<PAGE> 1
PROSPECTUS SUPPLEMENT
(To Prospectus Dated October 30, 1997)
$900,000,000
(Approximate)
Advanta Mortgage Loan Trust 1998-1
$143,000,000 Adjustable Rate Class A-1 Group I Certificates
$89,000,000 6.25% Class A-2 Group I Certificates
$64,000,000 6.27% Class A-3 Group I Certificates
$42,000,000 6.42% Class A-4 Group I Certificates
$68,000,000 6.60% Class A-5 Group I Certificates
$50,000,000 6.43% Class A-6 Group I Certificates
5.00% Class A-IO Group I Certificates*
$330,000,000 Adjustable Rate Class A-7 Combination Certificates**
$44,000,000 6.24% Class A-8 Group II Certificates
$26,000,000 Adjustable Rate Class M-1 Group II Certificates
$23,000,000 Adjustable Rate Class M-2 Group II Certificates
$21,000,000 Adjustable Rate Class B-1 Group II Certificates
Mortgage Loan Asset-Backed Certificates, Series 1998-1
<TABLE>
<S> <C>
[ADVANTA LOGO] [ADVANTA LOGO]
ADVANTA MORTGAGE CONDUIT SERVICES, INC. ADVANTA MORTGAGE CORP. USA
SPONSOR OF THE TRUST MASTER SERVICER
</TABLE>
The Advanta Mortgage Loan Asset-Backed Certificates, Series 1998-1 will
consist of (i) the Class A-1 Group I Certificates (the "Class A-1
Certificates"), the Class A-2 Group I Certificates (the "Class A-2
Certificates"), the Class A-3 Group I Certificates (the "Class A-3
Certificates"), the Class A-4 Group I Certificates (the "Class A-4
Certificates"), the Class A-5 Group I Certificates (the "Class A-5
Certificates"), the Class A-6 Group I Certificates (the "Class A-6
Certificates"), the Class A-IO Group I Certificates* (the "Class A-IO
Certificates"), the Class A-7 Combination Certificates** (the "Class A-7
Certificates") and the Class A-8 Group II Certificates (the "Class A-8
Certificates", collectively, the "Class A Certificates"), (ii) the Class M-1
Group II Certificates (the "Class M-1 Certificates") and the Class M-2 Group II
Certificates (the "Class M-2 Certificates", together with the Class M-1
Certificates, the "Mezzanine Certificates"), (iii) the Class B-1 Group II
Certificates (the "Class B-1 Certificates", together with the Mezzanine
Certificates, the "Subordinate Certificates"), and (iv) the residual class with
respect to each REMIC held by the Trust (the "Class R Certificates"). Only the
Class A Certificates and the Subordinate Certificates (collectively, the
"Offered Certificates") are offered hereby.
(cover continued on next page)
See "Risk Factors" at page S-37 herein and at page 14 in the Prospectus,
for a discussion of certain risk factors which should be considered by
prospective investors in the Offered Certificates offered hereby.
------------------------
THE OFFERED CERTIFICATES REPRESENT BENEFICIAL INTERESTS ONLY IN THE TRUST
CREATED BY THE POOLING AND SERVICING AGREEMENT AND DO NOT REPRESENT INTERESTS IN
OR OBLIGATIONS OF ADVANTA MORTGAGE CONDUIT SERVICES, INC., ADVANTA MORTGAGE
CORP. USA, THE TRUSTEE OR ANY ORIGINATOR. NEITHER THE OFFERED CERTIFICATES NOR
THE MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY.
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 will be offered by the Underwriters from time to
time to the public in negotiated transactions or otherwise at varying prices to
be determined at the time of the related sale. Proceeds to the Sponsor are
anticipated to be approximately $903,288,797 from the sale of the Offered
Certificates, plus accrued interest, if any, at the applicable Pass-Through
Rate, but before deducting expenses payable by the Sponsor, estimated to be
$500,000. The Underwriters have agreed to reimburse the Sponsor with respect to
certain of such expenses.
The Offered Certificates are offered subject to receipt and acceptance by
the underwriters (the "Underwriters") and to the Underwriters' right to reject
any order in whole or in part and to withdraw, cancel or modify the offer
without notice. It is expected that delivery of the Offered Certificates in
book-entry form will be made on or about March 19, 1998 only through The
Depository Trust Company ("DTC"), the Euroclear System ("Euroclear") and CEDEL,
S.A. ("CEDEL").
- ------------
*Interest will be calculated on the Class A-IO Certificates on the basis of
a notional principal balance equal to the aggregate outstanding Certificate
Principal Balance of the Class A-6 Certificates (the "Notional Principal
Balance").
**Owners of the Class A-7 Certificates will be purchasing two separate,
undivided interests in the Mortgage Loans, which interests are represented by
the Component I certificate ("Component I") and the Component II certificate
("Component II"), respectively. Component I represents the interest in Group I
and $44,000,000 of the original Certificate Principal Balance of the Class A-7
Certificates; Component II represents the interest in Group II and $286,000,000
of the original Certificate Principal Balance of the Class A-7 Certificates.
Unless otherwise specified, references to the Class A-7 Certificates hereinafter
shall be deemed to mean Component I and Component II together. Component I and
Component II are not separately tradable.
MORGAN STANLEY DEAN WITTER
GREENWICH CAPITAL MARKETS, INC.
J.P. MORGAN & CO.
SALOMON SMITH BARNEY
March 12, 1998
<PAGE> 2
The Offered Certificates will represent undivided ownership interests in a
pool of mortgage loans (the "Mortgage Loans"), all monies due under the Mortgage
Loans on or after the Cut-Off Date, security interests in the properties which
secure the Mortgage Loans, funds on deposit in certain trust accounts and
certain other property. The Trust will be created pursuant to a Pooling and
Servicing Agreement (the "Pooling and Servicing Agreement") to be dated as of
March 1, 1998, among the Master Servicer, the Sponsor and Bankers Trust Company
of California, N.A., as Trustee (the "Trustee").
On or prior to the Closing Date, the Sponsor will acquire certain of the
Mortgage Loans (the "Mortgage Loans") from certain affiliated and unaffiliated
originators (respectively, the "Affiliated Originators" and the "Unaffiliated
Originators") as described herein.
The assets of the Trust also will include a certificate guaranty insurance
policy (the "Group I Insurance Policy") from MBIA Insurance Corporation, which
will unconditionally and irrevocably guarantee payment of amounts due to the
Owners of the Class A-1 Certificates, the Class A-2 Certificates, the Class A-3
Certificates, the Class A-4 Certificates, the Class A-5 Certificates, the Class
A-6 Certificates, Component I of the Class A-7 Certificates and the Class A-IO
Certificates to the extent described herein.
[MBIA LOGO]
The information in this Prospectus Supplement is qualified in its entirety
by the more detailed information appearing or incorporated by reference in the
accompanying Prospectus. Prior to making an investment decision with respect to
the Offered Certificates offered hereby, prospective investors should carefully
consider the information contained in this Prospectus Supplement and the
Prospectus.
There currently is no secondary market for the Offered Certificates. The
Underwriters intend to make a market in the Offered Certificates but have no
obligation to do so. There is no assurance that one will develop or, if one does
develop, that it will continue until the Offered Certificates are paid in full.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT AFFECT THE PRICE OF THE OFFERED CERTIFICATES. SUCH TRANSACTIONS MAY INCLUDE
THE PURCHASE OF OFFERED CERTIFICATES TO COVER SYNDICATE SHORT POSITIONS. FOR A
DESCRIPTION OF THESE TRANSACTIONS, SEE "UNDERWRITING" HEREIN.
Until 90 days from 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 and a prospectus
supplement. This is in addition to the obligation of dealers to deliver a
prospectus and a prospectus supplement when acting as underwriters and with
respect to their unsold allotments or subscriptions.
S-2
<PAGE> 3
AVAILABLE INFORMATION
The Sponsor has filed a Registration Statement under the
Securities Act of 1933, as amended (the "1933 Act"), with the Securities and
Exchange Commission (the "Commission") on behalf of the Trust with respect to
the Offered Certificates offered pursuant to the Prospectus dated October 30,
1997 and this Prospectus Supplement. For further information, reference is made
to the Registration Statement and amendments thereof and to the exhibits
thereto, which are available for inspection without charge at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549; 7 World Trade Center, 13th Floor, New York, New York
10048; and at The Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. The Commission maintains a site on the World Wide
Web at http://www.sec.gov containing reports, proxy materials, information
statements and other items. Copies of the Registration Statement and amendments
thereof and exhibits thereto may be obtained from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates.
REPORTS TO THE CERTIFICATEHOLDERS
So long as the Offered Certificates are in book-entry form,
monthly and annual reports concerning the Certificates and the Trust will be
sent by the Trustee to Cede & Co., as the nominee of DTC and as registered
holder of the Offered Certificates pursuant to the Pooling and Servicing
Agreement. DTC will supply such reports to Beneficial Owners in accordance with
its procedures. See "Risk Factors," "Description of the Securities -- Form of
Securities" and "Reports to Securityholders" in the Prospectus. To the extent
required by the Securities Exchange Act of 1934, as amended, the Trust will
provide financial information to the Owners which has been examined and reported
upon, with an opinion expressed by an independent public accountant; to the
extent not so required, such financial information will be unaudited. The Trust
will be formed to own the Mortgage Loans, and to issue the Certificates. The
Trust will have no assets or obligations prior to issuance of the Certificates
and will engage in no activities other than those described herein. Accordingly,
no financial statements with respect to the Trust are included in this
Prospectus Supplement.
S-3
<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 Prospectus. Reference is made to the Index of Principal Defined Terms and
the Index of Principal Definitions for the location in the Prospectus Supplement
or the Prospectus, respectively, of the definitions of certain capitalized
terms.
Issuer Advanta Mortgage Loan Trust 1998-1 (the
"Trust").
Sponsor Advanta Mortgage Conduit Services, Inc., a
Delaware corporation. The Sponsor's
principal executive offices are located at
16875 West Bernardo Drive, San Diego,
California 92127, and its phone number is
(619) 674-1800.
Master Servicer Advanta Mortgage Corp. USA, a Delaware
corporation. The Master Servicer's principal
executive offices are located at 16875 West
Bernardo Drive, San Diego, California 92127.
Originators The Mortgage Loans to be acquired by the
Trust from the Sponsor will be acquired by
the Sponsor from Affiliated Originators or
from one or more Unaffiliated Originators.
Group I Insurer MBIA Insurance Corporation, a New York stock
insurance company.
Trustee Bankers Trust Company of California, N.A., a
national banking association (the
"Trustee").
Cut-Off Date March 1, 1998 (opening of business).
Closing Date March 19, 1998.
The Certificates The Mortgage Loan Asset-Backed Certificates,
Series 1998-1 (the "Certificates") will
consist of the Offered Certificates and the
Class R Certificates; the Class R
Certificates are not offered hereby. The
Certificates will be issued pursuant to the
Pooling and Servicing Agreement. Only the
Offered Certificates are offered hereby.
The assets of the Trust will include two
pools of closed-end mortgage loans secured
by mortgages on one-to-four family
residential properties to be conveyed to the
Trust on the Closing Date. All of the
Mortgage Loans in the fixed rate pool
("Group I") and in the adjustable rate pool
("Group II" together with Group I, "Groups"
and each a "Group") have remaining terms to
maturity of 30 years or less and are secured
by Mortgages which may be either in a first
or in a second lien position, together with
certain other rights.
The Offered Certificates are issuable in
original principal amounts of $1,000 and
integral multiples thereof, except that one
certificate for each Class (as defined
below) of Offered Certificates may be issued
in a lesser amount.
Pass-Through Rates
and Balances $900,000,000 Mortgage Loan Asset-Backed
Certificates, Series
S-4
<PAGE> 5
1998-1, to be issued in the following
Classes (each, a "Class") and original
Certificate Principal Balances (each, a
"Certificate Principal Balance"), as set
forth below:
<TABLE>
<CAPTION>
Pass-Through Original Certificate
Class Rate Principal Balance
--------------------------------------------------------------
<S> <C> <C>
Class A-1 Certificates (1) $ 143,000,000
Class A-2 Certificates 6.25% $ 89,000,000
Class A-3 Certificates 6.27% $ 64,000,000
Class A-4 Certificates 6.42% $ 42,000,000
Class A-5 Certificates 6.60% $ 68,000,000
Class A-6 Certificates 6.43%(2) $ 50,000,000
Class A-IO Certificates 5.00% (3)
Class A-7 Certificates (4) $ 330,000,000(5)
Class A-8 Certificates 6.24% $ 44,000,000
Class M-1 Certificates (6) $ 26,000,000
Class M-2 Certificates (7) $ 23,000,000
Class B-1 Certificates (8) $ 21,000,000
</TABLE>
(1) On each Payment Date, the "Class A-1
Pass-Through Rate" will be equal to the
lesser of (x) LIBOR plus 0.10% per annum
(the "Class A-1 Formula Pass-Through Rate"),
and (y) the Group I Available Funds Cap Rate
applicable to such Payment Date.
(2) The Pass-Through Rate with respect to
the Class A-6 Certificates will on any
Payment Date equal the lesser of (x) the
Pass-Through Rate for such Class set forth
above and (y) the Group I Available Funds
Cap Rate applicable to such Payment Date.
(3) Interest will be calculated on the Class
A-IO Certificates on each Payment Date on
the basis of a Notional Principal Balance
equal to (x) for the first 30 Payment Dates,
the outstanding Certificate Principal
Balance of the Class A-6 Certificates and
(y) thereafter, zero, with the result that
the Owners of the Class A-IO Certificates
will receive no distributions after the 30th
Payment Date. Reference to the Notional
Principal Balance of the Class A-IO
Certificates is solely for convenience with
respect to certain calculations and does not
represent the right to receive any
distribution allocable to principal.
(4) On each Payment Date, the "Class A-7
Pass-Through Rate" shall be equal to the
lesser of (x) with respect to any Payment
Date which occurs on or prior to the
Clean-up Call Date, LIBOR plus 0.21% per
annum and for any Payment Date thereafter,
LIBOR plus 0.42% per annum (the "Class A-7
Formula Pass-Through Rate") and (y) the
weighted average, based on the relative
Component Principal Balances, of the
Component I Pass-Through Rate and the
Component II Pass-Through Rate.
S-5
<PAGE> 6
The "Component I Pass-Through Rate" shall be
equal to the lesser of (x) with respect to
any Payment Date which occurs on or prior to
the Clean-up Call Date, LIBOR plus 0.21% per
annum and for any Payment Date thereafter,
LIBOR plus 0.42% per annum (the "Component I
Formula Pass-Through Rate") and (y) the
Group I Available Funds Cap Rate.
The "Component II Pass-Through Rate" shall
be equal to the lesser of (x) with respect
to any Payment Date which occurs on or prior
to the Clean-up Call Date, LIBOR plus 0.21%
per annum and for any Payment Date
thereafter, LIBOR plus 0.42% per annum (the
"Component II Formula Pass-Through Rate")
and (y) the Group II Available Funds Cap
Rate.
(5) The Certificate Principal Balance of the
Class A-7 Certificates is equal to the sum
of the principal balance of Component I (the
"Component I Principal Balance") and the
principal balance of Component II (the
"Component II Principal Balance"). The
original Component I Principal Balance is
$44,000,000, and the original Component II
Principal Balance is $286,000,000.
Each of the Component I Principal Balance
and the Component II Principal Balance shall
also be referred to herein as a "Component
Principal Balance", and references to the
Aggregate Certificate Principal Balance with
respect to any Group shall include the
related Component Principal Balance of the
Class A-7 Certificates.
(6) On each Payment Date, the "Class M-1
Pass-Through Rate" will be equal to the
lesser of (x) with respect to any Payment
Date which occurs on or prior to the
Clean-up Call Date, LIBOR plus 0.40% per
annum and for any Payment Date thereafter,
LIBOR plus 0.60% per annum (the "Class M-1
Formula Pass-Through Rate") and (y) the
Group II Available Funds Cap Rate applicable
to such Payment Date.
(7) On each Payment Date, the "Class M-2
Pass-Through Rate" will be equal to the
lesser of (x) with respect to any Payment
Date which occurs on or prior to the
Clean-up Call Date, LIBOR plus 0.60% per
annum and for any Payment Date thereafter,
LIBOR plus 0.90% per annum (the "Class M-2
Formula Pass-Through Rate") and (y) the
Group II Available Funds Cap Rate applicable
to such Payment Date.
(8) On each Payment Date, the "Class B-1
Pass-Through Rate" will be equal to the
lesser of (x) with respect to any Payment
Date which occurs on or prior to the
Clean-up Call Date, LIBOR plus 1.15% per
annum and for any Payment Date thereafter,
LIBOR plus 1.725% per annum (the "Class B-1
Formula Pass-Through Rate") and (y) the
Group II Available Funds Cap Rate applicable
to such Payment Date.
The Pooling and Servicing Agreement defines
the "Group I Available Funds Cap Rate," as
of any Payment Date, to be an amount,
expressed as a per annum rate, equal to the
lesser of (x)
S-6
<PAGE> 7
the Group I Maximum Rate and (y) (a)(i) the
aggregate amount of interest due and
collected (or advanced) on all of the
Mortgage Loans in Group I for the related
Remittance Period minus (ii) the aggregate
of the Servicing Fee, the Premium and the
Trustee's Fee, in each case relating to
Group I, on such Payment Date and minus
(iii) an amount equal to the interest amount
payable to the Class A-IO Certificates on
such Payment Date divided by (b) the
aggregate Principal Balance of the Mortgage
Loans in Group I as of the beginning of such
Remittance Period, calculated on the basis
of a 360-day year assumed to consist of
twelve 30-day months (or, in the case of
such calculation being made with respect to
the Class A-1 Certificates or the Class A-7
Certificates, calculated on the basis of a
360-day year and the actual number of days
elapsed); provided, that the "Group I
Available Funds Cap Rate" insofar as it
applies to Component I of the Class A-7
Certificates only will be, for each Payment
Date commencing on the 7th Payment Date, the
rate otherwise determined pursuant to this
definition minus an additional 0.50% per
annum. The "Group I Maximum Rate" is fixed
at 14% per annum for each Payment Date.
The Pooling and Servicing Agreement defines
the "Group II Available Funds Cap Rate," as
of any Payment Date, to be an amount,
expressed as a per annum rate, equal to the
lesser of (x) the Group II Maximum Rate
applicable to such Payment Date and (y)
(a)(i) the aggregate amount of interest due
and collected (or advanced) on all of the
Mortgage Loans in Group II for the related
Remittance Period (using such Mortgage
Loans' then applicable Coupon Rates) minus
(ii) the aggregate of the Servicing Fee and
the Trustee's Fee, in each case relating to
Group II, on such Payment Date divided by
(b) the aggregate Principal Balance of the
Mortgage Loans in Group II as of the
beginning of such related Remittance Period,
calculated on the basis of a 360 day year
and the actual number of days elapsed (or,
in the case of such calculation being made
with respect to the Class A-8 Certificates,
calculated on the basis of a 360-day year
assumed to consist of twelve 30-day months).
The "Group II Maximum Rate" for any Payment
Date is an amount, expressed as a per annum
rate, equal to (a)(i) the aggregate amount
due and collected (or advanced) on all of
the Mortgage Loans in Group II for the
related Remittance Period (using such
Mortgage Loans' maximum lifetime Coupon
Rate) minus (ii) the aggregate of the
Servicing Fee and the Trustee's Fee, in each
case relating to Group II, on such Payment
Date divided by (b) the aggregate Principal
Balance of the Mortgage Loans in Group II as
of the beginning of such related Remittance
Period, calculated on the basis of a 360 day
year and the actual number of days elapsed
(or, in the case of such calculation being
made with respect to the Class A-8
Certificates, calculated on the basis of a
360-day year assumed to consist of twelve
30-day months).
The excess, if any, of (x) the interest due
on each Class of Certificates on any Payment
Date calculated at the lesser of (1) the
related Formula Pass-Through Rate applicable
to such
S-7
<PAGE> 8
Payment Date or (2) the related Maximum Rate
applicable to such Payment Date over (y) the
interest due on such Class calculated at the
applicable Available Funds Cap Rate
applicable to such Payment Date is the
"Supplemental Interest Amount" applicable to
such Class for such Payment Date.
If, on any Payment Date, there is a
Supplemental Interest Amount due, the Owners
of certain of the Class R Certificates have
agreed to pay such amount from the sources
of funds specified in the Pooling and
Servicing Agreement, including amounts which
would otherwise be distributed to such
Owners by the Trust on such Payment Date. If
the full amount of any Supplemental Interest
Amount is not paid on a Payment Date, then
the unpaid amount will accrue interest at
the applicable Formula Pass-Through Rate
until such amount is paid. If the Master
Servicer, acting directly or through a
permitted designee, exercises its right to
an optional termination ("Optional
Termination"), none of the Supplemental
Interest Amounts may be paid in full. If
more than one Class of Certificates have
Supplemental Interest Amounts then due,
funds available to pay such Supplemental
Interest Amounts, with respect to each
Group, shall first be applied to pay in full
the Supplemental Interest Amount with
respect to the most senior Class of
Certificates in such Group having
Supplemental Interest Amounts due.
