Mortgage Loans (without any additional payment of interest or
earnings thereon in respect of such delay).
EFFECT OF DELINQUENCIES ON THE MORTGAGE LOANS. Delinquencies on the
Mortgage Loans which are not advanced by or on behalf of the Master Servicer
(because amounts, if advanced, would be nonrecoverable), may adversely affect
the yield on the Offered Bonds. Because of the priority of distributions,
shortfalls resulting from delinquencies not so advanced will be borne first by
the Investor Certificate, second by the Class B-2 Bonds, third by the Class B-1
Bonds, and fourth by the Senior Bonds. If, as a result of such shortfalls, the
sum of (i) the Senior Class Principal Amount, (ii) the Class B-1 Principal
Amount, (iii) the Class B-2 Principal Amount and (iv) the Invested Amount
exceeds the Pool Principal Balance, the Invested Amount will be reduced by the
amount of such excess until the Invested Amount is reduced to zero, then, the
Class B-2 Principal Amount will be reduced by the remaining amount of such
excess, if any, until the Class B-2 Principal Amount is reduced to zero, and
thereafter, the Class B-1 Principal Amount will be reduced by the remaining
amount of such excess, if any.
[EFFECT OF PERIODIC RATE CAP AND MINIMUM RATE. The Mortgage Rate of each
Mortgage Loan will be subject to a Periodic Rate Cap and a Maximum Rate. If the
Index changes substantially between Adjustment Dates, the adjusted Mortgage Rate
on a related Mortgage Loan may not equal the applicable Index plus the related
Margin due to the constraint of such caps. In such event, the related Net
Mortgage Rate and consequently, each Bond Interest Rate, will be less than would
have been the case in the absence of such caps.]
[EFFECT OF DISPROPORTIONATE PREPAYMENTS. The Bond Interest Rate for each
Class of Offered Bonds will be based upon the weighted average of the Net
Mortgage Rates for the Mortgage Loans. Any disproportionate prepayment of
Mortgage Loans with higher Net Mortgage Rates may adversely affect the yield on
the Offered Bonds. The Bond Interest Rates for each Class of Offered Bonds will
vary from Distribution Date to Distribution Date due to (i) the timing of the
Mortgage Rate readjustments of the Mortgage Loans and (ii) different rates of
payment of principal of such Mortgage Loans bearing different Mortgage Rates.]
EFFECT OF NET INTEREST SHORTFALLS AND REALIZED LOSSES. Net Interest
Shortfalls allocated to the Offered Bonds, if any, will reduce the amount of
interest payable on the Offered Bonds which will adversely affect the yields on
the Offered Bonds. In addition, although all losses initially will be borne by
the Investor Certificate and then by the Class B-2 Bonds, the yields on the
Offered Bonds will depend on the rate and timing of Realized Losses. Realized
Losses could occur at a time when the Investor Certificate and the Class B-2
Bonds are no longer outstanding and available to absorb Realized Losses.
Realized Losses in excess of the sum of the Invested Amount and the Class B-2
Principal Amount will reduce the funds available to make payments to the holders
of the Offered Bonds on the related Distribution Date. As a result, holders of
the Offered Bonds, and particularly holders of the Class B-1 Bonds, may not
receive the full amount of interest and principal on a Distribution Date that
they would have received in the absence of such Realized Losses. In the event
that holders of Offered Bonds do not receive the full amount of accrued interest
for any Distribution Date, the amount which is not paid will be carried forward
and will be payable on future Distribution Dates to the extent funds are
available therefor. Any amount of interest so carried forward will not (except
in the case of the Subordinated Bonds) accrue interest until the Bonds are
declared due and payable upon the occurrence of an Event of Default, as
described herein under "DESCRIPTION OF THE BONDS -- PRIORITY OF PAYMENTS AND
ALLOCATION OF SHORTFALLS." Any shortfall in amounts otherwise payable as
principal of the Subordinated Bonds will be paid on future Distribution Dates to
the extent funds are available
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<PAGE> 14
therefor. So long as the Senior Bonds are outstanding, any shortfall in amounts
available for payments of principal of, or interest on, the Subordinated Bonds
will not constitute an Event of Default.
Under the Indenture, shortfalls in amounts required to be distributed to
Bondholders ("Shortfalls") that affect only the Subordinated Bonds will not
constitute an Event of Default until all the Senior Bonds have been paid in full
and then only if Shortfalls on the Subordinated Bonds have not been paid. In
addition, an Event of Default by reason of any Shortfalls that affect the Senior
Bonds will occur on any Distribution Date only when the Pool Principal Balance
is less than the principal amount of the Senior Bonds outstanding after
application of all available amounts on deposit in the Distribution Account on
such Distribution Date. As described herein, on any Distribution Date on which a
Shortfall occurs, payments of accrued interest on the Class B-1 Bonds will be
subject to the availability of funds in the Distribution Account after payment
of accrued interest on and principal then due on all outstanding Senior Bonds.
On any Distribution Date on which a Shortfall occurs, payments of principal on
the Class B-2 Bonds will be subject to the availability of funds therefor after
payment of interest on all outstanding Senior Bonds and Class B-1 Bonds and
principal of all outstanding Senior Bonds. Also, upon the occurrence of each
Shortfall, the Senior Percentage, the Class B-1 Percentage, the Class B-2
Percentage and the Investor Percentage will shift in the manner described herein
under "DESCRIPTION OF THE BONDS -- PRIORITY OF PAYMENTS AND ALLOCATION OF
SHORTFALLS." Therefore, following the occurrence of any Shortfall allocable to
the Class B-1 Bonds, such Class B-1 Bonds will amortize more slowly than would
otherwise have been the case in the absence of such Shortfall. As a result of
these factors, the yield on the Class B-1 Bonds will be more sensitive than the
yield on the Senior Bonds to the occurrence of Shortfalls.
The weighted average life of, and the yield to maturity on, the Class B-1
Bonds will be sensitive to the rate and timing of mortgagor defaults and the
severity of ensuing losses on the Mortgage Loans. If the actual rate and
severity of losses on the Mortgage Loans is higher than those assumed by a
holder of a Class B-1 Bond, the actual yield to maturity of such Bond may be
lower than the yield expected by such holder based on such assumption. The
timing of losses on the Mortgage Loans will also affect an investor's actual
yield to maturity, even if the rate of defaults and severity of losses over the
life of the Mortgage Loan Pool are consistent with an investor's expectations.
In general, the earlier a loss occurs, the greater the effect on an investor's
yield to maturity. The yield to maturity of the Class B-1 Bonds will also be
affected by Net Interest Shortfalls allocated to the Class B-1 Bonds, if any,
and other cash shortfalls in Available Funds. See "DESCRIPTION OF THE
BONDS -- PRIORITY OF PAYMENTS AND ALLOCATION OF SHORTFALLS" herein.
EFFECT OF RATE AND TIMING OF PRINCIPAL PAYMENTS. The rate of principal
payments on the Offered Bonds, the aggregate amount of payments on the Offered
Bonds and the yields to maturity of the Offered Bonds will be related to the
rate and timing of payments of principal on the Mortgage Loans. The rate of
principal payments on the Mortgage Loans will in turn be affected by the
amortization schedules of the Mortgage Loans and by the rate of principal
prepayments (including for this purpose prepayments resulting from refinancing,
liquidations of the Mortgage Loans due to defaults, casualties, condemnations
and purchases by AmREIT [or any optional purchase by the Master Servicer or the
Company of a defaulted Mortgage Loan]). [The Mortgage Loans may be prepaid by
the Mortgagors at any time without a prepayment penalty.] [The Mortgage Loans
are subject to the "due-on-sale" provisions included therein]. See "TRUST FUND
ASSETS -- THE MORTGAGE LOANS" herein.
Prepayments, liquidations and purchases of the Mortgage Loans (including
[any optional purchase by the Master Servicer or the Company of a defaulted
Mortgage Loan and any optional redemption by the Bond Issuer or repurchase by
the Master Servicer or the Company of the remaining Mortgage Loans in connection
with the optional redemption of the Bonds, in each case as described herein)]
will result in payments on the Offered Bonds of principal amounts which would
otherwise be distributed over the remaining terms of the Mortgage Loans. Since
the rate of payment of principal on the Mortgage Loans will depend on future
events, no assurance can be given as to such rate or the rate of principal
prepayments. The extent to which the yield to maturity of a Class of Offered
Bonds may vary from the anticipated yield will depend upon the degree to which
such Bond is purchased at a discount or premium, and the degree to which the
timing of payments thereon is sensitive to prepayments, liquidations and
purchases of the Mortgage Loans. Further, an investor
S-13
<PAGE> 15
should consider the risk that, in the case of any Offered Bond purchased at a
discount, a slower than anticipated rate of principal payments (including
prepayments) on the Mortgage Loans could result in an actual yield to such
investor that is lower than the anticipated yield and, in the case of any
Offered Bond purchased at a premium, a faster than anticipated rate of principal
payments on the Mortgage Loans could result in an actual yield to such investor
that is lower than the anticipated yield.
The rate of principal payments (including prepayments) on pools of mortgage
loans may vary significantly over time and may be influenced by a variety of
economic, geographic, social and other factors, including changes in mortgagors'
housing needs, job transfers, unemployment, mortgagors' net equity in the
mortgaged properties and servicing decisions. In general, if prevailing interest
rates were to fall significantly below the Mortgage Rates on the Mortgage Loans,
the Mortgage Loans could be subject to higher prepayment rates than if
prevailing interest rates were to remain at or above the Mortgage Rates on the
Mortgage Loans. Conversely, if prevailing interest rates were to rise
significantly, the rate of prepayments on the Mortgage Loans would generally be
expected to decrease. No assurances can be given as to the rate of prepayments
on the Mortgage Loans in stable or changing interest rate environments.
The timing of changes in the rate of prepayments on the Mortgage Loans may
significantly affect an investor's actual yield to maturity, even if the average
rate of principal payments is consistent with an investor's expectation. In
general, the earlier a prepayment of principal on the Mortgage Loans, the
greater the effect on an investor's yield to maturity. The effect on an
investor's yield as a result of principal payments occurring at a rate higher
(or lower) than the rate anticipated by the investor during the period
immediately following the issuance of the Bonds may not be offset by a
subsequent like decrease (or increase) in the rate of principal payments.
NO REPRESENTATION IS MADE AS TO THE RATE OF PRINCIPAL PAYMENTS ON THE
MORTGAGE LOANS OR AS TO THE YIELD TO MATURITY OF ANY CLASS OF OFFERED BONDS.
INVESTORS ARE URGED TO MAKE AN INVESTMENT DECISION WITH RESPECT TO THE OFFERED
BONDS BASED ON THE ANTICIPATED YIELD TO MATURITY OF SUCH BONDS RESULTING FROM
THEIR RESPECTIVE PRICES AND EACH INVESTOR'S OWN DETERMINATION AS TO ANTICIPATED
MORTGAGE LOAN PREPAYMENT RATES.
[FURTHER, INVESTORS SHOULD TAKE INTO ACCOUNT THE OPTIONAL REDEMPTION
PROVISION OF THE OFFERED BONDS AND THE IMPACT SUCH A REDEMPTION WOULD HAVE ON
THE ANTICIPATED YIELD TO MATURITY OF THE BONDS. BECAUSE THE BOND ISSUER'S OPTION
WILL BECOME EXERCISABLE WHEN A SUBSTANTIAL PORTION OF THE INITIAL PRINCIPAL
AMOUNT OF THE BONDS WILL BE OUTSTANDING, THE BOND ISSUER'S DECISION WHETHER OR
NOT TO REDEEM MAY HAVE A SIGNIFICANT IMPACT ON AN INVESTOR'S YIELD TO MATURITY.
THE BOND ISSUER'S DECISION WHETHER OR NOT TO REDEEM WILL DEPEND UPON A NUMBER OF
FACTORS AT THE TIME THE BONDS FIRST BECOME REDEEMABLE AND THEREAFTER, WHICH
FACTORS ARE NOT POSSIBLE TO PREDICT AT THE TIME OF ISSUANCE OF THE BONDS. NO
REPRESENTATION IS MADE AS TO WHEN OR IF THE BOND ISSUER WILL ELECT TO EXERCISE
ITS OPTION TO REDEEM THE BONDS.]
CASH FLOW CONSIDERATIONS AND RISKS
Minimum monthly payments on the Mortgage Loans will at least equal and may
exceed accrued interest thereon. Even assuming that the Mortgaged Properties
provide adequate security for the Mortgage Loans, substantial delays could be
encountered in connection with the liquidation of Mortgage Loans that are
delinquent and resulting shortfalls in distributions to holders of the Offered
Bonds could occur. Further, liquidation expenses (such as legal fees, real
estate taxes, and maintenance and preservation expenses) will reduce the
security for the related Mortgage Loans and could thereby reduce the proceeds
payable to holders of the Offered Bonds. In the event any of the Mortgaged
Properties fail to provide adequate security for the related Mortgage Loans,
holders of the Offered Bonds could experience a loss to the extent that any
applicable credit enhancement has been exhausted.
LIMITED RECOURSE
The Offered Bonds represent obligations solely of the Bond Issuer and are
not insured or guaranteed by any governmental agency or instrumentality, the
Company, AmREIT, the Master Servicer, any Servicer or any other person or
entity.
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<PAGE> 16
DELINQUENCIES MAY ADVERSELY AFFECT INVESTMENT
As of the Cut-off Date, (i) not more than % of the Mortgage Loans (by
Cut-off Date Stated Principal Balance) were delinquent by one or more Scheduled
Payments and (ii) not more than % of the Mortgage Loans (by Cut-off Date
Stated Principal Balance) were delinquent by two or more Scheduled Payments.
Investors should consider the risk that the inclusion of such loans in the
Mortgage Loans may effect the rates of defaults and prepayments on such Mortgage
Loans and the yields on the Offered Bonds. See "TRUST FUND ASSETS -- THE
MORTGAGE LOANS" herein.
MORTGAGE LOAN CONCENTRATION
Approximately % and % of the Mortgage Loans (by Cut-off Date
Stated Principal Balance) are expected to be secured by Mortgaged Properties
located in and , respectively. Consequently, losses and
prepayments on the Mortgage Loans and the resultant payments on the Bonds may be
affected significantly by changes in the housing markets and the regional
economies in these areas, and also by the occurrence of natural disasters (such
as earthquakes, fires and floods) in these areas.
LIMITED LIQUIDITY OF INVESTMENTS
There can be no assurance that a secondary market will develop for the
Offered Bonds, or, if one does develop, that it will provide the holders of the
Offered Bonds with liquidity of investment or that it will continue to exist for
the term of the Offered Bonds.
BANKRUPTCY AND INSOLVENCY RISKS
AmREIT and the Company will treat the transfer of the Mortgage Loans by
AmREIT to the Company as a sale. Nevertheless, in the event of a bankruptcy of
AmREIT the trustee in bankruptcy could attempt to recharacterize the sale of the
Mortgage Loans as a borrowing secured by a pledge of mortgage loans. The Company
and the Bond Issuer will treat the transfer of the Mortgage Loans by the Company
to the Bond Issuer as a sale. Nevertheless, in the event of a bankruptcy of the
Company, the trustee in bankruptcy could attempt to recharacterize the sale of
the Mortgage Loans as a borrowing secured by a pledge of mortgage loans.
In either case, if such an attempt to recharacterize the transfer of the
loans were successful, a trustee in bankruptcy could elect to accelerate payment
of the Bonds and liquidate the Mortgage Loans, with the holders of the Offered
Bonds entitled to no more than the then outstanding Class Principal Amount, if
any, of such Bonds together with interest at the applicable Bond Interest Rates
to the date of payment. In the event of an acceleration of the Bonds, the
holders of the Offered Bonds would lose the right to future payments of
interest, might suffer reinvestment losses in a lower interest rate environment
and may fail to recover their initial investment.
BOOK-ENTRY BONDS
LIMITED LIQUIDITY. Issuance of the Offered Bonds in book-entry form may
reduce the liquidity of such Offered Bonds in the secondary trading market since
investors may be unwilling to purchase Offered Bonds for which they cannot
obtain physical certificates. See "DESCRIPTION OF THE BONDS -- BOOK-ENTRY BONDS"
herein and "RISK FACTORS -- EFFECTS OF BOOK-ENTRY REGISTRATION" in the
Prospectus.
DIFFICULTY IN PLEDGING. Since transactions in the Offered Bonds can be
effected only through DTC, CEDEL, Euroclear, participating organizations,
indirect participants and certain banks, the ability of Bond Owners to pledge an
Offered Bond to persons or entities that do not participate in the DTC, CEDEL or
Euroclear system may be limited due to lack of a physical certificate
representing the Offered Bonds. See "DESCRIPTION OF THE BONDS -- BOOK-ENTRY
BONDS" herein and "RISK FACTORS -- EFFECTS OF BOOK-ENTRY REGISTRATION" in the
Prospectus.
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<PAGE> 17
POTENTIAL DELAYS IN PAYMENT. Bond Owners may experience some delay in
their receipt of payments of interest and principal on the Offered Bonds since
such payments will be forwarded by the Bond Trustee to DTC and DTC will credit
such payments to the accounts of its Participants (as defined herein) which will
thereafter credit them to the accounts of Bond Owners either directly or
indirectly through indirect participants. Bond Owners will not be recognized as
Bondholders as such term is used in the Indenture, and Bond Owners will be
permitted to exercise the rights of Bondholders only indirectly through DTC and
its Participants. See "DESCRIPTION OF THE BONDS -- BOOK-ENTRY BONDS" herein and
"RISK FACTORS -- EFFECTS OF BOOK-ENTRY REGISTRATION" in the Prospectus.
RATINGS
The ratings of the Classes of Offered Bonds will depend primarily on an
assessment by the Rating Agencies of the Mortgage Loans. The rating by the
Rating Agencies of the Classes of Offered Bonds is not a recommendation to
purchase, hold or sell the Offered Bonds, inasmuch as such rating does not
comment as to the market price or suitability for a particular investor. There
is no assurance that the ratings will remain in place for any given period of
time or that the ratings will not be lowered or withdrawn by the Rating
Agencies. In general, ratings assess credit risk and do not address likelihood
of prepayments.
FOR A DISCUSSION OF CERTAIN ADDITIONAL RISK FACTORS RELATING TO INVESTMENTS
IN THE BONDS, SEE "RISK FACTORS" IN THE PROSPECTUS.
THE BOND ISSUER
The Bond Issuer is a statutory business trust established under the laws of
the State of Delaware by an amended and restated deposit trust agreement, dated
as of , 199 . The Bond Issuer was formed for the sole purpose
of issuing the Bonds and the Investor Certificate. The Company is the settlor
and sole beneficiary of the Bond Issuer and is the Owner Trustee
of the Bond Issuer. The Company is a limited purpose finance corporation the
capital stock of which is wholly owned by American Residential Investment Trust,
Inc., a Maryland corporation ("AmREIT"). AmREIT will be the manager of the Bond
Issuer pursuant to a management agreement entered into with the Bond Issuer.
None of the Company, AmREIT, the Bond Trustee or any of their respective
affiliates has guaranteed or is otherwise obligated with respect to payment of
the Bonds and no person or entity other than the Bond Issuer is obligated to pay
the Bonds.
The Bond Issuer's Trust Fund Assets will consist primarily of the Mortgage
Loans which will be pledged to secure the Bonds. If the Mortgage Loans and other
Trust Fund Assets securing the Bonds are insufficient for payment of the Offered
Bonds, it is unlikely that significant other assets of the Bond Issuer will be
available for payment of the Offered Bonds. The amount of funds available to pay
the Offered Bonds may be affected by, among other things, Realized Losses
incurred on defaulted Mortgage Loans. See "RISK FACTORS" herein and in the
Prospectus.
The Indenture prohibits the Bond Issuer from incurring any indebtedness
other than the Bonds, or assuming or guaranteeing the indebtedness of any other
person.
USE OF PROCEEDS
The Bond Issuer intends to distribute all of the net proceeds of the
issuance of the Offered Bonds to the Company which will use such proceeds to pay
certain indebtedness incurred by AmREIT in connection with the acquisition of
the Mortgage Loans. See "USE OF PROCEEDS" in the Prospectus and "UNDERWRITING"
herein.
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<PAGE> 18
TRUST FUND ASSETS
GENERAL
The Bonds will be secured by assignments to the Bond Trustee of Trust Fund
Assets consisting of (i) the Mortgage Loans, (ii) funds on deposit in the Bond
Account and the Distribution Account, (iii) the Bond Issuer's rights under the
Master Servicing Agreement, (iv) [the Bond Issuer's rights under any Servicing
Agreement,] (v) the Bond Issuer's rights under the Mortgage Loan Purchase
Agreement (as defined herein), and (vi) the proceeds of all of the foregoing.
THE MORTGAGE LOANS
The Bonds will be secured by a pool (the "Mortgage Pool") of 30-year
conventional mortgage loans secured by first liens on one- to four-family
residential properties (each, a "Mortgaged Property"). None of the Mortgage
Loans will be guaranteed by any governmental agency. All of the Mortgage Loans
will have been deposited with the Bond Issuer by the Company which, in turn,
will have acquired them from [AmREIT] pursuant to an agreement (the "Mortgage
Loan Purchase Agreement") between the Company and [AmREIT]. All of the Mortgage
Loans will have been acquired by [AmREIT] in the ordinary course of its business
and substantially in accordance with the underwriting criteria specified herein.
GENERAL. Under the Mortgage Loan Purchase Agreement, [AmREIT] will make
certain representations, warranties and covenants to the Company relating to,
among other things, the due execution and enforceability of the Mortgage Loan
Purchase Agreement and certain characteristics of the Mortgage Loans and,
subject to the limitations described below under "-- ASSIGNMENT OF THE MORTGAGE
LOANS," will be obligated to purchase or substitute a similar mortgage loan for
any Mortgage Loan as to which there exists deficient documentation or an uncured
material breach of any such representation, warranty or covenant. See "MORTGAGE
LOAN PROGRAM -- REPRESENTATIONS BY SELLERS; REPURCHASES" in the Prospectus.
Under the Deposit Trust Agreement, the Company will assign all of its rights
under the Mortgage Loan Purchase Agreement to the Bond Issuer. Under the
Indenture, the Issuer will pledge all its right, title and interest in and to
such representations, warranties and covenants (including AmREIT's purchase
obligation) to the Bond Trustee for the benefit of the Bondholders. The Bond
Issuer will make no representations or warranties with respect to the Mortgage
Loans and will have no obligation to repurchase or substitute Mortgage Loans
with deficient documentation or which are otherwise defective. The obligations
of [AmREIT] with respect to the Bonds are limited to [AmREIT's] obligation to
purchase or substitute Mortgage Loans with deficient documentation or which are
otherwise defective under the Mortgage Loan Purchase Agreement.
Certain information with respect to the Mortgage Pool is set forth below.
Prior to the Closing Date, Mortgage Loans may be removed from the collateral and
other Mortgage Loans may be substituted therefor. The Bond Issuer believes that
the information set forth herein with respect to the Mortgage Loans as presently
constituted is representative of the characteristics of the Mortgage Loans as
they will be constituted at the Closing Date, although certain characteristics
of the Mortgage Loans in the Mortgage Pool may vary. The final Mortgage Pool
will be filed as an exhibit to the final form of Indenture filed on Form 8-K
following the Closing Date. Unless otherwise indicated, information presented
below expressed as a percentage (other than rates of interest) are approximate
percentages based on the Stated Principal Balances of the Mortgage Loans as of
the Cut-off Date.
As of the Cut-off Date, the aggregate of the Stated Principal Balances of
the Mortgage Loans is expected to be approximately $ , subject to a
permitted variance of no greater than 5% (the "Cut-off Date Pool Principal
Balance"). [The Mortgage Loans provide for the amortization of the amount
financed over a series of substantially equal monthly payments.] All of the
Mortgage Loans provide for payments due on the first day of each month (the "Due
Date"). At origination, substantially all of the Mortgage Loans had stated terms
to maturity of years. Scheduled monthly payments made by the
Mortgagors on the Mortgage Loans ("Scheduled Payments") either earlier or later
than the scheduled Due Dates thereof will not affect the
S-17
<PAGE> 19
amortization schedule or the relative application of such payments to principal
and interest. [Mortgagors may prepay their Mortgage Loans at any time without
penalty.]
Each Mortgage Loan will bear interest at a [fixed][adjustable] Mortgage
Rate. [Each Mortgage Loan will bear interest at a Mortgage Rate, subject to
annual adjustment on the first day of the month specified in the related
Mortgage Note (each such date, an "Adjustment Date"), equal to the sum, rounded
to the nearest of one percentage point ( %), of (i)
(the "Index") as made available by the and most recently
available as of days prior to the Adjustment Date and (ii) a fixed percentage
amount specified in the related Mortgage Note (the "Margin") provided, however,
that the Mortgage Rate will not increase or decrease by more than percentage
points ( %), except for Mortgage Loans, representing
approximately % of the Cut-off Date Pool Principal Balance which will not
increase or decrease by more than percentage points ( %), on the first
Adjustment Date or more than percentage points ( %) on any Adjustment Date
thereafter (the "Periodic Rate Cap"). The Index with respect to any Bond
Interest Rate and any Distribution Date shall be the Index in effect as of the
first day of the month preceding the month in which such Distribution Date
occurs.]
[All of the Mortgage Loans provide that over the life of the Mortgage Loan
the Mortgage Rate will in no event increase by more than the Mortgage Rate fixed
at origination plus a fixed number of percentage points specified in the related
Mortgage Note (such rate, the "Maximum Rate"). None of the Mortgage Loans are
subject to minimum Mortgage Rates. Effective with the first payment due on a
Mortgage Loan after each related Adjustment Date, the Scheduled Payment will be
adjusted to an amount which will pay interest at the adjusted rate and fully
amortize the then-outstanding principal balance of the Mortgage Loan over its
remaining term. If the Index ceases to be published or is otherwise unavailable,
the Master Servicer will select an alternative index based upon comparable
information.]
Each Mortgage Loan is, by its terms, assumable in connection with a
transfer of the related Mortgaged Property if the proposed transferee submits
certain information to the Master Servicer required to enable it to evaluate the
transferee's ability to repay the Mortgage Loan and if the Master Servicer
reasonably determines that the security for the Mortgage Loan would not be
impaired by the assumption. See "RISK FACTORS" herein and in the Prospectus.
Each Mortgage Loan was originated on or after , 19 .
The latest stated maturity date of any Mortgage Loan is ,
20 . The earliest stated maturity date of any Mortgage Loan is ,
20 .
[As of the Cut-off Date, no Mortgage Loan was delinquent more than days.]
[None of the Mortgage Loans are subject to buydown agreements.] [No
Mortgage Loan provides for deferred interest or negative amortization.]
No Mortgage Loan had a Loan-to-Value Ratio at origination of more than %.
[Except for Mortgage Loans, representing approximately % of the
Cut-off Date Pool Principal Balance,] each Mortgage Loan with a Loan-to-Value
Ratio at origination of greater than 80% is covered by a primary mortgage
insurance policy (each a "Primary Mortgage Insurance Policy") issued by a
mortgage insurance company acceptable to the Federal National Mortgage
Association ("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") or
any nationally recognized statistical rating organization, which policy provides
coverage of a portion of the original principal balance of the related Mortgage
Loan equal to the product of the original principal balance thereof and a
fraction, the numerator of which is the excess of the original principal balance
of the related Mortgage Loan over 75% of the lesser of the appraised value and
selling price of the related Mortgage Property and the denominator of which is
the original principal balance of the related Mortgage Loan, plus accrued
interest thereon and related foreclosure expenses. No such Primary Mortgage
Insurance Policy will be required with respect to any such Mortgage Loan after
the date on which the related Loan-to-Value Ratio is 80% or less or, based on a
new appraisal, the principal balance of such Mortgage Loan represents 80% or
less of the new appraised value. See "MORTGAGE LOAN PROGRAM -- UNDERWRITING
STANDARDS" herein.
S-18
<PAGE> 20
The "Loan-to-Value Ratio" of a Mortgage Loan at any given time is a
fraction, expressed as a percentage, the numerator of which is the principal
balance of the related Mortgage Loan at the date of determination and the
denominator of which is (a) in the case of a purchase, the lesser of the selling
price of the Mortgaged Property and its appraised value determined in an
appraisal obtained by the originator at origination of such Mortgage Loan, or
(b) in the case of a refinance, the appraised value of the Mortgaged Property at
the time of such refinance. No assurance can be given that the value of any
Mortgaged Property has remained or will remain at the level that existed on the
appraisal or sales date. If residential real estate values generally or in a
particular geographic area decline, the Loan-to-Value Ratios might not be a
reliable indicator of the rates of delinquencies, foreclosures and losses that
could occur with respect to such Mortgage Loans.
The following information sets forth in tabular format certain information,
as of the Cut-off Date, as to the Mortgage Loans. Other than with respect to
rates of interest, percentages (approximate) are stated by Stated Principal
Balance of the Mortgage Loans as of the Cut-off Date and have been rounded in
order to total 100%.
ORIGINAL LOAN-TO-VALUE RATIOS(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
ORIGINAL LOAN-TO-VALUE MORTGAGE BALANCE MORTGAGE
RATIOS(%) LOANS OUTSTANDING POOL
---------------------- --------- ----------- ----------
<S> <C> <C> <C>
$ %
-------- ------
Total................................................. $ %
======== ======
</TABLE>
- ---------------
(1) The weighted average original Loan-to-Value Ratio of the Mortgage Loans is
expected to be approximately %.
ORIGINAL TERMS TO MATURITY(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
ORIGINAL TERM TO MORTGAGE BALANCE MORTGAGE
MATURITY (MONTHS) LOANS OUTSTANDING POOL
----------------- --------- ----------- ----------
<S> <C> <C> <C>
$ %
-------- ------
Total................................................. $ %
======== ======
</TABLE>
- ---------------
(1) As of the Cut-off Date, the weighted average remaining term to maturity of
the Mortgage Loans is expected to be approximately months.
CURRENT MORTGAGE LOAN PRINCIPAL BALANCES(1)
<TABLE>
<CAPTION>
AGGREGATE
RANGE OF CURRENT NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE LOAN MORTGAGE BALANCE MORTGAGE
PRINCIPAL BALANCES LOANS OUTSTANDING POOL
------------------ --------- ----------- ----------
<S> <C> <C> <C>
$ %
-------- ------
Total................................................. $ %
======== ======
</TABLE>
- ---------------
(1) As of the Cut-off Date, the average current Mortgage Loans principal balance
is expected to be approximately $ .
S-19
<PAGE> 21
CURRENT MORTGAGE RATES(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
CURRENT MORTGAGE RATES (%) LOANS OUTSTANDING POOL
-------------------------- --------- ----------- ----------
<S> <C> <C> <C>
$ %
-------- ------
Total................................................. $ %
======== ======
</TABLE>
- ---------------
(1) As of the Cut-off Date, the weighted average Mortgage Rate of the Mortgage
Loans is expected to be approximately % per annum.
PURPOSE OF MORTGAGE LOANS
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
LOAN PURPOSE LOANS OUTSTANDING POOL
------------ --------- ----------- ----------
<S> <C> <C> <C>
$ %
Purchase...................................................
Refinance (Rate or Term)...................................
Refinance (Cash-out).......................................
-------- ------
Total................................................. $ %
======== ======
</TABLE>
STATE DISTRIBUTION OF MORTGAGED PROPERTIES(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
STATE LOANS OUTSTANDING POOL
----- --------- ----------- ----------
<S> <C> <C> <C>
$ %
Other(1)...................................................
-------- ------
Total................................................. $ %
======== ======
</TABLE>
- ---------------
(1) Other includes other states, and the District of Columbia, with under %
concentrations individually. No more than approximately % of the Mortgage
Loans will be secured by Mortgaged Properties located in any one postal zip
code area.
DOCUMENTATION FOR MORTGAGE LOANS
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
TYPE OF PROGRAM LOANS OUTSTANDING POOL
--------------- --------- ----------- ----------
<S> <C> <C> <C>
$ %
Full.......................................................
Alternative................................................
Reduced....................................................
-------- ------
Total................................................. $ %
======== ======
</TABLE>
S-20
<PAGE> 22
OCCUPANCY TYPES(1)
<TABLE>
<CAPTION>
AGGREGATE PERCENT
NUMBER OF PRINCIPAL OF
MORTGAGE BALANCE MORTGAGE
OCCUPANCY TYPE LOANS OUTSTANDING POOL
-------------- --------- ----------- ----------
<S> <C> <C> <C>
$ %
Primary Home...............................................
Investor...................................................
Second Home................................................
-------- ------
Total................................................. $ %
======== ======
</TABLE>
- ---------------
(1) Based upon representations of the related Mortgagors at the time of
origination.
PROPERTY TYPE
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
PROPERTY TYPE LOANS OUTSTANDING POOL
------------- --------- ----------- ----------
<S> <C> <C> <C>
$ %
Single Family..............................................
Planned Unit Development Condominium.......................
2-4 Units..................................................
-------- ------
Total................................................. $ %
======== ======
</TABLE>
MAXIMUM MORTGAGE RATES(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
LIFETIME CAPS (%) LOANS OUTSTANDING POOL
----------------- --------- ----------- ----------
<S> <C> <C> <C>
$ %
-------- ------
Total................................................. $ %
======== ======
</TABLE>
- ---------------
(1) As of the Cut-off Date, the weighted average Lifetime Cap of the Mortgage
Loans is expected to be approximately % per annum.
MARGIN(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
MARGIN LOANS OUTSTANDING POOL
------ --------- ----------- ----------
<S> <C> <C> <C>
$ %
-------- ------
Total................................................. $ %
======== ======
</TABLE>
- ---------------
(1) As of the Cut-off Date, the weighted average margin of the Mortgage Loans is
expected to be approximately %.
S-21
<PAGE> 23
NEXT NOTE RATE ADJUSTMENT DATES(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
MONTHS LOANS OUTSTANDING POOL
------ --------- ----------- ----------
<S> <C> <C> <C>
$ %
-------- ------
Total................................................. $ %
======== ======
</TABLE>
- ---------------
(1) As of the Cut-off Date, the weighted average months to the next Adjustment
Date of the Mortgage Loans was approximately months.
THE INDEX
[DESCRIPTION OF INDEX]
ASSIGNMENT OF THE MORTGAGE LOANS
Pursuant to the Indenture, the Bond Issuer on the Closing Date will pledge,
transfer, assign, set over and otherwise convey without recourse to the Bond
Trustee in trust for the benefit of the Bondholders all right, title and
interest of the Bond Issuer in and to each Mortgage Loan and all right, title
and interest in and to all other assets included in the Trust Fund Assets,
including all principal and interest received on or with respect to the Mortgage
Loans, exclusive of principal and interest due on or prior to the Cut-off Date.
In connection with such transfer and assignment, the Bond Issuer will
deliver or cause to be delivered to the Bond Trustee, or one or more custodians
for the Bond Trustee, among other things, the original promissory note (the
"Mortgage Note") (and any modification or amendment thereto) endorsed in blank
without recourse, the original instrument creating a first lien on the related
Mortgaged Property (the "Mortgage") with evidence of recording indicated
thereon, an assignment in recordable form of the Mortgage, the title policy with
respect to the related Mortgaged Property and, if applicable, all recorded
intervening assignments of the Mortgage and any riders or modifications to such
Mortgage Note and Mortgage (except for any such document not returned from the
public recording office, which will be delivered to the Bond Trustee as soon as
the same is available to the Bond Issuer) (collectively, the "Mortgage File").
[Assignments of the Mortgage Loans to the Bond Trustee (or its nominee) will be
recorded in the appropriate public office for real property records, except in
states where, in the opinion of counsel, such recording is not required to
protect the Bond Trustee's interest in the Mortgage Loans against the claim of
any subsequent transferee or any successor to or creditor of the Bond Issuer.]
The Bond Trustee will review each Mortgage File within days of
the Closing Date (or promptly after the Bond Trustee's receipt of any document
permitted to be delivered after the Closing Date) and if any document in a
Mortgage File is found to be missing or defective in a material respect and the
Bond Issuer does not cure such defect within days of notice thereof
from the Bond Trustee (or within such longer period not to exceed days
after the Closing Date as provided in the Mortgage Loan Purchase Agreement in
the case of missing documents not returned from the public recording office),
AmREIT will be obligated to purchase the related Mortgage Loan. Rather than
purchase the Mortgage Loan as provided above, AmREIT may remove such Mortgage
Loan (a "Deleted Mortgage Loan") from the Collateral and substitute in its place
another mortgage loan (a "Replacement Mortgage Loan"). Any Replacement Mortgage
Loan generally will, on the date of substitution, among other characteristics
set forth in the Mortgage Loan Purchase Agreement, (i) have a principal balance,
after deduction of all Scheduled Payments due in the month of substitution, not
in excess of, and not more than % less than, the Stated Principal Balance
of the Deleted Mortgage Loan (the amount of any shortfall to be deposited in the
Bond Account by AmREIT and held for distribution to the Bondholders on the
related Distribution Date (a "Substitution Adjustment Amount")), (ii) have a
Mortgage Rate not lower than, and not more than % per annum higher than,
that of the Deleted Mortgage Loan, (iii) have a Loan-to-Value Ratio not higher
than that of the Deleted Mortgage Loan, (iv) have a remaining term to maturity
not greater than (and not more than less
S-22
<PAGE> 24
than) that of the Deleted Mortgage Loan, and (v) comply with all of the
representations and warranties set forth in the Mortgage Loan Purchase Agreement
as of the date of substitution. This cure, purchase or substitution obligation
constitutes the sole remedy available to Bondholders or the Bond Trustee for
omission of, or a material defect in, a Mortgage Loan document.
DESCRIPTION OF THE BONDS
GENERAL
The Bonds will be issued pursuant to the Indenture. Set forth below are
summaries of the specific terms and provisions pursuant to which the Bonds will
be issued. The following summaries are subject to, and are qualified in their
entirety by reference to, the provisions of the Indenture. When particular
provisions or terms used in the Indenture are referred to, the actual provisions
(including definitions of terms) are incorporated by reference.
The American Residential Eagle Bond Trust [199 - ], Collateralized Mortgage
Bonds (the "Bonds"), will consist of the Class A-1 Bonds (the "Senior Bonds")
and the Class B-1 and Class B-2 Bonds (collectively, the "Subordinated Bonds").
The Bond Issuer will also issue the Investor Certificate (the "Investor
Certificate") as described herein. The Senior Bonds and the Class B-1 Bonds are
collectively referred to herein as the "Offered Bonds." Only the Offered Bonds
are offered hereby. The Classes of Offered Bonds will have the respective Bond
Interest Rates described on the cover hereof. The Class B-2 Bonds and the
Investor Certificate will bear interest at the Bond Interest Rate and
Certificate Interest Rate, respectively, described herein.
The "Class Principal Amount" of (a) the Senior Bonds (the "Senior Class
Principal Amount") as of any Distribution Date is the Original Senior Class
Principal Amount reduced by all amounts previously distributed to holders of the
Senior Bonds as payments of principal, (b) the Class B-1 Bonds (the "Class B-1
Principal Amount") as of any Distribution Date is the lesser of (i) the
aggregate of the Stated Principal Balances of the Mortgage Loans, less the
Senior Class Principal Amount immediately prior to such date, and (ii) the
Original Class B-1 Principal Amount reduced by all amounts previously
distributed to holders of the Class B-1 Bonds as payments of principal and (c)
the Class B-2 Bonds (the "Class B-2 Principal Amount") as of any Distribution
Date is the lesser of (i) the aggregate of the Stated Principal Balances of the
Mortgage Loans, less the sum of the Senior Class Principal Amount and the Class
B-1 Principal Amount, in each case immediately prior to such date, and (ii) the
Original Class B-2 Principal Amount reduced by all amounts previously
distributed to holders of the Class B-2 Bonds as payments of principal. The
Senior Bonds will have an original Senior Class Principal Amount of $
(the "Original Senior Class Principal Amount"), the Class B-1 Bonds will have an
original Class B-1 Principal Amount of $ (the "Original Class B-1
Principal Amount") and the Class B-2 Bonds will have an original Class B-2
Principal Amount of $ (the "Original Class B-2 Principal Amount"). The
"Invested Amount" of the Investor Certificate as of any Distribution Date is the
lesser of (i) the aggregate of the Stated Principal Balances of the Mortgage
Loans, less the sum of (x) the Senior Class Principal Amount, (y) the Class B-1
Principal Amount and (z) the Class B-2 Principal Amount, in each case
immediately prior to such date, and (ii) the Original Invested Amount reduced by
all amounts previously distributed to the holder of the Investor Certificate in
reduction of the Invested Amount. The Investor Certificate will have an original
Invested Amount of approximately $ (the "Original Invested Amount").
PAYMENTS ON MORTGAGE LOANS; ACCOUNTS
On or prior to the Closing Date, the Master Servicer will establish and
maintain or cause to be established and maintained a separate account or
accounts for the collection of payments on the Mortgage Loans (the "Bond
Account"). On or prior to the Closing Date, the Bond Trustee will establish an
account (the "Distribution Account"), which will be maintained with the Bond
Trustee in trust for the benefit of the Bondholders. On or prior to the business
day immediately preceding each Distribution Date, the Master Servicer will
withdraw from the Bond Account the Bond Distribution Amount for such
Distribution Date, to
S-23
<PAGE> 25
the extent of Available Funds on deposit therein, and will deposit such amount
in the Distribution Account. The "Bond Distribution Amount" for any Distribution
Date will equal the sum of (i) the Senior Interest Payment Amount, (ii) the
Senior Principal Payment Amount, (iii) the Class B-1 Interest Payment Amount,
(iv) the Class B-1 Principal Payment Amount, (v) the Class B-2 Interest Payment
Amount and (vi) the Class B-2 Principal Payment Amount (as each such term is
defined herein). Funds credited to the Bond Account or the Distribution Account
may be invested at the direction of the Company for the benefit and at the risk
of the Company in Permitted Investments, as defined in the Master Servicing
Agreement, that are scheduled to mature on or prior to the business day
preceding the next Distribution Date.
PAYMENTS
Payments on the Bonds will be made by the Bond Trustee on [the th day
of each month], or if such day is not a business day, on the first business day
thereafter, commencing in , 199 (each, a "Distribution Date"), to
the persons in whose names such Bonds are registered at the close of business on
the last business day of the month preceding the month of such Distribution Date
(the "Record Date").
Payments on each Distribution Date will be made by check mailed to the
address of the person entitled thereto as it appears on the applicable bond
register or, in the case of a Bondholder who holds 100% of a Class of Bonds or
who holds Bonds with an aggregate initial Class Principal Amount of $1,000,000
or more and who has so notified the Bond Trustee in writing in accordance with
the Indenture, by wire transfer in immediately available funds to the account of
such Bondholder at a bank or other depository institution having appropriate
wire transfer facilities; provided, however, that the final payment in
retirement of the Bonds will be made only upon presentment and surrender of such
Bonds at the Corporate Trust Office of the Bond Trustee.
As more fully described herein, payments will be made on each Distribution
Date from Available Funds in the following order of priority: (i) to interest on
the Senior Bonds; (ii) to principal of the Senior Bonds; (iii) to interest on
the Class B-1 Bonds; (iv) to principal of the Class B-1 Bonds; (v) to interest
on the Class B-2 Bonds; (vi) to principal of the Class B-2 Bonds; (vii) to
interest on the Investor Certificate; (viii) to principal of the Investor
Certificate; and (ix) to the holder of the Investor Certificate, all remaining
Available Funds, subject to certain limitations set forth herein under
"-- PRINCIPAL."
"Available Funds" with respect to any Distribution Date will be equal to
the sum of (i) all scheduled installments of interest (net of the related
Expense Fees) and principal due [on the Due Date in the month] in which such
Distribution Date occurs and received prior to the related Determination Date,
together with any Advances in respect thereof; (ii) all proceeds of any primary
mortgage guaranty insurance policies and any other insurance policies with
respect to the Mortgage Loans, to the extent such proceeds are not applied to
the restoration of the related Mortgaged Property or released to the Mortgagor
in accordance with the applicable Servicer's or the Master Servicer's normal
servicing procedures (collectively, "Insurance Proceeds") and all other cash
amounts received and retained in connection with the liquidation of defaulted
Mortgage Loans, by foreclosure or otherwise ("Liquidation Proceeds"), during the
[month] preceding the month of such Distribution Date (in each case, net of
unreimbursed expenses incurred in connection with a liquidation or foreclosure
and unreimbursed Advances, if any); (iii) all partial or full prepayments
received during the [month] preceding the month of such Distribution Date; and
(iv) amounts received with respect to such Distribution Date as the Substitution
Adjustment Amount or purchase price in respect of a Deleted Mortgage Loan or a
Mortgage Loan purchased by [AmREIT] [or by the Master Servicer or the Company]
as of such Distribution Date, reduced by amounts in reimbursement for Advances
previously made and other amounts as to which the applicable Servicer or the
Master Servicer is entitled to be reimbursed pursuant to the Master Servicing
Agreement.
INTEREST
The Bond Interest Rate for each Class of Bonds for each Distribution Date
(each, a "Bond Interest Rate") is described herein or on the cover hereof. On
each Distribution Date, to the extent of funds available therefor, each Class of
Bonds and the Investor Certificate will be entitled to receive an amount
allocable to interest as described below (as to each such Class or the Investor
Certificate, as applicable, the "Interest
S-24
<PAGE> 26
Payment Amount") with respect to the related Interest Accrual Period. With
respect to each Distribution Date, the "Interest Accrual Period" for each Class
of Bonds and the Investor Certificate will be the [calendar month] preceding the
month of such Distribution Date.
The Interest Payment Amount for the Senior Bonds (the "Senior Interest
Payment Amount") will be equal to the sum of (i) interest at the Senior Bond
Interest Rate on the Senior Class Principal Amount, and (ii) the sum of the
amounts, if any, by which the amount described in clause (i) above on each prior
Distribution Date exceeded the amount actually distributed as interest on such
prior Distribution Dates and not subsequently distributed. The Interest Payment
Amount for the Class B-1 Bonds (the "Class B-1 Interest Payment Amount") will be
equal to the sum of (i) interest at the Class B-1 Bond Interest Rate on the
Class B-1 Principal Amount, (ii) interest at the Class B-1 Bond Interest Rate on
any Class B-1 Principal Carryover Shortfall, (iii) the sum of the amounts, if
any, by which the sum of the amounts described in clauses (i) and (ii) above on
each prior Distribution Date exceeded the amount actually distributed as
interest on such prior Distribution Dates and not subsequently distributed (the
"Class B-1 Interest Carryover Shortfall") and (iv) interest at the Class B-1
Bond Interest Rate on any Class B-1 Interest Carryover Shortfall (to the extent
permitted by applicable law). The Interest Payment Amount for the Class B-2
Bonds (the "Class B-2 Interest Payment Amount") will be equal to the sum of (i)
interest at the Class B-2 Bond Interest Rate on the Class B-2 Principal Amount,
(ii) interest at the Class B-2 Bond Interest Rate on any Class B-2 Principal
Carryover Shortfall, (iii) the sum of the amounts, if any, by which the sum of
the amounts described in clauses (i) and (ii) above on each prior Distribution
Date exceed the amount actually distributed as interest on such prior
Distribution Dates and not subsequently distributed (the "Class B-2 Interest
Carryover Shortfall") and (iv) interest at the Class B-2 Bond Interest Rate on
any Class B-2 Interest Carryover Shortfall (to the extent permitted by
applicable law). The Interest Payment Amount for the Investor Certificate (the
"Certificate Interest Payment Amount") will be equal to interest at the
Certificate Interest Rate on the Invested Amount. The Senior Bonds will not be
entitled to interest on any Senior Interest Payment Amount not paid when due
prior to such time as the Bonds are declared immediately due and payable upon
the occurrence of an Event of Default as described herein under "-- PRIORITY OF
PAYMENTS AND ALLOCATION OF SHORTFALLS." The Investor Certificate will not be
entitled to interest on any Certificate Interest Payment Amount not paid when
due.
The interest payable on any Distribution Date as described above, but not
the entitlement thereto, for each Class of Bonds will be reduced by their
respective proportionate amounts of "Net Interest Shortfalls" for such
Distribution Date, if any, based on the amount of interest each Class of Bonds
would otherwise be entitled to receive on such Distribution Date before taking
into account any reduction in such amounts resulting from such Net Interest
Shortfalls. With respect to any Distribution Date, the "Net Interest Shortfall"
is equal to the amount by which the sum of (i) the amount of interest which
would otherwise have been received with respect to any Mortgage Loan that was
the subject of a Relief Act Reduction and (ii) any Prepayment Interest
Shortfalls, in each case during the calendar month preceding the month of such
Distribution Date, exceeds the sum of (i) the Master Servicing Fee for such
period and (ii) the amounts otherwise payable on such Distribution Date to the
holder of the Investor Certificate as described in clauses "SEVENTH", "EIGHTH"
and "ninth" under "-- PRIORITY OF PAYMENTS AND ALLOCATION OF SHORTFALLS" below.
A "Relief Act Reduction" is a reduction in the amount of monthly interest
payment on a Mortgage Loan pursuant to the Soldiers' and Sailors' Civil Relief
Act of 1940. See "CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS -- SOLDIERS AND
SAILORS' CIVIL RELIEF ACT" in the Prospectus. A "Prepayment Interest Shortfall"
is the amount by which interest paid by a borrower in connection with a
prepayment of principal on a Mortgage Loan is less than one month's interest at
the related Mortgage Rate on the Stated Principal Balance of such Mortgage Loan.
Accrued interest to be paid on any Distribution Date will be calculated, in
the case of each Class of Bonds and the Investor Certificate, on the basis of
the related Class Principal Amount or Invested Amount, as applicable,
immediately prior to such Distribution Date. Interest will be calculated and
payable on the basis of a 360-day year divided into twelve 30-day months.
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<PAGE> 27
PRINCIPAL
GENERAL. All payments and other amounts received in respect of principal
of the Mortgage Loans will be allocated among the Senior Bonds, the Subordinated
Bonds and the Investor Certificate.
SENIOR PRINCIPAL PAYMENT AMOUNT. On each Distribution Date, the Available
Funds remaining after payment of interest with respect to the Senior Bonds, up
to the amount of the Senior Principal Payment Amount for such Distribution Date,
will be distributed as principal of the Senior Bonds. The "Senior Principal
Payment Amount" for any Distribution Date will equal the Senior Percentage of
the sum of (a) the principal portion of the Scheduled Payment due on each
Mortgage Loan [on the related Due Date], (b) the principal portion of the
purchase price of each Mortgage Loan that was purchased by AmREIT or another
person pursuant to the Mortgage Loan Purchase Agreement (as defined herein) [or
any optional purchase by the Master Servicer or the Company of a defaulted
Mortgage Loan] as of such Distribution Date, (c) the Substitution Adjustment
Amount in connection with any Deleted Mortgage Loan received with respect to
such Distribution Date, (d) any Insurance Proceeds or Liquidation Proceeds
allocable to recoveries of principal of Mortgage Loans that are not yet
Liquidated Mortgage Loans received during the [calendar month] preceding the
month of such Distribution Date, (e) with respect to each Mortgage Loan that
became a Liquidated Mortgage Loan during the [calendar month] preceding the
month of such Distribution Date, the Stated Principal Balance of such Mortgage
Loan, and (f) all partial and full principal prepayments by borrowers received
during the [calendar month] preceding the month of such Distribution Date.
"Stated Principal Balance" means, as to any Mortgage Loan and Due Date, the
unpaid principal balance of such Mortgage Loan as of such Due Date, as specified
in the amortization schedule at the time relating thereto (before any adjustment
to such amortization schedule by reason of any moratorium or similar waiver or
grace period), after giving effect to any previous partial principal prepayments
and Liquidation Proceeds received and to the payment of principal due on such
Due Date and irrespective of any delinquency in payment by the related
Mortgagor. The "Pool Principal Balance" with respect to any Distribution Date
equals the aggregate of the Stated Principal Balances of the Mortgage Loans
outstanding on the Due Date in the month preceding the month of such
Distribution Date.
The "Senior Percentage" for any Distribution Date is the percentage
equivalent of a fraction the numerator of which is the Senior Class Principal
Amount immediately prior to such date and the denominator of which is the sum of
(i) the Senior Class Principal Amount, (ii) the Class B-1 Principal Amount,
(iii) the Class B-2 Principal Amount and (iv) the Invested Amount, in each case
immediately prior to such date. The "Class B-1 Percentage" for any Distribution
Date is the percentage equivalent of a fraction the numerator of which is the
Class B-1 Principal Amount immediately prior to such date and the denominator of
which is the sum of (i) the Senior Class Principal Amount, (ii) the Class B-1
Principal Amount, (iii) the Class B-2 Principal Amount and (iv) the Invested
Amount, in each case immediately prior to such date. The "Class B-2 Percentage"
for any Distribution Date is the percentage equivalent of a fraction the
numerator of which is the Class B-2 Principal Amount immediately prior to such
date and the denominator of which is the sum of (i) the Senior Class Principal
Amount, (ii) the Class B-1 Principal Amount, (iii) the Class B-2 Principal
Amount and (iv) the Invested Amount, in each case immediately prior to such
date. The "Investor Percentage" for any Distribution Date will be calculated as
the difference between 100% and the sum of the Senior Percentage, the Class B-1
Percentage and the Class B-2 Percentage for such date.
SUBORDINATED PRINCIPAL PAYMENT AMOUNT. On each Distribution Date, to the
extent of Available Funds therefor, the Class B-1 and Class B-2 Principal
Payment Amounts for such Distribution Date will be distributed as principal of
the Class B-1 and Class B-2 Bonds, respectively. The "Class B-1 Principal
Payment Amount" and the "Class B-2 Principal Payment Amount" for any
Distribution Date will equal the sum of (i) the Class B-1 Percentage or the
Class B-2 Percentage, as applicable, of the sum of (a) the principal portion of
the Scheduled Payment due on each Mortgage Loan [on the related Due Date], (b)
the principal portion of the purchase price of each Mortgage Loan that was
purchased by AmREIT or another person pursuant to the Mortgage Loan Purchase
Agreement [or by the Master Servicer in connection with any optional purchase by
the Master Servicer or the Company of a defaulted Mortgage Loan] as of such
Distribution Date, (c) the Substitution Adjustment Amount in connection with any
Deleted Mortgage Loan
S-26
<PAGE> 28
received with respect to such Distribution Date, (d) any Insurance Proceeds or
Liquidation Proceeds allocable to recoveries of principal of Mortgage Loans that
are not yet Liquidated Mortgage Loans received during the [calendar month]
preceding the month of such Distribution Date, (e) with respect to each Mortgage
Loan that became a Liquidated Mortgage Loan during the [calendar month]
preceding the month of such Distribution Date, the Stated Principal Balance of
such Mortgage Loan and (f) all partial and full principal prepayments by
borrowers received during the [calendar month] preceding the month of such
Distribution Date and (ii) any Class B-1 Principal Carryover Shortfall or Class
B-2 Principal Carryover Shortfall, as the case may be. The "Class B-1 Principal
Carryover Shortfall" for any Distribution Date will equal the excess of (a) the
Original Class B-1 Principal Amount reduced by all amounts previously
distributed to holders of the Class B-1 Bonds as payments of principal or Class
B-1 Principal Carryover Shortfall, over (b) the Class B-1 Principal Amount
immediately prior to such date. The "Class B-2 Principal Carryover Shortfall"
for any Distribution Date will equal the excess of (a) the Original Class B-2
Principal Amount reduced by all amounts previously distributed to holders of the
Class B-2 Bonds as payments of principal or Class B-2 Principal Carryover
Shortfall, over (b) the Class B-2 Principal Amount immediately prior to such
date.
INVESTED AMOUNT PAYMENT. On each Distribution Date, to the extent of
Available Funds therefor, the Invested Amount Payment for such Distribution Date
will be distributed in reduction of the Invested Amount of the Investor
Certificate. The "Invested Amount Payment" for any Distribution Date will equal
the sum of (i) the Investor Percentage of the sum of (a) the principal portion
of the Scheduled Payment due on each Mortgage Loan [on the related Due Date],
(b) the principal portion of the purchase price of each Mortgage Loan that was
purchased by AmREIT or another person pursuant to the Mortgage Loan Purchase
Agreement (as defined herein)[or any optional purchase by the Master Servicer or
the Company of a defaulted Mortgage Loan] as of such Distribution Date, (c) the
Substitution Adjustment Amount in connection with any Deleted Mortgage Loan
received with respect to such Distribution Date, (d) any Insurance Proceeds or
Liquidation Proceeds allocable to recoveries of principal of Mortgage Loans that
are not yet Liquidated Mortgage Loans received during the [calendar month]
preceding the month of such Distribution Date, and (e) all partial and full
principal prepayments by borrowers received during the [calendar month]
preceding the month of such Distribution Date, and (ii) with respect to each
Mortgage Loan that became a Liquidated Mortgage Loan during the [calendar month]
preceding the month of such Distribution Date, the Liquidation Proceeds
allocable to principal received with respect to such Mortgage Loan, after
application of such amounts pursuant to clause (e) of the definition of Senior
Principal Payment Amount, clause (e) of the definition of Class B-1 Principal
Payment Amount and clause (e) of the definition of Class B-2 Principal Payment
Amount.
PRIORITY OF PAYMENTS AND ALLOCATION OF SHORTFALLS
Prior to the declaration that the Bonds are due and payable, on any
Distribution Date Available Funds will be applied in the following order of
priority:
first, to the Senior Interest Payment Amount;
second, to the Senior Principal Payment Amount;
third, to the Class B-1 Interest Payment Amount;
fourth, to the Class B-1 Principal Payment Amount;
fifth, to the Class B-2 Interest Payment Amount;
sixth, to the Class B-2 Principal Payment Amount;
seventh, to the Certificate Interest Payment Amount;
eighth, to the Invested Amount Payment; and
ninth, to the holder of the Investor Certificate, the balance of any
Available Funds remaining in the Bond Account.
If a Realized Loss results in the Stated Principal Balances of the Mortgage
Loans declining in an amount greater than the sum of (i) the payments of
principal on the Senior Bonds, (ii) the payments of principal on
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<PAGE> 29
the Class B-1 Bonds, (iii) the payments of principal on the Class B-2 Bonds and
(iv) the payment in reduction of the Invested Amount, the Senior Percentage, the
Class B-1 Percentage, the Class B-2 Percentage and the Investor Percentage may
shift (as a result of their methods of computation as described above under
"-- PRINCIPAL") such that funds available in the Distribution Account for
payments of principal on each future Distribution Date may be allocated in a
higher ratio to the Offered Bonds as a result of such shortfall. This shift of
the Senior Percentage, the Class B-1 Percentage, the Class B-2 Percentage and
the Investor Percentage may cause the Offered Bonds to amortize more rapidly,
and the Class B-2 Bonds and the Investor Certificate to amortize more slowly,
than would otherwise have been the case in the absence of such shortfalls. An
investor should consider the risk that, in the case of any Offered Bond
purchased at a discount, a slower than anticipated rate of principal payments on
the Mortgage Loans could result in an actual yield to such investor that is
lower than the anticipated yield and, in the case of any Offered Bond purchased
at a premium, a faster than anticipated rate of principal payments on the
Mortgage Loans could result in an actual yield to such investor that is lower
than the anticipated yield. In addition, an investor in the Offered Bonds should
consider the risk that there can be no assurance that investors in the Offered
Bonds will be able to reinvest the payments thereon at yields equaling or
exceeding the yields on such Bonds. It is possible that yields on any such
reinvestments will be lower, and may be significantly lower, than the yields on
the Offered Bonds. See "RISK FACTORS -- YIELD, PREPAYMENT AND MATURITY RISKS"
herein and "RISK FACTORS -- PREPAYMENT AND YIELD CONSIDERATIONS; REINVESTMENT
RISK" in the Prospectus. In general, a "Realized Loss" means, with respect to a
Liquidated Mortgage Loan, the amount by which the remaining unpaid principal
balance of the related Mortgage Loan exceeds the amount of Liquidation Proceeds
applied to the principal balance of the related Mortgage Loan. A "Liquidated
Mortgage Loan" is a defaulted Mortgage Loan as to which the Master Servicer has
determined that all recoverable liquidation and insurance proceeds have been
received.
Under the Indenture, an Event of Default will not occur solely due to the
occurrence of Shortfalls that affect only the Subordinated Bonds until all the
Senior Bonds have been paid in full and then only if Shortfalls on the
Subordinated Bonds have not been paid. In addition, an Event of Default by
reason of any Shortfalls that affect the Senior Bonds will occur on any
Distribution Date only when the Pool Principal Balance is less than the
principal amount of the Senior Bonds outstanding after application of all
available amounts on deposit in the Distribution Account on such Distribution
Date. Nevertheless, at any time following an Event of Default arising from a
Shortfall affecting the Senior Bonds, the holders of outstanding Bonds, whether
Senior Bonds or Subordinated Bonds, representing more than 50% in principal
amount of all Bonds then outstanding, may declare the Bonds due and payable or
take any other action pursuant to the terms of the Indenture. Until the Bonds
have been declared due and payable following an Event of Default, the holders of
the Subordinated Bonds may not request the Bond Trustee to take any action,
other than the application of available funds in the Distribution Account to pay
principal and interest as provided herein, and may not otherwise cause any
action to be taken to enforce the obligation of the Bond Issuer to pay principal
and interest on the Subordinated Bonds. Additionally, prior to the Bonds being
declared due and payable following an Event of Default, the Senior Bonds will
not accrue interest in any form on the interest component of any Shortfall
attributable to the Senior Bonds. Should an Event of Default occur, payments
will be allocated on each Distribution Date in accordance with the priorities
described herein under "-- PRINCIPAL", which would otherwise be applicable on
such Distribution Date had an Event of Default not occurred. See "THE
AGREEMENTS" in the Prospectus.
STATED MATURITY
The Stated Maturity for each Class of Bonds is the date determined by the
Company which is years after the Distribution Date immediately
following the latest maturity date of any Mortgage Loan. The Stated Maturity of
each Class of Bonds is , 20 . See "TRUST FUND ASSETS --
WEIGHTED AVERAGE LIFE OF THE OFFERED BONDS" and "SECURITY FOR THE BONDS" herein
and in the Prospectus.
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<PAGE> 30
STRUCTURING ASSUMPTIONS
Unless otherwise specified, the information in the tables in this
Prospectus Supplement has been prepared on the basis of the following assumed
characteristics of the Mortgage Loans and the following additional assumptions
(collectively, the "Structuring Assumptions"): (i) the Mortgage Pool consists of
one Mortgage Loan with the following characteristics:
<TABLE>
<CAPTION>
REMAINING
ORIGINAL TERM TERM
NET MORTGAGE IN MATURITY TO MATURITY
PRINCIPAL BALANCE MORTGAGE RATE RATE (IN MONTHS) (IN MONTHS)
- ----------------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
$ % %
</TABLE>
(ii) the Mortgage Loans prepay at the specified constant Prepayment Assumptions,
(iii) no defaults in the payment by Mortgagors of principal of and interest on
the Mortgage Loans are experienced, (iv) scheduled payments on the Mortgage
Loans are received on the first day of each month commencing in the calendar
month following the Closing Date and are computed prior to giving effect to
prepayments received on the last day of the prior month, (v) prepayments are
allocated as described herein without giving effect to loss and delinquency
tests, (vi) there are no Net Interest Shortfalls and prepayments represent
prepayments in full of individual Mortgage Loans and are received on the last
day of each month, commencing in the calendar month of the Closing Date, (vii)
the scheduled monthly payment for each Mortgage Loan has been calculated based
on the assumed mortgage loan characteristics described in item (i) above such
that each such mortgage loan will amortize in amounts sufficient to repay the
principal balance of such assumed mortgage loan by its remaining term to
maturity, (viii) the initial Class Principal Amount or Invested Amount, as
applicable, of each Class of Bonds and the Investor Certificate, respectively,
is as set forth on the cover page hereof and under "SUMMARY -- SECURITIES OTHER
THAN THE OFFERED BONDS" herein, (ix) interest accrues on each Class of Bonds and
the Investor Certificate at the applicable interest rate described on the cover
hereof or described herein, (x) payments in respect of the Bonds and the
Investor Certificate are received in cash on the th day of each month
commencing in the calendar month following the Closing Date, (xi) the closing
date of the sale of the Offered Bonds is , 199 , (xii) [AmREIT]
is not required to purchase or substitute for any Mortgage Loan and (xiii) [the
Master Servicer or the Company does not exercise any option to purchase any
Mortgage Loans described herein under "-- OPTIONAL PURCHASE OF DEFAULTED LOANS"]
and the Bond Issuer does not exercise any option to redeem the Bonds as
described herein under "-- REDEMPTION AT THE OPTION OF THE BOND ISSUER." While
it is assumed that each of the Mortgage Loans prepays at the specified constant
Prepayment Assumptions, this is not likely to be the case. Moreover,
discrepancies exist between the characteristics of the actual Mortgage Loans
which will be delivered to the Bond Trustee and characteristics of the Mortgage
Loans assumed in preparing the tables herein.
Prepayments of mortgage loans commonly are measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement (the
"Prepayment Assumption") represents an assumed rate of prepayment each month
relevant to the then outstanding principal balance of a pool of mortgage loans.
The Prepayment Assumption does not purport to be either an historical
description of the prepayment experience of any pool of mortgage loans or a
prediction of the anticipated rate of prepayment of any pool of mortgage loans,
including the Mortgage Loans. A 100% Prepayment Assumption assumes a Constant
Prepayment Rate ("CPR") of % per annum of the then outstanding principal
balance of such mortgage loans in the first month of the life of the mortgage
loans and an additional % per annum in each month thereafter until the
month. Beginning in the month and in each month
thereafter during the life of such mortgage loans, a 100% Prepayment Assumption
assumes a CPR of % per annum each month. As used in the tables below, a
% Prepayment Assumption assumes a prepayment rate equal to % of the
Prepayment Assumption. Correspondingly, a % Prepayment Assumption assumes a
prepayment rate equal to % of the Prepayment Assumption, and so forth.
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<PAGE> 31
[OPTIONAL PURCHASE OF DEFAULTED LOANS
The Master Servicer or the Company may, at its option, purchase from the
Bond Issuer any Mortgage Loan which is delinquent in payment by days
or more. Any such purchase will be at a price equal to 100% of the Stated
Principal Balance of such Mortgage Loan plus accrued interest thereon at the
applicable Mortgage Rate from the date through which interest was last paid by
the related Mortgagor or advanced to the first day of the month in which such
amount is to be distributed.]
WEIGHTED AVERAGE LIVES OF THE OFFERED BONDS
The weighted average life of an Offered Bond is determined by (a)
multiplying the amount of the reduction, if any, of the Class Principal Amount
of such Bond on each Distribution Date by the number of years from the date of
issuance to such Distribution Date, (b) summing the results and (c) dividing the
sum by the aggregate amount of the reductions in Class Principal Amount of such
Bond referred to in clause (a).
For a discussion of the factors which may influence the rate of payments
(including prepayments) of the Mortgage Loans, see "RISK FACTORS -- YIELD,
PREPAYMENT AND MATURITY RISKS" herein and "RISK FACTORS -- PREPAYMENT AND YIELD
CONSIDERATIONS" in the Prospectus.
In general, the weighted average lives of the Offered Bonds will be
shortened if the level of prepayments of principal of the Mortgage Loans
increases. However, the weighted average lives of the Offered Bonds will depend
upon a variety of other factors, including the timing of changes in such rate of
principal payments and the priority sequence of distributions of principal of
the Classes of Bonds. See "DESCRIPTION OF THE BONDS -- PRINCIPAL" herein.
The interaction of the foregoing factors may have different effects on the
Senior Bonds and the Class B-1 Bonds and the effects on any Class may vary at
different times during the life of such Class. Accordingly, no assurance can be
given as to the weighted average life of any Class of Offered Bonds. Further, to
the extent the prices of the Offered Bonds represent discounts or premiums to
their respective original Class Principal Amounts, variability in the weighted
average lives of such Classes of Bonds will result in variability in the related
yields to maturity. For an example of how the weighted average lives of the
Classes of Offered Bonds may be affected at various constant Prepayment
Assumptions, see the Decrement Tables below.
DECREMENT TABLES
The following tables indicate the percentages of the initial Class
Principal Amounts of the Classes of Offered Bonds that would be outstanding
after each of the dates shown at various constant Prepayment Assumptions and the
corresponding weighted average lives of such Classes. The tables have been
prepared on the basis of the Structuring Assumptions. It is not likely that (i)
all of the Mortgage Loans will have the characteristics assumed, (ii) all of the
Mortgage Loans will prepay at the constant Prepayment Assumptions specified in
the tables or at any constant Prepayment Assumption or (iii) all of the Mortgage
Loans will prepay at the same rate. Moreover, the diverse remaining terms to
maturity of the Mortgage Loans could produce slower or faster principal payments
than indicated in the tables at the specified constant Prepayment
S-30
<PAGE> 32
Assumptions, even if the weighted average remaining term to maturity of the
Mortgage Loans is consistent with the remaining terms to maturity of the
Mortgage Loans specified in the Structuring Assumptions.
PERCENT OF INITIAL CLASS PRINCIPAL AMOUNTS OUTSTANDING
[DECREMENT TABLES]
REDEMPTION AT THE OPTION OF THE BOND ISSUER
The Bonds may be redeemed in whole, but not in part, at the Bond Issuer's
option, on any Distribution Date on or after the earlier of (a) years
after the initial issuance of the Bonds and (b) the Distribution Date on which
the sum of (i) the Senior Class Principal Amount (ii) the Class B-1 Principal
Amount, (iii) the Class B-2 Principal Amount and (iv) the Invested Amount, after
giving effect to payments to be made on such Distribution Date, is
or less of the aggregate of the Stated Principal Balances of the Mortgage Loans
as of the Cut-off Date, at a redemption price equal to 100% of the unpaid
principal amount of such Bonds (including, in the case of the Class B-1 or Class
B-2 Bonds, any unpaid Class B-1 or Class B-2 Principal Carryover Shortfall),
plus accrued and unpaid interest at the applicable Bond Interest Rate through
the month preceding the month in which such optional redemption date occurs. The
Bonds are not otherwise subject to call or redemption at the option of the Bond
Issuer nor are they subject to special redemption. See "DESCRIPTION OF THE
SECURITIES -- REDEMPTION AT THE OPTION OF THE ISSUER" in the Prospectus.
Notice of any redemption to be made at the option of the Bond Issuer must
be given by the Bond Issuer to the Bond Trustee not less than 30 days prior to
the redemption date and must be mailed by the Bond Issuer or the Bond Trustee to
affected Bondholders at least ten days prior to the redemption date.
CONTROLLING CLASS UNDER THE INDENTURE
For the purposes described in the Prospectus under the headings "THE
AGREEMENTS -- MODIFICATION OF AGREEMENTS," "-- EVENTS OF DEFAULT" and "RIGHTS
UPON EVENT OF DEFAULT," the "Controlling Class" shall be the Class A-1
Bondholders or, if the Class A-1 Bonds are no longer outstanding, the holders of
the most senior Class of Subordinated Bonds then outstanding.
BOOK-ENTRY BONDS
The Offered Bonds will be book-entry Bonds (each, a Class of "Book-Entry
Bonds"). Persons acquiring beneficial ownership interests in the Offered Bonds
("Bond Owners") may elect to hold their Offered Bonds through the Depository
Trust Company ("DTC") in the United States, or CEDEL or Euroclear (in Europe) if
they are participants of such systems, or indirectly through organizations which
are participants in such systems. The Book-Entry Bonds will be issued in one or
more certificates which equal the aggregate principal amount of the Offered
Bonds and will initially be registered in the name of Cede & Co., the nominee of
DTC. CEDEL and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in CEDEL's and Euroclear's
names on the books of their respective depositaries which in turn will hold such
positions in customers' securities accounts in the depositaries' names on the
books of DTC. Citibank, N.A., will act as depositary for CEDEL and The Chase
Manhattan Bank will act as depositary for Euroclear (in such capacities,
individually the "Relevant Depositary" and collectively the "European
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<PAGE> 33
Depositaries"). Investors may hold such beneficial interests in the Book-Entry
Bonds in minimum denominations representing Class Principal Amounts of
$ and in multiples of $1,000 in excess thereof. Except as described
below, no person acquiring a Book-Entry Bond (each, a "beneficial owner") will
be entitled to receive a physical certificate representing such Offered Bond (a
"Definitive Bond"). Unless and until Definitive Bonds are issued, it is
anticipated that the only "Bondholders" of the Offered Bonds will be Cede & Co.,
as nominee of DTC. Bond Owners will not be Bondholders as that term is used in
the Indenture. Bond Owners are only permitted to exercise their rights
indirectly through the participating organizations that utilize the services of
DTC, including securities brokers and dealers, banks and trust companies and
clearing corporations and certain other organizations ("Participants") and DTC.
The beneficial owner's ownership of a Book-Entry Bond 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 Bond will be recorded on the records of DTC (or of
a participating firm that acts as agent for the Financial Intermediary, whose
interest will in turn be recorded on the records of DTC, if the beneficial
owner's Financial Intermediary is not a DTC participant, and on the records of
CEDEL or Euroclear, as appropriate).
Bond Owners will receive all payments of principal of, and interest on, the
Offered Bonds from the Bond Trustee through DTC and DTC participants. While the
Offered Bonds 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 Offered Bonds and is
required to receive and transmit payments of principal of, and interest on, the
Bonds. Participants and indirect participants which have indirect access to the
DTC system, such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly ("Indirect Participants"), with whom Bond Owners have accounts
with respect to Offered Bonds are similarly required to make book-entry
transfers and receive and transmit such payments on behalf of their respective
Bond Owners. Accordingly, although Bond Owners will not possess certificates,
the Rules provide a mechanism by which Bond Owners will receive payments and
will be able to transfer their interest.
Bond Owners will not receive or be entitled to receive certificates
representing their respective interests in the Bonds, except under the limited
circumstances described below. Unless and until Definitive Bonds are issued,
Bond Owners who are not Participants may transfer ownership of Offered Bonds
only through Participants and Indirect Participants by instructing such
Participants and Indirect Participants to transfer Offered Bonds, by book-entry
transfer, through DTC for the account of the purchasers of such Offered Bonds,
which account is maintained with their respective Participants. Under the Rules
and in accordance with DTC's normal procedures, transfers of ownership of
Offered Bonds 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 Bond Owners.
Because of time zone differences, credits of securities received in CEDEL
or Euroclear as a result of a transaction with a Participant will be made during
subsequent securities settlement processing and dated the business day following
the DTC settlement date. Such credits or any transactions in such securities
settled during such processing will be reported to the relevant Euroclear or
CEDEL Participants on such business day. Cash received in CEDEL or Euroclear as
a result of sales of securities by or through a CEDEL Participant (as defined
herein) or Euroclear Participant (as defined herein) to a DTC Participant will
be received with value on the DTC settlement date but will be available in the
relevant CEDEL or Euroclear cash account only as of the business day following
settlement in DTC. For information relating to tax documentation procedures
relating to the Offered Bonds, see "FEDERAL INCOME TAX
CONSEQUENCES -- WITHHOLDING WITH RESPECT TO CERTAIN FOREIGN INVESTORS" and
"-- BACKUP WITHHOLDING" in the Prospectus and "GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES -- CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION
REQUIREMENTS" in Annex I hereto.
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<PAGE> 34
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 fund 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, some of which (and/or their representatives) own
DTC. In accordance with its normal procedures, DTC is expected to record the
positions held by each DTC participant in the Book-Entry Bonds, whether held for
its own account or as nominee for another person. In general, beneficial
ownership of Book-Entry Bonds will be subject to the rules, regulations and
procedures governing DTC and DTC participants as in effect from time to time.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL participants are recognized financial
institutions around the world, including underwriters, securities brokers and
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 in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York ("Morgan" and in such capacity, the
"Euroclear Operator"), under contract with Euroclear Clearance Systems S.C., a
Belgian cooperative corporation (the "Cooperative"). All operations are
conducted by Morgan, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Belgian Cooperative. The Belgian Cooperative establishes policy for Euroclear on
behalf of Euroclear Participants. Euroclear Participants include banks
(including central banks), securities brokers and dealers and other professional
financial intermediaries. Indirect access to Euroclear is also available to
other firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the
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Federal Reserve System and the New York State Banking Department, as well as the
Belgian Banking Commission.
Securities clearance accounts and cash accounts with Morgan are governed by
the Terms and Conditions Governing Use of Euroclear and the related Operating
Procedures of the Euroclear System and applicable Belgian law (collectively, the
"Terms and Conditions"). The Terms and Conditions govern transfers of securities
and cash within Euroclear, withdrawals of securities and cash from Euroclear,
and receipts of payments with respect to securities in Euroclear. All securities
in Euroclear are held on a fungible basis without attribution of specific
certificates to specific securities clearance accounts. The Euroclear Operator
acts under the Terms and Conditions only on behalf of Euroclear Participants,
and has no record of or relationship with persons holding through Euroclear
Participants.
Payments on the Book-Entry Bonds will be made on each Distribution Date by
the Bond Trustee to DTC. DTC will be responsible for crediting the amount of
such payments to the accounts of the applicable DTC participants in accordance
with DTC's normal procedures. Each DTC participant will be responsible for
disbursing such payments to the beneficial owners of the Book-Entry Bonds that
it represents and to each Financial Intermediary for which it acts as agent.
Each such Financial Intermediary will be responsible for disbursing funds to the
beneficial owners of the Book-Entry Bonds that it represents.
Under a book-entry format, beneficial owners of the Book-Entry Bonds may
experience some delay in their receipt of payments, since such payments will be
forwarded by the Bond Trustee to Cede & Co., as nominee of DTC. Payments with
respect to Offered Bonds 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 "FEDERAL
INCOME TAX CONSEQUENCES -- WITHHOLDING WITH RESPECT TO CERTAIN FOREIGN
INVESTORS" and " -- BACKUP WITHHOLDING" in the Prospectus. Because DTC can only
act on behalf of Financial Intermediaries, the ability of a beneficial owner to
pledge Book-Entry Bonds to persons or entities that do not participate in the
depository system, or otherwise take actions in respect of such Book-Entry Bond,
may be limited due to the lack of physical certificates for such Book-Entry
Bonds. In addition, issuance of the Offered Bonds in book-entry form may reduce
the liquidity of such Offered Bonds in the secondary market since certain
potential investors may be unwilling to purchase Offered Bonds for which they
cannot obtain physical certificates.
Monthly and annual reports on the Bond Issuer will be provided to Cede &
Co., as nominee of DTC, and may be made available by Cede & Co. to beneficial
owners upon request, in accordance with the rules, regulations and procedures
creating and affecting DTC or the Relevant Depositary, and to the Financial
Intermediaries to whose DTC accounts the Book-Entry Bonds of such beneficial
owners are credited.
DTC has advised the Issuer and the Bond Trustee that, unless and until
Definitive Bonds are issued in respect of the Offered Bonds, DTC will take any
action permitted to be taken by the holders of the Book-Entry Bonds under the
Indenture only at the direction of one or more Financial Intermediaries to whose
DTC accounts the Book-Entry Bonds are credited, to the extent that such actions
are taken on behalf of Financial Intermediaries whose holdings include such
Book-Entry Bonds. CEDEL or the Euroclear Operator, as the case may be, will take
any other action permitted to be taken by a Bondholder 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
Offered Bonds which conflict with actions taken with respect to other Offered
Bonds.
Definitive Bonds will be issued to beneficial owners of the Book-Entry
Bonds, or their nominees rather than to DTC, only if (a) DTC or the Bond Issuer
advises the Bond Trustee in writing that DTC is no longer willing, qualified or
able to discharge properly its responsibilities as nominee and depositary with
respect to the Book-Entry Bonds and the Bond Issuer or the Bond Trustee is
unable to locate a qualified successor or (b) the Bond Issuer, at its sole
option, elects to terminate a book-entry system through DTC.
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Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Bond Trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability through DTC of the
Definitive Bonds. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Bonds and instructions for
re-registration, the Bond Trustee will issue Definitive Bonds, and thereafter
the Bond Trustee will recognize the holders of such Definitive Bonds as
Bondholders under the Indenture.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Offered Bonds 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.
None of the Master Servicer, the Company, the Bond Issuer or the Bond
Trustee will have any responsibility for any aspect of the records relating to
or payments made on account of beneficial ownership interests of the Book-Entry
Bonds held by Cede & Co., as nominee of DTC, or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
For a description of the procedures generally applicable to the Book-Entry
Bonds, see "DESCRIPTION OF THE SECURITIES -- BOOK-ENTRY BONDS" in the
Prospectus.
CREDIT ENHANCEMENT
Credit enhancement for the Senior Bonds will be provided by the
Subordinated Bonds and by the Investor Certificate. Credit enhancement for the
Class B-1 Bonds will be provided by the Class B-2 Bonds and by the Investor
Certificate. Credit Enhancement for the Class B-2 Bonds will be provided by the
Investor Certificate. The rights of holders of the Subordinated Bonds and the
Investor Certificate to receive payments with respect to the Mortgage Loans will
be subordinated to such rights of the holders of the Senior Bonds, the rights of
the holders of the Class B-2 Bonds and the Investor Certificate will be
subordinated to such rights of the holders of the Class B-1 Bonds, and the
rights of the holder of the Investor Certificate will be subordinated to such
rights of the holders of the Class B-2 Bonds, in each case only to the extent
described herein.
The subordination of (i) the Subordinated Bonds and the Investor
Certificate to the Senior Bonds, (ii) the Class B-2 Bonds and the Investor
Certificate to the Class B-1 Bonds and (iii) the Investor Certificate to the
Class B-2 Bonds are each intended to increase the likelihood of timely receipt
by the holders of Bonds with higher relative payment priority of the maximum
amount to which they are entitled on any Distribution Date and to provide such
holders protection against losses resulting from defaults on Mortgage Loans to
the extent described herein. However, the amount of protection afforded by
subordination may be exhausted and Shortfalls in payments on the Offered Bonds
could result. Any losses realized on the Mortgage Loans in excess of the related
available subordination amount will result in losses on the Offered Bonds. See
"DESCRIPTION OF THE BONDS -- PRIORITY OF PAYMENTS AND ALLOCATION OF SHORTFALLS"
herein.
MORTGAGE LOAN PROGRAM
UNDERWRITING STANDARDS
[All of the Mortgage Loans have been purchased by AmREIT in the ordinary
course of business directly from banks, savings and loan associations, mortgage
bankers and other mortgage loan originators (each, an "Originator"), or in the
secondary mortgage market. AmREIT approves individual institutions as eligible
Originators after an evaluation of certain criteria, including the Originator's
mortgage origination and servicing experience and financial stability. Each
Originator and/or the entity from which AmREIT purchased the Mortgage Loans will
represent and warrant that all Mortgage Loans originated and/or sold by it will
have been underwritten in accordance with standards consistent with those
utilized by mortgage lenders generally during the period of origination.]
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Underwriting standards are applied by or on behalf of a lender to evaluate
the borrower's credit standing and repayment ability, and the value and adequacy
of the related Mortgaged Property as collateral. In general, a prospective
borrower applying for a loan is required to fill out a detailed application
designed to provide to the underwriting officer pertinent credit information. As
part of the description of the borrower's financial condition, the borrower
generally is required to provide a current list of assets and liabilities and a
statement of income and expense, as well as an authorization to apply for a
credit report which summarizes the borrower's credit history with local
merchants and lenders and any record of bankruptcy. In most cases, an employment
verification is obtained from an independent source (typically the borrower's
employer) which verification reports, among other things, the length of
employment with that organization, the current salary, and whether it is
expected that the borrower will continue such employment in the future. If a
prospective borrower is self-employed, the borrower may be required to submit
copies of signed tax returns. The borrower may also be required to authorize
verification of deposits at financial institutions where the borrower has demand
or savings accounts. See "MORTGAGE LOAN PROGRAM -- UNDERWRITING STANDARDS" in
the Prospectus.
SERVICING OF THE MORTGAGE LOANS
THE MASTER SERVICER
will act as Master Servicer. The principal executive offices
of are located at .
The Master Servicer will be responsible for servicing the Mortgage Loans in
accordance with the terms set forth in the Master Servicing Agreement. The
Master Servicer intends to perform its servicing obligations under the Master
Servicing Agreement directly or through one or more servicers (each, a
"Servicer"). On or prior to the Closing Date, the Master Servicer will enter
into or be assigned a mortgage servicing agreement (each, a "Servicing
Agreement") with each Servicer pursuant to which such Servicer will perform
certain servicing functions with respect to the Mortgage Loans. The Master
Servicer will administer and supervise the performance of each Servicer, who may
in turn be administering and supervising the performance of the subservicers of
the Mortgage Loans. Notwithstanding any such servicing arrangements, the Master
Servicer will remain liable for its servicing duties and obligations under the
Master Servicing Agreement.
SERVICING AND COLLECTION PROCEDURES
On or prior to the Closing Date, the Master Servicer may enter into a
separate Servicing Agreement with each Servicer to perform, as independent
contractor, servicing functions for the Master Servicer subject to its
supervision. Such servicing functions include collection and remittance of
principal and interest payments, administration of mortgage escrow accounts,
collection of certain insurance claims and, if necessary, foreclosure. The
Master Servicer may permit Servicers to contract with subservicers to perform
some or all of the Servicer's servicing duties, but the Servicers will not
thereby be released from their obligations under the Servicing Agreement. The
Master Servicer also may enter into subservicing agreements directly with an
affiliate of a Servicer or permit a Servicer to transfer its servicing rights
and obligations to a third party. In such instances, the affiliate or third
party, as the case may be, will perform servicing functions comparable to those
normally performed by the Servicer as described above, and the Servicer will not
be obligated to perform such servicing functions. When used herein with respect
to servicing obligations, the term Servicer includes any such affiliate or third
party. The Master Servicer may perform certain supervisory functions with
respect to servicing by the Servicer directly or through an agent or independent
contractor and the Master Servicer will be responsible for administering and
servicing the Mortgage Loans pursuant to the Master Servicing Agreement.
On or before the Closing Date, the Master Servicer will establish one or
more accounts (the "Bond Account") into which each Servicer will remit
collections on the mortgage loans serviced by it (net of its related servicing
compensation). For purposes of the Master Servicing Agreement, the Master
Servicer will be deemed to have received any amounts with respect to the
Mortgage Loans that are received by a Servicer
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<PAGE> 38
regardless of whether such amounts are remitted by the Servicer to the Master
Servicer. The Master Servicer has reserved the right to remove the Servicer
servicing any Mortgage Loan at any time and will exercise that right if it
considers such removal to be in the best interest of the Bondholders. In the
event that the Master Servicer removes a Servicer, the Master Servicer will
continue to be responsible for servicing the related Mortgage Loans.
FORECLOSURE, DELINQUENCY AND LOSS EXPERIENCE
The following table summarizes the delinquency, foreclosure and loss
experience, respectively, as of December 31, 199 , December 31, 199 and December
31, 199 on approximately $ , $ and $ , respectively,
in outstanding principal balance of conventional mortgage loans master serviced
by , commenced master servicing conventional mortgage
loans during . The delinquency and foreclosure percentages and the
loss experience may be affected by the size and relative lack of seasoning of
the servicing portfolio because many of such mortgage loans were not outstanding
long enough to give rise to some or all of the indicated periods of delinquency.
Accordingly, the information should not be considered as a basis for assessing
the likelihood, amount or severity of delinquency or losses on the Mortgage
Loans, and no assurances can be given that the foreclosure, delinquency and loss
experience presented in the table below will be indicative of such experience on
the Mortgage Loans in the future:
<TABLE>
<CAPTION>
AS OF AS OF AS OF
DECEMBER 31, DECEMBER 31, DECEMBER 31,
199 199 199
------------ ------------ ------------
<S> <C> <C> <C>
Total number of conventional mortgage loans in
Master Servicer's Portfolio.................
Delinquent mortgage loans and pending
foreclosures in Master Servicer's Portfolio
at period end(1):...........................
30-59 days..................................
60-89 days..................................
90 days or more (excluding foreclosures)....
Total delinquencies.........................
Foreclosures pending........................
Total delinquencies and foreclosures
pending..................................
Net Loss(2).................................
</TABLE>
- ---------------
(1) As a percentage of the total number of loans master serviced.
(2) There is no material difference between gross loss and net loss.
There can be no assurance that factors beyond the Master Servicer's
control, such as national or local economic conditions or downturns in the real
estate markets of its lending areas, will not result in increased rates of
delinquencies and foreclosure losses in the future. [For example, over the last
several years there has been a general deterioration of the real estate market
and weakening of the economy in many regions of the country, including
California. The general deterioration of the real estate market has been
reflected in increases in delinquencies of loans secured by real estate, slower
absorption rates of real estate into the market and lower sales prices for real
estate. The general weakening of the economy has been reflected in decreases in
the financial strength of borrowers and decreases in the value of collateral
serving as collateral for loans. If the real estate market and economy continue
to decline, the Master Servicer may experience an increase in delinquencies on
the loans it services and higher net losses on liquidated loans.]
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Expense Fees with respect to the Mortgage Loans are payable out of the
interest payments on each Mortgage Loan. The Expense Fees will vary from
Mortgage Loan to Mortgage Loan. The rate at which the Expense Fees accrue (the
"Expense Fee Rate") will range from % to % per annum, in each case of
the Stated Principal Balance of the related Mortgage Loan. As of the Cut-off
Date, the weighted average Expense Fee Rate equaled approximately %. The
Expense Fees consist of (a) master servicing
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compensation payable to the Master Servicer in respect of its master servicing
activities (the "Master Servicing Fee"), (b) servicing compensation payable to
the Servicers in respect of their servicing activities (the "Servicing Fee") and
(c) fees payable to the Bond Trustee in respect of its activities as trustee
under the Indenture. The Master Servicing Fee will be % per annum of the
Stated Principal Balance of each Mortgage Loan. The Servicing Fee payable to
each Servicer will vary from Mortgage Loan to Mortgage Loan and will range from
% to % per annum, in each case of the Stated Principal Balance of the
related Mortgage Loan serviced by such Servicer. The Master Servicer is
obligated to pay certain ongoing expenses associated with the Mortgage Loans and
incurred by the Master Servicer in connection with its responsibilities under
the Master Servicing Agreement and such amounts will be paid by the Master
Servicer out of the Master Servicing Fee. The amount of the Master Servicing Fee
is subject to adjustment with respect to prepaid Mortgage Loans, as described
herein under " -- ADJUSTMENT TO MASTER SERVICING FEE AND INVESTED AMOUNT IN
CONNECTION WITH CERTAIN PREPAID MORTGAGE LOANS." The Master Servicer or the
related Servicer will also be entitled to receive late payment fees, assumption
fees and other similar charges. The Master Servicer will be entitled to receive
all reinvestment income earned on amounts on deposit in the Bond Account and the
Distribution Account. The Net Mortgage Rate of a Mortgage Loan is the Mortgage
Rate thereof minus the related Expense Fee Rate.
ADJUSTMENT TO MASTER SERVICING FEE AND INVESTED AMOUNT IN CONNECTION WITH
CERTAIN PREPAID MORTGAGE LOANS
When a borrower prepays a Mortgage Loan between Due Dates, the borrower is
required to pay interest on the amount prepaid only to the date of prepayment
and not thereafter. Principal prepayments by borrowers received during a
calendar month will be distributed to Bondholders on the Distribution Date in
the month following the month of receipt. Pursuant to the Master Servicing
Agreement, the Master Servicing Fee for any month may be reduced by an amount
with respect to each such prepaid Mortgage Loan sufficient to pay to Bondholders
the full amount of interest to which they would be entitled in respect of such
Mortgage Loan on the related Distribution Date. If shortfalls in interest as a
result of prepayments in any month exceed the sum of (i) amount of the Master
Servicing Fee for such month and (ii) the amounts otherwise payable on such
Distribution Date to the holder of the Investor Certificate as described in
clauses "seventh", "eighth" and "ninth" under "DESCRIPTION OF THE
BONDS -- PRIORITY OF PAYMENTS AND ALLOCATION OF SHORTFALLS" herein, the amount
of funds available to be paid to Bondholders in respect of interest on such
Distribution Date will be reduced by the amount of such excess. See "DESCRIPTION
OF THE BONDS -- INTEREST" herein.
ADVANCES
Subject to the following limitations, the Master Servicer will be required
to advance prior to each Distribution Date, from its own funds, funds advanced
by the related Servicer or amounts received with respect to the Mortgage Loans
that do not constitute Available Funds for such Distribution Date, an amount
equal to the aggregate of payments of principal of and interest on the Mortgage
Loans (net of the Master Servicing Fee and the applicable Servicing Fee with
respect to the related Mortgage Loans) which were due on the related Due Date
and which were delinquent on the related Determination Date, together with an
amount equivalent to interest on each Mortgage Loan as to which the related
Mortgaged Property has been acquired by the Bond Trustee through foreclosure or
deed-in-lieu of foreclosure ("REO Property") (any such advance, an "Advance").
Advances are intended to maintain a regular flow of scheduled interest and
principal payments on the Bonds and the Investor Certificate rather than to
guarantee or insure against losses. The Master Servicer is obligated to make
Advances with respect to delinquent payments of principal of or interest on each
Mortgage Loan to the extent that such Advances are, in its reasonable judgment,
recoverable from future payments and collections or insurance payments or
proceeds of liquidation of the related Mortgage Loan. If the Master Servicer
determines on any Determination Date to make an Advance, such Advance will be
included with the payment to Bondholders and the holder of the Investor
Certificate on the related Distribution Date. [Any failure by a Servicer to
advance funds as required under the related Servicing Agreement will constitute
a
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<PAGE> 40
default thereunder, in which case the Master Servicer will be obligated to make
any such advance in accordance with the terms of the Master Servicing
Agreement.] Any failure by the Master Servicer to make an Advance as required
under the Master Servicing Agreement with respect to the Bonds and the Investor
Certificate will constitute a Servicing Default thereunder, in which case the
Bond Trustee or the successor master servicer will be obligated to make any such
Advance, in accordance with the terms of the Master Servicing Agreement.
FEDERAL INCOME TAX CONSEQUENCES
Jeffers, Wilson, Shaff & Falk, LLP has advised the Company that, in its
opinion, the Bonds will be treated as indebtedness for federal income tax
purposes, and not as an ownership interest in the Mortgage Collateral, the Bond
Issuer or a separate association taxable as a corporation. Interest, including
original issue discount with respect to any Class of Offered Bonds issued with
original issue discount, will be taxable to non-exempt Bondholders. The Tax
Prepayment Assumption (as defined in the Prospectus under "FEDERAL INCOME TAX
CONSEQUENCES -- INTEREST AND ORIGINAL ISSUE DISCOUNT") for the purposes of
determining the amount and rate of accrual of original issue discount on the
Bonds assumes that the Mortgage Loans are prepaid at a rate of % of the
Prepayment Assumption. Based upon (i) [the assumed prepayment rate] and (ii) the
expected price to the public of each Class of the Offered Bonds as of the date
hereof (including interest accrued before the issue date, if any), the Class A-1
Bonds will not be issued with original issue discount and the Class B-1 Bonds
will be treated as issued with original issue discount. Pursuant to applicable
regulations the Bond Issuer intends to treat the stated interest on the Bonds as
"qualified stated interest payments" (as such term is defined in the Prospectus
under "FEDERAL INCOME TAX CONSEQUENCES").
Notwithstanding the use of the above prepayment assumption in pricing the
Offered Bonds, no representation is made that the Mortgage Loans will actually
prepay at the assumed rate or at any other rate. The amount of original issue
discount and certain other information with respect to each Offered Bond will be
set forth on the face of such Bond as required by applicable regulations and as
described in the Prospectus. See "DESCRIPTION OF THE BONDS -- WEIGHTED AVERAGE
LIFE OF THE OFFERED BONDS" herein and "FEDERAL TAX CONSEQUENCES" in the
Prospectus.
The Bond Issuer will not elect to treat the segregated pool of assets
securing the Bonds as a real estate mortgage investment conduit ("REMIC") or a
financial asset securitization investment trust ("FASIT") for federal income tax
purposes. Jeffers, Wilson, Shaff & Falk, LLP has further advised the Company
that, in its opinion, the Bond Issuer will not be classified as a taxable
mortgage pool.
ERISA MATTERS
Fiduciaries of employee benefit plans and certain other retirement plans
and arrangements, including individual retirement accounts and annuities, Keogh
plans, and collective investment funds in which such plans, accounts, annuities
or arrangements are invested, that are subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or corresponding provisions of the
Internal Revenue Code of 1986, as amended (the "Code") (any of the foregoing a
"Plan"), persons acting on behalf of a Plan, or persons using the assets of a
Plan ("Plan Investors"), should carefully review with their legal advisors
whether the purchase or holding of the Offered Bonds could give rise to a
transaction that is prohibited under ERISA or the Code or cause the Mortgage
Loans securing the Offered Bonds to be treated as "plan assets" for purposes of
regulations of the Department of Labor set forth in 29 C.F.R. 2510.3-101 (the
"Plan Asset Regulations"). Prospective investors should be aware that, although
certain exceptions from the application of the prohibited transaction rules and
the Plan Asset Regulations exist, there can be no assurance that any such
exception will apply with respect to the acquisition of the Offered Bonds. See
"ERISA MATTERS" in the Prospectus.
Although not entirely free from doubt, tax counsel has advised the Bond
Issuer that the Offered Bonds will be treated as debt obligations without
significant equity features for purposes of the Plan Asset
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<PAGE> 41
Regulations. Accordingly, a Plan that acquires the Offered Bonds should not be
treated as having acquired a direct interest in the assets of the Bond Issuer.
However, there can be no complete assurance that the Offered Bonds will be
treated as debt obligations without significant equity features for purposes of
the Plan Asset Regulations.
If the Offered Bonds were treated as equity for purposes of ERISA, the
purchaser of the Offered Bonds could be treated as having acquired a direct
interest in the Mortgage Loans securing the Offered Bonds. In that event, the
purchase, holding, or resale of the Offered Bonds could result in a transaction
that is prohibited under ERISA or the Code. Furthermore, regardless of whether
the Offered Bonds are treated as equity for purposes of ERISA, the acquisition
or holding of the Offered Bonds by or on behalf of a Plan could still be
considered to give rise to a prohibited transaction if the Bond Issuer, the Bond
Trustee, the Master Servicer, any Servicer or any of their respective Affiliates
is or becomes a party in interest or a disqualified person with respect to such
Plan. However, one or more alternative exemptions may be available with respect
to certain prohibited transaction rules of ERISA that might apply in connection
with the initial purchase, holding and resale of the Offered Bonds, depending in
part upon the type of Plan fiduciary making the decision to acquire the Offered
Bonds and the circumstances under which such decision is made. Those exemptions
include, but are not limited to: (i) Prohibited Transaction Class Exemption
("PTCE") 95-60, regarding investments by insurance company general accounts;
(ii) PTCE 91-38, regarding investments by bank collective investment funds;
(iii) PTCE 90-1, regarding investments by insurance company pooled separate
accounts; (iv) PTCE 84-14, regarding transactions negotiated by qualified
professional asset managers; or (v) PTCE 96-23 regarding transactions effected
by an in-house asset manager. Before purchasing the Offered Bonds, a Plan
subject to the fiduciary responsibility provisions of ERISA or described in
Section 4975(e)(1) (and not exempt under Section 4975(g)) of the Code should
consult with its counsel to determine whether the conditions of any exemption
would be met. A purchaser of the Offered Bonds 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. See "ERISA MATTERS" in the Prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting Agreement
between the Company, AmREIT and the Underwriter, the Company has agreed to cause
the Bond Issuer to sell to the Underwriter, and the Underwriter has agreed to
purchase from the Bond Issuer, the Underwritten Bonds. Distribution of the
Underwritten Bonds will be made by the Underwriter from time to time in
negotiated transactions or otherwise at varying prices to be determined at the
time of sale. In connection with the sale of the Underwritten Bonds, the
Underwriter may be deemed to have received compensation from the Bond Issuer in
the form of underwriting discounts.
The Bond Issuer proposes to offer the Class A-1 Bonds with original
principal balance of $ for sale to AmREIT in a privately negotiated
transaction. AmREIT will initially pledge its Class A-1 Bonds to [name of
lender] to secure indebtedness. AmREIT or its pledgees, donees, transferees or
other successors in interest may, from time to time, offer such Class A-1 Bonds
for sale to the public in negotiated transactions or otherwise at varying prices
to be determined at the time of sale.
The Underwriter intends to make a secondary market in the Offered Bonds,
but has no obligation to do so. There can be no assurance that a secondary
market for the Offered Bonds will develop or, if it does develop, that it will
continue or that it will provide Bondholders with a sufficient level of
liquidity of investment. The Offered Bonds will not be listed on any national
securities exchange.
The Company and AmREIT have agreed to indemnify the Underwriter against, or
make contributions to the Underwriter with respect to, certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
S-40
<PAGE> 42
LEGAL MATTERS
The validity of the Bonds will be passed upon for the Bond Issuer by Tobin
& Tobin, a professional corporation, San Francisco, California. Certain tax
matters will be passed upon by for the Bond Issuer by Jeffers, Wilson, Shaff &
Falk, LLP, Irvine, California. Brown & Wood LLP, Washington, D.C., will act as
counsel for the Underwriter.
RATINGS
It is a condition of the issuance of the Senior Bonds that they be rated
AAA by and AAA by ( and, together, the
"Rating Agencies"). It is a condition to the issuance of the Class B-1 Bonds
that they be rated [AA] by .
The ratings assigned by to collateralized mortgage obligations
address the likelihood of the receipt of all payments on the mortgage loans by
the related bondholders under the agreements pursuant to which such bonds are
issued. 's ratings take into consideration the credit quality of the
related mortgage pool, including any credit support providers, structural and
legal aspects associated with such bonds, and the extent to which the payment
stream on the mortgage pool is adequate to make the payments required by such
bonds. 's ratings on such bonds do not, however, constitute a
statement regarding frequency of prepayments of the mortgage loans.
The ratings assigned by to the senior bonds address the
likelihood of the receipt of all payments on the mortgage loans by the related
bondholders under the agreements pursuant to which such bonds are issued.
's ratings take into consideration the credit quality of the related
mortgage pool, including any credit support providers, structural and legal
aspects associated with such bonds, and the extent to which the payment stream
on such mortgage pool is adequate to make payments required by such bonds.
's ratings on such bonds do not, however, constitute a statement regarding
frequency of prepayments on the related mortgage loans.
The ratings of the Rating Agencies do not address the possibility that, as
a result of principal prepayments, Bondholders may receive a lower than
anticipated yield.
The ratings assigned to the Offered Bonds should be evaluated independently
from similar ratings on other types of securities. A rating is not a
recommendation to buy, sell or hold securities and may be subject to revision or
withdrawal at any time by the Rating Agencies.
The Bond Issuer has not requested a rating of the Offered Bonds by any
rating agency other than the Rating Agencies; there can be no assurance,
however, as to whether any other rating agency will rate the Offered Bonds or,
if it does, what rating would be assigned by such other rating agency. The
rating assigned by such other rating agency to the Offered Bonds could be lower
than the respective ratings assigned by the Rating Agencies.
S-41
<PAGE> 43
INDEX OF CERTAIN DEFINITIONS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Adjustment Date............................................. S-17
Advance..................................................... S-38
Advances.................................................... S-7
AmREIT...................................................... Cover, S-4, S-16
Available Funds............................................. S-24
Beneficial owner............................................ S-31
Bond Account................................................ S-8, S-23, S-36
Bond Distribution Amount.................................... S-23
Bond Interest Rate.......................................... S-24
Bond Issuer................................................. S-2
Bond Owners................................................. S-31
Bond Trustee................................................ S-4
Bonds....................................................... S-22
Book-Entry Bonds............................................ S-31
CEDEL Participants.......................................... S-32
Certificate Interest Payment Amount......................... S-25
Certificate Interest Rate................................... S-3
Class B-1 Bond Interest Rate................................ Cover
Class B-1 Interest Carryover Shortfall...................... S-24
Class B-1 Interest Payment Amount........................... S-24
Class B-1 Percentage........................................ S-26
Class B-1 Principal Amount.................................. S-23
Class B-1 Principal Carryover Shortfall..................... S-26
Class B-1 Principal Payment Amount.......................... S-26
Class B-2 Interest Carryover Shortfall...................... S-25
Class B-2 Interest Payment Amount........................... S-24
Class B-2 Bond Interest Rate................................ S-3
Class B-2 Percentage........................................ S-26
Class B-2 Principal Amount.................................. S-23
Class B-2 Principal Carryover Shortfall..................... S-24, S-26
Class B-2 Principal Payment Amount.......................... S-26
Class Principal Amount...................................... S-23
Code........................................................ S-10, S-39
Company..................................................... S-2, S-3
Controlling Class........................................... S-31
Cooperative................................................. S-33
CPR......................................................... S-29
Cut-off Date Pool Principal Balance......................... S-17
Definitive Bond............................................. S-31
Deleted Mortgage Loan....................................... S-22
Deposit Trust Agreement..................................... S-4
Depositor................................................... S-2, S-3
Distribution Account........................................ S-8, S-23
Distribution Date........................................... Cover, S-5, S-23
DTC......................................................... S-31
Due Date.................................................... S-17
</TABLE>
S-42
<PAGE> 44
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ERISA....................................................... S-10, S-39
Euroclear Operator.......................................... S-33
Euroclear Participants...................................... S-33
European Depositaries....................................... S-31
Expense Fee Rate............................................ S-37
FASIT....................................................... S-39
FHLMC....................................................... S-18
Financial Intermediary...................................... S-31
FNMA........................................................ S-18
Index....................................................... S-8, S-17
Indirect Participants....................................... S-31
Insurance Proceeds.......................................... S-24
Interest Accrual Period..................................... S-24
Interest Payment Amount..................................... S-5
Invested Amount............................................. S-23
Invested Amount Payment..................................... S-26
Investor Certificate........................................ Cover, S-22
Investor Percentage......................................... S-26
Liquidated Mortgage Loan.................................... S-28
Liquidation Proceeds........................................ S-24
Loan-to-Value Ratio......................................... S-18
Management Agreement........................................ S-4
Margin...................................................... S-17
Master Servicer............................................. S-4
Master Servicing Agreement.................................. S-4
Master Servicing Fee........................................ S-37
Maximum Rate................................................ S-18
Morgan...................................................... S-33
Mortgage.................................................... S-22
Mortgage File............................................... S-22
Mortgage Loan Pool.......................................... S-8
Mortgage Loan Purchase Agreement............................ S-17
Mortgage Loans.............................................. Cover
Mortgage Note............................................... S-22
Mortgage Pool............................................... S-17
Mortgaged Property.......................................... S-17
Net Interest Shortfall...................................... S-25
Net Interest Shortfalls..................................... S-25
Offered Bonds............................................... Cover, S-3, S-23
Original Class B-1 Principal Amount......................... S-23
Original Class B-2 Principal Amount......................... S-23
Original Invested Amount.................................... S-23
Original Senior Class Principal Amount...................... S-23
Originator.................................................. S-35
Owner Trustee............................................... S-4
Participants................................................ S-31
Periodic Rate Cap........................................... S-18
Plan........................................................ S-10, S-39
</TABLE>
S-43
<PAGE> 45
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Plan Asset Regulations...................................... S-10, S-39
Plan Investors.............................................. S-10, S-39
Pool Principal Balance...................................... S-26
Prepayment Assumption....................................... S-29
Prepayment Interest Shortfall............................... S-25
Primary Mortgage Insurance Policy........................... S-18
PTCE........................................................ S-40
Rating Agencies............................................. S-40
Realized Loss............................................... S-27
Record Date................................................. S-23
Relevant Depositary......................................... S-31
Relief Act Reduction........................................ S-25
REMIC....................................................... S-39
REO Property................................................ S-38
Replacement Mortgage Loan................................... S-22
Rules....................................................... S-31
Scheduled Payments.......................................... S-17
Senior Bond Interest Rate................................... Cover
Senior Bonds................................................ Cover, S-22
Senior Class Principal Amount............................... S-23
Senior Interest Payment Amount.............................. S-24
Senior Percentage........................................... S-26
Senior Principal Payment Amount............................. S-25
Servicer.................................................... S-35
Servicing Agreement......................................... S-35
Servicing Fee............................................... S-37
Shortfalls.................................................. S-13
SMMEA....................................................... S-10
Stated Principal Balance.................................... S-26
Structuring Assumptions..................................... S-28
Subordinated Bonds.......................................... Cover, S-22
Substitution Adjustment Amount.............................. S-22
Terms and Conditions........................................ S-33
Trust Fund Assets........................................... S-8
Underwriter................................................. Cover
Underwritten Bonds.......................................... Cover
</TABLE>
S-44
<PAGE> 46
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered American
Residential Eagle Trust One, Collateralized Mortgage Bonds (the "Global Bonds")
will be available only in book-entry form. Investors in the Global Bonds may
hold such Global Bonds through any of The Depository Trust Company ("DTC"),
CEDEL or Euroclear. The Global Bonds 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 Bonds 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 Bonds through DTC
will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations and prior collateralized mortgage bond issues.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Global Bonds will be effected on a delivery-against-payment
basis through the respective Depositaries of CEDEL and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Bonds 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 Bonds will be held in book-entry form by DTC in the name of Cede
& Co. as nominee of DTC. Investors' interests in the Global Bonds will be
represented through financial institutions acting on their behalf as direct and
indirect participants in DTC (each, a "DTC Participant"). As a result, CEDEL and
Euroclear will hold positions on behalf of their participants through their
respective Depositaries, which in turn will hold such positions in accounts as
DTC Participants.
Investors electing to hold their Global Bonds through DTC will follow the
settlement practices' applicable to other collateralized mortgage bond issues.
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 Bonds 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 Bonds will be credited to the securities
custody accounts on the settlement date against payment in same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
TRADING BETWEEN DTC PARTICIPANTS. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior
collateralized mortgage bond 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 PURCHASER. When Global
Bonds are to be transferred from the account of a DTC Participant to the account
of a CEDEL Participant or a Euroclear Participant, the purchaser will send
instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day prior to settlement. CEDEL or Euroclear
will instruct the respective Depositary, as the case may be, to receive the
Global Bonds against payment. Payment will include interest accrued on the
Global Bonds from and including the last coupon payment date to and excluding
the
S-45
<PAGE> 47
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 of the DTC Participant's account against delivery of the
Global Bonds. After settlement has been completed, the Global Bonds 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
Bonds 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 Bonds
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 the finance settlement. Under
this procedure, CEDEL Participants or Euroclear Participants purchasing Global
Bonds would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Bonds were credited to their accounts. However,
interest on the Global Bonds would accrue from the value date. Therefore, in
many cases the investment income on the Global Bonds 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.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Bonds to the
respective European Depository for the benefit of CEDEL Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller on
the settlement date. Thus, to the DTC Participants a cross-market transaction
will settle no differently than a trade between two DTC Participants.
TRADING BETWEEN CEDEL OR EUROCLEAR 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 Bonds are
to be transferred by the respective clearing system, through the respective
Depositary, to a DTC Participant. The seller will send instructions to CEDEL or
Euroclear through a CEDEL Participant or Euroclear Participant at least one
business day prior to settlement. In these cases CEDEL or Euroclear will
instruct the respective Depositary, as appropriate, to deliver the Global Bonds
to the DTC Participant's account against payment. Payment will include interest
accrued on the Global Bonds 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 valued 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
Bonds from DTC Participants for delivery to CEDEL Participants or Euroclear
Participants should note that these trades would
S-46
<PAGE> 48
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 Bonds in the U.S. from a DTC Participant no
later than one day prior to settlement, which would give the Global Bonds
sufficient time to be reflected in their CEDEL or Euroclear account in
order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the CEDEL Participant
or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of the Global Bonds 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 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 the Global
Bonds 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 or Business in the United
States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY COUNTRIES
(FORM 1001). Non-U.S. Persons that are Bond Owners 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 Bond Owner or his agent.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. The Bond Owner of a Global
Bond 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 a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, or an estate
whose income is subject to U.S. federal income tax regardless of its source of
income, or a trust if a court within the United States is able to exercise
primary supervision of the administration of the trust and one or more United
States fiduciaries have the authority to control all substantial decisions of
the trust. This summary does not deal with all aspects of U.S. federal income
tax withholding that may be relevant to foreign holders of the Global Bonds.
Investors are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of the Global Bonds.
S-47
<PAGE> 49
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 13, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1998)
$
AMERICAN RESIDENTIAL EAGLE, INC.
DEPOSITOR
AMERICAN RESIDENTIAL EAGLE CERTIFICATE TRUST [199 - ]
CERTIFICATE ISSUER
MORTGAGE-BACK [CALLABLE] CERTIFICATES, SERIES 199 -
DISTRIBUTIONS PAYABLE ON THE DAY OF EACH MONTH, COMMENCING ON
, 199
AMERICAN RESIDENTIAL EAGLE BOND TRUST [199 - ], BOND ISSUER
------------------------
The Mortgage-Backed [Callable] Certificates, Series 199 - (the
"Certificates") will represent the entire beneficial ownership interest in a
trust (the "Certificate Issuer") to be created pursuant to a Trust Agreement,
dated as of , 199 (the "Trust Agreement"), among American Residential
Eagle, Inc. (the "Depositor") and , as trustee (the
"Certificate Trustee"). The trust fund assets supporting the Certificates (the
"Trust Fund Assets") will consist primarily of a single Collateralized Mortgage
Bond (the "Underlying Bond") issued by American Residential Eagle Mortgage Bond
Trust [199 - ] (the "Bond Issuer"). The Underlying Bond is secured by and
represents the right to receive all of the payments received on a pool (the
"Mortgage Pool") of conventional [fixed-adjustable] rate mortgage loans (the
"Mortgage Loans") secured by first liens on one- to four-family residential
properties. The Mortgage Loans will be acquired from [American Residential
Trust, Inc. ("AmREIT")]. Only the Classes identified in the table below (the
"Offered Certificates") are offered hereby.
On the th day of each month or, if such th day is not a business day,
on the first business day thereafter (each, a "Distribution Date"), commencing
on , 1998, from and to the extent of funds available therefor in the
Distribution Account referred to herein, a distribution will be made on the
Offered Certificates in the amounts and in the priorities set forth herein.
<TABLE>
<CAPTION>
===============================================================================================================================
INITIAL
CLASS CERTIFICATE PRINCIPAL INTEREST PRICE TO UNDERWRITING
CLASS BALANCE(1) TYPE TYPE PASS-THROUGH RATE PUBLIC DISCOUNT
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
A-1.................. $ [ %] [Variable Rate(2)] $ $
- -------------------------------------------------------------------------------------------------------------------------------
X.................... $ (3) $ $
- -------------------------------------------------------------------------------------------------------------------------------
M-1.................. $ [ %] [Variable Rate(2)] $ $
- -------------------------------------------------------------------------------------------------------------------------------
Total................ $ N/A $ $
===============================================================================================================================
<CAPTION>
===================== ================
PROCEEDS TO
CLASS DEPOSITOR
- --------------------- ----------------
<S> <C>
A-1.................. $
- --------------------------------------------------------
X.................... $
- -------------------------------------------------------------------------
M-1.................. $
- ------------------------------------------------------------------------------------------
Total................ $
- -----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The aggregate initial Class Certificate Balance of the Offered Certificates
is subject to a permitted variance in the aggregate of plus or minus 5%.
[(2) The Pass-Through Rate for any Distribution Date will equal the weighted
average of the Net Mortgage Rates then in effect for each Mortgage Loan.
The Net Mortgage Rate for each Mortgage Loan will equal the Mortgage Rate
thereon on the first day of the month preceding the month of the related
Distribution Date less the related Expense Rate. The Pass-Through Rate for
the first Distribution Date is expected to be approximately % per annum.]
(3) The Pass-Through Rate for this Class for any Distribution Date will be equal
to the excess of (a) the weighted average of the Net Mortgage Rates of the
Mortgage Loans over (b) %.
PROSPECTIVE INVESTORS IN THE OFFERED CERTIFICATES SHOULD REVIEW THE
INFORMATION SET FORTH UNDER "RISK FACTORS" ON PAGE S-13 OF THIS PROSPECTUS
SUPPLEMENT AND IN THE PROSPECTUS ON PAGE 18. THESE RISKS INCLUDE:
<TABLE>
<S> <C>
- - YIELD AND PREPAYMENT CONSIDERATIONS - MORTGAGE LOAN CONCENTRATION
- - NATURE OF MORTGAGES - LIMITED LIQUIDITY OF INTEREST
- - LIMITED RECOURSE - BANKRUPTCY AND INSOLVENCY RISKS
</TABLE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The Offered Certificates other than those to be purchased by AmREIT (the
"Underwritten Certificates") will be purchased by (the "Underwriter")
from the Depositor and will be offered by the Underwriter from time to time in
negotiated transactions or otherwise at varying prices to be determined at the
time of sale. AmREIT has agreed to purchase Class A-1 Certificates with original
principal amount of $ in a negotiated transaction and will initially
pledge its Class A-1 Certificates to secure indebtedness and may, from time to
time, offer such Class A-1 Certificates for sale to the public in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale.
The Underwritten Certificates are offered by the Underwriter, subject to
prior sale, when, as and if delivered to and accepted by the Underwriter and
subject to its right to reject orders in whole or in part. It is expected that
delivery of the Offered Certificates will be made in book-entry form only
through the facilities of The Depository Trust Company on or about [date].
[UNDERWRITER]
, 199
<PAGE> 50
Each of the Mortgage Loans was purchased from [AmREIT] which in turn had
acquired the Mortgage Loans directly from the originator or in the secondary
mortgage market. The Bond Issuer pledged the Mortgage Loans to secure the
Underlying Bond and assigned the Underlying Bond to the Depositor for deposit to
the Trust Fund prior to the date of initial issuance of the Certificates.
An election will be made to treat the Trust Fund Assets as a financial
asset securitization investment trust ("FASIT") for federal income tax purposes.
As described more fully herein and in the Prospectus, the Senior Certificates
and the Subordinate Certificates will constitute "regular interests" in the
FASIT. See "FEDERAL INCOME TAX CONSEQUENCES" herein and in the Prospectus.
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE
DEPOSITOR, THE CERTIFICATE ISSUER, THE BOND ISSUER, THE CERTIFICATE TRUSTEE OR
ANY OF THEIR RESPECTIVE AFFILIATES, EXCEPT AS SET FORTH HEREIN. NEITHER THE
CERTIFICATES NOR THE MORTGAGE LOANS ARE INSURED OR GUARANTEED BY THE UNITED
STATES GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
------------------------
THE YIELD TO INVESTORS ON EACH CLASS OF OFFERED CERTIFICATES WILL BE
SENSITIVE IN VARYING DEGREES TO, AMONG OTHER THINGS, THE RATE AND TIMING OF
PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) OF THE MORTGAGE LOANS. THE YIELD TO
MATURITY OF A CLASS OF OFFERED CERTIFICATES PURCHASED AT A DISCOUNT OR PREMIUM
WILL BE MORE SENSITIVE TO THE RATE AND TIMING OF PAYMENTS THEREON THAN A CLASS
PURCHASED AT PAR. HOLDERS OF CERTIFICATES SHOULD CONSIDER, IN THE CASE OF ANY
SUCH CERTIFICATES PURCHASED AT A DISCOUNT, THE RISK THAT A LOWER THAN
ANTICIPATED RATE OF PRINCIPAL PAYMENTS COULD RESULT IN AN ACTUAL YIELD THAT IS
LOWER THAN THE ANTICIPATED YIELD AND, IN THE CASE OF ANY OFFERED CERTIFICATES
PURCHASED AT A PREMIUM, PARTICULARLY THE CLASS X CERTIFICATES, THE RISK THAT A
FASTER THAN ANTICIPATED RATE OF PRINCIPAL PAYMENTS COULD RESULT IN AN ACTUAL
YIELD THAT IS LOWER THAN THE ANTICIPATED YIELD. IN CERTAIN EXTREME PREPAYMENT
SCENARIOS, INVESTORS IN THE CLASS X CERTIFICATES MAY FAIL TO RECOVER THEIR
INITIAL INVESTMENTS. THE YIELD TO INVESTORS IN THE OFFERED CERTIFICATES ALSO
WILL BE ADVERSELY AFFECTED BY NET INTEREST SHORTFALLS AND BY REALIZED LOSSES.
There is currently no secondary market for the Offered Certificates and
there can be no assurance that such a market will develop or, if it does
develop, that it will continue.
This Prospectus Supplement relates to the Underlying Bond as well as the
Offered Certificates. Additional information regarding the Certificates and the
Underlying Bond is contained in the Prospectus dated , 1998
(the "Prospectus") and purchasers are urged to read both this Prospectus
Supplement and the Prospectus in full. Sales of the Offered Certificates may not
be consummated unless the purchaser has received both this Prospectus Supplement
and the Prospectus.
Until ninety days after the date of this Prospectus Supplement, all dealers
effecting transactions in the Offered Certificates, whether or not participating
in this distribution, may be required to deliver a Prospectus Supplement and the
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus Supplement and the Prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
S-2
<PAGE> 51
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF TERMS..................... S-4
RISK FACTORS......................... S-13
Yield, Prepayment and Maturity
Risks........................... S-13
Risks Associated with Interest Only
Class........................... S-13
Risks of Holding Subordinated
Certificates.................... S-14
Limited Source of
Payments -- Limited Recourse to
Seller and No Resource to Master
Servicer or Trustee............. S-14
Limited Liquidity.................. S-14
Geographic Concentration........... S-14
Consequences of Owning Book-Entry
Certificates.................... S-15
USE OF PROCEEDS...................... S-15
TRUST FUND ASSETS.................... S-15
General............................ S-15
The Index.......................... S-20
Assignment of the Mortgage Loans... S-20
Underwriting Standards............. S-21
DESCRIPTION OF THE CERTIFICATES...... S-22
General............................ S-22
Payments on Mortgage Loans;
Accounts........................ S-22
Priority of Distributions Among
Certificates.................... S-22
Distributions...................... S-23
Interest........................... S-23
Principal.......................... S-24
Allocation of Losses............... S-26
Termination; Optional
Termination..................... S-26
Last Scheduled Distribution Date... S-27
Controlling Class of
Certificates.................... S-27
Book-Entry Certificates............ S-27
The Trustee........................ S-29
DESCRIPTION OF THE UNDERLYING BOND... S-29
General............................ S-29
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Bond Distributions................. S-29
Bond Interest...................... S-30
LIBOR Rate Determination........... S-31
Bond Principal..................... S-31
Investor Certificate Payment....... S-32
Bond Credit Enhancement............ S-32
Excess Spread...................... S-33
Stated Maturity.................... S-33
Bond Redemption.................... S-33
PREPAYMENT AND YIELD
CONSIDERATIONS..................... S-33
General............................ S-33
Assumptions Relating to Tables..... S-35
Weighted Average Lives of the
Offered Certificates............ S-35
Yield on Class X Certificates...... S-37
CREDIT ENHANCEMENT................... S-37
Subordination of Subordinate
Certificates.................... S-37
SERVICING OF THE MORTGAGE LOANS...... S-39
The Master Servicer................ S-39
Servicing and Collection
Procedures...................... S-39
Foreclosure, Delinquency and Loss
Experience...................... S-40
Servicing Compensation and Payment
of Expenses..................... S-40
Adjustment to Master Servicing Fee
and Invested Amount in
Connection with Certain Prepaid
Mortgage Loans.................. S-41
Advances........................... S-41
FEDERAL INCOME TAX CONSEQUENCES...... S-42
ERISA MATTERS........................ S-42
METHOD OF DISTRIBUTION............... S-43
LEGAL MATTERS........................ S-43
CERTIFICATE RATING................... S-44
INDEX TO DEFINED TERMS............... S-45
</TABLE>
S-3
<PAGE> 52
SUMMARY OF TERMS
This Summary of Terms is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms used in this Summary of
Terms are defined elsewhere in this Prospectus Supplement or in the Prospectus.
Title of Securities........ Mortgage-Backed [Callable] Certificates, Series
199 - (the "Certificates").
Designations:
Offered Certificates..... Class A-1, Class X and Class M-1 Certificates.
Non-Offered
Certificates...............
<TABLE>
<CAPTION>
APPROXIMATE
INITIAL CLASS PASS-THROUGH
CLASS CERTIFICATE BALANCE RATE
----- ------------------- ------------
<S> <C> <C>
B-1............................... $ %
B-2............................... $ %
O................................. (1) (1)
</TABLE>
-------------------------------------------------------------------
(1) The Class O Certificates will not have a Class
Certificate Balance and will not bear
interest.
Senior Certificates...... Class A-1 and Class X Certificates.
Mezzanine Certificates... Class M-1 Certificates.
Subordinate
Certificates............... The Mezzanine Certificates and the Class B-1 and
B-2 Certificates.
Ownership Certificates... Class O Certificates.
[Fixed Rate
Certificates]..............
[Variable Rate
Certificates]..............
Interest Only Class...... Class X Certificates.
Book-Entry
Certificates...............
Certificate Issuer......... American Residential Eagle Certificate Trust
[199 - ] the trust formed by the Depositor for the
purpose of creating and issuing the Certificates
(the "Certificate Issuer").
Bond Issuer................ American Residential Eagle Bond Trust [199 - ], a
Delaware statutory business trust (the "Bond
Issuer").
Depositor.................. American Residential Eagle, Inc., a Delaware
corporation (the "Depositor" or the "Company").
Certificate Trustee........ [ ] (the "Certificate Trustee").
Bond Trustee............... [ ] (the "Bond Trustee").
Master Servicer............ [ ] (the "Master Servicer"). See "The
Master Servicer" herein.
Cut-Off Date............... , 1998.
Distribution Date.......... The day of each month, or, if such day is not
a Business Day, the next succeeding Business Day,
commencing in , 199 .
Record Date................ The Record Date for each Distribution Date will be
the last day of the preceding month.
S-4
<PAGE> 53
Trust Fund Assets.......... The Trust Fund Assets consist primarily of the
Underlying Bond. The Underlying Bond is secured by
the Mortgage Pool and represents the right to
receive payments received on the Mortgage Pool as
herein described.
Underlying Bond............ The Underlying Bond will be issued by the Bond
Issuer pursuant to an Indenture dated as of
between the Bond Issuer and
as Bond Trustee. The payments of
principal and interest due on the Underlying Bond
each month will be the primary source for payments
on the Certificates. The Underlying Bond is payable
solely from the limited assets of the Seller.
Mortgage Pool.............. The Mortgage Pool will consist of fully-amortizing,
to month, [fixed
interest] [adjustable] rate, conventional first
mortgage loans (the "Mortgage Loans") having, as of
the Cut-off Date, an aggregate principal balance
equal to approximately $ (the "Cut-off
Date Pool Principal Balance"). See "TRUST FUND
ASSETS -- THE MORTGAGE POOL" herein.
Trust Agreement............ The Certificates will be issued pursuant to a Trust
Agreement to be dated as of (the
"Trust Agreement") among the Depositor and the
Certificate Trustee.
Priority of
Distributions.............. As more fully described herein, distributions will
be made on the Certificates on each Distribution
Date from Available Funds in the following order of
priority:
(i) to interest on each [interest bearing]
Class of Senior Certificates;
(ii) to principal on the Class A-1
Certificates, up to the maximum amount of principal
distributed on such Class on such Distribution Date
as described herein;
(iii) to interest on the M-1 Certificates;
(iv) to principal on the Class M-1
Certificates, up to the maximum amount of principal
to be distributed on each Class on such
Distribution Date as described herein; and
(v) to interest on and then principal of each
other Class of Subordinate Certificates in
increasing order of numerical Class designation, up
to the maximum amount of interest and principal to
be distributed on each such Class on such
Distribution Date [and subject to certain
limitations set forth herein under "DESCRIPTION OF
THE CERTIFICATES -- PRINCIPAL"].
Class X Notional Amount.... With respect to the first Distribution Date, the
initial Class X Notional Amount will be equal to
the aggregate principal balance of the Mortgage
Loans as of the Cut-Off Date. On any Distribution
Date thereafter, the Class X Notional Amount will
be equal to the aggregate of the Principal Balances
of the Mortgage Loans (the "Pool Principal
Balance") as of the first day of the month
preceding the month of such Distribution Date.
Interest................... On each Distribution Date, each Class of interest
bearing Offered Certificates, to the extent
Available Funds are available for the distribution
of interest on such Class on such Distribution
Dates, as described above under "Priority of
Distributions," generally will be entitled to
receive an amount allocable to interest equal to
the sum of (i) one month's interest at the
applicable Pass-Through Rate set forth on the
S-5
<PAGE> 54
cover page hereof (as to each Class, the
"Pass-Through Rate") on the related Class
Certificate Balance or the Class X Notional Amount,
as applicable, immediately prior to such
Distribution Date and (ii) the sum of the amounts,
if any, by which the amount described in clause (i)
above on each prior Distribution Date exceeded the
amount actually distributed as interest on such
prior Distribution Dates and not subsequently
distributed ("Unpaid Interest Shortfall").
Principal (including
prepayments)............. On each Distribution Date an amount allocable to
principal will be distributed on the Class A-1
Certificates generally equal to the lesser of (x)
Available Funds reduced by the amount of interest
distributed on the Senior Certificates on each
Distribution Date and (y) the sum of (i) the Class
A-1 Percentage of (a) all scheduled payments of
principal due on each Mortgage Loan on the Due Date
for such Mortgage Loan in the month in which such
Distribution Date occurs, (b) the Principal Balance
of each Mortgage Loan that became a Liquidated
Mortgage Loan during the month preceding the month
of such Distribution Date, (c) the Principal
Balance of each Defective Mortgage Loan that was
repurchased by [AmREIT] or another person as of
such Distribution Date pursuant to the Indenture,
(d) certain amounts that may be required to be paid
in connection with any substitution of Mortgage
Loans on such distribution Date pursuant to the
Indenture and (e) any net insurance liquidation
proceeds received during the month preceding the
month of such Distribution Date allocable to
recoveries of principal of Mortgage Loans that are
not yet liquidated Mortgage Loans and (ii) the
Class A-1 Prepayment Percentage of all partial
principal prepayments and all principal prepayments
in full ("Principal Prepayments") received during
such preceding month.
On each Distribution Date an amount allocable to
principal will be distributed on Class M-1
Certificates equal to the lesser of (x) Available
Funds reduced by the amount of interest and
principal distributed on the Senior Certificates
and interest on the Class M-1 Certificates, in each
case on such Distribution Date and (y) the sum of
(i) the applicable Subordinate Percentage
Allocation of the sum of the amounts calculated
pursuant to clauses (a) through (e) in the
preceding paragraph for such Distribution Date and
(ii) the applicable Subordinate Prepayment
Percentage Allocation of all Principal Prepayments
received during the preceding month.
Optional Termination....... At its option, the Bond Issuer may redeem the
Underlying Bond at par as herein described and
thereby effect early retirement of the
Certificates. In addition, the Depositor may
exercise its option to repurchase the Trust Fund
Assets on any Distribution Date on which the Pool
Principal Balance is less than 10% of the Cut-off
Date Pool Principal Balance. See "DESCRIPTION OF
THE CERTIFICATES -- TERMINATION; OPTIONAL
TERMINATION" herein.
If the Bond Issuer exercises its right to redeem
the Underlying Bond or the Depositor elects to
repurchase the Trust Fund Assets, the Certificates
outstanding at the time of such repurchase will be
retired earlier than would otherwise be the case.
See "YIELD, PREPAYMENT AND MATURITY RISKS" herein.
S-6
<PAGE> 55
[Credit Enhancement
General]................... See "DESCRIPTION OF THE CERTIFICATES -- PRINCIPAL"
herein.
A. Subordination......... The rights of holders of the Subordinate
Certificates to receive distributions with respect
to the Mortgage Loans in the Mortgage Pool will be
subordinated to such rights of holders of the
Senior Certificates, and the rights of holders of
the Senior Certificates, and the rights of holders
of the Class B-1 and Class B-2 Certificates to
receive such distributions will be further
subordinated to such rights of holders of the
Mezzanine Certificates, in each case only to the
extent described below. See "DESCRIPTION OF THE
CERTIFICATES -- PRIORITY OF DISTRIBUTIONS AMOUNT
CERTIFICATES," "-- ALLOCATION OF LOSSES" and
"CREDIT ENHANCEMENT -- SUBORDINATION OF SUBORDINATE
CERTIFICATES" herein.
The subordination of the Subordinate Certificates
to the Senior Certificates, and the further
subordination of the Class B-1 and Class B-2
Certificates to the Mezzanine Certificates is
intended to increase the likelihood of receipt by
Senior Certificateholders and Mezzanine
Certificateholders, respectively, of the maximum
amount to which they are entitled on any
Distribution Date, to provide such holders
protection against losses on the Mortgage Loans to
the extent [described herein] and, to a lesser
extent, against losses on [Special Hazard Mortgage
Loans] [Fraud Loans] [and] [Bankruptcy Loans.]]
However, in certain circumstances the amount of
available subordination may be exhausted and
shortfalls in distributions on the Certificates may
be exhausted and shortfalls in distributions on the
Certificates may result. Holders of the Senior
Certificates will bear their proportionate share of
any losses realized on the Mortgage Loans in excess
of the subordination amount. See "CREDIT
ENHANCEMENT -- SUBORDINATION OF SUBORDINATED
CERTIFICATES" and "DESCRIPTION OF THE
CERTIFICATES -- ALLOCATION OF LOSSES" herein]
[B. Description of other
types of credit
enhancement, if any].....
Weighted Average Lives (in
years)*..................
<TABLE>
<CAPTION>
PSA
------------------------------------------------------------
CLASS % % % %
----- ------ ------ ------ ------
<S> <C> <C> <C> <C>
A-1.........................
X...........................
M-1.........................
</TABLE>
---------------------------------------------
* Determined as described under "PREPAYMENT AND
YIELD CONSIDERATIONS -- WEIGHTED AVERAGE LIVES
OF THE OFFERED CERTIFICATES" herein. Prepayments
will not occur at any assumed rate shown or any
other constant rate, and the actual weighted
average lives of any or all of the Classes of
Offered Certificates are likely to differ from
those shown, perhaps significantly.
S-7
<PAGE> 56
Last Scheduled Distribution
Date.....................
<TABLE>
<CAPTION>
CLASS LAST SCHEDULED DISTRIBUTION DATE
----- --------------------------------
<S> <C>
A-1................................
X..................................
M-1................................
</TABLE>
Description of the
Underlying Bond............ See "DESCRIPTION OF THE UNDERLYING BOND" herein.
A. Bond Distribution
Date....................... The day of each month or, if such day is not a
business day, the first business day thereafter,
commencing in (each a "Bond Distribution
Date"). Payments on each Bond Distribution Date
will be made to the Certificate Trustee as the
holder of the Underlying Bond for distribution to
Certificateholders on the Distribution Date.
B. Bond Distributions of
Interest. On each Bond Distribution Date, the holder of the
Underlying Bond will be entitled to receive
interest in the amount of the Interest Payment
Amount for such Bond Distribution Date. See
"DESCRIPTION OF THE UNDERLYING BOND -- INTEREST"
herein and "DESCRIPTION OF THE
SECURITIES -- PAYMENTS OF INTEREST" in the
Prospectus.
Interest Payment
Amount................... Interest on the Underlying Bond will be payable
monthly on each Bond Distribution Date in an amount
(the "Interest Payment Amount") equal to interest
accrued on the then outstanding Principal Balance
for such Bond immediately prior to such Bond
Distribution Date at the related Bond Interest Rate
for the related Interest Accrual Period.
The "Interest Accrual Period" will be the period
commencing on the immediately preceding Bond
Distribution Date (or, in the case of the first
Interest Accrual Period, commencing on the Closing
Date) and ending on the date immediately preceding
such Bond Distribution Date. Interest will be
calculated and payable on the basis of a 360-day
year divided into twelve 30-day months.
Bond Interest
Rate..................... The interest rate for the Underlying Bond (the
"Bond Interest Rate") on each Bond Distribution
Date after the first Bond Distribution Date and up
to and including the Bond Distribution Date on
which the Bond Issuer is first permitted to
exercise its option to redeem the Underlying Bond
will be equal to the lesser of (i) a per annum
floating rate equal to LIBOR, for the related
Interest Accrual Period, plus % and (ii)
% per annum. If the Bond Issuer does not
exercise its option to redeem the Underlying Bond
on the first Bond Distribution Date on which it is
permitted to do so, on the next succeeding Bond
Distribution Date, the Bond Interest Rate will
increase and for the remaining term of the
Underlying Bond will be equal to the lesser of (i)
a per annum floating rate equal to LIBOR for the
related Interest Accrual Period plus % and
(ii) % per annum. The Bond Interest Rate for
the first Bond Distribution Date will equal %
per annum.
C. Bond Distributions of
Principal................ On each Bond Distribution Date, to the extent funds
are available therefor, principal payments in
reduction of the then outstanding Principal Balance
S-8
<PAGE> 57
on the Underlying Bond will be made in an amount
equal to the Principal Payment Amount for such Bond
Distribution Date. The Principal Payment Amount is
described under "DESCRIPTION OF THE UNDERLYING
BOND -- BOND PRINCIPAL" herein. The "Bond Principal
Balance" of the Underlying Bond on any date of
determination is the initial principal balance
thereof as of the Closing Date reduced by all
payments of principal thereon prior to such date of
determination.
D. Stated Maturity....... The Stated Maturity for the Underlying Bond is the
date determined by the Company which is the Bond
Distribution Date immediately following the latest
maturity date of any Mortgage Loans. The Stated
Maturity for the Underlying Bond is
. See "DESCRIPTION OF THE UNDERLYING
BOND -- STATED MATURITY" herein.
E. Optional Redemption of
Underlying Bond;
Termination............ The Underlying Bond may be redeemed in whole, but
not in part, at the Bond Issuer's option, on any
Bond Distribution Date after the earlier of (a)
years after the Closing Date and (b) the
Bond Distribution Date after which the Pool
Principal Balance with respect to such Bond
Distribution Date is % or less of the Initial
Pool Principal Balance (each, as defined below), at
a redemption price generally equal to 100% of the
unpaid Bond Principal Balance, plus accrued and
unpaid interest thereon at the Bond Interest Rate
for the Underlying Bond (the "Redemption Price").
If the Bond Issuer does not exercise its option to
redeem the Underlying Bond on the first Bond
Distribution Date on which it is permitted to do
so, on the next succeeding Bond Distribution Date,
(a) the Bond Interest Rate will be increased for
the remainder of the life of the Underlying Bond to
the lesser of (i) a per annum floating rate equal
to LIBOR for the related Interest Accrual Period
plus % and (ii) % per annum; provided,
however, that such rate will be subject to certain
available funds limitations as described under
"DESCRIPTION OF THE UNDERLYING BOND -- BOND
INTEREST" herein. Upon redemption and retirement of
the Underlying Bond, the collateral securing the
Underlying Bond will be released from the lien of
the Indenture.
The Underlying Bond will be subject to mandatory
redemption by the Bond Issuer at the Redemption
Price in the event that the Master Servicer or the
Company exercises its option to purchase all of the
remaining Mortgage Loans. Such option may be
exercised by the Master Servicer (or if the Master
Servicer fails to exercise such option, by the
Company) on any Bond Distribution Date after the
Bond Distribution Date with respect to which the
Pool Principal Balance is equal to % or less
of the Initial Pool Principal Balance at a price
determined pursuant to the Master Servicing
Agreement, which price shall not be less than the
amount necessary to cause the redemption of the
Underlying Bond to occur at the Redemption Price.
The Master Servicer or the Company will be required
to give the Bond Issuer 90 days' notice of the
intent to exercise the purchase option during which
period the Bond Issuer will continue to have the
right to redeem the Underlying Bond as described
above. See "DESCRIPTION OF THE UNDERLYING
BOND -- REDEMPTION" herein and "DESCRIPTION OF THE
SECURITIES -- OPTIONAL REDEMPTION" in the
Prospectus.]
S-9
<PAGE> 58
The "Pool Principal Balance" with respect to any
Bond Distribution Date equals the aggregate of the
Stated Principal Balances of the Mortgage Loans
outstanding on the Due Date in the month preceding
the month of such Bond Distribution Date. The
"Initial Pool Principal Balance" means the Pool
Principal Balance as of the Cut-off Date. "Stated
Principal Balance" means, as to any Mortgage Loans
and Due Date, the unpaid principal balance of such
Mortgage Loan as of such Due Date, as specified in
the amortization schedule at the time relating
thereto (before any adjustment to such amortization
schedule by reason of any moratorium or similar
waiver or grace period), after giving effect to any
previous partial principal prepayments and
Liquidation Proceeds received and to the payment of
principal due on such Due Date and irrespective of
any delinquency in payment by the related
Mortgagor.
F. Bond Credit
Enhancement................ The credit enhancement provided for the benefit of
the holder of the Underlying Bond consists solely
of (a) overcollateralization and (b) excess spread
(both (a) and (b) utilizing the internal cashflows
of the Mortgage Loans).
Overcollateralization.... Credit support for the Underlying Bond will be
provided through limited overcollateralization,
i.e., the pledge to the Bond Trustee on the Closing
Date of Mortgage Loans having an aggregate Stated
Principal Balance in excess of the Bond Principal
Balance on the Closing Date. Such excess is the
"Overcollateralization Amount" as of the Closing
Date. Thereafter, with respect to any Bond
Distribution Date, the "Overcollateralization
Amount" equals the excess, if any, of (x) the Pool
Principal Balance as of such Bond Distribution
Date, over (y) the Bond Principal Balance as of
such Bond Distribution Date (and following the
making of all payments on such Bond Distribution
Date). After the Closing Date, principal
distributions on the Underlying Bond will be made
on each Bond Distribution Date, to the extent of
Net Available Funds available therefor, in amounts
up to the amount necessary to maintain the
Overcollateralization Amount at a level equal to
the Specified Overcollateralization Amount. The
Specified overcollateralization Amount may adjust
after the Closing Date, as described herein. See
"DESCRIPTION OF THE UNDERLYING BOND -- BOND
PRINCIPAL" and "-- BOND CREDIT ENHANCEMENT --
OVERCOLLATERALIZATION RESULTING FROM CASHFLOW
STRUCTURE" herein.
Excess Spread............ Additional credit support for the Underlying Bond
will be provided to the extent that excess spread
exists, i.e., to the extent that a positive spread
may exist between the weighted average at the
beginning of the related Due Period of the Net
Mortgage Rates on the Mortgage Loans (the "Weighted
Average Net Mortgage Rate") and the Bond Interest
Rate (any such positive spread, the "Positive Rate
Differential"). Whether at any time any Positive
Rate Differential exists will depend on a variety
of factors, including the relationship of the
movements in the indices applicable to the Mortgage
Loans and that applicable to the Underlying Bond,
over which no prediction can be made or assurance
given.
The "Net Mortgage Rate" of a Mortgage Loan is the
Mortgage Rate thereof minus the related Expense Fee
Rate described below.
S-10
<PAGE> 59
Master Servicing
Agreement.................. The Mortgage Loans will be serviced pursuant to a
master servicing agreement dated as of
(the "Master Servicing Agreement") among
the Bond Issuer, the Bond Trustee and the Master
Servicer.
Master Servicer............ will act as Master Servicer for the
Mortgage Loans (the "Master Servicer"). On or prior
to the Closing Date, as to any Mortgage Loans not
being directly serviced by the Master Servicer, the
Master Servicer will enter into or be assigned
mortgage servicing agreements (each, a "Servicing
Agreement") with certain servicers (each, a
"Servicer") pursuant to which each Servicer will
perform certain servicing functions with respect to
the Mortgage Loans. See "SERVICING OF THE MORTGAGE
LOANS -- THE MASTER SERVICER" herein. The Master
Servicer will administer and supervise the
performance of each Servicer, who may in turn be
administering and supervising the performance of
one or more subservicers of the Mortgage Loans. The
Master Servicer will receive the Master Servicing
Fee, and each Servicer will receive the related
Servicing Fee, from interest collected on the
Mortgage Loans. The Master Servicer will be
obligated to perform the obligations of a
terminated Servicer or appoint a successor
Servicer. See "SERVICING OF THE MORTGAGE
LOANS -- SERVICING COMPENSATION AND PAYMENT OF
EXPENSES" herein.
In addition to the Servicing Fee and the Master
Servicing Fee, there will be deducted from amounts
received in respect of the Mortgage Loans which are
allocable to interest an amount sufficient to
provide for the payment of the Bond Trustee's fee
and the Certificate Trustee's fee. As to each
Mortgage Loan, the sum of the Master Servicing Fee
Rate, the Servicing Fee Rate and the rate at which
the Bond Trustee's fee is determined is referred to
as the "Bond Expense Rate." The Bond Expense Rate
together with the Certificate Trustee's Fee Rate is
referred to as the "Expense Rate."
See "SERVICING OF MORTGAGE LOANS -- SERVICING
COMPENSATION AND PAYMENT OF EXPENSES" herein.
[Advances.................. The Master Servicer, directly or through one or
more servicers, will be obligated to advance, four
business days prior to each Distribution Date an
amount equal to all delinquent amounts (net of the
related Servicing Fee and Master Servicing Fee and
Relief Act Reductions) on each Mortgage Loan in the
Mortgage Pool and not previously advanced to the
extent that such Advances are determined by the
Master Servicer to be recoverable.
[With respect to any Mortgage Loan requiring a
balloon payment on the maturity date of such
Mortgage Loan, in the event of default in any such
payment, the Master Servicer will continue to
advance, subject to the Master Servicer's
determination as to recoverability, an amount equal
to interest on the principal balance of such
Mortgage Loan deemed to be due thereon after such
default.]
Any Advance made by the Master Servicer or a
servicer with respect to a Mortgage Loan is
reimbursable to it as described herein under
"SERVICING OF MORTGAGE LOANS -- ADVANCES." Under
the limited circumstances described herein, the
Master Servicer will be entitled to reimburse
itself and any servicer from funds on deposit in
the Bond Account before distributions are made to
holders of Certificates.]
S-11
<PAGE> 60
Federal Income Tax
Consequences............. For federal income tax purposes, the Trust Fund
will be treated as a "financial asset
securitization investment trust" ("FASIT"). The
Senior Certificates and the Subordinate
Certificates will constitute "regular interests" in
the FASIT and will be treated as debt instruments
of the Trust Fund for federal income tax purposes
with payment terms equivalent to the terms of such
Certificates. The Class O Certificates will
constitute the sole class of "ownership interest"
in the FASIT and will be the Class of FASIT
Ownership Securities, as described herein under
"FEDERAL INCOME TAX CONSEQUENCES."
Holders of the Offered Certificates will be
required to include in income interest on such
Certificates in accordance with the accrual method
of accounting. The Class X Certificates will, and
the other Classes of Offered Certificates may,
depending on their respective issue prices, be
treated as having been issued with original issue
discount for federal income tax purposes. For
further information regarding the federal income
tax consequences of investing in the Certificates,
see "FEDERAL INCOME TAX CONSEQUENCES" herein and in
the Prospectus.
Legal Investment........... The Senior Certificates and the Class M-1
Certificates will constitute "mortgage related
securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA"), and as
such, will be legal investments for certain
entities to the extent provided in SMMEA. See
"LEGAL INVESTMENT" in the Prospectus.
Certain Classes of Certificates may be deemed
"high-risk mortgage securities" as defined in the
supervisory policy statement on securities
activities approved by the Federal Financial
Institutions Examination Council on December 3,
1991 and adopted by the Controller of the Currency,
the Federal Deposit Insurance Corporation, the
Federal Reserve Board and the Office of Thrift
Supervision. See "LEGAL INVESTMENT" in the
Prospectus.
ERISA Matters.............. The Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and Section 4975 of the
Code impose certain restrictions on employee
benefit plans subject to ERISA or plans or
arrangements subject to Section 4975 of the Code
("Plans") and on persons who are parties in
interest or disqualified persons ("parties in
interest") with respect to such Plans. The
Certificates are likely to be treated as equity
interests in the Certificate Issuer; as a result,
the Certificates may not be purchased by Plans
except upon satisfaction of certain conditions. See
"ERISA MATTERS" herein and in the Prospectus.
Certificate Rating......... It is a condition to the issuance of the Offered
Certificates that the senior Certificates and the
Class M-1 Certificates be rated by
and at least as
follows:
<TABLE>
<CAPTION>
CLASS
----- -------- --------
<S> <C> <C>
A-1......................
X........................
M-1......................
</TABLE>
See "RATINGS" herein.
S-12
<PAGE> 61
RISK FACTORS
Investors should consider the following factors in connection with the
purchase of the Certificates.
YIELD, PREPAYMENT AND MATURITY RISKS
The rate of principal payments on the Certificates, the amount of principal
and interest payments on the Certificates and the yield to maturity of the
Certificates will be directly related to the rate of payments of principal on
the Mortgage Loans. The rate of principal payments on the Mortgage Loans will in
turn be affected by the amortization schedules of the Mortgage Loans, the rate
of principal prepayments (including partial prepayments and those resulting from
refinancing) thereon by mortgagors, liquidations of defaulted Mortgage Loans,
repurchases by AmREIT or other person of Defective Mortgage Loans as a result of
defective documentation or breaches of representations or warranties and
optional redemption of the Underlying Bond by the Bond Issuer or repurchase of
the Trust Fund Assets by the Depositor in connection with the termination of the
Certificate Issuer. [The Mortgagors may prepay any Mortgage Loan at any time
without penalty.]
The rate of payments (including prepayments) on mortgage loans is
influenced by a variety of economic, geographic, social and other factors. If
prevailing rates for similar mortgage loans fall below the Mortgage Rates on the
Mortgage Loans, the rate of prepayment would generally be expected to increase.
Conversely, if prevailing rates for similar mortgage loans rise above the
Mortgage Rates on the Mortgage Loans, the rate of prepayment would generally be
expected to decrease. An investor that purchases an Offered Certificate at a
discount should consider the risk that a slower than anticipated rate of
principal payments on the Mortgage Loans will result in an actual yield that is
lower than such investor's expected yield. An investor that purchases an Offered
Certificate at a premium should consider the risk that a faster than anticipated
rate of principal payments on the Mortgage Loans will result in an actual yield
that is lower than such investor's expected yield.
NO REPRESENTATION IS MADE AS TO THE RATE OF PRINCIPAL PAYMENTS ON THE
MORTGAGE LOANS OR AS TO THE YIELD TO MATURITY OF ANY CLASS OF OFFERED
CERTIFICATES. INVESTORS ARE URGED TO MAKE AN INVESTMENT DECISION WITH RESPECT TO
THE OFFERED CERTIFICATES BASED ON THE ANTICIPATED YIELD TO MATURITY OF SUCH
CERTIFICATES RESULTING FROM THEIR RESPECTIVE PRICES AND EACH INVESTOR'S OWN
DETERMINATION AS TO ANTICIPATED MORTGAGE LOAN PREPAYMENT RATES.
[FURTHER, INVESTORS SHOULD TAKE INTO ACCOUNT THE OPTIONAL TERMINATION
PROVISIONS OF THE OFFERED CERTIFICATES AND THE IMPACT AN OPTIONAL TERMINATION
WOULD HAVE ON THE ANTICIPATED YIELD TO MATURITY OF THE CERTIFICATES. BECAUSE THE
BOND ISSUER'S OPTION TO REDEEM THE UNDERLYING BOND WILL BECOME EXERCISABLE WHEN
A SUBSTANTIAL PORTION OF THE INITIAL PRINCIPAL AMOUNT OF THE BOND WILL BE
OUTSTANDING, THE BOND ISSUER'S DECISION WHETHER OR NOT TO REDEEM MAY HAVE A
SIGNIFICANT IMPACT ON AN INVESTOR'S YIELD TO MATURITY. THE BOND ISSUER'S
DECISION WHETHER OR NOT TO REDEEM WILL DEPEND UPON A NUMBER OF FACTORS AT THE
TIME THE UNDERLYING BOND FIRST BECOMES REDEEMABLE AND THEREAFTER, WHICH FACTORS
ARE NOT POSSIBLE TO PREDICT AT THE TIME OF ISSUANCE OF THE CERTIFICATES. NO
REPRESENTATION IS MADE AS TO WHEN OR IF THE BOND ISSUER WILL ELECT TO EXERCISE
ITS OPTION TO REDEEM THE UNDERLYING BOND OR THE DEPOSITOR WILL ELECT TO
REPURCHASE THE TRUST FUND ASSETS.]
RISKS ASSOCIATED WITH INTEREST ONLY CLASS
The timing of changes in the rate of prepayments may significantly affect
an investor's actual yield to maturity, even if the average rate of principal
prepayments is consistent with an investor's expectations. In general, the
earlier a prepayment of principal of the Mortgage Loans the greater the effect
on an investor's yield to maturity. The effect on an investor's yield as a
result of principal payments occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the issuance
of the Offered Certificates will not be offset by a subsequent like reduction
(or increase) in the rate of principal prepayments. The yield on the Class X
Certificates will be highly sensitive to the rate and timing of prepayments on
the Mortgage Loans. A rapid rate of principal prepayments on the Mortgage Loans
(as defined below) may have a material negative effect on the yield of the Class
X Certificates. Investors must make their own decisions as to the appropriate
prepayment assumptions to be used in deciding whether to
S-13
<PAGE> 62
purchase the Offered Certificates. See "PREPAYMENT AND YIELD
CONSIDERATIONS -- YIELD ON THE CLASS X CERTIFICATES" herein.
RISKS OF HOLDING SUBORDINATED CERTIFICATES
The rights of the holders of the Class M-1 Certificates to receive
distributions with respect to the Mortgage Loans will be subordinated to such
rights of the Senior Certificates and the rights of the holders of the Class B-1
Certificates to receive distributions with respect to the Mortgage Loans will be
subordinated to such rights of the Senior Certificates and the Class M-1
Certificates. Delinquencies that are not advanced by or on behalf of the Master
Servicer (because the amounts, if advanced, would be nonrecoverable) and are not
reimbursed by the Bond Issuer out of its limited assets, will adversely affect
the yield on the Certificates. Because of the priority of distributions,
shortfalls resulting from delinquencies not so advanced or reimbursed will be
borne first by the Class B-2 Certificates, second by the Class B-1 Certificates,
third by the Class M-1 Certificates and finally by the Senior Certificates.
The weighted average life of, and the yield to maturity on, the Subordinate
Certificates, in decreasing order of their priority of distributions, will be
progressively more sensitive to the rate and timing of Mortgagor defaults and
the severity of ensuing losses on the Mortgage Loans, to the extent related
delinquencies and any losses are not reimbursed by the Bond Issuer from its
limited assets. If the actual rate and severity of unreimbursed losses on the
Mortgage Loans is higher than those assumed by a holder of a Subordinate
Certificate, the actual yield to maturity of such Certificate may be lower than
the yield expected by such holder based on such assumption. The timing of
unreimbursed losses on the Mortgage Loans will also affect an investor's actual
yield to maturity, even if the rate of defaults and severity of losses over the
life of the Mortgage Loans are consistent with such investor's expectations. In
general, the earlier a loss occurs the greater the effect on an investor's yield
to maturity. Realized Losses on the Mortgage Loans will reduce the Class
Certificate Balance of the Subordinate Certificates to the extent of any losses
allocated thereto without the receipt of cash attributable to such reduction.
See "DESCRIPTION OF THE CERTIFICATES -- ALLOCATION OF LOSSES" herein.
LIMITED SOURCE OF PAYMENTS -- LIMITED RECOURSE TO SELLER AND NO RECOURSE TO
MASTER SERVICER OR TRUSTEE
The Mortgage Loans will be the primary source of payments on the
Certificates. The Certificates do not represent an interest in or obligation of
the Depositor, AmREIT, the Certificate Trustee or any of their affiliates,
except for limited obligations of the Depositor with respect to certain breaches
of its representations and warranties. Neither the Certificates nor the Mortgage
Loans will be guaranteed by or insured by any governmental agency or
instrumentality, the Depositor, AmREIT, the Certificate Trustee or any of their
affiliates. Consequently, in the event that payments on the Mortgage Loans are
insufficient or otherwise unavailable to make all payments required on the
Certificates, there will be no recourse to the Depositor, AmREIT, the
Certificate Trustee or any of their affiliates, except as herein described.
LIMITED LIQUIDITY
The Underwriter intends to make a secondary market in the Offered
Certificates, but has no obligation to do so. There is currently no secondary
market in the Offered Certificates and there can be no assurance that such a
market will develop or, if it does develop, that it will provide
Certificateholders with liquidity of investment or that it will continue for the
life of the Certificates.
GEOGRAPHIC CONCENTRATION
[Approximately ( )% of the Mortgage Loans (by aggregate outstanding
principal balance as of the Cut-off Date) are secured by Mortgaged Properties
located in the State of California. Property values of residential real estate
in California have declined in recent years. If the California residential real
estate market should continue to experience an overall decline in property
values after the dates of origination of the Mortgage Loans, the rates of
delinquency, foreclosure, bankruptcy and loss on the Mortgage Loans may be
S-14
<PAGE> 63
expected to increase, and may increase substantially, as compared to such rates
in a stable or improving real estate market.]
[describe other geographic concentrations presenting significant risks]
CONSEQUENCES OF OWNING BOOK-ENTRY CERTIFICATES
Since transactions in the Certificates (the "Book-Entry Certificates")
generally can be effected only through DTC, Participants and Indirect
Participants, the ability of a Beneficial Owner to pledge Book-Entry
Certificates to persons or entities that do not participate in the DTC system,
or to otherwise act with respect to such Book-Entry Certificates, may be limited
due to the lack of a physical certificate for such Book-Entry Certificates. in
addition, under a book-entry format, Beneficial Owners may experience delays in
their receipt of payments, since distributions will be made by the Certificate
Trustee, or a paying agent on behalf of the Certificate Trustee, to CEDE & Co.,
as nominee for DTC. Also, issuance of Book-Entry Certificates in book-entry form
may reduce the liquidity thereof in any secondary trading market that may
develop therefor because investors may be unwilling to purchase securities for
which they cannot obtain delivery of physical certificates. See "DESCRIPTION OF
THE CERTIFICATES -- BOOK-ENTRY CERTIFICATES" herein.
USE OF PROCEEDS
The Depositor will apply the net proceeds of the sale of the Offered
Certificates [(together with the net proceeds of the sale of the Class B-1 and
Class B-2 Certificates)] against the purchase price of the Underlying Bond.
TRUST FUND ASSETS
GENERAL
The Trust Fund Assets will consist primarily of the Underlying Bond. The
Underlying Bond will be secured by a pool (the "Mortgage Pool") of -year
conventional mortgage loans secured by first liens on one- to four-family
residential properties (each, a "Mortgaged Property"). None of the Mortgage
Loans will be guaranteed by any governmental agency. All of the Mortgage Loans
will have been deposited with the Bond Issuer by the Depositor which, in turn,
will have acquired them from [AmREIT] pursuant to an agreement (the "Mortgage
Loan Purchase Agreement") between the Depositor and [AmREIT]. All of the
Mortgage Loans will have been acquired by [AmREIT] in the ordinary course of its
business and substantially in accordance with the underwriting criteria
specified herein. This two-stage process in which the Underlying Bond is first
issued and then deposited into the Trust Fund permits the Depositor to obtain
the benefits of additional flexibility in structuring the payment terms of the
Certificates, as authorized for FASITs, while at the same time being able to
retain the Mortgage Loans as consolidated assets of the Bond Issuer for
accounting purposes.
THE MORTGAGE POOL. Under the Mortgage Loan Purchase Agreement, [AmREIT]
will make certain representations, warranties and covenants to the Depositor
relating to, among other things, the due execution and enforceability of the
Mortgage Loan Purchase Agreement and certain characteristics of the Mortgage
Loans and, subject to the limitations described below under "-- ASSIGNMENT OF
THE MORTGAGE LOANS," will be obligated to purchase or substitute a similar
mortgage loan for any Mortgage Loan as to which there exists deficient
documentation or an uncured material breach of any such representation, warranty
or covenant. See "MORTGAGE LOAN PROGRAM -- REPRESENTATIONS BY SELLERS;
REPURCHASES" in the Prospectus. The Company will in turn assign all of its
rights under the Mortgage Loan Purchase Agreement to the Bond Issuer. Under the
Indenture, the Bond Issuer will pledge all its right, title and interest in and
to such representations, warranties and covenants (including AmREIT's purchase
obligation) to the Bond Trustee for the benefit of the Bondholders. The Bond
Issuer will make no
S-15
<PAGE> 64
representations or warranties with respect to the Mortgage Loans and will have
no obligation to repurchase or substitute Mortgage Loans with deficient
documentation or which are otherwise defective. The obligations of [AmREIT] with
respect to the Bonds are limited to [AmREIT's] obligation to purchase or
substitute Mortgage Loans with deficient documentation or which are otherwise
defective under the Mortgage Loan Purchase Agreement.
Certain information with respect to the Mortgage Pool is set forth below.
Prior to the Closing Date, Mortgage Loans may be removed from the collateral and
other Mortgage Loans may be substituted therefor. The Depositor believes that
the information set forth herein with respect to the Mortgage Loans as presently
constituted is representative of the characteristics of the Mortgage Loans as
they will be constituted at the Closing Date, although certain characteristics
of the Mortgage Loans in the Mortgage Loan Pool may vary. The final Mortgage
Pool will be filed as an exhibit to the final form of the Agreements filed on
Form 8-K following the Closing Date. Unless otherwise indicated, information
presented below expressed as a percentage (other than rates of interest) are
approximate percentages based on the Stated Principal Balances of the Mortgage
Loans as of the Cut-off Date.
As of the Cut-off Date, the aggregate of the Stated Principal Balances of
the Mortgage Loans is expected to be approximately $ , subject to a
permitted variance of no greater than 5% (the "Cut-off Date Pool Principal
Balance"). [The Mortgage Loans provide for the amortization of the amount
financed over a series of substantially equal monthly payments.] All of the
Mortgage Loans provide for payments due on the first day of each month (the "Due
Date"). At origination, substantially all of the Mortgage Loans had stated terms
to maturity of years. Scheduled monthly payments made by the Mortgagors on the
Mortgage Loans ("Scheduled Payments") either earlier or later than the scheduled
Due Dates thereof will not affect the amortization schedule or the relative
application of such payments to principal and interest. [Mortgagors may prepay
their Mortgage Loans at any time without penalty.]
Each Mortgage Loan will bear interest at a [fixed][adjustable] Mortgage
Rate. [Each Mortgage Loan will bear interest at a Mortgage Rate, subject to
annual adjustment on the first day of the month specified in the related
Mortgage Note (each such date, an "Adjustment Date"), equal to the sum, rounded
to the nearest of one percentage point ( %), of (i)
(the "Index") as made available by the
and most recently available as of days prior to the
Adjustment Date and (ii) a fixed percentage amount specified in the related
Mortgage Note (the "Margin") provided, however, that the Mortgage Rate will not
increase or decrease by more than percentage points ( %), except for
Mortgage Loans, representing approximately % of the Cut-off Date Pool
Principal Balance which will not increase or decrease by more than
percentage points ( %), on the first Adjustment Date or more than
percentage points ( %) on any Adjustment Date thereafter (the "Periodic Rate
Cap"). The Index with respect to any Bond Interest Rate and any Distribution
Date shall be the Index in effect as of the first day of the month preceding the
month in which such Distribution Date occurs.]
[All of the Mortgage Loans provide that over the life of the Mortgage Loan
the Mortgage Rate will in no event increase by more than the Mortgage Rate fixed
at origination plus a fixed number of percentage points specified in the related
Mortgage Note (such rate, the "Maximum Rate"). None of the Mortgage Loans are
subject to minimum Mortgage Rates. Effective with the first payment due on a
Mortgage Loan after each related Adjustment Date, the Scheduled Payment will be
adjusted to an amount which will pay interest at the adjusted rate and fully
amortize the then-outstanding principal balance of the Mortgage Loan over its
remaining term. If the Index ceases to be published or is otherwise unavailable,
the Master Servicer will select an alternative index based upon comparable
information.]
Each Mortgage Loan is, by its terms, assumable in connection with a
transfer of the related Mortgaged Property if the proposed transferee submits
certain information to the Master Servicer required to enable it to evaluate the
transferee's ability to repay the Mortgage Loan and if the Master Servicer
reasonably determines that the security for the Mortgage Loan would not be
impaired by the assumption. See "RISK FACTORS" herein and in the Prospectus.
Each Mortgage Loan was originated on or after , 19 .
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<PAGE> 65
The latest stated maturity date of any Mortgage Loan is , 20 . The
earliest stated maturity date of any Mortgage Loan is , 20 .
[As of the Cut-off Date, no Mortgage Loan was delinquent more than days.]
[None of the Mortgage Loans are subject to buydown agreements.] [No
Mortgage Loan provides for deferred interest or negative amortization.]
No Mortgage Loan had a Loan-to-Value Ratio at origination of more than %.
[Except for Mortgage Loans, representing approximately % of the
Cut-off Date Pool Principal Balance,] each Mortgage Loan with a Loan-to-Value
Ratio at origination of greater than 80% is covered by a primary mortgage
insurance policy (each a "Primary Mortgage Insurance Policy") issued by a
mortgage insurance company acceptable to the Federal National Mortgage
Association ("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") or
any nationally recognized statistical rating organization, which policy provides
coverage of a portion of the original principal balance of the related Mortgage
Loan equal to the product of the original principal balance thereof and a
fraction, the numerator of which is the excess of the original principal balance
of the related Mortgage Loan over 75% of the lesser of the appraised value and
selling price of the related Mortgage Property and the denominator of which is
the original principal balance of the related Mortgage Loan, plus accrued
interest thereon and related foreclosure expenses. No such Primary Mortgage
Insurance Policy will be required with respect to any such Mortgage Loan after
the date on which the related Loan-to-Value Ratio is 80% or less or, based on a
new appraisal, the principal balance of such Mortgage Loan represents 80% or
less of the new appraised value. See "-- UNDERWRITING STANDARDS" herein.
The "Loan-to-Value Ratio" of a Mortgage Loan at any given time is a
fraction, expressed as a percentage, the numerator of which is the principal
balance of the related Mortgage Loan at the date of determination and the
denominator of which is (a) in the case of a purchase, the lesser of the selling
price of the Mortgaged Property and its appraised value determined in an
appraisal obtained by the originator at origination of such Mortgage Loan, or
(b) in the case of a refinance, the appraised value of the Mortgaged Property at
the time of such refinance. No assurance can be given that the value of any
Mortgaged Property has remained or will remain at the level that existed on the
appraisal or sales date. If residential real estate values generally or in a
particular geographic area decline, the Loan-to-Value Ratios might not be a
reliable indicator of the rates of delinquencies, foreclosures and losses that
could occur with respect to such Mortgage Loans.
The following information sets forth in tabular format certain information,
as of the Cut-off Date, as to the Mortgage Loans. Other than with respect to
rates of interest, percentages (approximate) are stated by Stated Principal
Balance of the Mortgage Loans as of the Cut-off Date and have been rounded in
order to total 100%.
ORIGINAL LOAN-TO-VALUE RATIOS(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
ORIGINAL LOAN-TO-VALUE MORTGAGE BALANCE MORTGAGE
RATIOS(%) LOANS OUTSTANDING POOL
---------------------- --------- ----------- ----------
<S> <C> <C> <C>
$ %
----------- -----
Total............................................... $ %
=========== =====
</TABLE>
- ---------------
(1) The weighted average original Loan-to-Value Ratio of the Mortgage Loans is
expected to be approximately %.
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<PAGE> 66
ORIGINAL TERMS TO MATURITY(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
ORIGINAL TERM TO MORTGAGE BALANCE MORTGAGE
MATURITY (MONTHS) LOANS OUTSTANDING POOL
----------------- --------- ----------- ----------
<S> <C> <C> <C>
$ %
----------- -----
Total............................................... $ %
=========== =====
</TABLE>
- ---------------
(1) As of the Cut-off Date, the weighted average remaining term to maturity of
the Mortgage Loans is expected to be approximately months.
CURRENT MORTGAGE LOAN PRINCIPAL BALANCES(1)
<TABLE>
<CAPTION>
AGGREGATE
RANGE OF CURRENT NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE LOAN MORTGAGE BALANCE MORTGAGE
PRINCIPAL BALANCES LOANS OUTSTANDING POOL
------------------ --------- ----------- ----------
<S> <C> <C> <C>
$ %
----------- -----
Total............................................... $ %
=========== =====
</TABLE>
- ---------------
(1) As of the Cut-off Date, the average current Mortgage Loans principal balance
is expected to be approximately $ .
CURRENT MORTGAGE RATES(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
CURRENT MORTGAGE RATES(%) LOANS OUTSTANDING POOL
------------------------- --------- ----------- ----------
<S> <C> <C> <C>
$ %
----------- -----
Total............................................... $ %
=========== =====
</TABLE>
- ---------------
(1) As of the Cut-off Date, the weighted average Mortgage Rate of the Mortgage
Loans is expected to be approximately % per annum.
PURPOSE OF MORTGAGE LOANS
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
LOAN PURPOSE LOANS OUTSTANDING POOL
------------ --------- ----------- ----------
<S> <C> <C> <C>
Purchase................................................. $ %
Refinance (Rate or Term).................................
Refinance (Cash-out).....................................
----------- -----
Total............................................... $ %
=========== =====
</TABLE>
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<PAGE> 67
STATE DISTRIBUTION OF MORTGAGED PROPERTIES(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
STATE LOANS OUTSTANDING POOL
----- --------- ----------- ----------
<S> <C> <C> <C>
$ %
Other(1).................................................
----------- -----
Total............................................... $ %
=========== =====
</TABLE>
- ---------------
(1) Other includes other states, and the District of Columbia, with under
% concentrations individually. No more than approximately % of the
Mortgage Loans will be secured by Mortgaged Properties located in any one
postal zip code area.
DOCUMENTATION FOR MORTGAGE LOANS
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
TYPE OF PROGRAM LOANS OUTSTANDING POOL
--------------- --------- ----------- ----------
<S> <C> <C> <C>
Full..................................................... $ %
Alternative..............................................
Reduced..................................................
----------- -----
Total............................................... $ %
=========== =====
</TABLE>
OCCUPANCY TYPES(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
OCCUPANCY TYPE LOANS OUTSTANDING POOL
-------------- --------- ----------- ----------
<S> <C> <C> <C>
Primary Home............................................. $ %
Investor.................................................
Second Home..............................................
----------- -----
Total............................................... $ %
=========== =====
</TABLE>
- ---------------
(1) Based upon representations of the related Mortgagors at the time of
origination.
PROPERTY TYPE
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
PROPERTY TYPE LOANS OUTSTANDING POOL
------------- --------- ----------- ----------
<S> <C> <C> <C>
Single Family............................................ $ %
Planned Unit Development Condominium.....................
2-4 Units................................................
----------- -----
Total............................................... $ %
=========== =====
</TABLE>
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<PAGE> 68
MAXIMUM MORTGAGE RATES(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
LIFETIME CAPS(%) LOANS OUTSTANDING POOL
---------------- --------- ----------- ----------
<S> <C> <C> <C>
$ %
----------- -----
Total............................................... $ %
=========== =====
</TABLE>
- ---------------
(1) As of the Cut-off Date, the weighted average Lifetime Cap of the Mortgage
Loans is expected to be approximately % per annum.
MARGIN(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
MARGIN LOANS OUTSTANDING POOL
------ --------- ----------- ----------
<S> <C> <C> <C>
$ %
----------- -----
Total............................................... $ %
=========== =====
</TABLE>
- ---------------
(1) As of the Cut-off Date, the weighted average margin of the Mortgage Loans is
expected to be approximately %.
NEXT NOTE RATE ADJUSTMENT DATES(1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL PERCENT OF
MORTGAGE BALANCE MORTGAGE
MONTHS LOANS OUTSTANDING POOL
------ --------- ----------- ----------
<S> <C> <C> <C>
$ %
----------- -----
Total............................................... $ %
=========== =====
</TABLE>
- ---------------
(1) As of the Cut-off Date, the weighted average months to the next Adjustment
Date of the Mortgage Loans was approximately months.
THE INDEX
[DESCRIPTION OF INDEX]
ASSIGNMENT OF THE MORTGAGE LOANS
Pursuant to the Indenture, the Bond Issuer on the Closing Date will pledge,
transfer, assign, set over and otherwise convey without recourse to the Bond
Trustee in trust for the benefit of the Underlying Bondholder all right, title
and interest of the Bond Issuer in and to each Mortgage Loan and all right,
title and interest in and to all other assets included in the Collateral,
including all principal and interest received on or with respect to the Mortgage
Loans, exclusive of principal and interest due on or prior to the Cut-off Date.
In connection with such transfer and assignment, the Bond Issuer will
deliver or cause to be delivered to the Bond Trustee, or a custodian for the
Bond Trustee, among other things, the original promissory note (the "Mortgage
Note") (and any modification or amendment thereto) endorsed in blank without
recourse, the
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<PAGE> 69
original instrument creating a first lien on the related Mortgaged Property (the
"Mortgage") with evidence of recording indicated thereon, an assignment in
recordable form of the Mortgage, the title policy with respect to the related
Mortgaged Property and, if applicable, all recorded intervening assignments of
the Mortgage and any riders or modifications to such Mortgage Note and Mortgage
(except for any such document not returned from the public recording office,
which will be delivered to the Bond Trustee as soon as the same is available to
the Bond Issuer) (collectively, the "Mortgage File"). [Assignments of the
Mortgage Loans to the Bond Trustee (or its nominee) will be recorded in the
appropriate public office for real property records, except in states where, in
the opinion of counsel, such recording is not required to protect the Bond
Trustee's interest in the Mortgage Loans against the claim of any subsequent
transferee or any successor to or creditor of the Bond Issuer.]
The Bond Trustee will review each Mortgage File within days of the
Closing Date (or promptly after the Bond Trustee's receipt of any document
permitted to be delivered after the Closing Date) and if any document in a
Mortgage File is found to be missing or defective in a material respect and the
Bond Issuer does not cure such defect within days of notice thereof from the
Bond Trustee (or within such longer period not to exceed days after the
Closing Date as provided in the Mortgage Loan Purchase Agreement in the case of
missing documents not returned from the public recording office), [AmREIT] will
be obligated to purchase the related Mortgage Loan. Rather than purchase the
Mortgage Loan as provided above, [AmREIT] may remove such Mortgage Loan (a
"Deleted Mortgage Loan") from the Collateral and substitute in its place another
mortgage loan (a "Replacement Mortgage Loan"). Any Replacement Mortgage Loan
generally will, on the date of substitution, among other characteristics set
forth in the Mortgage Loan Purchase Agreement, (i) have a principal balance,
after deduction of all Scheduled Payments due in the month of substitution, not
in excess of, and not more than % less than, the Stated Principal Balance of
the Deleted Mortgage Loan (the amount of any shortfall to be deposited in the
Bond Account by AmREIT and held for distribution to the Bondholders on the
related Distribution Date (a "Substitution Adjustment Amount")), (ii) have a
Mortgage Rate not lower than, and not more than % per annum higher than, that
of the Deleted Mortgage Loan, (iii) have a Loan-to-Value Ratio not higher than
that of the Deleted Mortgage Loan, (iv) have a remaining term to maturity not
greater than (and not more than less than) that of the Deleted Mortgage Loan,
and (v) comply with all of the representations and warranties set forth in the
Mortgage Loan Purchase Agreement as of the date of substitution. This cure,
purchase or substitution obligation constitutes the sole remedy available to
Certificateholders or the Bond Trustee for omission of, or a material defect in,
a Mortgage Loan document.
UNDERWRITING STANDARDS
All of the Mortgage Loans have been purchased by [AmREIT] in the ordinary
course of business directly from banks, savings and loan associations, mortgage
bankers and other mortgage loan originators (each, an "Originator"), or in the
secondary mortgage market. [AmREIT] approves individual institutions as eligible
Originators after an evaluation of certain criteria, including the Originator's
mortgage origination and servicing experience and financial stability. Each
Originator and/or the entity from which purchased the Mortgage Loans will
represent and warrant that all Mortgage Loans originated and/or sold by it will
have been underwritten in accordance with standards consistent with those
utilized by mortgage lenders generally during the period of origination.
Underwriting standards are applied by or on behalf of a lender to evaluate
the borrower's credit standing and repayment ability, and the value and adequacy
of the related Mortgaged Property as collateral. In general, a prospective
borrower applying for a loan is required to fill out a detailed application
designed to provide to the underwriting officer pertinent credit information. As
part of the description of the borrower's financial condition, the borrower
generally is required to provide a current list of assets and liabilities and a
statement of income and expense, as well as an authorization to apply for a
credit report which summarizes the borrower's credit history with local
merchants and lenders and any record of bankruptcy. In most cases, an employment
verification is obtained from an independent source (typically the borrower's
employer) which verification reports, among other things, the length of
employment with that organization, the current salary, and whether it is
expected that the borrower will continue such employment in the future. If a
prospective borrower is self-
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employed, the borrower may be required to submit copies of signed tax returns.
The borrower may also be required to authorize verification of deposits at
financial institutions where the borrower has demand or savings accounts. See
"MORTGAGE LOAN PROGRAM -- UNDERWRITING STANDARDS" in the Prospectus.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to a Trust Agreement, dated as of
(the "Trust Agreement"), between the Depositor and the
Certificate Trustee. The form of Trust Agreement has been filed as an exhibit to
the Registration Statement of which the Prospectus Supplement and the Prospectus
is a part. The following is a summary of the material terms of the Offered
Certificates. Reference is made to the Prospectus for important additional
information regarding the terms and conditions of the Trust Agreement and the
Certificates. When particular provisions or terms used in the Trust Agreement
are referred to, the actual provisions (including definitions of terms) are
incorporated by reference.
The Mortgage-Backed Certificates, Series 1998- (the "Certificates") will
consist of the Class A-1 Certificates and the Class X Certificates (the "Class
A-1 Certificates" and the "Class X Certificates," respectively, and
collectively, the "Senior Certificates"), three classes of subordinated
certificates (the "Class M-1 Certificates," the "Class B-1 Certificates" and the
"Class B-2 Certificates, "respectively and collectively, the "Subordinate
Certificates"), and the Class O Certificates (the "Ownership Certificates").
Only the Senior Certificates and the Class M-1 Certificates (the "Offered
Certificates") are offered hereby.
The Senior Certificates in the aggregate will evidence an initial
beneficial ownership interest of approximately % in the Trust Fund Assets, the
Class M-1 Certificates in the aggregate will evidence approximately % of the
undivided interest in the principal balance of the Trust Fund Assets and the
Class B-1 and Class B-2 Certificates evidence in the aggregate the remaining %
undivided interest in the principal balance of the Trust Fund Assets. The Class
X Certificates will have no principal balance, are entitled only to a portion of
the interest on the Mortgage Loans and are not entitled to any distributions of
principal. The Ownership Certificates will not have a Class Certificate Balance
and will not bear interest.
The Class A-1 Certificates will be issuable in (book-entry) (fully
registered) form only. [The Class A-1 Certificates will be issued in minimum
dollar denominations of $ and integral multiples of $ in excess
thereof.] The Class X [and Class M-1] Certificates will be issued in fully
registered certificated form in minimum dollar denomination of $ and
integral multiples of $ in excess thereof. A single certificate of each
Class may be issued in any amount in excess of the minimum denomination.