The Class A Certificates (other than the
Class A-8 Certificates and Component II of
the Class A-7 Certificates) are collectively
referred to as the "Group I Certificates."
The Class A-8 Certificates, Component II of
the Class A-7 Certificates, the Mezzanine
Certificates and the Class B-1 Certificates
are collectively referred to as the "Group
II Certificates."
On any date after the Closing Date, the
"Aggregate Certificate Principal Balance" is
the sum of the Certificate Principal Balance
of all Classes of the Offered Certificates.
The Aggregate Certificate Principal Balance
for a particular Group is the sum of the
Certificate Principal Balances (including
the related Component Principal Balance of
the Class A-7 Certificates) of all Classes
of the Offered Certificates relating to such
Group.
The Mortgage Loans The statistical information presented in
this Prospectus Supplement concerning the
pools of Mortgage Loans is as of the Cut-Off
Date. The aggregate Principal Balance as of
the Cut-Off Date for Group I (the "Group I
Statistic Calculation Pool" is
$424,488,283.66 and with respect to Group II
(the "Group II Statistic Calculation Pool",
together with the Group I Statistic
Calculation Pool, the "Statistic Calculation
Pools") is $336,455,575.02. The Sponsor
expects that the actual aggregate Principal
Balance of the Mortgage Loans, as of the
Closing Date will be approximately
$500,000,000 with respect to Group I and
approximately $400,000,000 with respect to
Group II. The additional Mortgage Loans will
represent Mortgage Loans acquired or to be
acquired by the Sponsor prior to the Closing
Date.
S-8
<PAGE> 9
As of any date of determination, the
"Principal Balance" with respect to each
Mortgage Loan, is the outstanding principal
balance thereof.
With respect to the Statistic Calculation
Pools, some amortization of the Mortgage
Loans in such pools will occur prior to the
Closing Date. Certain loans included in the
Statistic Calculation Pools may prepay in
full, or may be determined not to meet the
eligibility requirements for the final pools
and as a result may not be included in the
final pools. As a result of the foregoing,
the statistical distribution of such
characteristics as of the Closing Date in
the final Mortgage Loan pools will vary
somewhat from the statistical distribution
of the Statistic Calculation Pools as
presented in this Prospectus Supplement,
although such variance will not be material.
Unless otherwise noted, all statistical
percentages in this Prospectus Supplement
are measured by the aggregate Principal
Balance of the related Mortgage Loans in the
Statistic Calculation Pools.
The Mortgage Loans will be predominantly
home equity loans, i.e., loans used by
obligors (each, a "Mortgagor") (x) to
refinance an existing mortgage loan on more
favorable terms, (y) to consolidate debt, or
(z) to obtain cash proceeds by borrowing
against the Mortgagor's equity in the
related Mortgaged Property. The Mortgage
Loans to be sold to the Trust by the Sponsor
consisted, with respect to the Statistic
Calculation Pools, of 11,026 Mortgages and
the related Notes on one-to-four family
residential properties, including investment
properties (which may be condominiums,
townhouses or homes in one-to-four family
residences), located in 50 states and the
District of Columbia. The Mortgage Loans are
secured by Mortgages of which 95.78% by
principal balance are first mortgages or
deeds of trust and 4.22% by principal
balance are secured by second mortgages or
deeds of trust. The Mortgage Loans are all
closed-end mortgage loans in that the
mortgagee is not required to make future
advances thereunder.
Less than 0.22% of the Mortgage Loans are
insured by primary mortgage insurance
policies. There is no pool insurance
insuring any of the Mortgage Loans.
The Mortgage Loans are not guaranteed by the
Sponsor, the Master Servicer, the Trustee,
any Affiliated Originator or Unaffiliated
Originator or any of their respective
affiliates. The Mortgage Loans are required
to be serviced by the Master Servicer in
accordance with accepted servicing practices
and with reasonable care, using that degree
of skill and attention that the Master
Servicer exercises with respect to
comparable mortgage loans that it services
for itself and others. See "Description of
the Securities -- Collection and Other
Servicing Procedures" in the Prospectus.
S-9
<PAGE> 10
Final Scheduled Payment Dates The final scheduled Payment Dates (the
"Final Scheduled Payment Dates") for each of
the respective Classes of Offered
Certificates are as described below,
although it is anticipated that the actual
final Payment Date for each Class (other
than the Class A-IO Certificates) will occur
earlier than the Final Scheduled Payment
Date. See "Prepayment and Yield
Considerations" herein.
<TABLE>
<CAPTION>
Final Scheduled
Class Payment Date
----------------------- ------------------
<S> <C>
Class A-1 Certificates: May 25, 2012
Class A-2 Certificates: February 25, 2014
Class A-3 Certificates: December 25, 2017
Class A-4 Certificates: September 25, 2021
Class A-5 Certificates: March 25, 2028
Class A-6 Certificates: March 25, 2028
Class A-IO Certificates: October 25, 2000
Class A-7 Certificates: March 25, 2028
Class A-8 Certificates: February 25, 2013
Class M-1 Certificates: March 25, 2028
Class M-2 Certificates: March 25, 2028
Class B-1 Certificates: March 25, 2028
</TABLE>
S-10
<PAGE> 11
Distributions -- General On the 25th day of each month, or, if such
day is not a Business Day, then the next
succeeding Business Day, commencing April
27, 1998 (each such day being a "Payment
Date"), the Trustee will be required,
subject to the availability of amounts
therefor and, pursuant to the cashflow
priorities hereinafter described, to
distribute to the Owners of the Group I
Certificates (except the Class A-1
Certificates and the Class A-7 Certificates)
and the Class A-8 Certificates of record as
of the last Business Day of the calendar
month immediately preceding the calendar
month in which such Payment Date occurs and
to the Owners of the Group II Certificates
(except the Class A-8 Certificates), the
Class A-1 Certificates and the Class A-7
Certificates of record as of the Business
Day immediately preceding such Payment Date
(each such date, the "Record Date") the
Class Distribution Amount for the related
Class. The "Class Distribution Amount" shall
be an amount equal to the sum of (x) the
related Current Interest (as defined below)
for such Class, (y) the related Interest
Carry Forward Amount (as defined below) and
(z) except in the case of the Class A-IO
Certificates, the related Principal
Distribution Amount (as defined herein) for
such Class. A "Business Day" is any day
other than a Saturday, Sunday or a day on
which the Group I Insurer is closed or
banking institutions in the State of New
York, 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.
"Current Interest" with respect to each
Class of Offered Certificates means, with
respect to any Payment Date (i) (A) with
respect to the Class A-7 Certificates, the
sum of the aggregate amount of interest
accrued during the preceding Accrual Period
on each of the Component Principal Balances
at the related Pass-Through Rate for the
related Component and (B) with respect to
all other Offered Certificates, the
aggregate amount of interest accrued during
the preceding Accrual Period on the
Certificate Principal Balance of the related
Class of Offered Certificates or, in the
case of the Class A-IO Certificates, on the
Notional Principal Balance of the Class A-IO
Certificates, at the related Pass-Through
Rate plus (ii) with respect to the Group I
Certificates only, the Preference Amount (as
defined herein) as it relates to interest
previously paid on the Group I Certificates
prior to such Payment Date to the extent
such Preference Amount has not been paid;
provided, that with respect to the Group I
Certificates, Current Interest will be
reduced by each Class' pro rata share of any
Civil Relief Act Shortfalls occurring with
respect to to Group I during the related
Accrual Period. The Current Interest does
not include any Supplemental Interest
Amounts or any Interest Carry Forward
Amount.
S-11
<PAGE> 12
The "Interest Carry Forward Amount" with
respect to any Class of the Offered
Certificates for any Payment Date is the sum
of (x) the amount, if any, by which (i) the
Current Interest for such Class as of the
immediately preceding Payment Date plus any
Interest Carry Forward Amount for such Class
outstanding on such immediately preceding
Payment Date exceeded (ii) the amount of the
actual distribution with respect to interest
made to the Owners of such Class of Offered
Certificates on such immediately preceding
Payment Date plus (y) interest on such
amount calculated for the related Accrual
Period at the related Pass-Through Rate in
effect with respect to such Class of Offered
Certificates.
"Civil Relief Act Shortfalls" are interest
shortfalls resulting from the application of
the Soldiers' and Sailors' Relief Act of
1940, as amended. See "Certain Legal Aspects
of Mortgage Loans and Related Matters -
Soldiers' and Sailors' Civil Relief Act of
1940" in the Prospectus.
For each Payment Date, interest due with
respect to the Group I Certificates (except
the Class A-1 Certificates and Component I
of the Class A-7 Certificates) and the Class
A-8 Certificates will be interest which has
accrued on the related Certificate Principal
Balance during the calendar month
immediately preceding the month in which
such Payment Date occurs. Calculations of
interest on such Certificates will be made
on the basis of a 360-day year assumed to
consist of twelve 30-day months.
The interest due with respect to the Group
II Certificates (except the Class A-8
Certificates), the Class A-1 Certificates
and the Class A-7 Certificates will be the
interest which has accrued thereon at the
applicable Pass-Through Rate from the
preceding Payment Date (or from the Closing
Date in the case of the first Payment Date)
to and including the date prior to the
current Payment Date. Calculations of
interest on such Certificates will be made
on the basis of the actual number of days
elapsed in the accrual period and a 360-day
year.
Each period referred to above relating to
the accrual of interest is the "Accrual
Period" for the related Class of Offered
Certificates.
Interest On each Payment Date, the Interest
Remittance Amount with respect to the
related Group will be distributed in the
following order of priority:
First, to the Trustee, the trustee's fee
(the "Trustee's Fee");
Second, with respect to Group I, the premium
then due to the Group I Insurer (the
"Premium");
S-12
<PAGE> 13
Third, to the Owners of the Class A
Certificates related to such Group, the
related Current Interest plus the related
Interest Carry Forward Amount with respect
to each such Class of Class A Certificates
(including, in the case of the Class A-7
Certificates, the related Current Interest
plus Interest Carry Forward Amount with
respect to the applicable Component of such
Class) without any priority among such Class
A Certificates; provided, that if the
related Interest Remittance Amount (as
defined below) less the related Trustee's
Fee (and less the Premium with respect to
Group I only) (such amount, the related
"Interest Amount Available") is not
sufficient to make a full distribution of
interest with respect to all Classes of the
Class A Certificates within such Group, the
Interest Amount Available will be
distributed among the outstanding Classes of
Class A Certificates within such Group pro
rata based on the aggregate amount of
interest due on each such Class, and the
amount of such shortfall will be carried
forward with accrued interest;
Fourth, with respect to Group II, to the
extent of the Interest Amount Available with
respect to Group II then remaining, to the
Owners of the Class M-1 Certificates, the
Class M-1 Current Interest;
Fifth, with respect to Group II, to the
extent of the Interest Amount Available with
respect to Group II then remaining, to the
Owners of the Class M-2 Certificates, the
Class M-2 Current Interest;
Sixth, with respect to Group II, to the
extent of the Interest Amount Available with
respect to Group II then remaining, to the
Owners of the Class B-1 Certificates, the
Class B-1 Current Interest; and
Seventh, the sum of (x) the amount, if any,
of the Interest Amount Available remaining
in the Certificate Account with respect to
such Group after application with respect to
the priorities set forth above plus (y) the
amount of any Overcollateralization Release
Amount (as defined herein) with respect to
such Group for such Payment Date (such
amounts, together for such Group, the
"Monthly Excess Cashflow Amount" for a
Payment Date) shall be applied as described
below under "Credit Enhancement --
Application of Monthly Excess Cashflow
Amounts" in this Summary.
S-13
<PAGE> 14
The "Interest Remittance Amount" means, with
respect to each Group, as of any Remittance
Date, the sum, without duplication, of (i)
all interest collected, or advanced, by the
Master Servicer during or in respect of the
related Remittance Period on the Mortgage
Loans in such Group (less the Servicing
Fee), (ii) all Compensating Interest paid by
the Master Servicer on such Remittance Date
with respect to such Group, (iii) the
portion of any Loan Purchase Prices and any
Substitution Amount relating to interest
with respect to such Group, (iv) the portion
of any Net Liquidation Proceeds relating to
interest with respect to such Group and (v)
proceeds of any liquidation of the Trust
Estate related to interest and such Group.
Principal GENERAL. The Group I Certificates (other
than the Class A-IO Certificates) and the
Group II Certificates will generally receive
principal distributions on each Payment Date
which are based on principal collections and
Realized Losses (to the extent that Monthly
Excess Cashflow Amounts are available), with
respect to the related Group. In addition,
the overcollateralization feature of the
Trust results in accelerated payments of
principal with respect to each Group to
achieve, and thereafter maintain, a
specified level of overcollateralization
with respect to such Group. Such accelerated
principal will generally be funded from
excess interest with respect to the related
Group.
The Class A-7 Certificates are comprised of
Component I, which is supported by Mortgage
Loans in Group I, and Component II, which is
supported by Mortgage Loans in Group II.
Therefore, the Class A-7 Certificates on
each Payment Date will receive principal
distributions as described above with
respect to Group I as they relate to
Component I together with principal
distributions as described above with
respect to Group II as they relate to
Component II.
With respect to each Group, the following
terms have the following meanings:
"Class A Principal Distribution Amount" as
of any Payment Date means (x) with respect
to Group I, 100% of the Principal
Distribution Amount for Group I and (y) with
respect to Group II (a) prior to the
Stepdown Date with respect to Group II, or
with respect to which a Group II Delinquency
Trigger Event is in effect, 100% of the
Principal Distribution Amount for Group II
and (b) on or after the Stepdown Date with
respect to Group II, and as long as a Group
II Delinquency Trigger Event is not in
effect, an amount equal to (x) the aggregate
Certificate Principal Balance of the Class A
Certificates (including the Component II
Principal Balance), related to Group II
immediately prior to such Payment Date minus
(y) the product of (i) (1) as long as no
Stepup Trigger Event is in effect, 59.00%,
and (2) if any Stepup Trigger Event is in
effect, 57.00% and (ii) the outstanding
Principal Balance of the Mortgage Loans in
Group II as of the last day of the related
Remittance Period.
S-14
<PAGE> 15
"Extra Principal Distribution Amount" means,
for a Group and as of any Payment Date, the
lesser of (x) the Monthly Excess Interest
Amount for such Group and Payment Date, plus
any Monthly Excess Cashflow Amount available
from the other Group and applied in
accordance with the principles described
herein on such Payment Date, and (y) the
Overcollateralization Deficiency for such
Group and Payment Date.
A "Liquidated Loan" is, in general, a
defaulted Mortgage Loan as to which the
Master Servicer has determined that all
amounts that it expects to recover on such
Mortgage Loan have been recovered (exclusive
of any possibility of a deficiency
judgment).
A "Remittance Date" is any date on which
funds on deposit in a principal and interest
account established by the Master Servicer
(the "Principal and Interest Account") are
remitted to the Certificate Account, which
is the 18th day of each month or, if such
day is not a Business Day, the immediately
preceding Business Day, commencing in the
month following the month in which the
Closing Date occurs.
"Overcollateralization Amount" means with
respect to a Group and as of any Payment
Date the difference between (x) the
aggregate Principal Balances of the Mortgage
Loans in such Group as of the close of
business on the last day of the immediately
preceding Remittance Period and (y) the
Certificate Principal Balance of all Classes
of Offered Certificates (including the
applicable Component Principal Balance of
the Class A-7 Certificates) related to such
Group (after taking into account all
distributions of principal on such Payment
Date).
"Overcollateralization Deficiency" means,
for a Group and as of any Payment Date, the
excess, if any, of (x) the Targeted
Overcollateralization Amount for such Group
and Payment Date over (y) the
Overcollateralization Amount for such
Mortgage Loan Group and Payment Date,
calculated for this purpose after taking
into account the reduction on such Payment
Date of the Certificate Principal Balance
(including the applicable Component
Principal Balance of the Class A-7
Certificates) of all Classes of the Offered
Certificates related to such Group resulting
from the distribution of the related
Principal Distribution Amount (but not the
related Extra Principal Distribution Amount)
on such Payment Date, but prior to taking
into account any related Applied Realized
Loss Amount on such Payment Date.
S-15
<PAGE> 16
"Overcollateralization Release Amount"
means, for a Group and as of any Payment
Date, the lesser of (x) the related
Principal Remittance Amount for such Payment
Date and (y) the excess of (i) the related
Overcollateralization Amount for such
Payment Date, assuming that 100% of the
related Principal Remittance Amount is
applied on such Payment Date to the payment
of principal on the Offered Certificates
(including the applicable Component
Principal Balance of the Class A-7
Certificates) related to such Group over
(ii) the Targeted Overcollateralization
Amount for such Group and Payment Date.
"Principal Distribution Amount" means, with
respect to either Group and as of any
Payment Date, the sum of, without
duplication, (i) the Principal Remittance
Amount with respect to such Group minus, for
Payment Dates occurring on and after the
related Stepdown Date, the
Overcollateralization Release Amount, if
any, with respect to such Group, if any,
(ii) the Extra Principal Distribution Amount
with respect to such Group, if any, and
(iii) in the case of Group I only, the Group
I Applied Realized Loss Amount. The
Principal Distribution Amount with respect
to Group I is the "Group I Principal
Distribution Amount." The Principal
Distribution Amount with respect to Group II
is the "Group II Principal Distribution
Amount."
"Principal Remittance Amount" means, for a
Group and as of any Remittance Date, the
sum, without duplication, of (i) the
principal actually collected by the Master
Servicer on the Mortgage Loans in such Group
during the related Remittance Period, (ii)
the Principal Balance of each Mortgage Loan
in such Group that was repurchased from the
Trust during the related Remittance Period,
(iii) any Substitution Amount relating to
principal delivered by the Sponsor in
connection with a substitution of a Mortgage
Loan in such Group during the related
Remittance Period, (iv) all Net Liquidation
Proceeds actually collected by the Master
Servicer during the related Remittance
Period with respect to Mortgage Loans in
such Group (to the extent such Net
Liquidation Proceeds related to principal)
and (v) the proceeds of any liquidation of
the Trust Estate related to such Group (to
the extent such proceeds related to
principal).
The "Remittance Period" with respect to any
Remittance Date is the calendar month
immediately preceding the calendar month in
which the Remittance Date occurs.
"Stepdown Date" means, (i) with respect to
Group I, the date set forth in the Pooling
and Servicing Agreement and (ii) with
respect to Group II, the latest to occur of
(x) the Payment Date in April, 2001, (y) the
date on which principal equal to 50% of the
Group II Original Pool Balance (as defined
herein) has been received by the Trust and
(z) the first Payment Date on which the
Group II Senior Enhancement Percentage
equals (1) as long as no Stepup Trigger
Event is in effect, 41.00%, and (2) if any
Stepup Trigger Event is in effect, 43.00%
and
S-16
<PAGE> 17
"Targeted Overcollateralization Amount"
means:
(A) for Group I, an amount required by the
Group I Insurer pursuant to the Pooling and
Servicing Agreement; and
(B) for Group II and as of any Payment Date,
(x) prior to the Stepdown Date with respect
to Group II and (i) if none of the Stepup
Trigger Events (as defined below) has
occurred and is in effect, 3.00% of the
Group II Original Pool Balance and (ii) if
any of the Stepup Trigger Events has
occurred and is in effect, 4.00% of the
Group II Original Pool Balance, and (y) on
and after the Stepdown Date with respect to
Group II and (i) if none of the Stepup
Trigger Events has occurred and is in
effect, the greater of (1) 6.00% of the
aggregate outstanding Principal Balance of
the Group II Mortgage Loans as of the end of
the related Remittance Period and (2)
$2,000,000 and (ii) if any of the Stepup
Trigger Events has occurred and is in
effect, the greater of (1) 8.00% of the
aggregate outstanding Principal Balance of
the Group II Mortgage Loans as of the end of
the related Remittance Period and (2)
$2,000,000; provided, that if, on and after
the Stepdown Date, both a Group II
Delinquency Trigger Event and a Group II
Cumulative Realized Loss Trigger Event have
occurred and are in effect, the Targeted
Overcollateralization amount shall be equal
to the level thereof immediately prior to
the occurrence of both such events.
A "Stepup Trigger Event" is any of the
following, with respect to any Payment Date
commencing with the second Payment Date: (A)
the Group II Monthly Excess Cashflow Amount
as of such Payment Date (net of any Group II
Realized Loss Amortization Amounts to be
paid on such Payment Date), expressed as an
annualized percentage rate of the aggregate
Principal Balance of the Group II Mortgage
Loans as of the end of the related
Remittance Period is less than 2.00% per
annum, or (B) the percentage obtained by
dividing (x) the aggregate Principal Balance
of Group II Mortgage Loans which are 90 or
more days delinquent as of the end of the
related Remittance Period by (y) the
aggregate Principal Balance of the Group II
Mortgage Loans as of the end of the related
Remittance Period exceeds 10% or (C) the
Group II Delinquency Percentage with respect
to such Payment Date equals or exceeds 50%
of the Group II Senior Enhancement
Percentage.
The "Group II Original Pool Balance" shall
be the aggregate original Principal Balance
of the Mortgage Loans in Group II as of the
Cut-Off Date.
S-17
<PAGE> 18
GROUP I-PRINCIPAL DISTRIBUTIONS. With
respect to Group I and on each Payment Date,
principal will be distributed to the Owners
of the Group I Certificates (other than the
Class A-IO Certificates) (including the
Class A-7 Certificates to the extent of the
Component I Principal Balance) in an amount
equal to the Group I Principal Distribution
Amount, in the following order of priority,
in the amounts set forth below and to the
extent of the Principal Distribution Amount
with respect to Group I as follows:
First, the Group I Principal Distribution
Amount shall be distributed to the Owners of
the Class A-6 Certificates in an amount
equal to the Class A-6 Lockout Distribution
Amount, with the remainder paid to the
Owners of the Class A-1 Certificates until
the Class A-1 Certificate Principal Balance
has been reduced to zero;
Second, the excess of (i) the Group I
Principal Distribution Amount over (ii) the
amount distributed in clause First above
shall be distributed to the Owners of the
Class A-2 Certificates, the Class A-3
Certificates, the Class A-4 Certificates and
the Class A-5 Certificates, sequentially in
that order, until the Certificate Principal
Balance of each Class (in ascending order of
numerical designation) has been reduced to
its Targeted Balance (as set forth in Annex
I hereto) for such Payment Date;
Third, the excess of (i) the Group I
Principal Distribution Amount over (ii) the
amounts distributed in clauses First and
Second above shall be distributed to the
Owners of the Class A-7 Certificates until
the Component I Principal Balance has been
reduced to zero;
Fourth, the excess of (i) the Group I
Principal Distribution Amount over (ii) the
amounts distributed in clauses First, Second
and Third above shall be distributed to the
Owners of the Class A-2 Certificates, the
Class A-3 Certificates, the Class A-4
Certificates and the Class A-5 Certificates,
sequentially in that order, until the
Certificate Principal Balance of each Class
(in ascending order of numerical
designation) has been reduced to zero;
Fifth, the excess of (i) the Group I
Principal Distribution Amount over (ii) the
amounts distributed in clauses First,
Second, Third and Fourth above shall be
distributed to the Owners of the Class A-6
Certificates until the Class A-6 Certificate
Principal Balance has been reduced to zero;
and
Sixth, any amount of the Group I Principal
Distribution Amount remaining after making
all of the distributions in clauses First,
Second, Third, Fourth and Fifth above shall
be distributed as part of the Monthly Excess
Cashflow Amounts with respect to Group I and
shall be applied as described below under
"Credit Enhancement -- Application of
Monthly Excess Cashflow Amounts."
S-18
<PAGE> 19
Notwithstanding the foregoing, on any
Payment Date on which the
Overcollateralization Amount related to
Group I is zero and the Group I Insurer is
in default of its payment obligations under
the Group I Insurance Policy, any amounts of
principal payable to the Owners of the Group
I Certificates (other than the Class A-IO
Certificates) (including the Class A-7
Certificates to the extent of the Component
I Principal Balance) on such Payment Date
shall be distributed pro rata and not in
accordance with the above priorities.
The Owners of the Class A-6 Certificates are
entitled to receive payments of the Class
A-6 Lockout Distribution Amount specified
herein; provided, that if on any Payment
Date, both the Class A-5 Certificate
Principal Balance and the Component I
Principal Balance are zero, the Owners of
the Class A-6 Certificates will be entitled
to receive the entire Group I Principal
Distribution Amount for such Payment Date.
The "Class A-6 Lockout Distribution Amount"
for any Payment Date will be the product of
(i) the applicable Class A-6 Lockout
Percentage for such Payment Date and (ii)
the Class A-6 Lockout Pro Rata Distribution
Amount for such Payment Date.
The "Class A-6 Lockout Percentage" for each
Payment Date is as follows:
Payment Dates Lockout Percentage
April 1998-March 2001 0%
April 2001-March 2003 45%
April 2003-March 2004 80%
April 2004-March 2005 100%
April 2005 and thereafter 300%
In no event shall be Class A-6 Lockout
Distribution Amount for a Payment Date
exceed the Group I Principal Distribution
Amount or the Certificate Principal Balance
of the Class A-6 Certificates.
The "Class A-6 Lockout Pro Rata Distribution
Amount" for any Payment Date will be an
amount equal to the product of (x) a
fraction, the numerator of which is the
Certificate Principal Balance of the Class
A-6 Certificates immediately prior to such
Payment Date and the denominator of which is
the Aggregate Certificate Principal Balance
of all Classes of Group I Certificates
(including the Component I Principal
Balance) immediately prior to such Payment
Date and (y) the Group I Principal
Distribution Amount.
The "Targeted Balance" means, for the Class
A-2 Certificates, the Class A-3
Certificates, the Class A-4 Certificates and
the Class A-5 Certificates, the
predetermined Certificate Principal Balance
for each such Class for each Payment Date,
as set forth Annex I hereto.
S-19
<PAGE> 20
The Class A-IO Certificates are
interest-only certificates and are not
entitled to receive distributions of
principal.
GROUP II-PRINCIPAL DISTRIBUTIONS. With
respect to Group II and on each Payment Date
(a) before the Stepdown Date with respect to
Group II or (b) with respect to which a
Group II Delinquency Trigger Event is in
effect, the Owners of the Class A-8
Certificates and the Class A-7 Certificates
(with respect to Component II) will be
entitled to receive payment of 100% of the
Principal Distribution Amount with respect
to Group II for such Payment Date as
follows: first, to the Owners of the Class
A-8 Certificates, the Class A-8 Lockout
Distribution Amount and then to the Owners
of the Class A-7 Certificates until the
Component II Principal Balance has been
reduced to zero.
With respect to Group II and on each Payment
Date (a) on or after the Stepdown Date with
respect to Group II and (b) as long as a
Group II Delinquency Trigger Event is not in
effect, the Owners of all Classes of the
Group II Certificates will be entitled to
receive payments of principal, in the
following order of priority, in the amounts
set forth below and to the extent of the
Principal Distribution Amount with respect
to Group II, as follows:
First, the lesser of (x) the Group II
Principal Distribution Amount and (y) the
Class A Principal Distribution Amount with
respect to Group II shall be distributed to
the Owners of the Class A-8 Certificates, in
an amount equal to the Class A-8 Lockout
Distribution Amount, with the remainder paid
to the Owners of the Class A-7 Certificates
until the Component II Principal Balance of
the Class A-7 Certificates has been reduced
to zero;
Second, the lesser of (x) the excess of (i)
the Group II Principal Distribution Amount
over (ii) the amount distributed in clause
First above and (y) the Class M-1 Principal
Distribution Amount shall be distributed to
the Owners of the Class M-1 Certificates,
until the Class M-1 Certificate Principal
Balance has been reduced to zero;
Third, the lesser of (x) the excess of (i)
the Group II Principal Distribution Amount
over (ii) the sum of the amount distributed
in clause First above and the amount
distributed in clause Second above and (y)
the Class M-2 Principal Distribution Amount
shall be distributed to the Owners of the
Class M-2 Certificates, until the Class M-2
Certificate Principal Balance has been
reduced to zero;
S-20
<PAGE> 21
Fourth, the lesser of (x) the excess of (i)
the Group II Principal Distribution Amount
over (ii) the sum of the amount distributed
in clause First above, the amount
distributed in clause Second above and the
amount distributed in clause Third above and
(y) the Class B-1 Principal Distribution
Amount shall be distributed to the Owners of
the Class B-1 Certificates, until the Class
B-1 Certificate Principal Balance has been
reduced to zero;
Fifth, the lesser of (x) any amount of the
Group II Principal Distribution Amount
remaining after making all of the
distributions in clauses First, Second,
Third and Fourth above and (y) the positive
difference, if any, of (A) $2,000,000 minus
(B) the Targeted Overcollateralization
Amount for Group II for such Payment Date,
shall be applied as a payment of principal
with respect to the Subordinate Certificates
in reverse order of seniority (ie., first to
the Class B-1 Certificates, second to the
Class M-2 Certificates, third to the Class
M-1 Certificates and fourth, to the Class
A-8 Certificates and the Class A-7
Certificates (but only with respect to
Component II) until their respective
Certificate Principal Balances have been
reduced to zero; and
Sixth, any amount of the Group II Principal
Distribution Amount remaining after making
all of the distributions in clauses First,
Second, Third, Fourth and Fifth above shall
be distributed as part of the Monthly Excess
Cashflow Amounts with respect to Group II
and shall be applied as described below
under "Credit Enhancement -- Application of
Monthly Excess Cashflow Amounts" in this
Summary.
Notwithstanding the foregoing, in the event
that, on any Payment Date, the Certificate
Principal Balance of the Class A-8
Certificates and the Component II Principal
Balance of the Class A-7 Certificate are
zero, all amounts of principal that would
have been distributed to such Certificates
on such Payment Date will be distributed to
the Subordinate Certificates sequentially in
the following order: first, to the Class M-1
Certificates until the Certificate Principal
Balance of the Class M-1 Certificates has
been reduced to zero, second, to the Class
M-2 Certificates until the Certificate
Principal Balance of the Class M-2
Certificates has been reduced to zero, and
third, to the Class B-1 Certificates until
the Certificate Principal Balance of the
Class B-1 Certificates has been reduced to
zero.
Notwithstanding the foregoing, on any
Payment Date on which the sum of the
Certificate Principal Balance of the
Subordinate Certificates and the
Overcollateralization Amount related to
Group II is zero, any amounts of principal
payable to the Owners of the Group II
Certificates on such Payment Date shall be
distributed pro rata and not in accordance
with the above priorities.
S-21
<PAGE> 22
The Owners of the Class A-8 Certificates are
entitled to receive payments of the Class
A-8 Lockout Distribution Amount specified
herein; provided, that if on any Payment
Date the Component II Principal Balance is
zero, the Owners of the Class A-8
Certificates will be entitled to receive the
entire Class A Principal Distribution Amount
with respect to Group II for such Payment
Date.
The "Class A-8 Lockout Distribution Amount"
for any Payment Date will be the product of
(i) the applicable Class A-8 Lockout
Percentage for such Payment Date and (ii)
the Class A-8 Lockout Pro Rata Distribution
Amount for such Payment Date.
The "Class A-8 Lockout Percentage" for each
Payment Date is as follows:
<TABLE>
<CAPTION>
Payment Dates Lockout Percentage
------------- ------------------
<S> <C>
April 1998 - December 1999 0%
January 2000 - May 2003 500%
June 2003 and thereafter 100%
</TABLE>
In no event shall the Class A-8 Lockout
Distribution Amount for a Payment Date
exceed the Class A Principal Distribution
Amount with respect to Group II for such
Payment Date or the Certificate Principal
Balance of the Class A-8 Certificates.
The "Class A-8 Lockout Pro Rata Distribution
Amount" for any Payment Date will be an
amount equal to the product of (x) a
fraction, the numerator of which is the
Certificate Principal Balance of the Class
A-8 Certificates immediately prior to such
Payment Date and the denominator of which is
the Aggregate Certificate Principal Balance
of all Classes of the Class A Certificates
relating to Group II (including the
Component II Principal Balance of the Class
A-7 Certificates) immediately prior to such
Payment Date and (y) the Class A Principal
Distribution Amount with respect to Group II
for such Payment Date.
A "Group II Delinquency Trigger Event" has
occurred with respect to Group II and any
Payment Date on or after the Stepdown Date
with respect to Group II if the Group II 60+
Delinquency Percentage with respect to such
Payment Date equals or exceeds 40% of the
Group II Senior Enhancement Percentage.
The "Group II 60+ Delinquency Percentage"
for any Payment Date is the percentage
obtained by dividing (x) the aggregate
Principal Balance of Mortgage Loans in Group
II that are sixty days or more delinquent as
of the end of the related Remittance Period
by (y) the aggregate outstanding Principal
Balance of the Mortgage Loans in Group II as
of the last day of the immediately preceding
Remittance Period.
S-22
<PAGE> 23
A "Group II Cumulative Realized Loss Trigger
Event" has occurred on any date of
determination if the amount of Group II
Cumulative Realized Losses expressed as a
percentage of the Group II Original Pool
Balance on any date of determination equals
or exceeds the percentage for such date set
below:
<TABLE>
<CAPTION>
Cumulative Loss
Date Percentage
---- ----------
<S> <C>
April 1998 - October 1999 0.75%
November 1999 - March 2000 1.65%
April 2000 - March 2001 2.10%
April 2001 - March 2002 3.60%
April 2002 - March 2003 4.50%
April 2003 and thereafter 4.75%
</TABLE>
"Class M-1 Principal Distribution Amount"
means, with respect to Group II and as of
any Payment Date on or after the Stepdown
Date with respect to Group II and as long as
a Group II Delinquency Trigger Event is not
effect, the excess of (x) the sum of (i) the
Class A-8 Certificate Principal Balance plus
the Component II Principal Balance (after
taking into account the payment of the Class
A Principal Distribution Amount for Group II
on such Payment Date) and (ii) the Class M-1
Certificate Principal Balance immediately
prior to such Payment Date over (y) the
product of (i) as long as no Stepup Trigger
Event is in effect, 72.00%, or if any Stepup
Trigger Event is in effect, 70.00% and (ii)
the outstanding Principal Balance of the
Mortgage Loans in Group II as of the last
day of the related Remittance Period.
"Class M-2 Principal Distribution Amount"
means, with respect to Group II and as of
any Payment Date on or after the Stepdown
Date with respect to Group II, and as long
as a Group II Delinquency Trigger Event is
not effect, the excess of (x) the sum of (i)
the Class A-8 Certificate Principal Balance
plus the Component II Principal Balance
(after taking into account the payment of
the Class A Principal Distribution Amount
for Group II on such Payment Date), (ii) the
Class M-1 Certificate Principal Balance
(after taking into account the payment of
the Class M-1 Principal Distribution Amount
on such Payment Date) and (iii) the Class
M-2 Certificate Principal Balance
immediately prior to such Payment Date over
(y) the product of (i) as long as no Stepup
Trigger Event is in effect 83.50%, or if any
Stepup Trigger Event is in effect, 81.50%
and (ii) the outstanding aggregate Principal
Balance of the Mortgage Loans in Group II as
of the last day of the related Remittance
Period.
S-23
<PAGE> 24
"Class B-1 Principal Distribution Amount"
means, with respect to Group II and as of
any Payment Date on or after the Stepdown
Date with respect to Group II, and as long
as a Group II Delinquency Trigger Event is
not effect, the excess of (x) the sum of (i)
the Class A-8 Certificate Principal Balance
plus the Component II Principal Balance
(after taking into account the payment of
the Class A Principal Distribution Amount
for Group II on such Payment Date), (ii) the
Class M-1 Certificate Principal Balance
(after taking into account the payment of
the Class M-1 Principal Distribution Amount
on such Payment Date), (iii) the Class M-2
Certificate Principal Balance (after taking
into account the payment of the Class M-2
Principal Distribution Amount on such date)
and (iv) the Class B-1 Certificate Principal
Balance immediately prior to such Payment
Date over (y) the product of (i) as long as
no Stepup Trigger Event is in effect 94.00%,
or, if any Stepup Trigger Event is in
effect, 92.00% and (ii) the outstanding
aggregate Principal Balance of the Mortgage
Loans in Group II as of the last day of the
related Remittance Period.
"Group II Senior Enhancement Percentage"
with respect to any Payment Date is the
percentage obtained by dividing (x) the sum
of (i) the aggregate Certificate Principal
Balance of the Subordinate Certificates and
(ii) the Group II Overcollateralization
Amount, in each case after taking into
account the distribution of the Group II
Principal Distribution Amount on such
Payment Date by (y) the aggregate Principal
Balance of the Mortgage Loans in Group II as
of the last day of the related Remittance
Period.
"Group II Senior Specified Enhancement
Percentage" means, on any date of
determination thereof, (1) if no Stepup
Trigger Event is in effect, 41.00% or (2) if
any Stepup Trigger Event is in effect,
43.00%.
In addition to the terms defined above, the
discussion below makes use of a number of
defined terms which are defined under
"Description of the Offered Certificates
-- Distributions" herein.
Credit Enhancement GROUP II. The Credit Enhancement provided
for the benefit of the Owners of the Class A
Group II Certificates (including, Component
II of the Class A-7 Certificates) consists
of the subordination of the Subordinate
Certificates, the priority of application of
Realized Losses, the application of the
Group II Monthly Excess Cashflow Amounts and
the cross-collateralization feature of the
Trust.
The initial aggregate Certificate Principal
Balance of the Subordinate Certificates will
equal 17.50% of the initial Aggregate
Certificate Principal Balance of the Group
II Certificates (including the initial
Component II Principal Balance). The
Subordinate Certificates provide credit
enhancement only for Group II.
S-24
<PAGE> 25
GROUP I. The Credit Enhancement provided for
the benefit of the Owners of the Group I
Certificates (including Component I of the
Class A-7 Certificates) consists of the
Group I Insurance Policy, the application of
the Group I Monthly Excess Cashflow Amounts
and the cross-collateralization feature of
the Trust. The Group I Certificates
(including Component II of the Class A-7
Certificates) will have the benefit of
certain levels of overcollateralization as
required by the Group I Insurer.
Application of Realized Losses (Group I and
Group II). The Pooling and Servicing
Agreement provides that if a Mortgage Loan
becomes a Liquidated Loan during a
Remittance Period, the Net Liquidation
Proceeds relating thereto and allocated to
principal may be less than the Principal
Balance of such Mortgage Loan. The amount of
such insufficiency is a "Realized Loss."
Realized Losses which occur in a Group will,
in effect, be absorbed first, by the Class R
Certificates (both through the application
of the Monthly Excess Cashflow Amount to
fund such deficiency and through a reduction
in the related Overcollateralization
Amount). In the case of Group II, any
remaining deficiency after absorption by the
Class R Certificates will be absorbed,
second, by the Owners of the Class B-1
Certificates, third, by the Owners of the
Class M-2 Certificates, and, fourth, by the
Owners of the Class M-1 Certificates. In the
case of Group I, any remaining deficiency
after absorption by the Class R Certificates
will be covered by the Group I Insurance
Policy to the extent of the Applied Realized
Loss Amount for Group I.
To the extent that a Group experiences
Realized Losses, such Realized Losses will
reduce the aggregate outstanding Principal
Balance of the Mortgage Loans in such Group
(i.e., a reduction in the collateral balance
will occur). Since the Overcollateralization
Amount with respect to a Group is the
excess, if any, of the related collateral
balance over the related Aggregate
Certificate Principal Balance, Realized
Losses, to the extent experienced, will in
the first instance reduce the related
Overcollateralization Amount.
The Pooling and Servicing Agreement requires
that the Overcollateralization Amount with
respect to a Group be initially increased
to, and thereafter maintained at, the
related Targeted Overcollateralization
Amount. This increase and subsequent
maintenance is intended to be accomplished
by the application of Monthly Excess
Cashflow Amounts to the funding of the
related Extra Principal Distribution Amount.
Such Extra Principal Distribution Amounts,
since they are funded from interest
collections on the collateral but are
distributed as principal on the Offered
Certificates, will increase the related
Overcollateralization Amount.
S-25
<PAGE> 26
If, on any Payment Date and with respect to
either Group, after taking into account all
Realized Losses experienced with respect to
such Group during the prior Remittance
Period and after taking into account the
distribution of principal (including the
Extra Principal Distribution Amount) with
respect to the related Certificates on such
Payment Date, the Aggregate Certificate
Principal Balance with respect to the
related Group exceeds the aggregate
Principal Balance of the Mortgage Loans in
the related Group as of the end of the
related Remittance Period (i.e., if the
level of overcollateralization is negative),
such excess is an "Applied Realized Loss
Amount" with respect to the related Group.
In the case of Group II, such an Applied
Realized Loss Amount will be applied as a
reduction in the Certificate Principal
Balance of the Subordinate Certificates in
reverse order of seniority (i.e., first,
against the Class B-1 Certificate Principal
Balance until it is reduced to zero, second,
against the Class M-2 Certificate Balance
until it is reduced to zero and finally,
against the Class M-1 Certificate Principal
Balance until it is reduced to zero). In the
case of Group I, the Trustee will make a
claim under the Group I Insurance Policy
with respect to an Applied Realized Loss
Amount with respect to Group I. The Pooling
and Servicing Agreement does not permit the
"write down" of the Certificate Principal
Balance of any Class A Certificate.