PAYMENTS ON MORTGAGE LOANS; ACCOUNTS
On or prior to the Closing Date, the Master Servicer will establish an
account (the "Bond Account") with the Bond Trustee, which shall be maintained
(as a separate trust account) by the Master Servicer in trust for the benefit of
Certificateholders. Funds credited to the Bond Account may be invested for the
benefit and at the risk of the Master Servicer in Eligible Investments, as
defined in the Indenture, that are scheduled to mature on or prior to the
business day preceding the next Distribution Date. On each Distribution Date,
the Master Servicer shall withdraw from the Bond Account the amount of Available
Funds and shall deposit such Available Funds in an account established and
maintained with the Certificate Trustee on behalf of Certificateholders (the
"Distribution Account").
PRIORITY OF DISTRIBUTIONS AMONG CERTIFICATES
As more fully described herein, distributions will be made on the
Certificates on each Distribution Date from Available Funds in the following
order of priority: (i) to interest on each Class of Senior Certificates, (ii) to
principal on the Class A-1 Certificates, up to the maximum amount of principal
to be distributed on the Class A-1 Certificates on such Distribution Date, (iii)
to interest on the Class M-1 Certificates, (iv) to
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principal on the Class M-1 Certificates, up the maximum amount of principal to
be distributed on such Class on such Distribution Date, and (v) to interest on
and then principal of each other Class of Subordinate Certificates, up to the
maximum amount of interest and principal to be distributed on such Class on such
Distribution Date [and subject to certain limitations set forth below under
"Principal."]
DISTRIBUTIONS
Distributions of principal and interest to holders of the Offered
Certificates will be made on each Distribution Date to the extent of Available
Funds to holders of record of such Offered Certificates on (the last day of the
preceding month,) (the "Record Date") except that the final distribution in
respect of any Class of Offered Certificates will be made only upon presentation
and surrender of such Certificates at the office or agency appointed by the
Certificate Trustee for that purpose in .
Distributions of interest and principal to holders of Subordinate
Certificates will be subordinate to distributions of interest on and principal
of the Senior Certificates and distributions of interest and principal to
holders of the Class B-1 and Class B-2 Certificates will be subordinate to
distributions of interest on and principal of the Class M-1 Certificates. See
"-- ALLOCATION OF LOSSES" and "CREDIT SUPPORT."
The aggregate amount of funds available in the Distribution Account on a
Distribution Date for distribution on the Certificates is equal to "Available
Funds". Available Funds for any Distribution Date is the amount received with
respect to such Distribution Date from the Underlying Bond, which amount, prior
to a Bond Event of Default, will be equal to the sum of (i) all scheduled
installments of interest (net of related Expense Fees) and principal due on the
first day of the month in which such Distribution Date occurs and received prior
to the related Determination Date together with any Advances in respect thereof,
(ii) all insurance and liquidation proceeds (net of related expenses) received
during the month preceding such Distribution Date, (iii) all partial or full
prepayments received during the month preceding such Distribution Date and (iv)
the amount required to be paid in respect of a Mortgage Loan that became
required to be repurchased or substituted during the month preceding such
Distribution Date, reduced by amounts in reimbursement for Advances previously
made and other amounts as to which the Master Servicer or a servicer is entitled
to be reimbursed from the Bond Account pursuant to the Master Servicing
Agreement. See "TRUST FUND ASSETS -- THE MORTGAGE POOL -- ASSIGNMENT, OF THE
MORTGAGE LOANS" herein.
The Certificate Trustee will forward with each distribution on a
Distribution Date to each Offered Certificateholder a statement or statements
setting forth, among other things, (i) the amount of such distribution allocable
to principal and (ii) the amount of such distribution allocable to interest.
Such amounts will be expressed as a dollar amount per $1,000 of Class
Certificate Balance. See "DESCRIPTION OF THE SECURITIES -- REPORTS TO
SECURITYHOLDERS" in the Prospectus for a detailed description of the information
to be included in such statements.
INTEREST
On each Distribution Date, each Class of Offered Certificates, to the
extent of Available Funds on such Distribution Date applied in the order
described above under "-- PRIORITY OF DISTRIBUTIONS AMONG CERTIFICATES", will be
entitled to receive an amount allocable to interest equal to the sum of (i) one
month's interest at the applicable Pass-Through Rate on the Class Certificate
Balance or Class X Notional Amount, as the case may be, and (ii) the sum of the
amounts, if any, by which the amount described in clause (i) above on each prior
Distribution Date exceeded the amount actually distributed as interest on such
prior Distribution Dates and not subsequently distributed ("Unpaid Interest
Amounts"). [Interest will be calculated and payable on the basis of a 360-day
year divided into twelve 30-day months.]
The interest entitlement described above for each Class of Offered
Certificates will be reduced by (i) such Class of Certificates allocable share
of "Net Interest Shortfalls" with respect to such Distribution Date, which is
equal to the amount of interest any Class of Certificateholders would otherwise
have been entitled to receive with respect to any Mortgage Loan that was the
subject of (a) a Relief Act Reduction (or (b) after the coverage provided by the
Subordinate Certificates is exhausted for such type of loss, a Special
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Hazard Loss, Fraud Loss or a Bankruptcy Loss,) and (ii) such Class' pro rata
share of Net Prepayment Interest Shortfalls. A "Relief Act Reduction" is a
reduction in the amount of monthly interest payment on a Mortgage Loan pursuant
to the Soldiers' and Sailors' Civil Relief Act of 1940. See "CERTAIN LEGAL
ASPECTS OF MORTGAGE LOANS -- SOLDIERS' AND SAILORS' CIVIL RELIEF ACT" in the
Prospectus. "Net Prepayment Interest Shortfall" is the amount by which the
aggregate of Prepayment Interest Shortfalls during the calendar month
immediately preceding the month in which the related Due Date occurs exceeds the
aggregate amount of the Master Servicing Fee for such period. A "Prepayment
Interest Shortfall" is the amount by which interest at the Net Mortgage Rate
received in connection with a prepayment of principal on a Mortgage Loan is less
than one month's interest at the Net Mortgage Rate on the Principal Balance of
the related Mortgage Loan that is prepaid. Each Class' pro rata share of such
Net Prepayment Interest Shortfalls will be based on the amount of interest such
Class of Certificates otherwise would have been entitled to receive.
In the event that, on a particular Distribution Date, Available Funds on
such Distribution Date applied in the order described above under "-- PRIORITY
OF DISTRIBUTIONS AMONG CERTIFICATES," are not sufficient to make a full
distribution of interest to holders of the Offered Certificates, interest will
be distributed on such Class or Classes of Offered Certificates of equal
priority in proportion to the amount of interest each such Class or Classes
would otherwise have been entitled to receive in the absence of such shortfall.
The amount of any resulting shortfall will be carried forward and added to the
amount holders of each such Class of Offered Certificates will be entitled to
receive on the next Distribution Date. Such a shortfall could occur, for
example, if losses realized on the Mortgage Loans were exceptionally high or
were concentrated in a particular month. Any such amount so carried forward will
not bear interest.
PRINCIPAL
On each Distribution Date, the Class A-1 Certificates will be entitled to
receive a amount allocable to principal equal to the lesser of (x) Available
Funds reduced by the amount of interest distributed on the Senior Certificates
on such Distribution Date and (y) the sum of (i) the Class A-1 Percentage of (a)
all scheduled payments of principal due on each Mortgage Loan on the Due Date
for such Mortgage Loan in the month in which such Distribution Date occurs, (b)
the Principal Balance of each Mortgage Loan that became a Liquidated Mortgage
Loan during the month preceding the month of such Distribution Date, (c) the
Pool Principal Balance of each Mortgage Loan that was repurchased by AmREIT or
another person as of such Distribution Date pursuant to the Mortgage Loan
Purchase Agreement, (d) certain amounts that may be required to be paid in
connection with any substitution of Mortgage Loans and (e) any net insurance or
liquidation proceeds received during the month preceding the month of such
Distribution Date allocable to recoveries of principal of Mortgage Loans that
are not yet Liquidated Mortgage Loans and (ii) the Class A-1 Prepayment
Percentage of all partial principal prepayments and of all principal prepayments
in full ("Principal Prepayments") received during such preceding month.
On each Distribution Date, the Class M-1 Certificates will be entitled to
receive an amount allocable to principal equal to the lesser of (x) Available
Funds reduced by the amount of interest and principal distributed on the Senior
Certificates and interest on the Class M-1 Certificates, in each case on such
Distribution Date and (y) the sum of (i) the applicable Subordinate Percentage
Allocation of the sum of the amounts calculated pursuant to clauses (a) through
(e) in the preceding paragraph for such Distribution Date and (ii) the
applicable Subordinate Prepayment Percentage Allocation of all Principal
Prepayments received during the preceding month.
"Principal Balance" of a Mortgage Loan as of any Due Date is the unpaid
principal balance of such Mortgage Loan as specified in the amortization
schedule at the time relating thereto (before any adjustment to such schedule by
reason of moratorium or similar waive or grace period) for such Due Date, after
giving effect to any previous partial payments and to the payment of principal
due on such Due Date and irrespective of any delinquency in payment by the
Mortgagor. The "Pool Principal Balance" will equal the aggregate of the
Principal Balances of all Mortgage Loans. The "Due Date" for a Mortgage Loan is
the first day of each calendar month on which the scheduled installment of
principal and interest with respect thereto is due.
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The "Class A-1 Percentage" for any Distribution Date is the percentage
obtained by dividing the sum of the Class Certificate Balance of the Class A-1
Certificates immediately prior to such date by the aggregate of the Class
Certificate Balances of all Classes of Certificates immediately prior to such
date. The "Subordinate Percentage" for any Distribution Date is the percentage
calculated as the difference between 100% and the Class A-1 Percentage for such
date.
The "Subordinate Percentage Allocation" for any Distribution Date and Class
of Subordinate Certificates, is equal to a fraction, the numerator of which is
the related Class Certificate Balance immediately prior to such date and the
denominator of which is the aggregate of the Class Certificate Balances of all
Subordinate Certificates immediately prior to such date.
The "Class A-1 Prepayment Percentage" for any Distribution Date occurring
during the five years beginning on the first Distribution Date will, except as
provided below, equal 100%. Thereafter, the Class A-1 Prepayment Percentage will
be subject to gradual reduction as described in the following paragraph. This
disproportionate allocation of certain unscheduled payments in respect of
principal will have the effect of accelerating the amortization of the Class A-1
Certificates while, in the absence of Realized Losses, increasing the interest
in the principal balance of the Mortgage Loans evidenced by the Subordinate
Certificates. Increasing the respective interest of the Subordinate Certificates
relative to that of the Senior Certificates is intended to preserve the
availability of the subordination provided by the Subordinate Certificates.
The "Class A-1 Prepayment Percentage" for any Distribution Date occurring
on or after the fifth anniversary of the first Distribution Date will be as
follows: for any Distribution Date in the first year thereafter, the Class A-1
Percentage for such Distribution Date plus 70% of the Subordinate Percentage for
such Distribution Date; for any distribution Date in the second year thereafter,
the Class A-1 Percentage for such Distribution Date plus 60% of the Subordinate
Percentage for such Distribution Date; for any Distribution Date in the third
year thereafter, the Class A-1 Percentage for such Distribution Date plus 40% of
the Subordinate Percentage for such Distribution Date; for any Distribution Date
in the fourth year thereafter, the Class A-1 Percentage for such Distribution
Date plus 20% of the Subordinate Percentage for such Distribution Date; and for
any Distribution Date thereafter, the Class A-1 Percentage for such Distribution
Date (unless on any of the foregoing Distribution Dates the Class A-1 Percentage
exceeds the initial Class A-1 Percentage, in which case the Class A-1 Prepayment
Percentage for such Distribution Date will once again equal 100%).
Notwithstanding the foregoing, no reduction to the Senior Prepayment Percentage
will occur if [(i) as of the first Distribution Date as to which any such
reduction applies, the dollar amount of all monthly payments on the Mortgage
Loans due in each of the preceding six months that are delinquent 60 days or
more exceeds a monthly average of % of all monthly payments due in such month
(including for this purpose any Mortgage Loans in foreclosure and Mortgage Loans
with respect to which the related Mortgaged Property has been acquired by the
Mortgage Pool), or (ii) cumulative Realized Losses with respect to the Mortgage
Loans exceed (a) with respect to the Distribution Date in , ( %) of
the Class Certificate Balance of the Subordinate Certificates as of the Cut-off
Date (the "Original Subordinate Principal Balance"), (b) with respect to the
Distribution Date in , ( %) of the Original Subordinate Principal
Balance, (c) with respect to the Distribution Date in , % of the
Original Subordinate Principal Balance, (d) with respect to the Distribution
Date in , % of the Original Subordinate Principal Balance, and (e)
with respect to the Distribution Date in , % of the Original
Subordinate Principal Balance.]
The "Subordinate Prepayment Percentage" for any Distribution Date is 100%
minus the Senior Prepayment Percentage for such Distribution Date. The
"Subordinate Prepayment Percentage Allocation" for any Distribution Date and
Class of Subordinate Certificates, is equal to the product of the Subordinate
Prepayment Percentage and a fraction, the numerator of which is the related
Class Certificate Balance immediately prior to such date and the denominator of
which is the aggregate of the Class Certificate Balances of all Subordinate
Certificates immediately prior to such date.
If on any Distribution Date the allocation to the Class of Certificates
then entitled to principal of full and partial principal prepayments and other
amounts in the percentages required above would reduce the outstanding Class
Certificate Balance of such Class below zero, the distribution to such Class of
Certificates
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will be limited to the amount necessary to reduce the related Class Certificate
Balance to zero and any remaining portion thereof will be distributed to the
Class of Certificates next entitled to distributions of principal.
ALLOCATION OF LOSSES
On each Distribution Date, any Realized Loss on a Mortgage Loan, other than
any Excess Loss, that results in a reduction of the principal balance of the
Underlying Bond without a corresponding cash principal payment, will be
allocated first, sequentially, to the Class B-2, Class B-1 and Class M-1
Certificates, in that order, in each case until the respective Class Certificate
Balance thereof is reduced to zero, and thereafter to the Class A-1
Certificates.
On each Distribution Date, Excess Losses will be allocated pro rata among
the Class A-1 Certificates and the Subordinate Certificates based upon their
respective Class Certificate Balances.
In general, a "Realized Loss" means, with respect to a Liquidated Mortgage
Loan, the amount by which the remaining unpaid principal balance of the Mortgage
Loan exceeds the amount of liquidation proceeds applied to the principal balance
of the Mortgage Loan. "Excess Losses" are (i) Special Hazard Losses in excess of
the Special Hazard Loss Coverage Amount, (ii) Bankruptcy Losses in excess of the
Bankruptcy Loss Coverage Amount and (iii) Fraud Losses in excess of the Fraud
Loss Coverage Amount. "Bankruptcy Losses" are losses that are incurred as a
result of Debt Service Reductions and Deficient Valuations. "Special Hazard
Losses" are Realized Losses in respect of Special Hazard Mortgage Loans. "Fraud
Losses" are losses sustained on a Liquidated Mortgage Loan by reason of a
default arising from fraud, dishonesty or misrepresentation. See "CREDIT
SUPPORT -- SUBORDINATION OF SUBORDINATE CERTIFICATES" herein.
A "Liquidated Mortgage Loan" is a defaulted Mortgage Loan as to which the
Master Servicer has determined that all recoverable liquidation and insurance
proceeds have been received. A "Special Hazard Mortgage Loan" is a Liquidated
Mortgage Loan as to which the ability to recover the full amount due thereunder
was substantially impaired by a hazard not insured against under a standard
hazard insurance policy of the type described in the Prospectus under "CREDIT
SUPPORT -- SPECIAL HAZARD INSURANCE POLICIES." See "CREDIT
SUPPORT -- SUBORDINATION OF SUBORDINATE CERTIFICATES" herein.
The "Class Certificate Balance" of any Class of Certificates as of any
Distribution Date is the initial Class Certificate Balance thereof, reduced by
the sum of (i) all amounts previously distributed to holders of such Class as
payments of principal and (ii) the amount of Realized Losses and Excess Losses
allocated to such Class, as described above.
TERMINATION; OPTIONAL TERMINATION
The circumstances under which the obligations created by the Trust
Agreement will terminate in respect of the Certificates are described in
"DESCRIPTION OF THE SECURITIES -- EARLY TERMINATION" and "THE
AGREEMENTS -- TERMINATION OF TRUST AGREEMENT" in the Prospectus. At its option,
the Bond Issuer may redeem the Underlying Bond at par and thereby effect early
retirement of the Certificates, on any Distribution Date on which the Pool
Principal Balance is less than 10% of the Cut-off Date Pool Principal Balance.
In addition, the Depositor may exercise its option to repurchase the Trust Fund
Assets on any Distribution Date on which the Pool Principal Balance is less than
10% of the Cut-off Date Pool Principal Balance. The repurchase price for such
Trust Fund Assets must be at least equal to the principal balance of outstanding
Certificates, plus accrued interest. Distributions in respect of any such
optional termination will be paid to Certificateholders in order of their
priority of distribution as described under "-- PRIORITY OF DISTRIBUTIONS AMONG
CERTIFICATES." In no event will the trust created by the Trust Agreement
continue beyond the later of (a) the repurchase described above, (b) the
expiration of 21 years from the death of the survivor of the person named in the
Trust Agreement and (c) . The termination of
the trust will be effected in a manner consistent with applicable federal income
tax regulations [and the status of the Trust Fund Assets as a FASIT.]]
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LAST SCHEDULED DISTRIBUTION DATE
The Last Scheduled Distribution Date for each Class of Offered Certificates
is the latest date on which the Class Certificate Balance is expected to be
reduced to zero, and has been calculated on the basis of the assumptions
described below under "PREPAYMENT AND YIELD CONSIDERATIONS -- ASSUMPTIONS
RELATING TO TABLES" except for the following additional assumptions: (describe).
Since the rate of distributions in reduction of the Class Certificate Balance on
each Class of Offered Certificates will depend on the rate of payment (including
prepayments) of the Mortgage Loans as well as the frequency and severity of
losses experienced by the Mortgage Pool, the Class Certificate Balance of any
such Class could reach zero significantly earlier or later than its Last
Scheduled Distribution Date. The rate of payments on the Mortgage Loans will
depend on their particular characteristics, as well as on prevailing interest
rates from time to time and other economic factors, and no assurance can be
given as to the actual payment experience of the Mortgage Loans.
[CONTROLLING CLASS OF CERTIFICATES
For the purposes described in the Prospectus under the headings "THE
AGREEMENTS -- MODIFICATION OF AGREEMENTS," "-- EVENTS OF DEFAULT" and "RIGHTS
UPON EVENT OF DEFAULT," the "Controlling Class" shall be the Class A-1
Bondholders or, if the Class A-1 Bonds are no longer outstanding, the Class B-1
Bondholders.]
[BOOK-ENTRY CERTIFICATES
The Offered Certificates will be book-entry Certificates (the "Book-Entry
Certificates"). The Book-Entry Certificates will be issued in one or more
certificates which equal the aggregate principal balance of each such Class of
Offered Certificates which will be held by a nominee of The Depository Trust
Company (together with any successor depository selected by the Depositor, the
"Depository"). Beneficial interests in the Book-Entry Certificates will be
indirectly held by investors through the book-entry facilities of the
Depository, as described herein. Investors may hold such beneficial interests in
the Book-Entry Certificates in minimum denominations of $1,000 and in integral
multiples in excess thereof, except that one Book-Entry Certificate of each such
Class may be issued in an amount which is not an integral multiple of $1,000.
The Depositor has been informed by the Depository that its nominee will be CEDE
& Co. ("CEDE"). Accordingly, CEDE is expected to be the holder of record of the
Book-Entry Certificates. Except as described below, no person acquiring a
Book-Entry Certificate (each, a "beneficial owner") will be entitled to receive
a physical certificate representing such Certificate (a "Definitive
Certificate").
The beneficial owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains the
beneficial owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on the
records of the Depository (or of a participating firm that acts as agent for the
Financial Intermediary, whose interests will in turn be recorded on the records
of the Depository, if the beneficial owner's Financial Intermediary is not a
Depository participant). Therefore, the beneficial owner must rely on the
foregoing procedures to evidence its beneficial ownership of a Book-Entry
Certificate. Beneficial ownership of a Book-Entry Certificate may only be
transferred by compliance with the procedures of such Financial Intermediaries
and Depository participants.
The Depository 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 as in effect in
the State of New York and a "Clearing Agency" registered pursuant to Section 17A
of the Securities Exchange Act of 1934, as amended. The Depository performs
services for its participants, some of which (and/or their representatives) own
the Depository. In accordance with its normal procedures, the Depository is
expected to record the positions held by each Depository participant in the
Book-Entry Certificates, whether held for its own account or as a nominee for
another person. In general, beneficial ownership of Book-Entry Certificates will
be subject to the rules, regulations and procedures governing the Depository and
Depository participants as in effect from time to time.
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Distributions on the Book-Entry Certificates will be made on each
Distribution Date by the Trustee to the Depository. The Depository will be
responsible for crediting the amount of such payments to the accounts of the
applicable Depository participants in accordance with the Depository's normal
procedures. Each Depository participant will be responsible for disbursing such
payments to the beneficial owners of the Book-Entry Certificates that it
represents and to each Financial Intermediary for which it acts as agent. Each
such Financial Intermediary will be responsible for disbursing funds to the
beneficial owners of the Book-Entry Certificates that it represents.
Under a book-entry format, beneficial owners of the Book-Entry Certificates
may experience some delay in their receipt of payments, since such payments will
be forwarded by the Trustee to CEDE. Because the Depository can only act on
behalf of Financial Intermediaries, the ability of a beneficial owner to pledge
Book-Entry Certificates to persons or entities that do not participate in the
Depository system, or otherwise take actions in respect of such Book-Entry
Certificates, may be limited due to the lack of physical certificates for such
Book-Entry Certificates. In addition, issuance of the Book-Entry Certificates in
book-entry form may reduce the liquidity of such Certificates in the secondary
market since certain potential investors may be unwilling to purchase
Certificates for which they cannot obtain physical certificates.
None of the Depositor, AmREIT or the Certificate Trustee will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the Book-Entry Certificates held by
CEDE, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests. In the event of the
insolvency of the Depository, a Depository participant or an indirect Depository
participant in whose name Book-Entry Certificates are registered, the ability of
the Beneficial Owners of such Book-Entry Certificates to obtain timely payment
may be impaired.
Unless and until Definitive Certificates are issued, it is anticipated that
the only "Certificateholder" of the Book-Entry Certificates will be CEDE, as
nominee of the Depository. Beneficial owners of the Book-Entry Certificates will
not be Certificateholders, as that term is used in the Trust Agreement.
Beneficial owners are only permitted to exercise the rights of
Certificateholders indirectly through Financial Intermediaries and the
Depository. Monthly and annual reports on the Mortgage Pool provided by the
Master Servicer to CEDE, as nominee of the Depository, may be made available to
beneficial owners upon request, in accordance with the rules, regulations and
procedures creating and affecting the Depository, and to the Financial
Intermediaries to whose Depository accounts the Book-Entry Certificates of such
beneficial owners are credited.
The Depository has advised the Depositor and the Certificate Trustee that,
unless and until Definitive Certificates are issued, the Depository will take
any action permitted to be taken by the holders of the Book-Entry Certificates
under the Trust Agreement only at the direction of one or more Financial
Intermediaries to whose Depository accounts the Book-Entry Certificates are
credited, to the extent that such actions are taken on behalf of Financial
Intermediaries whose holdings include such Book-Entry Certificates.
Definitive Certificates will be issued to beneficial owners of the
Book-Entry Certificates, or their nominees, rather than to the Depository, only
if (a) the Depository or the Depositor advises the Certificate Trustee in
writing that the Depository is no longer willing, qualified or able to discharge
properly its responsibilities as nominee and depository with respect to the
Book-Entry Certificates and the Depositor or the Certificate Trustee is unable
to locate a qualified successor; (b) the Depositor, at its sole option, elects
to terminate a book-entry system through the Depository; or (c) after the
occurrence of a Certificate of Event of Default, beneficial owners having
Percentage Interests aggregating not less than 51% of all Percentage Interests
evidenced by each Class of the Book-Entry Certificates advise the Certificate
Trustee and the Depository through the Financial Intermediaries in writing that
the continuation of a book-entry system through the Depository (or a successor
thereto) is no longer in the best interests of beneficial owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Certificate Trustee will be required to notify all
beneficial owners of the occurrence of such event and the availability through
the Depository of Definitive Certificates. Upon surrender by the Depository of
the global certificate or certificates representing the Book-Entry Certificates
and instructions for re-registration, the Certificate Trustee will issue the
Definitive Certificates, and thereafter the Certificate Trustee will recognize
the holders of such Definitive Certificates as Certificateholders under the
Trust Agreement.]
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THE TRUSTEE
will be the Trustee under the Trust Agreement. The
Depositor and may maintain other banking relationships
in the ordinary course of business with the Trustee. Offered Certificates may be
surrendered at the Corporate Trust Office of the Trustee located at
, Attention: or at
such other addresses as the Trustee may designate from time to time.
DESCRIPTION OF THE UNDERLYING BOND
GENERAL
The Underlying Bond will be issued by the Bond Issuer pursuant to an
Indenture dated as of between the Bond Issuer and as
Bond Trustee. The payments of principal and interest on the Underlying Bond will
be the primary source for distributions on the Certificates. The Underlying Bond
is payable solely from the limited assets of the Bond Issuer.
BOND DISTRIBUTIONS
Distributions on the Underlying Bond will be made by the Bond Trustee on
the day of each month, or if such day is not a business day, on
the first business day thereafter, commencing on (each a "Bond
Distribution Date").
Distributions on each Bond Distribution Date will be made by wire transfer
in immediately available funds to the Distribution Account; provided, however,
that the final payment in retirement of the Underlying Bond will be made only
upon presentment and surrender of such Underlying Bond at the Corporate Trust
Office of the Bond Trustee.
"Available Funds" for the Bond Distribution Date will generally be equal to
the sum of (i) the aggregate amount of scheduled payments on the Mortgage Loans
due on the related Due Date and received by the Master Servicer on or prior to
the related Withdrawal Date (net of the related Servicing Fees), (ii) any
amounts representing miscellaneous fees and collections, including assumption
fees collected from Mortgagors, to the extent not paid to the Master Servicer or
any Servicer, and any amounts payable by the Master Servicer or the Company as
reimbursement of any investment losses, (iii) any unscheduled payments and
receipts on the Mortgage Loans, received during the calendar month preceding the
month of such Bond Distribution Date including all proceeds of any primary
mortgage guaranty insurance policies and any other insurance policies with
respect to the Mortgage Loans, to the extent such proceeds are not applied to
the restoration of the related Mortgaged Property or released to the Mortgagor
in accordance with the applicable Servicer's or the Master Servicer's normal
servicing procedures (collectively, "Insurance Proceeds"), all other cash
amounts received and retained in connection with the liquidation of defaulted
Mortgage Loans, by foreclosure or otherwise ("Liquidation Proceeds"), (in each
case, net of unreimbursed expenses incurred in connection with a liquidation or
foreclosure), all partial or full prepayments received during such month and
compensating interest paid by the applicable Servicer or Master Servicer if and
to the extent provided for by the Servicing Agreement or Master Servicing
Agreement, respectively, (iv) amounts received with respect to such Bond
Distribution Date as the purchase price in respect of a Defective Mortgage Loan
or Delinquent Mortgage Loans repurchased by [AmREIT] or any Substitution
Adjustment Amount in respect of a Defective Mortgage Loan that has been
substituted for in lieu of repurchase by [AmREIT], and the proceeds of any
purchase of a Mortgage Loan by a Servicer as a result of a breach of a
representation, warranty or covenant by such Servicer or of any other such
purchase by a Servicer to the extent otherwise required or permitted under the
applicable Servicing Agreement, and (v) all Advances made for such Bond
Distribution Date in respect of the Mortgage Loans, in each case net of amounts
reimbursable therefrom to the Master Servicer or any Servicer for Advances made
with respect to prior Bond Distribution Dates and net of such amount as may be
necessary to reimburse the Master Servicer or the Bond Trustee for certain costs
and expenses (including any indemnification expenses) owed to either pursuant to
the Master Servicing Agreement or the Indenture but only up to an amount set
forth in the Master Servicing Agreement (the
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"Capped Amount"). With respect to any Bond Distribution Date, the "Due Date" is
the first day of the month in which such Bond Distribution Date occurs; the "Due
Period" is the period beginning on the second day of the preceding calendar
month and ending on the Due Date in the current calendar month; and a
"Withdrawal Date" is the date the Master Servicer transfers Available Funds from
the Bond Account to the Distribution Account.
As more fully described below, the Available Funds for each Bond
Distribution Date will be distributed by the Bond Trustee at the direction of
the Master Servicer in the following order of priority, to the payment of the
following amounts for such Bond Distribution Date: first, the fee payable to the
Bond Trustee under the Indenture and [AmREIT] under the Management Agreement,
second, the Interest Payment Amount, third, the amount of any Bondholders'
Interest Carryover, if applicable, fourth, the Basic Principal Amount, fifth,
the Excess Cashflow Principal Amount, sixth, such amount as may be necessary to
reimburse either the Master Servicer or the Bond Trustee for any amounts that
would otherwise have been payable to it for costs and expenses but were in
excess of the Capped Amount and seventh, any remaining amounts for such Bond
Distribution Date to the holder of the Investor Certificate. The amount of
Available Funds for any Bond Distribution Date after payment of the fees set
forth in clause, first, above, is referred to herein as the "Net Available
Funds" for such Bond Distribution Date.
BOND INTEREST
The Bond Interest Rate on the Underlying Bond for each Bond Distribution
Date is described herein under "SUMMARY OF TERMS -- BOND INTEREST RATE."
Notwithstanding such description, if as of any Bond Distribution Date the Bond
Interest Rate as described under "SUMMARY OF TERMS -- BOND INTEREST RATE" for
such Bond Distribution Date exceeds the Weighted Average Net Mortgage Rate for
the related Due Period, then the Bond Interest Rate for the related Interest
Accrual Period will be equal to the Weighted Average Net Mortgage Rate (unless
such Bond Distribution Date would be the seventh consecutive Bond Distribution
Date on which the Bond Interest Rate would be equal to the Weighted Average Net
Mortgage Rate, in which case, the Bond Interest Rate would be calculated as
described under "SUMMARY OF TERMS -- BOND INTEREST RATE." If the Bond Interest
Rate for any Bond Distribution Date is based on the Weighted Average Net
Mortgage Rate, the excess of (a) the amount of interest on the Underlying Bond
that would have accrued in respect of the related Interest Accrual Period had
interest been calculated based on LIBOR (subject to the fixed-rate cap) over (b)
the amount of interest on the Underlying Bond actually accrued in respect of
such Interest Accrual Period based on the Weighted Average Net Mortgage Rate,
such excess, together with the unpaid portion of any such excess from prior Bond
Distribution Dates (and interest accrued thereon, at the applicable rate
calculated based on LIBOR (subject to the fixed-rate cap)) is referred to as the
"Bondholders' Interest Carryover.:" Any Bondholders' Interest Carryover will be
payable on the Bond Distribution Date when incurred or on any subsequent Bond
Distribution Date to the extent that the Net Available Funds for such Bond
Distribution Date are sufficient after distribution of the Interest Payment
Amount for the Underlying Bond, as described herein under "-- BOND
DISTRIBUTIONS" above.
On each Bond Distribution Date, the Underlying Bond will be entitled to
receive an amount allocable to interest (the "Interest Payment Amount") equal to
the sum of (i) interest at the Bond Interest Rate for the related Interest
Accrual Period for the Underlying Bond on the then outstanding Principal Balance
for such Bond immediately prior to such Bond Distribution Date, and (ii) the sum
of the amounts, if any, by which the amount described in clause (i) above on
each prior Bond Distribution Date exceeded the amount actually distributed as
interest on the Underlying Bond on such prior Bond Distribution Date and not
subsequently distributed, together with, to the extent permitted by applicable
law, interest on the amount described in clause (ii) at the related Bond
Interest Rate. With respect to each Bond Distribution Date, the "Interest
Accrual Period" will be the period commencing on the immediately preceding Bond
Distribution Date (or, in the case of the first Interest Accrual Period,
commencing on the Closing Date) and ending on the date immediately preceding
such Bond Distribution Date.
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Accrued interest to be paid on any Bond Distribution Date will be
calculated on the basis of the then outstanding Principal Balance for the
Underlying Bond immediately prior to such Bond Distribution Date. Interest will
be calculated and payable on the basis of a 360-day year divided into twelve
30-day months.
LIBOR RATE DETERMINATION
On the second business day prior to the commencement of each Interest
Accrual Period after the initial Interest Accrual Period for the Underlying Bond
(each a "LIBOR Rate Determination Date"), the Master Servicer will determine
LIBOR.
"LIBOR" means, as of any LIBOR Rate Determination Date, the rate for
deposits in United States dollars for a period equal to the relevant Interest
Accrual Period (commencing to the first day of such Interest Accrual Period)
which appears in the Telerate Page 3750 as of 11:00 a.m., London time, on such
date. If such rate does not appear on Telerate Page 3750, the rate for that day
will be determined on the basis of the rates at which deposits in United States
dollars are offered by the Reference Banks at approximately 11:00 a.m., London
time, on that day to prime banks in the London interbank market for a period
equal to the relevant Interest Accrual Period (commencing on the first day of
such Interest Accrual Period). The Master Servicer will request the principal
London office of each of the Reference Banks to provide a quotation of its rate.
If at least two such quotations are provided, the rate for that day will be the
arithmetic mean of the quotations. If fewer than two quotations are provided as
requested, the rate for that day will be the arithmetic mean of the rates quoted
by major banks in The City of New York, selected by the Master Servicer, at
approximately 11:00 a.m., New York City time, on that day for loans in United
States dollars to leading European banks for a period equal to the relevant
Interest Accrual Period (commencing on the first day of such Interest Accrual
Period).
"Telerate Page 3750" means the display page currently so designated on the
Dow Jones Telerate Service (or such other page as may replace that page on that
service of the purpose of displaying comparable rates or prices) and "Reference
Banks" means leading banks selected by the Trustee and engaged in transactions
in Eurodollar deposits in the international Eurocurrency market.
The Bond Interest Rate for the first Bond Distribution Date will equal %
per annum.
The establishment of LIBOR (or an alternative index) by the Master Servicer
and the Master Servicer's subsequent calculation of the Bond Interest Rate on
the Underlying Bond for the Interest Accrual Period, in the absence of willful
misconduct, bad faith or manifest error, will be final and binding. The Bond
Interest Rate on the Underlying Bond for any applicable Interest Accrual Period
may be obtained by telephoning the Master Servicer at .
BOND PRINCIPAL
On each Bond Distribution Date, the "Principal Payment Amount" will equal
the sum for such Bond Distribution Date of the Basic Principal Amount and the
Excess Cash Flow Principal Amount, if any. In no event will the Principal
Payment Amount with respect to any Bond Distribution Date be greater than the
then outstanding Bond Principal Balance of the Underlying Bond.
The "Basic Principal Amount" for any Bond Distribution Date will be equal
to the lesser of (a) the Net Available Funds remaining after distribution of the
Interest Payment Amount and any Bondholders' Interest Carryover for such Bond
Distribution Date, (b) the Principal Distributable Amount for such Bond
Distribution Date and (c) the amount necessary, if any, to reduce the Bond
Principal Balance to the Targeted Principal Balance for such Bond Distribution
Date.
The "Principal Distributable Amount" for any Bond Distribution Date will be
equal to the sum of:
(i) the principal portion of all scheduled monthly payments on the
Mortgage Loans received or Advanced (as defined herein) on the Mortgage
Loans with respect to the related Due Date;
(ii) the principal portion of all proceeds received with respect to
such Bond Distribution Date of (x) the repurchase of a Defective Mortgage
Loan (or, in the case of a substitution, certain amounts
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representing a principal adjustment) or a Delinquent Mortgage Loan by
[AmREIT] or (y) any Mortgage Loan purchased by the applicable Servicer to
the extent required or permitted under the applicable Servicing Agreement,
during the preceding calendar month; and
(iii) the principal portion of all other unscheduled collections
received during the second preceding calendar month (or deemed to be
received during such month) (including, without limitation, full and
partial principal prepayments made by the respective Mortgagors,
Liquidation Proceeds and Insurance Proceeds), to the extent not distributed
in the preceding month.
The "Targeted Principal Balance" for any Bond Distribution Date will
mean the Bond Principal Balance that is equal to (x) the Pool Principal
Balance with respect to such Bond Distribution Date minus (y) the Specified
Overcollateralization Amount for such Bond Distribution Date.
The "Specified Overcollateralization Amount" will be an amount to be
determined pursuant to the Master Servicing Agreement. For each Bond
Distribution Date, the Specified Overcollateralization Amount will adjust
pursuant to the parameters set forth in the Master Servicing Agreement and such
parameters may themselves be amended without the consent of the Bondholder or
the Bond Trustee by agreement of the Bond Issuer with the advice of tax counsel.
The "Excess Cash Flow Principal Amount" for any Bond Distribution Date will
be equal to the lesser of (i) the Net Monthly Excess Cashflow, if any, for such
Bond Distribution Date and (ii) the amount necessary, if any, after application
of the Basic Principal Amount for such Bond Distribution Date, to reduce the
Bond Principal Balance to the Targeted Principal Balance for such Bond
Distribution Date. The "Net Monthly Excess Cashflow" for any Bond Distribution
Date is equal to the amount of Net Available Funds, if any, remaining after
payment of (i) the Interest Payment Amount, (ii) the amount of any Bondholders'
Interest Carryover, and (iii) the Basic Principal Amount.
INVESTOR CERTIFICATE PAYMENT
No payments shall be made on the Investor Certificate on any Bond
Distribution Date on which funds available to pay principal on the Bond are
insufficient to reduce the Bond Principal Balance to the Targeted Principal
Balance, i.e., at any time at which the Overcollateralization Amount is less
than the Specified Overcollateralization Amount. Conversely, on any Bond
Distribution Date on which Net Available Funds remain after payment of the
amount, if any, required to reduce the Bond Principal Balance to the Targeted
Principal Balance for such Bond Distribution Date, and, if applicable, the
payment of any Bondholders' Interest Carryover, and the payment of costs and
expenses to the Master Servicer and the Bond Trustee, respectively, in excess of
the respective Capped Amount such remaining Net Available Funds shall be
distributed to the holder of the Investor Certificate, which shall initially be
the Company. Any amounts so distributed shall have been released from the lien
of the Indenture and shall no longer be available to make payments on the
Underlying Bond.
BOND CREDIT ENHANCEMENT
Overcollateralization Resulting from Cashflow Structure
As described under "-- BOND PRINCIPAL" above, after the Closing Date,
principal distributions on the Underlying Bond will be made on each Bond
Distribution Date, to the extent of funds available therefor, in amounts up to
the amount necessary to maintain the Overcollateralization Amount at a level
equal to the Specified Overcollateralization Amount.
The Indenture provides that, on any Bond Distribution Date, all unscheduled
collections on account of principal with respect to Mortgage Loans during the
calendar month preceding the calendar month in which such Bond Distribution Date
occurs will be distributed on the Underlying Bond on such Bond Distribution
Date. If any Mortgage Loan becomes a Liquidated Mortgage, the Liquidation
Proceeds related thereto and allocated to principal may be less than the
principal balance of the related Mortgage Loan, the amount of any such
insufficiency is generally defined as a "Realized Loss." The principal balance
of any Mortgage Loan after
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it becomes a Liquidated Mortgage Loan shall equal zero. The Indenture does not
contain any rule which requires that the amount of any Realized Loss be
distributed to the Bondholder on the Bond Distribution Date which immediately
follows the event of loss, i.e., the Indenture does not require the current
recovery of losses by the Underlying Bondholder. However, the occurrence of a
Realized Loss will reduce the Overcollateralization Amount and may therefore
increase the required principal distribution on the Underlying Bond to the
extent that such reduction causes the Overcollateralization Amount to be less
than the Specified Overcollateralization Amount. The effect of the foregoing is
to allocate losses to overcollateralization by reducing payments on the Mortgage
Loans which the holder of the Investor Certificate would otherwise receive.
Excess Spread
"Excess Spread" refers to the positive spread that may exist between the
Weighted Average Net Mortgage Rate and the Bond Interest Rate. Whether at any
time any such positive spread exists will depend on a variety of factors,
including the relationship of the movements in the indices applicable to the
Mortgage Loans and that applicable to the Underlying Bond, over which no
prediction can be made or assurance given.
STATED MATURITY
The Stated Maturity for the Underlying Bond is the date determined by the
Company which is the Bond Distribution Date immediately following the latest
maturity date of any Mortgage Loans. The Stated Maturity of the Underlying Bond
is .
BOND REDEMPTION
The Underlying Bond may be redeemed in whole, but not in part, at the Bond
Issuer's option, on any Bond Distribution Date on or after the earlier of (a)
years after the Closing Date and (b) the Bond Distribution Date after which the
Pool Principal Balance with respect to such Bond Distribution Date is % or
less of the Initial Pool Principal Balance, at a redemption price equal to 100%
of the unpaid Bond Principal Balance, plus accrued and unpaid interest thereon
at the Bond Interest Rate (the "Redemption Price"). In addition, the Redemption
Price would include any then outstanding Bondholders' Interest Carryover. If the
Bond Issuer does not exercise its option to redeem the Underlying Bond on the
first Payment Date on which it is permitted to do so, on the next succeeding
Bond Distribution Date, (a) the Bond Interest Rate will be increased for the
remainder of the life of the Underlying Bond to the less of (i) a per annum
floating rate equal to LIBOR for the related Interest Accrual Period plus %
and (ii) % per annum.
[The Underlying Bond will be subject to mandatory redemption and retirement
by the Bond Issuer at the Redemption Price in the event that the Master Servicer
or the Company exercises its option to purchase all of the remaining Mortgage
Loans. Such option may be exercised by the Master Servicer (or if the Master
Servicer fails to exercise such option, by the Company) on any Bond Distribution
Date after the Bond Distribution Date with respect to which the Pool Principal
Balance is equal to % or less of the Initial Pool Principal Balance at a price
determined pursuant to the Master Servicing Agreement, which price shall not be
less than the amount necessary to redeem the Underlying Bond at the Redemption
Price, provided, however, that the Master Servicer or the Company will notify
the Bond Issuer of the intent to exercise the option and the Bond Issuer will
have 90 days during which it may exercise its right to sell the remaining
Mortgage Loans and mandatorily redeem the Underlying Bond.
See "DESCRIPTION OF THE SECURITIES--REDEMPTION OF BONDS -- OPTIONAL
REDEMPTION" in the Prospectus.
PREPAYMENT AND YIELD CONSIDERATIONS
GENERAL
Because principal payments on the Mortgage Loans will be distributed to
Certificateholders, the rate of principal payments on the Offered Certificates,
the aggregate amount of each interest payment on the interest
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bearing Offered Certificates and the yield to maturity of Offered Certificates
purchased at a price other than par are directly related to the rate of payments
of principal on the Mortgage Loans. The principal payments on the Mortgage Loans
may be in the form of scheduled principal payments or principal prepayments (for
this purpose, the term "principal prepayment" includes prepayments and any other
recovery of principal in advance of its scheduled Due Date, including
liquidations due to default, casualty, condemnation and the like). Any such
prepayments will result in distributions to holders of the Offered Certificates
of amounts which would otherwise be distributed over the remaining term of the
Mortgage Loans. The rate at which mortgage loans in general prepay may be
influenced by a number of factors, including general economic conditions,
mortgage market interest rates, availability of mortgage funds and homeowner
mobility. In general, if prevailing interest rates fall significantly below the
interest rates on the Mortgage Loans, the Mortgage Loans are likely to prepay at
higher rates than if prevailing rates remain at or above the interest rates on
the Mortgage Loans. Conversely, if interest rates rise above the interest rates
on the Mortgage Loans, the rate of prepayment would be expected to decrease.
The timing of changes in the rate of prepayments may significantly affect
the actual yield to investors, even if the average rate of principal prepayments
is consistent with the expectations of investors. In general, the earlier the
payment of principal of the Mortgage Loans the greater the effect on an
investor's yield to maturity. As a result, the effect on an investor's yield of
principal prepayments occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the issuance
of the Certificates will not be offset by a subsequent like reduction (or
increase) in the rate of principal prepayments. The yield on the Class X
Certificates will be highly sensitive to the rate and timing of prepayments on
the Mortgage Loans. A rapid rate of principal prepayments on the Mortgage Loans
(as defined below) may have a material negative effect on the yield of the Class
X Certificates. Investors must make their own decisions as to the appropriate
prepayment assumptions to be used in deciding whether to purchase the Offered
Certificates. See "-- YIELD ON CLASS X CERTIFICATES" herein.
As described herein under "DESCRIPTION OF THE CERTIFICATES -- PRINCIPAL",
the Class A-1 Prepayment Percentage of Principal Prepayments and excluding for
this purpose, liquidations due to default, casualty, condemnation and the like
will be initially distributed to the Class A-1 Certificates. This may result in
all (or a disproportionate percentage) of such principal prepayments being
distributed to holders of the Class A-1 Certificates and none (or less than
their pro rata share) of such principal prepayments being distributed to holders
of Subordinate Certificates during the periods of time described in the
definition of "Class A-1 Prepayment Percentage."
[Mortgagors are permitted to prepay the Mortgage Loans, in whole or in
part, at any time without penalty.] The rate of payment of principal may also be
affected by any repurchase of the Mortgage Loans permitted or required by the
Master Servicing Agreement and the Mortgage Loan Purchase Agreement. See "TRUST
FUND ASSETS -- THE MORTGAGE POOL -- ASSIGNMENT OF THE MORTGAGE LOANS" and
"DESCRIPTION OF THE CERTIFICATES -- TERMINATION; OPTIONAL TERMINATION" herein.
Each monthly interest payment on a Mortgage Loan will be calculated as the
product of one-twelfth of the applicable Mortgage Rate at the time of such
calculation and the then unpaid principal balance on such Mortgage Loan. The Net
Mortgage Rate with respect to each Mortgage Loan will be similarly calculated on
a loan-by-loan basis, by subtracting from the applicable Mortgage Rate the
related Expense Rate.
The effective yield to holders of interest bearing Offered Certificates
will be reduced slightly below the yield otherwise produced by the applicable
Pass-Through Rate because, while interest will accrue from the first day of each
month, the distribution of such interest will not be made until the th day
of the month following the month of accrual.
[Substantially all] of the Mortgage Loans will include due-on-sale clauses
which allow the holder of the Mortgage Loan to demand payment in full of the
remaining principal balance upon sale or certain transfers of the property
securing such Mortgage Loan. The Master Servicer, or the applicable servicer,
will enforce "due-on-sale" clauses to the extent permitted by applicable law.
Each Mortgage Note which contains "due-on-sale" provisions permits the holder of
the Mortgage Note to accelerate the maturity of the Mortgage Loan upon
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conveyance by the Mortgagor of the underlying Mortgaged Property. The Master
Servicer, or the applicable servicer, will enforce any "due-on-sale" clause to
the extent it has knowledge of the conveyance or proposed conveyance of the
underlying Mortgaged Property and reasonably believes that it is entitled to do
so under applicable law; provided, however, that the Master Servicer or any such
servicer will not take any action in relation to the enforcement of any
"due-on-sale" provisions which would impair or threaten to impair any recovery
under any related Primary Mortgage Insurance Policy. Acceleration of Mortgage
Loans as a result of enforcement of such "due-on-sale" provisions in connection
with transfers of the related Mortgaged Properties or the occurrence of certain
other events resulting in acceleration would affect the level of prepayments on
the Mortgage Loans, thereby affecting the weighted average lives of the Classes
of the Offered Certificates.
[See "DESCRIPTION OF THE CERTIFICATES -- TERMINATION; OPTIONAL TERMINATION"
herein for a description of the Bond Issuer's right to redeem the Underlying
Bond and the Master Servicer's option to repurchase the Mortgage Loans. AmREIT
may be required to repurchase Mortgage Loans because of defective documentation
or material breaches in its representations and warranties with respect to such
Mortgage Loans. Any such repurchases will shorten the weighted average lives of
the Classes of Offered Certificates.]
[Although each of the Mortgage Loans bears interest at an adjustable
Mortgage Rate, the [semi-annual] [annual] adjustments of the Mortgage Rate for
any Mortgage Loan will not exceed the Periodic Rate Cap and the Mortgage Rate
will in no event exceed the Maximum Rate for such Mortgage Loan, regardless of
the level of interest rates generally or the rate otherwise produced by the
Index and the Gross Margin.] [In addition, such adjustments will be subject to
rounding to the nearest one-eighth of 1%.]
ASSUMPTIONS RELATING TO TABLES
The Decrement Tables have been prepared on the basis of the following
assumptions (the "Assumptions"): [describe assumptions]. Although the
characteristics of the mortgage loans for the Decrement Tables have been
prepared on the basis of the characteristics of the Mortgage Loans which are
expected to be in the Pool, there is no assurance that the Assumptions will
reflect the actual characteristics or performance of the Mortgage Loans or that
the performance of the Offered Certificates will conform to the results set
forth in the tables.
WEIGHTED AVERAGE LIVES OF THE OFFERED CERTIFICATES
Weighted average life refers to the average amount of time that will elapse
from the date of issuance of an Offered Certificate until each dollar in
reduction of the Class Certificate Balance thereof is distributed to the
investor. The weighted average lives of such Classes of Offered Certificates
will be influenced by, among other things, the rate at which principal of the
Mortgage Loans is paid, which may be in the form of scheduled amortization or
prepayments (for this purpose, the term "prepayments" includes prepayments and
liquidations due to default, casualty, condemnation and the like), the timing of
changes in such rate of payments and the priority sequence of distributions of
principal of such Offered Certificates. The interaction of the foregoing factors
may have different effects on each Class of Offered Certificates and the effects
on any such Class may vary at different times during the life of such Class.
Accordingly, no assurance can be given as to the weighted average life of any
such Class of Offered Certificates. For an example of how the weighted average
lives of the Offered Certificates are affected by the foregoing factors at
various constant percentages of PSA, see the Decrement Tables below.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement is
the Prepayment Standard Assumption ("PSA"), 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. A prepayment
assumption of 100% PSA assumes constant prepayment rates of 0.2% per annum of
the then outstanding principal balance of such mortgage loans in the first month
of the life of the mortgage loans and an additional 0.2% per annum in each month
thereafter until the thirtieth month. Beginning in the thirtieth month and in
each month thereafter during the life of the mortgage loans, 100% PSA assumes a
constant prepayment rate of 6% per annum each month. As
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used in the table below, "0% PSA" assumes prepayment rates equal to 0% of PSA,
i.e., no prepayments. Correspondingly, "125% PSA" assumes prepayment rates equal
to 125% of PSA, and so forth. PSA does not purport to be a historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of mortgage loans, including the Mortgage Loans. The
Depositor believes that no existing statistics of which it is aware provide a
reliable basis for holders of Offered Certificates to predict the amount or the
timing of receipt of prepayments on the Mortgage Loans.
The Decrement Tables set forth below have been prepared on the basis of the
Assumptions described above under "-- ASSUMPTIONS RELATING TO TABLES." There
will likely be discrepancies between the characteristics of the actual Mortgage
Loans included in the Pool and the characteristics of the Mortgage Loans assumed
in preparing the Decrement Tables. Any such discrepancy may have an effect upon
the percentages of initial Class Certificate Balances outstanding set forth in
the Decrement Tables (and the weighted average lives of the Offered
Certificates). In addition, to the extent that the Mortgage Loans that actually
are included in the Mortgage Pool have characteristics that differ from those
assumed in preparing the following Decrement Tables, the Class Certificate
Balance of any such Class of Offered Certificates will be reduced to zero
earlier or later than indicated by such Decrement Tables.
Furthermore, the information contained in the Decrement Tables with respect
to the weighted average life of any Offered Certificate is not necessarily
indicative of the weighted average life of such Class of Offered Certificate
that might be calculated or projected under different or varying prepayment
assumptions.
It is not likely that (i) all of the Mortgage Loans will have the Mortgage
Rates or remaining terms to maturity assumed or (ii) the Mortgage Loans will
prepay at the indicated percentage of PSA until maturity. In addition, the
diverse remaining terms to maturity of the Mortgage Loans (which includes many
recently originated Mortgage Loans) could produce slower or faster distributions
in reduction of Class Certificate Balances than indicated in the Decrement Table
at the various percentages of PSA specified.
Based upon the foregoing assumptions, the following Decrement Tables
indicate the projected weighted average life of each Class of the Offered
Certificates and set forth the percentages of the initial Class Certificate
Balance of each such Class that would be outstanding after each of the dates
shown at various constant percentages of the PSA.
DECREMENT TABLES
PERCENTAGE OF INITIAL CLASS CERTIFICATE BALANCE OUTSTANDING FOR THE OFFERED
CERTIFICATES AT THE
RESPECTIVE PERCENTAGES OF PSA SET FORTH BELOW:
<TABLE>
<CAPTION>
CLASS A-1 CLASS M-1
------------------------------------- -------------------------------------
DISTRIBUTION DATE % % % % % % % % % %
- ----------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Class Certificate
Balance...................
Weighted Average Life (in
years)(1).................
Years to Maturity...........
</TABLE>
- ---------------
(1) The weighted average life of an Offered Certificate is determined by (i)
multiplying the amount of each distribution of the Class Certificate Balance
thereof by the number of years from the date of the issuance of the Offered
Certificate to the related Distribution Date, (ii) adding the results and
(iii) dividing the sum by the initial Class Certificate Balance of the
Offered Certificates of such Class.
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<PAGE> 85
YIELD ON CLASS X CERTIFICATES
The significance of the effects of prepayments on the Class X Certificates
is illustrated in the following table entitled "SENSITIVITY OF THE CLASS X
CERTIFICATES TO PREPAYMENTS," which shows the pre-tax yield (on a corporate bond
equivalent basis) to holders of such Certificates under different constant
percentages of the Prepayment Assumption. The yields of such Certificates set
forth in the following table were calculated using the assumptions specified
above for the Decrement Tables and assuming that the purchase price of the Class
X Certificates is approximately % for 100% of such Class of Certificates
and such Certificates are purchased on [date].
AS INDICATED IN THE FOLLOWING TABLE, THE YIELD TO INVESTORS IN THE CLASS X
CERTIFICATES WILL BE HIGHLY SENSITIVE TO THE RATE OF PRINCIPAL PAYMENTS
(INCLUDING PREPAYMENTS) OF THE MORTGAGE LOANS (ESPECIALLY THOSE WITH HIGH NET
MORTGAGE RATES), WHICH GENERALLY CAN BE PREPAID AT ANY TIME. ON THE BASIS OF THE
ASSUMPTIONS DESCRIBED ABOVE, THE YIELD TO MATURITY ON THE CLASS X CERTIFICATES
WOULD BE 0% IF PREPAYMENTS WERE TO OCCUR AT A CONSTANT RATE OF APPROXIMATELY
% OF THE PREPAYMENT ASSUMPTION. USING SUCH ASSUMPTIONS, IF THE ACTUAL
PREPAYMENT RATE OF THE MORTGAGE LOANS WERE TO EXCEED THE FOREGOING RATE FOR AS
LITTLE AS ONE MONTH (WHILE EQUALING SUCH RATE FOR ALL OTHER MONTHS), INVESTORS
IN THE CLASS X CERTIFICATES WOULD NOT RECOVER FULLY THEIR INITIAL INVESTMENTS.
It is not likely that the Mortgage Loans will prepay at a constant rate
until maturity or that all of the Mortgage Loans will prepay at the same rate or
that they will have the characteristics assumed. There can be no assurance that
the Mortgage Loans will prepay at any of the rates shown in the table or at any
other particular rate. The timing of changes in the rate of prepayments may
affect significantly the yield realized by a holder of a Class X Certificate and
there can be no assurance that the pre-tax yield to an investor in the Class X
Certificates will correspond to any of the pre-tax yields shown herein. Each
investor must make its own decision as to the appropriate prepayment assumptions
to be used in deciding whether or not to purchase a Class X Certificate.
SENSITIVITY OF THE CLASS X
CERTIFICATES TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
% OF PREPAYMENT ASSUMPTION
-----------------------------------------
50% 75% 100% 125% 200%
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Pre-Tax Yields to Maturity......................... % % % % %
</TABLE>
The yields set forth in the preceding table were calculated by determining
the monthly discount rates which, when applied to the assumed stream of cash
flows to be paid on the Class X Certificates, would cause the discounted present
value of such assumed stream of cash flows to equal the assumed purchase price
of the Class X Certificates indicated above and converting such monthly rates to
corporate bond equivalent rates. Such calculation does not take into account
variations that may occur in the interest rates at which investors may be able
to reinvest funds received by them as payments of interest on the Class X
Certificates and consequently does not purport to reflect the return on any
investment in the Class X Certificates when such reinvestment rates are
considered.
CREDIT ENHANCEMENT
SUBORDINATION OF SUBORDINATE CERTIFICATES
The rights of Subordinate Certificateholders to receive distributions with
respect to the Mortgage Loans will be subordinated to such rights of Senior
Certificateholders, and the rights of the holders of the Class B-1 and Class B-2
Certificates to receive such distributions will be further subordinated to such
rights of the
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<PAGE> 86
Mezzanine Certificates, in each case only to the extent described herein. The
subordination of the Subordinate Certificates to the Senior Certificates and the
subordination of the Class B-1 and Class B-2 Certificates to the Mezzanine
Certificates is intended to increase the likelihood of receipt, respectively, by
Senior Certificateholders and Mezzanine Certificateholders, respectively, of the
maximum amount to which they are entitled on any Distribution Date and to
provide such holders protection against Realized Losses, other than Excess
Losses.
In addition, the Subordinate Certificates will provide limited protection
against Special Hazard Losses, Bankruptcy Losses and Fraud Losses up to the
Special Hazard Loss Coverage Amount, Bankruptcy Loss Coverage Amount and Fraud
Loss Coverage Amount, respectively, as described below. However, in certain
circumstances the amount of available subordination may be exhausted and
shortfalls in distributions on the Certificates may result. Holders of the
Senior Certificates will bear their proportionate share of any losses realized
on the Mortgage Loans in excess of the available subordination amount.
The Subordinated Certificates will provide protection to the Classes of
Certificates of higher relative priority against (i) Special Hazard Losses in an
initial amount expected to be up to approximately $ (the "Special
Hazard Loss Coverage Amount"), (ii) Bankruptcy Losses in an initial amount
expected to be up to approximately $ (the "Bankruptcy Loss Coverage
Amount") and (iii) Fraud Losses in an initial amount expected to be up to
approximately $ (the "Fraud Loss Coverage Amount").
The Special Hazard Loss Coverage Amount will be reduced, from time to time,
to be an amount equal on any Distribution Date to the lesser of [(a) the
greatest of (i) 1% of the aggregate of the principal balances of the Mortgage
Loans, (ii) twice the principal balance of the largest Mortgage Loan and (iii)
the aggregate principal balances of the Mortgage Loans secured by Mortgaged
Properties located in the single [California] postal zip code area having the
highest aggregate principal balance of any such zip code area and (b) the
Special Hazard Loss Coverage Amount as of the Closing Date less the amount, if
any, of losses attributable to Special Hazard Mortgage Loans incurred since the
Closing Date.] All principal balances for the purpose of this definition will be
calculated as of the first day of the month preceding such Distribution Date
after giving effect to scheduled installments of principal and interest on the
Mortgage Loans then due, whether or not paid.
The Fraud Loss Coverage Amount will be reduced, from time to time, by the
amount of Fraud Losses allocated to the Certificates. In addition, on each
anniversary of the Cut-off Date, the Fraud Loss Coverage Amount will be reduced
as follows: [(a) on the first and second anniversaries of the Cut-off Date, to
an amount equal to the excess of % of the Cut-off Date Pool Principal
Balance over the cumulative amount of Fraud Losses allocated to the
Certificates, (b) on the third and fourth anniversaries of the Cut-off Date, to
an amount equal to the excess of % of the Cut-off Date Pool Principal
Balance over the cumulative amount of Fraud Losses allocated to the Certificates
and (c) on the fifth anniversary of the Cut-off Date, to zero.]
The Bankruptcy Loss Coverage Amount will be reduced, from time to time, by
the amount of Bankruptcy Losses allocated to the Certificates.
The amount of coverage provided by the Subordinate Certificates for Special
Hazard Losses, Bankruptcy Losses and Fraud Losses may be cancelled or reduced
from time to time for each of the risks covered, provided that the then current
ratings of the Certificates assigned by the Rating Agencies are not adversely
affected thereby. [In addition, a reserve fund or other form of credit support
may be substituted for the protection provided by the Subordinated Certificates
for Special Hazard Losses, Bankruptcy Losses and Fraud Losses.]
As used herein, a "Deficient Valuation" is a bankruptcy proceeding whereby
the bankruptcy court may establish the value of the Mortgaged Property at an
amount less than the then outstanding principal balance of the Mortgage Loan
secured by such Mortgaged Property or may reduce the outstanding principal
balance of a Mortgage Loan. In the case of a reduction in the value of the
related Mortgaged Property, the amount of the secured debt could be reduced to
such value, and the holder of such Mortgage Loan thus would become an unsecured
creditor to the extent the outstanding principal balance of such Mortgage Loan
exceeds the value so
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<PAGE> 87
assigned to the Mortgaged Property by the bankruptcy court. In addition, certain
other modifications of the terms of a Mortgage Loan can result from a bankruptcy
proceeding, including the reduction (a "Debt Service Reduction") of the amount
of the monthly payment on the related Mortgage Loan. Notwithstanding the
foregoing, no such occurrence shall be considered a Debt Service Reduction or
Deficient Valuation so long as the Master Servicer is pursuing any other
remedies that may be available with respect to the related Mortgage Loan and (i)
such Mortgage Loan is not in default with respect to payment due thereunder or
(ii) scheduled monthly payments of principal and interest are being advanced by
the Master Servicer without giving effect to any Debt Service Reduction.
[Other Types of Credit Enhancement, if any]
SERVICING OF THE MORTGAGE LOANS
THE MASTER SERVICER
will act as Master Servicer. The principal
executive offices of are located at
.
The Master Servicer will be responsible for servicing the Mortgage Loans in
accordance with the terms set forth in the Master Servicing Agreement. The
Master Servicer intends to perform its servicing obligations under the Master
Servicing Agreement directly or through one or more servicers (each, a
"Servicer"). On or prior to the Closing Date, the Master Servicer will enter
into or be assigned a mortgage servicing agreement (each, a "Servicing
Agreement") with each Servicer pursuant to which such Servicer will perform
certain servicing functions with respect to the Mortgage Loans. The Master
Servicer will administer and supervise the performance of each Servicer, who may
in turn be administering and supervising the performance of the subservicers of
the Mortgage Loans. Notwithstanding any such servicing arrangements, the Master
Servicer will remain liable for its servicing duties and obligations under the
Master Servicing Agreement.
SERVICING AND COLLECTION PROCEDURES
On or prior to the Closing Date, the Master Servicer will enter into a
separate Servicing Agreement with each Servicer to perform, as independent
contractor, servicing functions for the Master Servicer subject to its
supervision. Such servicing functions include collection and remittance of
principal and interest payments, administration of mortgage escrow accounts,
collection of certain insurance claims and, if necessary, foreclosure. The
Master Servicer may permit Servicers to contract with subservicers to perform
some or all of the Servicer's servicing duties, but the Servicers will not
thereby be released from their obligations under the Servicing Agreement. The
Master Servicer also may enter into subservicing agreements directly with an
affiliate of a Servicer or permit a Servicer to transfer its servicing rights
and obligations to a third party. In such instances, the affiliate or third
party, as the case may be, will perform servicing functions comparable to those
normally performed by the Servicer as described above, and the Servicer will not
be obligated to perform such servicing functions. When used herein with respect
to servicing obligations, the term Servicer includes any such affiliate or third
party. The Master Servicer may perform certain supervisory functions with
respect to servicing by the Servicer directly or through an agent or independent
contractor and the Master Servicer will be responsible for administering and
servicing the Mortgage Loans pursuant to the Master Servicing Agreement.
On or before the Closing Date, the Master Servicer will establish one or
more accounts (the "Bond Account") into which each Servicer will remit
collections on the mortgage loans serviced by it (net of its related servicing
compensation). For purposes of the Master Servicing Agreement,
, as Master Servicer, will be deemed to have received
any amounts with respect to the Mortgage Loans that are received by a Servicer
regardless of whether such amounts are remitted by the Servicer to the Master
Servicer. The Master Servicer has reserved the right to remove the Servicer
servicing any Mortgage Loan at any time and will exercise that right if it
considers such removal to be in the best interest of the Certificateholders. In
the event that the Master Servicer removes a Servicer, the Master Servicer will
continue to be responsible for servicing the related Mortgage Loans.
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<PAGE> 88
FORECLOSURE, DELINQUENCY AND LOSS EXPERIENCE
The following table summarizes the delinquency, foreclosure and loss
experience, respectively, as of December 31, 199 , December 31, 199 and December
31, 199 on approximately $ , $ and $ , respectively,
in outstanding principal balance of conventional mortgage loans master serviced
by commenced master servicing conventional mortgage
loans during . The delinquency and foreclosure percentages and the
loss experience may be affected by the size and relative lack of seasoning of
the servicing portfolio because many of such mortgage loans were not outstanding
long enough to give rise to some or all of the indicated periods of delinquency.
Accordingly, the information should not be considered as a basis for assessing
the likelihood, amount or severity of delinquency or losses on the Mortgage
Loans, and no assurances can be given that the foreclosure, delinquency and loss
experience presented in the table below will be indicative of such experience on
the Mortgage Loans in the future:
<TABLE>
<CAPTION>
AS OF AS OF AS OF
DECEMBER 31, DECEMBER 31, DECEMBER 31,
199 199 199
------------ ------------ ------------
<S> <C> <C> <C>
Total number of conventional mortgage loans in
Master Servicer's portfolio.....................
Delinquent mortgage loans and pending foreclosures
in Master Servicer's portfolio at period end(1):
30-59 days......................................
60-89 days......................................
90 days or more (excluding foreclosures)........
Total delinquencies.............................
Foreclosures pending............................
Total delinquencies and foreclosures pending....
Net Loss(2).....................................
</TABLE>
- ---------------
(1) As a percentage of the total number of loans master serviced.
(2) There is no material difference between gross loss and net loss.
There can be no assurance that factors beyond the Master Servicer's
control, such as national or local economic conditions or downturns in the real
estate markets of its lending areas, will not result in increased rates of
delinquencies and foreclosure losses in the future. [For example, over the last
several years there has been a general deterioration of the real estate market
and weakening of the economy in many regions of the country, including
California. The general deterioration of the real estate market has been
reflected in increases in delinquencies of loans secured by real estate, slower
absorption rates of real estate into the market and lower sales prices for real
estate. The general weakening of the economy has been reflected in decreases in
the financial strength of borrowers and decreases in the value of collateral
serving as collateral for loans. If the real estate market and economy continue
to decline, the Master Servicer may experience an increase in delinquencies on
the loans it services and higher net losses on liquidated loans.]
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Expense Fees with respect to the Mortgage Loans are payable out of the
interest payments on each Mortgage Loan. The Expense Fees will vary from
Mortgage Loan to Mortgage Loan. The rate at which the Expense Fees accrue (the
"Expense Fee Rate") will range from % to % per annum, in each case of
the Stated Principal Balance of the related Mortgage Loan. As of the Cut-off
Date, the weighted average Expense Fee Rate equaled approximately %. The
Expense Fees consist of (a) master servicing compensation payable to the Master
Servicer in respect of its master servicing activities (the "Master Servicing
Fee"), (b) servicing compensation payable to the Servicers in respect of their
servicing activities (the "Servicing Fee") and (c) fees payable to the Bond
Trustee in respect of its activities as trustee under the Indenture and fees of
the Certificate Trustee under the Trust Agreement. The Master Servicing Fee will
be % per annum of the Stated Principal Balance of each Mortgage Loan. The
Servicing Fee payable to each Servicer will vary from Mortgage Loan to Mortgage
Loan and will range from % to % per annum, in
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<PAGE> 89
each case of the Stated Principal Balance of the related Mortgage Loan serviced
by such Servicer. The Master Servicer is obligated to pay certain ongoing
expenses associated with the Mortgage Loans and incurred by the Master Servicer
in connection with its responsibilities under the Master Servicing Agreement and
such amounts will be paid by the Master Servicer out of the Master Servicing
Fee. The amount of the Master Servicing Fee is subject to adjustment with
respect to prepaid Mortgage Loans, as described herein under "-- ADJUSTMENT TO
MASTER SERVICING FEE AND INVESTED AMOUNT IN CONNECTION WITH CERTAIN PREPAID
MORTGAGE LOANS." The Master Servicer or the related Servicer will also be
entitled to receive late payment fees, assumption fees and other similar
charges. The Master Servicer will be entitled to receive all reinvestment income
earned on amounts on deposit in the Bond Account and the Distribution Account.
The Net Mortgage Rate of a Mortgage Loan is the Mortgage Rate thereof minus the
related Expense Fee Rate.
ADJUSTMENT TO MASTER SERVICING FEE AND INVESTED AMOUNT IN CONNECTION WITH
CERTAIN PREPAID
MORTGAGE LOANS
When a borrower prepays a Mortgage Loan between Due Dates, the borrower is
required to pay interest on the amount prepaid only to the date of prepayment
and not thereafter. Principal prepayments by borrowers received during a
calendar month will be distributed to Certificateholders (as beneficial holders
of the Underlying Bond) on the Distribution Date in the month following the
month of receipt. Pursuant to the Master Servicing Agreement, the Master
Servicing Fee for any month may be reduced by an amount with respect to each
such prepaid Mortgage Loan sufficient to pay to Certificateholders the full
amount of interest to which they would be entitled in respect of such Mortgage
Loan on the related Distribution Date. If shortfalls in interest as a result of
prepayments in any month exceed the sum of amount of the Master Servicing Fee
for such month, the amount of funds available to be paid to Bondholders in
respect of interest on such Distribution Date will be reduced by the amount of
such excess. See "DESCRIPTION OF THE CERTIFICATES -- INTEREST" herein.
ADVANCES
Subject to the following limitations, the Master Servicer will be required
to advance prior to each Distribution Date, from its own funds, funds advanced
by the related Servicer or amounts received with respect to the Mortgage Loans
that do not constitute Available Funds for such Distribution Date, an amount
equal to the aggregate of payments of principal of and interest on the Mortgage
Loans (net of the Master Servicing Fee and the applicable Servicing Fee with
respect to the related Mortgage Loans) which were due on the related Due Date
and which were delinquent on the related Determination Date, together with an
amount equivalent to interest on each Mortgage Loan as to which the related
Mortgaged Property has been acquired by the Bond Trustee through foreclosure or
deed-in-lieu of foreclosure ("REO Property") (any such advance, an "Advance").
Advances are intended to maintain a regular flow of scheduled interest and
principal payments on the Certificates rather than to guarantee or insure
against losses. The Master Servicer is obligated to make Advances with respect
to delinquent payments of principal of or interest on each Mortgage Loan to the
extent that such Advances are, in its reasonable judgment, recoverable from
future payments and collections or insurance payments or proceeds of liquidation
of the related Mortgage Loan. If the Master Servicer determines on any
Determination Date to make an Advance, such Advance will be included with the
payment to Certificateholders on the related Distribution Date. [Any failure by
a Servicer to advance funds as required under the related Servicing Agreement
will constitute a default thereunder, in which case the Master Servicer will be
obligated to make any such advance in accordance with the terms of the Master
Servicing Agreement.] Any failure by the Master Servicer to make an Advance as
required under the Master Servicing Agreement will constitute a Servicing
Default thereunder, in which case the Bond Trustee or the successor master
servicer will be obligated to make any such Advance, in accordance with the
terms of the Master Servicing Agreement. [Subject to the terms of the Bond
Insurance Policy, the Bond Insurance Policy will provide protection to the
Senior Bondholders against any shortfall resulting from delinquencies as to
which a required
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<PAGE> 90
Advance is not made as described above or is determined to be nonrecoverable, to
the extent such shortfall is not otherwise covered by Available Funds.]
FEDERAL INCOME TAX CONSEQUENCES
Jeffers, Wilson, Shaff & Falk, LLP, has advised the Company and the
Depositor that in its opinion (a) based on the Indenture and other relevant
documents, the Underlying Bond will be treated as debt for federal income tax
purposes and not as an ownership interest in the Mortgage Pool, the Bond Issuer
or a separate association taxable as a corporation and (b) based on the Trust
Agreement and other relevant documents, the Trust Fund Assets will qualify as a
FASIT within the meaning of Section 860L(a) of the Code.
The Offered Certificates will be regular interests in the FASIT and
generally will be treated as debt instruments issued by the FASIT for federal
income tax purposes. Income on the Offered Certificates must be reported under
an accrual method of accounting. See "FEDERAL INCOME TAX CONSEQUENCES" in the
Prospectus for a discussion of the material federal income tax consequences of
the purchase, ownership and disposition of FASIT regular interests.
The Class X Certificates will, and the other Classes of Offered
Certificates may, depending on their respective issue prices, be treated for
federal income tax purposes as having been issued with an amount of original
issue discount equal to the difference between its principal balance and its
issue price. See "FEDERAL INCOME TAX CONSEQUENCES" in the Prospectus. For
purposes of determining the amount and the rate of accrual of original issue
discount and market discount, the Depositor intends to assume that there will be
prepayments on the Mortgage Loans at a rate equal to % PSA.
Notwithstanding the use of the above prepayment assumption in pricing of
the Offered Certificates, no representation is made that the Mortgage Loans will
actually prepay at the assumed rate or at any other rate. The amount of original
issue discount and certain other information with respect to each Offered
Certificate will be set forth on the face of such Certificate as required by
applicable regulations and as described in the Prospectus. See "PREPAYMENT AND
YIELD CONSIDERATIONS -- WEIGHTED AVERAGE LIFE OF THE OFFERED CERTIFICATES"
herein and "FEDERAL INCOME TAX CONSEQUENCES" in the Prospectus.
The Offered Certificates will be treated as regular interests in a FASIT
under section 860G of the Code. Accordingly, the Offered Certificates (i) will
be treated as assets described in section 7701(a)(19)(C)(xi) (but not as assets
described in section 7701(a)(19)(C)(v) of the Code, and (ii) under most
circumstances, will not be "real estate assets" within the meaning of section
856(c)(5) of the Code. See "FEDERAL INCOME TAX CONSEQUENCES" in the Prospectus.
DUE TO THE COMPLEXITY OF THE FEDERAL INCOME TAX RULES APPLICABLE TO OFFERED
CERTIFICATES AND THE CONSIDERABLE UNCERTAINTY THAT EXISTS WITH RESPECT TO MANY
ASPECTS OF THOSE RULES, POTENTIAL INVESTORS SHOULD CONSULT THEIR OWN TAX
ADVISORS REGARDING THE TAX TREATMENT OF THE ACQUISITION, OWNERSHIP AND
DISPOSITION OF THE OFFERED CERTIFICATES.
ERISA MATTERS
A fiduciary of a pension, profit-sharing, stock bonus plan or individual
retirement account, including a plan for self employed individuals and their
employees or any other employee benefit plan subject to the prohibited
transaction provisions of the Code or the fiduciary responsibility provisions of
the Employee Retirement Income Security Act of 1974 ("ERISA") (collectively, a
"Plan"), should consider (i) whether the ownership of Certificates is in
accordance with the documents and instruments governing the Plan, (ii) whether
the ownership of the Certificates is inconsistent with the fiduciary's
responsibilities and satisfies the requirements of Part 4 of Subtitle A of Title
I of ERISA (if applicable) and, in particular, the diversification, prudence and
liquidity requirements of Section 404 of ERISA, (iii) the prohibitions under
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<PAGE> 91
ERISA on improper delegation of control over, or responsibility for "plan
assets" and ERISA's imposition of co-fiduciary liability on a fiduciary who
participates in, or permits (by action or inaction) the occurrence of, or fails
to remedy a known breach of duty by another fiduciary with respect to plan
assets, and (iv) the need to value the assets of the Plan annually.
In connection with item (iii) above, if the Certificates are deemed to be
equity interests in the Certificate Issuer and no statutory, regulatory or
administrative exemption applies, the Certificate Issuer could be considered to
hold plan assets by reason of a Plan's investment in the Certificates. If the
Certificate Issuer were deemed to hold plan assets, the fiduciary of an
investing Plan may face liability for violation of the rules under ERISA and the
Code defining "prohibited transactions." However, if the equity participation in
the Certificates by Plan investors is not "significant," then the Certificate
Issuer will not be deemed to hold plan assets. Equity participation is not
"significant" if at all times less than 25 percent of the value of each Class of
Certificates is held by Plans, individual retirement accounts and other employee
benefit plans not subject to ERISA. Consequently, in order to insure that equity
participation by Plans is not significant, Certificates may not be purchased by
any Plan unless such Plan receives prior written consent from the Company.
Acceptance of a Certificate by a purchaser shall be deemed to be (i) a
representation from the purchaser that (a) it is not an employee benefit plan
subject to Section 406 of ERISA or a plan or arrangement subject to Section 4975
of the Code, nor a person acting on behalf of any such plan or arrangement using
the assets of any such plan or arrangement to effect the purchase or (b) its
purchase has been expressly consented to by the Company and (ii) if the
purchaser is an insurance company, a representation that the purchaser is an
insurance company which is purchasing Certificates with funds contained in an
"insurance company general account" (as such term is defined in Section V(e) of
Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60") and that the
purchase and holding of such Certificates are covered by PTCE 95-60.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting Agreement
between the Depositor and , (the "Underwriter"), the
Depositor has agreed to sell to the Underwriter, and the Underwriter has agreed
to purchase from the Depositor, the Underwritten Certificates. Distribution of
the Underwritten Certificates will be made by the Underwriter from time to time
in negotiated transactions or otherwise at varying prices to be determined at
the time of sale. In connection with the sale of the Underwritten Certificates,
the Underwriter may be deemed to have received compensation from the Depositor
in the form of underwriting discounts.
The Depositor proposes to offer the Class A-1 Certificates with original
principal balance of $ for sale to AmREIT in a privately negotiated
transaction. AmREIT will initially pledge its Class A-1 Certificates to [name of
lender] to secure indebtedness. AmREIT or its pledgees, donees, transferees or
other successors in interest may, from time to time, offer such Class A-1
Certificates for sale to the public in negotiated transactions or otherwise at
varying prices to be determined at the time of sale.
The Depositor has been advised by the Underwriter that it intends to make a
market in the Offered Certificates but has no obligation to do so. There can be
no assurance that a secondary market for the Offered Certificates will develop
or, if it does develop, that it will continue.
The Underlying Bond will be held by the Certificate Trustee as part of the
Trust Fund Assets and hence may be deemed to be indirectly offered and sold to
investors in the Certificates.
The Depositor has agreed to indemnify the Underwriter against, or make
contributions to the Underwriter with respect to, certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
LEGAL MATTERS
The validity of the Certificates and the Underlying Bond will be passed
upon for the Depositor by Tobin & Tobin, a professional corporation, San
Francisco, California. Certain federal income tax consequences with respect to
the Certificates and the Underlying Bond will be passed upon for the Depositor
by Jeffers, Wilson,
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<PAGE> 92
Shaff & Falk, LLP, Irvine, California. Brown & Wood LLP, Washington, D.C., will
act as counsel for the Underwriter.
CERTIFICATE RATING
It is a condition to the issuance of the Offered Certificates that the
Offered Certificates be rated [Aaa] and [AAA] by and
, respectively, and that the Underlying Bond be rated
no lower than one of the four highest rating categories by each such firm.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by Certificateholders of payments required under the Trust Agreement.
's and 's ratings take
into consideration the credit quality of the Mortgage Pool including any credit
support providers, structural and legal aspects associated with the Offered
Certificates, and the extent to which the payment stream of the Mortgage Pool is
adequate to make payments required under the Offered Certificates.
's and 's ratings on the
Offered Certificates do not, however, constitute a statement regarding frequency
of prepayments on the Mortgage Loans or address the remote possibility that, in
the event of the insolvency of AmREIT or the Depositor, the sale of the Offered
Certificates may be recharacterized as a financing and that, as a result of such
recharacterization, the Senior Certificates may be accelerated. The ratings also
do not address the possibility that, as a result of principal prepayments,
holders of the Certificates may receive a lower than anticipated yield and that
in extreme cases, holders of stripped pass-through certificates, such as the
Class X Certificates, may fail to recoup their initial investments.
The Depositor has not requested a rating of any Class of Offered
Certificates by any rating agency other than and
. However, there can be no assurance as to whether any
other rating agency will rate the Offered Certificates, or if it does, what
rating would be assigned by such other rating agency. The rating assigned by any
such other rating agency to a Class of Offered Certificates may be lower than
the ratings assigned by and .
The rating of the Offered Certificates 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 and may be subject to revision or
withdrawal at any time by the assigning rating agency.
S-44
<PAGE> 93
INDEX TO DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----------------
<S> <C>
Adjustment Date............................................. S-16
Advance..................................................... S-41
AmREIT...................................................... Cover
Assumptions................................................. S-35
Available Funds............................................. S-23, S-29
Bankruptcy Loss Coverage Amount............................. S-38
Bankruptcy Losses........................................... S-26
Basic Principal Amount...................................... S-31
Beneficial Owner............................................ S-27
Bond Account................................................ S-22, S-39
Bond Distribution Date...................................... S-8, S-29
Bond Expense Rate........................................... S-11
Bond Interest Rate.......................................... S-8
Bond Issuer................................................. Cover, S-4
Bond Principal Balance...................................... S-9
Bond Trustee................................................ S-4
Bondholders' Interest Carryover............................. S-30
Book-Entry Certificates..................................... S-15, S-27
Capped Amount............................................... S-30
CEDE........................................................ Cover, S-27
Certificate Issuer.......................................... Cover, S-4
Certificate Trustee......................................... Cover, S-4
Certificateholder........................................... S-28
Certificates................................................ Cover, S-4, S-22
Class A-1 Certificates...................................... S-22
Class A-1 Percentage........................................ S-25
Class A-1 Prepayment Percentage............................. S-25
Class B-1 Certificates...................................... S-22
Class B-2 Certificates...................................... S-22
Class Certificate Balance................................... S-26
Class M-1 Certificates...................................... S-22
Class X Certificates........................................ S-22
Clearing Agency............................................. S-27
Clearing Corporation........................................ S-27
Company..................................................... S-4
Controlling Class........................................... S-27
Cut-off Date Pool Principal Balance......................... S-5, S-16
Debt Service Reduction...................................... S-39
Deficient Valuation......................................... S-38
Definitive Certificate...................................... S-27
Deleted Mortgage Loan....................................... S-21
Depositor................................................... Cover, S-4
Depository.................................................. S-27
Distribution Account........................................ S-22
Distribution Date........................................... Cover
Due Date.................................................... S-16, S-24, S-30
Due Period.................................................. S-30
ERISA....................................................... S-12, S-42
Excess Cash Flow Principal Amount........................... S-32
Excess Losses............................................... S-26
</TABLE>
S-45
<PAGE> 94
<TABLE>
<CAPTION>
PAGE
----------------
<S> <C>
Excess Spread............................................... S-33
Expense Fee Rate............................................ S-40
Expense Rate................................................ S-11
FASIT....................................................... S-2, S-12
FHLMC....................................................... S-17
Financial Intermediary...................................... S-27
FNMA........................................................ S-17
Fraud Loss Coverage Amount.................................. S-38
Fraud Losses................................................ S-26
Index....................................................... S-16
Initial Pool Principal Balance.............................. S-10
Insurance Proceeds.......................................... S-29
Interest Accrual Period..................................... S-8, S-30
Interest Payment Amount..................................... S-8, S-30
Libor....................................................... S-31
Libor Rate Determination Date............................... S-31
Liquidated Mortgage Loan.................................... S-26
Liquidation Proceeds........................................ S-29
Loan-to-Value Ratio......................................... S-17
Margin...................................................... S-16
Master Servicer............................................. S-4, S-11
Master Servicing Agreement.................................. S-11
Master Servicing Fee........................................ S-40
Maximum Rate................................................ S-16
Mortgage.................................................... S-21
Mortgage File............................................... S-21
Mortgage Loan Purchase Agreement............................ S-15
Mortgage Loans.............................................. Cover, S-5
Mortgage Note............................................... S-20
Mortgage Pool............................................... Cover, S-15
Mortgaged Property.......................................... S-15
Net Available Funds......................................... S-30
Net Interest Shortfalls..................................... S-23
Net Monthly Excess Cashflow................................. S-32
Net Mortgage Rate........................................... S-10
Net Prepayment Interest Shortfall........................... S-24
Offered Certificates........................................ Cover, S-22
Original Subordinate Principal Balance...................... S-25
Originator.................................................. S-21
Overcollateralization Amount................................ S-10
Ownership Certificates...................................... S-22
Pass-Through Rate........................................... S-6
Parties in Interest......................................... S-12
Periodic Rate Cap........................................... S-16
Plan........................................................ S-42
Plans....................................................... S-12
Pool Principal Balance...................................... S-5, S-10, S-24
Positive Rate Differential.................................. S-10
Prepayment Interest Shortfall............................... S-24
Primary Mortgage Insurance Policy........................... S-17
Prepayments................................................. S-35
Principal Balance........................................... S-24
</TABLE>
S-46
<PAGE> 95
<TABLE>
<CAPTION>
PAGE
----------------
<S> <C>
Principal Distribution Amount............................... S-31
Principal Payment Amount.................................... S-31
Principal Prepayments....................................... S-6, S-24, S-34
Prospectus.................................................. S-2
PSA......................................................... S-35
PTCE 95-60.................................................. S-43
Realized Loss............................................... S-26, S-32
Record Date................................................. S-23
Redemption Price............................................ S-9, S-33
Reference Banks............................................. S-31
Relief Act Reduction........................................ S-24
REO Property................................................ S-41
Replacement Mortgage Loan................................... S-21
Scheduled Payments.......................................... S-16
Senior Certificates......................................... S-22
Servicer.................................................... S-11, S-39
Servicing Agreement......................................... S-11, S-39
Servicing Fee............................................... S-40
SMMEA....................................................... S-12
Special Hazard Losses....................................... S-26
Special Hazard Loss Coverage Amount......................... S-38
Special Hazard Mortgage Loan................................ S-26
Specified Overcollateralization Amount...................... S-32
Stated Principal Balance.................................... S-10
Subordinate Certificates.................................... S-22
Subordinate Percentage...................................... S-25
Subordinate Prepayment Percentage........................... S-25
Subordinate Percentage Allocation........................... S-25, S-26
Substitution Adjustment Amount.............................. S-21
Targeted Principal Balance.................................. S-32
Telerate Page 3750.......................................... S-31
Trust Agreement............................................. Cover, S-5, S-22
Trust Fund Assets........................................... Cover
Underlying Bond............................................. Cover
Underwriter................................................. Cover, S-43
Underwritten Certificates................................... Cover
Unpaid Interest Amounts..................................... S-23
Unpaid Interest Shortfall................................... S-6
Weighted Average Net Mortgage Rate.......................... S-10
Withdrawal Date............................................. S-30
</TABLE>
S-47
<PAGE> 96
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 13, 1998
PROSPECTUS
AMERICAN RESIDENTIAL EAGLE, INC.
DEPOSITOR
$1,000,000
(AGGREGATE AMOUNT)
MORTGAGE-BACKED SECURITIES
(ISSUABLE IN SERIES)
------------------------
American Residential Eagle, Inc., a Delaware corporation (the "Company" or
the "Depositor"), proposes to establish one or more trusts to issue and sell
from time to time one or more Series of Collateralized Mortgage Bonds (the
"Bonds") and/or Mortgage-Backed Certificates (the "Certificates" and, together
with the Bonds, the "Securities"). Each Series of Bonds will be secured by the
assets of a trust ("Trust Fund Assets") and each Series of Certificates will
evidence beneficial ownership of the Trust Fund Assets in the related trust. The
Trust Fund Assets for each Series of Bonds will consist primarily of mortgage
collateral (the "Mortgage Collateral") comprised of one or more of the following
types: (i) fixed-rate or floating-rate, first or junior lien mortgage loans
secured by one- to four-family residential properties or other types of
residential or mixed use properties described herein under "TRUST FUND
ASSETS -- THE MORTGAGE LOANS -- FREEDOM PROGRAM" (the "Mortgage Loans"), (ii)
mortgage pass-through securities (the "Agency Securities") issued or guaranteed
by the Government National Mortgage Association ("GNMA"), the Federal National
Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation
("FHLMC") or (iii) a combination of Agency Securities and Mortgage Loans. The
Trust Fund Assets for each Series of Certificates will consist primarily of one
or more Bonds representing the right to receive all or substantially all of the
payments on the Mortgage Collateral and other items securing such Bonds. Each
Series of Certificates will accordingly be supported by the Mortgage Collateral
and other items included in the Trust Fund Assets for the related Series of
Bonds. The Trust Fund Assets for a Series of Securities may also include certain
cash accounts, insurance policies, surety bonds, guaranteed investment
contracts, cross-collateralization rights, reinvestment income, guaranties,
letters of credit or derivative arrangements to the extent described herein and
in the related Prospectus Supplement. Certain capitalized terms used and not
otherwise defined herein shall have the meanings ascribed thereto elsewhere in
this Prospectus. See "INDEX OF CERTAIN DEFINITIONS" on page 96 of this
Prospectus for the location of the definitions of certain capitalized terms.
Each Series of Securities will consist of one or more Classes. Interest on
the Securities will accrue at a fixed rate, a variable rate or a combination
thereof, as determined in the manner specified in the related Prospectus
Supplement. Principal payments on each Class of Bonds of a Series will be made
in the manner specified in the related Prospectus Supplement. If so specified in
the related Prospectus Supplement, one or more Classes of a Series may be
entitled to receive payments of principal, interest or any combination thereof
prior to one or more other Classes of such Series either for the life of such
Securities or during certain periods. A Series of Securities may include one or
more Classes entitled to (i) principal distributions, with disproportionate,
nominal or no interest distributions or (ii) interest distributions, with
disproportionate, nominal or no principal distributions. In addition, a Series
of Securities may include one or more Classes of Securities that are senior in
right of payment to one or more other Classes of such Series. Credit enhancement
for the Securities of a Series will be as specified in the related Prospectus
Supplement.
The rate of payment of the principal of each Class of Securities will
generally depend, among other things, on the rate of payment (including
prepayments) of the Mortgage Collateral underlying such Class of Securities.
Consequently, the actual maturity of any Class of Securities could occur
substantially sooner than its Stated Maturity. Each Series of Securities may be
subject to redemption or early termination under the circumstances described
herein and in the related Prospectus Supplement.
FOR A DISCUSSION OF ALL MATERIAL RISK FACTORS RELATING TO INVESTMENTS IN
THE SECURITIES, SEE "RISK FACTORS" COMMENCING ON PAGE 18 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Each Series of Securities will be issued by a separate trust (each, an
"Issuer") established by the Company, will represent obligations of or interests
in such Issuer and will not be insured or guaranteed by GNMA, FNMA or FHLMC or
any other governmental agency or instrumentality or by the Company, any
affiliate of the Company, or, unless otherwise specified in the related
Prospectus Supplement, any other person or entity. No Issuer of any Series of
Securities is expected to have significant assets other than those comprising
the Trust Fund Assets for such Series of Securities. Prior to issuance, there
will have been no market for the Securities of any Series, and there can be no
assurance that a secondary market for any Securities will develop or, if it does
develop that it will continue or provide Securityholders with a sufficient level
of liquidity of investment. This Prospectus may not be used to consummate sales
of a Series of Securities unless accompanied by a Prospectus Supplement.
Bonds of each Series will be characterized for federal income tax purposes
as debt instruments. If specified in the related Prospectus Supplement, one or
more elections will be made to treat the Trust Fund Assets (or specified
portions thereof) evidenced by a Series of Certificates as a "financial asset
securitization investment trust ("FASIT"), for federal income tax purposes. See
"FEDERAL INCOME TAX CONSEQUENCES" herein.
Offers of the Securities of any Series may be made through one or more
different methods, including offerings through underwriters, as more fully
described under "PLAN OF DISTRIBUTION" herein and in the related Prospectus
Supplement.
May , 1998.
<PAGE> 97
UNTIL 90 DAYS AFTER THE DATE OF EACH PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE SECURITIES COVERED BY SUCH PROSPECTUS SUPPLEMENT,
WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION THEREOF, MAY BE REQUIRED TO
DELIVER SUCH PROSPECTUS SUPPLEMENT AND THIS PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS AND PROSPECTUS SUPPLEMENT WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
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, which Classes of such Series are being offered by the Prospectus
Supplement (the "Offered Securities") and, to the extent applicable: (i)
information concerning the Issuer of such Series of Securities; (ii) the
principal amount and the interest rate, or the method to be used to determine
the interest rate, of each Class of such Series of Securities; (iii) certain
characteristics of the Mortgage Collateral included in the Trust Fund Assets for
such Series of Securities and, if applicable, information as to any insurance
policies, surety bonds, guaranties, derivative arrangements,
cross-collateralization, reinvestment income, guaranteed investment contracts or
letters of credit, and the amount and source of any Reserve Fund or other cash
account for the Securities of such Series; (iv) the circumstances, if any, under
which the Securities of such Series are subject to special redemption or
optional redemption or early termination; (v) the Stated Maturity of each Class
of Securities of such Series; (vi) the method used to calculate the aggregate
amount of principal required to be applied to the Securities of such Series on
each Distribution Date and the priority in which such payments will be applied
among the Classes of Securities of such Series; (vii) the principal amount of
each Class of Securities of such Series that would be outstanding on specified
Distribution Dates if the Mortgage Collateral relating to such Class prepaid at
various assumed rates; (viii) the Distribution Dates for such Series of
Securities; (ix) information as to the nature and extent of subordination with
respect to any Class of Securities of such Series that is subordinate in right
of payment to any other Class; (x) any minimum principal payment requirements
and the terms of any related minimum principal payment agreement with respect to
such Series of Securities; (xi) additional information with respect to the plan
of distribution of the Securities of such Series; and (xii) information as to
the Master Servicer and the Bond Trustee and the Certificate Trustee for such
Series.
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 (the "Securities Act"), 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, N.W., Washington, D.C. 20549, and at its Regional
Offices located as follows: Midwest Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and Northeast Regional Office, Seven World
Trade Center, New York, New York 10048. The Commission also maintains a Web site
at http://www.sec.gov from which such Registration Statement and exhibits may be
obtained.
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.
2
<PAGE> 98
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by or on behalf of the Bond Issuer
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 Bond
Issuer 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. None of the Company, the Master Servicer, the Bond Trustee or the
Certificate Trustee for any Series intends to file with the Commission periodic
reports with respect to the related Issuer following completion of the reporting
period required by Rule 15d-1 or Regulation 15D under the Exchange Act, but the
related Issuer may elect to continue reporting in its sole discretion.
The Bond Trustee or the Certificate Trustee, as the case may be (the
"applicable Trustee"), or such other entity specified in the related Prospectus
Supplement on behalf of any Issuer 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 Corporate Trust Office of
the Bond Trustee or the Certificate Trustee or the address of such other entity
specified in the accompanying Prospectus Supplement. Included in the
accompanying Prospectus Supplement is the name, address, telephone number and,
if available, facsimile number of the office or contact person at the Corporate
Trust Office of the Bond Trustee or the Certificate Trustee or such other
entity.
3
<PAGE> 99
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and in the related
Prospectus Supplement with respect to the Series of Securities offered thereby
and to the related Agreements (as defined herein). Certain capitalized terms
used and not otherwise defined herein shall have the meanings ascribed thereto
elsewhere in this Prospectus. See "INDEX OF CERTAIN DEFINITIONS" on page 97 of
this Prospectus for the location of the definitions of certain capitalized
terms.
Securities Offered......... The Securities offered hereby are Collateralized
Mortgage Bonds (the "Bonds") and Mortgage-Backed
Certificates (the "Certificates"). The Trust Fund
Assets for each Series of Bonds will consist
primarily of mortgage collateral (the "Mortgage
Collateral") comprised of one or more of the
following: (i) fixed-rate, first or junior lien
Mortgage Loans (the "Fixed Rate Mortgage Loans"),
(ii) floating-rate, first or junior lien Mortgage
Loans (the "Floating Rate Mortgage Loans" and,
together with the Fixed Rate Mortgage Loans, the
"Mortgage Loans"), (iii) mortgage pass-through
securities (the "Agency Securities") issued or
guaranteed by the Government National Mortgage
Corporation ("GNMA"), the Federal National Mortgage
Corporation ("FNMA") or the Federal Home Loan
Mortgage Corporation ("FHLMC") or (iv) a
combination of Agency Securities and Mortgage
Loans. The Mortgage Loans will be secured by one-
to four-family residential properties or other
types of residential or mixed use properties as
described under "TRUST FUND ASSETS -- THE MORTGAGE
LOANS -- FREEDOM PROGRAM." The Trust Fund Assets
for each Series of Certificates will consist
primarily of one or more Bonds. The Trust Fund
Assets for a Series of Securities may also include
certain cash accounts, insurance policies, surety
bonds, guaranteed investment contracts,
cross-collateralization rights, reinvestment
income, guaranties or letters of credit to the
extent described herein and in the related
Prospectus Supplement. See "TRUST FUND ASSETS"
herein.
The Bonds will be issued from time to time in one
or more Series pursuant to Indentures (as defined
herein) between each Issuer and a bank or trust
company acting as trustee (the "Bond Trustee") for
the holders of the Bonds of each Series (the
"Bondholders") under the relevant Indenture. The
Certificates may be issued from time to time in one
or more Series pursuant to Trust Agreements (as
defined herein) (Indentures and Trust Agreements
are collectively referred to herein as
"Agreements") between the Depositor and a bank or
trust company acting as trustee (the "Certificate
Trustee") for the holders of the Certificates of
each Series (the "Certificateholders"). Each Series
of Securities will consist of one or more Classes
which may include one or more Classes of Deferred
Interest Securities (as defined herein). A Series
of Securities may include one or more Classes of
Senior Securities (collectively, the "Senior
Securities") and one or more Classes of
Subordinated Securities (collectively, the
"Subordinated Securities"). Unless otherwise
specified in the related Prospectus Supplement, the
Securities represent obligations of or interests in
the Issuer and are not insured or guaranteed by any
other person or entity. See "DESCRIPTION OF THE
SECURITIES" herein. Securities of a Class may
differ from Securities of other Classes of the same
Series in the amounts allocated to and the priority
of principal payments and interest rate and
4
<PAGE> 100
in such other manner as specified in the related
Prospectus Supplement. A Series of Securities may
include one or more Classes entitled to (i)
principal distributions, with disproportionate,
nominal or no interest distributions or (ii)
interest distributions, with disproportionate,
nominal or no principal distributions. A Series of
Securities may be insured or guaranteed as to
payment of principal and interest by a third-party
insurer or guarantor, or secured by certain cash
accounts, insurance policies, surety bonds,
guaranteed investment contracts,
cross-collateralization, reinvestment income,
guaranties, letters of credit or derivative
arrangements, in each case to the extent provided
herein and in the related Prospectus Supplement.
Issuer..................... The Issuer with respect to each Series of
Securities will be a trust established by American
Residential Eagle, Inc., a Delaware corporation
(the "Company"), for the sole purpose of issuing
such Series of Securities and engaging in
transactions relating thereto. The Company is a
wholly owned limited purpose finance subsidiary of
American Residential Investment Trust, Inc.
("AmREIT"). AmREIT, a Maryland corporation, has
elected to be taxed as a real estate investment
trust under the Internal Revenue Code of 1986, as
amended (the "Code"). Each trust that is formed to
act as an Issuer will be created pursuant to a
trust agreement between the Company, acting as
depositor (in such capacity, the "Depositor"), and
a bank or trust company acting as trustee. Each
trust will be established by the Company solely for
the purpose of issuing one Series of Securities and
engaging in transactions relating thereto. Neither
AmREIT, the Company nor any of their respective
affiliates will guarantee or otherwise be obligated
to make payments on the Securities. The Securities
will be obligations solely of or represent
interests solely in their respective Issuers. The
assets of each such Issuer, other than those
comprising the Trust Fund Assets for the Securities
it issues, are not expected to be significant. See
"INTRODUCTION -- THE ISSUERS" herein.
Master Servicer............ The entity or entities named as Master Servicer
(each, a "Master Servicer") in the related
Prospectus Supplement will act as master servicer
with respect to all of the Mortgage Loans included
in the Trust Fund Assets for the applicable Series
of Securities pursuant to an agreement (each, a
"Master Servicing Agreement") among the Master
Servicer, the related Issuer and the related Bond
Trustee. The Master Servicer will directly service
the Mortgage Loans or will administer and supervise
the performance of the entities primarily
responsible for servicing the Mortgage Loans (each,
a "Servicer"), who may in turn be administering and
supervising the performance of one or more
subservicers of such Mortgage Loans, and will be
obligated to perform the obligations of a
terminated Servicer or appoint a successor
Servicer. See "SERVICING OF THE MORTGAGE LOANS"
herein.
Special Servicer........... If specified in the related Prospectus Supplement,
the Company may appoint a special servicer (each, a
"Special Servicer") to service, make certain
decisions and take various actions with respect to
delinquent or defaulted Mortgage Loans included in
the Trust Fund Assets for the applicable Series of
Securities. See "SERVICING OF THE MORTGAGE
LOANS -- SPECIAL SERVICING AGREEMENT" herein.
5
<PAGE> 101
Description of
Securities................. Each Security will be secured by or represent a
beneficial ownership interest in the Trust Fund
Assets of the related Issuer. The Securities of any
Series may be issued in one or more classes as
specified in the related Prospectus Supplement. A
Series of Securities may include one or more
Classes of senior Securities (collectively, the
"Senior Securities") and one or more Classes of
subordinate Securities (collectively, the
"Subordinated Securities"). Certain Series or
Classes of Securities may be covered by insurance
policies or other forms of credit enhancement, in
each case as described under "Credit Enhancement"
herein and in the related Prospectus Supplement.
One or more Classes of Securities of each Series
(i) may be entitled to receive distributions
allocable only to principal, only to interest or to
any combination thereof; (ii) may be entitled to
receive distributions only of prepayments of
principal throughout the lives of the Securities or
during specified periods; (iii) may be subordinated
in the right to receive distributions of scheduled
payments of principal, prepayments of principal,
interest or any combination thereof to one or more
other Classes of Securities of such Series
throughout the lives of the Securities or during
specified periods; (iv) may be entitled to receive
such distributions only after the occurrence of
events specified in the related Prospectus
Supplement; (v) may be entitled to receive
distributions in accordance with a schedule or
formula or on the basis of collections from
designated portions of the related Trust Fund
Assets; (vi) as to Securities entitled to
distributions allocable to interest, may be
entitled to receive interest at a fixed rate or a
rate that is subject to change from time to time;
and (vii) as to Securities entitled to
distributions allocable to interest, may be
entitled to distributions allocable to interest
only after the occurrence of events specified in
the related Prospectus Supplement and may accrue
interest until such events occur, in each case as
specified in the related Prospectus Supplement. The
timing and amounts of such distributions may vary
among classes or over time, as specified in the
related Prospectus Supplement.
Distributions on the
Securities................. Distributions on the Securities entitled thereto
will be made monthly, quarterly, semi-annually or
at such other intervals and on the dates specified
in the related Prospectus Supplement (each, a
"Distribution Date") out of the payments received
in respect of the related Trust Fund Assets or
other assets pledged for the benefit of the
Securities as described under "Credit Enhancement"
herein to the extent specified in the related
Prospectus Supplement. The amount allocable to
payments of principal and interest on any
Distribution Date will be determined as specified
in the related Prospectus Supplement. The
Prospectus Supplement for a Series of Securities
will describe the method for allocating
distributions among Securities of different classes
as well as the method for allocating distributions
among Securities for any particular Class.
The aggregate original principal balance of the
Securities will not exceed the aggregate
distributions allocable to principal that such
Securities will be entitled to receive. The
Securities will have an aggregate original
principal balance equal to the aggregate unpaid
principal balance of the Trust Fund Assets as of
the related Cut-Off Date and will bear interest in
the aggregate at a rate equal to the interest rate
borne by the underlying Loans (the "Mortgage Rate")
net of the aggregate servicing fees and
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any other amounts specified in the related
Prospectus Supplement or at such other interest
rate as may be specified in such Prospectus
Supplement.
The rate at which interest will be passed through
or paid to holders of each Class of Securities
entitled thereto may be a fixed rate or a rate that
is subject to change from time to time from the
time and for the periods, in each case, as
specified in the related Prospectus Supplement. Any
such rate may be calculated on a loan-by-loan or
weighted average basis or calculated based on a
notional amount, in each case, as described in the
related Prospectus Supplement.
Redemption of Bonds........ The Bonds of each Series will be redeemable under
the following circumstances:
A. Special Redemption.... The Bonds of a Series or a Class may be subject to
special redemption, in whole or in part, as
specified in the related Prospectus Supplement.
Pursuant to a special redemption, the Issuer will
be required to redeem, on the dates specified in
such Prospectus Supplement, at 100% of their unpaid
principal amount, plus accrued interest,
outstanding Bonds of a Series or Class if, as a
result of substantial payments of principal on the
Mortgage Collateral pledged as security for such
Series or Class of Bonds or low reinvestment
yields, or both, the Bond Trustee determines, based
on the assumptions specified in the Indenture, that
in the absence of such special redemption the
amount of cash expected to be on deposit in the
Bond Account on the next Payment Date for such
Series of Bonds would be insufficient to make
required payments on the Bonds of such Series on
such Distribution Date. Any such redemption will
not exceed the principal amount of Bonds that would
otherwise be required to be paid on the next
Distribution Date out of the principal payments and
prepayments so received. See "DESCRIPTION OF THE
SECURITIES -- REDEMPTION OF BONDS -- SPECIAL
REDEMPTION" herein. Principal payments on a special
redemption will be applied to Bonds of a Series in
accordance with the priorities specified in the
related Prospectus Supplement.
B. Optional Redemption... If so provided in the related Prospectus
Supplement, the Bonds of each Series may be subject
to redemption at the option of the Issuer. The
Prospectus Supplement for each Series will specify
the circumstances, if any, under which the Bonds of
such Series may be so redeemed, the manner of
effecting such redemption, the conditions to which
such redemption are subject and the redemption
prices for each Class of Bonds to be redeemed
(which will be no lower than 100% of the principal
amount of outstanding Bonds, plus accured
interest). See "DESCRIPTION OF THE
SECURITIES -- REDEMPTION OF BONDS -- OPTIONAL
REDEMPTION" herein.
The Master Servicer or other party specified in the
related Prospectus Supplement may have the option
to purchase the remaining Trust Fund Assets
supporting a Series of Bonds, subject to the
principal balance of such Trust Fund Assets being
less than the percentage specified in the related
Prospectus Supplement of the aggregate principal
balance of the Trust Fund Assets at the Cut-off
Date for the Series. Any such purchase of Trust
Fund Assets and property acquired other person will
be at a price specified in the related Prospectus
Supplement (which will be no
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lower than 100% of the principal amount of
outstanding Bonds, plus accrued interest). The
exercise of such right may cause the Issuer to call
for redemption of all or a portion of the related
Series of Bonds secured by such Trust Fund Assets.
Early Termination.......... If the Series of Bonds included in the Trust Fund
Assets for a Series of Certificates are redeemed in
full pursuant to a special redemption or optional
redemption, the related Series of Certificates will
be retired earlier than would otherwise be the
case. In addition, the Depositor may have the
option to purchase the remaining Trust Fund Assets
supporting a Series of Certificates, subject to the
principal balance of such Trust Fund Assets being
less than the percentage specified in the related
Prospectus Supplement of the Trust Fund Assets at
the Cut-off Date for the Series. The purchase price
for such remaining Trust Fund Assets will be at
least equal to 100% of the aggregate principal
balance of the outstanding Certificates, together
with accrued interest thereon. In any such event,
the related Issuer of such Series of Certificates
will be terminated and Certificateholders will
receive final distributions as described in the
related Prospectus Supplement.
Trust Fund Assets.......... Each Series of Securities will be separately
supported by one or more of the types of Trust Fund
Assets set forth below. Unless otherwise provided
in the related Prospectus Supplement, the Issuer
may substitute other Mortgage Collateral for the
Mortgage Collateral originally included in the
Trust Fund Assets for the Securities of a Series so
long as the substitute Mortgage Collateral meets
certain criteria. See "TRUST FUND
ASSETS -- SUBSTITUTION OF MORTGAGE COLLATERAL"
herein.
A. Mortgage Loans........ In connection with the issuance of a Series of
Securities supported in whole or in part by
Mortgage Loans, the Issuer will pledge and assign
to the Bond Trustee a pool of conventional (i.e.,
not insured or guaranteed by any governmental
agency) loans secured by first or junior mortgages
or deeds of trust on one- to four-family
residential properties ("Single-Family Mortgage
Loans") or other types of residential or mixed use
loans described under "TRUST FUND ASSETS -- THE
MORTGAGE LOANS -- FREEDOM PROGRAM." Such additional
types of Mortgage Loans include loans secured by
small multifamily residential properties (5 to 20
units) ("Multifamily Mortgage Loans") and small
mixed use residential properties (up to 12 dwelling
units) ("Mixed Use Mortgage Loans"). If so
specified in the related Prospectus Supplement, the
Mortgage Loans may include cooperative apartment
loans ("Cooperative Loans") secured by security
interests in shares issued by private, nonprofit,
cooperative housing corporations ("Cooperatives")
and in the related proprietary leases or occupancy
agreements granting exclusive rights to occupy
specific dwelling units in such Cooperatives'
buildings.
It is expected that all or a substantial portion of
the Mortgage Loans for each Series of Securities
will have been acquired by the Company from AmREIT
for transfer to the Issuer of such Series and that
such Mortgage Loans will in most cases be
"nonconforming" mortgage loans in that they will
fail to satisfy the criteria to be eligible for
purchase by FNMA or FHLMC for one or more reasons.
AmREIT acquires mortgage loans in the normal course
of its business from entities who have
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originated or otherwise acquired such loans. AmREIT
works with such originating entities to develop
underwriting guidelines for loan products that will
meet AmREIT's investment criteria; however, neither
AmREIT nor any of its affiliates originates or
services mortgage loans. None of the Mortgage Loans
will represent obligations of AmREIT.
As described above, a Series of Certificates
supported in whole or in part by Mortgage Loans
will evidence an interest in one or more Bonds
secured by such loans rather than the actual
Mortgage Loans. For a Series of Certificates
supported by Mortgage Loans, following the pledge
and assignment of such loans to the Bond Trustee,
the Bonds secured by the Mortgage Loans will be
deposited into the Issuer of such Series of
Certificates by the Depositor. See "TRUST FUND
ASSETS -- THE MORTGAGE LOANS" herein.
The payment terms of the Mortgage Loans supporting
a Series of Securities, if any, will be described
in the related Prospectus Supplement and may
include any of the following features or
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 an
adjustable rate to a fixed rate. Changes to an
adjustable rate may be subject to periodic
limitations, maximum rates, minimum rates or a
combination of such limitations. Accrued
interest may be deferred and added to the
principal of a loan for such periods and under
such circumstances as may be specified in the
related Prospectus Supplement. The loan
agreement or promissory note (the "Mortgage
Note") in respect of a Mortgage Loan may
provide for the payment of interest at a rate
lower than the interest rate (the "Mortgage
Rate") specified in such Mortgage Note for a
period of time or for the life of the loan, and
the amount of any difference may be contributed
from funds supplied by a third party.
(b) Principal may be payable on a level debt
service basis to fully amortize the loan over
its term, may be calculated on the basis of an
assumed amortization schedule that is
significantly longer than the original term to
maturity or on an interest rate that is
different from the interest rate on the
Mortgage Loan or may not be amortized during
all or a portion of the original term. Payment
of all or a substantial portion of the
principal may be due on maturity ("balloon
payments"). Principal may include interest that
has been deferred and added to the principal
balance of the Mortgage Loan.
(c) Monthly payments of principal and interest may
be fixed for the life of the loan, may increase
over a specified period of time or may change
from period to period. Mortgage Loans may
include limits on periodic increases or
decreases in the amount of monthly payments and
may include maximum or minimum amounts of
monthly payments.
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(d) The Mortgage Loans generally may be prepaid at
any time without payment of any prepayment fee,
unless otherwise specified in the related
Prospectus Supplement. If so specified in the
related Prospectus Supplement, prepayments of
principal may be subject to a prepayment fee,
which may be fixed for the life of any such
Mortgage Loan or may decline over time, and may
be prohibited for the life of any such Mortgage
Loan or for certain periods ("lockout
periods"). Certain Mortgage Loans may permit
prepayments after expiration of the applicable
lockout period and may require the payment of a
prepayment fee in connection with any such
subsequent prepayment. All or a portion of any
prepayment fee may be payable as additional
interest on the Securities, if so specified in
the related Prospectus Supplement. 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 (as defined below). Other
Mortgage Loans may be assumable by persons
meeting then applicable underwriting standards.
See "MORTGAGE LOAN PROGRAM -- UNDERWRITING
STANDARDS" herein.
(e) The real property constituting security for
repayment of a Mortgage Loan (each, a
"Mortgaged Property") may be located in any one
of the fifty states, the District of Columbia,
Guam, Puerto Rico, or any other territory of
the United States as specified in the related
Prospectus Supplement. Unless otherwise
specified in the related Prospectus Supplement,
all of the Mortgage Loans will be covered by
standard hazard insurance policies insuring
against losses due to fire and various other
causes. The Mortgage Loans may be covered by
Primary Mortgage Insurance Policies (as defined
herein) to the extent provided in the related
Prospectus Supplement. See "TRUST FUND
ASSETS -- THE MORTGAGE LOANS" herein.
B. Agency Securities..... The Agency Securities supporting a Series of
Securities will consist of (i) fully modified
pass-through mortgage-backed certificates
guaranteed as to timely payment of principal and
interest by the Government National Mortgage
Association ("GNMA Certificates"), (ii) certi-
ficates ("Guaranteed Mortgage Pass-Through
Certificates") issued and guaranteed as to timely
payment of principal and interest by the Federal
National Mortgage Association ("FNMA
Certificates"), (iii) mortgage participation
certificates issued and guaranteed as to timely
payment of interest and, unless otherwise specified
in the related Prospectus Supplement, ultimate
payment of principal by the Federal Home Loan
Mortgage Corporation ("FHLMC Certificates"), (iv)
stripped mortgage-backed securities representing an
undivided interest in all or a part of either the
principal distributions (but not the interest
distributions) or the interest distributions (but
not the principal distributions) or in some
specified portion of the principal and interest
distributions (but not all of such distributions)
on certain GNMA, FNMA or FHLMC Certificates and,
unless otherwise specified in the related
Prospectus Supplement, guaranteed to the same
extent as the underlying securities, (v) another
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type of pass-through certificate issued or
guaranteed by GNMA, FNMA or FHLMC and described in
the related Prospectus Supplement or (vi) a
combination of such Agency Securities. All GNMA
Certificates will be backed by the full faith and
credit of the United States. No FHLMC or FNMA
Certificates will be backed, directly or
indirectly, by the full faith and credit of the
United States. See "TRUST FUND ASSETS -- AGENCY
SECURITIES" herein.
C. Bond and Distribution
Accounts.............. All scheduled monthly principal and interest
payments and all prepayments received with respect
to the Mortgage Collateral for a Series of
Securities, other than amounts not required to be
remitted to the Bond Trustee, such as amounts
retained by the Master Servicer, any Servicer or
any subservicer of Mortgage Loans as servicing
compensation, to pay certain insurance premiums or
to reimburse the Master Servicer or any Servicer
for certain advances it has made, will be remitted
to an account (the "Bond Account") to be
established as an Eligible Account (as defined
herein) on the closing date for the sale of such
Series of Securities (the "Closing Date"). All
principal and interest distributions received from
the Mortgage Collateral and remitted to the Bond
Account, other than amounts, if any, subsequently
withdrawn to reimburse the Master Servicer or any
Servicer for certain non-recoverable advances it
has made, together with (i) the amount of cash, if
any, initially deposited in the Bond Account by the
Issuer, (ii) if applicable, all amounts withdrawn
from any related Reserve Funds, (iii) any Insurance
Proceeds and Liquidation Proceeds (as such terms
are defined herein) and (iv) if so specified in the
related Prospectus Supplement, all reinvestment
income earned thereon, will be available for
transfer to the Distribution Account (as defined
herein) for application to the payment of the
principal of, and interest on, such Series of
Securities as described in the related Prospectus
Supplement.
On or prior to the Closing Date, the Bond Trustee
will establish an account (the "Distribution
Account") which shall be an Eligible Account (as
defined herein) maintained with the Bond Trustee or
the Certificate Trustee, as the case may be, for
the benefit of the Securityholders of the related
Series. On or prior to a date specified in the
related Prospectus Supplement and preceding each
related Distribution Date (each, a "Distribution
Account Deposit Date"), the Master Servicer shall
withdraw from the Bond Account the amount required
to be distributed to Securityholders on such
Distribution Date (the "Security Distribution
Amount"), to the extent of funds available for such
purpose on deposit therein, and will deposit such
amount in the Distribution Account.
Any funds remaining in the Bond Account on a
Distribution Date, other than amounts not
constituting Available Funds, if so specified in
the related Prospectus Supplement, after (i) the
reimbursement of the Master Servicer or any
Servicer for non-recoverable advances made by it,
(ii) each required payment of interest and
principal to Securityholders of the related Series
has been paid in full, (iii) if applicable, any
Reserve Fund has been funded in the manner
described in the related Prospectus Supplement and
(iv) the payment of certain expenses relating to
such Series of Bonds, will be subject to withdrawal
upon the order of the
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Issuer. SEE "TRUST FUND ASSETS -- BOND AND
DISTRIBUTION ACCOUNTS" and "SERVICING OF THE
MORTGAGE LOANS" herein.
D. Pre-Funding
Accounts................... If so specified in the related Prospectus
Supplement, the assets of the Issuer will include
the funds on deposit in an account (a "Pre-Funding
Account") which will be used to purchase additional
Mortgage Collateral during a period specified in
such Prospectus Supplement (such period, the
"Funding Period"). See "TRUST FUND ASSETS -- PRE-
FUNDING ACCOUNTS" herein.
Credit Enhancement......... The Mortgage Collateral supporting a Series of
Securities or the Securities of one or more Classes
in the related Series may have the benefit of one
or more types of credit enhancement as described
herein and more fully in the related Prospectus
Supplement. The protection against losses afforded
by any such credit enhancement may be limited. The
type, characteristics and amount of credit
enhancement will be determined based on the
characteristics of the Mortgage Loans underlying or
comprising the Mortgage Collateral and will be
established on the basis of requirements of each
Rating Agency. In addition, one or more Classes of
Securities of a Series may be guaranteed as to
payment of principal and interest by a third party
insurer or guarantor, to the extent provided in the
related Prospectus Supplement. See "CREDIT
ENHANCEMENT" herein.
A. Subordination......... A Series of Securities may consist of one or more
Classes of Senior Securities and one or more
Classes of Subordinated Securities. The rights of
the holders of the Subordinated Securities of a
Series (the "Subordinated Securityholders") to
receive payments of principal and/ or interest (or
any combination thereof) will be subordinated to
such rights of the holders of the Senior Securities
of the same Series (the "Senior Securityholders")
to the extent described in the related Prospectus
Supplement. This subordination is intended to
enhance the likelihood of regular receipt by the
Senior Securityholders of the full amount of their
scheduled payments of principal and/or interest.
The protection afforded to the Senior
Securityholders of a Series by means of the
subordination feature will be accomplished by (i)
the preferential right of such holders to receive,
prior to any payment being made on the related
Subordinated Securities, the amounts of principal
and/or interest due them on each Distribution Date
out of the funds available for payment on such date
in the related Distribution Account and, to the
extent described in the related Prospectus
Supplement, by the right of such holders to receive
future payments that would otherwise have been
payable to the Subordinated Securityholders; or
(ii) as otherwise described in the related
Prospectus Supplement. If so specified in the
related Prospectus Supplement, subordination may
apply only in the event of certain types of losses
not covered by other forms of credit support, such
as hazard losses not covered by standard hazard
insurance policies or losses due to the bankruptcy
or fraud of the borrower. The related Prospectus
Supplement will set forth information concerning,
among other things, the amount of subordination of
a Class or Classes of Subordinated Securities in a
Series, the circumstances in which such
subordination will be applicable and the manner, if
any, in which the
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<PAGE> 108
amount of subordination will decrease over time.
See "CREDIT ENHANCEMENT -- SUBORDINATION" herein.
B. Reserve Funds......... If so specified in the related Prospectus
Supplement, the Issuer will deposit in one or more
Reserve Funds to be established with the Bond
Trustee or the Certificate Trustee, as the case may
be, cash, certificates of deposit, letters of
credit, surety bonds, guaranteed investment
contracts, reinvestment income or any combination
thereof, which may be used by the Bond Trustee or
the Certificate Trustee to make payments on such
Series of Securities to the extent funds are not
otherwise available. The related Prospectus
Supplement will specify the manner of funding the
related Reserve Fund and the conditions under which
the amounts in any such Reserve Fund will be used
to make payments to holders of Securities of a
particular Class or released to the related Issuer.
See "CREDIT ENHANCEMENT -- RESERVE FUNDS" herein.
C. Mortgage Pool
Insurance Policy...... If so specified in the related Prospectus
Supplement, a mortgage pool insurance policy or
policies (the "Mortgage Pool Insurance Policy") may
be obtained and maintained for a Series of
Securities supported by Mortgage Loans, which shall
be limited in scope, covering defaults on such
Mortgage Loans in an initial amount equal to a
specified percentage of the aggregate principal
balance of all Mortgage Loans included in the
related mortgage pool as of the first day of the
month of issuance of the related Series of
Securities or such other date as is specified in
the related Prospectus Supplement (the "Cut-off
Date"). See "CREDIT ENHANCEMENT -- MORTGAGE POOL
INSURANCE POLICIES" herein.
D. Special Hazard
Insurance Policy...... If so specified in the related Prospectus
Supplement, a special hazard insurance policy or
policies (the "Special Hazard Insurance Policy")
may be obtained and maintained for a Series of
Securities supported by Mortgage Loans, covering
certain physical risks that are not otherwise
insured against by standard hazard insurance
policies. Each Special Hazard Insurance Policy will
be limited in scope and will cover losses pursuant
to the provisions of each such Special Hazard
Insurance Policy as described in the related
Prospectus Supplement. See "CREDIT
ENHANCEMENT -- SPECIAL HAZARD INSURANCE POLICIES"
herein.
E. Bankruptcy Bond....... If so specified in the related Prospectus
Supplement, a bankruptcy bond or bonds (the
"Bankruptcy Bond") may be obtained for a Series of
Securities supported by Mortgage Loans to cover
certain losses resulting from action that may be
taken by a bankruptcy court in connection with a
Mortgage Loan. The level of coverage and the
limitations in scope of each Bankruptcy Bond will
be specified in the related Prospectus Supplement.
See "CREDIT ENHANCEMENT -- BANKRUPTCY BONDS"
herein.
F. Bond Insurance
Policies, Surety Bonds
and Guarantees........ If so specified in the related Prospectus
Supplement, credit enhancement for one or more
Classes of Securities of a Series may be provided
by
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insurance policies or surety bonds (each, a
"Security Insurance Policy") issued by one or more
insurance companies or sureties. Such guarantee
insurance or surety bond will guarantee timely
payments of interest and/ or full payment of
principal on the basis of a schedule of principal
payments set forth in or determined in the manner
specified in the related Prospectus Supplement. If
specified in the related Prospectus Supplement, one
or more surety bonds, insurance policies or
third-party guarantees may be used to provide
coverage for the risks of default or types of loses
set forth in such Prospectus Supplement. See
"CREDIT ENHANCEMENT -- SECURITY INSURANCE POLICIES,
SURETY BONDS AND GUARANTEES" herein.
G. Letter of Credit...... If so specified in the related Prospectus
Supplement, credit enhancement may be provided for
a Series of Securities supported by Mortgage Loans
by one or more letters of credit. A letter of
credit may provide limited protection against
certain losses in addition to or in lieu of other
credit enhancement, such as losses resulting from
delinquent payments on the Mortgage Loans
supporting the related Series of Securities, losses
from risks not covered by standard hazard insurance
policies, losses due to bankruptcy of a borrower
and application of certain provisions of the
federal Bankruptcy Code, and losses due to denial
of insurance coverage due to misrepresentations
made in connection with the origination or sale of
a Mortgage Loan. The issuer of the letter of credit
(the "L/C Bank") will be obligated to honor demands
with respect to such letter or credit, to the
extent of the amount available thereunder to
provide funds under the circumstances and subject
to such conditions as are specified in the related
Prospectus Supplement. The liability of the L/C
Bank under its letter of credit will be reduced by
the amount of unreimbursed payments thereunder.
H. Over-Collateralization...
If so specified in the related Prospectus
Supplement, credit enhancement may consist of
over-collateralization whereby the aggregate
principal balance of the related Mortgage
Collateral exceeds the aggregate principal balance
of the Securities of the related Series. Such
over-collateralization may exist on the related
Closing Date or develop thereafter as a result of
the application of a portion of the interest
payment on each Mortgage Loan or Agency Security,
as the case may be, as an additional payment in
respect of principal to reduce the principal
balance of a certain Class or Classes of Securities
of such Series and, thus, accelerate the rate of
payment of principal on such Class or Classes of
Securities. See "CREDIT
ENHANCEMENT -- OVER-COLLATERALIZATION" herein.
I. Cross-Collateralization...
If so specified in the related Prospectus
Supplement, separate Classes of a Series may be
supported by separate groups of Mortgage
Collateral. In such case, credit support may be
provided by a cross-collateralization feature which
requires that payments be made with respect to
Securities supported by one or more groups of
Mortgage Collateral prior to payments to
Subordinated Securities supported by other groups
of Mortgage Collateral within the same Series. See
"CREDIT ENHANCEMENT -- CROSS-COLLATERALIZATION"
herein.
If so specified in the related Prospectus
Supplement, the coverage provided by one or more of
the forms of credit enhancement described in this
Prospectus may apply concurrently to two or more
separate Series of
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<PAGE> 110
Securities. If applicable, the related Prospectus
Supplement will identify the Series of Securities
to which such credit enhancement relates and the
manner of determining the amount of coverage
provided to such Series of Securities thereby and
of the application of such coverage to the
identified Series of Securities. See "CREDIT
ENHANCEMENT -- CROSS-COLLATERALIZATION" herein.
J. Minimum Principal
Payment Agreement..... If so specified in the related Prospectus
Supplement, an Issuer may enter into an agreement
with an institution pursuant to which such
institution will provide such funds as may be
necessary to enable such Issuer to make principal
payments on the Securities of the related Series at
a minimum rate set forth in such Prospectus
Supplement. See "CREDIT ENHANCEMENT -- MINIMUM
PRINCIPAL PAYMENT AGREEMENT" herein.
K. Derivative
Arrangements.......... If so specified and to the extent described in the
related Prospectus Supplement, one or more
derivative arrangements may be used to support
payments on the Securities. A derivative
arrangement is a contract or agreement, the price
of which is directly dependent upon (i.e., "derived
from") the value of one or more underlying assets.
Derivatives involve rights or obligations based on
the underlying asset, but do not necessarily result
in a transfer of the underlying asset. Derivative
arrangements include swap agreements, interest rate
swaps, interest rate caps, interest rate floors,
interest rate collars and currency swap agreements.
See "CREDIT ENHANCEMENT -- DERIVATIVE ARRANGEMENTS"
herein.
Advances................... The Master Servicer and each Servicer may be
obligated to advance amounts (each, an "Advance")
corresponding to delinquent interest and/or
principal payments on the Mortgage Loans supporting
a Series of Securities (including, in the case of
Cooperative Loans, unpaid maintenance fees or other
charges under the related proprietary lease) until
the date, as specified in the related Prospectus
Supplement, following the date on which the related
Mortgaged Property is sold at a foreclosure sale or
the related Mortgage Loans are otherwise
liquidated. Any obligation to make Advances may be
subject to limitations as specified in the related
Prospectus Supplement. If so specified in the
related Prospectus Supplement, Advances may be
drawn from a cash account available for such
purpose as described in such Prospectus Supplement.
Advances will be reimbursable to the extent
described under "SERVICING OF THE MORTGAGE
LOANS -- ADVANCES AND OTHER AMOUNTS PAYABLE BY
MASTER SERVICER" herein and "-- ADVANCES" in the
related Prospectus Supplement.
In the event the Master Servicer or Servicer fails
to make a required Advance, the Bond Trustee may be
obligated to advance such amounts otherwise
required to be advanced by the Master Servicer or
Servicer. See "SERVICING OF MORTGAGE
LOANS -- ADVANCES AND OTHER AMOUNTS PAYABLE BY
MASTER SERVICER" herein.
Tax Status of the
Securities................. The tax counsel to the Company and the Issuer is
Jeffers, Wilson, Shaff & Falk, LLP.
The Bonds, when beneficially owned by someone other
than AmREIT or one of its qualified real estate
investment trust ("REIT") subsidiaries
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(as defined in section 856(i) of the Code), will
constitute indebtedness for federal income tax
purposes and not an ownership interest in the
Issuer or the Collateral. See "FEDERAL INCOME TAX
CONSEQUENCES" herein and in the related Prospectus
Supplement for information concerning the material
federal tax consequences of an investment in the
Bonds.
If a FASIT election is made, Certificates
representing regular interests in a FASIT will
generally be taxable to holders in the same manner
as evidences of indebtedness issued by the FASIT.
Stated interest on such regular interests will be
taxable as ordinary income and taken into account
using the accrual method of accounting, regardless
of the holder's normal accounting method.
Certain Classes of Securities may be issued with
original issue discount ("OID"). A Securityholder
should be aware that the Code and the Treasury
regulations promulgated thereunder do not
adequately address certain issues relevant to
prepayable securities, such as the Securities.
Securityholders that will be required to report
income with respect to the related Securities under
the accrual method of accounting will do so without
giving effect to delays and reductions in
distributions attributable to a default or
delinquency on the Mortgage Loans, except possibly
to the extent that it can be established that such
amounts are uncollectable. As a result, the amount
of income (including OID) reported by a
Securityholder in any period could significantly
exceed the amount of cash distributed to such
Securityholder in that period.
Use of Proceeds............ The net proceeds to be received from the sale of
the Securities of each Series will be applied by
the Company to the purchase or acquisition of the
related Mortgage Collateral or will be used by the
Company for general corporate purposes. The
Mortgage Collateral included in the Trust Fund
Assets for a Series of Securities will either be
contributed to the Company's capital by AmREIT (or
an affiliate) or acquired by the Company from
AmREIT (or an affiliate) and deposited with the
Issuer of such Series by the Company. See "USE OF
PROCEEDS" herein.
Ratings.................... It is a condition to the issuance of each Series of
Securities that the Securities of such Series to be
offered hereunder be rated in one of the four
highest (two highest if the Securities are
Certificates) rating categories by at least one
nationally recognized statistical rating
organization. A rating is not a recommendation to
purchase, hold or sell Securities inasmuch as such
rating does not comment as to market price or
suitability for a particular investor. Ratings of
Securities will address the likelihood of the
payment of principal and interest thereon pursuant
to their terms. There can be no assurance that a
rating will remain for a given period of time or
that a rating will not be lowered or withdrawn
entirely by a rating agency if in its judgment
circumstances in the future so warrant. See
"RATINGS" herein. For more detailed information
regarding the ratings assigned to any Class of a
particular Series of Securities, see
"SUMMARY -- RATINGS" and "RATINGS" in the related
Prospectus Supplement.
Legal Investment........... The Prospectus Supplement for each Series of
Securities will specify which, if any, of the
Classes of Securities offered thereby will
constitute "mortgage related securities" for
purposes of the Secondary Mortgage
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Market Enhancement Act of 1984 ("SMMEA"). Classes
of Securities that qualify as "mortgage-related
securities" will be legal investments for certain
types of institutional investors to the extent
provided in SMMEA, subject, in any case, to any
other regulations that may govern investments by
such institutional investors. See "LEGAL
INVESTMENT" herein.
ERISA Matters.............. The Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and Section 4975 of the
Code impose certain restrictions on employee
benefit plans subject to ERISA or plans or
arrangements subject to Section 4975 of the Code
("Plans") and on persons who are parties in
interest or disqualified persons ("parties in
interest") with respect to such Plans. The
Prospectus Supplement for each Series of Securities
will discuss the potential applicability of ERISA
and Section 4975 of the Code, the availability of
exemptions therefrom and any limitations on
investment in any Class of such Securities by
Plans. Investments by Plans are also subject to
ERISA's general fiduciary requirements, including
the requirement of investment prudence and
diversification and the requirement that a Plan's
investments be made in accordance with the
documents governing the Plan.
Absence of Active
Public Trading Market.... Unless otherwise specified in the related
Prospectus Supplement, the Securities are not
expected to be listed on an exchange or quoted in
an automated quotation system of a registered
securities association. As a result, it is not
expected that there will be an active public
trading market for the Securities. This may limit
the liquidity of an investment in the Securities
and result in any sale by a Securityholder to be at
a discount from the purchase price.
Risk Factors............... For a discussion of all material risks associated
with an investment in the Securities, see "RISK
FACTORS" commencing on page 18 herein and in the
related Prospectus Supplement.
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RISK FACTORS
Investors should consider, among other things, the following factors in
connection with an investment in the Securities.
RISKS ASSOCIATED WITH SINGLE-FAMILY MORTGAGE LOANS
FACTORS WHICH MAY ADVERSELY AFFECT PROPERTY VALUES. There are several
factors that could adversely affect the value of Mortgaged Properties such that
the outstanding balance of the related Mortgage Loans 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 covered by insurance, such as
earthquakes and floods. If such a decline occurs, the actual rates of
delinquencies, foreclosures and losses on the Mortgage Loans could be higher
than those currently experienced in the mortgage lending industry in general.
Losses on such Mortgage Loans that are not otherwise covered by the credit
enhancement described in the applicable Prospectus Supplement will be borne by
the holder of one or more Classes of Securities of the related Series.
DELAYS DUE TO LIQUIDATION. Even assuming that the Mortgaged Properties
provide adequate security for the Mortgage Loans, substantial delays could be
encountered in connection with the liquidation of defaulted Mortgage Loans and
corresponding delays in the receipt of related proceeds by Securityholders could
occur. An action to foreclose on a Mortgaged Property securing a Mortgage Loan
is regulated by state statutes and rules and is subject to many of the delays
and expenses of other lawsuits if defenses or counterclaims are interposed,
sometimes requiring several years to complete. Furthermore, in some states an
action to obtain a deficiency judgment is not permitted following a nonjudicial
sale of a Mortgaged Property. In the event of a default by a borrower, these
restrictions, among other things, may impede the ability of the Master Servicer
to foreclose on or sell the Mortgaged Property or to obtain liquidation proceeds
sufficient to repay all amounts due on the related Mortgage Loan. In addition,
the Master Servicer will be entitled to deduct from related liquidation proceeds
all expenses reasonably incurred in attempting to recover amounts due on
defaulted Mortgage Loans and not yet repaid, including legal fees and costs of
legal action, real estate taxes and maintenance and preservation expenses.
DISPROPORTIONATE EFFECT OF LIQUIDATION EXPENSES. Liquidation expenses with
respect to defaulted loans do not vary directly with the outstanding principal
balance of the loan at the time of default. Therefore, assuming that a servicer
took the same steps in realizing upon a defaulted loan having a small remaining
principal balance as it would in the case of a defaulted loan having a large
remaining principal balance, the amount realized after expenses of liquidation
would be smaller as a percentage of the outstanding principal balance of the
small loan than would be the case with the defaulted loan having a large
remaining principal balance.
NATURE OF SECURITY PROVIDED BY JUNIOR LIENS. Certain Mortgage Loans may be
secured by second liens on the related Mortgaged Properties. As to Mortgage
Loans secured by second mortgages, the proceeds from any liquidation, insurance
or condemnation proceedings will be available to satisfy the outstanding balance
of such Mortgage Loans only to the extent that the claims of such senior
mortgages have been satisfied in full, including any related foreclosure costs.
In addition, the holder of a Mortgage Loan secured by a junior mortgage may not
foreclose on the Mortgaged Property unless it forecloses subject to the senior
mortgages, in which case it must either pay the entire amount due on the senior
mortgages to the senior mortgagees at or prior to the foreclosure sale or
undertake the obligation to make payments on the senior mortgages in the event
the mortgagor is in default thereunder. The Issuer will not have any source of
funds to satisfy the senior mortgages or make payments due to the senior
mortgagees, although the Master Servicer or Servicer may, at its option, advance
such amounts to the extent deemed recoverable and prudent. In the event that
such proceeds from a foreclosure or similar sale of the related Mortgaged
Property are insufficient to satisfy all senior liens and the Mortgage Loan in
the aggregate, the Issuer, as the holder of the junior lien, and, accordingly,
Holders of one or more Classes of the Securities, to the extent not covered by
credit
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enhancement, are likely to (i) incur losses in jurisdictions in which a
deficiency judgment against the borrower is not available, and (ii) incur losses
if any deficiency judgment obtained is not realized upon. In addition, the rate
of default of second mortgage loans may be greater than that of mortgage loans
secured by first liens on comparable properties.
RISKS ASSOCIATED WITH MULTIFAMILY AND MIXED USE MORTGAGE LOANS
Investing in Multifamily and Mixed Use Mortgage Loans involves each of the
risks described above for Single-Family Mortgage Loans and certain additional
risks unique to multifamily and commercial lending. Owners of multifamily
residential properties rely on monthly lease payments from tenants to pay for
maintenance and other operating expenses of such properties, to fund capital
improvements and to service any mortgage loan and any other debt that may be
secured by such properties. Various factors, many of which are beyond the
control of the owner or operator of such a property, may affect the economic
viability of that property.
Changes in payment patterns by tenants may result from a variety of social,
legal and economic factors. Economic factors including the rate of inflation,
unemployment levels and relative rates offered for various types of housing may
be reflected in changes in payment patterns including increased risks of
defaults by tenants and higher vacancy rates. Adverse economic conditions,
either local or national, may limit the amount of rent that can be charged and
may result in a reduction in timely lease payments or a reduction in occupancy
levels. Occupancy and rent levels may also be affected by construction of
additional housing units, competition and local politics, including rent
stabilization or rent control laws and policies. In addition, the level of
mortgage interest rates may encourage tenants to purchase singlefamily housing.
The Depositor is unable to determine and has no basis to predict whether, or to
what extent, economic, legal or social factors will affect future rental or
payment patterns.
The location and construction quality of a particular building may affect
the occupancy level as well as the rents that may be charged for individual
units. The characteristics of a neighborhood may change over time or in relation
to new developments. The effects of poor construction quality will increase over
time in the form of increased maintenance and capital improvements. Even good
construction will deteriorate over time if adequate maintenance is not performed
in a timely fashion.
For Mixed Use Mortgage Loans, income from the market value of the portion
of the underlying properties which are retail or office properties would be
adversely affected if space in such properties could not be leased, if tenants
are unable to meet their lease obligations, if a significant tenant were not
able to make its lease payments or were to become a debtor in a bankruptcy case
under the United States Bankruptcy Code and the lease of the related property
was rejected, or if for any other reason rental payments could not be collected.
If tenant sales in the properties that contain retail space were to decline,
percentage rents may decline or tenants may be unable to pay their base rent or
delays in enforcing the lessor's rights could be experienced. Repayment of the
related Mixed Use Mortgage Loans will be affected by the expiration of space
leases and the ability of the respective borrowers to renew their leases or
relet the space on comparable terms. Even if vacated space is successfully
relet, the costs associated with reletting, including tenant improvements and
leasing commissions (to the extent not reserved), could be substantial and could
reduce cash flow from the properties.
The profitable operation of multifamily properties and multi-tenant retail
and office properties is also dependent on the performance and viability of the
property manager of such project. The property manager is responsible for
responding to changes in the local market, planning and implementing the rental
structure, including establishing appropriate rental rates, and advising the
borrower so that maintenance and capital improvements can be carried out in a
timely fashion all of which may impact the borrower's ability to make payments
under the related mortgage loan.
RISKS ASSOCIATED WITH NON-CONFORMING MORTGAGE LOANS
A substantial portion of the Mortgage Loans supporting each Series of
Securities is expected to be comprised of non-conforming Mortgage Loans in that
they will fail to satisfy the criteria to be eligible for
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purchase by FNMA or FHLMC for one or more reasons. Such Mortgage Loans may be
illiquid and present greater credit and other risks than conforming Mortgage
Loans. In addition, to the extent Mortgage Loans are acquired from AmREIT and
have been purchased under AmREIT's Freedom Program, such Mortgage Loans may lack
standardized terms and may be secured by properties which are unique and more
difficult to value than typical residential properties. Such Mortgage Loans may
have been underwritten primarily on the basis of loan-to-value ratios or
favorable credit factors rather than on the borrower's credit standing or income
ratios. Accordingly, the potential loss experience on the non-conforming
Mortgage Loans supporting a Series of Securities may be more difficult to
evaluate compared to the experience for conforming or other more standardized
types of residential and mixed-use properties. Actual losses incurred on such
non-conforming Mortgage Loans may exceed levels of credit enhancement thought to
be sufficient to protect Securityholders from risk of loss.
PREPAYMENT AND YIELD CONSIDERATIONS; REINVESTMENT RISK
The rate of payments of principal, including prepayments (including for
this purpose prepayments resulting from refinancing or liquidations of the
Mortgage Loans or the mortgage loans underlying the Agency Securities, as the
case may be, due to defaults, casualties, condemnations and repurchases by the
Issuer or AmREIT or other Seller or purchases by the Master Servicer or the
Company), on the Mortgage Collateral supporting a Series of Securities will
directly affect the weighted average life of such Series of Securities. The
"weighted average life" of a security refers to the average length of time,
weighted by principal, that will elapse from the date of issuance to the date
each dollar of principal is repaid to the investor. The yields to maturity and
weighted average lives of the Securities will be affected primarily by the
amount and timing of principal payments received on or in respect of the
Mortgage Collateral supporting the related Series of Securities. In addition,
the yields to maturity and weighted average lives of the Securities will be
affected by the extent to which the Issuer thereof elects to exercise any right
to call or redeem such Securities. The "yield to maturity" of a security refers
to the investment rate of return on such security if held to maturity.
The rate of prepayments with respect to conventional mortgage loans has
fluctuated significantly in recent years. The rate of payment of principal,
including prepayments, on the Mortgage Loans or the mortgage loans underlying
the Agency Securities, as the case may be, may be influenced by a variety of
economic, geographic, social, tax, legal and other factors. In general, if
prevailing interest rates fall significantly below the Mortgage Rates borne by
the mortgage loans underlying the Agency Securities or the Mortgage Loans, such
mortgage loans or Mortgage Loans are likely to be subject to higher prepayment
rates than if prevailing interest rates remain at or above such Mortgage Rates.
Conversely, if prevailing interest rates rise appreciably above the Mortgage
Rates borne by the mortgage loans underlying the Agency Securities or the
Mortgage Loans, such mortgage loans or the Mortgage Loans are likely to
experience a lower prepayment rate than if prevailing interest rates remain at
or below such Mortgage Rates. However, there can be no assurance that such will
be the case. In addition, the yields to maturity and weighted average lives of
the Securities of a Series will be affected by the extent to which the Issuer
thereof elects to exercise any option to call or redeem the Securities and by
any distribution of amounts remaining in any Pre-Funding Account following the
end of the related Funding Period. In each case, Securityholders may be unable
to reinvest such payments in securities of comparable quality having interest
rates similar to those borne by such Securities. It is possible that yields on
any such reinvestments will be lower, and may be significantly lower, than the
yields on such Securities.
RISKS ASSOCIATED WITH PAYMENT CHARACTERISTICS OF CLASSES OF SECURITIES
The extent to which the yields to maturity of the various Classes of
Securities of a Series may vary from the anticipated yields will depend upon the
degree to which such Classes are purchased at a discount or premium, the degree
to which the timing of payments thereon is sensitive to the rate of payments of
principal, including prepayments, on the related Mortgage Collateral and the
degree to which the level of payments thereon is sensitive to rapid shifts in
interest rates. The timing of changes in the rate of prepayments on such
Mortgage Collateral may significantly affect an investor's actual yield to
maturity, even if the average rate of principal payments is consistent with an
investor's expectation. In addition, the timing of increases and decreases in
interest rates may significantly affect an investor's actual yield to maturity,
even if the average
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level of interest rates over the term of the Security is as expected. Categories
of Classes of Securities that are generally more sensitive to such factors
include the Support Classes, the Inverse Floating Rate Classes, the Interest
Only Classes and the Principal Only Classes. The Prospectus Supplement relating
to a Series of Securities will discuss in greater detail the effect of the rate
and timing of principal payments (including prepayments), delinquencies and
losses and interest rate changes on the yield, weighted average lives and
maturities of such Classes of Securities.
ENVIRONMENTAL RISKS
Real property pledged as security to a lender may be subject to certain
environmental risks. Under the laws of certain states, contamination of a
property may give rise to a lien on the property to assure the costs of cleanup.
In several states, such a lien has priority over the lien of an existing
mortgage against such property. In addition, under the laws of some states and
under the federal Comprehensive Environmental Response Compensation and
Liability Act of 1980 ("CERCLA"), a lender may be liable, as an "owner" or
"operator", for costs of addressing releases or threatened releases of hazardous
substances 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 the environmental damage or threat was caused by a prior
owner. Such costs could result in a loss to the holders of one or more Classes
of a Series of Securities. A lender also risks such liability on foreclosure of
the related property. See "CERTAIN LEGAL ASPECTS OF MORTGAGE
LOANS -- ENVIRONMENTAL RISKS" herein.
LIMITED LIQUIDITY OF INVESTMENT
Prior to issuance, there has been no market for the Securities of any
Series, and there can be no assurance that a secondary market for any Securities
will develop or, if it does develop, that it will provide Securityholders with a
sufficient level of liquidity of investment or will continue while Securities of
such Series remain outstanding. In addition, the market value of Securities of
any Series may fluctuate with changes in prevailing rates of interest and
prepayments, spreads and other factors. Consequently, the sale of Securities by
a Securityholder in any secondary market that may develop may be at a discount
from the purchase price. Issuance of the Securities of a Series in bookentry
form may also reduce the liquidity of such Securities since investors may be
unwilling to purchase Securities for which they cannot obtain physical
certificates. See "-- EFFECTS OF BOOK-ENTRY REGISTRATION" herein. No Issuer is
expected to apply to have the Securities issued by it listed on any exchange or
quoted in an automated quotation system of a registered securities association.
BANKRUPTCY AND INSOLVENCY RISKS
EFFECTS OF BANKRUPTCY OF AMREIT OR THE DEPOSITOR. AmREIT and the Depositor
will treat the transfer of the Trust Fund Assets by AmREIT to the Depositor as a
sale for accounting purposes. The Depositor and each Issuer will treat the
transfer of the Trust Fund Assets from the Depositor to such Issuer as a sale
for accounting purposes. As a sale of the Trust Fund Assets by AmREIT to the
Depositor, the Trust Fund Assets would not be part of AmREIT's bankruptcy estate
and would not be available to AmREIT's creditors. However, in the event of the
insolvency of AmREIT, it is possible that the bankruptcy trustee or a creditor
of AmREIT may attempt to recharacterize the sale of the Trust Fund Assets as a
borrowing by AmREIT, secured by a pledge of the Trust Fund Assets. Similarly, as
a sale of the Trust Fund Assets by the Depositor to an Issuer, the Trust Fund
Assets would not be part of the Depositor's bankruptcy estate and would not be
available to the Depositor's creditors. However, in the event of the insolvency
of the Depositor, it is possible that the bankruptcy trustee or a creditor of
the Depositor may attempt to recharacterize the sale of the Trust Fund Assets as
a borrowing by the Depositor, secured by a pledge of the Trust Fund Assets. In
either case, in the event the transfer is recharacterized as a pledge, the
Depositor or the Issuer, as the case may be, will have a perfected security
interest in the related Trust Fund Assets. Nonetheless, a court could prevent
timely payments of amounts due on the Securities and result in a reduction of
payments due on the Securities.
EFFECTS OF BANKRUPTCY OF THE MASTER SERVICER. In the event of a bankruptcy
or insolvency of the Master Servicer, the bankruptcy trustee or receiver may
have the power to prevent the Bond Trustee or the
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Bondholders from appointing a successor Master Servicer. The time period during
which cash collections may be commingled with the Master Servicer's own funds
prior to each Distribution Date will be specified in the related Prospectus
Supplement. In the event of the insolvency of the Master Servicer and if such
cash collections are commingled with the Master Servicer's own funds for at
least ten days, the Bond Trustee will likely not have a perfected interest in
such collections since such collections would not have been deposited in a
segregated account within ten days after the collection thereof, and the
inclusion thereof in the bankruptcy estate of the Master Servicer may result in
delays in payment and failure to pay amounts due on the Securities of the
related Series.
EFFECTS OF BANKRUPTCY OF OBLIGORS ON THE MORTGAGE COLLATERAL. In addition,
federal and state statutory provisions, including the federal bankruptcy laws
and state laws affording relief to debtors, may interfere with or affect the
ability of the secured mortgage lender to realize upon its security. For
example, in a proceeding under the federal Bankruptcy Code, a lender may not
foreclose on a mortgaged property without the permission of the bankruptcy
court. The rehabilitation plan proposed by the debtor may reduce the secured
indebtedness to the value of the mortgaged property as of the date of the
commencement of the bankruptcy, rendering the lender a general unsecured
creditor for the difference, and also may reduce the monthly payments due under
such mortgage loan, change the rate of interest and alter the mortgage loan
repayment schedule. The effect of any such proceedings under the federal
Bankruptcy Code, including but not limited to any automatic stay, could result
in delays in receiving payments on the Mortgage Collateral supporting a Series
of Securities and possible reductions in the aggregate amount of such payments.
EFFECTS OF BOOK-ENTRY REGISTRATION
LIMITED LIQUIDITY. If the Securities of a Series are issued in bookentry
form, such registration may reduce the liquidity of such Securities in the
secondary trading market since investors may be unwilling to purchase Securities
for which they cannot obtain physical certificates. Since transactions in
book-entry Securities can be effected only through the Depository Trust Company
("DTC") in the United States, CEDEL or Euroclear in Europe, participating
organizations and Financial Intermediaries (as defined herein), the ability of a
Securityholder to pledge a book-entry Security to persons or entities that do
not participate in the DTC, CEDEL or Euroclear systems may be limited due to
lack of a physical certificate representing such Securities. Security Owners
will not be recognized as Securityholders as such term is used in the related
Agreement, and Security Owners will be permitted to exercise the rights of
Securityholders only indirectly through DTC and its Participants.
POTENTIAL DELAYS IN PAYMENTS. In addition, Securityholders may experience
some delay in their receipt of distributions of interest and principal on
book-entry Securities since distributions are required to be forwarded by the
Bond Trustee or the Certificate Trustee to DTC and DTC will then be required to
credit such distributions to the accounts of depository participants which
thereafter will be required to credit them to the account of Securityholders
either directly or indirectly through Financial Intermediaries. See "DESCRIPTION
OF THE SECURITIES -- BOOK-ENTRY SECURITIES" herein.
RATINGS OF THE SECURITIES
RATINGS NOT A RECOMMENDATION. It will be a condition to the issuance of a
Class of Securities offered hereby that they be rated in one of the four highest
rating categories by each Rating Agency identified as rating such Class in the
related Prospectus Supplement. Any such rating would be based on, among other
things, the adequacy of the value of the related Mortgage Collateral and any
credit enhancement with respect to such Class and will represent such Rating
Agency's assessment solely of the likelihood that holders of such Class of
Securities will receive payments to which such Securityholders are entitled
under the applicable Agreement. Such rating will not constitute an assessment of
the likelihood that principal prepayments on mortgages underlying the related
Mortgage Collateral will be made, the degree to which the rate of such
prepayments might differ from that originally anticipated or the likelihood of
early optional termination of the Series of Securities. Such rating shall 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. Such
rating will not address the possibility that prepayment at higher or lower rates
than anticipated by an investor may cause such
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investor to experience a lower than anticipated yield or that an investor
purchasing a Security at a significant premium might fail to recoup its initial
investment under certain prepayment scenarios.
RATINGS MAY BE LOWERED OR WITHDRAWN. 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 applicable Rating Agency in the future if
in its judgment circumstances so warrant. In addition to being lowered or
withdrawn due to any erosion in the adequacy of the value of the assets of the
Issuer or any credit enhancement with respect to a Series of Securities, such
rating might also be lowered or withdrawn because of, among other reasons, an
adverse change in the financial or other condition of a credit enhancement
provider or a change in the rating of such credit enhancement provider's long
term debt.
LIMITATIONS OF ANALYSIS PERFORMED BY RATING AGENCIES. The amount, type and
nature of credit enhancement, if any, established with respect to a Class of
Securities of a Series will be determined on the basis of criteria established
by each Rating Agency. Such criteria are sometimes based upon an actuarial
analysis of the behavior of similar loans in a larger group. Such analysis is
often the basis upon which each Rating Agency determines the amount of credit
enhancement required with respect to each such Class. There can be no assurance
that the historical data supporting any such actuarial analysis will accurately
reflect future experience nor any assurance that the data derived from a large
pool of similar loans accurately predicts the delinquency, foreclosure or loss
experience of any particular pool of mortgages underlying the Mortgage
Collateral. No assurance can be given that the values of any Mortgaged
Properties have remained or will remain at their levels on the respective dates
of origination of the related mortgages. If the residential real estate markets
should experience an overall decline in values such that the outstanding
principal balances of the mortgages underlying the Mortgage Collateral
supporting a particular Series of Securities and any secondary financing on the
related Mortgaged Properties become equal to or greater than the value of the
Mortgaged Properties, the rates of delinquencies, foreclosures and losses could
be higher than those now generally experienced in the mortgage lending industry.
In addition, adverse economic conditions (which may or may not affect real
property values) may affect the timely payment by mortgagors of scheduled
payments of principal and interest on the Mortgage Collateral and, accordingly,
the rates of delinquencies, foreclosures and losses with respect to any Mortgage
Collateral supporting a Series of Securities. To the extent that such losses are
not covered by credit enhancement, such losses will be borne, at least in part
by the holders of one or more Classes of Securities of the related Series.
CREDIT CONSIDERATIONS AND RISKS
LIMITED SOURCE OF PAYMENTS. The Company does not have, nor is it expected
to have, any significant assets. Although the Securities will be obligations of
or interests in their respective Issuers, no Issuer is expected to have
significant assets other than those included in the Trust Fund Assets for the
Series of Securities issued by it. Unless otherwise provided in the related
Prospectus Supplement, the Securities of a Series will be payable solely from
the assets included in the Trust Fund Assets for such Series and will not have
any claim against or security interest in the assets supporting any other
Series. There will be no recourse to the Company or AmREIT, or any other person
for any failure to make payments on the Securities. In addition, at the times
set forth in the related Prospectus Supplement, certain Mortgage Collateral
and/or any balance remaining in the Bond Account for a Series of Securities
immediately after making all payments due on such Securities, after making any
other payments specified in the related Prospectus Supplement, may be promptly
released or remitted to the Company, AmREIT, any credit enhancement provider or
any other person entitled thereto and will no longer be available for making
payments on such Securities. Consequently, investors in the Securities of a
Series must rely solely upon payments of principal and interest on the Mortgage
Collateral and any other assets included in the Trust Fund Assets for such
Series, and the sources of credit enhancement identified in the related
Prospectus Supplement to provide for payments on such Securities.
NO RECOURSE TO COMPANY OR AMREIT. The Securities will not represent an
interest in or obligation of the Company or AmREIT or any affiliate thereof. The
only obligations, if any, of the Company with respect to the Mortgage Collateral
or the Securities of any Series will be pursuant to certain representations and
warranties. The Company does not have, and is not expected in the future to
have, any significant assets with which to meet any obligation to repurchase
Mortgage Collateral with respect to which there has been a breach
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of any representation or warranty. If, for example, the Company were required to
repurchase a Mortgage Loan, its only sources of funds to make such repurchase
would be from funds obtained (i) from the enforcement of a corresponding
obligation, if any, on the part of AmREIT or other Seller, or (ii) to the extent
provided in the related Prospectus Supplement, from a Reserve Fund or similar
credit enhancement established to provide funds for such repurchases.
The only obligations of AmREIT or other Seller with respect to the Mortgage
Collateral or the Securities of any Series will be pursuant to certain
representations and warranties. AmREIT or such other Seller may be required to
repurchase or substitute for any Mortgage Loan with respect to which such
representations and warranties are breached. There is no assurance, however,
that AmREIT or such other Seller will have the financial ability to effect any
such repurchase or substitution.
LIMITATIONS OF DIRECT OR INDIRECT BACKING FOR SECURITIES. Agency
Securities are issued or guaranteed by government-sponsored entities but only
the guarantee by GNMA of GNMA Certificates is entitled to the full faith and
credit of the United States. The guarantees by FNMA and FHLMC of FNMA
Certificates and FHLMC Certificates, respectively, are backed only by the credit
of FNMA, a federally chartered, privately owned corporation or by the credit of
FHLMC, a federally chartered corporation controlled by the Federal Home Loan
Banks. Neither the United States nor any agency thereof will be obligated to
finance the operations of FNMA or FHLMC or to assist either FNMA or FHLMC in any
other way. See "TRUST FUND ASSETS -- AGENCY SECURITIES" herein. Although payment
of principal of, and interest on, any Agency Security securing all or part of a
Series of Securities will be guaranteed by either GNMA, FNMA or FHLMC, such
guarantee will run only to such Agency Security and will not guarantee the
payment of principal or interest on the Securities of such Series.
DEFICIENCY ON SALE OF MORTGAGE COLLATERAL. In the event of an acceleration
of the payment of the Bonds of a Series, upon an Event of Default (as defined
herein) under the Indenture with respect to such Series, there is no assurance
that the proceeds from any sale of the Mortgage Collateral would be sufficient
to pay in full the outstanding principal amount of such Series of Bonds (or
related Series of Certificates) together with interest accrued thereon. The
market value of such Mortgage Collateral generally will fluctuate with changes
in prevailing rates of interest. Consequently, such Mortgage Collateral may be
liquidated at a discount, in which case the proceeds of liquidation might be
less than the aggregate outstanding principal amount and interest payable on the
Securities of such Series. Although the Securities will be obligations of or
represent interests in their respective Issuers, no Issuer is expected to have
significant assets other than those included in the Trust Fund Assets for the
Series of Securities issued by it. It is therefore unlikely that the Issuer will
have sufficient other assets available for payment of any such deficiency. If,
following an Event of Default, a Series of Bonds has been declared to be due and
payable, the Bond Trustee may, in its discretion, but subject to the direction
of the Securityholders, refrain from selling the collateral for such Series of
Bonds and continue to apply amounts received on the collateral to payments due
on the Securities of such Series in accordance with their terms, notwithstanding
the acceleration of the maturity of such Bonds. See "THE AGREEMENTS -- RIGHTS
UPON EVENTS OF DEFAULT" herein.
EFFECT OF SUBORDINATION. If so specified in the related Prospectus
Supplement, the rights of the holders of one or more Classes of Subordinated
Securities will be subordinate to the rights of one or more Classes of Senior
Securities of such Series to payments of principal and/or interest (or any
combination thereof) to the extent specified in the related Prospectus
Supplement. Although subordination is intended to reduce the risk to holders of
Senior Securities of delinquent payments or ultimate losses, the amount of
subordination will be limited. In addition, if principal payments on one or more
Classes of Securities of a Series are made in a specified order of priority, any
limits with respect to the aggregate amount of claims under any related credit
enhancement may be exhausted before the principal of the lower priority Classes
of Securities of such Series has been repaid. As a result, the impact of
significant losses on the Mortgage Collateral may be borne first by any Class of
Subordinated Securities of a Series and thereafter by the Classes of Senior
Securities of such Series, in each case to the extent described in the related
Prospectus Supplement.
LIMITATIONS, REDUCTION AND SUBSTITUTION OF CREDIT ENHANCEMENT. The
Prospectus Supplement for a Series of Securities will describe any credit
enhancement for such Series, which may include cash accounts,
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insurance policies, surety bonds, guaranteed investment contracts,
cross-collateralization, reinvestment income, guarantees, letters of credit or
derivative arrangements to the extent described herein and therein. Although
credit enhancement is intended to reduce the risk of delinquent payments or
losses to holders of Securities entitled to the benefit thereof, the amount of
such credit enhancement will be limited, as set forth in the related Prospectus
Supplement, and may be subject to periodic reduction in accordance with a
schedule or formula or otherwise decline, and could be depleted under certain
circumstances prior to the payment in full of the related Series of Securities,
and as a result Securityholders of the related Series may suffer losses.
Moreover, such credit enhancement may not cover all potential losses or risks.
For example, credit enhancement may or may not cover fraud or negligence by a
loan originator or other parties. In addition, the Bond Trustee or the
Certificate Trustee will generally be permitted to reduce, terminate or
substitute all or a portion of the credit enhancement for any Series of
Securities, provided each applicable Rating Agency indicates that the
then-current rating of the Securities of such Series will not be adversely
affected. See "CREDIT ENHANCEMENT" herein.
The amount of applicable credit enhancement supporting one or more Classes
of Securities of a Series, including the subordination of one or more Classes of
Securities, will be determined on the basis of criteria established by each
Rating Agency rating such Classes of Securities based on, among other things,
assumptions regarding levels of defaults, delinquencies and losses. There can be
no assurance that the default, delinquency and loss experience on the related
Mortgage Collateral will not exceed such assumed levels. See "-- RATINGS OF THE
SECURITIES" herein.
DELINQUENT LOANS MAY ADVERSELY AFFECT INVESTMENT. Certain of the Mortgage
Loans or mortgage loans underlying the Agency Securities supporting a Series of
Securities may be past due or non-performing as of the related Cut-off Date.
Investors should consider the risk that the inclusion of such loans in the
Mortgage Collateral for a Series of Securities may affect the rate of defaults
and prepayments on such Mortgage Collateral and the yield on the Securities of
such Series.
PRE-FUNDING ACCOUNTS MAY RESULT IN REINVESTMENT RISK
If so specified in the related Prospectus Supplement, on the related
Closing Date the Depositor will deposit cash in an amount (the "Pre-Funded
Amount") specified in such Prospectus Supplement into an account (the
"Pre-Funding Account"). The Pre-Funded Amount will be used to purchase
additional Mortgage Loans and/or Agency Securities ("Subsequent Mortgage
Collateral") during a period from the related Closing Date to a date not more
than one year after such Closing Date (such period, the "Funding Period") from
the Depositor (which, in turn, will acquire such Subsequent Mortgage Collateral
from AmREIT). The Pre-Funding Account will be maintained with the Bond Trustee
for the related Series of Securities and is designed solely to hold funds to be
applied by such Bond Trustee during the Funding Period to pay to the Depositor
the purchase price for Subsequent Mortgage Collateral. Monies on deposit in the
Pre-Funding Account will not be available to cover losses on or in respect of
the related Mortgage Collateral. To the extent that the entire Pre-Funded Amount
has not been applied to the purchase of Subsequent Mortgage Collateral by the
end of the related Funding Period, any amounts remaining in the Pre-Funding
Account will be distributed as a prepayment of principal to Securityholders on
the Distribution Date immediately following the end of the Funding Period in the
amounts and pursuant to the priorities set forth in the related Prospectus
Supplement. Any reinvestment risk resulting from such prepayment will be borne
entirely by the holders of one or more Classes of the related Series of
Securities. See "TRUST FUND ASSETS -- PRE-FUNDING ACCOUNT" herein.
PRE-FUNDING ACCOUNTS MAY ADVERSELY AFFECT INVESTMENT
The ability of the Issuer to acquire Subsequent Mortgage Collateral during
the Funding Period will be dependent upon the ability of the Depositor to
acquire Subsequent Mortgage Collateral that satisfies the requirements described
in the related Prospectus Supplement. Although such Subsequent Mortgage
Collateral must satisfy the characteristics described in the related Prospectus
Supplement, such Subsequent Mortgage Collateral may have certain different
characteristics, including, without limitation, a more recent origination date
than the initial Mortgage Collateral. As a result, the addition of such
Subsequent Mortgage
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Collateral pursuant to the Pre-Funding Account may adversely affect the
performance of the related Securities. See "TRUST FUND ASSETS -- PRE-FUNDING
ACCOUNT" herein.
CONSEQUENCES OF OWNING ORIGINAL ISSUE DISCOUNT SECURITIES
All of the Deferred Interest Securities will be, and certain of the other
Securities may be, issued with original issue discount for federal income tax
purposes. A holder of a Security issued with original issue discount will be
required to include original issue discount in ordinary gross income for federal
income tax purposes as it accrues, in advance of receipt of the cash
attributable to such income. Accrued but unpaid interest on the Deferred
Interest Securities generally will be treated as original issue discount for
this purpose. See "FEDERAL INCOME TAX CONSEQUENCES -- INTEREST AND ORIGINAL
ISSUE DISCOUNT" and "-- MARKET DISCOUNT" herein.
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INTRODUCTION
American Residential Eagle, Inc., a Delaware corporation (the "Company"),
proposes to establish one or more trusts to issue and sell Securities from time
to time under this Prospectus and related Prospectus Supplements. The Company is
a limited purpose finance corporation whose capital stock is wholly owned by
American Residential Investment Trust, Inc. ("AmREIT"). AmREIT, a Maryland
corporation, has elected to be treated as a real estate investment trust under
the Internal Revenue Code of 1986, as amended (the "Code"). The Company was
formed for the sole purpose of acting as the depositor of one or more trusts to
be formed for the purpose of issuing the Securities offered hereby and by the
related Prospectus Supplements. Each trust that is formed to act as an Issuer
will be created pursuant to an agreement between the Company acting as depositor
(in such capacity, the "Depositor"), and a bank or trust company, acting as
trustee. Each trust will be established solely for the purpose of issuing one
Series of Securities and engaging in transactions relating thereto. Each Series
of Securities will be separately supported by the Trust Fund Assets described in
the Prospectus Supplement relating to such Series, which assets will constitute
the only significant assets available to make payments on the Securities of such
Series. Accordingly, the investment characteristics of a Series of Securities
will be determined by the Trust Fund Assets for such Series and will not be
affected by the identity of the obligor with respect to such Series of
Securities. The term "Issuer," as used herein, with respect to a Series of
Securities refers to the trust established by the Company for the sole purpose
of issuing such Series of Securities.
Each Series of Bonds will be issued pursuant to a separate Indenture (the
"Indenture") between the Issuer of such Series and a bank or trust company
acting as trustee for the holders of such Bonds (the "Bond Trustee"). Each
Series of Certificates will be issued pursuant to a separate Trust Agreement
(the "Trust Agreement") between the Depositor and a bank or trust company acting
as trustee (the "Certificate Trustee"). The Indentures and Trust Agreements for
Series of Securities offered hereby are referred to herein collectively as
"Agreements" and individually as an "Agreement." A form of the each Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part. Each final Agreement relating to each Series of
Securities will be filed with the Securities and Exchange Commission as soon as
practicable following the issuance of such Series of Securities.
THE ISSUERS
Any trust established to act as Issuer of a Series of Securities will be
created pursuant to a trust agreement between the Company and a bank or trust
company acting as trustee. Under the terms of each trust agreement creating a
trust relating to a Series of Bonds (a "Bond Issuer"), the Company initially
will retain the entire beneficial interest in the trust created thereunder
unless otherwise specified in the related Prospectus Supplement. The Company may
thereafter sell or assign all or a portion of such beneficial ownership to
another entity or entities unless prohibited from doing so by the related trust
agreement. The beneficial owners of each Bond Issuer will have no liability for
the obligations of the Issuer under the Bonds issued by it and holders of Bonds
of each Series will be deemed to have released the holders of beneficial
interest from any claim, liability or obligation on or with respect to the
Bonds. Each Bond Issuer will be managed by AmREIT. Under the terms of each trust
agreement creating a trust relating to a Series of Certificates (a "Certificate
Issuer"), the Company may retain or sell all or a portion of any Class of such
Series of Certificates.
The Mortgage Collateral for each Series of Securities will have been
deposited with the Issuer of such Series by the Company which, in turn, will
have either (i) received such collateral from AmREIT (or an affiliate) as a
contribution to the Company's capital or (ii) purchased such collateral from
AmREIT (or an affiliate) or another entity or entities (in such capacity, each a
"Seller") as provided in the related Prospectus Supplement. (References herein
to AmREIT in its capacity as Seller shall be deemed to include any affiliate of
AmREIT acting in such capacity.) AmREIT acquires mortgage loans in the normal
course of its business from entities who have originated or otherwise acquired
such loans. AmREIT works with such originating entities to develop underwriting
guidelines for loan products that will meet AmREIT's investment criteria;
however, neither AmREIT nor any of its affiliates originates or services
mortgage loans. None of the Mortgage Loans will represent obligations of AmREIT.
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In connection with the issuance of each Series of Bonds, the related
Mortgage Collateral will be deposited by the Company with the Issuer of such
Series and pledged by such Issuer to the Bond Trustee under the related
Indenture to secure such Series of Bonds. The Indenture with respect to each
Series of Bonds will prohibit the incurrence of further indebtedness by the
Issuer of such Series of Bonds. The Bond Trustee will hold the Mortgage
Collateral for a Series of Bonds as security pledged only for that Series, and
holders of the Bonds of that Series will be entitled to the benefits of such
security pursuant to the terms of the Indenture. In connection with the issuance
of each Series of Certificates, the Company will deposit one or more Series of
Bonds created for such purpose into the Issuer of such Series of Certificates by
assigning the Bonds to the Certificate Trustee under the related Trust Agreement
for such Series of Certificates. The Trust Agreement with respect to such Series
will prohibit the issuance of additional Series of Certificates by that Issuer.
The Certificate Trustee will hold the Bonds so designated as part of the Trust
Fund Assets for such Series of Certificates and the holders of such Series of
Certificates will have beneficial ownership of such Trust Fund Assets pursuant
to the terms of the Trust Agreement.
Each trust agreement will provide that the related trust may not conduct
any activities other than those related to the issuance and sale of the
Securities of the particular Series issued by it and such other limited
activities as may be required in connection with reports and distributions to
holders of beneficial interests in the trust. No trust agreement will be subject
to amendment without the prior written consent of the Bond Trustee or the
Certificate Trustee for the related Series, which consent may not be
unreasonably withheld if such amendment would not adversely affect the interests
of the Securityholders of such Series.
THE COMPANY
The Company was incorporated in the State of Delaware on January 27, 1998
and is a limited purpose finance subsidiary of AmREIT. The Company is a
qualified real estate investment trust subsidiary. AmREIT is a publicly owned
real estate investment trust. The Company's principal executive offices are
located at 445 Marine View Avenue, Suite 100, Del Mar, California 92014. The
Company's telephone number is 619-259-6082.
AmREIT has agreed with the Company that AmREIT will not file or cause to be
filed any voluntary petition in bankruptcy against the Company or any trust
created by it until at least one year after the date on which the related
Securities have been paid in full, if at all.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Securities of each
Series will be applied by the Company to the purchase or acquisition of the
related Trust Fund Assets or the payment of expenses incurred in connection with
the issuance of Securities and otherwise incurred in connection with the conduct
of the Company's operations.
TRUST FUND ASSETS
GENERAL
The Trust Fund Assets securing each Series of Bonds will consist of
collateral (the "Collateral") comprised of (i) the Mortgage Collateral pledged
as security for such Series of Bonds, (ii) funds on deposit in the Bond Account
and the Distribution Account under the Indenture for such Series of Bonds
representing payments and prepayments on Mortgage Collateral, including, to the
extent applicable, all payments which may become due under any applicable
hazard, mortgage guaranty, mortgagor bankruptcy, title insurance and bond
insurance policies (collectively, the "Insurance Proceeds") and the proceeds
(the "Liquidation Proceeds") of foreclosure or settlement of defaulted Mortgage
Loans each as required to be remitted to the Bond Trustee, (iii) cash,
certificates of deposit, letters of credit, surety bonds, reinvestment income,
guaranteed investment contracts or any combination thereof in the aggregate
amount, if any, specified in the related Prospectus Supplement to be deposited
by the Issuer in a related Reserve Fund, (iv) the amount of
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cash, if any, specified in the related Prospectus Supplement, to be initially
deposited by the Issuer in the related Bond Account, (v) certain cash accounts,
insurance policies, surety bonds, reinvestment income, guarantees, letters of
credit, cross-collateralization or derivative arrangements, as specified herein
and in the related Prospectus Supplement, (vi) to the extent applicable, the
reinvestment income on all of the foregoing, (vii) the Issuer's rights under the
Master Servicing Agreement with respect to the Series of Bonds, (viii) the
Issuer's rights under the Mortgage Loan Purchase Agreement with respect to the
Series of Bonds, (ix) amounts (excluding any reinvestment income thereon)
deposited in the related early remittance account, if any, under the Indenture
for such Series of Bonds and (x) the Issuer's rights under certain of the
Mortgage Pool Insurance Policies and/or Bond Insurance Policies obtained for
such Series of Bonds. Scheduled payments on the Mortgage Collateral securing a
Series of Bonds and amounts, if any, initially deposited in the related Bond
Account, together with, to the extent applicable, amounts available to be
withdrawn from any related Reserve Fund, will be sufficient to make timely
payments of interest on the Bonds of such Series and to retire each Class of
Bonds comprising such Series not later than the Stated Maturity of such Class of
Bonds specified in the related Prospectus Supplement.
The Trust Fund Assets for each Series of Certificates will consist
primarily of one or more Bonds representing the right to receive all or
substantially all of the payments on the Collateral securing such Series of
Bonds. Each Series of Certificates will accordingly be supported by the Mortgage
Collateral and other items included in the Trust Fund Assets for the related
Series of Bonds.
Each Prospectus Supplement relating to a Series of Securities will include
information as to (i) the approximate aggregate principal amount of the Mortgage
Collateral supporting such Series and whether the Mortgage Collateral consists
of Mortgage Loans, GNMA Certificates, FNMA Certificates, FHLMC Certificates or
some combination of Mortgage Loans and Agency Securities and (ii) the
approximate weighted average terms to maturity of such Mortgage Collateral.
The Collateral supporting each Series of Securities will serve as Trust
Fund Assets only for that Series of Securities, except to the extent that any
Mortgage Pool Insurance Policies, Special Hazard Insurance Policies, Bankruptcy
Bonds or other form of credit enhancement specified herein may, if specified in
the related Prospectus Supplement, be pledged to support more than one Series of
Securities. See "CREDIT ENHANCEMENT" herein.
The following is a brief description of the Mortgage Collateral expected to
be included in the Trust Fund Assets for a Series of Securities. If specific
information respecting the Mortgage Collateral is not known at the time the
related Series of Securities initially is offered, more general information of
the nature described below will be provided in the related Prospectus
Supplement, and specific information will be set forth in a report on Form 8-K
to be filed with the Securities and Exchange Commission within fifteen days
after the initial issuance of such Securities (the "Detailed Description"). A
schedule of the Mortgage Collateral relating to such Series of Securities will
be attached to the applicable Agreement upon issuance of the Securities.
THE MORTGAGE LOANS
GENERAL. All of the Mortgage Loans will be contributed to the Company's
capital by AmREIT (or an affiliate) or purchased by the Company from AmREIT (or
an affiliate) or another Seller and will be master serviced by the Master
Servicer specified in the related Prospectus Supplement. See "SERVICING OF THE
MORTGAGE LOANS" herein. Mortgage Loans contributed to or acquired by the Company
will have been originated in accordance with the underwriting criteria specified
under "MORTGAGE LOAN PROGRAM -- UNDERWRITING STANDARDS" herein and in the
related Prospectus Supplement. The Mortgage Loans supporting a Series of
Securities will consist solely of conventional loans secured by first or junior
liens on one- to four-family residential properties or other types of
residential or mixed use properties described below under "FREEDOM PROGRAM." See
"CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS -- GENERAL" herein. The real property
constituting security for repayment of a Mortgage Loan (each, a "Mortgaged
Property") may be located in any one of the fifty states, the District of
Columbia, Guam, Puerto Rico, or any other territory of the United States as
specified in the related Prospectus Supplement. Mortgage Loans with certain
Loan-to-Value Ratios and/or certain principal balances may be covered wholly
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or partially by primary mortgage insurance policies (each, a "Primary Mortgage
Insurance Policy"). The existence, extent and duration of any such coverage will
be described in the applicable Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, all of the
Mortgage Loans supporting a Series of Securities will have monthly payments due
on the first day of each month. Such monthly installments on each such Mortgage
Loan, net of (i) applicable servicing compensation or master servicing
compensation, (ii) amounts retained by the Master Servicer or Servicer (as
defined herein) to be applied to the payment of premiums for certain Mortgage
Pool Insurance Policies and, if applicable, bond insurance policies and (iii)
amounts retained to reimburse the Master Servicer or Servicer for certain
advances it has made, will be payable to the Bond Trustee by the Master Servicer
on or before the monthly remittance date specified in the Prospectus Supplement
relating to the Series of Securities supported by such Mortgage Loans (each, a
"Remittance Date"). See "SERVICING OF THE MORTGAGE LOANS -- PAYMENTS ON MORTGAGE
LOANS" and "-- ADVANCES AND OTHER AMOUNTS PAYABLE BY MASTER SERVICER" herein.
The payment terms of the Mortgage Loans supporting a Series of Securities will
be described in the related Prospectus Supplement and may include any of the
following features or combination 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 an adjustable rate to a fixed rate. Changes to an adjustable rate may
be subject to periodic limitations, maximum rates, minimum rates or a
combination of such limitations as set forth in the related Mortgage Note.
Accrued interest may be deferred and added to the principal of a loan for
such periods and under such circumstances as may be specified in the
related Prospectus Supplement. A Mortgage Note may provide for the payment
of interest at a rate lower than the Mortgage Rate specified in such
Mortgage Note for a period of time or for the life of the loan and the
amount of any difference may be contributed from funds supplied by 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
Mortgage Rate or may not be amortized during all or a portion of the
original term. Payment of all or a substantial portion of the principal may
be due on maturity ("balloon payments"). Principal may include interest
that has been deferred and added to the principal balance of the Mortgage
Loan.
(c) Monthly payments of principal and interest may be fixed for the
life of the Mortgage Loan, may increase over a specified period of time or
may change from period to period. The terms of a Mortgage Loan may include
limits on periodic increases or decreases in the amount of monthly payments
and may include maximum or minimum amounts of monthly payments.
(d) The Mortgage Loans may be prepaid (i) at any time without the
payment of any prepayment fee or (ii) subject to a prepayment fee, which
may be fixed for the life of any such Mortgage Loan or may decline over
time, and may be prohibited for the life of such Mortgage Loan or for
certain periods ("lockout periods"). Certain Mortgage Loans may permit
prepayments after expiration of the applicable lockout period and may
require the payment of a prepayment fee in connection with any such
subsequent prepayment. Other Mortgage Loans may permit prepayments without
payment of a fee unless the prepayment occurs during specified time
periods. The loans may include "due-on-sale" clauses that permit the
mortgagee to demand payment of the entire Mortgage Loan in connection with
the sale or certain transfers of the related Mortgaged Property. Other
Mortgage Loans may be assumable by persons meeting the then applicable
underwriting standards. See "MORTGAGE LOAN PROGRAM -- UNDERWRITING
STANDARDS" herein.
The Mortgage Collateral supporting a Series of Securities may include
certain Mortgage Loans ("Buydown Loans") that include provisions whereby a third
party partially subsidizes the monthly payments
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of the Mortgagors during the early years of such Mortgage Loans, the difference
to be made up from a fund (a "Buydown Fund") contributed by such third party at
the time of origination of the Mortgage Loan. A Buydown Fund will be in an
amount equal either to the discounted value or full aggregate amount of future
payment subsidies. The underlying assumption of buydown plans is that the income
of the Mortgagor will increase during the buydown period as a result of normal
increases in compensation and inflation, so that the Mortgagor will be able to
meet the full mortgage payments at the end of the buydown period. To the extent
that this assumption as to increased income is not fulfilled, the possibility of
defaults on Buydown Loans is increased. The related Prospectus Supplement will
contain information with respect to any Buydown Loan concerning limitations on
the interest rate paid by the Mortgagor initially, on annual increases in the
interest rate and on the length of the buydown period.
Mortgage Loans will consist of mortgage loans or deeds of trust secured by
first or junior liens on one-to four-family residential properties or other
types of residential or mixed use properties described below under "FREEDOM
PROGRAM." If provided in the related Prospectus Supplement, certain of the
Mortgage Loans may be secured by junior liens where the related senior liens
("Senior Liens") are not to be included as part of the Mortgage Collateral.
Holders of such Mortgage Loans secured by junior liens are subject to the risk
that adequate funds will not be received in connection with a foreclosure of the
related Senior Liens to satisfy fully both the Senior Liens and the Mortgage
Loans. In the event that a holder of a Senior Lien forecloses on a Mortgaged
Property, the proceeds of the foreclosure or similar sale will be applied first
to the payment of court costs and fees in connection with the foreclosure,
second to real estate taxes, third in satisfaction of all principal, interest,
prepayment or acceleration penalties, if any, and any other sums due and owing
to the holder of the Senior Liens. The claims of the holders of the Senior Liens
will be satisfied in full out of proceeds of the liquidation of the related
Mortgaged Property, if such proceeds are sufficient, before the Issuer as holder
of the junior lien receives any payments in respect of the Mortgage Loan. If the
Master Servicer or a Servicer were to foreclose on any such Mortgage Loan, it
would do so subject to any related Senior Liens. In order for the debt related
to the Mortgage Loan to be paid in full at such sale, a bidder at the
foreclosure sale of such Mortgage Loan would have to bid an amount sufficient to
pay off all sums due under the Mortgage Loan and the Senior Liens or purchase
the Mortgaged Property subject to the Senior Liens. In the event that such
proceeds from a foreclosure or similar sale of the related Mortgaged Property
are insufficient to satisfy all Senior Liens and the Mortgage Loan in the
aggregate, the Issuer, as the holder of the junior liens, and, accordingly,
holders of one or more classes of the Securities of the related Series, bear (i)
the risk of delay in distributions while a deficiency judgment against the
borrower is obtained and (ii) the risk of loss if the deficiency judgment is not
realized upon. Moreover, deficiency judgments may not be available in certain
jurisdictions or the Mortgage Loan may be nonrecourse. In addition, a junior
mortgagee may not foreclose on the property securing a junior mortgage unless it
forecloses subject to the senior mortgages.
Each Prospectus Supplement will contain information, as of the date of such
Prospectus Supplement and to the extent then specifically known to the Company,
with respect to the Mortgage Loans supporting the related Series of Securities,
including (i) the aggregate outstanding principal balance and the average
outstanding principal balance of the Mortgage Loans as of the date of issuance
of the related Series of Securities, (ii) the types of property securing the
Mortgage Loans, (iii) the original terms to maturity of the Mortgage Loans, (iv)
the earliest origination date and latest maturity date of any of the Mortgage
Loans, (v) the maximum and minimum per annum Mortgage Rates and (vi) the
geographical distribution of the Mortgage Loans.
If so specified in the related Prospectus Supplement, the Mortgage Loans
may include cooperative apartment loans ("Cooperative Loans") secured by
security interests in shares issued by private, non-profit, cooperative housing
corporations ("Cooperatives") and in the related proprietary leases or occupancy
agreements granting exclusive rights to occupy specific dwelling units in such
Cooperatives' buildings.
The Mortgaged Properties relating to Mortgage Loans will consist of
detached or semi-detached one-family dwelling units, two- to four-family
dwelling units, townhouses, rowhouses, individual condominium units, individual
units in planned unit developments, small multi-family and mixed use properties
and certain other dwelling units described under "FREEDOM PROGRAM." Such
Mortgaged Properties may include
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vacation and second homes, investment properties and leasehold interests. In the
case of leasehold interests, the term of the leasehold will exceed the scheduled
maturity of the Mortgage Loans by at least five years.
FREEDOM PROGRAM. Under AmREIT's Freedom Program, it will (i) identify
segments of the residential Mortgage Loan market that meet its general criteria
for potential originations, (ii) develop tailored underwriting guidelines for
Mortgage Loans to be generated in each market segment, (iii) arrange for the
acquisition by it of Mortgage Loans directly from the originators
("Correspondents"), hence avoiding certain loan broker or other intermediary
fees, and (iv) arrange for the servicing of the Mortgage Loans by entities
experienced in servicing the particular types of Mortgage Loans involved.
Although AmREIT works with its Correspondents to develop the desired
underwriting guidelines, neither AmREIT nor any of its affiliates originates or
services mortgage loans.
Under the Freedom Program, AmREIT will identify market segments of the
residential Mortgage Loan market that it believes have the potential for
generating Mortgage Loans with higher yields than other Mortgage Loans with
generally comparable risks. These segments generally are present where there is
less competition among Mortgage Loan originators and, hence, fewer resources
available to borrowers. AmREIT has identified a number of such segments and
expects that new opportunities to other market segments will become available as
the Mortgage Loan market continues to change. These emerging market segments
typically will include Mortgage Loans that are not readily available from large,
nationally-based Mortgage Loan originators due to factors related to the
Mortgage Loan underwriting process itself (such as the need to value a complex,
mixed use property) or a limited secondary market for resale of such types of
Mortgage Loans.
AmREIT has identified the following market segments of the residential
Mortgage Loan market for its initial tailored Mortgage Loan products:
- Small Multifamily Home Mortgage Loans. A small multifamily home Mortgage
Loan will be secured by a first lien on a 5-unit to 20-unit residential
property. The underwriting guidelines for small multifamily home Mortgage
Loans will place emphasis on the appraised value, the existence and terms
of underlying leases, a cash flow analysis, the condition of the mortgaged
property and favorable credit reports.
- Manufactured Housing Mortgage Loans. A manufactured housing Mortgage
Loan will be secured by a first lien on an owner occupied manufactured
housing unit (excluding mobile homes) permanently affixed to a foundation
and the underlying lot. The underwriting guidelines for manufactured
housing Mortgage Loans will place emphasis on appraised value (relying on
comparable sales), condition of the property, the quality of the
borrower's income and favorable credit reports.
- Mixed Use Mortgage Loans. A mixed use Mortgage Loan will be secured by a
first lien on a combined commercial and upto-twelve-unit residential
property. The qualifying commercial uses of the properties will be
generally limited to retail, professional, light industrial or office use.
The underwriting guidelines for mixed use Mortgage Loans will place
emphasis on appraised value (relying on comparable sales), condition of
the property (and environmental compliance),cash flow analysis and credit
reports (including credit reports on commercial tenants).
- Rural Home Mortgage Loans. A rural home Mortgage Loan will be secured by
a first lien on a residential property in a rural area where agricultural
use is present but limited to noncommercial use. The underwriting
guidelines for rural home Mortgage Loans will place emphasis on appraised
value (relying on comparable sales), condition of the property, quality of
the borrower's income and favorable credit reports. Rural home Mortgage
Loan amounts will generally be higher with respect to the appraised value
of the residence, and the first five acres and lower with respect to any
additional acreage.
- Mini-Ranch Home Mortgage Loans. A mini-ranch home Mortgage Loan will be
secured by a first lien on a residential ranch property. The underwriting
guidelines for mini-ranch home Mortgage Loans will place emphasis on
appraised value (relying on comparable sales), condition of the property,
the quality of the borrower's income (primarily non-ranch income) and
favorable credit reports. Mini-
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ranch home Mortgage Loan amounts will generally be higher with respect to
the appraised value of the residence and the first five acres, and lower
with respect to any additional acreage.
- Condominium/Resort Mortgage Loans. A condominium/resort Mortgage Loan
will be secured by a first lien on a vacation property, including those
located in ski, golf and other recreational resort areas. The underwriting
guidelines for condominium/resort Mortgage Loans will place emphasis on
appraised value (relying on comparable sales with same complex comparables
preferred), same complex rental history, the quality of the borrower's
income and favorable credit reports.
AmREIT has created tailored underwriting guidelines for Mortgage Loans in
the initial target market segments. Such Mortgage Loan underwriting guidelines
will set forth the various characteristics (such as combinations of
loan-to-value levels and credit ranking of borrowers) for Mortgage Loans that
AmREIT is prepared to purchase from Correspondents. These Mortgage Loans
generally will be nonconforming, primarily as a result of the property type,
and, to a lesser extent, the borrower's credit characteristics.
AmREIT intends to draw upon the experience of its executive officers in the
residential mortgage industry to build a network of Correspondents with
expertise in market segments targeted by AmREIT. AmREIT will make arrangements
to acquire Mortgage Loans through its relationships with these Correspondents.
AmREIT will identify and work with a number of Correspondents to generate
Mortgage Loan products for the Freedom Program.
The Mortgage Loans acquired pursuant to the Freedom Plan will have certain
distinct risk characteristics and generally lack standardized terms, which may
complicate their structure. The underlying properties themselves may be unique
and more difficult to value than typical residential real estate properties.
Although AmREIT intends to seek geographic diversification of the properties
which are collateral for its Mortgage Loans, it does not intend to set specific
diversification requirements (whether by state, zip code or other geographic
measure). Concentration of the Mortgage Collateral securing a series of Bonds in
any one area will increase exposure to the economic and natural hazard risks
associated with that area.
OTHER PRODUCTS. In addition to the tailored Mortgage Loan products
described above, AmREIT may also acquire conforming Mortgage Loans and
nonconforming jumbo Mortgage Loans from Correspondents, and purchase Mortgage
Loans on a bulk basis. Conforming Mortgage Loans meet underwriting guidelines
with respect to principal balance, loan repayment schedule and borrower credit
history, as defined by certain government sponsored agencies. These Mortgage
Loans will consist of conventional Mortgage Loans that comply with requirements
for inclusion in certain programs sponsored by the FHLMC or FNMA, and FHA Loans
and VA Loans. The nonconforming Mortgage Loans will be conventional Mortgage
Loans that vary in one or more respects from the requirements for participation
in FHLMC or FNMA programs.
AmREIT may invest in sub-prime Mortgage Loans. Sub-prime Mortgage Loans are
residential Mortgage Loans made to borrowers with credit ratings below the
conforming Mortgage Loan guidelines. Additionally, sub-prime Mortgage Loans
generally are subject to greater frequency of loss and delinquency than
conforming Mortgage Loans. Accordingly, lower credit grade Mortgage Loans
normally bear a higher rate of interest than conforming Mortgage Loans. The
Prospectus Supplement relating to any Series of Bonds secured by sub-prime
Mortgage Loans will set forth the matrix of underwriting criteria under which
such Mortgage Loans were originated separately for each credit-quality category
(e.g., "A-," "B," "C" or "D") applicable to such Mortgage Loans.
No assurance can be given that values of the Mortgaged Properties will
remain at their levels on the dates of origination of the related Mortgage
Loans. If the residential real estate market should experience an overall
decline in property values such that the outstanding principal balances of the
Mortgage Loans, and any secondary financing on the Mortgaged Properties,
securing a Series of Bonds become equal to or greater than the value of the
Mortgaged Properties, the actual rates of delinquencies, foreclosures and losses
could be higher than those now generally experienced in the mortgage lending
industry. In addition, adverse economic conditions and other factors (which may
or may not affect real property values) may affect the timely payment by
Mortgagors of scheduled payments of principal and interest on the Mortgage Loans
and, accordingly, the actual rates of delinquencies, foreclosures and losses
with respect to any Mortgage Collateral.
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To the extent that such losses are not covered by subordination provisions, any
other credit enhancement or alternative arrangements described herein and in the
related Prospectus Supplement, such losses will be borne, at least in part, by
the holders of the Securities of the related Series.
ASSIGNMENT OF MORTGAGE LOANS TO BOND TRUSTEE. Assignments of the mortgages
or deeds of trust in recordable form, naming the Bond Trustee as assignee, will
be executed and, subject to release for recording purposes, delivered to the
Bond Trustee along with certain other original documents evidencing the Mortgage
Loans, including the related Mortgage Notes. The original mortgage documents
will be held by the Bond Trustee or one or more of its custodians, except to the
extent released to the Master Servicer or any Servicer from time to time in
connection with its respective servicing activities. The Issuer will promptly
cause the assignments of the related Mortgage Loans to be recorded in the
appropriate public office for real property records, except in states in which,
in the opinion of counsel acceptable to the Bond Trustee, such recording is not
required to protect the Bond Trustee's interest in such Mortgage Loans against
the claim of any subsequent transferee or any successor to or creditor of the
Issuer or the originator of such Mortgage Loan. In the event an assignment of a
Mortgage Loan to the Bond Trustee is not recorded or the opinion referred to
above is not delivered to the Bond Trustee within the period specified in the
related Prospectus Supplement, AmREIT, may, if required by the Bond Trustee in
accordance with the terms of the Indenture, be obligated to (i) purchase such
Mortgage Loan at a price equal to the outstanding principal balance thereof on
the date of such purchase plus accrued and unpaid interest thereon to the first
day of the month following the month in which such Mortgage Loan is purchased
and deposit such amount in the Bond Account for the related Series of Securities
or (ii) if permitted by the applicable provisions of the Indenture and the
Mortgage Loan Purchase Agreement with respect to such Series of Securities,
replace such Mortgage Loan with an eligible substitute mortgage loan (an
"Eligible Substitute Mortgage Loan"). See "-- SUBSTITUTION OF MORTGAGE
COLLATERAL" herein.
The Master Servicer will service the Mortgage Loans, either directly or
through other mortgage servicing institutions ("Servicers"), pursuant to a
Master Servicing Agreement (as defined herein), and will receive a fee for such
services. See "MORTGAGE LOAN PROGRAM" and "SERVICING OF THE MORTGAGE LOANS"
herein. With respect to Mortgage Loans serviced by the Master Servicer through a
Servicer, the Master Servicer will remain liable for its servicing obligations
under the related Master Servicing Agreement as if the Master Servicer alone
were servicing such Mortgage Loans.
The obligations of the Master Servicer with respect to the Mortgage Loans
will consist principally of its contractual master servicing obligations under
the related Master Servicing Agreement (including its obligation to enforce the
obligations of the Servicers) as more fully described herein under "MORTGAGE
LOAN PROGRAM -- REPRESENTATIONS BY SELLERS; REPURCHASES" and its obligation to
make certain cash advances in the event of delinquencies in payments on or with
respect to the Mortgage Loans in the amounts described herein under "SERVICING
OF THE MORTGAGE LOANS -- ADVANCES AND OTHER AMOUNTS PAYABLE BY MASTER SERVICER"
herein. The obligations of the Master Servicer to make advances may be subject
to limitations, to the extent provided herein and in the related Prospectus
Supplement.
AGENCY SECURITIES
GENERAL. The Agency Securities supporting a Series of Securities will
consist of (i) fully modified pass-through mortgage-backed certificates
guaranteed as to timely payment of principal and interest by the Government
National Mortgage Association ("GNMA Certificates"), (ii) certificates
("Guaranteed Mortgage Pass-Through Certificates") issued and guaranteed as to
timely payment of principal and interest by the Federal National Mortgage
Association ("FNMA Certificates"), (iii) mortgage participation certificates
issued and guaranteed as to timely payment of interest and, unless otherwise
specified in the related Prospectus Supplement, ultimate payment of principal by
the Federal Home Loan Mortgage Corporation ("FHLMC Certificates"), (iv) stripped
mortgage-backed securities representing an undivided interest in all or a part
of either the principal distributions (but not the interest distributions) or
the interest distributions (but not the principal distributions) or in some
specified portion of the principal and interest distributions (but not all of
such distributions) on certain GNMA, FNMA or FHLMC Certificates and, unless
otherwise
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specified in the related Prospectus Supplement, guaranteed to the same extent as
the underlying securities, (v) another type of passthrough certificate issued or
guaranteed by GNMA, FNMA or FHLMC and described in the related Prospectus
Supplement or (vi) a combination of such Agency Securities.
GNMA CERTIFICATES. GNMA is a wholly-owned corporate instrumentality of the
United States with the Department of Housing and Urban Development. Section
306(g) of Title III of the National Housing Act of 1934, as amended (the
"Housing Act"), authorizes GNMA to guarantee the timely payment of the principal
of, and interest on, GNMA Certificates that represent an interest in a pool of
mortgage loans insured by the FHA under the Housing Act or Title V of the
Housing Act of 1949 ("FHA Loans"), or partially guaranteed by the VA under the
Servicemen's Readjustment Act of 1944, as amended, or Chapter 37 of Title 38,
United States Code ("VA Loans").
Section 306(g) of the Housing Act provides that "the full faith and credit
of the United States is pledged to the payment of all amounts which may be
required to be paid under any guaranty under this subsection." In order to meet
its obligations under such guaranty, GNMA may, under Section 306(d) of the
Housing Act, borrow from the United States Treasury in an unlimited amount which
is at any time sufficient to enable GNMA to perform its obligations under its
guaranty.
Each GNMA Certificate included in the Trust Fund Assets a Series of
Securities (which may be issued under either the GNMA I program (each such
certificate, a "GNMA I Certificate") or the GNMA II program (each such
certificate, a "GNMA II Certificate")) will be a "fully modified pass-through"
mortgage-backed certificate issued and serviced by a mortgage banking company or
other financial concern ("GNMA Issuer") approved by GNMA or by FNMA as a
seller-servicer of FHA Loans and/or VA Loans. The mortgage loans underlying the
GNMA Certificates will consist of FHA Loans and/or VA Loans. Each such mortgage
loan is secured by a one- to four-family or multifamily residential property.
GNMA will approve the issuance of each such GNMA Certificate in accordance with
a guaranty agreement (a "Guaranty Agreement") between GNMA and the GNMA Issuer.
Pursuant to its Guaranty Agreement, a GNMA Issuer will be required to advance
its own funds in order to make timely payments of all amounts due on each such
GNMA Certificate if the payments received by the GNMA Issuer on the FHA Loans or
VA Loans underlying each such GNMA Certificate are less than the amounts due on
each such GNMA Certificate.
The full and timely payment of principal of and interest on each GNMA
Certificate will be guaranteed by GNMA, which obligation is backed by the full
faith and credit of the United States. Each such GNMA Certificate will have an
original maturity of not more than 30 years (but may have original maturities of
substantially less than 30 years). Each such GNMA Certificate will be based on
and backed by a pool of FHA Loans or VA Loans secured by one- to four-family
residential properties and will provide for the payment by or on behalf of the
GNMA Issuer to the registered holder of such GNMA Certificate of scheduled
monthly payments of principal and interest equal to the registered holder's
proportionate interest in the aggregate amount of the monthly principal and
interest payment on each FHA Loan or VA Loan underlying such GNMA Certificate,
less the applicable servicing and guaranty fee, which together equal the
difference between the interest on the FHA Loan or VA Loan and the passthrough
rate on the GNMA Certificate. In addition, each payment will include
proportionate pass-through payments of any prepayments of principal on the FHA
Loans or VA Loans underlying such GNMA Certificate and liquidation proceeds in
the event of a foreclosure or other disposition of any such FHA Loans or VA
Loans.
If a GNMA Issuer is unable to make the payments on a GNMA Certificate as it
becomes due, it must promptly notify GNMA and request GNMA to make such payment.
Upon notification and request, GNMA will make such payments directly to the
registered holder of such GNMA Certificate. In the event no payment is made by a
GNMA Issuer and the GNMA Issuer fails to notify and request GNMA to make such
payment, the holder of such GNMA Certificate will have recourse only against
GNMA to obtain such payment. The Bond Trustee or its nominee, as registered
holder of the GNMA Certificates securing a Series of Bonds will have the right
to proceed directly against GNMA under the terms of the Guaranty Agreements
relating to such GNMA Certificates for any amounts that are not paid when due.
All mortgage loans underlying a particular GNMA I Certificate must have the
same interest rate (except for pools of mortgage loans secured by manufactured
homes) over the term of the loan. The interest rate on
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such GNMA I Certificate will equal the interest rate on the mortgage loans
included in the pool of mortgage loans underlying such GNMA I Certificate, less
one-half percentage point per annum of the unpaid principal balance of the
mortgage loans.
Mortgage loans underlying a particular GNMA II Certificate may have per
annum interest rates that vary from each other by up to one percentage point.
The interest rate on each GNMA II Certificate will be between one-half
percentage point and one and one-half percentage points lower than the highest
interest rate on the mortgage loans included in the pool of mortgage loans
underlying such GNMA II Certificate (except for pools of mortgage loans secured
by manufactured homes).
Regular monthly installment payments on each GNMA Certificate supporting a
Series of Securities will be comprised of interest due as specified on such GNMA
Certificate plus the scheduled principal payments on the FHA Loans or VA Loans
underlying such GNMA Certificate due on the first day of the month in which the
scheduled monthly installments on such GNMA Certificate are due. Such regular
monthly installments on each such GNMA Certificate are required to be paid to
the registered holder by the 15th day of each month in the case of a GNMA I
Certificate and are required to be mailed to the registered holder by the 20th
day of each month in the case of a GNMA II Certificate. Any principal
prepayments on any FHA Loans or VA Loans underlying a GNMA Certificate securing
a Series of Bonds or any other early recovery of principal on such loans will be
passed through to the registered holder of such GNMA Certificate.
GNMA Certificates may be backed by graduated payment mortgage loans or by
Buydown Loans for which funds will have been provided (and deposited into escrow
accounts) for application to the payment of a portion of the borrowers' monthly
payments during the early years of such mortgage loan. Payments due the
registered holders of GNMA Certificates backed by pools containing Buydown Loans
will be computed in the same manner as payments derived from other GNMA
Certificates and will include amounts to be collected from both the borrower and
the related escrow account. The graduated payment mortgage loans will provide
for graduated interest payments that, during the early years of such mortgage
loans, will be less than the amount of stated interest on such mortgage loans.
The interest not so paid will be added to the principal of such graduated
payment mortgage loans and, together with interest thereon, will be paid in
subsequent years. The obligations of GNMA and of a GNMA Issuer will be the same
irrespective of whether the GNMA Certificates are backed by graduated payment
mortgage loans or Buydown Loans. No statistics comparable to the FHA's
prepayment experience on level payment, non-"buydown" mortgage loans are
available in respect of graduated payment or Buydown Loans. GNMA Certificates
related to a Series of Bonds may he held in book-entry form.
The GNMA Certificates supporting a Series of Securities, and the related
underlying mortgage loans, may have characteristics and terms different from
those described above. Any such different characteristics and terms will be
described in the related Prospectus Supplement.
FNMA CERTIFICATES. FNMA is a federally chartered and privately owned
corporation organized and existing under the Federal National Mortgage
Association Charter Act, as amended. FNMA originally was established in 1938 as
a United States government agency to provide supplemental liquidity to the
mortgage market and was transformed into a stockholder-owned and
privately-managed corporation by legislation enacted in 1968.
FNMA provides funds to the mortgage market primarily by purchasing mortgage
loans from lenders, thereby replenishing their funds for additional lending.
FNMA acquires funds to purchase mortgage loans from many capital market
investors that may not ordinarily invest in mortgages, thereby expanding the
total amount of funds available for housing. Operating nationwide, FNMA helps to
redistribute mortgage funds from capital-surplus to capital-short areas.
FNMA Certificates are Guaranteed Mortgage Pass-Through Certificates
representing fractional undivided interests in a pool of mortgage loans formed
by FNMA. Each mortgage loan generally must meet the applicable standards of the
FNMA purchase program. Mortgage loans comprising a pool are either provided by
FNMA from its own portfolio or purchased pursuant to the criteria of the FNMA
purchase program.
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Mortgage loans underlying FNMA Certificates supporting a Series of
Securities will consist of conventional loans, FHA Loans or VA Loans. Original
maturities of substantially all of the conventional, level payment mortgage
loans underlying a FNMA Certificate are expected to be between either 8 to 15
years or 20 to 40 years. The original maturities of substantially all of the
fixed rate, level payment FHA Loans or VA Loans are expected to be 30 years.
Mortgage loans underlying a FNMA Certificate may have annual interest rates
that vary by as much as two percentage points from each other. The rate of
interest payable on a FNMA Certificate is equal to the lowest interest rate of
any mortgage loan in the related pools, less a specified minimum annual
percentage representing servicing compensation and FNMA's guaranty fee. Under a
regular servicing option (pursuant to which the mortgagee or each other servicer
assumes the entire risk of foreclosure losses), the annual interest rates on the
mortgage loans underlying a FNMA Certificate will be between 50 basis points and
250 basis points greater than is its annual pass-through rate and under a
special servicing option (pursuant to which FNMA assumes the entire risk for
foreclosure losses), the annual interest rates on the mortgage loans underlying
a FNMA Certificate will generally be between 55 basis points and 255 basis
points greater than the annual FNMA Certificate pass-through rate. One "basis
point" is equal to one-hundredth of a percentage point (0.01%). If specified in
the related Prospectus Supplement, FNMA Certificates may be backed by adjustable
rate mortgages.
FNMA guarantees to each registered holder of a FNMA Certificate that it
will distribute amounts representing such holder's proportionate share of
scheduled principal and interest payments at the applicable pass-through rate
provided for by such FNMA Certificate on the underlying mortgage loans, whether
or not received, and such holder's proportionate share of the full principal
amount of any foreclosed or other finally liquidated mortgage loan, whether or
not such principal amount is actually recovered. The obligations of FNMA under
its guaranties are obligations solely of FNMA and are not backed by, or entitled
to, the full faith and credit of the United States. Although the Secretary of
the Treasury of the United States has discretionary authority to lend FNMA up to
$2.25 billion outstanding at any time, neither the United States nor any agency
thereof is obligated to finance FNMA's operations or to assist FNMA in any other
manner. If FNMA were unable to satisfy its obligations, distributions to holders
of FNMA Certificates would consist solely of payments and other recoveries on
the underlying mortgage loans and accordingly, monthly distributions to holders
of FNMA Certificates would be affected by delinquent payments and defaults on
such mortgage loans.
FNMA Certificates evidencing interests in pools of mortgage loans formed on
or after May 1, 1985 (other than FNMA Certificates backed by pools containing
graduated payment mortgage loans or mortgage loans secured by multifamily
projects) are available in book-entry form only. Distributions of principal and
interest on each FNMA Certificate will be made by FNMA on the 25th day of each
month to the persons in whose name the FNMA Certificate is entered in the books
of the Federal Reserve Banks (or registered on the FNMA Certificate register in
the case of fully registered FNMA Certificates) as of the close of business on
the last day of the preceding month. With respect to FNMA Certificates issued in
book-entry form, distributions thereon will be made by wire, and with respect to
fully registered FNMA Certificates, distributions thereon will be made by check.
The FNMA Certificates supporting a Series of Securities, and the related
underlying mortgage loans, may have characteristics and terms different from
those described above. Any such different characteristics and terms will be
described in the related Prospectus Supplement.
FHLMC CERTIFICATES. FHLMC is a corporate instrumentality of the United
States created pursuant to Title III of the Emergency Home Finance Act of 1970,
as amended (the "FHLMC Act"). The common stock of FHLMC is owned by the Federal
Home Loan Banks and its preferred stock is owned by stockholders of the Federal
Home Loan Banks. FHLMC was established primarily for the purpose of increasing
the availability of mortgage credit for the financing of urgently needed
housing. It seeks to provide an enhanced degree of liquidity for residential
mortgage investments primarily by assisting in the development of secondary
markets for conventional mortgages. The principal activity of FHLMC currently
consists of the purchase of first lien, conventional mortgage loans or
participation interests in such mortgage loans and the sale of the mortgage
loans or participations so purchased in the form of guaranteed mortgage
securities, primarily
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FHLMC Certificates. FHLMC is confined to purchasing, so far as practicable,
mortgage loans that it deems to be of such quality, type and class as to meet
generally the purchase standards imposed by private institutional mortgage
investors.
Each FHLMC Certificate represents an undivided interest in a pool of
mortgage loans that may consist of first lien Conventional Loans, FHA Loans or
VA Loans. FHLMC Certificates are sold under the terms of a Mortgage
Participation Certificate Agreement. A FHLMC Certificate may be issued under
either FHLMC's Cash Program or Guarantor Program.
Mortgage loans underlying the FHLMC Certificates supporting a Series of
Securities will generally consist of mortgage loans with original terms to
maturity of between 10 and 40 years. Each such mortgage loan must meet the
applicable standards set forth in the FHLMC Act. A FHLMC Certificate group may
include whole loans, participation interests in whole loans and undivided
interests in whole loans and/or participations comprising another FHLMC
Certificate group. Under the Guarantor Program, any such FHLMC Certificate group
may include only whole loans or participation interests in whole loans.
FHLMC guarantees to each registered holder of a FHLMC Certificate the
timely payment of interest on the underlying mortgage loans to the extent of the
applicable certificate interest rate on the registered holder's pro rata share
of the unpaid principal balance outstanding on the underlying mortgage loans in
the FHLMC Certificate group represented by such FHLMC Certificate, whether or
not received. FHLMC also guarantees to each registered holder of a FHLMC
Certificate collection by such holder of all principal on the underlying
mortgage loans, without any offset or deduction, to the extent of such holder's
pro rata share thereof, but does not, except if and to the extent specified in
the related Prospectus Supplement for a Series of Bonds, guarantee the timely
payment of scheduled principal. Under FHLMC's Gold PC Program, FHLMC guarantees
the timely payment of principal based on the difference between the pool factor
published in the month preceding the month of distribution and the pool factor
published in such month of distribution. Pursuant to its guaranties, FHLMC
indemnifies holders of FHLMC Certificates against any diminution in principal by
reason of charges for property repairs, maintenance and foreclosure. FHLMC may
remit the amount due on account of its guaranty of collection of principal at
any time after default on an underlying mortgage loan, but not later than (i) 30
days following foreclosure sale, (ii) 30 days following payment of the claim by
any mortgage insurer or (iii) 30 days following the expiration of any right of
redemption, whichever occurs later, but in any event no later than one year
after demand has been made upon the mortgagor for accelerated payment of
principal. In taking actions regarding the collection of principal after default
on the mortgage loans underlying FHLMC Certificates, including the timing of any
demand for acceleration, FHLMC reserves the right to exercise its judgment with
respect to the mortgage loans in the same manner as for mortgage loans that it
has purchased but not sold. The length of time necessary for FHLMC to determine
that a mortgage loan should be accelerated varies with the particular
circumstances of each mortgagor and FHLMC has not adopted standards which
require that the demand be made within any specified period.
FHLMC Certificates are not guaranteed by the United States or by any
Federal Home Loan Bank and do not constitute debts or obligations of the United
States or any Federal Home Loan Bank. The obligations of FHLMC under its
guaranty are obligations solely of FHLMC and are not backed by, or entitled to,
the full faith and credit of the United States. If FHLMC were unable to satisfy
such obligations, distributions to holders of FHLMC Certificates would consist
solely of payments and other recoveries on the underlying mortgage loans and,
accordingly, monthly distributions to holders of FHLMC Certificates would be
affected by delinquent payments and defaults on such mortgage loans.
Registered holders of FHLMC Certificates are entitled to receive their
monthly pro rata share of all principal payments on the underlying mortgage
loans received by FHLMC, including any scheduled principal payments, full and
partial prepayments of principal and principal received by FHLMC by virtue of
condemnation, insurance, liquidation or foreclosure and repurchases of the
mortgage loans by FHLMC or the seller thereof. FHLMC is required to remit each
registered FHLMC certificateholder's pro rata share of principal payments on the
underlying mortgage loans, interest at the FHLMC pass-through rate and any other
sums such as prepayment fees, within 60 days of the date on which such payments
are deemed to have been received by FHLMC.
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Under FHLMC's Cash Program, there is no limitation on the amount by which
interest rates on the mortgage loans underlying a FHLMC Certificate may exceed
the pass-through rate on the FHLMC Certificate. Under such program, FHLMC
purchases groups of whole mortgage loans from sellers at specified percentages
of their unpaid principal balances, adjusted for accrued or prepaid interest,
which when applied to the interest rate of the mortgage loans and participations
purchased results in the yield (expressed as a percentage) required by FHLMC.
The required yield, which includes a minimum servicing fee retained by the
servicer, is calculated using the outstanding principal balance. The range of
interest rates on the mortgage loans and participations in a FHLMC Certificate
group under the Cash Program will vary since mortgage loans and participations
are purchased and assigned to a FHLMC Certificate group based upon their yield
to FHLMC rather than on the interest rate on the underlying mortgage loans.
Under FHLMC's Guarantor Program, the pass-through rate on a FHLMC Certificate is
established based upon the lowest interest rate on the underlying mortgage
loans, minus a minimum servicing fee and the amount of FHLMC's management and
guaranty income as agreed upon between the seller and FHLMC.
FHLMC Certificates duly presented for registration of ownership on or
before the last business day of a month are registered effective as of the first
day of the month. The first remittance to a registered holder of a FHLMC
Certificate will be distributed so as to be received normally by the 15th day of
the second month following the month in which the purchaser became a registered
holder of such FHLMC Certificate. Thereafter, such remittance will be
distributed monthly to the registered holder so as to be received normally by
the 15th day of each month. The Federal Reserve Bank of New York maintains
book-entry accounts with respect to FHLMC Certificates sold by FHLMC on or after
January 2, 1985, and makes payments of principal and interest each month to the
registered holders thereof in accordance with such holders' instructions.
SUBSTITUTION OF MORTGAGE COLLATERAL
Substitution of Mortgage Collateral (the "Substitute Collateral") will be
permitted in the event of breaches of representations and warranties with
respect to any original Mortgage Collateral or in the event the documentation
with respect to any Mortgage Collateral is determined by the Bond Trustee to be
incomplete. The period during which such substitution will be permitted
generally will be indicated in the Prospectus Supplement for a Series of
Securities. The Prospectus Supplement for a Series of Securities will describe
the conditions upon which Mortgage Collateral may be substituted for Mortgage
Collateral initially supporting such Series.
OPTIONAL PURCHASE OF DEFAULTED MORTGAGE LOANS
If so provided in the related Prospectus Supplement, the Master Servicer,
the Seller and/or the Company may, at its option, purchase from the Issuer any
Mortgage Loan which is delinquent in payment by more than the number of days
specified in such Prospectus Supplement, at a price specified in such Prospectus
Supplement.
BOND AND DISTRIBUTION ACCOUNTS
A separate Bond Account will be established with the Bond Trustee for each
Series of Securities for receipt of (i) all interest and principal payments
(including, to the extent applicable, any required advances by the Master
Servicer and any Servicers) and all prepayments on the Mortgage Collateral
supporting such Series required to be remitted to the Bond Trustee (including,
to the extent applicable, Insurance Proceeds required to be remitted to the Bond
Trustee and Liquidation Proceeds); (ii) the amount of cash, if any, withdrawn
from any related Reserve Fund; and (iii) if so specified in the related
Prospectus Supplement, the reinvestment income on all of the foregoing. On or
prior to the date specified in the related Prospectus Supplement (each, a
"Distribution Account Deposit Date"), the Master Servicer shall withdraw from
the Bond Account the Security Distribution Amount for such Distribution Date, to
the extent of funds available for such purpose on deposit therein, and will
deposit such amount in the Distribution Account.
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The Bond Trustee will invest the funds in the Bond Account and the
Distribution Account in Permitted Investments maturing no later than the next
Distribution Date for the related Series of Securities. "Permitted Investments"
may include (i) obligations of the United States or any agency thereof, provided
such obligations are backed by the full faith and credit of the United States;
(ii) general obligations of or obligations guaranteed by any state of the United
States or the District of Columbia receiving the highest long-term debt rating
of each applicable Rating Agency, or such lower rating which will not result in
a change in the rating then assigned to each related Series of Securities by
each applicable Rating Agency, (iii) commercial paper or finance company paper
which is then receiving the highest commercial or finance company paper rating
of each applicable Rating Agency, or such lower rating as will not result in a
change in the rating then assigned to each related Series of Securities by each
applicable Rating Agency; (iv) certificates of deposit, demand or time deposits,
or bankers' acceptances issued by any depository institution or trust company
incorporated under the laws of the United States or of any state thereof and
subject to supervision and examination by federal and/or state banking
authorities, provided that the commercial paper and/or long term unsecured debt
obligations of such depository institution or trust company (or in the case of
the principal depository institution in a holding company system, the commercial
paper or long-term unsecured debt obligations of such holding company, but only
if Moody's Investors Service, Inc. ("Moody's") is not an applicable Rating
Agency) are then rated one of the two highest long-term and the highest
short-term ratings of each such Rating Agency for such securities, or such lower
ratings as will not result in a change in the rating then assigned to each
related Series of Securities by each Rating Agency; (v) demand or time deposits
or certificates of deposit issued by any bank or trust company or savings
institution to the extent such deposits are fully insured by the FDIC; (vi)
guaranteed reinvestment agreements issued by any bank, insurance company or
other corporation containing, at the time of the issuance of such agreements,
such terms and conditions as will not result in a change in the rating then
assigned to each related Series of Securities by each applicable Rating Agency;
(vii) repurchase obligations with respect to any security described in clauses
(i) and (ii) above, in either case entered into with a depository institution or
trust company (acting as principal) described in clause (iv) above; (viii)
securities (other than stripped bonds, stripped coupons or instruments sold at a
purchase price in excess of 115% of the face amount thereof) bearing interest or
sold at a discount issued by any corporation incorporated under the laws of the
United States or any state thereof which, at the time of such investment, have
one of the two highest ratings of each applicable Rating Agency (except if the
Rating Agency is Moody's, such rating shall be the highest commercial paper
rating of Moody's for any such securities), or such lower rating as will not
result in a change in the rating then assigned to each related Series of
Securities by each applicable Rating Agency, as evidenced by a signed writing
delivered by each such Rating Agency; (ix) interests in any money market fund
which at the date of acquisition of the interests in such fund and throughout
the time such interests are held in such fund has the highest applicable rating
by each applicable Rating Agency or such lower rating as will not result in a
change in the rating then assigned to each related Series of Securities by each
such Rating Agency; and (x) short term investment funds sponsored by any trust
company or national banking association incorporated under the laws of the
United States or any state thereof which on the date of acquisition has been
rated by each applicable Rating Agency in their respective highest applicable
rating category or such lower rating as will not result in a change in the
rating then assigned to each related Series of Securities by each such Rating
Agency; provided that no such instrument shall be a Permitted Investment if such
instrument evidences the right to receive interest only payments with respect to
the obligations underlying such instrument; and provided, further, that no
investment specified in clause (ix) or clause (x) above shall be a Permitted
Investment for any Pre-Funding Account or any related Capitalized Interest
Account (as defined herein). If a letter of credit is deposited with the Bond
Trustee, such letter of credit will be irrevocable, will name the Bond Trustee,
in its capacity as trustee for the Securityholders, as the sole beneficiary and
will be issued by a bank acceptable to each applicable Rating Agency.
(Indenture, Section 1.01)
Unless an Event of Default or an event which if not timely cured will
constitute an Event of Default with respect to a Series of Securities has
occurred and is continuing, funds remaining in the related Bond Account
following a Distribution Date for such Bonds (other than certain amounts not
constituting Available Funds if so specified in the related Prospectus
Supplement or any funds required to be deposited in a related Reserve Fund) will
be subject to withdrawal upon the order of the Issuer free from the lien of the
Indenture.
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PRE-FUNDING ACCOUNT
If so specified in the related Prospectus Supplement, the Master Servicer
will establish and maintain a Pre-Funding Account, in the name of the related
Bond Trustee on behalf of the related Securityholders, into which the Depositor
will deposit cash in an amount equal to the Pre-Funded Amount on the related
Closing Date. The Pre-Funding Account will be maintained with the Bond Trustee
for the related Series of Securities and is designed solely to hold funds to be
applied by such Bond Trustee during the Funding Period to pay to the Depositor
the purchase price for Subsequent Mortgage Collateral. Prior to inclusion in the
Collateral supporting a Series of Securities, in accordance with the provisions
of the related Indenture, the Subsequent Mortgage Collateral will be subject to
review by the same parties as reviewed the initial Mortgage Collateral.
Specifically, the Bond Trustee will be required to perform a document review and
an independent firm will certify the fair value of the Subsequent Mortgage
Collateral. In addition, the Issuer will be required to deliver to the Bond
Trustee a legal opinion to the effect that all Indenture requirements have been
met for including the Subsequent Mortgage Collateral in the Collateral.
Monies on deposit in the Pre-Funding Account will not be available to cover
losses on or in respect of the related Mortgage Collateral. The Pre-Funded
Amount will not exceed 50% of the initial aggregate principal amount of the
Securities of the related Series. The Pre-Funded Amount will be used by the
related Bond Trustee to purchase Subsequent Mortgage Collateral from the
Depositor from time to time during the Funding Period. The Funding Period, if
any, for a Series of Securities will begin on the related Closing Date and will
end on the date specified in the related Prospectus Supplement, which in no
event will be later than the date that is one year after the related Closing
Date. Monies on deposit in the Pre-Funding Account may be invested in Permitted
Investments (as such term is defined above under "-- BOND AND DISTRIBUTION
ACCOUNTS") under the circumstances and in the manner described in the related
Agreement. Earnings on investment of funds in the Pre-Funding Account will be
deposited into the related Bond Account or such other trust account as is
specified in the related Prospectus Supplement and losses will be charged
against the funds on deposit in the Pre-Funding Account. Any amounts remaining
in the Pre-Funding Account at the end of the Funding Period will be paid to the
related Securityholders in the manner and priority specified in the related
Prospectus Supplement, as a prepayment of principal of the related Securities.
Certain information with respect to the Subsequent Mortgage Collateral will be
filed with the Commission on Form 8-K within fifteen days after the date such
Subsequent Mortgage Collateral is conveyed to the related Trust.
In addition, if so specified in the related Prospectus Supplement, on the
related Closing Date the Depositor will deposit in an account (the "Capitalized
Interest Account") cash in such amount as is necessary to cover shortfalls in
interest on the related Series of Securities that may arise as a result of
utilization of the Pre-Funding Account as described above. The Capitalized
Interest Account shall be maintained with the applicable Trustee for the related
Series of Securities and is designed solely to cover the above-mentioned
interest shortfalls. Monies on deposit in the Capitalized Interest Account will
not be available to cover losses on or in respect of the related Mortgage
Collateral. To the extent that the entire amount on deposit in the Capitalized
Interest Account has not been applied to cover shortfalls in interest on the
related Series of Securities by the end of the Funding Period, any amounts
remaining in the Capitalized Interest Account will be paid to the Depositor.
DESCRIPTION OF THE SECURITIES
Each Series of Bonds will be issued pursuant to an indenture ("Indenture")
between the related Bond Issuer and the entity named in the related Prospectus
Supplement as Bond Trustee with respect to such Series, and the related Mortgage
Loans will be serviced by the Master Servicer pursuant to a Master Servicing
Agreement. A form of Indenture and Master Servicing Agreement has been filed as
an exhibit to the Registration Statement of which this Prospectus forms a part.
Each Series of Certificates will be issued pursuant to a separate agreement (a
"Trust Agreement") between the Depositor and the Certificate Trustee. A form of
Trust Agreement has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part.
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The Indentures and Trust Agreements for Series of Securities offered hereby
are referred to collectively as "Agreements" and individually as an "Agreement."
The provisions of each Agreement will vary depending upon the nature of the
Securities to be issued thereunder and the nature of the related Trust Fund
Assets. The following are descriptions of the material provisions which may
appear in each Agreement. The descriptions are subject to, and are qualified in
their entirety by reference to, all of the provisions of the Agreement for each
Series of Securities. The Depositor will provide a copy of the Agreement
(without exhibits) relating to any Series without charge upon written request of
a holder of record of a Security of such Series addressed to American
Residential Eagle, Inc., 445 Marine View Avenue, Suite 100, Del Mar, California
92014.
GENERAL
Unless otherwise described in the related Prospectus Supplement, the
Securities of each Series will be issued in book-entry or fully registered form,
in the authorized denominations specified in the related Prospectus Supplement,
will, in the case of Certificates, evidence specified beneficial ownership
interests in, and in the case of Bonds, be secured by, the related Trust Fund
Assets pursuant to the terms of each Agreement and will not be entitled to
payments in respect of the assets included in any other Issuer established by
the Depositor. Unless otherwise specified in the Prospectus Supplement, the
Securities will not represent obligations of the Depositor or any affiliate of
the Depositor. The assets of each Issuer will consist of, to the extent provided
in the related Agreement, (i) the Trust Fund Assets as are subject to the
related Agreement (exclusive of any amounts specified in the related Prospectus
Supplement ("Retained Interest")), including all payments of interest and
principal received with respect to the Mortgage Loans after the Cut-off Date (to
the extent not applied in computing the principal balance of such Mortgage Loans
as of the Cut-off Date (the "Cut-off Date Principal Balance")); (ii) such assets
as from time to time are required to be deposited in the related Account, as
described below under "TRUST FUND ASSETS -- BOND AND DISTRIBUTION ACCOUNTS";
(iii) property which secured a Mortgage Loan and which is acquired on behalf of
the Securityholders by foreclosure or deed in lieu of foreclosure and (iv) any
insurance policies or other forms of credit enhancement required to be
maintained pursuant to the related Agreement. If so specified in the related
Prospectus Supplement, Trust Fund Assets may also include one or more of the
following: reinvestment income on payments received on the Trust Fund Assets, a
Reserve Account, a mortgage pool insurance policy, a special hazard insurance
policy, a bankruptcy bond, one or more letters of credit, a surety bond,
guaranties or similar instruments.
Each Series of Securities will be issue in one or more Classes. Each Class
of Bonds of a Series will be secured by, and each Class of Certificates of a
Series will evidence beneficial ownership of, a specified percentage (which may
be 0%) or portion of future interest payments and a specified percentage (which
may be 0%) or portion of future principal payments on, the related Trust Fund
Assets. A Series of Securities may include one or more Classes that are senior
in right to payment to one or more other Classes of Securities of such Series.
Certain Series or Classes of Securities may be covered by insurance policies,
surety bonds or other forms of credit enhancement, in each case as described
under "Credit Enhancement" herein and in the related Prospectus Supplement. One
or more Classes of Securities of a Series may be entitled to receive
distributions of principal, interest or any combination thereof. Distributions
on one or more Classes of a Series of Securities may be made prior to one or
more other Classes, after the occurrence of specified events, in accordance with
a schedule or formula or on the basis of collections from designated portions of
the related Trust Fund Assets, in each case as specified in the related
Prospectus Supplement. The timing and amounts of such distributions may vary
among Classes or over time as specified in the related Prospectus Supplement.
Distributions of principal and interest (or, where applicable, of principal
only or interest only) on the related Securities will be made by the applicable
Trustee on each Distribution Date (i.e., monthly, quarterly, semi-annually or at
such other intervals and on the dates as are specified in the related Prospectus
Supplement) in proportion to the percentages specified in the related Prospectus
Supplement. Distributions will be made to the persons in whose names the
Securities are registered at the close of business on the dates specified in the
related Prospectus Supplement (each, a "Record Date"). Distributions will be
made in the manner specified in the related Prospectus Supplement to the persons
entitled thereto at the address appearing in the register maintained for
Securityholders (the "Security Register"); provided, however, that the final
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distribution in retirement of the Securities will be made only upon presentation
and surrender of the Securities at the office or agency of the applicable
Trustee or other person specified in the notice to Securityholders of such final
distribution.
The Securities will be transferable and exchangeable at the Corporate Trust
Office of the applicable Trustee as set forth in the related Prospectus
Supplement. No service charge will be made for any registration of exchange or
transfer of Securities of any Series, but the Trustee may require payment of a
sum sufficient to cover any related tax or other governmental charge.
Under current law the purchase and holding of a Class of Securities
entitled only to a specified percentage of payments of either interest or
principal or a notional amount of other interest or principal on the related
Mortgage Loans or a Class of Securities entitled to receive payments of interest
and principal on the Mortgage Loans only after payments to other Classes or
after the occurrence of certain specified events by or on behalf of any employee
benefit plan or other retirement arrangement (including individual retirement
accounts and annuities, Keogh plans and collective investment funds in which
such plans, accounts or arrangements are invested) subject to provisions of
ERISA or the Code may result in prohibited transactions within the meaning of
ERISA and the Code. See "ERISA MATTERS." Unless otherwise specified in the
related Prospectus Supplement, the transfer of Securities of such a Class will
not be registered unless the transferee (i) represents that it is not, and is
not purchasing on behalf of, any such plan, account or arrangement or (ii)
provides an opinion of counsel satisfactory to the applicable Trustee and the
Depositor that the purchase of Securities of such a class by or on behalf of
such plan, account or arrangement is permissible under applicable law and will
not subject the Bond Trustee, the Certificate Trustee, the Master Servicer or
the Depositor to any obligation or liability in addition to those undertaken in
the Agreements.
DISTRIBUTIONS ON SECURITIES
General. In general, the method of determining the amount of distributions
on a particular Series of Securities will depend on the type of credit support,
if any, that is used with respect to such Series. See "CREDIT ENHANCEMENT." Set
forth below are descriptions of various methods that may be used to determine
the amount of distributions on the Securities of a particular Series. The
Prospectus Supplement for each Series of Securities will describe the method to
be used in determining the amount of distributions on the Securities of such
Series.
Distributions allocable to principal and interest on the Securities will be
made by the applicable Trustee out of, and only to the extent of, funds in the
related Distribution Account, including any funds transferred from the Bond
Account and any Reserve Account (a "Reserve Account"). As between Securities of
different classes and as between distributions of principal (and, if applicable,
between distributions of Principal Prepayments, as defined below, and scheduled
payments of principal) and interest, distributions made on any Distribution Date
will be applied as specified in the related Prospectus Supplement. The
Prospectus Supplement will also describe the method for allocating distributions
among Securities of a particular class.
Available Funds. All distributions on the Securities of each Series on
each Distribution Date will be made from the Available Funds described below, in
accordance with the terms described in the related Prospectus Supplement and
specified in the applicable Agreement. "Available Funds" for each Distribution
Date will generally equal the amount on deposit in the related Bond Account on
such Distribution Date (net of related fees and expenses payable by the related
Issuer) other than amounts to be held therein for distribution on future
Distribution Dates.
Distributions of Interest. Interest will accrue on the aggregate principal
balance of the Securities (or, in the case of Securities entitled only to
distributions allocable to interest, the aggregate notional amount) of each
Class of Securities (the "Class Security Balance") entitled to interest from the
date, at the applicable interest rate (which may be a fixed rate or rate
adjustable as specified in such Prospectus Supplement), and for the periods
specified in such Prospectus Supplement. To the extent funds are available
therefor, interest accrued during each such specified period on each class of
Securities entitled to interest (other than a class of Securities that provides
for interest that accrues, but is not currently payable, referred to hereafter
as "Deferred Interest Securities") will be distributable on the Distribution
Dates specified in the related
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Prospectus Supplement until the aggregate Class Security Balance of the
Securities of such class has been distributed in full or, in the case of
Securities entitled only to distributions allocable to interest, until the
aggregate notional amount of such Securities is reduced to zero or for the
period of time designated in the related Prospectus Supplement. Except in the
case of the Deferred Interest Securities, the original Class Security Balance of
each Security will equal the aggregate distributions allocable to principal to
which such Security is entitled. Distributions allocable to interest on each
Security that is not entitled to distributions allocable to principal will be
calculated based on the notional amount of such Security. The notional amount of
a Security will not evidence an interest in or entitlement to distributions
allocable to principal but will be used solely for convenience in expressing the
calculation of interest and for certain other purposes.
Interest payable on the Securities of a Series on a Distribution Date will
include all interest accrued during the period specified in the related
Prospectus Supplement. In the event interest accrues over a period ending two or
more days prior to a Distribution Date, the effective yield to Securityholders
will be reduced from the yield that would otherwise be obtainable if interest
payable on the Security were to accrue through the day immediately preceding
such Distribution Date, and the effective yield (at par) to Securityholders will
be less than the indicated coupon rate.
With respect to any Class of Deferred Interest Securities, if specified in
the related Prospectus Supplement, any interest that has accrued but is not paid
on a given Distribution Date will be added to the aggregate Class Security
Balance of such Class of Securities on that Distribution Date. Distributions of
interest on any Class of Deferred Interest Securities will commence only after
the occurrence of the events specified in such Prospectus Supplement. Prior to
such time, the beneficial ownership interest in the Trust Fund Assets or the
principal balance, as applicable, of such Class of Deferred Interest Securities,
as reflected in the aggregate Class Security Balance of such Class of Deferred
Interest Securities, will increase on each Distribution Date by the amount of
interest that accrued on such Class of Deferred Interest Securities during the
preceding interest accrual period but that was not required to be distributed to
such Class on such Distribution Date. Any such Class of Deferred Interest
Securities will thereafter accrue interest on its outstanding Class Security
Balance as so adjusted.
Distributions of Principal. The related Prospectus Supplement will specify
the method by which the amount of principal to be distributed on the Securities
on each Distribution Date will be calculated and the manner in which such amount
will be allocated among the Classes of Securities entitled to distributions of
principal. The aggregate Class Security Balance of any Class of Securities
entitled to distributions of principal generally will be in the aggregate
original Class Security Balance of such Class of Securities specified in such
Prospectus Supplement, reduced by all distributions reported to the holders of
such Securities as allocable to principal and, (i) in the case of Deferred
Interest Securities, as specified in the related Prospectus Supplement,
increased by all interest accrued but not then distributable on such Deferred
Interest Securities and (ii) in the case of adjustable rate Securities, subject
to the effect of negative amortization, if applicable.
If so provided in the related Prospectus Supplement, one or more classes of
Securities will be entitled to receive all or a disproportionate percentage of
the payments of principal which are received from borrowers in advance of their
scheduled due dates and are not accompanied by amounts representing scheduled
interest due after the month of such payments ("Principal Prepayments") in the
percentages and under the circumstances or for the periods specified in such
Prospectus Supplement. Any such allocation of Principal Prepayments to such
Class or Classes of Securities will have the effect of accelerating the
amortization of such Securities while increasing the interests of one or more
other classes of Securities in the related Trust Fund Assets. Increasing the
interests of the other Classes of Securities relative to that of certain
Securities is intended to preserve the availability of the subordination
provided by such other Securities. See "CREDIT ENHANCEMENT -- SUBORDINATION."
REDEMPTION OF BONDS
Special Redemption. If so specified in the related Prospectus Supplement,
the Bonds of each Series or Class may be subject to special redemption, in whole
or in part, under the circumstances and in the manner described below or in the
related Prospectus Supplement. If applicable, the Issuer will be required to
redeem,
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on the day of any month specified in the related Prospectus Supplement,
outstanding Bonds of a Series in the amount described below if, as a result of
substantial payments of principal on the Mortgage Loans or the mortgage loans
underlying the Agency Securities pledged as security for such Series of Bonds or
low reinvestment yields, or both, the Bond Trustee determines, based on the
procedures and assumptions specified in the Indenture, that, in the absence of
such special redemption, the amount of cash to be on deposit in the related Bond
Account on the next Distribution Date for such Series of Bonds would be
insufficient to make required payments on the Bonds of such Series on such
Distribution Date. The amount of Bonds required to be so redeemed will not
exceed the distributions on the Mortgage Collateral securing such Series of
Bonds received during the Due Period that would otherwise be required to be
applied to the payment of principal of such Series of Bonds on the following
Distribution Date.
All payments of principal pursuant to any special redemption will be made
in the priority and manner specified in the related Prospectus Supplement. Bonds
of the same Class will be redeemed in the manner specified in the related
Prospectus Supplement. Notice of any such redemption must be mailed by the
Issuer or the Bond Trustee at least five days prior to the special redemption
date. The redemption price required to be paid for any Bond to be so redeemed
will be equal to 100% of the principal amount thereof together with accrued
interest.
Optional Redemption. If so provided in the related Prospectus Supplement,
the Bonds of any Class of a Series may be subject to redemption at the option of
the Issuer. Unless otherwise provided in the related Prospectus Supplement,
notice of any such redemption must be given by the Issuer to the Bond Trustee
not less than 30 days prior to the redemption date and must be mailed by the
Issuer or the Bond Trustee to affected Bondholders at least five days prior to
the redemption date. The Prospectus Supplement for each Series will specify the
circumstances, if any, under which the Bonds of such Series may be so redeemed,
the manner of effecting such redemption, the conditions to which such redemption
are subject and the redemption prices for each Class of Bonds to be redeemed
(which will be no lower than 100% of the principal amount of outstanding Bonds,
plus accrued interest).
The Master Servicer or other party specified in the related Prospectus
Supplement, may have the option to purchase the remaining Trust Fund Assets
supporting a Series of Bonds, subject to the principal balance of the related
Trust Fund Assets being less than the percentage specified in the related
Prospectus Supplement of the aggregate principal balance of the Trust Fund
Assets at the Cut-off Date for the Series. Any such purchase of Trust Fund
Assets and property acquired in respect of Trust Fund Assets evidenced by a
Series of Securities by the Master Servicer or such other person will be at a
price specified in the related Prospectus Supplement (which will be no lower
than 100% of the principal amount of outstanding Bonds, plus accrued interest).
The exercise of such right may cause the Issuer to call for redemption of all or
a portion of the related Series of Bonds secured by such Trust Fund Assets.
EARLY TERMINATION
If the Series of Bonds included in the Trust Fund Assets for a Series of
Certificates are redeemed in full pursuant to a special redemption or optional
redemption, the related Series of Certificates will be retired earlier than
would otherwise be the case. In addition, the Depositor may have the option to
purchase the remaining Trust Fund Assets supporting a Series of Certificates,
subject to the principal balance of such Trust Fund Assets being less than the
percentage specified in the related Prospectus Supplement of the Trust Fund
Assets at the Cut-off Date for the Series. The purchase price for such remaining
Trust Fund Assets will be at least equal to 100% of the aggregate principal
balance of the outstanding Certificates, together with accrued interest thereon.
In any such event, the related Issuer of such Series of Certificates will be
terminated and Certificateholders will receive final distributions as described
in the related Prospectus Supplement. There will be no continuing direct or
indirect liability of the Issuer or the Certificateholders as sellers of the
Trust Fund Assets.
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CALL PROTECTION AND GUARANTEES
The Issuer may, at its option, obtain for any Series of Securities one or
more guarantees from a company or companies acceptable to each applicable Rating
Agency, which guarantees may provide for (i) call protection (which may include
yield maintenance) for any Class of Securities of such Series or (ii) a
guarantee of a certain prepayment rate with respect to some or all of the
Mortgage Loans or mortgage loans underlying the Agency Securities included in
the Trust Fund Assets for such Series. Any call protection or guarantees may
affect the weighted average life of the Securities of such Series.
WEIGHTED AVERAGE LIFE OF THE SECURITIES
All of the Mortgage Loans supporting a Series of Securities will consist of
mortgage loans which are neither insured nor guaranteed by any governmental
agency ("Conventional Loans"). See "TRUST FUND ASSETS -- THE MORTGAGE LOANS"
herein. The mortgage loans underlying FHLMC Certificates and FNMA Certificates
supporting a Series of Securities will consist of either Conventional Loans, FHA
Loans (as defined herein) or VA Loans (as defined herein), or any combination
thereof. The mortgage loans underlying the GNMA Certificates supporting a Series
of Securities will consist of FHA Loans or VA Loans. Each Mortgage Loan and each
Agency Security will provide by its terms for monthly payments of principal and
interest in the amounts described in "TRUST FUND ASSETS -- THE MORTGAGE LOANS,"
and "-- AGENCY SECURITIES."
Since the aggregate amount of the principal payment required to be made on
a Series of Securities on a Distribution Date will depend on the amount of the
principal payments (including for this purpose prepayments resulting from
refinancing or liquidations due to defaults, casualties, condemnations and
repurchases by the Issuer or AmREIT or other Seller or purchases by the Master
Servicer or the Company) received on the related Mortgage Loans or Agency
Securities, as the case may be, in the related Due Period, the prepayment
experience on the underlying mortgage loans (with respect to a Series of
Securities supported by Agency Securities) or on the Mortgage Loans (with
respect to a Series of Securities supported by Mortgage Loans) will affect (i)
the weighted average life of each Class of Securities and (ii) the extent to
which such Class is paid prior to its Stated Maturity. The prepayment experience
on the Mortgage Loans which support a Series of Securities may be affected by
recoveries on foreclosures or other liquidations of Mortgage Loans and by losses
from defaults and delinquencies on Mortgage Loans. See "SERVICING OF THE
MORTGAGE LOANS" herein. The weighted average life of each outstanding Class of
Securities also may be affected by the actual reinvestment income earned on the
payments on the Mortgage Collateral, if applicable, if a portion of the Spread
is paid as a principal payment on such Securities and by the exercise by the
Issuer of its right to substitute other Mortgage Collateral for the Mortgage
Collateral originally supporting such Securities. Although any substitute
Mortgage Collateral will have payment terms anticipated to result in a cash flow
substantially similar to, but in no event less than, the anticipated cash flow
of the Mortgage Collateral it replaces, such substitutions may, individually or
in the aggregate, affect the weighted average life of such Bonds. See "TRUST
FUND ASSETS -- SUBSTITUTION OF MORTGAGE COLLATERAL" herein. Further, the
weighted average life of each Class of a Series of Securities supported by FNMA
Certificates may be affected by the exercise by FNMA of its right to repurchase
the mortgage loans backing such FNMA Certificates, as described under "TRUST
FUND ASSETS -- AGENCY SECURITIES" herein. The Stated Maturity for each Class of
Securities is the date determined by the Company to fall a specified period
after the date on which the principal thereof will be fully paid, assuming (i)
timely receipt of scheduled payments (with no prepayments) on the Mortgage
Collateral, (ii) if applicable, such scheduled payments are reinvested at the
Assumed Reinvestment Rate for such Series, (iii) no Mortgage Collateral is
substituted by the Issuer or the Seller in place of the Mortgage Collateral
initially included in the Trust Fund Assets for such Securities and (iv) if
applicable, no portion of the Spread is applied to the payment of the
Securities, unless the related Prospectus Supplement provides otherwise, in
which event such Stated Maturities will be based on the assumptions specified in
such Prospectus Supplement. If so provided in the related Prospectus Supplement,
holders of one or more Classes of Securities of a Series may have the right, at
their option, to receive full payment in respect of such Securities prior to
Stated Maturity, in each case to the extent and subject to the conditions
specified in such Prospectus Supplement.
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The rate of principal prepayments on pools of mortgage loans is influenced
by a variety of economic, geographic, social and other factors including,
without limitation, homeowner mobility, economic conditions, the presence and
enforceability of "due-on-sale" clauses, mortgage market interest rates and the
availability of mortgage funds, and no assurance can be given as to the actual
prepayment experience of the Mortgage Collateral. In general, however, if
interest rates vary significantly from those prevailing when the Mortgage Loans
or the mortgage loans underlying the Agency Securities included in the Trust
Fund Assets for a Series of Securities were originated, such Mortgage Loans and
mortgage loans are likely to be subject to higher or lower principal prepayments
than if interest rates remain at or near those prevailing when such Mortgage
Loans and mortgage loans were originated. It should be noted that certain Agency
Securities supporting a Series of Securities may be backed by mortgage loans
with different interest rates, and, similarly, that not all of the Mortgage
Loans supporting a Series of Securities are likely to bear the same interest
rate. Accordingly, the prepayment experience of these Agency Securities and
Mortgage Loans will to some extent be a function of the mix of interest rates of
the underlying mortgage loans and of the Mortgage Loans. Furthermore, the stated
certificate rate on certain Certificates may be less than the weighted average
interest rate of the underlying mortgage loans. See "TRUST FUND ASSETS" herein.
CATEGORIES OF CLASSES OF SECURITIES
The Securities of any Series may be comprised of one or more Classes. Such
Classes, in general, fall into different categories. The following chart
identifies and generally defines certain of the more typical categories. The
Prospectus Supplement for a Series of Securities may identify the Classes which
comprise such Series by reference to the following categories.
<TABLE>
<CAPTION>
CATEGORIES OF CLASSES DEFINITION
--------------------- ----------
<S> <C>
PRINCIPAL TYPES
Accretion Directed........................ A Class that receives principal payments from the
accreted interest from specified Classes of Deferred
Interest Securities. For example, if the aggregate
amount of interest that accrues on a Class of Deferred
Interest Securities in a given period is $100, the cash
saved by not paying such interest in the current period
is used to pay principal of $100 on an Accretion
Directed Class. The amount of accrued and unpaid
interest on the Class of Deferred Interest Securities is
added to the principal balance of such Class. An
Accretion Directed Class also may receive principal
payments from principal paid on the underlying Trust
Fund Assets for the related Series.
Component Securities...................... A Class consisting of "Components." The Components of a
Class of Component Securities may have different
principal and/or interest payment characteristics but
together constitute a single Class. Each Component of a
Class of Component Securities may be identified as
falling into one or more of the categories of this
chart.
Notional Amount Securities................ A Class having little or no principal balance and
bearing interest on the related notional amount. The
notional amount is used for purposes of the
determination of interest distributions.
</TABLE>
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<TABLE>
<CAPTION>
CATEGORIES OF CLASSES DEFINITION
--------------------- ----------
<S> <C>
Planned Principal Class (also sometimes
referred to as "PACs").................. A Class that is designated to receive principal payments
using a predetermined principal balance schedule derived
by assuming two constant prepayment rates for the
underlying Trust Fund Assets. These two rates are the
endpoints for the "structuring range" for the Planned
Principal Class. For example, if a structuring range for
the PAC is set at constant prepayment rates generally
between 15% and 25%, that Class generally will receive a
predetermined principal amount (as set forth on the
schedule included in the related Prospectus Supplement)
on each distribution date with respect to which the
constant prepayment rate on the underlying Trust Fund
Assets falls between 15% and 25%. To the extent the
prepayment experience of the Trust Fund Assets is less
than 15%, an amount of principal less than the scheduled
amount may be paid, and to the extent the prepayment
experience is higher than 25%, additional amounts of
principal may be distributed to the PAC holders. The
Planned Principal Classes in any Series of Securities
may be subdivided into different categories (e.g.,
Primary Planned Principal Classes, Secondary Planned
Principal Classes and so forth) having different
effective structuring ranges and different principal
payment priorities. The structuring range for the
Secondary Planned Principal Class of a Series of
Securities will be narrower than that for the Primary
Planned Principal Class of such Series.
Sequential Pay............................ Classes that receive principal payments in a prescribed
sequence, that do not have predetermined principal
balance schedules and that under all circumstances
receive payments of principal continuously from the
first Distribution Date on which they receive principal
until they are retired. A single Class that receives
principal payments before or after all other Classes in
the same Series of Securities may be identified as a
Sequential Pay Class.
Support Class (also sometimes referred to
as "Companion Classes")................. A Class that receives principal payments on any
Distribution Date only if scheduled payments have been
made on specified Planned Principal Classes and/or
Targeted Principal Classes. For example, if a Series of
Securities has a PAC with a structuring range generally
between 15% and 25% constant prepayment rate, for any
given period if the underlying Trust Fund Assets
generally prepay at a 15% constant prepayment rate there
will be just enough principal collected to satisfy the
scheduled principal payable to the PAC holders. In that
case, the Support Class for such Series would receive
little or no principal for that period. On the other
hand, if the underlying Trust Fund Assets generally
experience a 25% constant prepayment rate for a given
period, more principal will be collected than is needed
to satisfy the PAC scheduled payment and such principal
will be paid to the Support Class holders.
</TABLE>
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<TABLE>
<CAPTION>
CATEGORIES OF CLASSES DEFINITION
--------------------- ----------
<S> <C>
Targeted Principal Class (also sometimes
referred to as "TACs").................. A Class that is designated to receive principal payments
using a predetermined principal balance schedule derived
by assuming a single constant prepayment rate for the
underlying Trust Fund Assets. For example, a principal
schedule could be created based on the underlying Trust
Fund Assets generally prepaying at a 20% constant
prepayment rate for the life of the assets. The TAC
holders would then generally receive the scheduled
principal amount if the actual prepayment rate for a
given period was 20%. To the extent the actual
prepayment rate is less than 20%, the TAC holders may
receive less than the scheduled amount, and to the
extent the actual prepayment rate is greater, they may
receive more than the scheduled amount.
INTEREST TYPES
Deferred Interest......................... A Class that accretes the amount of accrued interest
otherwise distributable on such Class, which amount will
be added as principal to the principal balance of such
Class on each applicable Distribution Date. Such
accretion may continue until some specified event has
occurred or until such Deferred Interest Class is
retired.
Fixed Rate................................ A Class with an interest rate that is fixed throughout
the life of the Class.
Floating Rate............................. A Class with an interest rate that resets periodically
based upon a designated index and that various directly
with changes in such index.
Inverse Floating Rate..................... A Class with an interest rate that resets periodically
based upon a designated index and that varies inversely
with changes in such index.
Interest Only............................. A Class that receives some or all of the interest
payments made on the underlying Trust Fund Assets and
little or no principal. Interest Only Classes have a
nominal principal balance and/or a notional amount. A
nominal principal balance represents actual principal
that will be paid on the Class. It is referred to as
nominal since it is extremely small compared to other
Classes. A notional amount is the amount used as a
reference to calculate the amount of interest due on an
Interest Only Class.
Variable Rate............................. A Class with an interest rate that resets periodically
and is calculated by reference to the rate or rates of
interest applicable to specified assets or instruments
(e.g., the Mortgage Rates borne by the underlying
Mortgage Loans).
Principal Only............................ A Class that does not bear interest and is entitled to
receive only distributions in respect of principal.
Partial Deferred Interest................. A Class that accretes a portion of the amount of accrued
interest thereon, which amount will be added to the
principal balance of such Class on each applicable
Distribution Date, with the remainder of such accrued
interest to be distributed currently as interest on such
Class. Such accretion may continue until a specified
event has occurred or until such Partial Deferred
Interest Class is retired.
</TABLE>
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REPORTS TO SECURITYHOLDERS
Prior to or concurrently with each distribution on a Distribution Date the
Master Servicer or the applicable Trustee will furnish to each Securityholder of
record of the related Series a statement setting forth, to the extent applicable
to such Series of Securities, among other things:
(i) the amount of such distribution allocable to principal, separately
identifying the aggregate amount of any Principal Prepayments and if so
specified in the related Prospectus Supplement, any applicable prepayment
penalties included therein;
(ii) the amount of such distribution allocable to interest;
(iii) the amount of any Advance;
(iv) the aggregate amount (a) otherwise allocable to the Subordinated
Securityholders on such Distribution Date, and (b) withdrawn from the
Reserve Account, if any, that is included in the amounts distributed to the
Senior Securityholders;
(v) the outstanding principal balance or notional amount of each Class
of the related Series after giving effect to the distribution of principal
on such Distribution Date;
(vi) the percentage of principal payments on the Mortgage Loans
(excluding prepayment), if any, which each such Class will be entitled to
receive on the following Distribution Date;
(vii) the percentage of Principal Prepayments on the Mortgage Loans,
if any, which each such Class will be entitled to receive on the following
Distribution Date;
(viii) the related amount of the servicing compensation retained or
withdrawn from the Bond Account by the Master Servicer, and the amount of
additional servicing compensation received by the Master Servicer
attributable to penalties, fees, excess Liquidation Proceeds and other
similar charges and items;
(ix) the number and aggregate principal balances of Mortgage Loans (A)
delinquent (exclusive of Mortgage Loans in foreclosure) (1) 1 to 30 days,
(2) 31 to 60 days, (3) 61 to 90 days and (4) 91 or more days and (B) in
foreclosure and delinquent (1) 1 to 30 days, (2) 31 to 60 days, (3) 61 to
90 days and (4) 91 or more days, as of the close of business on the last
day of the calendar month preceding such Distribution Date;
(x) the book value of any real estate acquired through foreclosure or
grant of a deed in lieu of foreclosure;
(xi) the applicable interest rate, if adjusted from the date of the
last statement, of any such Class expected to be applicable to the next
distribution to such Class;
(xii) if applicable, the amount remaining in any Reserve Account at
the close of business on the Distribution Date;
(xiii) the applicable interest rate as of the day prior to the
immediately preceding Distribution Date; and
(xiv) any amounts remaining under letters of credit, Pool policies or
other forms of credit enhancement.
Where applicable, any amount set forth above may be expressed as a dollar
amount per single Security of the relevant Class specified in the related
Prospectus Supplement. The report to Securityholders for any Series of
Securities may include additional or other information of a similar nature to
that specified above.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer or the applicable Trustee will mail to each
Securityholder of record at any time during such calendar year a report (a) as
to the aggregate amounts reported pursuant to (i) and (ii) above for such
calendar year or, in the event such person was a Securityholder of record during
a portion of such calendar year, for the applicable
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portion of such year and (b) such other customary information as may be deemed
necessary or desirable for Securityholders to prepare their tax returns.
BOOK-ENTRY SECURITIES
As described in the related Prospectus Supplement, if not issued in fully
registered form, one or more Classes of Securities of any Series (each, a Class
of "Book-Entry Securities") will be registered as book-entry certificates.
Persons acquiring beneficial ownership interests in the Securities ("Security
Owners") will hold their Securities through the Depository Trust Company ("DTC")
in the United States, or CEDEL or Euroclear (in Europe) if they are participants
of such systems, or indirectly through organizations which are participants in
such systems. The Book-Entry Securities will be issued in one or more
certificates which equal the aggregate principal balance of the Securities and
will initially be registered in the name of Cede & Co., the nominee of DTC.
CEDEL and Euroclear will hold omnibus positions on behalf of their participants
through customers' securities accounts in CEDEL's and Euroclear's names on the
books of their respective depositaries which in turn will hold such positions in
customers' securities accounts in the depositaries' names on the books of DTC.
Citibank, N.A., will act as depositary for CEDEL and The Chase Manhattan Bank
will act as depositary for Euroclear (in such capacities, individually the
"Relevant Depositary" and collectively the "European Depositaries"). Except as
described below, no person acquiring a Book-Entry Security (each, a "beneficial
owner") will be entitled to receive a physical certificate representing such
Security (a "Definitive Security"). Unless and until Definitive Securities are
issued, it is anticipated that the only "Securityholders" of the Securities will
be Cede & Co., as nominee of DTC. Security Owners are only permitted to exercise
their rights indirectly through Participants and DTC.
The beneficial owner's ownership of a Book-Entry Security will be recorded
on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains the
beneficial owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Security will be recorded on the
records of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the beneficial owner's Financial Intermediary is not a DTC participant, and on
the records of CEDEL or Euroclear, as appropriate).
Security Owners will receive all distributions of principal of, and
interest on, the Securities from the applicable Trustee through DTC and DTC
participants. While the Securities are outstanding (except under the
circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "Rules"), DTC is required to
make book-entry transfers among Participants on whose behalf it acts with
respect to the Securities and is required to receive and transmit distributions
of principal of, and interest on, the Securities. Participants and indirect
participants with whom Security Owners have accounts with respect to Securities
are similarly required to make book-entry transfers and receive and transmit
such distributions on behalf of their respective Security Owners. Accordingly,
although Security Owners will not possess certificates, the Rules provide a
mechanism by which Security Owners will receive distributions and will be able
to transfer their interest.
Security Owners will not receive or be entitled to receive certificates
representing their respective interests in the Securities, except under the
limited circumstances described below. Unless and until Definitive Securities
are issued, Security Owners who are not Participants may transfer ownership of
Securities only through Participants and indirect participants by instructing
such Participants and indirect 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 Bonds 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 Security
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
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business day following the DTC settlement date. Such credits or any transactions
in such securities settled during such processing will be reported to the
relevant Euroclear or CEDEL Participants on such business day. Cash received in
CEDEL or Euroclear as a result of sales of securities by or through a CEDEL
Participant (as defined herein) or Euroclear Participant (as defined herein) to
a DTC Participant will be received with value on the DTC settlement date but
will be available in the relevant CEDEL or Euroclear cash account only as of the
business day following settlement in DTC.
Transfers between 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 fund settlement applicable to
DTC. CEDEL Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL participants are recognized financial
institutions around the world, including underwriters, securities brokers and
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 in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York ("Morgan" and in such capacity, the
"Euroclear Operator"), under contract with Euroclear Clearance Systems S.C., a
Belgian cooperative corporation (the "Belgian Cooperative"). All operations are
conducted by Morgan, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Belgian Cooperative. The Belgian Cooperative establishes policy for Euroclear on
behalf of Euroclear Participants. Euroclear Participants include banks
(including central banks), securities brokers and dealers and other professional
financial intermediaries. Indirect access to Euroclear is also available to
other firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
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Morgan is the Belgian branch of a New York banking corporation which is a
member bank of the Federal Reserve System. As such, it is regulated and examined
by the Board of Governors of the Federal Reserve System and the New York State
Banking Department, as well as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with Morgan are governed by
the Terms and Conditions Governing Use of Euroclear and the related Operating
Procedures of the Euroclear System and applicable Belgian law (collectively, the
"Terms and Conditions"). The Terms and Conditions govern transfers of securities
and cash within Euroclear, withdrawals of securities and cash from Euroclear,
and receipts of payments with respect to securities in Euroclear. All securities
in Euroclear are held on a fungible basis without attribution of specific
certificates to specific securities clearance accounts. The Euroclear Operator
acts under the Terms and Conditions only on behalf of Euroclear Participants,
and has no record of or relationship with persons holding through Euroclear
Participants.
Under a book-entry format, beneficial owners of the Book-Entry Securities
may experience some delay in their receipt of payments, since such payments will
be forwarded by the Security Trustee to Cede & Co., as nominee of DTC.
Distributions with respect to Securities held through CEDEL or Euroclear will be
credited to the cash accounts of CEDEL Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by the Relevant Depositary. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
See "FEDERAL INCOME TAX CONSEQUENCES -- WITHHOLDING WITH RESPECT TO CERTAIN
FOREIGN INVESTORS" and "-- BACKUP WITHHOLDING" herein. Because DTC can only act
on behalf of Financial Intermediaries, the ability of a beneficial owner to
pledge Book-Entry Securities to persons or entities that do not participate in
the depository system may be limited due to the lack of physical certificates
for such Book-Entry Securities. In addition, issuance of the Book-Entry
Securities in book-entry form may reduce the liquidity of such Securities in the
secondary market since certain potential investors may be unwilling to purchase
Securities for which they cannot obtain physical certificates.
Monthly and annual reports on the Issuer will be provided to Cede & Co., as
nominee of DTC, and may be made available by Cede & Co. to beneficial owners
upon request, in accordance with the rules, regulations and procedures creating
and affecting DTC, and to the Financial Intermediaries to whose DTC accounts the
Book-Entry Securities or such beneficial owners are credited.
DTC has advised the Bond Trustee and Certificate Trustee that, unless and
until Definitive Securities are issued, DTC will take any action permitted to be
taken by the holders of the Book-Entry Securities under the applicable Agreement
only at the direction of one or more Financial Intermediaries to whose DTC
accounts the Book-Entry Bonds are credited, to the extent that such actions are
taken on behalf of Financial Intermediaries whose holdings include such
Book-Entry Securities. CEDEL or the Euroclear Operator, as the case may be, will
take any other action permitted to be taken by a Securityholder under the
applicable Agreement on behalf of a CEDEL Participant or Euroclear Participant
only in accordance with its relevant rules and procedures and subject to the
ability of the Relevant Depositary to effect such actions on its behalf through
DTC. DTC may take actions with respect to some Securities, at the direction of
the related Participants, which conflict with actions taken with respect to
other Securities.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the applicable Trustee will be required to notify all
beneficial owners of the occurrence of such event and the availability through
DTC of the Definitive Securities. Upon surrender by DTC of the global
certificate or certificates representing the Book-Entry Securities and
instructions for re-registration, the applicable Trustee will issue Definitive
Securities, and thereafter the applicable Trustee will recognize the holders of
such Definitive Securities as Securityholders under the applicable Agreement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Securities among participants of DTC, CEDEL
and Euroclear, they are under no obligation to perform or continue to perform
such procedures and such procedures may be discontinued at any time.
None of the Master Servicer, the Depositor, the Issuer, the Bond Trustee or
the Certificate Trustee will have any responsibility for any aspect of the
records relating to or payments made on account of beneficial
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ownership interests of the Book-Entry Securities held by Cede & Co., as nominee
of DTC, or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
CREDIT ENHANCEMENT
GENERAL
Credit enhancement may be provided with respect to one or more Classes of a
Series of Securities or with respect to the related Mortgage Collateral for the
purpose of (i) maintaining timely payments or providing additional protection
against losses on the Collateral securing such Series of Securities, (ii) paying
administrative expenses or (iii) establishing a minimum reinvestment rate on the
payments made in respect of such Collateral or principal payment rate on such
Collateral. Credit enhancement may be in the form of the subordination of one or
more Classes of such Securities, the establishment of one or more Reserve Funds,
use of a Mortgage Pool Insurance Policy, a Special Hazard Insurance Policy,
Bankruptcy Bond, cash account, insurance policy, surety bond, guaranteed
investment contract, cross-collateralization, reinvestment income, guaranty,
letter of credit or derivative arrangement as described herein and in the
related Prospectus Supplement, or any combination of the foregoing. Unless
otherwise specified in the related Prospectus Supplement, no credit enhancement
will provide protection against all risks of loss or guarantee repayment of the
entire principal balance of the Securities and interest thereon. If losses occur
which exceed the amount covered by credit enhancement or which are not covered
by the credit enhancement, Securityholders will bear their allocable share of
any deficiencies.
SUBORDINATION
If so specified in the related Prospectus Supplement, a Series of
Securities may consist of one or more Classes of Senior Securities and one or
more Classes of Subordinated Securities. The rights of the holders of the
Subordinated Bonds of a Series (the "Subordinated Securityholders") to receive
payments of principal and/or interest (or any combination thereof) will be
subordinated to such rights of the holders of the Senior Securities of the same
Series (the "Senior Securityholders") to the extent described in the related
Prospectus Supplement. This subordination is intended to enhance the likelihood
of regular receipt by the Senior Securityholders of the full amount of their
scheduled payments of principal and/or interest. The protection afforded to the
Senior Securityholders of a Series by means of the subordination feature will be
accomplished by (i) the preferential right of such holders to receive, prior to
any payment being made on the related Subordinated Securities, the amounts of
principal and/or interest due them on each Distribution Date out of the funds
available for payment on such date in the related Distribution Account and, to
the extent described in the related Prospectus Supplement, by the right of such
holders to receive future payments that would otherwise have been payable to the
Subordinated Securityholders; or (ii) as otherwise described in the related
Prospectus Supplement. If so specified in the related Prospectus Supplement,
subordination may apply only in the event of certain types of losses not covered
by other forms of credit support, such as hazard losses not covered by standard
hazard insurance policies or losses due to the bankruptcy or fraud of the
borrower. The related Prospectus Supplement will set forth information
concerning, among other things, the amount of subordination of a Class or
Classes of Subordinated Securities in a Series, the circumstances in which such
subordination will be applicable and the manner, if any, in which the amount of
subordination will decrease over time.
If so specified in the related Prospectus Supplement, delays in receipt of
scheduled payments on the Mortgage Collateral and losses with respect to the
Mortgage Collateral will be borne first by the various Classes of Subordinated
Securities and thereafter by the various Classes of Senior Securities, in each
case under the circumstances and subject to the limitations specified in such
Prospectus Supplement. The aggregate payments in respect of delinquent payments
on the Mortgage Collateral over the lives of the Securities or at any time, the
aggregate losses in respect of Mortgage Collateral which must be borne by the
Subordinated Securities by virtue of subordination and the amount of payments
otherwise distributable to the Subordinated Securityholders that will be
distributable to Senior Securityholders on any Distribution Date may be limited
as specified in the related Prospectus Supplement. If aggregate payments in
respect of
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delinquent payments on the Mortgage Collateral or aggregate losses in respect of
such Mortgage Collateral were to exceed the amount specified in the related
Prospectus Supplement, Senior Securityholders would experience losses on the
Securities.
If so specified in the related Prospectus Supplement, various Classes of
Senior Securities and Subordinated Securities may themselves be subordinate in
their right to receive certain payments to other Classes of Senior and
Subordinated Securities, respectively.
As between Classes of Senior Securities and as between Classes of
Subordinated Securities, payments may be allocated among such Classes (i) in
accordance with a schedule or formula, (ii) in relation to the occurrence of
events or (iii) otherwise, in each case as specified in the related Prospectus
Supplement. As between Classes of Subordinated Securities, payments to Senior
Securityholders on account of delinquencies or losses and payments to the
Reserve Fund will be allocated as specified in the related Prospectus
Supplement.
RESERVE FUNDS
If so specified in the related Prospectus Supplement, the Issuer will
deposit in one or more accounts to be established with the applicable Trustee
(each, a "Reserve Fund") cash, certificates of deposit, letters of credit,
surety bonds, guaranteed investment contracts or any combination thereof, which
may be used by the applicable Trustee to make payments on such Series of
Securities to the extent funds are not otherwise available. Reserve Funds will
be established if they are deemed by the Issuer to be required to assure timely
payment of principal of, and interest on, its Series of Securities or are
otherwise required as a condition to the rating of such Securities by any Rating
Agency, or if the Issuer chooses to reduce the likelihood of a special
redemption of such Securities. The applicable Trustee will invest any cash in
any Reserve Fund in Permitted Investments maturing no later than the dates
specified in the related Prospectus Supplement. If a letter of credit is
deposited with the applicable Trustee, such letter of credit will be
irrevocable, will name such Trustee, in its capacity as trustee for the
Securityholders, as the sole beneficiary and will be issued by a bank acceptable
to each Rating Agency. If a surety bond is deposited with the applicable
Trustee, such surety bond will represent an obligation of an insurance company
or other corporation whose credit standing is acceptable to each Rating Agency
and will provide that such Trustee may exercise all of the rights of the Issuer
under such surety bond without the necessity of the taking of any action by the
Issuer. Following each Distribution Date for such Series of Securities, amounts
may be withdrawn from the related Reserve Funds and remitted to the Issuer free
from the terms of the applicable Agreement under the conditions and to the
extent specified in the related Prospectus Supplement. Additional information
concerning any Reserve Fund securing a Series of Securities, including without
limitation the manner in which such Reserve Fund shall be funded and the
conditions under which the amounts on deposit therein will be used to make
payments to holders of Securities of a particular Class of the related Series
will be set forth in the related Prospectus Supplement.
MORTGAGE POOL INSURANCE POLICIES
If so specified in the related Prospectus Supplement, a separate mortgage
pool insurance policy or policies ("Mortgage Pool Insurance Policy") may be
obtained for a Series of Securities supported by Mortgage Loans and issued by
the insurer (the "Pool Insurer") named in such Prospectus Supplement. Each
Mortgage Pool Insurance Policy will, subject to the limitations described below,
cover loss by reason of default in payment on the related Mortgage Loans in an
amount equal to a percentage specified in such Prospectus Supplement of the
aggregate principal balance of such Mortgage Loans on the Cut-off Date which are
not covered as to their entire outstanding principal balances by Primary
Mortgage Insurance Policies. As more fully described below, the Master Servicer
will present claims thereunder to the Pool Insurer on behalf of itself, the
applicable Trustee and the Securityholders. The Mortgage Pool Insurance
Policies, however, are not blanket policies against loss, since claims
thereunder may be made only respecting particular defaulted Mortgage Loans and
only upon satisfaction of certain conditions precedent described below. Unless
otherwise specified in the related Prospectus Supplement, the Mortgage Pool
Insurance Policies will not cover losses due to a failure to pay or denial of a
claim under a Primary Mortgage Insurance Policy.
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Unless otherwise specified in the related Prospectus Supplement, each
Mortgage Pool Insurance Policy will provide that no claims may be validly
presented unless (i) any required Primary Mortgage Insurance Policy is in effect
for the defaulted Mortgage Loan and a claim thereunder has been submitted and
settled; (ii) hazard insurance on the related Mortgaged Property has been kept
in force and real estate taxes and other protection and preservation expenses
have been paid; (iii) if there has been physical loss or damage to the Mortgaged
Property, it has been restored to its physical condition (reasonable wear and
tear excepted) at the time of issuance of the policy; and (iv) the insured has
acquired good and merchantable title to the Mortgaged Property free and clear of
liens except certain permitted encumbrances. Upon satisfaction of these
conditions, the Pool Insurer will have the option either (a) to purchase the
Mortgaged Property at a price equal to the principal balance of the related
Mortgage Loan plus accrued and unpaid interest at the Mortgage Rate to the date
of such purchase and certain expenses incurred by the Master Servicer on behalf
of the applicable Trustee and Securityholders or (b) to pay the amount by which
the sum of the principal balance of the defaulted Mortgage Loan plus accrued and
unpaid interest at the Mortgage Rate to the date of payment of the claim and the
aforementioned expenses exceeds the proceeds received from an approved sale of
the Mortgaged Property, in either case net of certain amounts paid or assumed to
have been paid under the related Primary Mortgage Insurance Policy. If any
Mortgaged Property is damaged, and proceeds, if any, from the related standard
hazard insurance policy or the applicable Special Hazard Insurance Policy are
insufficient to restore the damaged property to a condition sufficient to permit
recovery under the Mortgage Pool Insurance Policy, the Master Servicer will not
be required to expend its own funds to restore the damaged property unless it
determines that (i) such restoration will increase the proceeds to
Securityholders on liquidation of the Mortgage Loan after reimbursement of the
Master Servicer for its expenses and (ii) such expenses will be recoverable by
it through proceeds of the sale of the Mortgaged Property or proceeds of the
related Mortgage Pool Insurance Policy or any related Primary Mortgage Insurance
Policy.
Unless otherwise specified in the related Prospectus Supplement, no
Mortgage Pool Insurance Policy will insure (and many Primary Mortgage Insurance
Policies do not insure) against loss sustained by reason of a default arising
from, among other things, (i) fraud or negligence in the origination or
servicing of a Mortgage Loan, including misrepresentation by the Mortgagor, the
originator or persons involved in the origination thereof, or (ii) failure to
construct a Mortgaged Property in accordance with plans and specifications. A
failure of coverage attributable to one of the foregoing events might result in
a breach of the related Seller's representations described above and, in such
event, might give rise to an obligation on the part of such Seller to repurchase
the defaulted Mortgage Loan if the breach cannot be cured by such Seller. No
Mortgage Pool Insurance Policy will cover (and many Primary Mortgage Insurance
Policies do not cover) a claim in respect of a defaulted Mortgage Loan occurring
when the servicer of such Mortgage Loan, at the time of default or thereafter,
was not approved by the applicable insurer.
Unless otherwise specified in the related Prospectus Supplement, the
original amount of coverage under each Mortgage Pool Insurance Policy will be
reduced over the life of the related Securities by the aggregate dollar amount
of claims paid less the aggregate of the net amounts realized by the Pool
Insurer upon disposition of all foreclosed properties. The amount of claims paid
will include certain expenses incurred by the Master Servicer as well as accrued
interest on delinquent Mortgage Loans to the date of payment of the claim,
unless otherwise specified in the related Prospectus Supplement. Accordingly, if
aggregate net claims paid under any Mortgage Pool Insurance Policy reach the
original policy limit, coverage under that Mortgage Pool Insurance Policy will
be exhausted and any further losses will be borne by the Securityholders.
SPECIAL HAZARD INSURANCE POLICIES
If so specified in the related Prospectus Supplement, a separate Special
Hazard Insurance Policy may be obtained for a Series of Securities supported by
Mortgage Loans and will be issued by the insurer (the "Special Hazard Insurer")
named in such Prospectus Supplement. Each Special Hazard Insurance Policy will,
subject to limitations described below, protect holders of the related
Securities from (i) loss by reason of damage to Mortgaged Properties caused by
certain hazards (including earthquakes and, to a limited extent, tidal waves and
related water damage or as otherwise specified in the related Prospectus
Supplement) not insured against under the standard form of hazard insurance
policy for the respective states in which the
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Mortgaged Properties are located or under a flood insurance policy (unless the
Mortgaged Property is located in a federally designated flood area) and (ii)
loss caused by reason of the application of the coinsurance clause contained in
standard hazard insurance policies. No Special Hazard Insurance Policy will
cover losses occasioned by fraud or conversion by either Trustee or the Master
Servicer, war, insurrection, civil war, certain governmental action, errors in
design, faulty workmanship or materials (except under certain circumstances),
nuclear or chemical reaction, flood (if the Mortgaged Property is located in a
federally designated flood area), nuclear or chemical contamination and certain
other risks. The amount of coverage under any Special Hazard Insurance Policy
will be specified in the related Prospectus Supplement. Each Special Hazard
Insurance Policy will provide that no claim may be paid unless hazard and, if
applicable, flood insurance on the property securing the Mortgage Loan have been
kept in force and other protection and preservation expenses have been paid.
Subject to the foregoing limitations, and unless otherwise specified in the
related Prospectus Supplement, each Special Hazard Insurance Policy will provide
that where there has been damage to property securing a foreclosed Mortgage Loan
(title to which has been acquired by the insured) and to the extent such damage
is not covered by the standard hazard insurance policy or flood insurance
policy, if any, maintained by the mortgagor or the Master Servicer, the Special
Hazard Insurer will pay the lesser of (i) the cost of repair or replacement of
such property or (ii) upon transfer of the property to the Special Hazard
Insurer, the unpaid principal balance of such Mortgage Loan at the time of
acquisition of such property by foreclosure or deed in lieu of foreclosure, plus
accrued interest to the date of claim settlement and certain expenses incurred
by the Master Servicer with respect to such property. If the unpaid principal
balance of a Mortgage Loan plus accrued interest and certain expenses is paid by
the Special Hazard Insurer, the amount of further coverage under the related
Special Hazard Insurance Policy will be reduced by such amount less any net
proceeds from the sale of the property. Any amount paid as the cost of repair of
such property will further reduce coverage by such amount. So long as a Mortgage
Pool Insurance Policy remains in effect, the payment by the Special Hazard
Insurer of the cost of repair or of the unpaid principal balance of the related
Mortgage Loan plus accrued interest and certain expenses will not affect the
total insurance proceeds paid to Securityholders, but will affect the relative
amounts of coverage remaining under the related Special Hazard Insurance Policy
and Mortgage Pool Insurance Policy.
To the extent specified in the related Prospectus Supplement, the Master
Servicer may deposit cash, an irrevocable letter of credit or a guaranteed
investment contract in a special trust account to provide protection in lieu of
or in addition to that provided by a Special Hazard Insurance Policy. The amount
of any Special Hazard Insurance Policy or of the deposit to the special trust
account in lieu thereof relating to such Securities may be reduced so long as
any such reduction will not result in a downgrading of the rating of such
Securities by any applicable Rating Agency.
BANKRUPTCY BONDS
If so specified in the related Prospectus Supplement, a bankruptcy bond or
bonds (the "Bankruptcy Bond") may be obtained for a Series of Securities
supported by Mortgage Loans to cover losses resulting from proceedings under the
federal Bankruptcy Code with respect to a Mortgage Loan will be issued by an
insurer named in such Prospectus Supplement. Each Bankruptcy Bond will cover, to
the extent specified in the related Prospectus Supplement, certain losses
resulting from a reduction by a bankruptcy court of scheduled payments of
principal and interest on a Mortgage Loan or a reduction by such court of the
principal amount of a Mortgage Loan and will cover certain unpaid interest on
the amount of such a principal reduction from the date of the filing of a
bankruptcy petition. The required amount of coverage under each Bankruptcy Bond
will be set forth in the related Prospectus Supplement. Coverage under a
Bankruptcy Bond may be cancelled or reduced by the Master Servicer if such
cancellation or reduction would not adversely affect the then current rating or
ratings of the related Securities. See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE
LOANS -- ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS" herein.
To the extent specified in the related Prospectus Supplement, the Master
Servicer may deposit cash, an irrevocable letter of credit or a guaranteed
investment contract in a special trust account to provide protection
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in lieu of or in addition to that provided by a Bankruptcy Bond. The amount of
any Bankruptcy Bond or of the deposit to the special trust account in lieu
thereof relating to such Securities may be reduced so long as any such reduction
will not result in a downgrading of the then current rating of such Securities
by any such Rating Agency.
SECURITY INSURANCE POLICIES, SURETY BONDS AND GUARANTIES
If specified in the related Prospectus Supplement, deficiencies in amounts
otherwise payable on Securities of a Series or certain Classes thereof will be
covered by insurance policies and/or surety bonds provided by one or more
insurance companies or sureties. Such instruments may cover, with respect to one
or more Classes of Securities of the related Series, timely payments of interest
and/or full payments of principal on the basis of a schedule of principal
payments set forth in or determined in the manner specified in the related
Prospectus Supplement. In addition, if specified in the related Prospectus
Supplement, a Series of Securities may also be covered by insurance or
guaranties for the purpose of (i) maintaining timely payments or providing
additional protection against losses on the Mortgage Collateral supporting such
Series, (ii) paying administrative expenses or (iii) establishing a minimum
reinvestment rate on the payments made in respect of such Mortgage Collateral or
principal payment rate on such Mortgage Collateral. Such arrangements may
include agreements under which Securityholders are entitled to receive amounts
deposited in various accounts held by the applicable Trustee upon the terms
specified in such Prospectus Supplement. A copy of any such instrument for a
Series will be filed with the Commission as an exhibit to a Current Report on
Form 8-K to be filed within 15 days of issuance of the Securities of the related
Series.
LETTER OF CREDIT
If so specified in the related Prospectus Supplement, credit enhancement
may be provided by a letter of credit. The letter of credit, if any, with
respect to a Series of Securities will be issued by the bank or financial
institution specified in the related Prospectus Supplement (the "L/C Bank").
Under the letter of credit, the L/C Bank will be obligated to honor drawings
thereunder in an aggregate fixed dollar amount, net of unreimbursed payments
thereunder, equal to the percentage specified in the related Prospectus
Supplement of the aggregate principal balance of the Mortgage Collateral
supporting the related Series of Securities on the related Cut-off Date or of
one or more Classes of Securities (the "L/C Percentage"). If so specified in the
related Prospectus Supplement, the letter of credit may permit drawings in the
event of losses not covered by insurance policies or other credit support, such
as losses arising from damage not covered by standard hazard insurance policies,
losses resulting from the bankruptcy of a borrower and the application of
certain provisions of the federal Bankruptcy Code, or losses resulting from
denial of insurance coverage due to misrepresentations in connection with the
origination of a Mortgage Loan. The amount available under the letter of credit
will, in all cases, be reduced to the extent of the unreimbursed payments
thereunder. The obligations of the L/C Bank under the letter of credit for each
Series of Securities will expire at the date specified in the related Prospectus
Supplement. A copy of the letter of credit for a Series, if any, will be filed
with the Commission as an exhibit to a Current Report on Form 8-K to be filed
within 15 days of issuance of the Securities of the related Series.
OVER-COLLATERALIZATION
If so specified in the related Prospectus Supplement, credit enhancement
may consist of over-collateralization whereby the aggregate principal balance of
the related Mortgage Collateral exceeds the aggregate principal balance of the
Securities of the related Series. Such over-collateralization may exist on the
related Closing Date or develop thereafter as a result of the application of a
portion of the interest payments on each Mortgage Loan or Agency Security, as
the case may be, as an additional payment in respect of principal to reduce the
principal balance of a certain Class or Classes of Securities and, thus,
accelerate the rate of payment of principal on such Class or Classes of
Securities.
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CROSS-COLLATERALIZATION
If so specified in the related Prospectus Supplement, separate groups of
Mortgage Collateral may support separate Classes of the related Series of
Securities. In such case, credit support may be provided by a cross-
collateralization feature which requires that payments be made with respect to
Securities supported by one or more groups of Mortgage Collateral prior to
distributions to Subordinated Securities secured by one or more other groups of
Mortgage Collateral. Cross-collateralization may be provided by (i) the
allocation of certain excess amounts generated by one or more groups of Mortgage
Collateral to one or more other groups of Mortgage Collateral or (ii) the
allocation of losses with respect to one or more groups of Mortgage Collateral,
to one or more other groups of Mortgage Collateral. Such excess amounts will be
applied and/or such losses will be allocated to the Class or Classes of
Subordinated Securities of the related Series then outstanding having the lowest
rating assigned by any applicable Rating Agency or the lowest payment priority,
in each case to the extent and in the manner more specifically described in the
related Prospectus Supplement. The Prospectus Supplement for a Series which
includes a cross-collateralization feature will describe the manner and
conditions for applying such cross-collateralization feature.
EXCESS SPREAD
"Excess Spread" refers to the positive spread that may exist to the extent
specified in the related Prospectus Supplement between the weighted average of
the interest rates (less servicing or other applicable fees) on the Mortgage
Collateral and the weighted average of the Security Interest Rates. Whether at
any time any such positive spread exists will depend on a variety of factors,
including, with respect to a Series of Securities with respect to which both the
Securities and the Mortgage Collateral bear interest at adjustable rates, the
relationship of the movements in the indices applicable to the Mortgage
Collateral and those applicable to the Securities, over which no prediction can
be made or assurance given.
If so specified in the related Prospectus Supplement, the coverage provided
by one or more of the forms of credit enhancement described in this Prospectus
may apply concurrently to two or more separate Series of Securities. If
applicable, the related Prospectus Supplement will identify the Series of
Securities to which such credit enhancement relates and the manner of
determining the amount of coverage provided to such Series of Securities thereby
and of the application of such coverage to the identified Series of Securities.
MINIMUM PRINCIPAL PAYMENT AGREEMENT
If so specified in the related Prospectus Supplement, an Issuer may enter
into an agreement with an institution pursuant to which such institution will
provide such funds as may be necessary to enable such Issuer to make principal
payments on the Securities of the related Series at a minimum rate set forth in
such Prospectus Supplement.
DERIVATIVE ARRANGEMENTS
If so specified in the related Prospectus Supplement, credit enhancement
may be provided with respect to one or more Classes of Securities of a Series or
with respect to the Mortgage Collateral securing a Series of Securities in the
form of one or more derivative arrangements. A derivative arrangement is a
contract or agreement, the price of which is directly dependent upon (i.e.,
"derived from") the value of one or more underlying assets, including
securities, equity indices, debt instruments, commodities, other derivative
instruments, or any agreed upon pricing index or arrangement (e.g., the movement
over time of the Consumer Price Index or interest rates). Derivatives involve
rights or obligations based on the underlying asset, but do not necessarily
result in a transfer of the underlying asset. Derivative arrangements include
swap agreements, interest rate swaps, interest rate caps, interest rate floors,
interest rate collars and currency swap agreements. A "swap agreement" is a
contractual agreement providing for a series of exchanges of principal and/or
interest in the same or different currencies. At a more general level, the term
"swap agreement" includes the exchange of fixed-for-floating payments on a given
quantity of a specified commodity, security or other asset. An "interest rate
swap" is a swap agreement between two parties to engage in a series of exchanges
of interest payments on the same notional principal amount denominated in the
same currency based, respectively, on variable and
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fixed rates of interest. An "interest rate cap" is an agreement providing for
multi-period cash settled options on interest rates. The cap purchaser receives
a cash payment whenever the reference rate exceeds the ceiling rate on a fixing
date. An "interest rate floor" is an agreement providing for a multi-period
interest rate option that provides a cash payment to the holder of the option
whenever the reference rate is below the floor on a fixing date. An "interest
rate collar" is an agreement providing for a combination of an interest rate cap
and an interest rate floor such that a cap is purchased and a floor is sold or
vice versa. The effect of an interest rate collar is to place upper and lower
bounds on the cost of funds. A "currency swap agreement" is a swap agreement
between two parties for the exchange of a future series of interest and
principal payments in which one party pays in one currency and the other party
pays in a different currency. The exchange rate is fixed over the life of the
currency swap agreement.
The derivative arrangements described above will support the payments on
the Securities to the extent and under the conditions specified in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, no credit enhancement will provide protection against all risks of
loss or guarantee repayment of the entire principal balance of the Securities
and interest thereon. If losses occur which exceed the amount covered by credit
enhancement or which are not covered by the credit enhancement, Securityholders
will bear their allocable share of any deficiencies.
MORTGAGE LOAN PROGRAM
The Mortgage Loans will have been purchased by the Depositor, either
directly or through affiliates, from Sellers (including AmREIT). The Mortgage
Loans so acquired by the Depositor will have been originated substantially in
accordance with the underwriting criteria specified below under "Underwriting
Standards." All Mortgage Loans will have been originated by entities that
satisfy the criteria for originators of loans that are eligible for inclusion in
"mortgage-related securities."
UNDERWRITING STANDARDS
Unless otherwise specified in the related Prospectus Supplement, each
Seller will represent and warrant that all Mortgage Loans originated and/or sold
by it to the Depositor or one of its affiliates will have been underwritten in
accordance with standards consistent with those utilized by mortgage lenders
generally during the period of origination. For Mortgage Loans acquired from
AmREIT that have been originated by Correspondents under the Freedom Program (as
described above under "TRUST FUND ASSETS -- THE MORTGAGE LOANS"), the Prospectus
Supplement will set forth the matrix of specific underwriting standards applied
to such Mortgage Loans, based on the applicable combination of underwriting
characteristics described below. For Mortgage Loans acquired from AmREIT that it
has purchased as described under "TRUST FUND ASSETS -- THE MORTGAGE
LOANS -- OTHER PRODUCTS," the related Prospectus Supplement will include
detailed information with respect to the underwriting standards employed by the
applicable originators of the Mortgage Loans, to the extent such information is
reasonably available to the Depositor. Such information may include, as
applicable, underwriting guidelines with respect to required borrower income,
debt to income ratios, credit histories, loan-to-value ratios and documentation
and verification requirements.
Underwriting standards are applied by or on behalf of a lender to evaluate
the borrower's credit standing and repayment ability, and the value and adequacy
of the related Mortgaged Property as collateral. In general, a prospective
borrower applying for a loan is required to fill out a detailed application
designed to provide to the underwriting officer pertinent credit information. As
part of the description of the borrower's financial conditions, the borrower
generally is required to provide a current list of assets and liabilities and a
statement of income and expenses, as well as an authorization to apply for a
credit report which summarizes the borrower's credit history with local
merchants and lenders and any record of bankruptcy. In most cases, an employment
verification is obtained from an independent source (typically the borrower's
employer) which verification reports, among other things, the length of
employment with that organization, the current salary, and whether it is
expected that the borrower will continue such employment in the future. If a
prospective borrower is self-employed, the borrower may be required to submit
copies of signed tax returns. The borrower
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may also be required to authorize verification of deposits at financial
institutions where the borrower has demand or savings accounts.
The Company may elect to have the borrower's credit report reviewed, and a
credit score produced, by an independent credit-scoring firm, such as Fair,
Issac and Company ("FICO"). The Company has not engaged FICO or discussed any
such engagement with FICO. Credit scores estimate, on a relative basis, which
borrowers are most likely to default on Mortgage Loans. Lower scores imply
higher default risks relative to higher scores. FICO scores are empirically
derived from historical credit bureau data and represent a numerical weighing of
a borrower's credit characteristics over a two-year period. A FICO score is
generated through the statistical analysis of a number of credit-related
characteristics or variables. Common characteristics include the following: the
number of credit lines (trade lines), payment history, past delinquencies,
severity of delinquencies, current levels of indebtedness, types of credit and
length of credit history. Attributes are the specific values of each
characteristic. A scoreboard (the model) is created with weights or points
assigned to each attribute. An individual loan applicant's credit score is
derived by summing together the attribute weights for that applicant.
In determining the adequacy of the Mortgaged Property as collateral, an
appraisal is made of each property considered for financing. The appraiser is
required to inspect the property and verify that it is in good condition and
that construction, if new, has been completed. The appraisal is based on the
market value of comparable homes, the estimated rental income (if considered
applicable by the appraiser) and the cost of replacing the home. The value of
the property being financed, as indicated by the appraisal, must be such that it
currently supports, and is anticipated to support in the future, the outstanding
loan balance. The maximum Loan-to-Value Ratio is generally not expected to
exceed 95%. Mortgage Loans with Loan-to-Value Ratios in excess of 80% at
origination may be covered by private mortgage insurance insuring the balance
thereof down to a 75% Loan-to-Value Ratio. The method of calculating the
"Loan-to-Value Ratio" of a Mortgage Loan will be described in the Prospectus
Supplement for a Series of Securities supported by Mortgage Loans.
Once all applicable employment, credit and property information is
received, a determination generally is made as to whether the prospective
borrower has sufficient monthly income available (i) to meet the borrower's
monthly obligations on the proposed mortgage loan (determined on the basis of
the monthly payments due in the year of origination) and other expenses related
to the Mortgaged Property (such as property taxes and hazard insurance) and (ii)
to meet monthly housing expenses and other financial obligations and monthly
living expenses. The maximum housing expense to income ratio referred to in (i)
is generally not expected to exceed 40% and the maximum debt to income ratio
described in (ii) is generally not expected to exceed 55%. The underwriting
standards applied by Sellers may be varied in appropriate cases where factors
such as low Loan-to-Value Ratios or other favorable credit issues exist.
The Depositor expects that a portion of the Mortgage Loans it purchases
will be "jumbo" loans, i.e., loans that exceed the maximum balance for purchase
by FNMA or FHLMC. Under current regulations, the maximum principal balance
allowed on loans eligible for purchase by FNMA or FHLMC ranges from $227,150
($340,725 for mortgage loans secured by mortgaged properties located in either
Alaska or Hawaii) for one-unit to $436,600 ($654,900 for mortgage loans secured
by mortgaged properties located in either Alaska or Hawaii) for four-unit
residential loans. The maximum loan amount is generally not expected to exceed
$1,500,000 in the case of any of the foregoing types of loans.
A lender may originate mortgage loans under a reduced documentation
program. A reduced documentation program is designed to facilitate the loan
approval process and thereby improve the lender's competitive position among
other loan originators. Under a reduced documentation program, relatively more
emphasis is placed on property underwriting than on credit underwriting and
certain underwriting documentation concerning income and employment verification
is waived.
In the case of a loan secured by a leasehold interest in a real property,
the title to which is held by a third party lessor, generally, the Seller will
be required to represent and warrant, among other things, that the remaining
term of the lease and any sublease is at least five years longer than the
remaining term of the mortgage loan.
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Certain of the types of loans which may be included in the Mortgage
Collateral are recently developed and may involve additional uncertainties not
present in traditional types of loans. For example, certain of such Mortgage
Loans may provide for escalating or variable payments by the mortgagor or
obligor. These types of Mortgage Loans are underwritten on the basis of a
judgment that mortgagors or obligors will have the ability to make monthly
payments required initially. In some instances, however, a mortgagor's or
obligor's income may not be sufficient to permit continued loan payments as such
payments increase. These types of loans may also be underwritten primarily upon
the basis of Loan-to-Value Ratios or other favorable credit factors rather than
on the borrower's credit standing or income ratios.
QUALITY CONTROL
The Depositor's parent, AmREIT, has developed a quality control program to
monitor the quality of loan underwriting at the time of acquisition and on an
ongoing basis. All loans purchased by the Depositor will be subject to this
quality control program. A legal document review of each loan acquired will be
conducted to verify the accuracy and completeness of the information contained
in the mortgage notes, security instruments and other pertinent documents in the
file. A sample of loans to be acquired, selected by focusing on those loans with
higher risk characteristics, will normally be submitted to a third party
nationally recognized underwriting review firm for a compliance check of
underwriting and review of income, asset and appraisal information.
REPRESENTATIONS BY SELLERS; REPURCHASES
Each Seller will have made representations and warranties in respect of the
mortgage loans sold by such Seller and included in the Mortgage Loans supporting
a Series of Securities. Except as otherwise provided in the related Prospectus
Supplement, such representations and warranties generally include, among other
things: (i) that title insurance (or in the case of Mortgaged Properties located
in areas where such policies are generally not available, an attorney's
certificate of title) and any required hazard insurance policy and Primary
Mortgage Insurance Policy (as defined herein) were effective at the origination
of each mortgage loan other than Cooperative Loans, and that each policy (or
certificate of title as applicable) remained in effect on the date of purchase
of the mortgage loan from the Seller by or on behalf of the Company; (ii) that
the Seller had good title to each such mortgage loan and such mortgage loan was
subject to no offsets, defenses, counterclaims or rights of rescission except to
the extent that any buydown agreement described herein may forgive certain
indebtedness of the obligors on such Mortgage Loans (each, a "Mortgagor"); (iii)
that each mortgage loan constituted a valid first or junior lien, as the case
may be, on the Mortgaged Property (subject only to permissible title insurance
exceptions, if applicable, and certain other exceptions described in the Master
Servicing Agreement) and that the Mortgaged Property was free from damage and
was in good repair; (iv) that there were no delinquent tax or assessment liens
against the Mortgaged Property; (v) that no required payment on a mortgage loan
was 60 or more days delinquent at any time during the twelve months prior to the
date it is pledged to secure the related Series of Bonds; and (vi) that each
mortgage loan was made in compliance with, and is enforceable under, all
applicable local, state and federal laws and regulations in all material
respects.
If the Seller cannot cure a breach of any representation or warranty made
by it in respect of a Mortgage Loan that materially and adversely affects the
interests of the Securityholders in such Mortgage Loan within 90 days after
notice of such breach, then such Seller will be obligated to either (i)
substitute a similar mortgage loan for such Mortgage Loan under the conditions
specified in the related Prospectus Supplement or (ii) repurchase such Mortgage
Loan from the Issuer at a price (the "Purchase Price") equal to 100% of the
outstanding principal balance thereof as of the date of the repurchase plus
accrued interest thereon to the first day of the month following the month in
which such Mortgage Loan is repurchased at the Mortgage Rate (less any
unreimbursed advances or amount payable as related master servicing compensation
if the Seller is the Master Servicer with respect to such Mortgage Loan). The
Master Servicer will be required under the applicable Master Servicing Agreement
and Indenture to enforce this obligation for the benefit of the Securityholders,
following the practices it would employ in its good faith business judgment were
it the owner
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of such Mortgage Loan. These substitution or repurchase obligations will
constitute the sole remedies available to Securityholders for a breach of
representation by a Seller.
Each Series of Bonds will be issued pursuant to an indenture (the
"Indenture") between the related Bond Issuer and the entity named in the related
Prospectus Supplement as Bond Trustee with respect to such Series, and the
related Mortgage Loans will be serviced by the Master Servicer pursuant to a
Master Servicing Agreement. A form of Indenture and Master Servicing Agreement
has been filed as an exhibit to the Registration Statement on which this
Prospectus forms a part.
SERVICING OF THE MORTGAGE LOANS
GENERAL
The Master Servicer of the Mortgage Loans, if any, securing a Series of
Securities will be responsible for servicing such Mortgage Loans in accordance
with the terms set forth in a master servicing agreement (the "Master Servicing
Agreement") among the Issuer, the Master Servicer and the Bond Trustee. The
Master Servicer with respect to a Series of Securities will be identified in the
related Prospectus Supplement. The Master Servicer may perform certain servicing
obligations directly pursuant to the Master Servicing Agreement through one or
more servicers (each, a "Servicer") pursuant to one or more mortgage servicing
agreements (each, a "Servicing Agreement"). Notwithstanding any such servicing
arrangements, unless otherwise provided in the related Prospectus Supplement,
the Master Servicer will remain liable for its servicing duties and obligations
under the Master Servicing Agreement.
No Servicing Agreement will contain any terms inconsistent with the related
Master Servicing Agreement. For Mortgage Loans acquired from AmREIT, each
Servicing Agreement will typically be a contract solely between AmREIT and the
Servicer. AmREIT will assign all of its rights under each Servicing Agreement to
the Depositor under the related Mortgage Loan Purchase Agreement and such rights
will be assigned to the Bond Trustee pursuant to the Indenture. The Master
Servicing Agreement relating to a Series of Securities will provide that the
Master Servicer and, if for any reason such Master Servicer is no longer the
Master Servicer of the related Mortgage Loans, the Bond Trustee or any successor
Master Servicer must recognize the Servicer's rights and obligations under such
Servicing Agreement. As an independent contractor, each Servicer will perform
servicing functions for the Mortgage Loans including collection and remittance
of principal and interest payments, administration of mortgage escrow accounts,
collection of certain insurance claims and, if necessary, foreclosure.
The Master Servicer may permit Servicers to contract with subservicers to
perform some or all of the Servicer's servicing duties, but the Servicer will
not thereby be released from its obligations under the related Servicing
Agreement. The Master Servicer also may enter into servicing contracts directly
with an affiliate of a Servicer or permit a Servicer to transfer its servicing
rights and obligations to a third party. In such instances, the affiliate or
third party, as the case may be, will perform servicing functions comparable to
those normally performed by the Servicer as described above, and the Servicer
will not be obligated to perform such servicing functions. When used herein with
respect to servicing obligations, the term Servicer includes any such affiliate
or third party. The Master Servicer may perform certain supervisory functions
with respect to servicing by the Servicers directly or through an agent or
independent contractor.
On or before the related Closing Date, the Master Servicer will establish
into which each Servicer will remit collections on the Mortgage Loans serviced
by it (net of its related servicing compensation, amounts retained to pay
certain insurance premiums and amounts retained by such Servicer as
reimbursement for certain advances it has made). For purposes of the Master
Servicing Agreement, the Master Servicer will be deemed to have received any
amounts with respect to the Mortgage Loans that are received by a Servicer
regardless of whether such amounts are remitted by the Servicer to the Master
Servicer. The Master Servicer will have the right under the Master Servicing
Agreement to remove the Servicer servicing any Mortgage Loans in the event such
Servicer defaults under its Servicing Agreement and will exercise that right if
the Master Servicer considers such removal to be in the best interest of the
Securityholders. In the event that the
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Master Servicer removes a Servicer, the Master Servicer will continue to be
responsible for servicing the related Mortgage Loans.
A form of Master Servicing Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. The Master
Servicing Agreement with respect to a Series of Securities secured by Mortgage
Loans will be assigned to the Bond Trustee as security for such Series. The
following summaries describe certain provisions of the form of Master Servicing
Agreement. The summaries are qualified in their entirety by reference to the
form of Master Servicing Agreement. Where particular provisions or terms used in
the form of Master Servicing Agreement are referred to, the actual provisions
(including definitions of terms) are incorporated by reference as part of such
summaries.
PAYMENTS ON MORTGAGE LOANS
Pursuant to the Master Servicing Agreement with respect to a Series of
Securities, the Master Servicer will be required to establish and maintain the
Bond Account as a separate Eligible Account or Eligible Accounts into which it
will deposit or cause to be deposited on a daily basis, or such other basis as
may be specified in the related Prospectus Supplement, payments of principal and
interest (net of servicing compensation, amounts retained to pay certain
insurance premiums and amounts retained by the Master Servicer or any Servicer
as reimbursement for certain advances it has made) received with respect to the
related Mortgage Loans. Such amounts will include principal prepayments, certain
Insurance Proceeds and Liquidation Proceeds and amounts paid by the Servicer or
the Company in connection with any optional purchase by the Servicer or the
Company of any defaulted Mortgage Loans.
An "Eligible Account" is an account either (i) maintained with a depository
institution the short-term debt obligations of which (or in the case of a
depository institution that is the principal subsidiary of a holding company,
the short-term debt obligations of which, but only if Moody's is not an
applicable Rating Agency) are rated in the highest short-term rating category by
each applicable Rating Agency, (ii) an account or accounts the deposits in which
are fully insured by either the BIF or SAIF, (iii) an account or accounts the
deposits in which are insured by the BIF or SAIF to the limits established by
the FDIC, and the uninsured deposits in which are otherwise secured such that,
as evidenced by an opinion of counsel, the Securityholders have a claim with
respect to the funds in the Bond Account or a perfected first priority security
interest against any collateral securing such funds that is superior to the
claims of any other depositors or general creditors of the depository
institution with which the Bond Account is maintained, (iv) a trust account or
accounts maintained with the trust department of a federal or a state chartered
depository institution or trust company, acting in a fiduciary capacity or (v)
an account or accounts otherwise acceptable to each applicable Rating Agency.
The collateral eligible to secure amounts in the Bond Account is limited to
Permitted Investments. A Bond Account may be maintained as an interest bearing
account or the funds held therein may be invested pending each succeeding
Distribution Date in Permitted Investments. If so specified in the related
Prospectus Supplement, the Master Servicer or its designee will be entitled to
receive any such interest or other income earned on funds in the Bond Account as
additional compensation and will be obligated to deposit in the Bond Account the
amount of any loss immediately as realized.
Pursuant to the Master Servicing Agreement, the Master Servicer will be
required to remit to the applicable Trustee (to the extent not previously
remitted), on or before each Distribution Account Deposit Date, the Security
Distribution Amount for the related Distribution Date for deposit in the
Distribution Account for such Series of Securities maintained with the
applicable Trustee.
Any amounts received by the Master Servicer as Insurance Proceeds or as
Liquidation Proceeds, net of any expenses and other amounts reimbursable to the
Master Servicer pursuant to the Master Servicing Agreement, will (unless applied
to the repair or restoration of a Mortgaged Property) be deemed to be payments
received with respect to the Mortgage Loans securing the related Series of
Securities and will be deposited in the related Bond Account.
Prior to each Distribution Date for a Series of Securities, the Master
Servicer will furnish to the applicable Trustee a statement setting forth
certain information with respect to payments received with respect to the
Mortgage Loans.
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COLLECTION PROCEDURES
The Master Servicer, directly or through one or more Servicers, will make
reasonable efforts to collect all payments called for under the Mortgage Loans
and will, consistent with each Master Servicing Agreement and any Mortgage Pool
Insurance Policy, Primary Mortgage Insurance Policy and Bankruptcy Bond or
alternative arrangements, follow such collection procedures as are customary
with respect to mortgage loans that are comparable to the Mortgage Loans.
Consistent with the above, the Master Servicer or applicable Servicer may, in
its discretion, (i) waive any assumption fee, late payment or other charge in
connection with a Mortgage Loan and (ii) to the extent not inconsistent with the
coverage of such Mortgage Loan by a Mortgage Pool Insurance Pool Policy, Primary
Mortgage Insurance Policy or Bankruptcy Bond or alternative arrangements, if
applicable, arrange with a Mortgagor a schedule for the liquidation of
delinquencies running for no more than 180 days (unless a longer period is
specified in the related Prospectus Supplement) after the applicable due date
for each payment. To the extent the Master Servicer is obligated to make or to
cause to be made advances, such obligation will remain during any period of such
an arrangement.
Unless otherwise specified in the related Prospectus Supplement, in any
case in which property securing a Mortgage Loan has been, or is about to be,
conveyed by the Mortgagor, the Master Servicer will, to the extent it has
knowledge of such conveyance or proposed conveyance, exercise or cause to be
exercised its rights to accelerate the maturity of such Mortgage Loan under any
due-on-sale clause applicable thereto, but only if the exercise of such rights
is permitted by applicable law and will not impair or threaten to impair any
recovery under any related Primary Mortgage Insurance Policy. If these
conditions are not met or if the Master Servicer reasonably believes it is
unable under applicable law to enforce such due-on-sale clause, the Master
Servicer will enter into or cause to be entered into an assumption and
modification agreement with the person to whom such property has been or is
about to be conveyed, pursuant to which such person becomes liable for repayment
of the Mortgage Loan and, to the extent permitted by applicable law, the
Mortgagor also remains liable thereon. If a Mortgaged Property is sold or
transferred, the Master Servicer will be required promptly to notify the Bond
Trustee and the respective issuers of any hazard insurance policies, mortgagor
bankruptcy insurance and mortgage insurance policies to assure that all required
endorsements to each insurance policy are obtained and that coverage under each
such policy will remain in effect after the occurrence of such sale or transfer.
Any fee collected by or on behalf of the Master Servicer for entering into an
assumption agreement will be retained by or on behalf of the Master Servicer as
additional servicing compensation. See "CERTAIN LEGAL ASPECTS OF MORTGAGE
LOANS -- "DUE-ON-SALE" Clauses" herein. In connection with any such assumption,
the terms of the related Mortgage Loan may not be changed.
With respect to Cooperative Loans, any prospective purchaser will generally
have to obtain the approval of the board of directors of the relevant
Cooperative before purchasing the shares and acquiring rights under the related
proprietary lease or occupancy agreement. See "CERTAIN LEGAL ASPECTS OF MORTGAGE
LOANS" herein. This approval is usually based on the purchaser's income and net
worth and numerous other factors. Although the Cooperative's approval is
unlikely to be unreasonably withheld or delayed, the necessity of acquiring such
approval could limit the number of potential purchasers for those shares and
otherwise limit the ability to sell and realize the value of those shares.
In general, a "tenant-stockholder" (as defined in Code Section 216(b)(2))
of a corporation that qualifies as a "cooperative housing corporation" within
the meaning of Code Section 216(b)(1) is allowed a deduction for amounts paid or
accrued within his taxable year to the corporation representing his
proportionate share of certain interest expenses and certain real estate taxes
allowable as a deduction under Code Section 216(a) to the corporation under Code
Sections 163 and 164. In order for a corporation to qualify under Code Section
216(b)(1) for its taxable year in which such items are allowable as a deduction
to the corporation, such Section requires, among other things, that at least 80%
of the gross income of the corporation be derived from its tenant-stockholders
(as defined in Code Section 216(b)(2)). By virtue of this requirement, the
status of a corporation for purposes of Code Section 216(b)(1) must be
determined on a year-to-year basis. Consequently, there can be no assurance that
Cooperatives relating to the Cooperative Loans will qualify under such Section
for any particular year. In the event that such a Cooperative fails to qualify
for one or more years, the value of the collateral securing any related
Cooperative Loans could be significantly impaired because no deduction would be
allowable to tenant-stockholders under Code Section 216(a) with respect to
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those years. In view of the significance of the tax benefits accorded
tenant-stockholders of a corporation that qualifies under Code Section
216(b)(1), the likelihood that such a failure would be permitted to continue
over a period of years appears remote.
JUNIOR MORTGAGES
In the case of single family loans secured by junior liens on the related
Mortgaged Properties, the Master Servicer will be required to file (or cause to
be filed) of record a request for notice of any action by a superior lienholder
under the Senior Lien for the protection of the related Bond Trustee's interest,
where permitted by local law and whenever applicable state law does not require
that a junior lienholder be named as a party defendant in foreclosure
proceedings in order to foreclose such junior lienholder's equity of redemption.
The Master Servicer also will be required to notify any superior lienholder in
writing of the existence of the Mortgage Loan and request notification of any
action (as described below) to be taken against the Mortgagor or the Mortgaged
Property by the superior lienholder. If the Master Servicer is notified that any
superior lienholder has accelerated or intends to accelerate the obligations
secured by the related Senior Lien, or has declared or intends to declare a
default under the mortgage or the promissory note secured thereby, or has filed
or intends to file an election to have the related Mortgaged Property sold or
foreclosed, then the Master Servicer will be required to take, on behalf of the
related Issuer, whatever actions are necessary to protect the interests of the
related Securityholders, and/or to preserve the security of the related Mortgage
Loan. The Master Servicer will generally be required to advance the necessary
funds to cure the default or reinstate the superior lien, if such advance is in
the best interests of the related Securityholders and the Master Servicer
determines such advances are recoverable out of payments on or proceeds of the
related Mortgage Loan.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal servicing compensation to be paid to the Master Servicer in
respect of its master servicing activities for each Series of Securities will be
equal to a percentage per annum (which may vary under certain circumstances) of
the outstanding principal balance of each Mortgage Loan supporting such Series
of Securities or such other amount, all as described in the related Prospectus
Supplement (the "Master Servicing Fee"). As compensation for its servicing
duties, any Servicer or subservicer will generally be entitled to a monthly
servicing fee as described in the related Prospectus Supplement. In addition,
the Master Servicer, any Servicer or any subservicer will retain as additional
compensation all prepayment charges, assumption fees and late payment charges,
to the extent collected from Mortgagors, and any benefit that may accrue as a
result of the investment of funds in the applicable Bond Account (unless
otherwise specified in the related Prospectus Supplement).
The Master Servicer will pay or cause to be paid certain ongoing expenses
associated with each Series of Securities and incurred by it in connection with
its responsibilities under the related Master Servicing Agreement, including,
without limitation, payment of any fee or other amount payable in respect of any
credit enhancement arrangements, payment of the fees and disbursements of the
Bond Trustee and the Certificate Trustee, any custodian appointed by the Bond
Trustee, the certificate registrar and any paying agent, and payment of expenses
incurred in enforcing the obligations of Servicers and Sellers. The Master
Servicer will be entitled to reimbursement of expenses incurred in enforcing the
obligations of Servicers under certain limited circumstances. In addition, as
indicated in the preceding section, the Master Servicer will be entitled to
reimbursement of expenses incurred by it in connection with any defaulted
Mortgage Loan as to which it has determined that all recoverable Liquidation
Proceeds and Insurance Proceeds have been received (a "Liquidated Mortgage"),
and in connection with the restoration of Mortgaged Properties, such right of
reimbursement being prior to the rights of Securityholders to receive any
related Liquidation Proceeds (including Insurance Proceeds).
PREPAYMENTS
In general, when a borrower prepays a mortgage loan between due dates, the
borrower is required to pay interest on the amount prepaid only to the date of
prepayment and not thereafter. In the event such prepayments, together with
other prepayments (including for this purpose prepayments resulting from
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refinancing or liquidations of the Mortgage Loans or the mortgage loans
underlying the Agency Securities, as the case may be, due to defaults,
casualties, condemnations, repurchases by the Seller, the Issuer or AmREIT or
purchases thereof by the Master Servicer or the Company), result in a shortfall
in the amount of interest available on a Distribution Date for the Securities of
a Series, the Master Servicer may be required to cover the shortfall, but only
if and to the extent specified in the related Prospectus Supplement.
EVIDENCE AS TO COMPLIANCE
Each Master Servicing Agreement and Indenture will provide that on or
before a specified date in each year, a firm of independent public accountants
will furnish a statement to the Issuer and the Bond Trustee to the effect that,
on the basis of the examination by such firm conducted substantially in
compliance with the Uniform Single Attestation Program for Mortgage Bankers, the
Audit Program for Mortgages serviced for FHLMC or such other procedures as may
be specified in the related Prospectus Supplement, the servicing by or on behalf
of the Master Servicer of Mortgage Loans under agreements substantially similar
to each other (including the related Master Servicing Agreement) was conducted
in compliance with such agreements except for any significant exceptions or
errors in records that, in the opinion of the firm, the Audit Program for
Mortgages serviced for FHLMC, the Uniform Single Attestation Program for
Mortgage Bankers or such other procedure, requires it to report. In rendering
its statement such firm may rely, as to matters relating to the direct servicing
of Mortgage Loans by Servicers, upon comparable statements for examinations
conducted substantially in compliance with the Uniform Single Attestation
Program for Mortgage Bankers, the Audit Program for Mortgages serviced for FHLMC
or such other procedure, (rendered within one year of such statement) of firms
of independent public accountants with respect to the related Servicer.
Each Master Servicing Agreement and Indenture will also provide for
delivery to the Issuer and the Bond Trustee, on or before a specified date in
each year, of an annual statement signed by two officers of the Master Servicer
to the effect that the Master Servicer has fulfilled its obligations under the
Master Servicing Agreement throughout the preceding year.
Copies of the annual accountants' statement and the statement of officers
of the Master Servicer may be obtained by Securityholders of the related Series
without charge upon written request to the Company at its principal executive
offices.
ADVANCES AND OTHER AMOUNTS PAYABLE BY MASTER SERVICER
Subject to any limitations set forth in the related Prospectus Supplement,
each Master Servicing Agreement will require the Master Servicer to advance on
or before each Distribution Date (from its own funds, funds advanced by
Servicers or funds held in the Bond Account for future distribution to
Securityholders), an amount equal to the aggregate of payments of principal and
interest that were delinquent on the related Determination Date, subject to the
Master Servicer's determination that such advances will be recoverable out of
late payments by obligors on the Mortgage Collateral, Liquidation Proceeds,
Insurance Proceeds or otherwise. In the case of Cooperative Loans, the Master
Servicer also will be required to advance any unpaid maintenance fees and other
charges under the related proprietary leases as specified in the related
Prospectus Supplement.
In making Advances, the Master Servicer will endeavor to maintain a regular
flow of scheduled interest and principal payments to Securityholders, rather
than to guarantee or insure against losses. If Advances are made by the Master
Servicer from cash being held for future distribution to Securityholders, the
Master Servicer will replace such funds on or before any future Distribution
Date to the extent that funds in the applicable Bond Account on such
Distribution Date would be less than the amount required to be available for
distributions to Securityholders on such date. Any Advances will be reimbursable
to the Master Servicer out of recoveries on the specific Mortgage Collateral
with respect to which such Advances were made (e.g., late payments made by the
related obligors, any related Insurance Proceeds, Liquidation Proceeds or
proceeds of any Mortgage Loan repurchased pursuant to the related Master
Servicing Agreement). In addition, Advances by the Master Servicer (and any
advances by a Servicer) also will be reimbursable to the Master Servicer (or
Servicer) from cash otherwise distributable to Securityholders to the extent
that the Master Servicer
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determines that any such Advances previously made are not ultimately recoverable
as described in the immediately preceding sentence. The Master Servicer also
will be obligated to make Advances, to the extent recoverable out of Insurance
Proceeds, Liquidation Proceeds or otherwise, in respect of certain taxes and
insurance premiums not paid by Mortgagors on a timely basis. Funds so advanced
are reimbursable to the Master Servicer to the extent permitted by the Master
Servicing Agreement. If specified in the related Prospectus Supplement, the
obligations of the Master Servicer to make Advances may be supported by a cash
advance reserve fund, a surety bond or a letter of credit, in each case as
described in such Prospectus Supplement.
RESIGNATION OF MASTER SERVICER
A Master Servicer may not resign from its obligations and duties under a
Master Servicing Agreement or assign or transfer such duties or obligations
except (i) upon a determination that its duties thereunder are no longer
permissible under applicable law or (ii) upon a sale of its servicing rights
with respect to the Mortgage Loans with the prior written consents of the Bond
Trustee, the Issuer and any applicable Mortgage Insurer. No such resignation
will become effective until the Bond Trustee, as Stand-by Master Servicer, or a
Successor Master Servicer (as such terms are defined below) has assumed the
Master Servicer's obligations and duties under such Master Servicing Agreement.
Each Master Servicing Agreement will provide that such a successor master
servicer (the "Successor Master Servicer") must be satisfactory to the Issuer,
the Bond Trustee and any applicable Mortgage Insurer, in the exercise of their
reasonable discretion and must be approved to act as a mortgage servicer for
FHLMC or FNMA.
STAND-BY MASTER SERVICER
If so specified in the related Prospectus Supplement, the Bond Trustee will
act as stand-by Master Servicer (the "Stand-by Master Servicer") with respect to
each Series of Securities supported by Mortgage Loans. As Stand-by Master
Servicer, the Bond Trustee will succeed to the rights and obligations of the
Master Servicer with respect to the Mortgage Loans securing such Series upon a
default by the Master Servicer or upon resignation by the Master Servicer until
the appointment of a Successor Master Servicer.
SPECIAL SERVICING AGREEMENT
The Company may appoint a Special Servicer to undertake certain
responsibilities with respect to certain defaulted Mortgage Loans securing a
Series. The Special Servicer may engage various independent contractors to
perform certain of its responsibilities, provided, however, the Special Servicer
remains fully responsible and liable for all its requirements under the special
servicing agreement (the "Special Servicing Agreement"). As may be further
specified in the related Prospectus Supplement, the Special Servicer, if any,
may be entitled to various fees, including, but not limited to, (i) a monthly
engagement fee applicable to each Mortgage Loan, (ii) a special servicing fee,
or (iii) a performance fee applicable to each liquidated Mortgage Loan, in each
case calculated as set forth in the related Prospectus Supplement.
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE COMPANY
Each Master Servicing Agreement will provide that neither the Master
Servicer, the Company, the applicable Trustee nor any director, officer,
employee or agent of the Master Servicer, the Company or the applicable Trustee
will be under any liability to the related Securityholders for any action taken
or for refraining from the taking of any action in good faith pursuant to the
Master Servicing Agreement, or for errors in judgment; provided, however, that
neither the Master Servicer, the Company, the applicable Trustee nor any such
person will be protected against any liability that would otherwise be imposed
by reason of willful misfeasance, bad faith or negligence in the performance of
duties thereunder or by reason of reckless disregard of obligations and duties
thereunder. Each Master Servicing Agreement will further provide that the Master
Servicer, the Company, the applicable Trustee and any director, officer,
employee or agent of the Master Servicer, the Company or the applicable Trustee
will be entitled to indemnification by the related Issuer and
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will be held harmless against any loss, liability or expense incurred in
connection with any legal action relating to the Master Servicing Agreement or
the Securities, other than any loss, liability or expense related to any
specific Mortgage Collateral (except any such loss, liability or expense
otherwise reimbursable pursuant to the Master Servicing Agreement) and 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, each Master
Servicing Agreement will provide that neither the Master Servicer, the Company
nor the applicable Trustee will be under any obligation to appear in, prosecute
or defend any legal action which is not incidental to its respective
responsibilities under the Master Servicing Agreement and which in its opinion
may involve it in any expense or liability. The Master Servicer, the Company or
the applicable Trustee may, however, in its discretion undertake any such action
which it may deem necessary or desirable with respect to the Master Servicing
Agreement and the rights and duties of the parties thereto and the interests of
the Securityholders thereunder. In such event, the legal expenses and costs of
such action and any liability resulting therefrom will be expenses, costs and
liabilities of the related Issuer, and the Master Servicer, the Company or the
applicable Trustee, as the case may be, will be entitled to be reimbursed
therefor out of funds otherwise distributable to Securityholders.
Any person into which the Master Servicer may be merged or consolidated, or
any person resulting from any merger or consolidation to which the Master
Servicer is a party, or any person succeeding to the business of the Master
Servicer, will be the successor of the Master Servicer under each Master
Servicing Agreement, provided that such person is qualified to sell mortgage
loans to, and service mortgage loans on behalf of, FNMA or FHLMC and further
provided that such merger, consolidation or succession does not adversely affect
the then current rating or ratings of the Securities of such Series.
SERVICING DEFAULTS
Events of default under the Master Servicing Agreement (each, a "Servicing
Default") for a Series of Securities will include (i) any failure of the Master
Servicer to deposit in the Bond Account or remit to the applicable Trustee any
required payment (other than an Advance) which continues unremedied for one
business day after the giving of written notice of such failure to the Master
Servicer by the applicable Trustee or the Issuer; (ii) any failure by the Master
Servicer to make an Advance as required under the Master Servicing Agreement,
unless cured as specified therein; (iii) any failure by the Master Servicer duly
to observe or perform in any material respect any of its other covenants or
agreements in the Master Servicing Agreement which continues unremedied for
thirty days after the giving of written notice of such failure to the Master
Servicer by the applicable Trustee or the Issuer; and (iv) certain events of
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceeding and certain actions by or on behalf of the Master Servicer
indicating its insolvency, reorganization or inability to pay its obligations.
RIGHTS UPON SERVICING DEFAULT
If a Servicing Default under a Master Servicing Agreement shall have
occurred and be continuing, the Bond Trustee may terminate all of the rights and
obligations of the Master Servicer under such Master Servicing Agreement,
including the Master Servicer's rights to receive any Master Servicing Fees.
Upon such termination, the Bond Trustee, as Stand-by Master Servicer, or any
Successor Master Servicer duly appointed by the Bond Trustee will succeed to all
the responsibilities, duties and liabilities of the Master Servicer under such
Master Servicing Agreement and will be entitled to similar compensation
arrangements. Neither the Issuer nor the Bond Trustee shall have any right to
waive any Servicing Default, except under certain circumstances specified in the
Master Servicing Agreement.
AMENDMENT OF MASTER SERVICING AGREEMENT
A Master Servicing Agreement with respect to any Series of Securities
supported by Mortgage Loans may not be amended, changed, modified, terminated or
discharged, except by an instrument in writing signed by all parties thereto,
and with prior written notice to any applicable Mortgage Insurer.
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THE AGREEMENTS
The following is a general summary of certain provisions of the Agreements
for each Series of Securities not described elsewhere in this Prospectus. The
summaries are qualified in their entirety by reference to the respective
provisions of the Agreements. Where particular provisions or terms used in the
Indenture are referred to, the actual provisions (including definitions of
terms) are incorporated by reference as part of such summaries. The final
Agreements relating to each Series of Securities will be filed with the
Securities and Exchange Commission within fifteen days of the closing of the
sale of such Series of Securities. In connection with the following summaries,
it should be noted that for each Series of Certificates, any actions or votes
required or permitted to be taken by Bondholders under the Indenture for the
Bonds included in the Trust Fund Assets for such Series of Certificates will be
authorized to be taken by Certificateholders of such Series, as beneficial
holders of the Bonds.
MODIFICATION OF AGREEMENTS
With the consent of the holders of not less than 66 2/3% of the then
outstanding principal amount of the Class of Securities of the related Series
specified in the related Prospectus Supplement to be the "Controlling Class",
the applicable Trustee and the Issuer may execute an amendment to the related
Agreements to add provisions to, or change in any manner or eliminate any
provisions of, the Agreements with respect to the Securities of such Series or
modify (except as provided below) in any manner the rights of the
Securityholders.
Without the consent of the holder of each outstanding Security affected,
however, no such amendment shall (a) change the Stated Maturity of the principal
of, or any installment of interest on, any Security or reduce the principal
amount thereof, the interest rate specified thereon or the redemption price with
respect thereto, or change the earliest date on which any Security may be
redeemed at the option of the Issuer, or any place of payment where, or the coin
or currency in which, any affected Security or any interest thereon is payable,
or impair the right to institute suit for the enforcement of the provisions of
the Agreement regarding payment, (b) reduce the percentage of the aggregate
amount of the outstanding Securities, the consent of the holders of which is
required for any such amendment, or the consent of the holders of which is
required for any waiver of compliance with certain provisions of the Agreements
or certain defaults thereunder and their consequences provided for in the
Agreements, (c) modify the provisions of the Agreements specifying the
circumstances under which such an amendment may not change the provisions of the
Agreement without the consent of each outstanding Security affected thereby, or
the provisions of the Agreements with respect to certain remedies available in
an Event of Default (as defined herein), except to increase any percentage
specified therein or to provide that certain other provisions of the Agreements
cannot be modified or waived without the consent of the holder of each
outstanding Security affected thereby, (d) modify or alter the provisions of the
Agreements defining when Securities are outstanding, (e) permit the creation of
any lien (other than certain permitted liens) ranking prior to or on a parity
with the lien of the Indenture with respect to any part of the property subject
to lien under the Indenture, or terminate the lien of the Indenture on any
property at any time subject thereto or deprive the holder of any Security of
the security afforded by the lien of the Indenture (other than in connection
with a permitted substitution of Mortgage Collateral) or (f) modify any of the
provisions of the Agreements in such manner as to affect the calculation of the
debt service requirement for any Security or the rights of the Securityholders
to the benefits of any provisions for the mandatory redemption of Securities
contained therein.
The Issuer and the applicable Trustee may also enter into amendments to the
Agreements, without obtaining the consent of Securityholders (i) to cure any
ambiguity; (ii) to correct a defective provision or correct or supplement any
provision therein which may be inconsistent with any other provision therein;
(iii) to make any other revisions with respect to matters or questions arising
under the Agreements which are not inconsistent with the provisions thereof; or
(iv) to comply with any requirements imposed by the Code or any regulation
thereunder, provided, however, that no such amendments (except those pursuant to
clause (iv)) will adversely affect in any material respect the interests of any
Securityholder of that Series. An amendment will be deemed not to adversely
affect in any material respect the interests of the Securityholders if the
applicable Trustee receives a letter from each Rating Agency requested to rate
the class or classes of
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Securities of such Series stating that such amendment will not result in the
downgrading or withdrawal of the respective ratings then assigned to such
Securities.
EVENTS OF DEFAULT
An event of default (an "Event of Default") with respect to any Series of
Bonds will be defined in the Indenture as being: (a) the failure (i) to pay any
principal of, or interest on, any Bond of such Series then due, (ii) if
applicable, to call for special redemption any Bonds that are required to be so
redeemed or (iii) to pay the redemption price of any Bonds called for
redemption; (b) a default in the observance of certain negative covenants in the
Indenture; (c) a default in the observance of any other covenant of the Issuer,
and the continuation of any such default for a period of 30 days after notice
thereof is given to the Issuer by the Bond Trustee or by the holders of more
than 50% in outstanding principal amount of the Controlling Class of Bonds of
such Series; (d) any representation or warranty made by the Issuer in the
Indenture or in any certificate delivered pursuant thereto being incorrect in a
material respect as of the time made, and the circumstances in respect of which
such representation or warranty is incorrect are not cured within 30 days after
notice thereof is given to the Issuer by the Bond Trustee or by the holders of
more than 50% in outstanding principal amount of the Controlling Class of Bonds
of such Series; or (e) certain events of bankruptcy, insolvency, receivership or
reorganization of the Issuer.
RIGHTS UPON EVENTS OF DEFAULT
In case an Event of Default shall occur and be continuing with respect to a
Series of Bonds, the applicable Trustee or holders of more than 50% in
outstanding principal amount of the Controlling Class of Securities of the
related Series of Securities may declare the principal of such Series of Bonds
to be due and payable. Such declaration may under certain circumstances be
rescinded by the holders of a majority in principal amount of the outstanding
Securities of such Series.
Upon an Event of Default and the acceleration of the payments due on the
Bonds, the Bond Trustee may, in its discretion, sell the Collateral for such
Series, in which event the Bonds of such Series will be payable pro rata,
without regard to their Stated Maturities, or in such other manner as is
specified in the related Prospectus Supplement, out of the collections on, or
the proceeds from the sale of, such Collateral and will, to the extent permitted
by applicable law, bear interest at the interest rate specified in the
Indenture. If so specified in the related Prospectus Supplement, following an
Event of Default and acceleration of the payments due on the Bonds, the Bond
Trustee may, in its discretion, refrain from selling the Collateral, including
the Mortgage Collateral, for such Series and continue to apply all amounts
received on the Collateral to payments due on the Bonds of such Series in
accordance with their terms, notwithstanding the acceleration of the maturity of
such Bonds. (Indenture, Section 5.05) Each Trust Fund will allocate payments
received on the related Bonds among the Classes of Certificates pro rata, or in
such other manner as is specified in the related Prospectus Supplement.
In case an Event of Default shall occur and be continuing, the Bond Trustee
shall be under no obligation to expend or risk its own funds or otherwise incur
any financial liability in the performance of its duties under the Indenture if
it has reasonable grounds for believing that it has not been assured of adequate
security or indemnity. Subject to such provisions for indemnification and
certain limitations contained in the Indenture, the holders of a majority in
principal amount outstanding of the Controlling Class of outstanding Securities
of a Series shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Bond Trustee or
exercising any trust or power conferred on the Bond Trustee with respect to the
Securities of such Series; and the holders of a majority in principal amount of
the Controlling Class of Securities of a Series then outstanding may, in certain
cases, waive any default with respect thereto, except a default in payment of
principal or interest or a default in respect of a covenant or provision of the
Agreements that cannot be modified without the consent of each holder of
Securities affected.
No holder of Securities will have the right to institute any proceeding
with respect to the Agreements, unless (a) such holder previously has given to
the applicable Trustee written notice of an Event of Default, (b) the holders of
more than 50% in outstanding principal amount of the Controlling Class of Class
of
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Securities of the Series have made written request upon the Bond Trustee to
institute such proceedings in its own name as Bond Trustee and have offered the
Bond Trustee indemnity in full, (c) the Bond Trustee has for 60 days neglected
or refused to institute any such proceeding and (d) no direction inconsistent
with such written request has been given to the Bond Trustee during such 60-day
period by the holders of a majority in principal amount of the outstanding
Securities of such Series, but the holder of a Bond has a right which is
absolute and unconditional to receive payment of principal and interest on or
after the due dates thereof and to institute suit for the enforcement thereof.
CERTAIN INDENTURE COVENANTS OF THE ISSUER
Each Bond Issuer covenants in the Indenture, among other matters, that it
will not (a) sell, exchange or otherwise dispose of any portion of the
Collateral for a Series of Bonds except as expressly permitted by the Indenture
or the Master Servicing Agreement, (b) amend certain sections of the Bond
Issuer's trust agreement described below without the consent of the holders of
66 2/3% in outstanding principal amount of each Class of Securities affected
thereby or (c) incur, assume or guarantee any indebtedness other than in
connection with the issuance of the Bonds. Each Bond Issuer's trust agreement
further provides that the trust shall not have the power to perform any act or
engage in any business whatsoever except to issue and administer the Bonds of a
Series, to receive and own the Collateral, to maintain and administer the
Collateral, to pledge the Collateral to support such Bonds pursuant to the
Indenture and to take certain other actions incidental thereto. Section 11.01 of
the Issuer's trust agreement prohibits the amendment of the trust agreement if
the trustee thereunder determines that such amendment will adversely affect any
right, duty or liability of, or immunity or indemnity in favor of, such trustee
under the Issuer's trust agreement, or will cause or result in any conflict with
or breach of any terms of, or default under, the charter documents or bylaws of
such trustee or any document to which such trustee is a party.
ISSUER'S ANNUAL COMPLIANCE STATEMENT
Each Issuer will be required to file annually with the applicable Trustee a
written statement as to fulfillment of its obligations under the related
Agreement.
BOND TRUSTEE'S ANNUAL REPORT
Each Bond Trustee will be required to mail each year to all Securityholders
a brief report relating to its eligibility and qualifications to continue as the
Bond Trustee under the Indenture, any amounts advanced by it under the
Indenture, the amount, interest rate and maturity date of certain indebtedness
owing by the Issuer to the Bond Trustee in its individual capacity, the property
and funds physically held by the Bond Trustee as such, and any action taken by
it which materially affects the Bonds and which has not been previously
reported.
SATISFACTION AND DISCHARGE OF INDENTURE
The Indenture will be discharged with respect to the Collateral securing
the Bonds of a Series upon the delivery to the Bond Trustee for cancellation of
all of the Bonds of such Series or, with certain limitations, upon deposit with
the Bond Trustee of funds sufficient for the payment in full of all of the Bonds
of such Series.
TERMINATION OF TRUST AGREEMENT
Unless otherwise specified in the related Trust Agreement, the obligations
created by each Trust Agreement for each Series of Securities will terminate
upon the payment to the related Securityholders of all amounts held in the Bond
Account or by the Master Servicer and required to be paid to them pursuant to
such Agreement following the earlier of (i) the final payment of or other
liquidation of the last of the Trust Fund Assets subject thereto or the
disposition of all property acquired upon foreclosure of any such Trust Fund
Assets and (ii) if specified in the related Prospectus Supplement, the purchase
by the holder of the FASIT ownership interest or any other party specified to
have such rights (see "FEDERAL INCOME TAX
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CONSEQUENCES" below), of all of the remaining Trust Fund Assets and all property
acquired in respect of such Trust Fund Assets.
Any such purchase of Trust Fund Assets and property acquired in respect of
Trust Fund Assets evidenced by a Series of Securities will be made at a price
specified in the related Prospectus Supplement (which will be no lower then 100%
of the principal amount of outstanding Securities plus accrued interest. The
exercise of such right will effect early retirement of the Securities of that
Series, but the right to so purchase is subject to the principal balance of the
related Trust Fund Assets being less than the percentage specified in the
related Prospectus Supplement of the aggregate principal balance of the Trust
Fund Assets at the Cut-off Date for the Series.
THE TRUSTEES
The applicable Trustee under each Agreement will be named in the Prospectus
Supplement. The same entity may serve as both the Bond Trustee and the
Certificate Trustee for the same Series of Securities. Any entity selected to
serve as a Trustee may have normal banking relationships with the Depositor, the
Master Servicer and any of their respective affiliates.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains general summaries of certain legal
aspects of mortgage loans. Because such legal aspects are governed primarily by
applicable state law (which laws may differ substantially from state to state),
the summaries do not purport to be complete nor to reflect the laws of any
particular state, nor to encompass the laws of all states in which Mortgaged
Properties may be located. The summaries are qualified in their entirety by
reference to the applicable federal and state laws governing the Mortgage Loans.
If any Series of Securities is supported by manufactured housing Mortgage Loans,
the related Prospectus Supplement will describe the material legal aspects of
such loans.
GENERAL
The Mortgage Loans will consist of notes and either mortgages, deeds of
trust, security deeds or deeds to secure debts, depending upon the prevailing
practice in the state in which the underlying Mortgaged Property is located.
Deeds of trust are used almost exclusively in California instead of mortgages. A
mortgage creates a lien upon the real property encumbered by the mortgage, which
lien is generally not prior to the lien for real estate taxes and assessments.
Priority between mortgages depends on their terms and generally on the order of
recording with a state or county office. There are two parties to a mortgage:
the mortgagor, who is the borrower and owner of the mortgaged property; and the
mortgagee, who is the lender. Under a mortgage instrument, the mortgagor
delivers to the mortgagee (i) a note or bond evidencing the loan and (ii) the
mortgage. Although a deed of trust is similar to a mortgage, a deed of trust has
three parties: the borrower-property owner, called the trustor (similar to a
mortgagor); a lender (similar to a mortgagee) called the beneficiary; and a
third-party grantee called the trustee. Under a deed of trust, the borrower
grants the property, irrevocably until the debt is paid, in trust, generally
with a power of sale, to the trustee to secure payment of the obligation. A
security deed and a deed to secure debt are special types of deeds which
indicate on their face that they are granted to secure an underlying debt. By
executing a security deed or deed to secure debt, the grantor conveys title to,
as opposed to merely creating a lien upon, the subject property to the grantee
until such time as the underlying debt is repaid. The trustee's authority under
a deed of trust, the mortgagee's authority under a mortgage and the grantee's
authority under a security deed or deed to secure a debt are governed by law,
and, with respect to some deeds of trust, the directions of the beneficiary.
COOPERATIVES. Certain of the Mortgage Loans may be Cooperative Loans. The
Cooperative owns all the real property that comprises the project, including the
land, separate dwelling units and all common areas. The Cooperative is directly
responsible for project management and, in most cases, payment of real estate
taxes and hazard and liability insurance. If there is a blanket mortgage on the
Cooperative and/or underlying land, as is generally the case, the Cooperative,
as project mortgagor, is also responsible for meeting these mortgage
obligations. A blanket mortgage is ordinarily incurred by the Cooperative in
connection with the construction
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or purchase of the Cooperative's apartment building. The interest of the
occupant under proprietary leases or occupancy agreements to which that
Cooperative is a party are generally subordinate to the interest of the holder
of the blanket mortgage in that building. If the Cooperative is unable to meet
the payment obligations arising under its blanket mortgage, the mortgagee
holding the blanket mortgage could foreclose on that mortgage and terminate all
subordinate proprietary leases and occupancy agreements. In addition, the
blanket mortgage on a Cooperative may provide financing in the form of a
mortgage that does not fully amortize with a significant portion of principal
being due in one lump sum at final maturity. The inability of the Cooperative to
refinance this mortgage and its consequent inability to make such final payment
could lead to foreclosure by the mortgagee providing the financing. A
foreclosure in either event by the holder of the blanket mortgage could
eliminate or significantly diminish the value of any collateral held by the
lender who financed the purchase by an individual tenant-stockholder of
Cooperative shares or, in the case of any Mortgage Collateral supporting a
Series of Securities that includes Cooperative Loans, the collateral securing
the Cooperative Loans.
The Cooperative is owned by tenant-stockholders who, through ownership of
stock, shares or membership certificates in the corporation, receive proprietary
leases or occupancy agreements which confer exclusive rights to occupy specific
units. Generally, a tenant-stockholder of a Cooperative must make a monthly
payment to the Cooperative representing such tenant-stockholder's pro rata share
of the Cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a Cooperative and accompanying rights is financed through a
Cooperative share loan evidenced by a promissory note and secured by a security
interest in the occupancy agreement or proprietary lease and in the related
Cooperative shares. The lender takes possession of the share certificate and a
counterpart of the proprietary lease or occupancy agreement, and a financing
statement covering the proprietary lease or occupancy agreement and the
Cooperative shares if filed in the appropriate state and local offices to
perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of Cooperative
shares.
JUNIOR MORTGAGES
Certain of the Mortgage Loans may be secured by junior mortgages or deeds
of trust, which are junior to senior mortgages or deeds of trust which are not
part of the Mortgage Collateral. The rights of the Securityholders as the
beneficiaries of a junior deed of trust or a junior mortgage are subordinate in
lien priority and in payment priority to those of the holder of the senior
mortgage or deed of trust, including the prior rights of the senior mortgagee or
beneficiary to receive and apply hazard insurance and condemnation proceeds and,
upon default of the mortgagor, to cause a foreclosure on the property. Upon
completion of the foreclosure proceedings by the holder of the senior mortgage
or the sale pursuant to the deed of trust, the junior mortgagee's or junior
beneficiary's lien will be extinguished unless the junior lienholder satisfies
the defaulted senior loan or asserts its subordinate interest in a property in
foreclosure proceedings. See "-- FORECLOSURE/REPOSSESSION" below.
Furthermore, the terms of the junior mortgage or deed of trust are
subordinate to the terms of the senior mortgage or deed of trust. In the event
of a conflict between the terms of the senior mortgage or deed of trust and the
junior mortgage or deed of trust, the terms of the senior mortgage or deed of
trust will govern generally. Upon a failure of the mortgagor or trustor to
perform any of its obligations, the senior mortgagee or beneficiary, subject to
the terms of the senior mortgage or deed of trust, may have the rights to
perform the obligation itself. Generally, all sums so expended by the mortgagee
or beneficiary become part of the indebtedness secured by the mortgage or deed
of trust. To the extent a senior mortgagee expends such sums, such sums will
generally have priority over all sums due under the junior mortgage.
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FORECLOSURE/REPOSSESSION
DEED OF TRUST. Foreclosure of a deed of trust is generally accomplished by
a non-judicial sale under a specific provision in the deed of trust which
authorizes the trustee to sell the property at public auction upon any default
by the borrower under the terms of the note or deed of trust. In certain states,
such foreclosure also may be accomplished by judicial action in the manner
provided for foreclosure of mortgages. In addition to any notice requirements
contained in a deed of trust, in some states, such as California, the trustee
must record a notice of default and send a copy to the borrower-trustor and to
any person who has recorded a request for a copy of any notice of default and
notice of sale, to any successor in interest to the borrower-trustor, to the
beneficiary of any junior deed of trust and to certain other persons. In some
states, including California, the borrower-trustor has the right to reinstate
the loan at any time following default until shortly before the trustee's sale.
In general, the borrower, or any other person having a junior encumbrance on the
real estate, may, during a statutorily prescribed reinstatement period, cure a
monetary default by paying the entire amount in arrears plus other designated
costs and expenses incurred in enforcing the obligation. Generally, state law
controls the amount of foreclosure expenses and costs, including attorney's
fees, which may be recovered by a lender. After the reinstatement period has
expired without the default having been cured, the borrower or junior lienholder
no longer has the right to reinstate the loan and must pay the loan in full to
prevent the scheduled foreclosure sale. If the deed of trust is not reinstated
within any applicable cure period, a notice of sale must be posted in a public
place and, in most states, including California, published for a specific period
of time in one or more newspapers. In addition, some state laws require that a
copy of the notice of sale be posted on the property and sent to all parties
having an interest of record in the real property. In California, the entire
process from recording a notice of default to a non-judicial sale usually takes
four to five months.
MORTGAGES. Foreclosure of a mortgage is generally accomplished by judicial
action. The action is initiated by the service of legal pleadings upon all
parties having an interest in the real property. Delays in completion of the
foreclosure may occasionally result from difficulties in locating necessary
parties. Judicial foreclosure proceedings are often not contested by any of the
parties. When the mortgagee's right to foreclosure is contested, the legal
proceedings necessary to resolve the issue can be time consuming. After the
completion of a judicial foreclosure proceeding, the court generally issues a
judgment of foreclosure and appoints a referee or other court officer to conduct
the sale of the property. In some states, mortgages may also be foreclosed by
advertisement, pursuant to a power of sale provided in the mortgage.
Although foreclosure sales are typically public sales, frequently no third
party purchaser bids in excess of the lender's lien because of the difficulty of
determining the exact status of title to the property, the possible
deterioration of the property during the foreclosure proceedings and a
requirement that the purchaser pay for the property in cash or by cashier's
check. Thus the foreclosing lender often purchases the property from the trustee
or referee for an amount equal to the principal amount outstanding under the
loan, accrued and unpaid interest and the expenses of foreclosure 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 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 burden of ownership,
including obtaining hazard insurance and making such repairs at its own expense
as are necessary to render the property suitable for sale. The lender will
commonly obtain the services of a real estate broker and pay the broker's
commission in connection with the sale of the property. Depending upon market
conditions, the ultimate proceeds of the sale of the property may not equal the
lender's investment in the property. See "TRUST FUND ASSETS" herein.
A junior mortgagee may not foreclose on the property securing a junior
mortgage unless it forecloses subject to the senior mortgages, in which case it
must either pay the entire amount due on the senior mortgages to the senior
mortgagees prior to or at the time of the foreclosure sale or undertake the
obligation to make payments on the senior mortgages in the event the mortgagor
is in default thereunder, in either event adding the amounts expended to the
balance due on the junior loan, and may be subrogated to the rights of the
senior mortgagees. In addition, in the event that the foreclosure of a junior
mortgage triggers the enforcement of a "due-on-sale" clause, the junior
mortgagee may be required to pay the full amount of the senior mortgages to the
senior mortgagees. Accordingly, with respect to those mortgage loans which are
junior
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mortgage loans, if the lender purchases the property, the lender's title will be
subject to all senior liens and claims and certain governmental liens. The
proceeds received by the referee or trustee from the sale are applied first to
the costs, fees and expenses of sale and then in satisfaction of the
indebtedness secured by the mortgage or deed of trust under which the sale was
conducted. Any remaining proceeds are generally payable to the holders of junior
mortgages or deeds of trust and other liens and claims in order of their
priority, whether or not the borrower is in default. Any additional proceeds are
generally payable to the mortgagor or trustor. The payment of the proceeds to
the holders of junior mortgages may occur in the foreclosure action of the
senior mortgagee or may require the institution of separate legal proceeds.
Courts have imposed general equitable principles upon foreclosure, which
are generally designed to mitigate the legal consequences to the borrower of the
borrower's defaults under the loan documents. Some courts have been faced with
the issue of whether federal or state constitutional provisions reflecting due
process concerns for fair notice require that borrowers under deeds of trust
receive notice longer than that prescribed by statute. For the most part, these
cases have upheld the notice provisions as being reasonable or have found that
the sale by a trustee under a deed of trust does not involve sufficient state
action to afford constitutional protection to the borrower.
COOPERATIVE LOANS. The Cooperative shares owned by the tenant-stockholder
and pledged to the lender are, in almost all cases, subject to restrictions on
transfer as set forth in the Cooperative's certificate of incorporation and
bylaws, as well as the proprietary lease or occupancy agreement, and may be
cancelled by the Cooperative for failure by the tenant-stockholder to pay rent
or other obligations or charges owed by such tenant-stockholder, including
mechanics' liens against the cooperative apartment building incurred by such
tenant-stockholder. The proprietary lease or occupancy agreement generally
permits the Cooperative to terminate such lease or agreement in the event an
obligor fails to make payments or defaults in the performance of covenants
required thereunder. Typically, the lender and the Cooperative enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of a default by the tenant-stockholder on its obligations
under the proprietary lease or occupancy agreement. A default by the
tenant-stockholder under the proprietary lease or occupancy agreement will
usually constitute a default under the security agreement between the lender and
the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the Cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the Cooperative will recognize the
lender's lien against proceeds from the sale of the Cooperative apartment,
subject, however, to the Cooperative's right to sums due under such proprietary
lease or occupancy agreement. The total amount owed to the Cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the Cooperative Loan and accrued and unpaid interest
thereon.
Recognition agreements also provide that in the event of a foreclosure on a
Cooperative Loan, the lender must obtain the approval or consent of the
Cooperative as required by the proprietary lease before transferring the
Cooperative shares or assigning the proprietary lease. Generally, the lender is
not limited in any rights it may have to dispossess the tenant-stockholders.
In some states, foreclosure on the Cooperative shares is accomplished by a
sale in accordance with the provisions of Article 9 of the Uniform Commercial
Code (the "UCC") and the security agreement relating to those shares. Article 9
of the UCC requires that a sale be conducted in a "commercially reasonable"
manner. Whether a foreclosure sale has been conducted in a "commercially
reasonable" manner will depend on the facts in each case. In determining
commercial reasonableness, a court will look to the notice given the debtor and
the method, manner, time, place and terms of the foreclosure. Generally, a sale
conducted according to the usual practice of banks selling similar collateral
will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the
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right of the Cooperative to receive sums due under the proprietary lease or
occupancy agreement. If there are proceeds remaining, the lender must account to
the tenant-stockholder for the surplus. Conversely, if a portion of the
indebtedness remains unpaid, the tenant-stockholder is generally responsible for
the deficiency. See "-- Anti-Deficiency Legislation and Other Limitations on
Lenders" below.
In the case of foreclosure on a building which was converted from a rental
building to a building owned by a Cooperative under a non-eviction plan, some
states require that a purchaser at a foreclosure sale take the property subject
to rent control and rent stabilization laws which apply to certain tenants who
elected to remain in the building but who did not purchase shares in the
Cooperative when the building was so converted.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and certain foreclosed junior lienholders are given a
statutory period in which to redeem the property from the foreclosure sale. In
certain other states, including California, this right of redemption applies
only to sales following judicial foreclosure, and not to sales pursuant to a
non-judicial power of sale. In most states where the right of redemption is
available, statutory redemption may occur upon a payment of the foreclosure
purchase price, accrued interest and taxes. In some states, the right to redeem
is an equitable right. The effect of a right of redemption is to diminish the
ability of the lender to sell the foreclosed property. The exercise of a right
of redemption would defeat the title of any purchaser at a foreclosure sale, or
of any purchaser from the lender subsequent to judicial foreclosure or sale
under a deed of trust. Consequently, the practical effect of the redemption
right is to force the lender to retain the property and pay the expenses of
ownership until the redemption period has run.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory restrictions that limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, including California, statutes limit the right of the beneficiary or
mortgagee to obtain a deficiency judgment against the borrower following
foreclosure or sale under a deed of trust. A deficiency judgment is a personal
judgment against the former borrower equal in most cases to the difference
between the amount due to the lender and the current fair market value of the
property at the time of the foreclosure sale. As a result of these prohibitions,
it is anticipated that in most instances the Master Servicer will utilize the
non-judicial foreclosure remedy and will not seek deficiency judgments against
defaulting mortgagors.
Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
In certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security;
however, in some of these states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and may be precluded
from exercising remedies with respect to the security. Consequently, the
practical effect of the election requirement, when applicable, is that lenders
will usually proceed first against the security rather than bringing a personal
action against the borrower.
In some states, exceptions to the anti-deficiency statutes are provided for
in certain instances where the value of the lender's security has been impaired
by acts or omissions of the borrower, for example, in the event of waste of the
property. Finally, other statutory provisions limit any deficiency judgment
against the former borrower following a foreclosure sale to the excess of the
outstanding debt over the fair market value of the property at the time of the
public sale. The purpose of these statutes is generally to prevent a beneficiary
or a mortgagee from obtaining a large deficiency judgment against the former
borrower as a result of low or no bids at the foreclosure sale.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of the
secured mortgage lender to realize upon its security. For example, in a
proceeding under the federal Bankruptcy Code, a lender
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may not foreclose on a mortgaged property without the permission of the
bankruptcy court. In certain instances, a rehabilitation plan proposed by the
debtor may reduce the secured indebtedness to the value of the mortgaged
property as of the date of the commencement of the bankruptcy, rendering the
lender a general unsecured creditor for the difference, and also may reduce the
monthly payments due under such mortgage loan, change the rate of interest and
alter the mortgage loan repayment schedule. The effect of any such proceedings
under the federal Bankruptcy Code, including but not limited to any automatic
stay, could result in delays in receiving payments on the Mortgage Loans
supporting a Series of Securities and possible reductions in the aggregate
amount of such payments.
The federal tax laws provide priority to certain tax liens over the lien of
a mortgage or secured party. Numerous federal and state consumer protection laws
impose substantive requirements upon mortgage lenders in connection with the
origination, servicing and enforcement of mortgage loans. These laws include the
federal Truth-in-Lending Act, Real Estate Settlement Procedures Act, Equal
Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act and
related statutes and regulations. These federal and state laws impose specific
statutory liabilities upon lenders who fail to comply with the provisions of the
law. In some cases, this liability may affect assignees of the loans. In
particular, liability extends to assignees with respect to "consumer credit
contracts" and "purchase money loans" as defined in 16 C.F.R. Section 433.1 and
to certain "mortgages" as defined in 15 U.S.C. 1602(aa)
Generally, Article 9 of the UCC governs foreclosure on Cooperative shares
and the related proprietary lease or occupancy agreement. Some courts have
interpreted section 9-504 of the UCC to prohibit a deficiency award unless the
creditor establishes that the sale of the collateral (which, in the case of a
Cooperative Loan, would be the shares of the Cooperative and the related
proprietary lease or occupancy agreement) was conducted in a commercially
reasonable manner.
Multifamily and mixed use mortgage loan transactions often provide for an
assignment of the leases and rents pursuant to which the borrower typically
assigns its right, title and interest, as landlord under each lease and the
income derived therefrom, to the lender while either obtaining a license to
collect rents for so long as there is no default or providing for the direct
payment to the lender. Local law, however, may require that the lender take
possession of the property and appoint a receiver before becoming entitled to
collect the rents under the lease.
FEDERAL BANKRUPTCY AND OTHER LAWS AFFECTING CREDITORS' RIGHTS
GENERAL. In addition to laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including the federal bankruptcy laws, the
federal Soldiers' and Sailors' Relief Act, and state laws affording relief to
debtors, may interfere with or affect the ability of the secured lender to
realize upon collateral and/or enforce a deficiency judgment. For example, with
respect to federal bankruptcy law, the filing of a petition acts as a stay
against the enforcement of remedies for collection of a debt. Moreover, a court
with federal bankruptcy jurisdiction may permit a debtor through a Chapter 13
under the Bankruptcy Code rehabilitative plan to cure a monetary default with
respect to 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 the lender has taken all steps to
realize upon his security (provided no sale of the property has yet occurred)
prior to the filing of the debtor's Chapter 13 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
permitting the obligor to pay arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that the
terms of a loan secured by property of the debtor may be modified if the
borrower has filed a petition under Chapter 13. These courts have suggested that
such modifications may include reducing the amount of each monthly payment,
changing the rate of interest, altering the repayment schedule 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. Federal bankruptcy law and
limited case law indicate that the foregoing modifications could not be applied
to the terms of a loan secured by property that is the principal
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residence of the debtor. In all cases, the secured creditor is entitled to the
value of its security plus post-petition interest, attorney's fees and costs to
the extent the value of the security exceeds the debt.
In a Chapter 11 case under the Bankruptcy Code, the lender is precluded
from foreclosing without authorization from the bankruptcy court. The lender's
lien may be transferred to the other collateral and/or be limited in amount to
the value of the lender's interest in the collateral as of the date of the
bankruptcy. The loan term may be extended, the interest rate may be adjusted to
market rates and the priority of the loan may be subordinated to bankruptcy
court-approved financing. The bankruptcy court can, in effect, invalidate due-
on-sale clauses through confirmed Chapter 11 plans of reorganization.
The Bankruptcy Code provides priority to certain tax liens over the
lender's security. This may delay or interfere with the enforcement of rights in
respect of a defaulted Loan. In addition, substantive requirements are imposed
upon lenders in connection with the origination and the servicing of mortgage
loans by numerous federal and some state consumer protection laws. The laws
include the federal Truth-in-Lending Act, Real Estate Settlement Procedures Act,
Equal Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act
and related statutes and regulations. These federal laws impose specific
statutory liabilities upon lenders who originate loans and who fail to comply
with the provisions of the law. In some cases, this liability may affect
assignees of the loans.
FEDERAL BANKRUPTCY LAWS RELATING TO MORTGAGE LOANS SECURED BY MULTIFAMILY
AND MIXED USE PROPERTY. Certain provisions of the Bankruptcy Code may apply in
the case of Multifamily and Mixed Use Mortgage Loans. Section 365(a) of the
Bankruptcy Code generally provides that a trustee or a debtor-in-possession in a
bankruptcy or reorganization case under the Bankruptcy Code has the power to
assume or to reject an executory contract or an unexpired lease of the debtor,
in each case subject to the approval of the bankruptcy court administering such
case. If the trustee or debtor-in-possession rejects an executory contract or an
unexpired lease, such rejection generally constitutes a breach of the executory
contract or unexpired lease immediately before the date of the filing of the
petition. As a consequence, the other party or parties to such executory
contract or unexpired lease, such as the Mortgagor, as lessor under a lease,
would have only an unsecured claim against the debtor for damages resulting from
such breach, which could adversely affect the security for the related Mortgage
Loan. Moreover, under Section 502(b)(6) of the Bankruptcy Code, the claim of a
lessor for such damages from the termination of a lease of property will be
limited to the sum of (i) the rent reserved by such lease, without acceleration,
for the greater of one year or 15 percent, not to exceed three years, of the
remaining term of such lease, following the earlier of the date of the filing of
the petition and the date on which such lender repossessed, or the lessee
surrendered, the leased property, and (ii) any unpaid rent due under such lease,
without acceleration, on the earlier of such dates.
Under Section 365(h) of the Bankruptcy Code, if a trustee for a lessor, or
a lessor as a debtor-in-possession, rejects an unexpired lease of real property,
the lessee may treat such lease as terminated by such rejection or, in the
alternative, may remain in possession of the leasehold for the balance of such
term and for any renewal or extension of such term that is enforceable by the
lessee under applicable nonbankruptcy law. The Bankruptcy Code provides that if
a lessee elects to remain in possession after such rejection of a lease, the
lessee may offset against rents reserved under the lease for the balance of the
term after the date of rejection of the lease, and any such renewal or extension
thereof, any damages occurring after such date caused by the nonperformance of
any obligation of the lessor under the lease after such date.
Under Section 365(f) of the Bankruptcy Code, if a trustee assumes an
executory contract or an unexpired lease of the debtor, the trustee or
debtor-in-possession generally may assign such executory contract or unexpired
lease, notwithstanding any provision therein or in applicable law that
prohibits, restricts or conditions such assignment, provided that the trustee or
debtor-in-possession provides adequate assurance of future performance by the
assignee. In addition, no party to an executory contract or an unexpired lease
may terminate or modify any rights or obligations under an executory contract or
an unexpired lease at any time after the commencement of a case under the
Bankruptcy Code solely because of a provision in the executory contract or
unexpired lease or in applicable law conditioned upon the assignment of the
executory contract or unexpired lease. Thus, an undetermined third party may
assume the obligations of the lessee or a Mortgagor
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under a lease in the event of commencement of a proceeding under the Bankruptcy
Code with respect to the lessee or a Mortgagor, as applicable.
Under Sections 363(b) and (f) of the Bankruptcy Code, a trustee for a
lessor, or a lessor as debtor-in-possession, may, despite the provisions of the
related Mortgage Loan to the contrary, sell the Mortgaged Property free and
clear of all liens, which liens would then attach to the proceeds of such sale.
ENVIRONMENTAL RISKS
Real property pledged as security to a lender may be subject to unforeseen
environmental risks. Under the laws of certain states, contamination of a
property may give rise to a lien on the property to assure the payment of the
costs of clean-up. In several states, such a lien has priority over the lien of
an existing mortgage against such property. In addition, under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), the United States Environmental Protection Agency ("EPA") may impose
a lien on property where the EPA has incurred cleanup costs. However, a CERCLA
lien is subordinate to pre-existing, perfected security interests.
Under the laws of some states, and under CERCLA, it is conceivable that a
secured lender may be held liable as an "owner or operator" for the costs of
addressing releases or threatened releases of hazardous substances at a
Mortgaged Property even though the environmental damage or threat was caused by
a prior or current owner or operator or a third-party. CERCLA imposes liability
for such costs on any and all "responsible parties," including "owners or
operators." However, CERCLA excludes from the definition of "owner or operator"
a secured creditor "who without participating in the management of the
facility," holds indicia of ownership primarily to protect its security interest
(the "secured creditor exclusion"). Thus, if a lender's activities begin to
encroach on the actual management of a contaminated facility or property, the
lender may incur liability as an "owner or operator" under CERCLA. Similarly, if
a lender forecloses and takes title to a contaminated facility or property, the
lender may incur CERCLA liability in various circumstances, including, but not
limited to, when it holds the facility or property as an investment (including
leasing the facility or property to a third party), or fails to market the
property in a timely fashion.
Whether actions taken by a lender would constitute participation in the
management of a mortgaged property, or the business of a borrower, so as to
render the secured creditor exemption unavailable to a lender has been a matter
of judicial interpretation of the statutory language, and court decisions have
been inconsistent. In 1990, the Court of Appeals for the Eleventh Circuit
suggested that the mere capacity of the lender to influence a borrower's
decisions regarding disposal of hazardous substances was sufficient
participation in the management of the borrower's business to deny the
protection of the secured creditor exemption to the lender.
This ambiguity appears to have been resolved by the enactment of the Asset
Conservation, Lender Liability and Deposit Insurance Protection Act of 1996,
which was signed into law by President Clinton on September 30, 1996. The new
legislation provides that in order to be deemed to have participated in the
management of a mortgaged property, a lender must actually participate in the
operational affairs of the property or the borrower. The legislation also
provides that participation in the management of the property does not include
"merely having the capacity to influence, or unexercised right to control"
operations. Rather, a lender will lose the protection of the secured creditor
exemption only if it exercises decision-making control over the day-to-day
management of all operational functions of the mortgaged property.
If a lender is or becomes liable, it can bring an action for contribution
against any other "responsible parties," including a previous owner or operator,
who created the environmental hazard, but those persons or entities may be
bankrupt or otherwise judgment proof. The costs associated with environmental
cleanup may be substantial. It is conceivable that such costs arising from the
circumstances set forth above would become a liability of the Issuer and
occasion a loss to Securityholders.
CERCLA does not apply to petroleum products, and the secured creditor
exclusion does not govern liability for cleanup costs under federal laws other
than CERCLA, in particular Subtitle I of the federal Resource Conservation and
Recovery Act ("RCRA"), which regulates underground petroleum storage tanks
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(except heating oil tanks). The EPA has adopted a lender liability rule for
underground storage tanks under Subtitle I of RCRA. Under such rule, a holder of
a security interest in an underground storage tank or real property containing
an underground storage tank is not considered an operator of the underground
storage tank as long as petroleum is not added to, stored in or dispensed from
the tank. In addition, under the Asset Conservation, Lender Liability and
Deposit Insurance Protection Act of 1996, the protections accorded to lenders
under CERCLA are also accorded to the holders of security interests in
underground storage tanks. It should be noted, however, that liability for
cleanup of petroleum contamination may be governed by state law, which may not
provide for any specific protection for secured creditors.