Once the Certificate Principal Balance of a
Class of Subordinate Certificates has been
"written down," the amount of such write
down will no longer bear interest, nor will
such amount thereafter be "reinstated" or
"written up," although the amount of such
write down may, on future Payment Dates be
paid to Owners of the Subordinate
Certificates which experienced the write
down, in direct order of seniority (i.e.,
first, the Class M-1 Certificates, second,
the Class M-2 Certificates and, third, the
Class B-1 Certificates). The source of
funding of such payments will be the amount,
if any, of the Monthly Excess Cashflow
Amount remaining on such future Payment
Dates after the funding of the Extra
Principal Distribution Amount and after the
payment of Interest Carry Forward Amounts,
if any, with respect to the Subordinate
Certificates on such Payment Date.
S-26
<PAGE> 27
Application of Monthly Excess Cashflow
Amounts -- Overcollateralization Mechanics
(Group I and Group II). The weighted average
net coupon rate ("Coupon Rate") for the
Mortgage Loans in each Group is generally
expected to be higher than the weighted
average of the Pass-Through Rates on the
Offered Certificates related to such Group,
thus generating certain excess interest
collections which, in the absence of losses
on the Mortgage Loans will not be necessary
to fund interest distributions on the
Offered Certificates. The Pooling and
Servicing Agreement provides that this
excess interest be applied to the extent
available, to make accelerated payments of
principal (i.e., the Extra Principal
Distribution Amount) to the Class or Classes
then entitled to receive distributions of
principal; such application will cause the
Aggregate Certificate Principal Balance with
respect to a Group to amortize more rapidly
than the Mortgage Loans in such Group,
resulting in overcollateralization. This
excess interest for a Remittance Period and
with respect to a Group, together with
interest on the related
Overcollateralization Amount itself, on the
related Payment Date is the "Monthly Excess
Interest Amount" for such Payment Date and
Group.
The required level of overcollateralization
for any Group and Payment Date is the
"Targeted Overcollateralization Amount" for
such Group and Payment Date. The Targeted
Overcollateralization Amount is initially
(i.e., prior to the related Stepdown Date)
$12,000,000 with respect to Group II and,
with respect to Group I, an amount required
by the Group I Insurer. Because the actual
level of the Overcollateralization Amount
with respect to each Group as of the Closing
Date is less than the related Targeted
Overcollateralization Amount, in the early
months of the transaction, subject to the
availability of Monthly Excess Cashflow
Amounts, Extra Principal Distribution
Amounts will be paid, with the result that
the Overcollateralization Amount with
respect to each Group will increase to the
level of the related Targeted
Overcollateralization Amount.
If, once the Targeted Overcollateralization
Amount with respect to each Group has been
reached, Realized Losses occur in such
Group, such Realized Losses will result in
an Overcollateralization Deficiency (since
such Realized Losses reduce the Principal
Balance of the related Mortgage Loans
without giving rise to a corresponding
reduction of the related Aggregate
Certificate Principal Balance). The cashflow
priorities of the Trust require that, in
this situation, an Extra Principal
Distribution Amount be paid (subject to the
availability of any Monthly Excess Cashflow
Amount) for the purpose of re-establishing
the Overcollateralization Amount at the then
required Targeted Overcollateralization
Amount.
S-27
<PAGE> 28
On and after the related Stepdown Date, the
Targeted Overcollateralization Amount with
respect to Group I and Group II,
respectively, is permitted to decrease or
"step-down" below their initial levels
(which, in the case of Group II is
$12,000,000, and which, in the case of Group
I, is an amount required by the Group I
Insurer), subject to certain limitations as
described in the definition of Targeted
Overcollateralization Amount.
If the Targeted Overcollateralization Amount
with respect to each Group is permitted to
"stepdown" on a Payment Date, the Pooling
and Servicing Agreement permits a portion of
the related Principal Remittance Amount for
such Payment Date not to be passed through
as a distribution of principal on such
Payment Date. This has the effect of
decelerating the amortization of the Offered
Certificates with respect to each Group
relative to the aggregate outstanding
Principal Balance of the Mortgage Loans,
thereby reducing the actual level of the
related Overcollateralization Amount to the
new, lower Targeted Overcollateralization
Amount. This portion of the related
Principal Remittance Amount not distributed
as principal on the related Certificates
therefore releases overcollateralization
from the Trust with respect to the related
Group. The amount of such releases are the
related "Overcollateralization Release
Amounts."
A. On any Payment Date, the sum of the
Group I Monthly Excess Interest Amount
and the Group I Overcollateralization
Release Amount is the Group I Monthly
Excess Cashflow Amount, which is
required to be applied in the following
order of priority on such Payment Date:
(1) to fund any remaining Class A Interest
Carry Forward Amount, if any, with
respect to Group I;
(2) to reimburse the Group I Insurer for
prior, unreimbursed Insured Payments;
(3) to fund the Overcollateralization
Deficiency, if any, for such Payment
Date with respect to Group I;
(4) to reimburse the Group I Insurer for
any amounts due and owing to the Group
I Insurer under the Insurance
Agreement;
(5) to fund any unpaid Current Interest
with respect to the Group II
Certificates (including Component II of
the Class A-7 Certificates) and amounts
with respect to Group II listed in
clauses B(1) through B(8) below for
such Payment Date to the extent that
such amounts have not been funded in
full through the application of Group
II Monthly Excess Cashflow Amounts on
such Payment Date;
S-28
<PAGE> 29
(6) to the Master Servicer to the extent of
any unreimbursed Delinquency Advances
or Servicing Advances including
Nonrecoverable Delinquency Advances and
Nonrecoverable Servicing Advances; and
(7) to make payment of any Supplemental
Interest Amount then due to the Owners
of the Group I Certificates (including
the Class A-7 Certificates with respect
to Component I);
(8) to fund a distribution to Owners of the
Class R Certificates.
B. On any Payment Date, the sum of the
Group II Monthly Excess Interest Amount
and the Group II Overcollateralization
Release Amount is the Group II Monthly
Excess Cashflow Amount, which is
required to be applied in the following
order of priority on such Payment Date:
(1) to fund any remaining Class A Interest
Carry Forward Amount, if any, with
respect to Group II;
(2) to fund the Overcollateralization
Deficiency, if any, for such Payment
Date with respect to Group II;
(3) to fund the Class M-1 Interest Carry
Forward Amount, if any;
(4) to fund the Class M-1 Realized Loss
Amortization Amount for such Payment
Date, if any;
(5) to fund the Class M-2 Interest Carry
Forward Amount, if any;
(6) to fund the Class M-2 Realized Loss
Amortization Amount for such Payment
Date, if any;
(7) to fund the Class B-1 Interest Carry
Forward Amount, if any;
(8) to fund the Class B-1 Realized Loss
Amortization Amount for such Payment
Date, if any;
(9) to fund any unpaid Current Interest
with respect to the Group I
Certificates (including Component I of
the Class A-7 Certificates) and amounts
with respect to Group I listed in
clauses A(1), (2), (3) and (4) above
for such Payment Date to the extent
that such amounts have not been funded
in full through the application of
Group I Monthly Excess Cashflow Amounts
on such Payment Date; and
S-29
<PAGE> 30
(10) to the Master Servicer to the extent of
any unreimbursed Delinquency Advances
or Servicing Advances including
Nonrecoverable Delinquency Advances and
Nonrecoverable Servicing Advances;
(11) to make payment of any Supplemental
Interest Amount then due to the Owners
of the Group II Certificates (including
the Class A-7 Certificates with respect
to Component II);
(12) to fund a distribution to Owners of the
Class R Certificates.
Subordination of Subordinate Certificates
(Group II). With respect to Group II, the
rights of the Owners of the Subordinate
Certificates and the Class R Certificates to
receive distributions with respect to the
Mortgage Loans in Group II will be
subordinated, to the extent described
herein, to such rights of the Owners of the
Class A Certificates in Group II. This
subordination is intended to enhance the
likelihood of regular receipt by the Owners
of the Class A Certificates in Group II of
the full amount of their scheduled monthly
payment of interest and principal and to
afford such Owners protection against
Realized Losses allocated against Group II.
The protection afforded to the Owners of the
Class A Certificates in Group II by means of
the subordination of the Subordinate
Certificates and the Class R Certificates
will be accomplished by the preferential
right of the Owners of the Class A
Certificates in Group II to receive, prior
to any distribution being made on a Payment
Date in respect of such Subordinate
Certificates and the Class R Certificates,
the amounts of interest due them and
principal available for distribution on such
Payment Date, and, if necessary, by the
right of the Owners of the Class A
Certificates in Group II to receive future
distributions of amounts that would
otherwise be payable to the Owners of such
Subordinate Certificates and the Class R
Certificates.
In addition, the rights of the Owners of the
Class M-2, Class B-1 and Class R
Certificates to receive distributions will
be subordinated, to the extent described
herein, to such rights of the Owners of the
Class A Certificates in Group II and Class
M-1 Certificates. This subordination is
intended to enhance the likelihood of
regular receipt by the Owners of the Class A
Certificates in Group II and the Class M-1
Certificates of the amount of interest due
them and principal available for
distribution and to afford such Owners with
protection against Realized Losses.
S-30
<PAGE> 31
The rights of the Owners of the Class B-1
and the Class R Certificates to receive
distributions will be subordinated in the
same manner to such rights of the Owners of
the Class A Certificates in Group II, Class
M-1 and Class M-2 Certificates and the
rights of Owners of the Class R Certificates
to receive distributions will be
subordinated in the same manner to such
rights of the Owners of the Group II
Certificates.
The Group I Insurance Policy. The Sponsor
will obtain a certificate guaranty insurance
policy (the "Group I Insurance Policy"),
with respect to the Group I Certificates
(including Component I of the Class A-7
Certificates) which is noncancelable, in
favor of the Trustee on behalf of the Owners
of such Certificates. On each Payment Date,
the Group I Insurer will be required to make
available to the Trustee the amount, if any,
by which the Required Distributions (as
defined in the Group I Insurance Policy)
exceed the Net Available Distribution Amount
as of such Payment Date. The Group I
Insurance Policy does not guarantee to
Owners of such Certificates any specified
rate of prepayments. The Group I Insurance
Policy does not cover any Civil Relief Act
Shortfalls or any Supplemental Interest
Amounts. See "The Group I Insurance Policy"
and "Credit Enhancement" herein and
"Description of Credit Enhancement" in the
Prospectus.
"Net Available Distribution Amount" means,
with respect to any Payment Date, the sum of
(i) the amount on deposit in the Certificate
Account on such Payment Date with respect to
Group I, minus the Trustee's Fee with
respect to Group I and minus the Premium
then due to the Group I Insurer, plus (ii)
any Monthly Excess Cashflow Amount available
from Group II, disregarding the amount of
any Insured Payment to be made on such
Payment Date.
The Subordinate Certificates do not support
the Group I Certificates (including
Component I of the Class A-7 Certificates)
and the Group I Insurance Policy does not
guarantee any payments of principal and
interest with respect to the Group II
Certificates (including Component II of the
Class A-7 Certificates).
S-31
<PAGE> 32
Nature of Class A-IO Certificates: General Character as an Interest-Only
Security. As the owners of interest-only
strip securities, the Owners of the Class
A-IO Certificates will be entitled to
receive monthly distributions only of
interest, as described herein. Because they
will not receive any distributions of
principal, the Owners of the Class A-IO
Certificates will be affected by
prepayments, liquidations and other
dispositions (including optional redemptions
described herein) of the Mortgage Loans in
Group I to a greater degree than will the
Owners of the other Classes of Group I
Certificates. In addition, the Notional
Principal Balance applicable to interest
calculations on the Class A-IO Certificates
is (x) through the 30th Payment Date, the
Class A-6 Certificate Principal Balance and
(y) thereafter, zero. Because the Class A-6
Certificates will amortize in accordance
with the distribution of the Class A-6
Lockout Distribution Amount, the performance
of the Class A-IO Certificates is likely to
be more stable than if such Notional
Principal Balance were calculated based on
the amortization of the underlying Group I
Mortgage Loans directly, and consequently,
the yield sensitivity of such Certificates
will only be impacted at extremely high
prepayment rates. In addition, since the
Group I Statistic Calculation Pool contains
7,153 Mortgage Loans, the prepayment
experience of any one of the Group I
Mortgage Loans will not be material to an
investor's overall return.
In general, losses due to limitations,
repurchases by the Master Servicer and other
dispositions of the Group I Mortgage Loans
from the Trust will have the same effect on
the Owners of the Class A-IO Certificates as
do prepayments of principal and are
collectively referred to as "Prepayments."
Because the yield to the Owners of the Class
A-IO Certificates is more sensitive to rates
of prepayment, it is advisable for potential
investors in the Class A-IO Certificates to
consider carefully, and to make their own
evaluation of, the effect of any particular
assumption regarding the rates and the
timing of prepayments. In general, when
interest rates decline, prepayments in a
pool of receivables such as the Group I
Mortgage Loans will increase as borrowers
seek to refinance at lower rates. Because,
however, the amortization of the Class A-IO
Certificates is tied to the Notional
Principal Balance, and the Notional
Principal Balance will amortize in
accordance with the distribution of the
Class A-6 Lockout Distribution Amount, the
prepayment scenarios described above are
mitigated and the performance of the Class
A-IO Certificates is expected to be more
stable and the yield sensitivity of such
Certificates will only be impacted at
extremely high prepayment rates. See
"Prepayment and Yield Considerations --
Yield Sensitivity of the Class A-IO
Certificates" herein for other factors which
may also influence prepayment rates.
S-32
<PAGE> 33
Applicability of Credit Enhancement to the
Class A-IO Certificates. With respect to
Group I, as described above under "Credit
Enhancement," the Trust includes provisions
which subordinate the distributions on the
Class R Certificates for each Payment Date
for the purpose, inter alia, of funding the
full amount used on each Class of the Class
A Certificates in Group I, including the
Class A-IO Certificates, on each Payment
Date.
In general, the protection afforded by such
subordination and overcollateralization
features is for credit risk and not for
prepayment risk. These features do not
guarantee or insure that any particular rate
of prepayment is experienced by the Trust.
If the entire pool of Group I Mortgage Loans
were to prepay in the initial month, with
the result that the Owners of the Class A-IO
Certificates receive only a single month's
interest and thus suffer a nearly complete
loss on their investments, no amounts would
be available from the overcollateralization
feature to mitigate such loss.
Accrual of "Original Issue Discount." The
Class A-IO Certificates will be issued with
"original issue discount" within the meaning
of the Code. As a result, in certain rapid
prepayment environments the effect of the
rules governing the accrual of original
issue discount may require Owners of the
Class A-IO Certificates to accrue original
issue discount at a rate in excess of the
rate at which distributions are received by
such Owners. See "Certain Federal Income Tax
Consequences" herein and in the Prospectus.
Delinquency Advances, The Master Servicer will be obligated to
Compensating Interest make Delinquency Advances to the extent that
and Servicing Advances the Master Servicer's reasonable judgment,
are recoverable such Delinquency Advances,
in from the related Mortgage Loan.
Delinquency Advances are recoverable from
(i) future collections on the Mortgage Loan
which gave rise to the Delinquency Advance,
(ii) Liquidation Proceeds for such Mortgage
Loan and (iii) from certain excess cash
flows not applied for any other purpose.
"Delinquency Advances" are amounts deposited
in the Principal and Interest Account by the
Master Servicer equal to the sum of the
interest portions (net of the Servicing Fees
and certain other administrative amounts, if
any) due, but not collected with respect to
delinquent Mortgage Loans during the related
Remittance Period. No Delinquency Advance
will be required to be made by the Master
Servicer if, in the good faith judgment of
the Master Servicer, such Delinquency
Advance would not ultimately be recoverable
from the related Mortgage Loan (any such
advance, a "Nonrecoverable Delinquency
Advance"); and if previously made by the
Master Servicer, a Nonrecoverable
Delinquency Advance will be reimbursable
from any amounts in the Principal and
Interest Account prior to any distributions
being made to Certificateholders.
S-33
<PAGE> 34
The Master Servicer will also be obligated
to make advances with respect to certain
taxes and insurance premiums not paid by
Mortgagors on a timely basis. No Servicing
Advance will be required to be made by
Master Servicer, if in the good faith
judgment of the Master Servicer, such
Servicing Advance would not be recoverable
from the related Mortgage Loan (any such
advance, a "Nonrecoverable Servicing
Advance"); and if previously made by the
Master Servicer, a Nonrecoverable Servicing
Advance will be reimbursable from any
amounts in the Principal and Interest
Account prior to any distribution being made
to Certificateholders.
In addition, the Master Servicer will also
be required to deposit Compensating Interest
in the Principal and Interest Account with
respect to any full Prepayment received on a
Mortgage Loan during the related Remittance
Period out of its own funds without any
right of reimbursement therefor.
"Compensating Interest" is an amount equal
to the difference between (x) 30 days'
interest at the Mortgage Loan's Coupon Rate
on the Principal Balance as of the first day
of the related Remittance Period and (y) to
the extent not previously advanced, the
interest paid by the Mortgagor with respect
to the Mortgage Loan. The Master Servicer
will not be required to pay Compensating
Interest with respect to any Remittance
Period in an amount in excess of the
aggregate Servicing Fee received by the
Master Servicer for such Remittance Period.
Book-Entry Registration of the The Offered Certificates will initially be
Offered Certificates issued in book-entry form. Persons
acquiring beneficial ownership interests in
such Offered Certificates ("Beneficial
Owners") may elect to hold their interests
through DTC, in the United States, or CEDEL
or Euroclear in Europe. Transfers within
DTC, CEDEL or Euroclear, as the case may be,
will be in accordance with the rules and
operating procedures of the relevant system.
See "Description of the Offered Certificates
-- Book-Entry Registration of the Offered
Certificates" herein, and "Description of
the Certificates -- Book-Entry Registration"
in the Prospectus.
Servicing Fee Advanta Mortgage Corp. USA will retain a
Servicing Fee equal to 0.50% per annum.
Optional Termination The Master Servicer, acting directly or
through a permitted designee, will have the
right to purchase from the Trust all the
Mortgage Loans then held by the Trust at a
price at least equal to par plus accrued
interest net of the Servicing Fee and any
amounts owed to the Master Servicer plus
amounts owed to the Group I Insurer, on any
Remittance Date after the Remittance Period
during which the outstanding aggregate
principal balances of the Mortgage Loans in
the Trust had declined to 10% or less of the
Original Pool Balance. The first such
Remittance Date on which such option may be
exercised is the "Clean-up Call Date."
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<PAGE> 35
Ratings It is a condition to the issuance of the
Offered Certificates that each Class of the
Offered Certificates receive ratings from
Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Corporation ("Standard &
Poor's") and Fitch IBCA Inc. ("Fitch") as
set forth below:
<TABLE>
<CAPTION>
Standard Fitch
Moody's & Poor's
Class Rating Rating Rating
--------------------------------------------
<S> <C> <C> <C>
Class A-1 Aaa AAA AAA
Class A-2 Aaa AAA AAA
Class A-3 Aaa AAA AAA
Class A-4 Aaa AAA AAA
Class A-5 Aaa AAA AAA
Class A-6 Aaa AAA AAA
Class A-IO Aaa AAAr AAA
Class A-7 Aaa AAA AAA
Class A-8 Aaa AAA AAA
Class M-1 Aa2 AA AA
Class M-2 A A A
Class B-1 Baa2 BBB BBB
</TABLE>
A security rating is not a recommendation to
buy, sell or hold securities, and may be
subject to revision or withdrawal at any
time by the assigning entity. The "r" of the
"AAAr" rating of the Class A-IO Certificates
by Standard & Poor's is attached to
highlight derivative, hybrid, and certain
other obligations that Standard & Poor's
believes may experience high volatility or
high variability in expected returns due to
non-credit risks. The ratings do not address
the likelihood of the payment of, any
Supplemental Interest Amounts. See
"Prepayment and Yield Considerations" and
"Ratings" herein.
Federal Tax Aspects For federal income tax purposes, an election
will be made to treat certain assets of the
Trust as one or more REMICs. Each of the
Offered Certificates will be comprised of a
"regular interest" in a REMIC and the right
to receive Supplemental Interest Payments,
which right has the tax characteristics
described herein. A class of Class R
Certificates will be designated as the
"residual interest" with respect to each
REMIC election made by the Trust. See
"Certain Federal Income Tax Consequences"
herein and in the Prospectus.
ERISA Considerations The Class A Certificates may be purchased
by employee benefit plans that are subject
to ERISA. The Subordinate Certificates
may not be purchased by employee benefit
plans that are subject to ERISA except as
provided herein. See "ERISA Considerations"
herein and in the Prospectus.
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<PAGE> 36
Legal Investment The Offered Certificates will not constitute
Considerations "mortgage related securities" for purposes
of the Secondary Mortgage Market Enhancement
Act of 1984 ("SMMEA"). In addition,
institutions whose activities are subject to
review by federal or state regulatory
authorities may be or may become subject to
restrictions, which may be retroactively
imposed by such regulatory authorities, on
the investment by such institutions in
certain forms of mortgage related
securities. All investors whose investment
authority is subject to legal restrictions
should consult their own legal advisors to
determine whether, and to what extent, the
Offered Certificates will constitute legal
investments for them.
Certain Legal Matters Certain legal matters relating
to the validity of the issuance of the
Certificates will be passed upon by Dewey
Ballantine LLP, New York, New York.
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<PAGE> 37
RISK FACTORS
Prospective investors in the Offered Certificates should consider the
following factors, as well as the factors set forth under "Risk Factors" in the
Prospectus, in connection with the purchase of the Offered Certificates.
RISK OF COUPON RATES OF MORTGAGE LOANS REDUCING THE PASS-THROUGH RATE
ON CERTAIN OF THE OFFERED CERTIFICATES.
Group I Certificates. The Class A-1 Certificates are floating rate
certificates with a Formula Pass-Through Rate based on one-month LIBOR plus a
margin (subject to the Group I Available Funds Cap Rate), although the Mortgage
Loans which support the Class A-1 Certificates are the Group I Mortgage Loans,
all of which bear fixed rates of interest. As a result of being a LIBOR-based
certificate issued against fixed rate loans, the Class A-1 Pass-Through Rate may
be relatively likely to be subject to the limitation imposed by the Group I
Available Funds Cap Rate (unless Supplemental Interest Amounts, the payment of
which is not rated, are paid in full). The result of the foregoing is that the
Pass-Through Rate applicable to the Class A-1 Certificates could be limited by
the Group I Available Funds Cap Rate for a period of time; see "Prepayment and
Yield Considerations" herein.
The Class A-6 Certificates, although they are fixed-rate Certificates
issued against fixed-rate loans, are also subject to the Group I Available Funds
Cap Rate. Since there is a dispersion among the Coupon Rates applicable to the
Group I Mortgage Loans, depending on which of the Group I Mortgage Loans
actually prepay, the Pass-Through Rates on the Class A-6 Certificates may become
subject to the limitation imposed by the Group I Available Funds Cap Rate
(unless Supplemental Interest Amounts, the payment of which is not rated, are
paid in full). The result of the foregoing is that the Pass-Through Rate
applicable to the Class A-6 Certificates could be limited by the Group I
Available Funds Cap Rate for a period of time.
Group II Certificates. The calculation of the Pass-Through Rate on the
Group II Certificates is based upon (i) either a fixed rate, in the case of the
Class A-8 Certificates, or, with respect to the other Group II Certificates
(including Component II of the Class A-7 Certificates) the value of an index
(LIBOR) which is different from the value of the indices applicable to the
Mortgage Loans in Group II as described under "The Mortgage Loan Pool --
Mortgage Loans -- Group II" (either as a result of the use of a different index,
rate determination date or rate adjustment date) and (ii) the weighted average
of the Coupon Rates of the Mortgage Loans in Group II which are subject to
periodic adjustment caps, maximum rate caps, minimum rate floors, various resets
and reset frequencies. 97.10% of the Mortgage Loans by aggregate Principal
Balance in the Group II Statistic Calculation Pool adjust semi-annually based
upon the London interbank offered rate for six-month United States dollar
deposits ("Six-Month LIBOR"), 0.01% adjust annually based upon 11th District
Cost of Funds Index ("COFI"), 0.01% adjust based upon the three-year constant
maturity treasury ("3 YR CMT") and 2.88% adjust annually based upon the one-year
constant maturity treasury (the "CMT"), whereas the Pass-Through Rates on the
Group II Certificates either remain fixed, in the case of the Class A-8
Certificates, or, with respect to the other Group II Certificates (including
Component II of the Class A-7 Certificates) adjust monthly based upon LIBOR as
described under "Description of the Certificates -- Calculation of LIBOR"
herein, subject (except with respect to the Class A-8 Certificates) to the Group
II Available Funds Cap Rate (unless Supplemental Interest Amounts, the payment
of which is not rated, are paid in full). Consequently, the interest which
becomes due on the Mortgage Loans in Group II (net of the Servicing Fee, the
Trustee Fee and certain required reductions) during any Remittance Period may
not equal the amount of interest that would accrue at the fixed rate of interest
applicable to the Class A-8 Certificates or, with respect to the other Group II
Certificates, LIBOR plus the margin on the Group II Certificates during the
related Accrual Period.
64.43% of the Mortgage Loans by aggregate Principal Balance in the
Group II Statistic Calculation Pool are 2/28 Loans that provide for a fixed
interest rate for a period of approximately two years following origination.
18.19% of the Mortgage Loans by aggregate Principal Balance in the Group II
Statistic Calculation Pool are 3/27 Loans that provide for a fixed interest rate
for a period of approximately three years following origination. 7.55% of the
Mortgage Loans by aggregate Principal Balance in the Group II Statistic
Calculation Pool are 5/25 Loans that provide for a fixed interest rate for a
period of approximately five years following origination. Thereafter, such
Mortgage Loans provide for interest rate and payment adjustments in a manner
similar to the Six-Month LIBOR Loans, COFI, CMT and 3 YR CMT Loans. In
particular, the Pass-Through Rates on the Group II Certificates (except the
Class A-8 Certificates) adjust monthly, while the interest rates of the Mortgage
Loans in Group II adjust
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<PAGE> 38
less frequently with the result that the Group II Available Funds Cap Rate may
limit increases in the Pass-Through Rate on the Group II Certificates (except
the Class A-8 Certificates) for extended periods in a rising interest rate
environment. In addition, LIBOR, Six-Month LIBOR, COFI, CMT and 3 YR CMT may
respond to different economic and market factors, and there is not necessarily a
correlation between them. Thus, it is possible, for example, that LIBOR may rise
during periods in which Six-Month LIBOR or one-year CMT is stable or is falling
or that, even if LIBOR, Six-Month LIBOR, COFI, CMT and 3 YR CMT rise during the
same period, LIBOR may rise more rapidly than Six-Month LIBOR, COFI, CMT or 3 YR
CMT. Furthermore, if the Group II Available Funds Cap Rate determines the
Pass-Through Rate on the Group II Certificates (except the Class A-8
Certificates) for a Payment Date, the value of the Group II Certificates (except
the Class A-8 Certificates) will be temporarily or permanently reduced.
INVESTMENT RISKS ARE ASSOCIATED WITH THE CLASS A-7 CERTIFICATES.
General. The Class A-7 Certificates represent a "pass-through"
investment in two underlying interests in the Trust, the Component I certificate
("Component I") and the Component II certificate ("Component II"). As of the
Closing Date, the Component I Principal Balance represents approximately 13.33%
and the Component II Principal Balance represents approximately 86.67% of the
Class A-7 Original Certificate Principal Balance, although such relative
proportions are likely to change over time.
The Two Components of the Class A-7 Certificates Are Not Separately
Tradable. Although the Owners of the Class A-7 Certificates will be entitled to
receive the distributions on Component I and on Component II, each of which is a
separate REMIC "regular interest" issued by the Trust for federal income tax
purposes, the two Components will be offered as an indivisible, paired
investment, the separate Components of which are not separately tradable. For
federal income tax purposes, the Owners of the Class A-7 Certificates will be
treated as owning the underlying REMIC interests (i.e., the two Components). The
voting rights appurtenant to the Class A-7 Certificates will vest in the Owners
thereof as the Owners of the Class A-7 Certificates, and not as the Owners of
the underlying Components.
Effect of Available Funds Cap Rates. As noted above under " -- Risk of
Coupon Rates of Mortgage Loans Reducing the Pass-Through Rate on Certain of the
Offered Certificates", Component II is subject to having its Pass-Through Rate
limited by the Group II Available Funds Cap Rate.
Component I is a floating rate certificate with a Formula Pass-Through
Rate based on one-month LIBOR plus a margin (subject to the Group I Available
Funds Cap Rate), although the Mortgage Loans which support Component I are the
Group I Mortgage Loans, all of which bear fixed rates of interest. As a result
of being a LIBOR-based certificate issued against fixed-rate loans, the
Component I Pass-Through Rate may be relatively likely to be subject to the
limitation imposed by the Group I Available Funds Cap Rate (unless Supplemental
Interest Amounts, the payment of which is not rated, are paid in full). The
result of the foregoing is that the Pass-Through Rate applicable to Component I
could be limited by the Group I Available Funds Cap Rate for substantial periods
of time; see "Prepayment and Yield Considerations" herein.
The Class A-7 Certificates have a "Formula Pass-Through Rate" equal to
LIBOR plus 0.21% (0.42% after the Clean-Up Call Date), which is equal to the
Formula Pass-Through Rate on each of Component I and Component II; the
"Pass-Through Rate" applicable to the Class A-7 Certificates will be such
"Formula Pass-Through Rate" subject to the weighted average of Component I
Pass-Through Rate and Component II Pass-Through Rate, which themselves are
subject to the Group I Available Funds Cap Rate and the Group II Available Funds
Cap Rate, respectively.
Unusual Amortization Features. Component I is the "companion class" to
the Class A-2 through Class A-5 Group I Certificates, which are the "Targeted
Amortization Classes" ("TACs") issued with respect to Group I; consequently, as
a result of the TAC structure, a substantial portion of the prepayment risk of
the Group I Mortgage Loans will accrue to Component I; see "Prepayment and Yield
Considerations" herein. As a result, the prepayment characteristics and the
weighted average life of Component I will be difficult to evaluate or predict.
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<PAGE> 39
The other component of the Class A-7 Certificates, Component II, will
amortize in accordance with the pay-down rules applicable to Group II, which
pay-down rules reflect a senior-subordinate structure subject to various
triggers which affect the rate of Component II's amortization.
As a result of the foregoing, the amortization of the Class A-7
Certificates will be subject to several factors, including the underlying
prepayment rates on both Group I and Group II and the paydown rules applicable
to Group II only, each of which is independent of the other factor.
Consequently, the prepayment characteristics and the weighted average life of
the Class A-7 Certificates will be difficult to predict or evaluate.
GROUP I INSURANCE POLICY APPLIES ONLY TO COMPONENT I;
SENIOR-SUBORDINATE STRUCTURE APPLIES ONLY TO COMPONENT II. The Group I Insurance
Policy issued by the Group I Insurer covers, to the extent elsewhere described
herein, the Group I Certificates (including Component I). Component II is the
most senior class issued with respect to Group II in a "senior-subordinate"
structure that is applicable to Group II only. Component II is not covered by
the Group I Insurance Policy. The coverage of the Group I Insurance Policy
(insofar as it is relevant to the Class A-7 Certificates) attaches specifically
only to Component I, and not to the Class A-7 Certificates themselves.
As a result of the two separate and distinct sources of credit
enhancement applicable to the two Components, the Class A-7 Certificates are
susceptible to downgrading in terms of ratings, as well as to losses, from both
downgrade and/or a failure of the Group I Insurer, with respect to Group I, as
well as from a failure of the senior-subordinate structure applicable to Group
II to provide adequate credit protection to support Component II.
INVESTMENT RISKS ASSOCIATED WITH THE CLASS A-IO CERTIFICATES. As the
owners of interest-only strip securities, the Owners of the Class A-IO
Certificates will be entitled to receive monthly distributions only of interest,
as described herein. Because they will not receive any distributions of
principal, the Owners of the Class A-IO Certificates will generally be affected
by prepayments, liquidations and other dispositions (including optional
redemptions described herein) of the Mortgage Loans in Group I to a greater
degree than will the Owners of the other Classes of the Group I Certificates.
Investors should note, however, that the Notional Principal Balance applicable
to interest calculations on the Class A-IO Certificates is (x) through the 30th
Payment Date, the Certificate Principal Balance of the Class A-6 Certificates
and (y) thereafter, zero. Because the Class A-6 Certificates will amortize in
accordance with the distribution of the Class A-6 Lockout Distribution Amount,
the yield sensitivity of the Class A-IO Certificates is likely to be more stable
than if such Notional Principal Balance were calculated based on the
amortization of the underlying Group I Mortgage Loans directly. Thus, the yield
sensitivity of such Certificates will only be impacted at extremely high
prepayment rates.
RISK OF HIGHER DEFAULT RATES FOR MORTGAGE LOANS WITH BALLOON PAYMENTS.
11.58% of the Mortgage Loans in the Statistic Calculation Pools by aggregate
principal balance are Balloon Loans. See "Risk Factors -- Risk of Losses
Associated with Balloon Loans" in the Prospectus.
GROUP II SUBORDINATION -- LIMITED PROTECTION AFFORDED TO CLASS A
CERTIFICATES. The rights of the Owners of the Class M-1 Certificates to receive
distributions with respect to the Mortgage Loans will be subordinate to the
rights of the holders of the Class A-8 Certificates and the Class A-7
Certificates to receive such distributions; the rights of Owners of the Class
M-2 Certificates to receive distributions with respect to the Mortgage Loans
will be subordinate to the rights of the Owners of the Class A-8 Certificates
and the Class A-7 Certificates and the Class M-1 Certificates to receive such
distributions and the rights of the Owners of the Class B-1 Certificates to
receive distributions with respect to the Mortgage Loans will be subordinate to
the rights of the Owners of the Class A-8 Certificates and the Class A-7
Certificates, Class M-1 and Class M-2 Certificates to receive such
distributions. The subordination of the Subordinate Certificates relative to the
Class A-8 Certificates and the Class A-7 Certificates (and of the lower-ranking
Classes of the Subordinate Certificates to the higher-ranking Classes thereof)
is intended to enhance the likelihood of regular receipt by the Owners of such
Class A-8 Certificates and the Class A-7 Certificates (and such higher-ranking
Classes) of the full amount of the monthly distributions allocable to them, and
to afford such Owners protection against losses.
GROUP II SUBORDINATION -- ALLOCATION OF LOSSES TO SUBORDINATE
CERTIFICATES. The rights of the Owners of each Class of Subordinate Certificates
to receive distributions of principal and interest with respect to the Mortgage
Loans will be subordinate to the rights of the Owners of the Class A-8
Certificates and the Class A-7 Certificates to
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<PAGE> 40
receive such distributions and to the rights of the Owners of each
higher-ranking Class of Subordinate Certificates to receive such distributions.
See "Credit Enhancement -- Subordination of Subordinate Certificates" herein.
The yields to maturity on the Mezzanine Certificates and the Class B-1
Certificates will be sensitive, in varying degrees, to defaults on the Mortgage
Loans (and the timing thereof). Investors should fully consider the risks
associated with an investment in the Mezzanine Certificates or the Class B-1
Certificates, including the possibility that such investors may not fully
recover their initial investment as a result of Realized Losses on the Mortgage
Loans. See "Credit Enhancement -- Application of Realized Losses" and
"Prepayment and Yield Considerations -- Projected Payment and Yield for Offered
Certificates" herein.
NATURE OF SECURITY. Since the Mortgage Loans are secured in certain
cases by junior liens subordinate to the rights of the mortgagee or beneficiary
under the related senior mortgage(s) or deed(s) of trust, the proceeds from any
liquidation, insurance or condemnation proceedings will be available to satisfy
the outstanding balance of such a junior Mortgage Loan only to the extent that
the claims of such senior mortgagee(s) or beneficiary(ies) have been satisfied
in full, including any related foreclosure costs. In addition, a junior
mortgagee may not foreclose on the property securing a junior mortgage unless it
forecloses subject to the senior mortgage(s), in which case it must either pay
the entire amount due on the senior mortgage(s) to the senior mortgagee(s) at or
prior to the foreclosure sale or undertake the obligation to make payments on
the senior mortgage(s) in the event the mortgagor is in default thereunder. In
servicing junior mortgages in its portfolio, it is generally the Master
Servicer's practice to satisfy the senior mortgage(s) at or prior to the
foreclosure sale. The Master Servicer may also advance funds to keep the senior
mortgage(s) current until such time as the Master Servicer satisfies the senior
mortgage(s). The Trust will have no source of funds (and may not be permitted
under the REMIC provisions of the Code) to satisfy the senior mortgage(s) or
make payments due to the senior mortgagee(s). The Master Servicer will be
required to advance such amounts in accordance with the Pooling and Servicing
Agreement.
Information is provided under "-- General" with respect to the LTVs
and the CLTVs of the Mortgage Loans, in the Statistic Calculation Pools. As
discussed in the Prospectus under "Risk Factors," the value of the Mortgaged
Properties underlying such loans could be adversely affected by a number of
factors. As a result, despite the amortization of the junior and senior mortgage
loans on such Mortgaged Properties, there can be no assurance that the CLTVs of
such loans, determined as of a date subsequent to the origination date, will be
the same or lower than the CLTVs for such loans, determined as of the
origination date.
Even assuming that the Mortgaged Properties provided adequate security
for the Mortgage Loans, substantial delay could be encountered in connection
with the liquidation of defaulted Mortgage Loans and corresponding delays in the
receipt of such proceeds by the Trust could occur. Further, the Master Servicer
will be entitled to deduct from liquidation proceeds received in respect of a
fully liquidated Mortgage Loan all expenses incurred in attempting to recover
amounts due on such Mortgage Loan and not yet repaid, including payments to
senior mortgagees, legal fees, real estate taxes, and maintenance and
preservation expenses, thereby reducing collections available to the Trust.
Liquidation expenses with respect to defaulted Mortgage 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 mortgage loan having a small remaining principal balance as it
would in the case of a defaulted mortgage loan having a larger principal
balance, the amount realized after expenses of liquidation would be smaller as a
percentage of the outstanding principal balance of the smaller mortgage loan
than would be the case with a larger loan. Because the average outstanding
principal balances of the Mortgage Loans are small relative to the size of the
loans in a typical pool of purchase-money first mortgages, realizations net of
liquidation expenses on defaulted Mortgage Loans may also be smaller as a
percentage of the principal amount of the Mortgage Loans than would such net
realizations in the case of a typical pool of purchase-money first mortgage
loans.
Investor-owned properties represent (based solely upon statements made
by the borrowers at the time of origination of the related Mortgage Loan), as a
percentage of the aggregate principal balance of the Mortgage Loans, in the
Statistic Calculation Pools, 6.01% of the Mortgage Loans. It is possible that
the rate of delinquencies, foreclosures and losses on mortgage loans secured by
non-owner occupied properties could be higher than for loans secured by the
primary residence of the borrower.
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<PAGE> 41
THE PORTFOLIO OF MORTGAGE LOANS
The Mortgage Loan Pool includes loans which were either originated
directly by the Affiliated Originators or purchased by the Affiliated
Originators from others on a loan-by-loan basis or in bulk acquisitions of loan
portfolios and in either case acquired by the Sponsor. The Sponsor also acquires
loans from Unaffiliated Originators in long-term commitments from Conduit
Participants. Such loans are originated by Unaffiliated Originators either
directly or purchased by the Unaffiliated Originators from others on a
loan-by-loan basis.
The Originators which are affiliated with the Sponsor are Advanta
Mortgage Corp. USA, Advanta National Bank, Advanta Mortgage Corp. Midatlantic,
Advanta Mortgage Corp. Midatlantic II, Advanta Mortgage Corp. Midwest, Advanta
Mortgage Corp. of New Jersey, Advanta Mortgage Corp. Northeast and Advanta
Finance Corp..
UNAFFILIATED ORIGINATORS
MCA. The Sponsor acquired approximately 7.40% of the Mortgage Loans as
of the Cut-Off Date from Mortgage Corporation of America, an Unaffiliated
Originator (such mortgage loans, the "MCA Loans"). Mortgage Corporation of
America is headquartered in Southfield, Michigan and is engaged in originating
mortgage loans through retail and wholesale channels. The MCA Loans consist of
775 Mortgage Loans representing an aggregate principal balance of $56,285,748.34
as of the Cut-Off Date. Approximately 35.87% (by aggregate principal balance as
of the Cut-Off Date) of the MCA Loans are included in Group I and approximately
64.13% of the MCA Loans are included in Group II. The MCA Loans are related to
properties located in 32 states.
Prior to its initial purchase of the MCA Loans, the Sponsor performed
or caused to be performed an operational review of the origination and servicing
practices of MCA.
The weighted average CLTV of the MCA Loans as of the Cut-Off Date was
78.49%; the weighted average Coupon Rate was 10.96% per annum; the weighted
average original term to stated maturity was 318 months; the weighted average
remaining term to stated maturity was 317 months; and 97.60% of the MCA Loans
were secured by first mortgages.