Except as otherwise specified in the applicable Prospectus Supplement, at
the time the Mortgage Loans or the mortgage loans underlying the Agency
Securities, as the case may be, were originated, no environmental assessment or
a very limited environmental assessment of the Mortgage Properties or the real
property constituting security for such mortgage loans, respectively, was
conducted.
DUE-ON-SALE CLAUSES
Unless otherwise provided in the related Prospectus Supplement, each
Mortgage Loan will contain a due-on-sale clause which will generally provide
that if the mortgagor or obligor sells, transfers or conveys the Mortgaged
Property, the loan may be accelerated by the mortgagee. In recent years, court
decisions and legislative actions have placed substantial restriction on the
right of lenders to enforce such clauses in many states. For instance, the
California Supreme Court in August 1978 held that due-on-sale clauses were
generally unenforceable. However, the Garn-St Germain Depository Institutions
Act of 1982 (the "Garn-St Germain Act"), subject to certain exceptions, preempts
state constitutional, statutory and case law prohibiting the enforcement of
due-on-sale clauses. As 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 mortgage 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. 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, for 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.
As to loans secured by an owner-occupied residence, the Garn-St Germain Act
sets forth nine specific instances in which a mortgagee covered by the Garn-St
Germain Act may not exercise its rights under a due-on-sale clause,
notwithstanding the fact that a transfer of the property may have occurred. The
inability to enforce a due-on-sale clause may result in transfer of the related
Mortgaged Property to an uncreditworthy person, which could increase the
likelihood of default or may result in a mortgage bearing an interest rate below
the current market rate being assumed by a new home buyer, which may affect the
average life of the Mortgage Loans and the number of Mortgage Loans which may
extend to maturity.
ENFORCEABILITY OF PREPAYMENT CHARGES AND LATE PAYMENT FEES
Forms of notes, mortgages and deeds of trust used by lenders may contain
provisions obligating the borrower to pay a late charge if payments are not
timely made, and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states, there
are or may be specific limitations upon the late charges which a lender may
collect from a borrower for delinquent payments. Certain states also limit the
amounts that a lender may collect from a borrower as an additional charge if the
loan is prepaid.
Under certain state laws, prepayment charges may not be imposed after a
certain period of time following the origination of mortgage loans with respect
to prepayments on loans secured by liens encumbering owner-occupied residential
properties. Since many of the Mortgaged Properties will be owner-occupied, it is
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anticipated that prepayment charges may not be imposed with respect to many of
the Mortgage Loans. The absence of such a restraint on prepayment, particularly
with respect to Fixed Rate Mortgage Loans having higher interest rates, may
increase the likelihood of refinancing or other early retirement of such loans
or contracts. Late charges and prepayment fees are typically retained by
servicers as additional servicing compensation.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("Title V"), provides that state usury
limitations shall not apply to certain types of residential first mortgage loans
originated by certain lenders after March 31, 1980. The Office of Thrift
Supervision, as successor to the Federal Home Loan Bank Board, is authorized to
issue rules and regulations and to publish interpretations governing
implementation of Title V. The statute authorized the states to reimpose
interest rate limits by adopting, before April 1, 1983, a law or constitutional
provision which expressly rejects an application of the federal law. In
addition, even where Title V is not so rejected, any state is authorized by the
law to adopt a provision limiting discount points or other charges on mortgage
loans covered by Title V. Certain states have taken action to reimpose interest
rate limits and/or to limit discount points or other charges.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Generally, under the terms of the Soldiers' and Sailors' Civil Relief Act
of 1940, as amended (the "Relief Act"), a borrower who enters military service
after the origination of such borrower's mortgage loan (including a borrower who
is a member of the National Guard or is in reserve status at the time of the
origination of the mortgage loan and is later called to active duty) may not be
charged interest above an annual rate of 6% during the period of such borrower's
active duty status, unless a court orders otherwise upon application of the
lender. It is possible that such interest rate limitation could have an effect,
for an indeterminate period of time, on the ability of the Master Servicer to
collect full amounts of interest on certain of the Mortgage Loans. Any shortfall
in interest collections resulting from the application of the Relief Act could
result in losses to the holders of the Securities. In addition, the Relief Act
imposes limitations which would impair the ability of the Master Servicer to
foreclose on an affected Mortgage Loan during the borrower's period of active
duty status. Thus, in the event that such a Mortgage Loan goes into default,
there may be delays and losses occasion by the inability to realize upon the
Mortgaged Property in a timely fashion.
SUBORDINATE FINANCING
When the mortgagor encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the mortgagor
may have difficulty servicing and repaying multiple loans. In addition, if the
junior loan permits recourse to the mortgagor (as junior loans often do) and the
senior loan does not, a mortgagor may be more likely to repay sums due on the
junior loan than those on the senior loan. Second, acts of the senior lender
that prejudice the junior lender or impair the junior lender's security may
create a superior equity in favor of the junior lender. For example, if the
mortgagor and the senior lender agree to an increase in the principal amount of
or the interest rate payable on the senior loan, the senior lender may lose its
priority to the extent an existing junior lender is harmed or the mortgagor is
additionally burdened. Third, if the mortgagor defaults on the senior loan
and/or any junior loan or loans, the existence of junior loans and actions taken
by junior lenders can impair the security available to the senior lender and can
interfere with or delay the taking of action by the senior lender. Moreover, the
bankruptcy of a junior lender may operate to stay foreclosure or similar
proceeds by the senior lender.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
of the purchase, ownership and disposition of the Securities. This summary has
been reviewed by Jeffers, Wilson, Shaff & Falk, LLP, tax counsel to the Company
and the Issuer, and, to the extent that it states legal conclusions, represents
the opinion of such tax counsel, subject to the limitations and qualifications
set forth herein and in the applicable
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Prospectus Supplement. In particular, based on certain assumptions and factual
representations on behalf of the Company relating to the issuance, terms and
treatment of the Bonds, and when applicable, the timely election of FASIT
treatment, as described in the related Prospectus Supplement, tax counsel is of
the opinion that (a) the Bonds issued by the Issuer will be treated as
indebtedness for federal income tax purposes, and (b), in connection with a
series of Securities issued as a FASIT, that the applicable Trust Fund Assets
will be classified as a FASIT for federal income tax purposes. The summary is
based on the Internal Revenue Code of 1986, as amended (the "Code"),
regulations, rulings and decisions in effect as of the date of this Prospectus,
all of which are subject to change. The summary in particular takes into account
the Treasury regulations regarding the taxation of debt instruments with
original issue discount (the "OID Regulations"). The summary does not purport to
address federal income tax consequences applicable to all categories of
investors, some of which may be subject to special rules. In addition, the
summary is limited to investors who will hold the Securities as "capital assets"
(generally, property held for investment) as defined in Section 1221 of the
Code. 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 Securities. As applied to any particular
Security, the summary is subject to further discussion or change as provided in
the related Prospectus Supplement.
CLASSIFICATION OF THE ISSUER AND THE BONDS
No regulations, published rulings or judicial decisions discuss the
characterization for federal income tax purposes of securities with terms
substantially the same as the Bonds. Upon the issuance of each Series of Bonds,
however, Jeffers, Wilson, Shaff & Falk, LLP, tax counsel to the Issuer, will
advise the Issuer that in its opinion such Bonds will be treated for federal
income tax purposes as indebtedness and not as an ownership interest in the
Trust Fund Assets of the Issuer (the "Trust Fund"), or an equity interest in the
Issuer or in a separate association taxable as a corporation.
Under the taxable mortgage pool ("TMP") rules in the Code, certain entities
that issue debt secured by real estate mortgages are subject to special tax
treatment that can result in entity level federal income taxation. An entity
will be classified as a TMP if it does not make an election to be classified as
a "real estate mortgage investment conduit" (a "REMIC") and (i) substantially
all of its assets consist of debt obligations and more than 50% of such debt
obligations are real estate mortgages or interests therein, (ii) the entity
issues debt obligations with two or more maturities and (iii) payments on the
debt obligations issued by it bear a relationship to payments received on the
debt obligations owned by it. In certain situations, pools of assets within an
entity can also be treated as separate TMPs.
The Company does not intend to make an election for any Issuer to be
classified as a REMIC. Further, the Company intends to structure all issuances
of Bonds, unless otherwise specified in the related Prospectus Supplement, so as
to not constitute a TMP. However, it is possible that the Issuer or a portion of
the Issuer relating to a specific pool of Mortgage Collateral and the Bonds
related thereto could be treated as a TMP. If an Issuer were to be classified as
a TMP, it is anticipated that it would nonetheless qualify as a "qualified REIT
subsidiary" (within the meaning of Section 856(i) of the Code) and thus would
not be subject to entity level federal income taxes. If so, only AmREIT or its
shareholders would be required to include in income any "excess inclusion
income" generated by the TMP. On the other hand, if the Issuer were to be
classified as a TMP but did not maintain its status as a "qualified REIT
subsidiary", it would not be permitted to be included in the consolidated
federal income tax return of any other corporation and its net income would be
subject to entity level federal income taxes. Each Prospectus Supplement will
specify whether or not the Issuer for that Series of Bonds is expected to be
classified as a TMP. No assurance is given in this discussion as to whether any
Issuer classified as a TMP will continue to qualify as a "qualified REIT
subsidiary" or whether AmREIT will continue to qualify as a REIT for federal
income tax purposes.
Because the Bonds will be treated as indebtedness of the Issuer for federal
income tax purposes, (i) Bonds held by a thrift institution taxed as a domestic
building and loan association will not constitute "loans . . . secured by an
interest in real property" within the meaning of Code Section 7701(a)(19)(C)(v),
(ii) interest on Bonds held by a real estate investment trust will not be
treated as "interest on obligations secured by mortgages on real property or on
interests in real property" within the meaning of Code
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Section 856(c)(3)(B), and Bonds will not constitute "real estate assets" or
"Government securities" within the meaning of Code Section 856(c)(5)(A), and
(iii) Bonds held by a regulated investment company will not constitute
"Government securities" within the meaning of Code Section 851(b)(4)(A)(i).
TAXATION OF THE FASIT AND ITS HOLDERS
If a FASIT election is made with respect to a Series of Securities and such
Series is issued, treated and maintained as the Company has determined herein
and in the related Prospectus Supplement, then the arrangement by which the
Securities of that Series are issued will be treated as a FASIT. The regular
FASIT interests will be treated as debt for federal income tax purposes.
Sections 860H through 860L of the Code (the "FASIT Provisions") provide for
an entity for federal income tax purposes known as a "financial asset
securitization investment trust" (a "FASIT"). Although the FASIT Provisions of
the Code became effective on September 1, 1997, no Treasury regulations or other
administrative guidance have been issued with respect to those provisions.
Accordingly, definitive guidance cannot be provided with respect to many aspects
of the tax treatment of FASIT regular interest holders. Investors should also
note that the FASIT discussion contained herein constitutes only a summary of
the U.S. federal income tax consequences to holders of FASIT interests. With
respect to each Series of FASIT regular interests, the related Prospectus
Supplement will provide a detailed discussion regarding the federal income tax
consequences associated with the particular transaction.
FASIT interests will be classified as either FASIT regular interests, which
generally will be treated as debt for federal income tax purposes, or FASIT
ownership interests, which generally are not treated as debt for such purposes,
but rather as representing rights and responsibilities with respect to the
taxable income or loss of the related FASIT. The Prospectus Supplement for each
Series of Securities will indicate which Securities of such Series will be
designated as regular interests, and which, if any, will be designated as the
ownership interest.
Qualification as a FASIT. A Trust Fund will qualify as a FASIT if (i) a
FASIT election is in effect, (ii) certain tests concerning (A) the composition
of the FASIT's assets and (B) the nature of the investors' interests in the
FASIT are met on a continuing basis, and (iii) the Trust Fund is not a regulated
investment company as defined in Section 851(a) of the Code.
Asset Composition. For a Trust Fund to be eligible for FASIT status,
substantially all of the Trust Fund Assets must consist of "permitted assets" as
of the close of the third month beginning after the closing date and at all
times thereafter (the "FASIT Qualification Test"). Permitted assets include (i)
cash or cash equivalents, (ii) debt instruments with fixed terms that would
qualify as regular interests if issued by a REMIC (generally, instruments that
provide for interest at a fixed rate, a qualifying variable rate, or a
qualifying interest-only ("IO") type rate), (iii) foreclosure property, (iv)
certain hedging instruments (generally interest and currency rate swaps and
credit enhancement contracts) that are reasonably required to guarantee or hedge
against the FASIT's risks associated with being the obligor on FASIT interests,
(v) contract rights to acquire qualifying debt instruments or qualifying hedging
instruments, (vi) FASIT regular interest, and (vii) REMIC regular interests.
Permitted assets do not include any debt instruments issued by the holder of the
FASIT's ownership interest or by any person related to such holder. Neither the
Company nor AmREIT will be permitted to hold ownership interests in a FASIT.
Interests in a FASIT. In addition to the foregoing asset qualification
requirements, the interests in a FASIT also must meet certain requirements. All
of the interests in a FASIT must belong to either of the following: (i) one or
more classes of regular interest or (ii) a single class of ownership interest
that is held by a fully taxable domestic C Corporation (and not by a REIT such
as AmREIT).
A FASIT interest generally qualifies as a regular interest if (i) it is
designated as a regular interest, (ii) it has a stated maturity no greater than
thirty years, (iii) it entitles its holder to a specified principal amount, (iv)
the issue price of the interest does not exceed 125% of its stated principal
amount, (iv) the yield to maturity of the interest is less than the applicable
federal rate published by the IRS for the month of issue, plus 5%, and (vi) if
it pays interest, such interest is payable at either (A) a fixed rate with
respect to the
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principal amount of the regular interest or (B) a permissible variable rate with
respect to such principal amount. Permissible variable rates for FASIT regular
interests are the same as those for REMIC regular interests (certain qualified
floating rates and weighted average rates). Interest will be considered to be
based on a permissible variable rate if generally, (i) such interest is
unconditionally payable at least annually, (ii) the issue price of the debt
instrument does not exceed the total noncontingent principal payments and (iii)
interest is based on a "qualified floating rate," an "objective rate," a
combination of a single fixed rate and one or more "qualified floating rate,"
one "qualified inverse floating rate," or a combination of "qualified floating
rates" that do not operate in a manner that significantly accelerates or defers
interest payments on such FASIT regular interest.
If an interest in a FASIT fails to meet one or more of the requirements set
out in clauses (iii), (iv), or (v) in the immediately preceding paragraph, but
otherwise meets all requirements to be treated as a FASIT, it may still qualify
as a type of regular interest known as a "High-Yield Interest." In addition, if
an interest in a FASIT fails to meet the requirement of clause (vi), but the
interest payable on the interest consists of a specified portion of the interest
payments on permitted assets and that portion does not vary over the life of the
security, the interest will also qualify as a High-Yield Interest. A High-Yield
Interest may be held only by domestic C Corporations that are fully subject to
corporate income tax ("Eligible Corporations"), other FASITs, and dealers in
securities who acquire such interests as inventory, rather than for investment.
In addition, holders of High-Yield Interests are subject to limitations on
offset of income derived from such interest. See "-- TAXATION OF HIGH-YIELD
INTERESTS."
Consequences of Disqualification. If a Trust Fund fails to comply with one
or more ongoing requirements for FASIT status during any taxable year, the Code
provides that its FASIT status may be lost for that year and thereafter. If
FASIT status is lost, the treatment of the former FASIT and interests therein
for federal income tax purposes is uncertain. Although the Code authorizes the
Treasury to issue regulations that address situations where a failure to meet
the requirements for FASIT status occurs inadvertently and in good faith, such
regulations have not yet been issued. It is possible that disqualification
relief might be accompanied by sanctions, such as the imposition of a corporate
tax on all or a portion of the FASIT's income for the period of time in which
requirements for FASIT status are not satisfied.
TREATMENT OF FASIT REGULAR SECURITIES
Payments received by holders of FASIT regular interests generally will be
accorded the same tax treatment under the Code as payments received on other
taxable debt instruments. Holders of FASIT regular interests must report income
from such Securities under an accrual method of accounting, even if they
otherwise would have used the cash receipts and disbursements method. If the
FASIT regular interest is sold, the Holder generally will recognize gain or loss
upon the sale. See "TAXATION OF DEBT SECURITIES" above.
TAXATION OF HIGH-YIELD INTERESTS
High-Yield Interests are subject to special rules regarding eligibility of
holders of such interest, and the ability of such holders to offset income
derived from those interests with losses. High-Yield Interests only may be held
by Eligible Corporations, other FASITs, and dealers in securities who acquire
such interests as inventory. If a securities dealer (other than an Eligible
Corporation) initially acquires a High-Yield Interest as inventory, but later
begins to hold it for investment, the dealer will be subject to an excise tax
equal to the income from the High-Yield Interest multiplied by the highest
corporate income tax rate. In addition, transfers of High-Yield Interests to
disqualified holders will be disregarded for federal income tax purposes, and
the transferor will continue to be treated as the holder of the High-Yield
Interest.
The Holder of a High-Yield Interest may not use non-FASIT current losses or
net operating loss carryforwards or carrybacks to offset any income derived from
the High-Yield Interest, for either regular federal income tax purposes or for
alternative minimum tax purposes. In addition, the FASIT provisions contain an
anti-abuse rule that imposes corporate income tax on income derived from a FASIT
regular
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interest that is held by a pass-through entity (other than another FASIT) that
issues debt or equity securities backed by the FASIT regular interest and that
have the same features as High-Yield Interests.
TAXATION OF FASIT OWNERSHIP SECURITIES
A FASIT ownership interest represents the residual equity interest in a
FASIT. As such, the holder of a FASIT ownership interest determines its taxable
income by taking into account all assets, liabilities, and items of income,
gain, deduction, loss, and credit of a FASIT. In general, the character of the
income to the holder of a FASIT ownership interest will be the same as the
character of such income to the FASIT, except that any tax-exempt interest
income taken into account by the holder of a FASIT ownership interest is treated
as ordinary income. In determining that taxable income, the holder of a FASIT
ownership interest must determine the amount of interest, OID, market discount,
and premium recognized with respect to the FASIT's assets and the FASIT regular
interests issued by the FASIT according to a constant yield methodology and
under an accrual method of accounting. In addition, holders of FASIT Ownership
Securities are subject to the same limitations on their ability to use losses to
offset income from their FASIT regular interests as are holders of High-Yield
Interest.
Rules similar to the wash sale rules applicable to REMIC residual interests
also will apply to FASIT ownership interests. Accordingly, losses on
dispositions of a FASIT ownership generally will be disallowed where within six
months before or after the disposition, the seller of such interest acquires any
other FASIT ownership interest that is economically comparable in the disposed
FASIT ownership interest. In addition, if any security that is sold or
contributed to a FASIT by the holders of the related FASIT ownership interest
was required to be marked-to-market under Section 475 of the Code by such
holder, then Section 475 of the Code generally will continue to apply to such
securities. Special valuation rules generally require that the value of debt
instruments that are not traded on an established securities market be
determined by calculating the present value of the reasonably expected payments
under the instrument using a discount rate of 120% of the applicable Federal
rate, compounded semi-annually, until another discount rate is issued by
regulations.
The holder of a FASIT ownership interest will be subject to a tax equal to
100% of the net income derived by the FASIT from any "prohibited transactions."
Prohibited transactions include (i) the receipt of income derived from assets
that are not permitted assets, (ii) certain dispositions of permitted assets,
(iii) the receipt of any income derived from any loan originated by a FASIT, and
(iv) in certain cases, the receipt of income representing a servicing fee or
other compensation. Any Series of Securities for which a FASIT election is made
generally will be structured in order to avoid application of the prohibited
transaction tax.
INTEREST AND ORIGINAL ISSUE DISCOUNT
GENERAL. The Prospectus Supplement for each Series of Securities will
disclose whether any Class of such Bonds is anticipated to be issued with
"original issue discount" within the meaning of Code Section 1273(a) ("OID").
Interest on any Class of Securities other than OID will be includible in income
by the Holder thereof in accordance with such Holder's applicable method of
accounting. Holders of any Class of Securities having OID must generally include
OID in ordinary gross income for federal income tax purposes as it accrues, in
advance of receipt of the cash attributable to such income. Each Issuer will
indicate on the face of each Security issued by it information concerning the
application of the OID rules to such Security and certain other information that
may be required. The Issuer will report annually to the Internal Revenue Service
(the "IRS") and to holders of record of such Securities information with respect
to the OID accruing on such Securities during the reporting period.
Rules governing OID are set forth in Code Sections 1271 through 1273, 1275
and 1281 through 1283. In addition, the discussion of federal income tax
consequences set forth below is based in part on the OID Regulations. The Code
or the OID Regulations either do not address, or are subject to varying
interpretations with respect to, several issues relevant to obligations, such as
the Securities, that are subject to prepayment. Therefore, there is some
uncertainty as to the manner in which the OID rules of the Code will be applied
to the Securities.
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ORIGINAL ISSUE DISCOUNT DEFINED. In general, each Security will be treated
as a single installment obligation for purposes of determining the OID
includible in a Securityholder's income. The amount of OID on such a Security is
the excess of the stated redemption price at maturity of the Security over its
issue price. The issue price of a Security is the initial offering price to the
public at which a substantial amount of the Securities of that Class are first
sold to the public (excluding bond houses, brokers, underwriters or
wholesalers), generally as set forth on the cover page of the Prospectus
Supplement for a Series of Securities. (The portion of the initial offering
price which consists of interest accrued on the Securities from the date of
issuance to the Closing Date may, at the option of the Securityholder, be
subtracted from the issue price of the Securities and treated as an offset of
interest received on the first Distribution Date.) The stated redemption price
at maturity of a Security is equal to the total of all payments to be made on
the Security other than "qualified stated interest payments." "Qualified stated
interest payments" are payments on the Securities which are paid at least
annually and are based on either a fixed rate or a "qualified variable rate."
Under the OID Regulations, interest is treated as payable at a "qualified
variable rate" and not as contingent interest if, generally, (i) such interest
is unconditionally payable at least annually, (ii) the issue price of the
Security does not exceed the total noncontingent principal payments and (iii)
interest is based on a "qualified floating rate," an "objective rate," or a
combination of "qualified floating rates" that do not operate in a manner that
significantly accelerates or defers interest payments on such Security.
Generally, the stated redemption price at maturity of a Security (other than a
Deferred Interest Security or a Payment Lag Security, as defined below) is its
stated principal amount; the stated redemption price at maturity of a Deferred
Interest Security is the sum of all payments (regardless of how denominated)
scheduled to be received on such Security under the Tax Prepayment Assumption
(as defined below). Any payment of interest that is not a qualified stated
interest payment is a "contingent interest payment." The related Prospectus
Supplement will discuss whether the payments of interest on a Security are
qualified stated interest payments and the treatment for federal income tax
purposes of any contingent interest payments.
DE MINIMIS ORIGINAL ISSUE DISCOUNT. Notwithstanding the general definition
of OID above, any OID with respect to a Security will be considered to be zero
if such discount is less than 0.25% of the stated redemption price at maturity
of the Security multiplied by its weighted average life (a "de minimis" amount).
The weighted average life of a Security for this purpose is the sum of the
following amounts (computed for each payment included in the stated redemption
price at maturity of the Security): (i) the number of complete years (rounded
down for partial years) from the Closing Date until the date on which each such
payment is scheduled to be made under the Tax Prepayment Assumption, multiplied
by (ii) a fraction, the numerator of which is the amount of the payment, and the
denominator of which is the Security's stated redemption price at maturity.
Securityholders generally must report de minimis OID pro rata as principal
payments are received, and such income will be capital gain if the Security is
held as a capital asset. However, accrual method holders may elect to accrue all
interest on a Security, including de minimis OID and market discount and as
adjusted by any premium, under a constant yield method.
ACCRUAL OF ORIGINAL ISSUE DISCOUNT. The amount and rate of accrual of OID
must be calculated based on a reasonable assumed prepayment rate for the
Mortgage Loans, the mortgage loans underlying the Agency Securities and/or other
Mortgage Collateral supporting the Securities (the "Tax Prepayment Assumption")
and to prescribe a method for adjusting the amount and rate of accrual of such
discount. However, if such mortgage loans prepay at a rate slower than the Tax
Prepayment Assumption, no deduction for OID previously accrued, based on the Tax
Prepayment Assumption, is allowed. The Tax Prepayment Assumption will be
determined in the manner prescribed by regulations that have not yet been
issued. It is anticipated that the regulations will require that the Tax
Prepayment Assumption be the prepayment assumption that is used in determining
the initial offering price of such Securities. The related Prospectus Supplement
for each Series of Securities will specify the Tax Prepayment Assumption
determined by the Issuer for the purposes of determining the amount and rate of
accrual of OID. No representation is made that the Mortgage Collateral will
prepay at the Tax Prepayment Assumption or at any other rate.
Generally, a Securityholder must include in gross income the sum of the
"daily portions," as determined below, of the OID that accrues on a Security for
each day the Securityholder holds that Security, including the purchase date but
excluding the disposition date. In the case of an original holder of a Security,
a
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calculation will be made of the portion of the OID that accrues during each
successive period (or shorter period from date of original issue) (an "accrual
period") that ends on the day in the calendar year corresponding to each of the
Distribution Dates on the Securities (or the date prior to each such date). This
will be done, in the case of each full accrual period, by adding (A) the present
value at the end of the accrual period of all remaining payments to be received
(based on (i) the yield to maturity of the Security at the issue date, (ii)
events (including actual prepayments) that have occurred prior to the end of the
accrual period, and (iii) the Tax Prepayment Assumption) and (B) any payments
received during such accrual period, other than payments of qualified stated
interest, and subtracting from that total the "adjusted issue price" of the
Securities at the beginning of such accrual period. The adjusted issue price of
a Security at the beginning of the initial accrual period is its issue price;
the adjusted issue price of a Security at the beginning of a subsequent accrual
period is the adjusted issue price at the beginning of the immediately preceding
accrual period plus the amount of OID allocable to the accrual period and
reduced by the amount of any payment other than a payment of qualified stated
interest made at the end of or during that accrual period. The OID accrued
during such accrual period will then be divided by the number of days in the
period to determine the daily portion of OID for each day in the period. With
respect to an initial accrual period shorter than a full accrual period, the
daily portions of OID must be determined according to any reasonable method,
provided that such method is consistent with the method used to determine yield
on the Securities.
With respect to any Security that is a variable rate debt instrument, the
sum of the daily portions of OID that is includible in the holder's gross income
is determined under the same principles described above, with the following
modifications: the yield to maturity on the Securities should be calculated as
if the interest index remained at its value as of the issue date of such
Securities. Because the proper method of adjusting accruals of OID on a variable
rate debt instrument as a result of prepayments is uncertain, holders of such
instruments should consult their own tax advisors regarding the appropriate
treatment of such Securities for federal income tax purposes.
Purchasers of Securities with the above key features for which the period
between the Closing Date and the first Distribution Date does not exceed the
Distribution Date Interval would nevertheless pay upon purchase of the
Securities an additional amount of accrued interest as compared with the accrued
interest that would be paid if interest accrued from Distribution Date to
Distribution Date. This accrued interest (together with any accrued interest
with respect to which the Securityholder chooses not to treat as an offset to
interest paid on the first Distribution Date, as described above) should be
treated for federal income tax purposes as part of the initial purchase price of
the Securities. Securities described in this paragraph issued or purchased at a
discount would be treated as being issued or purchased at a smaller discount or
at a premium, and such Securities issued or purchased at a premium would be
treated as being issued or purchased at a larger premium.
SUBSEQUENT PURCHASERS. A subsequent purchaser of a Deferred Interest
Security or a subsequent purchaser of any other Security issued with OID who
purchases the Security at a cost less than the remaining stated redemption price
at maturity, will also be required to include in gross income for all days
during his or her taxable year on which such Security is held, the sum of the
daily portions of OID on the Security. In computing the daily portions of OID
with respect to a Security for such a subsequent purchaser, however, the daily
portion for any day shall be reduced by the amount that would be the daily
portion for such day (computed in accordance with the rules set forth above)
multiplied by a fraction, the numerator of which is the amount, if any, by which
the price paid by such holder for the Security exceeds its adjusted issue price
(the "acquisition premium"), and the denominator of which is the amount by which
the remaining stated redemption price at maturity exceeds the adjusted issue
price.
PREMIUM
A holder who purchases a Security at a cost greater than its stated
redemption price at maturity generally will be considered to have purchased the
Security at a premium, which it may elect to amortize as an offset to interest
income on such Security (and not as a separate deduction item) on a constant
yield method. Under the applicable Treasury regulations, bond premium is to be
accrued on a constant yield basis similar to OID. Accordingly, it appears that
the accrual of premium on a Class of Securities of a Series will be calculated
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using the prepayment assumption used in pricing such Class. If a holder makes an
election to amortize premium on a Security, such election will apply to all
taxable debt instruments (including all FASIT regular interests) held by the
holder at the beginning of the taxable year in which the election is made, and
to all taxable debt instruments acquired thereafter by such holder, and will be
irrevocable without the consent of the IRS. Purchasers who pay a premium for the
Securities should consult their tax advisers regarding the election to amortize
premium and the method to be employed.
ELECTION TO TREAT ALL INTEREST AS ORIGINAL ISSUE DISCOUNT
The OID Regulations permit a holder of a Security to elect to accrue all
interest, discount (including de minimis market or OID) and premium in income as
interest, based on a constant yield method for the Securities. If such an
election were to be made with respect to a Security with market discount, the
holder of the Security would be deemed to have made an election to include in
income currently market discount with respect to all other debt instruments
having market discount that such holder of the Securities acquires during the
year of the election or thereafter. Similarly, a holder of a Security that makes
this election for a Security that is acquired at a premium will be deemed to
have made an election to amortize bond premium with respect to all debt
instruments having amortizable bond premium that such holder owns or acquires.
The election to accrue interest, discount and premium on a constant yield method
with respect to a Security is irrevocable.
REALIZED LOSSES
Securityholders generally are required to accrue interest and OID with
respect to the Securities without giving effect to any reductions in
distributions attributable to defaults or delinquencies on the Mortgage
Collateral until it can be established that any such reductions ultimately will
not be recoverable. Although a holder of a Security will eventually be entitled
to recognize a loss or reduce income attributable to the Securities if
distribution reductions are ultimately not recovered, the law is unclear with
respect to the timing and the character thereof and mismatches may result that
further compound the economic losses associated with reduced distributions on
the Securities.
SALE OR REDEMPTION
If a Security is sold, the seller will recognize gain or loss equal to the
difference between the amount realized on the sale and the seller's adjusted
basis in the Security. Such adjusted basis generally will equal the cost of the
Security to the seller, increased by any OID and market discount included in the
seller's gross income with respect to the Security and reduced by payments,
other than payments of qualified stated interest, previously received by the
seller and by any amortized premium. If a Securityholder is a bank, thrift or
similar institution described in Section 582(c) of the Code, gain or loss
realized on the sale or exchange of a Security will be taxable as ordinary
income or loss. Any such gain or loss recognized by any other seller will be
capital gain or loss, provided that the Security is held by the seller as a
"capital asset" (generally, property held for investment) within the meaning of
Code Section 1221.
MARKET DISCOUNT
The Securities are subject to the market discount provisions of Code
Sections 1276 through 1278. These rules provide that if a subsequent holder of a
Security purchases it at a market discount, some or all of any principal payment
or of any gain recognized upon the disposition of the Security will be taxable
as ordinary interest income. Market discount on a Security means the excess, if
any, of (1) the sum of its issue price and the aggregate amount of OID
includible in the gross income of all holders of the Security prior to the
acquisition by the subsequent holder (presumably adjusted to reflect prior
principal payments), over (2) the price paid by the holder for the Security.
Market discount on a Security will be considered to be zero if such discount is
less than .25% of the stated redemption price at maturity of such Security
multiplied by its weighted average life, which presumably would be calculated in
a manner similar to weighted average life (described above), taking into account
distributions (including prepayments) prior to the date of acquisition of such
Security by the subsequent purchaser. If market discount on a Security is
treated as zero under this
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rule, the actual amount of such discount must be allocated to the remaining
principal distributions on such Security and when each such distribution is
made, gain equal to the discount allocated to such distribution will be
recognized.
Any principal payment (whether a scheduled payment or a prepayment) or any
gain on the disposition of a market discount bond is to be treated as ordinary
income to the extent that it does not exceed the accrued market discount at the
time of such payment or disposition. The amount of accrued market discount for
purposes of determining the tax treatment of subsequent principal payments or
dispositions of the Securities is to be reduced by the amount so treated as
ordinary income.
The Code grants authority to the U.S. Treasury to issue regulations
providing for the computation of accrued market discount on debt instruments,
the principal of which is payable in more than one installment. Until such time
as regulations are issued by the U.S. Treasury, certain rules described in the
legislative history accompanying the Tax Reform Act of 1986 will apply. Under
those rules, the holder of a market discount bond may elect to accrue market
discount either on the basis of a constant interest rate or using one of the
following methods. For bonds issued with OID, the amount of market discount that
accrues during a period is equal to the product of (i) the total remaining
market discount, multiplied by (ii) a fraction, the numerator of which is the
OID accruing during the period and the denominator of which is the total
remaining OID at the beginning of the period. For bonds issued without OID, the
amount of market discount that accrues during a period is equal to the product
of (i) the total remaining market discount, multiplied by (ii) a fraction, the
numerator of which is the amount of stated interest paid during the accrual
period and the denominator of which is the total amount of stated interest
remaining to be paid at the beginning of the period. For purposes of calculating
market discount under any of the above methods in the case of instruments (such
as the Securities) that provide for payments that may be accelerated by reason
of prepayments of other obligations securing such instruments, the same
prepayment assumption applicable to calculating the accrual of OID shall apply.
Regulations are to provide similar rules for computing the accrual of
amortizable bond premium on instruments payable in more than one principal
installment. As an alternative to the inclusion of market discount in income on
the foregoing basis, the holder may elect to include such market discount in
income currently as it accrues on all market discount instruments acquired by
such holder in that taxable year or thereafter. In addition, accrual method
holders may elect to accrue all interest on a Security, including de minimis OID
and market discount and as adjusted by any premium, under a constant yield
method.
A subsequent holder of a Security who acquired the Security at a market
discount also may be required to defer, until the maturity date of the Security
or the earlier disposition of the Security in a taxable transaction, the
deduction of a portion of the amount of interest that the holder paid or accrued
during the taxable year on indebtedness incurred or maintained to purchase or
carry the Security in excess of the aggregate amount of interest (including OID)
includible in his or her gross income for the taxable year with respect to such
Security. The amount of such net interest expense deferred in a taxable year may
not exceed the amount of market discount accrued on the Security for the days
during the taxable year on which the subsequent holder held the Security, and
the amount of such deferred deduction to be taken into account in the taxable
year in which the Security is disposed of in a transaction in which gain or loss
is not recognized in whole or in part is limited to the amount of gain
recognized on the disposition. This deferral rule does not apply to a holder
that elects to include market discount in income currently as it accrues on all
market discount instruments acquired by such holder in that taxable year or
thereafter.
Because the regulations described above with respect to market discounts
and premiums have not been issued, it is impossible to predict what effect those
regulations might have on the tax treatment of a Security purchased at a
discount or premium in the secondary market.
WITHHOLDING WITH RESPECT TO CERTAIN FOREIGN INVESTORS
Interest and OID income received with respect to the Securities by
Securityholders who are nonresident alien individuals, foreign corporations or
other non-United States persons unrelated to the Issuer ("foreign persons")
generally will not be subject to the 30% withholding tax imposed by Code
Sections 1441 and 1442
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on certain income of foreign persons, provided the procedural requirements of
Code Section 871(h)(5) are met.
The 30% withholding tax will apply, however, in certain situations where
contingent interest is paid or the IRS determines that withholding is required
in order to prevent tax evasion by United States persons. If the 30% withholding
tax is applicable, interest payments made to Securityholders who are foreign
persons will be subject to withholding. In addition, a tax equal to 30% of the
OID accrued with respect to a Security since the last payment of interest
thereon will be withheld from each interest payment made to a foreign person.
The Code provides, for purposes of determining the amount of OID subject to the
withholding tax on foreign persons, that OID shall accrue at a constant interest
rate pursuant to the rules applicable to United States persons described above.
Securityholders to whom withholding with respect to foreign persons applies
also will be subject to a 30% tax on a portion of the gain, if any, recognized
upon the payment by the Issuer of principal on a Security or upon the sale or
exchange of a Security. Code Sections 871 and 881 provide, for purposes of
determining the amount of OID subject to the withholding tax, that the 30% tax
will apply to the amount of gain not in excess of the OID that accrued, on a
constant interest basis, while the foreign person held the Security (reduced by
the accrued OID on account of which the tax had already been withheld).
The 30% withholding tax imposed on a foreign person may be subject to
reduction or elimination under applicable tax treaties and does not apply if the
interest, OID or gain treated as ordinary income, as the case may be, is
effectively connected with the conduct by such foreign person of a trade or
business within the United States. Foreign persons who hold a Security should
consult their tax advisors regarding their qualification for reduced rate of, or
exemption from, withholding and the procedure for obtaining such a reduction or
exemption.
BACKUP WITHHOLDING
Federal income tax law provides for "backup withholding" of tax at a rate
of 31% in certain circumstances on "reportable payments," which include payments
of principal, interest and OID (determined in any case as if the Securityholder
were the original holder of the Security), but not market discount, on a
Security and of the proceeds of the disposition of a Security. Persons subject
to the requirement to backup withhold include, in certain circumstances, the
Issuer, the paying agent of the Issuer, a person who collects a payment of
interest or OID as a custodian or nominee on behalf of the Securityholder, and a
"broker" (as defined in applicable Treasury regulations) through which the
Securityholder receives the proceeds of the retirement or other disposition of a
Security. Backup withholding applies only if the Securityholder, among other
things, (1) fails to furnish a social security number or other taxpayer
identification number ("TIN") to the person subject to the requirement to backup
withhold, (2) furnishes an incorrect TIN to such person, (3) fails to report
properly interest or dividends or (4) under certain circumstances, fails to
provide to such person a certified statement, signed under penalty of perjury,
that the TIN furnished is the correct number and that such Securityholder is not
subject to backup withholding.
Backup withholding will not apply, however, with respect to certain
payments made to Securityholders, including payments to certain exempt
recipients (such as corporations and tax-exempt organizations) and to certain
foreign persons. Securityholders should consult their tax advisors regarding
their qualification for exemption from backup withholding and the procedure for
obtaining such an exemption.
Each Issuer will report to the Securityholders and the IRS for each
calendar year the amount of any "reportable payments" by the Issuer during such
year and the amount of tax withheld, if any, with respect to payments on the
Securities issued by it.
DUE TO THE COMPLEXITY OF THE FEDERAL INCOME TAX RULES APPLICABLE TO
SECURITYHOLDERS AND THE CONSIDERABLE UNCERTAINTY THAT EXISTS WITH RESPECT TO
MANY ASPECTS OF THOSE RULES, POTENTIAL INVESTORS SHOULD CONSULT THEIR OWN TAX
ADVISORS REGARDING THE TAX TREATMENT OF THE ACQUISITION, OWNERSHIP, AND
DISPOSITION OF THE SECURITIES.
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STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described above under
"FEDERAL INCOME TAX CONSEQUENCES," potential investors should consider the state
income tax consequences of the acquisition, ownership, and disposition of the
Securities. State 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. Therefore, potential investors should consult
their own tax advisors with respect to the various state tax consequences of an
investment in the Securities.
LEGAL INVESTMENT
The Prospectus Supplement for each Series of Bonds will specify which, if
any, of the Classes of Securities offered thereby will constitute "mortgage
related securities" for purposes of SMMEA. Classes of Securities that qualify as
"mortgage related securities" will be legal investments for persons, trusts,
corporations, partnerships, associations, business trusts and business entities
(including depository institutions, life insurance companies and pension funds)
created pursuant to or existing under the laws of the United States or any state
(including the District of Columbia and Puerto Rico) whose authorized
investments are subject to state regulation to the same extent as, under
applicable law, obligations issued by or guaranteed as to principal and interest
by the United States or any such entities. Under SMMEA, if a state enacts
legislation prior to October 4, 1991 specifically limiting the legal investment
authority of any of such entities with respect to "mortgage related securities,"
the Securities will constitute legal investments for entities subject to such
legislation only to the extent provided therein. Approximately twenty-one states
adopted such legislation prior to the October 4, 1991 deadline. SMMEA provides,
however, that in no event will the enactment of any such legislation affect the
validity of any contractual commitment to purchase, hold or invest in
Securities, or require the sale or other disposition of Securities, so long as
such contractual commitment was made or such Securities were acquired prior to
the enactment of such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in Securities
without limitations as to the percentage of their assets represented thereby,
federal credit unions may invest in mortgage related securities, and national
banks may purchase Securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
24 (Seventh), subject in each case to such regulations as the applicable federal
authority may prescribe. In this connection, federal credit unions should review
the National Credit Union Administration ("NCUA") Letter to Credit Unions No.
96, as modified by Letter to Credit Unions No. 108, which includes guidelines to
assist federal credit unions in making investment decisions for mortgage related
securities, and the NCUA's regulation "Investment and Deposit Activities" (12
C.F.R. Part 703) (whether or not the Class of Securities under consideration for
purchase constitutes a "mortgage related security").
All depository institutions considering an investment in the
Securities(whether or not the Class of Securities under consideration for
purchase constitutes a "mortgage related security") should review the Federal
Financial Institutions Examination Council's Supervisory Policy Statement on
Securities Activities (to the extent adopted by their respective regulators)
(the "Policy Statement"), setting forth, in relevant part, certain securities
trading and sales practices deemed unsuitable for an institution's investment
portfolio, and guidelines for (and restrictions on) investing in mortgage
derivative products, including "mortgage related securities" that are "high-risk
mortgage securities" as defined in the Policy Statement. According to the Policy
Statement, such "high-risk mortgage securities" include securities such as
Securities not entitled to distributions allocated to principal or interest, or
Subordinated Securities. Under the Policy Statement, it is the responsibility of
each depository institution to determine, prior to purchase (and at stated
intervals thereafter), whether a particular mortgage derivative product is a
"high-risk mortgage security," and whether the purchase (or retention) of such a
product would be consistent with the Policy Statement.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines, or agreements generally
governing investments made by a particular investor, including, but not
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limited to, "prudent investor" provisions, percentage-of-assets limits and
provisions that may restrict or prohibit investment in securities that are not
"interest bearing" or "income paying."
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Securities or to purchase
Securities representing more than a specified percentage of the investor's
assets. Investors should consult their own legal advisors in determining whether
and to what extent the Securities constitute legal investments for such
investors.
ERISA MATTERS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended ("ERISA")
and section 4975 of the Code impose certain restrictions on employee benefit
plans subject to ERISA or plans or arrangements subject to Section 4975 of the
Code ("Plans") and on persons who are parties in interest or disqualified
persons ("parties in interest") with respect to such Plans. Certain employee
benefit plans, such as governmental plans and church plans (if no election has
been made under section 410(d) of the Code), are not subject to the restrictions
of ERISA, and assets of such plans may be invested in the Securities without
regard to the ERISA considerations described below, subject to other applicable
federal and state law. However, any such governmental or church plan which is
qualified under section 401(a) of the Code and exempt from taxation under
section 501(a) of the Code is subject to the prohibited transaction rules set
forth in section 503 of the Code. Any Plan fiduciary which proposes to cause a
Plan to acquire any of the Securities should consult with its counsel with
respect to the potential consequences under ERISA, and the Code, of the Plan's
acquisition and ownership of the Securities. Investments by Plans are also
subject to ERISA's general fiduciary requirements, including the requirement of
investment prudence and diversification and the requirement that a Plan's
investments be made in accordance with the documents governing the Plan.
PROHIBITED TRANSACTIONS
GENERAL. Section 406 of ERISA prohibits parties in interest with respect
to a Plan from engaging in certain transactions (including loans) involving a
Plan and its assets unless a statutory or administrative exemption applies to
the transaction. Section 4975 of the Code imposes certain excise taxes (or, in
some cases, a civil penalty may be assessed pursuant to section 502(i) of ERISA)
on parties in interest which engage in non-exempt prohibited transactions.
PLAN ASSET REGULATION. The United States Department of Labor ("Labor") has
issued final regulations concerning the definition of what constitutes the
assets of a Plan for purposes of ERISA and the prohibited transaction provisions
of the Code (the "Plan Asset Regulation"). The Plan Asset Regulation describes
the circumstances under which the assets of an entity in which a Plan invests
will be considered to be "plan assets" such that any person who exercises
control over such assets would be subject to ERISA's fiduciary standards. Under
the Plan Asset Regulation, generally when a Plan invests in another entity's
debt securities, the Plan's assets do not include, solely by reason of such
investment, any of the underlying assets of the entity.
However, the Plan Asset Regulation provides that, if a Plan acquires an
"equity interest" in an entity that is neither a "publicly-offered security" (as
defined therein) nor a security issued by an investment company registered under
the Investment Company Act of 1940, the assets of the entity will be treated as
assets of the Plan investor unless certain exceptions apply. The Plan Asset
Regulations state that the underlying assets of an entity will not be considered
"plan assets" if, immediately after the most recent acquisition of any equity
interest in the entity, whether from the issuer or an underwriter, less than
twenty-five percent (25%) of the value of each class of equity interest is held
by "benefit plan investors," individual retirement accounts, and other employee
benefit plans not subject to ERISA (for example, governmental plans). If the
Securities were deemed to be equity interests and no statutory, regulatory or
administrative exemption applies, the Issuer could be considered to hold plan
assets by reason of a Plan's investment in the Securities. Such plan assets
would include an undivided interest in any assets held by the Issuer. In such an
event, the applicable Trustee and other persons, in providing services with
respect to the Issuer's assets, may be parties in interest with
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respect to such Plans, subject to the fiduciary responsibility provisions of
Title I of ERISA, including the prohibited transaction provisions of section 406
of ERISA, and section 4975 of the Code with respect to transactions involving
the Issuer's assets.
Under the Plan Asset Regulation, the term "equity interest" is defined as
any interest in an entity other than an instrument that is treated as
indebtedness under "applicable local law" and which has no "substantial equity
features." Although the Plan Assets Regulation is silent with respect to the
question of which law constitutes "applicable local law" for this purpose, Labor
has stated that this determination should be made under the state law governing
interpretation of the instrument in question. In the preamble to the Plan Assets
Regulation, Labor declined to provide a precise definition of what features are
equity features or the circumstances under which such features would be
considered "substantial," noting that the question of whether a plan's interest
has substantial equity features is an inherently factual one, but that in making
a determination it would be appropriate to take into account whether the equity
features are such that a Plan's investment would be a practical vehicle for the
indirect provision of investment management services. If the Securities are
deemed to be equity interests in the Issuer and no statutory, regulatory or
administrative exemption applies, the Issuer could be considered to hold plan
assets by reason of a Plan's investment in the Securities. Those exemptions
potentially include Prohibited Transaction Class Exemption ("PTCE") 90-1,
regarding investments by insurance company pooled separate accounts, PTCE 91-38,
regarding investments by bank collective investment funds, PTCE 84-14, regarding
transactions effected by a "qualified professional asset manager," PTCE 95-60,
regarding investments by insurance company general accounts, or PTCE 96-23,
regarding transactions effected by an "in house asset manager".
REVIEW BY PLAN FIDUCIARIES. Any Plan fiduciary considering whether to
purchase any Securities on behalf of a Plan should consult with its counsel
regarding the applicability of the fiduciary responsibility and prohibited
transaction provisions of ERISA and the Code to such investment. Among other
things, before purchasing any Securities, a fiduciary of a Plan should make its
own determination as to whether the Issuer, as issuer of the Securities, is a
party in interest with respect to the Plan, the availability of the exemptive
relief provided in the Plan Asset Regulations and the availability of any other
prohibited transaction exemptions. The Prospectus Supplement for each Series of
Securities will discuss the potential applicability of ERISA and Section 4975 of
the Code, the availability of exemptions therefrom and any limitations on
investment in any Class of such Securities by Plans.
RATINGS
It is a condition to the issuance of the Securities of each Series offered
hereby and by the Prospectus Supplement that they shall have been rated in one
of the four highest (two highest if such Securities are Certificates) rating
categories by the nationally recognized statistical rating agency or agencies
(each, a "Rating Agency") specified in the related Prospectus Supplement.
Any such rating would be based on, among other things, the adequacy of the
value of the Mortgage Collateral supporting a Series of Securities and any
credit enhancement with respect to such Class and will reflect such Rating
Agency's assessment solely of the likelihood that holders of a Class of
Securities will receive payments to which such Securityholders are entitled
under the related Security. Such rating will not constitute an assessment of the
likelihood that principal prepayments on the related Mortgage Collateral will be
made, the degree to which the rate of such prepayments might differ from that
originally anticipated or the likelihood of early optional termination of the
Series of Securities. 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. Each security rating should be
evaluated independently of any other security rating. Such rating will not
address the possibility that prepayment at higher or lower rates than
anticipated by an investor may cause such investor to experience a lower than
anticipated yield or that an investor purchasing a security at a significant
premium might fail to recoup its initial investment under certain prepayment
scenarios.
There is also no assurance that any such rating will remain in effect for
any given period of time or that it may not be lowered or withdrawn entirely by
the applicable Rating Agency in the future if in its judgment
94
<PAGE> 190
circumstances in the future so warrant. In addition to being lowered or
withdrawn due to any erosion in the adequacy of the value of the Mortgage
Collateral securing a Series of Securities or any credit enhancement with
respect to a Series of Securities, 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 enhancement provider or a change in the rating of
such credit enhancement provider's long term debt.
The amount, type and nature of credit enhancement, if any, established with
respect to a Series of Securities will be determined on the basis of criteria
established by each Rating Agency rating Classes of such Series of Securities.
Such criteria are sometimes based upon an actuarial analysis of the behavior of
mortgage loans in a larger group. Such analysis is often the basis upon which
each Rating Agency determines the amount of credit enhancement required with
respect to each such Class. There can be no assurance that the historical data
supporting any such actuarial analysis will accurately reflect future experience
nor any assurance that the data derived from a large actuarial analysis will
accurately reflect future experience nor any assurance that the data derived
from a large pool of mortgage loans accurately predicts the delinquency,
foreclosure or loss experience of any particular pool of Mortgage Collateral. No
assurance can be given that values of any Mortgaged Properties or mortgaged
properties securing the mortgage loans underlying any Agency Securities, as the
case may be, have remained or will remain at their levels on the respective
dates of origination of the related mortgage loans. If the residential real
estate markets should experience an overall decline in property values such that
the outstanding principal balances of the Mortgage Collateral securing a
particular Series of Securities and any secondary financing on the related
Mortgaged Properties become equal to or greater than the value of the Mortgaged
Properties or mortgaged properties securing the mortgage loans underlying any
Agency Securities, as the case may be, the rates of delinquencies, foreclosures
and losses could be higher than those now generally experienced in the mortgage
lending industry. In addition, adverse economic conditions (which may or may not
affect real property values) may affect the timely payment by mortgagors of
scheduled payments of principal and interest on the Mortgage Collateral and,
accordingly, the rates of delinquencies, foreclosures and losses with respect to
any Mortgage Collateral securing a particular Series of Securities. To the
extent that such losses are not covered by credit enhancement, such losses will
be borne, at least in part, by the holders of one or more Classes of Securities.
PLAN OF DISTRIBUTION
The Issuer may sell the Securities offered hereby either directly or
through an underwriter or underwriters or through underwriting syndicates
managed by an underwriter or underwriters. The Prospectus Supplement for each
Series will set forth the terms of the offering of such Series and of each Class
within such Series, including the name or names of the underwriters, the
proceeds to and their use by the Issuer, and either the initial public offering
price, the discounts and commissions to the underwriters and any discounts or
concessions allowed or reallowed to certain dealers or the method by which the
price at which the underwriters will sell the Securities will be determined.
The Securities of a Series may be acquired by underwriters for their own
account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale. The obligations of any
underwriters will be subject to certain conditions precedent, and such
underwriters will be severally obligated to purchase all the Securities of a
Series described in the related Prospectus Supplement, if any are purchased. If
Securities of a Series are offered other than through underwriters, the related
Prospectus Supplement will contain information regarding the nature of such
offering and any agreements to be entered into between the Issuer and purchasers
of Securities of such Series.
AmREIT or other affiliate of the Issuer may purchase Securities and pledge
them to secure indebtedness or, together with its pledgees, donees, transferees
or other successors in interest, sell the Securities, from time to time, either
directly or through one or more underwriters, underwriting syndicates or
designated agents.
The place and time of delivery for the Securities of a Series in respect of
which this Prospectus is delivered will be set forth in the related Prospectus
Supplement.
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<PAGE> 191
LEGAL MATTERS
The validity of the Bonds will be passed upon for the Issuer by Tobin &
Tobin, a professional corporation, San Francisco, California. Certain tax
matters will be passed upon by Jeffers, Wilson, Shaff & Falk, LLP, California.
Brown & Wood LLP, Washington, D.C., will act as counsel for the underwriters.
96
<PAGE> 192
INDEX OF CERTAIN DEFINITIONS
Set forth below is a list of certain terms used in this Prospectus,
together with the pages on which the terms are defined herein.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Accretion Directed.......................................... 47
Accrual Period.............................................. 87
Advance..................................................... 15
Agency Securities........................................... 1, 4
Agreements.................................................. 4, 27, 42
AmREIT...................................................... 1, 5, 27
Applicable Trustee.......................................... 3
Available Funds............................................. 43
Balloon payments............................................ 9, 30
Bankruptcy Bond............................................. 13
Belgian Cooperative......................................... 52
Beneficial owner............................................ 51
Bond Account................................................ 11
Bond Issuer................................................. 27
Bond Trustee................................................ 4, 27
Bondholders................................................. 4
Bonds....................................................... 4
Book-Entry Securities....................................... 51
Buydown Fund................................................ 31
Buydown Loans............................................... 30
Capitalized Interest Account................................ 41
CEDEL Participants.......................................... 52
CERCLA...................................................... 80
Certificate Issuer.......................................... 27
Certificate Trustee......................................... 4, 27
Certificateholders.......................................... 4
Certificates................................................ 4
Class Security Balance...................................... 43
Closing Date................................................ 11
Code........................................................ 5
Collateral.................................................. 28
Commission.................................................. 2
Companion Classes........................................... 48
Company..................................................... 1, 5, 27
Component Securities........................................ 47
Controlling Class........................................... 70
Conventional Loans.......................................... 46
Cooperative Loans........................................... 8, 31
Cooperatives................................................ 8, 31
Correspondents.............................................. 32
Cut-off Date................................................ 13
Cut-off Date Principal Balance.............................. 42
Deferred Interest Securities................................ 44
Definitive Security......................................... 51
</TABLE>
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<PAGE> 193
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Depositor................................................... 1, 5, 27
Detailed Description........................................ 29
Distribution Account........................................ 11
Distribution Account Deposit Date........................... 11, 39
Distribution Date........................................... 6
DTC......................................................... 22, 51
Eligible Account............................................ 64
Eligible Corporations....................................... 85
Eligible Substitute Mortgage Loan........................... 34
EPA......................................................... 80
ERISA....................................................... 17, 93
Euroclear Operator.......................................... 52
Euroclear Participants...................................... 52
European Depositaries....................................... 51
Event of Default............................................ 71
Excess Spread............................................... 59
Exchange Act................................................ 3
FASIT....................................................... 1, 84
FASIT Provisions............................................ 84
FASIT Qualification Test.................................... 84
FHA Loans................................................... 35
FHLMC....................................................... 1, 4
FHLMC Act................................................... 37
FHLMC Certificates.......................................... 10, 34
FICO........................................................ 61
Financial Intermediary...................................... 51
Fixed Rate Mortgage Loans................................... 4
Floating Rate Mortgage Loans................................ 4
FNMA........................................................ 1, 4
FNMA Certificates........................................... 34
Foreign persons............................................. 90
Funding Period.............................................. 12, 25
Garn-St Germain Act......................................... 81
GNMA........................................................ 1, 4
GNMA Certificates........................................... 10, 34
GNMA I Certificate.......................................... 35
GNMA II Certificate......................................... 35
GNMA Issuer................................................. 35
Guaranteed Mortgage Pass-Through Certificates............... 10, 33
Guaranty Agreement.......................................... 35
Housing Act................................................. 35
Indenture................................................... 27, 41, 62
Insurance Proceeds.......................................... 28
Interest Only............................................... 47
IO.......................................................... 84
IRS......................................................... 86
Issuer...................................................... 1, 26
L/C Bank.................................................... 14, 58
</TABLE>
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<PAGE> 194
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
L/C Percentage.............................................. 58
Labor....................................................... 93
Liquidated Mortgage......................................... 66
Liquidation Proceeds........................................ 28
Lockout periods............................................. 10, 30
Master Servicer............................................. 5
Master Servicing Agreement.................................. 5, 63
Master Servicing Fee........................................ 66
Mixed Use Mortgage Loans.................................... 8
Moody's..................................................... 40
Morgan...................................................... 52
Mortgage Collateral......................................... Cover, 4
Mortgage Loans.............................................. Cover, 4
Mortgage Note............................................... 9
Mortgage Pool Insurance Policy.............................. 13, 55
Mortgage Rate............................................... 7, 9
Mortgaged Property.......................................... 10, 29
Mortgagor................................................... 62
Multifamily Mortgage Loans.................................. 8
NCUA........................................................ 92
Offered Securities.......................................... 2
OID......................................................... 16, 86
OID Regulations............................................. 83
PACs........................................................ 48
Parties in interest......................................... 17, 93
Permitted Investments....................................... 40
Plan Asset Regulation....................................... 93
Plans....................................................... 17, 93
Policy Statement............................................ 92
Pool Insurer................................................ 55
Pre-Funded Amount........................................... 25
Pre-Funding Account......................................... 12, 25
Primary Mortgage Insurance Policy........................... 30
Principal Prepayments....................................... 44
PTCE........................................................ 94
Purchase Price.............................................. 62
Qualified REIT subsidiary................................... 83
Rating Agency............................................... 94
RCRA........................................................ 80
Record Date................................................. 42
REIT........................................................ 15
Relevant Depositary......................................... 51
Relief Act.................................................. 82
REMIC....................................................... 83
Remittance Date............................................. 30
Reserve Account............................................. 43
Reserve Fund................................................ 55
Retained Interest........................................... 42
</TABLE>
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<PAGE> 195
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Rules....................................................... 51
Secured Creditor Exclusion.................................. 80
Security Distribution Amount................................ 11
Security Insurance Policy................................... 14
Security Owners............................................. 51
Security Register........................................... 43
Securities.................................................. 1
Securities Act.............................................. 2
Seller...................................................... 26
Senior Securities........................................... 4, 6
Senior Securityholders...................................... 12, 54
Senior Liens................................................ 31
Servicer.................................................... 5, 63
Servicers................................................... 34
Servicing Agreement......................................... 63
Servicing Default........................................... 69
Single-Family Mortgage Loans................................ 8
SMMEA....................................................... 17
Special Hazard Insurance Policy............................. 13
Special Hazard Insurer...................................... 56
Special Servicer............................................ 5
Special Servicing Agreement................................. 68
Stand-by Master Servicer.................................... 68
Subordinated Securities..................................... 4, 6
Subordinated Securityholders................................ 12, 54
Subsequent Mortgage Collateral.............................. 25
Substitute Collateral....................................... 39
Successor Master Servicer................................... 68
TACs........................................................ 49
Tax Prepayment Assumption................................... 87
Terms and Conditions........................................ 53
TIN......................................................... 91
Title V..................................................... 82
TMP......................................................... 83
Trust Agreement............................................. 27, 41
Trust Fund.................................................. 83
Trust Fund Assets........................................... 1
UCC......................................................... 76
VA Loans.................................................... 35
Weighted Average Life....................................... 20
</TABLE>
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======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY, NOR AN OFFER OF BONDS IN ANY STATE OR JURISDICTION IN WHICH, OR
TO ANY PERSON TO WHOM, SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE
INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE; HOWEVER, IF ANY MATERIAL CHANGE OCCURS WHILE THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED, THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED ACCORDINGLY.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Summary.................................... S-3
Risk Factors............................... S-12
The Bond Issuer............................ S-16
Use of Proceeds............................ S-16
Trust Fund Assets.......................... S-17
Description of the Bonds................... S-23
Credit Enhancement......................... S-35
Mortgage Loan Program...................... S-35
Servicing of the Mortgage Loans............ S-36
Federal Income Tax Consequences............ S-39
ERISA Matters.............................. S-39
Method of Distribution..................... S-40
Legal Matters.............................. S-41
Ratings.................................... S-41
Index of Certain Definitions............... S-42
PROSPECTUS
Prospectus Supplement...................... 2
Available Information...................... 2
Incorporation of Certain Documents by
Reference................................ 3
Summary.................................... 4
Risk Factors............................... 18
Introduction............................... 27
Use of Proceeds............................ 28
Trust Fund Assets.......................... 28
Description of the Securities.............. 41
Credit Enhancement......................... 54
Mortgage Loan Program...................... 60
Servicing of the Mortgage Loans............ 63
The Agreements............................. 70
Certain Legal Aspects of Mortgage Loans.... 73
Federal Income Tax Consequences............ 82
State Tax Considerations................... 92
Legal Investment........................... 92
Erisa Matters.............................. 93
Ratings.................................... 94
Plan of Distribution....................... 95
Legal Matters.............................. 96
Index of Certain Definitions............... 97
</TABLE>
======================================================
======================================================
AMERICAN RESIDENTIAL EAGLE BOND TRUST [199 - ]
COLLATERALIZED
[REDEEMABLE]
MORTGAGE
BONDS
------------------------
PROSPECTUS SUPPLEMENT
------------------------
[UNDERWRITER]
, 199
======================================================
<PAGE> 197
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14 (S-3) AND ITEM 31(S-11). OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 295
Printing and Engraving Expenses............................. 35,000
Accounting Fees and Expenses................................ 25,000
Legal Fees and Expenses..................................... 65,000
Trustee Fees and Expenses................................... 15,000
Blue Sky Fees and Expenses.................................. 5,000
Rating Agency Fees.......................................... 125,000
Miscellaneous............................................... 5,000
--------
Total.................................................. $275,295
========
</TABLE>
- ---------------
* All amounts except the SEC Registration Fee are estimates of expenses incurred
in connection with the issuance and distribution of Securities in an aggregate
principal amount assumed for these purposes to be equal to $1,000,000 of
Securities registered hereby.
ITEM 15 (S-3) AND ITEM 34 (S-11). INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of Delaware empowers a
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise.
Depending on the character of the proceeding, a corporation may indemnify
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with such action,
suit or proceeding if the person indemnified acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In the case of an
action by or in the right of the corporation, no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or other
such court shall deem proper. Section 145 further provides that to the extent a
director, officer, employee or agent of a corporation has been successful on the
merits or otherwise in the defense of any action, suit or proceeding referred to
above or in the defense of any claim, issue or matter therein, he or she shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
The Certificate of Incorporation and Bylaws of the Company provide, in
effect, that, to the extent and under the circumstances permitted by Section 145
of the General Corporation Law of Delaware, the Company shall indemnify any
person who was or is a party or is threatened to be made a party to any action,
suit or proceeding of the type described above by reason of the fact that he or
she is or was a director, officer, employee or agent of the Company.
The Underwriting Agreement for any Series of Securities may provide that
the Company and AmREIT will indemnify the related Underwriter or Underwriters
against, or make contributions to such Underwriter or Underwriters with respect
to, certain liabilities, including liabilities under the Securities Act of 1933.
ITEM 32 (S-11). SALES TO SPECIAL PARTIES.
None.
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<PAGE> 198
ITEM 33 (S-11). RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 35 (S-11). TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
Not applicable.
ITEM 16 (S-3) AND ITEM 36 (S-11). FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements.
None. The Registrant is registering mortgage-backed securities as to
which no financial statements of the Registrant is required.
(b) Exhibits.
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement.
4.1 Form of Indenture to be entered into between each Bond Issuer and the Bond Trustee.
4.2 Form of Deposit Trust Agreement to be entered into between the Registrant and the Owner Trustee creating
each Bond Issuer.
4.3 Form of Master Servicing Agreement to be entered into among each Issuer, the Bond Trustee and each Master
Servicer.
4.4 Form of Trust Agreement to be entered into between the Registrant and the Certificate Trustee creating
each Certificate Issuer.
5.1 Opinion of Tobin & Tobin regarding legality.
8.1 Opinion of Jeffers, Wilson, Shaff & Falk, LLP regarding certain tax matters.
23.1 Consent of Tobin & Tobin (included in Exhibit 5.1).
23.2 Consent of Jeffers, Wilson, Shaff & Falk, LLP (included in Exhibit 8.1).
24.1* Power of Attorney (included on page II-4).
25.1** Statement of Eligibility and Qualification of Trustee under the Trust Indenture Act of 1939.
</TABLE>
- ---------------
* Previously filed.
** To be filed pursuant to Section 305(b)(2) of the Trust Indenture Act of 1939.
ITEM 17 (S-3) AND ITEM 37 (S-11). UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment hereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement;
II-2
<PAGE> 199
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in this Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(d) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(l) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such Securities at that
time shall be deemed to be the initial bona fide offering thereof.
(e) The undersigned Registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Securities and Exchange Commission under
Section 305(b)(2) of the Trust Indenture Act.
(f) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
II-3
<PAGE> 200
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3/S-11 and has duly caused this Amendment No.
2 to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Del Mar, State of California, on May
12, 1998.
AMERICAN RESIDENTIAL EAGLE, INC.*
By /s/ JAY M. FULLER
------------------------------------
Name: Jay M. Fuller
Title: President and Chief
Operating Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed by the following persons in the
capacities as officers and directors of the Company and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ JOHN M. ROBBINS Chief Executive Officer and May 12, 1998
- --------------------------------------------------- Chairman of the Board of
John M. Robbins Directors (Principal Executive
Officer)
/s/ JAY M. FULLER President, Chief Operating May 12, 1998
- --------------------------------------------------- Officer and Director
Jay M. Fuller
/s/ MARK A. CONGER Executive Vice President, Chief May 12, 1998
- --------------------------------------------------- Financial Officer and Director
Mark A. Conger (Principal Financial and
Accounting Officer)
/s/ D. BARRY ENGELMAN+ Director May 12, 1998
- ---------------------------------------------------
D. Barry Engelman
/s/ EARL GERVAIS+ Director May 12, 1998
- ---------------------------------------------------
Earl Gervais
+By: /s/ JAY M. FULLER
---------------------------------------------
Jay M. Fuller, attorney-in-fact
</TABLE>
- ---------------
* For itself and on behalf of each trust acting as an Issuer hereunder.
II-4
<PAGE> 201
EXHIBIT INDEX
<TABLE>
<S> <S>
1.1 Form of Underwriting Agreement.
4.1 Form of Indenture to be entered into between each Bond Issuer and the Bond Trustee.
4.2 Form of Deposit Trust Agreement to be entered into between the Registrant and the Owner Trustee creating
each Bond Issuer.
4.3 Form of Master Servicing Agreement to be entered into among each Issuer, the Bond Trustee and each Master
Servicer.
4.4 Form of Trust Agreement to be entered into between the Registrant and the Certificate Trustee creating
each Certificate Issuer.
5.1 Opinion of Tobin & Tobin regarding legality.
8.1 Opinion of Jeffers, Wilson, Shaff & Falk, LLP regarding certain tax matters.
23.1 Consent of Tobin & Tobin (included in Exhibit 5.1).
23.2 Consent of Jeffers, Wilson, Shaff & Falk, LLP (included in Exhibit 8.1).
24.1* Power of Attorney (included on page II-4).
25.1** Statement of Eligibility and Qualification of Trustee under the Trust Indenture Act of 1939.
</TABLE>
- ---------------
* Previously filed.
** To be filed pursuant to Section 305(b)(2) of the Trust Indenture Act of 1939.
<PAGE> 1
Exhibit 1.1
AMERICAN RESIDENTIAL EAGLE, INC.
MORTGAGE-BACKED CERTIFICATES
(Issuable in Series)
UNDERWRITING AGREEMENT
(Standard Terms)
[UNDERWRITER] New York, New York
[Acting on behalf of itself and, if ________________, 199_
applicable, as the Representative of the
several Underwriters named in Schedule 1 to
the Terms Agreement (in either such capacity
sometimes herein the "Representative")]
[ADDRESS]
Ladies and Gentlemen:
American Residential Eagle, Inc. (the "Company" or the
"Depositor"), a corporation organized and existing under the laws of the State
of Delaware and which is a wholly owned subsidiary of American Residential
Investment Trust, Inc., a Maryland corporation ("AmREIT"), may issue, from time
to time, securities entitled Mortgage-Backed Certificates (the "Certificates")
in one or more series, and within each series, in one or more classes, in one or
more offerings on terms determined at the time of sale (each such series, a
"Series" and each such class, a "Class"). Each Series of the Certificates will
be issued pursuant to a separate certificate trust agreement [199_] (each, a
"Certificate Trust Agreement") to be dated as of the respective cut-off date
(each, a "Cut-off Date") between the Company and [ ], a banking corporation
organized under the State of ____________________, as certificate trustee (the
"Certificate Trustee"). Capitalized terms used but not defined herein shall have
the meanings given to them in the related Trust Agreement.
The Certificates issued under each Trust Agreement will represent
the entire beneficial ownership interest in a trust fund (the "Certificate Trust
Fund") established by such Trust Agreement. The assets of each Trust Fund will
consist primarily of a single Collateralized Mortgage Bond (an "Underlying
Bond") to be issued by American Residential Eagle Bond Trust [199_-_] (each a
"Bond trust" or a "Bond Issuer"), a statutory business trust established under
Delaware law pursuant to an amended and restated deposit trust Agreement (each,
a "Deposit Trust Agreement") between the Depositor and [ ], a banking
corporation organized under the laws of the state of [ ] (each, an "Owner
Trustee").
<PAGE> 2
Each Underlying Bond will be issued pursuant to an indenture (the
"Bond Indenture") between the Bond Issuer and [ ], a banking corporation
organized under the laws of the State of [ ] (each, a "Bond Trustee"). An
Underlying Bond will be secured by and represent the right to receive all of the
payments received on or with respect to a pool (the "Mortgage Pool") of
conventional [fixed][adjustable] rate mortgage loans (the "Mortgage Loans")
secured be first liens on one- to four-family residential properties having the
original terms to maturity specified in the related Terms Agreement referred to
herein below. All of such Mortgage Loans will have been deposited with the Bond
Issuer by the Depositor which, in turn, will have been acquired by the Depositor
from AmREIT pursuant to an Agreement (the "Mortgage Loan Purchase Agreement")
between the Depositor and AmREIT. AmREIT will be the manager of the Bond Issuer
pursuant to a management agreement (the "Management Agreement") entered into
between AmREIT and the Bond Issuer.
Pursuant to the Bond Indenture, the Bond Issuer on or prior to
the related Closing Date (as defined below) will pledge, transfer and assign
without recourse to the Bond Trustee all of its right, title and interest in and
to each Mortgage Loan and all other assets included in the Bond Trust (the
"Mortgage Collateral") and will assign the Underlying Bond to the Depositor for
deposit to the Certificate Trust Fund in order to support the issuance of a
Series of Certificates.
The Mortgage Loans in each Mortgage Pool will be serviced
pursuant to a master servicing agreement (each, a "Master Servicing Agreement")
among the Bond Issuer, the Bond Trustee and [ ] as master servicer (the "Master
Servicer"). On or prior to the Closing Date, as to any Mortgage Loans not being
directly serviced by the Master Servicer, the Master Servicer will enter into or
be assigned mortgage servicing agreements (each, a "Servicing Agreement") with
certain servicers (the "Servicers").
If so specified in the related Terms Agreement, one or more
elections may be made to treat the assets of each Certificate Trust Fund as a
financial asset securitization investment trust (each, a "FASIT") for federal
income tax purposes.
Whenever the Company determines to make an offering of
Certificates (each, a "Certificate Offering") pursuant to this Agreement through
you, it will enter into an agreement (the "Terms Agreement") with the
Underwriter (which shall include you, whether acting alone in the sale of the
Certificates, in which case any reference in this Agreement to you as
"Representative" of the Underwriters shall be deemed to refer to you in your
individual capacity as Underwriter of the Certificates, or as a member of an
underwriting syndicate) providing for the sale of specified Classes of Offered
Certificates (as defined below) to, and the purchase and public offering thereof
by, you. Each such Certificate Offering which the Company elects to make
pursuant to this Agreement shall be governed by this Agreement, as supplemented
by the related Terms Agreement. Each Terms Agreement, which shall be
substantially in the form of Exhibit A hereto, shall specify, among other
things, the Classes of Certificates to be purchased by the Underwriter (the
"Offered Certificates"), the principal balance or balances of the Offered
Certificates, each subject to any stated variance, and the price or prices at
which such Offered Certificates are to be purchased by the Underwriter from the
Company.
2
<PAGE> 3
1. Representations and Warranties. (a) The Company represents and
warrants to and agrees with the Underwriter, as of the date of the related Terms
Agreement, that:
(i.) The registration statement specified in the
related Terms Agreement, on Form S-3/S-11, including a
prospectus, has been filed with the Securities and Exchange
Commission (the "Commission") for the registration under the
Securities Act of 1933, as amended (the "Act"), of collateralized
mortgage bonds and mortgage-backed certificates issuable in
series, which registration statement has been declared effective
by the Commission. Such registration statement, as amended to the
date of the related Terms Agreement, including any documents
incorporated by reference therein pursuant to Item 12 of Form S-3
under the Act which were filed under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), on or before the
effective date of the Registration Statement, is hereinafter
called the "Registration Statement", and such prospectus, as such
prospectus is supplemented by a prospectus supplement relating to
the Offered Certificates of the related Series, each in the form
first filed after the date of the related Terms Agreement
pursuant to Rule 424(b) under the Act, including any documents
incorporated by reference therein pursuant to Item 12 of Form S-3
under the Act which were filed under the Exchange Act on or
before the date of such prospectus supplement (other than any
such incorporated documents that relate to Collateral Term Sheets
(as defined herein))(such prospectus supplement, including such
incorporated documents (other than those that relate to
Collateral Term Sheets), in the form first filed after the date
of the related Terms Agreement pursuant to Rule 424(b) is
hereinafter called the "Prospectus Supplement"), is hereinafter
called the "Prospectus". Any reference herein to the terms
"amend", "amendment" or "supplement" with respect to the
Registration Statement, the Prospectus or the Prospectus
Supplement shall be deemed to refer to and include the filing of
any document under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") after the effective date of the
Registration Statement or the issue date of the Prospectus or
Prospectus Supplement, as the case may be, deemed to be
incorporated therein by reference pursuant to Item 12 of Form S-3
under the Act.
(ii.) The related Registration Statement, at the
time it became effective, and the Prospectus contained therein,
and any amendments thereof and supplements thereto filed prior to
the date of the related Terms Agreement, conformed in all
material respects to the requirements of the Act and the rules
and regulations of the Commission thereunder; on the date of the
related Terms Agreement and on each Closing Date (as defined in
Section 3 below), the related Registration Statement and the
related Prospectus, and any amendments thereof and supplements
thereto, will conform in all material respects to the
requirements of the Act and the rules and regulations of the
Commission thereunder; such Registration Statement, at the time
it became effective, did not contain any untrue statement of a
material fact or omit to state a material fact required to be
stated
3
<PAGE> 4
therein or necessary to make the statements therein not
misleading; such Prospectus, on the date of any filing pursuant
to Rule 424(b) and on each Closing Date, will not include any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of
the circumstances under which they are made, not misleading; and
the Detailed Description referred to in such Prospectus with
respect to the Mortgage Collateral securing the Underlying Bond,
on each Closing Date and the date of any filing thereof under
cover of Form 8-K, will not include any untrue statement of a
material fact or omit to state any information which such
Prospectus states will be included in such Detailed Description;
provided, however, that the Company makes no representations or
warranties as to the information contained in or omitted from
(A) such Registration Statement or such Prospectus (or any
supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by or on behalf of
the Underwriter specifically for use in the preparation thereof
or (B) any Current Report (as defined in Section 5(b) below), or
in any amendment thereof or supplement thereto, incorporated by
reference in such Registration Statement or such Prospectus (or
any amendment thereof or supplement thereto).
(iii.) The Depositor has been duly organized and is
validly existing as a corporation in good standing under the laws
of the state of Delaware, with full corporate power and authority
to own its assets and conducts its business as described in the
Prospectus, is duly qualified as a foreign corporation in good
standing in all jurisdictions in which the ownership or lease of
its property or the conduct of its business requires such
qualification, except where the failure to be so qualified would
not have a material adverse effect on the Depositor, and the
Depositor is conducting its business so as to comply in all
material respects with the applicable statutes, ordinances, rules
and regulations of each jurisdiction in which it is conducting
business.
(iv.) The Certificates of the related Series will
conform to the description thereof contained in the related
Prospectus; will each, if rated at the time of issuance in one of
the two highest rating categories by a nationally recognized
statistical rating organization, be when issued a "mortgage
related security" as such term is defined in Section 3(a)(41) of
the Exchange Act, and will each on the related Closing Date be
duly and validly authorized, and, when validly executed,
countersigned, issued and delivered in accordance with the
related Trust Agreement and sold to you as provided herein and in
the related Terms Agreement, will each be validly issued and
outstanding and entitled to the benefits of the related Trust
Agreement.
(v.) Neither the issuance nor sale of the
Certificates of the related Series nor the consummation of any
other of the transactions herein contemplated, nor the
fulfillment of the terms hereof or of the related Terms
4
<PAGE> 5
Agreement, will conflict with or result in the breach of, or
constitute a default under, any statute, order or regulation
applicable to the Depositor of any court, regulatory body,
administrative agency or governmental body having jurisdiction
over the Depositor or with any organizational document of the
Depositor or any instrument or any agreement under which the
Depositor is bound or to which it is a party or result in the
creation or imposition of any lien, charge, or encumbrance upon
any of the Depositor's property pursuant to the terms of any
instrument or agreement.
(vi.) This Agreement and the related Terms
Agreement have been duly authorized, executed and delivered by
the Depositor.
(vii.) At or prior to the related Closing Date, the
Depositor will have entered into the related Certificate Trust
Agreement and, assuming the due authorization, execution and
delivery thereof by the Certificate Trustee, such Certificate
Trust Agreement (on such Closing Date) will constitute the legal,
valid and binding agreement of the Depositor enforceable in
accordance with its terms, subject as to enforceability, to
bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights and to general
principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law).
(viii.) At the applicable Closing Date, any
Mortgage Loans included in the related Mortgage Pool will meet
the criteria for selection described in the Prospectus.
(ix.) At the applicable Closing Date, and Mortgage
Note and each Mortgage included in the Bond Trust and pledged to
the Bond Trustee under the Bond Indenture will constitute a valid
and binding instrument, enforceable in accordance with its terms,
subject, as enforceability, to bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting
creditors' rights and to general principles of equity (regardless
of whether enforceability is considered in a proceeding in equity
or at law).
(x.) At the applicable Closing Date, the Underlying
Bond will constitute a valid and binding instrument, enforceable
against the Bond Issuer in accordance with its terms, subject, as
to enforceability, to bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights and
to general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at
law).
(xi.) At the date of its execution and delivery,
each Servicing Agreement and the Master Servicing Agreement, if
any, constituted or will constitute a valid and binding
agreement, and is or will be enforceable by the Bond Issuer and
the Bond Trustee against the applicable Servicer or Master
5
<PAGE> 6
Servicer, as the case may be, in accordance with its terms,
subject, as to enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency or other similar laws affecting
creditors' rights generally as from time to time in effect, and
to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at
law).
(xii.) Neither the Bond Trust created pursuant to
the Deposit Trust Agreement nor the Certificate Trust Fund
created pursuant to the Certificate Trust Agreement is an
investment company subject to registration with respect to each
issuance of Collateralized Mortgage Bonds or each Series of
Certificates, as the case may be, under the Investment Company
Act of 1940, as amended (the "Investment Company Act") and is not
under the control of an investment company.
(xiii.) At the applicable Closing Date, the
representations and warranties made by the Depositor under the
applicable Deposit Trust Agreement and applicable Certificate
Trust Agreement will be true and correct in all material
respects.
(xiv.) At the time of execution and delivery of the
applicable Deposit Trust Agreement and applicable Bond Indenture,
the Bond Issuer will be the beneficial owner of the Mortgage
Collateral being pledged to the Bond Trustee pursuant thereto and
being assigned to the Depositor for deposit into the Certificate
Trust Fund, free and clear of any lien or other encumbrance, and
the Bond Issuer will not have assigned to any other person any of
its right, title and interest in the Mortgage Collateral.
(xv.) At the time of execution and delivery of the
applicable Certificate Trust Agreement, the Depositor will have
the power and authority to transfer the Underlying Bond to the
Certificate Trustee and to transfer the Certificate to the
Underwriter and, upon execution and delivery of the Certificate
Trust Agreement and delivery to the Underwriters of the
Certificates, the Underlying Bond will have been duly and validly
assigned to the Certificate Trustee in accordance with terms of
the Certificate Trust Agreement.
(xvi.) Any taxes, fees and other governmental
charges in connection with the execution, delivery and issuance
of this Agreement, the applicable Deposit Trust Agreement, the
Certificate Trust Agreement and the Certificates have been or
will be paid at or prior to the applicable Closing Date.
(xvii.) At the applicable Closing Date with respect
to a Series, the Certificates shall have received the rating or
ratings specified in the related Terms Agreement.
6
<PAGE> 7
(xviii.) This Agreement does, and the applicable
Deposit Trust Agreement, Bond Indenture, Master Servicer
Agreement, Mortgage Loan Purchase Agreement and Management
Agreement (collectively, the "Transaction Documents") will,
conform in all material respects to the descriptions thereof
contained in the Prospectus.
2. Purchase and Sale. Subject to the execution of the Terms
Agreement for a particular Certificate Offering and subject to the terms and
conditions and in reliance upon the representations and warranties set forth in
this Agreement and such Terms Agreement, the Company agrees to sell to the
Underwriter, and the Underwriter agrees to purchase from the Company, all, but
not less than all, of the related Offered Certificates at the purchase price
therefor set forth in such Terms Agreement (the "Purchase Price").
The parties hereto agree that settlement for all securities sold
pursuant to this Agreement and the applicable Terms Agreement shall take place
on the settlement date agreed upon at the time of the related transaction and
set forth as the "Closing Date" in such Terms Agreement and not as set forth in
Rule 15c6-1(a) of the Exchange Act.
3. Delivery and Payment. Subject to the execution of the Terms
Agreement for a particular offering of Certificates, and subject to the terms
and conditions and in reliance upon the representations and warranties set forth
in this Agreement and such Terms Agreement, the Depositor agrees to sell to
[each][the]Underwriter, [severally and not jointly], and [the][each] Underwriter
agrees, [severally and not jointly], to purchase from the Company, the
[respective] original principal amounts of the related Certificates set forth in
the Terms Agreement opposite the name of such Underwriter, [plus any additional
original principal amount of Certificates which such Underwriter may be
obligated to purchase pursuant to Section 10 hereof], at the purchase price
therefor set forth in such Terms Agreement. Delivery of and payment for the
Offered Certificates of a Series shall be made at the offices of [ ], at 10:00
A.M., [ ] time, on the Closing Date specified in the related Terms Agreement,
which date and time may be postponed by agreement between the Underwriter and
the Company (such date and time being herein called the "Closing Date").
Delivery of such Offered Certificates shall be made by the Company to the
Underwriter against payment by the Underwriter of the Purchase Price thereof
specified in the Terms Agreement to or upon the order of the Company by wire
transfer in federal or other immediately available funds or by check payable in
federal funds, as the Company shall specify no later than five full business
days prior to such Closing Date. The Certificates to be so delivered will be in
definitive fully registered form, or maintained through the facilities of the
Depository Trust Company, as indicated in the applicable Prospectus Supplement,
in such names and in such authorized denominations as the Underwriter may
request not less than two full business days in advance of each Closing Date.
The Company agrees to notify the Underwriter at least two
business days before each Closing Date of the exact principal balance evidenced
by the Offered Certificates and to have such Offered Certificates available for
inspection, checking and packaging in New York,
7
<PAGE> 8
New York, no later than 12:00 noon New York time on the business day prior to
such Closing Date.
4. Offering by the Underwriter. It is understood that the
[several] Underwriter[s] propose[s] to offer the Offered Certificates of the
related Series for sale to the public as set forth in the related Prospectus.
5. Agreements. The Company covenants agrees with you [and the
several the Underwriter[s] that:
(b) The Company will cause the Prospectus as supplemented
by a Prospectus Supplement relating to the Offered Certificates to be
filed pursuant to Rule 424 under the Act and will promptly advise the
Underwriter when such Prospectus as so supplemented has been so filed,
and prior to the termination of the Certificate Offering to which such
Prospectus relates also will promptly advise the Underwriter (i) when
any amendment to the related Registration Statement specifically
relating to such Offered Certificates shall have become effective or any
further supplement to such Prospectus has been filed, (ii) of any
request by the Commission for any amendment of such Registration
Statement or Prospectus or for any additional information, (iii) of the
issuance by the Commission of any stop order suspending the
effectiveness of such Registration Statement or the institution or
threatening of any proceeding for that purpose and (iv) of the receipt
by the Company of any written notification with respect to the
suspension of the qualification of such Offered Certificates for sale in
any jurisdiction or the initiation or threatening of any proceeding for
such purpose whether by the Commission or any other applicable authority
administering any state securities or Blue Sky Law. The Company will not
file any amendment of the related Registration Statement or supplement
to the related Prospectus (other than any amendment or supplement
specifically relating to one or more Series of Certificates other than
the Series that includes the related Offered Certificates) unless the
Company has furnished the Underwriter with a copy for its review prior
to filing. The Company will use its best efforts to prevent the issuance
of any such stop order and, if issued, to obtain as soon as possible the
withdrawal thereof.
(c) The Company will cause any Computational Materials and
any Structural Term Sheets (each as defined in Section 8 below) with
respect to the Offered Certificates of a Series that are delivered by
the Underwriter to the Company pursuant to Section 8 to be filed with
the Commission on a Current Report on Form 8-K (each such filing of such
materials, a "Current Report") pursuant to Rule 13a-11 under the
Exchange Act on the business day immediately following the later of (i)
the day on which such Computational Materials and Structural Term Sheets
are delivered to counsel for the Company by the Underwriter prior to
2:00 p.m. New York time. and (ii) the date on which this Agreement is
executed and delivered. The Company will cause one Collateral Term Sheet
(as defined in Section 9 below) with respect to the Offered Certificates
of a Series that is delivered by the [Underwriter][Representative] to
the Company in
8
<PAGE> 9
accordance with the provisions of Section 9 to be filed with the
Commission on a Current Report pursuant to Rule 13a-11 under the
Exchange Act on the business day immediately following the day on which
such Collateral Term Sheet is delivered to counsel for the Company by
the Underwriter prior to 2:00 p.m. New York time. In addition, if at any
time prior to the availability of the related Prospectus Supplement the
Underwriter has delivered to any prospective investor a Collateral Term
Sheet that reflects, in the reasonable judgment of the Underwriter and
the Company, a material change in the characteristics of the Mortgage
Collateral for the related Series from those on which a Collateral Term
Sheet with respect to the related Series previously filed with the
Commission was based, the Company will cause any such Collateral Term
Sheet that is delivered by the Underwriter to the Company in accordance
with the provisions of Section 9 to be filed with the Commission on a
Current Report on the business day immediately following the day on
which such Collateral Term Sheet is delivered to counsel for the Company
by the Underwriter prior to 2:00 p.m. New York time. In each case, the
Company will promptly advise the Underwriter when such Current Report
has been so filed. Each such Current Report shall be incorporated by
reference in the related Prospectus and the related Registration
Statement.
(d) If, at any time when a Prospectus relating to the
Offered Certificates of a Series is required to be delivered under the
Act, any event occurs as a result of which the related Prospectus as
then amended or supplemented would include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein in light of the circumstances under which they were
made not misleading, or if it shall be necessary at any time to amend or
supplement the related Prospectus to comply with the Act or the rules
thereunder, the Company promptly will prepare and file with the
Commission, subject to paragraph (a) of this Section 5, an amendment or
supplement which will correct such statement or omission or an amendment
which will effect such compliance.
(e) The Company will furnish to the Underwriter and
counsel for the Underwriter, without charge, as many signed copies of
the related Registration Statement (including exhibits thereto) and, so
long as delivery of a Prospectus by the Underwriter or dealer may be
required by the Act, as many copies of the related Prospectus and any
supplements thereto (other than exhibits to the related Current Report)
as the Underwriter may reasonably request.
(f) The Company will furnish such information, execute
such instruments and take such actions as may be reasonably requested by
the Underwriter to qualify the Offered Certificates of a Series for sale
under the laws of such jurisdictions as the Underwriter may designate,
to maintain such qualifications in effect so long as required for the
distribution of such Offered Certificates and to determine the legality
of such Offered Certificates for purchase by institutional investors;
provided, however, that the Company shall not be required to qualify to
do business in any jurisdiction where it is not qualified on the date of
the related Terms Agreement or to take any action which
9
<PAGE> 10
would subject it to general or unlimited service of process in any
jurisdiction in which it is not, on the date of the related Terms
Agreement, subject to such service of process.
(g) So long as the Offered Certificates of a Series are
outstanding, the Company will furnish to the Underwriter copies of (a)
the annual independent public accountants' servicing report furnished to
the Certificate Trustee pursuant to Section [ ] of the related
Certificate Trust Agreement (b) copies of all reports filed with the
Commission and copies of each notice published or mailed to holders of
the Certificates pursuant to the related Certificate Trust Agreement;
and (c) such other information with respect to the related Certificate
Trust Fund or its financial condition or results of operation as you may
reasonably request, including but not limited to information necessary
and appropriate to the maintenance of a secondary market in the
Certificates of such Series.
(h) Whether or not the transactions contemplated hereby
and by the related Terms Agreement shall be consummated, the Company
shall be responsible for the payment of any costs and expenses for which
details are submitted, in connection with the performance of its
obligations under this Agreement and the related Terms Agreement,
including, without limitation, (a) the cost and expenses of printing or
otherwise reproducing the related Registration Statement or Prospectus,
this Agreement, the related Terms Agreement, the Transaction Documents
and the Offered Certificates, and (b) the cost of delivering the related
Offered Certificates to the office of the Underwriter, insured to the
satisfaction of the Underwriter (it being understood that, except as
provided in this paragraph (g) and in Section 7 hereof, the Underwriter
will pay all its own costs and expenses, including the fees of counsel
for the Underwriter, transfer taxes on resale of any Offered
Certificates by it, advertising expenses connected with any offers that
it may make, the fees of the independent certified public accountants
with respect to its letters furnished pursuant to Section 6(k) or
Section 6(l) of this Agreement, the fees of any firm of public
accountants selected by the Underwriter with respect to their letter
furnished pursuant to Section 8(c) of this Agreement, any other costs
and expenses specified in the related Terms Agreement as "Additional
Expenses", and all expenses (e.g., shipping, postage and courier costs)
associated with the delivery of the related Prospectus to prospective
investors and investors, other than the costs of delivery to the
Underwriter's facilities, provided, that if courier services (other than
overnight delivery services utilized in the ordinary course of business)
are required to ensure that such Prospectus is delivered to investors on
the day immediately preceding the related Closing Date, the Company will
pay such courier expenses).
6. Conditions to the Obligations of the Underwriter. The
obligations of the [several] Underwriter[s] named in the Terms Agreement to
purchase the Offered Certificates of any Series shall be subject to the accuracy
in all material respects of the representations and warranties on the part of
the Company contained in this Agreement, as supplemented by the related Terms
Agreement, as of the respective dates thereof and the related Closing Date, to
the accuracy of the statements of the Company made in any applicable officers'
certificates pursuant
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<PAGE> 11
to the provisions hereof, to the performance by the Company of its obligations
under this Agreement and such Terms Agreement and to the following additional
conditions applicable to the related Certificate Offering:
(a) No stop order suspending the effectiveness of the
related Registration Statement shall have been issued and no proceedings
for that purpose shall have been instituted or threatened.
(b) No Underwriter shall have advised the Depositor that
the Registration Statement or the Prospectus, or any amendment or
supplement thereto, contains an untrue statement of fact that in [your
opinion][the opinion of the Representative] is material, or omits to
state a fact that in [your opinion][the opinion of the Representative]
is material and is required to be stated therein or is necessary to make
the statements therein not misleading.
(c) Tobin & Tobin, counsel for the Company, shall have
furnished to the Underwriter an opinion, dated the related Closing Date,
to the effect that:
(i.) this Agreement and the related Terms Agreement
have been duly authorized, executed and delivered by the
Depositor;
(ii.) each of the related Transaction Documents to
which the Depositor or the Bond Issuer is a party has been duly
authorized, executed and delivered by the Depositor or the Bond
Issuer, as the case may be, and is a legal, valid and binding
agreement of such party enforceable against the Depositor in
accordance with its terms;
(iii.) the issuance of the Certificates of the
related Series and sale of the related Offered Certificates has
been duly authorized by all requisite corporate action on the
part of the Company and the Certificates of such Series, when
duly countersigned by the Certificate Trustee in accordance with
the related Certificate Trust Agreement, will be validly issued
and outstanding and entitled to the benefits of such Trust
Agreement;
(iv.) the issuance of the Underlying Bond has been
duly authorized by the Depositor and the Bond Issuer and when
such Bond has been duly executed and authenticated by the Bond
Trustee in accordance with the Bond Indenture, will be validly
issued and outstanding and entitled to the benefits of the
Indenture.
(v.) neither the related Deposit Trust Agreement
nor the Certificate Trust Agreement is required to be qualified
under the Trust Indenture Act of 1939, as amended, and the
respective trusts created thereunder are not required to be
registered under the Investment Company Act of 1940, as amended;
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<PAGE> 12
(vi.) the Bond Indenture satisfies the requirements
and is qualified under the Trust Indenture Act of 1939, as
amended.
(vii.) the related Registration Statement is
effective under the Act and, to the best of such counsel's
knowledge, no stop order with respect thereto has been issued,
and no proceeding for that purpose has been instituted or
threatened by the Commission; such Registration Statement and the
related Prospectus, and each amendment or supplement thereto
(except the financial statements and schedules and other
financial and statistical data included therein and the documents
incorporated by reference therein) applicable to the related
Offered Certificates and the obligations of the Company relating
thereto, as of their respective effective or issue dates,
appeared on their face to be appropriately responsive in all
material respects to the requirements of the Act and the rules
and regulations thereunder; and no information has come to the
attention of such counsel that causes it to believe that (A) such
Registration Statement (except any document incorporated by
reference therein) as of the date it became effective, or such
Registration Statement (except as aforesaid, and except the
financial statements and schedules and the other financial and
statistical data included therein, the documents incorporated by
reference therein) as of the date the most recent post effective
amendment thereto, if any, became effective, contained any untrue
statement of a material fact or omitted to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading or (B) such Prospectus (except
any document incorporated by reference therein) or any amendment
or supplement thereto (except as aforesaid, and except the
financial statements and schedules and the other financial and
statistical data included therein and the documents incorporated
by reference therein), as of their respective issue dates or at
the related Closing Date, contained or contains any untrue
statement of a material fact or omitted or omits to state any
material fact necessary in order to make the statements therein,
in light of the circumstances under which they were made, not
misleading;
(viii.) the statements set forth under the heading
"Description of the Certificates" and "Description of the
Underlying Bond" in the related Prospectus, insofar as such
statements purport to summarize certain provisions of the related
Certificate Trust Agreement and the related Offered Certificates,
provide a fair summary of such provisions;
(ix.) the statements set forth in the related
Prospectus under the headings (a) "Certain Legal Aspects of the
Mortgage Loans" (insofar as they relate specifically to the
purchase, ownership and disposition of the related Offered
Certificates) to the extent that they constitute matters of law
or legal conclusions, provide a fair summary of such laws and
conclusions; (b) "Certain Federal Income Tax Consequences"
(insofar as they relate specifically to the purchase, ownership
and disposition of the related Offered Certificates) and
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<PAGE> 13
constitute conclusions of law, are true and correct in all
material respects; and (c) "ERISA Considerations" (insofar as
they relate specifically to the purchase, ownership and
disposition of such Offered Certificates) and describe certain
provisions of federal statutes and regulations, have been
reviewed by such counsel, and such statements fairly describe
such provisions and regulations;
(x.) assuming compliance with all provisions of the
related Certificate Trust Agreement, for federal income tax
purposes, (A) if any election is made to treat the assets of the
Certificate Trust Fund as a FASIT, the related Certificate Trust
Fund (and any specified subgrouping therein) will qualify as a
FASIT pursuant to Section 860L of the Internal Revenue Code of
1986, as amended (the "Code"), each Class of Certificates of the
related Series, other than the related Residual Class or Classes,
will constitute a class of "regular interests" in the related
FASIT within the meaning of the Code, and each Class of such
Certificates specified in the related Prospectus as a Class of
Residual Certificates will constitute the "residual interest" in
the related FASIT within the meaning of the Code; (B) if no such
FASIT election is made: the Trust Fund will be treated as a
"grantor trust";
(xi.) assuming that some or all of the Offered
Certificates of the related Series shall be rated at the time of
issuance in one of the two highest rating categories by a
nationally recognized statistical rating organization, each
Offered Certificate so rated will be at the time of issuance, a
"mortgage related security" as such term is defined in Section
3(a)(41) of the Exchange Act; and
(xii.) the conditions to the use by the Depositor
of a registration statement on Form S-3/S-11 under the Act, as
set forth in the General Instructions to such Forms, have been
satisfied with respect to the Registration and the Prospectus;
and, to the best of such counsel's knowledge, there are no
certificates or documents which are required to be filed as
exhibits to the Registration Statement pursuant to the Act or the
Rules and regulations thereunder that have not been so filed.
Such opinion may express its reliance as to factual matters on the
representations and warranties made by, and on certificates or other
documents furnished by, officers of the parties to this Agreement, the
related Transaction Documents or the related Trust Agreement. Such
opinion may assume the due authorization, execution and delivery of the
instruments and documents referred to therein by the parties thereto
other than the Company. Such opinion may be qualified, insofar as it
concerns the enforceability of the documents referred to therein, to the
extent that such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
the enforcement of creditors' rights in general and by general equity
principles (regardless of whether such enforcement is considered in a
proceeding in equity or at law). Such opinion may be further qualified
as expressing no opinion as to (x) the statements in the
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<PAGE> 14
related Prospectus under the heading "Certain Legal Aspects of the
Mortgage Loans", except insofar as such statements relate to the laws of
the State of California and the laws of the United States, and (y) the
statements in such Prospectus under the headings "ERISA Considerations"
and "Certain Federal Income Tax Consequences", except insofar as such
statements relate to the laws of the United States. In addition, such
opinion may be qualified as an opinion only on the law of the States of
California, Delaware and the federal law of the United States of
America.
(d) The General Counsel for the Depositor shall have
furnished to the Underwriter an opinion, dated the related Closing Date,
to the effect that:
(i.) The Depositor has been duly incorporated and
is validly existing as a corporation in good standing under the
laws of the State of Delaware, with corporate power to own its
properties, to conduct its business as described in the related
Prospectus and to enter into and perform its obligations under
this Agreement, the related Terms Agreement, and the other
Transaction Documents of the related Series to which it is a
party;
(ii.) The Depositor has full power and authority
to sell the Certificates as contemplated herein and in the
related Agreement;
(iii.) No consent, approval, authorization or order
of any court or governmental agency or body is required for the
consummation by the Depositor of the transactions contemplated
herein or in the related Transaction Documents to which it is a
party, except such as may be required under the blue sky laws of
any jurisdiction and such other approvals as have been obtained;
(iv.) Neither the issuance of the Certificates of
the related Series nor delivery of the related Offered
Certificates, nor the consummation of any other of the
transactions contemplated in this Agreement, the related Terms
Agreement or the related Transaction Documents to which the
Depositor is a party, nor the fulfillment of the terms of the
related Certificates, this Agreement, or the related Terms
Agreement or Transaction Documents to which it is a party, will
conflict with or violate any term or provision of the articles of
incorporation or by-laws of the Depositor or any statute, order
or regulation applicable to the Depositor of any court,
regulatory body, administrative agency or governmental body
having jurisdiction over the Depositor and will not conflict
with, result in a breach or violation or the acceleration of or
constitute a default under the terms of any indenture or other
agreement or instrument known to such counsel to which the
Depositor is a party or by which it or its property is bound; and
(v.) There are no actions, proceedings or
investigations pending or, to the best knowledge of such counsel,
threatened before any court, administrative agency or other
tribunal (i) asserting the invalidity of this Agreement, the
related Terms Agreement, the related Certificates, or the related
14
<PAGE> 15
Transaction Documents to which it is a party , (ii) seeking to
prevent the issuance of the Certificates of the related Series or
the consummation by the Depositor of any of the transactions
contemplated by this Agreement, such Terms Agreement or the
related Transaction Documents to which it is a party, or (iii)
which might materially and adversely affect the performance by
the Depositor of its obligations under, or the validity or
enforceability of, this Agreement, such Terms Agreement, the
related Certificates or the related Transaction Documents to
which it is a party.
In rendering her opinion such counsel may rely as to matters of fact, to
the extent deemed proper and as stated therein, on certificates of
responsible officers of the Depositor or public officials. In addition,
such opinion may be qualified as an opinion only on the laws of the
State of Delaware.
(e) The Underwriter shall have received from counsel for
the Underwriter, such opinion or opinions, dated the related Closing
Date, with respect to the issuance and sale of the Certificates of the
related Series, the related Registration Statement, the related
Prospectus and such other related matters as the Underwriter may
reasonably require, and the Company shall have furnished to such counsel
such documents as the Underwriter may reasonably request for the purpose
of enabling them to pass upon such matters.
(f) The Company shall have furnished to the Underwriter a
certificate of the Company, signed by the President or any Vice
President and the Senior Vice President-Finance or the principal
financial or accounting officer of the Company, dated the related
Closing Date, to the effect that the signers of such certificate have
carefully examined the related Registration Statement (excluding any
Current Reports and any other documents incorporated by reference
therein), the related Prospectus, the Detailed Description referred to
in such Prospectus (excluding any related Current Report), this
Agreement and the related Terms Agreement and that:
(i.) the representations and warranties of the
Company in this Agreement are true and correct in all material
respects on and as of the related Closing Date with the same
effect as if made on such Closing Date, and the Company has
complied with all the agreements and satisfied all the conditions
on its part to be performed or satisfied at or prior to such
Closing Date;
(ii.) no stop order suspending the effectiveness of
such Registration Statement has been issued and no proceedings
for that purpose have been instituted or, to their knowledge,
threatened; and
(iii.) nothing has come to their attention that
would lead them to believe that such Registration Statement
(excluding any Current Report) contains any untrue statement of a
material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading,
15
<PAGE> 16
that the related Prospectus (excluding any related Current
Report) contains any untrue statement of a material fact or omits
to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or that
the Detailed Description referred to in such Prospectus includes
any untrue statement of a material fact or omits to state any
information which the Prospectus states will be included in such
Detailed Description.
(g) [ ], counsel for the Certificate Trustee, shall have
furnished to the Underwriter an opinion, dated the related Closing Date,
to the effect that:
(i.) the Certificate Trustee has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of __________________ with corporate
power to own its properties and conduct its business as presently
conducted by it, to conduct business as a trustee and to enter
into and perform its obligations under the related Certificate
Trust Agreement;
(ii.) the related Certificate Trust Agreement has
been duly authorized, executed and delivered by the Certificate
Trustee and constitutes the legal, valid and binding agreement of
the Certificate Trustee enforceable against the Certificate
Trustee in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent conveyance, reorganization or other
similar laws affecting the enforcement of creditors' rights
generally and to judicial discretion, and general principles of
equity (regardless of whether enforcement is sought in a
proceeding in equity or at law);
(iii.) the Certificate Trustee has duly accepted
its appointment as trustee under the related Certificate Trust
Agreement;
(iv.) no consent, approval, authorization or order
of any [state] or federal court or government agency or body is
required on the part of the Certificate Trustee for the
consummation of the transactions contemplated in the related
Certificate Trust Agreement, except such as may be required under
any federal or state securities law; and
(v.) the performance on the part of the Certificate
Trustee of any of the transactions contemplated in the related
Trust Agreement does not conflict with or result in a breach or
violation of any term or provision of, or constitute a default
under, the charter documents, as amended, or By-Laws of the
Certificate Trustee, or any [state] or federal statute or
regulation applicable to the Certificate Trustee, or to such
counsel's knowledge, any indenture or other agreement or
instrument to which the Certificate Trustee is a party or by
which it is bound, or, to such counsel's knowledge, any order of
any state or federal court, regulatory body, administrative
agency or governmental body having jurisdiction over the
Certificate Trustee.
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<PAGE> 17
In addition, such counsel shall furnish to the Underwriter such opinions
as to the treatment of the Trust Fund for purposes of [state] tax law as
are reasonably satisfactory to the Underwriter.
(h) [ ], counsel for the Owner Trustee, shall have
furnished to the Underwriter an opinion, dated the related Closing Date,
to the effect that:
(i.) the Owner Trustee has been duly incorporated
and is validly existing as a corporation in good standing under
the laws of __________________ with corporate power to own its
properties and conduct its business as presently conducted by it,
to conduct business as a trustee and to enter into and perform
its obligations under the related Deposit Trust Agreement;
(ii.) the related Deposit Trust Agreement and Bond
Indenture and any other Transaction Documents to which it is a
party each has been duly authorized, executed and delivered by
the Owner Trustee (not in its individual capacity but solely as
trustee of the Bond Trust) and constitutes the legal, valid and
binding agreement of the Bond Trust enforceable against the Bond
Trust in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent conveyance, reorganization or other
similar laws affecting the enforcement of creditors' rights
generally and to judicial discretion, and general principles of
equity (regardless of whether enforcement is sought in a
proceeding in equity or at law);
(iii.) the Owner Trustee has duly accepted its
appointment as trustee under the related Deposit Trust Agreement;
(iv.) no consent, approval, authorization or order
of any [state] or federal court or government agency or body is
required on the part of the Owner Trustee for the consummation of
the transactions contemplated in the Deposit Trust Agreement, the
Bond Indenture or the other Transaction Documents to which the
Owner Trustee is a party, except such as may be required under
any federal or state securities law; and
(v.) the performance on the part of the Owner
Trustee of any of the transactions contemplated in the related
Deposit Trust Agreement, the Bond Indenture or the other
Transaction Documents to which the Owner Trustee is a party does
not conflict with or result in a breach or violation of any term
or provision of, or constitute a default under, the charter
documents, as amended, or By-Laws of the Owner Trustee, or any
[state] or federal statute or regulation applicable to the Owner
Trustee, or to such counsel's knowledge, any indenture or other
agreement or instrument to which the Owner Trustee is a party or
by which it is bound, or, to such counsel's knowledge, any order
of any state or federal court, regulatory body, administrative
agency or governmental body having jurisdiction over the Owner
Trustee.
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<PAGE> 18
(i) you shall have received an opinion of counsel to the
Bond Trustee, dated the applicable Closing Date, and in the form agreed
to on or prior to the date of the applicable Terms Agreement;
(j) if applicable, you shall have received the opinion of
counsel to the Master Servicer, dated as of the applicable Closing Date,
in form and substance satisfactory to your counsel, to the effect that:
(i.) the Master Servicer has been duly organized
and is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation and is duly
qualified to do business, and is in good standing, as a foreign
corporation under the laws of each jurisdiction in which the
performance of its duties under the applicable agreement would
require such qualification;
(ii.) the execution and delivery by the Master
Servicer of the applicable agreement is within the corporate
power of the Master Servicer and has been duly authorized by all
necessary corporate action on the part of the Master Servicer;
and neither the execution and delivery of instrument, nor the
consummation of the transactions provided for therein, nor
compliance with the provisions thereof, will conflict or
constitute a breach of, or default under, any contract,
indenture, mortgage, loan agreement, note, lease, deed of trust,
or other instrument to which the Master Servicer is a party or by
which it may be bound, nor will such action result in any
violation of the provisions of the charter or bylaws of the
Master Servicer or any law, administrative regulation or
administrative or court decrees;
(iii.) the applicable agreement has been duly and
validly authorized, executed and delivered by the Master Servicer
and assuming due authorization, execution and delivery by the
Bond Trustee constitutes the valid and binding obligation of the
Master Servicer, enforceable in accordance with its terms,
subject, as the enforcement of remedies, to (A) applicable
bankruptcy, insolvency, reorganization, moratorium or other laws
relating to creditors' rights generally as from time to time in
effect, and (B) to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in
equity or at law).
(k) [ ] shall have furnished to the Underwriter a letter,
dated as of the date of the related Terms Agreement, in form and
substance satisfactory to the Underwriter, stating in effect that they
have performed certain specified procedures as a result of which they
have determined that such information as the Underwriter may reasonably
request of an accounting, financial or statistical nature (which is
limited to accounting, financial or statistical information derived from
the general accounting records of the Company) set forth in the related
Prospectus Supplement agrees with the accounting records of the Company,
excluding any questions of legal interpretation.
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<PAGE> 19
(l) [ ] shall have furnished to the Underwriter a letter,
dated as of the related Closing Date, in form and substance satisfactory
to the Underwriter, stating in effect that they have performed certain
specified procedures as a result of which they have determined that such
information as the Underwriter may reasonably request of an accounting,
financial or statistical nature (which is limited to accounting,
financial or statistical information derived from the general accounting
records of the Company and which is obtained from an analysis of a
sample of the Mortgage Loans included in the related Mortgage Pool) set
forth in the related Prospectus Supplement and in the Detailed
Description relating to such Prospectus Supplement is mutually
consistent and agrees with the accounting records of the Company and,
where applicable, the related Mortgage Loan files of the Company,
excluding any questions of legal interpretation.
(m) The Offered Certificates of the related Series shall
have received the ratings specified in the related Terms Agreement (the
"Required Ratings").
(n) Prior to the related Closing Date, the Company shall
have furnished to the Underwriter such further information, certificates
and documents as the Underwriter may reasonably request.
(o) If any Certificates of the related Series are to be
sold to any other underwriter and/or offered in reliance upon an
exemption from the registration requirements of the Act, the sale at or
prior to the related Closing Date of such Certificates to the purchaser
thereof shall have occurred.
(p) Subsequent to the date of the related Terms Agreement,
there shall not have been any change, or any development involving a
prospective change, in or affecting the business or properties of the
Company which the Underwriter concludes in its judgment, after
consultation with the Company, materially impairs the investment quality
of the Offered Certificates of the related Series so as to make it
impractical or inadvisable to proceed with the public offering or the
delivery of such Offered Certificates as contemplated by the related
Prospectus.
If any of the conditions specified in this Section 6 shall not
have been fulfilled in all material respects with respect to the particular
Offered Certificates of a Series when and as provided in this Agreement and the
related Terms Agreement, or if any of the opinions and certificates mentioned
above or elsewhere in this Agreement and the related Terms Agreement shall not
be in all material respects reasonably satisfactory in form and substance to the
Underwriter and its counsel, this Agreement (with respect to the related Offered
Certificates) and the related Terms Agreement and all obligations of the
Underwriter hereunder (with respect to the related Offered Certificates) and
thereunder may be canceled at, or at any time prior to, the related Closing Date
by the Underwriter. Notice of such cancellation shall be given to the Company in
writing, or by telephone or telegraph confirmed in writing.
7. Indemnification and Contribution.
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<PAGE> 20
(a) The Company agrees to indemnify and hold harmless the
Underwriter and each person who controls the Underwriter within the
meaning of the Act or the Exchange Act against any and all losses,
claims, damages or liabilities, joint or several, to which they or any
of them may become subject under the Act, the Exchange Act, or other
Federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in
the Registration Statement relating to the Underlying Bond or the
Offered Certificates of the applicable Series as it became effective or
in any amendment or supplement thereof, or in such Registration
Statement or the related Prospectus, or in any amendment thereof, or in
the Detailed Description referred to in such Prospectus or arise out of
or are based upon the omission or alleged omission (in the case of any
Computational Materials or ABS Term Sheets (in each case, as defined
herein) in respect of which the Company agrees to indemnify the
Underwriter, as set forth below, when such are read in conjunction with
the related Prospectus and Prospectus Supplement) to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and agrees to reimburse each such
indemnified party for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that (i) the Company
will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged
omission made therein (A) in reliance upon and in conformity with
written information furnished to the Company as herein stated by or on
behalf of the Underwriter specifically for use in connection with the
preparation thereof or (B) in any Current Report or any amendment or
supplement thereof, except to the extent that any untrue statement or
alleged untrue statement therein or omission therefrom results (or is
alleged to have resulted) directly from an error (a "Mortgage Pool
Error") in the information concerning the characteristics of the
Mortgage Loans furnished by the Company to the Underwriter in writing or
by electronic transmission that was used in the preparation of either
(x) any Computational Materials or ABS Term Sheets (or amendments or
supplements thereof) included in such Current Report (or amendment or
supplement thereof) or (y) any written or electronic materials furnished
to prospective investors on which the Computational Materials (or
amendments or supplements) were based, (ii) such indemnity with respect
to any Corrected Statement (as defined below) in such Prospectus (or
supplement thereto) shall not inure to the benefit of the Underwriter
(or any person controlling the Underwriter) from whom the person
asserting any loss, claim, damage or liability purchased the
Certificates of the related Series that are the subject thereof if such
person did not receive a copy of a supplement to such Prospectus at or
prior to the confirmation of the sale of such Certificates and the
untrue statement or omission of a material fact contained in such
Prospectus (or supplement thereto) was corrected (a "Corrected
Statement") in such other supplement and such supplement was furnished
by the Company to the Underwriter prior to the delivery of such
confirmation, and (iii) such indemnity with respect to any Mortgage Pool
Error shall not inure to the benefit of the Underwriter (or any person
20
<PAGE> 21
controlling the Underwriter) from whom the person asserting any loss,
claim, damage or liability received any Computational Materials (or any
written or electronic materials on which the Computational Materials are
based) or ABS Term Sheets that were prepared on the basis of such
Mortgage Pool Error, if, prior to the time of confirmation of the sale
of the applicable Certificates to such person, the Company notified the
Underwriter in writing of the Mortgage Pool Error or provided in written
or electronic form information superseding or correcting such Mortgage
Pool Error (in any such case, a "Corrected Mortgage Pool Error"), and
the Underwriter failed to notify such person thereof or to deliver to
such person corrected Computational Materials (or underlying written or
electronic materials) or ABS Term Sheets. This indemnity agreement will
be in addition to any liability which the Company may otherwise have.
(b) The Underwriter agrees to indemnify and hold harmless
the Company, each of its directors, each of its officers who signs the
Registration Statement relating to the Offered Certificates of the
applicable Series, and each person who controls the Company within the
meaning of the Act or the Exchange Act to the same extent as the
foregoing indemnities from the Company to the Underwriter, but only with
reference to (A) written information furnished to the Company by or on
behalf of the Underwriter specifically for use in the preparation of the
documents referred to in the foregoing indemnity with respect to the
related Series, or (B) any Computational Materials or ABS Term Sheets
(or amendments or supplements thereof) furnished to the Company by the
Underwriter pursuant to Section 8 or Section 9 and incorporated by
reference in such Registration Statement or the related Prospectus or
any amendment or supplement thereof (except that no such indemnity shall
be available for any losses, claims, damages or liabilities, or actions
in respect thereof, resulting from any Mortgage Pool Error, other than a
Corrected Mortgage Pool Error). This indemnity agreement will be in
addition to any liability which the Underwriter may otherwise have. The
Company acknowledges that the statements set forth in [ ] the related
Prospectus Supplement as such statements relate to such Offered
Certificates and [ ] under the heading "Method of Distribution" in such
Prospectus Supplement as such statements relate to such Offered
Certificates constitute the only information furnished in writing by or
on behalf of the Underwriter for inclusion in the related Prospectus
(other than any Computational Materials or ABS Term Sheets (or
amendments or supplements thereof) furnished to the Company by the
Underwriter), and the Underwriter confirms that such statements are
correct.
(c) Promptly after receipt by an indemnified party under
Section 7 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 7, notify the indemnifying party
in writing of the commencement thereof; but the omission so to notify
the indemnifying party will not relieve it from any liability which it
may have to any indemnified party otherwise than under this Section 7.
In case any such action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein, and
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to the extent that it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from
such indemnified party, to assume the defense thereof, with counsel
satisfactory to such indemnified party; provided, however, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties
shall have the right to select separate counsel to assert such legal
defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice from
the indemnifying party to such indemnified party of its election so to
assume the defense of such action and approval by the indemnified party
of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 7 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof unless (i) the indemnified party shall have employed
separate counsel in connection with the assertion of legal defenses in
accordance with the proviso to the next preceding sentence (it being
understood, however, that the indemnifying party shall not be liable for
the expenses of more than one separate counsel approved by the
indemnified party in the case of subparagraph (a) or (b), representing
the indemnified parties under subparagraph (a) or (b), who are parties
to such action), (ii) the indemnifying party shall not have employed
counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement
of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party; and except that, if clause (i) or (iii) is
applicable, such liability shall be only in respect of the counsel
referred to in such clause (i) or (iii).
(d) If the indemnification provided for in paragraph (a)
or (b) of this Section 7 is due in accordance with its terms but is for
any reason held by a court to be unavailable from the Company or the
Underwriter, on grounds of policy or otherwise, or if the indemnified
party failed to give notice under paragraph (c) of this Section 7 in
respect of a claim otherwise subject to indemnification in accordance
with paragraph (a) or (b) of this Section 7, the Company and the
Underwriter shall contribute to the aggregate losses, claims, damages
and liabilities (including legal and other expenses reasonably incurred
in connection with investigating or defending same) to which the Company
and the Underwriter may be subject in such proportion so that the
Underwriter is responsible for that portion represented by the
difference between the proceeds to the Company in respect of the Offered
Certificates appearing on the cover page of the Prospectus Supplement
for the related Series and the total proceeds received by the
Underwriter from the sale of such Offered Certificates (the
"Underwriting Discount"), and the Company is responsible for the
balance; provided, however, that in no case shall the Underwriter be
responsible for any amount in excess of such Underwriting Discount
applicable to the Offered Certificates purchased by the Underwriter
pursuant to this Agreement and the related Terms Agreement.
22
<PAGE> 23
Notwithstanding anything to the contrary in this Section 7(d), no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7, each person who
controls the Underwriter within the meaning of either the Act or the Exchange
Act shall have the same rights to contribution as the Underwriter, and each
person who controls the Company within the meaning of either the Act or the
Exchange Act, each officer of the Company who shall have signed the Registration
Statement and each director of the Company shall have the same rights to
contribution as the Company, subject in each case to the immediately preceding
sentence of this paragraph (d).
8. Computational Materials and Structural Term Sheets. (a) Not
later than 2:00 p.m., New York time, on the business day before the date on
which the Current Report relating to the Offered Certificates of a Series is
required to be filed by the Company with the Commission pursuant to Section 5(b)
hereof, the Underwriter shall deliver to the Company five complete copies of all
materials provided by the Underwriter to prospective investors in such Offered
Certificates that constitute (i) "Computational Materials" within the meaning of
the no-action letter dated May 20, 1994 issued by the Division of Corporation
Finance of the Commission to Kidder, Peabody Acceptance Corporation I, Kidder,
Peabody & Co. Incorporated, and Kidder Structured Asset Corporation and the
no-action letter dated May 27, 1994 issued by the Division of Corporation
Finance of the Commission to the Public Securities Association (together, the
"Kidder Letters"), the filing of which material is a condition of the relief
granted in such letter (such materials being the "Computational Materials"), and
(ii) "Structural Term Sheets" within the meaning of the no-action letter dated
February 17, 1995 issued by the Division of Corporation Finance of the
Commission to the Public Securities Association (the "PSA Letter"), the filing
of which material is a condition of the relief granted in such letter (such
materials being the "Structural Term Sheets"). Each delivery of Computational
Materials and Structural Term Sheets to the Company pursuant to this paragraph
(a) shall be effected by delivering four copies of such materials to counsel for
the Company on behalf of the Company at the address specified in Section 3
hereof and one copy of such materials to the Company.
(b) The Underwriter represents and warrants to and agrees
with the Company, as of the date of the related Terms Agreement and as
of the Closing Date, that:
(i.) the Computational Materials furnished to the
Company pursuant to Section 8(a) constitute (either in original,
aggregated or consolidated form) all of the materials furnished
to prospective investors by the Underwriter prior to the time of
delivery thereof to the Company that are required to be filed
with the Commission with respect to the related Offered
Certificates in accordance with the Kidder Letters, and such
Computational Materials comply with the requirements of the
Kidder Letters;
(ii.) the Structural Term Sheets furnished to the
Company pursuant to Section 8(a) constitute all of the materials
furnished to prospective
23
<PAGE> 24
investors by the Underwriter prior to the time of delivery
thereof to the Company that are required to be filed with the
Commission as "Structural Term Sheets" with respect to the
related Offered Certificates in accordance with the PSA Letter,
and such Structural Term Sheets comply with the requirements of
the PSA Letter; and
(ii.) on the date any such Computational Materials
or Structural Term Sheets with respect to such Offered
Certificates (or any written or electronic materials furnished to
prospective investors on which the Computational Materials are
based) were last furnished to each prospective investor and on
the date of delivery thereof to the Company pursuant to Section
8(a) and on the related Closing Date, such Computational
Materials (or such other materials) or Structural Term Sheets did
not and will not include any untrue statement of a material fact
or, when read in conjunction with the related Prospectus and
Prospectus Supplement, omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading.
Notwithstanding the foregoing, the Underwriter makes no representation or
warranty as to whether any Computational Materials or Structural Term Sheets (or
any written or electronic materials on which the Computational Materials are
based) included or will include any untrue statement resulting directly from any
Mortgage Pool Error (except any Corrected Mortgage Pool Error, with respect to
materials prepared after the receipt by the Underwriter from the Company of
notice of such Corrected Mortgage Pool Error or materials superseding or
correcting such Corrected Mortgage Pool Error).
(c) The Underwriter shall cause a firm of public
accountants to furnish to the Company a letter, dated as of the date on
which the Underwriter delivers any Computational Materials (which term
shall be deemed to include, for purposes of this paragraph (c),
calculated statistical information delivered to prospective investors in
the form of a Structural Term Sheet) to the Company pursuant to Section
8(a), in form and substance satisfactory to the Company, stating in
effect that they have verified the mathematical accuracy of any
calculations performed by the Underwriter and set forth in such
Computational Materials.
(d) The Underwriter acknowledges and agrees that any
Computational Materials or Structural Term Sheets with respect to any
Series of Certificates furnished to prospective investors from and after
______, 1998 have been prepared and disseminated by the Underwriter and
not by or on behalf of the Company, and that such materials included and
shall include a disclaimer in form satisfactory to the Company to the
effect that such materials have been prepared and disseminated by the
Underwriter, and that the content and accuracy of such materials have
not been reviewed by the Company.
(e) If, at any time when a prospectus relating to the
Offered Certificates of a Series is required to be delivered under the
Act, it shall be necessary to
24
<PAGE> 25
amend or supplement the related Prospectus as a result of an untrue
statement of a material fact contained in any Computational Materials or
Structural Term Sheets provided by the Underwriter pursuant to this
Section 8 or the omission to state therein a material fact required,
when considered in conjunction with the related Prospectus and
Prospectus Supplement, to be stated therein or necessary to make the
statements therein, when read in conjunction with the related Prospectus
and Prospectus Supplement, not misleading, or if it shall be necessary
to amend or supplement any Current Report relating to any Computational
Materials or Structural Term Sheets to comply with the Act or the rules
thereunder, the Underwriter promptly will prepare and furnish to the
Company for filing with the Commission an amendment or supplement which
will correct such statement or omission or an amendment which will
effect such compliance. The Underwriter represents and warrants to the
Company, as of the date of delivery of such amendment or supplement to
the Company, that such amendment or supplement will not include any
untrue statement of a material fact or, when read in conjunction with
the related Prospectus and Prospectus Supplement, omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that the
Underwriter makes no representation or warranty as to whether any such
amendment or supplement will include any untrue statement resulting
directly from any Mortgage Pool Error (except any Corrected Mortgage
Pool Error, with respect to any such amendment or supplement prepared
after the receipt by the Underwriter from the Company of notice of such
Corrected Mortgage Pool Error or materials superseding or correcting
such Corrected Mortgage Pool Error).
9. Collateral Term Sheets. (a) Prior to the delivery of any
"Collateral Term Sheet" within the meaning of the PSA Letter, the filing of
which material is a condition of the relief granted in such letter (such
material being the "Collateral Term Sheets"), to a prospective investor in any
Offered Certificates, the Underwriter shall, in order to facilitate the timely
filing of such material with the Commission, notify the Company and its counsel
by telephone of its intention to deliver such materials and the approximate date
on which the first such delivery of such materials is expected to occur. Not
later than 2:00 p.m., New York time, on the business day immediately following
the date on which any Collateral Term Sheet was first delivered to a prospective
investor in such Offered Certificates, the Underwriter shall deliver to the
Company five complete copies of all materials provided by the Underwriter to
prospective investors in the Offered Certificates that constitute "Collateral
Term Sheets." Each delivery of a Collateral Term Sheet to the Company pursuant
to this paragraph (a) shall be effected by delivering four copies of such
materials to counsel for the Company on behalf of the Company at the address
specified in Section 3 hereof and one copy of such materials to the Company.
(Collateral Term Sheets and Structural Term Sheets are, together, referred to
herein as "ABS Term Sheets.") At the time of each such delivery, the Underwriter
shall indicate in writing that the materials being delivered constitute
Collateral Term Sheets, and, if there has been any prior such delivery with
respect to the related Series, shall indicate whether such materials differ in
any material respect from any Collateral Term Sheets previously delivered to the
Company with respect to such Series pursuant to this Section 9(a) as a result of
the occurrence of a material change in the characteristics of the related
Mortgage Loans.
25
<PAGE> 26
(b) The Underwriter represents and warrants to and agrees
with the Company as of the date of the related Terms Agreement and as of
the Closing Date, that:
(i.) The Collateral Term Sheets furnished to the
Company pursuant to Section 9(a) constitute all of the materials
furnished to prospective investors by the Underwriter prior to
time of delivery thereof to the Company that are required to be
filed with the Commission as "Collateral Term Sheets" with
respect to the related Offered Certificates in accordance with
the PSA Letter, and such Collateral Term Sheets comply with the
requirements of the PSA Letter; and
(ii.) On the date any such Collateral Term Sheets
with respect to such Offered Certificates were last furnished to
each prospective investor and on the date of delivery thereof to
the Company pursuant to Section 9(a) and on the related Closing
Date, such Collateral Term Sheets did not and will not include
any untrue statement of a material fact or, when read in
conjunction with the Prospectus and Prospectus Supplement, omit
to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
Notwithstanding the foregoing, the Underwriter makes no representation or
warranty as to whether any Collateral Term Sheet included or will include any
untrue statement or material omission resulting directly from any Mortgage Pool
Error (except any Corrected Mortgage Pool Error, with respect to materials
prepared after the receipt by the Underwriter from the Company of notice of such
Corrected Mortgage Pool Error or materials superseding or correcting such
Corrected Mortgage Pool Error).
(c) The Underwriter acknowledges and agrees that any
Collateral Term Sheets with respect to any Series of Certificates
furnished to prospective investors from and after the date hereof shall
include a disclaimer in form satisfactory to the Company, and to the
effect that the information contained in such materials supersedes the
information contained in any prior Collateral Term Sheet with respect to
such Series of Offered Certificates and will be superseded by the
description of the related Mortgage Loans in the related Prospectus
Supplement and in the Detailed Description relating to such Prospectus
Supplement to be filed under cover of Form 8-K. The Underwriter agrees
that it will not represent to prospective investors that any Collateral
Term Sheets were prepared or disseminated on behalf of the Company.
(d) If, at any time when a prospectus relating to the
Offered Certificates of a Series is required to be delivered under the
Act, it shall be necessary to amend or supplement the related Prospectus
as a result of an untrue statement of a material fact contained in any
Collateral Term Sheets provided by the Underwriter pursuant to this
Section 9 or the omission to state therein a material fact required,
when considered in conjunction with the related Prospectus and
Prospectus Supplement, to be stated therein or necessary to make the
statements therein, when read in conjunction with the related Prospectus
and Prospectus Supplement, not misleading, or if it shall be
26
<PAGE> 27
necessary to amend or supplement any Current Report relating to any
Collateral Term Sheets to comply with the Act or the rules thereunder,
the Underwriter promptly will prepare and furnish to the Company for
filing with the Commission an amendment or supplement which will correct
such statement or omission or an amendment which will effect such
compliance. The Underwriter represents and warrants to the Company, as
of the date of delivery of such amendment or supplement to the Company,
that such amendment or supplement will not include any untrue statement
of a material fact or, when read in conjunction with the related
Prospectus and Prospectus Supplement, omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; provided, however, the Underwriter makes no
representation or warranty as to whether any such amendment or
supplement will include any untrue statement resulting directly from any
Mortgage Pool Error (except any Corrected Mortgage Pool Error, with
respect to any such amendment or supplement prepared after the receipt
by the Underwriter from the Company of notice of such Corrected Mortgage
Pool Error or materials superseding or correcting such Corrected
Mortgage Pool Error).
10. Default of Underwriters. If any Underwriter or Underwriters
participating in an offering of Certificates default in their obligations to
purchase Certificates hereunder and under the Terms Agreement and the aggregate
principal amount of such Certificates which such defaulting Underwriter or
Underwriters agreed, but failed, to purchase does not exceed 10% of the total
principal amount of the Certificates set forth in such Terms Agreement, you may
make arrangements satisfactory to the Depositor for the purchase of such
Certificates by other persons, including any of the Underwriters participating
in such offering, but if no such arrangements are made within a period agreed to
by you and the Company after the applicable Closing Date, the non-defaulting
Underwriters shall be obligated severally, in proportion to their respective
total commitments hereunder and under such Terms Agreement, to purchase the
Certificate which such defaulting Underwriters agreed but failed to purchase. If
any Underwriter or Underwriters so default and the aggregate principal amount of
Certificates with respect to which such default or defaults occur is more than
10% of the total principal amount of the Certificates set forth in such Terms
Agreement and arrangements satisfactory to you and the Depositor for the
purchase of such Certificates by other persons are not made within such period
agreed to by you and the Company after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or the
Company, except as provided in Section 11. As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section. Nothing herein will relieve a defaulting Underwriter from liability for
its default.
11. Termination. You, [as Representative of the Underwriters
named in any Terms Agreement,] may also terminate such Terms Agreement,
immediately upon notice to the Company, at any time at or prior to the
applicable Closing Date, (i) if there has been, since the date of such Terms
Agreement or since the respective dates as of which information is given in the
Registration Statement or Prospectus, any change or any development involving a
prospective change, in or affecting the condition, financial or otherwise,
earnings, affairs or business of the Company or the Certificate Trust Fund,
whether or not arising in the ordinary course of business, which in your
judgment would materially impair the market for, or the
27
<PAGE> 28
investment quality of, the Certificates, or (ii) if there has occurred any
outbreak of hostilities or other calamity or crisis the effect of which on the
financial markets of the United States is such as to make it, in your judgment,
impracticable to market the Certificates or enforce contracts for the sale of
the Certificates, or (iii) if trading generally on either the New York Stock
Exchange or the American Stock Exchange has been suspended, or minimum or
maximum prices for trading have been fixed, or maximum ranges for prices for
securities have been required, by either of said exchanges or by order of the
Commission or any other governmental authority, or if a banking moratorium has
been declared by either federal, New York or California authorities.
12. Representations and Indemnities to Survive Delivery. The
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the Underwriter set forth in or made pursuant to
this Agreement and the related Terms Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of the Underwriter
or the Company or any of the officers, directors or controlling persons referred
to in Section 7 hereof, and will survive delivery of and payment for the related
Offered Certificates. The provisions of Section 7 hereof shall survive the
termination or cancellation of this Agreement and the related Terms Agreement.
13. Successors. This Agreement and the related Terms Agreement
will inure to the benefit of and be binding upon the parties hereto and thereto
and their respective successors and the officers, directors and controlling
persons referred to in Section 7 hereof, and their successors and assigns, and
no other person will have any right or obligation hereunder or thereunder. No
purchaser of any Offered Certificate from the Underwriter shall be deemed a
successor or assign by reason of such purchase.
14. APPLICABLE LAW. THIS AGREEMENT AND THE RELATED TERMS
AGREEMENT WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED THEREIN.
15. Miscellaneous. This Agreement, as supplemented by the related
Terms Agreement, supersedes all prior and contemporaneous agreements and
understandings relating to the subject matter hereof. This Agreement and the
related Terms Agreement or any term of each may not be changed, waived,
discharged or terminated except by an affirmative written agreement made by the
party against whom enforcement of the change, waiver, discharge or termination
is sought. The headings in this Agreement and the related Terms Agreement are
for purposes of reference only and shall not limit or otherwise affect the
meaning hereof or thereof.
16. Notices. All communications hereunder will be in writing and
effective only on receipt, and, if sent to the Underwriter, will be delivered to
it at the address first above written; or if sent to the Company, will be
delivered to American Residential Eagle, Inc., 445 Marine View Avenue, Suite
100, Del Mar, California 92014, Attention: _______________.
28
<PAGE> 29
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the undersigned a counterpart hereof,
whereupon this letter and your acceptance shall represent a binding agreement
between the Company and the Underwriter.
Very truly yours,
AMERICAN RESIDENTIAL EAGLE, INC.
By:
---------------------------------
Name:
Title:
The foregoing Agreement is
hereby confirmed and accepted
as of the date first
above written.
[UNDERWRITER]
[acting on behalf of itself and, if applicable, as the Representative of the
several Underwriters named in the Terms Agreement].
By:
-----------------------------
Name:
Title:
29
<PAGE> 30
EXHIBIT A
AMERICAN RESIDENTIAL EAGLE, INC.
MORTGAGE-BACKED CERTIFICATES
SERIES ____-__
TERMS AGREEMENT
(to Standard Terms Underwriting Agreement,
dated __, 199_
between the Company and the Underwriter)
American Residential Eagle, Inc. New York, New York
445 Marine View Avenue [Date]
Suite 100
Del Mar, California 92014
[Address]
[UNDERWRITER] (the "Underwriter") agrees, subject to the terms
and provisions herein and of the captioned Underwriting Agreement (the
"Underwriting Agreement"), to purchase such Classes of Series ____-__
Certificates specified in Section 2(a) hereof (the "Offered Certificates"). This
letter supplements and modifies the Underwriting Agreement solely as it relates
to the purchase and sale of the Offered Certificates described below. The Series
____-__ Certificates are registered with the Securities and Exchange Commission
by means of an effective Registration Statement (No. 333-47311). Capitalized
terms used and not defined herein have the meanings given them in the
Underwriting Agreement.
Section 1. The Mortgage Pool: The Series ____-__ Certificates
shall evidence the entire beneficial ownership interest in a Collateralized
Mortgage Bond (the "Underlying Bond") secured by a mortgage pool (the "Mortgage
Pool") of conventional, [fixed rate], [adjustable rate] fully amortizing one- to
four-family residential mortgage loans (the "Mortgage Loans") having the
following characteristics as of ________ __, ____ (the "Cut-off Date"):
(a) Terms of the Underlying Bond: [ ].
(b) Aggregate Principal Amount of the Mortgage Pool: $[ ]
aggregate principal balance as of the Cut-off Date, subject to [an
upward or downward variance of up to [ ]%, the precise aggregate
principal balance to be determined by the Company][a permitted variance
such that the aggregate Scheduled Principal Balance thereof will be not
less than $[ ] or greater than $[ ]].
30
<PAGE> 31
(c) Original Terms to Maturity: The original term to maturity of
each Mortgage Loan included in the Mortgage Pool shall be between ___
and ___ years.
Section 2. The Certificates: The Offered Certificates shall be
issued as follows:
(a) Classes: The Offered Certificates shall be issued with the
following Class designations, interest rates and principal
balances, subject in the aggregate to the variance referred to in
Section 1(a)[and, as to any particular Class, to an upward or
downward variance of up to [ ]%]:
<TABLE>
<CAPTION>
Principal Interest Class Purchase
Class Balance Rate Price Percentage
- ----- ------- ---- ----------------
<S> <C> <C> <C>
</TABLE>
(b) The Offered Certificates shall have such other
characteristics as described in the related Prospectus.
Section 3. Terms of Sale of Offered Certificates: The Depositor
agrees to sell to [______________________________ (the "Underwriter[s]")] and
[and ___________________ each] agree[s][, severally and not jointly,] to
purchase from the Depositor the Offered Certificates in the principal amounts
and prices set forth beneath their [respective] name[s] on Schedule 1. The
purchase price for each class of the Offered Certificates shall be the
applicable Purchase Price Percentage set forth in Schedule 1 plus accrued
interest at the applicable initial interest rate per annum from and including
the Cut-off Date up to, but not including, the Closing Date.
[The Underwriter[s] will offer the Offered Certificates to the
public from time to time in negotiated transactions or otherwise at varying
prices to be determined at the time of sale.]
Section 4. Required Ratings: The Offered Certificates shall have
received Required Ratings of at least [ ] from [ ].
Section 5. Tax Treatment:[One or more elections will be made to
treat the assets of the Trust Fund as a FASIT.] [The Trust Fund will be treated
as a "grantor trust" for federal income tax purposes.]
31
<PAGE> 32
Section 6. Closing Date: 10:00 a.m., New York time, on or about ,
19__. On the Closing Date, the Company will deliver the Offered Certificates to
the Underwriter against payment therefor.
[Section 7. Additional Expenses:]*
- --------
* to be inserted if applicable.
32
<PAGE> 33
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the undersigned a counterpart hereof,
whereupon this letter and your acceptance shall represent a binding agreement
between the Underwriter and the Company.
Very truly yours,
[UNDERWRITER]
By:
------------------------------------------
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the date first
above written.
AMERICAN RESIDENTIAL EAGLE, INC.
By:
------------------------------------
Name:
Title:
33
<PAGE> 34
Schedule 1
<TABLE>
<CAPTION>
Approximate
Approximate Approximate Amount
Initial Amount Purchased by
Certificate Purchase Purchased by [_________]
Certificate Principal Price Lehman [_______]
Class Rate Amount(1) Percentage Brothers [ ]
----- ---- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Class $ % $ $
Class $ % $ $
Class $ % $ $
Class $ % $ $
Class $ % $ $
= =========== % = =
Total/ $ % $ $
Wtd Avg
</TABLE>
34
<PAGE> 1
EXHIBIT 4.1
AMERICAN RESIDENTIAL EAGLE BOND TRUST [199__-__],
Issuer
and
---------------------------------,
Trustee
INDENTURE
Dated as of _____________ __, 199__
Relating to
AMERICAN RESIDENTIAL EAGLE BOND TRUST [199__-__]
COLLATERALIZED MORTGAGE BONDS
<PAGE> 2
Cross-reference sheet showing the location in the indenture of the
provisions inserted pursuant to Sections 310 through 318(a) inclusive of the
Trust Indenture Act of 1939.
<TABLE>
<CAPTION>
TIA INDENTURE SECTION
- -------------- -----------------
<S> <C>
Section 310
(a)(1)....................................... 6.08
(a)(2)....................................... 6.09
(a)(3)....................................... 6.14(2)
(a)(4)....................................... Not Applicable
(a)(5)....................................... 6.08
(b).......................................... 6.08
.......................................... 6.10
.......................................... 11.05
(c).......................................... Not Applicable
Section 311
(a).......................................... 6.13
(b).......................................... 6.13
Section 312
(a).......................................... 7.01(a)
.......................................... 7.02(a)
(b).......................................... 7.02(b)
(c).......................................... 7.02(c)
Section 313
(a).......................................... 7.03(a)
(b).......................................... 7.03(a)
(c).......................................... 7.03(a)
.......................................... 11.05
(d).......................................... 7.03(b)
Section 314
(a).......................................... 7.04
.......................................... 11.05
.......................................... 3.10
(b)(1)....................................... 2.12(c)(viii)
(b)(2)....................................... 3.06
(c)(1)....................................... 2.12(d)
.......................................... 4.01
.......................................... 11.01
(c)(2)....................................... 2.12(c)(ii)
.......................................... 4.01
.......................................... 11.01
(c)(3)....................................... 1.01
.......................................... 2.12(f)
(d)(1)....................................... 1.01
.......................................... 8.12
(d)(2)....................................... 1.01
.......................................... Not Applicable
(d)(3)....................................... 1.01
.......................................... 2.12(f)
(e).......................................... 11.01
Section 315
(a).......................................... 6.01(b)
.......................................... 6.01(c)(1)
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
TIA INDENTURE SECTION
- -------------- -----------------
<S> <C>
(b).......................................... 6.02
.......................................... 11.05
(c).......................................... 6.01(a)
(d).......................................... 6.01(c)
(d)(1)....................................... 6.01(b)
(d)(2)....................................... 6.01(c)(2)
(d)(3)....................................... 6.01(c)(3)
(e).......................................... 5.16
Section 316
(a)(1)(A).................................... 5.14
.......................................... 8.01
(a)(1)(B).................................... 5.02
.......................................... 5.15
(a)(2)....................................... Not Applicable
(b).......................................... 5.10
(c).......................................... Not Applicable
Section 317
(a)(1)....................................... 5.03
(a)(2)....................................... 5.06
(b).......................................... 3.03
Section 318
(a).......................................... 11.07
</TABLE>
ii
<PAGE> 4
TABLE OF CONTENTS
PARTIES
PRELIMINARY STATEMENT
GRANTING CLAUSE
ARTICLE I
DEFINITIONS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1.01. General Definitions......................................
"Accountant"...............................................................
"Accrual Date".............................................................
"Act"......................................................................
"Adjusted Net Mortgage Rate"...............................................
"Adjustment Date"..........................................................
"Advance"..................................................................
"Affiliate"................................................................
"Agent"....................................................................
"Appraised Value"..........................................................
"Assignments"..............................................................
"Authenticating Agent".....................................................
"Authorized Officer".......................................................
"Available Funds"..........................................................
"Bank".....................................................................
"Bankruptcy Code"..........................................................
"Beneficial Owner".........................................................
"Bond Account".............................................................
"Bond Distribution Amount".................................................
"Bond Payment Amount"......................................................
"Bondholder" or "Holder"...................................................
"Bond Insurance Policy"....................................................
"Bond Insurer".............................................................
"Bond Interest Rate".......................................................
"Bond Register" and "Bond Registrar".......................................
"Bonds"....................................................................
"Book Entry Bonds".........................................................
"Business Day".............................................................
"Certificate Interest Rate"................................................
"Class"....................................................................
"Class B-1 Interest Carryover Shortfall"...................................
"Class B-1 Interest Payment Amount"........................................
"Class B-1 Percentage".....................................................
"Class B-1 Principal Amount"...............................................
"Class B-1 Principal Carryover Shortfall"..................................
"Class B-1 Principal Payment Amount".......................................
"Class B-2 Bond Interest Rate".............................................
"Class B-2 Interest Carryover Shortfall"...................................
"Class B-2 Interest Payment Amount"........................................
"Class B-2 Percentage".....................................................
"Class B-2 Principal Amount"...............................................
"Class B-2 Principal Carryover Shortfall"..................................
"Class B-2 Principal Payment Amount".......................................
</TABLE>
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
"Class Interest Shortfall".................................................
"Class Principal Amount"...................................................
"Closing Date".............................................................
"Code".....................................................................
"Combined Prepayment Percentage"...........................................
"Commission"...............................................................
"Controlling Class"........................................................
"Cooperative Loan".........................................................
"Cooperative Shares".......................................................
"Corporate Trust Office"...................................................
"Cut-Off Date".............................................................
"Debt Service Reduction"...................................................
"Default"..................................................................
"Defaulted Mortgage Loan"..................................................
"Deficient Valuation"......................................................
"Definitive Bonds".........................................................
"Deleted Mortgage Loan"....................................................
"Denomination".............................................................
"Depositor"................................................................
"Depository"...............................................................
"Depository Participants"..................................................
"Deposit Trust Agreement"..................................................
"Determination Date".......................................................
"Distribution Account".....................................................
"Distribution Account Deposit Date"........................................
"Distribution Date"........................................................
"Distribution Date Statement"..............................................
"Due Date".................................................................
"Duff & Phelps"............................................................
"Eligible Account".........................................................
"Escrow Account"...........................................................
"Event of Default".........................................................
"Expense Rate".............................................................
"FDIC".....................................................................
"FHLMC"....................................................................
"FIRREA"...................................................................
"Fitch"....................................................................
"FNMA".....................................................................
"Grant"....................................................................
"Highest Lawful Rate"......................................................
"Holder"...................................................................
"Indenture" or "this Indenture"............................................
"Independent"..............................................................
"Index"....................................................................
"Indirect Participant".....................................................
"Individual Bond"..........................................................
"Insurance Policy".........................................................
"Insurance Proceeds".......................................................
"Insured Expenses".........................................................
"Interest Accrual Period"..................................................
"Interest Conversion Date".................................................
"Interest Payment Amount"..................................................
"Invested Amount"..........................................................
"Investor Certificate".....................................................
"Investor Percentage"......................................................
"Investor Prepayment Percentage"...........................................
</TABLE>
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
"Issuer"...................................................................
"Issuer Order" and "Issuer Request"........................................
"Letter Agreement".........................................................
"Liquidated Mortgage Loan".................................................
"Liquidation Proceeds".....................................................
"Loan-to-Value Ratio"......................................................
"Margin"...................................................................
"Master Servicer"..........................................................
"Master Servicing Agreement"...............................................
"Master Servicing Fee".....................................................
"Master Servicing Fee Rate"................................................
"Maturity".................................................................
"Maximum Rate".............................................................
"Moody's"..................................................................
"Mortgage".................................................................
"Mortgage Documents".......................................................
"Mortgage Loan Schedule"...................................................
"Mortgage Loans"...........................................................
"Mortgage Note"............................................................
"Mortgage Rate"............................................................
"Mortgaged Property".......................................................
"Mortgagor"................................................................
"Net Mortgage Rate"........................................................
"Net Interest Shortfalls"..................................................
"Nonrecoverable Advance"...................................................
"Officers' Certificate"....................................................
"Officer's Certificate of the Master Servicer".............................
"Operative Agreements".....................................................
"Opinion of Counsel".......................................................
"Optional Redemption Date".................................................
"Optional Redemption Record Date"..........................................
"Original Class B-1 Principal Amount"......................................
"Original Class B-2 Principal Amount"......................................
"Original Invested Amount".................................................
"Original Mortgage Loans"..................................................
"Original Senior Class Principal Amount"...................................
"Original Subordination Amount"............................................
"OTS"......................................................................
"Outstanding"..............................................................
"Outstanding Mortgage Loan"................................................
"Owner"....................................................................
"Owner Trustee"............................................................
"Paying Agent".............................................................
"Periodic Rate Cap"........................................................
"Permitted Encumbrance"....................................................
"Permitted Investments"....................................................
"Person"...................................................................
"Pledged Accounts".........................................................
"Pool Stated Principal Balance"............................................
"Predecessor Bonds"........................................................
"Prepayment Interest Shortfall"............................................
"Prepayment Period"........................................................
"Primary Mortgage Insurance Policy"........................................
"Principal Prepayment".....................................................
"Principal Prepayment in Full".............................................
"Proceeding"...............................................................
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C>
"Proprietary Lease"........................................................
"Prospectus Supplement"....................................................
"Purchase Price"...........................................................
"Rating Agency"............................................................
"Realized Loss"............................................................
"Record Date"..............................................................
"Redemption Date"..........................................................
"Redemption Price".........................................................
"Refinancing Mortgage Loan"................................................
"Relief Act"...............................................................
"Relief Act Reductions"....................................................
"REO Property".............................................................
"Replacement Mortgage Loan"................................................
"Request for Release"......................................................
"Responsible Officer"......................................................
"S&P"......................................................................
"SAIF".....................................................................
"Sale".....................................................................
"Scheduled Payment"........................................................
"Securities Act"...........................................................
"Seller/Servicer Guide"....................................................
"Senior Bond Interest Rate"................................................
"Senior Bonds".............................................................
"Senior Class Principal Amount"............................................
"Senior Interest Payment Amount"...........................................
"Senior Interest Shortfall"................................................
"Senior Percentage"........................................................
"Senior Principal Payment Amount"..........................................
"Servicer".................................................................
"Servicer Advance".........................................................
"Servicing Advances".......................................................
"Servicing Agreement"......................................................
"Servicing Default"........................................................
"Servicing Fee"............................................................
"Servicing Fee Rate".......................................................
"Servicing Officer"........................................................
"Stated Maturity"..........................................................
"Stated Principal Balance".................................................
"Subordinated Bond Interest Rate"..........................................
"Subordinated Bonds".......................................................
"Substitution Adjustment Amount"...........................................
"Successor Master Servicer"................................................
"Trust Estate".............................................................
"Trust Indenture Act" or "TIA".............................................
"Trustee"..................................................................
"Trustee Fee"..............................................................
"Trustee Fee Rate".........................................................
"Trustee Mortgage File"....................................................
"Withdrawal Date"..........................................................
</TABLE>
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<PAGE> 8
ARTICLE II
THE BONDS
<TABLE>
<CAPTION>
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<S> <C>
SECTION 2.01. Forms Generally...............................................
SECTION 2.02. Forms of Bonds and Certificate of Authentication..............
SECTION 2.03. Bonds Issuable in Classes; Provisions with Respect to
Principal and Interest Payments...............................
SECTION 2.04. Denominations.................................................
SECTION 2.05. Execution, Authentication, Delivery and Dating................
SECTION 2.06. Temporary Bonds...............................................
SECTION 2.07. Registration, Registration of Transfer and Exchange...........
SECTION 2.08. Mutilated, Destroyed, Lost or Stolen Bonds....................
SECTION 2.09. Payments of Principal and Interest............................
SECTION 2.10. Persons Deemed Owners.........................................
SECTION 2.11. Cancellation..................................................
SECTION 2.12. Authentication and Delivery of Bonds..........................
SECTION 2.13. Matters Relating to Book Entry Bonds..........................
SECTION 2.14. Termination of Book Entry System..............................
SECTION 2.15. Additional Bonds..............................................
SECTION 3.01. Payment of Bonds..............................................
SECTION 3.02. Maintenance of Office or Agency...............................
SECTION 3.03. Money for Bond Payments to Be Held in Trust...................
SECTION 3.04. Corporate Existence of Owner Trustee..........................
SECTION 3.05. Protection of Trust Estate....................................
SECTION 3.06. Opinions as to Trust Estate...................................
SECTION 3.07. Performance of Obligations; Master Servicing Agreement........
SECTION 3.08. Investment Company Act........................................
SECTION 3.09. Negative Covenants............................................
SECTION 3.10. Annual Statement as to Compliance.............................
SECTION 3.11. Recording of Assignments......................................
SECTION 3.12. Limitation of Liability of ...................................
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.01. Satisfaction and Discharge of Indenture.......................
SECTION 4.02. Application of Trust Money....................................
ARTICLE V
DEFAULTS AND REMEDIES
SECTION 5.01. Event of Default..............................................
SECTION 5.02. Acceleration of Maturity; Rescission and Annulment............
SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by
Trustee.......................................................
SECTION 5.04. Remedies......................................................
SECTION 5.05. [Reserved]....................................................
SECTION 5.06. Trustee May File Proofs of Claim..............................
SECTION 5.07. Trustee May Enforce Claims without Possession of Bonds........
</TABLE>
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<TABLE>
<CAPTION>
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SECTION 5.08. Application of Money Collected................................
SECTION 5.09. Limitation on Suits...........................................
SECTION 5.10. Unconditional Rights of Bondholders to Receive Principal and
Interest......................................................
SECTION 5.11. Restoration of Rights and Remedies............................
SECTION 5.12. Rights and Remedies Cumulative................................
SECTION 5.13. Delay or Omission Not Waiver..................................
SECTION 5.14. Control by Bondholders........................................
SECTION 5.15. Waiver of Past Defaults.......................................
SECTION 5.16. Undertaking for Costs.........................................
SECTION 5.17. Waiver of Stay or Extension Laws..............................
SECTION 5.18. Sale of Trust Estate..........................................
SECTION 5.19. Action on Bonds...............................................
ARTICLE VI
THE TRUSTEE
SECTION 6.01. Duties of Trustee.............................................
SECTION 6.02. Notice of Default.............................................
SECTION 6.03. Rights of Trustee.............................................
SECTION 6.04. Not Responsible for Recitals or Issuance of Bonds.............
SECTION 6.05. May Hold Bonds................................................
SECTION 6.06. Money Held in Trust...........................................
SECTION 6.07. Compensation and Reimbursement................................
SECTION 6.08. Eligibility; Disqualification.................................
SECTION 6.09. Trustee's Capital and Surplus.................................
SECTION 6.10. Resignation and Removal; Appointment of Successor.............
SECTION 6.11. Acceptance of Appointment by Successor........................
SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business
of Trustee....................................................
SECTION 6.13. Preferential Collection of Claim Against Issuer...............
SECTION 6.14. Co-trustees and Separate Trustees.............................
SECTION 6.15. Authenticating Agents.........................................
SECTION 6.16. Review of Mortgage Documents..................................
SECTION 6.17. Payment of Certain Insurance Premiums.........................
SECTION 6.18. Substitution of Insurance Policies, Etc.; Notification of
Rating Agencies...............................................
ARTICLE VII
BONDHOLDERS' LISTS AND REPORTS
SECTION 7.01. Issuer to Furnish Trustee Names and Addresses of Bondholders..
SECTION 7.02. Preservation of Information; Communications to Bondholders....
SECTION 7.03. Reports by Trustee............................................
SECTION 7.04. Reports by Issuer.............................................
SECTION 7.05. Notice to the Rating Agencies [and to Bond Insurer.]..........
ARTICLE VIII
ACCOUNTS, PAYMENTS OF INTEREST AND PRINCIPAL, AND RELEASES
SECTION 8.01. Collection of Moneys..........................................
SECTION 8.02. Distribution Account..........................................
SECTION 8.03. General Provisions Regarding Pledged Accounts.................
SECTION 8.04. Purchases of Defective Pledged Mortgages....................
SECTION 8.05. Grant of Replacement Mortgage Loan............................
SECTION 8.06. Reports by Trustee to Bondholders.............................
</TABLE>
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SECTION 8.07. Reports by Trustee............................................
SECTION 8.08. Trust Estate; Release and Delivery of Mortgage Documents......
SECTION 8.09. Amendments to the Master Servicing Agreement..................
SECTION 8.10. Servicers and Master Servicer as Agents and Bailees of Trustee
SECTION 8.11. Opinion of Counsel............................................
SECTION 8.12. Release of Mortgage Loans.....................................
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.01. Supplemental Indentures Without Consent of Bondholders........
SECTION 9.02. Supplemental Indentures With Consent of Bondholders...........
SECTION 9.03. Execution of Supplemental Indentures..........................
SECTION 9.04. Effect of Supplemental Indentures.............................
SECTION 9.05. Conformity with Trust Indenture Act...........................
SECTION 9.06. Reference in Bonds to Supplemental Indentures.................
SECTION 9.07. Amendments to Deposit Trust Agreement or Master Servicing
Agreement.....................................................
ARTICLE X
REDEMPTION OF BONDS
SECTION 10.01. Special Redemption; Optional Redemption.......................
SECTION 10.02. Form of Redemption Notice.....................................
SECTION 10.03. Bonds Payable on Optional Redemption Date.....................
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Compliance Certificates and Opinions..........................
SECTION 11.02. Form of Documents Delivered to Trustee........................
SECTION 11.03. Acts of Bondholders...........................................
SECTION 11.04. Notices, etc. to Trustee and Issuer...........................
SECTION 11.05. Notices and Reports to Bondholders; Waiver of Notices.........
SECTION 11.06. Rules by Trustee and Agents...................................
SECTION 11.07. Conflict with Trust Indenture Act.............................
SECTION 11.08. Effect of Headings and Table of Contents......................
SECTION 11.09. Successors and Assigns........................................
SECTION 11.10. Separability..................................................
SECTION 11.11. Benefits of Indenture.........................................
SECTION 11.12. Legal Holidays................................................
SECTION 11.13. Governing Law.................................................
SECTION 11.14. Counterparts..................................................
SECTION 11.15. Recording of Indenture........................................
SECTION 11.16. Issuer Obligation.............................................
SECTION 11.17. Inspection....................................................
SECTION 11.18. Usury.........................................................
SECTION 11.19. No Petition...................................................
</TABLE>
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ARTICLE XII
THE BOND INSURER
SECTION 12.01. Certain Matters Regarding the Bond Insurer and The Bond
Insurance Policy
TESTIMONIUM...................................................................
SIGNATURES AND SEALS..........................................................
ACKNOWLEDGMENTS...............................................................
SCHEDULE A - Schedule of Mortgage Loans.......................................
EXHIBIT I - Letter Agreement with the Depository..............................
EXHIBIT II - Form of Senior Bond..............................................
EXHIBIT III - Form of Class B-1 Bond..........................................
EXHIBIT IV - Form of Class B-2 Bond...........................................
EXHIBIT V - Form of Bond Insurance Policy.....................................
</TABLE>
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<PAGE> 12
PARTIES
INDENTURE, dated as of ___________ ___, 199__ (as amended or
supplemented from time to time as permitted hereby, the "Indenture"), between
American Residential Eagle Bond Trust [199__-__] (herein, together with its
permitted successors and assigns, called the "Issuer"), a statutory business
trust created under the Deposit Trust Agreement (as defined herein), and
_____________________________, a _____________ corporation, as trustee (together
with its permitted successors in the trusts hereunder, the "Trustee").
PRELIMINARY STATEMENT
The Issuer has duly authorized the execution and delivery of this
Indenture to provide for its Collateralized Mortgage Bonds, (the "Bonds"),
issuable as provided in this Indenture. All covenants and agreements made by the
Issuer herein are for the benefit and security of the Holders of the Bonds. The
Issuer is entering into this Indenture, and the Trustee is accepting the trusts
created hereby, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged.
All things necessary to make this Indenture a valid agreement of the
Issuer in accordance with its terms have been done.
GRANTING CLAUSE
The Issuer hereby Grants to the Trustee, for the benefit of the Holders
of the Bonds [and the Bond Insurer], [and to _____________________ acting as
trustee (the "Certificate Trustee") for the holders of American Residential
Eagle Certificate Trust [199__-__], Mortgage -Backed Certificates, Series
199__-__, for the benefit of the holders of such Certificates, for so long as
all of the Bonds are held by the Certificate Trustee] all of the Issuer's right,
title and interest in and to (a) the Mortgage Loans identified in Schedule A to
this Indenture, including the related Mortgage Documents, which the Issuer has
caused to be delivered to the Trustee herewith, and all interest and principal
received or receivable by the Issuer on or with respect to the Mortgage Loans
after the Cut-Off Date and all interest and principal payments on the Mortgage
Loans received prior to the Cut-off Date in respect of installments of interest
and principal due thereafter, but not including payments of interest and
principal due and payable on the Mortgage Loans on or before the Cut-off Date,
and all other proceeds received in respect of such Mortgage Loans, (b) the
Issuer's rights under the Master Servicing Agreement, (c) the Insurance
Policies, (d) all cash, instruments or other property held or required to be
deposited in the Bond Account or the Distribution Account (exclusive of any
earnings on investments made with funds deposited in the Distribution Account or
the Bond Account) and (e) all proceeds of the conversion, voluntary or
involuntary, of any of the foregoing into cash or other liquid assets,
including, without limitation, all Insurance Proceeds, Liquidation Proceeds and
condemnation awards. Such Grants are made, however, in trust, to secure the
Bonds equally and ratably without prejudice, priority or distinction between any
Bond and any other Bond by reason of difference in time of issuance or
otherwise, and to secure (i) the payment of all amounts due on the Bonds in
accordance with their terms, (ii) the payment of all other sums payable under
this Indenture with respect to the Bonds and (iii) compliance with the
provisions of this Indenture, all as provided in this Indenture. All terms used
in the foregoing granting clauses that are defined in Section 1.01 are used with
the meanings given in said Section.
The Trustee acknowledges such Grant, accepts the trusts hereunder in
accordance with the provisions of this Indenture and agrees to perform the
duties herein required to the best of its ability to the end that the interests
of the Holders of the Bonds [and the Bond Insurer] may be adequately and
effectively protected.
[The Trustee agrees that it will hold any proceeds of any claim made
upon the Bond Insurance Policy, solely for the use and benefit of the
Bondholders in accordance with the terms hereof and of the Bond Insurance
Policy.]
ARTICLE I
DEFINITIONS
SECTION 1.01. GENERAL DEFINITIONS.
Except as otherwise specified or as the context may otherwise require,
the following terms have the respective meanings set forth below for all
purposes of this Indenture, and the definitions of such terms are applicable to
the singular as well as to the plural forms of such terms and to the masculine
as well as to the feminine and neuter genders of such terms. Whenever reference
is made
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<PAGE> 13
herein to an Event of Default or a Default known to the Trustee or of
which the Trustee has notice or knowledge, such reference shall be construed to
refer only to an Event of Default or Default of which the Trustee is deemed to
have notice or knowledge pursuant to Section 6.01(d). All other terms used
herein which are defined in the Trust Indenture Act (as hereinafter defined),
either directly or by reference therein, have the meanings assigned to them
therein.
"ACCOUNTANT": A Person engaged in the practice of accounting who (except
when this Indenture provides that an Accountant must be Independent) may be
employed by or affiliated with the Issuer or an Affiliate of the Issuer.
"ACCRUAL DATE": The date upon which interest begins accruing on the
Bonds, such date being ____________ ___, 199__.
"ACT": With respect to any Bondholder, as defined in Section 11.03.
"ADJUSTED NET MORTGAGE RATE": As to each Mortgage Loan and at any time,
the per annum rate equal to the Mortgage Rate less the sum of the Master
Servicing Fee Rate and the related Servicing Fee Rate.
"ADJUSTMENT DATE": As to any Mortgage Loan, the date on which the
related Mortgage Rate adjusts [annually] after a period of ___ year[s] following
origination, in accordance with the terms of the related Mortgage Note.
"ADVANCE": The payment required to be made by the Master Servicer with
respect to any Distribution Date pursuant to Section 4 of the Master Servicing
Agreement, the amount of any such payment being equal to the aggregate of the
payments of principal and interest (net of the Master Servicing Fee and the
applicable Servicing Fee and net of any net income in the case of any REO
Property) on the Mortgage Loans that were due on the related Due Date and not
received as of the close of business on the related Determination Date, less the
aggregate amount of any such delinquent payments that the Master Servicer has
determined would constitute a Nonrecoverable Advance if advanced.
"AFFILIATE": With respect to any Person, any other Person controlling or
controlled by or under common control with such specified Person. For the
purposes of this definition, "control" when used with respect to any specified
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"AGENT": Any Bond Registrar, Paying Agent or Authenticating Agent.
"AMERICAN RESIDENTIAL": American Residential Investment Trust, Inc., a
Maryland corporation.
"APPRAISED VALUE": With respect to any Mortgage Loan, the Appraised
Value of the related Mortgaged Property shall be: (i) with respect to a Mortgage
Loan other than a Refinancing Mortgage Loan, the lesser of (a) the value of the
Mortgaged Property based upon the appraisal made at the time of the origination
of such Mortgage Loan and (b) the sales price of the Mortgaged Property at the
time of the origination of such Mortgage Loan; (ii) with respect to a
Refinancing Mortgage Loan, the value of the Mortgaged Property based upon the
appraisal made at the time of the origination of such Refinancing Mortgage Loan.
"ASSIGNMENTS": Collectively (i) the original instrument of assignment of
a Mortgage, including any interim assignments from the originator or any other
holder of any Mortgage Loan, and (ii) the original instrument of assignment of
such Mortgage, made by the Issuer to the Trustee (which in either case may, to
the extent permitted by the laws of the state in which the related Mortgaged
Property is located, be a blanket instrument of assignment covering other
Mortgages as well and which may also, to the extent permitted by the laws of the
state in which the related Mortgaged Property is located, be an instrument of
assignment running directly from the mortgagee of record under the related
Mortgage to the Trustee).
"AUTHENTICATING AGENT": The Person, if any, appointed as Authenticating
Agent by the Trustee at the request of the Issuer pursuant to Section 6.15,
until any successor Authenticating Agent for the Bonds is named, and thereafter
"Authenticating Agent" shall mean such successor.
"AUTHORIZED OFFICER": Any officer of the Owner Trustee who is authorized
to act for the Owner Trustee in respect of the Issuer and whose name appears on
a list of such authorized officers furnished by the Owner Trustee to the
Trustee, as such list
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<PAGE> 14
may be amended or supplemented from time to time, and any officer of the Issuer
who is authorized to act pursuant to the Deposit Trust Agreement and whose name
appears on a list furnished by the Depositor to the Owner Trustee and the
Trustee, as such list may be amended or supplemented from time to time.
"AVAILABLE FUNDS": As defined in Section 1 of the Master Servicing
Agreement.
"BANK": ________________________, a Delaware banking corporation, in its
individual capacity and not as Owner Trustee.
"BANKRUPTCY CODE": The United States Bankruptcy Reform Act of 1978, as
amended.
"BENEFICIAL OWNER": With respect to a Book Entry Bond, the Person who is
the beneficial owner of such Book Entry Bond.
"BOND ACCOUNT": The separate Eligible Account or Accounts created and
maintained by the Master Servicer pursuant to Section 3(h)(v) of the Master
Servicing Agreement with a depository institution in the name of the Master
Servicer for the benefit of the Trustee on behalf of Bondholders and designated
"___________________ in trust for the registered holders of American Residential
Eagle Bond Trust [199__-__], Collateralized Mortgage Bonds."
"BOND DISTRIBUTION AMOUNT": As to any Distribution Date, an amount equal
to the sum of (i) the Senior Interest Payment Amount, (ii) the Senior Principal
Payment Amount, (iii) the Class B-1 Interest Payment Amount, (iv) the Class B-1
Principal Payment Amount, (v) the Class B-2 Interest Payment Amount and (vi) the
Class B-2 Principal Payment Amount.
"BOND PAYMENT AMOUNT": As to any Distribution Date, an amount equal to
the sum of (i) the Senior Interest Payment Amount, (ii) the Senior Principal
Payment Amount, (iii) the Class B-1 Interest Payment Amount, (iv) the Class B- 1
Principal Payment Amount, (v) the Class B-2 Interest Payment Amount and (vi) the
Class B-2 Principal Payment Amount, in each case for such Distribution Date.
"BONDHOLDER" OR "HOLDER": The Person in whose name a Bond is registered
in the Bond Register.
"BOND INSURANCE POLICY": Any financial guaranty insurance policy
covering any Bonds or Class of Bonds of any Series.
"BOND INSURER": The issuer of any Bond Insurance Policy.
"BOND INTEREST RATE": The Senior Bond Interest Rate, the Class B-1 Bond
Interest Rate or the Class B-2 Bond Interest Rate, as applicable.
"BOND REGISTER" AND "BOND REGISTRAR": As defined in Section 2.07.
"BONDS": Any bonds authorized by, and authenticated and delivered under,
this Indenture.
"BOOK ENTRY BONDS": The Bonds shall be registered in the name of the
Depository or its nominee, ownership of which is reflected on the books of the
Depository or on the books of a Person maintaining an account with such
Depository (directly or as an indirect participant in accordance with the rules
of such Depository).
"BUSINESS DAY": Any day other than (i) a Saturday or a Sunday, or (ii) a
day on which banking institutions in the City of New York, New York or the State
of California or the city in which the Corporate Trust Office of the Trustee is
located are authorized or obligated by law or executive order to be closed.
"CERTIFICATE INTEREST RATE": As defined in Section 1 of the Master
Servicing Agreement.
"CLASS": Collectively, all of the Bonds bearing the same class
designation. The Bonds are divided into Classes as provided in Section 2.03.
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<PAGE> 15
"CLASS B-1 INTEREST CARRYOVER SHORTFALL": The amount by which sum of (i)
the interest at the Class B-1 Bond Interest Rate on the Class B-1 Principal
Amount and (ii) the interest at the Class B-1 Bond Interest Rate on any Class
B-1 Principal Carryover Shortfall, on each prior Distribution Date, exceeded the
amount actually distributed as interest on such prior Distribution Dates and not
subsequently distributed.
"CLASS B-1 BOND INTEREST RATE": With respect to any Interest Accrual
Period, the annual rate at which interest accrues on the Class B-1 Bonds as
specified in such Bonds and in Section 2.03(c).
"CLASS B-1 INTEREST PAYMENT AMOUNT": As to any Distribution Date, the
sum of (i) interest at the Class B-1 Bond Interest Rate on the Class B-1
Principal Amount, (ii) interest at the Class B-1 Bond Interest Rate on any Class
B-1 Principal Carryover Shortfall, (iii) the Class B-1 Interest Carryover
Shortfall and (iv) interest at the Class B-1 Bond Interest Rate on any Class B-1
Interest Carryover Shortfall.
"CLASS B-1 PERCENTAGE": As to any Distribution Date, the percentage
equivalent of a fraction the numerator of which is the Class B-1 Principal
Amount immediately prior to such date and the denominator of which is the sum of
(i) the Senior Class Principal Amount, (ii) the Class B-1 Principal Amount,
(iii) the Class B-2 Principal Amount and (iv) the Invested Amount, in each case
immediately prior to such date.
"CLASS B-1 PRINCIPAL AMOUNT": As to any Distribution Date is the lesser
of (i) the aggregate of the Stated Principal Balances of the Mortgage Loans,
less the Senior Class Principal Amount immediately prior to such date, and (ii)
the Original Class B-1 Principal Amount reduced by all amounts previously
distributed to holders of the Class B-1 Bonds as payments of principal.
"CLASS B-1 PRINCIPAL CARRYOVER SHORTFALL": As to any Distribution Date,
the excess of (i) the Original Class B-1 Principal Amount reduced by all amounts
previously distributed to holders of the Class B-1 Bonds as payments of
principal or Class B-1 Principal Carryover Shortfall, over (ii) the Class B-1
Principal Amount immediately prior to such date.
"CLASS B-1 PRINCIPAL PAYMENT AMOUNT": As to any Distribution Date, the
sum of (i) the Class B-1 Percentage of the sum of (a) the principal portion of
the Schedules Payment due on each Mortgage Loan [on the related Due Date], (b)
the principal portion of the purchase price of each Mortgage Loan that was
purchased by American Residential Investment Trust, Inc. ("American
Residential") or another person pursuant to the Mortgage Loan Purchase Agreement
[or by the Master Servicer in connection with any optional purchase by the
Master Servicer of a defaulted Mortgage Loan] as of such Distribution Date, (c)
the Substitution Adjustment Amount in connection with any Deleted Mortgage Loan
received with respect to such Distribution Date, (d) any Insurance Proceeds or
Liquidation Proceeds allocable to recoveries of principal of Mortgage Loans that
are not yet Liquidated Mortgage Loans received during the [calendar month]
preceding the month of such Distribution Date, (e) with respect to each Mortgage
Loan that became a Liquidated Mortgage Loan during the [calendar month]
preceding the month of such Distribution Date, the Stated Principal Balance of
such Mortgage Loan and (f) all partial and full principal prepayments by
borrowers received during the related Prepayment Period and (ii) any Class B-1
Principal Carryover Shortfall.
CLASS B-2 BOND INTEREST RATE": With respect to any Interest Accrual
Period, the annual rate at which interest accrues on the Class B-2 Bonds as
specified in such Bonds and in Section 2.03(c).
"CLASS B-2 INTEREST CARRYOVER SHORTFALL": The amount by which sum of (i)
the interest at the Class B-2 Bond Interest Rate on the Class B-2 Principal
Amount and (ii) the interest at the Class B-2 Bond Interest Rate on any Class
B-2 Principal Carryover Shortfall, on each prior Distribution Date, exceeded the
amount actually distributed as interest on such prior Distribution Dates and not
subsequently distributed.
"CLASS B-2 INTEREST PAYMENT AMOUNT": As to any Distribution Date, the
sum of (i) interest at the Class B-2 Bond Interest Rate on the Class B-2
Principal Amount, (ii) interest at the Class B-2 Bond Interest Rate on any Class
B-2 Principal Carryover Shortfall, (iii) the Class B-2 Interest Carryover
Shortfall and (iv) interest at the Class B-2 Bond Interest Rate on any Class B-2
Interest Carryover Shortfall.
"CLASS B-2 PERCENTAGE": As to any Distribution Date, the percentage
equivalent of a fraction the numerator of which is the Class B-2 Principal
Amount immediately prior to such date and the denominator of which is the sum of
(i) the Senior Class
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<PAGE> 16
Principal Amount, (ii) the Class B-1 Principal Amount, (iii) the Class B-2
Principal Amount and (iv) the Invested Amount, in each case immediately prior to
such date.
"CLASS B-2 PRINCIPAL AMOUNT": As to any Distribution Date is the lesser
of (i) the aggregate of the Stated Principal Balances of the Mortgage Loans,
less the sum of the Senior Class Principal Amount and the Class B-1 Principal
Amount, in each case immediately prior to such date, and (ii) the Original Class
B-2 Principal Amount reduced by all amounts previously distributed to holders of
the Class B-2 Bonds as payments of principal.
"CLASS B-2 PRINCIPAL CARRYOVER SHORTFALL": As to any Distribution Date,
the excess of (i) the Original Class B-2 Principal Amount reduced by all amounts
previously distributed to holders of the Class B-2 Bonds as payments of
principal or Class B-2 Principal Carryover Shortfall, over (ii) the Class B-2
Principal Amount immediately prior to such date.
"CLASS B-2 PRINCIPAL PAYMENT AMOUNT": As to any Distribution Date, the
sum of (i) the Class B-2 Percentage of the sum of (a) the principal portion of
the Scheduled Payment due on each Mortgage Loan [on the related Due Date], (b)
the principal portion of the purchase price of each Mortgage Loan that was
purchased by American Residential or another person pursuant to the Mortgage
Loan Purchase Agreement [or by the Master Servicer in connection with any
optional purchase by the Master Servicer of a defaulted Mortgage Loan] as of
such Distribution Date, (c) the Substitution Adjustment Amount in connection
with any Deleted Mortgage Loan received with respect to such Distribution Date,
(d) any Insurance Proceeds or Liquidation Proceeds allocable to recoveries of
principal of Mortgage Loans that are not yet Liquidated Mortgage Loans received
during the [calendar month] preceding the month of such Distribution Date, (e)
with respect to each Mortgage Loan that became a Liquidated Mortgage Loan during
the [calendar month] preceding the month of such Distribution Date, the Stated
Principal Balance of such Mortgage Loan and (f) all partial and full principal
prepayments by borrowers received during the related Prepayment Period and (ii)
any Class B-2 Principal Carryover Shortfall.
"CLASS INTEREST SHORTFALL": As to any Distribution Date, the Senior
Interest Shortfall, the Class B-1 Interest Carryover Shortfall or the Class B-2
Interest Carryover Shortfall, as applicable.
"CLASS PRINCIPAL AMOUNT": The Senior Class Principal Amount, the Class
B-1 Principal Amount or the Class B-2 Principal Amount, as applicable.
"CLOSING DATE": ____________ ___, 199__.
"CODE": The Internal Revenue Code of 1986, including any successor or
amendatory provisions.
"COMMISSION": Securities and Exchange Commission, as from time to time
constituted, created under the Securities Exchange Act of 1934, or if at any
time such Commission is not existing and performing the duties now assigned to
it under the Trust Indenture Act, then the body performing such duties at such
time under the Trust Indenture Act or similar legislation replacing the Trust
Indenture Act.
"CONTROLLING CLASS": The Class A-1 Bonds or, if the Class A-1 Bonds are
no longer Outstanding, the most senior Class of Subordinated Bonds then
Outstanding.
"COOPERATIVE LOAN": As defined in Section 1 of the Master Servicing
Agreement.
"COOPERATIVE SHARES": As defined in Section 1 of the Master Servicing
Agreement.
"CORPORATE TRUST OFFICE": The principal corporate trust office of the
Trustee located at ______________ ______________________________________, or at
such other address as the Trustee may designate from time to time by notice to
the Bondholders and the Issuer, or the principal corporate trust office of any
successor Trustee.
"CUT-OFF DATE": _____________ ___, 199__.
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<PAGE> 17
"DEBT SERVICE REDUCTION": With respect to any Mortgage Loan, a reduction
by a court of competent jurisdiction in a proceeding under the Bankruptcy Code
in the Scheduled Payment for such Mortgage Loan which became final and
non-appealable, except such a reduction resulting from a Deficient Valuation or
any reduction that results in a permanent forgiveness of principal.
"DEFAULT": Any occurrence which is, or with notice or the lapse of time
or both would become, an Event of Default.
"DEFAULTED MORTGAGE LOAN": The meaning specified in Section 8.04(e).
"DEFICIENT VALUATION": With respect to any Mortgage Loan, a valuation by
a court of competent jurisdiction of the Mortgaged Property in an amount less
than the then outstanding indebtedness under the Mortgage Loan, or any reduction
in the amount of principal to be paid in connection with any Scheduled Payment
that results in a permanent forgiveness of principal, which valuation or
reduction results from an order of such court which is final and non-appealable
in a proceeding under the Bankruptcy Code.
"DEFINITIVE BONDS": Bonds other than Book Entry Bonds.
"DELETED MORTGAGE LOAN": As defined in Section 5 of the Master Servicing
Agreement.
"DENOMINATION": With respect to each Bond, the amount set forth on the
face thereof as the "Initial Principal Amount of this Bond".
"DEPOSITOR": American Residential Eagle, Inc., a Delaware corporation.
"DEPOSITORY": The initial Depository with respect to each Class of Book
Entry Bonds shall be The Depository Trust Company of New York, the nominee for
which is Cede & Co. The Depository shall at all times be a "clearing
corporation" as defined in Section 8-102(3) of the Uniform Commercial Code of
the State of New York.
"DEPOSITORY PARTICIPANTS": A broker, dealer, bank or other financial
institution or other Person for whom from time to time a Depository effects
book-entry transfers and pledges of securities deposited with the Depository.
"DEPOSIT TRUST AGREEMENT": The Amended and Restated Deposit Trust
Agreement, dated as of ____________ _ _, 199__, between the Bank and the
Depositor, creating the Issuer, as such Deposit Trust Agreement may be amended
or supplemented from time to time.
"DETERMINATION DATE": As to any Distribution Date, the ___th day of each
month or if such ___th day is not a Business Day the next succeeding Business
Day; provided, however, that if such next succeeding Business Day is less than
two Business Days prior to the related Distribution Date, then the Determination
Date shall be the next Business Day preceding the ___th day of such month.
"DISTRIBUTION ACCOUNT": The separate Eligible Account created and
maintained by the Trustee pursuant to Section 8.02 in the name of the Trustee
for the benefit of the Bondholders and designated "____________________ in trust
for registered holders of American Residential Eagle Bond Trust [199__-__],
Collateralized Mortgage Bonds. Funds in the Distribution Account shall be held
in trust for the Bondholders for the uses and purposes set forth in this
Indenture.
"DISTRIBUTION ACCOUNT DEPOSIT DATE": As to any Distribution Date, [12:30
p.m. Pacific time] on the Business Day immediately preceding such Distribution
Date.
"DISTRIBUTION DATE": The ___th day of each [calendar month] after the
initial issuance of the Bonds or, if such ___th day is not a Business Day, the
next succeeding Business Day, commencing in ____________ 199__.
"DISTRIBUTION DATE STATEMENT": The meaning specified in Section 8.06.
"DUE DATE": The first day of each month.
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<PAGE> 18
["DUFF & PHELPS": Duff & Phelps Credit Rating Company, or any successor
thereto. For purposes of Section 11.04 the address for notices to Duff & Phelps
shall be Duff & Phelps Credit Rating Company, 55 E. Monroe Street, 35th Floor,
Chicago, Illinois 60603, Attention: MBS Monitoring, or such other address as
Duff & Phelps may hereafter furnish to the Issuer and the Master Servicer.]
"ELIGIBLE ACCOUNT": Any of (i) an account or accounts maintained with a
federal or state chartered depository institution or trust company the
short-term unsecured debt obligations of which (or, in the case of a depository
institution or trust company that is the principal subsidiary of a holding
company, the debt obligations of such holding company) have the highest
short-term ratings of each Rating Agency at the time any amounts are held on
deposit therein, or (ii) an account or accounts in a depository institution or
trust company in which such accounts are insured by the FDIC or the SAIF (to the
limits established by the FDIC or the SAIF) and the uninsured deposits in which
accounts are otherwise secured such that, as evidenced by an Opinion of Counsel
delivered to the Trustee and to each Rating Agency, the Bondholders have a claim
with respect to the funds in such account or a perfected first priority security
interest against any collateral (which shall be limited to Permitted
Investments) securing such funds that is superior to claims of any other
depositors or creditors of the depository institution or trust company in which
such account is maintained, or (iii) a trust account or accounts maintained with
the trust department of a federal or state chartered depository institution or
trust company, acting in its fiduciary capacity or (iv) any other account
acceptable to each Rating Agency. Eligible Accounts may bear interest, and may
include, if otherwise qualified under this definition, accounts maintained with
the Trustee.
"ESCROW ACCOUNT": As defined in Section 1 of the Master Servicing
Agreement.
"EVENT OF DEFAULT": The meaning specified in Section 5.01.
"EXPENSE RATE": As to each Mortgage Loan, the sum of the related
Servicing Fee Rate, the Master Servicing Fee Rate and Trustee Fee Rate.
"FDIC": The Federal Deposit Insurance Corporation, or any successor
thereto.
"FHLMC": The Federal Home Loan Mortgage Corporation, a corporate
instrumentality of the United States created and existing under Title III of the
Emergency Home Finance Act of 1970, as amended, or any successor thereto.
"FIRREA": The Financial Institutions Reform, Recovery and Enforcement
Act of 1989.
["FITCH": Fitch Investors Service, L.P., or any successor thereto. For
purposes of Section 11.04 the address for notices to Fitch shall be Fitch
Investors Service, L.P., One State Street Plaza, New York, New York 10004,
Attention: Residential Mortgage Surveillance Group, or such other address as
Fitch may hereafter furnish to the Issuer and the Master Servicer.]
"FNMA": The Federal National Mortgage Association, a federally chartered
and privately owned corporation organized and existing under the Federal
National Mortgage Association Charter Act, or any successor thereto.
"GRANT": To grant, bargain, sell, warrant, alienate, remise, release,
convey, assign, transfer, mortgage, pledge, create and grant a security interest
in, deposit, set-over and confirm. A Grant of a Mortgage Loan and related
Mortgage Documents, a Permitted Investment, the Master Servicing Agreement, an
Insurance Policy, or any other instrument shall include all rights, powers and
options (but none of the obligations) of the Granting party thereunder,
including, without limitation, the immediate and continuing right to claim for,
collect, receive and give receipts for principal and interest payments
thereunder, Insurance Proceeds, condemnation awards, purchase prices and all
other moneys payable thereunder and all proceeds thereof, to give and receive
notices and other communications, to make waivers or other agreements, to
exercise all rights and options, to bring Proceedings in the name of the
Granting party or otherwise, and generally to do and receive anything which the
Granting party is or may be entitled to do or receive thereunder or with respect
thereto.
"HIGHEST LAWFUL RATE": The meaning specified in Section 11.18.
"HOLDER": The holder of Bonds issued pursuant to this Indenture.
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<PAGE> 19
"INDENTURE" or "THIS INDENTURE": This instrument as originally executed
and, if from time to time supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
as so supplemented or amended. All references in this instrument to designated
"Articles", "Sections", "Subsections" and other subdivisions are to the
designated Articles, Sections, Subsections and other subdivisions of this
instrument as originally executed. The words "herein", "hereof" and "hereunder"
and other words of similar import refer to this Indenture as a whole and not to
any particular Article, Section, Subsection or other subdivision.
"INDEPENDENT": When used with respect to any specified Person means such
a Person who (i) is in fact independent of the Issuer and any other obligor upon
the Bonds, (ii) does not have any direct financial interest or any material
indirect financial interest in the Issuer or in any such other obligor or in an
Affiliate of the Issuer or such other obligor and (iii) is not connected with
the Issuer or any such other obligor as an officer, employee, promoter,
underwriter, trustee, partner, director or person performing similar functions.
Whenever it is herein provided that any Independent Person's opinion or
certificate shall be furnished to the Trustee, such Person shall be appointed by
an Issuer Order and with the approval of the Trustee, which approval shall not
be unreasonably withheld, and such opinion or certificate shall state that the
signer has read this definition and that the signer is Independent within the
meaning hereof.
"INDEX": As to (a) each Mortgage Loan, the index from time to time in
effect for the adjustment of the Mortgage Rate set forth as such on the related
Mortgage Note and (b) either Bond Interest Rate and any Distribution Date, the
weekly average yield on United States Treasury Securities adjusted to a constant
maturity of one year as made available by the Federal Reserve Board and most
recently available as of 45 days prior to the first day of the month preceding
the month in which such Distribution Date occurs.
"INDIRECT PARTICIPANT": A broker, dealer, bank or other financial
institution or other Person that clears through or maintains a custodial
relationship with a Depository Participant.
"INDIVIDUAL BOND": A Bond of an original principal amount of $1,000; a
Bond of an original principal amount in excess of $1,000 shall be deemed to be a
number of Individual Bonds equal to the quotient obtained by dividing such
original principal amount by $1,000.
"INSURANCE POLICY": With respect to any Mortgage Loan, any insurance
policy, including all riders and endorsements thereto in effect, including any
replacement policy or policies for any Insurance Policies.
"INSURANCE PROCEEDS": Proceeds paid by an insurer pursuant to any
Insurance Policy, in each case other than any amount included in such Insurance
Proceeds in respect of Insured Expenses.
"INSURED EXPENSES": Expenses covered by an Insurance Policy or any other
insurance policy with respect to the Mortgage Loans.
"INTEREST ACCRUAL PERIOD": With respect to each Class of Bonds and any
Distribution Date, the calendar month prior to the month of such Distribution
Date.
"INTEREST CONVERSION DATE": As to the Mortgage Loans, the date on which
the first Adjustment Date occurs.
"INTEREST PAYMENT AMOUNT": The Senior Interest Payment Amount, the Class
B-1 Interest Payment Amount, the Class B-2 Interest Payment Amount or the
Certificate Interest Payment Amount, as applicable.
"INVESTED AMOUNT": As of any Distribution Date, the lesser of (i) the
aggregate of the Stated Principal Balances of the Mortgage Loans, less the sum
of (x) the Senior Class Principal Amount, (y) the Class B-1 Principal Amount and
(z) the Class B-2 Principal Amount, in each case immediately prior to such date,
and (ii) the Original Invested Amount reduced by all amounts previously
distributed to the holder of the Investor Certificate in reduction of the
Invested Amount.
"INVESTOR CERTIFICATE": As defined in Section 1.01 of the Deposit Trust
Agreement.
"INVESTOR PERCENTAGE": As of any Distribution Date, the difference
between 100% and the sum of the Senior Percentage, the Class B-1 Percentage and
the Class B-2 Percentage for such date.
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<PAGE> 20
"ISSUER": American Residential Eagle Bond Trust [199__-__] formed
pursuant to the Deposit Trust Agreement.
"ISSUER ORDER" and "ISSUER REQUEST": A written order or request that is
dated and signed in the name of the Issuer by an Authorized Officer and
delivered to the Trustee.
"LETTER AGREEMENT": With respect to the Book Entry Bonds, the letter
agreement among the Issuer, the Trustee and the Depository governing book entry
transfers of, and certain other matters with respect to, such Book Entry Bonds
and attached as Exhibit I hereto.
"LIQUIDATED MORTGAGE LOAN": With respect to any Distribution Date, a
defaulted Mortgage Loan (including any REO Property) which was liquidated in the
calendar month preceding the month of such Distribution Date and as to which the
Master Servicer has certified (in accordance with the Master Servicing
Agreement) that it has received all amounts it expects to receive in connection
with the liquidation of such Mortgage Loan including the final disposition of an
REO Property.
"LIQUIDATION PROCEEDS": Amounts, including Insurance Proceeds, received
in connection with the partial or complete liquidation of defaulted Mortgage
Loans, whether through trustee's sale, foreclosure sale or otherwise or amounts
received in connection with any condemnation or partial release of a Mortgaged
Property and any other proceeds received in connection with an REO Property,
less the sum of related unreimbursed Master Servicing Fees, Servicing Advances
and Advances.
"LOAN-TO-VALUE RATIO": With respect to any Mortgage Loan and as to any
date of determination, the fraction (expressed as a percentage) the numerator of
which is the principal balance of the related Mortgage Loan at such date of
determination and the denominator of which is the Appraised Value of the related
Mortgaged Property.
"MARGIN": As to each Mortgage Loan, the percentage amount set forth on
the related Mortgage Note added to the Index in calculating the Mortgage Rate
thereon.
"MASTER SERVICER": _________________________________, a ____________
corporation, as Master Servicer under the Master Servicing Agreement, and its
permitted successors and assigns thereunder.
"MASTER SERVICING AGREEMENT": The master servicing agreement dated as of
_____________ , 199__, among the Issuer, the Trustee and the Master Servicer,
pursuant to which the Master Servicer will be obligated to manage and supervise
the administration and servicing of the Mortgage Loans securing the Bonds and
each Servicer of the Mortgage Loans, or its successors or assigns, as such
agreement may be amended or supplemented from time to time as permitted thereby.
"MASTER SERVICING FEE": As to each Mortgage Loan and any Distribution
Date, an amount equal to one month's interest at the related Master Servicing
Fee Rate on the Stated Principal Balance of such Mortgage Loan or, in the event
of any payment of interest which accompanies a Principal Prepayment in Full made
by the Mortgagor, interest at the Master Servicing Fee Rate on the Stated
Principal Balance of such Mortgage Loan for the period covered by such payment
of interest, subject to reduction as provided in Section 5(a) of the Master
Servicing Agreement.
"MASTER SERVICING FEE RATE": With respect to each Mortgage Loan, _____%
per annum.
"MATURITY": With respect to any Bond, the date on which the entire
unpaid principal amount of such Bond becomes due and payable as therein or
herein provided, whether at the Stated Maturity of the final installment of such
principal or by declaration of acceleration, call for redemption or otherwise.
"MAXIMUM RATE": As to any Mortgage Loan, the maximum rate set forth on
the related Mortgage Note at which interest can accrue on such Mortgage Loan.
["MOODY'S": Moody's Investors Service, Inc., or any successor thereto.
For purposes of Section 11.04 the address for notices to Moody's shall be
Moody's Investors Service, Inc., 99 Church Street, New York, New York 10007,
Attention: ____________ or such other address as Moody's may hereafter furnish
to the Issuer and the Master Servicer.]
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<PAGE> 21
"MORTGAGE": The mortgage, deed of trust or other instrument creating a
first lien on an estate in fee simple or leasehold interest in real property
securing a Mortgage Note.
"MORTGAGE DOCUMENTS": The mortgage documents listed in Section 2(a)(i)
of the Master Servicing Agreement pertaining to a particular Mortgage Loan and
any additional documents delivered to the Trustee to be added to the Mortgage
Documents pursuant to the Master Servicing Agreement.
"MORTGAGE LOAN SCHEDULE": The list of Mortgage Loans (as from time to
time amended by the Master Servicer to reflect the addition of Replacement
Mortgage Loans and the deletion of Deleted Mortgage Loans pursuant to the
provisions of the Master Servicing Agreement) Granted to the Trustee pursuant to
the provisions hereof as part of the Trust Estate and from time to time subject
to this Agreement, attached hereto as Schedule I.
"MORTGAGE LOANS": Such of the mortgage loans Granted to the Trustee
pursuant to the provisions hereof as from time to time are held as a part of the
Trust Estate (including any REO Property), the mortgage loans so held being
identified in the Mortgage Loan Schedule, notwithstanding foreclosure or other
acquisition of title of the related Mortgaged Property.
"MORTGAGE NOTE": The original executed note or other evidence of
indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage Loan.
"MORTGAGE RATE": The annual rate of interest borne by a Mortgage Note
from time to time.
"MORTGAGED PROPERTY": The underlying property securing a Mortgage Loan,
which, with respect to a Cooperative Loan, is the related Cooperative Shares and
Proprietary Lease.
"MORTGAGOR": The obligor(s) on a Mortgage Note.
"NET MORTGAGE RATE": As to any Mortgage Loan and Distribution Date, the
related Mortgage Rate as of the Due Date in the month preceding the month of
such Distribution Date reduced by the related Expense Rate.
"NET INTEREST SHORTFALLS": As to any Distribution Date, the amount by
which the sum of (i) the amount of interest which would otherwise have been
received with respect to any Mortgage Loan that was the subject of a Relief Act
Reduction and (ii) any Prepayment Interest Shortfalls, in each case during the
[calendar month] preceding the month of such Distribution Date, exceeds the sum
of (i) the Master Servicing Fee for such period and (ii) the Certificate
Interest Payment Amount, the Invested Amount Payment and any other amounts
payable to the holder of the Investor Certificate described in [ ].
"NONRECOVERABLE ADVANCE": Any portion of an Advance or Servicer Advance
previously made or proposed to be made by the Master Servicer or the related
Servicer, as the case may be, that, in the good faith judgment of the Master
Servicer or such Servicer, will not be ultimately recoverable by the Master
Servicer from the related Mortgagor, related Liquidation Proceeds or otherwise.
"OFFICERS' CERTIFICATE": A certificate signed by two Authorized
Officers.
"OFFICER'S CERTIFICATE OF THE MASTER SERVICER": A certificate (i) signed
by the Chairman of the Board, the Vice Chairman of the Board, the President, a
Managing Director, a Vice President (however denominated), an Assistant Vice
President, the Treasurer, the Secretary, or one of the Assistant Treasurers or
Assistant Secretaries of the Master Servicer, or (ii) if provided for herein,
signed by a Servicing Officer, as the case may be, and delivered to the Trustee,
as required hereby.
"OPERATIVE AGREEMENTS": The meaning ascribed thereto in the Deposit
Trust Agreement.
"OPINION OF COUNSEL": A written opinion of counsel who may, except as
otherwise expressly provided in this Indenture, be counsel for the Issuer, and
who shall be reasonably satisfactory to the Trustee.
"OPTIONAL REDEMPTION DATE": With respect to the Bonds which are subject
to optional redemption, the date on which Bonds may be redeemed pursuant to
Section 10.01.
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<PAGE> 22
"OPTIONAL REDEMPTION RECORD DATE": The meaning specified in Section
10.02.
"ORIGINAL CLASS B-1 PRINCIPAL AMOUNT": $____________.
"ORIGINAL CLASS B-2 PRINCIPAL AMOUNT": $____________.
"ORIGINAL INVESTED AMOUNT": $____________.
"ORIGINAL MORTGAGE LOANS": The Mortgage Loans listed on the Mortgage
Loan Schedule and granted to the Trustee on the Closing Date.
"ORIGINAL SENIOR CLASS PRINCIPAL AMOUNT": $___________________.
"ORIGINAL SUBORDINATION AMOUNT": The sum of the Original Subordinated
Class Principal Amount and the Original Invested Amount.
"OTS": The Office of Thrift Supervision.
"OUTSTANDING": As of the date of determination, all Bonds theretofore
authenticated and delivered under this Indenture except:
(i) Bonds theretofore cancelled by the Bond Registrar or
delivered to the Bond Registrar for cancellation;
(ii) Bonds or portions thereof for whose payment or redemption
money in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent (other than the Issuer) in trust for the
Holders of such Bonds; provided, however, that if such Bonds are to be
redeemed, notice of such redemption has been duly given pursuant to this
Indenture or provision therefor, satisfactory to the Trustee, has been
made;
(iii) Bonds in exchange for or in lieu of which other Bonds have
been authenticated and delivered pursuant to this Indenture unless proof
satisfactory to the Trustee is presented that any such Bonds are held by
a bona fide purchaser (as defined by the Uniform Commercial Code of the
applicable jurisdiction); and
(iv) Bonds alleged to have been destroyed, lost or stolen for
which replacement Bonds have been issued as provided for in Section
2.08; provided, however, that in determining whether the Holders of the
requisite percentage of the aggregate Class Principal Amount of the
Outstanding Bonds have given any request, demand, authorization,
direction, notice, consent or waiver hereunder, Bonds owned by the
Issuer, any other obligor upon the Bonds or any Affiliate of the Issuer
or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Bonds which the Trustee knows
to be so owned shall be so disregarded. Bonds so owned which have been
pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to
act with respect to such Bonds and that the pledgee is not the Issuer,
any other obligor upon the Bonds or any Affiliate of the Issuer or such
other obligor.
"OUTSTANDING MORTGAGE LOAN": As of any Due Date, a Mortgage Loan with a
Stated Principal Balance greater than zero which was not the subject of a
Principal Prepayment in Full prior to such Due Date and which did not become a
Liquidated Mortgage Loan prior to such Due Date.
"OWNER": The meaning ascribed thereto in the Deposit Trust Agreement.
"OWNER TRUSTEE": Wilmington Trust Company, a Delaware banking
corporation, not in its individual capacity but solely as Owner Trustee under
the Deposit Trust Agreement, until a successor Person shall have become the
Owner Trustee pursuant to the applicable provisions of the Deposit Trust
Agreement, and thereafter "Owner Trustee" shall mean such successor Person.
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<PAGE> 23
"PAYING AGENT": The Trustee or any other depository institution or trust
company that is authorized by the Issuer pursuant to Section 3.03 to pay the
principal of, or interest on, any Bonds on behalf of the Issuer.
["PERIODIC RATE CAP": As to any Mortgage Loan and any Adjustment Date,
the maximum percentage increase or decrease to the related Mortgage Note on any
such Adjustment Date, as specified in the related Mortgage Note.]
"PERMITTED ENCUMBRANCE": Any lien, charge, security interest, mortgage
or other encumbrance Granted by the Issuer in the Trust Estate, provided that:
(i) such lien, charge, security interest, mortgage or encumbrance
extends only to a portion of the Trust Estate which is limited to cash
deliverable or payable to the Issuer pursuant to Section 8.01 or Section
8.02(d);
(ii) such lien, charge, security interest, mortgage or other
encumbrance secures indebtedness which the Issuer is permitted to incur
under the terms of this Indenture; and
(iii) the beneficiary of such lien, charge, security interest,
mortgage or other encumbrance has agreed that in connection with the
enforcement thereof it will not bring any Proceeding seeking, or which
would result in, the sale of any portion of the Trust Estate and will
not file any petition for the commencement of insolvency proceedings
with respect to the Issuer under the federal bankruptcy laws, as now or
hereafter in effect, or any other present or future federal or state
bankruptcy, insolvency or similar law, or for the appointment of any
receiver, liquidator, assignee, trustee, custodian, sequestrator or
other similar official of the Issuer or of any of its property, or
seeking an order for the winding up or liquidation of the affairs of the
Issuer.
"PERMITTED INVESTMENTS": At any time, any one or more of the following
obligations and securities:
(i) obligations of the United States or any agency thereof,
provided that such obligations are backed by the full faith and credit
of the United States;
(ii) general obligations of or obligations guaranteed by any
state of the United States or the District of Columbia receiving the
highest long-term debt rating of each Rating Agency, or such lower
rating as will not result in the downgrading or withdrawal of the
ratings then assigned to the Bonds by the Rating Agencies, as evidenced
by a signed writing delivered by each Rating Agency;
(iii) commercial or finance company paper which is then receiving
the highest commercial or finance company paper rating of each Rating
Agency, or such lower rating as will not result in the downgrading or
withdrawal of the ratings then assigned to the Bonds by the Rating
Agencies, as evidenced by a signed writing delivered by each Rating
Agency;
(iv) certificates of deposit, demand or time deposits, or
bankers' acceptances issued by any depository institution or trust
company incorporated under the laws of the United States or of any state
thereof and subject to supervision and examination by federal and/or
state banking authorities, provided that the commercial paper and/or
long-term unsecured debt obligations of such depository institution or
trust company (or in the case of the principal depository institution in
a holding company system, the commercial paper or long-term unsecured
debt obligations of such holding company, but only if Moody's Investor's
service, Inc. is not the applicable Rating Agency) are then rated one of
the two highest long-term and the highest short-term ratings of each
Rating Agency for such securities, or such lower ratings as will not
result in the downgrading or withdrawal of the ratings then assigned to
the Bonds by the Rating Agencies, as evidenced by a signed writing
delivered by each Rating Agency;
(v) demand or time deposits or certificates of deposit issued by
any bank or trust company or savings institution to the extent that such
deposits are fully insured by the FDIC;
(vi) guaranteed reinvestment agreements issued by any bank,
insurance company or other corporation acceptable to the Rating Agencies
at the time of the issuance of such agreements, as evidenced by a signed
writing delivered by each Rating Agency;
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<PAGE> 24
(vii) repurchase obligations with respect to any security
described in clauses (i) and (ii) above, in either case entered into
with a depository institution or trust company (acting as principal)
described in clause (iv) above;
(viii) securities (other than stripped bonds, stripped coupons or
instruments sold at a purchase price in excess of 115% of the face
amount thereof) bearing interest or sold at a discount issued by any
corporation incorporated under the laws of the United States or any
state thereof which, at the time of such investment, have one of the two
highest ratings of each Rating Agency (except if the Rating Agency is
Moody's, such rating shall be the highest commercial paper rating of
Moody's for any such series), or such lower rating as will not result in
the downgrading or withdrawal of the ratings then assigned to the Bonds
by the Rating Agencies, as evidenced by a signed writing delivered by
each Rating Agency;
(ix) interests in any money market fund which at the date of
acquisition of the interests in such fund and throughout the time such
interests are held in such fund has the highest applicable rating by
each Rating Agency or such lower rating as will not result in a change
in the rating then assigned to the Bonds by each Rating Agency;
(x) short-term investment funds sponsored by any trust company or
national banking association incorporated under the laws of the United
States or any state thereof which on the date of acquisition has been
rated by each applicable Rating Agency in their respective highest
applicable rating category or such lower rating as will not result in a
change in the rating then specified stated maturity and bearing interest
or sold at a discount acceptable to each Rating Agency as will not
result in the downgrading or withdrawal of the ratings then assigned to
the Bonds by the Rating Agencies; and
(xi) such other investments having a specified stated maturity
and bearing interest or sold at a discount acceptable to the Rating
Agencies as will not result in the downgrading or withdrawal of the
ratings then assigned to the Bonds by the Rating Agencies;
provided, that no such instrument shall be a Permitted Investment if (i)
such instrument evidences the right to receive interest only payments
with respect to the obligations underlying such instrument or (ii) such
instrument would require the Issuer to register as an investment company
under the Investment Company Act of 1940, as amended.
"PERSON": Any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"PLEDGED ACCOUNTS": The Bond Account and the Distribution Account
(exclusive of any earnings on investments made with funds deposited in the
Distribution Account or the Bond Account).
"POOL STATED PRINCIPAL BALANCE": As to any Distribution Date, the
aggregate of the Stated Principal Balances of the Mortgage Loans which were
Outstanding Mortgage Loans on the Due Date in the month preceding the month of
such Distribution Date.
"PREDECESSOR BONDS": With respect to any particular Bond of a Class,
every previous Bond of that Class evidencing all or a portion of the same debt
as that evidenced by such particular Bond; and, for the purpose of this
definition, any Bond authenticated and delivered under Section 2.08 in lieu of a
lost, destroyed or stolen Bond shall be deemed to evidence the same debt as the
lost, destroyed or stolen Bond.
"PREPAYMENT INTEREST SHORTFALL": As to any Distribution Date, Mortgage
Loan and Principal Prepayment, the amount, if any, by which one month's interest
at the related Mortgage Rate on such Principal Prepayment exceeds the amount of
interest paid in connection with such Principal Prepayment.
"PREPAYMENT PERIOD": As to any Distribution Date, the [calendar month]
preceding the month of such Distribution Date.
"PRIMARY MORTGAGE INSURANCE POLICY": Each policy of primary mortgage
guaranty insurance or any replacement policy therefor with respect to any
Mortgage Loan.
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<PAGE> 25
"PRINCIPAL PREPAYMENT": Any payment of principal by a Mortgagor on a
Mortgage Loan that is received in advance of its scheduled Due Date and is not
accompanied by an amount representing scheduled interest due on any date or
dates in any month or months subsequent to the month of prepayment.
"PRINCIPAL PREPAYMENT IN FULL": Any Principal Prepayment made by a
Mortgagor of the entire principal balance of a Mortgage Loan.
"PROCEEDING": Any suit in equity, action at law or other judicial or
administrative proceeding.
"PROPRIETARY LEASE": As defined in Section 1 of the Master Servicing
Agreement.
"PROSPECTUS SUPPLEMENT": The Prospectus Supplement dated _________ ___,
199__ relating to the Bonds.
"PURCHASE PRICE": With respect to any Mortgage Loan required to be
purchased by the Master Servicer pursuant to Section 2(a)(ii) or 2(d)(iii) of
the Master Servicing Agreement or purchased at the option of the Master Servicer
pursuant to Section 3(n) of the Master Servicing Agreement, an amount equal to
the sum of (i) 100% of the unpaid principal balance of the Mortgage Loan on the
date of such purchase, and (ii) accrued interest thereon at the applicable
Adjusted Net Mortgage Rate from the date through which interest was last paid by
the Mortgagor to the Due Date in the month in which the Purchase Price is to be
distributed to Bondholders.
"RATING AGENCY": Each of [ ] and [ ]. If either such organization or a
successor is no longer in existence, "Rating Agency" shall be such nationally
recognized statistical rating organization, or other comparable Person, as is
designated by the Issuer, notice of which designation shall be given to the
Trustee. References herein to a given rating or rating category of a Rating
Agency shall mean such rating category without giving effect to any modifiers.
"REALIZED LOSS": With respect to each Liquidated Mortgage Loan, an
amount (not less than zero or more than the Stated Principal Balance of the
Mortgage Loan) as of the date of such liquidation, equal to (i) the Stated
Principal Balance of the Liquidated Mortgage Loan as of the date of such
liquidation, plus (ii) interest at the Net Mortgage Rate from the Due Date as to
which interest was last paid or advanced (and not reimbursed) to Bondholders up
to the Due Date in the month in which Liquidation Proceeds are required to be
distributed on the Stated Principal Balance of such Liquidated Mortgage Loan
from time to time, minus (iii) the Liquidation Proceeds, if any, received during
the month in which such liquidation occurred, to the extent applied as
recoveries of interest at the Adjusted Net Mortgage Rate and to principal of the
Liquidated Mortgage Loan. With respect to each Mortgage Loan which has become
the subject of a Deficient Valuation, if the principal amount due under the
related Mortgage Note has been reduced, the difference between the principal
balance of the Mortgage Loan outstanding immediately prior to such Deficient
Valuation and the principal balance of the Mortgage Loan as reduced by the
Deficient Valuation. With respect to each Mortgage Loan which has become the
subject of a Debt Service Reduction and any Distribution Date, the amount, if
any, by which the principal portion of the related Scheduled Payment has been
reduced.
"RECORD DATE": With respect to any Distribution Date, the date on which
the Persons entitled to receive any payment of principal of, or interest on, any
Bonds (or notice of a payment in full of principal) due and payable on such
Distribution Date are determined; such date shall be the last day of the month
preceding the month of such Distribution Date.
"REDEMPTION DATE": Any Optional Redemption Date or any Distribution Date
on which Bonds may be redeemed.
"REDEMPTION PRICE": With respect to any Class of Bonds to be redeemed,
an amount equal to 100% of the related Class Principal Amount of the Bonds
(including, in the case of the Subordinated Bonds, any unpaid Subordinated
Principal Carryover Shortfall) to be so redeemed, together with interest on such
amount at the applicable Bond Interest Rate through the last day of the month
immediately preceding the month in which such Redemption Date occurs, together
with any unpaid Class Interest Shortfalls.
"REFINANCING MORTGAGE LOAN": Any Mortgage Loan originated in connection
with the refinancing of an existing mortgage loan.
"RELIEF ACT": The Soldiers' and Sailors' Civil Relief Act of 1940, as
amended.
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"RELIEF ACT REDUCTIONS": With respect to any Distribution Date and any
Mortgage Loan as to which there has been a reduction in the amount of interest
collectible thereon for the most recently ended calendar month as a result of
the application of the Relief Act, the amount, if any, by which (i) interest
collectible on such Mortgage Loan for the most recently ended calendar month is
less than (ii) interest accrued thereon for such month pursuant to the Mortgage
Note.
"REO PROPERTY": A Mortgaged Property acquired by the Trustee through
foreclosure or deed-in-lieu of foreclosure in connection with a defaulted
Mortgage Loan.
"REPLACEMENT MORTGAGE LOAN": A Mortgage Loan substituted by the Master
Servicer for a Deleted Mortgage Loan which must, on the date of such
substitution, as confirmed in a Request for Release, substantially in the form
of Exhibit C to the Master Servicing Agreement, (i) have a Stated Principal
Balance, after deduction of the principal portion of the Scheduled Payment due
in the month of substitution, not in excess of, and not more than 10% less than,
the Stated Principal Balance of the Deleted Mortgage Loan; (ii) be accruing
interest at a rate no lower than and not more than 1% per annum higher than,
that of the Deleted Mortgage Loan; (iii) have a Loan-to-Value Ratio no higher
than that of the Deleted Mortgage Loan; (iv) have a Mortgage Rate based upon the
same Index and a Margin at least equal to and not greater than 50 basis points
higher than that of the Deleted Mortgage Loan; (v) have a Mortgage Rate subject
to a Periodic Rate Cap and Maximum Rate that are no less than those applicable
to the Deleted Mortgage Loan; (vi) have Adjustment Dates that are no more or
less frequent than the Deleted Mortgage Loan; (vii) have a remaining term to
maturity no greater than (and not more than one year less than that of) the
Deleted Mortgage Loan; (viii) not be a Cooperative Loan unless the Deleted
Mortgage Loan was a Cooperative Loan; and (ix) comply with each representation
and warranty set forth in Section 2(d)(ii) of the Master Servicing Agreement.
"REQUEST FOR RELEASE": The Request for Release submitted by the Master
Servicer to the Trustee, substantially in the form of Exhibits C and D to the
Master Servicing Agreement, as appropriate.
"RESPONSIBLE OFFICER": With respect to the Trustee, any officer in the
corporate trust department or similar group of the Trustee and also, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of his or her knowledge of and familiarity with the
particular subject.
"S&P": Standard & Poor's Ratings Group, a division of McGraw-Hill Inc.
For purposes of Section 11.04 the address for notices to S&P shall be Standard &
Poor's Ratings Group, 26 Broadway, 15th Floor, New York, New York 10004,
Attention: Mortgage Surveillance Monitoring, or such other address as S&P may
hereafter furnish to the Issuer and the Master Servicer.
"SAIF": The Savings Association Insurance Fund, or any successor
thereto.
"SALE": The meaning specified in Section 5.18(a).
"SCHEDULED PAYMENT": The scheduled monthly payment on a Mortgage Loan
due on any Due Date allocable to principal and/or interest on such Mortgage Loan
which, unless otherwise specified in the Master Servicing Agreement, shall give
effect to any related Debt Service Reduction and any Deficient Valuation that
affects the amount of the monthly payment due on such Mortgage Loan.
"SECURITIES ACT": The Securities Act of 1933, as amended.
"SENIOR BOND INTEREST RATE": With respect to any Interest Accrual
Period, the annual rate at which interest accrues on the Senior Bonds as
specified in such Bonds and in Section 2.03(c).
"SENIOR BONDS": The Class A-1 Bonds.
"SENIOR CLASS PRINCIPAL AMOUNT": As of any Distribution Date, the
Original Senior Class Principal Amount reduced by all amounts previously
distributed to Holders of the Senior Bonds as payments of principal.
"SENIOR INTEREST PAYMENT AMOUNT": As to any Distribution Date, the sum
of (i) one month's interest accrued during the related Interest Accrual Period
at the Senior Bond Interest Rate on the Senior Class Principal Amount, subject
to reduction pursuant to Section 2.03(d) and (ii) the sum of the amounts, if
any, by which the amount described in clause (i) above on each prior
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<PAGE> 27
Distribution Date exceeded the amount actually distributed as interest on such
prior Distribution Dates and not subsequently distributed.
"SENIOR INTEREST SHORTFALL": As to any Distribution Date, the amount by
which the amount described in clause (i) of the definition of Senior Interest
Payment Amount exceeds the amount of interest actually paid on the Senior Bonds
on such Distribution Date pursuant to such clause (i).
"SENIOR PERCENTAGE": As to any Distribution Date, the percentage
equivalent of a fraction the numerator of which is the Senior Class Principal
Amount immediately prior to such date and the denominator of which is the sum of
(i) the Senior Class Principal Amount, (ii) the Class B-1 Principal Amount,
(iii) the Class B-2 Principal Amount and (iv) the Invested Amount, in each case
immediately prior to such date.
"SENIOR PRINCIPAL PAYMENT AMOUNT": As to each Distribution Date, the
Senior Percentage of the sum of (a) the principal portion of the Scheduled
Payment due on each Mortgage Loan [on the related Due Date], (b) the principal
portion of the purchase price of each Mortgage Loan that was purchased by
American Residential or another person pursuant to the Mortgage Loan Purchase
Agreement [or any optional purchase by the Master Servicer of a defaulted
Mortgage Loan] as of such Distribution Date, (c) the Substitution Adjustment
Amount in connection with any Deleted Mortgage Loan received with respect to
such Distribution Date, (d) any Insurance Proceeds or Liquidation Proceeds
allocable to recoveries of principal of Mortgage Loans that are not yet
Liquidated Mortgage Loans received during the [calendar month] preceding the
month of such Distribution Date, (e) with respect to each Mortgage Loan that
became a Liquidated Mortgage Loan during the [calendar month] preceding the
month of such Distribution Date, the Stated Principal Balance of such Mortgage
Loan, and (f) all partial and full principal prepayments by borrowers received
during the related Prepayment Period.
"SERVICER": Any person with which the Master Servicer has entered into a
Servicing Agreement for the servicing of all or a portion of the Mortgage Loans
pursuant to Section 3(b) of the Master Servicing Agreement.
"SERVICER ADVANCE": The meaning ascribed to such term in Section
3(h)(iv) of the Master Servicing Agreement.
"SERVICING ADVANCES": All customary, reasonable and necessary "out of
pocket" costs and expenses incurred in the performance by the Master Servicer of
its servicing obligations, including, but not limited to, the cost of (i) the
preservation, restoration and protection of a Mortgaged Property, (ii) any
expenses reimbursable to the Master Servicer pursuant to Section 3(n) of the
Master Servicing Agreement and any enforcement or judicial proceedings,
including foreclosures, (iii) the management and liquidation of any REO Property
and (iv) compliance with the obligations under Section 3(l) of the Master
Servicing Agreement.
"SERVICING AGREEMENT": Any agreement between the Master Servicer and
related Servicer relating to servicing and/or administration of certain Mortgage
Loans as provided in Section 3(b) of the Master Servicing Agreement.
"SERVICING DEFAULT": As defined in the Master Servicing Agreement.
"SERVICING FEE": As to each Mortgage Loan and any Distribution Date, an
amount equal to one month's interest at the applicable Servicing Fee Rate on the
Stated Principal Balance of such Mortgage Loan.
"SERVICING FEE RATE": With respect to any Mortgage Loan, the per annum
rate set forth in the Mortgage Loan Schedule for such Mortgage Loan.
"SERVICING OFFICER": Any officer of the Master Servicer involved in, or
responsible for, the administration and servicing of the Mortgage Loans whose
name and facsimile signature appear on a list of servicing officers furnished to
the Trustee by the Master Servicer on the Closing Date pursuant to the Master
Servicing Agreement, as such list may from time to time be amended.
"STATED MATURITY": With respect to any and all Bonds _________________.
"STATED PRINCIPAL BALANCE": As to any Mortgage Loan and Due Date, the
unpaid principal balance of such Mortgage Loan as of such Due Date as specified
in the amortization schedule at the time relating thereto (before any adjustment
to such amortization schedule by reason of any moratorium or similar waiver or
grace period) after giving effect to any previous partial
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Principal Prepayments and Liquidation Proceeds allocable to principal (other
than with respect to any Liquidated Mortgage Loan) and to the payment of
principal due on such Due Date and irrespective of any delinquency in payment by
the related Mortgagor.
"SUBORDINATED BOND INTEREST RATE": With respect to any Interest Accrual
Period, the annual rate at which interest accrues on the Subordinated Bonds as
specified in such Bonds and in Section 2.03(c).
"SUBORDINATED BONDS": The Class B-1 and the Class B-2 Bonds.
"SUBSTITUTION ADJUSTMENT AMOUNT": The meaning ascribed to such term
pursuant to Section 2(d)(iv)
of the Master Servicing Agreement.
"SUCCESSOR MASTER SERVICER": A Person appointed by the Trustee who
succeeds either the Trustee or the Master Servicer, pursuant to the applicable
provisions of the Master Servicing Agreement.
"TRUST ESTATE": All money, instruments and other property subject or
intended to be subject to the lien of this Indenture for the benefit of the
Bondholders as of any particular time (including, without limitation, all
property and interests Granted to the Trustee), including all proceeds thereof.
"TRUST INDENTURE ACT" OR "TIA": The Trust Indenture Act of 1939, as
amended, as in force at the Closing Date, unless otherwise specifically
provided.
"TRUSTEE": ______________________________, a banking corporation
organized and existing under the laws of _________________________________, and
any Person succeeding as Trustee hereunder pursuant to Section 6.12 or any other
applicable provision hereof.
"TRUSTEE FEE": As to any Distribution Date, an amount equal to
one-twelfth of the Trustee Fee Rate multiplied by the Pool Stated Principal
Balance with respect to such Distribution Date.
"TRUSTEE FEE RATE": With respect to each Mortgage Loan, the per annum
rate agreed upon in writing on or prior to the Closing Date by the Trustee and
the Issuer.
"TRUSTEE MORTGAGE FILE": With respect to each Mortgage Loan, the
original documents and instruments relating thereto to be retained in the
custody and possession of the Trustee, as set forth and enumerated in Section
2(a) of the Master Servicing Agreement.
"WITHDRAWAL DATE": The ___th day of each month, or if such day is not a
Business Day, the next preceding Business Day.
ARTICLE II
THE BONDS
SECTION 2.01. FORMS GENERALLY.
The Bonds and the Trustee's certificate of authentication shall be in
substantially the form required by this Article II, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange on which the Bonds
may be listed, or as may, consistently herewith, be determined by the officers
executing such Bonds, as evidenced by their execution thereof. Any portion of
the text of any Bond may be set forth on the reverse thereof with an appropriate
reference on the face of the Bond.
The Definitive Bonds may be produced in any manner determined by the
officers executing such Bonds, as evidenced by their execution thereof;
provided, however, that in the event the Bonds are listed on any securities
exchange, the Bonds shall be produced in accordance with the rules of any
securities exchange on which the Bonds may be listed.
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<PAGE> 29
SECTION 2.02. FORMS OF BONDS AND CERTIFICATE OF AUTHENTICATION.
(a) The form of Bond which is a Senior Bond is attached hereto as
Exhibit II.
(b) The form of Bond which is a Class B-1 Bond is attached hereto as
Exhibit III.
(c) The form of Bond which is a Class B-2 Bond is attached hereto as
Exhibit IV.
(d) The form of the Trustee's certificate of authentication is as
follows:
"This is one of the Bonds referred to in the within mentioned Indenture.
--------------------------------------
as Trustee
By:
-----------------------------------
Authorized Signatory"
(e) The form of assignment is as follows:
"FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ___________________________________________________________________
________________________________________________________________________
(Please insert Social Security or other Identifying Number of Assignee)
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
(Please print or type name and address of Assignee)
________________________________________________________________________
the within Bond of American Residential Eagle Bond Trust [199__-__], and
does hereby irrevocably constitute and appoint __________ Attorney to transfer
such Bond on the books of the within named trust, with full power of
substitution in the premises.
Dated:
------------------------------------
Notice: The signature to this assignment
must correspond with the name as written upon the
face of this Bond in every particular without
alteration or enlargement or any change whatever.
The signature must be guaranteed by a member of a
signature guaranty medallion program. Notarized or
witnessed signatures are not acceptable."
[(f) The Bonds shall have a Statement of Insurance printed thereon or
attached thereto which essentially sets forth the terms of the Bond Insurance
Policy.]
SECTION 2.03. BONDS ISSUABLE IN CLASSES; PROVISIONS WITH RESPECT
TO PRINCIPAL AND INTEREST PAYMENTS.
(a) General.
The Bonds shall be designated generally as the American Residential
Eagle Bond Trust [199__-__], Collateralized Mortgage Bonds of the Issuer. Each
Bond shall bear upon the face thereof the designation so selected for the Class
to which it belongs.
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<PAGE> 30
Bonds of each Class shall constitute Book Entry Bonds as defined in
Section 2.13 hereof. The aggregate principal amount of Bonds that may be
authenticated and delivered under the Indenture is unlimited.
All of the Bonds shall be issued in the appropriate forms attached as
Exhibits hereto with such additions and completions as are appropriate for each
such Class.
The Class A-1 Bonds shall constitute the sole Class of Senior Bonds and
the Class B-1 Bonds and the Class B-2 Bonds shall constitute the sole Classes of
Subordinated Bonds.
The final installments of principal of the Classes of Bonds shall have
the Stated Maturity specified above. The principal of each Bond shall be payable
in installments ending no later than the Stated Maturity of the final
installment of the principal thereof unless the unpaid principal of such Bond
becomes due and payable at an earlier date by declaration of acceleration or
call for redemption or otherwise. All payments made with respect to any Bond
shall be applied first to the interest then due and payable on such Bond and
then to the principal thereof.
(b) Payments of Principal of and Interest on the Bonds.
On each Distribution Date, the Trustee shall withdraw the Bond Payment
Amount from the Distribution Account and apply such funds to payments on the
Bonds in the following order of priority and, in each case, to the extent of
funds remaining:
(i) to the Senior Bonds, an amount allocable to interest equal
to the Senior Interest Payment Amount for such Distribution Date;
(ii) to the Senior Bonds, an amount allocable to principal
equal to the Senior Principal Payment Amount for such Distribution Date;
(iii) to the Class B-1 Bonds, an amount allocable to interest
equal to the Class B-1 Interest Payment Amount for such Distribution
Date;
(iv) to the Class B-1 Bonds, an amount allocable to principal
equal to the Class B-1 Principal Payment Amount for such Distribution
Date;
(v) to the Class B-2 Bonds, an amount allocable to interest
equal to the Class B-2 Interest Payment Amount for such Distribution
Date; and
(vi) to the Class B-2 Bonds, an amount allocable to principal
to the Class B-2 Principal Payment Amount for such Distribution Date.
(c) Calculation of the Bond Interest Rate.
(i) The Bond Interest Rate for the Senior Bonds (the "Senior
Bond Interest Rate") and any Interest Accrual Period will equal
______________;
(ii) The Bond Interest Rate for the Class B-1 Bonds (the "Class
B-1 Bond Interest Rate") and any Interest Accrual Period will equal
___________________;
(iii) The Bond Interest Rate for the Class B-2 Bonds (the "Class
B-2 Bond Interest Rate") and any Interest Accrual Period will equal
_______________; and
(iv) The Senior Interest Payment Amount, the Class B-1 Interest
Payment Amount and the Class B-2 Interest Payment Amount shall each be
calculated on the basis of a 360-day year of twelve 30-day months.
(d) Reduction of Interest Payment Amounts.
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<PAGE> 31
With respect to each Distribution Date, the amounts referred to in
clause (i) of the definition of Senior Interest Payment Amount and clauses (i)
and (ii) of the definitions of Class B-1 Interest Payment Amount and Class B-2
Interest Payment Amount, as applicable, for such Distribution Date shall be
reduced by the applicable Class' pro rata share (based on the Interest Payment
Amount for such Class before reduction pursuant to this Section 2.03(d)) of Net
Interest Shortfalls.
(e) Pro Rata Payments.
All payments on the Bonds of any Class shall be made pro rata among all
Bonds of such Class.
(f) Payments to the Senior Bondholders provided for in (b) of this
Section 2.03 shall be paid, on each Distribution Date after the Subordinated
Class Principal Amount and the Invested Amount have been reduced to zero and
where the Senior Interest Payment Amount and the Senior Principal Payment Amount
exceed the Available Funds, by the Bond Insurer.
SECTION 2.04. DENOMINATIONS.
Each Class of Book Entry Bonds shall be evidenced initially by a single
Bond representing the entire aggregate Class Principal Amount of such Class of
Bonds as of the Closing Date, beneficial ownership of which may be held in
denominations of $25,000 and increments of $1,000 in excess thereof for all
Bonds. All of the Book Entry Bonds shall be initially registered on the Bond
Register in the name of Cede & Co., the nominee of the Depository, and no
Beneficial Owner will receive a Definitive Bond representing such Beneficial
Owner's interest in the Book Entry Bonds, except in the event of Book Entry
Termination.
SECTION 2.05. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Bonds shall be executed by an Authorized Officer of the Issuer. The
signature of such officer on the Bonds may be manual or facsimile.
Bonds bearing the manual or facsimile signature of an individual who was
at any time an Authorized Officer shall bind the Issuer, notwithstanding that
such individual has ceased to hold such office prior to the authentication and
delivery of such Bonds or did not hold such office at the date of such Bonds.
At any time and from time to time after the execution and delivery of
this Indenture, the Issuer may deliver Bonds executed on behalf of the Issuer to
the Trustee for authentication; and the Trustee shall authenticate and deliver
such Bonds as in this Indenture provided and not otherwise.
Each Bond authenticated on the Closing Date shall be dated the Closing
Date. All other Bonds which are authenticated after the Closing Date for any
other purpose hereunder shall be dated the date of their authentication.
No Bond shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Bond a
certificate of authentication substantially in the form provided for herein
executed by the Trustee or by any Authenticating Agent by the manual signature
of one of its authorized officers or employees, and such certificate upon any
Bond shall be conclusive evidence, and the only evidence, that such Bond has
been duly authenticated and delivered hereunder.
SECTION 2.06. TEMPORARY BONDS.
So long as the Book Entry Bonds are held by the Depository for the
Participants in book-entry form, they may be typewritten or in any other form
acceptable to the Issuer, the Trustee and the Depository. At any time during
which the Book Entry Bonds are not held by the Depository for the Participants
in book-entry form, the Definitive Bonds shall be lithographed or printed with
steel engraved borders.
Pending the preparation of Definitive Bonds, the Issuer may execute, and
upon Issuer Order the Trustee shall authenticate and deliver, temporary Bonds
which are printed, lithographed, typewritten, mimeographed or otherwise
produced, in any authorized denomination, substantially of the tenor of the
definitive Bonds in lieu of which they may be so issued and with such variations
as the officers executing such Bonds may determine, as evidenced by their
execution of such Bonds.
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If temporary Bonds are issued, the Issuer will cause definitive Bonds to
be prepared without unreasonable delay. After the preparation of definitive
Bonds, the temporary Bonds shall be exchangeable for definitive Bonds upon
surrender of the temporary Bonds at the office or agency of the Issuer to be
maintained as provided in Section 3.02, without charge to the Holder. Upon
surrender or cancellation of any one or more temporary Bonds, the Issuer shall
execute and the Trustee shall authenticate and deliver and exchange therefor a
like principal amount of definitive Bonds of the same Class and of authorized
denominations. Until so exchanged, the temporary Bonds shall in all respects be
entitled to the same benefits under this Indenture as Definitive Bonds of the
same Class.
SECTION 2.07. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
The Issuer shall cause to be kept a register (the "Bond Register") in
which, subject to such reasonable regulations as it may prescribe, the Issuer
shall provide for the registration of Bonds and the registration of transfers of
Bonds. The Trustee is hereby initially appointed "Bond Registrar" for the
purpose of registering Bonds and transfers of Bonds as herein provided. Upon any
resignation of any Bond Registrar appointed by the Issuer, the Issuer shall
promptly appoint a successor or, in the absence of such appointment, shall
assume the duties of Bond Registrar.
At any time the Trustee is not also the Bond Registrar, the Trustee
shall be a co-Bond Registrar. The Issuer shall cause each co-Bond Registrar to
furnish the Bond Registrar, promptly after each authentication of a Bond by it,
appropriate information with respect thereto for entry by the Bond Registrar
into the Bond Register. If the Trustee shall at any time not be authorized to
keep and maintain the Bond Register, the Trustee shall have the right to inspect
such Bond Register at all reasonable times and to rely conclusively upon a
certificate of the Person in charge of the Bond Register as to the names and
addresses of the Holders of the Bonds and the principal amounts and numbers of
such Bonds so held.
Upon surrender for registration of transfer of any Bond at the office or
agency of the Issuer to be maintained as provided in Section 3.02, the Issuer
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Bonds of any
authorized denominations and of a like aggregate principal amount and Class.
At the option of the Holder, Bonds may be exchanged for other Bonds of
any authorized denominations, and of a like aggregate initial principal amount
and Class, upon surrender of the Bonds to be exchanged at such office or agency.
Whenever any Bonds are so surrendered for exchange, the Issuer shall execute,
and the Trustee shall authenticate and deliver, the Bonds which the Bondholder
making the exchange is entitled to receive.
All Bonds issued upon any registration of transfer or exchange of Bonds
shall be the valid obligations of the Issuer, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Bonds surrendered
upon such registration of transfer or exchange.
Every Bond presented or surrendered for registration of transfer or
exchange shall be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Trustee duly executed by the Holder thereof
or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Bonds, but the Issuer may require payment of a sum sufficient to
cover any tax or other governmental charge as may be imposed in connection with
any registration of transfer or exchange of Bonds, other than exchanges pursuant
to Section 2.08 not involving any transfer.
SECTION 2.08. MUTILATED, DESTROYED, LOST OR STOLEN BONDS.
If (1) any mutilated Bond is surrendered to the Trustee or the Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Bond and (2) there is delivered to the Trustee such security or indemnity as may
be required by the Trustee to save the Issuer and the Trustee harmless, then, in
the absence of notice to the Issuer or the Trustee that such Bond has been
acquired by a bona fide purchaser, the Issuer shall execute and upon its request
the Trustee shall authenticate and deliver, in exchange for or in lieu of any
such mutilated, destroyed, lost or stolen Bond, a new Bond or Bonds of the same
tenor, aggregate initial principal amount and Class bearing a number not
contemporaneously outstanding. If, after the delivery of such new Bond, a bona
fide purchaser of the original Bond in lieu of which such new Bond was issued
presents for payment such original Bond, the Issuer and the Trustee shall be
entitled to recover such new Bond from the person to whom it was delivered or
any person taking therefrom, except a bona fide purchaser, and shall be entitled
to recover upon the security or indemnity provided therefor to the extent of any
loss, damage, cost or
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expenses incurred by the Issuer or the Trustee in connection therewith. If any
such mutilated, destroyed, lost or stolen Bond shall have become or shall be
about to become due and payable, or shall have become subject to redemption in
full, instead of issuing a new Bond, the Issuer may pay such Bond without
surrender thereof, except that any mutilated Bond shall be surrendered.
Upon the issuance of any new Bond under this Section, the Issuer may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other reasonable expenses
(including the fees and expenses of the Trustee) connected therewith.
Every new Bond issued pursuant to this Section in lieu of any destroyed,
lost or stolen Bond shall constitute an original additional contractual
obligation of the Issuer, whether or not the destroyed, lost or stolen Bond
shall be at any time enforceable by anyone, and shall be entitled to all the
benefits of this Indenture equally and proportionately with any and all other
Bonds duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Bonds.
SECTION 2.09. PAYMENTS OF PRINCIPAL AND INTEREST.
(a) Each payment of principal of and interest on a Book Entry Bond shall
be paid to the Depository, which shall credit the amount of such payments to the
accounts of its Depository Participants in accordance with its normal
procedures. Each Depository Participant shall be responsible for disbursing such
payments to the Beneficial Owners of the Book Entry Bonds that it represents and
to each indirect participating brokerage firm (a "brokerage firm" or "indirect
participating firm") for which it acts as agent. Each brokerage firm shall be
responsible for disbursing funds to the Beneficial Owners of the Book Entry
Bonds that it represents. All such credits and disbursements are to be made by
the Depository and the Depository Participants in accordance with the provisions
of the Bonds. Neither the Trustee, the Bond Registrar nor the Issuer shall have
any responsibility for such credits and disbursements.
Each payment of principal of and interest on a Definitive Bond shall be
paid to the Person in whose name such Bond (or one or more Predecessor Bonds) is
registered at the close of business on the Record Date or Optional Redemption
Record Date, for such Distribution Date or Optional Redemption Date, by check
mailed to such Person's address as it appears in the Bond Register on such
Record Date or the Optional Redemption Record Date, except for the final
installment of principal payable with respect to such Bond, which shall be
payable as provided in Section 2.09(b).
All payments of principal of and interest on the Bonds shall be made
only from the Trust Estate and any other assets of the Issuer, and each Holder
of the Bonds, by its acceptance of the Bonds, agrees that it will have recourse
solely against such Trust Estate and such other assets of the Issuer and that
neither the Owner Trustee in its individual capacity, the Owner nor any of their
respective partners, beneficiaries, agents, officers, directors, employees or
successors or assigns shall be personally liable for any amounts payable, or
performance due, under the Bonds or this Indenture.
(b) All reductions in the principal amount of a Bond (or one or more
Predecessor Bonds) effected by payments of installments of principal made on any
Distribution Date or Optional Redemption Date shall be binding upon all Holders
of such Bond and any Bond issued upon transfer thereof or in exchange therefor
or in lieu thereof. The final installment of principal of each Bond (including
the Redemption Price of any Bond called for optional redemption, if such
optional redemption will result in payment of the entire unpaid principal amount
of any such Bond) shall be payable only upon presentation and surrender thereof
on or after the Distribution Date or Optional Redemption Date therefor at the
office or agency of the Issuer maintained by it for such purpose in the Borough
of Manhattan, the City of New York, State of New York, pursuant to Section 3.02.
Whenever the Trustee expects that the entire remaining unpaid principal amount
of any Bond will become due and payable on the next Distribution Date, it shall,
no later than five days prior to such Distribution Date, mail or cause to be
mailed to the Holder of each Bond as of the close of the business on such
otherwise applicable Record Date a notice to the effect that:
(i) the Trustee expects that funds sufficient to pay such final
installment will be available in the Distribution Account on such
Distribution Date; and
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(ii) if such funds are available, such final installment will be
payable on such Distribution Date, but only upon presentation and
surrender of such Bond at the office or agency of the Issuer maintained
for such purpose pursuant to Section 3.02 (the address of which shall be
set forth in such notice).
Notices in connection with optional redemptions of Bonds shall be mailed
to Holders in accordance with Section 10.02.
SECTION 2.10. PERSONS DEEMED OWNERS.
Prior to due presentment for registration of transfer of any Bond, the
Issuer, [the Bond Insurer], the Trustee, any Agent and any other agent of the
Issuer, [the Bond Insurer], or the Trustee shall treat the Person in whose name
any Bond is registered as the owner of such Bond (a) on the applicable Record
Date or Optional Redemption Record Date for the purpose of receiving payments of
the principal of, and interest on, such Bond and (b) on any other date for all
other purposes whatsoever, whether or not such Bond is overdue, and neither the
Issuer, [the Bond Insurer], the Trustee, any Agent nor any other agent of the
Issuer or the Trustee shall be affected by notice to the contrary.
SECTION 2.11. CANCELLATION.
All Bonds surrendered for payment, registration of transfer, exchange or
redemption shall, if surrendered to any Person other than the Trustee, be
delivered to the Trustee and shall be promptly cancelled by it. The Issuer may
at any time deliver to the Trustee for cancellation any Bond previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Bonds so delivered shall be promptly cancelled by the
Trustee. No Bonds shall be authenticated in lieu of or in exchange for any Bonds
cancelled as provided in this Section, except as expressly permitted by this
Indenture. All cancelled Bonds held by the Trustee shall be held by the Trustee
in accordance with its standard retention policy, unless the Issuer shall direct
by an Issuer Order that they be destroyed or returned to it.
SECTION 2.12. AUTHENTICATION AND DELIVERY OF BONDS.
The Bonds may be executed by the Issuer and delivered to the Trustee for
authentication, and thereupon the same shall be authenticated and delivered by
the Trustee, upon Issuer Request and upon receipt by the Trustee of the
following:
(a) an Issuer Order authorizing the execution, authentication and
delivery of the Bonds and specifying the Classes, the Stated Maturity of the
final installment of principal, the principal amount and the Bond Interest Rate,
of each Class of such Bonds to be authenticated and delivered;
(b) an Issuer Order authorizing the execution and delivery of this
Indenture;
(c) One or more Opinions of Counsel addressed to the Trustee, complying
with the requirements of Section 11.01, reasonably satisfactory in form and
substance to the Trustee, and to the effect that:
(i) all instruments furnished to the Trustee by the Issuer
pursuant to this Section 2.12 in connection with the Bonds conform in
all material respects to the requirements of this Indenture and
constitute all the documents required to be delivered under this Section
2.12 for the Trustee to authenticate and deliver the Bonds (counsel
rendering such opinion or opinions need not express any opinion as to
whether the Mortgage Loans Granted to the Trustee as security conform to
the requirements of this Indenture);
(ii) all conditions precedent provided for in this Indenture
relating to the authentication and delivery of the Bonds have been
complied with in all material respects (counsel rendering such opinion
or opinions need not express any opinion as to the matters set forth in
the parenthetical clause at the end of paragraph (i) above or as to
whether the amount of cash or other collateral, if any, delivered to the
Trustee pursuant to any subsection of this Section 2.12 is the requisite
amount);
(iii) the Bank has corporate power to execute and deliver the
Deposit Trust Agreement, the Deposit Trust Agreement authorizes the
Issuer to execute and deliver the Bonds and this Indenture, and to issue
the Bonds, and the Owner Trustee has duly taken all necessary action
under the Deposit Trust Agreement for those purposes;
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(iv) the Issuer is a statutory business trust created under the
laws of the State of Delaware and duly authorized by the Deposit Trust
Agreement;
(v) assuming due authorization, execution and delivery thereof
by the Trustee, this Indenture will be the legally valid and binding
obligation of the Issuer, enforceable against the Issuer in accordance
with its terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws and equitable principles
relating to or limiting creditors' rights generally and such counsel
need express no opinion as to the availability of equitable remedies;
(vi) the Bonds, when issued, delivered, authenticated and paid
for, will be the legally valid and binding obligations of the Issuer,
entitled to the benefits of this Indenture, and enforceable against the
Issuer in accordance with their terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws and
equitable principles relating to or limiting creditors' rights generally
and such counsel need express no opinion as to the availability of
equitable remedies;
(vii) assuming due execution and delivery thereof by the Trustee
and by the Master Servicer, the Master Servicing Agreement constitutes
the legally valid and binding obligation of the Master Servicer and of
the Issuer, respectively, enforceable against the Master Servicer and
the Issuer in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws and
equitable principles relating to or limiting creditors' rights generally
and such counsel need express no opinion as to the availability of
equitable remedies;
(viii) the Mortgage Notes included in the Original Mortgage Loans
have been duly and validly assigned, delivered and pledged to the
Trustee to the extent contemplated by this Indenture, and this Indenture
together with such assignment, delivery and pledge to the Trustee,
creates as security for the Bonds a valid and perfected security
interest of first priority in such Mortgage Notes, except to the extent
limited in the event (A) the Trustee relinquishes possession of any such
Mortgage Note, (B) the Depositor, the Issuer, the Master Servicer or any
Servicer transfers any such Mortgage Note or the related Mortgage to a
bona fide purchaser for value without notice prior to notification to
the Mortgagor of the assignment to the Trustee of such Mortgage Note or
due recordation of the Assignment to the Trustee of the related Mortgage
or (C) the Depositor, the Issuer, the Master Servicer or any Servicer
discharges any such Mortgage Note or the related Mortgage prior to such
notification or recordation; the Mortgages delivered to the Trustee with
the Original Mortgage Notes will continue to secure the Mortgage Notes
included in the Original Mortgage Loans, as though, and to the same
extent as if, such Mortgage Notes had not been assigned, delivered and
pledged; and it is not necessary to record or file this Indenture or to
take any other action, except as set forth above, in order to make
effective the lien and security interest created by this Indenture in
the Mortgage Notes included in the Original Mortgage Loans;
(ix) this Indenture has been duly qualified under the TIA; and
(x) the Issuer's registration statement with respect to the
Bonds has become effective under the Securities Act of 1933, as amended,
and, to the best of such counsel's knowledge, no stop order suspending
the effectiveness of such registration statement has been issued and is
in effect under such act and no proceedings for that purpose have been
instituted or are pending under such act.
In rendering the opinions set forth above, such counsel may rely upon
officers' certificates of the Depositor, the Owner Trustee, the Issuer, any
Servicer, the Master Servicer and the Trustee, without independent confirmation
or verification, as to the following matters and as to such other matters as
shall be reasonably acceptable to the Trustee: (A) the accuracy of the
descriptions of the Mortgage Notes included in the Original Mortgage Loans and
the conformity thereof to the descriptions in this Indenture, (B) the ownership
by American Eagle Mortgage Funding Corporation, the Depositor and the Issuer of
such Mortgage Notes free and clear of any lien, claim, charge or interest of any
kind of any third party, (C) the physical delivery of such Mortgage Notes to the
Trustee, (D) the absence of any evidence appearing on any such Mortgage Note of
any right or interest inconsistent with the opinions expressed, and (E) the form
of endorsement approved by such counsel having been made on each such Mortgage
Note. In rendering the opinions set forth above, such counsel need express no
opinion as to (A) the perfection of the security interest in any collateral not
governed by Article 9 of the Uniform Commercial Code of the State of California,
(B) the existence of, or the priority of the security interest created by the
Indenture against, any liens or other interests which arise by operation of law
and which do not require any filing or similar action in order to take priority
over a perfected security interest or (C) the priority of the security interest
created by this
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Indenture with respect to any claim or lien in favor of the United States or any
agency or instrumentality thereof (including federal tax liens and liens arising
under Title IV of the Employee Retirement Income Security Act of 1974, as
amended).
(d) an Officers' Certificate complying with the requirements of Section
11.01 and stating that:
(i) the Issuer is not in Default under this Indenture and the
issuance of the Bonds will not result in any breach of any of the terms,
conditions or provisions of, or constitute a default under, the Deposit
Trust Agreement or any indenture, mortgage, deed of trust or other
agreement or instrument to which the Issuer is a party or by which it is
bound, or any order of any court or administrative agency entered in any
proceeding to which the Issuer is a party or by which it may be bound or
to which it may be subject, and that all conditions precedent provided
in this Indenture relating to the authentication and delivery of the
Bonds have been complied with;
(ii) the Issuer is the owner of each Original Mortgage Loan,
free and clear of any lien, security interest or charge, has not
assigned any interest or participation in any such Mortgage Loan (or, if
any such interest or participation has been assigned, it has been
released) and has the right to Grant each such Original Mortgage Loan to
the Trustee;
(iii) the information set forth in the Mortgage Loan Schedule
attached as Schedule A to this Indenture is true and correct in all
material respects as of the Closing Date;
(iv) the Issuer has Granted to the Trustee all of its right,
title and interest in each Mortgage Loan;
(v) as of the Closing Date, no lien in favor of the United
States described in Section 6321 of the Code, or lien in favor of the
Pension Benefit Guaranty Corporation described in Section 4068(a) of the
Employee Retirement Income Security Act of 1974, as amended, has been
filed as described in subsections 6323(f) and 6323(g) of the Code upon
any property belonging to the Issuer; and
(vi) attached thereto is a true and correct copy of letters
signed by the Rating Agencies confirming that the Senior Bonds have been
rated AAA by [ ] and [ ] and that the Class B-1 Bonds have been rated
[ ] by [ ].
(e) An executed counterpart of the Master Servicing Agreement.
(f) A certificate of one or more Independent Persons, whose regular
business activity includes valuing securities and mortgage loans similar to the
Original Mortgage Loans, of the fair value of the Original Mortgage Loans, which
fair value, as so certified, will be equal to or in excess of the sum of the
Original Senior Class Principal Amount and the Original Subordinated Class
Principal Amount, and which determination of fair value shall be as of a date
not earlier than three Business Days prior to the Closing Date.
SECTION 2.13. MATTERS RELATING TO BOOK ENTRY BONDS.
(a) If the Bonds are listed on any stock exchange at any time after the
Closing Date, the Issuer shall, if required as a condition to such listing,
prepare and deliver to the Trustee Bonds in substantially the same form as the
Bonds issued on the Closing Date, but with such other additional features and
such modifications, if any, as shall be necessary or appropriate in order to
comply with the requirements of such stock exchange for the listing of the Bonds
on such exchange. Bonds in the form issued on the Closing Date shall thereafter
be exchangeable for Bonds in such revised form to the same extent as temporary
Bonds are exchangeable for Definitive Bonds pursuant to Section 2.06.
(b) Each Class of Book Entry Bonds will be issued in the form of a
single typewritten bond certificate (each, a "DTC Certificate") to be delivered
to the Depository by the Issuer substantially in the respective forms for each
such Class attached as Exhibits hereto. The DTC Certificate for each such Class
of Book Entry Bonds shall be initially registered on the Bond Register in the
name of the nominee of such Depository and no Beneficial Owner will receive a
certificate representing its interests in any Class of Book Entry Bonds except
in the event that the Trustee issues Definitive Bonds, as provided in Section
2.14. Pursuant to the Letter Agreement, while each Class of the Book Entry Bonds
remains outstanding and such Depository remains the Holder, it will agree to
make book-entry transfers among the Depository Participants and receive and
transmit payments of principal and interest on the Book
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Entry Bonds until and unless the Trustee authenticates and delivers Definitive
Bonds to the Beneficial Owners of the Book Entry Bonds or their nominees, as
described in Section 2.14.
(c) Prior to Book Entry Termination, each Class of Book Entry Bonds will
remain registered in the name of the Depository or its nominee and at all times:
(i) registration of the Book Entry Bonds may not be transferred by the Trustee
or the Bond Registrar except to another Depository; (ii) the Depository shall
maintain book-entry records with respect to the Beneficial Owners and with
respect to ownership and transfers of such Book Entry Bonds; (iii) ownership and
transfers of registration of the Book Entry Bonds on the books of the Depository
shall be governed by applicable rules established by the Depository; (iv) the
Depository may collect its usual and customary fees, charges and expenses from
its Depository Participants; (v) the Trustee shall deal with the Depository,
Depository Participants and interest participating firms as representatives of
the Beneficial Owners of the Book Entry Bonds for purposes of exercising the
rights of holders under the Indenture, and requests and directions for and votes
of such representatives shall not be deemed to be inconsistent if they are made
with respect to different Beneficial Owners; and (vi) the Trustee may rely and
shall be fully protected in relying upon information furnished by the Depository
with respect to its Depository Participants and furnished by the Depository
Participants with respect to indirect participating firms and Persons shown on
the books of such indirect participating firms as direct or indirect Beneficial
Owners.
All transfers by Beneficial Owners of Book Entry Bonds shall be made in
accordance with the procedures established by the Depository Participant or
brokerage firm representing such Beneficial Owner. Each Depository Participant
shall only transfer Book Entry Bonds of Beneficial Owners it represents or of
brokerage firms for which it acts as agent in accordance with the Depository's
normal procedures.
SECTION 2.14. TERMINATION OF BOOK ENTRY SYSTEM.
(a) The book entry system through the Depository with respect to any
Class of Book Entry Bonds may be terminated upon the happening of any of the
following:
(i) The Depository or the Issuer advises the Trustee in writing
that the Depository is no longer willing or able to properly discharge
its responsibilities as Depository and the Issuer is unable to locate a
qualified successor clearing agency satisfactory to the Trustee and the
Issuer;
(ii) The Issuer at its option advises the Trustee in writing that
it elects to terminate the book entry system through the Depository; or
(iii) After the occurrence of an Event of Default (at which time
the Trustee shall use all reasonable efforts to promptly notify each
Beneficial Owner through the Depository of such Event of Default when
such notice shall be given pursuant to Section 6.02), the Beneficial
Owners of a majority in aggregate Class Principal Amount of the Book
Entry Bonds together advise the Trustee and the Depository through the
Depository Participants in writing that the continuation of a book
entry system through the Depository is no longer in the best interests
of the Beneficial Owners.
(b) Upon the occurrence of any event described in subsection (a) above,
the Trustee shall notify all Beneficial Owners, through the Depository, of the
occurrence of any such event and of the availability of Definitive Bond
certificates to Beneficial Owners requesting the same, in an aggregate Class
Principal Amount representing the interest of each, making such adjustments and
allowances as it may find necessary or appropriate as to accrued interest, if
any, and previous calls for redemption. Definitive Bond certificates shall be
issued only upon surrender to the Trustee of the Book Entry Bond by the
Depository, accompanied by registration instructions for the Definitive Bond
certificates. Neither the Issuer nor the Trustee shall be liable for any delay
in delivery of such instructions and may conclusively rely on, and shall be
protected in relying on, such instructions. Upon issuance of the Definitive Bond
certificates, all references herein to obligations imposed upon or to be
performed by the Depository shall cease to be applicable and the provisions
relating to Definitive Bonds shall be applicable.
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ARTICLE III
COVENANTS
SECTION 3.01. PAYMENT OF BONDS.
The Issuer will pay or cause to be duly and punctually paid the
principal of, and interest on, the Bonds in accordance with the terms of the
Bonds and this Indenture.
SECTION 3.02. MAINTENANCE OF OFFICE OR AGENCY.
The Issuer will maintain in the Borough of Manhattan, the City of New
York, the State of New York an office or agency where Bonds may be presented or
surrendered for payment or may be surrendered for registration of transfer or
exchange, and where notices and demands to or upon the Issuer in respect of the
Bonds and this Indenture may be served. The Issuer will give prompt written
notice to the Trustee of the location and any change in the location, of such
office or agency. Until written notice of any change in the location of such
office or agency is delivered to the Trustee or if at any time the Issuer shall
fail to maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, Bonds may be so presented and surrendered, and
such notices and demands may be made or served, at the office of ______________
______________________________________________________ at _____________________
_____________________________________________________.
The Issuer may also from time to time designate one or more other
offices or agencies (in or outside the City of New York) where the Bonds may be
presented or surrendered for any or all such purposes and may from time to time
rescind such designations; provided, however, that (i) no such designation or
rescission shall in any manner relieve the Issuer of its obligation to maintain
an office or agency in the Borough of Manhattan, the City of New York, the State
of New York, for the purposes set forth in the preceding paragraph, (ii)
presentations or surrenders of Bonds for payment may be made only in the City of
New York, the State of New York or at the Corporate Trust Office of the Trustee
and (iii) any designation of an office or agency for payment of Bonds shall be
subject to Section 3.03. The Issuer will give prompt written notice to the
Trustee of any such designation or rescission and of any change in the location
of any such other office or agency.
SECTION 3.03. MONEY FOR BOND PAYMENTS TO BE HELD IN TRUST.
All payments of amounts due and payable with respect to any Bonds which
are to be made from amounts withdrawn from the Distribution Account pursuant to
Section 8.02(c) or Section 5.08 shall be made on behalf of the Issuer by the
Trustee or by a Paying Agent, and no amounts so withdrawn from the Distribution
Account for payments of Bonds shall be paid over to the Issuer under any
circumstances except as provided in this Section 3.03 or in Section 5.08.
If the Issuer shall have a Paying Agent that is not also the Bond
Registrar, it shall furnish, or cause the Bond Registrar to furnish, no later
than
(a) the fifth calendar day after each Record Date, and
(b) the first Business Day after the Optional Redemption Record Date
applicable to the Optional Redemption Date, a list, in such form as such Paying
Agent may reasonably require, of the names and addresses of the Holders of Bonds
and of the number of Individual Bonds of each Class held by each such Holder.
Whenever the Issuer shall have a Paying Agent other than the Trustee, it
will, on or before the Business Day next preceding each Distribution Date and
Optional Redemption Date, direct the Trustee to deposit with such Paying Agent
an aggregate sum sufficient to pay the amounts then becoming due (to the extent
funds are then available for such purpose in the Distribution Account), such sum
to be held in trust for the benefit of the Persons entitled thereto. Any moneys
deposited with a Paying Agent in excess of an amount sufficient to pay the
amounts then becoming due on the Bonds with respect to which such deposit was
made shall, upon Issuer Order, be paid over by such Paying Agent to the Trustee
for application in accordance with Article VIII.
Any Paying Agent shall be appointed by Issuer Order. The Issuer shall
not appoint any Paying Agent which is not, at the time of such appointment, a
depository institution or trust company whose obligations would be Permitted
Investments pursuant to
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clause (iv) of the definition of the term "Permitted Investments". The Issuer
will cause each Paying Agent other than the Trustee to execute and deliver to
the Trustee an instrument in which such Paying Agent shall agree with the
Trustee (and if the Trustee acts as Paying Agent, it hereby so agrees), subject
to the provisions of this Section, that such Paying Agent will:
(1) allocate all sums received for payment to the Holders of
Bonds on each Distribution Date and Optional Redemption Date among such
Holders in the proportion specified in the applicable Distribution Date
Statement, as the case may be, in each case to the extent permitted by
applicable law;
(2) hold all sums held by it for the payment of amounts due with
respect to the Bonds in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise
disposed of as herein provided and pay such sums to such Persons as
herein provided;
(3) if such Paying Agent is not the Trustee, immediately resign
as a Paying Agent and forthwith pay to the Trustee all sums held by it
in trust for the payment of the Bonds if at any time it ceases to meet
the standards set forth above required to be met by a Paying Agent at
the time of its appointment;
(4) if such Paying Agent is not the Trustee, give the Trustee
notice of any Default by the Issuer (or any other obligor upon the
Bonds) in the making of any payment required to be made with respect to
any Bonds for which it is acting as Paying Agent;
(5) if such Paying Agent is not the Trustee, at any time during
the continuance of any such Default, upon the written request of the
Trustee, forthwith pay to the Trustee all sums so held in trust by such
Paying Agent; and
(6) comply with all requirements of the Code, and all regulations
thereunder, with respect to the withholding from any payments made by it
on any Bonds of any applicable withholding taxes imposed thereon and
with respect to any applicable reporting requirements in connection
therewith; provided, however, that with respect to withholding and
reporting requirements applicable to original issue discount (if any) on
any Class of Bonds, the Issuer has provided the calculations pertaining
thereto to the Trustee.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or any other purpose, by Issuer
Order direct any Paying Agent, if other than the Trustee, to pay to the Trustee
all sums held in trust by such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by such Paying
Agent; and upon such payment by any Paying Agent to the Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
Subject to applicable escheat laws, any money held by the Trustee or any
Paying Agent in trust for the payment of any amount due with respect to any Bond
and remaining unclaimed for six years after such amount has become due and
payable to the Holder of such Bond shall be discharged from such trust and, upon
its written request, paid to the Issuer; and the Holder of such Bond shall
thereafter, as an unsecured general creditor, look only to the Issuer for
payment thereof (but only to the extent of the amounts so paid to the Issuer),
and all liability of the Trustee or such Paying Agent with respect to such trust
money shall thereupon cease. The Trustee may, but shall not be required to,
adopt and employ, at the expense of the Issuer, any reasonable means of
notification of such repayment (including, but not limited to, mailing notice of
such repayment to Holders whose Bonds have been called but have not been
surrendered for redemption or whose right to or interest in moneys due and
payable but not claimed is determinable from the records of the Trustee or any
Agent, at the last address of record for each such Holder).
SECTION 3.04. CORPORATE EXISTENCE OF OWNER TRUSTEE.
(a) Subject to subsections (b) and (c) below, the Owner Trustee will
keep in full effect its existence, rights and franchises as a bank and trust
company under the laws of the state of its incorporation.
(b) Any corporation into which the Owner Trustee may be merged or with
which it may be consolidated, or any corporation resulting from any merger or
consolidation to which the Owner Trustee shall be a party, shall be the
successor Owner Trustee under this Indenture without the execution or filing of
any paper, instrument or further act to be done on the part of the parties
hereto, anything herein, or in any agreement relating to such merger or
consolidation, by which any such Owner Trustee may seek to
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retain certain powers, rights and privileges therefore obtaining for any period
of time following such merger or consolidation, to the contrary notwithstanding.
(c) Any successor to the Owner Trustee appointed pursuant to Section
10.01 of the Deposit Trust Agreement shall be the successor Owner Trustee under
this Indenture without the execution or filing of any paper, instrument or
further act to be done on the part of the parties hereto.
(d) Upon any consolidation or merger of or other succession to the Owner
Trustee in accordance with this Section 3.04, the Person formed by or surviving
such consolidation or merger (if other than the Issuer) or the Person succeeding
to the Owner Trustee under the Deposit Trust Agreement may exercise every right
and power of the Owner Trustee, on behalf of the Issuer, under this Indenture
with the same effect as if such Person had been named as the Owner Trustee
herein.
SECTION 3.05. PROTECTION OF TRUST ESTATE.
(a) The Issuer will from time to time execute and deliver all such
supplements and amendments hereto and all such financing statements,
continuation statements, instruments of further assurance and other instruments,
and will take such other action as may be necessary or advisable to:
(i) Grant more effectively all or any portion of the Trust
Estate;
(ii) maintain or preserve the lien of this Indenture or carry
out more effectively the purposes hereof;
(iii) perfect, publish notice of or protect the validity of any
Grant made or to be made by this Indenture;
(iv) enforce any of the Mortgage Documents; or
(v) preserve and defend title to the Trust Estate and the
rights of the Trustee, and of the Bondholders, in the Mortgage Loans
and the other property held as part of the Trust Estate against the
claims of all Persons and parties.
The Issuer hereby designates the Trustee its agent and attorney-in-fact
to execute any financing statement, continuation statement or other instrument
required pursuant to this Section 3.05; provided, however, that such designation
shall not be deemed to create a duty in the Trustee to monitor the compliance of
the Issuer with the foregoing covenants; and provided further, however, that the
duty of the Trustee to execute any instrument required pursuant to this Section
3.05 shall arise only if the Trustee has knowledge pursuant to Section 6.01(d)
of the occurrence of a failure of the Issuer to comply with provisions of this
Section 3.05.
(b) Except as permitted by Section 8.08, the Trustee shall not remove
any portion of the Trust Estate that consists of money or is evidenced by an
instrument, certificate or other writing from the jurisdiction in which it was
held at the date of the most recent Opinion of Counsel delivered pursuant to
Section 3.06 (or from the jurisdiction in which it was held, or to which it is
intended to be removed, as described in the Opinion of Counsel delivered at the
Closing Date pursuant to Section 2.12(c), if no Opinion of Counsel has yet been
delivered pursuant to Section 3.06) or cause or permit ownership or the pledge
of any portion of the Trust Estate that consists of book-entry securities to be
recorded on the books of a Person located in a different jurisdiction from the
jurisdiction in which such ownership or pledge was recorded at such time unless
the Trustee shall have first received an Opinion of Counsel to the effect that
the lien and security interest created by this Indenture with respect to such
property will continue to be maintained after giving effect to such action or
actions.
SECTION 3.06. OPINIONS AS TO TRUST ESTATE.
On or before February 15 in each calendar year, beginning with [the
first calendar year commencing more than three months after the Closing Date,
the Issuer shall furnish to the Trustee an Opinion of Counsel reasonably
satisfactory in form and substance to the Trustee either stating that, in the
opinion of such counsel, such action has been taken as is necessary to maintain
the lien and security interest created by this Indenture and reciting the
details of such action or stating that in the opinion of such counsel no such
action is necessary to maintain such lien and security interest. Such Opinion of
Counsel shall also describe all such actions, if any, that will, in the opinion
of such counsel, be required to be taken to maintain the lien and security
interest of this Indenture with respect to the Trust Estate until May 15 in the
following calendar year.
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SECTION 3.07. PERFORMANCE OF OBLIGATIONS; MASTER SERVICING AGREEMENT.
(a) The Issuer shall punctually perform and observe all of its
obligations and agreements contained in the Deposit Trust Agreement. The Issuer
and the Trustee shall punctually perform and observe all of their respective
obligations and agreements contained in the Master Servicing Agreement.
(b) The Issuer shall not take any action and will use its reasonable
good faith efforts not to permit any action to be taken by others that would
release any Person from any of such Person's covenants or obligations under any
of the Mortgage Documents or under any instrument included in the Trust Estate,
or that would result in the amendment, hypothecation, subordination, termination
or discharge of, or impair the validity or effectiveness of, any of the Mortgage
Documents, except as expressly provided or permitted in this Indenture and the
Master Servicing Agreement or such Mortgage Document or other instrument or
unless such action will not adversely affect the interests of the Holders of the
Bonds.
(c) The Issuer shall monitor the performance of the Master Servicer
under the Master Servicing Agreement, and shall use its reasonable good faith
efforts to cause the Master Servicer duly and punctually to perform all of its
duties and obligations thereunder. Upon the occurrence of a Servicing Default of
which an Authorized Officer of the Issuer has actual knowledge under the Master
Servicing Agreement, the Issuer shall promptly notify the Trustee thereof, and
shall specify in such notice the action, if any, the Issuer is taking in respect
of such Servicing Default. So long as any such Servicing Default shall be
continuing, the Trustee may (i) terminate all of the rights and powers of the
Master Servicer pursuant to the applicable provisions of the Master Servicing
Agreement; (ii) exercise any rights it may have to enforce the Master Servicing
Agreement against the Master Servicer; and/or (iii) waive any such Servicing
Default under the Master Servicing Agreement or take any other action with
respect to such Servicing Default as is permitted thereunder.
(d) Upon any termination by the Trustee of the Master Servicer's rights
and powers pursuant to the Master Servicing Agreement, the rights and powers of
the Master Servicer with respect to the Mortgage Loans shall vest in the Trustee
and the Trustee shall be the successor in all respects to the Master Servicer in
its capacity as Master Servicer with respect to such Mortgage Loans under the
Master Servicing Agreement, until the Trustee shall have appointed, with the
consent of the Issuer, such consent not to be unreasonably withheld, and the
Rating Agencies, and in accordance with the applicable provisions of the Master
Servicing Agreement a new FNMA- or FHLMC-approved Person to serve as successor
to the Master Servicer. With such consent, the Trustee may elect to continue to
serve as successor Master Servicer under the Master Servicing Agreement. Upon
appointment of a successor Master Servicer, the Trustee and such successor
Master Servicer shall enter into a master servicing agreement in a form
substantially similar to the Master Servicing Agreement. In connection with any
such appointment, the Trustee may make such arrangements for the compensation of
such successor as it and such successor shall agree, but in no event shall such
compensation of any successor Master Servicer (including the Trustee) be in
excess of that payable to the Master Servicer under the Master Servicing
Agreement.
(e) Upon any termination of the Master Servicer's rights and powers
pursuant to the Master Servicing Agreement, the Trustee shall promptly notify
the Issuer and the Rating Agencies, specifying in such notice that the Trustee
or any successor Master Servicer, as the case may be, has succeeded the Master
Servicer under the Master Servicing Agreement, which notice shall also specify
the name and address of any such successor Master Servicer.
SECTION 3.08. INVESTMENT COMPANY ACT.
The Issuer shall at all times conduct its operations so as not to be
subject to the Investment Company Act of 1940, as amended (or any successor
statute), and the rules and regulations thereunder.
SECTION 3.09. NEGATIVE COVENANTS.
The Issuer shall not:
(a) sell, transfer, exchange or otherwise dispose of any portion of the
Trust Estate except as expressly permitted by this Indenture or the Master
Servicing Agreement;
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(b) claim any credit on, or make any deduction from, the principal of,
or interest on, any of the Bonds by reason of the payment of any taxes levied or
assessed upon any portion of the Trust Estate;
(c) engage in any business or activity other than in connection with, or
relating to, the issuance of the Bonds and the Investor Certificate pursuant to
this Indenture and the Deposit Trust Agreement, respectively, or amend Section
2.03 or Section 11.01 of the Deposit Trust Agreement as in effect on the Closing
Date without, in each case, the consent of the Holders of 66 2/3% of the
aggregate Class Principal Amount of the Bonds then Outstanding;
(d) incur any indebtedness or assume or guaranty any indebtedness of any
Person, except for such indebtedness as may be incurred by the Issuer in
connection with the issuance of the Bonds pursuant to this Indenture;
(e) dissolve or liquidate in whole or in part; or
(f) (i) permit the validity or effectiveness of this Indenture or any
Grant to be impaired, or permit the lien of this Indenture to be amended,
hypothecated, subordinated, terminated or discharged, or permit any Person to be
released from any covenants or obligations under this Indenture, except as may
be expressly permitted hereby, (ii) permit any lien, charge, security interest,
mortgage or other encumbrance (other than the lien of this Indenture, the lien
created by Section 8.04 of the Deposit Trust Agreement, as in effect on the
Closing Date, or any Permitted Encumbrance) to be created on or extended to or
otherwise arise upon or burden the Trust Estate or any part thereof or any
interest therein or the proceeds thereof or (iii) permit the lien of this
Indenture not to constitute a valid perfected first priority security interest
in the Trust Estate.
SECTION 3.10. ANNUAL STATEMENT AS TO COMPLIANCE.
On or before 120 days after the end of the first fiscal year of the
Issuer which ends more than three months after the Closing Date, and each fiscal
year thereafter, the Issuer shall deliver to the Trustee a written statement,
signed by an Authorized Officer, stating that:
(1) a review of the fulfillment by the Issuer during such year of
its obligations under this Indenture has been made under such officer's
supervision; and
(2) to the best of such officer's knowledge, based on such
review, the Issuer has fulfilled all of its obligations under this
Indenture throughout such year, or, if there has been a Default in the
fulfillment of any such obligation, specifying each such Default known
to such officer and the nature and status thereof.
SECTION 3.11. RECORDING OF ASSIGNMENTS.
The Issuer shall cause the Assignments of the Mortgage Loans securing
the Bonds to be duly recorded in the manner specified in Section 2(a)(i) of the
Master Servicing Agreement. If the Issuer fails to cause the Assignment to be
recorded within the time limit provided thereunder, the Issuer shall cause the
Master Servicer to purchase such corresponding Mortgage Loan pursuant to Section
8.04 and the applicable provisions of the Master Servicing Agreement.
SECTION 3.12. LIMITATION OF LIABILITY OF __________.
It is expressly understood and agreed by the parties hereto that (a)
this Indenture is executed and delivered by _________________________, not
individually or personally but solely as owner trustee of American Residential
Eagle Bond Trust [199__-__] under the Deposit Trust Agreement, in the exercise
of the powers and authority conferred and vested in it, (b) each of the
representations, undertakings and agreements herein made on the part of the
Issuer is made and intended not as personal representations, undertakings and
agreements by ________________________, but is made and intended for the purpose
for binding only the Issuer, (c) nothing herein contained shall be construed as
creating any liability on ___ _____________________, other than any liability
arising out of its gross negligence, bad faith or willful misconduct, and (d)
under no circumstances shall ________________________ be personally liable for
the payment of any indebtedness or expenses of the Issuer or be liable for the
breach or failure of any obligation, representation, warranty or covenant made
or undertaken by the Issuer under this Indenture or the other Operative
Agreements.
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ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.01. SATISFACTION AND DISCHARGE OF INDENTURE.
Whenever the following conditions shall have been satisfied:
(1) either
(A) all Bonds theretofore authenticated and delivered (other than
(i) Bonds which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 2.08, and (ii) Bonds for whose
payment money has theretofore been deposited in trust and thereafter
repaid to the Issuer, as provided in Section 3.03) have been delivered
to the Trustee for cancellation; or
(B) all Bonds not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
(ii) will become due and payable at the Stated Maturity
of the final installment of the principal thereof within one
year, or
(iii) are to be called for redemption within one year
under irrevocable arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in the name,
and at the expense, of the Issuer, and the Issuer, in the case of
clauses (B)(i), (B)(ii) or (B)(iii) above, has deposited or
caused to be deposited with the Trustee, in trust for such
purpose, an amount sufficient to pay and discharge the entire
indebtedness on such Bonds not theretofore delivered to the
Trustee for cancellation, for principal and interest to the
Stated Maturity of their entire unpaid principal amount or to the
applicable Redemption Date, as the case may be, and in the case
of Bonds which were not paid at the Stated Maturity of their
entire unpaid principal amount, for all overdue principal and all
interest payable on such Bonds to the next succeeding
Distribution Date therefor;
(2) the Issuer has paid or caused to be paid all other sums payable
hereunder by the Issuer; and
(3) the Issuer has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel reasonably satisfactory in form and substance to the
Trustee each stating that all conditions precedent herein providing for the
satisfaction and discharge of this Indenture have been complied with; then, upon
Issuer Request, this Indenture and the lien, rights and interests created hereby
shall cease to be of further effect, and the Trustee and each co-trustee and
separate trustee, if any, then acting as such hereunder shall, at the expense of
the Issuer, execute and deliver all such instruments as may be necessary to
acknowledge the satisfaction and discharge of this Indenture and shall pay, or
assign or transfer and deliver, to the Issuer or upon Issuer Order all Mortgage
Loans, cash, securities and other property held by it as part of the Trust
Estate remaining after satisfaction of the conditions set forth in clauses (1)
and (2) above.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Issuer to the Trustee under Section 6.07, the obligations of
the Trustee to the Issuer and the Holders of Bonds under Section 3.03, the
obligations of the Trustee to the Holders of Bonds under Section 4.02 and the
provisions of Article II with respect to lost, stolen, destroyed or mutilated
Bonds, registration of transfers of Bonds and rights to receive payments of
principal of, and interest on, the Bonds shall survive.
SECTION 4.02. APPLICATION OF TRUST MONEY.
All money deposited with the Trustee pursuant to Sections 3.03 and 4.01
shall be held in trust and applied by it, in accordance with the provisions of
the Bonds and this Indenture, to the payment, either directly or through any
Paying Agent, as the Trustee may determine, to the Persons entitled thereto, of
the principal and interest for whose payment such money has been deposited with
the Trustee.
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ARTICLE V
DEFAULTS AND REMEDIES
SECTION 5.01. EVENT OF DEFAULT.
"Event of Default", wherever used herein, means, with respect to Bonds
issued hereunder, any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(1) if the Issuer shall
(A) default in the payment when and as due of any installment of
principal of or interest on any Bond, or
(B) default in the payment of the Redemption Price of any Bond
which has been called for optional redemption pursuant to Article X;
(2) if the Issuer shall breach, or default in the due observance, of any
one or more of the covenants set forth in clauses (a) through (e) of Section
3.09;
(3) if the Issuer shall breach, or default in the due observance or
performance of, any other of its covenants in this Indenture, and such Default
shall continue for a period of 30 days after there shall have been given, by
registered or certified mail, to the Issuer by the Trustee, or to the Issuer and
the Trustee [by the Bond Insurer, or, during the existence of a Bond Insurer
Default] by the Holders of Bonds representing more than 50% of the aggregate
Class Principal Amount of the Controlling Class, a written notice specifying
such Default and requiring it to be remedied and stating that such notice is a
"Notice of Default" hereunder;
(4) if any representation or warranty of the Issuer made in this
Indenture or any certificate or other writing delivered pursuant hereto or in
connection herewith shall prove to be incorrect in any material respect as of
the time when the same shall have been made and, within 30 days after there
shall have been given, by registered or certified mail, written notice thereof
to the Issuer by the Trustee, or to the Issuer and the Trustee by the Holders of
Bonds representing more than 50% of the aggregate Class Principal Amount of the
Controlling Class, the circumstance or condition in respect of which such
representation or warranty was incorrect shall not have been eliminated or
otherwise cured;
(5) the entry of a decree or order for relief by a court having
jurisdiction in respect of the Issuer in an involuntary case under the federal
bankruptcy laws, as now or hereafter in effect, or any other present or future
federal or state bankruptcy, insolvency or similar law, or appointing a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Issuer or of any substantial part of its property, or
ordering the winding up or liquidation of the affairs of the Issuer and the
continuance of any such decree or order unstayed and in effect for a period of
60 consecutive days; or
(6) the commencement by the Issuer of a voluntary case under the federal
bankruptcy laws, as now or hereafter in effect, or any other present or future
federal or state bankruptcy, insolvency or similar law, or the consent by the
Issuer to the appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the
Issuer or of any substantial part of its property or the making by the Issuer of
an assignment for the benefit of creditors or the failure by the Issuer
generally to pay its debts as such debts become due or the taking of corporate
action by the Issuer in furtherance of any of the foregoing.
(a) Notwithstanding the foregoing, prior to the payment in full of the
Senior Bonds, the failure of the Issuer to pay when and as due any installment
of principal of or interest (regardless of the lapse of any grace period) on any
Subordinated Bond shall not constitute an Event of Default hereunder. In
addition, notwithstanding any applicable provision of this Indenture, upon
payment in full of the Senior Bonds, the prior occurrence of any such shortfalls
attributable to the Subordinated Bonds, which shortfalls have previously been
paid in full, will not constitute an Event of Default hereunder in respect of
the Subordinated Bonds. Subject to the foregoing, Section 5.01 of the Indenture
shall otherwise apply in all respects to the Subordinated Bonds.
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(b) Notwithstanding the foregoing, the failure of the Issuer to pay when
and as due any installment of principal of (regardless of the lapse of any grace
period) any Senior Bond shall not constitute an Event of Default hereunder
unless the Senior Class Principal Amount exceeds the aggregate Stated Principal
Balances of the Mortgage Loans after application of all available amounts on
deposit in the Distribution Account on a Distribution Date. Subject to the
foregoing, Section 5.01 of the Indenture shall otherwise apply in all respects
to the Senior Bonds.
SECTION 5.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default occurs and is continuing with respect to the
Bonds, then and in every such case the Trustee or the Holders of Bonds
representing more than 50% of the aggregate Class Principal Amount of the
Controlling Class may declare all the Bonds to be immediately due and payable,
by a notice in writing to the Issuer (and to the Trustee if given by
Bondholders), and upon any such declaration such Bonds shall become immediately
due and payable in an amount equal to:
(i) the aggregate Class Principal Amount of all Classes of
Bonds,
(ii) accrued and unpaid interest at the respective Bond
Interest Rates on the aggregate Class Principal Amount through the
date of acceleration, and
(iii) in the case of the Senior Bonds, interest (but only to the
extent payment thereof shall be legally enforceable) on any overdue
installments of interest on the Senior Bonds from the Stated Maturity of
any such installments to the date of the acceleration at the Bond
Interest Rate at which such interest accrued or such lower rate at which
payment of such interest shall be legally enforceable.
At any time after such a declaration of acceleration of maturity of the
Bonds has been made and before a judgment or decree for payment of the money due
has been obtained by the Trustee as hereinafter in this Article provided, the
Holders of Bonds representing more than 50% of the aggregate Class Principal
Amount of the Controlling Class, by written notice to the Issuer and the
Trustee, may rescind and annul such declaration and its consequences if:
(1) the Issuer has paid or deposited with the Trustee a sum sufficient
to pay:
(A) all payments of principal of, and interest on, all Bonds and
all other amounts which would then be due hereunder or upon such Bonds
if the Event of Default giving rise to such acceleration had not
occurred; and
(B) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(2) all Events of Default, other than the nonpayment of the principal of
Bonds which have become due solely by such acceleration, have been cured or
waived as provided in Section 5.15.
No such rescission shall affect any subsequent Default or impair any
right consequent thereon.
SECTION 5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE.
Subject to Section 5.05, the Issuer covenants that if an Event of
Default shall occur and be continuing in respect to the Bonds and the Bonds have
been declared due and payable and such declaration and its consequences have not
been rescinded and annulled, the Issuer will, upon demand of the Trustee, pay to
the Trustee, for the benefit of the Holders of the Bonds:
(i) the amounts specified in the first paragraph of Section 5.02, and
(ii) in addition thereto, such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
If the Issuer fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
Proceeding for the collection of the sums so due and unpaid, and may prosecute
such Proceeding to judgment or
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final decree, and may enforce the same against the Issuer or any other obligor
upon the Bonds and collect, out of the Trust Estate (as defined in the Deposit
Trust Agreement), wherever situated, of the Issuer, the moneys adjudged or
decreed to be payable in the manner provided by law; provided, however, that
neither the Bank nor any of its agents, officers, directors, employees,
successors or assigns shall be personally liable for any amounts due under the
Bonds or this Indenture.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Bondholders by any Proceedings the Trustee deems appropriate to protect and
enforce any such rights, whether for the specific enforcement of any covenant or
agreement in this Indenture or in aid of the exercise of any power granted
herein, or enforce any other proper remedy, including, without limitation,
instituting a Proceeding prior to any declaration of acceleration of the
Maturity of the Bonds for the collection of all amounts then due and unpaid on
such Bonds, prosecuting such Proceeding to final judgment or decree, enforcing
the same against the Issuer and collecting out of the property, wherever
situated, of the Issuer the moneys adjudged or decreed to be payable in the
manner provided by law.
SECTION 5.04. REMEDIES.
If an Event of Default shall have occurred and be continuing and the
Bonds have been declared due and payable and such declaration and its
consequences have not been rescinded and annulled, the Trustee (subject to
Section 5.18, to the extent applicable) may do one or more of the following:
(a) institute Proceedings for the collection of all amounts then payable
on the Bonds, or under this Indenture, whether by declaration or otherwise,
enforce any judgment obtained, and collect from the Issuer moneys adjudged due;
(b) in accordance with Section 5.18, sell the Trust Estate or any
portion thereof or rights or interest therein, at one or more public or private
Sales called and conducted in any manner permitted by law;
(c) institute Proceedings from time to time for the complete or partial
foreclosure of this Indenture with respect to the Trust Estate; and
(d) exercise any remedies of a secured party under the Uniform
Commercial Code and take any other appropriate action to protect and enforce the
rights and remedies of the Trustee or the Holders of the Bonds hereunder.
SECTION 5.05. [RESERVED].
SECTION 5.06. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, composition or other judicial
Proceeding relative to the Issuer or any other obligor upon any of the Bonds or
the property of the Issuer or of such other obligor or their creditors, the
Trustee (irrespective of whether the Bonds shall then be due and payable as
therein expressed or by declaration or otherwise and irrespective of whether the
Trustee shall have made any demand on the Issuer for the payment of any overdue
principal or interest) shall be entitled and empowered, by intervention in such
Proceeding or otherwise to:
(i) file and prove a claim for the whole amount of principal and
interest owing and unpaid in respect of the Bonds and file such other papers or
documents and take such other actions as it deems necessary or advisable in
order to have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel) and of the Bondholders allowed in such Proceeding; and
(ii) collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same; and any receiver,
assignee, trustee, liquidator or sequestrator (or other similar official) in any
such Proceeding is hereby authorized by each Bondholder to make such payments to
the Trustee and, in the event that the Trustee shall consent to the making of
such payments directly to the Bondholders, to pay to the Trustee any amount due
it for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 6.07.
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Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Bondholder any plan
of reorganization, arrangement, adjustment or composition affecting any of the
Bonds or the rights of any Holder thereof, or to authorize the Trustee to vote
in respect of the claim of any Bondholder in any such Proceeding.
SECTION 5.07. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF BONDS.
All rights of action and claims under this Indenture or any of the Bonds
may be prosecuted and enforced by the Trustee without the possession of any of
the Bonds or the production thereof in any Proceeding relating thereto, and any
such Proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall be for the
ratable benefit of the Holders of the Bonds in respect of which such judgment
has been recovered. Any surplus shall be available, in accordance with Section
5.08, for the payment of the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel.
SECTION 5.08. APPLICATION OF MONEY COLLECTED.
If the Bonds have been declared due and payable following an Event of
Default and such declaration and its consequences have not been rescinded and
annulled, any money collected by the Trustee with respect to the Bonds pursuant
to this Article or otherwise and any monies that may then be held or thereafter
received by the Trustee with respect to the Bonds shall be applied, after
payment to the Trustee of such amounts as may be payable to it under Section
6.07, in the order, at the date or dates fixed by the Trustee and, in case of
the distribution of the entire amount due on account of principal of, and
interest on, such Bonds, upon presentation and surrender thereof:
First: To the payment of amounts then due and unpaid to any Servicer or
the Master Servicer in respect of Nonrecoverable Advances made by such Servicer
or the Master Servicer pursuant to the related Servicing Agreement or the Master
Servicing Agreement;
Second: To the payment of amounts of interest and principal then due and
unpaid upon the Outstanding Bonds in accordance with the priorities set forth in
Section 2.03(b); and
Third: To the payment of the remainder, if any, to the Issuer or any
other Person legally entitled thereto.
SECTION 5.09. LIMITATION ON SUITS.
No Holder of a Bond shall have any right to institute any Proceedings,
judicial or otherwise, with respect to this Indenture, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to the Trustee of a
continuing Event of Default;
(2) the Holders of Bonds representing more than 50% of the aggregate
Class Principal Amount of the Controlling Class shall have made written request
to the Trustee to institute Proceedings in respect of such Event of Default in
its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee indemnity in full
against the costs, expenses and liabilities to be incurred in compliance with
such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such Proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of Bonds representing
more than 50% of the aggregate Class Principal Amount of the Controlling Class;
it being understood and intended that no one or more Holders of Bonds shall have
any right in any manner whatever by virtue of, or by availing themselves of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders of Bonds or to obtain or to seek to obtain priority or preference
over any other Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all the
Holders of Bonds.
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SECTION 5.10. UNCONDITIONAL RIGHTS OF BONDHOLDERS TO RECEIVE PRINCIPAL
AND INTEREST.
Notwithstanding any other provision in this Indenture, other than the
provisions hereof limiting the right to recover amounts due on a Bond to
recovery from the property of the Issuer, the Holder of any Bond shall have the
right, to the extent permitted by applicable law, which right is absolute and
unconditional, to receive payment of each installment of interest on such Bond
on the respective Stated Maturities of such installments of interest, to receive
payment of each installment of principal of such Bond when due (or, in the case
of any Bond called for redemption, on the date fixed for such redemption) and to
institute suit for the enforcement of any such payment, and such right shall not
be impaired without the consent of such Holder.
SECTION 5.11. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Bondholder has instituted any Proceeding to
enforce any right or remedy under this Indenture and such Proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Bondholder, then and in every such case the Issuer, the
Trustee and the Bondholders shall, subject to any determination in such
Proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Trustee and the
Bondholders shall continue as though no such Proceeding had been instituted.
SECTION 5.12. RIGHTS AND REMEDIES CUMULATIVE.
No right or remedy herein conferred upon or reserved to the Trustee or
to the Bondholders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 5.13. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any Bond to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Bondholders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Bondholders, as the
case may be.
SECTION 5.14. CONTROL BY BONDHOLDERS.
The Holders of Bonds representing more than 50% of the aggregate Class
Principal Amount of the Controlling Class 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; provided,
however, that:
(1) such direction shall not be in conflict with any rule of law or with
this Indenture;
(2) any direction to the Trustee to undertake a Sale of the Trust Estate
shall be by the Holders of Bonds representing the percentage of the aggregate
Class Principal Amount of the Controlling Class specified in Section 5.18(b)(1),
unless Section 5.18(b)(2) is applicable; and
(3) [Reserved];
(4) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction; provided, however, that, subject
to Section 6.01, the Trustee need not take any action which it determines might
involve it in liability or be unjustly prejudicial to the Bondholders not
consenting.
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SECTION 5.15. WAIVER OF PAST DEFAULTS.
The Holders of Bonds representing more than 50% of the aggregate Class
Principal Amount of the Controlling Class may on behalf of the Holders of all
the Bonds of such Class waive any past Default hereunder and its consequences,
except a Default:
(1) in the payment of any installment of principal of, or interest on,
any Bond; or
(2) in respect of a covenant or provision hereof which under Section
9.02 cannot be modified or amended without the consent of the Holder of each
Outstanding Bond affected.
Upon any such waiver, such Default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
SECTION 5.16. UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any Bond by his
or her acceptance thereof shall be deemed to have agreed, that any court may in
its discretion require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Bondholder, or group of Bondholders,
holding in the aggregate Bonds representing more than 10% of the aggregate Class
Principal Amount of the Controlling Class, or to any suit instituted by any
Bondholder for the enforcement of the payment of any installment of interest on
any Bond on or after the Stated Maturity thereof expressed in such Bond or for
the enforcement of the payment of any installment of principal of any Bond when
due (or, in the case of any Bond called for redemption, on or after the
applicable redemption date).
SECTION 5.17. WAIVER OF STAY OR EXTENSION LAWS.
The Issuer covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension of law wherever enacted,
now or at any time hereafter in force, which may affect the covenants in, or the
performance of, this Indenture; and the Issuer (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
SECTION 5.18. SALE OF TRUST ESTATE.
(a) The power to effect any sale (a "Sale") of any portion of the Trust
Estate pursuant to Section 5.04 shall not be exhausted by any one or more Sales
as to any portion of the Trust Estate remaining unsold, but shall continue
unimpaired until the entire Trust Estate shall have been sold or all amounts
payable on the Bonds and under this Indenture with respect thereto shall have
been paid. The Trustee may from time to time postpone any public Sale by public
announcement made at the time and place of such Sale. The Trustee hereby
expressly waives its right to any amount fixed by law as compensation for any
Sale.
(b) To the extent permitted by law, the Trustee shall not in any private
Sale sell or otherwise dispose of the Trust Estate, or any portion thereof,
unless:
(1) the Holders of all Controlling Class consent to, or direct
the Trustee to make, such Sale; or
(2) the proceeds of such Sale would be not less than the entire
amount which would be distributable to the Holders of the Bonds, in full
payment thereof in accordance with Section 5.08, on the Distribution
Date next succeeding the date of such Sale.
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(3) [Reserved]
The purchase by the Trustee of all or any portion of the Trust Estate at
a private Sale shall not be deemed a Sale or disposition thereof for purposes of
this Section 5.18(b).
(c) Unless the Holders of all Controlling Class have otherwise consented
or directed the Trustee, at any public Sale of all or any portion of the Trust
Estate at which a minimum bid equal to or greater than the amount described in
paragraph (2) of subsection (b) of this Section 5.18 has not been established by
the Trustee and no Person bids an amount equal to or greater than such amount,
the Trustee shall bid an amount at least $1.00 more than the highest other bid.
(d) In connection with a Sale of all or any portion of the Trust Estate:
(1) any Holder or Holders of Bonds may bid for and purchase the
property offered for Sale, and upon compliance with the terms of sale
may hold, retain and possess and dispose of such property, without
further accountability, and may, in paying the purchase money therefor,
deliver any Controlling Class or claims for interest thereon in lieu of
cash up to the amount which shall, upon distribution of the net proceeds
of such Sale, be payable thereon, and such Bonds, in case the amount so
payable thereon shall be less than the amount due thereon, shall be
returned to the Holders thereof after being appropriately stamped to
show such partial payment;
(2) the Trustee may bid for and acquire the property offered for
Sale in connection with any public Sale thereof, and, in lieu of paying
cash therefor, may make settlement for the purchase price by crediting
the gross Sale price against the sum of (A) the amount which would be
distributable to the Holders of the Bonds as a result of such Sale in
accordance with Section 5.08 on the Distribution Date next succeeding
the date of such Sale and (B) the expenses of the Sale and of any
Proceedings in connection therewith which are reimbursable to it,
without being required to produce the Bonds in order to complete any
such Sale or in order for the net Sale price to be credited against such
Bonds, and any property so acquired by the Trustee shall be held and
dealt with by it in accordance with the provisions of this Indenture;
(3) the Trustee shall execute and deliver an appropriate
instrument of conveyance transferring its interest in any portion of the
Trust Estate in connection with a Sale thereof;
(4) the Trustee is hereby irrevocably appointed the agent and
attorney-in-fact of the Issuer to transfer and convey its interest in
any portion of the Trust Estate in connection with a Sale thereof, and
to take all action necessary to effect such Sale; and
(5) no purchaser or transferee at such a Sale shall be bound to
ascertain the Trustee's authority, inquire into the satisfaction of any
conditions precedent or see to the application of any moneys.
SECTION 5.19. ACTION ON BONDS.
The Trustee's right to seek and recover judgment under this Indenture
shall not be affected by the seeking, obtaining or application of any other
relief under or with respect to this Indenture. Neither the lien of this
Indenture nor any rights or remedies of the Trustee or the Holders of Bonds
shall be impaired by the recovery of any judgment by the Trustee against the
Issuer or by the levy of any execution under such judgment upon any portion of
the Trust Estate.
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ARTICLE VI
THE TRUSTEE
SECTION 6.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent person
would exercise or use under the circumstances in the conduct of his or her own
affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties that are
specifically set forth in this Indenture and no others and no implied
covenants or obligations shall be read into this Indenture; and
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this
Indenture. The Trustee shall, however, examine such certificates and
opinions to determine whether they conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liability for its own negligent
action, its own negligent failure to act or its own willful misconduct, except
that:
(1) This paragraph does not limit the effect of subsection (b)
of this Section;
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts; and
(3) The Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 5.14 or Section 5.18.
(d) Except with respect to duties of the Trustee prescribed by the TIA,
as to which this Section 6.01(d) shall not apply, for all purposes under this
Indenture, the Trustee shall not be deemed to have notice or knowledge of any
Event of Default described in Section 5.01(2), 5.01(5) or 5.01(6) or any Default
described in Section 5.01(3) or 5.01(4) or any Servicing Default or default
under the Master Servicing Agreement unless a Responsible Officer assigned to
and working in the Trustee's corporate trust department has actual knowledge
thereof or unless written notice of any event which is in fact such an Event of
Default, Servicing Default or default is received by the Trustee at the
Corporate Trust Office, and such notice references the Bonds generally, the
Issuer, the Trust Estate or this Indenture.
(e) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it. In determining that such repayment or indemnity is
not reasonably assured to it, the Trustee must consider not only the likelihood
of repayment or indemnity by or on behalf of the Issuer but also the likelihood
of repayment or indemnity from amounts payable to it from the Trust Estate
pursuant to Sections 6.07 and 8.02(d); provided, however, that, except as
provided in the first sentence of this Section 6.01(e), the Trustee shall not
refuse or fail to perform any of its duties hereunder solely as a result of
nonpayment of its reasonable fees and expenses; and provided further, however,
that nothing in this Section 6.01(e) shall be construed to limit the exercise by
the Trustee of any right or remedy permitted under this Indenture or otherwise
in the event of the Issuer's failure to pay the amounts due the Trustee pursuant
to Section 6.07.
(f) Every provision of this Indenture that in any way relates to the
Trustee is subject to the provisions of this Section.
(g) Notwithstanding any extinguishment of all right, title and interest
of the Issuer in and to the Trust Estate following an Event of Default and a
consequent declaration of acceleration of the Maturity of the Bonds, whether
such extinguishment occurs
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through a Sale of the Trust Estate to another Person, the acquisition of the
Trust Estate by the Trustee or otherwise, the rights, powers and duties of the
Trustee with respect to the Trust Estate (or the proceeds thereof) and the
Bondholders and the rights of Bondholders shall continue to be governed by the
terms of this Indenture.
SECTION 6.02. NOTICE OF DEFAULT.
Within 90 days after the occurrence of any Default known to the Trustee,
the Trustee shall transmit by mail to all Holders of Bonds notice of each such
Default, unless such Default shall have been cured or waived; provided, however,
that except in the case of a Default of the type described in Section 5.01(1),
the Trustee shall be protected in withholding such notice if and so long as the
board of directors, the executive committee or a trust committee of directors
and/or Responsible Officers of the Trustee in good faith determine that the
withholding of such notice is in the interests of the Holders of the Bonds; and
provided, further, that in the case of any Default of the character specified in
Section 5.01(3) or 5.01(4) no such notice to Holders of the Bonds shall be given
until at least 30 days after the occurrence thereof. Concurrently with the
mailing of any such notice to the Holders of the Bonds, the Trustee shall
transmit by mail a copy of such notice to the Rating Agencies.
SECTION 6.03. RIGHTS OF TRUSTEE.
Except as otherwise provided in Section 6.01 hereof:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, note or other paper or
document believed by it to be genuine and to have been signed or presented by
the proper party or parties;
(b) any request or direction of the Issuer mentioned herein shall be
sufficiently evidenced by an Issuer Request or Issuer Order, and any resolution
of the board of directors may be sufficiently evidenced by a written resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officers' Certificate or the Officer's Certificate of the Master
Servicer;
(d) the Trustee may consult with counsel, and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Bondholders pursuant to this Indenture, unless such Bondholders shall
have offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, note or other
paper or document, but the Trustee, in its discretion may make such further
inquiry or investigation into such facts or matters as it may see fit, and if
the Trustee shall determine to make such further inquiry or investigation, it
shall be entitled, on reasonable prior notice to the Issuer, to examine the
books, records and premises of the Issuer, personally or by agent or attorney,
during the Issuer's normal business hours; provided that the Trustee shall and
shall cause its agents to hold in confidence all such information except to the
extent disclosure may be required by law and except to the extent that the
Trustee, in its sole judgment, may determine that such disclosure is consistent
with its obligations hereunder;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed and supervised with
due care by it hereunder;
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(h) the Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers;
(i) prior to the time that one of its Responsible Officers obtains
actual knowledge of a Servicing Default as defined in the Master Servicing
Agreement or a failure by the Master Servicer thereunder which with notice and
the passage of time will become a Servicing Default, the Trustee shall not be
responsible for taking action with respect thereto;
(j) the Trustee shall not be responsible for supervising, monitoring or
reviewing the Master Servicer's performance of its duties under the Master
Servicing Agreement except to the extent of determining (i) that the periodic
reports, certificates and opinions required to be delivered by the Master
Servicer to it thereunder are delivered in timely fashion and conform to the
requirements of the Master Servicing Agreement, (ii) that the amounts received
by it from the Master Servicer for deposit in the Distribution Account during
any month are as shown in the Master Servicer's report for such month, (iii) and
that any Trustee Mortgage File or document therein that has been released by the
Trustee to the Master Servicer is returned as provided in the Master Servicing
Agreement; and
(k) the provisions of this Section, other than clauses (e), (i) and (j),
and of Sections 6.01(b) and (c) shall apply to the Trustee as it may be
Successor Master Servicer under the Master Servicing Agreement.
SECTION 6.04. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF BONDS.
The recitals contained herein and in the Bonds, except the certificates
of authentication on the Bonds, shall be taken as the statements of the Issuer,
and the Trustee assumes no responsibility for their correctness. The Trustee
makes no representations with respect to the Trust Estate or as to the validity
or sufficiency of this Indenture or of the Bonds. The Trustee shall not be
accountable for the use or application by the Issuer of the Bonds or the
proceeds thereof or any money paid to the Issuer or upon Issuer Order pursuant
to the provisions hereof.
SECTION 6.05. MAY HOLD BONDS.
The Trustee, any Agent, or any other agent of the Issuer, in its
individual or any other capacity, may become the owner or pledgee of Bonds and,
subject to Sections 6.08 and 6.13, may otherwise deal with the Issuer or any
Affiliate of the Issuer with the same rights it would have if it were not the
Trustee, Agent or such other agent.
SECTION 6.06. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by this Indenture or by law. The
Trustee shall be under no liability for interest on any money received by it
hereunder except as otherwise agreed with the Issuer and except to the extent of
income or other gain on investments which are obligations of the Trustee, in its
commercial capacity, and income or other gain actually received by the Trustee
on investments, which are obligations of others.
SECTION 6.07. COMPENSATION AND REIMBURSEMENT.
The Issuer agrees:
(1) subject to any separate written agreement with the Trustee, to pay
the Trustee from time to time reasonable compensation for all services rendered
by it hereunder (which compensation shall not be limited by any provision of law
in regard to the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in connection with the performance of its duties
hereunder (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee and its agents for, and to hold them
harmless against, any loss, liability or expense incurred without negligence or
bad faith on their part, arising out of, or in connection with, the acceptance
or administration of this trust,
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including the costs and expenses of defending themselves against any claim in
connection with the exercise or performance of any of their powers or duties
hereunder, provided that:
(i) with respect to any such claim, the Trustee shall have
given the Issuer written notice thereof promptly after the Trustee shall
have knowledge thereof;
(ii) while maintaining absolute control over its own defense,
the Trustee shall cooperate and consult fully with the Issuer in
preparing such defense; and
(iii) notwithstanding anything to the contrary in this Section
6.07(3), the Issuer shall not be liable for settlement of any such claim
by the Trustee entered into without the prior consent of the Issuer.
As security for the performance of the obligations of the Issuer under
this Section, the Trustee shall have a lien ranking junior to the lien of the
Bonds with respect to which any claim of the Trustee under this Section arose
(but senior to all other liens, if any) upon all property and funds held or
collected as part of the Trust Estate by the Trustee in its capacity as such.
The Trustee shall not institute any Proceeding seeking the enforcement of such
lien against the Trust Estate unless such Proceeding is in connection with a
Proceeding in accordance with Article V for enforcement of the lien of this
Indenture after the occurrence of an Event of Default (other than an Event of
Default arising solely from the Issuer's failure to pay amounts due the Trustee
under this Section 6.07) and a resulting declaration of acceleration of Maturity
of the Bonds which has not been rescinded and annulled.
SECTION 6.08. ELIGIBILITY; DISQUALIFICATION.
Irrespective of whether this Indenture is qualified under the TIA, this
Indenture shall always have a Trustee who satisfies the requirements of TIA
Sections 310(a)(1) and 310(a)(5). The Trustee shall always have a combined
capital and surplus as stated in Section 6.09. The Trustee shall be subject to
TIA Section 310(b).
SECTION 6.09. TRUSTEE'S CAPITAL AND SURPLUS.
The Trustee shall at all times have a combined capital and surplus of at
least $50,000,000 or shall be a member of a bank holding company system, the
aggregate combined capital and surplus of which is at least $50,000,000;
provided, however, that the Trustee's separate capital and surplus shall at all
times be at least the amount required by TIA Section 310(a)(2) if this Indenture
is qualified under the TIA. If the Trustee publishes annual reports of condition
of the type described in TIA Section 310(a)(2), its combined capital and surplus
for purposes of this Section 6.09 shall be as set forth in the latest such
report.
SECTION 6.10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.11.
(b) The Trustee may resign at any time by giving written notice thereof
to the Issuer. If an instrument of acceptance by a successor Trustee shall not
have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders
representing more than 50% of the aggregate Class Principal Amount of the
Controlling Class, delivered to the Trustee and to the Issuer.
(d) If at any time:
(1) the Trustee shall have a conflicting interest prohibited by
Section 6.08 and shall fail to resign or eliminate such conflicting
interest in accordance with Section 6.08 after written request therefor
by the Issuer or by any Bondholder; provided, however, that this Section
6.10(d)(1) shall not be operative as part of this Indenture unless and
until this Indenture is qualified under the TIA, and until such
qualification this Indenture shall be construed as if this Section
6.10(d)(1) were not contained herein; or
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(2) the Trustee shall cease to be eligible under Section 6.09 or
shall become incapable of acting or shall be adjudged a bankrupt or
insolvent, or a receiver of the Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation; then, in any such case, (i) the Issuer by
an Issuer Order may remove the Trustee or (ii) subject to Section 5.16,
any Bondholder who has been a bona fide Holder of a Bond for at least
six months may, on behalf of itself and all others similarly situated,
petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor Trustee, unless this
Indenture is qualified under the TIA and the Trustee's duty to resign is
stayed as provided in Section 310(b) of the TIA.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of the Trustee for any cause,
the Issuer, by an Issuer Order shall promptly appoint a successor Trustee. If
within one year after such resignation, removal or incapability or the
occurrence of such vacancy a successor Trustee shall be appointed by Act of the
Holders of Bonds representing more than 50% of the aggregate Class Principal
Amount of the Controlling Class delivered to the Issuer and the retiring
Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance
of such appointment, become the successor Trustee and supersede the successor
Trustee appointed by the Issuer. If no successor Trustee shall have been so
appointed by the Issuer or Bondholders and shall have accepted appointment in
the manner hereinafter provided, any Bondholder who has been a bona fide Holder
of a Bond for at least six months may, on behalf of itself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(f) The Issuer shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee to the Holders of Bonds.
Each notice shall include the name of the successor Trustee and the address of
its Corporate Trust Office.
SECTION 6.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Issuer and the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee. Notwithstanding the foregoing, on request of the
Issuer or the successor Trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee, and shall
duly assign, transfer and deliver to such successor Trustee all property and
money held by such retiring Trustee hereunder subject nevertheless to its lien,
if any, provided for in Section 6.07. Upon request of any such successor
Trustee, the Issuer shall execute and deliver any and all instruments for more
fully and certainly vesting in and confirming to such successor Trustee all such
rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 6.12. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS OF TRUSTEE.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Bonds have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Bonds so authenticated with the same effect as if
such successor Trustee had authenticated such Bonds.
SECTION 6.13. PREFERENTIAL COLLECTION OF CLAIM AGAINST ISSUER.
If this Indenture is qualified under the TIA, the Trustee shall be
subject to TIA Section 311(a), excluding any creditor relationship listed in TIA
Section 311(b), and a Trustee who has resigned or been removed shall be subject
to TIA Section 311(a) to the extent indicated.
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SECTION 6.14. CO-TRUSTEES AND SEPARATE TRUSTEES.
At any time or times, for the purpose of meeting the legal requirements
of the TIA or of any jurisdiction in which any of the Trust Estate may at the
time be located, the Issuer and the Trustee shall have power to appoint, and,
upon the written request of the Trustee or of the Holders of Bonds representing
more than 50% of the aggregate Class Principal Amount of the Controlling Class
with respect to which a co-trustee or separate trustee is being appointed, the
Issuer shall for such purpose join with the Trustee in the execution, delivery
and performance of all instruments and agreements necessary or proper to
appoint, one or more Persons approved by the Trustee either to act as
co-trustee, jointly with the Trustee, of all or any part of the Trust Estate, or
to act as separate trustee of any such property, in either case with such powers
as may be provided in the instrument of appointment, and to vest in such Person
or Persons in the capacity aforesaid, any property, title, right or power deemed
necessary or desirable, subject to the other provisions of this Section. If the
Issuer does not join in such appointment within 15 days after the receipt by it
of a request to do so, or in case an Event of Default has occurred and is
continuing, the Trustee alone shall have power to make such appointment.
Should any written instrument from the Issuer be required by any
co-trustee or separate trustee so appointed for more fully confirming to such
co-trustee or separate trustee such property, title, right or power, any and all
such instruments shall, on request, be executed, acknowledged and delivered by
the Issuer. Each notice shall include the name and address of any such
co-trustee or successor trustee.
Every co-trustee or separate trustee shall, to the extent permitted by
law, but to such extent only, be appointed subject to the following terms:
(1) The Bonds shall be authenticated and delivered and all rights,
powers, duties and obligations hereunder in respect of the custody of
securities, cash and other personal property held by, or required to be
deposited or pledged with, the Trustee hereunder, shall be exercised solely by
the Trustee.
(2) The rights, powers, duties and obligations hereby conferred or
imposed upon the Trustee in respect of any property covered by such appointment
shall be conferred or imposed upon and exercised or performed by the Trustee or
by the Trustee and such co-trustee or separate trustee jointly, as shall be
provided in the instrument appointing such co-trustee or separate trustee,
except to the extent that under any law of any jurisdiction in which any
particular act is to be performed, the Trustee shall be incompetent or
unqualified to perform such act, in which event such rights, powers, duties and
obligations shall be exercised and performed by such co-trustee or separate
trustee.
(3) The Trustee at any time, by an instrument in writing executed by it,
with the concurrence of the Issuer evidenced by an Issuer Order, may accept the
resignation of or remove any co-trustee or separate trustee appointed under this
Section, and, in case of an Event of Default has occurred and is continuing, the
Trustee shall have power to accept the resignation of, or remove, any such
co-trustee or separate trustee without the concurrence of the Issuer. Upon the
written request of the Trustee, the Issuer shall join with the Trustee in the
execution, delivery and performance of all instruments and agreements necessary
or proper to effectuate such resignation or removal. A successor to any
co-trustee or separate trustee which has resigned or has been removed may be
appointed in the manner provided in this Section.
(4) No co-trustee or separate trustee shall be required to satisfy the
eligibility requirements under Sections 6.08 and 6.09. No co-trustee or separate
trustee hereunder shall be personally liable by reason of any act or omission of
the Trustee, or any other such trustee hereunder.
(5) Any Act of Bondholders delivered to the Trustee shall be deemed to
have been delivered to each such co-trustee and separate trustee.
SECTION 6.15. AUTHENTICATING AGENTS.
Upon the request of the Issuer, the Trustee shall appoint an
Authenticating Agent with power to act on its behalf and subject to its
direction in the authentication and delivery of the Bonds designated for such
authentication by the Issuer and containing provisions therein for such
authentication (or with respect to which the Issuer has made other arrangements,
satisfactory to the Trustee and such Authenticating Agent, for notation on the
Bonds of the authority of an Authenticating Agent appointed after the initial
authentication and delivery of such Bonds) in connection with transfers and
exchanges under Sections 2.06 and 2.07, if any, as fully
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to all intents and purposes as though the Authenticating Agent had been
expressly authorized by those Sections to authenticate and deliver Bonds. For
all purposes of this Indenture (other than in connection with the authentication
and delivery of Bonds pursuant to Sections 2.05 and 2.12 in connection with
their initial issuance and for purposes of Section 2.08), the authentication and
delivery of Bonds by the Authenticating Agent pursuant to this Section shall be
deemed to be the authentication and delivery of Bonds "by the Trustee". Such
Authenticating Agent shall at all times be a Person that both meets the
requirements of Section 6.09 for the Trustee hereunder and has its principal
office in the Borough of Manhattan, City and State of New York.
Any Authenticating Agent shall also serve as Bond Registrar or co-Bond
Registrar, as provided in Section 2.07. Any Authenticating Agent appointed by
the Trustee pursuant to the terms of this Section 6.15 or pursuant to the terms
of any supplemental indenture shall deliver to the Trustee as a condition
precedent to the effectiveness of such appointment an instrument accepting the
trusts, duties and responsibilities of Authenticating Agent and of Bond
Registrar or co-Bond Registrar and indemnifying the Trustee for and holding the
Trustee harmless against, any loss, liability or expense (including reasonable
attorneys' fees) incurred without negligence or bad faith on its part, arising
out of or in connection with the acceptance, administration of the trust or
exercise of authority by such Authenticating Agent, Bond Registrar or co-Bond
Registrar.
Any corporation into which any Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, consolidation or conversion to which any Authenticating Agent
shall be a party, or any corporation succeeding to the corporate trust business
of any Authenticating Agent, shall be the successor of the Authenticating Agent
hereunder, if such successor corporation is otherwise eligible under this
Section, without the execution or filing of any further act on the part of the
parties hereto or the Authenticating Agent or such successor corporation.
Any Authenticating Agent may at any time resign by giving written notice
of resignation to the Trustee and the Issuer. The Trustee may at any time
terminate the agency of any Authenticating Agent by giving written notice of
termination to such Authenticating Agent and the Issuer. Upon receiving such a
notice of resignation or upon such a termination, or in case at any time any
Authenticating Agent shall cease to be eligible under this Section, the Trustee
shall promptly appoint a successor Authenticating Agent, shall give written
notice of such appointment to the Issuer and shall mail notice of such
appointment to all Holders of Bonds.
The Trustee agrees, subject to Section 6.01(e), to pay to any
Authenticating Agent from time to time reasonable compensation for its services
and the Trustee shall be entitled to be reimbursed for such payments, subject to
Section 6.07. The provisions of Sections 2.10, 6.04 and 6.05 shall be applicable
to any Authenticating Agent.
SECTION 6.16. REVIEW OF MORTGAGE DOCUMENTS.
The Trustee agrees, for the benefit of the Holders of the Bonds, to
review, within 90 days after the Closing Date, the Mortgage Documents delivered
to it in connection with the Grant of the Original Mortgage Loans as security
for the Bonds. The Trustee's review shall be limited to a determination that all
documents referred to in the definition of the term Mortgage Documents have been
delivered with respect to each such Mortgage Loan (other than the documents
related to any Mortgage Loan so listed which has been subject to a Principal
Prepayment in Full and the proceeds of which have been delivered to the Trustee
in lieu of the applicable Mortgage Documents), that all such documents have been
executed, and that all such documents relate to the Original Mortgage Loans,
provided that the Trustee shall not be responsible for determining whether any
assignment is in recordable form or for verifying the information with respect
to said loans contained on the Mortgage Loan Schedule. In performing such review
the Trustee may rely upon the purported genuineness and due execution of any
such document and on the purported genuineness of any signature thereon. If the
Trustee discovers any defect or omission in the Mortgage Documents or that any
document required to be delivered to it has not been delivered or that any
document so delivered does not relate to any of the Original Mortgage Loans, it
shall promptly notify the Issuer and the Master Servicer of such Mortgage Loan
in accordance with the provisions of the Master Servicing Agreement.
SECTION 6.17. PAYMENT OF CERTAIN INSURANCE PREMIUMS.
Notwithstanding anything to the contrary contained in this Indenture,
the Trustee agrees, for the benefit of the Holders of the Bonds, that, should it
fail to receive notice from the Master Servicer or the applicable Insurer,
within the time period required pursuant to the Master Servicing Agreement, to
the effect that any premiums due with respect to any Insurance Policies the
premiums for which are required to be paid by the Servicer or the Master
Servicer from amounts on deposit in the related Escrow Account, or required to
be advanced by the Master Servicer or the related Servicer, have been paid in
full at the times set forth in the Master Servicing Agreement, the Trustee shall
proceed with diligence to make inquiries of the Master Servicer, the Issuer and
the applicable Insurers as to whether such premiums have been paid at the times
set forth in the Master
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Servicing Agreement. In the event such premiums have not been paid and the
coverage provided under the related Insurance Policy may be interrupted or
adversely affected, the Trustee agrees promptly to pay such premiums from
amounts on deposit in the Distribution Account, pursuant to Section 8.02(d) and
in accordance with its obligations under the applicable provisions of the Master
Servicing Agreement.
SECTION 6.18. SUBSTITUTION OF INSURANCE POLICIES, ETC.; NOTIFICATION OF
RATING AGENCIES.
(a) Provided that the conditions set forth in paragraph (b) hereof have
been satisfied, the Issuer may substitute a replacement policy or instrument for
any Bond Insurance Policy.
(b) The Issuer shall notify each Rating Agency rating the Bonds in the
event that any replacement policy or instrument is obtained for any Bond
Insurance Policy and Insurer or other Person other than the Person who issued
such policy or instrument; provided, however, that the Trustee shall not be
required to accept any such replacement policy or instrument unless the Trustee
has received from each Rating Agency rating the Bonds a written instrument to
the effect that such acceptance by the Trustee will not result in the lowering
of the then applicable rating of any Bonds issued pursuant to this Indenture by
such Rating Agency.
ARTICLE VII
BONDHOLDERS' LISTS AND REPORTS
SECTION 7.01. ISSUER TO FURNISH TRUSTEE NAMES AND ADDRESSES OF
BONDHOLDERS.
(a) The Issuer shall furnish or cause to be furnished to the Trustee (i)
semi-annually, not less than 45 days nor more than 60 days after the Interest
Distribution Date occurring closest to six months after the Closing Date and
each Interest Distribution Date occurring at six-month intervals thereafter, a
list, in such form as the Trustee may reasonably require, of the names and
addresses of the Holders of Bonds and (ii) at such other times, as the Trustee
may request in writing, within 30 days after receipt by the Issuer of any such
request, a list of similar form and content as of a date not more than 10 days
prior to the time such list is furnished; provided, however, that so long as the
Trustee is the Bond Registrar, no such list shall be required to be furnished.
(b) In addition to furnishing to the Trustee the Bondholder lists, if
any, required under subsection (a), the Issuer shall also furnish all Bondholder
lists, if any, required under Section 3.03 at the times required by Section
3.03.
SECTION 7.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO
BONDHOLDERS.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of the Holders of Bonds contained in the
most recent list, if any, furnished to the Trustee as provided in Section 7.01
and the names and addresses of the Holders of Bonds received by the Trustee in
its capacity as Bond Registrar. The Trustee may destroy any list furnished to it
as provided in Section 7.01 upon receipt of a new list so furnished.
(b) If this Indenture is qualified under the TIA, Bondholders may
communicate pursuant to TIA Section 312(b) with other Bondholders with respect
to their rights under this Indenture or under the Bonds.
(c) If this Indenture is qualified under the TIA, the Issuer, the
Trustee and the Bond Registrar shall have the protection of TIA Section 312(c).
SECTION 7.03. REPORTS BY TRUSTEE.
(a) If this Indenture is qualified under the TIA, then within 30 days
after May 15 of each year (the "reporting date"), commencing with the year after
the issuance of the Bonds, (i) in the circumstance required by TIA Section
313(a), the Trustee shall mail to all Holders a brief report dated as of such
reporting date that complies with TIA Section 313(a), (ii) the Trustee shall
also mail to Holders of Bonds with respect to which it has made advances any
reports with respect to such advances that are required by TIA Section 313(b)(2)
and (iii) the Trustee shall also mail to Holders of Bonds any reports required
by TIA Section 313(b)(1). For purposes of the information required to be
included in any such reports pursuant to TIA Sections 313(a)(3), 313(b)(1) (if
applicable)
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or 313(b)(2), the principal amount of indenture securities outstanding on the
date as of which such information is provided shall be the aggregate Class
Principal Amount of the then Controlling Class covered by the report. The
Trustee shall comply with TIA Section 313(c) with respect to any reports
required by this Section 7.03(a).
(b) If this Indenture is qualified under the TIA, a copy of each report
required under this Section 7.03 shall, at the time of such transmission to
Holders of Bonds be filed by the Trustee with the Commission and with each
securities exchange upon which the Bonds are listed. The Issuer will notify the
Trustee when the Bonds are listed on any securities exchange.
SECTION 7.04. REPORTS BY ISSUER.
If this Indenture is qualified under the TIA, the Issuer (a) shall file
with the Trustee, within 15 days after it files them with the Commission, copies
of the annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the Commission may by rules
and regulations prescribe) which the Issuer is required to file with the
Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 and (b) shall also comply with the other provisions of TIA Section 314(a).
SECTION 7.05. NOTICE TO THE RATING AGENCIES [AND TO BOND INSURER.]
The Issuer shall use its best efforts promptly to provide notice to the
Rating Agencies [and the Bond Insurer] of any of the following events of which
it has actual knowledge:
(a) any material change to or amendment of this Indenture;
(b) the occurrence of any Default or Event of Default that has not been
cured;
(c) the resignation or termination of the Trustee;
(d) the substitution of Mortgage Loans;
(e) the final payment of Bondholders; and
[(f) any payment or claim made under the Bond Insurance Policy.]
ARTICLE VIII
ACCOUNTS, PAYMENTS OF INTEREST AND PRINCIPAL, AND RELEASES
SECTION 8.01. COLLECTION OF MONEYS.
Except as otherwise expressly provided herein, the Trustee may demand
payment or delivery of, and shall receive and collect, directly and without
intervention or assistance of any fiscal agent or other intermediary, all money
and other property payable to or receivable by the Trustee pursuant to this
Indenture. The Trustee shall hold all such money and property received by it as
part of the Trust Estate and shall apply it as provided in this Indenture.
Except as otherwise expressly provided herein, if any default occurred in the
making of any payment or performance under any agreement or instrument that is
part of the Trust Estate, the Trustee may take such action as may be appropriate
to enforce such payment or performance, including the institution and
prosecution of appropriate Proceedings. Any such action shall be without
prejudice to any right to claim a Default or Event of Default hereunder and any
right to proceed thereafter as provided in Article V.
SECTION 8.02. DISTRIBUTION ACCOUNT.
(a) On or prior to the Closing Date, the Issuer shall cause the Master
Servicer to establish and maintain, in the name of the Trustee, for the benefit
of the Bondholders and the Holder of the Investor Certificate, the Pledged
Accounts as provided in Section 3(h) of the Master Servicing Agreement.
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(b) Except as otherwise provided in the Master Servicing Agreement,
within one Business Day of receipt thereof by the Master Servicer, the Master
Servicer will deposit in the Bond Account all amounts required to be deposited
therein pursuant to Section 3(h) of the Master Servicing Agreement.
(c) The Trustee shall establish and maintain, on behalf of the
Bondholders, the Distribution Account. The Trustee shall, promptly upon receipt,
deposit in the Distribution Account and retain therein the following:
(i) the aggregate amount remitted by the Master Servicer to the
Trustee pursuant to Section 3(h)(vii) of the Master Servicing Agreement;
and
(ii) any other amounts deposited hereunder which are required to
be deposited in the Distribution Account.
In the event that the Master Servicer shall remit any amount not
required to be remitted, it may at any time direct the Trustee to withdraw such
amount from the Distribution Account, any provision herein to the contrary
notwithstanding. Such direction may be accomplished by delivering an Officer's
Certificate to the Trustee which describes the amounts deposited in error in the
Distribution Account. All funds deposited in the Distribution Account shall be
held by the Trustee in trust for the Bondholders until disbursed in accordance
with this Indenture or withdrawn in accordance with Section 2.03(b). In no event
shall the Trustee incur liability for withdrawals from the Distribution Account
at the direction of the Master Servicer.
(d) Subject to Sections 5.02 and 5.08, on each Distribution Date and
Redemption Date, the Trustee shall distribute all amounts on deposit in the
Distribution Account to Bondholders in respect of the Bonds to the extent of
amounts due and unpaid on the Bonds for principal and interest in the amounts
and in the order of priority set forth in Section 2.03(b).
SECTION 8.03. GENERAL PROVISIONS REGARDING PLEDGED ACCOUNTS.
(a) Each Pledged Account shall relate solely to the Bonds, the Investor
Certificate and to the Mortgage Loans, Permitted Investments and other property
securing the Bonds. Funds and other property in each Pledged Account shall not
be commingled with any other moneys or property of the Issuer or any Affiliate
thereof. Notwithstanding the foregoing, the Trustee may hold any funds or other
property received or held by it as part of a Pledged Account, other than the
Distribution Account, in collective accounts maintained by it in the normal
course of its business and containing funds or property held by it for other
Persons (which may include the Issuer or an Affiliate), provided that such
accounts are under the sole control of the Trustee and the Trustee maintains
adequate records indicating the ownership of all such funds or property and the
portions thereof held for credit to each Pledged Account.
(b) So long as no Default or Event of Default shall have occurred and be
continuing, all or a portion of the funds in the Pledged Accounts shall be
invested in Permitted Investments and reinvested by the Trustee upon written
direction of the Master Servicer, subject to the provisions of Section 3(h) of
the Master Servicing Agreement. Any such Permitted Investment shall mature not
later than the applicable date specified in Section 3(h)(ix) of the Master
Servicing Agreement. All income and gain (net of any losses) realized from any
such investment of funds on deposit in the Pledged Accounts shall be for the
benefit of the Master Servicer as servicing compensation and shall be remitted
to it monthly as provided in the Master Servicing Agreement. The amount of any
realized losses in the Pledged Accounts incurred in respect of any such
investments shall promptly be deposited by the Master Servicer in the applicable
Pledged Account or Pledged Accounts. The Master Servicer will not direct the
Trustee to make any investment of any funds or to sell any investment held in
any of the Pledged Accounts unless the security interest Granted and perfected
in such account will continue to be perfected in such investment or the proceeds
of such sale, in either case without any further action by any Person, and, in
connection with any direction to the Trustee to make any such investment or
sale, if requested by the Trustee, the Master Servicer shall deliver to the
Trustee an Opinion of Counsel, acceptable to the Trustee, to such effect.
(c) Subject to Section 6.01(c), the Trustee shall not in any way be held
liable by reason of any insufficiency in any of the Pledged Accounts resulting
from any loss on any Permitted Investment included therein except for losses
attributable to the Trustee's failure to make payments on such Permitted
Investments issued by the Trustee, in its commercial capacity as principal
obligor and not as trustee, in accordance with their terms.
(d) If (i) the Master Servicer shall have failed to give investment
directions for any funds on deposit in the Pledged Accounts to the Trustee by
11:00 a.m. Eastern Time (or such other time as may be agreed by the Master
Servicer and Trustee) on any Business Day or (ii) a Default or Event of Default
shall have occurred and be continuing with respect to the Bonds but the Bonds
shall
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not have been declared due and payable pursuant to Section 5.02 or (iii) if such
Bonds shall have been declared due and payable following an Event of Default,
amounts collected or receivable from the Trust Estate are being applied in
accordance with Section 5.05 as if there had not been such a declaration, then
the Trustee shall, to the fullest extent practicable, invest and reinvest funds
in the Pledged Accounts in one or more Permitted Investments.
(e) The Trustee shall, at all times while any Bonds are outstanding,
maintain in its possession, or in the possession of an agent whose actions with
respect to such items are under the sole control of the Trustee, all
certificates or other instruments, if any, evidencing any investment of funds in
a Pledged Account. The Trustee shall relinquish possession of such items, or
direct its agent to do so, only for purposes of collecting the final payment
receivable on such investment or certificate or, in connection with the sale of
any investment held in a Pledged Account, against delivery of the amount
receivable in connection with any sale.
SECTION 8.04. PURCHASES OF DEFECTIVE MORTGAGE LOANS.
(a) If at any time the Issuer or the Trustee discovers or is notified by
the Master Servicer (i) that there has been a breach of any of the Master
Servicer's representations and warranties with respect to Mortgage Loans
contained in the Master Servicing Agreement that materially and adversely
affects the interests of the Bondholders in any Mortgage Loan, (ii) that any of
the Mortgage Documents for a Mortgage Loan has not been properly executed by the
Mortgagor or contains a material defect or (iii) that any Mortgage Documents for
a Mortgage Loan shall not have been received by the Trustee within the
applicable time periods and in the forms set forth in Section 3.11 or Section
6.16, as the case may be, and the Master Servicing Agreement, then the party
discovering such defect or omission or receiving notice thereof shall promptly
notify the other party and the Master Servicer (other than in cases where the
Master Servicer has given notice thereof).
(b) If any defect, misrepresentation or omission described in subsection
(a) of this Section 8.04 materially and adversely affects the interests of the
Bondholders, then the Issuer shall, pursuant to the applicable provisions of the
Master Servicing Agreement, cause American Residential to either (i) cure any
such defect, misrepresentation or omission, (ii) remove such Mortgage Loan and
substitute in its place a Replacement Mortgage Loan or (iii) purchase the
affected Mortgage Loan, in each case at the times and in the manner set forth in
the Master Servicing Agreement.
(c) Upon any such purchase or substitution, the Issuer shall be entitled
to request a release of the defective Mortgage Loan from the lien of this
Indenture pursuant to Section 8.08(c) and Section 8.12.
(d) If American Residential shall either (i) purchase any Mortgage Loan
it is required to purchase pursuant to the Master Servicing Agreement and
deposit the Purchase Price therefor in the Bond Account or (ii) (a) remove such
Mortgage Loan from the Trust Estate and substitute in its place a Replacement
Mortgage Loan and (b) deposit in the Bond Account any related Substitution
Adjustment Amount, in each case in the manner set forth in the Master Servicing
Agreement, then American Residential shall be deemed to have complied with all
requirements imposed upon it by this Section 8.04 with respect to such Mortgage
Loan.
(e) The Master Servicer shall, in its sole discretion, have the right to
purchase for its own account from the Trust Estate any Mortgage Loan which is 91
days or more delinquent at a price and in the manner specified in Section 3(n)
of the Master Servicing Agreement. Upon purchase of such Mortgage Loan by the
Master Servicer, the Master Servicer shall have the right to treat such Mortgage
Loan (a "Defaulted Mortgage Loan") as having been the subject of a Principal
Prepayment in Full and request the release thereof from the lien of this
Indenture pursuant to Section 8.12.
SECTION 8.05. GRANT OF REPLACEMENT MORTGAGE LOAN.
American Residential shall be permitted to substitute any Mortgage Loan
for any Original Mortgage Loan initially Granted to the Trustee on the Closing
Date pursuant to this Indenture as set forth in Sections 2(a)(ii) and 2(d)(iv)
of the Master Servicing Agreement.
SECTION 8.06. REPORTS BY TRUSTEE TO BONDHOLDERS.
On each Distribution Date or Optional Redemption Date the Trustee shall
deliver a written report to each Holder of Bonds, setting forth the following:
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(a) On or before [noon California time] on the Determination Date, the
Master Servicer shall provide by modem to the Trustee with respect to the
Mortgage Loans, an electronic data file (accompanied by a hardcopy report) in a
format which is mutually agreed upon by the Master Servicer and the Trustee. The
Trustee shall be under no duty to recalculate, verify or recompute the
information provided to it by the Master Servicer under this Section 8.06(a).
Not later than each Distribution Date, the Trustee shall prepare and cause to be
forwarded by first class mail to each Bondholder, the Master Servicer and the
Issuer a statement (each, a "Distribution Date Statement") setting forth with
respect to the related distribution:
(i) the amount thereof allocable to principal, separately
identifying the aggregate amount of any Principal Prepayments and
Liquidation Proceeds included therein;
(ii) the amount thereof allocable to interest, and (x) any of
(a) the amount by which the aggregate Senior Interest Shortfalls on
prior Distribution Dates exceeds the amount paid on the Senior Bonds on
prior Distribution Dates pursuant to clause (ii) of the definition of
Senior Interest Distribution Date, (b) the amount by which the aggregate
Class B-1 Interest Shortfalls on prior Distribution Dates exceeds the
amount paid on the Class B-1 Bonds on prior Distribution Dates pursuant
to clause (iii) of the definition of Class B-1 Interest Payment Amount
and (c) the amount by which the aggregate Class B-2 Interest Shortfalls
on prior Distribution Dates exceeds the amount paid on the Class B-2
Bonds on prior Distribution Dates pursuant to clause (iii) of the
definition of Class B-2 Interest Payment Amount included in such
distribution and (y) any of the amounts in clauses (a), (b) or (c) above
remaining after giving effect to such distribution.
(iii) if the distribution to the Holders of such Class of Bonds
is less than the full amount that would be distributable to such Holders
pursuant to Section 2.03(b) on such Distribution Date if there were
sufficient funds available therefor, the amount of the shortfall and the
allocation thereof as between principal and interest and specifying, in
the case of the Subordinated Bonds, the Class B-2 Principal Carryover
Shortfall and/or Class B-1 Principal Carryover Shortfall;
(iv) the Class Principal Amount of each Class of Bonds and the
Invested Amount after giving effect to the distribution of principal on
such Distribution Date;
(v) the Pool Stated Principal Balance for the following
Distribution Date;
(vi) the Senior Percentage, the Class B-1 Percentage, the Class
B-2 Percentage and the Investor Percentage for the following
Distribution Date;
(vii) the amount of the Master Servicing Fees and Servicing Fees
paid to or retained by the Master Servicer and the Servicers (with
respect to the Servicers, in the aggregate) with respect to such
Distribution Date;
(viii) the Bond Interest Rate for each such Class of Bonds and
the Certificate Interest Rate with respect to such Distribution Date;
(ix) the amount of Advances included in the distribution on
such Distribution Date and the aggregate amount of Advances outstanding
as of the close of business on such Distribution Date;
(x) the number and aggregate principal amounts of Mortgage
Loans (A) delinquent (exclusive of Mortgage Loans in foreclosure) (1) 1
to 29 days (2) 30 to 59 days (3) 60 to 89 days and (4) 90 or more days
and (B) in foreclosure and delinquent (1) 1 to 29 days (2) 30 to 59 days
(3) 60 to 89 days and (4) 90 or more days, as of the close of business
on the last day of the calendar month preceding such Distribution Date;
(xi) for each of the preceding 12 calendar months, or all
calendar months since the Cut-off Date, whichever is less, the aggregate
dollar amount of the Scheduled Payments (A) due on all Outstanding
Mortgage Loans on each of the Due Dates in each such month and (B)
delinquent 60 days or more on each of the Due Dates in each such month;
(xii) with respect to any Mortgage Loan that became an REO
Property during the preceding calendar month, the loan number and Stated
Principal Balance of such Mortgage Loan as of the close of business on
the Determination Date preceding such Distribution Date and the date of
acquisition thereof;
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(xiii) the total number and principal balance of any REO
Properties (and market value, if available) as of the close of business
on the Determination Date preceding such Distribution Date;
(xiv) the Senior Percentage, the Class B-1 Percentage, the
Class B-2 Percentage and the Investor Prepayment Percentage for the
following Distribution Date;
(xv) the aggregate amount of Realized Losses incurred during
the preceding calendar month and aggregate Realized Losses through such
Distribution Date;
(xvi) the amount payable to the holder of the Investor
Certificate pursuant to Section 5.01 of the Deposit Trust Agreement; and
[(xvii) any amount payable under the Bond Insurance Policy.]
(b) The Trustee's responsibility for disbursing the above information to
the Bondholders is limited to the availability, timeliness and accuracy of the
information derived from the Master Servicer. The Trustee will send a copy of
each statement provided pursuant to this Section 8.06 to each Rating Agency.
(c) Within a reasonable period of time after the end of each calendar
year, the Trustee shall cause to be furnished to each Person who at any time
during the calendar year was a Bondholder, a statement containing the
information set forth in clauses (a)(i), (a)(ii) and (a)(vii) of this Section
8.06 aggregated for such calendar year or applicable portion thereof during
which such Person was a Bondholder. Such obligation of the Trustee shall be
deemed to have been satisfied to the extent that substantially comparable
information shall be provided by the Trustee pursuant to any requirements of the
Code as from time to time in effect.
SECTION 8.07. REPORTS BY TRUSTEE.
In addition to any statements required to be delivered or prepared by
the Trustee pursuant to Section 2.09, 8.02, 8.06 or 10.01, the Trustee shall
deliver to the Issuer, within two Business Days after the request of the Issuer,
a written report setting forth the amount of each Pledged Account established
hereunder and the identity of the investments included therein. Without limiting
the generality of the foregoing, the Trustee shall, upon the request of the
Issuer, promptly transmit to the Issuer copies of all accountings of, and
information with respect to, collections furnished to it by the Master Servicer
and shall promptly notify the Issuer if on the second Business Day after any
Distribution Account Deposit Date, the related Bond Distribution Amount or any
portion thereof has not been received by the Trustee.
SECTION 8.08. TRUST ESTATE; RELEASE AND DELIVERY OF MORTGAGE DOCUMENTS.
(a) The Trustee may, and when required by the provisions of this
Indenture shall, execute instruments in form supplied to it to release property
from the lien of this Indenture, or convey the Trustee's interest in the same,
in a manner and under circumstances which are not inconsistent with the
provisions of this Indenture and the TIA. No party relying upon an instrument
executed by the Trustee as provided in this Article VIII shall be bound to
ascertain the Trustee's authority, inquire into the satisfaction of any
conditions precedent or see to the application of any moneys.
(b) In order to facilitate the servicing of the Mortgage Loans by the
Servicers, the Master Servicer is authorized under the Master Servicing
Agreement for the benefit of the Trustee, the Bondholders and the Issuer, to
supervise, administer, monitor and oversee the servicing of the Mortgage Loans
by the Servicers and the observance and performance by the Servicers of all
services, duties, responsibilities and obligations which are to be observed or
performed by each Servicer pursuant to its Servicing Agreement.
(c) Upon request by the Master Servicer accompanied by a Request for
Release in the form of Exhibit D to the Master Servicing Agreement to the effect
that a Mortgage Loan has been the subject of a Prepayment in Full or has
otherwise been paid in full, together with any other items required under
Section 8.12, the Trustee shall promptly release the related Mortgage Documents
and execute such other documents as the Master Servicer may request to evidence
satisfaction and discharge of such Mortgage Loan.
(d) In addition, if from time to time and as appropriate for the
servicing or foreclosure of any Mortgage Loan, or the other purposes set forth
in the Master Servicing Agreement, the Master Servicer requests the Trustee to
release any related Mortgage
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Documents or other documents contained in the Trustee Mortgage File relating to
such Mortgage Loan and delivers to the Trustee a Request for Release in the form
of Exhibit C to the Master Servicing Agreement to the Trustee and signed by a
Servicing Officer, the Trustee shall release the related Mortgage Documents to
the Master Servicer if the applicable requirements of the Master Servicing
Agreement have been satisfied. If such Mortgage Loan shall be liquidated and the
Trustee receives an Issuer Request accompanied by a Request for Release as
provided in subsection (c) above, together with any other items required under
Section 8.12, then the Trustee shall release any documents with respect to such
Mortgage Loan still in its possession to or upon the order of the Issuer and
shall execute such other documents as the Master Servicer may request to
evidence satisfaction and discharge of such Mortgage Loan, as set forth in
subsection (c) above.
(e) The Trustee shall, at such time as there are no Bonds Outstanding,
release all of the Trust Estate to the Issuer (other than any cash held for the
payment of the Bonds pursuant to Section 3.03 or Section 4.02), subject,
however, to Section 4.01 and the rights of the Trustee under Section 6.07.
SECTION 8.09. AMENDMENTS TO THE MASTER SERVICING AGREEMENT.
The Trustee may enter into or consent to any amendment or supplement to
the Master Servicing Agreement or waive any Servicing Default only in accordance
with the applicable provisions of the Master Servicing Agreement. The Trustee
may, in its discretion, decline to enter into or consent to any such supplement
or amendment or make any such waiver (i) unless the Trustee receives an Opinion
of Counsel that the interests of the Holders would not be materially adversely
affected or (ii) if its own rights, duties or immunities would be adversely
affected.
SECTION 8.10. SERVICERS AND MASTER SERVICER AS AGENTS AND BAILEES OF
TRUSTEE.
In order to facilitate the servicing of the Mortgage Loans by the each
Servicer or by the Master Servicer, each Servicer shall deposit in the Servicing
Account proceeds of the Mortgage Loans in accordance with the provisions of the
Servicing Agreements, the Master Servicing Agreement and this Indenture, prior
to the time they are deposited into the Bond Account. In addition, on each
Withdrawal Date, the Master Servicer shall cause each Servicer to remit to the
Master Servicer for deposit in the Bond Account all funds held in the Servicing
Account that are required to be remitted to the Master Servicer in accordance
with the terms of the Servicing Agreement and the Master Servicing Agreement.
Solely for purposes of perfection under Section 9-305 of the Uniform Commercial
Code or similar provision of law in the state in which such property is held by
the Servicers or the Master Servicer, the Trustee hereby designates the Master
Servicer and each Servicer as its agents and bailees to hold such funds with
respect to the Mortgage Loans until they are deposited into the Distribution
Account as well as its agents and bailees in holding any Mortgage Documents or
other documents contained in a Trustee Mortgage File released to it by the
Trustee pursuant to Section 8.08(d), and any other items constituting a part of
the Trust Estate which from time to time come into possession of any Servicer or
the Master Servicer. It is intended that, by the Servicers' and Master
Servicer's acceptance of such agency pursuant to the Servicing Agreements and
the Master Servicing Agreement, the Trustee, as secured party, will be deemed to
have possession of such Mortgage Documents, such moneys and such other items for
purposes of Section 9-305 of the Uniform Commercial Code or similar provision of
law of the states in which such property is held by such Servicer or the Master
Servicer.
SECTION 8.11. OPINION OF COUNSEL.
The Trustee shall be entitled to receive at least five Business Days'
notice of any action to be taken pursuant to Section 8.08(a) (other than in
connection with releases of Mortgage Loans in connection with the servicing or
foreclosure thereof or which were the subject of a Principal Prepayment in Full)
accompanied by copies of any instruments involved, and the Trustee shall be
entitled to request an Opinion of Counsel, in form and substance reasonably
satisfactory to the Trustee, stating the legal effect of any such action,
outlining the steps required to complete the same, and concluding that all
conditions precedent to the taking of such action have been complied with.
Counsel rendering any such opinion may rely, without independent investigation,
on the accuracy and validity of any certificate or other instrument delivered to
the Trustee in connection with any such action.
SECTION 8.12. RELEASE OF MORTGAGE LOANS.
(a) The Issuer shall be entitled to request a release from the lien of
this Indenture of any Mortgage Loan at any time after such Mortgage Loan has
been the subject of a Principal Prepayment in Full or in accordance with the
requirements of Section 8.04 if:
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(i) the Master Servicer has complied with all requirements
imposed on it by Section 8.04 in connection with such Mortgage Loan (or
is deemed to have complied with such requirements by reason of the
provisions of Section 8.04(e));
(ii) at the time such release is requested, no Default or Event
of Default has occurred and is continuing; provided, however, that if a
Mortgage Loan has been the subject of a Principal Prepayment in Full,
then the Trustee shall release such Mortgage Loan from the lien of this
Indenture upon compliance with all other conditions of this subsection
(a), notwithstanding the existence of a Default or Event of Default;
(iii) the Master Servicer delivers to the Trustee an Officers'
Certificate (A) identifying the Mortgage Loan to be released, (B)
requesting the release thereof, (C) setting forth the amount deposited
in the Bond Account with respect thereto, if any, and (D) certifying
that the conditions set forth in clauses (i) and (ii) above have been
satisfied; and
(iv) the Issuer delivers to the Trustee a certificate of fair
value if required by Section 314(d)(1) or Section 314(d)(3) of the TIA.
(b) Upon satisfaction of the conditions specified in subsection (a) of
this Section 8.12, the Trustee shall release from the lien of this Indenture and
deliver to or upon the order of the Master Servicer the Mortgage Loan to be
released (including all related Mortgage Documents) described in the Master
Servicer's Request for Release.
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF BONDHOLDERS.
Without the consent of the Holders of any Bonds, the Issuer and the
Trustee, at any time and from time to time, may enter into one or more
indentures supplemental hereto, in form satisfactory to the Trustee, for any of
the following purposes:
(1) to correct or amplify the description of any property at any time
subject to the lien of this Indenture, or better to assure, convey and confirm
unto the Trustee any property subject or required to be subjected to the lien of
this Indenture, or to subject to the lien of this Indenture additional property;
(2) to add to the conditions, limitations and restrictions on the
authorized amount, terms and purposes of the issuance, authentication and
delivery of any Bonds, as herein set forth, additional conditions, limitations
and restrictions thereafter to be observed;
(3) to evidence the succession of another Person to the Issuer, and the
assumption by any such successor of the covenants of the Issuer herein and in
the Bonds contained;
(4) to add to the covenants of the Issuer, for the benefit of the
Holders of all Bonds or to surrender any right or power herein conferred upon
the Issuer;
(5) to cure any ambiguity, to correct or supplement any provision herein
which may be defective or inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising under
this Indenture, which shall not be inconsistent with the provisions of this
Indenture, provided that such action shall not adversely affect the interests of
the Holders of the Bonds (any such action shall be deemed not to adversely
affect the interests of the Bondholders if the Issuer delivers to the Trustee
letters from each Rating Agency to the effect that such action will not result
in a downgrading of the Bonds); or
(6) to modify, eliminate or add to the provisions of this Indenture to
such extent as shall be necessary to effect the qualification of this Indenture
under the TIA or under any similar federal statute hereafter enacted, and to add
to this Indenture such other provisions as may be expressly required by the TIA.
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The Trustee is hereby authorized to join in the execution of any such
supplemental indenture and to make any further appropriate agreements and
stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into any such supplemental indenture that affects the
Trustee's own rights, duties, liabilities or immunities under this Indenture or
otherwise except to the extent required by law.
The Trustee may in its discretion determine whether or not the rights of
the Holder of Bonds would be adversely affected by any supplemental indenture,
and any such determination shall be conclusive upon the Holders of all Bonds,
whether theretofore or thereafter authenticated and delivered hereunder. In
making such determination, a supplemental indenture shall be conclusively deemed
by the Trustee not to adversely affect the Bonds if (i) the Trustee receives a
letter or other writing from each Rating Agency rating the Bonds to the effect
that execution of the supplemental indenture will not result in any change in
the current rating assigned by that Rating Agency to the Bonds and (ii) the
supplemental indenture effects no change in principal priority schedules,
interest rates, Redemption Prices, substitution of Mortgage Collateral,
Distribution Dates, Record Dates, Accounting Dates, terms or optional
Redemption, the application of surplus to the payment of the Bonds or other
payment terms. The Trustee shall not be liable for any such determination made
in good faith.
[The Trustee shall provide the Bond Insurer, if any, with a copy of any
supplemental indenture executed pursuant to this Section, by first class mail
mailed to the Bond Insurer within five Business Days after the execution of such
supplemental indenture. Notwithstanding the foregoing, no supplemental indenture
that changes in any way any of the payment terms of the Bonds may be entered
into without the prior written consent of such Bonder Insurer.]
SECTION 9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF BONDHOLDERS.
With the consent of the Holders of Bonds representing not less than
two-thirds of the aggregate Class Principal Amount of the Controlling Class by
Act of said Holders delivered to the Issuer and the Trustee [and the Bond
Insurer], the Issuer and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to, or changing in
any manner or eliminating any of the provisions of, this Indenture or of
modifying in any manner the rights of the Holders of the Bonds under this
Indenture; provided, however, that no such supplemental indenture shall, without
the consent of the Holder of each Outstanding Bond affected thereby:
(1) change the Stated Maturity of the final installment of the principal
of, or any installment of interest on, any Bond or reduce the principal amount
thereof, the Bond Interest Rate thereon or the Redemption Price with respect
thereto, change the earliest date on which any Bond may be redeemed at the
option of the Issuer, change any place of payment where, or the coin or currency
in which, any Bond or any interest thereon is payable, or impair the right to
institute suit for the enforcement of the payment of any installment of interest
due on any Bond on or after the Stated Maturity thereof or for the enforcement
of the payment of the entire remaining unpaid principal amount of any Bond on or
after the Stated Maturity of the final installment of the principal thereof (or,
in the case of redemption, on or after the applicable Optional Redemption Date);
(2) reduce the percentage of the aggregate Class Principal Amount of the
Controlling Class, the consent of the Holders of which is required for any such
supplemental indenture, or the consent of the Holders of which is required for
any waiver of compliance with provisions of this Indenture or Defaults hereunder
and their consequences provided for in this Indenture;
(3) modify any of the provisions of this Section, Section 5.14 or
Section 5.18(b) except to increase any percentage specified therein or to
provide that certain other provisions of this Indenture cannot be modified or
waived without the consent of the Holder of each Outstanding Bond affected
thereby;
(4) modify or alter the provisions of the proviso to the definition of
the term "Outstanding";
(5) permit the creation of any lien ranking prior to or on a parity with
the lien of this Indenture with respect to any part of the Trust Estate (except
for Permitted Encumbrances) or terminate the lien of this Indenture on any
property at any time subject hereto or deprive the Holder of any Bond of the
security afforded by the lien of this Indenture; or
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(6) modify any of the provisions of this Indenture in such manner as to
materially and adversely affect rights of the Holders of the Controlling Class
to the benefits of any provisions for the mandatory redemption of Bonds
contained herein.
The Trustee may in its discretion determine whether or not the rights of
the Holder of any Controlling Class would be materially and adversely affected
by any supplemental indenture and any such determination shall be conclusive
upon the Holders of all Bonds authenticated and delivered hereunder. The Trustee
shall not be liable for any such determination made in good faith.
It shall not be necessary for any Act of Bondholders under this Section
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Issuer and the Trustee of any
supplemental indenture pursuant to this Section,
the Trustee shall mail to the Holders of the Bonds to which such
supplemental indenture relates [and to the Bond Insurer] a notice setting forth
in general terms the substance of such supplemental indenture. Any failure of
the Trustee to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture.
SECTION 9.03. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 6.01) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 9.04. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Bonds to which such supplemental indenture relates which have theretofore
been or thereafter are authenticated and delivered hereunder shall be bound
thereby.
SECTION 9.05. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the TIA as then in effect so long as this
Indenture shall then be qualified under the TIA.
SECTION 9.06. REFERENCE IN BONDS TO SUPPLEMENTAL INDENTURES.
Bonds authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and if required by the
Trustee shall, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Issuer shall so determine,
new Bonds so modified as to conform, in the opinion of the Trustee and the
Issuer, to any such supplemental indenture may be prepared and executed by the
Issuer and authenticated and delivered by the Trustee in exchange for
Controlling Class.
SECTION 9.07. AMENDMENTS TO DEPOSIT TRUST AGREEMENT OR MASTER SERVICING
AGREEMENT.
The Trustee shall, upon Issuer Request, consent to any proposed
amendment to the Deposit Trust Agreement or Master Servicing Agreement, or an
amendment to or waiver of any provision of any other document relating to the
Deposit Trust Agreement or Master Servicing Agreement, such consent to be given
without the necessity of obtaining the consent of the Holders of any Bonds upon
receipt by the Trustee of:
(i) an Opinion of Counsel to the effect that such amendment or
waiver will not materially and adversely affect the interests of the
Holders of the Bonds and that all conditions precedent to such consent
specified in this Section 9.07 have been satisfied; provided, however,
that no such Opinion of Counsel shall be required if the Person
requesting the amendment
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obtains a letter from each Rating Agency stating that the amendment
would not result in the downgrading or withdrawal of the respective
ratings then assigned to the Bonds; it being understood and agreed that
any such letter in and of itself will not represent a determination as
to the materiality of any such amendment and will represent a
determination only as to the credit issues affecting any such rating;
(ii) an Officers' Certificate, to which such proposed amendment
or waiver shall be attached, stating that such attached copy is the true
copy of the proposed amendment or waiver and that all conditions
precedent to such consent specified in this Section 9.07 have been
satisfied;
(iii) written confirmation from the Rating Agencies that the
implementation of the proposed amendment or waiver will not adversely
affect their rating of the Bonds; and
(iv) any other document required pursuant to Section 11.01.
Notwithstanding the foregoing, the Trustee may decline to consent to a
proposed waiver or amendment that adversely affects its own rights, duties or
immunities under this Indenture or otherwise.
Nothing in this Section 9.07 shall be construed to require that any
Person obtain the consent of the Trustee to any amendment or waiver or any
provision of any document where the making of such amendment or the giving of
such waiver without obtaining the consent of the Trustee is not prohibited by
this Indenture or by the terms of the document that is the subject of the
proposed amendment or waiver.
ARTICLE X
REDEMPTION OF BONDS
SECTION 10.01. SPECIAL REDEMPTION; OPTIONAL REDEMPTION.
(a) The Bonds shall not be subject to special redemption.
(b) The Bonds shall be subject to redemption by the Issuer, in whole but
not in part, at the option of the Issuer, on any Distribution Date on or after
the Distribution Date on which the sum of (i) the Invested Amount, (ii) the
Senior Class Principal Amount, (iii) the Class B-1 Principal Amount and (iv) the
Class B-2 Principal Amount, after giving effect to payments expected to be made
on such Distribution Date, is __% or less than the aggregate of the Stated
Principal Balances of the Mortgage Loans as of the Cut-Off Date, on the terms
and conditions specified in this subsection (b) at the Redemption Price. If the
Issuer elects to so redeem the Bonds, it shall, no later than 30 days prior to
the Optional Redemption Date selected for such redemption, deliver notice of
such election to the Trustee, together with the Redemption Price therefor to be
deposited in the Distribution Account, an Issuer Order directing the Trustee to
effect such redemption, any certification and opinion required pursuant to
Section 11.01 and a form of redemption notice. All Bonds so redeemed shall be
due and payable on such Optional Redemption Date upon the giving of the notice
thereof required by Section 10.02.
SECTION 10.02. FORM OF REDEMPTION NOTICE.
Notice of redemption shall be given by the Trustee in the name of and at
the expense of the Issuer by first class mail, postage prepaid, mailed not less
than five days prior to the applicable Optional Redemption Date (but in no event
prior to the date on which the Redemption Price with respect to the Bonds to be
redeemed pursuant to subsection (b) of Section 10.01 has been deposited in the
Distribution Account) to each Holder of Bonds to be redeemed, such Holders being
determined as of the last day of the month preceding the month in which such
Optional Redemption Date occurs (the "Optional Redemption Record Date").
All notices of redemption shall state:
(1) the Optional Redemption Date; and
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(2) the fact of such payment in full, the place where such Bonds are to
be surrendered for payment of the Redemption Price (which shall be the office or
agency of the Issuer to be maintained as provided in Section 3.02) and that no
interest shall accrue on such Bond for any period after the last day of the
month preceding the month in which the date fixed for redemption occurs. Failure
to give notice of redemption, or any defect therein, to any Holder of any Bond
selected for redemption shall not impair or affect the validity of the
redemption of any other Bond.
SECTION 10.03. BONDS PAYABLE ON OPTIONAL REDEMPTION DATE.
Notice of redemption having been given as provided in Section 10.02, the
Bonds or portions thereof so to be redeemed shall, on the applicable Optional
Redemption Date, become due and payable at the Redemption Price and (unless the
Issuer shall default in the payment of the Redemption Price) no interest shall
accrue on such Redemption Price for any period after the last day of the month
preceding the month in which such Optional Redemption Date occurs.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Issuer to the Trustee to take any
action under any provision of this Indenture, the Issuer shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent, if any,
provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate, opinion or letter with respect to compliance with a
condition or covenant provided for in this Indenture (including one furnished
pursuant to specific requirements of this Indenture relating to a particular
application or request) shall include:
(1) a statement that each individual signing such certificate, opinion
or letter has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate, opinion or letter are based;
(3) a statement that, in the opinion of each such individual, he or she
has made such examination or investigation as is necessary to enable such
individual to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 11.02. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents
Any certificate or opinion of an officer of the Issuer may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his other certificate or opinion is based
are erroneous. Any such Issuer certificate or Opinion of Counsel may be based,
insofar as it relates to factual matters, upon a certificate or opinion
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of, or representations by, an Authorized Officer or Officers of the Owner
Trustee or a certificate of the officers of the Depositor or the manager of the
Issuer, stating that the information with respect to such factual matters is in
the possession of the Owner Trustee, or the Depositor or the manager of the
Issuer, unless such officer or counsel knows, or in the exercise of reasonable
care should know, that the certificate or opinion or representations with
respect to such matters are erroneous. Any Opinion of Counsel may be based on
the written opinion of other counsel, in which event such Opinion of Counsel
shall be accompanied by a copy of such other counsel's opinion and shall include
a statement to the effect that such counsel believes that such counsel and the
Trustee may reasonably rely upon the opinion of such other counsel.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Wherever in this Indenture, in connection with any application or
certificate or report to the Trustee, it is provided that the Issuer shall
deliver any document as a condition of the granting of such application, or as
evidence of the Issuer's compliance with any term hereof, it is intended that
the truth and accuracy, at the time of the granting of such application or at
the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Trustee's right to rely upon the truth and accuracy of
any statement or opinion contained in any such document as provided in Section
6.01(b)(2).
Whenever in this Indenture it is provided that the absence of the
occurrence and continuation of a Default or Event of Default is a condition
precedent to the taking of any action by the Trustee at the request or direction
of the Issuer, then, notwithstanding that the satisfaction of such condition is
a condition precedent to the Issuer's right to make such request or direction,
the Trustee shall be protected in acting in accordance with such request or
direction if it does not have knowledge of the occurrence and continuation of
such Default or Event of Default as provided in Section 6.01(d).
SECTION 11.03. ACTS OF BONDHOLDERS.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Bondholders may be embodied in any evidence by one or more instruments of
substantially similar tenor signed by such Bondholders in person or by an agent
duly appointed in writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Trustee, and, where it is hereby expressly required, to the
Issuer. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the
Bondholders signing such instrument or instruments. Proof of execution of any
such instrument or of a writing appointing any such agent shall be sufficient
for any purpose of this Indenture and (subject to Section 6.01) conclusive in
favor of the Trustee and the Issuer, if made in the manner provided in this
Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by the certificate of any notary public or other officer authorized
by law to take acknowledgements of deeds, certifying that the individual signing
such instrument or writing acknowledged to him or her the execution thereof.
Whenever such execution is by an officer of a corporation or a member of a
partnership on behalf of such corporation or partnership, such certificate or
affidavit shall also constitute sufficient proof of his or her authority.
(c) The ownership of Bonds shall be proved by the Bond Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Bonds shall bind the Holder of every
Bond issued upon the registration of transfer thereof or in exchange therefor or
in lieu thereof, in respect of anything done, omitted or suffered to be done by
the Trustee or the Issuer in reliance thereon, whether or not any notation of
such action is made upon such Bonds.
SECTION 11.04. NOTICES, ETC. TO TRUSTEE AND ISSUER.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Bondholders or other documents provided or permitted by this Indenture
to be made upon, given or furnished to, or filed with:
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(1) the Trustee by any Bondholder or by the Issuer shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing to or
with and received by the Trustee at its Corporate Trust Office;
(2) the Issuer by the Trustee or by any Bondholder shall be sufficient
for every purpose hereunder (except as provided in Sections 5.01(3) and (4)) if
in writing and mailed, first-class, postage prepaid, to the Issuer addressed to
it c/o_________________________________________________________________________
______________ ____________________________, Attention: Corporate Trust
Administration, or at any other address previously furnished in writing to the
Trustee by the Issuer;
(3) any Rating Agency by the Trustee, the Issuer or the Master Servicer
shall be sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with and received by such Rating Agency at the address
specified therefor in the definition corresponding to the name of such Rating
Agency; or
[(4) the Bond Insurer by the Trustee, the Issuer or any Bondholder shall
be sufficient for every purpose hereunder if in writing and mailed, first-class,
postage prepaid to the Bond Insurer at________________________________________.]
SECTION 11.05. NOTICES AND REPORTS TO BONDHOLDERS; WAIVER OF NOTICES.
Where this Indenture provides for notice to Bondholders of any event or
the mailing of any report to Bondholders, such notice or report shall be
sufficiently given (unless otherwise herein expressly provided) if mailed,
first-class, postage prepaid, to each Bondholder affected by such event or to
whom such report is required to be mailed, at the address of such Bondholder as
it appears on the Bond Register, not later than the latest date, and not earlier
than the earliest date, prescribed for the giving of such notice or the mailing
of such report. In any case where a notice or report to Bondholders is mailed in
the manner provided above, neither the failure to mail such notice or report,
nor any defect in any notice or report so mailed, to any particular Bondholder
shall affect the sufficiency of such notice or report with respect to other
Bondholders, and any notice or report which is mailed in the manner herein
provided shall be conclusively presumed to have been duly given or provided.
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waiver of notice by any Bondholder shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
In case, by reason of the suspension of regular mail service as a result
of a strike, work stoppage or similar activity, it shall be impractical to mail
notice of any event to Bondholders when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice.
Where this Indenture provides for notice to Bondholders of any event,
such notice shall also be sent to ______________, so long as [ ] is a Rating
Agency.
SECTION 11.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for any meeting of Bondholders.
Any Agent may make reasonable rules and set reasonable requirements for its
functions.
SECTION 11.07. CONFLICT WITH TRUST INDENTURE ACT.
If this Indenture is qualified under the TIA and any provision hereof
limits, qualifies or conflicts with another provision hereof which is required
to be included in this Indenture by any of the provisions of the TIA, such
required provision shall control.
SECTION 11.08. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
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SECTION 11.09. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Issuer shall bind
its successors and assigns, whether so expressed or not.
SECTION 11.10. SEPARABILITY.
In case any provision in this Indenture or in the Bonds shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 11.11. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Bonds, expressed or implied, shall
give to any Person, other than the parties hereto and their successors
hereunder, any separate trustee or co-trustee appointed under Section 6.14 and
the Bondholders, any benefit or any legal or equitable right, remedy or claim
under this Indenture.
SECTION 11.12. LEGAL HOLIDAYS.
In any case where the date of any Distribution Date, Redemption Date or
any other date on which principal of, or interest on, any Bond is proposed to be
paid shall not be a Business Day, then (notwithstanding any other provision of
the Bonds or this Indenture) payment need not be made on such date, but may be
made on the next succeeding Business Day with the same force and effect as if
made on the nominal date of any such Distribution Date, Optional Redemption Date
or other date for the payment of principal of, or interest on, any Bond, as the
case may be, and no interest shall accrue for the period from and after any such
nominal date, provided such payment is made in full on such next succeeding
Business Day.
SECTION 11.13. GOVERNING LAW.
This Indenture and each Bond shall be construed in accordance with and
governed by the substantive laws of the State of New York applicable to
agreements made and to be performed in the State of New York and the
obligations, rights and remedies of the parties hereto and the Bondholders shall
be determined in accordance with such laws.
SECTION 11.14. COUNTERPARTS.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, and all such counterparts
shall together constitute but one and the same instrument.
SECTION 11.15. RECORDING OF INDENTURE.
This Indenture is subject to recording in any appropriate public
recording office, such recording to be effected by the Issuer and at its expense
in compliance with any Opinion of Counsel delivered pursuant to Section 2.12(c)
or Section 3.06.
SECTION 11.16. ISSUER OBLIGATION.
No recourse may be taken, directly or indirectly, against (i) the Bank,
(ii) any incorporator, subscriber to the capital stock, stockholder, officer or
director of the Bank or of any predecessor or successor of the Bank, (iii) any
holder of a beneficial interest in the Issuer (solely in its capacity as such),
(iv) any incorporator, subscriber to the capital stock, stockholder, partner,
beneficiary, agent, officer, director, employee, or successor or assign of a
holder of a beneficial interest in the Issuer, (v) the Depositor or any
Affiliate thereof (other than the Issuer) or (vi) any incorporator, subscriber
to the capital stock, stockholder, officer, director or employee of the Trustee
or any predecessor or successor of the Trustee with respect to the Issuer's
obligation with respect to the Bonds or the obligation of the Issuer or the
Trustee under this Indenture or any certificate or other writing delivered in
connection herewith or therewith.
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SECTION 11.17. INSPECTION.
The Issuer agrees that, on reasonable prior notice, it will permit any
representative of the Trustee, during the Issuer's normal business hours, to
examine all books of account, records, reports and other papers of the Issuer,
to make copies and extracts therefrom, to cause such books to be audited by
Independent Accountants selected by the Trustee, and to discuss its affairs,
finances and accounts with its officers, employees and Independent Accountants
(and by this provision the Issuer hereby authorizes its Accountants to discuss
with such representatives such affairs, finances and accounts), all at such
reasonable times and as often as may be reasonably requested. Any expense
incident to the exercise by the Trustee of any rights under this Section 11.17
shall be borne by the Issuer.
SECTION 11.18. USURY.