PAM. The Sponsor acquired approximately 11.08% of the Mortgage Loans as
of the Cut-Off Date from PacificAmerica Money Center, Inc., an Unaffiliated
Originator (such mortgage loans, the "PAM Loans"). PacificAmerica Money Center,
Inc. is headquartered in Woodland Hills, CA and is engaged in originating
mortgage loans through retail and wholesale channels. The PAM Loans consist of
924 Mortgage Loans representing an aggregate principal balance of $84,344,875.35
as of the Cut-Off Date. Approximately 18.94% (by aggregate principal balance as
of the Cut-Off Date) of the PAM Loans are included in Group I and approximately
81.06% of the PAM Loans are included in Group II. The PAM Loans are related to
properties located in 39 states.
Prior to its initial purchase of the PAM Loans, the Sponsor performed
or caused to be performed an operational review of the origination practices of
PAM. The Sponsor has been acquiring Mortgage Loans from PAM since mid-1995.
The weighted average CLTV of the PAM Loans as of the Cut-Off Date was
94.90%, the weighted average Coupon Rate was 11.01% per annum; the weighted
average original term to stated maturity was 343 months; the weighted average
remaining term to stated maturity was 341 months and 93.53% of the PAM Loans
were secured by first mortgages.
Goodrich & Pennington. The Sponsor acquired approximately 5.08% of the
Mortgage Loans as of the Cut-Off Date from Goodrich & Pennington Mortgage Fund,
Inc., an Unaffiliated Originator (such mortgage loans, the "G&P Loans").
Goodrich & Pennington Mortgage Fund, Inc. is headquartered in Rohnert Park, CA
and is engaged in originating mortgage loans through retail and wholesale
channels. The G&P Loans consist of 343 Mortgage Loans representing an aggregate
principal balance of $38,686,659.56 as of the Cut-Off Date. Approximately 36.75%
(by aggregate principal balance as of the Cut-Off Date) of the G&P Loans are
included in Group I and approximately 63.25% of the G&P Loans are included in
Group II. The G&P Loans are related to properties located in 13 states.
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<PAGE> 42
Prior to its initial purchase of the G&P Loans, the Sponsor performed
or caused to be performed an operational review of the origination practices of
Goodrich & Pennington Mortgage Fund, Inc.
The weighted average CLTV of the G&P Loans as of the Cut-Off Date was
76.12%; the weighted average Coupon Rate was 10.16% per annum; the weighted
average original term to stated maturity was 352 months; the weighted average
remaining term to stated maturity was 351 months and 97.19% of the G&P Loans
were secured by first mortgages.
McGuire Mortgage Company. The Sponsor acquired approximately 1.29% of
the Mortgage Loans as of the Cut-Off Date from McGuire Mortgage Company, an
Unaffiliated Originator (such mortgage loans, the "McGuire Loans"). McGuire
Mortgage Company is headquartered in Prairie Village, Kansas and is engaged in
originating mortgage loans through retail channels. The McGuire Loans consist of
180 Mortgage Loans representing an aggregate principal balance of $9,824,372.40
as of the Cut-Off Date. Approximately 92.88% (by aggregate principal balance as
of the Cut-Off Date) of the McGuire Loans are included in Group I, and
approximately 7.12% of the McGuire Loans are included in Group II. The McGuire
Loans are related to properties located in 8 states.
Prior to its initial purchase of the McGuire Loans, the Sponsor
performed or caused to be performed an operational review of the origination and
servicing practices of McGuire Mortgage Company.
The weighted average CLTV of the McGuire Loans as of the Cut-Off Date
was 77.28%; the weighted average Coupon Rate was 10.83% per annum; the weighted
average original term to stated maturity was 219 months; the weighted average
remaining term to stated maturity was 217 months; and 95.75% of the McGuire
Loans were secured by first mortgages.
First Finance. The Sponsor acquired approximately 12.34% of the
Mortgage Loans as of the Cut-Off Date from First Finance, Incorporated, an
Unaffiliated Originator (such mortgage loans, the "FFI Loans"). First Finance,
Incorporated is headquartered in Bloomfield Hills, Michigan and is engaged in
originating mortgage loans through retail channels. The FFI Loans consist of
1,778 Mortgage Loans representing an aggregate principal balance of
$93,870,409.60 as of the Cut-Off Date. Approximately 34.79% (by aggregate
principal balance as of the Cut-Off Date) of the FFI Loans are included in Group
I and approximately 65.21% of the FFI Loans are included in Group II. The FFI
Loans are related to properties located in 23 states.
Prior to its initial purchase of the FFI Loans, the Sponsor performed
or caused to be performed an operational review of the origination and servicing
practices of FFI.
The weighted average CLTV of FFI Loans as of the Cut-Off Date was
75.55%; the weighted average Coupon Rate was 11.19% per annum; the weighted
average original term to stated maturity was 336 months; the weighted average
remaining term to stated maturity was 335months; and 100% of the FFI Loans were
secured by first mortgages.
First Street. The Sponsor acquired approximately 1.38% of the Mortgage
Loans as of the Cut-Off Date from First Street Mortgage Corp., an Unaffiliated
Originator (such mortgage loans, the "FSMC Loans"). First Street Mortgage Corp.
is headquartered in Jacksonville, Florida and is engaged in originating mortgage
loans through wholesale channels. The FSMC Loans consist of 170 Mortgage Loans
representing an aggregate principal balance of $10,503,561.41 as of the Cut-Off
Date. Approximately 92.37% (by aggregate principal balance as of the Cut-Off
Date) of the FSMC Loans are included in Group I and approximately 7.64% of the
FSMC Loans are included in Group II. The FSMC Loans are related to properties
located in 11 states.
Prior to its initial purchase of the FSMC Loans, the Sponsor performed
or caused to be performed an operational review of the origination and servicing
practices of FSMC.
The weighted average CLTV of FSMC Loans as of the Cut-Off Date was
78.86%; the weighted average Coupon Rate was 9.77% per annum; the weighted
average original term to stated maturity was 259 months; the
S-42
<PAGE> 43
weighted average remaining term to stated maturity was 259 months; and 76.50% of
the FSMC Loans were secured by first mortgages.
The MCA Loans, the G&P Loans, the PAM Loans, the McGuire Loans, the FFI
Loans and the FSMC Loans are collectively referred to herein as the
"Unaffiliated Originator Loans."
All of the Mortgage Loans purchased by the Sponsor from the
Unaffiliated Originators were originated in accordance with the Sponsor's
underwriting guidelines for Unaffiliated Originators. See "Mortgage Loan Program
- -- Underwriting Guidelines" in the Prospectus.
DELINQUENCIES
Owned and Managed Servicing Portfolio. The following tables set forth
information relating to the delinquency, loan loss and foreclosure experience of
the Master Servicer for its servicing portfolio, excluding certain loans
serviced by the Master Servicer that were not originated or purchased and
reunderwritten by the Sponsor or its Affiliated Originators (the "Owned and
Managed Servicing Portfolio"), of fixed and adjustable rate mortgage loans as of
December 31, 1997 for each of the four prior years. The Owned and Managed
Servicing Portfolio includes, but is not limited to, the Mortgage Loans acquired
on or prior to December 31, 1997, which are contained in the Mortgage Loan Pool,
as of the Cut-Off Date. In addition to the Owned and Managed Servicing
Portfolio, the Master Servicer serviced, as of December 31, 1997, approximately
132,000 mortgage loans with an aggregate principal balance as of such date of
approximately $9.2 billion; such loans were not originated by the Sponsor or its
Affiliated Originators and are being serviced for third parties on a contract
servicing basis (the "Third-Party Servicing Portfolio"). No loans in the
Third-Party Servicing Portfolio are included in the tables set forth below.
DELINQUENCY AND FORECLOSURE EXPERIENCE OF THE
MASTER SERVICER'S OWNED AND MANAGED SERVICING PORTFOLIO
OF MORTGAGE LOANS
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
1997 1996 1995 1994 1993
------------------- ------------------- ------------------- ------------------- -------------------
NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR
OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT
LOANS (000) LOANS (000) LOANS (000) LOANS (000) LOANS (000)
------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio 74,525 $4,888,936 43,303 $2,595,981 32,592 $1,797,582 26,446 $1,346,100 25,460 $1,149,864
Delinquency 3.13% 2.99% 3.07% 2.90% 2.67% 2.44% 2.01% 1.57% 2.43% 2.22%
Percentage(1)
30-59 days
60-89 days 0.98 0.98 0.85 0.90 0.72 0.71 0.57 0.45 0.77 0.63
90 days or more 1.39 1.28 1.45 1.26 1.69 1.23 1.85 1.51 2.19 2.12
------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
Total 5.50% 5.25% 5.37% 5.06% 5.08% 4.38% 4.43% 3.53% 5.39% 4.97%
Foreclosure 2.10% 2.32% 1.62% 1.92% 1.29% 1.53% 1.35% 1.38% 1.32% 1.62%
rate(2)
REO
Properties(3) 0.40% -- 0.42% -- 0.52% -- 0.47% -- 0.42% --
</TABLE>
- ----------
(1) The period of delinquency is based on the number of days payments are
contractually past due. The delinquency statistics for the period exclude
loans in foreclosure.
(2) "Foreclosure Rate" is the number of mortgage loans or the dollar amount of
mortgage loans in foreclosure as a percentage of the total number of
mortgage loans or the dollar amount of mortgage loans, as the case may be,
as of the date indicated.
(3) REO Properties (i.e., "real estate owned" properties -- properties relating
to mortgages foreclosed or for which deeds in lieu of foreclosure have been
accepted, and held by the Master Servicer pending disposition) percentages
are calculated using the number of loans, not the dollar amount.
S-43
<PAGE> 44
LOAN LOSS EXPERIENCE
OF THE MASTER SERVICER'S OWNED AND MANAGED SERVICING PORTFOLIO
OF MORTGAGE LOANS
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993
----------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Average amount $3,677,342 $2,102,643 $1,540,238 $1,225,529 $1,049,447
outstanding(1)
Gross losses(2) $ 18,897 $ 15,184 $ 13,978 $ 20,886 $ 14,115
Recoveries(3) $ 45 $ 117 $ 148 $ 179 $ 123
Net losses(4) $ 18,852 $ 15,067 $ 13,830 $ 20,707 $ 13,992
Net losses as a percentage of
average amount outstanding 0.51% 0.72% 0.90% 1.69% 1.33%
</TABLE>
- ----------
(1) "Average Amount Outstanding" during the period is the arithmetic average of
the principal balances of the mortgage loans outstanding on the last
business day of each month during the period.
(2) "Gross Losses" are amounts which have been determined to be uncollectible
relating to mortgage loans for each respective period.
(3) "Recoveries" are recoveries from liquidation proceeds and deficiency
judgments.
(4) "Net Losses" represents "Gross Losses" minus "Recoveries."
S-44
<PAGE> 45
THE MORTGAGE LOAN POOL
GENERAL
The Mortgage Loans will be predominantly home equity loans, i.e., loans
used (x) to refinance an existing mortgage loan on more favorable terms, (y) to
consolidate debt, or (z) to obtain cash proceeds by borrowing against the
Mortgagor's equity in the related Mortgaged Property.
The Statistic Calculation Pools contained 11,026 Mortgage Loans to be
sold by the Sponsor to the Trust evidenced by promissory notes (the "Notes")
secured by Mortgages on the Mortgaged Properties, which are located in 50 states
and the District of Columbia. The Mortgaged Properties securing the Mortgage
Loans consist primarily of single-family residences (which may be detached, part
of a two-to four-family dwelling, a condominium unit or a unit in a planned unit
development). The Mortgaged Properties may be owner-occupied (which includes
second and vacation homes) and non-owner occupied investment properties.
The Mortgage Loans will be required to satisfy the following criteria
as of the Cut-Off Date: have remaining terms to maturity of no greater than 30
years; will not be 30 or more days delinquent (except that certain Mortgage
Loans, representing in the aggregate not in excess of 0.68% of the aggregate
principal balance of all Mortgage Loans as of the Cut-Off Date, may be 30-59
days delinquent). Neither the Sponsor nor the Master Servicer have reason to
believe that the delinquency and loss experience of the Mortgage Loans will
differ in any material respect from that of the Master Servicer's total
servicing portfolio, although there can be no assurance that this will be the
case.
Less than 8.58% of the Mortgage Loans (as a percentage of the aggregate
principal balance of all Mortgage Loans contained in the Statistic Calculation
Pools) are "simple interest" or "date of payment" loans, with the remainder
"actuarial" or "pre-computed" loans. A "simple interest" loan provides that
interest which has accrued to date is paid first and the remaining payment is
applied to reduce the unpaid principal balance. An "actuarial" loan provides for
amortization of the loan over a series of fixed level monthly installments.
95.78% of the Mortgage Loans are secured by first lien mortgages on the related
Mortgaged Properties and 4.22% of the Mortgage Loans are secured by second liens
on the related Mortgaged Properties.
Each Mortgage Loan in the Trust will be assigned to one of two Groups
("Group I" and "Group II," respectively, and each a "Group"). Each of the
Mortgage Loans contained in Group I will be secured by a Mortgage having either
a first or second lien position with respect to the related Mortgaged Property
and will have a maximum remaining term to maturity of 30 years. The Mortgage
Loans contained in Group II will be secured by a Mortgage having either a first
or a second lien position with respect to the related Mortgaged Property and
will have a maximum remaining term to maturity of 30 years. The Group I
Certificates represent undivided ownership interests in all Mortgage Loans
contained or to be contained in Group I and the Group II Certificates represent
undivided ownership interests in all Mortgage Loans contained or to be contained
in Group II.
The CLTVs and LTVs described herein were calculated based upon the
appraised values of the related Mortgaged Properties at the time of origination
(the "Appraised Values"). In general, for purchase money loans, the CLTVs and
LTVs were calculated using the lower of the purchase price or appraised values
of the related Mortgaged Properties at the time of origination. No assurance can
be given that such appraised values of the Mortgaged Properties have remained or
will remain at their levels on the dates of origination of the related Mortgage
Loans. If property values decline such that the outstanding balances of the
Mortgage Loans, together with the outstanding balances of any senior loans,
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 heretofore experienced by the Master Servicer, as set forth above under
"The Portfolio of Mortgage Loans," and in the mortgage lending industry.
Difference between Statistic Calculation Pools and Closing Date Pools.
The statistical information presented in this Prospectus Supplement is
based on the Statistic Calculation Pools. The Statistic Calculation Pools
reflect the Mortgage Loans acquired by the Sponsor through the Cut-Off
S-45
<PAGE> 46
Date, and the statistical information presented herein is based on the number
and the principal balances of such Mortgage Loans as of the Cut-Off Date. These
pools aggregated $424,488,283.66 with respect to Group I and $336,455,575.02
with respect to Group II. The Sponsor expects that the actual aggregate
principal balance of the Mortgage Loans, as of the Closing Date will be
approximately $500,000,000.00 with respect to Group I and approximately
$400,000,000.00 with respect to Group II. The additional Mortgage Loans to be
included in the final pools will represent Mortgage Loans acquired or to be
acquired by the Sponsor on or prior to the Closing Date. In addition, with
respect to the Statistic Calculation Pools, as to which statistical information
is presented herein, some amortization of the Mortgage Loans contained in such
pools will occur prior to the Closing Date. Moreover, certain loans included in
the Statistic Calculation Pools may prepay in full or may be determined not to
meet the eligibility requirements for the final pools and as a result may not be
included in the final pools. As a result of the foregoing, the statistical
distribution of characteristics as of the Closing Date for the Mortgage Loan
pools will vary somewhat from the statistical distribution of such
characteristics in the Statistic Calculation Pools as presented in this
Prospectus Supplement, although such variance will not be material.
GROUP I
The Mortgage Loans in the Group I Statistic Calculation Pool consist of
7,153 Mortgage Loans under which the related Mortgaged Properties are located in
50 states and the District of Columbia, as set forth herein. Group I had an
aggregate principal balance of $424,488,283.66 and the minimum principal balance
of any of the Mortgage Loans in the Group I Statistic Calculation Pool was
$3,840.85, the maximum principal balance thereof was $700,000 and the average
principal balance of such Mortgage Loans was approximately $59,344.09. The
Coupon Rates on the Mortgage Loans in Group I ranged from 6.69% to 18.95% per
annum, and the weighted average Coupon Rate of such Mortgage Loans was 10.58%
per annum. The original term to stated maturity of the Mortgage Loans in Group I
ranged from 36 months to 360 months, the remaining term to stated maturity
ranged from 18 months to 360 months, the weighted average original term to
stated maturity was 256 months, the weighted average remaining term to stated
maturity was 252 months and the weighted average seasoning was 3 months. No
Mortgage Loan in Group I had a stated maturity later than March 20, 2028. 79.24%
of the Mortgage Loans in Group I by aggregate principal balance require monthly
payments of principal that will fully amortize the Mortgage Loans by their
respective maturity dates, and 20.76% of such Mortgage Loans by aggregate
principal balance are balloon loans.
The weighted average CLTV of the Mortgage Loans included in Group I was
75.14%. The weighted average Junior Lien Ratio (as defined below) of the
Mortgage Loans in Group I was 36.32%; the weighted average LTV was 71.43%.
Approximately 92.46% of the Mortgage Loans in Group I by aggregate principal
balance were secured by first mortgages and approximately 7.54% by second
mortgages.
The "Junior Lien Ratio" of a Mortgage Loan which is in a junior lien
position is equal to the ratio (expressed as a percentage) of the original
principal balance of such Mortgage Loan to the sum of (i) the original principal
balance of such Mortgage Loan and (ii) the principal balance at the time of
origination of the Mortgage Loan of any Senior Liens (computed at the time of
origination of such Mortgage Loan).
The following tables describe the Group I Mortgage Loans and the
related Mortgaged Properties based upon the Group I Statistic Calculation Pool
as constituted at the opening of business on the Cut-Off Date.