The amount of interest payable or paid on any Bond under the terms of
this Indenture shall be limited to an amount which shall not exceed the maximum
nonusurious rate of interest allowed by the applicable laws of the United States
or the State of New York (whichever shall permit the higher rate), which could
lawfully be contracted for, charged or received (the "Highest Lawful Rate"). In
the event any payment of interest on any Bond exceeds the Highest Lawful Rate,
the Issuer stipulates that such excess amount will be deemed to have been paid
as a result of an error on the part of both the Trustee, acting on behalf of the
Holder of such Bond, and the Issuer, and the Holder receiving such excess
payment shall promptly, upon discovery of such error or upon notice thereof from
the Issuer or the Trustee, refund the amount of such excess or, at the option of
the Trustee, apply the excess to the payment of principal of such Bond, if any,
remaining unpaid.
SECTION 11.19. NO PETITION.
The Trustee, by entering into this Indenture, and each Bondholder, by
accepting a Bond, hereby covenant and agree that they will not at any time
institute against the Depositor or the Issuer, or join in any institution
against the Depositor or the Issuer of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings under
any United States federal or state bankruptcy or similar law in connection with
any obligations relating to the Bonds, this Indenture or any of the Operative
Agreements.
ARTICLE XII
THE BOND INSURER
SECTION 12.01. CERTAIN MATTERS REGARDING THE BOND INSURER AND THE BOND
INSURANCE POLICY.
[as set forth in the applicable policy]
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IN WITNESS WHEREOF, each party has caused this Indenture to be executed
by its duly authorized officer or officers as of the day and year first above
written.
AMERICAN RESIDENTIAL EAGLE BOND TRUST
[199__-__], as Issuer
By:
-----------------------------------------------
not in its individual capacity but solely as
Owner Trustee
By:
----------------------------------------------
Name:
Title:
-------------------------------------------------
as Trustee
By:
----------------------------------------------
Authorized Officer
By:
----------------------------------------------
Name:
Title:
STATE OF DELAWARE )
) ss.:
COUNTY OF NEW CASTLE )
On the ____ day of _____________ in the year one thousand nine hundred
and ninety-_____ before me personally came __________________________, to me
known, who being by me duly sworn did depose and say that she/he resides in
_______________, that she/he is the ______________________ of
__________________________, the corporation described in and which executed the
above instrument and that she/he signed her/his name thereto by authority of the
Board of Directors of said corporation.
[NOTARIAL SEAL]
----------------------------------------------
Notary Public
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STATE OF _________________ )
) ss.:
COUNTY OF ________________ )
On the ____ day of __________, 199__, before me, a notary public in and
for said State, personally appeared ___________________________, known to me (or
proved to me on the basis of satisfactory evidence) to be a ______
______________ of ____________________________________, the ___________________
corporation that executed the within instrument, and also known to me (or proved
to me on the basis of satisfactory evidence) to be the persons who executed it
on behalf of said _____________________ corporation, and acknowledged to me that
such ___________________ corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
[NOTARIAL SEAL]
---------------------------------
Notary Public
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EXHIBIT I
LETTER AGREEMENT WITH THE DEPOSITORY
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EXHIBIT II
FORM OF SENIOR BOND
The form of Senior Bond is as follows:
PRINCIPAL OF THIS BOND IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN.
ACCORDINGLY, THE CLASS PRINCIPAL AMOUNT OF THIS BOND AT ANY TIME MAY BE LESS
THAN THE AMOUNT SHOWN ON THE FACE HEREOF. THE CLASS PRINCIPAL AMOUNT OF THIS
BOND MAY BE ASCERTAINED ONLY BY OBTAINING A CONFIRMATION THEREOF FROM THE
TRUSTEE UNDER THE INDENTURE REFERRED TO BELOW.
UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY BOND SO ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR USE HEREOF, FOR VALUE OR OTHERWISE, BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
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AMERICAN RESIDENTIAL EAGLE BOND TRUST [199__-__],
a Delaware Statutory Business Trust
Collateralized Mortgage Bonds
CLASS A-1
DUE: __________ ___, _____
ACCRUAL DATE: __________ ___, _____
ISSUE DATE: __________ ___, _____
[ ] INTEREST RATE
Initial Class Principal Amount of this Bond:
$____________________________ CUSIP NO.___
CERTIFICATE NUMBER 1
American Residential Eagle Bond Trust [199__-__] (the "Issuer"), a
statutory business trust formed under the Deposit Trust Agreement dated as of
_____________ ___, 199__ and having _________________________, a Delaware bank
and trust company, as Owner Trustee, for value received, hereby promises to pay
to CEDE & CO. or registered assigns, the principal sum of [AMOUNT IN WORDS]
($_______) in monthly installments on the ____________ day of each month,
commencing on ________ _ ___, _____ (each, a "Distribution Date"), and ending on
or before __________ ___, _____, (the "Stated Maturity" of such final
installment of principal), and to pay interest (computed on the basis of a
360-day year of twelve 30-day months) on the Class Principal Amount (as defined
in the Indenture hereinafter referred to) of this Bond from time to time from _
________ ___, _____ (the "Accrual Date"), or such later date to which interest
has been paid, through the last day of the month preceding the month in which
the principal amount of this Bond is paid in full, at a [variable/fixed] rate
determined as described below, such interest being payable monthly on each
Distribution Date. If any Distribution Date shall not be a "Business Day" (as
defined in the Indenture), payment of the amount due will be made on the next
succeeding Business Day.
Installments of principal of this Bond are due and payable as described
in the Indenture.
Interest payable on this Bond on a Distribution Date will be equal to
the amount of interest that has accrued on the Class Principal Amount of this
Bond during the one-month period ending on the last day of the month preceding
the month in which each such Distribution Date occurs (each, an "Interest
Accrual Period").
The principal of, and interest on, this Bond are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Bond shall be applied as set forth in the Indenture. Any
installment of principal or interest which is not paid when and as due shall
bear interest as described in the Indenture.
Unless the certificate of authentication hereon has been executed by the
Trustee by manual signature, this Bond shall not be entitled to any benefit
under the Indenture, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, American Residential Eagle Bond Trust [199__-__] has
caused this instrument to be duly executed by its duly authorized officer.
Dated:_______________ AMERICAN RESIDENTIAL EAGLE BOND TRUST
[199__-__]
By:
----------------------------------------
not in its individual capacity but solely
as Owner Trustee
By:
----------------------------------------
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Title:
--------------------------------------
CERTIFICATE OF AUTHENTICATION
This is one of the Bonds referred to in the within-mentioned Indenture.
___________________________,
as Trustee
By:
-------------------------
Authorized Signatory
This Bond is one of a duly authorized issue of Bonds of the Issuer,
designated as its Collateralized Mortgage Bonds (herein called the "Bonds"). The
Bonds are issuable in one or more classes; the Bonds of particular Classes being
herein called the Class A-1, Class B-1 and Class B-2 Bonds, all issued and to be
issued under the Issuer's Indenture dated as of ____________ ___, 199__ between
the Issuer and _______________________________ (the "Trustee", which term
includes any successor Trustee under the Indenture), which authorized the Bonds,
and reference is hereby made thereto for a statement of the respective rights
thereunder of the Issuer, the Trustee and the Holders of the Bonds of each
particular Class thereof and the terms upon which the Bonds of each Class are,
and are to be, authenticated and delivered.
The Class A-1 Bonds constitute "Senior Bonds" and the Class B-1 Bonds
and the Class B-2 Bonds constitute "Subordinated Bonds".
All terms used in this Bond which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
The Bond Interest Rate for the Senior Bonds (the "Senior Bond Interest
Rate") and any Interest Accrual Period will equal _______________.
As provided in the Indenture, the Bonds are issuable in Classes which
may vary as is provided or permitted in the Indenture. Bonds of each Class are
equally and ratably secured by the collateral pledged as security therefor to
the extent provided by the Indenture.
For each Principal Distribution Date, the aggregate amount of each
installment of principal due and payable on the Senior Bonds will be equal to
the Senior Principal Payment Amount for such Distribution Date. The Senior
Principal Payment Amount for any Distribution Date is equal to the Senior
Percentage of the sum of (a) the principal portion of the Scheduled Payment due
on each Mortgage Loan [on the related Due Date], (b) the principal portion of
the purchase price of each Mortgage Loan that was purchased by [American
Residential] or another person pursuant to the Mortgage Loan Purchase Agreement
[or any optional purchase by the Master Servicer of a defaulted Mortgage Loan]
as of such Distribution Date, (c) the Substitution Adjustment Amount in
connection with any Deleted Mortgage Loan received with respect to such
Distribution Date, (d) any Insurance Proceeds or Liquidation Proceeds allocable
to recoveries of principal of Mortgage Loans that are not yet Liquidated
Mortgage Loans received during the [calendar month] preceding the month of such
Distribution Date, (e) with respect to each Mortgage Loan that became a
Liquidated Mortgage Loan during the [calendar month] preceding the month of such
Distribution Date, the Stated Principal Balance of such Mortgage Loan, and (f)
all partial and full principal prepayments by borrowers received during the
related Prepayment Period.
Payments of principal or interest, if any, on the Bonds will be made on
each Distribution Date, commencing on ____________ ___, 199__, in the manner and
in accordance with the priorities for the Bonds provided in the Indenture.
The entire unpaid principal amount of each Class of Bonds shall be due
and payable, if not then previously paid, on the Stated Maturity of the final
installment of principal of such Class.
All payments of principal of, and interest on, the Bonds shall be made
only from the Trust Estate Granted as security for the Bonds and any other
assets of the Issuer that have not been Granted as security for any other bonds
or obligations of the Issuer, and each Holder hereof, by its acceptance of this
Bond, agrees that it will have recourse solely against such Trust Estate and
such other assets of the Issuer and that neither _______________________ in
its individual capacity, any holder of a beneficial interest in the
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Issuer nor any of their respective shareholders, partners, beneficiaries,
agents, officers, directors, employees, successors or assigns shall be
personally liable for any amounts payable, or performance due, under this Bond
or the Indenture.
Payment of the then remaining unpaid principal amount of this Bond on
the Stated Maturity of its final installment of principal or on such earlier
date as the Issuer shall be required to pay the then remaining unpaid principal
amount of this Bond or payment of the Redemption Price payable on any date as of
which this Bond has been called for redemption in full, shall be made upon
presentation of this Bond to the office or agency of the Issuer maintained for
such purpose. Payments of interest on this Bond due and payable on each
Distribution Date or on any Optional Redemption Date, to the extent this Bond is
not being paid in full, together with any installment of principal of this Bond
due and payable on each Distribution Date or the Optional Redemption Date, to
the extent not in full payment of this Bond, shall be made by check mailed to
the Person whose name appears as the registered Holder of this Bond (or one or
more Predecessor Bonds) on the Bond Register as of the last day of the month
preceding the month in which such Distribution Date occurs (each a "Record
Date").
Checks for amounts which include installments of principal due on this
Bond shall be mailed to the Person entitled thereto at the address of such
Person as it appears on the Bond Register as of the applicable Record Date
without requiring that this Bond be submitted for notation of payment and checks
returned undelivered will be held for payment to the Person entitled thereto,
subject to the terms of the Indenture, at the office or agency in the United
States of America designated by the Issuer for such purpose pursuant to the
Indenture. Any reduction in the principal amount of this Bond (or any one or
more Predecessor Bonds) effected by any payments made on any Distribution Date
shall be binding upon all Holders of this Bond and of any Bond issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not noted hereon.
If funds are expected to be available, as provided in the Indenture, for
payment in full of the then remaining unpaid principal amount of this Bond on a
Distribution Date or Optional Redemption Date which is prior to the Stated
Maturity of the final installment of principal hereof, then the Trustee, on
behalf of the Issuer, will notify the Person who was the registered Holder
hereof on the last day of the month prior to the month in which such
Distribution Date or Optional Redemption Date occurs, and the amount then due
and payable shall, if sufficient funds therefor are available, be payable only
upon presentation of this Bond to the office or agency of the Issuer maintained
for such purpose.
The failure of the Issuer to pay when and as due any installment of
principal of (regardless of the lapse of any grace period) any Senior Bond shall
not constitute an Event of Default under the Indenture unless the Senior Class
Principal Amount exceeds the aggregate Stated Principal Balances of the Mortgage
Loans after application of all available amounts on deposit in the Distribution
Account on a Distribution Date.
If an Event of Default as defined in the Indenture shall occur and be
continuing with respect to the Bonds, the Bonds may become or be declared due
and payable in the manner and with the effect provided in the Indenture. If any
such acceleration of maturity occurs prior to the Stated Maturity of the final
installment of principal of this Bond, the amount payable to the Holder of this
Bond will be equal to the Class Principal Amount of this Bond on the date this
Bond becomes so due and payable, together with accrued interest. Following the
acceleration of the maturity of the Bonds, all amounts collected as proceeds of
the collateral securing the Bonds or otherwise shall be applied as described in
the Indenture. Following such acceleration, interest on any overdue installments
of interest on all Bonds shall be payable at the rate set forth in the
Indenture.
The Bonds are not prepayable or redeemable at the option or direction of
the Issuer except that the Bonds are subject to redemption in whole, but not in
part, at the option of the Issuer on any Distribution Date on or after the
Distribution Date on which the sum of (i) the Invested Amount, (ii) the Senior
Class Principal Amount, (iii) the Class B- 1 Principal Amount and (iv) the Class
B-2 Principal Amount, after giving effect to payments expected to be made on
such Distribution Date, is __% or less of the aggregate of the Stated Principal
Balances of the Mortgage Loans as of the Cut- Off Date. Any such redemption at
the option of the Issuer shall be at a price equal to 100% of the unpaid
principal amount of the Bonds (including, in the case of the Subordinated Bonds,
any unpaid Class B-1 Principal Carryover Shortfall and/or Class B-2 Principal
Carryover Shortfall) so redeemed plus accrued interest through the last day of
the month preceding the month in which such optional redemption occurs.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Bond may be registered on the Bond Register of
the Issuer, upon surrender of this Bond for registration of transfer at the
office or agency designated by the Issuer pursuant to the Indenture, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Trustee duly executed by the Holder hereof or his attorney
duly authorized in writing, and thereupon one or more new Bonds of the same
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Class, of authorized denominations and in the same aggregate initial principal
amount, will be issued to the designated transferee or transferees.
Prior to the due presentment for registration of transfer of this Bond,
the Issuer, the Trustee, and any agent of the Issuer shall treat the Person in
whose name this Bond is registered (i) on any Record Date, for purposes of
making payments, and (ii) on any other date for any other purposes, as the owner
hereof, whether or not this Bond be overdue, and neither the Issuer, the Trustee
nor any such agent shall be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Bonds under the Indenture at any
time by the Issuer with the consent of the Holders of Bonds representing
two-thirds of the aggregate Class Principal Amount of the Controlling Class. The
Indenture also contains provisions permitting the Holders of Bonds representing
specified percentages of the aggregate Class Principal Amount of the Controlling
Class on behalf of the Holders of all the Bonds of such Class, to waive
compliance by the Issuer with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder, at the time of the giving thereof, of this Bond (or any
one or more Predecessor Bonds) shall be conclusive and binding upon such Holder
and upon all future holders of this Bond and of any Bond issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof whether
or not notation of such consent or waiver is made upon this Bond. The Indenture
also permits the Trustee to amend or waive certain terms and conditions set
forth in the Indenture without the consent of the Holders of the Bonds of any
Series issued thereunder.
The Senior Bonds are "Book Entry Bonds" which will be available to
investors only through the book entry facilities of The Depository Trust
Company, and bond certificates for all Classes of Bonds will be available only
under certain limited circumstances as described in the Indenture.
AS PROVIDED IN THE INDENTURE, THIS BOND AND THE INDENTURE SHALL BE
CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED THEREIN.
No reference herein to the Indenture and no provision of this Bond or of
the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional to the extent permitted by applicable law, to pay the
principal of, and interest on, this Bond at the times, place and rate, and in
the coin or currency herein prescribed.
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EXHIBIT III
FORM OF A CLASS B-1 BOND
The form of a Class B-1 Bond is as follows:
PRINCIPAL OF THIS BOND IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN.
ACCORDINGLY, THE CLASS PRINCIPAL AMOUNT OF THIS BOND AT ANY TIME MAY BE LESS
THAN THE AMOUNT SHOWN ON THE FACE HEREOF. THE CLASS PRINCIPAL AMOUNT OF THIS
BOND MAY BE ASCERTAINED ONLY BY OBTAINING A CONFIRMATION THEREOF FROM THE
TRUSTEE UNDER THE INDENTURE REFERRED TO BELOW.
UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY BOND ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
THIS BOND IS SUBORDINATED IN RIGHT OF PAYMENT TO THE SENIOR BONDS AS
DESCRIBED IN THE INDENTURE REFERRED TO HEREIN.
THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR THE PURPOSE OF APPLYING
THE U.S. FEDERAL INCOME TAX ORIGINAL ISSUE DISCOUNT ("OID") RULES TO THIS BOND.
THE ISSUE DATE OF THIS BOND IS __________ ___, 199__. THE PER ANNUM RATE OF
INTEREST ON THIS BOND IS ___% ASSUMING THAT PRINCIPAL PAYMENTS ARE MADE ON THE
MORTGAGE COLLATERAL UNDERLYING THE BONDS AT _______% OF THE STANDARD PREPAYMENT
ASSUMPTION (AS DEFINED IN THE PROSPECTUS SUPPLEMENT). THIS BOND HAS BEEN ISSUED
WITH $ OF OID PER $1,000 OF INITIAL PRINCIPAL AMOUNT, THE YIELD TO MATURITY IS
___% AND THE AMOUNT OF OID ATTRIBUTABLE TO THE INITIAL SHORT ACCRUAL PERIOD IS
$_______ OF OID PER $1,000 OF INITIAL PRINCIPAL AMOUNT, CALCULATED ASSUMING THE
YIELD IS ACCRUED DAILY DURING INITIAL SHORT PERIOD. NO REPRESENTATION IS MADE AS
TO THE RATE AT WHICH PRINCIPAL PAYMENTS WILL BE MADE ON THE MORTGAGE COLLATERAL.
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AMERICAN RESIDENTIAL EAGLE BOND TRUST [199__-__],
a Delaware Statutory Business Trust
Collateralized Mortgage Bonds
CLASS B-1
DUE: _____________ ___, _____
ACCRUAL DATE: _____________ ___, _____
ISSUE DATE: _____________ ___, _____
___________ INTEREST RATE
Initial Class Principal CUSIP NO. ______
Amount of this Bond:
CERTIFICATE NUMBER 1
American Residential Eagle Bond Trust [199__-__] (the "Issuer"), a
statutory business trust formed under the Deposit Trust Agreement dated as of
__________ ___, _____, and having ________________________, a Delaware bank and
trust company, as Owner Trustee for value received, hereby promises to pay to
CEDE & CO. or registered assigns, the principal sum of [AMOUNT IN WORDS]
($___________) in monthly installments on the ______________ day of each month,
commencing on _________ ___, _____ (each, a "Distribution Date"), and ending on
or before __________ ___, _____ (the "Stated Maturity" of such final installment
of principal), and to pay interest (computed on the basis of a 360-day year of
twelve 30-day months) on the Class Principal Amount (as defined in the
Indenture) of this Bond from time to time from __________ ___, _____ (the
"Accrual Date"), or such later date to which interest has been paid, through the
last day of the month preceding the month in which the principal amount of this
Bond is paid in full, at a [variable/fixed] rate determined as described below,
such interest being payable monthly on each Distribution Date. If any
Distribution Date shall not be a "Business Day" (as defined in the Indenture),
payment of the amount due will be made on the next succeeding Business Day.
Installments of principal of this Bond are due and payable as described
in the Indenture.
Interest payable on this Bond on a Distribution Date will be equal to
the amount of interest that has accrued on the Class Principal Balance of this
Bond during the one-month period ending on the last day of the month preceding
the month in which each such Distribution Date occurs (each, an "Interest
Accrual Period").
The principal of, and interest on, this Bond are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Bond shall be applied as set forth in the Indenture. Any
installment of principal or interest which is not paid when and as due shall
bear interest as described in the Indenture.
Unless the certificate of authentication hereon has been executed by the
Trustee by manual signature, this Bond shall not be entitled to any benefit
under the Indenture, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, American Residential Eagle Bond Trust [199__-__] has
caused this instrument to be duly executed by its duly authorized officer.
Dated:_______________ AMERICAN RESIDENTIAL EAGLE BOND TRUST
[199__-__]
By:
---------------------------------------
not in its individual capacity but solely
as Owner Trustee
By:
---------------------------------------
Title:
------------------------------------
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CERTIFICATE OF AUTHENTICATION
This is one of the Bonds referred to in the within-mentioned Indenture.
---------------------------------
as Trustee
By:
---------------------------
Authorized Signatory
This Bond is one of a duly authorized issue of Bonds of the Issuer,
designated as its Collateralized Mortgage Bonds (herein called the "Bonds"). The
Bonds are issuable in one or more classes; the Bonds of particular Classes being
herein called the Class A-1, Class B-1 and Class B-2 Bonds, all issued and to be
issued under the Issuer's Indenture dated as of ____________ ___, 199__ between
the Issuer and ________________________________ (the "Trustee", which term
includes any successor Trustee under the Indenture), which authorized the Bonds,
and reference is hereby made thereto for a statement of the respective rights
thereunder of the Issuer, the Trustee and the Holders of the Bonds of each
particular Class thereof and the terms upon which the Bonds of each Class are,
and are to be, authenticated and delivered.
The Class A-1 Bonds constitute "Senior Bonds" and the Class B-1 Bonds
and Class B-2 Bonds constitute "Subordinated Bonds".
All terms used in this Bond which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
The Bond Interest Rate for the Class B-1 Bonds (the "Class B-1 Bond
Interest Rate") and any Interest Accrual Period will equal ________________.
As provided in the Indenture, the Bonds are issuable in Classes which
may vary as provided or permitted in the Indenture. Bonds of each Class are
equally and ratably secured by the collateral pledged as security therefor to
the extent provided by the Indenture.
For each Distribution Date, the aggregate amount of each installment of
principal due and payable on the Class B-1 Bonds will be equal to the Class B-1
Principal Payment Amount for such Distribution Date. The Class B-1 Principal
Payment Amount for any Distribution Date is equal to the sum of (i) the Class
B-1 Percentage of the sum of (a) the principal portion of the Scheduled Payment
due on each Mortgage Loan [on the related Due Date], (b) the principal portion
of the purchase price of each Mortgage Loan that was purchased by [American
Residential] or another person pursuant to the Mortgage Loan Purchase Agreement
[or by the Master Servicer in connection with any optional purchase by the
Master Servicer of a defaulted Mortgage Loan] as of such Distribution Date, (c)
the Substitution Adjustment Amount in connection with any Deleted Mortgage Loan
received with respect to such Distribution Date, (d) any Insurance Proceeds or
Liquidation Proceeds allocable to recoveries of principal of Mortgage Loans that
are not yet Liquidated Mortgage Loans received during the [calendar month]
preceding the month of such Distribution Date, (e) with respect to each Mortgage
Loan that became a Liquidated Mortgage Loan during the [calendar month]
preceding the month of such Distribution Date, the Stated Principal Balance of
such Mortgage Loan and (f) all partial and full principal prepayments by
borrowers received during the related Prepayment Period and (ii) any Class B-1
Principal Carryover Shortfall.
Payments of principal or interest, if any, on the Bonds will be made on
each Distribution Date, commencing on __________ ___, 199__, in the manner and
in accordance with the priorities for the Bonds provided in the Indenture.
The entire unpaid principal amount of each Class of Bonds shall be due
and payable, if not then previously paid, on the Stated Maturity of the final
installment of principal of such Class.
All payments of principal of, and interest on, the Bonds shall be made
only from the Trust Estate Granted as security for the Bonds and any other
assets of the Issuer that have not been Granted as security for any other bonds
or obligations of the Issuer, and each Holder hereof, by its acceptance of this
Bond, agrees that it will have recourse solely against such Trust Estate and
such other assets of the Issuer and that neither Wilmington Trust Company in its
individual capacity, any holder of a beneficial interest in the
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<PAGE> 85
Issuer nor any of their respective shareholders, partners, beneficiaries,
agents, officers, directors, employees, successors or assigns shall be
personally liable for any amounts payable, or performance due, under this Bond
or the Indenture.
Payment of the then remaining unpaid principal amount of this Bond on
the Stated Maturity of its final installment of principal or on such earlier
date as the Issuer shall be required to pay the then remaining unpaid principal
amount of this Bond or payment of the Redemption Price payable on any date as of
which this Bond has been called for redemption in full, shall be made upon
presentation of this Bond to the office or agency of the Issuer maintained for
such purpose. Payments of interest on this Bond due and payable on each
Distribution Date or on any Optional Redemption Date, to the extent this Bond is
not being paid in full, together with any installment of principal of this Bond
due and payable on each Distribution Date or the Optional Redemption Date, to
the extent not in full payment of this Bond, shall be made by check mailed to
the Person whose name appears as the registered Holder of this Bond (or one or
more Predecessor Bonds) on the Bond Register as of the last day of the month
preceding the month in which such Distribution Date occurs (each a "Record
Date").
Checks for amounts which include installments of principal due on this
Bond shall be mailed to the Person entitled thereto at the address of such
Person as it appears on the Bond Register as of the applicable Record Date
without requiring that this Bond be submitted for notation of payment and checks
returned undelivered will be held for payment to the Person entitled thereto,
subject to the terms of the Indenture, at the office or agency in the United
States of America designated by the Issuer for such purpose pursuant to the
Indenture. Any reduction in the principal amount of this Bond (or any one or
more Predecessor Bonds) effected by any payments made on any Distribution Date
shall be binding upon all Holders of this Bond and of any Bond issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not noted hereon.
If funds are expected to be available, as provided in the Indenture, for
payment in full of the then remaining unpaid principal amount of this Bond on a
Distribution Date or Optional Redemption Date which is prior to the Stated
Maturity of the final installment of principal hereof, then the Trustee, on
behalf of the Issuer, will notify the Person who was the registered Holder
hereof on the last day of the month prior to the month in which such
Distribution Date or optional Redemption Date occurs, and the amount then due
and payable shall, if sufficient funds therefor are available, be payable only
upon presentation of this Bond to the office or agency of the Issuer maintained
for such purpose.
Prior to the payment in full of the Senior Bonds, the failure of the
Issuer to pay when and as due any installment of principal of or interest
(regardless of the lapse of any grace period) on any Subordinated Bond shall not
constitute an Event of Default under the Indenture. In addition, notwithstanding
any applicable provision of the Indenture, upon payment in full of the Senior
Bonds, the prior occurrence of any such shortfalls attributable to the
Subordinated Bonds, which shortfalls have previously been paid in full, will not
constitute an Event of Default under the Indenture in respect of the
Subordinated Bonds.
If an Event of Default as defined in the Indenture shall occur and be
continuing with respect to the Bonds, the Bonds may become or be declared due
and payable in the manner and with the effect provided in the Indenture. If any
such acceleration of maturity occurs prior to the Stated Maturity of the final
installment of principal of this Bond, the amount payable to the Holder of this
Bond will be equal to the Class Principal Amount of this Bond on the date this
Bond becomes so due and payable, together with accrued interest. Following the
acceleration of the maturity of the Bonds, all amounts collected as proceeds of
the collateral securing the Bonds or otherwise shall be applied as described in
the Indenture. Following such acceleration, interest on any overdue installments
of interest on all Bonds shall be payable at the rate set forth in the
Indenture.
The Bonds are not prepayable or redeemable at the option or direction of
the Issuer except that the Bonds are subject to redemption in whole, but not in
part, at the option of the Issuer on any Distribution Date on or after the
Distribution Date on which the sum of (i) the Invested Amount, (ii) the Senior
Class Principal Amount, (iii) the Class B- 1 Principal Amount and (iv) the Class
B-2 Principal Amount, after giving effect to payments expected to be made on
such Distribution Date, is __% or less of the aggregate of the Stated Principal
Balances of the Mortgage Loans as of the Cut- Off Date. Any such redemption at
the option of the Issuer shall be at a price equal to 100% of the unpaid
principal amount of the Bonds (including, in the case of the Subordinated Bonds,
any unpaid Class B-1 Principal Carryover Shortfall and/or Class B-2 Principal
Carryover Shortfall) so redeemed plus accrued interest through the last day of
the month preceding the month in which such optional redemption occurs.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Bond may be registered on the Bond Register of
the Issuer, upon surrender of this Bond for registration of transfer at the
office or agency designated by the Issuer pursuant to the Indenture, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Trustee
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<PAGE> 86
duly executed by the Holder hereof or his attorney duly authorized in writing,
and thereupon one or more new Bonds of the same Class, of authorized
denominations and in the same aggregate initial principal amount, will be issued
to the designated transferee or transferees.
Prior to the due presentment for registration of transfer of this Bond,
the Issuer, the Trustee, and any agent of the Issuer shall treat the Person in
whose name this Bond is registered (i) on any Record Date, for purposes of
making payments, and (ii) on any other date for any other purposes, as the owner
hereof, whether or not this Bond be overdue, and neither the Issuer, the Trustee
nor any such agent shall be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Bonds under the Indenture at any
time by the Issuer with the consent of the Holders of Bonds representing
two-thirds of the aggregate Class Principal Amount of the Controlling Class. The
Indenture also contains provisions permitting the Holders of Bonds representing
specified percentages of the aggregate Class Principal Amount of the Controlling
Class on behalf of the Holders of all the Bonds of such Class, to waive
compliance by the Issuer with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder, at the time of the giving thereof, of this Bond (or any
one or more Predecessor Bonds) shall be conclusive and binding upon such Holder
and upon all future holders of this Bond and of any Bond issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof whether
or not notation of such consent or waiver is made upon this Bond. The Indenture
also permits the Trustee to amend or waive certain terms and conditions set
forth in the Indenture without the consent of the Holders of the Bonds of any
Series issued thereunder.
The Class B-1 Bonds are "Book Entry Bonds" which will be available to
investors only through the book entry facilities of The Depository Trust
Company, and bond certificates for all Classes of Bonds will be available only
under certain limited circumstances as described in the Indenture.
AS PROVIDED IN THE INDENTURE, THIS BOND AND THE INDENTURE SHALL BE
CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED THEREIN.
No reference herein to the Indenture and no provision of this Bond or of
the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional to the extent permitted by applicable law, to pay the
principal of, and interest on, this Bond at the times, place and rate, and in
the coin or currency herein prescribed.
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<PAGE> 87
EXHIBIT IV
FORM OF A CLASS B-2 BOND
The form of a Class B-2 Bond is as follows:
PRINCIPAL OF THIS BOND IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN.
ACCORDINGLY, THE CLASS PRINCIPAL AMOUNT OF THIS BOND AT ANY TIME MAY BE LESS
THAN THE AMOUNT SHOWN ON THE FACE HEREOF. THE CLASS PRINCIPAL AMOUNT OF THIS
BOND MAY BE ASCERTAINED ONLY BY OBTAINING A CONFIRMATION THEREOF FROM THE
TRUSTEE UNDER THE INDENTURE REFERRED TO BELOW.
[UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY BOND ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.]
THIS BOND IS SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS B-1 BONDS AND
THE SENIOR BONDS AS DESCRIBED IN THE INDENTURE REFERRED TO HEREIN.
THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR THE PURPOSE OF APPLYING
THE U.S. FEDERAL INCOME TAX ORIGINAL ISSUE DISCOUNT ("OID") RULES TO THIS BOND.
THE ISSUE DATE OF THIS BOND IS _____________, 199__. THE PER ANNUM RATE OF
INTEREST ON THIS BOND IS ___% ASSUMING THAT PRINCIPAL PAYMENTS ARE MADE ON THE
MORTGAGE COLLATERAL UNDERLYING THE BONDS AT _______% OF THE STANDARD PREPAYMENT
ASSUMPTION (AS DEFINED IN THE PROSPECTUS SUPPLEMENT). THIS BOND HAS BEEN ISSUED
WITH $ OF OID PER $1,000 OF INITIAL PRINCIPAL AMOUNT, THE YIELD TO MATURITY IS
___% AND THE AMOUNT OF OID ATTRIBUTABLE TO THE INITIAL SHORT ACCRUAL PERIOD IS
$_______ OF OID PER $1,000 OF INITIAL PRINCIPAL AMOUNT, CALCULATED ASSUMING THE
YIELD IS ACCRUED DAILY DURING INITIAL SHORT PERIOD. NO REPRESENTATION IS MADE AS
TO THE RATE AT WHICH PRINCIPAL PAYMENTS WILL BE MADE ON THE MORTGAGE COLLATERAL.
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<PAGE> 88
AMERICAN RESIDENTIAL EAGLE BOND TRUST ONE [199__-__],
a Delaware Statutory Business Trust
Collateralized Mortgage Bonds
CLASS B-2
DUE: __________ ___, _____
ACCRUAL DATE: __________ ___, _____
ISSUE DATE: __________ ___, _____
INTEREST RATE
Initial Class Principal CUSIP NO. ______
Amount of this Bond:
$____________________ CERTIFICATE NUMBER 1
American Residential Eagle Bond Trust [199__-__] (the "Issuer"), a
statutory business trust formed under the Deposit Trust Agreement dated as of
__________ ___, 199__, and having ________________________, a Delaware bank and
trust company, as Owner Trustee for value received, hereby promises to pay to
CEDE & CO. or registered assigns, the principal sum of [AMOUNT IN WORDS]
($___________) in monthly installments on the ____________ day of each month,
commencing on __________ ___, _____ (each, a "Distribution Date"), and ending on
or before __________ ___, _____ (the "Stated Maturity" of such final installment
of principal), and to pay interest (computed on the basis of a 360-day year of
twelve 30-day months) on the Class Principal Amount (as defined in the
Indenture) of this Bond from time to time from __________ ___, _____ (the
"Accrual Date"), or such later date to which interest has been paid, through the
last day of the month preceding the month in which the principal amount of this
Bond is paid in full, at a variable rate determined as described below, such
interest being payable monthly on each Distribution Date. If any Distribution
Date shall not be a "Business Day" (as defined in the Indenture), payment of the
amount due will be made on the next succeeding Business Day.
Installments of principal of this Bond are due and payable as described
in the Indenture.
Interest payable on this Bond on a Distribution Date will be equal to
the amount of interest that has accrued on the Class
Principal Balance of this Bond during the one-month period ending on the
last day of the month preceding the month in which each such Distribution Date
occurs (each, an "Interest Accrual Period").
The principal of, and interest on, this Bond are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Bond shall be applied as set forth in the Indenture. Any
installment of principal or interest which is not paid when and as due shall
bear interest as described in the Indenture.
Unless the certificate of authentication hereon has been executed by the
Trustee by manual signature, this Bond shall not be entitled to any benefit
under the Indenture, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, American Residential Eagle Bond Trust [199__-__] has
caused this instrument to be duly executed by its duly authorized officer.
Dated:_______________ AMERICAN RESIDENTIAL EAGLE BOND TRUST
[199__-__]
By:
----------------------------------------
not in its individual capacity but solely
as Owner Trustee
By:
----------------------------------------
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<PAGE> 89
Title:
-------------------------------------
CERTIFICATE OF AUTHENTICATION
This is one of the Bonds referred to in the within-mentioned Indenture.
-----------------------------
as Trustee
By:
--------------------------
Authorized Signatory
This Bond is one of a duly authorized issue of Bonds of the Issuer,
designated as its Collateralized Mortgage Bonds (herein called the "Bonds"). The
Bonds are issuable in one or more classes; the Bonds of particular Classes being
herein called the Class A-1, Class B-1 and Class B-2 Bonds, all issued and to be
issued under the Issuer's Indenture dated as of ____________ ___, _____, between
the Issuer and ____________ _____________________ (the "Trustee", which term
includes any successor Trustee under the Indenture), which authorized the Bonds,
and reference is hereby made thereto for a statement of the respective rights
thereunder of the Issuer, the Trustee and the Holders of the Bonds of each
particular Class thereof and the terms upon which the Bonds of each Class are,
and are to be, authenticated and delivered.
The Class A-1 Bonds constitute "Senior Bonds" and the Class B-1 and
Class B-2 Bonds constitute "Subordinated Bonds".
All terms used in this Bond which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
The Bond Interest Rate for the Class B-2 Bonds (the "Class B-2 Bond
Interest Rate") and any Interest Accrual Period will equal _______________.
As provided in the Indenture, the Bonds are issuable in Classes which
may vary as provided or permitted in the Indenture. Bonds of each Class are
equally and ratably secured by the collateral pledged as security therefor to
the extent provided by the Indenture.
For each Distribution Date, the aggregate amount of each installment of
principal due and payable on the Class B-2 Bonds will be equal to the Class B-2
Principal Payment Amount for such Distribution Date. The Class B-2 Principal
Payment Amount for any Distribution Date is equal to the sum of (i) the Class
B-2 Percentage of the sum of (a) the principal portion of the Scheduled Payment
due on each Mortgage Loan [on the related Due Date], (b) the principal portion
of the purchase price of each Mortgage Loan that was purchased by American
Residential or another person pursuant to the Mortgage Loan Purchase Agreement
[or by the Master Servicer in connection with any optional purchase by the
Master Servicer of a defaulted Mortgage Loan] as of such Distribution Date, (c)
the Substitution Adjustment Amount in connection with any Deleted Mortgage Loan
received with respect to such Distribution Date, (d) any Insurance Proceeds or
Liquidation Proceeds allocable to recoveries of principal of Mortgage Loans that
are not yet Liquidated Mortgage Loans received during the [calendar month]
preceding the month of such Distribution Date, (e) with respect to each Mortgage
Loan that became a Liquidated Mortgage Loan during the [calendar month]
preceding the month of such Distribution Date, the Stated Principal Balance of
such Mortgage Loan and (f) all partial and full principal prepayments by
borrowers received during the related Prepayment Period and (ii) any Class B-2
Principal Carryover Shortfall.
Payments of principal or interest, if any, on the Bonds will be made on
each Distribution Date, commencing on _____________ __, 199_, in the manner and
in accordance with the priorities for the Bonds provided in the Indenture.
The entire unpaid principal amount of each Class of Bonds shall be due
and payable, if not then previously paid, on the Stated Maturity of the final
installment of principal of such Class.
All payments of principal of, and interest on, the Bonds shall be made
only from the Trust Estate Granted as security for the Bonds and any other
assets of the Issuer that have not been Granted as security for any other bonds
or obligations of the Issuer, and each Holder hereof, by its acceptance of this
Bond, agrees that it will have recourse solely against such Trust Estate and
such other assets of the Issuer and that neither Wilmington Trust Company in its
individual capacity, any holder of a beneficial interest in the
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<PAGE> 90
Issuer nor any of their respective shareholders, partners, beneficiaries,
agents, officers, directors, employees, successors or assigns shall be
personally liable for any amounts payable, or performance due, under this Bond
or the Indenture.
Payment of the then remaining unpaid principal amount of this Bond on
the Stated Maturity of its final installment of principal or on such earlier
date as the Issuer shall be required to pay the then remaining unpaid principal
amount of this Bond or payment of the Redemption Price payable on any date as of
which this Bond has been called for redemption in full, shall be made upon
presentation of this Bond to the office or agency of the Issuer maintained for
such purpose. Payments of interest on this Bond due and payable on each
Distribution Date or on any Optional Redemption Date, to the extent this Bond is
not being paid in full, together with any installment of principal of this Bond
due and payable on each Distribution Date or the Optional Redemption Date, to
the extent not in full payment of this Bond, shall be made by check mailed to
the Person whose name appears as the registered Holder of this Bond (or one or
more Predecessor Bonds) on the Bond Register as of the last day of the month
preceding the month in which such Distribution Date occurs (each a "Record
Date").
Checks for amounts which include installments of principal due on this
Bond shall be mailed to the Person entitled thereto at the address of such
Person as it appears on the Bond Register as of the applicable Record Date
without requiring that this Bond be submitted for notation of payment and checks
returned undelivered will be held for payment to the Person entitled thereto,
subject to the terms of the Indenture, at the office or agency in the United
States of America designated by the Issuer for such purpose pursuant to the
Indenture. Any reduction in the principal amount of this Bond (or any one or
more Predecessor Bonds) effected by any payments made on any Distribution Date
shall be binding upon all Holders of this Bond and of any Bond issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not noted hereon.
If funds are expected to be available, as provided in the Indenture, for
payment in full of the then remaining unpaid principal amount of this Bond on a
Distribution Date or Optional Redemption Date which is prior to the Stated
Maturity of the final installment of principal hereof, then the Trustee, on
behalf of the Issuer, will notify the Person who was the registered Holder
hereof on the last day of the month prior to the month in which such
Distribution Date or optional Redemption Date occurs, and the amount then due
and payable shall, if sufficient funds therefor are available, be payable only
upon presentation of this Bond to the office or agency of the Issuer maintained
for such purpose.
Prior to the payment in full of the Senior Bonds, the failure of the
Issuer to pay when and as due any installment of principal of or interest
(regardless of the lapse of any grace period) on any Subordinated Bond shall not
constitute an Event of Default under the Indenture. In addition, notwithstanding
any applicable provision of the Indenture, upon payment in full of the Senior
Bonds, the prior occurrence of any such shortfalls attributable to the
Subordinated Bonds, which shortfalls have previously been paid in full, will not
constitute an Event of Default under the Indenture in respect of the
Subordinated Bonds.
If an Event of Default as defined in the Indenture shall occur and be
continuing with respect to the Bonds, the Bonds may become or be declared due
and payable in the manner and with the effect provided in the Indenture. If any
such acceleration of maturity occurs prior to the Stated Maturity of the final
installment of principal of this Bond, the amount payable to the Holder of this
Bond will be equal to the Class Principal Amount of this Bond on the date this
Bond becomes so due and payable, together with accrued interest. Following the
acceleration of the maturity of the Bonds, all amounts collected as proceeds of
the collateral securing the Bonds or otherwise shall be applied as described in
the Indenture. Following such acceleration, interest on any overdue installments
of interest on all Bonds shall be payable at the rate set forth in the
Indenture.
The Bonds are not prepayable or redeemable at the option or direction of
the Issuer except that the Bonds are subject to redemption in whole, but not in
part, at the option of the Issuer on any Distribution Date on or after the
Distribution Date on which the sum of (i) the Invested Amount, (ii) the Senior
Class Principal Amount and (iii) the Subordinated Class Principal Amount, after
giving effect to payments expected to be made on such Distribution Date, is __%
or less of the aggregate of the Stated Principal Balances of the Mortgage Loans
as of the Cut-Off Date. Any such redemption at the option of the Issuer shall be
at a price equal to 100% of the unpaid principal amount of the Bonds (including,
in the case of the Subordinated Bonds, any unpaid Class B-1 Principal Carryover
Shortfall and/or Class B-2 Principal Carryover Shortfall) so redeemed plus
accrued interest through the last day of the month preceding the month in which
such optional redemption occurs.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Bond may be registered on the Bond Register of
the Issuer, upon surrender of this Bond for registration of transfer at the
office or agency designated by the Issuer pursuant to the Indenture, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Trustee
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duly executed by the Holder hereof or his attorney duly authorized in writing,
and thereupon one or more new Bonds of the same Class, of authorized
denominations and in the same aggregate initial principal amount, will be issued
to the designated transferee or transferees.
Prior to the due presentment for registration of transfer of this Bond,
the Issuer, the Trustee, and any agent of the Issuer shall treat the Person in
whose name this Bond is registered (i) on any Record Date, for purposes of
making payments, and (ii) on any other date for any other purposes, as the owner
hereof, whether or not this Bond be overdue, and neither the Issuer, the Trustee
nor any such agent shall be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Bonds under the Indenture at any
time by the Issuer with the consent of the Holders of Bonds representing
two-thirds of the aggregate Class Principal Amount of the Controlling Class. The
Indenture also contains provisions permitting the Holders of Bonds representing
specified percentages of the aggregate Class Principal Amount of the Controlling
Class on behalf of the Holders of all the Bonds such Class, to waive compliance
by the Issuer with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Any such consent or waiver by the
Holder, at the time of the giving thereof, of this Bond (or any one or more
Predecessor Bonds) shall be conclusive and binding upon such Holder and upon all
future holders of this Bond and of any Bond issued upon the registration of
transfer hereof or in exchange herefor or in lieu hereof whether or not notation
of such consent or waiver is made upon this Bond. The Indenture also permits the
Trustee to amend or waive certain terms and conditions set forth in the
Indenture without the consent of the Holders of the Bonds of any Series issued
thereunder.
[The Subordinated Bonds are "Book Entry Bonds" which will be available
to investors only through the book entry facilities of The Depository Trust
Company, and bond certificates for all Classes of Bonds will be available only
under certain limited circumstances as described in the Indenture.]
AS PROVIDED IN THE INDENTURE, THIS BOND AND THE INDENTURE SHALL BE
CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED THEREIN.
No reference herein to the Indenture and no provision of this Bond or of
the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional to the extent permitted by applicable law, to pay the
principal of, and interest on, this Bond at the times, place and rate, and in
the coin or currency herein prescribed.
80
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EXHIBIT V
FORM OF BOND INSURANCE POLICY
81
<PAGE> 1
EXHIBIT 4.2
AMERICAN RESIDENTIAL EAGLE BOND TRUST [199__-__]
COLLATERALIZED MORTGAGE BONDS
AMENDED AND RESTATED DEPOSIT TRUST AGREEMENT
Between
AMERICAN RESIDENTIAL EAGLE, INC.,
as Depositor
and
------------------------,
as Owner Trustee
dated as of ___________ ___, 199__
American Residential Eagle Bond Trust [199__-__]
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
DEFINITIONS
<S> <C>
1.01. Definitions..................................................................
ARTICLE II
ORGANIZATION
2.01. Name.........................................................................
2.02. Office.......................................................................
2.03. Purpose and Powers...........................................................
2.04. Appointment of the Owner Trustee.............................................
2.05. Declaration of Trust.........................................................
2.06. Issuance of Investor Certificate; Prohibition
of Transfer..................................................................
2.07. Situs of Trust...............................................................
2.08. Title to Trust Property......................................................
ARTICLE III
CONCERNING THE OWNER
3.01. Ownership Prior to Closing Date..............................................
3.02. Prohibition of Disposition by Depositor......................................
3.03. Lost, Stolen Mutilated or Destroyed Investor
Certificates.................................................................
3.04. Representations and Warranties of the Depositor..............................
3.05. Covenants of Owner to Indemnify Bond Trustee.................................
ARTICLE IV
PAYMENTS AND DISTRIBUTIONS
4.01. Payments.....................................................................
4.02. Method of Payment............................................................
4.03. Monthly Reports..............................................................
4.04. Reports to Internal Revenue Service and Others...............................
ARTICLE V
DUTIES OF THE OWNER TRUSTEE
5.01. Authorization; Issuance of the Bonds.........................................
5.02. Pledge of Collateral.........................................................
5.03. In General...................................................................
5.04. Action upon Instructions.....................................................
5.05. No Duties Except as Specified in Agreement or
Instructions.................................................................
5.06. No Action Except Under Specified Documents or
Instructions.................................................................
5.07. Further Assurances...........................................................
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
5.08. Restrictions.................................................................
5.09. Corporate Existence..........................................................
ARTICLE VI
CONCERNING THE OWNER TRUSTEE
6.01. Acceptance of Trusts and Duties..............................................
6.02. Furnishing of Documents......................................................
6.03. Books and Records............................................................
6.04. Representations and Warranties of the Bank...................................
6.05. No Segregation of Moneys; No Interest........................................
6.06. Reliance; Advice of Counsel..................................................
6.07. Not Acting in Individual Capacity............................................
ARTICLE VII
INDEMNIFICATION BY OWNER
7.01. Trust Expenses...............................................................
7.02. Indemnification..............................................................
7.03. Compensation.................................................................
7.04. Lien on Trust Estate.........................................................
ARTICLE VIII
TERMINATION OF TRUST AGREEMENT
8.01. Termination of Trust Agreement...............................................
ARTICLE IX
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL TRUSTEES
9.01. Resignation of Owner Trustee; Appointment
of Successor.................................................................
9.02. Appointment of Additional Trustees...........................................
ARTICLE X
MISCELLANEOUS
10.01. Supplements and Amendments...................................................
10.02. No Legal Title to Trust Estate in Owner......................................
10.03. Pledge of Collateral by Owner Trustee Is
Binding......................................................................
10.04. Limitations on Rights of Others..............................................
10.05. Notices......................................................................
10.06. Severability.................................................................
10.07. Separate Counterparts........................................................
10.08. Successors and Assigns.......................................................
10.09. Headings.....................................................................
10.10. Governing Law................................................................
10.11. No Petition..................................................................
ARTICLE XI
OFFICERS
11.01. Appointment of Officers......................................................
11.02. Officers to Provide Information to the
Owner Trustee................................................................
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
SIGNATURES............................................................................
EXHIBIT A FORM OF INVESTOR CERTIFICATE................................................. A-1
</TABLE>
iii
<PAGE> 5
AMENDED AND RESTATED DEPOSIT TRUST AGREEMENT dated as of __________,
199_, by and between American Residential Eagle, Inc., a Delaware corporation,
and _________________________________________, a Delaware banking corporation.
WHEREAS, the Depositor and the Owner Trustee have entered into a Trust
Agreement, dated as of __________, 199_ (the "Trust Agreement"); and
WHEREAS, the Depositor and the Owner Trustee desire to amend and restate
the Trust Agreement in its entirety.
NOW THEREFORE, in consideration of the premises and mutual agreements
herein contained, the Trust Agreement is hereby amended and restated in its
entirety as follows:
ARTICLE I
DEFINITIONS
1.01. Definitions. For all purposes of this Agreement, the following
terms shall have the meanings set forth below:
"AGREEMENT" or "DEPOSIT TRUST AGREEMENT" means this Amended and Restated
Deposit Trust Agreement and any amendments or modifications hereof.
"AMERICAN RESIDENTIAL" means American Residential Investment Trust,
Inc., a Maryland corporation.
"AUTHORIZED OFFICER" means any officer of the Owner Trustee who is
authorized to act for the Owner Trustee and whose name appears on a list of such
authorized officers furnished by the Owner Trustee, as such list may be amended
or supplemented from time to time, and any Officer of the Trust who is
authorized to act pursuant to Section 11.01 of this Agreement and whose name
appears on a list furnished by the Depositor to the Owner Trustee and the Bond
Trustee, as such list may be amended or supplemented from time to time.
"BANK" means ________________________ in its individual capacity and not
as Owner Trustee.
"BOND AGREEMENTS" mean the Indenture, the Master Servicing Agreement,
the Bonds and the Underwriting Agreement.
"BONDHOLDERS" mean the holders from time to time of the Bonds.
"BONDS" mean the American Residential Eagle Trust One Collateralized
Mortgage Bonds issued by the Trust under the Indenture.
"BUSINESS DAY" means any day that is not (i) a Saturday or a Sunday, or
(ii) a day on which banking institutions in the City of New York, the State of
California or the city of Wilmington, Delaware, are authorized or obligated by
law or executive order to be closed.
"BUSINESS TRUST STATUTE" means Chapter 38 of Title 12 of the Delaware
Code, 12 Del.C. Section 3801 et seq, as the same may be amended from time to
time.
"CERTIFICATE DISTRIBUTION AMOUNT" has the meaning specified in Section
3.09(c).
"CERTIFICATEHOLDER" or "HOLDER" means the Person in whose name an
Investor Certificate is registered in the Certificate Register except that, any
Investor Certificate registered in the name of the Issuer, the Owner Trustee or
the Indenture Trustee or any Affiliate of any of them shall be deemed not to be
outstanding and the registered Holder will not be considered a Certificateholder
or a Holder for purposes of giving any request, demand, authorization,
direction, notice, consent or waiver under the Indenture or the Trust Agreement
provided that, in determining whether the Indenture Trustee or the Owner Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Certificates that the Indenture
Trustee or the Owner Trustee knows to be so owned shall be so disregarded.
Owners of Investor Certificates that have been pledged
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<PAGE> 6
in satisfaction of the Indenture Trustee or the Owner Trustee, as the case may
be, the pledgee's right so to act with respect to such Investor Certificates and
that the pledgee is not the Issuer, any other obligor upon the Investor
Certificates or any affiliate of any of the foregoing Persons.
"CERTIFICATE OF TRUST" means the Certificate of Trust to be filed by the
Owner Trustee for the Trust pursuant to Section 3810(a) of the Business Trust
Statute.
"CERTIFICATE PAYING AGENT" means __________________.
"CERTIFICATE REGISTER" means the register maintained by the Certificate
Registrar in which the Certificate Registrar shall provide for the registration
of Certificates and of transfers and exchanges of Certificates.
"CERTIFICATE REGISTRAR" means, initially, ________________, in its
capacity as Certificate Registrar, or any successor to the Trustee in such
capacity.
"CLOSING DATE" has the meaning specified in the Indenture.
"COLLATERAL" means all of the Trust Estate, including the Mortgage
Loans, rights to the Master Servicing Agreement, the Insurance Policies, the
Bond Account and the Distribution Account, that is from time to time pledged as
security for the Bonds under the Indenture.
"DEPOSITOR" means American Residential Eagle, Inc., a Delaware
corporation.
"EXPENSES" has the meaning specified in Section 7.02.
"FISCAL YEAR" means the period from each January 1 to and including the
following December 31.
"INDENTURE" means the indenture between the Trust and the Bond Trustee,
providing for the issuance of the Bonds.
"INDENTURE TRUSTEE" means _________________________________, a banking
corporation organized and existing under the laws of
_________________________________, as the trustee designated under the
Indenture.
"INITIAL PRINCIPAL BALANCE" means, with respect to the Investor
Certificates, $__________.
"INVESTOR CERTIFICATES" means the equity certificates each representing
undivided beneficial interests in the Trust in substantially the form attached
hereto as Exhibit A.
"MANAGEMENT AGREEMENT" means the agreement between the Trust and
American Residential, substantially in the form annexed as Exhibit B hereto, as
such agreement may be amended or supplemented.
"MANAGER" means the Person acting in such capacity pursuant to the
Management Agreement or its successors or assigns.
"MASTER SERVICER" means ____________________________________, a ________
corporation, which shall manage and supervise the administration and servicing
of the Mortgage Loans securing the Bonds and the Servicers of such Mortgage
Loans, or its successors or assigns.
"MASTER SERVICING AGREEMENT" means the Master Servicing Agreement among
the Trust, the Indenture Trustee and the Master Servicer, pursuant to which the
Master Servicer will be obligated to manage and supervise the administration and
servicing of the Mortgage Loans by the Servicers, as such agreement may be
amended or supplemented from time to time as permitted thereby.
"MORTGAGE LOANS" means those [fixed/floating] rate, [fully-amortizing]
conventional mortgage loans secured by first liens on one- to four-family
residences as are Granted to the Indenture Trustee pursuant to the Indenture
(including any REO Property).
2
<PAGE> 7
"NET PROCEEDS FROM THE BONDS" means the proceeds received by the Trust
from the issue and sale of the Bonds, less the costs and expenses incurred in
connection with the issue and sale of the Bonds.
"OFFICER" means those officers referred to in Article XII.
"OPERATIVE AGREEMENTS" mean the Indenture, the Underwriting Agreement,
the Management Agreement, the Master Servicing Agreement, the Investor
Certificate, the Mortgage Loan Purchase Agreement and each other document
contemplated by any of the foregoing or this Agreement to which the Owner
Trustee or the Trust is a party.
"OWNER TRUSTEE" means ________________________, not in its individual
capacity but solely as trustee under this Agreement, and any successor trustee
hereunder.
"PERIODIC FILINGS" mean any filings or submissions that the Trust is
required to make with respect to the Bonds, including without limitation filings
pursuant to the Securities and Exchange Act of 1934, as amended, and filings
with any stock exchange or self-regulatory organization.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"PERCENTAGE INTEREST" means, with respect to any Investor Certificate,
the percentage obtained by dividing the denomination specified on such Investor
Certificate by the Initial Principal Balance of the Investor Certificates.
"PROPOSER" means the Certificateholder making a written request pursuant
to Section 5.07.
"QUALIFIED REIT SUBSIDIARY" means any subsidiary of American Residential
which satisfies the requirements of Section 856(i)(2) of the Internal Revenue
Code of 1986, as amended.
"SECRETARY OF STATE" means the Secretary of State of the State of
Delaware.
"SERVICER" means any Person with which the Master Servicer has entered
into a Servicing Agreement for the servicing of all or a portion of the Mortgage
Loans pursuant to Section 3(b) of the Master Servicing Agreement.
"SERVICING AGREEMENT" means any servicing agreement between the Master
Servicer and the related Servicer relating to servicing and/or administration of
certain Mortgage Loans as provided in Section 3(b) of the Master Servicing
Agreement.
"SINGLE CERTIFICATE" means an Investor Certificate in the denomination
of $1,000.
"TRUST" means the trust established by this Agreement.
"TRUST ESTATE" means all right, title and interest of the Owner Trustee,
subject to the lien of the Indenture, in and to the Collateral and any other
property contributed by the Depositor, including without limitation all
distributions, payments, proceeds, insurance proceeds or requisition and
indemnity payments with respect thereto. Notwithstanding the foregoing, "Trust
Estate" shall not include any amounts paid or payable as compensation or
indemnity to the Bank.
"UNDERWRITING AGREEMENT" means the underwriting agreement relating to
the sale of the Bonds substantially in the form filed as an exhibit to the
registration statement with respect to the Bonds.
ARTICLE II
ORGANIZATION
2.01. Name. The trust established under this Agreement may be referred
to as "American Residential Eagle Bond Trust [199__-__]" in which name the Owner
Trustee and the Officers may conduct the activities contemplated hereby.
3
<PAGE> 8
2.02. Office. The office of the Trust shall be in care of the Owner
Trustee, at the address set forth in Section 10.05 or at such other address
within the State of Delaware as the Owner Trustee may designate by notice to the
Certificateholders.
2.03. Purpose and Powers. The purpose of the Trust is to issue and
administer the Bonds and the Certificates, to receive and own the Collateral, to
maintain and administer the Collateral, to pledge the Collateral to secure the
Bonds pursuant to the Indenture and to distribute the Net Proceeds from the
Bonds to the Depositor, all for the benefit of the Certificateholders. The Trust
shall not have power to perform any act or engage in any business whatsoever
except for the foregoing and any activity that is both necessary to the
foregoing and within the contemplation of the Indenture.
2.04. Appointment of the Owner Trustee. The Depositor hereby appoints
the Bank as trustee of the Trust effective as of the date hereof, to have all
the rights, powers and duties set forth herein and in the Business Trust
Statute. The Owner Trustee acknowledges receipt in trust from the Depositor, as
of the date hereof, of the sum of Ten Dollars ($10.00) constituting the initial
Trust Estate.
The Owner Trustee is hereby authorized to execute the Bond Agreements
and the Management Agreement on behalf of the Trust. The Owner Trustee is hereby
authorized to take all actions required or permitted to be taken by it as Issuer
(as defined in the Indenture) under the Indenture and is hereby directed to
comply with the terms of the Indenture. Effective as of the date of execution,
the Owner Trustee shall have all the rights, powers and duties set forth herein
and in the Business Trust Statute with respect to accomplishing the purposes of
the Trust.
2.05. Initial Capital Contribution; Declaration of Trust. The Depositor
hereby sells, assigns, transfers, conveys and sets over to the Trust, as of the
date hereof, the sum of $10. The Owner Trustee hereby acknowledges receipt in
trust from the Depositor, as of the date hereof, of the foregoing contribution,
which shall constitute the initial corpus of the Trust and shall be deposited in
the Certificate Distribution Account. The Owner Trustee also acknowledges on
behalf of the Trust receipt of the Mortgage Loan pursuant to Section 3 of the
Mortgage Loan Purchase Agreement, which shall constitute the Trust Estate. The
Owner Trustee hereby declares that it will hold the Trust Estate upon the trusts
set forth herein and for the use and benefit of the Certificateholders. It is
the intention of the parties hereto that the Trust constitute a business trust
under the Business Trust Statute and that this Agreement constitute the
governing instrument of such business trust. No later than the Closing Date, the
Owner Trustee shall cause the filing of the Certificate of Trust with the
Secretary of State. Except as otherwise provided in this Trust Agreement, the
rights of the Certificateholders will be those of equity owners of the Trust.
Effective as of the date hereof, the Owner Trustee shall have all rights, powers
and duties set forth herein and in the Business Trust Statute with respect to
accomplishing the purposes of the Trust.
2.06. Issuance of Initial Investor Certificate. (a) Upon the formation
of the Trust by the contribution by the Depositor pursuant to Section 2.04 and
until the conveyance of the Mortgage Loans pursuant to Section 3 of the Mortgage
Loan Purchase Agreement and the issuance of the Investor Certificates, and
thereafter except as otherwise permitted hereunder, the Depositor shall be the
sole Certificateholder.
2.07. Liability of the Holders of the Investor Certificates. The Holders
of the Investor Certificates shall be jointly and severally liable directly to
and shall indemnify any injured party for all losses, claims, damages,
liabilities and expenses of the Trust (including Expenses, to the extent not
paid out of the Trust Estate); provided however, that the Holders of the
Investor Certificates shall not be liable for payments required to be made on
the Bonds or the Investor Certificates, or for any losses incurred by a
Certificateholder in the capacity of an investor in the Investor Certificates or
a Bondholder in the capacity of an investor in the Bonds. In addition, any third
party creditors of the Trust, including the Insurer (other than in connection
with the obligations described in the following sentence for which the Holders
of the Investor Certificates shall not be liable) shall be deemed third party
beneficiaries of this paragraph. The Holders of the Investor Certificates shall
be liable for any entity level taxes imposed on the Trust. The obligations of
the Holders of the Investor Certificates under this paragraph shall be evidenced
by the Investor Certificates.
2.08. Situs of Trust. The Trust will be located and administered in the
State of Delaware. All bank accounts maintained by the Owner Trustee on behalf
of the Trust shall be located in the State of Delaware. The only office of the
Trust will be as described in Section 2.02 hereof.
2.09. Title to Trust Property. Title to all of the Trust Estate shall be
vested in the Trust until this Agreement terminates pursuant to Article VIII
hereof; provided, however, that if the laws of any jurisdiction require that
title to any part of the Trust Estate
4
<PAGE> 9
be vested in the trustee of the Trust, then title to that part of the Trust
Estate shall be deemed to be vested in the Owner Trustee or any co-trustee or
separate trustee, as the case may be, appointed pursuant to Article VI of this
Agreement.
2.10. Representations and Warranties of the Depositor. The Depositor
hereby represents and warrants to the Owner Trustee as follows:
(a) Upon the receipt of the Trust Estate by the Owner Trustee on
behalf of the Trust under this Agreement, the Trust will own the Trust
Estate free and clear of any lien (other than the lien of the Indenture)
and the Owner Trustee will have the right on behalf of the Trust to
grant and deliver the Collateral to the Indenture Trustee in accordance
with the Indenture and Section 5.01 of this Agreement.
(b) This Agreement has been duly and validly authorized, executed
and delivered by, and constitutes a valid and binding agreement of, the
Depositor, enforceable in accordance with its terms, subject, as to
enforceability of remedies, to applicable bankruptcy, insolvency,
reorganization or other laws affecting creditors' rights generally and
to general principles of equity and equitable remedies (regardless of
whether the enforceability of such remedies is considered in a
proceeding at law or in equity).
2.11. Tax Treatment. It is the intention of the parties hereto that, for
federal and state income and state and local franchise tax purposes, the Trust
shall not be treated as (i) an association subject separately to taxation as a
corporation (other than as a "qualified REIT subsidiary" as defined in Section
856(i) of the Code), (ii) a "publicly traded partnership" as defined in Treasury
Regulation Section 1.7704-1 or (iii) a "taxable mortgage pool" as defined in
Section 7701(i) of the code. It is also the intention of the parties hereto that
(i) the Bonds qualify under applicable tax laws as indebtedness secured by the
Trust Estate and (ii) the Trust formed hereby be disregarded as an entity
separate from the Depositor unless and until the date when either (a) there is
more than one Investor Certificateholder or (b) any Series of Bonds is
recharacterized as an equity interest in the Trust for federal income tax
purposes. In such event, the Trust is intended to be classified as a partnership
for federal income tax purposes. The Depositor, the Owner Trustee and the
Manager and any holder of an Investor Certificate agree to report the
transactions contemplated hereby in accordance with the above stated intentions
unless and until determined to the contrary by an applicable taxing authority,
and the provisions of this Agreement shall be interpreted to further the above
stated intentions.
2.12. Investment Company. Neither the Company nor any holder of an
Investor Certificate shall take any action which would cause the Trust to become
an "investment company" which would be required to register under the Investment
Company Act.
ARTICLE III
THE INVESTOR CERTIFICATES
3.01. The Investor Certificates. The Investor Certificates shall be
issued in the form of one or more Investor Certificates each representing not
less than a 10% Percentage Interest. The Investor Certificates shall initially
be registered in the name of the Depositor. The Investor Certificates shall be
executed on behalf of the Trust by manual or facsimile signature of an
authorized officer of the Owner Trustee and authenticated in the manner provided
in Section 3.02. Investor Certificates bearing the manual or facsimile
signatures of individuals who were, at the time when such signatures shall have
been affixed, authorized to sign on behalf of the Trust, shall be validly issued
and entitled to the benefit of this Trust Agreement, notwithstanding that such
individuals or any of them shall have ceased to be so authorized prior to the
authentication and delivery of such Investor Certificates or did not hold such
offices at the date of authentication and delivery of such Investor
Certificates. A Person shall become a Certificateholder and shall be entitled to
the rights and subject to the obligations of a Certificateholder hereunder upon
such Person's acceptance of an Investor Certificate duly registered in such
Person's name pursuant to Section 3.03.
3.02. Authentication of Investor Certificates. The Owner Trustee shall
cause all Investor Certificates issued hereunder to be executed and
authenticated on behalf of the Trust, authenticated and delivered to or upon the
written order of the Depositor, signed by its chairman of the board, its
president or any vice president, without further corporate action by the
Depositor, in authorized denominations. No Investor Certificate shall entitle
its Holder to any benefit under this Trust Agreement or be valid for any purpose
unless there shall appear on such Investor Certificate a certificate of
authentication substantially in the form set forth in Exhibit A, executed by the
Owner Trustee or the Certificate Registrar by manual signature; such
authentication shall constitute conclusive evidence that such Investor
Certificate shall have been duly authenticated and delivered hereunder. All
Investor Certificates shall be dated the date of their authentication.
5
<PAGE> 10
3.03. Registration of and Limitations on Transfer and Exchange of
Investor Certificates. The Certificate Registrar shall keep or cause to be kept,
a Certificate Register in which, subject to such reasonable regulations as it
may prescribe, the Certificate Registrar shall provide for the registration of
Investor Certificates and of transfers and exchanges of Investor Certificates as
herein provided. _____________________ shall be the initial Certificate
Registrar. If the Certificate Registrar resigns or is removed, the Owner Trustee
shall appoint a successor Certificate Registrar.
Subject to satisfaction of the conditions set forth below with respect
to the Investor Certificate, upon surrender for registration of transfer of any
Investor Certificate at the office or agency maintained pursuant to Section
3.09, the Owner Trustee or the Certificate Registrar shall execute, authenticate
and deliver in the name of the designated transferee or transferees, one or more
new Investor Certificates in authorized denominations of a like aggregate amount
dated the date of authentication by the Owner Trustee or the Certificate
Registrar. At the option of a Holder, Investor Certificates may be exchanged for
other Investor Certificates of authorized denominations of a like aggregate
amount upon surrender of the Investor Certificates to be exchanged at the office
or agency maintained pursuant to Section 3.09.
Every Investor Certificate presented or surrendered for registration of
transfer or exchange shall be accompanied by a written instrument of transfer in
form satisfactory to the Certificate Registrar duly executed by the Holder or
such Holder's attorney duly authorized in writing. Each Investor Certificate
surrendered for registration of transfer or exchange shall be cancelled and
subsequently disposed of by the Certificate Registrar in accordance with its
customary practice.
No service charge shall be made for any registration of transfer or
exchange of Investor Certificates, but the Owner Trustee or the Certificate
Registrar may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer or
exchange of Investor Certificates.
No Person shall become a Certificateholder until it shall establish its
non-foreign status by submitting to the Certificate Paying Agent an IRS Form W-9
and the Certificate of Non-Foreign Status set forth in Exhibit D hereto.
No transfer of an Investor Certificate shall be made unless such
transfer is exempt from the registration requirements of the Securities Act and
any applicable state securities laws or is made in accordance with said Act and
laws. In the event of any such transfer, the Certificate Registrar or the
Depositor shall prior to such transfer require the transferee to execute (i) (a)
an investment letter (in substantially the form attached hereto as Exhibit C) in
form and substance reasonably satisfactory to the Certificate Registrar and the
Depositor certifying to the Trust, the Owner Trustee, the Certificate Registrar
and the Depositor that such transferee is a "qualified institutional buyer"
under Rule 144A under the Securities Act, or (b) an investment letter (in
substantially the form attached hereto as Exhibit E), acceptable to and in form
and substance reasonably satisfactory to the Certificate Registrar and the
Depositor, which investment letters shall not be an expense of the Trust, the
Owner Trustee, the Certificate Registrar, the Master Servicer or the Depositor,
or (c) a certificate (in substantially the form attached hereto as Exhibit F) in
form and substance reasonably satisfactory to the Certificate Registrar and the
Depositor certifying that such transferee is a Person involved in the
organization or operation of the Trust or an affiliate of such a Person within
the meaning of Rule 3a-7 of the Investment Company Act of 1940, as amended
(including but not limited to the Company) and (ii) the Certificate of
Non-Foreign Status (in substantially the form attached hereto as Exhibit F)
acceptable to and in form and substance reasonably satisfactory to the
Certificate Registrar and the Depositor, which certificate shall not be an
expense of the Trust, the Owner Trustee, the Certificate Registrar or the
Depositor. The Holder of an Investor Certificate desiring to effect such
transfer shall, and does hereby agree to, indemnify the Trust, the Owner
Trustee, the Certificate Registrar, the Master Servicer and the Depositor
against any liability that may result if the transfer is not so exempt or is not
made in accordance with such federal and state laws.
No transfer of an Investor Certificate shall be made unless the
Certificate Registrar shall have received either (i) a representation letter
from the proposed transferee of such Investor Certificate to the effect that
such proposed transferee is not an employee benefit plan subject to the
fiduciary responsibility provisions of ERISA, or Section 4975 of the Code, or a
Person acting on behalf of any such plan or using the assets of any such plan,
which representation letter shall not be an expense of the Trust, Owner Trustee,
the Certificate Registrar, the Master Servicer or the Depositor or (ii) in the
case of any such certificate presented for registration in the name of an
employee benefit plan subject to the fiduciary responsibility provisions of
ERISA, or Section 4975 of the Code (or comparable provisions of any subsequent
enactments), or a trustee of any such plan, or any other Person who is using the
assets of any such plan to effect such acquisition, an Opinion of Counsel, in
form and substance reasonably satisfactory to, and addressed and delivered to,
the Trust, the Certificate Registrar and the Depositor, to the effect that the
purchase or holding of such
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Investor Certificate will not result in the assets of the Trust Estate being
deemed to be "plan assets" and subject to the fiduciary responsibility
provisions of ERISA or the prohibited transaction provisions of the Code, will
not constitute or result in a prohibited transaction within the meaning of
Section 406 or Section 407 of ERISA or Section 4975 of the Code, and will not
subject the Trust, the Owner Trustee, the Certificate Registrar or the Depositor
to any obligation or liability including obligations or liabilities under ERISA
or Section 4975 of the Code) in addition to those explicitly undertaken in this
Trust Agreement which Opinion of Counsel shall not be an expense of the Trust,
the Owner Trustee, the Certificate Registrar or Depositor.
As long as two or more Persons are holders of Investor Certificates, the
Investor Certificates may only be transferred in accordance with the following
provisions: before any Investor Certificates may be transferred to any Person,
the Owner Trustee shall have received the consent to such transfer by holder of
Investor Certificates representing ownership of more than 50% of the beneficial
interest in the Trust, excluding for this purpose the beneficial interest
represented by the Investor Certificates owned by the transferor or (unless the
transferor and its Affiliates are the only holders of Investor Certificates) any
Affiliate thereof; provided, however, that no consent shall be required to a
transfer of Investor Certificates to the Depositor upon the Closing Date.
No offer, sale, transfer or other disposition (including pledge) of any
Investor Certificate shall be made to any transferee unless such transferee
certifies to the Owner Trustee that the net worth of such transferee equals or
exceeds $500,000 other than its interest in the Investor Certificates. The
foregoing requirement shall not apply to the Depositor so long as it is the
Holder of 100% of the Investor Certificates, but shall apply to the Depositor
upon any sale of a portion of the Investor Certificates.
No offer, sale, transfer or other disposition (including any pledge or
sale under a repurchase transaction) of any Investor Certificate shall be made
to any transferee unless, prior to such disposition, the proposed transferor
delivers to the Owner Trustee an Opinion of Counsel, rendered by a law firm
generally recognized to be qualified to opine concerning the tax aspects of
asset securitization, to the effect that such transfer (including any
disposition permitted following any default under any pledge or repurchase
transaction) will not cause the Trust to be (i) treated as an association
taxable as a corporation for federal income tax purposes (other than a Qualified
REIT Subsidiary), (ii) taxable as a taxable mortgage pool as defined in Section
7701(i) of the Code or (iii) taxable as a "publicly traded partnership" as
defined in Treasury Regulation section 1.7704-1. Notwithstanding the foregoing,
the provisions of this paragraph shall not apply to the initial transfer of the
Investor Certificates to the Depositor.
No offer, sale, transfer or other disposition (including pledge) of any
Investor Certificate shall be made to any affiliate of the Depositor or the
Issuer, other than the initial transfer of the Investor Certificate to the
Depositor.
3.04. Lost, Stolen, Mutilated or Destroyed Investor Certificates. If (a)
a mutilated Investor Certificate is surrendered to the Certificate Registrar, or
(b) the Certificate Registrar receives evidence to its satisfaction that the
Investor Certificate has been destroyed, lost or stolen, and there is delivered
to the Certificate Registrar proof of ownership satisfactory to the Certificate
Registrar, together with such security or indemnity as required by the
Certificate Registrar and the Owner Trustee to save each of them harmless, then
in the absence of notice to the Certificate Registrar or the Owner Trustee that
such Investor Certificate has been acquired by a bona fide purchaser, the Owner
Trustee shall execute on behalf of the Trust, and the Owner Trustee or the
Certificate Registrar shall authenticate and deliver, in exchange for or in lieu
of any such mutilated, destroyed, lost or stolen Investor Certificates, a new
Investor Certificate of like tenor and denomination. In connection with the
issuance of any new Investor Certificate under this Section 3.04, the Owner
Trustee or the Certificate Registrar may require the payment of a sum sufficient
to cover any expenses of the Owner Trustee or the Certificate Registrar
(including fees and expenses of counsel) and any tax or other governmental
charge that may be imposed in connection therewith. Any duplicate Investor
Certificate issued pursuant to this Section 3.04 shall constitute conclusive
evidence of ownership in the Trust, as if originally issued, whether or not the
lost, stolen or destroyed Investor Certificate shall be found at any time.
3.05. Persons Deemed Certificateholders. Prior to due presentation of a
Certificate for registration of transfer, the Owner Trustee, the Certificate
Registrar or any Certificate Paying Agent may treat the Person in whose name any
Investor Certificate is registered in the Certificate Register as the owner of
such Investor Certificate for the purpose of receiving distributions pursuant to
Section 5.02 and for all other purposes whatsoever, and none of the Trust, the
Owner Trustee, the Certificate Registrar or any Certificate Paying Agent shall
be bound by any notice to the contrary.
3.06. Access to List of Certificateholders' Names and Addresses. The
Certificate Registrar shall furnish or cause to be furnished to the Depositor or
the Owner Trustee, within 15 days after receipt by the Certificate Registrar of
a written request therefor from the Depositor or the Owner Trustee, a list, in
such form as the Depositor or the Owner Trustee, as the case may be, may
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reasonably require, of the names and addresses of the Certificateholders as of
the most recent Record Date. Each Holder, by receiving and holding an Investor
Certificate, shall be deemed to have agreed not to hold any of the Trust, the
Depositor, the Certificate Registrar or the Owner Trustee accountable by reason
of the disclosure of its name and address, regardless of the source from which
such information was derived.
3.07. Covenants of Certificateholders to Indemnify Indenture Trustee.
The Certificateholders shall be liable to the Indenture Trustee for the payment
of the Indenture Trustee's fees, indemnity and expenses pursuant to Section 6.07
of the Indenture in the event that the Trust fails to pay such fees, indemnity
and expenses but only to the extent payable out of amounts actually received by
the Certificateholders from distributions of the Trust pursuant to Section 4.01
hereof made on or before the date of demand for such payment by the Indenture
Trustee.
3.08. Maintenance of Office or Agency. The Owner Trustee on behalf of
the Trust, shall maintain in ___________, Delaware, an office or offices or
agency or agencies where Investor Certificates may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Owner Trustee in respect of the Investor Certificates and the Operative
Documents may be served. The Owner Trustee initially designates the Corporate
Trust Office as its office for such purposes. The Owner Trustee shall give
prompt written notice to the Depositor and the Certificateholders of any change
in the location of the Certificate Register or any such office or agency.
3.09. Certificate Paying Agent.
(a) The Certificate Paying Agent shall make distributions to
Certificateholders from the Certificate Distribution Account on behalf
of the Trust in accordance with the provisions of the Investor
Certificates and Section 4.01 hereof from payments remitted to the
Certificate Paying Agent by the Trustee pursuant to Section 3.01 of the
Indenture. The Trust hereby appoints _________________________ as
Certificate Paying Agent and _______________________________ hereby
accepts such appointment and further agrees that it will be bound by the
provisions of this Trust Agreement relating to the Certificate Paying
Agent and shall:
(i) hold all sums held by it for the payment of amounts
due with respect to the Investor Certificates in trust for the
benefit of the Persons entitled thereto until such sums shall be
paid to such Persons or otherwise disposed of as herein provided;
(ii) give the Owner Trustee notice of any default by the
Trust of which it has actual knowledge in the making of any
payment required to be made with respect to the Investor
Certificates;
(iii) at any time during the continuance of any such
default, upon the written request of the Owner Trustee forthwith
pay to the Owner Trustee on behalf of the Trust all sums so held
in Trust by such Certificate Paying Agent;
(iv) immediately resign as Certificate Paying Agent and
forthwith pay to the Owner Trustee on behalf of the Trust all
sums held by it in trust for the payment of Investor Certificates
if at any time it ceases to meet the standards under this Section
3.09 required to be met by the Certificate Paying Agent at the
time of its appointment;
(v) comply with all requirements of the Code with respect
to the withholding from any payments made by it on any Investor
Certificates of any applicable withholding taxes imposed thereon
and with respect to any applicable reporting requirements in
connection therewith;
(vi) deliver to the Owner Trustee a copy of the report to
Bondholders prepared with respect to each Payment Date by the
Master Servicer pursuant to Section 8.06 of the Indenture; and
(vii) not institute bankruptcy proceedings against the
Issuer in connection with this Trust Agreement.
(b) The Trust may revoke such power and remove the Certificate
Paying Agent if it determines in its sole discretion that the
Certificate Paying Agent shall have failed to perform its obligations
under this Trust Agreement in any material respect.
_________________________________ shall be permitted to resign as
Certificate Paying Agent upon 30
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days written notice to the Owner Trustee; provided _________________
_______________________ _________________________________________ is
also resigning as Paying Agent under the Indenture at such time. In the
event that ___________________________________________ shall no longer
be the Certificate Paying Agent under this Trust Agreement and Paying
Agent under the Indenture, the Owner Trustee shall appoint a successor
to act as Certificate Paying Agent (which shall be a bank or trust
company) and which shall also be the successor Paying Agent under the
Indenture. The Owner Trustee shall cause such successor Certificate
Paying Agent or any additional Certificate Paying Agent appointed by the
Owner Trustee to execute and deliver to the Owner Trustee an instrument
to the effect set forth in this Section 3.09 as it relates to the
Certificate Paying Agent. The Certificate Paying Agent shall return all
unclaimed funds to the Trust and upon removal of a Certificate Paying
Agent such Certificate Paying Agent shall also return all funds in its
possession to the Trust. The provisions of Sections 6.01, 6.04, 6.06 and
7.01 shall apply to the Certificate Paying Agent to the extent
applicable. Any reference in this Agreement to the Certificate Paying
Agent shall include any co-paying agent unless the context requires
otherwise.
(c) The Certificate Paying Agent shall establish and maintain
with itself a trust account (the "Certificate Distribution Account") in
which the Certificate Paying Agent shall, deposit, on the same day as it
is received from the Trustee, each remittance received by the
Certificate Paying Agent with respect to payments made pursuant to the
Indenture. The Certificate Paying Agent shall make all distributions to
Investor Certificates, from moneys on deposit in the Certificate
Distribution Account.
(d) The Certificate Paying Agent shall be paid by the Indenture
Trustee.
ARTICLE IV
PAYMENTS AND DISTRIBUTIONS
4.01. Payments.
(a) Any amounts paid to the Owner Trustee by the Indenture
Trustee free and clear of the lien of the Indenture shall be applied in
the following order:
(i) to pay any amounts owing to the Owner Trustee or the
Bank, as the case may be, as then due under this Agreement;
(ii) to pay fees then due under the Management Agreement;
and
(iii) to pay any operating expenses of the Trust.
Any sums remaining after such application shall be distributed
monthly to the Certificateholders pursuant to Section 3(h)(viii) of the
Master Servicing Agreement no later than the ____________ day of each
[month] or, if such day is not a Business Day, on the next succeeding
Business Day. All Net Proceeds from the Bonds shall be distributed to,
or at the direction of, the Depositor in immediately available funds.
All payments to be made under this Agreement by the Owner Trustee
shall be made only from the income and proceeds, including Net Proceeds
From the Bonds, of the Trust Estate and only to the extent that the
Owner Trustee has received such income or proceeds. The Bank shall not
be liable to the Owner, the Indenture Trustee or the Manager for any
amounts payable pursuant to this Section 4.01 except to the extent that
non-payment is due to the Owner Trustee's acts or omissions amounting
to willful misconduct or gross negligence.
(b) In the event that any withholding tax is imposed on the
distributions (or allocations of income) to the Certificateholders, such
tax shall reduce the amount otherwise distributable to the
Certificateholders in accordance with this Section 4.01. The Certificate
Paying Agent is hereby authorized and directed to retain or cause to be
retained from amounts otherwise distributable to the Certificateholders
sufficient funds for the payment of any tax that is legally owed by the
Trust (but such authorization shall not prevent the Owner Trustee from
contesting any such tax in appropriate proceedings, and withholding
payment of such tax, if permitted by law, pending the outcome of such
proceedings). The amount of any withholding tax imposed with respect to
a Certificateholder shall be treated as cash distributed to such
Certificateholder at the time it is withheld by the Certificate Paying
Agent and remitted to the appropriate taxing authority. If there is a
possibility
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that withholding tax is payable with respect to a distribution (such as
a distribution to a non-U.S. Certificateholder), the Certificate Paying
Agent may in its own discretion withhold such amounts in accordance with
this paragraph (b).
(c) Distributions to Certificateholders shall be subordinated to
the creditors of the Trust, including the Bondholders.
4.02. Method of Payment. Subject to Section 8.01(c), distributions
required to be made to the Certificateholders on any Payment Date as provided in
Section 4.01 shall be made to the Certificateholders of record on the preceding
Record Date either by, in the case of any Certificateholder owning Certificates
having a Percentage Interest of 100%, wire transfer, in immediately available
funds, to the account of such Holder at a bank or other entity having
appropriate facilities therefor, if such Certificateholder shall have provided
to the Certificate Registrar appropriate written instructions at least five
Business Days prior to such Payment Date or, if not, by check mailed to such
Certificateholder at the address of such Holder appearing in the Certificate
Register.
4.03. Tax Returns. The Manager shall (a) maintain (or cause to be
maintained) the books of the Trust on a calendar year basis using the accrual
method of accounting, (b) deliver (or cause to be delivered) to each
Certificateholder as may be required by the Code and applicable Treasury
Regulations, such information as may be required to enable each
Certificateholder to prepare its federal and state income tax returns, (c)
prepare and file or cause to be prepared and filed such tax returns relating to
the Trust as may be required by the Code and applicable Treasury Regulations
(making such elections as may from time to time be required or appropriate under
any applicable state or federal statutes, rules or regulations) and (d) collect
or cause to be collected any withholding tax as described in and in accordance
with Section 4.01 of this Trust Agreement with respect to income or
distributions to Certificateholders and prepare or cause to be prepared the
appropriate forms relating thereto. The Owner Trustee shall sign all tax and
information returns prepared or caused to be prepared by the Manager pursuant to
this Section 4.03 at the request of the Manager, and in doing so shall rely
entirely upon, and shall have no liability for information or calculations
provided by, the Master Servicer or the Manager.
If the Trust is classified as a partnership for federal income tax
purposes, the Manager shall cause the Trust to (i) maintain capital accounts and
make partnership allocations in accordance with Section 704 of the code and (ii)
file Form 8832 with the Internal Revenue Service and make an election for the
Trust be classified as a partnership for federal income tax purposes. The holder
of the Investor Certificate shall be designated as the "tax matters partner" of
the Trust.
4.04. Statements to Certificateholders. On each Payment Date, the
Certificate Paying Agent shall send to each Certificateholder the statement or
statements provided to the Owner Trustee and the Certificate Paying Agent by the
Master Servicer pursuant to Section 8.06 of the Indenture with respect to such
Payment Date.
4.05. Reports to Internal Revenue Service and Others. The Trust will (i)
cause to be prepared all Periodic Filings, (ii) make such elections and file
such tax returns relating to the Trust as the Depositor may direct in a notice
delivered to the Owner Trustee in accordance with Section 10.05, and (iii) cause
to be mailed to the Depositor any or all of such reports and tax returns within
90 days of the end of the Fiscal Year; provided, however, that the Trust shall
be deemed to be in compliance with this provision by its execution of the
Management Agreement.
ARTICLE V
AUTHORITY AND DUTIES OF THE OWNER TRUSTEE; ACTION BY CERTIFICATEHOLDERS
5.01. General Authority. The Owner Trustee is authorized and directed to
execute and deliver the Operative Documents to which the Trust is to be a party
and each certificate or other document attached as an exhibit to or contemplated
by the Operative Documents to which the Trust is to be a party and any amendment
or other agreement or instrument described herein, as evidenced conclusively by
the Owner Trustee's execution thereof. In addition to the foregoing, the Owner
Trustee is authorized, but shall not be obligated, to take all actions required
of the Trust pursuant to the Operative Documents.
5.02. General Duties. It shall be the duty of the Owner Trustee to
discharge (or cause to be discharged) all of its responsibilities pursuant to
the terms of this Trust Agreement and the Operative Documents to which the Trust
is a party and to administer the Trust in the interest of the
Certificateholders, subject to the Operative Documents and in accordance with
the provisions of this Trust Agreement.
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5.03. Action Upon Instruction.
(a) Subject to Article V and in accordance with the terms of the
Operative Documents, the Certificateholders may by written instruction
direct the Owner Trustee in the management of the Trust. Such direction
may be exercised at any time by written instruction of the
Certificateholders pursuant to Article V.
(b) Notwithstanding the foregoing, the Owner Trustee shall not be
required to take any action hereunder or under any Operative Document if
the Owner Trustee shall have reasonably determined, or shall have been
advised by counsel, that such action is likely to result in liability on
the part of the Owner Trustee or is contrary to the terms hereof or of
any Operative Document or is otherwise contrary to law.
(c) Whenever the Owner Trustee is unable to decide between
alternative courses of action permitted or required by the terms of this
Trust Agreement or under any Operative Document, or in the event that
the Owner Trustee is unsure as to the application of any provision of
this Trust Agreement or any Operative Document or any such provision is
ambiguous as to its application, or is, or appears to be, in conflict
with any other applicable provision, or in the event that this Trust
Agreement permits any determination by the Owner Trustee or is silent or
is incomplete as to the course of action that the Owner Trustee is
required to take with respect to a particular set of facts, the Owner
Trustee shall promptly give notice (in such form as shall be appropriate
under the circumstances) to the Certificateholders (with a copy to the
Insurer) requesting instruction as to the course of action to be
adopted, and to the extent the Owner Trustee acts in good faith in
accordance with any written instruction of the Certificateholders
received, the Owner Trustee shall not be liable on account of such
action to any Person. If the Owners Trustee shall not have received
appropriate instruction within 10 days of such notice (or within such
shorter period of time as reasonably may be specified in such notice or
may be necessary under the circumstances) it may, but shall be under no
duty to, take or refrain from taking such action not inconsistent with
this Trust Agreement or the Operative Documents, as it shall deem to be
in the best interests of the Certificateholders, and the Owner Trustee
shall have no liability to any Person for such action or inaction.
5.04. No Duties Except as Specified under Specified Documents or in
Instructions. The Owner Trustee shall not have any duty or obligation to manage,
make any payment with respect to, register, record, sell, dispose of, or
otherwise deal with the Trust Estate, or to otherwise take or refrain from
taking any action under, or in connection with, any document contemplated hereby
to which the Owner Trustee is a party, except as expressly provided (i) in
accordance with the powers granted to and the authority conferred upon the Owner
Trustee pursuant to this Trust Agreement, (ii) in accordance with the Operative
Documents and (iii) in accordance with any document or instruction delivered to
the Owner Trustee pursuant to Section 5.03; and no implied duties or obligations
shall be read into this Trust Agreement or any Operative Document against the
Owner Trustee. The Owner Trustee shall have no responsibility for filing any
financing or continuation statement in any public office at any time or to
otherwise perfect or maintain the perfection of any security interest or lien
granted to it hereunder or to prepare or file any Securities and Exchange
Commission filing for the Trust or to record this Trust Agreement or any
Operative Document. The Owner Trustee nevertheless agrees that it will, at its
own cost and expense, promptly take all action as may be necessary to discharge
any liens on any part of the Trust Estate that result form actions by, or claims
against the Owner Trustee that are not related to the ownership or the
administration of the Trust Estate.
5.05. Restrictions.
(a) The Owner Trustee shall not take any action (x) that is
inconsistent with the purposes of the Trust set forth in Section 2.03 or
(y) that, to the actual knowledge of the Owner Trustee, would result in
the Trust becoming taxable as a corporation (other than as a Qualified
REIT Subsidiary) for federal income tax purposes or (z) would result in
the amendment or modification of the Operative Documents or this Trust
Agreement without the prior written consent of the Insurer. The
Certificateholders shall not direct the Owner Trustee to take action
that would violate the provisions of this Section 5.05.
(b) The Owner Trustee shall not convey or transfer any of the
Trust's properties or assets, including those included in the Trust
Estate, to any person unless (a) it shall have received an Opinion of
Counsel to the effect that such transaction will not have any material
adverse tax consequence to the Trust or any Certificateholder and (b)
such conveyance or transfer shall not violate the provisions of Section
[3.09(a)] of the Indenture.
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5.06. Prior Notice to Certificateholders with Respect to Certain
Matters. With respect to the following matters, the Owner Trustee shall not take
action unless at least 30 days before the taking of such action, the Owner
Trustee shall have notified the Certificateholders in writing of the proposed
action and the Certificateholders shall not have notified the Owner Trustee in
writing prior to the 30th day after such notice is given that such
Certificateholders have withheld consent or provided alternative direction:
(a) the initiation of any claim or lawsuit by the Trust (except
claims or lawsuits brought in connection with the collection of cash
distributions due and owning under the Mortgage Loans) and the
compromise of any action, claim or lawsuit brought by or against the
Trust (except with respect to the aforementioned claims or lawsuits for
collection of cash distributions due and owning under the Mortgage
Loans);
(b) the election by the Trust to file an amendment to the
Certificate of Trust (unless such amendment is required to be filed
under the Business Trust Statute);
(c) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Bondholder is required;
(d) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Bondholder is not required and
such amendment materially adversely affects the interests of the
Certificateholders; or
(e) the appointment pursuant to the Indenture of a successor Bond
Registrar, Paying Agent or Indenture Trustee or pursuant to this Trust
Agreement of a successor Certificate Registrar or Certificate Paying
Agent or the consent to the assignment by the Bond Registrar, Paying
Agent, Indenture Trustee, Certificate Registrar or Certificate Paying
Agent of its obligations under the Indenture or this Trust Agreement, as
applicable.
5.07. Action by Certificateholders with Respect to Certain Matters.
(a) The Owner Trustee shall not have the power, except upon the
direction of the Certificateholders, and with the consent of the
Insurer, to (i) remove the Master Servicer under the Master Servicing
Agreement pursuant to Sections 7(a) thereof or (ii) except as expressly
provided in the Operative Documents, sell the Mortgage Loans after the
termination of the Indenture. The Owner Trustee shall take the actions
referred to in the preceding sentence only upon written instructions
signed by the Certificateholders and with the consent of the Insurer.
(b) Upon the written request of any Certificateholder (a
"Proposer"), the Owner Trustee shall distribute promptly to all
Certificateholders any request for action or consent of
Certificateholders submitted by such Proposer, with a copy to the
Manager and the Insurer. The Owner Trustee shall provide a reasonable
method for collecting responses to such request and shall tabulate and
report the results thereof to the Certificateholders, the Manager and
the Insurer. The Owner Trustee shall have no responsibility or duty to
determine if any such proposed action or consent is permitted under the
terms of this Trust Agreement or applicable law.
5.08. Action by Certificateholders with Respect to Bankruptcy. The Owner
Trustee shall not have the power to commence a voluntary proceeding in
bankruptcy relating to the Trust without the unanimous prior approval of all
Certificateholders and with the consent of the Insurer, the Bondholders and the
Owner Trustee and the delivery to the Owner Trustee by each such
Certificateholder of a certificate certifying that such Certificateholder
reasonably believes that the Trust is insolvent. This paragraph shall survive
for one year and one day following termination of this Trust Agreement.
5.09. Restrictions on Certificateholders' Power. The Certificateholders
shall not direct the Owner Trustee to take or to refrain from taking any action
if such action or inaction would be contrary to any obligation of the Trust or
the Owner Trustee under this Trust Agreement or any of the Operative Documents
or would be contrary to Section 2.03 nor shall the Owner Trustee be obligated to
follow any such direction, if given.
5.10. Majority Control. Except as expressly provided herein, any action
that may be taken by the Certificateholders under this Trust Agreement may be
taken by the Holders of Investor Certificates evidencing not less than a
majority of the outstanding Percentage Interests of the Investor Certificates.
Except as expressly provided herein, any written notice of the
Certificateholders
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delivered pursuant to this Trust Agreement shall be effective if signed by
Holders of Investor Certificates evidencing not less than a majority of the
outstanding Percentage Interests of the Investor Certificates at the time of the
delivery of such notice.
5.11. Optional Redemption. Upon receipt of written instructions provided
to the Owner Trustee by the Holder or Holders of 100% of the Investor
Certificates, the Owner Trustee shall cause the Issuer to redeem the Bonds in
accordance with Section 10.01 of the Indenture and shall provide all necessary
notices on behalf of the Issuer to effect the foregoing, provided that such
Holder or Holders shall deposit with the Indenture Trustee an amount equal to
the aggregate redemption price specified under Section 10.01 of the Indenture,
which shall be applied by the Indenture Trustee solely to make such redemption
payments. The Owner Trustee shall not have the power to exercise the right of
the Issuer to redeem the Bonds pursuant to Section 10.01 of the Indenture,
except as provided above.
ARTICLE VI
CONCERNING THE OWNER TRUSTEE
6.01. Acceptance of Trusts and Duties. The Owner Trustee accepts the
trusts hereby created and agrees to perform the same but only upon the terms of
this Agreement. The Owner Trustee also agrees to disburse all moneys actually
received by it constituting part of the Trust Estate upon the terms of this
Agreement. The Bank shall not be answerable or accountable under any
circumstances, except (i) for its own willful misconduct or gross negligence,
(ii) in the case of the inaccuracy of any representation or warranty contained
in Section 6.04, (iii) for liabilities arising from the failure by the Bank to
perform obligations expressly undertaken by it in the last sentence of Section
5.04(a), or (iv) for taxes, fees or other charges on based on or measured by any
fees, commissions or compensation received by the Bank in connection with any of
the transactions contemplated by this Agreement, the Operative Agreements or the
Bonds. In particular, but not by way of limitation:
(a) The Bank shall not be liable for any error of judgment, not
constituting gross negligence, made in good faith by a responsible
officer of the Owner Trustee;
(b) The Bank shall not be liable with respect to any action taken
or omitted to be taken by the Owner Trustee in good faith in accordance
with the instructions of the Certificateholders;
(c) No provision of this Agreement shall require the Bank to
expend or risk funds or otherwise incur any financial liability in the
performance of any of the Owner Trustee's rights or powers hereunder if
the Bank shall have reasonable grounds for believing that repayment of
such funds or adequate indemnity against such risk or liability is not
reasonably assured or provided to it;
(d) Under no circumstance shall the Bank be liable for
indebtedness evidenced by any Bond;
(e) The Bank shall not be liable with respect to any action taken
or omitted to be taken by the Manager under the Management Agreement and
the Bank shall not be obligated to perform any obligations or duties
under this Agreement or the Bond Agreements which are to be performed by
the Manager under the Management Agreement;
(f) The Bank shall not be responsible for or in respect of the
recitals herein, the validity or sufficiency of this Agreement or for
the due execution hereof by the Depositor or for the form, character,
genuineness, sufficiency, value or validity of any Collateral or for or
in respect of the validity or sufficiency of the Indenture, and the Bank
shall in no event assume or incur any liability, duty or obligation to
any Bondholder, the Depositor or to the Certificateholders, other than
as expressly provided for herein; and
(g) Under no circumstances shall the Bank be responsible for the
action or inaction of the Officers, the Manager or the Master Servicer,
nor shall the Bank be responsible for monitoring the performance of the
Officers' duties hereunder, the Manager's duties under the Management
Agreement or the Master Servicer's duties under the Master Servicing
Agreement.
6.02. Furnishing of Documents. The Owner Trustee will furnish to the
Certificateholders and the Manager, promptly upon receipt thereof, duplicates or
copies of all reports, notices, requests, demands, certificates, financial
statements and any other
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<PAGE> 18
instruments furnished to the Owner Trustee hereunder or under the Bond
Agreements unless the Certificateholders and the Manager shall have already
received the same.
6.03. Books and Records. The Owner Trustee shall keep or cause to be
kept proper books of record and account of all the transactions under this
Agreement, including a record of the name and address of the Holders of the
Investor Certificates.
6.04. Representations and Warranties of the Bank. The Bank represents
and warrants as follows:
(a) the Bank is a banking corporation duly created, validly
existing and in good standing under the laws of the State of Delaware
and has the full corporate power, authority and legal right to execute,
deliver and perform this Agreement, the Indenture and each of the other
Operative Agreements to which it or the Owner Trustee, as the case may
be, is a party; the execution and delivery by the Bank of this
Agreement, and by the Owner Trustee of the Indenture and each of the
other Operative Agreements to which it is a party and the performance by
the Bank or the Owner Trustee, as the case may be, of its obligations
under this Agreement, the Indenture and each of the other Operative
Documents to which it is a party have been duly authorized by all
necessary corporate action on the part of the Bank and, assuming the due
authorization, execution and delivery thereof by the other parties
thereto, constitutes a legal, valid and binding obligation of the Bank
or the Owner Trustee, as the case may be, enforceable against the Bank
or the Owner Trustee, as the case may be, in accordance with its terms,
except that (a) the enforceability thereof may be limited by bankruptcy,
insolvency, moratorium, receivership and other similar laws relating to
creditors' rights generally and (b) the remedy of specific performance
and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought;
(b) neither the Bank nor anyone authorized to act on its behalf
has offered any interest in and to the Trust for sale to, or solicited
any offer to acquire any of the same from, anyone;
(c) the execution and delivery by the Bank of, and the
performance by it and the Owner Trustee, as the case may be, of their
obligations under this Agreement, the Indenture and the other Operative
Documents to which they are a party are not in violation of any
indenture, agreement or other instrument, license, judgment or order
applicable to the Bank;
(d) the execution and delivery by the Bank of, and its and the
Owner Trustee's performance of their obligations under, this Agreement,
the Indenture and the other Operative Documents to which they are a
party do not require the consent or approval of, the giving of notice
to, or the registration with, or the taking of any other action with
respect to, any governmental authority or agency of the State of
Delaware (except as may be required by the Delaware securities law or
the Business Trust Statute or as may be required to enforce the lien of
the Indenture); and
(e) no litigation is pending or, to the best of the Bank's
knowledge, threatened against the Bank or the Owner Trustee, as the case
may be, that would materially and adversely affect the execution,
delivery or enforceability of this Agreement, the Investor Certificates,
the Bonds, the Indenture or any of the other Operative Documents to
which it is a party, or the ability of the Bank or the Owner Trustee, as
the case may be, to perform any of its obligations thereunder in
accordance with the terms thereof.
6.05. No Segregation of Moneys; No Interest. Except as otherwise
provided herein or in the Indenture, moneys received by the Owner Trustee
hereunder need not be segregated in any manner except to the extent required by
law and may be deposited under such general conditions as may be prescribed by
law, and neither the Owner Trustee nor the Bank shall be liable for any interest
thereon.
6.06. Reliance; Advice of Counsel.
(a) The Owner Trustee shall incur no liability to anyone in
acting upon any signature, instrument, notice, resolution, request,
consent, order, certificate, report, opinion, bond or other document or
paper believed by it to be genuine and believed by it to be signed by
the proper party or parties. The Owner Trustee may accept a certified
copy of a resolution of the board of directors or other governing body
of any corporate party as conclusive evidence that such resolution has
been duly adopted by such body and that the same is in full force and
effect. As to any fact or matter the manner of ascertainment of which is
not specifically prescribed herein, the Owner Trustee may for all
purposes hereof rely on a certificate, signed by
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<PAGE> 19
the president or any vice president and by the treasurer or any
assistant treasurer or the secretary or any assistant secretary of the
relevant party, as to such fact or matter, and such certificate shall
constitute full protection to the Owner Trustee for any action taken or
omitted to be taken by it in good faith in reliance thereon.
(b) In its exercise or administration of the trusts and powers
hereunder, including its obligations under Section 5.02(b) and any
duties or obligations under the Indenture and under the other Operative
Documents, the Owner Trustee may employ agents and attorneys and enter
into agreements (including the Management Agreement and the Master
Servicing Agreement) with any of them, and the Owner Trustee shall not
be answerable for the default or misconduct of any such agents or
attorneys if such agents or attorneys shall have been selected by the
Owner Trustee with reasonable care. If, and to the extent, the Depositor
shall have failed to reimburse the Trustee for all reasonable expenses
incurred pursuant to this Section 6.06(b), as provided in Section 7.01,
the Owner Trustee may seek reimbursement therefor from the Trust Estate.
(c) In the administration of the trusts hereunder or in the
performance of its duties and obligations under any of the Bond
Agreements, the Owner Trustee may consult with counsel, accountants and
other skilled Persons to be selected and employed by it, and the Owner
Trustee shall not be liable for anything done, suffered or omitted in
good faith by it in accordance with the reasonable advice or opinion of
any such counsel, accountants or other skilled Persons and not contrary
to this Agreement. If, and to the extent, the Depositor shall have
failed to reimburse the Trustee for all reasonable expenses incurred
pursuant to this Section 6.06(c), as provided in Section 7.01, the Owner
Trustee may seek reimbursement therefor from the Trust Estate.
6.07. Not Acting in Individual Capacity. Except as provided in this
Article VI, in accepting the trusts hereby created the Owner Trustee acts solely
as trustee hereunder and not in its individual capacity, and all persons having
any claim against the Owner Trustee by reason of the transactions contemplated
by the Bond Agreements shall look only to the Trust Estate for payment or
satisfaction thereof.
6.08. Corporate Existence. Subject to Section 9.01, the Bank will keep
in full effect its existence, rights and franchises as a bank and trust company
under the laws of the State of Delaware.
ARTICLE VII
INDEMNIFICATION BY DEPOSITOR
7.01. Trust Expenses. The Depositor shall pay (or reimburse the Bank
for) all reasonable expenses of the Owner Trustee hereunder, including, without
limitation, the reasonable compensation, expenses and disbursements of such
agents, representatives, experts and counsel as the Owner Trustee may employ in
connection with the exercise and performance of its rights and duties under the
Bond Agreements.
7.02. Indemnification. The Depositor hereby agrees to assume liability
for, and indemnify the Bank and its successors, assigns, agents and servants,
against and from, any and all liabilities, obligations, losses, damages, taxes,
claims, actions, suits, costs, expenses and disbursements (including reasonable
legal fees and expenses) of any kind and nature whatsoever (collectively,
"Expenses") which may be imposed on, incurred by or asserted at any time against
the Bank (whether or not indemnified against by other parties) in any way
relating to or arising out of this Agreement, any Bond Agreement, the
Collateral, the administration of the Trust Estate or the action or inaction of
the Owner Trustee hereunder, except only that the Depositor shall not be
required to indemnify the Bank for Expenses arising or resulting from any of the
matters described in the third sentence of Section 6.01. The indemnities
contained in this Section 7.02 shall survive the termination of this Agreement.
7.03. Compensation. The Bank shall receive as compensation for the Owner
Trustee's services hereunder such ordinary fees as are fair, reasonable and
customary for the performance of such services and as may heretofore and from
time to time hereafter be separately agreed upon between the Depositor and the
Owner Trustee. The Bank shall be compensated reasonably for any extraordinary
services rendered by the Owner Trustee hereunder.
7.04. Lien on Trust Estate. The Bank shall have a lien on the Trust
Estate for any compensation or indemnity due hereunder, such lien to be subject
only to prior liens of the Indenture. The Bank shall not bring any proceedings
to foreclose on such lien if and to the extent the Trust Estate is subject to
the lien of the Indenture.
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<PAGE> 20
ARTICLE VIII
TERMINATION OF TRUST AGREEMENT
8.01. Termination of Trust Agreement.
(a) This Agreement and the trusts created hereby shall terminate
and the Trust Estate shall, subject to the Indenture and Section 4.01,
be distributed to the Certificateholders, and this Agreement shall be of
no further force or effect, upon the earlier of (i) the sale or other
final disposition by the Indenture Trustee or the Owner Trustee, as the
case may be, of all the Trust Estate and the final distribution by the
Indenture Trustee or the Owner Trustee, as the case may be, of all
moneys or other property or proceeds of the Trust Estate in accordance
with the terms of the Indenture and Section 4.01, and (ii) the
expiration of 21 years from the death of the survivor of the descendants
of Joseph P. Kennedy, the late ambassador of the United States to the
Court of St. James's, living on the date of this Agreement. The
bankruptcy of any Certificateholder shall not operate to terminate this
Agreement, nor entitle such Certificateholder's legal representatives to
claim an accounting or to take any action or proceeding in any court for
a partition or winding up of the Trust Estate, nor otherwise affect the
rights, obligations and liabilities of the parties hereto.
(b) Except as provided in Section 8.01(a), neither the Depositor
nor the Certificateholders shall be entitled to revoke the Trust
established hereunder.
(c) Notice of any termination of the Trust, specifying the
Payment Date upon which Certificateholders shall surrender their
Investor Certificates to the Certificate Paying Agent for payment of the
final distribution and cancellation, shall be given by the Certificate
Paying Agent by letter to Certificateholders and the Insurer mailed
within five Business Days of receipt of notice of the final payment on
the Bonds from the Indenture Trustee, stating (i) the Payment Date upon
or with respect to which final payment of the Investor Certificates
shall be made upon presentation and surrender of the Investor
Certificates at the office of the Certificate Paying Agent therein
designated, (ii) the amount of any such final payment and (iii) that the
Record Date otherwise applicable to such Payment Date is not applicable,
payments being made only upon presentation and surrender of the Investor
Certificates at the office of the Certificate Payment Agent therein
specified. The Certificate Paying Agent shall give such notice to the
Owner Trustee and the Certificate Registrar at the time such notice is
given to Certificateholders. Upon presentation and surrender of the
Investor Certificates, the Certificate Paying Agent shall cause to be
distributed to Certificateholders amounts distributable on such Payment
Date pursuant to Section 4.01.
In the event that all of the Certificateholders shall not
surrender their Investor Certificates for cancellation within six months
after the date specified in the above mentioned written notice, the
Certificate Paying Agent shall give a second written notice to the
remaining Certificateholders to surrender their Investor Certificates
for cancellation and receive the final distribution with respect
thereto. Subject to applicable laws with respect to escheat of funds, if
within one year following the Payment Date on which final payment of the
Investor Certificates was to have been made pursuant to Section 3.03 of
the Indenture, all the Investor Certificates shall not have been
surrendered for cancellation, the Certificate Paying Agent may take
appropriate steps, or may appoint an agent to take appropriate steps, to
contact the remaining Certificateholders concerning surrender of their
Investor Certificates, and the cost thereof shall be paid out of the
funds and other assets that shall remain subject to this Trust
Agreement. Any funds remaining in the Certificate Distribution Account
after exhaustion of such remedies shall be distributed by the
Certificate Paying Agent to the Holders of the Investor Certificates.
(d) Upon the winding up of the Trust and its termination, the
Owner Trustee shall cause the Certificate of Trust to be cancelled by
filing a certificate of cancellation with the Secretary of State in
accordance with the provisions of Section 3810 of the Business Trust
Statute.
ARTICLE IX
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL TRUSTEES
9.01. Resignation of Owner Trustee; Appointment of Successor.
(a) The Owner Trustee may resign at any time without cause by
giving at least 60 days' prior written notice to the Owner, such
resignation to be effective on the acceptance of appointment by a
successor Owner Trustee under (b) below. In addition, the Owner Trustee
may be removed (i) at any time by the Depositor, without cause, by an
instrument in writing
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<PAGE> 21
delivered to the Owner Trustee, such removal to be effective upon the
acceptance of appointment by a successor Owner Trustee under Section
9.01(b) or (ii) by action of the Certificateholders holding Percentage
Interests aggregating at least 66 2/3%. In case of the resignation or
removal of the Owner Trustee, the Depositor may appoint a successor
Owner Trustee by an instrument signed by the Depositor. If a successor
Owner Trustee shall not have been appointed within 30 days after the
giving of written notice of such resignation or the delivery of the
written instrument with respect to such removal, the Owner Trustee or
the Depositor may apply to any court of competent jurisdiction to
appoint a successor Owner Trustee to act until such time, if any, as a
successor shall have been appointed as above provided. Any successor
Owner Trustee so appointed by such court shall immediately and without
further act be superseded by any successor Owner Trustee appointed as
above provided within one year from the date of the appointment by such
court.
(b) Any successor Owner Trustee, however appointed, shall execute
and deliver to the predecessor Owner Trustee an instrument accepting
such appointment, and thereupon such successor Owner Trustee, without
further act, shall become vested with all the estates, properties,
rights, powers, duties and trusts of the predecessor Owner Trustee in
the trusts hereunder with like effect as if originally named the Owner
Trustee herein; but nevertheless, upon the written request of such
successor Owner Trustee, such predecessor Owner Trustee shall execute
and deliver an instrument (presented to it in execution form)
transferring to such successor Owner Trustee, upon the trusts herein
expressed, all the estates, properties, rights, powers, duties and
trusts of such predecessor Owner Trustee, and such predecessor Owner
Trustee shall duly assign, transfer, deliver and pay over to such
successor Owner Trustee all moneys or other property then held or
subsequently received by such predecessor Owner Trustee upon the trusts
herein expressed.
(c) Any successor Owner Trustee, however appointed, shall be a
bank or trust company satisfying the provisions of Section 3807(a) of
the Business Trust Statute and having a combined capital and surplus of
at least $50,000,000, if there be such an institution willing, able and
legally qualified to perform the duties of the Owner Trustee hereunder
upon reasonable or customary terms.
(d) Any corporation into which the Owner Trustee may be merged or
converted or with which it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which the
Owner Trustee shall be a party, or any corporation to which
substantially all the corporate trust business of the Owner Trustee may
be transferred, shall, subject to the terms of (c) above, be the Owner
Trustee under this Agreement without further act.
(e) Upon the happening of any of the events described in this
Section 9.01, the successor Owner Trustee shall cause an amendment to
the Certificate of Trust to be filed with the Secretary of State, in
accordance with the provisions of Section 3810 of the Business Trust
Statute, indicating the change with respect to the Owner Trustee's
identity.
9.02. Appointment of Additional Trustees. At any time or times for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust Estate may at the time be located, the Owner Trustee, by an
instrument in writing, may appoint one or more individuals or corporations to
act as separate trustee or separate trustees of all or any part of the Trust
Estate to the full extent that a local law makes it necessary for such separate
trustee or separate trustees to act alone. No trustee shall be liable for the
acts or omissions of any other trustee appointed hereunder.
ARTICLE X
MISCELLANEOUS
10.01. Supplements and Amendments. At the written request of the
Depositor, this Agreement (other than Sections 8.01 and 10.02 and this Section
10.01) shall be amended by a written instrument signed by the Owner Trustee and
the Depositor, but if in the opinion of the Owner Trustee any instrument
required to be so executed adversely affects any right, duty or liability of, or
immunity or indemnity in favor of, the Owner Trustee under this Agreement or any
of the documents contemplated hereby to which the Owner Trustee is a party, or
would cause or result in any conflict with or breach of any terms, conditions or
provisions of, or default under, the charter documents or bylaws of the Bank or
any Operative Agreement, the Owner Trustee may in its sole discretion decline to
execute such instrument.
10.02. No Legal Title to Trust Estate in Certificateholders. The
Certificateholders shall not have legal title to any part of the Trust Estate
and shall only be entitled to receive distributions with respect to its
undivided beneficial interest therein pursuant to Section 4.01 once all amounts
then owing with respect to the Bonds have been paid in accordance with the
Indenture. No transfer, by
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<PAGE> 22
operation of law of any right, title and interest of the Certificateholders in
and to its undivided beneficial interest in the Trust Estate or hereunder shall
operate to terminate this Agreement or the trusts hereunder or entitle any
successor transferee to an accounting or to the transfer to it of legal title to
any part of the Trust Estate.
10.03. Pledge of Collateral by Owner Trustee Is Binding. The pledge of
the Collateral to the Indenture Trustee by the Trust made under the Indenture
and pursuant to the terms of this Agreement shall bind the Certificateholders
and shall be effective to transfer or convey the rights of the Trust and the
Certificateholders in and to such Collateral to the extent set forth in the
Indenture. No purchaser or other grantee shall be required to inquire as to the
authorization, necessity, expediency or regularity of such pledge or as to the
application of any proceeds with respect thereto by the Owner Trustee.
10.04. Limitations on Rights of Others. Nothing in this Agreement,
whether express or implied (except for Section 7.04), shall be construed to give
to any Person other than the Trust and the Certificateholders any legal or
equitable right in the Trust Estate or under or in respect of this Agreement or
any covenants, conditions or provisions contained herein; provided, however,
that the parties hereto acknowledge and agree that the Indenture Trustee is a
third-party beneficiary under Section 3.05 hereof.
10.05. Notices. Unless otherwise expressly specified or permitted by the
terms hereof, all notices shall be in writing and delivered by hand or mailed by
certified mail, postage prepaid, if to the Owner Trustee or the Trust, addressed
to it at ______________________________________________________________________
__________________________________, Attention: Corporate Trust Administration or
to such other address as the Owner Trustee may have set forth in a written
notice to the Certificateholders and the Depositor addressed to it at the
address set forth for such Certificateholders in the register maintained by the
Owner Trustee. Whenever any notice in writing is required to be given by the
Owner Trustee or the Manager, such notice shall be deemed given and such
requirement satisfied if such notice is mailed by certified mail, postage
prepaid, addressed as provided above.
10.06. Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.07. Separate Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
10.08. Successors and Assigns. All representations, warranties,
covenants and agreements contained herein shall be binding upon, and inure to
the benefit of, the Owner Trustee and its successors and assigns and the
Depositor and each Certificateholder and its respective successors, all as
herein provided. Any request, notice, direction, consent, waiver or other
instrument or action by any Certificateholder shall bind the successors of such
Certificateholder.
10.09. Headings. The headings of the various Articles and Sections
herein are for convenience of reference only and shall not define or limit any
of the terms or provisions hereof.
10.10. Governing Law. This Agreement shall in all respects be governed
by, and construed in accordance with, the laws of the State of Delaware without
reference to the conflict of laws provisions thereof, including all matters of
construction, validity and performance.
10.11. No Petition. The Owner Trustee, by entering into this Agreement,
the Certificateholders, by accepting the Investor Certificates, and the
Indenture Trustee and each Bondholder, by accepting the benefits of this
Agreement, hereby covenant and agree that they will not at any time institute
against the Depositor or the Issuer, or join in any institution against the
Depositor or the Issuer of, any bankruptcy proceedings under any United States
federal or state bankruptcy or similar law in connection with any obligations
relating to the Investor Certificate, the Bonds, this Agreement or any of the
Operative Agreements.
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ARTICLE XI
OFFICERS
11.01. Appointment of Officers. The Trust may have one or more Officers
who are hereby empowered to take and are responsible for performing all
ministerial duties on behalf of the Trust pursuant to this Agreement and the
Operative Agreements, including, without limitation, the execution of the
Officers' Certificate (as defined in the Indenture), the Issuer Order (as
defined in the Indenture), the Issuer Request (as defined in the Indenture), the
annual compliance report required under Section 3.10 of the Indenture, and
annual reports, documents and other reports which the Trust is required to file
with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended. Each of the Chairman of the
Board, the Chief Executive Officer, the President, each Senior Vice President
and each Vice President of the Depositor is hereby appointed as an Officer of
the Trust. The Depositor shall promptly deliver to the Owner Trustee and the
Indenture Trustee a list of its officers who shall become the Officers of the
Trust pursuant to this Section 11.01.
11.02. Officers to Provide Information to the Owner Trustee. It shall be
the duty of each Officer to keep the Owner Trustee reasonably informed as to
material events relating to the Trust, including, without limitation, all claims
pending or threatened against the Trust, the purchase and sale of any material
portion of the Trust Estate and the execution by such Officer on behalf of the
Trust of any material agreements or instruments.
IN WITNESS WHEREOF, the parties hereto have caused this Deposit Trust
Agreement to be duly executed by their respective officers hereunto duly
authorized, as of the day and year first above written.
--------------------------------------------
not in its individual capacity
but solely as Owner Trustee
By:
-----------------------------------------
Its:
----------------------------------------
AMERICAN RESIDENTIAL EAGLE, INC.
By:
-----------------------------------------
Its:
----------------------------------------
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<PAGE> 24
EXHIBIT A
[Form of Investor Certificate]
[Face]
THIS INVESTOR CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND
MAY NOT BE RESOLD OR TRANSFERRED UNLESS IT IS REGISTERED PURSUANT TO SUCH ACT
AND LAWS OR IS SOLD OR TRANSFERRED IN TRANSACTIONS WHICH ARE EXEMPT FROM
REGISTRATION UNDER SUCH ACT AND UNDER APPLICABLE STATE LAW AND IS TRANSFERRED IN
ACCORDANCE WITH THE PROVISIONS OF SECTION 3.03 OF THE TRUST AGREEMENT REFERRED
TO HEREIN.
NO TRANSFER OF THIS INVESTOR CERTIFICATE SHALL BE MADE UNLESS THE
CERTIFICATE REGISTRAR SHALL HAVE RECEIVED EITHER (I) A REPRESENTATION LETTER
FROM THE TRANSFEREE OF THIS INVESTOR CERTIFICATE TO THE EFFECT THAT SUCH
TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO THE FIDUCIARY
RESPONSIBILITY PROVISIONS OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE"), OR A PERSON ACTING ON BEHALF OF ANY SUCH PLAN OR
USING THE ASSETS OF ANY SUCH PLAN, OR (II) IF THIS INVESTOR CERTIFICATE IS
PRESENTED FOR REGISTRATION IN THE NAME OF A PLAN SUBJECT TO THE FIDUCIARY
RESPONSIBILITY PROVISIONS OF ERISA, OR SECTION 4975 OF THE CODE (OR COMPARABLE
PROVISIONS OF ANY SUBSEQUENT ENACTMENTS), OR A TRUSTEE OF ANY SUCH PLAN, OR ANY
OTHER PERSON WHO IS USING THE ASSETS OF ANY SUCH PLAN TO EFFECT SUCH
ACQUISITION, AN OPINION OF COUNSEL TO THE EFFECT THAT THE PURCHASE OR HOLDING OF
THIS INVESTOR CERTIFICATE WILL NOT RESULT IN THE ASSETS OF THE TRUST ESTATE
BEING DEEMED TO BE "PLAN ASSETS" AND SUBJECT TO THE FIDUCIARY RESPONSIBILITY
PROVISIONS OF ERISA OR THE PROHIBITED TRANSACTION PROVISIONS OF THE CODE, WILL
NOT CONSTITUTE OR RESULT IN A PROHIBITED TRANSACTION WITHIN THE MEANING OF
SECTION 406 OR SECTION 407 OF ERISA OR SECTION 4975 OF THE CODE, AND WILL NOT
SUBJECT THE OWNER TRUSTEE OR THE DEPOSITOR TO ANY OBLIGATION OR LIABILITY.
NO TRANSFER OF THIS INVESTOR CERTIFICATE SHALL BE MADE UNLESS THE
CERTIFICATE REGISTRAR SHALL HAVE RECEIVED A CERTIFICATE OF NON-FOREIGN STATUS
CERTIFYING AS TO THE TRANSFEREE'S STATUS AS A U.S. PERSON OR CORPORATION UNDER
U.S. LAW.
THIS CERTIFICATE DOES NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE
DEPOSITOR, THE MASTER SERVICER, THE INDENTURE TRUSTEE, OR THE OWNER TRUSTEE OR
ANY OF THEIR RESPECTIVE AFFILIATES, EXCEPT AS EXPRESSLY PROVIDED IN THE TRUST
AGREEMENT OR THE OPERATIVE DOCUMENTS.
Certificate No.
Original principal amount ("Denomination") of this Investor Certificate:
$___________
Aggregate Denominations of all Investor Certificates: $
Percentage Interest:
Pass-Through Rate:
Cut-Off Date:
First Payment Date ____________, _______
CUSIP NO. ___________
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<PAGE> 25
AMERICAN RESIDENTIAL EAGLE BOND TRUST [199__-__]
Evidencing a fractional undivided equity interest in the Trust Estate,
the property of which consists primarily of the Mortgage Collateral in American
Residential Eagle Bond Trust [199__-__] (the "Trust"), a Delaware business trust
formed by
AMERICAN RESIDENTIAL EAGLE, INC., AS DEPOSITOR,
pursuant to the Trust Agreement referred to below.
This certifies that [name of Holder] is the registered owner of the
Percentage Interest represented hereby.
The Trust was created pursuant to a Trust Agreement dated as of
___________ (as amended and supplemented from time to time, the "Trust
Agreement") between the Depositor and ___________________, as owner trustee (as
amended and supplemented from time to time, the "Owner Trustee", which term
includes any successor entity under the Trust Agreement), a summary of certain
of the pertinent provisions of which is set forth hereinafter. This Investor
Certificate is issued under and is subject to the terms, provisions and
conditions of the Trust Agreement, to which Trust Agreement the Holder of this
Investor Certificate by virtue of the acceptance hereof assents and by which
such Holder is bound.
This Investor Certificate is one of a duly authorized issue of investor
certificates (herein called the "Investor Certificates") issued under the Trust
Agreement to which reference is hereby made for a statement of the respective
rights thereunder of the Depositor, the Owner Trustee and the Holders of the
Investor Certificates and the terms upon which the Investor Certificates are
executed and delivered. All terms used in this Investor Certificate which are
defined in the Trust Agreement shall have the meanings assigned to them in the
Trust Agreement. The Trust Estate consists of the Mortgage Collateral in the
American Residential Eagle Trust One [and a Bond Insurance Policy]. The rights
of the Holders of the Investor Certificates are subordinated to the rights of
the Holders of the Bonds, as set forth in the Indenture.
There will be distributed on the ___________ day of each month or, if
such ___________ day is not a Business Day, the next Business Day (each, a
"Payment Date"), commencing in ___________, to the Person in whose name this
Investor Certificate is registered at the close of business on the last Business
Day of the month preceding the month of such Payment Date (the "Record Date"),
such Certificateholder's Percentage Interest (obtained by dividing the
Denomination of this Investor Certificate by the aggregate Denominations of all
Investor Certificates) in the amount to be distributed to Certificateholders on
such Payment Date.
The Certificateholder, by its acceptance of this Investor Certificate,
agrees that it will look solely to the funds on deposit in the [Certificate
Distribution Account] that have been released from the Lien of the Indenture for
payment hereunder and that neither the Owner Trustee in its individual capacity
nor the Depositor is personally liable to the Certificateholders for any amount
payable under this Investor Certificate or the Trust Agreement or, except as
expressly provided in the Trust Agreement. Subject to any liability under the
Trust Agreement.
The Holder of this Investor Certificate acknowledges and agrees that its
rights to receive distributions in respect of this Investor Certificate are
subordinated to the rights of the Bondholders as described in the Indenture,
dated as of __________, between the Trust and _____________, as Indenture
Trustee (the "Indenture").
The Depositor and each Certificateholder, by acceptance of an Investor
Certificate, agree to treat, and to take no action inconsistent with the
treatment of, the Investor Certificates for federal, state and local income tax
purposes as an equity interest in the Trust.
Each Certificateholder, by its acceptance of an Investor Certificate,
covenants and agrees that such Certificateholder will not at any time institute
against the Depositor, or join in any institution against the Depositor or the
Trust of, any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings, or other proceedings under any United States federal or state
bankruptcy or similar law in connection with any obligations relating to the
Investor Certificates, the Bonds, the Trust Agreement or any of the Operative
Documents.
21
<PAGE> 26
Distributions on this Investor Certificate will be made as provided in
the Trust Agreement by the Certificate Paying Agent by wire transfer or check
mailed to the Certificateholder of record in the Certificate Register without
the presentation or surrender of this Investor Certificate or the making of any
notation hereon. Except as otherwise provided in the Trust Agreement and
notwithstanding the above, the final distribution on this Investor Certificate
will be made after due notice by the Certificate Paying Agent of the pendency of
such distribution and only upon presentation and surrender of this Investor
Certificate at the office or agency maintained by the Certificate Registrar for
that purpose by the Trust in the State of Delaware.
Reference is hereby made to the further provisions of this Investor
Certificate set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have been executed
by an authorized officer of the Owner Trustee, or an authenticating agent by
manual signature, this Investor Certificate shall not entitle the Holder hereof
to any benefit under the Trust Agreement or be valid for any purpose.
THIS INVESTOR CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS,
AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not in
its individual capacity, has caused this Investor Certificate to be duly
executed.
-------------------------------------------
not in its individual capacity but solely
as Owner Trustee
Dated: By:
----------------------------------------
Authorized Signatory
22
<PAGE> 27
[REVERSE OF INVESTOR CERTIFICATE]
The Investor Certificates do not represent an obligation of, or an
interest in, the Depositor, the Master Servicer, the Indenture Trustee, the
Owner Trustee or any Affiliates of any of them and no recourse may be had
against such parties or their assets, except as expressly set forth or
contemplated herein or in the Trust Agreement or the Operative Documents. In
addition, this Investor Certificate is not guaranteed by any governmental agency
or instrumentality and is limited in right of payment to certain collections and
recoveries with respect to the Mortgage Collateral, all as more specifically set
forth herein. A copy of the Trust Agreement may be examined by any
Certificateholder upon written request during normal business hours at the
principal office of the Depositor and at such other places, if any, designated
by the Depositor.
The Trust Agreement permits the amendment thereof as specified below,
provided that any amendment be accompanied by the consent of the Insurer and an
Opinion of Counsel to the Owner Trustee to the effect that such amendment
complies with the provisions of the Trust Agreement and, if the Depositor was
not the holder of 100% of the Investor Certificates, would not cause the Trust
to be subject to an entity level tax. If the purpose of the amendment is to
correct any mistake, eliminate any inconsistency, cure any ambiguity or deal
with any matter not covered, it shall not be necessary to obtain the consent of
any Holder, but the Owner Trustee shall be furnished with a letter from the
Rating Agencies that the amendment will not result in the downgrading or
withdrawal of the rating then assigned to any Bond. If the purpose of the
amendment is to prevent the imposition of any federal or state taxes at any time
that any Bond or Investor Certificate is outstanding, it shall not be necessary
to obtain the consent of the any Holder, but the Owner Trustee shall be
furnished with an Opinion of Counsel that such amendment is necessary or helpful
to prevent the imposition of such taxes and is not materially adverse to any
Holder. If the purpose of the amendment is to add or eliminate or change any
provision of the Trust Agreement, other than as specified in the preceding two
sentences, the amendment shall require either (a) a letter from the Rating
Agencies that the amendment will not result in the downgrading or withdrawal of
the rating then assigned to any Bond or (b) the consent of Holders of the
Investor Certificates evidencing a majority of the Percentage Interests of the
Investor Certificates and the Indenture Trustee; PROVIDED, HOWEVER, that no such
amendment shall (i) reduce in any manner the amount of, or delay the time of,
payments received that are required to be distributed on any Investor
Certificate without the consent of the related Certificateholder, or (ii) reduce
the aforesaid percentage of Investor Certificates the Holders of which are
required to consent to any such amendment without the consent of the Holders of
all such Investor Certificates then outstanding.
As provided in the Trust Agreement and subject to certain limitations
therein set forth, the transfer of this Investor Certificate is registerable in
the Certificate Register upon surrender of this Investor Certificate for
registration of transfer at the offices or agencies of the Certificate Registrar
maintained by the Trust in the State of Delaware, accompanied by a written
instrument of transfer in form satisfactory to the Certificate Registrar duly
executed by the Holder hereof or such Holder's attorney duly authorized in
writing, and thereupon one or more new Investor Certificates of authorized
denominations evidencing the same aggregate interest in the Trust will be issued
to the designated transferee. The initial Certificate Registrar appointed under
the Trust Agreement is _____________________.
Except as provided in the Trust Agreement, the Investor Certificates are
issuable only in a minimum Percentage Interest of 10%. As provided in the Trust
Agreement and subject to certain limitations therein set forth, Investor
Certificates are exchangeable for new Investor Certificates of authorized
denominations evidencing the same aggregate denomination, as requested by the
Holder surrendering the same. No service charge will be made for any such
registration of transfer or exchange, but the Owner Trustee or the Certificate
Registrar may require payment of a sum sufficient to cover any tax or
governmental charge payable in connection therewith.
The Owner Trustee, the Certificate Paying Agent, the Certificate
Registrar and any agent of the Owner Trustee, the Certificate Paying Agent, or
the Certificate Registrar may treat the Person in whose name this Investor
Certificate is registered as the owner hereof for all purposes, and none of the
Owner Trustee, the Certificate Paying Agent, the Certificate Registrar or any
such agent shall be affected by any notice to the contrary.
The obligations and responsibilities created by the Trust Agreement and
the Trust created thereby shall terminate as and when provided in accordance
with the terms of the Trust Agreement.
23
<PAGE> 28
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________
(Please print or type name and address, including postal zip code, of
assignee)
________________________________________________________________________
the within Investor Certificate, and all rights thereunder, hereby
irrevocably constituting and appointing
________________________________________________________________________
to transfer said Investor Certificate on the books of the Certificate
Registrar, with full power of substitution in the premises.
Dated:
--------------------------
Signature Guaranteed:
--------------------------
------------
*/ NOTICE: The signature to this assignment must correspond with the
name as it appears upon the face of the within Investor Certificate in every
particular, without alteration, enlargement or any change whatever. Such
signature must be guaranteed by a member firm of the New York Stock Exchange or
a commercial bank or trust company.
24
<PAGE> 29
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for the information of the
Certificate Paying Agent:
Distribution shall be made by wire transfer in immediately available
funds __________________ to for the account of ______________________________,
account number _______________, or, if mailed by check, to __________________.
Applicable statements should be mailed to _______________.
________________________________________________________________________________
-----------------------------------------
Signature of assignee or agent
(for authorization of wire transfer only)
25
<PAGE> 30
EXHIBIT B
CERTIFICATE OF TRUST OF
AMERICAN RESIDENTIAL EAGLE BOND TRUST [199__-__]
THIS Certificate of Trust of American Residential Eagle Bond Trust
[199__-__] (the "Trust"), dated ________, __, is being duly executed and filed
by _________________________, a Delaware banking corporation, as trustee, to
form a business trust under the Delaware Business Trust Act (12 DEL. CODE,
Sections 3801 ET SEQ.)
1. NAME. The name of the business trust formed hereby is American
Residential Eagle Bond Trust [199__-__].
2. DELAWARE TRUSTEE. The name and business address of the trustee of the
Trust in the State of Delaware is ___________, __________________________,
_________, __________, Attention:______________________________________________.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the
Trust, has executed this Certificate of Trust as of the date first above
written.
---------------------------------------------------
not in its individual capacity but solely as
owner trustee under a Trust Agreement dated
as of ____, __,
By:
-------------------------------------------------
Name:
Title:
26
<PAGE> 31
EXHIBIT C
[FORM OF RULE 144A INVESTMENT REPRESENTATION]
Description of Rule 144A Securities, including numbers:
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
The undersigned seller, as registered holder (the "Seller"), intends to
transfer the Rule 144A Securities described above to the undersigned buyer (the
"Buyer").
1. In connection with such transfer and in accordance with the
agreements pursuant to which the Rule 144A Securities were issued, the Seller
hereby certifies the following facts: Neither the Seller nor anyone acting on
its behalf has offered, transferred, pledged, sold or otherwise disposed of the
Rule 144A Securities, any interest in the Rule 144A Securities or any other
similar security to, or solicited any offer to buy or accept a transfer, pledge
or other disposition of the Rule 144A Securities, any interest in the Rule 144A
Securities or any other similar security from, or otherwise approached or
negotiated with respect to the Rule 144A Securities, any interest in the Rule
144A Securities or any other similar security with, any person in any manner, or
made any general solicitation by means of general advertising or in any other
manner, or taken any other action that would constitute a distribution of the
Rule 144A Securities under the Securities Act of 1933, as amended (the "1933
Act"), or that would render the disposition of the Rule 144A Securities a
violation of Section 5 of the 1933 Act to require registration pursuant thereto,
and that the Seller has not offered the Rule 144A Securities to any person other
than the Buyer or another "qualified institutional buyer" as defined in Rule
144A under the 1933 Act.
2. The Buyer warrants and represents to, and covenants with, the Owner
Trustee and the Depositor (as defined in the Trust Agreement (the "Agreement"),
dated as of ______, ___ between American Residential Eagle, Inc., as Depositor
and ____________, as Owner Trustee pursuant to Section 3.03 of the Agreement as
follows:
a. The Buyer understands that Rule 144A Securities have not been
registered under the 1933 Act or the securities laws of any state.
b. The Buyer considers itself a substantial, sophisticated
institutional investor having such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and
risks of investment in the Rule 144A Securities.
c. The Buyer has been furnished with all information regarding
the Rule 144A Securities that it has requested from the Seller, the
Trustee, the Owner Trustee or the Master Servicer.
d. Neither the Buyer nor anyone acting on its behalf has offered,
transferred, pledged, sold or otherwise disposed of the Rule 144A
Securities, any interest in the Rule 144A Securities or any other
similar security to, or solicited any offer to buy or accept a transfer,
pledge or other disposition of the Rule 144A Securities, any interest in
the Rule 144A Securities or any other similar security from, or
otherwise approached or negotiated with respect to the Rule 144A
Securities, any interest in the Rule 144A Securities or any other
similar security with, any person in any manner, or made any general
solicitation by means of general advertising or in any other manner, or
taken any other action, that would constitute a distribution of the Rule
144A Securities under the 1933 Act or that would render the disposition
of the Rule 144A Securities a violation of Section 5 of the 1933 Act or
require registration pursuant thereto, nor will it act, nor has it
authorized or will it authorize any person to act, in such manner with
respect to the Rule 144A Securities.
e. The Buyer is a "qualified institutional buyer" as that term is
defined in Rule 144A under the 1933 Act and has completed either of the
forms of certification to that effect attached hereto as Annex 1 or
Annex 2. The Buyer is aware that the sale to it is being made in
reliance on Rule 144A. The Buyer is acquiring the Rule 144A Securities
for its own account or the accounts of other qualified institutional
buyers, understands that such Rule 144A Securities may be resold,
27
<PAGE> 32
pledged or transferred only (i) to a person reasonably believed to be a
qualified institutional buyer that purchases for its own account or for
the account of a qualified institutional buyer to whom notice is given
that the resale, pledge or transfer is being made in reliance on Rule
144A, or (ii) pursuant to another exemption from registration under the
1933 Act.
3. The Buyer warrants and represents to, and covenants with, the Seller,
the Trustee, Owner Trustee, Master Servicer and the Depositor that either (1)
the Buyer is (A) not an employee benefit plan (within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), or a plan (within the meaning of Section 4975(e)(1) of the Internal
Revenue Code of 1986 ("Code"), which (in either case) is subject to ERISA or
Section 4975 of the Code (both a "Plan"), and (B) is not directly or indirectly
purchasing the Rule 144A Securities on behalf of, as investment manager of, as
named fiduciary of, a trustee of, or with "plan assets" of a Plan, or (2) the
Buyer understands that registration of transfer of any Rule 144A Securities to
any Plan, or to any Person acting on behalf of any Plan, will not be made unless
such Plan delivers an opinion of its counsel, addressed and satisfactory to the
Certificate Registrar and the Depositor, to the effect that the purchase and
holding of the Rule 144A Securities by, on behalf of or with "plan assets" of
any Plan would not constitute or result in a prohibited transaction under
Section 406 of ERISA or Section 4975 of the Code, and would not subject the
Depositor, the Master Servicer, the Trustee or the Trust to any obligation or
liability (including liabilities under ERISA or Section 4975 of the Code) in
addition to those undertaken in the Agreement or any other liability.]
4. This document may be executed in one or more counterparts and by the
different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed to be an original; such counterparts, together, shall
constitute one and the same document.
IN WITNESS WHEREOF, each of the parties has executed this document as of
the date set forth below.
------------------------------ ----------------------------------
Print Name of Seller Print Name of Buyer
By: By:
--------------------------- -------------------------------
Name: Name:
Title: Title:
Taxpayer Identification Taxpayer Identification
No. No.
--------------------------- -------------------------------
Date: Date:
------------------------- ------------------------------
28
<PAGE> 33
ANNEX 1 TO EXHIBIT C
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
[For Buyers Other Than Registered Investment Companies]
The undersigned hereby certifies as follows in connection with the Rule
144A Investment Representation to which this Certification is attached:
1. As indicated below, the undersigned is the President, Chief Financial
Officer, Senior Vice President or other executive officer of the Buyer.
2. In connection with purchases by the Buyer, the Buyer is a "qualified
institutional buyer" as that term is defined in Rule 144A under the Securities
Act of 1933 ("Rule 144A") because (i) the Buyer owned and/or invested on a
discretionary basis $_____________(1) in securities (except for the excluded
securities referred to below) as of the end of the Buyer's most recent fiscal
year (such amount being calculated in accordance with Rule 144A) and (ii) the
Buyer satisfies the criteria in the category marked below.
___ CORPORATION, ETC. The Buyer is a corporation (other than a
bank, savings and loan association or similar institution),
Massachusetts or similar business trust, partnership, or charitable
organization described in Section 501(c)(3) of the Internal Revenue
Code.
___ BANK. The Buyer (a) is a national bank or banking
institution organized under the laws of any State, territory or the
District of Columbia, the business of which is substantially confined to
banking and is supervised by the State or territorial banking commission
or similar official or is a foreign bank or equivalent institution, and
(b) has an audited net worth of at least $25,000,000 as demonstrated in
its latest annual financial statements, A COPY OF WHICH IS ATTACHED
HERETO.
___ SAVINGS AND LOAN. The Buyer (a) is a savings and loan
association, building and loan association, cooperative bank, homestead
association or similar institution, which is supervised and examined by
a State or Federal authority having supervision over any such
institutions or is a foreign savings and loan association or equivalent
institution and (b) has an audited net worth of at least $25,000,000 as
demonstrated units latest annual financial statements.
___ BROKER-DEALER. The Buyer is a dealer registered pursuant to
Section 15 of the Securities Exchange Act of 1934.
___ INSURANCE COMPANY. The Buyer is an insurance company whose
primary and predominant business activity is the writing of insurance or
the reinsuring of risks underwritten by insurance companies and which is
subject to supervision by the insurance commissioner or a similar
official or agency of a State or territory or the District of Columbia.
___ STATE OR LOCAL PLAN. The Buyer is a plan established and
maintained by a State, its political subdivisions, or any agency or
instrumentality of the State or its political subdivisions, for the
benefit of its employees.
___ ERISA PLAN. The Buyer is an employee benefit plan within the
meaning of Title I of the Employee Retirement Income Security Act of
1974.
___ INVESTMENT ADVISOR. The Buyer is an investment adviser
registered under the Investment Advisers Act of 1940.
------------
(1) Buyer must own and/or invest on a discretionary basis at least
$100,000,000 in securities unless Buyer is a dealer, and, in that case, Buyer
must own and/or invest on a discretionary basis at least $10,000,000 in
securities.
29
<PAGE> 34
___ SBIC. The Buyer is a Small Business Investment Company
licensed by the U.S. Small Business Administration under Section 301(c)
or (d) of the Small Business Investment Act of 1958.
___ BUSINESS DEVELOPMENT COMPANY. The Buyer is a business
development company as defined in Section 202(a)(22) of the Investment
Advisers Act of 1940.
___ TRUST FUND. The Buyer is a trust fund whose trustee is a
bank or trust company and whose participants are exclusively (a) plans
established and maintained by a State, its political subdivisions, or
any agency or instrumentality of the State or its political
subdivisions, for the benefit of its employees, or (b) employee benefit
plans within the meaning of Title I of the Employee Retirement Income
Security Act of 1974, but is not a trust fund that includes as
participants individual retirement accounts of H.R. 10 plans.
3. The term "Securities" as used herein DOES NOT INCLUDE (i) securities
of issuers that are affiliated with the Buyer, (ii) securities that are part of
an unsold allotment to or subscription by the Buyer, if the Buyer is a dealer,
(iii) bank deposit notes and certificates of deposit, (iv) loan participations,
(v) repurchase agreements, (vi) securities owned but subject to a repurchase
agreement and (vii) currency, interest rate and commodity swaps.
4. For purposes of determining the aggregate amount of securities owned
and/or invested on a discretionary basis by the Buyer, the Buyer used the cost
of such securities to the Buyer and did not include any of the securities
referred to in the preceding paragraph. Further, in determining such aggregate
amount, the Buyer may have included securities owned by subsidiaries of the
Buyer, but only if such subsidiaries are consolidated with the Buyer in its
financial statements prepared in accordance with generally accepted accounting
principles and if the investments of such subsidiaries are managed under the
Buyer's direction. However, such securities were not included if the Buyer is a
majority-owned, consolidated subsidiary of another enterprise and the Buyer is
not itself a reporting company under the Securities and Exchange Act of 1934.
5. The Buyer acknowledges that it is familiar with Rule 144A and
understands that the seller to it and other parties related to the Certificates
are relying and will continue to rely on the statements made herein because one
or more sales to the Buyer may be in reliance on Rule 144A.
Will the Buyer be purchasing the Rule 144A
____ ____ Securities only for the Buyer's own account?
Yes No
6. If the answer to the foregoing question is "no", the Buyer agrees
that, in connection with any purchase of securities sold to the Buyer for the
account of a third party (including any separate account) in reliance on Rule
144A, the Buyer will not only purchase for the account of a third party that at
the time is a "qualified institutional buyer" within the meaning of Rule 144A.
In addition, the Buyer agrees that the Buyer will not purchase securities for a
third party unless the Buyer has obtained a current representation letter from
such third party or taken other appropriate steps contemplated by Rule 144A to
conclude that such third party independently meets the definition of "qualified
institutional buyer" set forth in Rule 144A.
30
<PAGE> 35
7. The Buyer will notify each of the parties to which this certification
is made of any changes in the information and conclusions herein. Until such
notice is given, the Buyer's purchase of Rule 144A Securities will constitute a
reaffirmation of this certification as of the date of such purchase.
Print Name of Buyer
By:
---------------------------------------
Name:
Title:
Date:
---------------------------------------
31
<PAGE> 36
ANNEX 2 TO EXHIBIT C
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
[FOR BUYERS THAT ARE REGISTERED INVESTMENT COMPANIES]
The undersigned hereby certifies as follows in connection with the Rule
144A investment representation to which this certification is attached:
1. As indicated below, the undersigned is the President, Chief Financial
Officer or Senior Vice President of the Buyer or, if the Buyer is a "qualified
institutional buyer" as that term is defined in Rule 144A under the Securities
Act of 1933 ("Rule 144A") because Buyer is part of a family of investment
companies (as defined below), is such an officer of the adviser.
2. In connection with purchases by Buyer, the Buyer is a "qualified
institutional buyer" as defined in SEC Rule 144A because (i) the Buyer is an
investment company registered under the Investment Company Act of 1940, and (ii)
as marked below, the Buyer alone, or the Buyer's family of Investment Companies,
owned at least $100,000,000 in securities (other than the excluded securities
referred to below) as of the end of the Buyer's most recent fiscal year. For
purposes of determining the amount of securities owned by the Buyer of the
Buyer's family of Investment Companies, the cost of such securities was used.
____ The Buyer owned $__________ in securities (other that the
excluded securities referred to below) as of the end of the Buyer's
most recent fiscal year (such amount being calculated in accordance
with Rule 144A).
____ The Buyer is part of a Family of Investment Companies
which owned in the aggregate $__________ in securities (other than the
excluded securities referred to below) as of the end of the Buyer's
most recent fiscal year (such amount being calculated in accordance
with Rule 144A).
3. The term "Family of Investment Companies" as used herein means two or
more registered investment companies (or series thereof) that have the same
investment advisor or investment advisers that are affiliated (by virtue of
being majority owned subsidiaries of the same parent or because one investment
adviser is a majority owned subsidiary of the other).
4. The term "Securities" as used herein does not include (i) securities
of issuers that are affiliated with the Buyer or are part of the Buyer's Family
of Investment Companies, (ii) bank deposit notes and certificates of deposit,
(iii) loan participations, (iv) repurchase agreements, (v) securities owned but
subject to a repurchase agreement and (vi) currency, interest rate and commodity
swaps.
5. The Buyer is familiar with Rule 144A and understands that each of the
parties to which this certification is made are relying and will continue to
rely on the statements made herein because one or more sales to the Buyer will
be in reliance on Rule 144A. In addition, the Buyer will only purchase for the
Buyer's own account.
32
<PAGE> 37
6. The undersigned will notify each of the parties to which this
certification is made of any changes in the information and conclusions herein.
Until such notice, the Buyer's purchase of Rule 144A securities will constitute
a reaffirmation of this certification by the undersigned as of the date of such
purchase.
-------------------------------------------
PRINT NAME OF BUYER
BY:
-----------------------------------------
NAME:
----------------------------------------
TITLE:
--------------------------------------
IF AN ADVISER:
--------------------------------------------
PRINT NAME OF BUYER
DATE:
---------------------------------------
33
<PAGE> 38
EXHIBIT D
CERTIFICATE OF NON-FOREIGN STATUS
This certificate of Non-Foreign status ("certificate") is delivered
pursuant to Section 3.03 of the Trust Agreement, dated as of _________ __,
19____ (the "Trust Agreement") between American Residential Eagle, Inc., as
depositor and ___________________, as owner trustee, in connection with the
acquisition of, transfer to or possession by the undersigned, whether as
beneficial owner (the "Beneficial Owner"), or nominee on behalf of the
Beneficial Owner of the Investor Certificates, (the "Investor Certificate").
Capitalized terms used but not defined in this certificate have the respective
meanings given them in the Trust Agreement.
Each holder must complete Part I, Part II (if the holder is a nominee),
and in all cases sign and otherwise complete Part III. In addition, each holder
shall submit with the certificate an IRS Form W-9 relating to such holder.
To confirm to the Trust that the provisions of Sections 871, 881 or 1446
of the Internal Revenue Code (relating to withholding tax on foreign partners)
do not apply in respect of the Investor Certificate held by the undersigned, the
undersigned hereby certifies:
PART I - COMPLETE EITHER A OR B
A. Individual as Beneficial Owner
1. I am (The Beneficial Owner is) not an Non-resident
alien for purposes of U.S. Income Taxation;
2. My (The Beneficial Owner's) name and home address
are:
____________________________________________________
____________________________________________________
_____________________________________________; and
3. My (The Beneficial Owner's) U.S. Taxpayer
Identification Number (Social Security Number) is
________________________________.
B. Corporate, Partnership or other entity as Beneficial Owner
1. (Name of the Beneficial Owner) is not a foreign
corporation, foreign partnership, foreign trust
or foreign estate (as those terms are defined in
the Code and Treasury Regulations)
2. The Beneficial Owner's office address and place
of incorporation (if applicable) is
_____________________________; and
3. The Beneficial Owner's U.S. employer
identification number is _____________________.
PART II - NOMINEES
If the undersigned is the nominee for the Beneficial Owner, the
undersigned certifies that this certificate has been made in reliance upon
information contained in:
_____ an IRS Form W-9
_____ a form such as this or substantially similar
provided to the undersigned by an appropriate person and (i) the
undersigned agrees to notify the Trust at least thirty (30) days prior to the
date that the form relied upon becomes obsolete, and (ii) in connection with
change in Beneficial Owners, the undersigned agrees to submit a new Certificate
of Non-Foreign Status to the Trust promptly after such change.
34
<PAGE> 39
PART III - DECLARATION
The undersigned, as the Beneficial Owner or a nominee thereof, agrees to
notify the Trust within sixty (60) days of the date that the Beneficial Owner
becomes a foreign person. The undersigned understands that this certificate may
be disclosed to the Internal Revenue Service by the Trust and any false
statement contained therein could be punishable by fines, imprisonment or both.
Under penalties of perjury, I declare that I have examined this
certificate and to the best of my knowledge and belief it is true, correct and
complete and will further declare that I will inform the Trust of any change in
the information provided above, and, if applicable, I further declare that I
have the authority* to sign this document.
- -------------------------------------
Name
- -------------------------------------
Title (if applicable)
- -------------------------------------
Signature and Date
*NOTE: If signed pursuant to a power of attorney, the power of attorney must
accompany this certificate.
35
<PAGE> 40
EXHIBIT E
FORM OF INVESTMENT LETTER [NON-RULE 144A]
[DATE]
[CERTIFICATE REGISTRAR]
RE: AMERICAN RESIDENTIAL EAGLE BOND TRUST [199__-__]
INVESTOR CERTIFICATES
(THE "INVESTOR CERTIFICATES")
Ladies and Gentlemen:
In connection with our acquisition of the above-captioned certificates,
we certify that (a) we understand that the Investor Certificates are not being
registered under the Securities Act of 1933, as amended (the "Act"), or any
state securities laws and are being transferred to us in a transaction that is
exempt from the registration requirements of the Act and any such laws, (b) we
are an "accredited investor," as defined in Regulation D under the Act, and have
such knowledge and experience in financial and business matters that we are
capable of evaluating the merits and risks of investments in the Investor
Certificates, (c) we have had the opportunity to ask questions of and receive
answers from the depositor concerning the purchase of the Investor Certificates
and all matters relating thereto or any additional information deemed necessary
to our decision to purchase the Investor Certificates, (d) we are not an
employee benefit plan that is subject to the Employee Retirement Income Security
Act of 1974, as amended, or a plan that is subject to Section 4975 of the
Internal Revenue Code of 1986, as amended, nor are we acting on behalf of any
such plan, (e) we are acquiring the Investor Certificates for investment for our
own account and not with a view to any distribution of such Investor
Certificates (but without prejudice to our right at all times to sell or
otherwise dispose of the Investor Certificates in accordance with clause (g)
below), (f) we have not offered or sold any Investor Certificates to, or
solicited offers to buy any Investor Certificates from, any person, or otherwise
approached or negotiated with any person with respect thereto, or taken any
other action which would result in a violation of Section 5 of the Act, and (g)
we will not sell, transfer or otherwise dispose of any Investor Certificates
unless (1) such sale, transfer or other disposition is made pursuant to an
effective registration statement under the Act or is exempt from such
registration requirements, and if requested, we will at our expense provide an
opinion of counsel satisfactory to the addressees of this Investment Letter that
such sale, transfer or other disposition may be made pursuant to an exemption
from the Act, (2) the purchaser or transferee of such Investor Certificate has
executed and delivered to you an Investment Letter to substantially the same
effect as this Investment Letter, and (3) the purchaser or transferee has
otherwise complied with any conditions for transfer set forth in the Trust
Agreement.
Very truly yours,
[TRANSFEREE]
By:
---------------------------------------
Authorized Officer
36
<PAGE> 41
EXHIBIT F
TRANSFER CERTIFICATE
[Owner Trustee]
[Certificate Paying Agent]
Re: PROPOSED TRANSFER OF INVESTOR CERTIFICATES
Ladies and Gentlemen:
This certification is being made by __________________ (the "Proposed
Transferee") in connection with the proposed transfer to the Proposed Transferee
of an investor certificate (the "Investor Certificate") representing __%
fractional undivided interest in American Residential Eagle Bond Trust
[199__-__] (the "Trust") created pursuant to a Deposit Trust Agreement, dated as
of ___________ __, 199_ (such agreement, as amended, being referred to herein as
the "Deposit Trust Agreement") between American Residential Eagle, Inc. and
____________________, as Owner Trustee. Initially capitalized terms used but not
defined herein have the meanings assigned to them in the Deposit Trust
Agreement. The Proposed Transferee hereby certifies as follows:
1. The undersigned is a Person involved in the organization or operation
of the Trust or an affiliate of such a Person within the meaning of Rule 3a-7 of
the Investment Company Act.
2. The Proposed Transferee understands that (a) the Investor
Certificates have not been and will not be registered or qualified under the
Securities Act, or the securities laws of any state, (b) neither the Trust nor
the Owner Trustee is required, and neither intends, to so register or qualify
the Investor Certificates, and (c) the Investor Certificates cannot be resold
unless (i) they are registered and qualified under the Securities Act and the
applicable state securities laws or (ii) an exemption from registration and
qualification is available.
3. The Proposed Transferee is acquiring the Investor Certificate for its
own account for investment only and not with a view to or for sale or other
transfer in connection with any distribution of the Investor Certificate in any
manner that would violate the Securities Act or any applicable state securities
laws.
4. The Proposed Transferee (a) is an accredited investor having such
knowledge and experience in financial and business matters, and in particular in
such matters related to securities similar to the Investor Certificate, such
that it is capable of evaluating the merits and risks of investment in the
Investor Certificate and (b) is able to bear the economic risks of such an
investment.
5. The Proposed Transferee will not authorize nor has it authorized any
person (a) to offer, pledge, sell, dispose of or otherwise transfer any Investor
Certificate, any interest in any Investor Certificate or any other similar
security to any person in any manner, (b) to solicit any offer to buy or to
accept a pledge, disposition or other transfer of any Investor Certificate, any
interest in any Investor Certificate or any other similar security from any
person in any manner, (c) otherwise to approach or negotiate with respect to any
Investor Certificate, any interest in any Investor Certificate or any other
similar security with any person in any manner, (d) to make any general
solicitation by means of general advertising or in any other manner, or (e) to
take any other action that would constitute a distribution of any Investor
Certificate under the Securities Act, that would render the disposition of any
Investor Certificate a violation of Section 5 of the Securities Act or any state
securities law, or that could require registration or qualification pursuant
thereto. Neither the Proposed Transferee nor anyone acting on its behalf has
offered any Investor Certificate for sale or
37
<PAGE> 42
made any general solicitation by means of general advertising or in any other
manner with respect to the Investor Certificate. The Proposed Transferee will
not sell or otherwise transfer any Investor Certificates, except in compliance
with the provisions of the Deposit Trust Agreement.
Date:
----------------- ----------------------------------------
Name of Proposed Transferee
----------------------------------------
Signature
----------------------------------------
Name
----------------------------------------
Title
38
<PAGE> 1
EXHIBIT 4.3
MASTER SERVICING AGREEMENT
Dated as of __________ __, 1997
among
AMERICAN RESIDENTIAL EAGLE BOND TRUST 199__-__, Issuer
and
___________________________, Master Servicer
and
_____________________________, Trustee
Relating to the Mortgage Loans
Pledged as Collateral for the Issuer's
Collateralized Mortgage Bonds,
in the Aggregate Initial
Principal Amount of $___________
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRELIMINARY STATEMENT..............................................................................
1. Defined Terms.........................................................................
2. Mortgage Documents....................................................................
(a) Trustee to Retain Possession of Documents..................................
(b) Trustee to Cooperate; Release of Trustee Mortgage Files....................
(c) Documents, Records and Funds in Possession of Master Servicer to be Held
for Trustee................................................................
(d) Representations, Warranties and Covenants of the Issuer and the Master
Servicer...................................................................
(e) Covenants of the Master Servicer...........................................
3. General Duties of the Master Servicer.................................................
(a) Master Servicer to Service Mortgage Loans..................................
(b) Subservicing; Enforcement of the Obligations of Servicers..................
(c) Successor Servicers........................................................
(d) Liability of the Master Servicer...........................................
(e) No Contractual Relationship Between Servicers and the Trustee..............
(f) Rights of the Issuer and the Trustee in Respect of the Master Servicer.....
(g) Trustee to Act as Master Servicer..........................................
(h) Collection of Mortgage Loan Payments; Eligible Accounts; Servicing
Accounts; Bond Account.....................................................
(i) Collection of Taxes, Assessments and Similar Items; Escrow Accounts........
(j) Access to Certain Documentation and Information Regarding the Mortgage
Loans......................................................................
(k) Permitted Withdrawals from the Bond Account................................
(l) Maintenance of Hazard Insurance; Maintenance of Primary Insurance Policies.
(m) Enforcement of Due-On-Sale Clauses; Assumption Agreements..................
(n) Realization Upon Defaulted Mortgage Loans; Purchase of Certain Mortgage
Loans......................................................................
(o) Access to Certain Documentation............................................
(p) Annual Statement as to Compliance..........................................
(q) Annual Independent Public Accountants' Servicing Statement; Financial
Statements.................................................................
(r) Errors and Omissions Insurance; Fidelity Bonds.............................
4. Advances..............................................................................
5. Servicing Compensation and Expenses...................................................
6. The Master Servicer...................................................................
(a) Liabilities of the Master Servicer.........................................
(b) Merger or Consolidation of the Master Servicer.............................
(c) Limitation on Liability of the Master Servicer and Others..................
(d) Limitation on Resignation of the Master Servicer...........................
7. Servicing Default; Termination and Liabilities........................................
(a) Servicing Default..........................................................
(b) Trustee to Act; Appointment of Successor...................................
(c) Notification to Bondholders................................................
8. Miscellaneous.........................................................................
(a) Term of Master Servicing Agreement.........................................
(b) Assignment.................................................................
(c) Notices....................................................................
(d) Inspection and Audit Rights................................................
(e) Governing Law..............................................................
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(f) Amendments.................................................................
(g) Severability...............................................................
(h) No Joint Venture...........................................................
(i) Execution in Counterparts..................................................
(j) Limitation of Liability of Wilmington Trust Company........................
(k) Nonpetition Covenants......................................................
SCHEDULE I: Schedule of Mortgage Loans.................................................
SCHEDULE II: Representations and Warranties of
the Master Servicer........................................................
SCHEDULE III: Representations and Warranties as
to the Mortgage Loans......................................................
SCHEDULE IV: Representations and Warranties of
the Issuer.................................................................
EXHIBITS
EXHIBIT A FORM OF INITIAL CERTIFICATION OF TRUSTEE................................... A-1
EXHIBIT B FORM OF FINAL CERTIFICATION OF TRUSTEE..................................... B-1
EXHIBIT C REQUEST FOR RELEASE
(for Trustee).............................................................. C-1
EXHIBIT D REQUEST FOR RELEASE (Mortgage Loan
Paid in Full, Repurchased and Released).................................... D-1
</TABLE>
ii
<PAGE> 4
MASTER SERVICING AGREEMENT
THIS MASTER SERVICING AGREEMENT is made and entered into as of ________
__, 19__, by and among American Residential Eagle Bond Trust [199__-__], a
statutory business trust formed under the laws of the State of Delaware (the
"Issuer"), ________ _________________, a _______ corporation (the "Master
Servicer") and _______________________________, a _________________ _______
corporation (in its capacity as trustee under the Indenture referred to below,
the "Trustee").
PRELIMINARY STATEMENT
The Issuer was formed for the purpose of issuing bonds secured by
mortgage collateral. The Issuer has entered into a trust indenture, dated as of
________ __, 19__ (the "Indenture"), between the Issuer and the Trustee,
pursuant to which the Issuer intends to issue its Collateralized Mortgage Bonds,
in the aggregate initial principal amount of $___________ (the "Bonds").
Pursuant to the Indenture, as security for the indebtedness represented by such
Bonds, the Issuer is and will be pledging to the Trustee, or granting the
Trustee a security interest in, among other things, certain Mortgage Loans, its
rights under this Agreement, the Bond Account, the Distribution Account and
certain Insurance Policies (as each such term is defined herein).
The parties desire to enter into this Agreement to provide, among other
things, for the servicing of the Mortgage Loans by the Master Servicer. The
Master Servicer acknowledges that, in order further to secure the Bonds, the
Issuer is and will be granting to the Trustee a security interest in, among
other things, its rights under this Agreement, and the Master Servicer agrees
that all covenants and agreements made by the Master Servicer herein with
respect to the Mortgage Loans shall also be for the benefit and security of the
Trustee and Holders of the Bonds. For its services hereunder, the Master
Servicer will receive a Master Servicing Fee (as defined herein) with respect to
each Mortgage Loan serviced hereunder.
The Master Servicer has entered into or been assigned Servicing
Agreements (as defined herein) with Servicers (as defined herein) to perform, as
independent contractors, servicing functions for the Master Servicer with
respect to the Mortgage Loans. For its services under a Servicing Agreement,
each Servicer will receive a Servicing Fee (as defined herein) with respect to
each Mortgage Loan serviced by it thereunder.
In addition, the Issuer will enter into a Management Agreement, dated as
of the date hereof, with American Residential Investment Trust, Inc. (in such
capacity, the "Manager"), pursuant to which the Manager will conduct certain
operations of the Issuer. Actions by or required of the Issuer hereunder may be
performed on its behalf by the Manager or any sub-manager appointed to act for
the Issuer.
1. Defined Terms.
Except as otherwise specified or as the context may otherwise require,
the following terms have the respective meanings set forth below for all
purposes of this Agreement, and the definitions of such terms are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms:
"ADJUSTED NET MORTGAGE RATE" means, as to each Mortgage Loan and at any
time, the per annum rate equal to the Mortgage Rate less the sum of the Master
Servicing Fee Rate and the related Servicing Fee Rate.
["ADJUSTMENT DATE" means, as to any Mortgage Loan, the date on which the
related Mortgage Rate adjusts annually after a period of ten years following
origination, in accordance with the terms of the related Mortgage Note.]
"ADVANCE" means the payment required to be made by the Master Servicer
with respect to any Distribution Date pursuant to Section 4, the amount of any
such payment being equal to the aggregate of payments of principal and interest
(net of the Master Servicing Fee and the applicable Servicing Fee and net of any
net income in the case of any REO Property) on the Mortgage Loans that were due
on the related Due Date and not received as of the close of business on the
related Determination Date, less the aggregate amount of any such delinquent
payments that the Master Servicer has determined would constitute a
Nonrecoverable Advance if advanced.
"AGREEMENT" means this Master Servicing Agreement, as the same may be
amended or supplemented from time to time.
1
<PAGE> 5
"AMERICAN RESIDENTIAL" means American Residential Investment Trust,
Inc., a Maryland corporation, and its successors and assigns.
"AMOUNT HELD FOR FUTURE DISTRIBUTION" means, as to any Distribution
Date, the aggregate amount held in the Bond Account at the close of business on
the related Determination Date on account of (i) Principal Prepayments and
Liquidation Proceeds received in the month of such Distribution Date and (ii)
all Scheduled Payments due after the related Due Date.
"APPRAISED VALUE" means (i) with respect to a Mortgage Loan other than a
Refinancing Mortgage Loan, the lesser of (a) the value of the Mortgaged Property
based upon the appraisal made at the time of the origination of such Mortgage
Loan and (b) the sales price of the Mortgaged Property at the time of the
origination of such Mortgage Loan; or (ii) with respect to a Refinancing
Mortgage Loan, the value of the Mortgaged Property based upon the appraisal made
at the time of the origination of such Refinancing Mortgage Loan.
"AVAILABLE FUNDS" means, as to any Distribution Date, the sum of (i) all
scheduled installments of interest (net of the related Expense Fees) and
principal due [on the Due Date in the month] in which such Distribution Date
occurs and received prior to the related Determination Date, together with any
Advances in respect thereof; (ii) all Insurance Proceeds and all Liquidation
Proceeds for the [month] preceding the month of such Distribution Date, net of
unreimbursed expenses incurred in connection with a liquidation or foreclosure
and unreimbursed Advances; (iii) all partial or full prepayments received during
the related Prepayment Period; and (iv) amounts received with respect to such
Distribution Date as the Substitution Adjustment Amount or purchase price in
respect to such Distribution Date as the Substitution Adjustment Amount or
purchase price in respect of a Deleted Mortgage Loan or a Mortgage Loan
purchased by American Residential [or by the Master Servicer] as of such
Distribution Date, reduced by amounts in reimbursement for Advances previously
made and other amounts as to which the applicable Servicer or the Master
Servicer is entitled to be reimbursed pursuant to the Master Servicing
Agreement.
"BANKRUPTCY CODE" means the United States Bankruptcy Reform Act of 1978,
as amended.
"BLANKET MORTGAGE" means the mortgage or mortgages encumbering the
Cooperative Property.
"BOND ACCOUNT" means, with respect to the Bonds, the separate Eligible
Account created and maintained by the Master Servicer pursuant to Section
3(h)(v) with a depository institution in the name of the Master Servicer for the
benefit of the Trustee on behalf of the Bondholders and designated
"_________________________________________ in trust for the registered holders
of American Residential Eagle Bond Trust 199_-_ Collateralized Mortgage Bonds."
"BOND DISTRIBUTION AMOUNT" means, as to any Distribution Date, the sum
of (i) the Senior Interest Payment Amount, (ii) the Senior Principal Payment
Amount, (iii) the Class B-1 Interest Payment Amount, (iv) the Class B-1
Principal Payment Amount, (v) the Class B-2 Interest Payment Amount and (vi) the
Class B-2 Principal Payment Amount.
"BONDHOLDER" or "HOLDER" means the Person in whose name a Bond is
registered in the Bond Register (as defined in the Indenture).
"BONDS" mean the Issuer's Collateralized Mortgage Bonds.
"BUSINESS DAY" means any day other than (i) a Saturday or a Sunday, or
(ii) a day on which banking institutions in the City of New York, New York, the
State of California or the city in which the Corporate Trust Office (as defined
in the Indenture) of the Trustee is located are authorized or obligated by law
or executive order to be closed.
"CERTIFICATE INTEREST PAYMENT AMOUNT" means, as to any Distribution
Date, one month's interest accrued during the related Interest Accrual Period at
the Certificate Interest Rate on the Invested Amount, subject to reduction
pursuant to Section 3(h)(viii). The Certificate Interest Payment Amount shall be
calculated on the basis of a 360-day year of twelve 30-day months.
"CERTIFICATE INTEREST RATE" means, for any Interest Accrual Period
beginning prior to the Interest Conversion Date _____________________.
2
<PAGE> 6
"CERTIFICATE PAYING AGENT" has the meaning assigned thereto in the
Deposit Trust Agreement.
"CLASS B-1 BOND INTEREST RATE" means, with respect to any Interest
Accrual Period, the annual rate at which interest accrues on the Subordinated
Bonds as specified in such Bonds and in Section 2.03(c) of the Indenture.
"CLASS B-1 INTEREST CARRYOVER SHORTFALL" means, the amount by which sum
of (i) the interest at the Class B-1 Bond Interest Rate on the Class B-1
Principal Amount and (ii) the interest at the Class B-1 Bond Interest Rate on
any Class B-1 Principal Carryover Shortfall, on each prior Distribution Date,
exceeded the amount actually distributed as interest on such prior Distribution
Dates and not subsequently distributed.
"CLASS B-1 INTEREST PAYMENT AMOUNT" means, as of any Distribution Date,
the sum of (i) interest at the Class B-1 Bond Interest Rate on the Class B-1
Principal Amount, (ii) interest at the Class B-1 Bond Interest Rate on any Class
B-1 Principal Carryover Shortfall, (iii) the Class B-1 Interest Carryover
Shortfall and (iv) interest at the Class B-1 Bond Interest Rate on any Class B-1
Interest Carryover Shortfall.
"CLASS B-1 PERCENTAGE" means, as to any Distribution Date, the
percentage equivalent of a fraction the numerator of which is the Class B-1
Principal Amount immediately prior to such date and the denominator of which is
the sum of (i) the Senior Class Principal Amount, (ii) the Class B-1 Principal
Amount, (iii) the Class B-2 Principal Amount and (iv) the Invested Amount, in
each case immediately prior to such date.
"CLASS B-1 PRINCIPAL AMOUNT" means, as of any Distribution Date, the
lesser of (i)_the aggregate of the Stated Principal Balances of the Mortgage
Loans, less the Senior Class Principal Amount immediately prior to such date,
and (ii) the Original Class B-1 Principal Amount reduced by all amounts
previously distributed to holders of the Class B-1 bonds as payments of
principal.
"CLASS B-1 PRINCIPAL CARRYOVER SHORTFALL" means, as to any Distribution
Date, the excess of (i) the Original Class B-1 Principal Amount reduced by all
amounts previously distributed to holders of the Class B-1 Bonds as payments of
principal or Class B-1 Principal Carryover Shortfall, over (ii) the Class B-1
Principal Amount immediately prior to such date.
"CLASS B-1 PRINCIPAL PAYMENT AMOUNT" means, as to any Distribution Date,
the sum of (i) the Class B-1 Percentage of the sum of (a) the principal portion
of the Schedules Payment due on each Mortgage Loan [on the related Due Date],
(b) the principal portion of the purchase price of each Mortgage Loan that was
purchased by American Residential or another person pursuant to the Mortgage
Loan Purchase Agreement [or by the Master Servicer in connection with any
optional purchase by the Master Servicer of a defaulted Mortgage Loan] as of
such Distribution Date, (c) the Substitution Adjustment Amount in connection
with any Deleted Mortgage Loan received with respect to such Distribution Date,
(d) any Insurance Proceeds or Liquidation Proceeds allocable to recoveries of
principal of Mortgage Loans that are not yet Liquidated Mortgage Loans received
during the related Prepayment Period, (e) with respect to each Mortgage Loan
that became a Liquidated Mortgage Loan during the [calendar month] preceding the
month of such Distribution Date, the Stated Principal Balance of such Mortgage
Loan and (f) all partial and full principal prepayments by borrowers received
during the related Prepayment Period and (ii) any Class B-1 Principal Carryover
Shortfall.
"CLASS B-2 BOND INTEREST RATE" means, with respect to any Interest
Accrual Period, the annual rate at which interest accrues on the Subordinated
Bonds as specified in such Bonds and in Section 2.03(c) of the Indenture.
"CLASS B-2 INTEREST CARRYOVER SHORTFALL" means, the amount by which sum
of (i) the interest at the Class B-2 Bond Interest Rate on the Class B-2
Principal Amount and (ii) the interest at the Class B-2 Bond Interest Rate on
any Class B-2 Principal Carryover Shortfall, on each prior Distribution Date,
exceeded the amount actually distributed as interest on such prior Distribution
Dates and not subsequently distributed.
"CLASS B-2 INTEREST PAYMENT AMOUNT" means, as to any Distribution Date,
the sum of (i) interest at the Class B-2 Bond Interest Rate on the Class B-2
Principal Amount, (ii) interest at the Class B-2 Bond Interest Rate on any Class
B-2 Principal Carryover Shortfall, (iii) the Class B-2 Interest Carryover
Shortfall and (iv) interest at the Class B-2 Bond Interest Rate on any Class B-2
Interest Carryover Shortfall.
3
<PAGE> 7
"CLASS B-2 PERCENTAGE" means, as to any Distribution Date, the
percentage equivalent of a fraction the numerator of which is the Class B-2
Principal Amount immediately prior to such date and the denominator of which is
the sum of (i) the Senior Class Principal Amount, (ii) the Class B-1 Principal
Amount, (iii) the Class B-2 Principal Amount and (iv) the Invested Amount, in
each case immediately prior to such date.
"CLASS B-2 PRINCIPAL AMOUNT" means, as of any Distribution Date, the
lesser of (i) the aggregate of the Stated Principal Balances of the Mortgage
Loans, less the sum of the Senior Class Principal Amount and the Class B-2
Principal Amount, in each case immediately prior to such date, and (i) the
Original Class B-2 Principal Amount reduced by all amounts previously
distributed to holders of the Class B-2 Bonds as payments of principal.
"CLASS B-2 PRINCIPAL CARRYOVER SHORTFALL" means, as to any Distribution
Date, the excess of (i) the Original Class B-2 Principal Amount reduced by all
amounts previously distributed to holders of the Class B-2 Bonds as payments of
principal or Class B-2 Principal Carryover Shortfall, over (ii) the Class B-2
Principal Amount immediately prior to such date.
"CLASS B-2 PRINCIPAL PAYMENT AMOUNT" means, as to any Distribution Date,
the sum of (i) the Class B-2 Percentage of the sum of (a) the principal portion
of the Schedules Payment due on each Mortgage Loan [on the related Due Date],
(b) the principal portion of the purchase price of each Mortgage Loan that was
purchased by American Residential or another person pursuant to the Mortgage
Loan Purchase Agreement [or by the Master Servicer in connection with any
optional purchase by the Master Servicer of a defaulted Mortgage Loan] as of
such Distribution Date, (c) the Substitution Adjustment Amount in connection
with any Deleted Mortgage Loan received with respect to such Distribution Date,
(d) any Insurance Proceeds or Liquidation Proceeds allocable to recoveries of
principal of Mortgage Loans that are not yet Liquidated Mortgage Loans received
during the [calendar month] preceding the month of such Distribution Date, (e)
with respect to each Mortgage Loan that became a Liquidated Mortgage Loan during
the [calendar month] preceding the month of such Distribution Date, the Stated
Principal Balance of such Mortgage Loan and (f) all partial and full principal
prepayments by borrowers received during the related Prepayment Period and (ii)
any Class B-2 Principal Carryover Shortfall.
"CLASS PRINCIPAL AMOUNT" shall have the meaning ascribed thereto in the
Indenture.
"CLOSING DATE" means _______ __, 199__.
"CODE" means the Internal Revenue Code of 1986, including any successor
or amendatory provisions.
"COLLECTION ACCOUNT" means the Eligible Account or Accounts established
and maintained by the Master Servicer in accordance with Section 3(h)(iii).
"COMPANY" means American Residential Eagle, Inc., a Delaware
corporation, which, as of the Closing Date, owns all of the outstanding
beneficial interests in the Issuer.
"CONTROLLING CLASS" means the Class A-1 Bonds or, if the Class A-1 Bonds
are no longer Outstanding, the most senior Class of Subordinated Bonds then
Outstanding.
"COOPERATIVE CORPORATION" means the entity that holds title (fee or an
acceptable leasehold estate) to the real property and improvements constituting
the Cooperative Property and which governs the Cooperative Property, which
Cooperative Corporation must qualify as a Cooperative Housing Corporation under
Section 216 of the Code.
"COOPERATIVE LOAN" means any Mortgage Loan secured by Cooperative Shares
and a Proprietary Lease.
"COOPERATIVE PROPERTY" means the real property and improvements owned by
the Cooperative Corporation, including the allocation of individual dwelling
units to the holders of the Cooperative Shares of the Cooperative Corporation.
"COOPERATIVE SHARES" means shares issued by a Cooperative Corporation.
"COOPERATIVE UNIT" means a single family dwelling located in a
Cooperative Property.
4
<PAGE> 8
"CUT-OFF DATE" means, with respect to the Mortgage Loans, ________ __,
199__.
"CUT-OFF DATE POOL PRINCIPAL BALANCE" means $________________.
"CUT-OFF DATE PRINCIPAL BALANCE" means, as to any Mortgage Loan, the
Stated Principal Balance thereof as of the close of business on the Cut-off
Date.
"DEBT SERVICE REDUCTION" means, with respect to any Mortgage Loan, a
reduction by a court of competent jurisdiction in a proceeding under the
Bankruptcy Code in the Scheduled Payment for such Mortgage Loan which became
final and non-appealable, except such a reduction resulting from a Deficient
Valuation or any reduction that results in a permanent forgiveness of principal.
"DEBT SERVICE REDUCTION MORTGAGE LOAN" means any Mortgage Loan that
became the subject of a Debt Service Reduction.
"DEFECTIVE MORTGAGE LOAN" means any Mortgage Loan required to be
purchased by the Master Servicer pursuant to Section 2(a) hereof.
"DEFICIENT VALUATION" means, with respect to any Mortgage Loan, a
valuation by a court of competent jurisdiction of the Mortgaged Property in an
amount less than the then outstanding indebtedness under the Mortgage Loan, or
any reduction in the amount of principal to be paid in connection with any
Scheduled Payment that results in a permanent forgiveness of principal, which
valuation or reduction results from an order of such court which is final and
non-appealable in a proceeding under the Bankruptcy Code.
"DELETED MORTGAGE LOAN" has the meaning ascribed thereto in Section 5.
"DEPOSIT TRUST AGREEMENT" means the Amended and Restated Deposit Trust
Agreement, dated as of _______ __, 199__, between the Company and the Owner
Trustee, as such Deposit Trust Agreement may be amended or supplemented from
time to time.
"DETERMINATION DATE" means, as to any Distribution Date, the __th day of
the [month] in which such Distribution Date occurs or, if such __th day is not a
Business Day, the next succeeding Business Day; provided, however, that if such
next succeeding Business Day is less than two Business Days prior to the related
Distribution Date, then the Determination Date shall be the next Business Day
preceding the __th day of such [month].
"DISTRIBUTION ACCOUNT" means the Eligible Account or Accounts created
and maintained with the Trustee pursuant to Section 8.02 of the Indenture, to
which shall be remitted from time to time certain of the funds the Master
Servicer has collected and deposited in the Bond Account with respect to the
Mortgage Loans, as required hereunder and under the Indenture.
"DISTRIBUTION ACCOUNT DEPOSIT DATE" means, as to any Distribution Date,
[12:30 p.m. Pacific time] on the Business Day immediately preceding such
Distribution Date.
"DISTRIBUTION DATE" means, with respect to the Bonds and the Investor
Certificate, the __th day of each [calendar month] after the initial issuance of
the Bonds and the Investor Certificate or, if such __th day is not a Business
Day, the next succeeding Business Day, commencing in ________ 199__.
"DUE DATE" means the first day of the month.