S-46
<PAGE> 47
GROUP I
GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
STATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----- -------------- ----------------- -----------------
<S> <C> <C> <C>
Alabama............. 64 $ 3,235,103.26 0.76%
Alaska.............. 1 78,339.72 0.02
Arkansas............ 45 2,072,357.80 0.49
Arizona............. 237 13,989,641.12 3.30
California.......... 539 46,258,196.11 10.90
Colorado............ 163 11,540,258.06 2.72
Connecticut......... 52 4,721,205.24 1.11
Delaware............ 30 1,975,637.69 0.47
District of Columbia 25 1,367,991.91 0.32
Florida............. 371 20,358,502.85 4.80
Georgia............. 175 9,998,719.84 2.36
Hawaii.............. 4 632,799.12 0.15
Iowa................ 107 4,855,630.93 1.14
Idaho............... 27 1,089,997.32 0.26
Illinois............ 188 11,854,300.55 2.79
Indiana............. 229 11,261,844.17 2.65
Kansas.............. 113 5,518,841.60 1.30
Kentucky............ 74 3,380,444.98 0.80
Louisiana........... 90 3,555,386.94 0.84
Maine............... 15 731,994.53 0.17
Maryland............ 195 13,425,794.49 3.16
Massachusetts....... 60 3,897,621.66 0.92
Michigan............ 1,169 52,918,690.35 12.47
Minnesota........... 53 3,613,979.82 0.85
Mississippi......... 22 957,786.93 0.23
Missouri............ 244 13,082,015.00 3.08
Montana............. 10 438,706.20 0.10
Nebraska............ 45 2,471,432.70 0.58
Nevada.............. 53 4,480,291.23 1.06
New Hampshire....... 8 507,827.68 0.12
New Jersey.......... 244 18,656,454.04 4.40
New Mexico.......... 46 3,434,614.86 0.81
New York............ 199 11,665,974.45 2.75
North Carolina...... 276 16,668,670.03 3.93
North Dakota........ 4 189,558.51 0.04
Ohio................ 366 20,718,850.48 4.88
Oklahoma............ 109 5,111,740.17 1.20
Oregon.............. 104 7,700,709.39 1.81
Pennsylvania........ 417 23,666,384.27 5.58
Rhode Island........ 21 1,406,515.92 0.33
South Carolina...... 119 6,044,391.61 1.42
South Dakota........ 12 638,749.40 0.15
Tennessee........... 123 6,853,625.87 1.61
Texas............... 85 5,907,237.22 1.39
Utah................ 74 5,951,908.91 1.40
Vermont............. 21 1,388,927.32 0.33
Virginia............ 230 14,802,027.18 3.49
Washington.......... 146 12,023,555.09 2.83
West Virginia....... 54 2,185,745.96 0.51
Wisconsin........... 80 4,245,220.76 1.00
Wyoming............. 15 956,082.42 0.23
----- ---------------- ------
TOTAL............ 7,153 $ 424,488,283.66 100.00%
===== ================ ======
</TABLE>
S-47
<PAGE> 48
GROUP I
DISTRIBUTION OF CLTVS
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
CLTV RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----------- -------------- ----------------- -----------------
<S> <C> <C> <C>
90.01 - 95.00%......... 32 $ 1,909,023.19 0.45%
85.01 - 90.00.......... 390 29,134,447.21 6.86
80.01 - 85.00.......... 1,816 123,395,798.76 29.07
75.01 - 80.00.......... 1,529 100,187,124.76 23.60
70.01 - 75.00.......... 976 61,374,291.18 14.46
65.01 - 70.00.......... 597 32,626,941.07 7.69
60.01 - 65.00.......... 480 25,416,121.55 5.99
55.01 - 60.00.......... 322 14,905,869.23 3.51
50.01 - 55.00.......... 197 9,385,936.98 2.21
00.01 - 50.00.......... 814 26,152,729.73 6.16
----- ---------------- ------
TOTAL............... 7,153 $ 424,488,283.66 100.00%
===== ================ ======
</TABLE>
GROUP I
DISTRIBUTION OF LTVS
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
LTV RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------- -------------- ----------------- -----------------
<S> <C> <C> <C>
90.01 - 95.00%......... 24 $ 1,601,321.66 0.38%
85.01 - 90.00.......... 328 27,240,336.84 6.42
80.01 - 85.00.......... 1,498 113,062,419.40 26.63
75.01 - 80.00.......... 1,273 92,505,575.61 21.79
70.01 - 75.00.......... 856 57,045,560.85 13.44
65.01 - 70.00.......... 518 30,232,564.48 7.12
60.01 - 65.00.......... 441 24,474,300.14 5.77
55.01 - 60.00.......... 303 14,507,584.11 3.42
50.01 - 55.00.......... 195 9,690,471.10 2.28
00.01 - 50.00.......... 1,717 54,128,149.47 12.75
----- --------------- ------
TOTAL............... 7,153 $424,488,283.66 100.00%
===== =============== ======
</TABLE>
S-48
<PAGE> 49
GROUP I
DISTRIBUTION OF JUNIOR LIEN RATIOS
(JUNIOR LIENS ONLY)
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
JUNIOR LIEN RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
0.001 - 10.000%...... 21 $ 298,924.25 0.93%
10.001 - 20.000....... 250 5,732,761.28 17.90
20.001 - 30.000....... 315 9,177,720.91 28.66
30.001 - 40.000....... 171 6,434,984.40 20.10
40.001 - 50.000....... 102 3,912,548.02 12.22
50.001 - 60.000....... 56 2,184,171.43 6.82
60.001 - 70.000....... 54 1,814,670.70 5.67
70.001 - 80.000....... 27 1,285,037.17 4.01
80.001 - 90.000....... 15 681,813.53 2.13
90.001 - 100.000....... 12 499,850.98 1.56
----- --------------- ------
TOTAL.............. 1,023 $ 32,022,482.67 100.00%
===== =============== ======
</TABLE>
GROUP I
DISTRIBUTION OF COUPON RATES
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
COUPON RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
6.001 - 7.000%........ 2 $ 294,750.00 0.07%
7.001 - 8.000......... 77 6,139,823.31 1.45
8.001 - 9.000......... 785 66,538,369.49 15.67
9.001 - 10.000......... 1,634 123,189,286.92 29.02
10.001 - 11.000......... 1,376 88,674,871.29 20.89
11.001 - 12.000......... 1,194 60,723,432.53 14.31
12.001 - 13.000......... 1,280 49,238,288.09 11.60
13.001 - 14.000......... 556 21,454,008.34 5.05
14.001 - 15.000......... 175 5,940,206.34 1.40
15.001 - 16.000......... 54 1,688,716.90 0.40
16.001 - 17.000......... 14 483,943.28 0.11
17.001 - 18.000......... 5 104,915.82 0.02
18.001 - 19.000......... 1 17,671.35 0.00
----- --------------- ------
TOTAL................ 7,153 $424,488,283.66 100.00%
===== =============== ======
</TABLE>
S-49
<PAGE> 50
GROUP I
REMAINING TERM TO MATURITY DISTRIBUTION
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
MONTHS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------ -------------- ----------------- -----------------
<S> <C> <C> <C>
13 - 24............... 3 $ 20,272.97 0.00%
25 - 36............... 2 292,035.23 0.07
37 - 48............... 19 199,128.10 0.05
49 - 60............... 48 1,254,040.27 0.30
61 - 72............... 25 433,467.09 0.10
73 - 84............... 48 1,417,514.98 0.33
85 - 96............... 39 1,403,793.01 0.33
97 - 108............... 284 7,995,181.36 1.88
109 - 120............... 289 10,022,940.51 2.36
121 - 132............... 4 136,977.56 0.03
133 - 144............... 37 1,827,798.87 0.43
145 - 156............... 5 321,391.48 0.08
157 - 168............... 9 393,422.74 0.09
169 - 180............... 3,122 165,530,719.08 39.00
181 - 192............... 3 144,267.66 0.03
193 - 204............... 4 239,172.39 0.06
205 - 216............... 3 196,350.00 0.05
217 - 228............... 69 4,237,901.28 1.00
229 - 240............... 1,054 67,596,987.76 15.92
277 - 288............... 1 192,500.00 0.05
289 - 300............... 25 1,938,247.85 0.46
301 - 312............... 1 85,774.89 0.02
325 - 336............... 2 189,300.63 0.04
337 - 348............... 17 1,566,939.25 0.37
349 - 360............... 2,040 156,852,158.70 36.95
----- --------------- ------
TOTAL............... 7,153 $424,488,283.66 100.00%
===== =============== ======
</TABLE>
S-50
<PAGE> 51
GROUP I
DISTRIBUTION OF PRINCIPAL BALANCES
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
$ 0 - 5,000...... 4 $ 17,835.41 0.00%
5,001 - 10,000...... 90 809,088.18 0.19
10,001 - 15,000...... 263 3,482,779.90 0.82
15,001 - 20,000...... 412 7,517,300.00 1.77
20,001 - 25,000...... 525 12,006,661.45 2.83
25,001 - 30,000...... 550 15,356,315.53 3.62
30,001 - 35,000...... 492 16,099,479.06 3.79
35,001 - 40,000...... 513 19,405,198.37 4.57
40,001 - 45,000...... 479 20,493,457.37 4.83
45,001 - 50,000...... 510 24,396,971.02 5.75
50,001 - 55,000...... 414 21,715,461.18 5.12
55,001 - 60,000...... 401 23,135,230.17 5.45
60,001 - 65,000...... 347 21,809,396.50 5.14
65,001 - 70,000...... 276 18,710,162.16 4.41
70,001 - 75,000...... 247 17,989,533.71 4.24
75,001 - 80,000...... 204 15,811,582.63 3.72
80,001 - 85,000...... 156 12,925,651.70 3.04
85,001 - 90,000...... 152 13,309,656.84 3.14
90,001 - 95,000...... 107 9,898,030.27 2.33
95,001 - 100,000...... 121 11,827,746.45 2.79
100,001 - 150,000...... 572 68,296,556.13 16.09
150,001 - 200,000...... 171 28,996,719.53 6.83
200,001 - 250,000...... 75 16,835,964.48 3.97
250,001 - 300,000...... 38 10,159,552.57 2.39
300,001 - 350,000...... 16 5,211,293.05 1.23
350,001 - 400,000...... 6 2,144,615.51 0.51
400,001 - 450,000...... 4 1,713,766.99 0.40
450,001 - 500,000...... 3 1,450,894.29 0.34
500,001 - 550,000...... 3 1,622,153.10 0.38
600,000 - 650,000...... 1 639,230.31 0.15
650,001 - 700,000...... 1 700,000.00 0.16
----- --------------- ------
TOTAL............... 7,153 $424,488,283.66 100.00%
===== =============== ======
</TABLE>
S-51
<PAGE> 52
GROUP I
DISTRIBUTION OF PROPERTY TYPES
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
SF Detached/De Min PUD............. 6,218 $372,786,183.09 87.82%
SF Row House/Townhouse/Condo....... 344 16,617,216.94 3.92
Two to Four Family Homes........... 287 19,692,672.65 4.64
Prefabricated Single Family........ 297 14,604,158.79 3.44
Other.............................. 7 788,052.19 0.18
----- --------------- ------
TOTAL.......................... 7,153 $424,488,283.66 100.00%
===== =============== ======
</TABLE>
GROUP I
DISTRIBUTION OF OCCUPANCY STATUS
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
OCCUPANCY STATUS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Non-Investor owned *............... 6,613 $397,280,053.05 93.59%
Investor owned..................... 540 27,208,230.61 6.41
----- --------------- ------
TOTAL.......................... 7,153 $424,488,283.66 100.00%
===== =============== ======
</TABLE>
- ----------
* Includes vacation and second homes.
GROUP I
DISTRIBUTION OF SEASONING
<TABLE>
<CAPTION>
MONTHS ELAPSED NUMBER OF AGGREGATE % OF AGGREGATE
SINCE ORIGINATION MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
0 - 6.......................... 6,683 $407,835,840.01 96.08%
7 - 12.......................... 75 4,788,576.38 1.13
13 - 24.......................... 20 1,802,760.74 0.42
25 - 36.......................... 1 44,849.57 0.01
49 - 60.......................... 1 85,774.89 0.02
73 - 84.......................... 299 8,236,661.94 1.94
85 - 96.......................... 24 677,395.49 0.16
97 - 108.......................... 16 319,819.29 0.08
109 - 120.......................... 17 298,524.93 0.07
121 - 132.......................... 13 371,921.42 0.09
133 - 144.......................... 4 26,159.00 0.01
----- --------------- ------
TOTAL............................ 7,153 $424,488,283.66 100.00%
===== =============== ======
</TABLE>
S-52
<PAGE> 53
GROUP II
The Mortgage Loans in the Group II Statistic Calculation Pool consist of
3,873 loans under which the related Mortgaged Properties are located in 49
states and the District of Columbia, as set forth herein. The Mortgage Loans in
Group II had an aggregate principal balance of $336,455,575.02, the minimum
principal balance of any of such Mortgage Loans was $10,000, the maximum
principal balance thereof was $572,944.48 and the average principal balance of
such Mortgage Loans was approximately $86,872.08. The weighted average current
Coupon Rate of the Mortgage Loans in Group II was 10.46% and the weighted
average margin was 6.25%.
The Mortgage Loans in Group II have original terms to stated maturity from
120 months to 360 months, remaining terms to stated maturity from 119 months to
360 months, a weighted average remaining term to stated maturity of 357 months,
a weighted average original term to stated maturity of 358 months and a weighted
average seasoning of 1 month. No Mortgage Loan in Group II had a stated maturity
later than March 20, 2028. 99.99% of the Mortgage Loans in Group II by aggregate
principal balance require monthly payments of principal that will fully amortize
such Mortgage Loans by their respective maturity dates. 0.01% of the Mortgage
Loans by aggregate principal balance are represented by balloon loans.
The weighted average CLTV of the Mortgage Loans included in Group II was
78.34%. 99.98% of the Mortgage Loans in Group II were secured by first
mortgages.
97.10% of the Mortgage Loans in Group II bear interest (in some instances,
following an initial fixed-rate period) at a six-month LIBOR rate, plus a
margin. 95.28% are indexed on the average of the six-month LIBOR rates based on
quotations at five major banks as set forth in the "Money Rates" section of The
Wall Street Journal, Western Edition, on the first business day of the month;
0.01% are indexed on the average of the COFI rates based on quotations by
calling the 11th District "FHLB" out of San Francisco the last business day of
month after 3:00 PM; 0.08% are indexed on the average of the six-month LIBOR
rates based on quotations at five major banks as set forth in the "Money Rates"
section of The Wall Street Journal, Western Edition, on the 15th day of the
month; 0.72% are indexed on the average of the six-month LIBOR rates based on
quotations of major banks, as published by the Federal National Mortgage
Association ("FNMA"), on the first business day of the month; 0.88% are indexed
on the average of the six-month LIBOR rates based on quotations at five major
banks as set forth in the "Money Rates" section of the Wall Street Journal,
Western Edition, on the most recent daily quote available; 0.14% are indexed on
the average of the six-month LIBOR rates based on quotations at five major banks
as set forth in the "Money Rates" section of The Wall Street Journal, Western
Edition, on the last business day of the month; 0.01% are indexed on the weekly
average of the three-year constant maturity treasury and 2.88% are indexed on
the weekly average of the one-year constant maturity treasury.
With respect to the Mortgage Loans in Group II, 64.43% of such Mortgage
Loans bear interest at a fixed rate of interest for a two-year period following
origination, 18.19% of such Mortgage Loans bear interest at a fixed rate of
interest for a three-year period following origination, 7.55% of such Mortgage
Loans bear interest at a fixed rate of interest for a five-year period following
origination. After such initial periods, such Mortgage Loans bear interest at
adjustable rates, as described above.
97.10% of the loans in Group II have semi-annual interest rate and
semi-annual payment adjustment frequencies. 2.9% of the loans in Group II have
annual interest rate and annual payment adjustment frequencies. The margins for
the Mortgage Loans in Group II range from 2.95% to 12.1%. 74.25% of the Mortgage
Loans in Group II have a periodic rate adjustment cap of 1%; 22.83% of such
Mortgage Loans have a periodic rate adjustment cap of 1.5%; 2.89% of the
Mortgage Loans in Group II have a periodic rate adjustment cap of 2%; 0.03% have
a periodic rate adjustment cap of 3%. 45.48% of the Mortgage Loans in Group II
have a lifetime cap of 7%; 20.82% have a lifetime cap of 6.5%; 32.94% have a
lifetime cap of 6% and 0.76% have other lifetime caps. The weighted average
number of months until the next reset date is approximately 25 months. The
weighted average maximum Coupon Rate was approximately 17.03%, with maximum
Coupon Rates that range from 13.00% to 23.49%. The weighted average minimum
Coupon Rate was approximately 9.67%, with minimum Coupon Rates that range from
3.75% to 16.99%.
The following tables describe the Group II Mortgage Loans and the related
Mortgaged Properties based upon the Group II Statistic Calculation Pool as of
the opening of business on the Cut-Off Date.
S-53
<PAGE> 54
GROUP II
GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>
STATE NUMBER OF AGGREGATE % OF AGGREGATE
MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
-------------- ----------------- -----------------
<S> <C> <C> <C>
Alabama ............ 9 $ 637,833.99 0.19%
Alaska ............. 1 106,250.00 0.03
Arkansas ........... 6 301,087.16 0.09
Arizona ............ 79 7,352,571.92 2.19
California ......... 229 36,733,620.47 10.92
Colorado ........... 94 10,404,122.48 3.09
Connecticut ........ 55 5,740,092.57 1.71
Delaware ........... 12 922,357.00 0.27
District of Columbia 1 136,670.00 0.04
Florida ............ 129 11,591,739.94 3.45
Georgia ............ 28 2,535,704.74 0.75
Hawaii ............. 3 592,310.68 0.18
Iowa ............... 47 2,307,130.06 0.69
Idaho .............. 27 2,219,179.59 0.66
Illinois ........... 118 12,060,158.67 3.58
Indiana ............ 99 6,516,321.13 1.94
Kansas ............. 28 2,032,383.83 0.60
Kentucky ........... 45 2,734,568.38 0.81
Louisiana .......... 25 2,175,156.37 0.65
Maine .............. 4 350,041.35 0.10
Maryland ........... 61 7,244,724.37 2.15
Massachusetts ...... 47 4,273,858.63 1.27
Michigan ........... 1,339 93,140,259.44 27.68
Minnesota .......... 65 5,329,959.07 1.58
Mississippi ........ 3 130,730.69 0.04
Missouri ........... 31 2,024,726.22 0.60
Montana ............ 9 838,509.62 0.25
Nebraska ........... 8 451,128.56 0.13
Nevada ............. 60 6,065,622.85 1.80
New Hampshire ...... 5 364,865.73 0.11
New Jersey ......... 109 12,829,541.86 3.81
New Mexico ......... 23 2,141,347.86 0.64
New York ........... 72 8,003,759.68 2.38
North Carolina ..... 67 4,649,621.75 1.38
Ohio ............... 256 18,691,860.61 5.56
Oklahoma ........... 29 2,273,390.52 0.68
Oregon ............. 119 13,507,599.50 4.01
Pennsylvania ....... 98 8,253,139.18 2.45
Rhode Island ....... 9 822,897.58 0.24
South Carolina ..... 11 1,547,468.21 0.46
South Dakota ....... 8 419,292.33 0.12
Tennessee .......... 50 3,577,877.04 1.06
Texas .............. 67 5,715,482.29 1.70
Utah ............... 66 6,775,033.24 2.01
Vermont ............ 4 326,150.00 0.10
Virginia ........... 44 3,548,398.31 1.05
Washington ......... 90 10,737,374.22 3.19
West Virginia ...... 20 1,247,856.10 0.37
Wisconsin .......... 61 3,809,505.79 1.13
Wyoming ............ 3 264,293.44 0.08
----- --------------- ---------------
TOTAL ........... 3,873 $336,455,575.02 100.00%
===== =============== ===============
</TABLE>
S-54
<PAGE> 55
GROUP II
DISTRIBUTION OF CLTVS
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
CLTV RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----------- -------------- ----------------- -----------------
<S> <C> <C> <C>
90.01 - 95.00%.... 8 $ 962,503.81 0.29%
85.01 - 90.00..... 426 44,378,265.56 13.19
80.01 - 85.00..... 1,038 97,449,811.26 28.96
75.01 - 80.00..... 1,049 91,980,405.00 27.34
70.01 - 75.00..... 476 42,621,769.60 12.67
65.01 - 70.00..... 299 22,582,736.75 6.71
60.01 - 65.00..... 252 17,481,140.65 5.20
55.01 - 60.00..... 103 6,679,878.48 1.99
50.01 - 55.00..... 70 4,409,110.30 1.31
00.01 - 50.00..... 152 7,909,953.61 2.35
----- --------------- ------
TOTAL............ 3,873 $336,455,575.02 100.00%
===== =============== ======
</TABLE>
GROUP II
DISTRIBUTION OF LTVS
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
LTV RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------- -------------- ----------------- -----------------
<S> <C> <C> <C>
90.01 - 95.00%.... 9 $ 1,090,206.10 0.32%
85.01 - 90.00..... 424 44,086,735.71 13.10
80.01 - 85.00..... 1,042 98,044,824.42 29.14
75.01 - 80.00..... 1,046 91,556,241.10 27.21
70.01 - 75.00..... 476 42,614,747.90 12.67
65.01 - 70.00..... 299 22,604,737.49 6.72
60.01 - 65.00..... 252 17,459,139.91 5.19
55.01 - 60.00..... 103 6,679,878.48 1.99
50.01 - 55.00..... 70 4,409,110.30 1.31
00.01 - 50.00..... 152 7,909,953.61 2.35
----- --------------- ------
TOTAL............ 3,873 $336,455,575.02 100.00%
===== =============== ======
</TABLE>
GROUP II
DISTRIBUTION OF JUNIOR LIEN RATIOS
(JUNIOR LIENS ONLY)
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
JUNIOR LIEN RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
90.001 - 100.000%.. 1 $ 65,000.00 100.00%
-- ----------- ------
TOTAL............. 1 $ 65,000.00 100.00%
== =========== ======
</TABLE>
S-55
<PAGE> 56
GROUP II
DISTRIBUTION OF CURRENT COUPON RATES
<TABLE>
<CAPTION>
RANGE OF CURRENT NUMBER OF AGGREGATE % OF AGGREGATE
COUPON RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
5.001 - 6.000%...... 1 $ 39,500.00 0.01%
6.001 - 7.000....... 5 356,432.78 0.11
7.001 - 8.000....... 66 8,911,456.44 2.65
8.001 - 9.000....... 291 36,959,670.18 10.99
9.001 -10.000....... 819 86,950,454.30 25.84
10.001 -11.000....... 1,316 105,630,467.54 31.40
11.001 -12.000....... 933 66,432,899.85 19.74
12.001 -13.000....... 266 18,902,374.98 5.62
13.001 -14.000....... 83 5,569,356.34 1.66
14.001 -15.000....... 60 4,359,951.27 1.30
15.001 -16.000....... 30 2,192,547.44 0.65
16.001 -17.000....... 3 150,463.90 0.04
----- --------------- ------
TOTAL............. 3,873 $336,455,575.02 100.00%
===== =============== ======
</TABLE>
GROUP II
REMAINING TERM TO
DISTRIBUTION
<TABLE>
<CAPTION>
REMAINING TERM NUMBER OF AGGREGATE % OF AGGREGATE
TO MATURITY MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----------- -------------- ----------------- -----------------
<S> <C> <C> <C>
109 - 120........... 3 $ 164,214.96 0.05%
169 - 180........... 33 1,929,005.19 0.57
217 - 228........... 3 183,768.55 0.05
229 - 240........... 19 1,439,944.13 0.43
289 - 300........... 8 588,914.98 0.18
313 - 324........... 1 151,597.39 0.05
349 - 360........... 3,806 331,998,129.82 98.68
----- --------------- ------
TOTAL............. 3,873 $336,455,575.02 100.00%
===== =============== ======
</TABLE>
S-56
<PAGE> 57
GROUP II
DISTRIBUTION OF PRINCIPAL BALANCES
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
5,001 - 10,000....... 1 $ 10,000.00 0.00%
10,001 - 15,000....... 12 171,850.51 0.05
15,001 - 20,000....... 33 617,794.00 0.18
20,001 - 25,000....... 60 1,406,885.62 0.42
25,001 - 30,000....... 116 3,280,350.84 0.97
30,001 - 35,000....... 145 4,783,607.97 1.42
35,001 - 40,000....... 206 7,841,563.32 2.33
40,001 - 45,000....... 198 8,466,928.78 2.52
45,001 - 50,000....... 224 10,716,609.14 3.19
50,001 - 55,000....... 227 11,963,397.74 3.56
55,001 - 60,000....... 283 16,312,536.15 4.85
60,001 - 65,000....... 218 13,684,043.62 4.07
65,001 - 70,000....... 175 11,869,861.51 3.53
70,001 - 75,000....... 175 12,679,766.40 3.77
75,001 - 80,000....... 167 12,955,603.68 3.85
80,001 - 85,000....... 158 13,078,926.18 3.89
85,001 - 90,000....... 142 12,463,877.31 3.70
90,001 - 95,000....... 104 9,630,166.84 2.86
95,001 - 100,000...... 137 13,394,546.03 3.98
100,001 - 150,000...... 664 80,091,120.81 23.80
150,001 - 200,000...... 252 43,452,576.73 12.91
200,001 - 250,000...... 96 21,160,595.83 6.29
250,001 - 300,000...... 37 10,043,197.31 2.98
300,001 - 350,000...... 20 6,490,837.92 1.93
350,001 - 400,000...... 13 4,844,643.28 1.44
400,001 - 450,000...... 1 420,000.00 0.12
450,001 - 500,000...... 4 1,942,711.44 0.58
500,001 - 550,000...... 3 1,546,854.91 0.46
550,001 - 600,000...... 2 1,134,721.15 0.34
----- --------------- ------
TOTAL............... 3,873 $336,455,575.02 100.00%
===== =============== ======
</TABLE>
S-57
<PAGE> 58
GROUP II
DISTRIBUTION OF PROPERTY TYPES
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
PROPERTY TYPE LOANS BALANCE BALANCE
------------- ----- ------- -------
<S> <C> <C> <C>
SF Detached/De Min PUD....... 3,459 $303,457,760.04 90.19%
SF Row House/Townhouse/Condo. 118 9,332,916.87 2.77
Two to Four Family Homes..... 174 15,067,512.87 4.48
Prefabricated Single Family 118 8,010,084.38 2.38
Other........................ 4 587,300.86 0.17
----- --------------- ------
TOTAL..................... 3,873 $336,455,575.02 100.00%
===== =============== ======
</TABLE>
GROUP II
DISTRIBUTION OF OCCUPANCY STATUS
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
MORTGAGE PRINCIPAL PRINCIPAL
OCCUPANCY STATUS LOANS BALANCE BALANCE
---------------- ----- ------- -------
<S> <C> <C> <C>
Non-Investor owned *..... 3,601 $317,906,501.60 94.49%
Investor owned........... 272 18,549,073.42 5.51
----- --------------- ------
TOTAL................. 3,873 $336,455,575.02 100.00%
===== =============== ======
</TABLE>
- -----------------------
* Includes vacation and second homes.