"DUFF & PHELPS" means Duff & Phelps Credit Rating Company, or any
successor thereto. If Duff & Phelps is designated as a Rating Agency in the
Indenture, for purposes of Section 8(c) the address for notices to Duff & Phelps
shall be Duff & Phelps Credit Rating Company, 55 E. Monroe Street, 35th Floor,
Chicago, Illinois 60603, Attention: MBS Monitoring, or such other address as
Duff & Phelps may hereafter furnish to the Issuer and the Master Servicer.
5
<PAGE> 9
"ELIGIBLE ACCOUNT" means any of (i) an account or accounts maintained
with a federal or state chartered depository institution or trust company the
short-term unsecured debt obligations of which (or, in the case of a depository
institution or trust company that is the principal subsidiary of a holding
company, the debt obligations of such holding company, but only if Moody's is
not a Rating Agency) have the highest short-term ratings of each Rating Agency
at the time any amounts are held on deposit therein, or (ii) an account or
accounts in a depository institution or trust company in which such accounts are
insured by the FDIC or the SAIF (to the limits established by the FDIC or the
SAIF) and the uninsured deposits in which accounts are otherwise secured such
that, as evidenced by an Opinion of Counsel delivered to the Trustee and to each
Rating Agency, the Bondholders have a claim with respect to the funds in such
account or a perfected first priority security interest against any collateral
(which shall be limited to Permitted Investments) securing such funds that is
superior to claims of any other depositors or creditors of the depository
institution or trust company in which such account is maintained, or (iii) a
trust account or accounts maintained with the trust department of a federal or
state chartered depository institution or trust company, acting in its fiduciary
capacity or (iv) any other account acceptable to each Rating Agency. Eligible
Accounts may bear interest, and may include, if otherwise qualified under this
definition, accounts maintained with the Trustee.
"ESCROW ACCOUNT" means the Eligible Account or Accounts established and
maintained pursuant to Section 3(i) hereof.
"EXCESS PROCEEDS" means, with respect to any Liquidated Mortgage Loan,
the amount, if any, by which the sum of any Liquidation Proceeds of such
Mortgage Loan received in the calendar month in which such Mortgage Loan became
a Liquidated Mortgage Loan, net of any amounts previously reimbursed to the
Master Servicer as Nonrecoverable Advance(s) with respect to such Mortgage Loan
pursuant to Section 3(k)(iii), exceeds (a) the unpaid principal balance of such
Liquidated Mortgage Loan as of the Due Date in the month in which such Mortgage
Loan became a Liquidated Mortgage Loan plus (b) accrued interest at the Mortgage
Rate from the Due Date as to which interest was last paid or advanced (and not
reimbursed) to Bondholders up to the Due Date applicable to the Distribution
Date immediately following the calendar month during which such liquidation
occurred.
"EXPENSE RATE" means, as to each Mortgage Loan, the sum of the related
Servicing Fee Rate, the related Master Servicing Fee Rate and Trustee Fee Rate.
"FDIC" means the Federal Deposit Insurance Corporation, or any successor
thereto.
"FHLMC" means the Federal Home Loan Mortgage Corporation, a corporate
instrumentality of the United States created and existing under Title III of the
Emergency Home Finance Act of 1970, as amended, or any successor thereto.
"FIRREA" means the Financial Institutions Reform, Recovery and
Enforcement Act of 1989.
"FITCH" means Fitch Investors Service, L.P., or any successor thereto.
If Fitch is designated as a Rating Agency in the Indenture, for purposes of
Section 8(c) the address for notices to Fitch shall be Fitch Investors Service,
L.P., One State Street Plaza, New York, New York 10004, Attention: Residential
Mortgage Surveillance Group, or such other address as Fitch may hereafter
furnish to the Issuer and the Master Servicer.
"FNMA" means the Federal National Mortgage Association, a federally
chartered and privately owned corporation organized and existing under the
Federal National Mortgage Association Charter Act, or any successor thereto.
"INDENTURE" means the trust indenture, dated as of the date hereof,
between the Issuer and the Trustee, as such Indenture may be amended or
supplemented from time to time in accordance with its terms.
"INDEPENDENT ACCOUNTANTS" shall have the meaning ascribed to such term
under the Indenture.
"INDEX" means, as to each Mortgage Loan, the index from time to time in
effect for the adjustment of the Mortgage Rate set forth as such on the related
Mortgage Note.
"INSURANCE POLICY" means, with respect to any Mortgage Loan, any
insurance policy, including all riders and endorsements thereto in effect,
including any replacement policy or policies for any Insurance Policies.
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"INSURANCE PROCEEDS" means proceeds paid by an insurer pursuant to any
Insurance Policy, in each case other than any amount included in such Insurance
Proceeds in respect of Insured Expenses.
"INSURED EXPENSES" means expenses covered by an Insurance Policy or any
other insurance policy with respect to the Mortgage Loans.
"INTEREST ACCRUAL PERIOD" means, with respect to each Class of Bonds,
the Investor Certificate and any Distribution Date _______________.
["INTEREST CONVERSION DATE" means, as to the Mortgage Loans, the date on
which the first Adjustment Date occurs.]
"INVESTED AMOUNT" means, as of any Distribution Date, the lesser of (i)
the aggregate of the Stated Principal Balances of the Mortgage Loans, less the
sum of (x) the Senior Class Principal Amount (y) the Class B-1 Principal Amount
and (z) the Class B-2 Principal Amount, in each case immediately prior to such
date, and (ii) the Original Invested Amount reduced by all amounts previously
distributed to the Holder of the Investor Certificate in reduction of the
Invested Amount.
"INVESTED AMOUNT PAYMENT" means, as to any Distribution Date, the sum of
(i) the Investor Percentage of the sum of (a) the principal portion of the
Scheduled Payment due on each Mortgage Loan [on the related Due Date], (b) the
principal portion of the purchase price of each Mortgage Loan that was purchased
by the American Residential or another Person pursuant to the Mortgage Loan
Purchase Agreement as of such Distribution Date, (c) the Substitution Adjustment
Amount in connection with any Deleted Mortgage Loan received with respect to
such Distribution Date and (d) any Insurance Proceeds or Liquidation Proceeds
allocable to recoveries of principal of Mortgage Loans that are not yet
Liquidated Mortgage Loans received during the [calendar month] preceding the
month of such Distribution Date, and (e) all partial and full principal
prepayments by borrowers received during the related Prepayment Period, and (ii)
with respect to each Mortgage Loan that became a Liquidated Mortgage Loan during
the [calendar month] preceding the month of such Distribution Date, the
Liquidation Proceeds allocable to principal received with respect to such
Mortgage Loan, after application of such amounts pursuant to clause (e) of the
definition of Senior Principal Payment Amount clause (e) of the definition of
Class B-1 Principal Payment Amount and clause (e) of the definition of Class B-2
Principal Payment Amount.
"INVESTOR CERTIFICATE" shall have the meaning ascribed thereto in the
Deposit Trust Agreement.
"INVESTOR PERCENTAGE" means, as of any Distribution Date, the difference
between 100% and the sum of the Senior Percentage, the Class B-1 Percentage and
the Class B-2 Percentage.
"LIQUIDATED MORTGAGE LOAN" means with respect to any Distribution Date,
a defaulted Mortgage Loan (including any REO Property) which was liquidated in
the [calendar month] preceding the month of such Distribution Date and as to
which the Master Servicer has certified (in accordance with this Agreement) that
it has received all amounts it expects to receive in connection with the
liquidation of such Mortgage Loan including the final disposition of an REO
Property.
"LIQUIDATION PROCEEDS" means amounts, including Insurance Proceeds,
received in connection with the partial or complete liquidation of defaulted
Mortgage Loans, whether through trustee's sale, foreclosure sale or otherwise or
amounts received in connection with any condemnation or partial release of a
Mortgaged Property and any other proceeds received in connection with an REO
Property, less the sum of related unreimbursed Master Servicing Fees, Servicing
Advances and Advances.
"LOAN-TO-VALUE RATIO" means, with respect to any Mortgage Loan and as to
any date of determination, the fraction (expressed as a percentage) the
numerator of which is the principal balance of the related Mortgage Loan at such
date of determination and the denominator of which is the Appraised Value of the
related Mortgaged Property.
"MAINTENANCE" means with respect to any Cooperative Unit, the rent paid
by the Mortgagor to the Cooperative Corporation pursuant to the Proprietary
Lease.
"MARGIN" means as to each Mortgage Loan, the percentage amount set forth
on the related Mortgage Note added to the Index in calculating the Mortgage Rate
thereon.
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"MASTER SERVICER" means _____________________, a _______ corporation,
and its successors and assigns, in its capacity as master servicer hereunder.
"MASTER SERVICER ADVANCE DATE" means as to any Distribution Date, [12:30
p.m. Pacific time] on the Business Day immediately preceding such Distribution
Date.
"MASTER SERVICING FEE" means as to each Mortgage Loan and any
Distribution Date, an amount equal to [one month's] interest at the related
Master Servicing Fee Rate on the Stated Principal Balance of such Mortgage Loan
or, in the event of any payment of interest which accompanies a Principal
Prepayment in Full made by the Mortgagor, interest at the Master Servicing Fee
Rate on the Stated Principal Balance of such Mortgage Loan for the period
covered by such payment of interest, subject to reduction as provided in Section
5(a).
"MASTER SERVICING FEE RATE" means with respect to each Mortgage Loan,
______% per annum.
"MAXIMUM RATE" means as to any Mortgage Loan, the maximum rate set forth
on the related Mortgage Note at which interest can accrue on such Mortgage Loan.
"MINIMUM RATE" means as to any Mortgage Loan, the minimum rate set forth
on the related Mortgage Note at which interest can accrue on such Mortgage Loan.
"MOODY'S" means Moody's Investors Service, Inc., or any successor
thereto. If Moody's is designated as a Rating Agency in the Indenture, for
purposes of Section 8(c) the address for notices to Moody's shall be Moody's
Investors Service, Inc., 99 Church Street, New York, New York 10007, Attention:
[Residential Pass-Through Monitoring], or such other address as Moody's may
hereafter furnish to the Issuer and the Master Servicer.
"MORTGAGE" means the mortgage, deed of trust or other instrument
creating a first lien on an estate in fee simple or leasehold interest in real
property securing a Mortgage Note.
"MORTGAGE DOCUMENTS" mean the mortgage documents listed in Section
2(a)(i) pertaining to a particular Mortgage Loan and any additional documents
delivered to the Trustee to be added to the Mortgage Documents pursuant to this
Agreement.
"MORTGAGE LOAN" means such of the mortgage loans granted by the Issuer
to the Trustee under the Indenture as security for the Bonds, as from time to
time are held as part of the Trust Estate (including any REO Property), the
mortgage loans so held being identified in the Schedule of Mortgage Loans,
notwithstanding foreclosure or other acquisition of title of the related
Mortgaged Property.
"MORTGAGE NOTE" means the original executed note or other evidence of
indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage Loan.
"MORTGAGE RATE" means the annual rate of interest borne by a Mortgage
Note from time to time.
"MORTGAGED PROPERTY" means the underlying property securing a Mortgage
Loan, which, with respect to a Cooperative Loan, is the related Cooperative
Shares and Proprietary Lease.
"MORTGAGOR" means the obligor(s) on a Mortgage Note.
"NET INTEREST SHORTFALL" means, as to any Distribution Date, the amount
by which the sum of (i) the amount of interest which would otherwise have been
received with respect to any Mortgage Loan that was the subject of a Relief Act
Reduction and (ii) any Prepayment Interest Shortfalls, in each case during the
calendar month preceding the month of such Distribution Date, exceeds the sum of
(i) the Master Servicing Fee for such period and (ii) the Certificate Interest
Payment Amount, the Invested Amount Payment and the amounts otherwise payable on
such Distribution Date to the holder of the Investor Certificate.
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"NET MORTGAGE RATE" means, as to any Mortgage Loan and Distribution
Date, the related Mortgage Rate as of the Due Date in the month preceding the
month of such Distribution Date reduced by the related Expense Rate.
"NONRECOVERABLE ADVANCE" means any portion of an Advance or Servicer
Advance previously made or proposed to be made by the Master Servicer or the
related Servicer, as the case may be, that, in the good faith judgment of the
Master Servicer or such Servicer, will not be ultimately recoverable by the
Master Servicer from the related Mortgagor, related Liquidation Proceeds or
otherwise.
"OFFICER'S CERTIFICATE" means a certificate (i) signed by the Chairman
of the Board, the Vice Chairman of the Board, the President, a Managing
Director, a Vice President (however denominated), an Assistant Vice President,
the Treasurer, the Secretary, or one of the Assistant Treasurers or Assistant
Secretaries of the Master Servicer, or (ii) if provided for in this Agreement,
signed by a Servicing Officer, as the case may be, and delivered to the Trustee
as required by this Agreement.
"OPINION OF COUNSEL" means a written opinion of counsel, who may be
counsel for the Master Servicer, including, in-house counsel, reasonably
acceptable to the Trustee.
"ORIGINAL CLASS B-1 PRINCIPAL AMOUNT" means $____________.
"ORIGINAL CLASS B-2 PRINCIPAL AMOUNT" means $_________.
"ORIGINAL INVESTED AMOUNT" means $____________.
"ORIGINAL MORTGAGE LOAN" means the Mortgage Loan refinanced in
connection with the origination of a Refinancing Mortgage Loan.
"ORIGINAL SENIOR CLASS PRINCIPAL AMOUNT" means $______________.
"ORIGINAL SUBORDINATION AMOUNT" means the sum of the Original Class B-1
Principal Amount the Original Class B-2 Principal Amount and the Original
Invested Amount.
"OTS" means the Office of Thrift Supervision.
"OUTSTANDING" shall have the meaning ascribed thereto in the Indenture.
"OUTSTANDING MORTGAGE LOAN" means, as of any Due Date, a Mortgage Loan
with a Stated Principal Balance greater than zero which was not the subject of a
Principal Prepayment in Full prior to such Due Date and which did not become a
Liquidated Mortgage Loan prior to such Due Date.
"OWNER TRUSTEE" means ________________________, a Delaware banking
corporation, not in its individual capacity but solely as Owner Trustee under
the Deposit Trust Agreement, until a successor Person shall have become the
Owner Trustee pursuant to the applicable provisions of the Deposit Trust
Agreement, and thereafter "Owner Trustee" shall mean such successor Person.
["PERIODIC RATE CAP" means, as to any Mortgage Loan and any Adjustment
Date, the maximum percentage increase or decrease to the related Mortgage Rate
on any such Adjustment Date, as specified in the related Mortgage Note.]
"PERMITTED INVESTMENTS" means, at the time, any one or more of the
following obligations and securities.
(i) obligations of the United States or any agency thereof, provided
such obligations are backed by the full faith and credit of the United States;
(ii) general obligations of or obligations guaranteed by any state of
the United States or the District of Columbia receiving the highest long-term
debt rating of each Rating Agency, or such lower rating which will not result in
a change in the rating assigned to the Bonds by each Rating Agency;
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(iii) commercial paper or finance company paper which is then receiving
the highest commercial or finance company paper rating of each Rating Agency, or
such lower rating as will not result in a change in the rating assigned to the
Bonds by each Rating Agency;
(iv) certificates of deposit, demand or time deposits, or bankers'
acceptances issued by any depository institution or trust company incorporated
under the laws of the United States or of any state thereof and subject to
supervision and examination by federal and/or state banking authorities,
provided that the commercial paper and/or long-term unsecured debt obligations
of such depository institution or trust company (or in the case of the principal
depository institution in a holding company system, the commercial paper or
long-term unsecured debt obligations of such holding company, but only if
Moody's Investors Service, Inc. ("Moody's") is a Rating Agency) are then rated
one of the two highest long-term and the highest short-term ratings of each
Rating Agency for such securities, or such lower ratings as will not result in a
change in the rating assigned to the Bonds by each Rating Agency;
(v) demand or time deposits or certificates of deposit issued by any
bank or trust company or savings institution by any bank, insurance company or
other corporation containing, at the time of issuance of such agreements, such
terms and conditions as will not result in a change in the rating then assigned
to the Bonds by each Rating Agency;
(vi) guaranteed reinvestment agreements issued by any bank, insurance
company or other corporation containing, at the time of the issuance of such
agreements, such terms and conditions as will not result in a change in the
rating then assigned to the Bonds by each Rating Agency;
(vii) repurchase obligations with respect to any security described in
clauses (i) and (ii) above, in either case entered into with a depository
institution or trust company (acting as principal) described in clause (iv)
above;
(viii) securities (other than stripped bonds, stripped coupons or
instruments sold at a purchase price in excess of 115% of the face amount
thereof) bearing interest or sold at a discount issued by any corporation
incorporated under the laws of the United States or any state thereof which, at
the time of such investment, have one of the two highest ratings of each Rating
Agency (except if the Rating Agency is Moody's, such rating shall be the highest
commercial paper rating of Moody's for any such securities), or such lower
rating as will not result in a change in the rating then assigned to the Bonds
by each Rating Agency, as evidenced by a signed writing delivered by each such
Rating Agency;
(ix) interests in any money market fund which at the date of acquisition
of the interests in such fund and throughout the time such interests are held in
such fund has the highest applicable rating by each applicable Rating Agency or
such lower rating as will not result in a change in the rating then assigned to
the Bonds by each Rating Agency;
(x) short term investment funds sponsored by any trust company or
national banking association incorporated under the laws of the United States or
any state thereof which on the date of acquisition has been rated by each
applicable Rating Agency in their respective highest applicable rating category
or such lower rating as will not result in a change assigned to the Bonds by
each Rating Agency; and
(xi) such other investments having a specified stated maturity and
bearing interest or sold at a discount acceptable to each applicable Rating
Agency as will not result in a change in the rating then assigned to the Bonds
by each Rating Agency, as evidenced by a signed writing delivered by each Rating
Agency;
provided, that no such instrument shall be a Permitted Investment if (i)
such instrument evidences the right to receive interest only payments with
respect to the obligations underlying such instrument or (ii) such instrument
would require the Issuer to register as an investment company under the
Investment Company Act of 1940, as amended.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government, or any agency or political subdivision thereof.
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"POOL STATED PRINCIPAL BALANCE" means, as to any Distribution Date, the
aggregate of the Stated Principal Balances of the Mortgage Loans which were
Outstanding Mortgage Loans on the Due Date in the month preceding the month of
such Distribution Date.
"PREPAYMENT INTEREST SHORTFALL" means, as to any Distribution Date,
Mortgage Loan and Principal Prepayment, the amount, if any, by which one month's
interest at the related Mortgage Rate on such Principal Prepayment exceeds the
amount of interest paid in connection with such Principal Prepayment.
"PREPAYMENT PERIOD" means, as to any Distribution Date, the calendar
month preceding the month of such Distribution Date.
"PRIMARY INSURANCE POLICY" means each policy of primary mortgage
guaranty insurance or any replacement policy therefor with respect to any
Mortgage Loan.
"PRINCIPAL PREPAYMENT" means any payment of principal by a Mortgagor on
a Mortgage Loan that is received in advance of its scheduled Due Date and is not
accompanied by an amount representing scheduled interest due on any date or
dates in any month or months subsequent to the month of prepayment. Partial
Principal Prepayments shall be applied by the Master Servicer in accordance with
the terms of the related Mortgage Note.
"PRINCIPAL PREPAYMENT IN FULL" means any Principal Prepayment made by a
Mortgagor of the entire principal balance of a Mortgage Loan.
"PROPRIETARY LEASE" means, with respect to any Cooperative Unit, a lease
or occupancy agreement between a Cooperative Corporation and a holder of related
Cooperative Shares.
"PROSPECTUS SUPPLEMENT" means the Prospectus Supplement dated
____________, 199__ relating to the Bonds.
"PUD" means Planned Unit Development.
"PURCHASE PRICE" means, with respect to any Mortgage Loan required to be
purchased by the Master Servicer pursuant to Section 2(a)(ii) or 2(d)(iv) or
purchased at the option of the Master Servicer pursuant to Section 3(n), an
amount equal to the sum of (i) 100% of the unpaid principal balance of the
Mortgage Loan on the date of such purchase, and (ii) accrued interest thereon at
the applicable Mortgage Rate (or at the applicable Adjusted Net Mortgage Rate if
the purchaser is the Master Servicer) from the date through which interest was
last paid by the Mortgagor to the Due Date in the month in which the Purchase
Price is to be distributed to Bondholders and the holder of the Investor
Certificate.
"QUALIFIED INSURER" means a mortgage guaranty insurance company duly
qualified as such under the laws of the state of its principal place of business
and each state having jurisdiction over such insurer in connection with the
insurance policy issued by such insurer, duly authorized and licensed in such
states to transact a mortgage guaranty insurance business in such states and to
write the insurance provided by the insurance policy issued by it, approved as a
FNMA- or FHLMC-approved mortgage insurer or having a claims paying ability
rating of at least "AA" or equivalent rating by a nationally recognized
statistical rating organization. Any replacement insurer with respect to a
Mortgage Loan must have at least as high a claims paying ability rating as the
insurer it replaces had on the Closing Date.
"RATING AGENCY" shall mean each of the Rating Agencies specified in the
Indenture. If either such organization or a successor is no longer in existence,
"Rating Agency" shall be such nationally recognized statistical rating
organization, or other comparable Person, as is designated by the Issuer, notice
of which designation shall be given to the Trustee. References herein to a given
rating or rating category of a Rating Agency shall mean such rating category
without giving effect to any modifiers.
"REALIZED LOSS" means, with respect to each Liquidated Mortgage Loan, an
amount (not less than zero or more than the Stated Principal Balance of the
Mortgage Loan) as of the date of such liquidation, equal to (i) the Stated
Principal Balance of the Liquidated Mortgage Loan as of the date of such
liquidation, plus (ii) interest at the Net Mortgage Rate from the Due Date as to
which interest was last paid or advanced (and not reimbursed) to Bondholders up
to the Due Date in the month in which Liquidation Proceeds are required to be
distributed on the Stated Principal Balance of such Liquidated Mortgage Loan
from time to time, minus
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(iii) the Liquidation Proceeds, if any, received during the month in which such
liquidation occurred, to the extent applied as recoveries of interest at the
Adjusted Net Mortgage Rate and to principal of the Liquidated Mortgage Loan.
With respect to each Mortgage Loan which has become the subject of a Deficient
Valuation, if the principal amount due under the related Mortgage Note has been
reduced, the difference between the principal balance of the Mortgage Loan
outstanding immediately prior to such Deficient Valuation and the principal
balance of the Mortgage Loan as reduced by the Deficient Valuation. With respect
to each Mortgage Loan which has become the subject of a Debt Service Reduction
and any Distribution Date, the amount, if any, by which the principal portion of
the related Scheduled Payment has been reduced.
"RECOGNITION AGREEMENT" means, with respect to any Cooperative Loan, an
agreement between the Cooperative Corporation and the originator of such
Mortgage Loan which establishes the rights of such originator in the Cooperative
Property.
"REFINANCING MORTGAGE LOAN" means any Mortgage Loan originated in
connection with the refinancing of an existing mortgage loan.
"RELIEF ACT" means the Soldiers' and Sailors' Civil Relief Act of 1940,
as amended.
"RELIEF ACT REDUCTIONS" means, with respect to any Distribution Date and
any Mortgage Loan as to which there has been a reduction in the amount of
interest collectible thereon for the most recently ended calendar month as a
result of the application of the Relief Act, the amount, if any, by which (i)
interest collectible on such Mortgage Loan for the most recently ended calendar
month is less than (ii) interest accrued thereon for such month pursuant to the
Mortgage Note.
"REO PROPERTY" means a Mortgaged Property acquired by the Trust Estate
through foreclosure or deed-in-lieu of foreclosure in connection with a
defaulted Mortgage Loan.
"REPLACEMENT MORTGAGE LOAN" means a Mortgage Loan substituted by the
Master Servicer for a Deleted Mortgage Loan which must, on the date of such
substitution, as confirmed in a Request for Release, substantially in the form
of Exhibit C, (i) have a principal balance, after deduction of the principal
portion of the Scheduled Payment due in the month of substitution, not in excess
of, and not more than __% less than, the Stated Principal Balance of the Deleted
Mortgage Loan; (ii) be accruing interest at a rate no lower than and not more
than __% per annum higher than, that of the Deleted Mortgage Loan; (iii) have a
Loan-to-Value Ratio no higher than that of the Deleted Mortgage Loan; (iv) have
a Mortgage Rate not lower than, and not more than ___% per annum higher than
that of the Deleted Mortgage Loan; (v) have a remaining term to maturity no
greater than (and not more than _______ less than that of the Deleted Mortgage
Loan; and (vi) comply with each representation and warranty set forth in Section
2(d)(ii).
"REQUEST FOR RELEASE" means the Request for Release submitted by the
Master Servicer to the Trustee, substantially in the form of Exhibits C and D,
as appropriate.
"REQUIRED INSURANCE POLICY" means with respect to any Mortgage Loan, any
insurance policy that is required to be maintained from time to time under this
Agreement.
"SAIF" means the Savings Association Insurance Fund, or any successor
thereto.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw-Hill
Inc. If S&P is designated as a Rating Agency in the Indenture, for purposes of
Section 8(c) the address for notices to S&P shall be Standard & Poor's Ratings
Group, 26 Broadway, 15th Floor, New York, New York 10004, Attention: Mortgage
Surveillance Monitoring, or such other address as S&P may hereafter furnish to
the Issuer and the Master Servicer.
"SCHEDULE OF MORTGAGE LOANS" means the schedule attached hereto as
Schedule A listing the Mortgage Loans to be serviced by the Master Servicer
pursuant to this Agreement (as from time to time amended by the Master Servicer
to reflect the addition of Replacement Mortgage Loans and the deletion of
Deleted Mortgage Loans pursuant to the provisions of this Agreement and Section
8.04 of the Indenture) pledged to the Trustee as part of the Trust Estate and
from time to time subject to this Agreement and the Indenture, setting forth the
following information with respect to each Mortgage Loan:
(i) the loan number;
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(ii) the Mortgagor's name and the street address of the Mortgaged
Property, including the zip code;
(iii) the maturity date;
(iv) the original principal balance;
(v) the Cut-off Date Principal Balance;
(vi) the first payment date of the Mortgage Loan;
(vii) the Scheduled Payment in effect as of the Cut-off Date;
(viii) the Loan-to-Value Ratio at origination;
(ix) a code indicating whether the residential dwelling at the time
of origination was represented to be owner-occupied;
(x) a code indicating whether the residential dwelling is either (a)
a detached single family dwelling, (b) a dwelling in a PUD, (c)
a condominium unit, (d) a two- to four-unit residential property
or (e) a Cooperative Unit;
(xi) the Mortgage Rate in effect as of the Cut-off Date;
(xii) the Master Servicing Fee Rate;
(xiii) the Maximum Rate and the Minimum Rate;
(xiv) the Periodic Rate Cap;
(xv) the Adjustment Date;
(xvi) the Margin;
(xvii) the purpose for the Mortgage Loan; and
(xviii) the type of documentation program pursuant to which the Mortgage
Loan was originated.
Such schedule shall also set forth (a) the total of the amounts
described under (v) and (vii) above and (b) the weighted average, weighted on
the basis of the Cut-off Date Principal Balance, of the amounts described under
(xi) and (xii) above, in each case for all of the Mortgage Loans.
"SCHEDULED PAYMENT" means the scheduled [monthly payment] on a Mortgage
Loan due on any Due Date allocable to principal and/or interest on such Mortgage
Loan which, unless otherwise specified herein, shall give effect to any related
Debt Service Reduction and any Deficient Valuation that affects the amount of
the monthly payment due on such Mortgage Loan.
"SECURITY AGREEMENT" means with respect to any Cooperative Loan, the
agreement between the owner of the related Cooperative Shares and the originator
of the related Mortgage Note, which defines the terms of the security interest
in such Cooperative Shares and the related Proprietary Lease.
"SENIOR BOND INTEREST RATE" means, with respect to any Interest Accrual
Period, the annual rate at which interest accrues on the Senior Bonds as
specified in such Bonds in Section 2.03(c) of the Indenture.
"SENIOR BONDS" means the Class A-1 Bonds.
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"SENIOR CLASS PRINCIPAL AMOUNT" means, as of any Distribution Date, the
Original Senior Class Principal Amount reduced by all amounts previously
distributed to Holders of the Senior Bonds as payments of principal.
"SENIOR INTEREST PAYMENT AMOUNT" means, as to any Distribution Date, the
sum of (i) [one month's] interest accrued during the related Interest Accrual
Period at the Senior Bond Interest Rate on the Senior Class Principal Amount,
subject to reduction pursuant to Section 5 and (ii) the sum of the amounts, if
any, by which the amounts described in clause (i) above on each prior
Distribution Date exceeded the amount actually distributed as interest on such
prior Distribution Dates and not subsequently distributed.
"SENIOR PERCENTAGE" means, as to any Distribution Date, the percentage
equivalent of a fraction the numerator of which is the Senior Class Principal
Amount immediately prior to such date and the denominator of which is the sum of
(i) the Senior Class Principal Amount, (ii) the Class B-1 Principal Amount (iii)
the Class B-2 Principal Amount and (iv) the Invested Amount, in each case
immediately prior to such date.
"SENIOR PRINCIPAL PAYMENT AMOUNT" means, as to any Distribution Date,
the Senior Percentage of the sum of (a) the principal portion of each Scheduled
Payment due on each Mortgage Loan [on the related Due Date], (b) the principal
portion of the purchase price of each Mortgage Loan that was purchased by
American Residential or another Person pursuant to the Mortgage Loan Purchase
Agreement [or any optional purchase by the Master Servicer of a defaulted
Mortgage Loan] as of such Distribution Date, (c) the Substitution Adjustment
Amount in connection with any Deleted Mortgage Loans received with respect to
such Distribution Date (d) any Insurance Proceeds or Liquidation Proceeds
allocable to recoveries of principal of Mortgage Loans that are not yet
Liquidated Mortgage Loans received during the [calendar month] preceding the
month of such Distribution Date, (e) with respect to any Mortgage Loans that
became a Liquidated Mortgage Loans during the [calendar month] preceding the
month of such Distribution Date, the Stated Principal Balance of such Mortgage
Loan and (f) all partial and full principal prepayments by borrowers received
during the related Prepayment Period.
"SERVICER" means any person with which the Master Servicer has entered
into a Servicing Agreement for the servicing of all or a portion of the Mortgage
Loans pursuant to Section 3(b).
"SERVICER ADVANCE" means the meaning ascribed to such term in Section
3(h)(iv).
"SERVICING ACCOUNT" means the separate Eligible Account or Accounts
created and maintained pursuant to Section 3(h)(ii).
"SERVICING ADVANCES" means all customary, reasonable and necessary "out
of pocket" costs and expenses incurred in the performance by the Master Servicer
of its servicing obligations, including, but not limited to, the cost of (i) the
preservation, restoration and protection of a Mortgaged Property, (ii) any
expenses reimbursable to the Master Servicer pursuant to Section 3(n) and any
enforcement or judicial proceedings, including foreclosures, (iii) the
management and liquidation of any REO Property and (iv) compliance with the
obligations under Section 3(l).
"SERVICING AGREEMENT" means any agreement between the Master Servicer
and the related Servicer relating to servicing and/or administration of certain
Mortgage Loans as provided in Section 3(b).
"SERVICING DEFAULT" means a servicing default as described under Section
7(a) of this Agreement.
"SERVICING FEE" means, as to each Mortgage Loan and any Distribution
Date, an amount equal to one month's interest at the applicable Servicing Fee
Rate on the Stated Principal Balance of such Mortgage Loan.
"SERVICING FEE RATE" means, with respect to any Mortgage Loan, the per
annum rate set forth in the Schedule of Mortgage Loans for such Mortgage Loan.
"SERVICING OFFICER" means any officer of the Master Servicer involved
in, or responsible for, the administration and servicing of the Mortgage Loan
whose name and facsimile signature appear on a list of servicing officers
furnished to the Trustee by the Master Servicer on the Closing Date pursuant to
this Agreement, as such list may from time to time be amended.
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"STATED PRINCIPAL BALANCE" means, as to any Mortgage Loan and Due Date,
the unpaid principal balance of such Mortgage Loan as of such Due Date as
specified in the amortization schedule at the time relating thereto (before any
adjustment to such amortization schedule by reason of any moratorium or similar
waiver or grace period) after giving effect to any previous partial Principal
Prepayments and Liquidation Proceeds allocable to principal (other than with
respect to any Liquidated Mortgage Loan) and to the payment of principal due on
such Due Date and irrespective of any delinquency in payment by the related
Mortgagor.
"SUBORDINATED BONDS" means the Class B-1 Bonds and the Class B-2 Bonds.
"SUBSTITUTION ADJUSTMENT AMOUNT" has the meaning ascribed to such term
pursuant to Section 2(d)(iv).
"TRUST ESTATE" shall have the meaning ascribed to such term in the
Indenture.
"TRUSTEE FEE" means, as to any Distribution Date, the fee payable to the
Trustee pursuant to Section 6.07(1) of the Indenture, in an amount equal to
one-twelfth of the Trustee Fee Rate multiplied by the Pool Stated Principal
Balance with respect to such Distribution Date.
"TRUSTEE FEE RATE" means, with respect to each Mortgage Loan, the per
annum rate agreed upon in writing on or prior to the Closing Date by the Trustee
and the Issuer.
"TRUSTEE MORTGAGE FILE" means, with respect to each Mortgage Loan, the
original documents and instruments relating thereto to be retained in the
custody and possession of the Trustee, as set forth and enumerated in Section
2(a) of this Agreement.
"WITHDRAWAL DATE" means the __th day of each month, or if such day is
not a Business Day, the next preceding Business Day.
2. Mortgage Documents.
(a) Trustee to Retain Possession of Documents.
(i) Concurrently with the execution and delivery hereof, the
Issuer has pledged, transferred and assigned to the Trustee for the benefit of
the Bondholders, as collateral for the payment of principal and interest on the
Bonds, all right, title and interest of the Issuer in and to the Trust Estate
for the Bonds, including the Mortgage Loans. Prior to or contemporaneous with
the execution of this Agreement, or within the applicable time periods specified
below, the Issuer shall have delivered or caused to be delivered to the Trustee,
or its custodian, with respect to each Mortgage Loan all originals of the
Mortgage Documents and any other instruments relating thereto specified below,
which shall be referred to in this Agreement as the "Trustee Mortgage File"
relating to such Mortgage Loan:
(A) the original Mortgage Note, endorsed by manual or
facsimile signature in blank in the following form: "Pay to the
order of ________________________________ without recourse", with
all intervening endorsements showing a complete chain of
endorsement from the originator to the Person endorsing it to the
Trustee (each such endorsement being sufficient to transfer all
right, title and interest of the party so endorsing, as
noteholder or assignee thereof, in and to that Mortgage Note);
(B) except as provided below, the original recorded
Mortgage or a copy of such Mortgage certified by the Master
Servicer as being a true and complete copy of the Mortgage;
(C) a duly executed assignment of the Mortgage (which may
be included in a blanket assignment or assignments), together
with, except as provided below, all interim recorded assignments
of such mortgage (each such assignment, when duly and validly
completed, to be in recordable form and sufficient to effect the
assignment of and transfer to the assignee thereof, under the
Mortgage to which the assignment relates); provided that, if the
related Mortgage has not been returned from the applicable public
recording office, such assignment of the Mortgage may exclude the
information to be provided by the recording office;
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(D) the original or copies of each assumption,
modification, written assurance or substitution agreement, if
any;
(E) except as provided below, the original or duplicate
original lender's title policy and all riders thereto; and
(F) In the case of a Cooperative Loan, the originals of
the following documents or instruments:
(a) The Cooperative Shares, together with a
stock power in blank;
(b) The executed Security Agreement;
(c) The executed Proprietary Lease;
(d) The executed Recognition Agreement;
(e) The executed assignment of Recognition
Agreement;
(f) The executed UCC-1 financing statement
with evidence of recording thereon which have been
filed in all places required to perfect the
Trustee's and the Bondholder's interest in the
Cooperative Shares and the Proprietary Lease; and
(g) Executed UCC-3 financing statements or
other appropriate UCC financing statements required
by state law, evidencing a complete and unbroken
line from the mortgagee to the Trustee with
evidence of recording thereon (or in a form
suitable for recordation).
In the event that in connection with any Mortgage Loan the Issuer cannot
deliver (i) the original recorded Mortgage, (ii) all interim recorded
assignments or (iii) the lender's title policy (together with all riders
thereto) satisfying the requirements of clause (B), (C) or (E) above,
respectively, concurrently with the execution and delivery hereof because such
document or documents have not been returned from the applicable public
recording office in the case of clause (B) or (C) above, or because the title
policy has not been delivered to either the Master Servicer or the Issuer by the
applicable title insurer in the case of clause (E) above, the Issuer shall
promptly deliver to the Trustee, in the case of clause (B) or (C) above, such
original Mortgage or such interim assignment, as the case may be, with evidence
of recording indicated thereon upon receipt thereof from the public recording
office, or a copy thereof, certified, if appropriate, by the relevant recording
office, but in no event shall any such delivery of the original Mortgage Loan
and each such interim assignment or a copy thereof, certified, if appropriate,
by the relevant recording office, be made later than one year following the
Closing Date, or, in the case of clause (E) above, later than 120 days following
the Closing Date; provided, however, that in the event the Issuer is unable to
deliver by such date each Mortgage and each such interim assignment by reason of
the fact that any such documents have not been returned by the appropriate
recording office, or, in the case of each such interim assignment, because the
related Mortgage has not been returned by the appropriate recording office, the
Issuer shall deliver such documents to the Trustee as promptly as possible upon
receipt thereof and, in any event, within ___ days following the Closing Date.
The Issuer shall forward or cause to be forwarded to the Trustee (a) from time
to time additional original documents evidencing an assumption or modification
of a Mortgage Loan and (b) any other documents required to be delivered by the
Issuer or the Master Servicer to the Trustee. In the event that the original
Mortgage is not delivered and in connection with the payment in full of the
related Mortgage Loan the public recording office requires the presentation of a
"lost instruments affidavit and indemnity" or any equivalent document, because
only a copy of the Mortgage can be delivered with the instrument of satisfaction
or reconveyance, the Master Servicer shall execute and deliver or cause to be
executed and delivered such a document to the public recording office. In the
case where a public recording office retains the original recorded Mortgage or
in the case where a Mortgage is lost after recordation in a public recording
office, the Issuer shall deliver to the Trustee a copy of such Mortgage
certified by such public recording office to be a true and complete copy of the
original recorded Mortgage.
As promptly as practicable subsequent to such pledge, transfer and
assignment, and in any event within thirty (30) days thereafter, the Master
Servicer shall (i) affix the Trustee's name to each assignment of Mortgage, as
the assignee thereof, (ii) cause such assignment to be in proper form for
recording in the appropriate public office for real property records within
thirty (30) days after receipt thereof and (iii) cause to be delivered for
recording in the appropriate public office for real property records the
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assignments of the Mortgages to the Trustee, except that, with respect to any
assignment of a Mortgage as to which the Master Servicer has not received the
information required to prepare such assignment in recordable form, the Master
Servicer's obligation to do so and to deliver the same for such recording shall
be as soon as practicable after receipt of such information and in any event
within thirty (30) days after the receipt thereof, and the Master Servicer need
not cause to be recorded any assignment which relates to a Mortgage Loan (a) the
Mortgaged Property and Trustee Mortgage File relating to which are located in
California or (b) in any other jurisdiction under the laws of which, as
evidenced by an Opinion of Counsel delivered by the Issuer (at the Issuer's
expense) to the Trustee in accordance with Section 3.11 of the Indenture, the
recordation of such assignment is not necessary to protect the Trustee's and the
Bondholders' interest in the related Mortgage Loan.
In the case of Mortgage Loans that have been prepaid in full as of the
Closing Date, the Issuer, in lieu of delivering the above documents to the
Trustee, will deposit in the Bond Account the portion of such payment that is
required to be deposited in the Bond Account pursuant to Section 3(h).
Until the Bonds have been paid in full and the Issuer has otherwise
fulfilled its obligations under the Indenture, the Trustee shall retain
possession and custody of each Trustee Mortgage File in accordance with and
subject to the terms and conditions set forth in the Indenture and this
Agreement.
(ii) The Trustee acknowledges receipt of the documents identified
in the Initial Certification in the form annexed hereto as Exhibit A and
declares that it holds and will hold such documents and the other documents
delivered to it constituting the Trustee Mortgage Files, and that it holds or
will hold such other assets as are included in the Trust Estate, in trust for
the exclusive use and benefit of all present and future Bondholders. The Trustee
acknowledges that it will maintain possession of the Mortgage Notes in the State
of _______________, unless otherwise permitted by the Rating Agencies.
The Trustee agrees to execute and deliver on the Closing Date to the
Issuer and the Master Servicer an Initial Certification in the form annexed
hereto as Exhibit A. Based on its review and examination required by and in
accordance with Sections 6.16 and 8.04 of the Indenture, and only as to the
documents identified in such Initial Certification, the Trustee acknowledges
that such documents appear regular on their face and relate to such Mortgage
Loan; provided that the Trustee shall be under no obligation to ascertain that,
except the information set forth in items (i) through (iv) and (vi) of the
Schedule of Mortgage Loans, any information set forth in said schedule is
accurate. The Trustee shall be under no duty or obligation to inspect, review or
examine said documents, instruments, certificates or other papers to determine
that the same are genuine, enforceable or appropriate for the represented
purpose or that they have actually been recorded in the real estate records or
that they are other than what they purport to be on their face.
Not later than 90 days after the Closing Date, the Trustee shall deliver
to the Issuer and the Master Servicer a Final Certification in the form annexed
hereto as Exhibit B, with any applicable exceptions noted thereon.
If, in the course of such review, the Trustee finds any document
constituting a part of a Trustee Mortgage File which does not meet the
requirements of Section 2(a)(i), the Trustee shall list such as an exception in
the Final Certification; provided, however, that the Trustee shall not make any
determination as to whether (i) any endorsement is sufficient to transfer all
right, title and interest of the party so endorsing, as noteholder or assignee
thereof, in and to that Mortgage Note or (ii) that any assignment is in
recordable form or is sufficient to effect the assignment of and transfer to the
assignee thereof under the mortgage to which the assignment relates. [American
Residential] shall promptly correct or cure such defect within 90 days from the
date it was so notified of such defect and, if [American Residential] does not
correct or cure such defect within such period, [American Residential] shall
either (a) substitute for the related Mortgage Loan a Replacement Mortgage Loan,
which substitution shall be accomplished in the manner and subject to the
conditions set forth in Section 2(d)(iv), or (b) purchase such Mortgage Loan
from the Trustee within 90 days from the date [American Residential] was
notified of such defect in writing at the Purchase Price of such Mortgage Loan.
Any such substitution pursuant to (a) above shall not be effected prior to the
delivery to the Trustee of a Request for Release substantially in the form of
Exhibit D. No substitution is permitted to be made in any calendar month after
the Determination Date for such month. The Purchase Price for any such Mortgage
Loan shall be deposited by [American Residential] in the Bond Account on or
prior to the Distribution Account Report Date in the month following the month
of purchase and, upon receipt of such deposit and certification with respect
thereto in the form of Exhibit D hereto, the Trustee shall release the related
Trustee Mortgage File to [American Residential] and shall execute and deliver at
[American Residential]'s request such instruments of transfer or assignment
prepared by [American Residential], in each case without recourse, as shall be
necessary to vest in [American Residential], or a designee, the Trustee's
interest in any Mortgage Loan released pursuant hereto.
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The Trustee shall retain possession and custody of each Trustee Mortgage
File in accordance with and subject to the terms and conditions set forth
herein. [American Residential] shall promptly deliver to the Trustee, upon the
execution or receipt thereof, the originals of such other documents or
instruments constituting the Trustee Mortgage File as come into the possession
of [American Residential] from time to time.
It is understood and agreed that the obligation of [American
Residential] to substitute for or to purchase any Mortgage Loan which does not
meet the requirements of Section 2(a)(i) shall constitute the sole remedy
respecting such defect available to the Trustee and any Bondholder against
[American Residential].
(b) Trustee to Cooperate; Release of Trustee Mortgage Files.
Upon the payment in full of any Mortgage Loan, or the receipt by the
Master Servicer of a notification that payment in full will be escrowed in a
manner customary for such purposes, the Master Servicer will immediately notify
the Trustee by delivering, or causing to be delivered, a "Request for Release"
substantially in the form of Exhibit D, all in accordance with Section 8.08(c)
of the Indenture. Upon receipt of such request, the Trustee shall promptly
release the related Trustee Mortgage File to the Master Servicer, and the
Trustee shall at the Master Servicer's direction execute and deliver to the
Master Servicer the request for reconveyance, deed of reconveyance or release or
satisfaction of mortgage or such instrument releasing the lien of the Mortgage
in each case provided by the Master Servicer, together with the Mortgage Note
with written evidence of cancellation thereon, all in accordance with Section
8.08(c) of the Indenture. Expenses incurred in connection with any instrument of
satisfaction or deed of reconveyance shall be chargeable to the related
Mortgagor. From time to time and as shall be appropriate for the servicing or
foreclosure of any Mortgage Loan, including for such purpose collection under
any policy of flood insurance, any fidelity bond or errors or omissions policy,
or for the purposes of effecting a partial release of any Mortgaged Property
from the lien of the Mortgage or the making of any corrections to the Mortgage
Note or the Mortgage or any of the other documents included in the Trustee
Mortgage File, the Trustee shall, upon delivery to the Trustee in accordance
with Section 8.08(c) of the Indenture of a Request for Release in the form of
Exhibit C signed by a Servicing Officer, release the Trustee Mortgage File to
the Master Servicer or, at the Master Servicer's direction, to the related
Servicer. Subject to the further limitations set forth below, the Master
Servicer shall cause the Trustee Mortgage File or documents so released to be
returned to the Trustee when the need therefor by the Master Servicer no longer
exists, unless the Mortgage Loan is liquidated and the proceeds thereof are
deposited in the Bond Account, in which case the Master Servicer shall deliver
to the Trustee a Request for Release in the form of Exhibit D, signed by a
Servicing Officer.
If the Master Servicer at any time seeks to initiate a foreclosure
proceeding in respect of any Mortgaged Property as authorized by this Agreement,
the Master Servicer shall deliver or cause to be delivered to the Trustee, for
signature, as appropriate, any court pleadings, requests for trustee's sale or
other documents necessary to effectuate such foreclosure or any legal action
brought to obtain judgment against the Mortgagor on the Mortgage Note or the
Mortgage or to obtain a deficiency judgment or to enforce any other remedies or
rights provided by the Mortgage Note or the Mortgage or otherwise available at
law or in equity.
(c) Documents, Records and Funds in Possession of Master Servicer to be
Held for Trustee.
(i) Notwithstanding any other provisions of this Agreement, the
Master Servicer shall deliver to the Trustee as required by this Agreement and
the Indenture all documents and instruments relating to the Mortgage Loans
coming into the possession of the Master Servicer from time to time and shall
account fully to the Trustee for any funds received by the Master Servicer or
which otherwise are collected by the Master Servicer as Liquidation Proceeds or
Insurance Proceeds in respect of any Mortgage Loan. All Trustee Mortgage Files,
including without limitation the Mortgage Documents contained therein, funds
collected or held by, or under the control of, the Master Servicer from time to
time in respect of any Mortgage Loans, whether from the collection of principal
and interest payments or from Liquidation Proceeds or Insurance Proceeds,
including but not limited to any funds on deposit in any Eligible Account and
any other items constituting a part of the Trust Estate which from time to time
come into the possession of the Master Servicer, shall be held by the Master
Servicer for and on behalf of the Trustee and the Bondholders as specified in
Section 8.10 of the Indenture, and shall be and remain the sole and exclusive
property of the Trustee, subject to the applicable provisions of this Agreement
and the Indenture. The Master Servicer also agrees that it shall not create,
incur or subject any Trustee Mortgage File, Mortgage Documents or other
documents relating to a Mortgage Loan which are in the possession of the Master
Servicer with respect to each Mortgage Loan (each a "Master Servicer Mortgage
File") or any funds that are deposited in the Distribution Account, the Bond
Account, any Eligible Account, Servicing Account or Escrow Account, or any funds
that otherwise are or may become due or payable to the Trustee for the benefit
of the Bondholders, to any claim, lien, security interest, judgment, levy, writ
of attachment or other encumbrance, or assert by legal action or otherwise any
claim or right of set-off against any Master
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Servicer Mortgage File or Trustee Mortgage File or any funds collected or held
by, or under the control of, the Master Servicer from time to time in respect of
a Mortgage Loan; provided, however, that the Master Servicer shall be entitled
to set-off against and deduct from any such funds any amounts that are properly
due and payable to the Master Servicer under this Agreement.
(ii) The Master Servicer hereby acknowledges that concurrently
with the execution of this Agreement, the Trustee has acquired and holds a
security interest in the Trustee Mortgage Files and in all Mortgage Loans
represented by such Master Servicer Mortgage Files and Trustee Mortgage Files
and in all funds now or hereafter held by, or under the control of, the Master
Servicer that are collected by the Master Servicer in connection with the
Mortgage Loans, whether as Scheduled Payments, as Principal Prepayments, or as
Liquidation Proceeds or Insurance Proceeds, and in all proceeds of the foregoing
and proceeds of proceeds (but excluding any Master Servicing Fees, [Servicing
Fees], Trustee Fees and any other amounts or reimbursements to which the Master
Servicer is entitled under this Agreement). The Master Servicer agrees that so
long as the Mortgage Loans are assigned to the Trustee, all Master Servicer
Mortgage Files and Trustee Mortgage Files (and any documents or instruments
constituting a part of such files), and such funds which come into the
possession or custody of, or which are subject to the control of, the Master
Servicer shall be held by the Master Servicer for and on behalf of the Trustee
as the Trustee's agent and bailee for purposes of perfecting the Trustee's
security interest therein, as provided by Section 9-305 of the Uniform
Commercial Code of the state in which such property is located, or by other
laws, as specified in Section 8.10 of the Indenture. The Master Servicer hereby
accepts such agency and acknowledges that the Trustee, as secured party, will be
deemed to have possession at all times of all Master Servicer Mortgage Files,
Trustee Mortgage Files and any other documents or instruments constituting a
part of such files, such funds and other items for purposes of Section 9-305 of
the Uniform Commercial Code of the state in which such property is held by the
Master Servicer.
(d) Representations, Warranties and Covenants of the Issuer and the
Master Servicer.
(i) ________________________, in its capacity as Master Servicer,
hereby makes the representations and warranties set forth in Schedule II hereto,
and by this reference incorporated herein, to the Issuer and the Trustee, as of
the Closing Date, or if so specified therein, as of the Cut-off Date.
(ii) [American Residential] in its capacity as [Seller], has made
the representations and warranties set forth in Schedule III hereto, and such
representations and warranties, and the obligations associated therewith, have
been assigned to the Issuer and the Trustee, and by this reference are hereby
incorporated herein, as of the Closing Date, or if so specified therein, as of
the Cut-off Date.
(iii) The Issuer hereby makes the representations and warranties
set forth in Schedule IV hereto, and by this reference incorporated herein, to
the Trustee and the Master Servicer, as of the Closing Date.
(iv) Upon discovery by any of the parties hereto of a breach of a
representation or warranty made pursuant to Section 2(d)(ii) that materially and
adversely affects the interests of the Bondholders in any Mortgage Loan, the
party discovering such breach shall give prompt notice thereof to the other
parties. [American Residential] hereby covenants that within 90 days of the
earlier of its discovery or its receipt of written notice from any party of a
breach of any representation or warranty made pursuant to Section 2(d)(ii) which
materially and adversely affects the interests of the Bondholders, in any
Mortgage Loan, it shall cure such breach in all material respects, and if such
breach is not so cured, shall, (i) remove such Mortgage Loan (a "Deleted
Mortgage Loan") from the Trust Estate and substitute in its place a Replacement
Mortgage Loan, in the manner and subject to the conditions set forth in this
Section 2(d); or (ii) purchase the affected Mortgage Loan or Mortgage Loans from
the Trustee at the Purchase Price in the manner set forth below; provided,
however, that any such substitution pursuant to (i) above shall not be effected
prior to the delivery to the Trustee of a Request for Release substantially in
the form of Exhibit D, and the Trustee Mortgage File for any such Replacement
Mortgage Loan. The Issuer shall promptly reimburse the Master Servicer and the
Trustee for any expenses reasonably incurred by the Master Servicer or the
Trustee in respect of enforcing the remedies for such breach. With respect to
the representations and warranties described in this Section 2(d) which are made
to the best of the Issuer's knowledge, if it is discovered by either the Issuer
or the Trustee that the substance of such representation and warranty is
inaccurate and such inaccuracy materially and adversely affects the interests of
the Bondholders therein, notwithstanding the Issuer's lack of knowledge with
respect to the substance of such representation or warranty, such inaccuracy
shall be deemed a breach of the applicable representation or warranty.
With respect to any Replacement Mortgage Loan or Mortgages, the Issuer
shall deliver to the Trustee for the benefit of the Bondholders the Mortgage
Note, the Mortgage, the related assignment of the Mortgage, and such other
documents and agreements as
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<PAGE> 23
are required by Section 2(a), with the Mortgage Note endorsed and the Mortgage
assigned as required by Section 2(a). No substitution is permitted to be made in
any calendar month after the Determination Date for such month. Scheduled
Payments due with respect to Replacement Mortgage Loans in the month of
substitution shall not be part of the Trust Estate and will be retained by
[American Residential] on the next succeeding Distribution Date. For the month
of substitution, Available Funds will include the monthly payment due on any
Deleted Mortgage Loan for such month and thereafter [American Residential] shall
be entitled to retain all amounts received in respect of such Deleted Mortgage
Loan.
The Master Servicer shall amend the Schedule of Mortgage Loans for the
benefit of the Bondholders to reflect the removal of such Deleted Mortgage Loan
or Mortgages and the substitution of the Replacement Mortgage Loan or Mortgages
and the Master Servicer shall deliver the amended Schedule of Mortgage Loans to
the Trustee. Upon such substitution, the Replacement Mortgage Loan or Mortgages
shall be subject to the terms of this Agreement in all respects, and [American
Residential] shall be deemed to have made with respect to such Replacement
Mortgage Loan or Mortgages, as of the date of substitution, the representations
and warranties made pursuant to Section 2(d)(ii) with respect to such Mortgage
Loan or Mortgages. Upon any such substitution and the deposit to the Bond
Account of the amount required to be deposited therein in connection with such
substitution as described in the following paragraph, the Trustee shall release
the Trustee Mortgage File held for the benefit of the Bondholders relating to
such Deleted Mortgage Loan or Mortgages to [American Residential] and shall
execute and deliver at the [American Residential's] direction such instruments
of transfer or assignment prepared by [American Residential], in each case
without recourse, as shall be necessary to vest title in [American Residential],
or its designee, the Trustee's interest in any Deleted Mortgage Loan or
Mortgages substituted for pursuant to this Section 2(d).
For any month in which [American Residential] substitutes one or more
Replacement Mortgage Loans for one or more Deleted Mortgage Loans, [American
Residential] will determine the amount (if any) by which the aggregate principal
balance of all such Replacement Mortgage Loans as of the date of substitution is
less than the aggregate Stated Principal Balance of all such Deleted Mortgage
Loans (after application of the scheduled principal portion of the monthly
payments due in the month of substitution). The amount of such shortage (the
"Substitution Adjustment Amount") shall be deposited into the Bond Account by
[American Residential] on or before the Distribution Account Deposit Date for
the Distribution Date in the month succeeding the calendar month during which
the related Mortgage Loan became required to be purchased or replaced hereunder.
In the event that [American Residential] shall have purchased a Mortgage
Loan, the Purchase Price therefor shall be deposited in the Bond Account
pursuant to Section 3(h) and in compliance with the provisions of Section 8.04
of the Indenture on or before the Distribution Account Deposit Date for the
Distribution Date in the month following the month during which [American
Residential] became obligated hereunder to purchase or replace such Mortgage
Loan and upon such deposit of the Purchase Price and receipt of a Request for
Release in the form of Exhibit D hereto, the Trustee shall release the related
Trustee Mortgage File held for the benefit of the Bondholders to such Person,
and the Trustee shall execute and deliver at such Person's direction such
instruments of transfer or assignment prepared by such Person, in each case
without recourse, as shall be necessary to transfer title from the Trustee
pursuant to Sections 8.08(c) and 8.12 of the Indenture. It is understood and
agreed that the obligation under this Agreement of any Person to cure, purchase
or replace any Mortgage Loan as to which a breach has occurred and is continuing
shall constitute the sole remedy against such Persons respecting such breach
available to Bondholders or the Trustee on their behalf.
The representations and warranties made pursuant to this Section 2(d)
shall survive delivery of the respective Trustee Mortgage Files to the Trustee
for the benefit of the Bondholders.
(e) Covenants of the Master Servicer.
The Master Servicer hereby covenants to the Issuer and the Trustee as
follows:
(i) the Master Servicer shall comply in the performance of its
obligations under this Agreement with all reasonable rules and requirements of
the insurer under each Required Insurance Policy; and
(ii) no written information, certificate of an officer, statement
furnished in writing or written report delivered to the Issuer, any affiliate of
the Issuer or the Trustee and prepared by the Master Servicer pursuant to this
Agreement will contain any untrue statement of a material fact or omit to state
a material fact necessary to make such information, certificate, statement or
report not misleading.
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3. General Duties of the Master Servicer.
The parties agree that, subject to the provisions of Section 7 hereof,
the Master Servicer shall service the Mortgage Loans in the manner and on the
terms and conditions set forth below:
(a) Master Servicer to Service Mortgage Loans.
For and on behalf of the Issuer, the Trustee and the Bondholders, the
Master Servicer shall service and administer the Mortgage Loans in accordance
with the terms of this Agreement and customary and usual standards of practice
of prudent mortgage loan servicers. In connection with such servicing and
administration, the Master Servicer shall have full power and authority, acting
alone and/or through Servicers as provided in Section 3(b), to do or cause to be
done any and all things that it may deem necessary or desirable in connection
with such servicing and administration, including but not limited to, the power
and authority, subject to the terms hereof, (i) to execute and deliver, on
behalf of the Bondholders and the Trustee, customary consents or waivers and
other instruments and documents, (ii) to consent to transfers of any Mortgaged
Property and assumptions of the Mortgage Notes and related Mortgages (but only
in the manner provided in this Agreement), (iii) to collect any Insurance
Proceeds and other Liquidation Proceeds, and (iv) to effectuate foreclosure or
other conversion of the ownership of the Mortgaged Property securing any
Mortgage Loan; provided that the Master Servicer shall not take, or permit any
Servicer to take, any action that is inconsistent with or prejudices the
interests of the Trustee or the Bondholders in any Mortgage Loan or the rights
and interests of the Issuer, the Trustee and the Bondholders under this
Agreement. The Master Servicer shall represent and protect the interests of the
Trustee in the same manner as it protects its own interests in mortgage loans in
its own portfolio in any claim, proceeding or litigation regarding a Mortgage
Loan. Without limiting the generality of the foregoing, the Master Servicer, in
its own name or in the name of any Servicer or the Issuer and the Trustee, is
hereby authorized and empowered by the Issuer and the Trustee, when the Master
Servicer or the Servicer, as the case may be, believes it appropriate in its
reasonable judgment, to execute and deliver, on behalf of the Trustee, the
Issuer, the Bondholders or any of them, any and all instruments of satisfaction
or cancellation, or of partial or full release or discharge, and all other
comparable instruments, with respect to the Mortgage Loans and with respect to
the Mortgaged Properties held for the benefit of the Trustee and the
Bondholders. The Master Servicer shall prepare and deliver to the Issuer and/or
the Trustee such documents requiring execution and delivery by either or both of
them as are necessary or appropriate to enable the Master Servicer to service
and administer the Mortgage Loans to the extent that the Master Servicer is not
permitted to execute and deliver such documents pursuant to the preceding
sentence. Upon receipt of such documents, the Issuer and/or the Trustee shall
execute such documents and deliver them to the Master Servicer.
In accordance with the standards of the preceding paragraph, the Master
Servicer shall advance or cause to be advanced funds as necessary for the
purpose of effecting the payment of taxes and assessments on the Mortgaged
Properties, which advances shall be reimbursable in the first instance from
related collections from the Mortgagors pursuant to Section 3(i), and further as
provided in Section 3(k). The costs incurred by the Master Servicer, if any, in
effecting the timely payments of taxes and assessments on the Mortgaged
Properties and related insurance premiums shall not, for the purpose of
calculating payments to the Bondholders, be added to the Stated Principal
Balances of the related Mortgage Loans, notwithstanding that the terms of such
Mortgage Loans so permit.
(b) Subservicing; Enforcement of the Obligations of Servicers.
(i) The Master Servicer may arrange for the servicing of any
Mortgage Loan by a Servicer pursuant to a Servicing Agreement; provided,
however, that such servicing arrangement and the terms of the related Servicing
Agreement must provide for the servicing of such Mortgage Loans in a manner
consistent with the servicing arrangements contemplated hereunder. Each Servicer
of a Mortgage Loan shall be entitled to receive and retain, as provided in the
related Servicing Agreement and in Section 5(a), the related Servicing Fee from
payments of interest received on such Mortgage Loan after payment of all amounts
required to be remitted to the Master Servicer in respect of such Mortgage Loan.
Unless the context otherwise requires, references in this Agreement to actions
taken or to be taken by the Master Servicer in servicing the Mortgage Loans
include actions taken or to be taken by a Servicer on behalf of the Master
Servicer. With the approval of the Master Servicer, a Servicer may delegate its
servicing obligations to third-party servicers, but such Servicer will remain
obligated under the related Servicing Agreement. The Master Servicer and
Servicer may enter into amendments to the related Servicing Agreement or a
different form of Servicing Agreement; provided, however, that any such
amendments or different forms shall be consistent with and not violate the
provisions of this Agreement in a manner which would materially and adversely
affect the interests of the Trustee and the Bondholders.
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(ii) For purposes of this Agreement, the Master Servicer shall be
deemed to have received any collections, recoveries or payments with respect to
the Mortgage Loans that are received by a Servicer regardless of whether such
payments are remitted by the Servicer to the Master Servicer.
(iii) As part of its servicing activities hereunder, the Master
Servicer, for the benefit of the Trustee and the Bondholders, shall use its best
reasonable efforts to enforce the obligations of each Servicer under the related
Servicing Agreement, to the extent that the non-performance of any such
obligation would have material and adverse effect on a Mortgage Loan. Such
enforcement, including, without limitation, the legal prosecution of claims,
termination of Servicing Agreements and the pursuit of other appropriate
remedies, shall be in such form and carried out to such an extent and at such
time as the Master Servicer, in its good faith business judgment, would require
were it the owner of the related Mortgage Loans. The Master Servicer shall pay
the costs of such enforcement at its own expense, and shall be reimbursed
therefor only (i) from a general recovery resulting from such enforcement to the
extent, if any, that such recovery exceeds all amounts due in respect of the
related Mortgage Loan or (ii) from a specific recovery of costs, expenses or
attorneys fees against the party against whom such enforcement is directed.
(c) Successor Servicers.
The Master Servicer shall be entitled to terminate any Servicing
Agreement that may exist in accordance with the terms and conditions of such
Servicing Agreement and without any limitation by virtue of this Agreement;
provided, however, that in the event of termination of any Servicing Agreement
by the Master Servicer or the Servicer, the Master Servicer shall either act as
servicer of the related Mortgage Loan or enter into a Servicing Agreement with a
successor Servicer which will be bound by the terms of the related Servicing
Agreement. If the Master Servicer or any affiliate of the Master Servicer acts
as servicer, it will not assume liability for the representations and warranties
of the Servicer which it replaces. If the Master Servicer enters into a
Servicing Agreement with a successor Servicer, the Master Servicer shall use
reasonable efforts to have the successor Servicer assume liability for the
representations and warranties made by the terminated Servicer in respect of the
related Mortgage Loans and, in the event of any such assumption by the successor
Servicer, the Master Servicer may, in the exercise of its business judgment,
release the terminated Servicer from liability for such representations and
warranties.
(d) Liability of the Master Servicer.
Notwithstanding any Servicing Agreement, any of the provisions of this
Agreement relating to agreements or arrangements between the Master Servicer or
a Servicer or references to actions taken through a Servicer or otherwise, the
Master Servicer shall remain obligated and liable to the Trustee and Bondholders
for the servicing and administering of the Mortgage Loans in accordance with the
provisions of Section 3(a) without diminution of such obligation or liability by
virtue of such Servicing Agreements or arrangements or by virtue of
indemnification from the Servicer and to the same extent and under the same
terms and conditions as if the Master Servicer alone were servicing and
administering the Mortgage Loans. The Master Servicer shall be entitled to enter
into any agreement with a Servicer for indemnification of the Master Servicer
and nothing contained in this Agreement shall be deemed to limit or modify such
indemnification.
(e) No Contractual Relationship Between Servicers and the Trustee.
Any Servicing Agreement that may be entered into and any other
transactions or services relating to the Mortgage Loans involving a Servicer in
its capacity as such and not as an originator shall be deemed to be between the
Servicer and the Master Servicer alone and the Trustee and Bondholders shall not
be deemed parties thereto and shall have no claims, rights, obligations, duties
or liabilities with respect to the Servicer in its capacity as such except as
set forth in Section 3(g).
(f) Rights of the Issuer and the Trustee in Respect of the Master
Servicer.
The Issuer may, but is not obligated to, enforce the obligations of the
Master Servicer hereunder and may, but is not obligated to, perform, or cause a
designee to perform, any defaulted obligation of the Master Servicer hereunder
and in connection with any such defaulted obligation to exercise the related
rights of the Master Servicer hereunder; provided that the Master Servicer shall
not be relieved of any of its obligations hereunder by virtue of such
performance by the Issuer or its designee. Neither the Trustee nor the Issuer
shall have any responsibility or liability for any action or failure to act by
the Master Servicer nor shall the Trustee or the Issuer be obligated to
supervise the performance of the Master Servicer hereunder or otherwise.
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(g) Trustee to Act as Master Servicer.
In the event that the Master Servicer shall for any reason no longer be
the Master Servicer hereunder (including by reason of a Servicing Default), the
Trustee or its successor shall thereupon assume all of the rights and
obligations of the Master Servicer hereunder arising thereafter, except that the
Trustee shall not be (i) liable for losses of the Master Servicer pursuant to
Section 3(l) or any acts or omissions of the predecessor Master Servicer
hereunder, (ii) obligated to make Advances if it is prohibited from doing so by
applicable law, (iii) obligated to effectuate purchases or substitutions of
Mortgage Loans hereunder, including but not limited to purchases or
substitutions pursuant to Section 2(a)(ii) or 2(d)(iv), (iv) responsible for
expenses of the Master Servicer pursuant to Section 2(d)(iv) or (v) deemed to
have made any representations and warranties of the Master Servicer hereunder.
Any such assumption shall be subject to Section 7(b). If the Master Servicer
shall for any reason no longer be the Master Servicer (including by reason of
any Servicing Default), the Trustee or its successor shall succeed to any rights
of the Master Servicer under each Servicing Agreement and any obligations of the
Master Servicer under each Servicing Agreement arising thereafter. The Trustee
or the successor Master Servicer shall be deemed to have assumed all of the
Master Servicer's interest therein and to have replaced the Master Servicer as a
party to any Servicing Agreement entered into by the Master Servicer as
contemplated by Section 3(b) to the same extent as if such Servicing Agreement
had been assigned to the assuming party except that the Master Servicer shall
not be relieved of any liability or obligations under any such Servicing
Agreement.
The Master Servicer shall, upon request of the Trustee, but at the
expense of the Master Servicer, deliver to the assuming party all documents and
records relating to each Servicing Agreement or substitute servicing agreement
and the Mortgage Loans then being serviced thereunder and an accounting of
amounts collected or held by it and otherwise use its best efforts to effect the
orderly and efficient transfer of the substitute Servicing Agreement to the
assuming party.
(h) Collection of Mortgage Loan Payments; Eligible Accounts; Servicing
Accounts; Bond Account.
(i) The Master Servicer shall make reasonable efforts in
accordance with the customary and usual standards of practice of prudent
mortgage servicers to collect all payments called for under the terms and
provisions of the Mortgage Loans to the extent such procedures shall be
consistent with this Agreement and the terms and provisions of any related
Required Insurance Policy. Consistent with the foregoing, the Master Servicer
may in its discretion (i) waive any late payment charge or any prepayment charge
or penalty interest in connection with the prepayment of a Mortgage Loan and
(ii) extend the due dates for payments due on a Mortgage Note for a period not
greater than 120 days; provided, however, that the Master Servicer cannot extend
the maturity of any such Mortgage Loan past the date on which the final payment
is due on the latest maturing Mortgage Loan as of the Cut-off Date. In the event
of any such arrangement, the Master Servicer shall make Advances on the related
Mortgage Loan in accordance with the provisions of Section 4 during the
scheduled period in accordance with the amortization schedule of such Mortgage
Loan without modification thereof by reason of such arrangements. The Master
Servicer shall not be required to institute or join in litigation with respect
to collection of any payment (whether under a Mortgage, Mortgage Note or
otherwise or against any public or governmental authority with respect to a
taking or condemnation) if it reasonably believes that enforcing the provision
of the Mortgage or other instrument pursuant to which such payment is required
is prohibited by applicable law.
(ii) In those cases where a Servicer is servicing Mortgage Loans
pursuant to a Servicing Agreement, the Master Servicer shall cause each
Servicer, pursuant to the respective Servicing Agreement, to establish and
maintain one or more Servicing Accounts, each of which shall be an Eligible
Account. The Servicer will be required under its Servicing Agreement to deposit
into the Servicing Account on a daily basis no later than the Business Day
following receipt all proceeds of Mortgage Loans received by the Servicer, less
its Servicing Fees and unreimbursed Servicer Advances and expenses, to the
extent permitted by the Servicing Agreement. The Servicer shall not be required
to deposit in the Servicing Account payments or collections in the nature of
prepayment charges or late charges.
(iii) The Master Servicer shall establish and maintain a
Collection Account, which shall be an Eligible Account, into which the Master
Servicer shall deposit or cause to be deposited on or before each Withdrawal
Date payments, collections and Servicer Advances remitted by Servicers in
respect of the Mortgage Loans.
(iv) On or before the Withdrawal Date in each calendar month, the
Master Servicer shall cause each Servicer, pursuant to its Servicing Agreement,
to remit to the Master Servicer for deposit in the Collection Account all funds
held in the Servicing Account with respect to each Mortgage Loan serviced by
such Servicer that are required to be remitted to the Master Servicer. The
Servicer will also be required, pursuant to the Servicing Agreement, to advance
on or before each such Withdrawal
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Date amounts equal to any Scheduled Payments (net of its Servicing Fees with
respect thereto) not received on any Mortgage Loans by the Servicer (such
amount, a "Servicer Advance"). The Servicer's obligation to advance with respect
to each Mortgage Loan will continue up to and including the first day of the
month following the date on which the related Mortgaged Property is sold at a
foreclosure sale or is acquired by the Issuer by deed in lieu of foreclosure or
otherwise. All such Servicer Advances received by the Master Servicer shall be
deposited promptly by it in the Collection Account or the Bond Account, as
appropriate.
Within five Business Days after the receipt by a Servicer of a Principal
Prepayment in Full or any Liquidation Proceeds or Insurance Proceeds (not
required to be applied to the restoration or repair of the related Mortgaged
Property), the Master Servicer shall cause such Servicer, pursuant to the
related Servicing Agreement, to remit such amounts to the Master Servicer for
deposit in the Collection Account.
(v) The Master Servicer shall establish and maintain a Bond
Account, which shall be an Eligible Account, into which the Master Servicer
shall deposit or cause to be deposited on a daily basis within one Business Day
of receipt, except as otherwise specifically provided herein, the following
payments and collections remitted by Servicers or received by it in respect of
Mortgage Loans subsequent to the Cut-off Date (other than in respect of
principal and interest due on the Mortgage Loans on or before the Cut-off Date)
and the following amounts required to be deposited hereunder:
(A) all payments on account of principal on the Mortgage
Loans, including Principal Prepayments and the principal
component of any Servicer Advance;
(B) all payments on account of interest on the Mortgage
Loans, net of the sum of the related Master Servicing Fee and
related Servicing Fee, and the interest component of any Servicer
Advance;
(C) all Insurance Proceeds and Liquidation Proceeds (net
of any related expenses of the related Servicer), other than
proceeds to be applied to the restoration or repair of the
Mortgaged Property or released to the Mortgagor in accordance
with the Master Servicer's normal servicing procedures;
(D) any amount required to be deposited by the Master
Servicer pursuant to Section 3(h)(vii) in connection with any
losses on Permitted Investments;
(E) any amounts required to be deposited by the Master
Servicer pursuant to Sections 3(l) and 3(n);
(F) all Purchase Prices from the Master Servicer and all
Substitution Adjustment Amounts;
(G) all Advances made by the Master Servicer pursuant to
Section 4; and
(H) any other amounts required to be deposited hereunder.
[In addition, on or prior to the last day of the month in which the
Closing Date occurs, the Issuer shall cause an amount equal to $__________ to be
deposited in the Bond Account, such amount to be treated as a Principal
Prepayment in Full of a Mortgage Loan.]
(vi) In addition, with respect to any Mortgage Loan that is
subject to a buydown agreement, on each Due Date for such Mortgage Loan, in
addition to the monthly payment remitted by the Mortgagor, the Master Servicer
shall cause funds to be deposited into the Bond Account in an amount required to
cause an amount of interest to be paid with respect to such Mortgage Loan equal
to the amount of interest that has accrued on such Mortgage Loan from the
preceding Due Date at the Mortgage Rate net of the Master Servicing Fee on such
date.
The foregoing requirements for remittance by the Master Servicer shall
be exclusive, it being understood and agreed that, without limiting the
generality of the foregoing, payments in the nature of prepayment penalties,
late payment charges or assumption fees, if collected, need not be remitted by
the Master Servicer. In the event that the Master Servicer shall remit any
amount not required to be remitted, it may at any time withdraw or direct the
institution maintaining the Bond Account to withdraw such amount from the Bond
Account, any provision herein to the contrary notwithstanding. Such withdrawal
or direction may be accomplished by delivering written notice thereof to the
Trustee or such other institution maintaining the Bond Account which describes
the amounts
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deposited in error in the Bond Account. The Master Servicer shall maintain
adequate records with respect to all withdrawals made pursuant to this Section
3(h)(vi). All funds deposited in the Bond Account shall be held in trust for the
Bondholders until withdrawn in accordance with Section 3(k).
(vii) On or prior to each Distribution Account Deposit Date,
after payment of any amount described in Section 6.17 of the Indenture, as well
as any amounts owed to the Trustee pursuant to Section 6.07 of the Indenture,
the Master Servicer will withdraw from the Bond Account the Bond Distribution
Amount, to the extent of Available Funds, and will deposit such amount in the
Distribution Account.
(viii) On each Distribution Date, after payment of any amount
described in Section 6.17 of the Indenture, as well as any amounts owed to the
Trustee pursuant to Section 6.07 of the Indenture, the Master Servicer shall
withdraw the Available Funds remaining on deposit in the Bond Account, after
giving effect to the withdrawal therefrom pursuant to Section 3(h)(vii) above,
and pay such funds to the Certificate Paying Agent for application in the
following order of priority and, in each case, to the extent of funds remaining:
(1) to the Investor Certificates, an amount allocable to
interest equal to the Certificate Interest Payment Amount for
such Distribution Date;
(2) to the Investor Certificates, an amount allocable to
principal equal to the Invested Amount Payment for such
Distribution Date; and
(3) to the holders of the Investor Certificates, the
balance of any Available Funds remaining in the Bond Account.
With respect to each Distribution Date, the amounts described in clause
(1) of this Section 3(h)(viii) for such Distribution Date shall be reduced by
the Investor Certificates' pro rata share (based on the Interest Payment Amount
of the Investor Certificates before reduction pursuant to this Section
3(h)(viii)) of each (A) Relief Act Reduction incurred during the calendar month
preceding the month of such Distribution Date and (B) Prepayment Interest
Shortfalls. In addition, with respect to each Distribution Date, the amounts
described in clauses (2) and (3) of this Section 3(h)(viii) for such
Distribution Date shall be reduced by an amount equal to the excess, if any, of
Prepayment Interest Shortfalls, after giving effect to the reduction described
in the immediately preceding sentence, over the Master Servicing Fee for such
payment date.
(ix) Each institution at which the Bond Account, the Distribution
Account or the Collection Account is maintained shall invest the funds therein
as directed in writing by the Master Servicer in Permitted Investments, which
shall mature not later than (i) in the case of the Bond Account, the second
Business Day next preceding the related Distribution Account Deposit Date
(except that if such Permitted Investment is an obligation of the institution
that maintains such account, then such Permitted Investment shall mature not
later than the Business Day next preceding such Distribution Account Deposit
Date), (ii) in the case of the Collection Account, the next Business Day and
(iii) in the case of the Distribution Account, the Business Day next preceding
the related Distribution Date (except that if such Permitted Investment is an
obligation of the institution that maintains such account, then such Permitted
Investment shall mature not later than such Distribution Date) and, in each
case, shall not be sold or disposed of prior to its maturity. All such Permitted
Investments shall be made in the name of the Trustee, for the benefit of the
Bondholders. All income and gain (net of any losses) realized from any such
investment of funds on deposit in the Bond Account, the Distribution Account or
the Collection Account shall be for the benefit of the Master Servicer as
servicing compensation and shall be remitted to it monthly as provided herein.
The amount of any realized losses in the Bond Account, the Distribution Account
or the Collection Account incurred in any such account in respect of any such
investments shall promptly be deposited by the Master Servicer in the Bond
Account, the Distribution Account or the Collection Account, as applicable. The
Trustee in its fiduciary capacity shall not be liable for the amount of any loss
incurred in respect of any investment or lack of investment of funds held in the
Bond Account, the Distribution Account or the Collection Account and made in
accordance with this Section 3(h)(ix).
(x) The Master Servicer shall give notice to the Trustee, the
Issuer and each Rating Agency of any proposed change of the location of the Bond
Account not later than 30 days and not more than 45 days prior to any change
thereof.
(i) Collection of Taxes, Assessments and Similar Items; Escrow Accounts.
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(i) To the extent required by the related Mortgage Note and not
violative of current law, the Master Servicer shall cause each Servicer to
establish and maintain one or more accounts (each, an "Escrow Account") and
deposit and retain therein all collections from the Mortgagors (or advances by
the Servicer) for the payment of taxes, assessments, hazard insurance premiums
or comparable items for the account of the Mortgagors. Nothing herein shall
require the Master Servicer or any Servicer to compel a Mortgagor to establish
an Escrow Account in violation of applicable law.
(ii) Withdrawals of amounts so collected from the Escrow Accounts
may be made only to effect timely payment of taxes, assessments, hazard
insurance premiums, condominium or PUD association dues, or comparable items, to
reimburse the Master Servicer or the related Servicer out of related collections
for any payments made pursuant to Sections 3(l) (with respect to taxes and
assessments and insurance premiums) and 3(m) (with respect to hazard insurance),
to refund to any Mortgagors any sums determined to be overages, to pay interest,
if required by law or the terms of the related Mortgage or Mortgage Note, to
Mortgagors on balances in the Escrow Account or to clear and terminate the
Escrow Account at the termination of this Agreement in accordance with Section
8(a). The Escrow Accounts shall not be a part of the Trust Estate.
(iii) The Master Servicer shall advance any payments referred to
in Section 3(i)(i) that are not timely paid by the Mortgagors or advanced by the
Servicers on the date when the tax, premium or other cost for which such payment
is intended is due, but the Master Servicer shall be required so to advance only
to the extent that such advances, in the good faith judgment of the Master
Servicer, will be recoverable by the Master Servicer out of Insurance Proceeds,
Liquidation Proceeds or otherwise.
(j) Access to Certain Documentation and Information Regarding the
Mortgage Loans.
The Master Servicer shall afford, or shall cause the Servicers to
afford, the Issuer and the Trustee reasonable access to all records and
documentation regarding the Mortgage Loans and all accounts, insurance
information and other matters relating to this Agreement, such access being
afforded without charge, but only upon reasonable request and during normal
business hours at the office designated by the Master Servicer.
Upon reasonable advance notice in writing, the Master Servicer will
provide, or will cause the Servicers to provide, to each Bondholder which is a
savings and loan association, bank or insurance company certain reports and
reasonable access to information and documentation regarding the Mortgage Loans
sufficient to permit such Bondholder to comply with applicable regulations of
the OTS or other regulatory authorities with respect to investment in the Bonds;
provided that the Master Servicer and any Servicer shall be entitled to be
reimbursed by each such Bondholder for actual expenses incurred by the Master
Servicer or such Servicer in providing such reports and access.
(k) Permitted Withdrawals from the Bond Account.
The Master Servicer may from time to time make withdrawals from the Bond
Account for the following purposes:
(i) to pay to the Master Servicer or the related Servicer (to the
extent not previously retained), the servicing compensation to which it is
entitled pursuant to Section 5(a), and to pay to the Master Servicer, as
additional master servicing compensation, earnings on or investment income with
respect to funds in or credited to the Bond Account;
(ii) to reimburse the Master Servicer or the related Servicer for
unreimbursed Advances or Servicer Advances made by it, such right of
reimbursement pursuant to this subclause (ii) being limited to amounts received
on the Mortgage Loan(s) in respect of which any such Advance or Servicer Advance
was made;
(iii) to reimburse the Master Servicer for any Nonrecoverable
Advance previously made;
(iv) to reimburse the Master Servicer for Insured Expenses from
the related Insurance Proceeds;
(v) to reimburse the Master Servicer for (A) unreimbursed
Servicing Advances, the Master Servicer's right to reimbursement pursuant to
this clause (A) with respect to any Mortgage Loan being limited to amounts
received on such Mortgage Loan(s) which represent late recoveries of the
payments for which such advances were made pursuant to Section 3(a) or Section
3(i) and (B) for unpaid Master Servicing Fees as provided in Section 3(n);
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(vi) to pay to the purchaser, with respect to each Mortgage Loan
or property acquired in respect thereof that has been purchased pursuant to
Section 2(a)(ii), 2(d)(iv) or 3(n), all amounts received thereon after the date
of such purchase;
(vii) to reimburse the Master Servicer for expenses incurred by
it and reimbursable pursuant to Section 6(c) and to pay the Trustee amounts due
to it pursuant to Section 6.07(2) and (3) of the Indenture;
(viii) to withdraw any amount deposited in the Bond Account and
not required to be deposited therein;
(ix) on or prior to the Distribution Account Deposit Date, to
withdraw an amount equal to the related Bond Distribution Amount and the Trustee
Fee for such Distribution Date, to the extent on deposit, and remit such amount
to the Trustee for deposit in the Distribution Account; and
(x) to clear and terminate the Bond Account upon termination of
this Agreement pursuant to Section 8(a).
The Master Servicer shall keep and maintain separate accounting, on a
Mortgage Loan by Mortgage Loan basis, for the purpose of justifying any
withdrawal from the Bond Account pursuant to such subclauses (i), (ii), (iv),
(v) and (vi). Prior to making any withdrawal from the Bond Account pursuant to
subclause (iii), the Master Servicer shall deliver to the Trustee an Officer's
Certificate of a Servicing Officer indicating the amount of any previous Advance
determined by the Master Servicer to be a Nonrecoverable Advance and identifying
the related Mortgage Loan(s) and their respective portions of such
Nonrecoverable Advance.
(l) Maintenance of Hazard Insurance; Maintenance of Primary Insurance
Policies.
(i) The Master Servicer shall cause to be maintained, for each
Mortgage Loan, hazard insurance with extended coverage in an amount that is at
least equal to the lesser of (A) the maximum insurable value of the improvements
securing such Mortgage Loan or (B) the greater of (y) the outstanding principal
balance of the Mortgage Loan and (z) an amount such that the proceeds of such
policy shall be sufficient to prevent the Mortgagor and/or the mortgagee from
becoming a co-insurer. Each such policy of standard hazard insurance shall
contain, or have an accompanying endorsement that contains, a standard mortgagee
clause. To the extent it may do so without breaching the related Servicing
Agreement, the Master Servicer shall replace any Servicer that does not cause
such insurance, to the extent it is available, to be maintained. Any amounts
collected by the Master Servicer under any such policies (other than the amounts
to be applied to the restoration or repair of the related Mortgaged Property or
amounts released to the Mortgagor in accordance with the Master Servicer's
normal servicing procedures) shall be deposited in the Bond Account or the
related Servicing Account, as applicable. Any cost incurred by the Master
Servicer or any Servicer in maintaining any such insurance shall not, for the
purpose of calculating payments to the Bondholders or remittances to the Trustee
for their benefit, be added to the principal balance of the Mortgage Loan,
notwithstanding that the terms of the Mortgage Loan so permit. Such costs shall
be recoverable by the Master Servicer out of late payments by the related
Mortgagor or out of Liquidation Proceeds to the extent permitted by Section
3(k). It is understood and agreed that no earthquake or other additional
insurance is to be required of any Mortgagor or maintained on property acquired
in respect of a Mortgage other than pursuant to such applicable laws and
regulations as shall at any time be in force and as shall require such
additional insurance. If the Mortgaged Property is located at the time of
origination of the Mortgage Loan in a federally designated special flood hazard
area and such area is participating in the national flood insurance program, the
Master Servicer shall cause flood insurance to be maintained with respect to
such Mortgage Loan. Such flood insurance shall be in an amount equal to the
least of (A) the original principal balance of the related Mortgage Loan, (B)
the replacement value of the improvements which are part of such Mortgaged
Property, and (C) the maximum amount of such insurance available for the related
Mortgaged Property under the national flood insurance program.
In the event that the Master Servicer shall obtain and maintain a
blanket policy insuring against hazard losses on all of the Mortgage Loans, it
shall conclusively be deemed to have satisfied its obligations as set forth in
the first sentence of this Section 3(l)(i), it being understood and agreed that
such policy may contain a deductible clause on terms substantially equivalent to
those commercially available and maintained by comparable servicers. If such
policy contains a deductible clause, the Master Servicer shall, in the event
that there shall not have been maintained on the related Mortgaged Property a
policy complying with the first sentence of this Section 3(l)(i), and there
shall have been a loss that would have been covered by such policy, deposit in
the Bond Account the amount not otherwise payable under the blanket policy
because of such deductible clause. In connection with its activities as Master
Servicer of the Mortgage Loans, the Master Servicer agrees to present, on behalf
of itself, the Issuer and the Trustee for the benefit of the Bondholders, claims
under any such blanket policy.
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(ii) The Master Servicer shall not take, or permit any Servicer
to take, any action which would result in non-coverage under any applicable
Primary Insurance Policy of any loss which, but for the actions of the Master
Servicer or any Servicer, would have been covered thereunder. The Master
Servicer shall not cancel or refuse to renew any such Primary Insurance Policy
that is in effect at the date of the initial issuance of the Bonds and is
required to be kept in force hereunder unless the replacement Primary Insurance
Policy for such canceled or non-renewed policy is maintained with a Qualified
Insurer. The Master Servicer shall not be required to maintain any Primary
Insurance Policy with respect to any Mortgage Loan with a Loan-to-Value Ratio
less than or equal to 80% as of any date of determination or, based on a new
appraisal, the principal balance of such Mortgage Loan represents 80% or less of
the new Appraised Value. The Master Servicer agrees to effect the timely payment
of the premiums on each Primary Insurance Policy, and such costs not otherwise
recoverable shall be recoverable by the Master Servicer from the related
liquidation proceeds.
In connection with its activities as Master Servicer of the Mortgage
Loans, the Master Servicer agrees to present, or cause the related Servicer to
present, on behalf of itself, the Trustee and the Bondholders, claims to the
insurer under any Primary Insurance Policies and, in this regard, to take such
reasonable action as shall be necessary to permit recovery under any Primary
Insurance Policies respecting defaulted Mortgage Loans. Any amounts collected by
a Servicer or the Master Servicer under any Primary Insurance Policies shall be
deposited in the Servicing Account, the Collection Account or the Bond Account,
as applicable.
(m) Enforcement of Due-On-Sale Clauses; Assumption Agreements.
(i) Except as otherwise provided in this Section 3(m), when any
property subject to a Mortgage has been conveyed by the Mortgagor, the Master
Servicer or the related Servicer shall, to the extent that it has knowledge of
such conveyance, enforce any due-on-sale clause contained in any Mortgage Note
or Mortgage, to the extent permitted under applicable law and governmental
regulations, but only to the extent that such enforcement will not adversely
affect or jeopardize coverage under any Required Insurance Policy.
Notwithstanding the foregoing, neither the Master Servicer nor the related
Servicer is required to exercise such rights with respect to a Mortgage Loan if
the Person to whom the related Mortgaged Property has been conveyed or is
proposed to be conveyed satisfies the terms and conditions contained in the
Mortgage Note and Mortgage related thereto and the consent of the mortgagee
under such Mortgage Note or Mortgage is not otherwise so required under such
Mortgage Note or Mortgage as a condition to such transfer. In the event that (A)
the Master Servicer or the related Servicer is prohibited by law from enforcing
any such due-on-sale clause, (B) coverage under any Required Insurance Policy
would be adversely affected, (C) the Mortgage Note does not include a
due-on-sale clause or (D) nonenforcement is otherwise permitted hereunder, the
Master Servicer is authorized, subject to Section 3(m)(ii), to take or enter
into an assumption and modification agreement from or with the person to whom
such property has been or is about to be conveyed, pursuant to which such person
becomes liable under the Mortgage Note and, unless prohibited by applicable
state law, the Mortgagor remains liable thereon, provided that the Mortgage Loan
shall continue to be covered (if so covered before the Master Servicer enters
such agreement) by the applicable Required Insurance Policies. The Master
Servicer, subject to Section 3(m)(ii), is also authorized with the prior
approval of the insurers under any Required Insurance Policies to enter into a
substitution of liability agreement with such Person, pursuant to which the
original Mortgagor is released from liability and such Person is substituted as
Mortgagor and becomes liable under the Mortgage Note. Notwithstanding the
foregoing, the Master Servicer shall not be deemed to be in default under this
Section 3(m) by reason of any transfer or assumption which the Master Servicer
reasonably believes it is restricted by law from preventing, for any reason
whatsoever.
(ii) Subject to the Master Servicer's duty to enforce any
due-on-sale clause to the extent set forth in Section 3(m)(i), in any case in
which a Mortgaged Property has been conveyed to a Person by a Mortgagor, and
such Person is to enter into an assumption agreement or modification agreement
or supplement to the Mortgage Note or Mortgage that requires the signature of
the Trustee, or if an instrument of release signed by the Trustee is required
releasing the Mortgagor from liability on the Mortgage Loan, the Master Servicer
shall prepare and deliver or cause to be prepared and delivered to the Trustee
for signature and shall direct, in writing, the Trustee to execute the
assumption agreement with the Person to whom the Mortgaged Property is to be
conveyed and such modification agreement or supplement to the Mortgage Note or
Mortgage or other instruments as are reasonable or necessary to carry out the
terms of the Mortgage Note or Mortgage or otherwise to comply with any
applicable laws regarding assumptions or the transfer of the Mortgaged Property
to such Person. In connection with any such assumption, no material term of the
Mortgage Note may be changed. In addition, the substitute Mortgagor and the
Mortgaged Property must be acceptable to the Master Servicer in accordance with
its underwriting standards as then in effect. Together with each such
substitution, assumption or other agreement or instrument delivered to the
Trustee for execution by it, the Master Servicer shall deliver an Officer's
Certificate signed by a Servicing Officer stating that the requirements of this
subsection have been met in connection therewith. The Master Servicer shall
notify, or cause the related Servicer to notify, the Trustee that any such
substitution or assumption agreement has been completed by forwarding
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to the Trustee the original of such substitution or assumption agreement, which
in the case of the original shall be added to the related Trustee Mortgage File
and shall, for all purposes, be considered a part of such Trustee Mortgage File
to the same extent as all other documents and instruments constituting a part
thereof. Any fee collected by the Master Servicer or any Servicer for entering
into an assumption or substitution of liability agreement will be retained by
the Master Servicer as additional master servicing compensation.
(n) Realization Upon Defaulted Mortgage Loans; Purchase of Certain
Mortgage Loans.
The Master Servicer shall use reasonable efforts to foreclose upon or
otherwise comparably convert the ownership of properties securing such of the
Mortgage Loans as come into and continue in default and as to which no
satisfactory arrangements can be made for collection of delinquent payments. In
connection with such foreclosure or other conversion, the Master Servicer shall
follow such practices and procedures as it shall deem necessary or advisable, as
shall be normal and usual in its general mortgage servicing activities and as
shall meet the requirements of the insurer under any Required Insurance Policy.
Notwithstanding the foregoing, the Master Servicer shall not be required to
expend its own funds in connection with any foreclosure or towards the
restoration of any property unless it shall determine (A) that such restoration
and/or foreclosure will increase the proceeds of liquidation of the Mortgage
Loan after reimbursement to itself of such expenses and (B) that such expenses
will be recoverable to it through Liquidation Proceeds (respecting which it
shall have priority for purposes of withdrawals from the Bond Account). The
Master Servicer shall be responsible for all other costs and expenses incurred
by it in any such proceedings; provided, however, that it shall be entitled to
reimbursement thereof from the liquidation proceeds with respect to the related
Mortgaged Property, as provided in the definition of Liquidation Proceeds. If
the Master Servicer has knowledge that a Mortgaged Property which the Master
Servicer is contemplating acquiring in foreclosure or by deed in lieu of
foreclosure is located within a 1 mile radius of any site listed in the
Expenditure Plan for the Hazardous Substance Clean Up Bond Act of 1984 or other
site with environmental or hazardous waste risks known to the Master Servicer,
the Master Servicer will, prior to acquiring the Mortgaged Property, consider
such risks and only take action in accordance with its established environmental
review procedures.
With respect to any REO Property, the deed or certificate of sale shall
be taken in the name of the Trustee for the benefit of the Bondholders, or its
nominee, on behalf of the Bondholders. The Trustee's name shall be placed on the
title to such REO Property solely as the Trustee under the Indenture and not in
its individual capacity. The Master Servicer shall ensure that the title to such
REO Property references the Indenture and the Trustee's capacity thereunder.
Pursuant to its efforts to sell such REO Property, the Master Servicer shall
either itself or through an agent selected by the Master Servicer protect and
conserve such REO Property in the same manner and to such extent as is customary
in the locality where such REO Property is located and may, incident to its
conservation and protection of the interests of the Bondholders, rent the same,
or any part thereof, as the Master Servicer deems to be in the best interest of
the Bondholders for the period prior to the sale of such REO Property. The net
monthly rental income, if any, from such REO Property shall be deposited in the
Bond Account no later than the close of business on each Determination Date. The
Master Servicer shall perform the tax reporting and withholding required by
Sections 1445 and 6050J of the Code with respect to foreclosures and
abandonments, the tax reporting required by Section 6050H of the Code with
respect to the receipt of mortgage interest from individuals and, if required by
Section 6050P of the Code with respect to the cancellation of indebtedness by
certain financial entities, by preparing such tax and information returns as may
be required, in the form required, and delivering the same to the Trustee for
filing.
The decision of the Master Servicer to foreclose on a defaulted Mortgage
Loan shall be subject to a determination by the Master Servicer that the
proceeds of such foreclosure would exceed the costs and expenses of bringing
such a proceeding. The income earned from the management of any REO Properties,
net of reimbursement to the Master Servicer for expenses incurred (including any
property or other taxes) in connection with such management and net of
unreimbursed Master Servicing Fees, Servicing Fees, Advances, Servicer Advances
and Servicing Advances, shall be applied to the payment of principal of and
interest on the related defaulted Mortgage Loans (with interest accruing as
though such Mortgage Loans were still current and adjustments, if applicable, to
the Mortgage Rate were being made in accordance with the terms of the Mortgage
Note) and all such income shall be deemed, for all purposes in this Agreement,
to be payments on account of principal and interest on the related Mortgage
Notes and shall be deposited into the Bond Account. To the extent the net income
received during any calendar month is in excess of the amount attributable to
amortizing principal and accrued interest at the related Mortgage Rate on the
related Mortgage Loan for such calendar month, such excess shall be considered
to be a partial prepayment of principal of the related Mortgage Loan.
The proceeds from any liquidation of a Mortgage Loan, as well as any
income from an REO Property, will be applied in the following order of priority:
first, to reimburse the Master Servicer or the related Servicer for any related
unreimbursed Advances or Servicing Advances, Master Servicing Fees and Servicing
Fees, as applicable; second, to reimburse the Master Servicer or the related
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Servicer for any unreimbursed Advances or Servicer Advances, as applicable, and
to reimburse the Bond Account for any Nonrecoverable Advances (or portions
thereof) that were previously withdrawn by the Master Servicer pursuant to
Section 3(k)(iii) that related to such Mortgage Loan; third, to accrued and
unpaid interest (to the extent no Advance or Servicer Advance has been made for
such amount or any such Advance or Servicer Advance has been reimbursed) on the
Mortgage Loan or related REO Property at the Net Mortgage Rate to the Due Date
occurring in the month in which such amounts are required to be distributed; and
fourth, as a recovery of principal of the Mortgage Loan. Excess Proceeds, if
any, from the liquidation of a Liquidated Mortgage Loan will be retained by the
Master Servicer as additional servicing compensation pursuant to Section 5(a).
The Master Servicer, in its sole discretion, shall have the right to
purchase for its own account from the Issuer any Mortgage Loan which is 91 days
or more delinquent at a price equal to the Purchase Price. The Purchase Price
for any Mortgage Loan purchased hereunder shall be deposited in the Bond Account
and the Trustee, upon receipt of a certificate from the Master Servicer in the
form of Exhibit D hereto, shall release or cause to be released to the purchaser
of such Mortgage Loan the related Trustee Mortgage File and shall execute and
deliver such instruments of transfer or assignment prepared by the purchaser of
such Mortgage Loan, in each case without recourse, as shall be necessary to vest
in the purchaser of such Mortgage Loan any Mortgage Loan released pursuant
hereto and the purchaser of such Mortgage Loan shall succeed to all the Issuer's
and the Trustee's right, title and interest in and to such Mortgage Loan and all
security and documents related thereto. Such assignment shall be an assignment
outright and not for security. The purchaser of such Mortgage Loan shall
thereupon own such Mortgage Loan, and all security and documents, free of any
further obligation to the Issuer, the Trustee or the Bondholders with respect
thereto.
(o) Access to Certain Documentation.
The Master Servicer shall provide to the OTS and the FDIC and to
comparable regulatory authorities supervising Holders of Subordinated Bonds and
the examiners and supervisory agents of the OTS, the FDIC and such other
authorities, access to the documentation regarding the Mortgage Loans required
by applicable regulations of the OTS and the FDIC. Such access shall be afforded
without charge, but only upon reasonable and prior written request and during
normal business hours at the offices designated by the Master Servicer. Nothing
in this Section 3(o) shall limit the obligation of the Master Servicer to
observe any applicable law prohibiting disclosure of information regarding the
Mortgagors and the failure of the Master Servicer or any Servicer to provide
access as provided in this Section 3(o) as a result of such obligation shall not
constitute a breach of this Section 3(o).
(p) Annual Statement as to Compliance.
The Master Servicer shall deliver to the Issuer and the Trustee on or
before 120 days after the end of the Master Servicer's fiscal year, commencing
with its [1997] fiscal year, an Officer's Certificate stating, as to the signer
thereof, that (i) a review of the activities of the Master Servicer during the
preceding calendar year and of the performance of the Master Servicer under this
Agreement has been made under such officer's supervision, (ii) to the best of
such officer's knowledge, based on such review, the Master Servicer has
fulfilled all its obligations under this Agreement throughout such year, or, if
there has been a default in the fulfillment of any such obligation, specifying
each such default known to such officer and the nature and status thereof and
(iii) to the best of such officer's knowledge, each Servicer has fulfilled all
its obligations under its Servicing Agreement throughout such year, or, if there
has been a default in the fulfillment of any such obligation, specifying each
such default known to such officer and the nature and status thereof. The
Trustee shall forward a copy of each such statement to each Rating Agency.
(q) Annual Independent Public Accountants' Servicing Statement;
Financial Statements.
On or before 120 days after the end of the Master Servicer's fiscal
year, commencing with its [1997] fiscal year, the Master Servicer at its expense
shall cause a nationally recognized firm of independent public accountants (who
may also render other services to the Master Servicer or any affiliate thereof)
which is a member of the American Institute of Certified Public Accountants to
furnish a statement to the Trustee and the Issuer to the effect that such firm
has examined certain documents and records relating to the servicing of the
Mortgage Loans under this Agreement or of mortgage loans under servicing
agreements substantially similar to this Agreement (such statement to have
attached thereto a schedule setting forth the servicing agreements covered
thereby) and that, on the basis of such examination, conducted substantially in
compliance with the Uniform Single Attestation Program for Mortgage Bankers or
the Audit Program for Mortgages serviced for FNMA and FHLMC, such servicing has
been conducted in compliance with such servicing agreements except for such
significant exceptions or errors in records that, in the opinion of such firm,
the Uniform Single Attestation Program for Mortgage Bankers or the Audit Program
for Mortgages serviced for FNMA and FHLMC requires it to report. In rendering
such statement, such firm may rely, as to matters relating to direct servicing
of mortgage loans by Servicers, upon
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comparable statements for examinations conducted substantially in compliance
with the Uniform Single Attestation Program for Mortgage Bankers or the Audit
Program for Mortgages serviced for FNMA and FHLMC (rendered within one year of
such statement) of independent public accountants with respect to the related
Servicer. Copies of such statement shall be provided by the Trustee to any
Bondholder upon request at the Master Servicer's expense, provided that such
statement is delivered by the Master Servicer to the Trustee.
(r) Errors and Omissions Insurance; Fidelity Bonds.
The Master Servicer shall obtain and maintain in force, and shall cause
each Servicer to obtain and maintain in force, (a) a policy or policies of
insurance covering errors and omissions in the performance of its obligations as
Master Servicer hereunder or as Servicer under its Servicing Agreement, as the
case may be, and (b) a fidelity bond in respect of its officers, employees and
agents. Each such policy or policies and bond shall, together, comply with the
requirements from time to time of FNMA or FHLMC for persons performing servicing
for mortgage loans purchased by FNMA or FHLMC. In the event that any such policy
or bond ceases to be in effect, the Master Servicer shall obtain a comparable
replacement policy or bond from an insurer or issuer meeting the requirements
set forth above as of the date of such replacement.
(s) Master Servicer Monthly Data.
On or before [noon California time] on the Determination Date, the
Master Servicer shall provide by modem to the Trustee with respect to the
Mortgage Loans, an electronic data file (accompanied by a hardcopy report) in a
format which is mutually agreed upon by the Master Servicer and the Trustee. The
Trustee shall be under no duty to recalculate, verify or recompute the
information provided to it by the Master Servicer hereunder.
4. Advances.
The Master Servicer shall determine on or before each Master Servicer
Advance Date whether it is required to make an Advance pursuant to the
definition thereof. If the Master Servicer determines it is required to make an
Advance, it shall, on or before the Master Servicer Advance Date, either (i)
deposit into the Bond Account an amount equal to the Advance or (ii) make an
appropriate entry in its records relating to the Bond Account that any Amount
Held for Future Distribution has been used by the Master Servicer in discharge
of its obligation to make any such Advance. Any funds so applied shall be
replaced by the Master Servicer by deposit in the Bond Account no later than the
close of business on the next Master Servicer Advance Date. The Master Servicer
shall be entitled to be reimbursed from the Bond Account for all Advances of its
own funds made pursuant to this Section 4 as provided in Section 3(k). The
obligation to make Advances with respect to any Mortgage Loan shall continue if
such Mortgage Loan has been foreclosed or otherwise terminated and the related
Mortgaged Property has not been liquidated. The Master Servicer shall inform the
Trustee of the amount of the Advance to be made on each Master Servicer Advance
Date no later than the Second Business Day before the related Distribution Date.
The Master Servicer shall deliver to the Trustee on the related Master
Servicer Advance Date an Officer's Certificate of a Servicing Officer indicating
the amount of any proposed Advance determined by the Master Servicer to be a
Nonrecoverable Advance.
5. Servicing Compensation and Expenses.
As compensation for its activities hereunder, the Master Servicer shall
be entitled out of each payment of interest on a Mortgage Loan (or portion
thereof) to retain or withdraw from the Bond Account an amount equal to the
Master Servicing Fee for such Distribution Date.
Additional master servicing compensation in the form of Excess Proceeds,
prepayment penalties, assumption fees, late payment charges and all income and
gain net of any losses realized from Permitted Investments shall be retained by
the Master Servicer to the extent not required to be deposited in the Bond
Account pursuant to Section 3(h). The Master Servicer shall be required to pay
all expenses incurred by it in connection with its servicing activities
hereunder (including payment of any premiums for hazard insurance and any
Primary Insurance Policy and maintenance of the other forms of insurance
coverage required by this Agreement) and shall not be entitled to reimbursement
therefor except as specifically provided in this Agreement.
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As compensation for its activities under its Servicing Agreement, each
Servicer shall be entitled to retain out of each payment of interest on a
Mortgage Loan (or portion thereof) an amount equal to interest at the applicable
Servicing Fee Rate on the Stated Principal Balance of the related Mortgage Loan
for the period covered by such interest payment.
Additional servicing compensation in the form of prepayment penalties,
assumption fees and late payment charges shall be retained by the Servicers to
the extent not required to be deposited in the Servicing Accounts pursuant to
the related Servicing Agreement. Each Servicer shall be required to pay all
expenses incurred by it in connection with its servicing activities under its
Servicing Agreement (including payment of any premium for hazard insurance and
any Primary Insurance Policy and maintenance of the other forms of insurance
coverage required by this Agreement and its Servicing Agreement) and shall not
be entitled to reimbursement therefor except as specifically provided in its
Servicing Agreement and not inconsistent with this Agreement.
In the event of any Prepayment Interest Shortfalls, the aggregate Master
Servicing Fee for such Distribution Date shall be reduced (but not below zero)
by an amount equal to such Prepayment Interest Shortfalls.
6. The Master Servicer.
(a) Liabilities of the Master Servicer.
The Master Servicer shall be liable in accordance herewith only to the
extent of the obligations specifically imposed upon and undertaken by it herein.
(b) Merger or Consolidation of the Master Servicer.
The Master Servicer will keep in full effect its existence, rights and
franchises as a corporation under the laws of the United States or under the
laws of one of the states thereof and will obtain and preserve its qualification
to do business as a foreign corporation in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Agreement, or any of the Mortgage Loans and to perform
its duties under this Agreement.
Any Person into which the Master Servicer may be merged or consolidated,
or any Person resulting from any merger or consolidation to which the Master
Servicer shall be a party, or any person succeeding to the business of the
Master Servicer, shall be the successor of the Master Servicer hereunder,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto, anything herein to the contrary notwithstanding;
provided, however, that the successor or surviving Person to the Master Servicer
shall be qualified to sell mortgage loans to, and to service mortgage loans on
behalf of, FNMA or FHLMC.
(c) Limitation on Liability of the Master Servicer and Others.
Neither the Master Servicer nor any of the directors, officers,
employees or agents of the Master Servicer shall be under any liability to the
Issuer or the Bondholders for any action taken or for refraining from the taking
of any action in good faith pursuant to this Agreement, or for errors in
judgment; provided, however, that this provision shall not protect the Master
Servicer or any such Person against any breach of representations or warranties
made by it herein or protect the Master Servicer or any such Person from any
liability which would otherwise be imposed by reasons of willful misfeasance,
bad faith or gross negligence in the performance of duties or by reason of
reckless disregard of obligations and duties hereunder. The Master Servicer and
any director, officer, employee or agent of the Master Servicer may rely in good
faith on any document of any kind prima facie properly executed and submitted by
any Person respecting any matters arising hereunder. The Master Servicer and any
director, officer, employee or agent of the Master Servicer shall be indemnified
by the Issuer and held harmless against any loss, liability or expense incurred
in connection with any audit, controversy or judicial proceeding relating to a
governmental taxing authority or any legal action relating to this Agreement or
the Bonds, other than any loss, liability or expense related to any specific
Mortgage Loan or Mortgage Loans (except as any such loss, liability or expense
shall be otherwise reimbursable pursuant to this Agreement) and any loss,
liability or expense incurred by reason of willful misfeasance, bad faith or
gross negligence in the performance of duties hereunder or by reason of reckless
disregard of obligations and duties hereunder. The Master Servicer shall not be
under any obligation to appear in, prosecute or defend any legal action that is
not incidental to its respective duties hereunder and which in its opinion may
involve it in any expense or liability; provided, however, that the Master
Servicer may in its discretion undertake any such action that it may deem
necessary or desirable in respect of this Agreement and the rights and duties of
the parties hereto and interests of the Issuer, the Trustee and the Bondholders
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hereunder. In such event, the legal expenses and costs of such action and any
liability resulting therefrom shall be expenses, costs and liabilities of the
Issuer, and the Master Servicer shall be entitled to be reimbursed therefor out
of the Bond Account.
(d) Limitation on Resignation of the Master Servicer.
The Master Servicer shall not resign from the obligations and duties
hereby imposed on it except (a) upon appointment of a successor servicer and
receipt by the Trustee of a letter from each Rating Agency that such a
resignation and appointment will not result in a downgrading of the rating of
any of the Bonds or (b) upon determination that its duties hereunder are no
longer permissible under applicable law. Any such determination under clause (b)
permitting the resignation of the Master Servicer shall be evidenced by an
Opinion of Counsel to such effect delivered to the Trustee. No such resignation
shall become effective until the Trustee or a successor master servicer shall
have assumed the Master Servicer's responsibilities, duties, liabilities and
obligations hereunder.
7. Servicing Default; Termination and Liabilities.
(a) Servicing Default.
Any of the following acts or occurrences shall constitute a Servicing
Default by the Master Servicer under this Agreement:
(i) any failure by the Master Servicer to deposit in the Bond
Account or remit to the Trustee any payment (other than a payment required to be
made under Section 4) required to be made under the terms of this Agreement,
which failure shall continue unremedied for five days after the date upon which
written notice of such failure shall have been given to the Master Servicer by
the Trustee or the Issuer or to the Master Servicer, the Trustee and the Issuer
by the Holders of Bonds representing more than 50% of the aggregate Class
Principal Amount of the Controlling Class; or
(ii) any failure by the Master Servicer to observe or perform in
any material respect any other of the covenants or agreements on the part of the
Master Servicer contained in this Agreement, which failure shall continue
unremedied for a period of 60 days after the date on which written notice of
such failure shall have been given to the Master Servicer by the Trustee or the
Issuer or to the Master Servicer, the Trustee and the Issuer by the Holders of
Bonds representing more than 50% of the aggregate Class Principal Amount of the
Controlling Class; or
(iii) a decree or order of a court or agency or supervisory
authority having jurisdiction in the premises for the appointment of a receiver
or liquidator in any insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings, or for the winding-up or liquidation of its
affairs, shall have been entered against the Master Servicer and such decree or
order shall have remained in force undischarged or unstayed for a period of 60
consecutive days; or
(iv) the Master Servicer shall consent to the appointment of a
receiver or liquidator in any insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings of or relating to the Master
Servicer or all or substantially all of the property of the Master Servicer; or
(v) the Master Servicer shall admit in writing its inability to
pay its debts generally as they become due, file a petition to take advantage
of, or commence a voluntary case under, any applicable insolvency or
reorganization statute, make an assignment for the benefit of its creditors, or
voluntarily suspend payment of its obligations; or
(vi) any failure of the Master Servicer to make any Advance in
the manner and at the time required to be made pursuant to Section 4 which
continues unremedied for a period of one Business Day after the date of such
failure.
If a Servicing Default described in clauses (i) to (v) of this Section
7(a) shall occur, then, and in each and every such case, so long as such
Servicing Default shall not have been remedied the Trustee may (subject to
Section 3.07 and Section 8.11 of the Indenture), by notice in writing to the
Master Servicer (with a copy to each Rating Agency), and in addition to any
other rights the Trustee may have on behalf of the Bondholders as a result of
such Servicing Default, terminate all of the rights and obligations of the
Master Servicer thereafter arising under this Agreement and in and to the
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Mortgage Loans and the proceeds thereof, other than its rights as a Bondholder
under the Indenture and its obligations which are not assumed by the Trustee
pursuant to clauses (i), (iii) and (v) of Section 3(g). If a Servicing Default
described in clause (vi) shall occur, the Trustee shall, by notice in writing to
the Master Servicer and the Issuer, terminate all of the rights and obligations
of the Master Servicer under this Agreement and in and to the Mortgage Loans and
the proceeds thereof, other than its rights as a Bondholder under the Indenture
and its obligations which are not assumed by the Trustee pursuant to clauses
(i), (iii) and (v) of Section 3(g). On and after the receipt by the Master
Servicer of such written notice, all authority and power of the Master Servicer
hereunder, whether with respect to the Mortgage Loans or otherwise, shall pass
to and be vested in the Trustee. The Trustee shall thereupon make any Advance
described in clause (vi) subject to clause (ii) of the first sentence of Section
3(g). The Trustee is hereby authorized and empowered to execute and deliver, on
behalf of the Master Servicer, as attorney-in-fact or otherwise, any and all
documents and other instruments, and to do or accomplish all other acts or
things necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorsement or assignment of
the Mortgage Loans and related documents, or otherwise. The Master Servicer
agrees to cooperate with the Trustee in effecting the termination of the Master
Servicer's responsibilities and rights hereunder, including, without limitation,
the transfer to the Trustee of all cash amounts which shall at the time be
credited to the Bond Account or thereafter be received with respect to the
Mortgage Loans.
Notwithstanding any termination of the activities of the Master Servicer
hereunder, the Master Servicer shall be entitled to receive, out of any late
collection of a Scheduled Payment on a Mortgage Loan which was due prior to the
notice terminating such Master Servicer's rights and obligations as Master
Servicer hereunder and received after such notice, that portion thereof to which
such Master Servicer would have been entitled pursuant to Sections 3(k)(i)
through (viii), and any other amounts payable to such Master Servicer hereunder
the entitlement to which arose prior to the termination of its activities
hereunder.
(b) Trustee to Act; Appointment of Successor.
On and after the time the Master Servicer receives a notice of
termination pursuant to Section 7(a), the Trustee shall, subject to and to the
extent provided in Section 3(g), be the successor to the Master Servicer in its
capacity as master servicer under this Agreement and the transactions set forth
or provided for herein and shall be subject to all the responsibilities, duties
and liabilities relating thereto placed on the Master Servicer by the terms and
provisions hereof and applicable law including the obligation to make Advances
pursuant to Section 4. As compensation therefor, the Trustee shall be entitled
to all funds relating to the Mortgage Loans that the Master Servicer would have
been entitled to charge to the Bond Account or Distribution Account if the
Master Servicer had continued to act hereunder. Notwithstanding the foregoing,
if the Trustee has become the successor to the Master Servicer in accordance
with Section 7(a), the Trustee may, if it shall be unwilling to so act, or
shall, if it is prohibited by applicable law from making Advances pursuant to
Section 4 or if it is otherwise unable to so act, appoint, or petition a court
of competent jurisdiction to appoint, any established mortgage loan servicing
institution the appointment of which does not adversely affect the then current
rating of the Bonds by each Rating Agency as the successor to the Master
Servicer hereunder in the assumption of all or any part of the responsibilities,
duties or liabilities of the Master Servicer hereunder. Any successor to the
Master Servicer shall be an institution which is a FNMA and FHLMC approved
seller/servicer in good standing, which has a net worth of at least $15,000,000,
which is willing to service the Mortgage Loans and which executes and delivers
to the Issuer and the Trustee an agreement accepting such delegation and
assignment, containing an assumption by such Person of the rights, powers,
duties, responsibilities, obligations and liabilities of the Master Servicer
(other than liabilities of the Master Servicer under Section 6(c) incurred prior
to termination of the Master Servicer under Section 7(a)), with like effect as
if originally named as a party to this Agreement; provided that each Rating
Agency acknowledges that its rating of the Bonds in effect immediately prior to
such assignment and delegation will not be qualified or reduced as a result of
such assignment and delegation. Pending appointment of a successor to the Master
Servicer hereunder, the Trustee, unless the Trustee is prohibited by law from so
acting, shall, subject to Section 3(g), act in such capacity as hereinabove
provided. In connection with such appointment and assumption, the Trustee may
make such arrangements for the compensation of such successor out of payments on
Mortgage Loans as it and such successor shall agree; provided, however, that no
such compensation shall be in excess of the Master Servicing Fee permitted the
Master Servicer hereunder. The Trustee and such successor shall take such
action, consistent with this Agreement, as shall be necessary to effectuate any
such succession. Neither the Trustee nor any other successor master servicer
shall be deemed to be in default hereunder by reason of any failure to make, or
any delay in making, any distribution hereunder or any portion thereof or any
failure to perform, or any delay in performing, any duties or responsibilities
hereunder, in either case caused by the failure of the Master Servicer to
deliver or provide, or any delay in delivering or providing, any cash,
information, documents or records to it.
Any successor to the Master Servicer as master servicer shall give
notice to the Mortgagors of such change of servicer and shall, during the term
of its service as master servicer, maintain in force the policy or policies that
the Master Servicer is required to maintain pursuant to Section 3(r).
(c) Notification to Bondholders.
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(i) Upon any termination of or appointment of a successor to the
Master Servicer, the Trustee shall give prompt written notice thereof to
Bondholders and to each Rating Agency.
(ii) Within 60 days after the occurrence of any Servicing
Default, the Trustee shall transmit by mail to all Bondholders notice of each
such Servicing Default hereunder known to the Trustee, unless such Servicing
Default shall have been cured or waived.
8. Miscellaneous.
(a) Term of Master Servicing Agreement.
The obligations to be performed by the Master Servicer under this
Agreement shall commence on and as of the date on which the Issuer issues the
Bonds and shall terminate as to each Mortgage Loan upon (i) the payment in full
of all principal and interest due under such Mortgage Loan or other liquidation
of such Mortgage Loan as contemplated by this Agreement, (ii) the termination of
the Master Servicer's rights and powers under this Agreement by the Trustee as
provided in Section 7(a) of this Agreement, or (iii) the release by the Trustee
of its security interest in any Mortgage Loan.
(b) Assignment.
Notwithstanding anything to the contrary contained herein, except as
provided in Section 6(a), this Agreement may not be assigned by the Master
Servicer without the prior written consent of the Trustee.
(c) Notices.
All directions, demands and notices hereunder shall be in writing and
shall be deemed to have been duly given when delivered at the following
addresses of the parties:
The Master Servicer
The Issuer: American Residential Eagle Bond Trust
[199_-_] c/o ________________ Trust Company
With a copy to
American Residential Eagle, Inc.
445 Marine View Avenue, Suite 100
Del Mar, CA 92014
Attention: Jay M. Fuller
The Trustee:
Attention: Corporate Trust Department
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Any Rating Agency: The address specified therefor in the
definition corresponding to the name
of such Rating Agency.
Any of the parties may at any time give notice in writing to the others
of a change of its address for the purpose of this Section 8(c).
(d) Inspection and Audit Rights.
The Master Servicer agrees that, on reasonable prior notice, it will
permit and will cause each Servicer to permit any representative of the Issuer
or the Trustee during the Master Servicer's normal business hours, to examine
all the books of account, records, reports and other papers of the Master
Servicer relating to the Mortgage Loans, to make copies and extracts therefrom,
to cause such books to be audited by independent certified public accountants
selected by the Trustee and to discuss its affairs, finances and accounts
relating to the Mortgage Loans with its officers, employees and independent
public accountants (and by this provision the Master Servicer hereby authorizes
said accountants to discuss with such representative such affairs, finances and
accounts), all at such reasonable times and as often as may be reasonably
requested. Any out-of-pocket expense incident to the exercise by the Issuer or
the Trustee of any right under this Section 8(d) shall be borne by the party
requesting such inspection; all other such expenses shall be borne by the Master
Servicer or the related Servicer.
(e) Governing Law.
This Agreement shall be construed in accordance with and governed by the
substantive laws of the State of New York applicable to agreements made and to
be performed in the State of New York and the obligations, rights and remedies
of the parties hereto and the Bondholders shall be determined in accordance with
such laws.
(f) Amendments.
This Agreement shall not be amended, changed, modified, terminated or
discharged in whole or in part except (i) by an instrument in writing signed by
all parties hereto, or their respective successors or assigns and (ii) in
compliance with Section 8.10 of the Indenture.
(g) Severability.
If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be for any reason whatsoever held invalid, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other provisions of this
Agreement.
(h) No Joint Venture.
The Servicer and the Issuer are not partners or joint venturers with
each other and nothing herein shall be construed to make them such partners or
joint venturers or impose any liability as such of either of them.
(i) Execution in Counterparts.
This Agreement may be executed in one or more counterparts, any of which
shall constitute an original as against any party whose signature appears on it,
and all of which shall together constitute a single instrument. This Agreement
shall become binding when one or more counterparts, individually or taken
together, bear the signatures of all parties.
(j) Limitation of Liability of _______________________
________________________.
It is expressly understood and agreed by the parties hereto that (a)
this Agreement is executed and delivered by _________________________
_____________________________, not individually or personally but solely as
owner trustee of American Residential Eagle Bond Trust [199__-__] under the
Deposit Trust Agreement, in the exercise of the powers and authority
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conferred and vested in it, (b) each of the representations, undertakings and
agreements herein made on the part of the Trust is made and intended not as
personal representations, undertakings and agreements by _____________________
but is made and intended for the purpose for binding only the Trust, (c) nothing
herein contained shall be construed as creating any liability on
__________________________________, other than any liability arising out of its
gross negligence, bad faith or willful misconduct, and (d) under no
circumstances shall _____________________________ be personally liable for the
payment of any indebtedness or expenses of the Trust or be liable for the breach
or failure of any obligation, representation, warranty or covenant made or
undertaken by the Trust under this Agreement or the other Operative Documents.
(k) Nonpetition Covenants.
Notwithstanding any prior termination of this Agreement, the Master
Servicer shall not, prior to the date which is one year and one day after the
termination of this Agreement with respect to the Issuer or the Depositor,
acquiesce, petition or otherwise invoke or cause the Issuer or the Depositor (or
any assignee) to invoke the process of any court or government authority for the
purpose of commencing or sustaining a case against the Issuer or the Depositor
under any federal or state bankruptcy, insolvency or similar law, or appointing
a receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Issuer or the Depositor or any substantial part of its
property, or ordering the winding up or liquidation of the affairs of the Issuer
or the Depositor.
IN WITNESS WHEREOF, each party has caused this Master Servicing
Agreement to be executed by its duly authorized officer or officers as of the
day and year first above written.
AMERICAN RESIDENTIAL EAGLE BOND TRUST
[199__-__], as Issuer
By: _____________________ TRUST COMPANY,
By:
--------------------------------------------
Its:
-------------------------------------------
------------------------------------------------
By:
--------------------------------------------
Its:
-------------------------------------------
------------------------------------------------
By:
--------------------------------------------
Its:
-------------------------------------------
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SCHEDULE I
Schedule of Mortgage Loans
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SCHEDULE II
AMERICAN RESIDENTIAL EAGLE BOND TRUST [199__-__]
Collateralized Mortgage Bonds
Representations and Warranties of the Master Servicer
_______________________ ("___") hereby makes the representations and
warranties set forth in this Schedule II to the Issuer and the Trustee, as of
the Closing Date, or if so specified herein, as of the Cut-off Date. Capitalized
terms used but not otherwise defined in this Schedule II shall have the meanings
ascribed thereto in the Master Servicing Agreement (the "Master Servicing
Agreement") relating to the above-referenced Series, among ____________ ____, as
Master Servicer, American Residential Eagle Bond Trust [199__-__], as Issuer,
and __________________________________________, as Trustee.
(1) _________________ is duly organized as a Delaware corporation and is
validly existing and in good standing under the laws of the State of ________
and is duly authorized and qualified to transact any and all business
contemplated by the Master Servicing Agreement to be conducted by
________________ in any state in which a Mortgaged Property is located or is
otherwise not required under applicable law to effect such qualification and, in
any event, is in compliance with the doing business laws of any such state, to
the extent necessary to ensure its ability to enforce each Mortgage Loan, to
service the Mortgage Loans in accordance with the terms of the Master Servicing
Agreement and to perform any of its other obligations under the Master Servicing
Agreement in accordance with the terms thereof.
(2) _________________ has the full corporate power and authority to sell
and service each Mortgage Loan, and to execute, deliver and perform, and to
enter into and consummate the transactions contemplated by the Master Servicing
Agreement and has duly authorized by all necessary corporate action on the part
of _________________ the execution, delivery and performance of the Master
Servicing Agreement; and the Master Servicing Agreement, assuming the due
authorization, execution and delivery thereof by the other parties thereto,
constitutes a legal, valid and binding obligation of _________________,
enforceable against _________________ in accordance with its terms, except that
(a) the enforceability thereof may be limited by bankruptcy, insolvency,
moratorium, receivership and other similar laws relating to creditors' rights
generally and (b) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
(3) The execution and delivery of the Master Servicing Agreement by
_________________, the servicing of the Mortgage Loans by _________________
under the Master Servicing Agreement, the consummation of any other of the
transactions contemplated by the Master Servicing Agreement, and the fulfillment
of or compliance with the terms thereof are in the ordinary course of business
of _________________ and will not (A) result in a material breach of any term or
provision of the charter or by-laws of ________________ or (B) materially
conflict with, result in a material breach, violation or acceleration of, or
result in a material default under, the terms of any other material agreement or
instrument to which ________________ is a party or by which it may be bound, or
(C) constitute a material violation of any statute, order or regulation
applicable to _________________ of any court, regulatory body, administrative
agency or governmental body having jurisdiction over ________________; and
_________________ is not in breach or violation of any material indenture or
other material agreement or instrument, or in violation of any statute, order or
regulation of any court, regulatory body, administrative agency or governmental
body having jurisdiction over it which breach or violation may materially impair
________________'s ability to perform or meet any of its obligations under the
Master Servicing Agreement.
(4) Each Servicer is an approved servicer of conventional mortgage loans
for FNMA or FHLMC or is a mortgagee approved by the Secretary of Housing and
Urban Development pursuant to Sections 203 and 211 of the National Housing Act.
(5) No litigation is pending or, to the best of ______'s knowledge,
threatened against ____ _______that would materially and adversely affect the
execution, delivery or enforceability of the Master Servicing Agreement or the
ability of __________ to service the Mortgage Loans or to perform any of its
other obligations under the Master Servicing Agreement in accordance with the
terms thereof.
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(6) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by _________________ of, or compliance by _________ _______with, the
Master Servicing Agreement or the consummation of the transactions contemplated
thereby, or if any such consent, approval, authorization or order is required,
_________________ has obtained the same.
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SCHEDULE III
AMERICAN RESIDENTIAL EAGLE BOND TRUST [199__-__]
Collateralized Mortgage Bonds
Representations and Warranties as to the Mortgage Loans
[American Residential] ("___") hereby makes the representations and
warranties set forth in this Schedule III to the Trustee, as of the Closing
Date, or if so specified herein, as of the Cut-off Date. Capitalized terms used
but not otherwise defined in this Schedule III shall have the meanings ascribed
thereto in the Master Servicing Agreement (the "Master Servicing Agreement")
relating to the above-referenced Series, among _____________ as Master Servicer,
American Residential Eagle Bond Trust [199__-__], as Issuer, and
____________________________________________________, as Trustee.
(1) The information set forth on Schedule I to the Master Servicing
Agreement with respect to each Mortgage Loan is true and correct in all material
respects as of the Closing Date.
(2) As of the Closing Date, all payments due with respect to each
Mortgage Loan prior to the Cut-off Date have been made; and as of the Cut-off
Date, [no Mortgage Loan has been contractually delinquent for 30 or more days
during the twelve months prior to the Cut-off Date].
(3) No Mortgage Loan had a Loan-to-Value Ratio at origination in excess
of ____%.
(4) With respect to any Mortgage Loan that is not a Cooperative Loan,
each Mortgage is a valid and enforceable first lien on the Mortgaged Property
subject only to (a) the lien of non-delinquent current real property taxes and
assessments, (b) covenants, conditions and restrictions, rights of way,
easements and other matters of public record as of the date of recording of such
Mortgage, such exceptions appearing of record being acceptable to mortgage
lending institutions generally or specifically reflected in the appraisal made
in connection with the origination of the related Mortgage Loan, and (c) other
matters to which like properties are commonly subject which do not materially
interfere with the benefits of the security intended to be provided by such
Mortgage.
(5) Immediately prior to the pledge of the Mortgage Loans to the Trustee
for the benefit of the Bondholders, the Issuer had good title to, and was the
sole owner of, each Mortgage Loan free and clear of any pledge, lien,
encumbrance or security interest and had full right and authority, subject to no
interest or participation of, or agreement with, any other party, to pledge and
assign the same pursuant to the Indenture.
(6) There is no delinquent tax or assessment lien against any Mortgaged
Property.
(7) There is no valid offset, defense or counterclaim to any Mortgage
Note or Mortgage, including the obligation of the Mortgagor to pay the unpaid
principal of or interest on such Mortgage Note.
(8) There are no mechanics' liens or claims for work, labor or material
affecting any Mortgaged Property which are or may be a lien prior to, or equal
with, the lien of such Mortgage, except those which are insured against by the
title insurance policy referred to in item (12) below.
(9) To the best of the _______'s knowledge, each Mortgaged Property is
free of material damage, and is in good repair.
(10) Each Mortgage Loan at origination complied in all material respects
with applicable state and federal laws, including, without limitation, usury,
equal credit opportunity, real estate settlement procedures, truth-in-lending
and disclosure laws, and consummation of the transactions contemplated hereby
will not involve the violation of any such laws.
(11) As of the Closing Date, no prior holder of any Mortgage has
modified the Mortgage in any material respect (except that a Mortgage Loan may
have been modified by a written instrument which has been recorded or submitted
for recordation, if necessary, to protect the interests of the Bondholders and
which has been delivered to the Trustee); satisfied, cancelled or
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subordinated such Mortgage in whole or in part; released the related Mortgaged
Property in whole or in part from the lien of such Mortgage; or executed any
instrument of release, cancellation, modification or satisfaction with respect
thereto.
(12) A lender's policy of title insurance together with a condominium
endorsement and an extended coverage endorsement, if applicable, and a variable
rate endorsement in an amount at least equal to the Cut-off Date Stated
Principal Balance of each such Mortgage Loan or a commitment (binder) to issue
the same was effective on the date of the origination of each Mortgage Loan,
each such policy is valid and remains in full force and effect, and each such
policy was issued by a title insurer qualified to do business in the
jurisdiction where the Mortgaged Property is located and acceptable to FNMA or
FHLMC and is in a form acceptable to FNMA or FHLMC, which policy insures the
Master Servicer and successor owners of indebtedness secured by the insured
Mortgage, (a) as to the first priority lien of the Mortgage subject to the
exceptions set forth in paragraph (4) above and (b) against loss by reason of
the invalidity or unenforceability of the lien resulting from the provisions of
the Mortgage Note and Mortgage with respect to adjustment in the Mortgage Rate
and Scheduled Payment; to the best of the Issuer's knowledge, no claims have
been made under such mortgage title insurance policy and no prior holder of the
related Mortgage, including the Master Servicer or the Issuer, has done, by act
or omission, anything which would impair the coverage of such mortgage title
insurance policy.
(13) Each Mortgage Loan was originated by an entity that satisfied at
the time of origination the requirements of Section 3(a)(41) of the Securities
Exchange Act of 1934, as amended.
(14) To the best of _______'s knowledge, all of the improvements which
were included for the purpose of determining the Appraised Value of the
Mortgaged Property lie wholly within the boundaries and building restriction
lines of such property, and no improvements on adjoining properties encroach
upon the Mortgaged Property.
(15) To the best of _______'s knowledge, no improvement located on or
being part of the Mortgaged Property is in violation of any applicable zoning
law or regulation. To the best of _______'s knowledge, all inspections, licenses
and certificates required to be made or issued with respect to all occupied
portions of the Mortgaged Property and, with respect to the use and occupancy of
the same, including but not limited to certificates of occupancy and fire
underwriting certificates, have been made or obtained from the appropriate
authorities, unless the lack thereof would not have a material adverse effect on
the value of such Mortgaged Property, and the Mortgaged Property is lawfully
occupied under applicable law.
(16) The Mortgage Note and the related Mortgage are genuine, and each is
the legal, valid and binding obligation of the maker thereof, enforceable in
accordance with its terms and under applicable law. To the best of _______'s
knowledge, all parties to the Mortgage Note and the Mortgage had legal capacity
to execute the Mortgage Note and the Mortgage and each Mortgage Note and
Mortgage have been duly and properly executed by such parties.
(17) The proceeds of the Mortgage Loan have been fully disbursed, there
is no requirement for future advances thereunder and any and all requirements as
to completion of any on-site or off-site improvements and as to disbursements of
any escrow funds therefor have been complied with. All costs, fees and expenses
incurred in making, or closing or recording the Mortgage Loans were paid.
(18) The related Mortgage contains customary and enforceable provisions
which render the rights and remedies of the holder thereof adequate for the
realization against the Mortgaged Property of the benefits of the security,
including, (i) in the case of a Mortgage designated as a deed of trust, by
trustee's sale, and (ii) otherwise by judicial foreclosure.
(19) With respect to each Mortgage constituting a deed of trust, a
trustee, duly qualified under applicable law to serve as such, has been properly
designated and currently so serves and is named in such Mortgage, and no fees or
expenses are or will become payable by the Trust Estate to the trustee under the
deed of trust, except in connection with a trustee's sale after default by the
Mortgagor.
(20) Each Mortgage Note and each Mortgage is in substantially one of the
forms acceptable to FNMA or FHLMC, with such riders as have been acceptable to
FNMA or FHLMC, as the case may be.
(21) There exist no deficiencies with respect to escrow deposits and
payments, if such are required, for which customary arrangements for repayment
thereof have not been made, and no escrow deposits or payments of other charges
or payments due _______ have been capitalized under the Mortgage or the related
Mortgage Note.
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(22) The origination, underwriting and collection practices used by the
Master Servicer with respect to each Mortgage Loan have been in all respects
legal, prudent and customary in the mortgage lending and servicing business.
(23) There is no pledged account or other security other than real
estate securing the Mortgagor's obligations.
(24) No Mortgage Loan has a shared appreciation feature, or other
contingent interest feature.
(25) Each Mortgage Loan is assumable if the proposed transferee submits
certain information required to evaluate the transferee's ability to repay the
Mortgage Loan and the holder of the Mortgage Note reasonably determines that the
security for the Mortgage Loan would not be impaired by the assumption.
(26) None of the Mortgage Loans provides for a prepayment penalty.
(27) Except with respect to ____ Mortgage Loans representing
approximately _____% of the Cut-off Date Pool Principal Balance, each Mortgage
Loan which had a Loan-to-Value Ratio at origination in excess of 80% is the
subject of a Primary Insurance Policy that insures that portion of the original
principal balance of the related Mortgage Loan equal to the product of the
original principal balance thereof and a fraction, the numerator of which is the
excess of the original principal balance of the related Mortgage Loan over 75%
of the lesser of the appraised value and selling price of the related Mortgaged
Property and the denominator of which is the original principal balance of the
related Mortgage Loan, plus accrued interest thereon and related foreclosure
expenses. Each such Primary Insurance Policy is issued by a Qualified Insurer
acceptable to each of the Rating Agencies. All provisions of any such Primary
Insurance Policy have been and are being complied with, any such policy is in
full force and effect, and all premiums due thereunder have been paid. Any
Mortgage subject to any such Primary Insurance Policy obligates the Mortgagor
thereunder to maintain such insurance and to pay all premiums and charges in
connection therewith. The Mortgage Rate for each Mortgage Loan is net of any
such insurance premium.
(28) At the Cut-off Date, the improvements upon each Mortgaged Property
are covered by a valid and existing hazard insurance policy with a generally
acceptable carrier that provides for fire and extended coverage and coverage for
such other hazards as are customary in the area where the Mortgaged Property is
located in an amount which is at least equal to the lesser of (i) the maximum
insurable value of the improvements securing such Mortgage Loan or (ii) the
greater of (a) the outstanding principal balance of the Mortgage Loan and (b) an
amount such that the proceeds of such policy shall be sufficient to prevent the
Mortgagor and/or the mortgagee from becoming a co-insurer. If the Mortgaged
Property is a condominium unit, it is included under the coverage afforded by a
blanket policy for the condominium unit. All such individual insurance policies
and all flood policies referred to in item (29) below contain a standard
mortgagee clause naming ___________ or the original mortgagee, and its
successors in interest, as mortgagee, and _________ has received no notice that
any premiums due and payable thereon have not been paid; the Mortgage obligates
the Mortgagor thereunder to maintain all such insurance including flood
insurance at the Mortgagor's cost and expense, and upon the Mortgagor's failure
to do so, authorizes the holder of the Mortgage to obtain and maintain such
insurance at the Mortgagor's cost and expense and to seek reimbursement therefor
from the Mortgagor.
(29) If the Mortgaged Property is in an area identified in the Federal
Register by the Federal Emergency Management Agency as having special flood
hazards, a flood insurance policy in a form meeting the requirements of the
current guidelines of the Flood Insurance Administration is in effect with
respect to such Mortgaged Property with a generally acceptable carrier in an
amount representing coverage not less than the least of (A) the original
outstanding principal balance of the Mortgage Loan, (B) the minimum amount
required to compensate for damage or loss on a replacement cost basis, or (C)
the maximum amount of insurance that is available under the Flood Disaster
Protection Act of 1973, as amended.
(30) To the best of _______'s knowledge, there is no proceeding pending
or threatened for the total or partial condemnation of any Mortgaged Property,
nor is such a proceeding currently occurring.
(31) There is no material monetary default existing under any Mortgage
or the related Mortgage Note and, to the best of the Issuer's knowledge, there
is no material event which, with the passage of time or with notice and the
expiration of any grace or cure period, would constitute a default, breach,
violation or event of acceleration under the Mortgage or the related Mortgage
Note; and _______ has not waived any default, breach, violation or event of
acceleration.
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(32) Other than with respect to Mortgaged Property underlying a
Cooperative Loan, each Mortgaged Property is improved by a one- to four-family
residential dwelling including condominium units and dwelling units in PUDs,
which, to the best of _______'s knowledge, does not include mobile homes and
does not constitute other than real property under state law.
(33) Each Mortgage Loan is being serviced by the Master Servicer or a
Servicer as provided in Section 3(b) of the Master Servicing Agreement.
(34) There is no obligation on the part of the Issuer or any other party
under the terms of the Mortgage or related Mortgage Note to make payments in
addition to those made by the Mortgagor.
(35) Any future advances made prior to the Cut-off Date have been
consolidated with the outstanding principal amount secured by the Mortgage, and
the secured principal amount, as consolidated, bears a single interest rate and
single repayment term reflected on the Schedule of Mortgage Loans. The
consolidated principal amount does not exceed the original principal amount of
the Mortgage Loan. The Mortgage Note does not permit or obligate the Master
Servicer to make future advances to the Mortgagor at the option of the
Mortgagor.
(36) There are no defaults in complying with the terms of the Mortgage,
and all taxes, governmental assessments, insurance premiums, water, sewer and
municipal charges, leasehold payments or ground rents which previously became
due and owing have been paid, or an escrow of funds has been established in an
amount sufficient to pay for every such item which remains unpaid and which has
been assessed, but is not yet due and payable. Except for (A) payments in the
nature of escrow payments, and (B) interest accruing from the date of the
Mortgage Note or date of disbursement of the Mortgage proceeds, whichever is
later, to the day which precedes by one month the Due Date of the first
installment of principal and interest, including without limitation taxes and
insurance payments, _______ has not advanced funds, or induced, solicited or
knowingly received any advance of funds by a party other than the Mortgagor,
directly or indirectly, for the payment of any amount required by the Mortgage.
[(37) Each Mortgage Loan was underwritten in all material respects in
accordance with the underwriting guidelines set forth in the Prospectus
Supplement.]
(38) Prior to the approval of the Mortgage Loan application, an
appraisal of the related Mortgaged Property was obtained from a qualified
appraiser, duly appointed by the originator, who had no interest, direct or
indirect in the Mortgaged Property or in any loan made on the security thereof,
and whose compensation is not affected by the approval or disapproval of the
Mortgage Loan; such appraisal is in a form acceptable to FNMA or FHLMC.
(39) None of the Mortgage Loans is a graduated payment mortgage loan or
a growing equity mortgage loan or subject to a buy down or similar arrangement.
(40) Any leasehold estate securing a Mortgage Loan has a term of not
less than five years in excess of the term of the related Mortgage Loan.
(41) All of the Mortgage Loans have a payment date on or before the Due
Date in the month of the first Distribution Date.
(42) [None] of the Mortgage Loans are Convertible Mortgage Loans.
[(43) As of the Closing Date, the Index for the adjustment of the
Mortgage Rate of each Mortgage Loan is __________________________________.]
(44) The Mortgage Loans, individually and in the aggregate, conform in
all material respects to the descriptions thereof in the Prospectus Supplement.
(45) [None] of the Mortgage Loans are Cooperative Loans.
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SCHEDULE IV
AMERICAN RESIDENTIAL EAGLE BOND TRUST [199__-__]
Collateralized Mortgage Bonds
Representations and Warranties of the Issuer.
American Residential Eagle Bond Trust [199__-__] (the "Issuer") hereby
makes the representations and warranties set forth in this Schedule IV to the
Master Servicer and the Trustee, as of the Closing Date. Capitalized terms used
but not otherwise defined in this Schedule IV shall have the meanings ascribed
thereto in the Master Servicing Agreement (the "Master Servicing Agreement")
relating to the above-referenced Series, among _________________________, as
Master Servicer, American Residential Eagle Bond Trust [199__-__], as Issuer,
and _________________________________, as Trustee.
(1) The Issuer is a statutory business trust duly organized, validly
existing and in good standing under the laws of the State of Delaware, and
possesses all requisite authority, power, licenses, permits and franchises to
conduct any and all business contemplated by the Master Servicing Agreement and
to comply with its obligations under the terms of this Agreement, the
performance of which have been duly authorized by all necessary action.
(2) Neither the execution and delivery of the Master Servicing Agreement
by the Issuer, nor the performance and compliance with the terms thereof by the
Issuer will (A) result in a material breach of any term or provision of the
instruments creating the Issuer or governing its operations, or (B) materially
conflict with, result in a material breach, violation or acceleration of, or
result in a material default under, the terms of any other material agreement or
instrument to which the Issuer is a party or by which it may be bound, or (C)
constitute a material violation of any statute, order or regulation applicable
to the Issuer of any court, regulatory body, administrative agency or
governmental body having jurisdiction over the Issuer; and the Issuer is not in
breach or violation of any material indenture or other material agreement or
instrument, or in violation of any statute, order or regulation of any court,
regulatory body, administrative agency or governmental body having jurisdiction
over it which breach or violation may materially impair the Issuer's ability to
perform or meet any of its obligations under the Master Servicing Agreement.
(3) This Agreement, and all documents and instruments contemplated
hereby, which are executed and delivered by the Issuer, will, assuming due
authorization, execution by and delivery to the other parties hereto and
thereto, constitute valid, legal and binding obligations of the Issuer,
enforceable in accordance with their respective terms, except that (a) the
enforceability thereof may be limited by bankruptcy, insolvency, moratorium,
receivership and other similar laws relating to creditors' rights generally and
(b) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
(4) No litigation is pending or, to the best of the Issuer's knowledge,
threatened against the Issuer that would materially and adversely affect the
execution, delivery or enforceability of the Master Servicing Agreement or the
ability of the Issuer to perform its obligations thereunder.
(5) Immediately prior to the transfer and assignment of the Mortgage
Loans to the Trustee, the Issuer had good title to, and was the sole owner of,
each Mortgage Loan free and clear of any liens, charges or encumbrances or any
ownership or participation interests in favor of any other Person.
45
<PAGE> 49
EXHIBIT A
FORM OF INITIAL CERTIFICATION OF TRUSTEE
[date]
[Master Servicer]
[Issuer]
- -------------------------------------
- -------------------------------------
Re: Master Servicing Agreement among American Residential Eagle Bond
Trust [199__-__], as Issuer, ______________, as Master Servicer,
and ____________________, as Trustee, Collateralized Mortgage
Bonds
Gentlemen:
In accordance with Section 2(b) of the above-captioned Master Servicing
Agreement (the "Master Servicing Agreement"), the undersigned, as Trustee,
hereby certifies that, as to each Mortgage Loan listed in the Schedule of
Mortgage Loans (other than any Mortgage Loan listed in the attached schedule),
it has received:
(i) the original Mortgage Note, endorsed as provided in the following
form: "Pay to the order of ________, without recourse"; and
(ii) a duly executed assignment of the Mortgage (which may be included
in a blanket assignment or assignments).
Based on its review and examination and only as to the foregoing
documents, such documents appear regular on their face and related to such
Mortgage Loan.
The Trustee has made no independent examination of any documents
contained in each Trustee Mortgage File beyond the review specifically required
in the Master Servicing Agreement. The Trustee makes no representations as to:
(i) the validity, legality, sufficiency, enforceability or genuineness of any of
the documents contained in each Trustee Mortgage File of any of the Mortgage
Loans identified on the Schedule of Mortgage Loans, (ii) the collectability,
insurability, effectiveness or suitability of any such Mortgage Loan or (iii)
the correctness of any information set forth in the Schedule of Mortgage Loans,
other than the information specified in items (i) through (iv) and (vi) thereof.
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the Master Servicing Agreement.
-----------------------------------------------
as Trustee
By:
--------------------------------------------
Name:
------------------------------------------
Title:
----------------------------------------
46
<PAGE> 50
EXHIBIT B
FORM OF FINAL CERTIFICATION OF TRUSTEE
[date]
[Master Servicer]
[Issuer]
- -------------------------------------
- -------------------------------------
Re: Master Servicing Agreement among American Residential Eagle Bond
Trust [199__-__], as Issuer, ___________________ _, as Master
Servicer, and ________________________, as Trustee,
Collateralized Mortgage Bonds,
Gentlemen:
In accordance with Section 2(b) of the above-captioned Master Servicing
Agreement (the "Master Servicing Agreement"), the undersigned, as Trustee,
hereby certifies that as to each Mortgage Loan listed in the Schedule of
Mortgage Loans (other than any Mortgage Loan paid in full or listed on the
attached Document Exception Report) it has received:
(i) The original Mortgage Note, endorsed in the form provided in Section
2(a) of the Master Servicing Agreement, with all intervening endorsements
showing a complete chain of endorsement from the originator to the Issuer.
(ii) The original recorded Mortgage.
(iii) A duly executed assignment of the Mortgage in the form provided in
Section 2(a) of the Master Servicing Agreement, or, if the Master Servicer has
certified or the Trustee otherwise knows that the related Mortgage has not been
returned from the applicable recording office, a copy of the assignment of the
Mortgage (excluding information to be provided by the recording office).
(iv) The original or duplicate original recorded assignment or
assignments of the Mortgage showing a complete chain of assignment from the
originator to the Issuer.
(v) The original or duplicate original lender's title policy and all
riders thereto or, any one of an original title binder, an original preliminary
title report or an original title commitment, or a copy thereof certified by the
title company.
Based on its review and examination and only as to the foregoing
documents, (a) such documents appear regular on their face and related to such
Mortgage Loan, and (b) the information set forth in items (i), (ii), (iii),
(iv), (vi) and (xi) of the definition of the "Schedule of Mortgage Loans" in
Section 1.01 of the Master Servicing Agreement accurately reflects information
set forth in the Trustee Mortgage File.
The Trustee has made no independent examination of any documents
contained in each Trustee Mortgage File beyond the review specifically required
in the Master Servicing Agreement. The Trustee makes no representations as to:
(i) the validity, legality, sufficiency, enforceability or genuineness of any of
the documents contained in each Trustee Mortgage File of any of the Mortgage
Loans identified on the Schedule of Mortgage Loans, or (ii) the collectability,
insurability, effectiveness or suitability of any such Mortgage Loan.
Notwithstanding anything herein to the contrary, the Trustee has made no
determination and makes no representations as to whether (i) any endorsement is
sufficient to transfer all right, title and interest of the party so endorsing,
as noteholder or assignee thereof, in and to that Mortgage Note or (ii) any
assignment is in recordable form or sufficient to effect the assignment of and
transfer to the assignee thereof, under the Mortgage to which the assignment
relates.
47
<PAGE> 51
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the Master Servicing Agreement.
-------------------------------------------
as Trustee
By:
------------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
48
<PAGE> 52
EXHIBIT C
REQUEST FOR RELEASE
(for Trustee)
American Residential Eagle Bond Trust [199__-__]
Collateralized Mortgage Bonds
Loan Information
Name of Mortgagor: ______________________________
Servicer
Loan No.: _______________________________
Trustee
Name: _______________________________
Address: _______________________________
_______________________________
Trustee
Mortgage File No.: _______________________________
The undersigned Master Servicer hereby acknowledges that it has received
from ___________________________, as Trustee for the Holders of Bonds of the
above-referenced Series, the documents referred to below (the "Documents"). All
capitalized terms not otherwise defined in this Request for Release shall have
the meanings given them in the Master Servicing Agreement (the "Master Servicing
Agreement") relating to the above-referenced Series among the Trustee, _______
________________________________________, as Master Servicer, and American
Residential Eagle Bond Trust [199__-__], as Issuer.
( ) Mortgage Note dated ____________, 19__, in the
original principal sum of $__________, made by ________________,
payable to, or endorsed to the order of, the Trustee.
( ) Mortgage recorded on _________________ as instrument
no. _____________________ in the County Recorder's Office of the
County of ___________________, State of _______________ in
book/reel/docket ________________ of official records at
page/image ________________.
( ) Deed of Trust recorded on __________________ as
instrument no. _________________ in the County Recorder's Office
of the County of _______________, State of _______________ in
book/reel/docket _______________ of official records at
page/image _______________.
( ) Assignment of Mortgage or Deed of Trust to the
Trustee, recorded on _________________ as instrument no.
________ ___ in the County Recorder's Office of the County of
__________, State of ________________ in book/reel/docket
_____________ of official records at page/image______________.
( ) Other documents, including any amendments,
assignments or other assumptions of the Mortgage Note or
Mortgage.
49
<PAGE> 53
( ) ___________________________________________________________
( ) ___________________________________________________________
( ) ___________________________________________________________
( ) ___________________________________________________________
The undersigned Master Servicer hereby acknowledges and agrees as
follows:
(1) The Master Servicer shall hold and retain possession of the
Documents in trust for the benefit of the Trustee, solely for the purposes
provided in the Agreement.
(2) The Master Servicer shall not cause or knowingly permit the
Documents to become subject to, or encumbered by, any claim, liens, security
interest, charges, writs of attachment or other impositions nor shall the Master
Servicer assert or seek to assert any claims or rights of setoff to or against
the Documents or any proceeds thereof.
(3) The Master Servicer shall return each and every Document previously
requested from the Trustee Mortgage File to the Trustee when the need therefor
no longer exists, unless the Mortgage Loan relating to the Documents has been
liquidated and the proceeds thereof have been remitted to the Bond Account and
except as expressly provided in the Master Servicing Agreement.
(4) The Documents and any proceeds thereof, including any proceeds of
proceeds, coming into the possession or control of the Master Servicer shall at
all times be earmarked for the account of the Trustee, and the Master Servicer
shall keep the Documents and any proceeds separate and distinct from all other
property in the Master Servicer's possession, custody or control.
---------------------------------------------------
By
-------------------------------------------------
Its
------------------------------------------------
Date:_____________, ________19
50
<PAGE> 54
EXHIBIT D
REQUEST FOR RELEASE OF DOCUMENTS
To:
Re: The Master Servicing Agreement dated ________ __, 19__ among
____________________ ("_____"), as Master Servicer, American
Residential Eagle Bond Trust [199__-__], as Issuer, and
____________________, as Trustee
Ladies and Gentlemen:
In connection with the administration of the Mortgage Loans held by you
as Trustee for American Residential Eagle Bond Trust [199__-__], as Issuer, we
request the release of the Trustee Mortgage File for the Mortgage Loan(s)
described below, for the reason indicated.
FT Account#: Pool #:
Mortgagor's Name, Address and Zip Code:
Mortgage Loan Number:
Reason for Requesting Documents (check one)
_______1. Mortgage Loan paid in full (__________ hereby
certifies that all amounts have been received.)
_______2. Mortgage Loan Liquidated (_____ hereby
certifies that all proceeds of foreclosure, insurance, or other
liquidation have been finally received.)
_______3. Mortgage Loan in Foreclosure.
_______4. Other (explain):_____________________________
If item 1 or 2 above is checked, and if all or part of the Trustee
Mortgage File was previously released to us, please release to us our previous
receipt on file with you, as well as an additional documents in your possession
relating to the above-specified Mortgage Loan. If item 3 or 4 is checked, upon
return of all of the above documents to you as Trustee, please acknowledge your
receipt by signing in the space indicated below, and returning this form.
------------------------------ -----------------------------------
-----------------------------------
-----------------------------------
By:
---------------------------
Name:
-------------------------
Title:
-------------------------
Date:
-------------------------
TRUSTEE CONSENT TO RELEASE AND
ACKNOWLEDGEMENT OF RECEIPT
By:
---------------------------
Name:
-------------------------
Title:
------------------------
Date:
-------------------------
51
<PAGE> 1
Exhibit 4.4
Form of Trust Agreement
================================================================================
AMERICAN RESIDENTIAL EAGLE, INC.
as Depositor
and
[ ],
as Trustee
TRUST AGREEMENT
Dated as of , 199
-----------------------
AMERICAN RESIDENTIAL EAGLE CERTIFICATE TRUST [199__-__]
Mortgage-Backed Certificates
[Series 199__-__]
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
ARTICLE I
Definitions
<S> <C>
1.01. ...............................................................................
Accretion Directed Certificates........................................................
Accrual Amount.........................................................................
Accrual Certificates...................................................................
Accrual Termination Date...............................................................
Advancing Date.........................................................................
Agreement..............................................................................
Allocable Share........................................................................
Allocated Amount.......................................................................
Allocated Amount Decline...............................................................
Amortization Payment...................................................................
Amount Held for Future Distribution....................................................
Applicable Credit Support Percentage...................................................
Appraised Value........................................................................
Available Funds........................................................................
Balloon Payments.......................................................................
Bankruptcy Bond........................................................................
Bankruptcy Coverage Termination Date...................................................
Bankruptcy Loss........................................................................
Blanket Mortgage.......................................................................
Bond Expense Fee.......................................................................
Bond Expense Rate......................................................................
Bond Trustee...........................................................................
Book-Entry Certificate.................................................................
Business Day...........................................................................
Certificate............................................................................
Certificateholder or Holder............................................................
Certificate Insurance Policy...........................................................
Certificate Insurance Premium..........................................................
Certificate Insurance Proceeds.........................................................
Certificate Insurer....................................................................
Certificate Owner......................................................................
Certificate Register and Certificate Registrar.........................................
Class ...............................................................................
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Section Page
- --------------------------------------------------------------------------------------
<S> <C>
Class Certificate Balance....................................................
Class Interest Shortfall.....................................................
Class Optimum Interest Distribution Amount...................................
Class Subordination Percentage...............................................
Class Unpaid Interest Shortfall..............................................
Closing Date.................................................................
Code .....................................................................
COFI .....................................................................
COFI Certificates............................................................
Component....................................................................
Component Balance............................................................
Component Certificates.......................................................
Controlling Class............................................................
Converted Mortgage Loan......................................................
Convertible Mortgage Loan....................................................
Coop Shares..................................................................
Cooperative Corporation......................................................
Cooperative Loan.............................................................
Cooperative Property.........................................................
Cooperative Unit.............................................................
Core Percentage..............................................................
Corporate Trust Office.......................................................
Credit Enhancement Fee.......................................................
Credit Enhancement Fee Rate..................................................
Credit Support Termination Date..............................................
Current Bankruptcy Amount....................................................
Curtailment..................................................................
Custodian....................................................................
Cut-Off Date.................................................................
Cut-Off Date Pool Principal Balance..........................................
Cut-Off Date Principal Balance...............................................
Debt Service Reduction.......................................................
Debt Service Reduction Mortgage Loan.........................................
Defective Mortgage Loan......................................................
Deficient Valuation..........................................................
Deficient Valuation Mortgage Loan............................................
Definitive Certificates......................................................
Denomination.................................................................
Depository...................................................................
Depository Participant.......................................................
Determination Date...........................................................
Distribution Account.........................................................
Distribution Account Deposit Date............................................
</TABLE>
i
<PAGE> 4
<TABLE>
<CAPTION>
Section Page
- --------------------------------------------------------------------------------------
<S> <C>
Distribution Date............................................................
Due Date.....................................................................
Duff & Phelps................................................................
Eligible Account.............................................................
ERISA .....................................................................
Events of Default............................................................
Expense Fee..................................................................
Expense Rate.................................................................
Expenses.....................................................................
FASIT .....................................................................
FASIT Certificate Maturity Date..............................................
FASIT Change of Law..........................................................
FASIT Provisions.............................................................
FDIC .....................................................................
FHLMC .....................................................................
Final Distribution Date......................................................
Fitch .....................................................................
FNMA .....................................................................
Fraud Coverage Termination Date..............................................
Fraud Loan...................................................................
Fraud Loss...................................................................
Fraud Loss Coverage Amount...................................................
Fraud Loss Coverage Termination Date.........................................
Gross Margin.................................................................
High Yield Certificates......................................................
Indenture....................................................................
Independent..................................................................
Index .....................................................................
Initial Adjustment Date......................................................
Initial Bankruptcy Coverage Amount...........................................
Initial Class Certificate Balance............................................
Initial Component Balance....................................................
Initial Fraud Loss Coverage Amount...........................................
Initial LIBOR Rate...........................................................
Initial Special Hazard Coverage Amount.......................................
Insurance Proceeds...........................................................
Insured Expenses.............................................................
Interest Accrual Period......................................................
Investment Depository........................................................
LIBOR Certificates...........................................................
Liquidated Deficient Valuation Loss..........................................
Liquidated Deficient Valuation Mortgage Loan.................................
Liquidated Mortgage Loan.....................................................
</TABLE>
ii
<PAGE> 5
<TABLE>
<CAPTION>
Section Page
- --------------------------------------------------------------------------------------
<S> <C>
Liquidation Expenses.........................................................
Liquidation Period...........................................................
Liquidation Proceeds.........................................................
Loan-to-Value Ratio..........................................................
Maintenance..................................................................
Master Servicer..............................................................
Master Servicing Agreement...................................................
Master Servicing Fee.........................................................
Maximum Rate.................................................................
Mezzanine Certificates.......................................................
Minimum Rate.................................................................
Moody's .....................................................................
Mortgage.....................................................................
Mortgage Interest Rate.......................................................
Mortgage Loans...............................................................
Mortgage Loan Schedule.......................................................
Mortgage Note................................................................
Mortgaged Property...........................................................
Mortgagor....................................................................
Net Liquidation Proceeds.....................................................
Net Mortgage Interest Rate or NMR............................................
Net Prepayment Interest Shortfalls...........................................
Net Realized Loss............................................................
Net Special Hazard Losses....................................................
NMR .....................................................................
Non-Delay Certificates.......................................................
Non-U.S. Person..............................................................
Notional Amount..............................................................
Notional Amount Certificates.................................................
Offered Certificates.........................................................
Officers' Certificate........................................................
Opinion of Counsel...........................................................
Original Applicable Credit Support Percentage................................
Original Mortgage Loans......................................................
Original Subordinate Certificate Balance.....................................
Outside Reference Date.......................................................
Outstanding Mortgage Loan....................................................
Ownership Certificates.......................................................
Ownership Interest...........................................................
Pass-Through Rate............................................................
Paying Agent.................................................................
Percentage Interest..........................................................
Periodic Rate Cap............................................................
</TABLE>
iii
<PAGE> 6
<TABLE>
<CAPTION>
Section Page
- --------------------------------------------------------------------------------------
<S> <C>
Permitted Investments........................................................
Permitted Transferee.........................................................
Person .....................................................................
Physical Certificates........................................................
Planned Principal Classes....................................................
Pool .....................................................................
Pool Scheduled Principal Balance.............................................
Prepayment Interest Shortfall................................................
Primary Insurance Policy.....................................................
Principal Only Certificates..................................................
Principal Prepayment.........................................................
Principal Prepayment in Full.................................................
Private Certificates.........................................................
Proprietary Lease............................................................
Prospectus...................................................................
Prospectus Supplement........................................................
Rating Agency................................................................
Recognition Agreement........................................................
Record Date..................................................................
Reduced Scheduled Principal Balance..........................................
Reference Date...............................................................
Regular Certificate..........................................................
Relief Act...................................................................
Relief Act Reductions........................................................
Remaining Liquidated Amount..................................................
REO Mortgage Loan............................................................
REO Proceeds.................................................................
Required Insurance Policy....................................................
Residual Certificates........................................................
Responsible Officer..........................................................
S&P .....................................................................
Scheduled Principal Balance..................................................
Seller .....................................................................
Senior Certificate...........................................................
Senior Certificate Balance...................................................
Senior Percentage............................................................
Senior Prepayment Percentage.................................................
Senior Principal Distribution Amount.........................................
Special Hazard Coverage......................................................
Special Hazard Event Termination Date........................................
Special Hazard Fee...........................................................
Special Hazard Fee Rate......................................................
Special Hazard Insurance Policy..............................................
</TABLE>
iv
<PAGE> 7
<TABLE>
<CAPTION>
Section Page
- --------------------------------------------------------------------------------------
<S> <C>
Special Hazard Insurer.......................................................
Special Hazard Loss Coverage Amount..........................................
Special Hazard Mortgage Loan.................................................
Splinter Loss................................................................
Start-up Date................................................................
Subordinate Certificate......................................................
Subordinate Percentage.......................................................
Subordinate Percentage Allocation............................................
Subordinate Prepayment Percentage............................................
Subordinate Prepayment Percentage Allocation.................................
Subordinate Principal Distribution Amount....................................
Substitute Mortgage Loan.....................................................
Substitution Adjustment Amount...............................................
Substitution Date............................................................
Targeted Principal Classes...................................................
Tax Matters Person...........................................................
Tax Matters Person Certificate...............................................
Transfer Restricted Certificates.............................................
Trust .....................................................................
Trust Fund...................................................................
Trustee Fee..................................................................
Trustee Fee Rate.............................................................
Underlying Bond..............................................................
Underwriter..................................................................
Voting Rights................................................................
Withdrawal Date..............................................................
Yield Maintenance Premium....................................................
ARTICLE II
Conveyance of the Underlying Bond; Original
Issuance of Certificates
2.01. Conveyance of the Underlying Bond.................................
2.02. Issuance of Certificates..........................................
2.03. Designation of Interest in FASIT..................................
2.04. Designation of Start-up Day.......................................
2.05. FASIT Certificate Maturity Date...................................
</TABLE>
v
<PAGE> 8
<TABLE>
<CAPTION>
Section Page
- --------------------------------------------------------------------------------------
<S> <C>
ARTICLE III
Administration of the Trust and
the Underlying Bond
3.01. Administration of the Trust and the Underlying Bond..................
ARTICLE IV
Collection of Payments on the Underlying Bond
4.01. Collection of Payments on the Underlying Bond........................
ARTICLE V
Payments and Statements to
Certificateholders
5.01. Distributions........................................................
5.02. Priorities of Distribution...........................................
5.03. Allocation of Net Realized Losses....................................
5.04. Statements to Certificateholders.....................................
5.05. Tax Returns and Reports to Certificateholders........................
5.06. Tax Matters Person...................................................
5.07. Rights of the Tax Matters Person in Respect of the Trustee...........
5.08. FASIT Related Covenants..............................................
5.09. Determination of Pass-Through Rates for COFI Certificates............
5.10. Determination of Pass-Through Rates for LIBOR Certificates...........
ARTICLE VI
The Certificates
6.01. The Certificates.....................................................
6.02. Registration of Transfer and Exchange of Certificates................
6.03. Mutilated, Destroyed, Lost or Stolen Certificates....................
6.04. Persons Deemed Owners................................................
</TABLE>
vi
<PAGE> 9
<TABLE>
<CAPTION>
Section Page
- --------------------------------------------------------------------------------------
<S> <C>
ARTICLE VII
The Depositor
7.01. Liability of the Depositor...........................................
7.02. Merger, Consolidation or Conversion of the Depositor.................
7.03. Limitation on Liability of the Depositor and Others..................
ARTICLE VIII
8.01. Events of Default....................................................
8.02. Acceleration of Maturity; Discussion and Annulment...................
8.03. Control by Certificateholders........................................
8.04. Waiver of Past Defaults..............................................
8.05. Undertaking for Costs................................................
8.06. Sale of Trust Estate.................................................
ARTICLE IX
The Trustee
9.01. Duties of Trustee....................................................
9.02. Certain Matters Affecting the Trustee................................
9.03. Trustee Not Liable for Certificates..................................
9.04. Trustee May Own Certificates.........................................
9.05. Eligibility Requirements for Trustee.................................
9.06. Resignation and Removal of Trustee...................................
9.07. Successor Trustee....................................................
9.08. Merger or Consolidation of Trustee...................................
9.09. Appointment of Co-Trustee or Separate Trustee........................
9.10. Authenticating Agents................................................
9.11. Trustee's Fees and Expenses..........................................
9.12. Tax Returns..........................................................
ARTICLE X
Termination
10.01 Termination Upon Purchase by the Depositor or Liquidation
of all Mortgage Loans................................................
10.02. Additional Termination Requirements..................................
</TABLE>
vii
<PAGE> 10
<TABLE>
<CAPTION>
Section Page
- --------------------------------------------------------------------------------------
<S> <C>
ARTICLE XI
Miscellaneous Provisions
11.01. Amendment............................................................
11.02. Recordation of Agreement.............................................
11.03. Limitation on Rights of Certificateholders...........................
11.04. Governing Law........................................................
11.05. Notices..............................................................
11.06. Severability of Provisions...........................................
11.07. Certificates Nonassessable and Fully Paid............................
11.08. Access to List of Certificateholders.................................
</TABLE>
viii
<PAGE> 11
<TABLE>
<CAPTION>
EXHIBITS
Page
----
<S> <C>
Exhibit A - Form of Face of Senior........................................... A-1
Exhibit B - Form of Ownership Certificate.................................... B-1
Exhibit C - Reserved
Exhibit D - Form of Subordinated Certificate................................. D-1
Exhibit E - Form of Reverse of all Certificates.............................. E-1
Exhibit F - Form of Affidavit Regarding Transfer of Ownership
Certificates Pursuant to Section 6.02............................ F-1
Exhibit G - Form of Investment Letter........................................ G-1
Exhibit H - Form of Master Servicer's Certificate............................ H-1
Exhibit I - Form of Opinion of Counsel Pursuant to Section 6.02.............. I-1
</TABLE>
ix
<PAGE> 12
THIS TRUST AGREEMENT, dated as of , 199 , among American Residential
Eagle, Inc., as depositor (together with its permitted successors and assigns,
the "Depositor"), and [ ], as trustee (together with its permitted successors
and assigns, the "Trustee").
W I T N E S S E T H T H A T:
In consideration of the mutual agreements herein contained, the
Depositor and the Trustee agree as follows:
PRELIMINARY STATEMENT
The Depositor is the owner of the Trust Fund that is hereby conveyed to
the Trustee in return for the Certificates. The Trust created by this Agreement
shall be titled the "American Residential Eagle Certificate Trust [199__-__]."
[The Depositor will elect to treat the Trust Fund for federal income tax
purposes as a single FASIT. The Certificates will represent the entire
beneficial ownership interest in the Trust Fund. The Regular Certificates will
represent the "regular interest" in the FASIT and the Ownership Certificate will
represent the single "ownership interest" in the FASIT. The "latest possible
maturity date" for federal income tax purposes of all interests created hereby
will be the Latest Possible Maturity Date.]
The following table sets forth characteristics of the Certificates,
together with the minimum denominations and integral multiples in excess thereof
in which such Classes shall be issuable (except that one Certificate of each
Class of Certificates may be issued in any amount in excess of the minimum
denomination and, in addition, if permitted by applicable Treasury Regulation,
one Ownership Certificate representing the Tax Matters Person Certificate may be
issued in a different amount):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Class Integral Multiples
Certificate Pass-Through Minimum in Excess of
Balance Rate Denomination Minimum Denomination
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A-1 [Variable
Rate(1)
- --------------------------------------------------------------------------------
Class O (2) (3)
- --------------------------------------------------------------------------------
[Class R] [ ] [ ] [ ] [N/A]
- --------------------------------------------------------------------------------
Class M-1 [ ]%
[Variable
Rate(1)]
- --------------------------------------------------------------------------------
Class B-1 [ ]%
[Variable
Rate(1)]
- --------------------------------------------------------------------------------
Class B-2 [ ]%
[Variable
Rate(1)]
- --------------------------------------------------------------------------------
</TABLE>
- --------
1 The Pass-Through Rate for any Distribution Date will equal the
weighted average of the Net Mortgage Rates then in effect for
each Mortgage Loan. The Net Mortgage Rate for each Mortgage Loan
will equal the Mortgage Rate thereon on the first date of the
month of the related Distribution Date less the related Expense
Rate. The Pass-Through Rate for the first Distribution Date is
expected to be approximately ___% per annum.
2 The Class X Certificates will have a small principal balance and
will bear interest on the Notional Amount.
3 The Pass-Through Rate for this Class for any Distribution Date
will be equal to the excess of (a) the weighted average of the
Net Mortgage Rates of the Mortgage Loans over (b) ____%.
1
<PAGE> 13
Set forth below are designations of Classes of Certificates to the categories
used herein:
<TABLE>
<S> <C>
Accretion Directed
Certificates............................... [ ].
Accrual Certificates......................... [ ].
Book-Entry Certificates...................... All Classes of Certificates other
than the Physical Certificates.
COFI Certificates............................ [ ].
Component Certificates....................... [ ].
Components................................... For purposes of calculating
distributions of principal, the
Component Certificates will be
comprised of multiple payment
components having the
designations, Initial Component
Balances and Pass-Through Rates
set forth below:
</TABLE>
<TABLE>
<CAPTION>
Initial
Component Pass-Through
Designation Balance Rate
----------- ------- ----
<S> <C> <C> <C>
N/A N/A N/A
</TABLE>
<TABLE>
<S> <C>
Delay Certificates........................... [All interest-bearing Classes of
Certificates other than the
Non-Delay Certificates, if any.]
ERISA-Restricted
Certificates............................... The [Class A-1,] Class M-1, Class
B-1 and Class B-2
Floating Rate Certificates................... [ ].
Inverse Floating Rate
Certificates............................... [ ].
High Yield Certificate....................... [The Class B-2 Certificates.]
LIBOR Certificates........................... [ ].
Mezzanine Certificates....................... The Class M-1 Certificates.
</TABLE>
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<PAGE> 14
<TABLE>
<S> <C>
Non-Delay Certificates....................... [ ].
Notional Amount Certificates................. The Class X Certificates.
Offered Certificates......................... All Classes of Certificates other
than the Private Certificates.
Ownership Certificates....................... Class O Certificates.
Physical Certificates........................ The [Class X,] Class R and
Subordinated Certificates.
Planned Principal Classes.................... [ ].
Primary Planned Principal
Classes.................................... [ ].
Principal Only Certificates.................. [ ].
Private Certificates......................... The Class O, Class B-1 and Class
B-2 Certificates.
Rating Agencies.............................. [ ].
Regular Certificates......................... All Classes of Certificates other
than the Class R Certificates.
Secondary Planned
Principal Classes.......................... [ ].
Senior Certificates.......................... Class A-1, Class X and [Class R]
Certificates.
Subordinated Certificates.................... The Mezzanine Certificates, Class
B-1 and Class B-2 Certificates.
Targeted Principal Classes................... [ ].
Transfer Restricted Certificates............. The High Yield Certificates and
the Ownership Certificates.
</TABLE>
With respect to any of the foregoing designations as to which the
corresponding reference is "None," all defined terms and provisions herein
relating solely to such designations shall be of no force or effect, and any
calculations herein incorporating references to such designations shall be
interpreted without reference to such designations and amounts. Defined terms
and provisions herein relating to statistical rating agencies not designated
above
3
<PAGE> 15
as Rating Agencies shall be of no force or effect.
ARTICLE I
Definitions
Section 1.01. Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the meanings
specified in this Article.
Accretion Directed Certificates: As specified in the Preliminary
Statement.
Accrual Amount: With respect to any Class of Accrual Certificates and
any Distribution Date prior to the Accrual Termination Date, the amount
allocable to interest on each such Class of Accrual Certificates with respect to
such Distribution Date pursuant to Section 5.02(a)(i).
Accrual Certificates: As specified in the Preliminary Statement.
Accrual Termination Date:
Advancing Date: The fourth Business Day preceding the related
Distribution Date.
Agreement: This Trust Agreement and all amendments hereof and
supplements hereto.
Allocable Share: As to each Class of Regular Certificates, such Class's
share of the interest reduction in respect of any Debt Service Reduction
Mortgage Loan or Deficient Valuation Mortgage Loan or any Mortgage Loan that is
the subject of a Relief Act Reduction, such share being determined by the ratio
of one month's interest at the related Pass-Through Rate on such Class' Senior
Percentage or, in the case of the Subordinate Certificates, the Subordinate
Percentage Allocation of the Scheduled Principal Balance of such Mortgage Loan
and one month's interest on the Scheduled Principal Balance of such Mortgage
Loan at the related Net Mortgage Rate.
[Allocated Amount]:
[Allocated Amount Decline: As to each respective Allocated Amount and
Distribution Date, the excess of (x) such Allocated Amount immediately following
the Due Date in the month preceding the month of such Distribution Date over (y)
such Allocated Amount immediately following the Due Date in the month of such
Distribution Date; provided that the Allocated Amount determined pursuant to
clause (y) shall be zero immediately following the Due Date in the month in
which the Final Distribution Date occurs.]
Amortization Payment: As to any REO Mortgage Loan and any month, the
payment of principal and accrued interest due in such month in accordance with
the terms of the related Mortgage Note as contemplated by the second paragraph
of [Section 3.10].
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<PAGE> 16
Amount Held for Future Distribution: As to any Distribution Date, the
total of the amounts held in the Certificate Account at the close of business on
the preceding Determination Date on account of (i) Principal Prepayments and
Liquidation Proceeds received or made in the month of such Distribution Date and
(ii) payments which represent receipt of scheduled payments of principal and
interest in respect of a Due Date or Due Dates subsequent to the related Due
Date.
[Applicable Credit Support Percentage: As defined in Section 5.02(d).]
Appraised Value: The value of the property underlying a Mortgage Loan
based, in the case of origination of such Mortgage Loan, on the lower of an
appraisal at the time of origination or the sales price of such property or
based, in the case of a refinancing, on an appraisal at the time of refinancing.
Available Funds: As to any Distribution Date, an amount equal to (a) the
amount received during the period from the prior Distribution Date through the
close of business on the Business Day next preceding the current Distribution
Date reduced by (b) all income from Permitted Investments that are held in the
Investment Account for the account of the ____________________________________].
[Balloon Payment: The principal component of a payment due on a Mortgage
Loan on its maturity date.]
[Bankruptcy Bond: The limited purpose bond with respect to proceedings
relating to Mortgagors under the Federal Bankruptcy Code, which proceedings
result in Bankruptcy Losses, and all amendments or endorsements thereto, or any
replacement bond obtained therefor.]
Bankruptcy Coverage Termination Date: The point of time at which the
Current Bankruptcy Amount is reduced to zero.
Bankruptcy Loss: Any Deficient Valuation or Debt Service Reduction.
[Blanket Mortgage: The mortgage or mortgages encumbering the Cooperative
Property.]
Bond Expense Fee: As defined in the Indenture.
Bond Expense Rate: As defined in the Indenture.
Bond Trustee: ___________________, a banking corporation organized under
the laws of _____________________.
Book-Entry Certificate: As specified in the Preliminary Statement.
5
<PAGE> 17
Business Day: Any day other than (i) a Saturday or a Sunday or (ii) a day on
which banking institutions in the State of __________ or in the state where the
Corporate Trust Office is located are required or authorized by law or executive
order to be closed.
Certificate: Any Regular Certificate or Ownership Certificate.
Certificateholder or Holder: The Person in whose name a Certificate is
registered in the Certificate Register, except that, solely for the purpose of
giving any consent pursuant to this Agreement, any Certificate registered in the
name of the Depositor, or any affiliate thereof shall be deemed not to be
outstanding and the Percentage Interest evidenced thereby shall not be taken
into account in determining whether the requisite amount of Percentage Interests
necessary to effect any such consent has been obtained, unless such entity is
the registered owner of the entire Class of Certificates, provided that the
Trustee shall not be responsible for knowing that any Certificate is registered
in the name of such an affiliate unless one of its Responsible Officers has
actual knowledge.
[Certificate Insurance Policy: The certificate guaranty surety bond,
policy number [_________], dated _________, 19__, issued by the Certificate
Insurer in favor of the Trustee for the benefit of the Certificateholders.]
Certificate Insurance Premium: The semiannual premium payable by the
Trustee to the Certificate Insurer under the Certificate Insurance Policy
specified in the agreement between the Certificate Insurer and the Sponsor.
Certificate Insurance Proceeds: Any proceeds of the Certificate
Insurance Policy.
Certificate Insurer: So long as the Certificate Insurance Policy is in
force, [____________], a [____________], or any successor thereto, as issuer of
the Certificate Insurance Policy.]
Certificate Owner: With respect to a Book-Entry Certificate, the person
who is the beneficial owner of a Book-Entry Certificate.
Certificate Register and Certificate Registrar: The register maintained
and the registrar appointed pursuant to Section 6.02.
Class: As to the Certificates, the Class A-1, Class X, Class M-1, Class
B-1 and Class B-2 Certificates or the Ownership Certificates, as the case may
be.
Class Certificate Balance: As to any Distribution Date and any Class of
Regular Certificates, the related Initial Class Certificate Balance reduced by
the sum of (i) the amount distributed to Holders of such Class of Certificates
on prior Distribution Dates and allocable to principal and (ii) the sum of (a)
in the case of such Classes of Regular Certificates, the amount of the related
Net Realized Losses previously applied in reduction of the Class Certificate
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<PAGE> 18
Balance of such Class pursuant to Section 5.03 hereof and (b) in the case of the
Class of Subordinate Certificates then outstanding with the lowest priority of
distribution pursuant to Section 5.02(a), the amount by which the Pool Scheduled
Principal Balance as of the Due Date in the month of such Distribution Date
exceeds the aggregate of the Class Certificate Balances as of such Distribution
Date (after giving effect to (x) distributions to Holders of Regular
Certificates on such Distribution Date allocable to principal and (y) any
allocation of the related Net Realized Losses on such Distribution Date).
Class Interest Shortfall: As to any Distribution Date and Class of
Regular Certificates, the amount by which the amount described in clause (i) of
the definition of Class Optimum Interest Distribution Amount for the related
Class of Certificates exceeds the amount of interest actually distributed on
such Class of Certificates on such Distribution Date.
Class Optimum Interest Distribution Amount: As to any Distribution Date
and each Class of Regular Certificates, the sum of (i) one month's interest
accrued during the related Interest Accrual Period at the related Pass-Through
Rate on the applicable Class Certificate Balance or Notional Amount, subject to
reduction pursuant to Section 5.02(b), and (ii) any Class Unpaid Interest
Shortfall for such Class.
[Class Subordination Percentage: With respect to any Distribution Date
and each Class of Subordinated Certificates, the quotient (expressed as a
percentage) of (a) the Class Certificate Balance of such Class of Certificates
immediately prior to such Distribution Date divided by (b) the aggregate of the
Class Certificate Balances immediately prior to such Distribution Date of all
Classes of Certificates.]
Class Unpaid Interest Shortfall: As to any Distribution Date and each
Class of Regular Certificates, the amount by which the aggregate Class Interest
Shortfalls for such Class on prior Distribution Dates exceeds the amount of
interest actually distributed on such Class on such prior Distribution Dates
pursuant to clause (ii) of the definition of Class Optimum Interest Distribution
Amount.
Closing Date: ______, 199_.
Code: The Internal Revenue Code of 1986, as the same may be amended from
time to time.
[COFI: The Monthly Weighted Average Cost of Funds Index for the Eleventh
District Savings Institutions published by the Federal Home Loan Bank of San
Francisco.]
[COFI Certificates: As specified in the Preliminary Statement.]
[Component: As specified in the Preliminary Statement.]
[Component Balance: With respect to any Component and any Distribution
Date, the Initial Component Balance thereof on the Closing Date, less all
amounts applied in reduction
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<PAGE> 19
of the principal balance of such Component and Net Realized Losses
allocated thereto on previous Distribution Dates.]
Component Certificates: As specified in the Preliminary Statement.
Controlling Class: The Class A-1 Certificates, or, if the Class A-1
Certificates are no longer Outstanding, the most senior Class of Subordinated
Certificates then Outstanding.
[Converted Mortgage Loan: A Convertible Mortgage Loan that has converted
from an adjustable Mortgage Rate to a fixed Mortgage Rate.
Convertible Mortgage Loan: A Mortgage Loan with a Mortgage Note that
provides for the conversion thereof at the option of the Mortgagor from an
adjustable Mortgage Interest Rate to a fixed Mortgage Interest Rate.]
[Coop Shares: Shares issued by a Cooperative Corporation.]
[Cooperative Corporation: The entity that holds title (fee or an
acceptable leasehold estate) to the real property and improvements constituting
the Cooperative Property and which governs the Cooperative Property, which
Cooperative Corporation must qualify as a Cooperative Housing Corporation under
Section 216 of the Code.]
[Cooperative Loan: Any Mortgage Loan secured by Coop Shares and a
Proprietary Lease.]
[Cooperative Property: The real property and improvements owned by the
Cooperative Corporation, that includes the allocation of individual dwelling
units to the holders of the Coop Shares of the Cooperative Corporation.]
[Cooperative Unit: A single family dwelling located in a Cooperative
Property.]
[Core Percentage:]
Corporate Trust Office: The principal office of the Trustee at which at
any particular time its corporate business shall be administered, which office
at the date of the execution of this instrument is located at
_______________________________.
[Credit Enhancement Fee: As to each Mortgage Loan, the amount payable to
the Pool Insurer and the Special Hazard Insurer in respect of such Mortgage
Loan.]
[Credit Enhancement Fee Rate: With respect to any Mortgage Loan, the sum
of the Pool Insurer Fee Rate and the Special Hazard Fee Rate.]
Credit Support Termination Date: The point of time at which the Class
Certificate Balances of all of the Subordinate Certificates are reduced to zero.
8
<PAGE> 20
Current Bankruptcy Amount: As of any Determination Date, the Current
Bankruptcy Amount shall equal the Initial Bankruptcy Coverage Amount as reduced
by the aggregate amount of Bankruptcy Losses previously incurred during the
period from the Cut-Off Date through the last day of the month preceding the
month of such Distribution Date; provided, however, that such amount may be
reduced from time to time with the written consent of the Rating Agencies
without resulting in a downgrading to the current rating of the Certificates.
Curtailment: Either any Principal Prepayment which is not a Principal
Prepayment in Full, any REO Proceeds treated as such pursuant to the second
paragraph of Section 3.10 or any Deficient Valuation that was covered by the
Current Bankruptcy Amount.
Custodian: [ ]
Cut-Off Date: ___________ 1, 199__.
Cut-Off Date Pool Principal Balance: The aggregate of the Cut-Off Date
Principal Balances of the Mortgage Loans which is $__________________ .
Cut-Off Date Principal Balance: As to any Mortgage Loan, the unpaid
principal balance thereof as of the close of business on the Cut-Off Date,
reduced by all installments of principal due on or prior thereto and not paid.
Debt Service Reduction: As to any Mortgage Loan and any Determination
Date, the excess of (i) the installment of principal and interest due on the
related Due Date under the terms of such Mortgage Loan over (ii) the amount of
the monthly payment of principal and/or interest required to be paid with
respect to such Due Date by the Mortgagor as established by a court of competent
jurisdiction (pursuant to an order which has become final and nonappealable) as
a result of a proceeding initiated by or against the related Mortgagor under the
Bankruptcy Code, as amended from time to time (11 U.S.C.); provided that no such
occurrence shall be considered a Debt Service Reduction so long as the Master
Servicer is pursuing an appeal of the court order giving rise to any such
modification and (a) such Mortgage Loan is not in default with respect to
payment due thereunder in accordance with the terms of such Mortgage Loan as in
effect on the Cut-Off Date or (b) scheduled monthly payments of principal and
interest are being advanced by the Master Servicer in accordance with the terms
of such Mortgage Loan as in effect on the Cut-Off Date.
Debt Service Reduction Mortgage Loan: Any Mortgage Loan that became the
subject of a Debt Service Reduction.
Defective Mortgage Loan: Any Mortgage Loan which is required to be
repurchased pursuant to Section [_____] of the Indenture.
Deficient Valuation: As to any Mortgage Loan and any Determination Date,
the excess of (i) the then outstanding indebtedness under such Mortgage Loan
over (ii) the secured
9
<PAGE> 21
valuation thereof established by a court of competent jurisdiction (pursuant to
an order which has become final and nonappealable) as a result of a proceeding
initiated by or against the related Mortgagor under the Bankruptcy Code, as
amended from time to time (11 U.S.C.), pursuant to which such Mortgagor retained
such Mortgaged Property; provided that no such occurrence shall be considered a
Deficient Valuation so long as the Master Servicer is pursuing an appeal of the
court order giving rise to any such modification and (a) such Mortgage Loan is
not in default with respect to payments due thereunder in accordance with the
terms of such Mortgage Loan as in effect on the Cut-Off Date or (b) scheduled
monthly payments of principal and interest are being advanced by the Master
Servicer in accordance with the terms of such Mortgage Loan as in effect on the
Cut-Off Date.
Deficient Valuation Mortgage Loan: Any Mortgage Loan that became the
subject of a Deficient Valuation.
Definitive Certificates: As defined in Section 6.02.
Denomination: With respect to each Certificate, the amount set forth on
the face thereof as the "Initial Certificate Balance of this Certificate" or the
"Initial Notional Amount of this Certificate" or, if neither of the foregoing,
the Percentage Interest appearing on the face thereof.
Depository: The initial Depository shall be The Depository Trust
Company, the nominee of which is CEDE & Co., as the registered Holder of the
Book-Entry Certificates. The Depository shall at all times be a "clearing
corporation" as defined in Section 8-102(3) of the Uniform Commercial Code of
the State of New York.
Depository Participant: A broker, dealer, bank or other financial
institution or other Person for whom from time to time a Depository effects
book-entry transfers and pledges of securities deposited with the Depository.
Determination Date: As to any Distribution Date, the _____ day of each
month or if such _____ day is not a Business Day the next succeeding Business
Day; provided, however, that if such next succeeding Business Day is less than
two Business Days prior to the related Distribution Date the Determination Date
shall be the next Business Day preceding the _____ day of such month.
Distribution Account: The segregated account or accounts established and
maintained by the Trustee pursuant to Section [_____]. Such accounts shall be
entitled "___________________, as Trustee, for the benefit of Certificateholders
of Mortgage-Backed Certificates, Series 199_-_ Distribution Account" and shall
each be an Eligible Account. Funds deposited in the Distribution Account (other
than any income on Permitted Investments included therein) shall be held in
trust for Certificateholders.
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<PAGE> 22
Distribution Account Deposit Date: As to any Distribution Date, the
Business Day preceding such Distribution Date or if the Distribution Account is
held at ____________________, such Distribution Date.
Distribution Date: The _____ day of each month beginning _____________
199_ or, if such _____ day is not a Business Day, the Business Day immediately
following.
Due Date: As to any Distribution Date and Mortgage Loan the first day in
the calendar month of such Distribution Date.
Duff & Phelps: Duff & Phelps Credit Rating Company, or any successor
thereto.
Eligible Account: Either (A) segregated account or accounts maintained
with an institution whose deposits are insured by the Bank Insurance Fund or the
Savings Association Insurance Fund of the FDIC, the unsecured and
uncollateralized debt obligations of which shall be rated at least "[ ]" by [ ]
and "[ ]" by [ ], and which has a short term rating of at least "[ ]" by [ ] and
"[ ]" by [ ], and which is either (i) a federal savings and loan association
duly organized, validly existing and in good standing under the federal banking
laws, (ii) an institution duly organized, validly existing and in good standing
under the applicable banking laws of any state, (iii) a national banking
association duly organized, validly existing and in good standing under the
federal banking laws and (iv) a principal subsidiary of a bank holding company
or (B) a trust account (which shall be a "special deposit account") maintained
with the trust department of a federal or state chartered depository institution
or of a trust company, having capital and surplus of not less than $50,000,000,
acting in its fiduciary capacity. Any Eligible Accounts maintained with the
Trustee shall conform to the preceding clause (B).
ERISA: The Employee Retirement Income Security Act of 1974, as amended.
Events of Default: The Events of Default with respect to the Underlying
Bond set forth in Section 5.01 of the Indenture.
Expense Fee: As to each Mortgage Loan and Distribution Date the sum of
the related Bond Expense Fee and Trustee Fee multiplied by the Scheduled
Principal Balance of such Mortgage Loan on the Due Date in the month preceding
such Distribution Date.
Expense Rate: As to each Mortgage Loan, the sum of the related Bond
Expense Rate and the Trustee Fee Rate [and the Credit Enhancement Fee Rate].
Expenses: As to each Mortgage Loan, the sum of the Bond Expense Fee and
the Trustee Fee.
FASIT: A "financial asset securitization investment trust" within the
meaning of Section 860L of the Code.
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<PAGE> 23
FASIT Certificate Maturity Date: [The "latest possible maturity date" of
the Regular Certificates as that term is defined in Section 2.07.]
FASIT Change of Law: [Any proposed, temporary or final regulation,
revenue ruling, revenue procedure or other official announcement or
interpretation relating to the FASIT and the FASIT Provisions issued after the
Closing Date.]
FASIT Provisions: [Provisions of the federal income tax law relating to
FASITs, which appear at Section 860H through 860L of Subchapter M of Chapter 1
of the Code, and related provisions, and any regulations promulgated thereunder,
as the foregoing may be in effect from time to time.]
FDIC: The Federal Deposit Insurance Corporation, or any successor
thereto.
FHLMC: The Federal Home Loan Mortgage Corporation, or any successor
thereto.
Final Distribution Date: The Distribution Date on which the final
distribution in respect of the Certificates will be made pursuant to Section
10.01.
Fitch: Fitch Investors Service, Inc., or any successor thereto.
FNMA: The Federal National Mortgage Association, or any successor
thereto.
Fraud Coverage Termination Date: The point of time at which the Fraud
Loss Coverage Amount is reduced to zero.
Fraud Loan: Any Liquidated Mortgage Loan as to which a loss is sustained
by reason of a denial of coverage under any related Primary Insurance Policy
because of fraud, dishonesty or misrepresentation.
Fraud Loss: As to any Fraud Loan, the Net Realized Loss with respect
thereto.
Fraud Loss Coverage Amount: As of any Distribution Date an amount equal
to (i) during the period from the Cut-Off Date to the first anniversary thereof,
the Initial Fraud Loss Coverage Amount, reduced by Fraud Losses allocated to the
Certificates since the Closing Date (ii) during the period from the first
anniversary to the _____ anniversary of the Cut-Off Date, an amount equal to the
lesser of (a) ___% of the Pool Scheduled Principal Balance immediately prior to
each such anniversary reduced by Fraud Losses allocated to the Certificates
since such anniversary and (b) the excess of the Initial Fraud Loss Coverage
Amount over the cumulative amount of Fraud Losses allocated to the Certificates
prior to such Distribution Date, (iii) during the period from the _____
anniversary to the _____ anniversary of the Cut-Off Date, an amount equal to the
lesser of (a) ____% of the Pool Scheduled Principal Balance immediately prior to
each such anniversary reduced by Fraud Losses allocated to the Certificates
since such anniversary and (b) the excess of the Initial Fraud Loss Coverage
Amount over the cumulative amount of Fraud Losses allocated to the Certificates
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<PAGE> 24
prior to such Distribution Date, and (iv) after the _____ anniversary of the
Closing Date, zero. The Fraud Loss Coverage Amount may be further reduced from
time to time below the amounts specified above with the written consent of the
Rating Agencies and without resulting in a downgrading to the then current
rating of the Certificates.
Fraud Loss Coverage Termination Date: The point in time at which the
Fraud Loss Coverage Amount is reduced to zero.
[Gross Margin: With respect to each Mortgage Loan, the percentage set
forth in the related Mortgage Note to be added to the Index to determine the
Mortgage Rate on each Adjustment Date, and which is set forth in the Mortgage
Loan Schedule.]
High Yield Certificate: [The Class B-2 Certificates.]
Indenture: The Indenture dated as of ______________ between the Trust
and the Indenture Trustee, providing for the issuance of the Bonds.
Independent: When used with respect to any specified Person means such a
Person who (i) is in fact independent of the Depositor, (ii) does not have any
direct financial interest or any material indirect financial interest in the
Depositor or in an affiliate thereof, and (iii) is not connected with the
Depositor as an officer, employee, promoter, underwriter, trustee, partner,
director or person performing similar functions.
[Index: As to each Mortgage Loan, the index for the adjustment of the
Mortgage Rate set forth as such in the related Mortgage Note, such index being
[the average weekly quoted yield on U.S. Treasury securities adjusted to a
constant maturity of one year as published in the Federal Reserve Statistical
Release H.15(519)] [the weekly average of secondary market interest rates on
six-month negotiable certificates of deposit as published in the Federal Reserve
Statistical Release H.15(519)] [the average of the London interbank offered
rates for six month dollar deposits in the London market based on quotations at
five major banks, as set forth in the "Money Rates" section of The Wall Street
Journal, Western Edition], or, if the [Federal Reserve Statistical Release
H.15(519)] [Money rates] section ceases to be published or becomes unavailable
for any reason, then as set forth in a comparable publication selected by the
Master Servicer, in each case as of a date 45 days preceding such Mortgage
Loan's Adjustment Date. Should the Index become unavailable, the Master
Servicer, on behalf of the Trustee, will select a new index that is based upon
comparable information.
[Initial Adjustment Date: As to each Mortgage Loan, its first Adjustment
Date following the origination of such Mortgage Loan.]
Initial Bankruptcy Coverage Amount: $____________________.
Initial Class Certificate Balance: As to each Class of Certificates, the
aggregate of the Initial Class Certificate Balances of all Certificates of the
same Class, which is as follows:
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<PAGE> 25
<TABLE>
<S> <C>
Class A-1: $
Class M-1: $
Class B-1: $
Class B-2: $
Class O: $
</TABLE>
As to each Certificate of the same Class of Certificates, the Initial
Class Certificate Balance set forth on the face thereof.
Initial Component Balance: As specified in the Preliminary Statement.
Initial Fraud Loss Coverage Amount: $_______________.
Initial LIBOR Rate: [ ]
Initial Special Hazard Coverage Amount: $_______________.
Insurance Proceeds: Proceeds paid by any insurer pursuant to any Primary
Insurance Policy and any insurance policy covering a Mortgage Loan, in each case
other than (i) any amount included in such Insurance Proceeds in respect of
Insured Expenses and (ii) amounts required to be paid over to the Mortgagor
pursuant to law or the related Mortgage or Mortgage Note.
Insured Expenses: Expenses in connection with a Mortgage Loan covered by
any Primary Insurance Policy or any other insurance policy.
Interest Accrual Period: As to any Distribution Date and each Class of
Regular Certificates, the period from and including the first day of the month
preceding the calendar month of such Distribution Date to but not including the
first day of the calendar month of such Distribution Date.
Investment Depository: A bank or trust company so long as the long-term
debt obligations of such other bank or trust company have been assigned
short-term ratings of at least " " by [ ] and of at least "____" by [ ].
LIBOR Certificates: As specified in the Preliminary Statement.
Liquidated Deficient Valuation Loss: As to any Liquidated Deficient
Valuation Mortgage Loan, the Net Realized Loss with respect thereto.
Liquidated Deficient Valuation Mortgage Loan: Any Mortgage Loan that
became the subject of a Deficient Valuation after the Bankruptcy Coverage
Termination Date and subsequently became a Liquidated Mortgage Loan.
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<PAGE> 26
Liquidated Mortgage Loan: Any defaulted Mortgage Loan as to which the
Master Servicer has determined that all amounts which it expects to recover from
or on account of such Mortgage Loan have been recovered.
Liquidation Expenses: Expenses which are incurred by the Master Servicer
in connection with the liquidation of any defaulted Mortgage Loan and not
recovered by the Master Servicer under any Primary Insurance Policy or any other
insurance policy, such expenses including, without limitation, legal fees and
expenses, any unreimbursed amount expended by the Master Servicer, and any
related and unreimbursed expenditures for real estate property taxes or for
property restoration or preservation.
Liquidation Period: The period beginning on the date of adoption by the
Ownership Certificateholders of a plan of complete liquidation of the Trust Fund
and ending on the day that is 90 days after the date such plan is adopted.
Liquidation Proceeds: Cash (including Insurance Proceeds and any REO
Proceeds) received in connection with the liquidation of defaulted Mortgage
Loans, whether through trustee's sale, foreclosure sale or otherwise.
Loan-to-Value Ratio: As of any date, the fraction, expressed as a
percentage, the numerator of which is the current principal balance of the
related Mortgage Loan at the date of determination and the denominator of which
is the Appraised Value of the related Mortgaged Property.
[Maintenance: With respect to any Cooperative Unit, the rent paid by the
Mortgagor to the Cooperative Corporation pursuant to the Proprietary Lease.]
Master Servicer: ____________________, or its successor in interest, or
any successor servicer appointed as provided in the Master Servicing Agreement
and the Indenture.
Master Servicing Agreement: The Master Servicing Agreement, dated the
date hereof, between ____________________, as Master Servicer, the Bond Trustee
and the Bond Issuer.
Master Servicing Fee: The amount payable to the Master Servicer pursuant
to the Master Servicing Agreement.
[Maximum Rate: With respect to each Mortgage Loan, the maximum rate of
interest set forth as such in the related Mortgage Note.]
Mezzanine Certificates: As specified in the Preliminary Statement.
[Minimum Rate: With respect to each Mortgage Loan, the minimum rate of
interest set forth in the related Mortgage Note.]
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<PAGE> 27
Moody's: Moody's Investors Service, Inc., or any successor thereto.
Mortgage: The mortgage, deed of trust or other instrument creating a
first lien on a Mortgaged Property securing a Mortgage Note or creating a first
lien on a leasehold interest.
Mortgage Interest Rate: As to any Mortgage Loan, the per annum rate of
interest at which interest accrues on the principal balance of such Mortgage
Loan in accordance with the terms of the related Mortgage Note.
Mortgage Loans: Such of the mortgage loans transferred and assigned to
the Bond Trustee pursuant to the Indenture as from time to time are held as a
part of the Pool, including any Substitute Mortgage Loans and REO Mortgage
Loans, the Mortgage Loans originally so held being identified in the Mortgage
Loan Schedule.
Mortgage Loan Schedule: As of any date of determination, the schedule of
Mortgage Loans included in the Pool, as maintained by the Bond Trustee.
Mortgage Note: The originally executed note or other evidence of
indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage Loan,
together with all riders thereto and amendments thereof.
Mortgaged Property: The property subject to a Mortgage [, which, with
respect to a Cooperative Loan, is the related Coop Shares and Proprietary
Lease].
Mortgagor: The obligor on a Mortgage Note.
Net Liquidation Proceeds: As to any Liquidated Mortgage Loan,
Liquidation Proceeds net of Liquidation Expenses.
Net Mortgage Interest Rate or NMR: As to any Mortgage Loan, such
Mortgage Loan's Mortgage Interest Rate reduced by the related Expense Rate.
Net Prepayment Interest Shortfalls: As to any Distribution Date, the
amount by which the aggregate of Prepayment Interest Shortfalls during the
calendar month preceding the month of such Distribution Date exceeds the Master
Servicing Fee for such period.
Net Realized Loss: Any of the following:
(a) as to any Liquidated Mortgage Loan, the amount, if any, by
which (i) the Scheduled Principal Balance of such Liquidated Mortgage
Loan or the Reduced Scheduled Principal Balance if such Liquidated
Mortgage Loan is a Liquidated Deficient Valuation Mortgage Loan exceeds
(ii) the portion of Net Liquidation Proceeds realized thereon that is
applied to a reduction of the principal balance of such Mortgage Loan;
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<PAGE> 28
(b) as to any Mortgage Loan that is subject to a Debt Service
Reduction and as to any Determination Date, the lesser of (i) the
excess, if any, of (A) the principal component of the monthly
installment of principal and interest (without giving effect to the Debt
Service Reduction) over (B) the amount applied in reduction of the
principal balance of such Mortgage Loan on the related Due Date (from
Insurance Proceeds, Liquidation Proceeds or payments by the Mortgagor)
and (ii) the principal component of such Debt Service Reduction for such
Due Date; and
(c)(i) as to any Mortgage Loan that is a Liquidated Deficient
Valuation Mortgage Loan, the amount of the related Deficient Valuation
and (ii) as to any Mortgage Loan that experiences a Deficient Valuation
prior to the Bankruptcy Coverage Termination Date, the Deficient
Valuation with respect thereto.
Net Special Hazard Losses: As to any Special Hazard Mortgage Loan, the
Net Realized Loss with respect thereto.
NMR: See definition of Net Mortgage Interest Rate.
Non-Delay Certificates: As specified in the Preliminary Statement.
Non-U.S. Person: An individual, corporation, partnership or other person
other than a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, or an estate or trust that
is subject to U.S. federal income tax regardless of the source of its income.
Notional Amount: [As to any Distribution Date, the Pool Scheduled
Principal Balance].
Notional Amount Certificates: As specified in the Preliminary Statement.
Offered Certificates: As specified in the Preliminary Statement.
Officers' Certificate: A certificate signed by the Chairman of the
Board, Vice Chairman of the Board, President, a Vice President [and by] the
Treasurer, the Secretary or one of the Assistant Treasurers or Assistant
Secretaries, or any other duly authorized officer of the Depositor or the Master
Servicer, as the case may be, and delivered to the Trustee.
Opinion of Counsel: A written opinion of counsel acceptable to the
Trustee, who may be counsel for the Depositor, except that any opinion of
counsel relating to the qualification of the Trust Fund as a FASIT or compliance
with the FASIT Provisions must be an opinion of Independent counsel.
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[Original Applicable Credit Support Percentage: With respect to each of
the following Classes of Subordinate Certificates, the corresponding percentage
described below, as of the Closing Date:
<TABLE>
<S> <C>
Class M-1 ______%
Class B-1 ______%
Class B-2 ______%]
</TABLE>
Original Mortgage Loans: The Mortgage Loans identified in the Mortgage
Loan Schedule.
Original Subordinate Certificate Balance: $__________.
[Outside Reference Date: As to any Interest Accrual Period for the COFI
Certificates, the close of business on the tenth day thereof.]
Outstanding Mortgage Loan: As to any Due Date, a Mortgage Loan which was
not the subject of a Principal Prepayment in Full prior to such Due Date, which
did not become a Liquidated Mortgage Loan prior to such Due Date and which was
not purchased prior to such Due Date pursuant to Section _____ of the Indenture.
Ownership Certificates: The Certificates signed by the Depositor and
countersigned by the Trustee, substantially in the form of Exhibits B and E.
Ownership Interest: As to any Certificate, any ownership or security
interest in such Certificate, including any interest in such Certificate as the
Holder thereof and any other interest therein, whether direct or indirect, legal
or beneficial, as owner or as pledgee.
Pass-Through Rate: As to each Class of Regular Certificates, the per
annum rate set forth or described below:
<TABLE>
<CAPTION>
Class of Certificates Pass-Through Rate
--------------------- -----------------
<S> <C>
A-1: ____%
O: ____%
M-1: ____%
B-1: ____%
B-2: ____%
</TABLE>
Paying Agent: ___________________________________ or such other
successor paying agent appointed by the Trustee which is authorized to make
distributions with respect to the Certificates on behalf of the Trustee, and
authorized to exercise corporate trust powers under the laws of its jurisdiction
of organization.
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<PAGE> 30
Percentage Interest: As to any Certificate, the percentage interest set
forth on the face thereof or equal to the percentage obtained by dividing the
Denomination of such Certificate by the aggregate of the Denominations of all
Certificates of the same Class.
Periodic Rate Cap: The provision in each Mortgage Note that limits
permissible increases and decreases in the Mortgage Rate on any Adjustment Date
to not more than one percentage point.
Permitted Investments: One or more of the following:
(i) Direct obligations of, and obligations fully guaranteed as to
timely payment of principal and interest by, the United States, FHLMC,
FNMA, the Farm Credit Banks (but only if acceptable to the Rating
Agencies), the Student Loan Marketing Association (but only with respect
to obligations backed by letters of credit or senior obligations) or any
agency or instrumentality of the United States the obligations of which
are backed by the full faith and credit of the United States; provided,
however, that no instrument or security evidences a right to receive
only interest payments or the right to receive principal and interest
payments derived from the underlying investment which provides a yield
to maturity in excess of 120% of the yield to maturity at par of such
underlying instrument;
(ii) Repurchase agreements with an entity whose unsecured
obligations are rated not less than "____________________" by [ ]
and " " by [ ] with respect to any security described in clause (i)
above or any other security issued or guaranteed by an agency or
instrumentality of the United States, the obligations of which are
backed by the full faith and credit of the United States;
(iii) Federal funds, certificates of deposit, time deposit and
bankers' acceptances of any U.S. bank or trust company incorporated
under the laws of the United States or any state, provided that the
unsecured short term debt obligations of such bank or trust company (or,
in the case of the principal bank in a bank holding company system, debt
obligations of the bank holding company) at the date of acquisition
thereof have a rating of not less than "_____________" from [ ] and
"_____________" from [ ]; and money market funds investing
exclusively in any of the investments discussed in this definition of
Permitted Investments;
(iv) Any demand or time deposit or certificate of deposit which
is fully insured by the FDIC; and
(v) Commercial paper of any corporation incorporated under the
laws of the United States or any state thereof which on the date of
acquisition has a rating of not less than "_____________" from [ ]
and "_____________" from [ ].
Permitted Transferee: Any Person other than (i) the United States, or
any State or any political subdivision thereof, or any agency or instrumentality
of any of the foregoing, (ii) a
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<PAGE> 31
foreign government, international organization or any agency or instrumentality
of either of the foregoing, (iii) an organization which is exempt from tax
imposed by Chapter 1 of the Code (including the tax imposed by section 511 of
the Code on unrelated business taxable income) (except certain farmers'
cooperatives described in Code section 521), (iv) rural electric and telephone
cooperatives described in Code section 1381(a)(2)(C), (v) any Non-U.S. Person
and (vi) any other Person so designated by the Trustee based on an Opinion of
Counsel to the effect that any transfer to such Person may cause the Pool or any
other Holder of a Ownership Certificate to incur tax liability that would not be
imposed other than on account of such transfer. The terms "United States",
"State" and "international organization" shall have the meanings set forth in
Code section 7701 or successor provisions.
Person: Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
Physical Certificates: As specified in the Preliminary Statement.
Planned Principal Classes: As specified in the Preliminary Statement.
Pool: At any time, the pool of Mortgage Loans identified on the Schedule
of Mortgages as maintained at such time by the Bond Trustee pursuant to the
Indenture.
Pool Scheduled Principal Balance: As to any Distribution Date, the
aggregate Scheduled Principal Balances of each Mortgage Loan that was an
Outstanding Mortgage Loan on the Due Date in the applicable month as to which
such determination is being made.
Prepayment Interest Shortfall: As to any Mortgage Loan and Principal
Prepayment, and as to any Liquidated Mortgage Loan, the amount by which one
month's interest at the related Net Mortgage Interest Rate on such Principal
Prepayment or the Scheduled Principal Balance of such Liquidated Mortgage Loan,
as the case may be, exceeds the amount of interest paid in connection with such
Principal Prepayments or interest at the related Net Mortgage Interest Rate for
the number of days in the month prior to the date such Liquidated Mortgage Loan
was liquidated, as the case may be.
Primary Insurance Policy: Each primary policy of mortgage guaranty
insurance issued by a Qualified Insurer or any replacement policy therefor
referred to in Section [2.03(a)(viii)].
Principal Only Certificates: As specified in the Preliminary Statement.
Principal Prepayment: Any payment or other recovery of principal on a
Mortgage Loan (other than Liquidation Proceeds) which is received in advance of
its scheduled Due Date and is not accompanied by an amount as to interest
representing scheduled interest due on any date or dates in any month or months
subsequent to the month of prepayment.
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<PAGE> 32
Principal Prepayment in Full: Any Principal Prepayment of the entire
principal balance of a Mortgage Loan.
Private Certificates: As specified in the Preliminary Statement.
Proprietary Lease: With respect to any Cooperative Unit, means a lease
or occupancy agreement between a Cooperative Corporation and a holder of related
Coop Shares.
Prospectus: The Prospectus Supplement together with the related
Prospectus dated _____________, 199_.
Prospectus Supplement: The Prospectus Supplement, dated ________, 199_,
relating to the offering of the Senior Certificates and the Mezzanine
Certificates.
Rating Agency: Each of the Rating Agencies specified in the Preliminary
Statement. If either such organization or a successor is no longer in existence,
"Rating Agency" shall be such nationally recognized statistical rating
organization, or other comparable Person, as is designated by the Depositor,
notice of which designation shall be given to the Trustee. References herein to
a given rating or rating category of a Rating Agency shall mean such rating
category without giving effect to any modifiers.
Recognition Agreement: With respect to any Cooperative Loan, an
agreement between the Cooperative Corporation and the originator of such
Mortgage Loan, to establish the rights of such originator in the Cooperative
Property.
Record Date: The last day of the month (or if such last day is not a
Business Day, the Business Day immediately preceding such last day) next
preceding the month of the related Distribution Date.
Reduced Scheduled Principal Balance: As to any Liquidated Deficient
Valuation Mortgage Loan, the Scheduled Principal Balance thereof reduced by any
Deficient Valuation at the time of the related Deficient Valuation.
Reference Date: As defined in Section 5.09.
Regular Certificate: As specified in the Preliminary Statement.
Relief Act: The Soldiers' and Sailors' Civil Relief Act of 1940, as
amended.
Relief Act Reductions: With respect to any Distribution Date, for any
Mortgage Loan as to which there has been a reduction in the amount of interest
collectible thereon for the most recently ended calendar month as a result of
the application of the Relief Act, the amount, if any, by which (i) interest
collectible on such Mortgage Loan for the most recently ended calendar month is
less than (ii) interest accrued pursuant to the Mortgage Note on the same
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<PAGE> 33
principal amount and for the same period as the interest collectible on such
Mortgage Loan for the most recently ended calendar month.
Remaining Liquidated Amount: As to any Distribution Date and Mortgage
Loan which became a Liquidated Mortgage Loan during the preceding calendar
month, the lesser of (a) Subordinate Percentage of the applicable Core
Percentage of the Scheduled Principal Balance of such Liquidated Mortgage Loan
and (b) the applicable Core Percentage of Net Liquidation Proceeds applied to
the reduction of the principal balance of such Liquidated Mortgage Loan, reduced
by the Senior Liquidated Amount for such Mortgage Loan without giving effect to
any reduction pursuant to clause (B) of the definition thereof.
REO Mortgage Loan: Any defaulted Mortgage Loan which is not a Liquidated
Mortgage Loan and as to which the related Mortgaged Property is held as part of
the Pool.
REO Proceeds: Proceeds, net of any related expenses of the Master
Servicer, received in respect of any REO Mortgage Loan (including, without
limitation, proceeds from the rental of the related Mortgaged Property) which
are received prior to the final liquidation of such Mortgaged Property.
Required Insurance Policy: With respect to any Mortgage Loan, any
insurance policy which is required to be maintained from time to time under the
Master Servicing Agreement in respect of such Mortgage Loan.
Responsible Officer: When used with respect to the Trustee, any officer
in its corporate trust department or successor group.
S&P: Standard & Poor's Ratings Group.
Scheduled Principal Balance: As to any Mortgage Loan and Due Date, the
unpaid principal balance of such Mortgage Loan as of the Due Date as specified
in the amortization schedule at the time relating thereto (before any adjustment
to such amortization schedule by reason of any moratorium or similar waiver or
grace period) after giving effect to any previous Curtailments and to the
payment of principal due on such Due Date and irrespective of any delinquency in
payment by the related Mortgagor. For purposes of calculating the Allocated
Amounts, the Scheduled Principal Balance of a Mortgage Loan shall be zero
immediately following the Due Date in the month such Mortgage Loan becomes a
Liquidated Mortgage Loan or is required to be repurchased pursuant to Section
_____ of the Indenture.
Seller: American Residential Investment Trust, Inc., as seller of the
Mortgage Loans that become included in the Pool.
Senior Certificate: Any one of the Class A-1 and Class X Certificates
signed by the Depositor and countersigned by the Trustee, substantially in the
form of Exhibits A and E, hereto.
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<PAGE> 34
[Senior Certificate Balance: As to any Distribution Date, the aggregate
of the Class Certificate Balances of all Classes of Senior Certificates on such
Distribution Date.]
Senior Percentage: With respect to any Distribution Date, the lesser of
(i) 100% and (ii) the percentage carried six places rounded up, obtained by
dividing the Class Certificate Balance of the Class A-1 Certificates,
immediately prior to such Distribution Date by the aggregate of the Scheduled
Principal Balances of the Mortgage Loans immediately prior to the Due Date in
the month of any such Distribution Date.
Senior Prepayment Percentage: [For any Distribution Date occurring
during the first five years beginning on the first Distribution Date shall be,
except as provided herein, equal to 100%. The Senior Prepayment Percentage for
any Distribution Date occurring on or after the fifth anniversary of the first
Distribution Date will be as follows: for any Distribution Date in the first
year thereafter the Senior Percentage for such Distribution Date plus 70% of the
Subordinate Percentage for such Distribution Date; for any Distribution Date in
the second year thereafter, the Senior Percentage for such Distribution Date
plus 60% of the Subordinate Percentage for such Distribution Date; in the third
year thereafter, the Senior Percentage for such Distribution Date plus 40% of
the Subordinate Percentage for such Distribution Date; in the fourth year
thereafter, the Senior Percentage for such Distribution Date plus 20% of the
Subordinate Percentage for such Distribution Date; and for any Distribution Date
thereafter, the Senior Percentage for such Distribution Date (unless on any of
the foregoing Distribution Dates the Senior Percentage exceeds the initial
Senior Percentage, in which case the Senior Prepayment Percentage for such
Distribution Date will once again equal 100%). Notwithstanding the foregoing, no
reduction to the Senior Prepayment Percentage will occur if (i) as of the first
Distribution Date as to which any such reduction applies, the dollar amount of
all monthly payments on the Mortgage Loans due in each of the preceding six
months that are delinquent 60 days or more exceeds a monthly average of ___% of
all monthly payments due in such month (including for this purpose any Mortgage
Loans in foreclosure and Mortgage Loans with respect to which the related
Mortgaged Property has been acquired by the Bond Trustee) and (ii) cumulative
Realized Losses with respect to the Mortgage Loans exceed (a) with respect to
the Distribution Date in on the fifth anniversary of the first Distribution
Date ___% of the Original Subordinate Certificate Balance, (b) with respect to
the Distribution Date on the sixth anniversary of the first Distribution Date,
____% of the Original Subordinate Certificate Balance, (c) with respect to the
Distribution Date on the seventh anniversary of the first Distribution Date,
______% of the Original Subordinate Certificate Balance, (d) with respect to the
Distribution Date on the eighth anniversary of the first Distribution Date, ___%
of the Original Subordinate Certificate Balance, and (e) with respect to the
Distribution Date on the ninth anniversary of the first Distribution Date, ____%
of the Original Subordinate Certificate Balance.]
Senior Principal Distribution Amount: As to any Distribution Date and
the Class A-1 Certificates, the sum of (a) the Senior Percentage of (i) all
scheduled payments of principal due on each Outstanding Mortgage Loan on the Due
Date for such Mortgage Loan in the month in which such Distribution Date occurs,
(ii) the Scheduled Principal Balance of each Mortgage Loan that was repurchased
by the Seller or another person on the related Certificate Account
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<PAGE> 35
Deposit Date pursuant to Sections ____ or ____ of the Indenture, (iii) the
Substitution Adjustment Amount in connection with any substitution of the
Mortgage Loans pursuant to Section ____ of the Indenture, (iv) Liquidation
Proceeds received during such preceding calendar month and allocable to
recoveries of principal of Mortgage Loans that are not yet Liquidated Mortgage
Loans, and (v) the Scheduled Principal Balance of each Mortgage Loan that became
a Liquidated Mortgage Loan during the month preceding the month of such
Distribution Date and (b) the Senior Prepayment Percentage of all Curtailments
and all Principal Prepayments in Full for such Distribution Date.
Special Hazard Coverage Termination Date: The point of time at which the
Special Hazard Loss Coverage Amount is reduced to zero.
Special Hazard Event: As to a Mortgaged Property, any loss on account of
direct physical loss, exclusive of (i) any loss covered by a hazard policy or a
flood insurance policy maintained in respect of such Mortgaged Property and (ii)
any loss caused by or resulting from:
(a) (i) wear and tear, deterioration, rust or corrosion, mold,
wet or dry rot; inherent vice or latent defect; animals, birds, vermin,
insects;
(ii) settling, subsidence, cracking, shrinkage, building or
expansion of pavements, foundations, walls, floors, roofs or ceilings.
(b) errors in design, faulty workmanship or faulty materials,
unless the collapse of the property or a part thereof ensues and then
only for the ensuing loss;
(c) nuclear or chemical reaction or nuclear radiation or
radioactive or chemical contamination, all whether controlled or
uncontrolled, and whether such loss is direct or indirect, proximate or
remote or be in whole or in part caused by, contributed to or aggravated
by a peril insured against in the Special Hazard Insurance Policy; and
(d) (i) hostile or warlike action in time of peace or war,
including action in hindering, combating or defending against an actual,
impending or expected attack (a) by any government or sovereign power
(de jure or de facto), or by any authority maintaining or using
military, naval or air forces; or (b) by military, naval or air forces;
or (c) by an agent of any such government, power, authority or forces;
(ii) any weapon or war or facility for producing same
employing atomic fission, radioactive force or chemical or biological
contaminants, whether in time of peace or war;
(iii) insurrection, rebellion, revolution, civil war, usurped
power or action taken by governmental authority in hindering, combating
or defending against such an occurrence, seizure or destruction under
quarantine or customs regulations,
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<PAGE> 36
confiscation by order of any government or public authority, or risks of
contraband or illegal transportation or trade.
Special Hazard Fee: As to any Distribution Date and Mortgage Loan,
one-twelfth of the Special Hazard Fee Rate on the Scheduled Principal Balance of
such Mortgage Loan on the first day of the month preceding such Distribution
Date.
Special Hazard Fee Rate: With respect to any Mortgage Loan, _____%.
Special Hazard Insurance Policy: The Special Hazard Insurance Policy
issued by the Special Hazard Insurer insuring the Mortgage Loans and all
amendments or endorsements thereto, or any replacement policy obtained by the
Master Servicer.
Special Hazard Insurer: [ ], or any successor thereto or the named
insurer in any replacement policy obtained by the Master Servicer.
Special Hazard Loss Coverage Amount: [As to any Distribution Date, the
lesser of (a) the greatest of (i) 1% of the aggregate principal balance of the
Mortgage Loans, (ii) twice the principal balance of the largest Mortgage Loan,
and (iii) the aggregate principal balance of all Mortgage Loans secured by the
Mortgage Properties located in the single [State] postal zip code having the
highest aggregate principal balance of any zip code area, all principal balances
to be calculated as of the first day of the month preceding such Distribution
Date after giving effect to scheduled installments of principal and interest on
the Mortgage Loans then due, whether or not paid and (b) $__________, reduced
(but not below zero) by the amount of Net Realized Losses in respect of Special
Hazard Mortgage Loans previously incurred during the period from the Cut-Off
Date through the last day of the month preceding the month of such Distribution
Date.] The Special Hazard Loss Coverage Amount may be further reduced from time
to time below the amounts specified above with the written consent of the Rating
Agencies and without resulting in a downgrading to the then current rating of
the Certificates.
Special Hazard Mortgage Loan: Any Liquidated Mortgage Loan as to which
the ability to recover thereon was substantially impaired by reason of a Special
Hazard Event.
Splinter Loss: A Net Realized Loss (x) with respect to a Special Hazard
Mortgage Loan or a Fraud Loan or (y) specified in subclauses (b) and (c) of the
definition of Net Realized Loss.
Start-up Date: The Closing Date.
Subordinate Certificate: Any one of the Class M-1, Class B-1 or Class
B-2 Certificates signed by the Depositor and countersigned by the Trustee,
substantially in the form of Exhibits D and E, hereto.
Subordinate Percentage: As of any Distribution Date, 100% minus the
Senior Percentage for such Distribution Date.
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<PAGE> 37
Subordinate Percentage Allocation: For any Distribution Date and Class
of Subordinate Certificates, a fraction, the numerator of which is the related
Class Certificate Balance immediately prior to such date and the denominator of
which is the aggregate of the Class Certificate Balances of all Subordinate
Certificates immediately prior to such date.
Subordinate Prepayment Percentage: As to any Distribution Date, 100%
minus the Senior Prepayment Percentage for such Distribution Date.
Subordinate Prepayment Percentage Allocation: As to any Distribution
Date and any Class of Subordinate Certificates, the portion of the Subordinate
Prepayment Percentage allocated to such Class equal to the Subordinate
Prepayment Percentage for such Distribution Date multiplied by a fraction the
numerator of which is the Class Certificate Balance of any such Class and the
denominator of which is the aggregate Class Certificate Balance of the
Subordinate Certificates.
Subordinate Principal Distribution Amount: As to any Distribution Date
and each Class of Subordinate Certificates, the sum of (a) the Subordinate
Percentage Allocation of the sum of (i) all scheduled payments of principal due
on each Outstanding Mortgage Loan on the Due Date for such Mortgage Loan in the
month in which such Distribution Date occurs, (ii) the Scheduled Principal
Balance of each Mortgage Loan that was repurchased by the Seller or another
person pursuant to Section ____ or ____ of the Indenture, (iii) the Substitution
Adjustment Amount in connection with any substitution of Mortgage Loans on the
related Certificate Account Deposit Date pursuant to Section ____ of the
Indenture, (iv) Liquidation Proceeds received during such preceding calendar
month and allocable to recoveries of principal of Mortgage Loans that are not
yet Liquidated Mortgage Loans, and (v) the Scheduled Principal Balance of each
Mortgage Loan that became a Liquidated Mortgage Loan during the month preceding
the month of such Distribution Date and (b) the Subordinate Prepayment
Percentage Allocation of all Curtailments and all Principal Prepayments in Full
for such Distribution Date.
Substitute Mortgage Loan: A Mortgage Loan delivered to the Bond Trustee
on a Substitution Date pursuant to Section ____ of the Indenture.
Substitution Adjustment Amount: The meaning ascribed to such term
pursuant to Section ____ of the Indenture.
Substitution Date: The meaning ascribed to such term pursuant to Section
____ of the Indenture.
Targeted Principal Classes: As specified in the Preliminary Statement.
Tax Matters Person: The person designated as "tax matters person"
pursuant to Section 5.06.
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<PAGE> 38
Tax Matters Person Certificate: The Class O Certificate with a
denomination of
Transfer Restricted Certificates: The High Yield Certificates and the
Ownership Certificates.
Trust: The trust created by this Agreement, which shall be titled the
"American Residential Eagle Certificate Trust [199__-__]."
Trust Fund: The corpus of the trust created by this Agreement, to the
extent described herein, consisting of the Underlying Bond and such assets as
shall from time to time be identified as deposited in the Distribution Account.
Trustee Fee: The amount payable to the Trustee pursuant to an agreement
between the Trustee and the Depositor.
Trustee Fee Rate: With respect to any Mortgage Loan, the rate specified
in the agreement between the Trustee and the Depositor.
Underlying Bond: The Mortgage Collateralized Bond issued by American
Residential Eagle Trust [___] pursuant to the Indenture.
Underwriter: _____________ as underwriter of the public offering of the
Regular Certificates.
Voting Rights: The portion of the voting rights of all of the
Certificates which is allocated to any Certificate. As of any date of
determination, (a) 1% of all Voting Rights shall be allocated to each Class of
Notional Amount Certificates, if any (such Voting Rights to be allocated among
the holders of Certificates of each such Class in accordance with their
respective Percentage Interests), and (b) the remaining Voting Rights (or 100%
of the Voting Rights if there is no Class of Notional Amount Certificates) shall
be allocated among Holders of the Controlling Class of Certificates in
proportion to the Certificate Balances of their respective Certificates on such
date.
Withdrawal Date: As to any Distribution Date, the Business Day preceding
such Distribution Date.
[Yield Maintenance Premium: The amount payable as a prepayment penalty
or yield maintenance premium by a Mortgagor in connection with the prepayment in
whole or in part of a Mortgage Loan.]
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<PAGE> 39
ARTICLE II
Conveyance of the Underlying Bond; Original
Issuance of Certificates
Section 2.01. Conveyance of the Underlying Bond. The Depositor,
concurrently with the execution and delivery of this Agreement, does hereby
transfer, convey, sell and assign to the Trustee, on behalf of the Holders of
the Certificates, without recourse, all the right, title and interest of the
Depositor in and to the Underlying Bond, including all distributions thereon
payable on and after __________, 1998. In connection with such assignment, the
Depositor shall have caused the Underlying Bond to be registered in the name of,
or endorsed to the order of, ________________________________, as trustee, or in
a nominee name of the Trustee, and to be delivered or transferred to the
Trustee. The assignment of the Underlying Bond accomplished hereby is absolute
and is intended as a sale. The Depositor represents and covenants that the
Underlying Bond as of the Closing Date is free and clear of any right, charge,
security interest or lien or claim in favor of the Depositor or any person
claiming through the Depositor and that the Depositor has, as of the Closing
Date, the right to assign the Underlying Bond to the Trustee.
It is the intention of the Depositor that the transfer and assignment of
the Underlying Bond shall constitute a sale from the Depositor to the Trust and
that such Underlying Bond not be a part of the Depositor" estate in the event of
the insolvency of the Depositor. In the event the transfer and assignment of the
Underlying Bond contemplated by the Agreement is deemed to be other than a sale
notwithstanding the intent of the parties hereto, the Agreement shall be deemed
to be and in such event hereby is the grant of a security interest from the
Depositor to the Trustee, and the Trustee shall have all the rights, powers and
privileges of a secured party under the Uniform Commercial Code in effect in the
applicable jurisdiction. In such event, the Depositor agrees to take such action
and execute such documents as shall be necessary in order to fully realize the
benefits of such secured party status, including, without limitation, powers of
attorney, financing statements, notices of lien or other instruments or
documents.
Section 2.02. Issuance of Certificates. The Trustee acknowledges the
transfer and delivery to it of the Underlying Bond in the manner described in
Section 2.01 hereof and declares that the Trustee holds and will hold such
Underlying Bond in trust for the benefit of all present and future
Certificateholders and, concurrently with such transfer and delivery, has caused
to be duly executed, authenticated and delivered to or upon the order of the
Depositor the Certificates in authorized Denominations, registered in such names
as the Depositor has requested.
Section 2.03. Designation of Interests in FASIT.
[(a) The Regular Certificates are hereby designated as the "regular
interests" and the Ownership Certificates are hereby designated as the single
"ownership interest" in the FASIT for purposes of the FASIT Provisions.
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<PAGE> 40
(b) The Holder of the Tax Matters Person Certificate is hereby
designated as "tax matters person" with respect to the FASIT, if such a role is
ever required pursuant to Section 5.06, for purposes of the FASIT Provisions.]
Section 2.04. Designation of Start-up Day. [The Closing Date is hereby
designated as the "start-up day" of the FASIT within the meaning of Section
860L(d) of the Code.]
Section 2.05. FASIT Certificate Maturity Date. [Solely for purposes of
satisfying Section 860L(b)(1)(A)(iii) of the Code, the "latest possible maturity
date" of each Class of Regular Certificates is the Distribution Date in
_________, 20__.]
ARTICLE III
Administration of the Trust and
the Underlying Bond
3.01. Administration of the Trust and the Underlying Bond. If at any
time the Trustee, as the holder of the Underlying Bond, is requested in such
capacity, whether by a Certificateholder or a party to the Indenture, to take
any action or to give any consent, approval or waiver, including without
limitation in connection with the servicing and administration of the Mortgage
Loans or an amendment of the Underlying Bond or the Indenture, the Trustee shall
promptly notify the Depositor and all of the holders of the Certificates of such
request and shall, in its capacity as the holder of the Underlying Bond, take
such action in connection with the exercise and/or enforcement of any rights
and/or remedies available to it in such capacity with respect to such request as
the Certificateholders evidencing more than 50% of all Voting Rights shall
direct in writing, provided, however, that notwithstanding the foregoing, any
request received by the Trustee during the continuance of an Event of Default
that relates to any action, consent, approval or waiver covered in Article VIII
hereof shall be treated solely as therein provided.
ARTICLE IV
Collection of Payments on the Underlying Bond
Section 4.01. Collection of Payments on the Underlying Bond.
(a) The Trustee shall establish and maintain an account (the
"Distribution Account") entitled "[ ]," in which the Trustee shall, subject to
the terms of this paragraph, deposit, as soon as practicable after receipt, each
distribution received by the Trustee with respect to the Underlying Bond. The
Distribution Account shall be an Eligible Account. If the Trustee shall not have
received a distribution with respect to the Underlying Bond on the date on which
such distribution was due and payable pursuant to the terms of such Underlying
Bond, the Trustee shall request the Bond Trustee to make such payment as
promptly as possible and legally permitted.
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(b) The Trustee may invest, or cause to be invested, funds held in the
Distribution Account in Permitted Investments (which may be obligations of the
Trustee). All such investments must mature no later than the Business Day
immediately prior to the next succeeding Distribution Date, and shall not be
sold or disposed of prior to their maturity. All such Permitted Investments will
be made in the name of the Trustee (in its capacity as such) or its nominee. All
income and gain realized from any such investments shall be compensation for the
Trustee and shall be subject to its withdrawal on order from time to time. The
amount of any losses incurred in respect of any such investments shall be paid
by the Trustee for deposit in the Distribution Account out of its own funds
immediately as realized.
ARTICLE V
Payments and Statements to
Certificateholders
Section 5.01. Distributions. On each Distribution Date, the Trustee
shall distribute out of the Distribution Account (i) to each Certificateholder
of record on the related Record Date (other than as provided in Section 10.01
respecting the final distribution) by check mailed to such Certificateholder
entitled to receive a distribution on such Distribution Date at the address
appearing in the Certificate Register, or upon written request by a Regular
Certificateholder (in the event such Certificateholder owns of record Regular
Certificates of any Class having denominations aggregating at least $5,000,000),
by wire transfer or by such other means of payment as such Certificateholder and
the Trustee shall agree upon, such Certificateholder's Percentage Interest in,
the amount to which the related Class of Certificates is entitled in accordance
with the priorities set forth below in Section 5.02.
Neither the Holders of any Class of Regular Certificates or the
Ownership Certificates, nor the Trustee shall in any way be responsible or
liable to Holders of any Class of Certificates in respect of amounts properly
previously distributed on any Class of Regular Certificates.
Amounts distributed with respect to any Class of Regular Certificates
shall be applied first to the distribution of interest thereon and then to
principal thereon.
Section 5.02. Priorities of Distribution. (a) On each Distribution Date,
the Trustee shall withdraw the Available Funds from the Distribution Account and
apply such funds to distributions on the Certificates in the following order of
priority and to the extent of Available Funds:
(i) to each Class of Senior Certificates, an amount allocable to
interest equal to the related Class Optimum Interest Distribution Amount
for such Distribution Date, any shortfall being allocated among such
Classes in proportion to the amount of the Class Optimum Interest
Distribution Amount that would have been distributed in the absence of
such shortfall;
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(ii) to the Class A-1 Certificates, an amount allocable to
principal equal to the Senior Principal Distribution Amount, up to the
Class Certificate Balance thereof;
(iii) subject to Section 5.02(d), to each Class of Subordinate
Certificates as follows:
(A) to the Class M-1 Certificates, an amount
allocable to interest equal to the Class Optimal Interest
Distribution Amount for such Class for such Distribution Date;
(B) to Class M-1 Certificates, an amount allocable
to principal equal to the Subordinate Principal Distribution
Amount for such Class, up to the Class Certificate Balance
thereof;
(C) to the Class B-1 Certificates, an amount
allocable to interest equal to the Class Optimal Interest
Distribution Amount for such Class for such Distribution Date;
(D) to Class B-1 Certificates, an amount allocable
to principal equal to the Subordinate Principal Distribution
Amount for such Class, up to the Class Certificate Balance
thereof;
(E) to the Class B-2 Certificates, an amount
allocable to interest equal to the Class Optimal Interest
Distribution Amount for such Class for such Distribution Date;
and
(F) to the Class B-2 Certificates, an amount
allocable to principal equal to the Subordinate Principal
Distribution Amount for such Class, up to the Class Certificate
Balance thereof; and
(iv) to the Ownership Certificates any remaining Available
Funds.
(b) On each Distribution Date, the Class Optimum Interest Distribution
Amount for such Distribution Date for each interest-bearing Class of Regular
Certificates shall be reduced by (i) the related Class' pro rata share of Net
Prepayment Interest Shortfalls based on such Class' Class Optimum Interest
Distribution Amount without taking into account such Net Prepayment Interest
Shortfalls, (ii) after the Special Hazard Coverage Termination Date, with
respect to each Mortgage Loan that became a Special Hazard Mortgage Loan during
the preceding calendar month, the related Class' pro rata share (based on the
amount of interest such Class would otherwise have been entitled to receive in
respect of such Mortgage Loan) of one month's interest at the related Net
Mortgage Interest Rate on the Scheduled Principal Balance of such Mortgage Loan,
(iii) such Class' Allocable Share of (a) after the Bankruptcy Coverage
Termination Date, the interest portion of Debt Service Reductions and Deficient
Valuations and (b) Relief Act Reductions during the preceding calendar month and
(iv) after the Fraud Coverage Termination Date, with respect to each Mortgage
Loan that became a
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Fraud Loan during the preceding calendar month, the related Class' pro rata
share (based on the amount of interest such Class would otherwise be entitled to
receive in respect of such Mortgage Loan) of one month's interest at the related
Net Mortgage Interest Rate on the Scheduled Principal Balance of such Mortgage
Loan.
(c) For any Distribution Date following the Special Hazard Coverage
Termination Date, Fraud Loss Coverage Termination Date and Bankruptcy Coverage
Termination Date, as the case may be, the amount the Regular Certificates in the
aggregate are entitled to receive shall be reduced in the aggregate by the
related Splinter Loss with respect to any such Special Hazard Mortgage Loan,
Fraud Loan and Mortgage Loan that was subject to a Bankruptcy Loss. Any such
reduction shall be allocated pro rata based on Class Certificate Balances.
[(d) Notwithstanding the priority and allocation contained in Section
5.02(a)(iii), if with respect to any Class of Subordinate Certificates on any
Distribution Date the sum of the related Class Subordination Percentages of all
Classes of Subordinate Certificates which have a lower relative priority in
right of distribution pursuant to Section 5.02(a)(iii) than such Class (the
"Applicable Credit Support Percentage") is less than the Original Applicable
Credit Support Percentage for such Class, no distribution of Principal
Prepayments will be made to any such Classes (the "Restricted Classes") having
lower relative priority in right of distribution pursuant to Section
5.02(a)(iii) than such Class and the amount of such Principal Prepayments
otherwise distributable to the Restricted Classes shall be allocated to such
Class and any Classes of Subordinate Certificates having a higher relative
priority in right of distribution pursuant to Section 5.02(a)(iii) than such
Class, pro rata, based on their respective Class Certificate Balances
immediately prior to such Distribution Date and shall be distributed in the
order provided in Section 5.02(a)(iii).]
Section 5.03. Allocation of Net Realized Losses.
(a) On or prior to each Determination Date, the Trustee shall determine
the total amount of Net Realized Losses, if any, that occurred during the
preceding calendar month.
(b) Net Realized Losses shall be allocated as follows:
(i) Net Realized Losses (other than Splinter Losses), first,
sequentially, to the Class B-2, Class B-1 and Class M-1 Certificates in
that order, until the Class Certificate Balance of each such Class is
reduced to zero, and second, to the Class A-1 Certificates.
(ii) Net Realized Losses that are Splinter Losses, (a) prior to
the Special Hazard Coverage Termination Date, the Bankruptcy Loss
Coverage Termination Date or the Fraud Loss Coverage Termination Date,
as applicable, first, sequentially, to the Class B-2, Class B-1 and
Class M-1 Certificates, in that order, until the Class Certificate
Balance of such Class is reduced to zero and second, to the Class A-1
Certificates, until Class Certificate Balance is reduced to zero and (b)
after the Special Hazard Coverage Termination Date, the Bankruptcy Loss
Coverage Termination Date
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or Fraud Loss Coverage Termination Date, as applicable, to the Senior
Certificates and the Subordinate Certificates then outstanding, pro rata
on the basis of their respective Class Certificate Balances.
Any Net Realized Losses allocated to a Class of Certificates shall be allocated
among the Certificates of such Class in proportion to the respective portion of
the Initial Class Certificate Balance represented by a Certificate.
(c) Any allocation of Net Realized Losses to a Certificate shall be
accomplished by reducing the Class Certificate Balance thereof immediately
following the related Distribution Date in accordance with the definition of
"Class Certificate Balance."
Section 5.04. Statements to Certificateholders.
(a) Prior to the Distribution Date in each month, based upon the
information provided to the Trustee by the [Bond Trustee/Master Servicer], the
Trustee shall determine the following information with respect to the following
Distribution Date:
(i) the Available Funds for the following Distribution Date;
(ii) the Class Optimum Interest Distribution Amount for each -
Class of Regular Certificates for the following Distribution Date and
the amount to be distributed on account of interest on each Class of
Regular Certificates for the following Distribution Date;
(iii) the amount to be distributed and allocable to principal for
each Class of Regular Certificates (other than the Notional
Certificates) for the following Distribution Date;
(iv) the aggregate amount of Net Realized Losses indicating
separately the amount of Net Special Hazard Losses, Fraud Losses and
Bankruptcy Losses during the preceding calendar month;
(v) the amount of Bankruptcy Coverage Amount, Special Hazard Loss
Coverage and the Fraud Loss Coverage Amount for the related Distribution
Date;
(vi) the Senior Percentage for the following Distribution Date;
(vii) the Senior Prepayment Percentage for the following
Distribution Date;
(viii) the Subordinate Percentage and the Subordinate Percentage
Allocation on a Class by Class basis for the following Distribution
Date;
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(ix) the Subordinate Prepayment Percentage and the Subordinate
Prepayment Percentage Allocation on a Class by Class basis for the
following Distribution Date;
(x) the Pool Scheduled Principal Balance for the second following
Distribution Date; and
(xi) the Class Certificate Balance for each Class of Regular
Certificates after giving effect to the distribution to be made on the
following Distribution Date and any adjustments to the Class Certificate
Balances of such Certificates on such following Distribution Date as a
result of Net Realized Losses; and
(b) No later than each Distribution Date, the Trustee, based upon
information supplied to it by the [Bond Trustee/Master Servicer], shall prepare
and mail to each Holder of a Certificate and each Rating Agency a statement
setting forth:
(i) (a) the amount of such distribution to Holders of each Class
of Regular Certificates allocable to interest, any Class Unpaid Interest
Shortfall for such Class included in such distribution and any remaining
Class Unpaid Interest Shortfall for such Class after giving effect to
such distribution and (b) the amounts of (v) Net Prepayment Interest
Shortfall; (w) the amount of Prepayment Interest Shortfalls offset by
the Master Servicing Fee; (x) the interest portion of Net Special Hazard
Losses and Fraud Losses; (y) the interest portion of Debt Service
Reductions and Deficient Valuations; and (z) Relief Act Reductions, in
each case allocated to each Class on such Distribution Date;
(ii) the amount of such distribution to Holders of each Class of
Regular Certificates allocable to principal, separately identifying the
aggregate amount of any Principal Prepayments included therein;
(iii) the Class Certificate Balance of each Class of Regular
Certificates on such Distribution Date after giving effect to the
distribution of principal and any adjustments to the Class Certificate
Balances of such Certificates as a result of Net Realized Losses
resulting from (a) Special Hazard Losses, (b) Deficient Valuations or
Debt Service Reductions, (c) Fraud Losses and (d) Net Realized Losses
not included in clauses (a) - (c) above, separately listing the amounts
of adjustments resulting from each such category;
(iv) the Pool Scheduled Principal Balance of the Mortgage Loans
for the following Distribution Date;
(v) the aggregate amount of Net Special Hazard Losses, Bankruptcy
Losses and Fraud Losses during the preceding calendar month (separately
stating the amount of principal reduction and interest reduction
pursuant to Sections 5.02(b) and 5.02(c)) and the Special Hazard Loss
Coverage Amount, Bankruptcy Coverage Amount and the Fraud Loss Coverage
Amount for the following Distribution Date;
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(vi) the number and aggregate principal balances of Mortgage
Loans delinquent as of the end of the previous month (a) one month, (b)
two months and (c) three or more months and loans in foreclosure;
(vii) the amount of Net Realized Losses allocated to each such
Class;
(viii) the Senior Percentage for the following Distribution Date;
(ix) the Senior Prepayment Percentage for the following
Distribution Date;
(x) the Subordinate Percentage and the Subordinate Percentage
Allocation on a Class by Class basis for the following Distribution
Date; and
(xi) the Subordinate Prepayment Percentage and the Subordinate
Prepayment Percentage Allocation on a Class by Class basis for the
following Distribution Date.
In the case of information furnished pursuant to subclauses (i), (ii)
and (vii) above, the amounts shall be expressed as a dollar amount or Notional
Amount, as the case may be, per Certificate with a $1,000 denomination.
[Within a reasonable period of time after the end of each calendar year,
the [Trustee] shall prepare for mailing to each Person who at any time during
the calendar year was the Holder of a Regular Certificate, or Ownership
Certificate a statement containing the information set forth in subclauses (i)
and (ii) above in the case of a Regular Certificateholder, in each case
aggregated for such calendar year or applicable portion thereof during which
such Person was a Certificateholder. Such obligation of the [Trustee] shall be
deemed to have been satisfied to the extent that substantially comparable
information shall be provided by the [Trustee] pursuant to any requirements of
the Code as from time to time in force.]
[The Bond Trustee/Master Servicer shall provide on an aggregate basis
with respect to each Class of Certificates to enable the Trustee to deliver to
the Holders of Certificates any reports or information the Trustee is required
by this Agreement or the Code, Treasury Regulations or FASIT Provisions to
deliver to the Holders of Certificates, and Master Servicer shall prepare and
provide to the Trustee, and the Trustee shall forward to Certificateholders in
the form so provided (by mail, telephone, or publication as may be permitted by
applicable Treasury Regulations) as directed by the Master Servicer, such other
reasonable information as the Master Servicer deems necessary or appropriate or
is required by the Code, Treasury Regulations, and the FASIT Provisions
including, but not limited to, (i) information to be reported to the Holders of
the Ownership Certificates for quarterly notices on Schedule Q (Form 1066)
(which information shall be forwarded to the Holders of the Certificates by the
Master Servicer), (ii) information to be provided to the Holders of Certificates
with respect to amounts which should be included as interest and original issue
discount in such Holders' gross income and (iii) information to be provided to
all Holders of Certificates setting forth the percentage of the FASIT's assets,
determined in accordance with Treasury Regulations using a
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convention, not inconsistent with Treasury Regulations, selected by the Master
Servicer in its absolute discretion, that constitute qualifying real property
loans under Section 593 of the Code, real estate assets under Section 856 of the
Code, and assets described in Section 7701(a)(19)(C) of the Code; provided,
however, that in setting forth the percentage of such assets of the FASIT,
nothing contained in this Agreement, including without limitation Section 7.03
hereof, shall be interpreted to require the Master Servicer periodically to
appraise the fair market values of the assets of the Pool or to indemnify the
Pool or any Certificateholders from any adverse federal, state or local tax
consequences associated with a change subsequently required to be made in the
Master Servicer's initial good faith determinations of such fair market values
(if subsequent determinations are required pursuant to the FASIT Provisions)
made from time to time.]
Section 5.05. Tax Returns and Reports to Certificateholders.
(a) For federal income tax purposes, the Trust Fund shall have a
calendar year taxable year and shall maintain its books on the accrual method of
accounting.
[(b) The [Bond Trustee/Master Servicer] shall prepare or cause to be
prepared and shall deliver to the Trustee for signature, and the Trustee shall
file or cause to be filed with the Internal Revenue Service (the "Servicer") and
applicable state or local tax authorities income tax information returns for
each taxable year with respect to the Trust Fund containing such information at
the times and in the manner as may be required by the Code or state or local tax
laws, regulations, or rules, and shall furnish or cause to be furnished to the
Trust Fund and the Certificateholders the schedules, statements or information
at such times and in such manner as may be required thereby. Within thirty (30)
days of the Closing Date, the Trustee shall furnish or cause to be furnished to
the Service, on Form 8811 or as the Service may otherwise require by the Code,
the name, title, address and telephone number of the person that Holders of the
Certificates may contact for tax information relating thereto, together with
such additional information at the time or times and in the manner required by
the Code. Such federal, state, or local income tax or information returns shall
be signed by the Trustee, or such other Person as may be required to sign such
returns by the Code or state or local tax laws, regulations, or rules.]
[(c) In the first federal income tax return of the Trust Fund for its
short taxable year ending December 31, 199 , FASIT status shall be elected for
such taxable year and all succeeding taxable years.]
[(d) The Trustee will maintain or cause to be maintained such records
relating to the Trust Fund, including but not limited to the income, expenses,
assets and liabilities of the Pool, and the fair market value and adjusted basis
of the Pool property and assets determined at such intervals as may be required
by the Code, as may be necessary to prepare the foregoing returns, schedules,
statements or information.]
[Section 5.06. Tax Matters Person. If required by the applicable
regulations, when issued, the holder of the Tax Matters Person
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Certificate shall act as the Tax Matters Person and shall have the same duties
with respect to the Trust Fund as those of a "tax matters partner" under
Subchapter C of Chapter 63 of Subtitle F of the Code.]
[Section 5.07. Rights of the Tax Matters Person in Respect of the
Trustee. The Trustee shall afford the Tax Matters Person, upon reasonable notice
during normal business hours, access to all records maintained by the Trustee in
respect of its duties hereunder and access to officers of the Trustee
responsible for performing such duties. Upon request, the Trustee shall furnish
the Tax Matters Person with its most recent statement of condition publicly
available. The Trustee shall make available to the Tax Matters Person such
books, documents or records relating to the Trustee's services hereunder as the
Tax Matters Person shall reasonably request. The Tax Matters Person shall not
have any responsibility or liability for any action or failure to act by the
Trustee and is not obligated to supervise the performance of the Trustee under
this Agreement or otherwise.]
[Section 5.08. FASIT Related Covenants. For as long as the Pool shall
exist, the Trustee shall act in accordance herewith to assure continuing
treatment of the Trust Fund as a FASIT and avoid the imposition of tax on the
Trust Fund. In particular:
(a) The Trustee shall not create, or permit the creation of, any
"interests" in the Trust Fund within the meaning of Code Section 860L(b) other
than the interests represented by the Trust Fund, Regular Certificates and the
Ownership Certificates, respectively.
(b) Except as otherwise provided in the Code, the Depositor and the
Master Servicer shall not grant and the Trustee shall not accept property unless
(i) substantially all of the property held in the Trust Fund constitutes
"permitted assets" as defined in Code Section 860L(c)(1), and (ii) no property
shall be contributed to the Trust Fund after the start-up day unless such grant
would not subject the Pool to the 100% tax on contributions to a FASIT after the
start-up day of the FASIT.
(c) The Trustee shall not accept on behalf of the Trust Fund any fee or
other compensation for services and shall not accept on behalf of the Pool any
income from assets other than those permitted to be held by a FASIT.
(d) The Trustee shall not sell or permit the sale of all or any portion
of the Mortgage Loans (other than in accordance with Section _____), unless such
sale is pursuant to a "qualified liquidation" of a class of regular interests
pursuant to Code Section 860L(e)(3)(C) and in accordance with Article X.
(e) The Trustee shall maintain books with respect to the Trust Fund on a
calendar year taxable year and on an accrual basis.
Neither the Master Servicer nor the Trustee shall engage in a
"prohibited transaction" (as defined in Code Section 860K(e)), except that, with
the prior written consent of the Master Servicer and the Depositor, the Trustee
may engage in the activities otherwise prohibited by the foregoing clauses (b),
(c) and (d), provided that the Master Servicer shall have delivered to
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the Trustee an Opinion of Counsel to the effect that such transaction will not
result in the imposition of a tax on the Trust Fund and will not disqualify the
Trust Fund from treatment as a FASIT; and provided, that the Master Servicer
shall have demonstrated to the satisfaction of the Trustee that such action will
not adversely affect the rights of the holders of the Certificates and the
Trustee and that such action will not adversely impact the rating of the
Certificates.]
[Section 5.09. Determination of Pass-Through Rates for COFI
Certificates. The Pass-Through Rate for each Class of COFI Certificates for each
Interest Accrual Period after the initial Interest Accrual Period shall be
determined by the Trustee as provided below on the basis of the Index and the
applicable formulae appearing in footnotes corresponding to the COFI
Certificates in (1) to the table relating to the Certificates in the Preliminary
Statement.
Except as provided below, with respect to each Interest Accrual Period
following the initial Interest Accrual Period, the Trustee shall not later than
two Business Days following the publication of the applicable Index determine
the Pass-Through Rate at which interest shall accrue in respect of the COFI
Certificates during the related Interest Accrual Period.
Except as provided below, the Index to be used in determining the
respective Pass-Through Rates for the COFI Certificates for a particular
Interest Accrual Period shall be COFI for the second calendar month preceding
such Interest Accrual Period. If at the Outside Reference Date for any Interest
Accrual Period, COFI for the second calendar month preceding such Interest
Accrual Period has not been published, the Trustee shall use COFI for the third
calendar month preceding such Interest Accrual Period. If COFI for neither the
second nor third calendar months preceding any Interest Accrual Period has been
published on or before the related Outside Reference Date, the Index for such
Interest Accrual Period and for all subsequent Interest Accrual Periods shall be
the National Cost of Funds Index for the third calendar month preceding such
Interest Accrual Period (or the fourth preceding calendar month if such National
Cost of Funds Index for the third preceding calendar month has not been
published by such Outside Reference Date). In the event that the National Cost
of Funds Index for neither the third nor fourth calendar months preceding an
Interest Accrual Period has been published on or before the related Outside
Reference Date, then for such Interest Accrual Period and for each succeeding
Interest Accrual Period, the Index shall be LIBOR, determined in the manner set
forth below.
On each Interest Determination Date so long as the COFI Certificates are
outstanding and the applicable Index therefor is LIBOR, the Trustee shall either
(i) request each Reference Bank to inform the Trustee of the quotation offered
by its principal London office for making one-month United States dollar
deposits in leading banks in the London interbank market, as of 11:00 a.m.
(London time) on such Interest Determination Date or (ii) in lieu of making any
such request, rely on such Reference Bank quotations that appear at such time on
the Reuters Screen LIBO Page (as defined in the International Swap Dealers
Association Inc. Code of Standard Wording, Assumptions and Provisions for Swaps,
1986 Edition), to the extent available.
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With respect to any Interest Accrual Period for which the applicable
Index is LIBOR, LIBOR for such Interest Accrual Period will be established by
the Trustee on the related Interest Determination Date as follows:
(a) If on any Interest Determination Date two or more Reference
Banks provide such offered quotations, LIBOR for the next Interest
Accrual Period shall be the arithmetic mean of such offered quotations
(rounding such arithmetic mean upwards if necessary to the nearest whole
multiple of 1/32%).
(b) If on any Interest Determination Date only one or none of the
Reference Banks provides such offered quotations, LIBOR for the next
Interest Accrual Period shall be whichever is the higher of (i) LIBOR as
determined on the previous Interest Determination Date or (ii) the
Reserve Interest Rate. The "Reserve Interest Rate" shall be the rate per
annum which the Trustee determines to be either (i) the arithmetic mean
(rounded upwards if necessary to the nearest whole multiple of 1/32%) of
the one-month United States dollar lending rates that New York City
banks selected by the Trustee are quoting, on the relevant Interest
Determination Date, to the principal London offices of at least two of
the Reference Banks to which such quotations are, in the opinion of the
Trustee, being so made, or (ii) in the event that the Trustee can
determine no such arithmetic mean, the lowest one-month United States
dollar lending rate which New York City banks selected by the Trustee
are quoting on such Interest Determination Date to leading European
banks.
From such time as the applicable Index becomes LIBOR until all of the
COFI Certificates are paid in full, the Trustee will at all times retain at
least four Reference Banks for the purposes of determining LIBOR with respect to
each interest Determination Date. The Master Servicer initially shall designate
the Reference Banks. Each "Reference Bank" shall be a leading bank engaged in
transactions in Eurodollar deposits in the international Eurocurrency market,
shall not control, be controlled by, or be under common control with, the
Trustee and shall have an established place of business in London. If any such
Reference Bank should be unwilling or unable to act as such or if the Master
Servicer should terminate its appointment as Reference Bank, the Trustee shall
promptly appoint or cause to be appointed another Reference Bank. The Trustee
shall have no liability or responsibility to any Person for (i) the selection of
any Reference Bank for purposes of determining LIBOR or (ii) any inability to
retain at least four Reference Banks which is caused by circumstances beyond its
reasonable control.
In determining LIBOR and any Pass-Through Rate for the COFI Certificates
or any Reserve Interest Rate, the Trustee may conclusively rely and shall be
protected in relying upon the offered quotations (whether written, oral or on
the Reuters Screen) from the Reference Banks or the New York City banks as to
LIBOR or the Reserve Interest Rate, as appropriate, in effect from time to time.
The Trustee shall not have any liability or responsibility to any Person for (i)
the Trustee's selection of New York City banks for purposes of determining any
Reserve Interest Rate or (ii) its inability, following a good-faith reasonable
effort, to obtain
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such quotations from the Reference Banks or the New York City banks or to
determine such arithmetic mean, all as provided for in this Section 5.05.
The establishment of LIBOR and each Pass-Through Rate for the LIBOR
Certificates by the Trustee shall (in the absence of manifest error) be final,
conclusive and binding upon each Holder of a Certificate and the Trustee.]
[Section 5.10. Determination of Pass-Through Rates for LIBOR
Certificates. On each Interest Determination Date so long as the LIBOR
Certificates are outstanding, the Trustee shall either (i) request each
Reference Bank to inform the Trustee of the quotation offered by its principal
London office for making one month United States dollar deposits in leading
banks in the London interbank market, as of 11:00 a.m. (London time) on such
Interest Determination Date or (ii) in lieu of making any such request, rely on
such Reference Bank quotations that appear at such time on the Reuters Screen
LIBO Page (as defined in the International Swap Dealers Association Inc. Code of
Standard Wording, Assumptions and provisions for Swaps, 1986 Edition), to the
extent available.
LIBOR for the next Interest Accrual Period will be established by the
Trustee on each interest Determination Date as follows:
(a) If on any interest Determination Date two or more Reference
Banks provide such offered quotations, LIBOR for the next Interest
Accrual Period shall be the arithmetic mean of such offered quotations
(rounding such arithmetic mean upwards if necessary to the nearest whole
multiple of 1/32%).
(b) If on any Interest Determination Date only one or none of the
Reference Banks provides such offered quotations, LIBOR for the next
Interest Accrual Period shall be whichever is the higher of (i) LIBOR as
determined on the previous Interest Determination Date or (ii) the
Reserve Interest Rate. The "Reserve Interest Rate" shall be the rate per
annum which the Trustee determines to be either (i) the arithmetic mean
(rounded upwards if necessary to the nearest whole multiple of 1/32) of
the one-month United States dollar lending rates that New York City
banks selected by the Trustee are quoting, on the relevant Interest
Determination Date, to the principal London offices of at least two of
the Reference Banks to which such quotations are, in the opinion of the
Trustee, being so made, or (ii) in the event that the Trustee can
determine no such arithmetic mean, the lowest one-month United States
dollar lending rate which New York City banks selected by the Trustee
are quoting on such Interest Determination Date to leading European
banks.
(c) If on any interest Determination Date the trustee is required
but is unable to determine the Reserve Interest Rate in the manner
provided in paragraph (b) above, LIBOR shall be LIBOR as determined on
the preceding Interest Determination Date, or, in the case of the first
Interest Determination Date, the Initial LIBOR Rate.
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Until all of the LIBOR Certificates are paid in full, the Trustee will
at all times retain at least four Reference Banks for the purpose of determining
LIBOR with respect to each Interest Determination Date. The Trustee initially
shall designate the Reference Banks. Each "Reference Bank" shall be a leading
bank engaged in transactions in Eurodollar deposits in the international
Eurocurrency market, shall not control, be controlled by, or be under common
control with, the Trustee and shall have an established place of business in
London. If any such Reference Bank should be unwilling or unable to act as such,
the Trustee shall promptly appoint or cause to be appointed another Reference
Bank. The Trustee shall have no liability or responsibility to any Person for
(i) the selection of any Reference Bank for purposes of determining LIBOR or
(ii) any inability to retain at least four Reference Banks which is caused by
circumstances beyond its reasonable control.
The Pass-Through Rate for each Class of LIBOR Certificates for each
Interest Accrual Period shall be determined by the Trustee on each Interest
Determination Date so long as the LIBOR Certificates are outstanding on the
basis of LIBOR and the respective formulae appearing in footnotes corresponding
to the LIBOR Certificates in the table relating to the Certificates in the
Preliminary Statement.
In determining LIBOR, any Pass-Through Rate for the LIBOR Certificates
or any Reserve Interest Rate, the Trustee may conclusively rely and shall be
protected in relying upon the offered quotations (whether written, oral or on
the Reuters Screen) from the Reference Banks or the New York City banks as to
LIBOR or the Reserve Interest Rate, as appropriate, in effect from time to time.
The Trustee shall not have any liability or responsibility to any Person for (i)
the Trustee's selection of New York City banks for purposes of determining any
Reserve Interest Rate or (ii) its inability, following a good-faith reasonable
effort, to obtain such quotations from the Reference Banks or the New York City
banks or to determine such arithmetic mean, all as provided for in this Section
5.10.
The establishment of LIBOR and each Pass-Through Rate for the LIBOR
Certificates by the Trustee shall (in the absence of manifest error) be final,
conclusive and binding upon each Holder of a Certificate and the Trustee.]
ARTICLE VI
The Certificates
Section 6.01. The Certificates. The Classes of Senior Certificates, the
Ownership Certificates and the Subordinate Certificates shall be substantially
in the forms set forth in Exhibits A, B, D and E (reverse of all Certificates)
and shall, on original issue, be executed by the Depositor and shall be
countersigned and delivered by the Trustee to or upon the order of the Depositor
upon receipt by the Trustee of the documents specified in [Section 2.01]. The
Senior Certificates shall be available to investors in interests representing
minimum dollar Certificate Balances of $[ ] and integral multiples of $[ ] in
excess thereof. The Subordinate Certificates shall be available to investors in
fully registered form in interests representing minimum dollar Certificate
Balances of $[ ] and integral dollar multiples of $[
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] in excess thereof (except one Certificate of such Class may be issued with
a Certificate Balance in any amount in excess of the minimum denomination).
The Ownership Certificates shall be in fully registered form in minimum
Percentage Interests of 10% and integral multiples of 10% in excess thereof
(except one Ownership Certificate may be available in a Percentage Interest
which is equal to 0.001%).
The Certificates shall be executed by manual or facsimile signature on
behalf of the Depositor by an authorized officer or signatory. Certificates
bearing the manual or facsimile signatures of individuals who were, at the time
when such signatures were affixed, authorized to sign on behalf of the Depositor
shall bind the Depositor, notwithstanding that such individuals or any of them
have ceased to be so authorized prior to the execution and delivery of such
Certificates or did not hold such offices or positions at the date of such
Certificate. No Certificate shall be entitled to any benefit under this
Agreement, or be valid for any purpose, unless such Certificate shall have been
manually countersigned by the Trustee substantially in the form provided for
herein, and such countersignature upon any Certificate shall be conclusive
evidence, and the only evidence, that such Certificate has been duly
authenticated and delivered hereunder. All Certificates shall be dated the date
of their countersignature.
Section 6.02. Registration of Transfer and Exchange of Certificates. The
Trustee shall cause to be kept at an office or agency in the city in which the
Corporate Trust Office of the Trustee is located a Certificate Register in
which, subject to such reasonable regulations as it may prescribe, the Trustee
shall provide for the registration of Certificates and of transfers and
exchanges of Certificates as herein provided. The Trustee shall initially serve
as Certificate Registrar for the purpose of registering Certificates and
transfers and exchanges of Certificates as herein provided.
At the option of the Certificateholders, Certificates may be exchanged
for other Certificates of authorized denominations of a like Class, tenor and
aggregate Percentage Interest, upon surrender of the Certificates to be
exchanged at any such office or agency. Whenever any Certificates are so
surrendered for exchange the Depositor shall execute and the Trustee shall
authenticate, countersign and deliver the Certificates which the
Certificateholder making the exchange is entitled to receive. Every Certificate
presented or surrendered for transfer or exchange shall (if so required by the
Trustee or the Certificate Registrar) be duly endorsed by, or be accompanied by
a written instrument of transfer in form satisfactory to the Trustee and the
Certificate Registrar duly executed by, the Holder thereof or his attorney duly
authorized in writing.
No transfer of a Private Certificate shall be made unless such transfer
is exempt from the registration requirements of the Securities Act of 1933, as
amended, and any applicable state securities laws or is made in accordance with
said Act and laws. In the event of any such transfer, (i) unless such transfer
is made in reliance upon Rule 144A under the 1933 Act, the Trustee or the
Depositor may require a written Opinion of Counsel (which may be in-house
counsel) acceptable to and in form and substance reasonably satisfactory to the
Trustee and the Depositor that such transfer may be made pursuant to an
exemption, describing the applicable
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exemption and the basis therefor, from said Act and laws or is being made
pursuant to said Act and laws, which Opinion of Counsel shall not be an expense
of the Trustee or the Depositor and (ii) the Trustee shall require the
transferee to execute an investment letter (in substantially the form attached
hereto as Exhibit J) acceptable to and in form and substance reasonably
satisfactory to the Depositor and the Trustee certifying to the Depositor and
the Trustee the facts surrounding such transfer, which investment letter shall
not be an expense of the Trustee or the Depositor. The Holder of a Private
Certificate desiring to effect such transfer shall, and does hereby agree to,
indemnify the Trustee and the Depositor against any liability that may result if
the transfer is not so exempt or is not made in accordance with such federal and
state laws.
Except as provided below, the Book-Entry Certificates shall at all times
remain registered in the name of the Depository or its nominee and at all times:
(i) registration of the Certificates may not be transferred by the Trustee
except to another Depository; (ii) the Depository shall maintain book-entry
records with respect to the Certificate Owners and with respect to ownership and
transfers of such Book-Entry Certificates; (iii) ownership and transfers of
registration of the Book-Entry Certificates on the books of the Depository shall
be governed by applicable rules established by the Depository; (iv) the
Depository may collect its usual and customary fees, charges and expenses from
its Depository Participants; (v) the Trustee shall deal with the Depository,
Depository Participants and indirect participating firms as representatives of
the Certificate Owners of the Book-Entry Certificates for purposes of exercising
the rights of Holders under this Agreement, and requests and directions for and
votes of such representatives shall not be deemed to be inconsistent if they are
made with respect to different Certificate Owners; and (vi) the Trustee may rely
and shall be fully protected in relying upon information furnished by the
Depository with respect to its Depository Participants and furnished by the
Depository Participants with respect to indirect participating firms and persons
shown on the books of such indirect participating firms as direct or indirect
Certificate Owners.
All transfers by Certificate Owners of Book-Entry Certificates shall be
made in accordance with the procedures established by the Depository Participant
or brokerage firm representing such Certificate Owner. Each Depository
Participant shall only transfer Book-Entry Certificates of Certificate Owners it
represents or of brokerage firms for which it acts as agent in accordance with
the Depository's normal procedures.
If (x) (i) the Depository or the Depositor advises the Trustee in
writing that the Depository is no longer willing or able to properly discharge
its responsibilities as Depository, and (ii) the Trustee or the Depositor is
unable to locate a qualified successor, (y) the Depositor at its option advises
the Trustee in writing that it elects to terminate the book-entry system through
the Depository or (z) after the occurrence of an Event of Default, Certificate
Owners representing at least 51% of the Class Certificate Balance of the
Book-Entry Certificates together advise the Trustee and the Depository through
the Depository Participants in writing that the continuation of a book-entry
system through the Depository is no longer in the best interests of the
Certificate Owners, the Trustee shall notify all Certificate Owners, through the
Depository, of the occurrence of any such event and of the availability of
definitive, fully
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registered Certificates (the "Definitive Certificates") to Certificate Owners
requesting the same. Upon surrender to the Trustee of the related Class of
Certificates by the Depository, accompanied by the instructions from the
Depository for registration, the Trustee shall issue the Definitive
Certificates. Neither the Depositor nor the Trustee shall be liable for any
delay in delivery of such instruction and may conclusively rely on, and shall be
protected in relying on, such instructions. The Depositor shall provide the
Trustee with an adequate inventory of certificates to facilitate the issuance
and transfer of Definitive Certificates. Upon the issuance of Definitive
Certificates all references herein to obligations imposed upon or to be
performed by the Depository shall be deemed to be imposed upon and performed by
the Trustee, to the extent applicable with respect to such Definitive
Certificates and the Trustee shall recognize the Holders of the Definitive
Certificates as Certificateholders hereunder.
No transfer of a ERISA Restricted Certificate shall be made unless the
Trustee shall have received either (i) a representation letter from the
transferee of such Certificate, acceptable to and in form and substance
satisfactory to the Trustee and the Depositor, to the effect that such
transferee is not an employee benefit plan subject to Section 406 of ERISA, nor
a person acting on behalf of any such plan, which representation letter shall
not be an expense of the Trustee or the Depositor, or (ii) in the case of any
ERISA Restricted Certificate presented for registration in the name of an
employee benefit plan subject to ERISA, and Section 4975 of the Code (or
comparable provisions of any subsequent enactments), or a trustee of any such
plan, an Opinion of Counsel satisfactory to the Trustee and the Depositor to the
effect that the purchase or holding of such ERISA Restricted Certificate will
not result in the assets of the Trust Fund being deemed to be "plan assets" and
subject to the prohibited transaction provisions of ERISA and the Code and will
not subject the Trustee or the Depositor to any obligation in addition to those
undertaken in this Agreement, which opinion of counsel shall not be an expense
of the Trustee or the Depositor.
Each Person who has or who acquires any Ownership Interest in a Transfer
Restricted Certificate shall be deemed by the acceptance or acquisition of such
Ownership Interest to have agreed to be bound by the following provisions and to
have irrevocably appointed the Depositor or its designee as its attorney-in-fact
to negotiate the terms of any mandatory sale under clause (v) below and to
execute all instruments of transfer and to do all other things necessary in
connection with any such sale, and the rights of each Person acquiring any
Ownership Interest in a Transfer Restricted Certificate are expressly subject to
the following provisions:
(i) Each Person holding or acquiring any Ownership Interest in a
Transfer Restricted Certificate shall be a Permitted Transferee and
shall promptly notify the Trustee of any change or impending change in
its status as a Permitted Transferee.
(ii) No Person shall acquire an Ownership Interest in a Transfer
Restricted Certificate unless such Ownership Interest is a pro rata
undivided interest.
(iii) No Ownership Interest in a Transfer Restricted Certificate
may be transferred without the express written consent of the Trustee.
In connection with any
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proposed transfer of any Ownership Interest in a Transfer Restricted
Certificate, the Trustee shall as a condition to such consent, require
delivery to it, in form and substance satisfactory to it, of each of the
following:
A. an affidavit in the form of Exhibit I hereto
from the proposed transferee to the effect that such transferee
is a Permitted Transferee and that it is not acquiring its
Ownership Interest in a Transfer Restricted Certificate that is
the subject of the proposed transfer as a nominee, trustee or
agent for any Person who is not a Permitted Transferee; and
B. a covenant of the proposed transferee to the
effect that the proposed transferee agrees to be bound by and to
abide by the transfer restrictions applicable to Transfer
Restricted Certificates.
(iv) Any attempted or purported transfer of any Ownership
Interest in a Transfer Restricted Certificate in violation of the
provisions of this Section 6.02 shall be absolutely null and void and
shall vest no rights in the purported transferee. If any purported
transferee shall, in violation of the provisions of this Section 6.02,
become a Holder of a Transfer Restricted Certificate, then the prior
Holder of such Transfer Restricted Certificate that is a Permitted
Transferee shall, upon discovery that the registration of transfer of
such Transfer Restricted Certificate was not in fact permitted by this
Section 6.02, be restored to all rights as Holder thereof retroactive to
the date of registration of transfer of such Transfer Restricted
Certificate. The Trustee shall be under no liability to any Person for
any registration of transfer of a Transfer Restricted Certificate that
is in fact not permitted by this Section 6.02 or for making any
distributions due on such Transfer Restricted Certificate to the Holder
thereof or taking any other action with respect to such Holder under the
provisions of the Agreement so long as the transfer was not registered
upon the express written consent of the Trustee. The Trustee shall be
entitled to recover from any Holder of a Transfer Restricted Certificate
that was in fact not a Permitted Transferee at the time such
distributions were made all distributions made on such Transfer
Restricted Certificate. Any such distributions so recovered by the
Trustee shall be distributed and delivered by the Trustee to the prior
Holder of such Ownership Certificate that is a Permitted Transferee.
(v) If any Person other than a Permitted Transferee acquires any
Ownership Interest in a Transfer Restricted Certificate in violation of
the restrictions in this Section 6.02, then the Trustee shall have the
right but not the obligation, without notice to the Holder of such
Transfer Restricted Certificate or any other Person having an Ownership
Interest therein, to notify the Underwriter to arrange for the sale of
such Transfer Restricted Certificate. The proceeds of such sale, net of
commissions (which may include commissions payable to the Trustee or its
affiliates), expenses and taxes due, if any, will be remitted by the
Trustee to the previous Holder of such Transfer Restricted Certificate
that is a Permitted Transferee, except that in the event that the
Trustee determines that the Holder of such Transfer Restricted
Certificate may be liable
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for any amount due under this Section 6.02 or any other provisions of
this Agreement, the Trustee may withhold a corresponding amount from
such remittance as security for such claim. The terms and conditions of
any sale under this clause (v) shall be determined in the sole
discretion of the Trustee, and it shall not be liable to any Person
having an Ownership Interest in a Transfer Restricted Certificate as a
result of its exercise of such discretion.
(vi) If any Person other than a Permitted Transferee acquires any
Ownership Interest in a Transfer Restricted Certificate in violation of
the restrictions in this Section 6.02, then the Trustee, will provide to
the Internal Revenue Service, and to the persons specified in Section
860E(e)(3) and (6) of the Code, information needed to compute the tax
imposed under Section 860E(e)(5) of the Code on transfers of residual
interests to disqualified organizations.
The foregoing provisions of Section 6.02 shall cease to apply to transfers
occurring on or after the date on which there shall have been delivered to the
Trustee, in form and substance satisfactory to the Trustee, (i) written
notification from each Rating Agency that the removal of the restrictions on
Transfer set forth in this Section 6.02 will not cause such Rating Agency to
downgrade its rating of the Certificates and (ii) an Opinion of Counsel to the
effect that such removal will not cause the Trust Fund to fail to qualify as a
FASIT and will not cause the proposed transfer of such Certificates to be
disregarded by the Service under Code Section 860K.
No service charge shall be imposed for any transfer or exchange of
Certificates of any Class, but the Trustee may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certificates.
All Certificates surrendered for transfer and exchange shall be
destroyed by the Certificate Registrar.
Section 6.03. Mutilated, Destroyed, Lost or Stolen Certificates. If (i)
any mutilated Certificate is surrendered to the Certificate Registrar or the
Certificate Registrar receives evidence to its satisfaction of the destruction,
loss or theft of any Certificate, and (ii) there is delivered to the Trustee,
the Depositor and the Certificate Registrar such security or indemnity
reasonably satisfactory to each, to save each of them harmless, then, in the
absence of actual notice to the Trustee or the Certificate Registrar that such
Certificate has been acquired by a bona fide purchaser, the Trustee shall
countersign and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Certificate, a new Certificate of like tenor, Class
and Percentage Interest but bearing a number not contemporaneously outstanding.
Upon the issuance of any new Certificate under this Section, the Trustee may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee and the Certificate Registrar) connected
therewith. Any duplicate Certificate issued pursuant to this Section shall
constitute complete and indefeasible evidence of ownership in the Pool, as if
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originally issued, whether or not the lost, stolen or destroyed Certificate
shall be found at any time.
Section 6.04. Persons Deemed Owners. Prior to due presentation of a
Certificate for registration of transfer, the Depositor, the Depositor, the
Trustee, the Certificate Registrar and any agent of the Depositor, the
Depositor, the Trustee or the Certificate Registrar may treat the Person in
whose name any Certificate is registered as the owner of such Certificate for
the purpose of receiving distributions pursuant to Section 5.01 and for all
other purposes whatsoever, and neither the Depositor, the Depositor, the
Trustee, the Certificate Registrar nor any agent of the Depositor, the Trustee
or the Certificate Registrar shall be affected by notice to the contrary.
ARTICLE VII
The Depositor
Section 7.01. Liability of the Depositor. The Depositor shall be liable
in accordance herewith only to the extent of the respective obligations
specifically imposed upon and undertaken by the Depositor herein.
Section 7.02. Merger, Consolidation or Conversion of the Depositor.
Subject to the following paragraph, the Depositor will keep in full effect its
existence, rights and franchises as a corporation under the laws of the
jurisdiction of its incorporation, and will obtain and preserve its
qualification to do business as a foreign corporation in each jurisdiction in
which such qualification is or shall be necessary to protect the validity and
enforceability of this Agreement and the Certificates and to perform its duties
under this Agreement.
The Depositor may be merged or consolidated with or into any Person, or
transfer all or substantially all of its assets to any Person, in which case any
Person resulting from any merger or consolidation to which the Depositor shall
be a party, or any Person succeeding to the business of the Depositor, shall be
the successor of the Depositor hereunder, without the execution or filing of any
paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding.
Section 7.03. Limitation on Liability of the Depositor and Others.
Neither the Depositor nor any of the directors, officers, employees or agents of
the Depositor shall be under any liability to the Trust or the
Certificateholders for any action taken or for refraining from the taking of any
action in good faith pursuant to this Agreement, or for errors in judgment;
provided, however, that this provision shall not protect the Depositor or any
such other Person against any breach of a representation or warranty made
herein, or against any expense or liability specifically required to be borne
thereby pursuant to the terms hereof, or against any liability which would
otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance of obligations or duties hereunder, or by reason
of reckless disregard of such obligations and duties. The Depositor and any
director, officers, employee or agent of the Depositor may rely in good faith on
any document of any kind
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which, prime facie, is properly executed and submitted by any Person respecting
any matters arising hereunder. Provided that such action is not related to its
representations made in or its duties under this Agreement, the Depositor shall
not be under any obligation to appear in, prosecute or defend any action or
proceeding unless such action in its opinion does not involve it in any expense
or liability.
ARTICLE VIII
Section 8.01. Events of Default. Upon the occurrence of any Event of
Default, the Trustee, as the holder of the Underlying Bond, will follow the
procedures set forth in this Article.
Section 8.02. Acceleration of Maturity; Discussion and Amendment. The
Trustee will promptly furnish to the Depositor and the Certificateholders notice
of any Event of Default known to the Trustee. The Trustee agrees, as the holder
of the Underlying Bond, to deliver a notice in writing to the Bond Issuer and
the Bond Trustee declaring the Underlying Bond to be immediately due and
payable, upon the Trustee's receipt of a direction to take such action from the
Holders of Certificates evidencing more than 50% of all Voting Rights.
At any time after an acceleration of the Underlying Bond has been made,
the Trustee further agrees to deliver a notice in writing to the Bond Issuer and
the Bond Trustee rescinding and annulling such acceleration and its
consequences, upon the Trustee's receipt of a direction to take such action from
the Holders of Certificates evidencing more than 50% of all Voting Rights.
Section 8.03. Control by Certificateholders. The Trustee agrees, as the
holder of the Underlying Bond, to instruct the Bond Trustee as to the time,
method and place of conducting any Proceeding for any remedy available to the
Bond Trustee or exercising any power or trust conferred on the Bond Trustee,
subject to the limitations and qualifications of Section 5.14 of the Indenture,
upon receipt by the Trustee of a direction to take such action from the Holders
of Certificates evidencing more than 50% of all Voting Rights.
Section 8.04. Waiver of Past Defaults. The Holders of Certificates
evidencing more than 50% of all Voting Rights may on behalf of the Holders of
all Certificates waive any past Event of Default and its consequences, except an
Event of Default:
(1) in payment of any installment of principal, or interest on, the
Underlying Bond; or
(2) in respect of a covenant or provision hereof which under Section
9.02 of the Indenture cannot be modified or amended without the consent of each
holder of the Underlying Bond affected.
Upon any such waiver, such Event of Default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured for
every purpose of the
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Indenture; but no such waiver shall extend to any subsequent or other Event of
Default or impair any right consequent therefrom.
Section 8.05. Undertaking for Costs. All parties to this Agreement
agree, and each Holder of any Certificate by his or her acceptance thereof shall
be deemed to have agreed, that any court may in its discretion require, in any
suit for the enforcement of any right or remedy under the Indenture, or in any
suit against the Bond Trustee for any action taken, suffered or omitted by it as
Bond Trustee, the filing by any party litigant in such suit of an undertaking to
pay the costs of such suit, and that such court may in its discretion assess
reasonable costs, including reasonable attorneys' fees, against any party
litigant in such suit, having due regard to the merits and good faith of the
claims or defenses made by such party litigant; but the provisions of this
Section shall not apply to any suit instituted by the Bond Trustee, to any suit
instituted by any Certificateholder, or group of Certificateholders, acting
through the Trustee as herein provided, holding in the aggregate Certificates
evidencing more than 10% of all Voting Rights.
8.06. Sale of Trust Estate. The Trustee, as the holder of the Underlying
Bond, agrees to deliver a notice in writing to the Bond Trustee of the consent
to, or a direction to the Bond Trustee to make, a private sale of all or a
portion of the collateral for the Underlying Bonds, pursuant to Section 5.18(b)
of the Indenture, upon receipt by the Trustee of a direction to take such action
by the Holders of Certificates evidencing 100% of all Voting Rights.
The Trustee, as the holder of the Underlying Bond, further agrees to
deliver a notice in writing to the Bond Trustee of the consent to, or a
direction to the Bond Trustee to make, a public sale of all or a portion of the
collateral for the Underlying Bonds, pursuant to Section 5.18(c) of the
Indenture, upon the receipt by the Trustee of a direction to take such action by
the Holders of Certificates evidencing 100% of all Voting Rights.
ARTICLE IX
The Trustee
Section 9.01. Duties of Trustee.
(a) The Trustee, except during the occurrence of one or more of the
Events of Default referred to in Section 8.01, undertakes to perform such duties
and only such duties as are specifically set forth in this Agreement. In case of
the occurrence of any such Event of Default as specified above, the Trustee
shall exercise such of the rights and powers vested in it by this Agreement and
use the same degree of care and skill in their exercise as a prudent investor
would exercise or use under the circumstances in the conduct of such investor's
own affairs.
The Trustee, upon receipt of all resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments furnished to the
Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to
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determine whether they are in the form required by this Agreement; provided,
however, that the Trustee shall not be responsible for the accuracy or content
of any such certificate, statement, opinion, report, or other order or
instrument furnished by the Master Servicer or the Depositor to the Trustee
pursuant to this Agreement.
(b) No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own gross negligent action, its own gross
negligent failure to act or its own willful misconduct; provided, however, that:
(i) This paragraph shall not be construed to limit the effect of
paragraph (a) of this Section 9.01;
(ii) The Trustee and co-trustee shall not be personally liable
with respect to any action taken, suffered or omitted to be taken by it
in good faith in accordance with the direction of Certificateholders as
provided in Section 8.02 or 8.03 hereof;
(iii) For all purposes under this Agreement, the Trustee shall
not be deemed to have notice of any event described in Section 8.01
other than a payment default unless a Responsible Officer assigned to
and working in the Trustee's corporate trust division has actual
knowledge thereof or unless written notice of any event is received at
the Corporate Trust Office, and such notice references the Certificates
and this Agreement; and
(iv) No provision of this Agreement shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder, or in the exercise of
any of its rights or powers, if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it.
Section 9.02. Certain Matters Affecting the Trustee. Except as otherwise
provided in Section 9.01:
(i) The Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, Officer's Certificate,
certificate of auditor or any other certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond or
other paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties;
(ii) The Trustee may consult with counsel and any Opinion of
Counsel shall be full and complete authorization and protection in
respect of any action taken or suffered or omitted by it hereunder in
good faith and in accordance with such Opinion of Counsel;
(iii) The Trustee and any co-trustee shall not be personally
liable for any action taken, suffered or omitted by it in good faith and
reasonably believed by it to be
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authorized or within the discretion or rights or powers conferred upon
it by this Agreement;
(iv) Unless a payment default in respect of the Underlying Bond
or other event specified in Section 8.01 shall have occurred and be
continuing and, in each case is known to a Responsible Officer of the
Trustee, the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval,
bond or other paper or document, unless requested in writing to do so by
Holders of Certificates evidencing not less than 50% of all Voting
Rights; provided, however, that if the payment within a reasonable time
to the Trustee of the costs, expenses or liabilities likely to be
incurred by it in the making of such investigation is, in the opinion of
the Trustee, not reasonably assured to the Trustee by the security
afforded to it by the terms of this Agreement, the Trustee may require
reasonable indemnity against such expense or liability or payment of
such estimated expenses as a condition to proceeding. The reasonable
expense of every such examination shall be an expense of the Trust Fund;
and
(v) The Trustee and any co-trustee may execute any of the trusts
or powers hereunder or perform any duties hereunder either directly or
by or through agents or attorneys and the Trustee and any co-trustee
shall not be responsible for any willful misconduct or gross negligence
on the part of any agent or attorney appointed with due care by it
hereunder.
Section 9.03. Trustee Not Liable for Certificates. The Trustee makes no
representations as to the validity or sufficiency of this Agreement or of the
Certificates save that the Trustee represents that, assuming due execution and
delivery by the other parties hereto, this Agreement has been duly authorized,
executed and delivered by it and constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms, subject, as to
enforcement of remedies, to applicable bankruptcy, reorganization, insolvency,
moratorium and other laws affecting the rights of creditors generally, and to
general principles of equity and the discretion of the court (regardless of
whether enforcement of such remedies is considered in a proceeding in equity or
at law). The Trustee shall not be accountable for the use or application by the
Depositor of funds paid to the Depositor in consideration of the assignment of
the Mortgage Loans hereunder by the Depositor, or for the use or application of
any funds paid to Servicers or the Master Servicer in respect of the Mortgage
Loans or deposited into the Certificate Account by the Master Servicer.
Section 9.04. Trustee May Own Certificates. The Trustee in its
individual or any other capacity may become the owner or pledgee of Certificates
with the same rights it would have if it were not Trustee and may otherwise deal
with the Master Servicer, any Servicer or any of their respective affiliates
with the same right it would have if it were not the Trustee.
Section 9.05. Eligibility Requirements for Trustee. The Trustee
hereunder shall at all times be (i) an institution the deposits of which are
fully insured by the FDIC and (ii) a
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corporation or national banking association organized and doing business under
the laws of the United States of America or of any State, authorized under such
laws to exercise corporate trust powers, having a combined capital and surplus
of not less than $30,000,000 and subject to supervision or examination by
Federal or State authority and, with respect to every successor trustee
hereunder except as pursuant to Section 9.08 (iii) either an institution (a) the
long-term unsecured debt obligations of which are rated at least "[ ]" by [ ] or
(b) whose serving as Trustee hereunder would not result in the lowering of the
ratings originally assigned to any Class of Certificates. The Trustee shall not
be an affiliate of the Depositor or the Master Servicer. If such corporation or
national banking association publishes reports of condition at least annually,
pursuant to law or to the requirements of the aforesaid supervising or examining
authority, then for the purposes of this Section 9.05, the combined capital and
surplus of such corporation or national banking association shall be deemed to
be its combined capital and surplus as set forth in its most recent report of
condition so published. In case at any time the Trustee shall cease to be
eligible in accordance with the provision of this Section 9.05, the Trustee
shall resign immediately in the manner and with the effect specified in Section
9.06.
Section 9.06. Resignation and Removal of Trustee. The Trustee may at any
time resign and be discharged from the trust hereby created by giving written
notice thereof to the Master Servicer and mailing a copy of such notice to all
Holders of record. The Trustee shall also mail a copy of such notice of
resignation to each Rating Agency. Upon receiving such notice of resignation,
the Master Servicer shall use its best efforts to promptly appoint a successor
trustee by written instrument, in duplicate, one copy of which instrument shall
be delivered to the resigning Trustee and one copy to the successor trustee. If
no successor trustee shall have been so appointed and shall have accepted
appointment within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor trustee.
If at any time the Trustee shall cease to be eligible in accordance with
the provision of Section 9.05 and shall fail to resign after written request
therefor by the Master Servicer, or if at any time the Trustee shall become
incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver
of the Trustee or of its property shall be appointed, or any public officer
shall take charge or control of the Trustee or of its property, or any public
officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, then the
Master Servicer may remove the Trustee and appoint a successor trustee by
written instrument, in duplicate, one copy of which instrument shall be
delivered to the Trustee so removed and one copy to the successor.
The Holders of Certificates evidencing not less than 50% of all Voting
Rights may at any time remove the Trustee by written instrument or instruments
delivered to the Master Servicer and the Trustee; the Master Servicer shall
thereupon use its best efforts to appoint a successor trustee in accordance with
this Section.
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Any resignation or removal of the Trustee and appointment of a successor
trustee pursuant to any of the provisions of this Section 9.06 shall become
effective upon acceptance of appointment by the successor trustee as provided in
Section 9.07.
Section 9.07. Successor Trustee. Any successor trustee appointed as
provided in Section 9.06 shall execute, acknowledge and deliver to the Master
Servicer and to its predecessor trustee an instrument accepting such appointment
hereunder, and thereupon the resignation or removal of the predecessor trustee
shall become effective and such successor trustee, without any further act, deed
or conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with like effect as if originally
named as Trustee herein. The predecessor trustee shall duly assign, transfer,
deliver and pay over to the successor trustee the whole of the Mortgage Files
and related documents and statements held by it hereunder, together with all
necessary instruments of transfer and assignment or other documents properly
executed necessary to effect such transfer and such of the records or copies
thereof maintained by the predecessor trustee in the administration hereof as
may be requested by the successor trustee and shall thereupon be discharged from
all duties and responsibilities under this Agreement.
No successor trustee shall accept appointment as provided in this
Section 9.07 unless at the time of such appointment such successor trustee shall
be eligible under the provisions of Section 9.05.
Upon acceptance of appointment by a successor trustee as provided in
this Section 9.07, the Master Servicer shall mail notice of the succession of
such trustee hereunder to all Holders of Certificates at their addresses as
shown in the Certificate Register and to the Rating Agency. If the Master
Servicer fails to mail such notice within 10 days after acceptance of
appointment by the successor trustee, the successor trustee shall cause such
notice to be mailed at the expense of the Master Servicer.
Section 9.08. Merger or Consolidation of Trustee. Any corporation or
national banking association into which the Trustee may be merged or converted
or with which it may be consolidated, or any corporation or national banking
association resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any corporation or national banking association
succeeding to all or substantially all of the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided such
corporation or national banking association shall be eligible under the
provisions of Section 9.05, without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding.
Section 9.09. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any of the provisions hereof, at any time, for the purpose of
meeting any legal requirements of any jurisdiction in which any Mortgaged
Property may at the time be located or for any other reason, the Master Servicer
and the Trustee acting jointly shall have the power and shall execute and
deliver all instruments to appoint one or more Persons approved by the Trustee,
or separate trustee or separate trustees, of all or any part of the Pool, and to
vest in such
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Person or Persons, in such capacity, such title to the Pool, or any part
thereof, and, subject to the other provision of this Section 9.09, such powers,
duties, obligations, rights and trusts as the Master Servicer and the Trustee
may consider necessary or desirable. If the Master Servicer shall not have
joined in such appointment within 10 days after the receipt by it of a request
to do so, the Trustee alone shall have the power to make such appointment. No
co-trustee or separate trustee hereunder shall be required to meet the terms of
eligibility as a successor trustee under Section 9.05 hereunder and no notice to
Holders of Certificates of the appointment of co-trustee(s) or separate
trustee(s) shall be required under Section 9.07 hereof.
In the case of any appointment of a co-trustee or separate trustee
pursuant to this Section 9.09, all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or co-trustee
jointly, except to the extent that under any law of any jurisdiction in which
any particular act or acts are to be performed (whether as Trustee hereunder or
as successor to the Master Servicer hereunder), the Trustee shall be incompetent
or unqualified to perform such act or acts, in which event such rights, powers,
duties and obligations (including the holding of title to the Pool or any
portion thereof in any such jurisdiction) shall be exercised and performed by
such separate trustee or co-trustee at the direction of the Trustee.
Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustee and co-trustee,
as effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article IX. Each separate trustee and co-trustee, upon its acceptance of
the trusts conferred, shall be vested with the estates or property specified in
its instrument of appointment, either jointly with the Trustee or separately, as
may be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Every
such instrument shall be filed with the Trustee.
Any separate trustee or co-trustee may, at any time, constitute the
Trustee, its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall become incapable of acting, resign or be removed, or shall be adjudged a
bankrupt or insolvent, or a receiver of its property shall be appointed, or any
public officer shall take charge or control of such trustee or co-trustee or of
its property or affairs for the purpose of rehabilitation, conservation or
liquidation, all of its estates, properties, rights, remedies and trusts shall
vest in and be exercised by the Trustee, to the extent permitted by law, without
the appointment of a new or successor trustee.
Section 9.10. Authenticating Agents. The Trustee may appoint one or more
authenticating agents ("Authenticating Agents") which shall be authorized to act
on behalf of the Trustee in authenticating or countersigning Certificates.
Wherever reference is made in this Agreement to the authentication or
countersigning of Certificates by the Trustee or the Trustee's certificate of
authentication or countersigning, such reference shall be deemed to include
authentication or countersigning on behalf of the Trustee by an Authenticating
Agent
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and a certificate of authentication or countersignature executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent must be
acceptable to the Master Servicer and must be a corporation or national banking
association organized and doing business under the laws of the United States of
America or of any State, having a principal office and place of business in
[ ], having a combined capital and surplus of at least $15,000,000,
authorized under such laws to do a trust business and subject to supervision
or examination by Federal or State authorities.
Any corporation or national banking association into which any
Authenticating Agent may be merged or converted or with which it may be
consolidated, or any corporation or national banking association resulting from
any merger, conversion or consolidation to which any Authenticating Agent shall
be a party, or any corporation or national banking association succeeding to the
corporate agency business of any Authenticating Agent, shall continue to be the
Authenticating Agent without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
Any Authenticating Agent may at any time resign by giving written notice
of resignation to the Trustee and to the Master Servicer. The Trustee may at any
time terminate the agency of any Authenticating Agent by giving written notice
of termination to such Authenticating Agent and to the Master Servicer. Upon
receiving a notice of resignation or upon such a termination, or in case, at any
time any Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 9.10, the Trustee may appoint a successor
Authenticating Agent, shall give written notice of such appointment to the
Master Servicer and shall mail notice of such appointment to all
Certificateholders. Any successor Authenticating Agent upon acceptance of its
appointment hereunder shall become vested with all the rights, powers, duties
and responsibilities of its predecessor hereunder, with like effect as if
originally named as Authenticating Agent.
Section 9.11. Trustee's Fees and Expenses. The Trustee, as compensation
for its activities hereunder, shall be entitled to receive on each Distribution
Date an amount equal to the Trustee Fee for such Distribution Date. The Trustee
and any director, officer, employee or agent of the Trustee shall be indemnified
by the Depositor and held harmless against any loss, liability or expense
(including reasonable attorney's fees) (i) incurred in connection with any claim
or legal action relating to (a) this Agreement, (b) the Certificates, or (c) the
performance of any of the Trustee's duties hereunder, other than any loss,
liability or expense incurred by reason of willful misfeasance, bad faith or
negligence in the performance of any of the Trustee's duties hereunder and (ii)
resulting from any error in any tax or information return prepared by the Master
Servicer. Such indemnity shall survive the termination of this Agreement or the
resignation or removal of the Trustee hereunder. Without limiting the foregoing,
the Depositor covenants and agrees, except as otherwise agreed upon in writing
by the Depositor and the Trustee, and except for any such expense, disbursement
or advance as may arise from the Trustee's negligence, bad faith or willful
misconduct, to pay or reimburse the Trustee, for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any of the provisions of this Agreement with respect to (A) the reasonable
compensation and the expenses and disbursements of its counsel not associated
with
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the closing of the issuance of the Certificates, (B) the reasonable
compensation, expenses and disbursements of any accountant, engineer or
appraiser that is not regularly employed by the Trustee, to the extent that the
Trustee must engage such persons to perform acts or services hereunder and (C)
printing and engraving expenses in connection with preparing any Definitive
Certificates). Except as otherwise provided herein, the Trustee shall not be
entitled to payment or reimbursement for any routine ongoing expenses incurred
by the Trustee in the ordinary course of its duties as Trustee, Certificate
Registrar, Tax Matter's Person or Paying Agent hereunder or for any other
expenses.
Section 9.12. Tax Returns. The Trustee will prepare any federal, state
and local income tax or information returns of the Trust Fund and shall file or
cause to be filed such returns.
ARTICLE X
Termination
Section 10.01. Termination upon Purchase by the Depositor or Liquidation
of All Mortgage Loans. Subject to Section 10.02, the respective obligations and
responsibilities of the Depositor and the Trustee created hereby (other than the
obligation of Trustee to make certain payments to Certificateholders after the
Final Distribution Date, the obligations of the Depositor to send certain
notices as hereinafter set forth and pursuant to Sections 9.11 and 9.12 hereof
and the obligation of the [ ] pursuant to Section 5.05(b)) shall terminate upon
the last action required to be taken by the Trustee on the Final Distribution
Date pursuant to this Article X following the earlier of (a) the purchase by the
Depositor of the Underlying Bond and all property remaining in the Trust Fund at
a price equal to the sum of (A) 100% of the outstanding principal balance of the
Underlying Bond, and (B) the fair market value of any Class Unpaid Interest
Shortfall for any Class of Certificates as well as one month's interest at the
related Bond Interest Rate (net of the related Expense Fee Rate) on such
outstanding principal balance of the Underlying Bond or (b) the final payment or
other liquidation (or any advance with respect thereto) of the Underlying Bond;
provided, however, that in no event shall the trust created hereby continue
beyond the earlier of (a) the expiration of 21 years from the death of the last
survivor of the descendants of Joseph P. Kennedy, the late ambassador of the
United States to the Court of St. James, living on the date hereof and (b) the
Distribution Date in _____________.
The right of the Depositor to repurchase the Underlying Bond pursuant to
(a) above is conditioned upon the Pool Scheduled Principal Balance as of the
Final Distribution Date being less than __ percent of the Cut-Off Date Pool
Principal Balance. If such right is exercised, the Trustee shall, promptly
following payment of the purchase price, release to the purchaser the Underlying
Bond.
Notice of any termination, specifying the Final Distribution Date (which
shall be a date that would otherwise be a Distribution Date) upon which the
Certificateholders may surrender their Certificates to the Trustee for payment
of the final distribution and for cancellation, shall
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be given promptly by the Depositor (if exercising its right to purchase the
assets of the Trust Fund) or by the Trustee (in any other case) by letter to
Certificateholders mailed not earlier than the 15th day and not later than the
25th day of the month next preceding the month of such final distribution
specifying (A) the Final Distribution Date upon which final payment of the
Certificates will be made upon presentation and surrender of Certificates at the
office or agency of the Trustee therein designated, (B) the amount of any such
final payment and (C) that the Record Date otherwise applicable to such
Distribution Date is not applicable, payments being made only upon presentation
and surrender of the Certificates at the office or agency of the Trustee therein
specified. If the Depositor is obligated to give notice to Certificateholders as
aforesaid, it shall give such notice to the Trustee and the Certificate
Registrar at the time such notice is given to Certificateholders. In the event
such notice is given by the Master Servicer, the Depositor shall deposit in the
Certificate Account on or before the Final Distribution Date in immediately
available funds an amount equal to the amount necessary to make the amount, if
any, on deposit in the Certificate Account on the Final Distribution Date equal
to the purchase price for the assets of the Trust Fund computed as above
provided.
Upon presentation and surrender of the Certificates, the Trustee shall
cause to be distributed to Certificateholders of each Class, in the order set
forth in Section 5.02 hereof, on the final Distribution Date and in proportion
to their respective Percentage Interests, with respect to Certificateholders of
the same Class, an amount equal to (i) as to each Class of Regular Certificates,
the Class Certificate Balance thereof plus accrued interest thereon (or on their
Notional Amount, if applicable) in the case of an interest bearing Certificate
and (ii) as to the Ownership Certificates, the amount, if any, which remains on
deposit in the Distribution Account (other than the amounts retained to meet
claims) after application pursuant to clause (i) above.
In the event that all of the Certificateholders shall not surrender
their Certificates for final payment cancellation on or before the Final
Distribution Date, the Trustee shall on such date cause all funds in the Trustee
Certificate Account not distributed in final distribution to Certificateholders
to continue to be held by the Trustee in an Eligible Account for the benefit of
such Certificateholders and the Depositor (if it exercised its right to purchase
the assets of the Trust Fund) or the Trustee (in any other case) shall give a
second written notice to the remaining Certificateholders to surrender their
Certificates for cancellation and receive the final distribution with respect
thereto. If within one year after the second notice all the Certificates shall
not have been surrendered for cancellation, the Trustee may take appropriate
steps, or may appoint an agent to take appropriate steps, to contact the
remaining Certificateholders concerning surrender of their Certificates, and the
cost thereof shall be paid out of the funds on deposit in such Eligible Account.
[Section 10.02. Additional Termination Requirements. (a) In the event
the Depositor exercises its purchase option as provided in Section 10.01 the
Trust Fund shall be terminated in accordance with the following additional
requirements, unless the Trustee has received an Opinion of Counsel to the
effect that the failure of the Trust Fund to comply with the requirements of
this Section 10.02 will not (i) result in the imposition of taxes on "prohibited
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transactions" of the Trust Fund pursuant to Section 860L(e)(3)(C) of the Code,
or (ii) cause the Trust Fund to fail to qualify as a FASIT at any time that any
Certificates are outstanding:
(i) Within 90 days prior to the Final Distribution Date set forth
in the notice given by the Depositor under Section 10.01, the holders of 100% of
the aggregate Percentage Interests evidenced by the Ownership Certificates shall
adopt a plan of complete liquidation of the Trust Fund; and
(ii) At or after the time of adoption of such a plan of complete
liquidation and at or prior to the Final Distribution Date, the Trustee shall
sell all of the assets of the Trust Fund to the Depositor for cash.
(b) By their acceptance of the Ownership Certificates, the Holders
thereof hereby agree to adopt such a plan of complete liquidation upon the
written request of the Depositor and to take such other action in connection
therewith as may be reasonably requested by the Depositor.]
ARTICLE XI
Miscellaneous Provisions
Section 11.01. Amendment. This Agreement may be amended from time to
time by the Depositor and the Trustee, without the consent of any of the
Certificateholders, (i) to cure any ambiguity, (ii) to correct or supplement any
provisions herein or therein which may be defective or inconsistent with any
other provisions herein or therein, as the case may be, (iii) to modify,
eliminate or add to any of its provisions to such extent as shall be necessary
to maintain the qualification of the Trust Fund as a FASIT or (iv) to add any
other provisions with respect to matters or questions arising under this
Agreement which shall not be inconsistent with the provisions of this Agreement;
provided, however, that (x) as evidenced by an Opinion of Counsel in each case
such action shall not, adversely affect in any material respect the interests of
any Certificateholder, (y) in each case, such action is necessary or desirable
to maintain the qualification of the Trust Fund as a FASIT or shall not
adversely affect such qualification and (z) if the opinion called for in clause
(x) cannot be delivered with regard to an amendment pursuant to clause (iii)
above, such amendment is necessary to maintain the qualification of the Trust
Fund as a FASIT; and provided, further, that the amendment shall not be deemed
to adversely affect in any material respect the interests of the
Certificateholders and no Opinion of Counsel to that effect shall be required if
the Person requesting the amendment obtains a letter from the Rating Agency
stating that the amendment would not result in the downgrading or withdrawal of
the respective ratings then assigned to the Certificates.
This Agreement may also be amended from time to time by the Depositor
and the Trustee, with the consent of the Holders of Certificates of each Class
of Certificates which is affected by such amendment, evidencing not less than
66-2/3% of all Voting Rights, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the
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provisions of this Agreement or of modifying in any manner the rights of the
Holders of such Certificates; provided, however, that no such amendment shall
(a) reduce in any manner the amount of, or delay the timing of, collections of
payments on the Underlying Bond or distributions which are required to be made
on any Certificate without the consent of the Holder of such Certificate or (b)
reduce the aforesaid percentage required to consent to any such amendment,
without the consent of the Holders of all Certificates then Outstanding.
Prior to the solicitation of consent of Certificateholders in connection
with any such amendment, the party seeking such amendment shall furnish the
Trustee with an Opinion of Counsel stating whether such amendment would
adversely affect the qualification of the Trust Fund as a FASIT and notice of
the conclusion expressed in such Opinion of Counsel shall be included with any
such solicitation. An amendment made with the consent of all Certificateholders
and executed in accordance with this Section 11.01 shall be permitted or
authorized by this Agreement notwithstanding that such Opinion of Counsel may
conclude that such amendment would adversely affect the qualification of the
Trust Fund as a FASIT.
Promptly after the execution of any such amendment or consent the
Trustee shall furnish written notification of the substance of or a copy of such
amendment to each Certificateholder and to the Rating Agency.
It shall not be necessary for the consent of Certificateholders under
this Section 11.01 to approve the particular form of any proposed amendment, but
it shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents and of evidencing the authorization of the
execution thereof by Certificateholders shall be subject to such reasonable
requirements as the Trustee may prescribe.
Section 11.02. Recordation of Agreement. This Agreement is subject to
recordation in all appropriate public offices for real property records in all
the counties or other comparable jurisdictions in which any or all of the
properties subject to the Mortgages are situated, and in any other appropriate
public recording office or elsewhere, such recordation to be effected by the
Master Servicer and at its expense on direction by the Trustee, who will act at
the direction of Holders of Certificates evidencing not less than 50% of all
Voting Rights but only upon direction of the Trustee accompanied by an Opinion
of Counsel to the effect that such recordation materially and beneficially
affects the interests of Certificateholders.
For the purpose of facilitating the recordation of this Agreement as
herein provided and for other purposes, this Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and such counterparts shall constitute but one and
the same instrument.
Section 11.03. Limitation on Rights of Certificateholders. The death or
incapacity of any Certificateholder shall not operate to terminate this
Agreement or the Trust Fund, nor entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
commence any proceeding in any court for a partition or winding up of the Trust
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Fund, nor otherwise affect the rights, obligations and liabilities of the
parties hereto or any of them.
No Certificateholder shall have any right to vote (except as provided
herein) or in any manner otherwise control the operation and management of the
Pool, or the obligations of the parties hereto, nor shall anything herein set
forth, or contained in the terms of the Certificates, be construed so as to
constitute the Certificateholders from time to time as partners or members of an
association; nor shall any Certificateholder be under any liability to any third
person by reason of any action taken by the parties to this Agreement pursuant
to any provision hereof.
No Certificateholder shall have any right by virtue or by availing
itself of any provisions of this Agreement to institute any suit, action or
proceeding in equity or at law upon or under or with respect to this Agreement,
unless such Holder previously shall have given to the Trustee a written notice
of default and of the continuance thereof, as hereinbefore provided, and unless
also the Holders of Certificates evidencing not less than 25% of all Voting
Rights shall have made written request upon the Trustee to institute such
action, suit or proceeding in its own name as Trustee hereunder and shall have
offered to the Trustee such reasonable indemnity as it may require against the
costs, expenses and liabilities to be incurred therein or thereby, and the
Trustee, for 60 days after its receipt of such notice, request and offer of
indemnity, shall have neglected or refused to institute any such action, suit or
proceeding; it being understood and intended, and being expressly covenanted by
each Certificateholder with every other Certificateholder and the Trustee, that
no one or more Holders of Certificates shall have any right in any manner
whatever by virtue or by availing itself or themselves of any provisions of this
Agreement to affect, disturb or prejudice the rights of the Holders of any other
of the Certificates, or to obtain or seek to obtain priority over or preference
to any other such Holder, or to enforce any right under this Agreement, except
in the manner herein provided and for the equal, ratable and common benefit of
all Certificateholders. For the protection and enforcement of the provisions of
this Section 11.03, each and every Certificateholder and the Trustee shall be
entitled to such relief as can be given either at law or in equity.
Section 11.04. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of New York and the obligations, rights
and remedies of the parties hereunder shall be determined in accordance with
such laws.
Section 11.05. Notices. All demands, notices and communications required
to be delivered hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered at or mailed by certified mail, return
receipt requested, (provided, however, that notices to the Trustee shall be
deemed effective upon receipt) to (a) in the case of the Depositor, American
Residential Trust, Inc., Attention: [ ], (b) in the case of [ ],
(d) in the case of the Trustee, [ ] Attention: [ ], or, as to each
party, at such other address as shall be designated by such party in a written
notice to each other party, (e) in the case of Moody's, Moody's Investors
Service, Inc., 99 Church Street, New York, New York 10007, Attn: Residential
Pass-Through Monitoring, (f) in the case of
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S&P, Standard & Poor's Ratings Group, 26 Broadway, 15th Floor, New York, New
York 10004, Attention: Residential Mortgage Surveillance, (g) in the case of
Duff & Phelps, Duff & Phelps Credit Rating Co., 17 State Street, 12th Floor, New
York, New York 10007, Attention: MBS Monitoring, and (h) in the case of Fitch,
Fitch Investors Service, Inc., One State Street Plaza, New York, New York 10004,
Attn: Residential Mortgage Surveillance Group. Any notice required or permitted
to be mailed to a Certificateholder shall be given by first class mail, postage
prepaid, at the address of such Holder as shown in the Certificate Register. Any
notice so mailed within the time prescribed in this Agreement shall be
conclusively presumed to have been duly given, whether or not the
Certificateholder receives such notice.
Section 11.06. Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Certificates
or the rights of the Holders thereof.
Section 11.07. Certificates Nonassessable and Fully Paid. It is the
intention of the Trustee that Certificateholders shall not be personally liable
for obligations of the Pool, that the beneficial ownership interests represented
by the Certificates shall be nonassessable for any losses or expenses of the
Pool or for any reason whatsoever, and that Certificates upon execution,
countersignature and delivery thereof by the Trustee pursuant to Section 6.01
are and shall be deemed fully paid.
Section 11.08. Access to List of Certificateholders. The Certificate
Registrar will furnish or cause to be furnished to the Trustee, within 15 days
after the receipt of a request by the Trustee in writing, a list, in such form
as the Trustee may reasonably require, of the names and addresses of the
Certificateholders as of the most recent Record Date for payment of
distributions to Certificateholders.
If three or more Certificateholders (hereinafter referred to as
"applicants") apply in writing to the Trustee, and such application states that
the applicants desire to communicate with other Certificateholders with respect
to their rights under this Agreement or under the Certificates and is
accompanied by a copy of the communication which such applicants propose to
transmit, then the Trustee shall, within five Business Days after the receipt of
such application, afford such applicants access during normal business hours to
the most recent list of Certificateholders held by the Trustee. If such a list
is as of a date more than 90 days prior to the date of receipt of such
applicants' request, the Trustee shall promptly request from the Certificate
Registrar a current list as provided above, and shall afford such applicants
access to such list promptly upon receipt.
Every Certificateholder, by receiving and holding such list, agrees with
the Certificate Registrar and the Trustee that neither the Certificate Registrar
nor the Trustee shall be held accountable by reason of the disclosure of any
such information as to the names and addresses
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of the Certificateholders hereunder, regardless of the source from which such
information was derived.
IN WITNESS WHEREOF, the Depositor and the Trustee have caused this
Agreement to be duly executed by their respective officers thereunto duly
authorized to be hereunto affixed, all as of the day and year first above
written.
AMERICAN RESIDENTIAL EAGLE, INC.
as Depositor
By:
---------------------------------------
Title:
--------------------------------------
------------------------------------------
as Trustee
By:
---------------------------------------
Title:
--------------------------------------
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State of New York )
) ss.:
County of New York )
On the ______ day of ___________, 199_, before me, a notary
public in and for the State of New York, personally appeared
_________________________, known to me who, being by me duly sworn, did depose
and say that s/he is the _________________ of American Residential Eagle, Inc.,
a Delaware corporation, one of the parties that executed the foregoing
instrument; and that s/he signed their name thereto by order of the Board of
Directors of such corporation.
--------------------------------------
Notary Public
[Notorial Seal]
State of New York )
) ss.:
County of New York )
On the _________ day of ________________, 199_, before me, a
notary public in and for the State of New York, personally appeared
_________________________, known to me who, being by me duly sworn, did depose
and say that s/he is a [ ] of ______________________________, one of the parties
that executed the foregoing instrument; and that s/he signed their name thereto
by order of the Board of Directors of said corporation.
-------------------------------------
Notary Public
[Notorial Seal]
63
<PAGE> 75
EXHIBIT A
FORM OF SENIOR CERTIFICATE
[UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE TRUSTEE OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE , OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF AN ENTITY REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.]
ACCEPTANCE OF A CERTIFICATE BY A PURCHASER SHALL BE DEEMED TO BE (1) A
REPRESENTATION FROM THE PURCHASER THAT (A) IT IS NOT AN EMPLOYEE BENEFIT PLAN
SUBJECT TO SECTION 406 OF ERISA OR A PLAN OR ARRANGEMENT SUBJECT TO SECTION 4975
OF THE CODE, NOR A PERSON ACTING ON BEHALF OF ANY SUCH PLAN OR ARRANGEMENT USING
THE ASSETS OF ANY SUCH PLAN OR ARRANGEMENT TO EFFECT THE PURCHASE OR (B) ITS
PURCHASE HAS BEEN EXPRESSLY CONSENTED TO BY THE COMPANY AND (2) IF THE PURCHASER
IS AN INSURANCE COMPANY, A REPRESENTATION THAT THE PURCHASER IS AN INSURANCE
COMPANY WHICH IS PURCHASING CERTIFICATES WITH FUNDS CONTAINED IN AN "INSURANCE
COMPANY GENERAL ACCOUNT" (AS SUCH TERM IS DEFINED IN SECTION V(e) OF PROHIBITED
TRANSACTION CLASS EXEMPTION 95-60 ("PTCE 95-60") AND THAT THE PURCHASE AND
HOLDING OF SUCH CERTIFICATES ARE COVERED BY PTCE 95-60.
Certificate No.: Class [X] [A-] CUSIP No.: ________
Certificate
Date of Trust Agreement and Cut-Off Initial Weighted Average Pass-Through
Date: ___________, 199__ Rate: _____%
First Distribution Date: Initial [Certificate Balance] [Notional
_______________, 199__ Amount] of all Class [A-] [X]
Certificates: $________
Last Scheduled Distribution Date: Initial [Certificate Balance]
_______________, 199__ [Notational Amount] of this
Certificate: $_________
A-1
<PAGE> 76
AMERICAN RESIDENTIAL EAGLE CERTIFICATE TRUST 199__-__
MORTGAGE-BACKED CERTIFICATE,SERIES 199__-__
evidencing a percentage interest in the distributions allocable to the
Certificates specified above from payments on a Mortgage Collateralized Bond
(the "Underlying Bond") issued by American Residential Eagle Bond Trust
199__-__.
This Certificate does not evidence an obligation of, or an interest in,
and is not guaranteed by American Residential Eagle, Inc, or the Trustee
referred to below or any of their respective affiliates. Neither this
Certificate nor the Underlying Bond is guaranteed or insured by any governmental
agency or instrumentality.
THIS CERTIFIES THAT _____________________ is the registered owner of the
pro rata share evidenced by this Certificate in certain monthly distributions on
the Certificates specified above from payments on and proceeds of the assets
contained in the Trust Fund consisting of the Underlying Bond and other assets
specified in the Trust Agreement, dated as specified above (the "Agreement")
among American Residential Eagle, Inc., as depositor (the "Depositor") and
[________________________________], as Trustee (the "Trustee"). To the extent
not defined herein, the capitalized terms used herein have the meanings assigned
in the Agreement. This Certificate is issued under and is subject to the terms,
provisions and conditions of the Agreement, to which Agreement the Holder of
this Certificate by virtue of the acceptance hereof assents and by which such
Holder is bound.
Pursuant to the terms of the Agreement, distributions will be made on
the 25th day of each month or, if such 25th day is not a Business Day, the
Business Day immediately following such 25th day (the "Distribution Date"),
commencing on the first Distribution Date specified above, to the Person in
whose name this Certificate is registered at the close of business on the Record
Date, of an amount equal to the pro rata share evidenced by this Certificate of
the aggregate amount required to be distributed to Holders of Certificates
specified above pursuant to the Agreement.
Distributions on this Certificate will be made by the Trustee by check
mailed to the Person entitled thereto at the address appearing in the
Certificate Register, or upon written request by the Certificateholder, by wire
transfer (in the case of any Holder of Certificates entitled to such form of
payment as provided in the Agreement) or by such other means of payment as such
Person and the Trustee shall agree. Except as otherwise provided in the
Agreement, the final distribution on this Certificate will be made in the
applicable manner described above, after due notice by the Trustee of the
pendency of such distribution and only upon presentation and surrender of this
Certificate at the office or agency of the Trustee specified in such notice.
This Certificate shall not be entitled to any benefit under the
Agreement or be valid for any purpose unless manually countersigned by any
authorized signatory of the Trustee.
2
<PAGE> 77
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.
Dated:
- ---------------------- AMERICAN RESIDENTIAL EAGLE, INC.
By:
-------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Countersigned:
By
--------------------------------------
Authorized Signatory of the Trustee,
as defined herein
3
<PAGE> 78
EXHIBIT B
FORM OF OWNERSHIP CERTIFICATE
THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE REGULAR CERTIFICATES
AS DESCRIBED IN THE TRUST AGREEMENT REFERRED TO HEREIN.
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS AN "OWNERSHIP
INTEREST" IN A "FINANCIAL ASSET SECURITIZATION INVESTMENT TRUST," AS THOSE TERMS
ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE
CODE. THIS CERTIFICATE IS NOT TREATED AS INDEBTEDNESS OF THE ISSUER FOR FEDERAL
INCOME TAX PURPOSES.
NO EMPLOYEE BENEFIT PLAN (A "PLAN") SUBJECT TO THE EMPLOYEE RETIREMENT INCOME
SECURITY ACT OF 1974, AS AMENDED (AN "ERISA PLAN"), NOR ANY INDIVIDUAL
RETIREMENT ACCOUNT (AN "ACCOUNT") OR ANY PLAN SUBJECT TO SECTION 4975 OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE") (A "SECTION 4975 PLAN"),
MAY PURCHASE OR INVEST IN THIS CERTIFICATE. THIS CERTIFICATE WILL NOT BE
ACCEPTED FOR REGISTRATION OF TRANSFER UNLESS IT IS ACCOMPANIED BY EITHER (I) A
REPRESENTATION LETTER FROM THE PROPOSED TRANSFEREE, ACCEPTABLE TO THE TRUSTEE,
TO THE EFFECT THAT SUCH PROPOSED TRANSFEREE IS NOT AN ERISA PLAN, ACCOUNT OR
SECTION 4975 PLAN OR (II) IN THE CASE OF ANY SUCH PROPOSED TRANSFEREE WHICH IS A
PLAN, AN OPINION OF COUNSEL SATISFACTORY TO THE TRUSTEE AND THE MASTER SERVICER
TO THE EFFECT SET FORTH IN THE TRUST AGREEMENT REFERRED TO HEREIN.
THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
RESOLD OR TRANSFERRED UNLESS IT IS REGISTERED PURSUANT TO SUCH ACT AND LAWS OR
IS SOLD OR TRANSFERRED IN TRANSACTIONS WHICH ARE EXEMPT FROM REGISTRATION UNDER
SUCH ACT AND UNDER APPLICABLE STATE LAW AND IS TRANSFERRED IN ACCORDANCE WITH
THE PROVISIONS OF SECTION 6.02 OF THE TRUST AGREEMENT REFERRED TO HEREIN.
[THIS CERTIFICATE REPRESENTS A "TAX MATTERS PERSON OWNERSHIP INTEREST" ISSUED
UNDER THE TRUST AGREEMENT REFERRED TO HEREIN AND MAY NOT BE TRANSFERRED TO ANY
PERSON EXCEPT IN CONNECTION WITH THE ASSUMPTION BY THE TRANSFEREE OF THE DUTIES
PROVIDED FOR UNDER SUCH AGREEMENT.]
B-1
<PAGE> 79
Certificate No.: _____________ Percentage Interest of this Ownership
Certificate: ______%
Ownership Certificate
Date of Trust Agreement and Cut-Off Final Distribution Date:
Date: ___________, 199__ _____________, 199__
MORTGAGE-BACKED CERTIFICATE,SERIES 199___-__
evidencing a percentage interest in the distributions allocable to the Class of
Certificates specified above from payments on a Mortgage Collateralized Bond
(the "Underlying Bond") issued by American Residential Eagle Bond Trust
199__-__.
This Certificate does not evidence an obligation of, or an interest in,
and is not guaranteed by American Residential Eagle, Inc. or the Trustee
referred to below or any of their respective affiliates. Neither this
Certificate nor the Underlying Bond is guaranteed or insured by any governmental
agency or instrumentality.
THIS CERTIFIES THAT _____________________ is the registered owner of the
pro rata share evidenced by this Certificate in certain monthly distributions on
the Certificates specified above from payments on and proceeds of the assets
contained in the Trust Fund consisting of the Underlying Bond and other assets
specified in the Trust Agreement dated as specified above (the "Agreement")
among American Residential Eagle, Inc., as depositor (the "Depositor"), and
[________________________], as Trustee (the "Trustee"). The Trust Fund will
consist primarily of one asset pool, with respect to which an election will be
made to treat it as a financial asset securitization investment trust (a
"FASIT") for federal income tax purposes. The Ownership Certificates will
constitute "ownership interests" in the FASIT. To the extent not defined herein,
the capitalized terms used herein have the meanings assigned in the Agreement.
This Certificate is issued under and is subject to the terms, provisions and
conditions of the Agreement, to which Agreement the Holder of this Certificate
by virtue of the acceptance hereof assents and by which such Holder is bound.
Pursuant to the terms of the Agreement, a distribution will be made on
the 25th day of each month or, if such 25th day is not a Business Day, the
Business Day immediately following such 25th day (the "Distribution Date"),
commencing on the first Distribution Date specified above, to the Person in
whose name this Certificate is registered at the close of business on the last
day (or if such last day is not a Business Day, the Business Day immediately
preceding such last day) of the month next preceding the month of such
distribution (the "Record Date"), in an amount equal to the pro rata share
evidenced by this Certificate of the aggregate amount required to be distributed
to Holders of Certificates of the Class specified above pursuant to the
Agreement.
2
<PAGE> 80
Distributions, if any, on this Certificate will be made by the Trustee
by check mailed to the address of the Person entitled thereto, as such name and
address shall appear on the Certificate Register received by the Trustee five
Business Days before a Record Date, by wire transfer (in the case of any Holder
of Certificates entitled to such form of payment as provided in the Agreement)
or by such other means of payment as such Person and the Trustee shall agree.
Except as otherwise provided in the Agreement, the final distribution on this
Certificate will be made in the applicable manner described above, after due
notice by the Trustee of the pendency of such distribution and only upon
presentation and surrender of this Certificate at the office or agency of the
Trustee specified in such notice.
No transfer of an Ownership Certificate will be made unless such
transfer is exempt from the registration requirements of the Securities Act of
1933, as amended, and any applicable state securities laws or is made in
accordance with said Act and laws. In the event of such a transfer, (i) the
Trustee or the Depositor may require an Opinion of Counsel acceptable to and in
form and substance satisfactory to the Trustee and the Depositor that such
transfer is exempt (describing the applicable exemption and the basis therefor)
from or is being made pursuant to the registration requirements of the
Securities Act of 1933, as amended, and of any applicable statute of any state
and (ii) the Trustee shall require the transferee to execute an investment
letter acceptable to and in form and substance satisfactory to the Trustee and
the Depositor certifying as to the fact surrounding such transfer. The Holder
hereof desiring to effect such transfer shall, and does hereby agree to,
indemnify the Trustee and the Depositor against any liability that may result if
the transfer is not so exempt or is not made in accordance with such Federal and
state laws.
No transfer of an Ownership Certificate shall be made unless the Trustee
shall have received either (i) a representation letter from the transferee of
such Certificate, acceptable to and in form and substance satisfactory to the
Trustee and the Depositor, to the effect that such transferee is not an employee
benefit plan subject to Section 406 of ERISA, nor a person acting on behalf of
any such plan, or (ii) in the case of any such Ownership Certificate presented
for registration in the name of an employee benefit plan subject to ERISA, and
Section 4975 of the Code (or comparable provisions of any subsequent
enactments), or a trustee of any such plan, an Opinion of Counsel satisfactory
to the Trustee and the Depositor to the effect that the purchase or holding of
such Ownership Certificate will not result in the assets of the pool being
deemed to be "plan assets" and subject to the prohibited transaction provisions
of ERISA and the Code and will not subject the Trustee or the Depositor to any
obligation in addition to those undertaken in the Agreement.
Neither this Certificate nor any Ownership Interest herein may be
transferred and any proposed transferee hereof shall not become the registered
Holder hereof, without the express written consent of the Trustee. In connection
with any proposed transfer of any Ownership Interest, the Trustee shall as a
condition to such consent require delivery to it, and the proposed transferee
shall deliver to the Trustee, (i) an affidavit (a "Transfer Affidavit") of the
proposed transferee (in the form of Exhibit [____] to the Agreement)
representing and warranting that such transferee is a Permitted Transferee (as
defined in the Agreement), that it is not acquiring its Ownership Interest that
is the subject of the proposed transfer as a
3
<PAGE> 81
nominee, trustee or agent for any Person who is not a Permitted Transferee and
(ii) a covenant of the proposed transferee that it will abide by the transfer
restrictions applicable to the Residual Certificates set forth in the Agreement.
A Permitted Transferee is any Person other than (i) the United States or
any State or any political subdivision of any of the foregoing, (ii) a foreign
government, international organization or any agency or instrumentality of
either of the foregoing, (iii) an organization which is exempt from tax imposed
by Chapter 1 of the Code (including the tax imposed by Section 511 of the Code
on unrelated business taxable income) (except certain farmers' cooperatives
described in Code Section 521)), (iv) rural electric and telephone cooperatives
described in Code Section 1381(a)(2)(C) and (v) any other Person so designated
by the Depositor based on an Opinion of Counsel to the effect that any Transfer
to such Person may cause the Trust Fund or any other Holder of an Ownership
Certificate to incur tax liability that would not be imposed other than on
account of such Transfer. The terms "United States", "State" and "international
organization" shall have the meanings set forth in Code Section 7701 or
successor provisions.
Any purported transfer of an Ownership Certificate in violation of the
restriction on transfer will be null and void and vest no rights in the
purported transferee.
This Certificate shall not be entitled to any benefit under the
Agreement or be valid for any purpose unless manually countersigned by any
authorized signatory of the Trustee.
IN WITNESS WHEREOF, the Depositor has caused this Certificate to be duly
executed.
Dated:
- ---------------------- AMERICAN RESIDENTIAL EAGLE, INC.
By:
-------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Countersigned:
By
--------------------------------------
Authorized Signatory of the Trustee,
as defined herein
4
<PAGE> 82
EXHIBIT C
[RESERVED]
C-1
<PAGE> 83
EXHIBIT D
FORM OF SUBORDINATED CERTIFICATE
THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO CERTAIN OTHER CLASSES OF
REGULAR CERTIFICATES AS DESCRIBED IN THE TRUST AGREEMENT REFERRED TO
HEREIN.
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "REGULAR
INTEREST" IN A "FINANCIAL ASSET SECURITIZATION INVESTMENT TRUST," AS THOSE TERMS
ARE DEFINED, RESPECTIVELY, IN SECTIONS [860G] AND [860D] OF THE INTERNAL REVENUE
CODE.
[THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). ANY RESALE OR TRANSFER OF THIS CERTIFICATE WITHOUT
REGISTRATION THEREOF UNDER THE ACT MAY ONLY BE MADE IN A TRANSACTION EXEMPTED
FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND IN ACCORDANCE WITH THE
PROVISIONS OF THE TRUST AGREEMENT REFERRED TO HEREIN.]
NO EMPLOYEE BENEFIT PLAN (A "PLAN") SUBJECT TO THE EMPLOYEE RETIREMENT INCOME
SECURITY ACT OF 1974, AS AMENDED (AN "ERISA PLAN"), NOR ANY INDIVIDUAL
RETIREMENT ACCOUNT (AN "ACCOUNT") OR ANY PLAN SUBJECT TO SECTION 4975 OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE") (A "SECTION 4975 PLAN"),
MAY PURCHASE OR INVEST IN THIS CERTIFICATE. THIS CERTIFICATE WILL NOT BE
ACCEPTED FOR REGISTRATION OF TRANSFER UNLESS IT IS ACCOMPANIED BY EITHER (I) A
REPRESENTATION LETTER FROM THE PROPOSED TRANSFEREE, ACCEPTABLE TO THE TRUSTEE,
TO THE EFFECT THAT SUCH PROPOSED TRANSFEREE IS NOT AN ERISA PLAN, ACCOUNT OR
SECTION 4975 PLAN OR (II) IN THE CASE OF ANY SUCH PROPOSED TRANSFEREE WHICH IS A
PLAN, AN OPINION OF COUNSEL SATISFACTORY TO THE TRUSTEE AND THE DEPOSITOR TO THE
EFFECT SET FORTH IN THE TRUST AGREEMENT REFERRED TO HEREIN.
Certificate No.: Class [M-] [B-] CUSIP No.: ________
Certificate
Date of Trust Agreement and Cut-Off Pass-Through Rate: _____%
Date: ___________, 199__
First Distribution Date: Initial Certificate Balance of all
_______________, 199__ Class [M-] [B-] Certificates: $________
Last Scheduled Distribution Date: Initial Certificate Balance of this
_______________, 199__ Certificate: $_________
D-1
<PAGE> 84
MORTGAGE-BACKED CERTIFICATE,
SERIES 199__-__
evidencing a percentage interest in the distributions allocable to the
Certificates specified above from payments on a Mortgage Collateralized Bond
(the "Underlying Bond") issued by American Residential Eagle Bond Trust
199__-__.
This Certificate does not evidence an obligation of, or an interest in,
and is not guaranteed by American Residential Eagle, Inc., or the Trustee
referred to below or any of their respective affiliates. Neither this
Certificate nor the Underlying Bond is guaranteed or insured by any governmental
agency or instrumentality.
THIS CERTIFIES THAT _____________________ is the registered owner of the pro
rata share evidenced by this Certificate in certain monthly distributions on the
Certificates specified above from payments on and proceeds of the assets
contained in the Trust Fund consisting of the Underlying Bond and other assets
specified in the Trust Agreement dated as specified above (the "Agreement")
among American Residential Eagle, Inc., as depositor (the "Depositor"), and [
____________________________], as Trustee (the "Trustee"). To the extent not
defined herein, the capitalized terms used herein have the meanings assigned in
the Agreement. This Certificate is issued under and is subject to the terms,
provisions and conditions of the Agreement, to which Agreement the Holder of
this Certificate by virtue of the acceptance hereof assents and by which such
Holder is bound.
Pursuant to the terms of the Agreement, distributions will be made on
the 25th day of each month or, if such 25th day is not a Business Day, the
Business Day immediately following such 25th day (the "Distribution Date"),
commencing on the first Distribution Date specified above, to the Person in
whose name this Certificate is registered at the close of business on the Record
Date, of an amount equal to the pro rata share evidenced by this Certificate of
the aggregate amount required to be distributed to Holders of Certificates
specified above pursuant to the Agreement.
Distributions on this Certificate will be made by the Trustee by check
mailed to the Person entitled thereto at the address appearing in the
Certificate Register, or upon written request by the Certificateholder, by wire
transfer (in the case of any Holder of Certificates entitled to such form of
payment as provided in the Agreement) or by such other means of payment as such
Person and the Trustee shall agree. Except as otherwise provided in the
Agreement, the final distribution on this Certificate will be made in the
applicable manner described above, after due notice by the Trustee of the
pendency of such distribution and only upon presentation and surrender of this
Certificate at the office or agency maintained for that purpose by the Trustee
in [ ].
[No transfer of a Certificate of this Class shall be made unless such
transfer is made pursuant to an effective registration statement under the
Securities Act and any applicable state securities laws or is exempt from the
registration requirements under said Act and such laws. In the event that a
transfer is to be made in reliance upon an exemption from the Securities Act
2
<PAGE> 85
and such laws, in order to assure compliance with the Securities Act and such
laws, the Certificateholder desiring to effect such transfer and such
Certificateholder's prospective transferee shall each certify to the Trustee in
writing the facts surrounding the transfer. In the event that such a transfer is
to be made within two years from the date of the initial issuance of
Certificates pursuant hereto, there shall also be delivered (except in the case
of a transfer pursuant to Rule 144A of the Securities Act) to the Trustee an
Opinion of Counsel that such transfer may be made pursuant to an exemption from
the Securities Act and such state securities laws, which Opinion of Counsel
shall not be obtained at the expense of the Trustee or the Depositor. The Holder
hereof desiring to effect such transfer shall, and doe hereby agree to,
indemnify the Trustee and the Depositor against any liability that may result if
the transfer is not so exempt or is not made in accordance with such federal and
state laws.
No transfer of this Certificate shall be made unless the Trustee shall
have received either (i) a representation letter from the transferee of such
Certificate, acceptable to and in form and substance satisfactory to the Trustee
and the Depositor, to the effect that such transferee is not an employee benefit
plan subject to Section 406 of ERISA, nor a person acting on behalf of any such
plan, or (ii) in the case of any such this Certificate presented for
registration in the name of an employee benefit plan subject to ERISA, and
Section 4975 of the Code (or comparable provisions of any subsequent
enactments), or a trustee of any such plan, an Opinion of Counsel satisfactory
to the Trustee and the Depositor to the effect that the purchase or holding of
such this Certificate will not result in the assets of the Trust Fund being
deemed to be "plan assets" and subject to the prohibited transaction provisions
of ERISA and the Code and will not subject the Trustee or the Master Servicer to
any obligation in addition to those undertaken in the Agreement.
This Certificate shall not be entitled to any benefit under the
Agreement or be valid for any purpose unless manually countersigned by any
authorized signatory of the Trustee.
IN WITNESS WHEREOF, the Depositor has caused this Certificate to be duly
executed.
Dated:
- ---------------------- AMERICAN RESIDENTIAL EAGLE, INC.
By:
-------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Countersigned:
By
--------------------------------------
Authorized Signatory of the Trustee,
as defined herein
3
<PAGE> 86
EXHIBIT E
FORM OF REVERSE OF ALL CERTIFICATES
MORTGAGE-BACKED CERTIFICATE,
SERIES 199___-__
This Certificate is one of a duly authorized issue of Certificates
designated Mortgage-Backed Certificates (the "Certificates"), Series 199___-__,
and representing a beneficial ownership interest in the Trust Fund specified in
the Agreement.
The Certificates are limited in right of payment to certain payments on
the Underlying Bond, all as more specifically set forth in the Agreement. Each
Certificateholder, by its acceptance of this Certificate, agrees that it will
look solely to the funds on deposit in the Distribution Account for payment
hereunder and that the Trustee is not personally liable to the
Certificateholders for any amount payable under this Certificate or the
Agreement or, except as expressly provided in the Agreement, subject to any
liability under the Agreement.
This Certificate does not purport to summarize the Agreement and
reference is made to the Agreement for the interests, rights and limitations of
rights, benefits, obligations and duties evidenced hereby, and the rights,
duties and immunities of the Trustee.
The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Depositor and the Trustee and the rights of the Certificateholders under the
Agreement at any time by the Depositor and the Trustee with the consent of the
Holders of Certificates evidencing interests aggregating not less than 66-2/3%
of all Voting Rights. Any such consent by the Holder of this Certificate shall
be conclusive and binding on such Holder and upon all future Holders of this
Certificate and of any Certificate issued upon the transfer hereof or in
exchange hereof or in lieu hereof whether or not notation of such consent is
made upon this Certificate. The Agreement also permits the amendment thereof, in
certain limited circumstances, without the consent of the Holders of any of the
Certificates.
As provided in the Agreement and subject to certain limitations therein
set forth, the transfer of this Certificate is registrable in the Certificate
Register of the Trustee upon surrender of this Certificate for registration of
transfer at the office or agency of the Trustee in [ ], accompanied by a written
instrument of transfer in form satisfactory to the Trustee and the Certificate
Registrar duly executed by the holder hereof or such holder's attorney duly
authorized in writing, and thereupon one or more new Certificates of authorized
denominations evidencing the same aggregate Percentage Interest in the Trust
Fund will be issued to the designated transferee or transferees.
The Certificates are issuable only as registered Certificates without
coupons in denominations specified in the Agreement. As provided in the
Agreement and subject to certain limitations therein set forth, Certificates are
exchangeable for new Certificates of
E-1
<PAGE> 87
authorized denominations evidencing the same aggregate Percentage Interest, as
requested by the Holder surrendering the same.
No service charge will be made for any such registration of transfer or
exchange, but the Trustee may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
The Depositor, the Trustee and the Certificate Registrar and any agent
of the Depositor, the Trustee or the Certificate Registrar may treat the Person
in whose name this Certificate is registered as the owner hereof for all
purposes, and neither the Depositor, the Trustee, the Certificate Registrar nor
any such agent shall be affected by any notice to the contrary.
The obligations and responsibilities created by the Agreement and the
Pool created thereby shall terminate upon payment to the Certificateholders, or
provision therefor, in accordance with the Agreement upon the earlier of (a) the
repurchase by the Depositor of all property remaining in the Trust Fund at a
price determined as provided in the Agreement, (b) the final payment or other
liquidation (or any advance with respect thereto) of the last assets remaining
in the Trust Fund, or (c) the Distribution Date in ____________________. The
exercise of the right of the Depositor to repurchase all the property in respect
of the Trust Funds will result in early retirement of the Certificates, the
right of the Depositor to repurchase being subject to the Pool Scheduled
Principal Balance at the time of repurchase being less than [ ] percent of the
aggregate of the Cut-Off Date Pool Scheduled Principal Balance.
This Certificate shall be governed by and construed in accordance with
the laws of the State of New York.
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto _____________________________________________________________
______________________________________________________________________________
(Please print or typewrite name and address including
postal zip code of assignee)
the beneficial interest evidenced by the within Mortgage-Backed Certificate and
hereby authorizes the transfer of registration of such interest to assignee on
the Certificate Register of the Trust Fund.
2
<PAGE> 88
I (We) further direct the Certificate Registrar to issue a new
Certificate of a like denomination and Class, to the above named assignee and
deliver such Certificate to the following address: .
Dated:
--------------------------------------
Signature by or on behalf of assignor
---------------------------------------
Signature Guaranteed
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for purposes of distribution:
Distributions shall be made, by wire transfer or otherwise, in
immediately available funds to ___________________________________________
____________________________for the account of ____________________________
account number ________________________, or, if mailed by check, to ___________.
Applicable statements should be mailed to _____________________________________.
This information is provided by ______________________________________
the assignee named above, or ______________________________________, as its
agent.
3
<PAGE> 89
EXHIBIT F
FORM OF AFFIDAVIT REGARDING TRANSFER OF OWNERSHIP
CERTIFICATES PURSUANT TO SECTION 6.02
TRANSFER AFFIDAVIT
STATE OF _______________ )
)ss.:
COUNTY OF _______________)
The undersigned, being first duly sworn, deposes and says as follows:
1. The undersigned (the "Transferee") is acquiring a beneficial
ownership interest in American Residential Eagle, Inc., Mortgage-Backed
Certificates, Series 199__-__, Ownership Certificates, issued pursuant to the
Trust Agreement, dated as of ____________, 199__ (the "Agreement"), by and among
American Residential Eagle, Inc., as Depositor, and [ ], as Trustee.
Capitalized terms used, but not defined herein, shall have the meanings ascribed
to such terms in the Agreement. The Transferee has authorized the undersigned to
make this affidavit on behalf of the Transferee.
2. The Transferee is, as of the date hereof, and will be, as of the
date of any Transfer, a Permitted Transferee. The Transferee is acquiring the
Ownership Certificates either (i) for its own account or (ii) as nominee,
trustee or agent for another Person and has attached hereto an affidavit from
such Person in substantially the same form as this affidavit. The Transferee has
no knowledge that any such affidavit is false.
3. The Transferee has been advised of, and understands that (i) a tax
shall be imposed on Transfers of Ownership Certificates to Persons that are not
Permitted Transferees; (ii) such tax is imposed on the transferor, or, if such
Transfer is through an agent (which includes a broker, nominee or middleman) for
a Person that is not a Permitted Transferee, on the agent; and (iii) the Person
otherwise liable for the tax shall be relieved of liability for the tax if the
subsequent Transferee furnished to such Person an affidavit that such subsequent
Transferee is a Permitted Transferee and, at the time of the Transfer, such
Person does not have actual knowledge that the affidavit is false.
4. The Transferee has been advised and understands that a tax shall be
imposed on a "pass-through entity" holding Ownership Certificates if at any time
during the taxable year of the pass-through entity a Person that is not a
Permitted Transferee is the record holder of an interest in such entity. The
Transferee understands that no tax will be imposed for any period for which the
record holder furnishes to the pass-through entity an affidavit stating that the
record holder is a Permitted Transferee and the pass-through entity does not
have actual knowledge that such affidavit is false. (For this purpose, a
"pass-through entity" includes a
F-1
<PAGE> 90
regulated investment company, a real estate investment trust or common trust
fund, a partnership, trust or estate, and certain cooperatives and, except as
may be provided in Treasury Regulations, persons holding interests in
pass-through entities as nominees for other Persons.)
5. The Transferee has reviewed the provisions of Section 6.02 of the
Agreement, which is incorporated herein by reference, and understands the legal
consequences of the acquisition of the Ownership Certificates including, without
limitations, the restrictions on subsequent Transfers and the provisions
regarding voiding the Transfer and mandatory sales. The Transferee expressly
agrees to be bound by and to abide by the provisions of Section 6.02 of the
Agreement. The Transferee understands and agrees that any breach of any of the
representations included herein shall render the Transfer to the Transferee
contemplated hereby null and void.
6. The Transferee does not have the intention to impede the assessment
or collection of any federal, state or local income taxes legally required to be
paid with respect to the Ownership Certificate.
7. The Transferee agrees to require a Transfer Affidavit from any Person
to whom the Transferee attempts to make a Transfer and in connection with any
Transfer by a Person for whom the Transferee is acting as nominee, trustee or
agent, and the Transferee will not make any Transfer or cause any Transfer to be
made to any Person that the Transferee knows is not a Permitted Transferee.
8. The Transferee taxpayer identification number is .
IN WITNESS WHEREOF, the Transferee has caused this instrument to be
executed on its behalf, by its duly authorized officer, this __th day of
_______, 199_.
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
F-2
<PAGE> 91
EXHIBIT G
FORM OF INVESTMENT LETTER
[FOR CLASSES M-1, B-1 AND B-2]
INVESTMENT LETTER
_________________ __, 19__
____________________________
____________________________
____________________________
[Trustee]
Re: Purchase of American Residential Eagle, Inc.
Mortgage Backed Certificates, Series 19__-__
Class M-1, B-1 and B-2 Certificates
Ladies and Gentlemen:
In connection with our purchase of $_____________ of the Class ___
Certificates (the "Certificates"), we hereby represent to the Trustee that we
are not an employee benefit plan within the meaning of, and subject to, Section
406 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), nor a person acting on behalf of any such plan.
Very truly yours,
[Transferee]
By:
--------------------------
Authorized Officer
G-1
<PAGE> 92
[FOR CLASS B-1 AND B-2]
INVESTMENT LETTER
_________________ __, 19__
___________________________
___________________________
___________________________
[Trustee] Re: Purchase of American Residential Eagle, Inc.
Mortgage-Backed Certificates, Series 19__-__
Class B-1 and B-2 Certificates
Ladies and Gentlemen:
In connection with our purchase of $_____________ of the Class [ ]
Certificates (the "Certificates") we confirm that (a) we understand that the
Certificates are not being registered under the Securities Act of 1933, as
amended (the "Act"), or any state securities laws ("Blue Sky Laws") and are
being sold to us in a transaction that is exempt from the registration
requirements of the Act and any such laws, (b) we are an "accredited investor",
as defined in Regulation D under the Act, and have such knowledge and experience
in financial and business matters that we are capable of evaluating the merits
and risks of investments such as the Certificates, (c) we confirm that we are
acquiring the Certificates for investment for our own account and not with a
view to any distribution of such Certificates (but without prejudice to our
right at all times to sell or otherwise dispose of the Certificates in
accordance with clause (f) below and otherwise in accordance with Section 6.02
of the Trust Agreement, dated as of ________________, 199__, among American
Residential Eagle, Inc. (the "Depositor") and you, as Trustee, (the "Trust
Agreement"), (d) we have discussed with our advisors, counsel and accountants
the legal, tax and financial implications of investment in the Certificates and
have undertaken our own independent analysis of the investment in the
Certificates, and our decision to invest in the Certificates is not based on any
representation (other than those contained in the Trust Agreement, (e) we have
not offered or sold any Certificates to, or solicited offers to buy any
Certificates from, any person, or otherwise approached or negotiated with any
person with respect thereto, or taken any other action which would result in a
violation of Section 5 of the Act or any applicable Blue Sky Law, (f) we will
not sell, transfer or otherwise dispose of any Certificates unless (1) such
sale, transfer or other disposition is made pursuant to an effective
registration statement under the Act and any applicable Blue Sky Law or is
exempt from such registration requirements, and if requested we will at our
expense provide an opinion of counsel satisfactory to Trustee that such sale,
transfer or other disposition may be made pursuant to an exemption from the Act
and any
-2
<PAGE> 93
applicable Blue Sky Laws and (2) the purchaser or transferee of such Certificate
has executed and delivered to you a letter to substantially the same effect as
this letter, (g) none of the Depositor or the Trustee shall be obligated to
register the Certificates under the Act or any Blue Sky Laws or to take any
action not otherwise required under the Trust Agreement to permit the sale,
transfer or other disposition of the Certificates and (h) we have not relied
upon the Depositor or upon any information or materials prepared or furnished by
[ ] or their agents or counsel in determining whether our investment in the
Certificates is legal for us under applicable federal and/or state laws and
regulations.
We hereby represent to, and covenant with, the Depositor and the Trustee
that we are not an employee benefit plan within the meaning of, and subject to,
Section 406 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), nor a person acting on behalf of any such plan.
Very truly yours,
[Transferee]
By:
--------------------------
Authorized Officer
-3
<PAGE> 94
EXHIBIT H
FORM OF MASTER SERVICER'S CERTIFICATE
PRINCIPAL AND INTEREST DISTRIBUTION SUMMARY
- -------------------------------- -----------------------------------
Trustee Cut-Off Date
- -------------------------------- -----------------------------------
Address Reporting Month
- --------------------------------
City, State, Zip Code
- -------------------------------- -----------------------------------
Attention Phone Number
<TABLE>
REMITTANCE:
<S> <C>
Principal $
Principal Curtailments $
Liquidation $
Adjustments $
Total Principal $
Interest Distribution
Class A-1 $
Class M-1 $
Class B-1 $
Class B-2 $
Total Interest Distribution Amount $
Principal Distribution
Class A-1 $
Class M-1 $
Class B-1 $
Class B-2 $
</TABLE>
H-1
<PAGE> 95
Total Principal & Interest Distribution Amount $
OUTSTANDING BALANCES: Security Balance
Beginning Security Balance
Less: Principal Payments, Curtailments & Adj.
Liquidation & Repurchase -----------------
Ending Security Balance -----------------
MORTGAGE LOANS: No. of Mortgage Loans P&I Constant
Beginning Balance
Less: Liquidation/Repurch
Rolls/Adjustments
Ending Balance
DELINQUENCIES: No. of Mortgage Loans Principal Amount
30 Days ( 0 to 30)
60 Days (31 to 60)
90+ Days (61 to 90+)
Foreclosure Real
Estate Owned
[ ] - SERIES 199___-__
TRUSTEE'S CERTIFICATE ACCOUNT STATEMENT
<TABLE>
<S> <C>
I Status of Certificate Account
As of the Determination Date $
Amount on deposit on Certificate Account
Deposit Date $
Deposits: $
Required deposit to Certificate Account pursuant
to Section 3.11(a) $
P & I $
Curtailments $
Liquidations (proceeds net of expenses) $
</TABLE>
H-2
<PAGE> 96
<TABLE>
<S> <C>
Repurchases $
Insurance proceeds $
Monthly Advances $
Fraud Losses $
Withdrawals: $
Payment to Special Hazard Insurer $
Payment to Trustee $
Payment to Pool Insurer $
Reimbursement for Advances (recoverable
and nonrecoverable) $
Total Servicing Compensation $
Reimbursement (for expenses) $
Repurchases (reimbursement) $
II Distribution:
Principal $
Interest $
III Total Service Compensation $
Master Service Compensation $
Sub Service Compensation
IV Security Balance $
V Percentage of Amount Available %
Amount Available $
Security Balance $
VI Percentage of Special Hazard Coverage %
Special Hazard Loss Coverage $
Bankruptcy Coverage Amount $
Fraud Loss Coverage $
</TABLE>
H-3
<PAGE> 97
Security Balance $
(VII) Amount Held for Future Distribution P/I $
(VIII) Proceeds from Permitted Investments held in
Investment Account $
---------------------------------
By
--------------------------------
H-4
<PAGE> 98
Schedule A
Listings of the following Mortgage Loans:
I. Special Hazard Mortgage Loans
II. Liquidated Deficient Valuation Mortgage Loans
III. Debt Service Reduction Mortgage Loans
IV. Total Fraud Loss - Liquidated Mortgage Loans
V. Liquidated Mortgage Loans (except for those included in I or II)
H-5
<PAGE> 99
Schedule B
<TABLE>
<S> <C>
(I) Net Special Hazard Losses $
(II) Liquidated Deficient Valuation Losses $
(III) Net Realized Losses
(other than those included in I and II above) $
(IV) Total Fraud Loss - Liquidated Mortgage Loans $
No. of Mortgage Principal Amount
(V) Deficient Valuation
(VI) Debt Service Reduction
Net Prepayment Shortfalls $
Relief Act Reductions $
</TABLE>
H-6
<PAGE> 100
Schedule C
<TABLE>
<S> <C>
Amount to be deposited into Distribution Account $
Fraud Loss Coverage remaining $
Bankruptcy Loss Coverage Amount remaining $
Special Hazard Loss Coverage Amount $
</TABLE>
H-7
<PAGE> 101
Exhibit I
FORM OF OPINION OF COUNSEL PURSUANT TO SECTION 6.02
Such counsel is of the opinion that the transfer of the Certificates from _____
to _____ [under the circumstances to be described in such opinion] is not a
transaction requiring registration of the Certificates under the Securities Act
of 1933, as amended, or under any applicable state securities laws.
or
The Certificates have been registered under the Securities Act of 1933, as
amended, and no action is required to be taken under applicable state securities
laws or that such action has been taken.
I-1
<PAGE> 1
[TOBIN & TOBIN LETTERHEAD]
May 12, 1998
EXHIBIT 5.1
American Residential Eagle, Inc.
445 Marine View Avenue
Suite 100
Del Mar, CA 92014
Re: American Residential Eagle, Inc.
Registration Statement on Form S-3/S-11 (No. 333-47311)
Ladies and Gentlemen:
We have acted as counsel to American Residential Eagle, Inc., a Delaware
corporation (the "Company"), in connection with the preparation of a
registration statement on Form S-3/S-11 (the "Registration Statement") for the
registration with the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "Act"), of mortgage-backed certificates (the
"Certificates") and collateralized mortgage bonds (the "Bonds") (the
Certificates and the Bonds collectively, the "Securities"). As described in the
Registration Statement, each Series of Certificates will be issued by a separate
trust (each, a "Certificate Issuer") formed by the Company pursuant to a trust
agreement (each, a "Trust Agreement") between the Company and the Certificate
Trustee ("Certificate Trustee"). Each series of Bonds is issuable under a
separate Indenture (each such agreement, an "Indenture"), between each owner
trust acting as Bond Issuer ("Bond Issuer") and the Bond Trustee ("Bond
Trustee"), each to be identified in the prospectus supplement for such series of
Bonds. Each Trust Agreement and Indenture will be substantially in the form
thereof filed as an exhibit to the Registration Statement. Each Series of
Securities will be sold from time to time pursuant to a separate underwriting
agreement (each, an "Underwriting Agreement") among the Company and the
underwriter or underwriters named therein.
We have examined and relied upon copies of the Company's Certificate of
Incorporation, Bylaws, the Registration Statement, the form of Trust Agreement,
the form of Indenture, the forms of Certificates and the forms of the Bonds
included as exhibits to the Trust
<PAGE> 2
American Residential Eagle, Inc.
May 12, 1998
Page 2
Agreement and the Indenture, respectively, the form of Underwriting Agreement
and such other records, documents and statutes as we have deemed necessary for
purposes of this opinion.
In our examination we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, the conformity
to original documents of all documents submitted to us as certified or
photostatic copies and the authenticity of the originals of such documents. As
to any facts material to the opinions expressed herein that were not
independently established or verified, we have relied upon statements and
representations of officers and other representatives of the Company and others.
Based upon the foregoing, we are of the opinion that:
1. When any Trust Agreement relating to a series of Certificates has
been duly and validly authorized by all necessary action on the part of the
Company and has been duly executed and delivered by the Company and the
Certificate Trustee and any other party thereto, such Trust Agreement will
constitute a legal, valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except as enforcement thereof
may be limited by bankruptcy, insolvency or other laws relating to or affecting
creditors' rights generally or by general equity principles.
2. When a series of Certificates has been duly authorized by all
necessary action on the part of the Company, duly executed by the Company and
authenticated by the Certificate Trustee for such series in accordance with the
terms of the related Trust Agreement and issued and delivered against payment
therefor as described in the Registration Statement, such series of Certificates
will be legally and validly issued, fully paid and nonassessable, and the
holders thereof will be entitled to the benefits of the related Trust Agreement.
3. When an Indenture for a series of Bonds has been duly authorized by
all necessary action and duly executed and delivered by the parties thereto,
such Indenture will be a legal and valid obligation of the applicable Bond
Issuer.
4. When an Indenture for a series of Bonds has been duly authorized by
all necessary action and duly executed and delivered by the parties thereto, and
when the Bonds of such series have been duly executed and authenticated in
accordance with the provisions of that Indenture, and issued and sold as
contemplated in the Registration Statement and the base prospectus and
prospectus supplement delivered in connection therewith, such Bonds will be
legally and validly issued and outstanding, fully paid and non-assessable, and
will be binding
<PAGE> 3
American Residential Eagle, Inc.
May 12, 1998
Page 3
obligations of the applicable Bond Issuer, and the holders of such Bonds will be
entitled to the benefits of that Indenture.
In rendering the foregoing opinions, we express no opinion as to the
laws of any jurisdiction other than the laws of the State of New York (excluding
choice of law principles therein), the corporation laws of the State of Delaware
and the federal laws of the United States of America.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the references to this firm under the heading
"Legal Matters" in the base prospectus and prospectus supplement forming a part
of the Registration Statement, without admitting that we are "experts" within
the meaning of the Act or the Rules and Regulations of the Commission issued
thereunder, with respect to any part of the Registration Statement, including
this exhibit.
Very truly yours,
/s/ Tobin & Tobin
<PAGE> 1
EXHIBIT 8.1
[JEFFERS, WILSON, SHAFF & FALK, LLP LETTERHEAD]
May 12, 1998
American Residential Eagle, Inc.
445 Marine View Avenue, Suite 100
Del Mar, CA 92014
RE: MORTGAGE BACKED SECURITIES (ISSUABLE IN SERIES)
Gentlemen:
This is an opinion (the "Opinion") which you have requested as to the
discussion entitled "Federal Income Tax Consequences" as set forth in the
Prospectus (the "Prospectus"), contained in the Registration Statement on
[combined Form S-3/S-11] of American Residential Eagle, Inc. (the "Company"),
registration no. 333-47311, as amended by Pre-Effective Amendment No. 2, filed
by the Company, in connection with the shelf registration of Collateralized
Mortgage Bonds ("Bonds") and Mortgage-Backed Certificates ("Certificates") (such
Bonds and Certificates are sometimes referred to herein as the "Securities") to
be issued by the Company.
The Company is a Delaware corporation that is a subsidiary of American
Residential Investment Trust, Inc., a Maryland corporation. The Company proposes
to establish one or more trusts to issue and sell from time to time one or more
series of Bonds and/or Certificates. Each series of Bonds will be secured by the
assets of a trust and each series of Certificates will evidence beneficial
ownership of the assets of the related trust. The trust fund assets securing a
series of Bonds will consist primarily of Mortgage Collateral and the trust fund
assets evidenced by a series of Certificates may include Mortgage Collateral or
a series of Bonds. If so specified in the related Prospectus Supplement, one or
more elections will be made to treat the trust fund assets or specified portions
thereof evidenced by a series of Certificates as a financial asset
securitization investment trust (a "FASIT") for federal income tax purposes.
Capitalized terms used in this Opinion and not otherwise defined are as
defined in the Prospectus. Our Opinion is based on existing law, including the
Code, existing regulations, Revenue Rulings, Revenue Procedures, proposed
regulations and other administrative releases and case law, all of which are
subject to change either prospectively or retroactively. No assurance can be
given that such existing law may not change in a manner that would modify the
conclusions expressed in this Opinion. Moreover, relevant laws could change in a
manner that could adversely affect the Company or its stockholders. We have no
obligation to inform you of any such change in the law.
<PAGE> 2
American Residential Eagle, Inc.
May 12, 1998
Page 2
We are admitted to practice law in the State of California and our
Opinions are limited to federal law except insofar as California law is material
to the determination of a result under federal law. We have not been requested
to opine, and we have not opined, as to any issues other than those expressly
set forth herein. We express no opinion with respect to any other law or the
laws of any other jurisdiction.
Our Opinions are based upon certain statements, representations and
warranties made by the Company as to factual matters regarding the Company's
assets, business and Securities as set forth in the Prospectus and in the
Company's letter, dated as of the date hereof, to us, and we have assumed that
such statements, representations and warranties are true and accurate. As to
such factual matters material to our Opinions, we have relied solely upon such
statements, representations and warranties of the Company. We have assumed the
authenticity of all documents submitted to us, the genuineness of all
signatures, the legal capacity of all natural persons, the conformity to the
originals of all documents submitted to us as copies and the due execution and
delivery of all documents where due execution and delivery are prerequisites to
the effectiveness thereof. No facts have come to our attention, however, that
would cause us to question the accuracy in a material way of any documents,
letters, statements, representations or warranties of the Company.
1 Federal Income Tax Consequences. We have acted as special tax counsel
to the Company in connection with the Company's offering of the Securities. In
that connection, we have reviewed the section of the Prospectus entitled
"Federal Income Tax Consequences" and in our opinion such section identifies and
fairly summarizes the federal income tax consequences that are likely to be
material to the Company and to a holder of the Securities and to the extent that
such summaries involve matters of law, we are of the opinion that such
statements of law are correct under the Code. We expressly confirm that all of
the opinions attributed to Special Tax Counsel in the section of the Prospectus
entitled "Federal Income Tax Consequences" accurately reflect our opinion on the
outcome of each such issue if challenged by the Service.
Although the discussion in the Prospectus under the heading "Federal
Income Tax Consequences" does not purport to discuss all possible United States
federal income tax consequences on the purchase, ownership and disposition of
the Offered Bonds, in our opinion, such discussion constitutes in all material
respects, a fair and accurate summary of the United States federal income tax
consequences of the purchase, ownership and disposition of the Securities under
existing law. We note that the Prospectus Supplement relating to a specific
transaction and that the above referenced description of "Federal Income Tax
Consequences" may, under certain circumstances, require modification when
additional transactions are offered.
We have not been requested to opine, and we have not opined, as to any
other issues other than those set forth above. Other than as stated above, we
express no opinion on any issue
<PAGE> 3
American Residential Eagle, Inc.
May , 1998
Page 3
relating to the Company, or any series of Bonds, other than the Bonds described
in the Prospectus Supplement, or under any law other than the federal income tax
laws. We are admitted to practice law in the State of California and our
Opinions are limited to federal law. We express no opinion with respect to any
other law or the laws of any other jurisdiction.
The qualification of specific trust fund assets as a FASIT depends on
the timely election of FASIT status, issuance of regular interests, the issuance
of a single ownership interest to an eligible corporation, and the trust fund
assets themselves qualifying as debt for federal income tax purposes, as well as
other requirements enumerated in the Code. To date, the Service has issued no
regulatory or administrative guidance on qualification or operation as a FASIT.
There can be no assurance that the courts or the Service will agree with this
Opinion.
2 Consent. We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the references to this firm under the
captions "Federal Income Tax Consequences" and "Legal Matters" in connection
with this opinion.
Very truly yours,
JEFFERS, WILSON, SHAFF & FALK, LLP