GROUP II
DISTRIBUTION OF SEASONING
<TABLE>
<CAPTION>
MONTHS ELAPSED NUMBER OF AGGREGATE % OF AGGREGATE
SINCE ORIGINATION MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
0 - 6.............. 3,827 $332,631,502.92 98.86%
7 - 12.............. 44 3,625,289.73 1.08
37 - 48.............. 1 151,597.39 0.05
121 - 132............. 1 47,184.98 0.01
----- --------------- ------
TOTAL................ 3,873 $336,455,575.02 100.00%
===== =============== ======
</TABLE>
S-58
<PAGE> 59
GROUP II
DISTRIBUTION OF MAXIMUM COUPON RATES
<TABLE>
<CAPTION>
RANGE OF MAXIMUM NUMBER OF AGGREGATE % OF AGGREGATE
COUPON RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
13.000 to 13.499%... 2 $ 107,000.00 0.03
13.500 to 13.999.... 11 1,405,148.19 0.42
14.000 to 14.499.... 28 3,130,579.51 0.93
14.500 to 14.999.... 68 9,844,858.46 2.93
15.000 to 15.499.... 132 16,656,490.84 4.95
15.500 to 15.999.... 364 36,035,487.67 10.71
16.000 to 16.499.... 777 68,108,093.61 20.24
16.500 to 16.999.... 491 47,002,412.55 13.97
17.000 to 17.499.... 561 45,079,636.95 13.40
17.500 to 17.999.... 643 47,425,657.71 14.10
18.000 to 18.499.... 269 22,066,892.90 6.56
18.500 to 18.999.... 190 15,409,256.64 4.58
19.000 to 19.499.... 122 8,820,077.27 2.62
19.500 to 19.999.... 75 5,323,314.27 1.58
20.000 to 20.499.... 34 2,662,103.65 0.79
20.500 to 20.999.... 36 2,476,571.87 0.74
21.000 to 21.499.... 33 2,431,030.03 0.72
21.500 to 21.999.... 26 1,738,831.59 0.52
22.000 to 22.499.... 5 455,491.62 0.14
22.500 to 22.999.... 4 161,925.79 0.05
23.000 to 23.499.... 2 114,713.90 0.03
----- --------------- ------
TOTAL........... 3,873 $336,455,575.02 100.00%
===== =============== ======
</TABLE>
S-59
<PAGE> 60
GROUP II
DISTRIBUTION OF MINIMUM COUPON RATES
<TABLE>
<CAPTION>
RANGE OF MINIMUM NUMBER OF AGGREGATE % OF AGGREGATE
COUPON RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
3.500 to 3.999%. 4 $ 710,865.40 0.21%
4.000 to 4.499.. 7 889,661.73 0.26
4.500 to 4.999.. 13 1,293,406.74 0.38
5.000 to 5.499.. 74 7,212,632.11 2.14
5.500 to 5.999.. 208 16,765,757.99 4.98
6.000 to 6.499.. 128 12,189,822.40 3.62
6.500 to 6.999.. 93 7,371,683.45 2.19
7.000 to 7.499.. 45 4,429,089.63 1.32
7.500 to 7.999.. 50 5,913,538.19 1.76
8.000 to 8.499.. 84 9,584,909.81 2.85
8.500 to 8.999.. 355 39,781,744.62 11.82
9.000 to 9.499.. 176 19,295,204.35 5.73
9.500 to 9.999.. 429 45,236,791.18 13.45
10.000 to 10.499.. 690 52,584,917.27 15.63
10.500 to 10.999.. 401 35,233,254.22 10.47
11.000 to 11.499.. 362 25,400,225.42 7.55
11.500 to 11.999.. 413 28,292,808.18 8.41
12.000 to 12.499.. 129 9,537,981.48 2.83
12.500 to 12.999.. 63 4,122,168.52 1.23
13.000 to 13.499.. 42 2,563,472.02 0.76
13.500 to 13.999.. 22 1,615,072.94 0.48
14.000 to 14.499.. 23 1,825,636.28 0.54
14.500 to 14.999.. 28 2,215,080.24 0.66
15.000 to 15.499.. 25 1,759,640.01 0.52
15.500 to 15.999.. 6 479,746.94 0.14
16.000 to 16.499.. 1 35,750.00 0.01
16.500 to 16.999.. 2 114,713.90 0.03
----- --------------- ------
TOTAL............ 3,873 $336,455,575.02 100.00%
===== =============== ======
</TABLE>
GROUP II
DISTRIBUTION OF MARGINS
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
MARGINS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------- -------------- ----------------- -----------------
<S> <C> <C> <C>
2.01 to 3.00%.. 11 $ 1,530,001.46 0.45%
3.01 to 4.00... 98 10,585,605.87 3.15
4.01 to 5.00... 407 42,902,665.28 12.75
5.01 to 6.00... 823 81,851,748.25 24.33
6.01 to 7.00... 1,416 118,018,439.12 35.08
7.01 to 8.00... 861 62,404,896.54 18.55
8.01 to 9.00... 185 14,233,217.05 4.23
9.01 to 10.00... 61 4,156,108.31 1.24
10.01 to 11.00... 10 729,672.15 0.22
12.01 to 13.00... 1 43,220.99 0.01
----- --------------- ------
TOTAL........... 3,873 $336,455,575.02 100.00%
===== =============== ======
</TABLE>
S-60
<PAGE> 61
GROUP II
NEXT INTEREST ADJUSTMENT DATE DISTRIBUTION
<TABLE>
<CAPTION>
NEXT INTEREST NUMBER OF AGGREGATE % OF AGGREGATE
ADJUSTMENT DATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
--------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
March, 1998 ... 11 $ 1,602,921.52 0.48%
April, 1998 ... 15 1,209,939.93 0.36
May, 1998 ..... 19 1,578,959.29 0.47
June, 1998 .... 72 7,172,814.24 2.13
July, 1998 .... 86 8,846,895.04 2.63
August, 1998 .. 47 3,341,397.54 0.99
September, 1998 10 1,153,429.11 0.34
October, 1998 . 7 929,354.44 0.28
November, 1998 16 1,881,854.21 0.56
December, 1998 12 935,160.17 0.28
January, 1999 . 13 2,152,963.50 0.64
February, 1999 14 1,476,894.17 0.44
March, 1999 ... 7 948,300.00 0.28
April, 1999 ... 2 226,926.03 0.07
May, 1999 ..... 4 252,458.11 0.08
June, 1999 .... 6 453,714.13 0.13
July, 1999 .... 13 954,149.17 0.28
August, 1999 .. 5 253,377.91 0.08
September, 1999 27 2,624,005.78 0.78
October, 1999 . 63 5,626,018.64 1.67
November, 1999 117 11,380,720.13 3.38
December, 1999 396 39,812,427.95 11.83
January, 2000 . 941 81,050,755.23 24.09
February, 2000 632 47,312,147.01 14.06
March, 2000 ... 392 26,627,630.30 7.91
April, 2000 ... 4 240,393.30 0.07
May, 2000 ..... 1 68,747.84 0.02
June, 2000 .... 1 153,603.65 0.05
July, 2000 .... 2 257,501.99 0.08
August, 2000 .. 2 174,679.66 0.05
September, 2000 3 270,006.94 0.08
October, 2000 . 17 1,779,360.29 0.53
November, 2000 47 4,330,148.87 1.29
December, 2000 142 12,670,182.51 3.77
January, 2001 . 252 23,003,811.69 6.84
February, 2001 167 14,179,708.83 4.21
March, 2001 ... 46 4,127,246.05 1.23
November, 2002 6 647,399.72 0.19
December, 2002 47 4,653,486.35 1.38
January, 2003 . 71 7,022,897.76 2.09
February, 2003 101 9,707,803.73 2.89
March, 2003 ... 37 3,363,382.29 1.00
----- --------------- ------
TOTAL ........ 3,873 $336,455,575.02 100.00%
===== =============== ======
</TABLE>
S-61
<PAGE> 62
PREPAYMENT AND YIELD CONSIDERATIONS
The weighted average life of, and, if purchased at other than par, the
yield to maturity on an Offered Certificate will be directly related to the rate
of payment of principal of the Mortgage Loans in the related Group, including
for this purpose voluntary payment in whole or in part of Mortgage Loans in the
Group prior to stated maturity (a "Prepayment"), liquidations due to defaults,
casualties and condemnations, and repurchases of Mortgage Loans in the related
Group by the Sponsor, the Originators or the Master Servicer. The actual rate of
principal prepayments on pools of mortgage loans is influenced by a variety of
economic, tax, geographic, demographic, social, legal and other factors and has
fluctuated considerably in recent years. In addition, the rate of principal
prepayments may differ among pools of mortgage loans at any time because of
specific factors relating to the mortgage loans in the particular pool,
including, among other things, the age of the mortgage loans, the geographic
locations of the properties securing the loans and the extent of the mortgagors'
equity in such properties, and changes in the mortgagors' housing needs, job
transfers and unemployment.
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
prepayments 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. Investors must make their own decisions as to
the appropriate prepayment assumptions to be used in deciding whether to
purchase any of the Offered Certificates. The Sponsor makes no representations
or warranties as to the rate of prepayment or the factors to be considered in
connection with such determination.
PROJECTED PREPAYMENTS AND YIELDS FOR OFFERED CERTIFICATES (OTHER THAN THE CLASS
A-IO CERTIFICATES)
If purchased at other than par, the yield to maturity on an Offered
Certificate will be affected by the rate of the payment of principal of the
Mortgage Loans in the related Group. If the actual rate of payments on the
Mortgage Loans in the related Group is slower than the rate anticipated by an
investor who purchases an Offered Certificate of the related class at a
discount, the actual yield to such investor will be lower than such investor's
anticipated yield. If the actual rate of payments on the Mortgage Loans in the
related Group is faster than the rate anticipated by an investor who purchases
an Offered Certificate of the related class at a premium, the actual yield to
such investor will be lower than such investor's anticipated yield.
The Mortgage Loans in Group I are fixed-rate mortgage loans. The rate of
prepayments with respect to conventional fixed rate mortgage loans has
fluctuated significantly in recent years. In general, if prevailing interest
rates fall significantly below the interest rates on fixed rate mortgage loans,
such mortgage loans are likely to be subject to higher prepayment rates than if
prevailing rates remain at or above the interest rate on such mortgage loans.
However, the monthly payment on mortgage loans similar to the Mortgage Loans is
often smaller than the monthly payment on a purchase-money first mortgage loan.
Consequently, a decrease in the interest rate payable as a result of a
refinancing would result in a relatively small reduction in the amount of the
Mortgagor's monthly payment, as a result of the relatively small loan balance.
Conversely, if prevailing interest rates rise appreciably above the interest
rates on fixed rate mortgage loans, such mortgage loans are likely to experience
a lower prepayment rate than if prevailing rates remain at or below the interest
rates on such mortgage loans. 72.40% of the Mortgage Loans in the Group I
Statistic Calculation Pool by aggregate principal balance had prepayment
penalties.
All of the Mortgage Loans in Group II are adjustable rate mortgage loans.
As is the case with conventional fixed rate mortgage loans, adjustable rate
mortgage loans may be subject to a greater rate of principal prepayments in a
declining interest rate environment. For example, if prevailing interest rates
fall significantly, adjustable rate mortgage loans could be subject to higher
prepayment rates than if prevailing interest rates remain constant because the
availability of fixed-rate mortgage loans at competitive interest rates may
encourage mortgagors to refinance their adjustable rate mortgage loans to "lock
in" a lower fixed interest rate. However, no assurance can be given as to the
level of prepayments that the Mortgage Loans will experience. 78.28% of the
Mortgage Loans in the Group II Statistic Calculation Pool by aggregate principal
balance had prepayment penalties.
S-62
<PAGE> 63
The Final Scheduled Payment Dates for the Class A-1, Class A-2, Class A-3,
Class A-4 and Class A-8 Certificates have been calculated based on 0% CPR with
no Monthly Excess Cashflow Amounts used to make prepayments of principal to the
Owners of the related Offered Certificates, plus 13 months, and on the
assumptions specified below in this section. The Final Scheduled Payment Dates
for the Class A-5, Class A-6, Class A-7, Class M-1, Class M-2 and Class B-1
Certificates have been calculated assuming that the Mortgage Loan in the related
Group having the latest maturity amortizes according to its terms.
TAC CERTIFICATES
Distributions of principal of the Class A-2 through A-6 Certificates (the
"TAC Certificates") are intended to be relatively stable because such
distributions will be made in accordance with the schedules of the respective
Targeted Principal Balances of such Certificates contained in Annex I, so long
as prepayments on the Mortgage Loans in Group I occur at rates that are neither
too fast nor too slow to support such schedules. There is no assurance that the
Certificate Principal Balances of the Class A-2, Class A-3, Class A-4, and Class
A-5 Certificates will conform on any Remittance Date to the applicable balances
specified for such Remittance Date in the Targeted Balance Schedules contained
in Annex I, or that distributions of principal will begin or end on the
respective Remittance Dates specified therein.
The Mortgage Loans in Group I will have characteristics that differ from
those implicit in the Prepayment Assumption. The initial Effective Range, if
calculated using the actual characteristics of the Mortgage Loans in Group I,
could differ from that shown. Therefore, even if Mortgage Loans were to prepay
at a constant rate within the initial Effective Range shown, but near its upper
or lower end, one or more Classes of TAC Certificates could fail to adhere to
its Targeted Principal Balances schedule. Moreover, the Mortgage Loans in Group
I will not prepay at any constant rate. Non-constant prepayment rates can cause
any Class of TAC Certificates not to adhere to its Targeted Principal Balances
schedule, even if such rates remain within the initial Effective Range.
The principal payment stability of the TAC Certificates will be supported
by Component I, which is a "companion" certificate. When Component I is retired,
any outstanding Class of TAC Certificates will no longer have an Effective Range
and will become more sensitive to Mortgage Loan prepayments in Group I.
If the Mortgage Loans in Group I prepay at rates that are generally below
the Effective Range, the Class A Principal Distribution Amount for Group I may
be insufficient to reduce one or more Classes of TAC Certificates to their
Targeted Principal Balance, and the weighted average lives may be extended,
perhaps significantly. If such Mortgage Loans prepay at rates that are generally
above the Effective Range, the weighted average life of one or more Classes of
TAC Certificates may be shortened, perhaps significantly. However, the weighted
average lives of one or more Classes of TAC Certificates could be extended under
certain scenarios involving Mortgage Loan prepayments in Group I at rates that
are generally above the Effective Range. The entire Class A Principal
Distribution Amount for Group I will be distributed monthly on each Payment Date
and will not be retained for distribution on subsequent Payment Dates. Thus, the
likelihood that the TAC Certificates will adhere to their Targeted Principal
Balances schedules will not be enhanced by averaging high and low principal
payments in different months.
THE CLASS A-7 CERTIFICATES
Component I is the "companion class" to the Class A-2 through Class A-5
Group I Certificates, which are the "Targeted Amortization Classes" ("TACs")
issued with respect to Group I; consequently, as a result of the TAC structure,
a substantial portion of the prepayment risk of the Group I Mortgage Loans will
accrue to Component I. As a result, the prepayment characteristics and the
weighted average life of Component I will be difficult to evaluate or predict.
The other component of the Class A-7 Certificates, Component II, will
amortize in accordance with the pay-down rules applicable to Group II, which
pay-down rules reflect a senior-subordinate structure subject to various
triggers which affect the rate of Component II's amortization.
S-63
<PAGE> 64
As a result of the foregoing, the amortization of the Class A-7
Certificates will be subject to several factors, including the underlying
prepayment rates on both Group I and Group II and the paydown rules applicable
to Group II only, each of which is independent of the other factor.
Consequently, the prepayment characteristics and the weighted average life of
the Class A-7 Certificates will be difficult to predict or evaluate.
PREPAYMENT ASSUMPTIONS
"Weighted average life" refers to the average amount of time that will
elapse from the date of issuance of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average life of the
Offered Certificates of each class will be influenced by the rate at which
principal payments on the Mortgage Loans in the related Mortgage Loan Pool are
paid, which may be in the form of scheduled amortization, accelerated
amortization or prepayments (for this purpose, the term "prepayment" includes
Prepayments and liquidations due to default) or as a result of an early
termination of the Trust.
The model used in this Prospectus Supplement is a prepayment assumption
(the "Prepayment Assumption") which represents an assumed rate of prepayment
each month relative to the then outstanding principal balance of a pool of
mortgage loans for the life of such mortgage loans. The "100% Prepayment
Assumption" assumes a conditional prepayment rate of 3% per annum of the then
outstanding principal balance of the Mortgage Loans in the first month of the
life of the Mortgage Loans and an additional 1.55% (precisely, 17/11%) per annum
in each month thereafter until the twelfth month. Beginning in the twelfth month
and in each month thereafter during the life of the Mortgage Loans, the 100%
Prepayment Assumption assumes a conditional prepayment rate of 20% per annum
each month. As used in the table below, 0% Prepayment Assumption assumes
prepayment rates equal to 0% of the Prepayment Assumption, i.e., no prepayments
on the synthetic mortgage loans having the characteristics described below.
Correspondingly, 100% Prepayment Assumption assumes prepayment rates equal to
100% of the Prepayment Assumption, and so forth. The Prepayment Assumption does
not purport to be a historical description of prepayment experience or a
prediction of the anticipated rate of prepayment of any pool of mortgage loans,
including the related Mortgage Loans. The Sponsor 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 tables below were prepared on the basis of the assumptions in the
following paragraph and there are discrepancies between the characteristics of
the actual Mortgage Loans and the characteristics of the Mortgage Loans assumed
in preparing the tables. Any such discrepancy may have an effect upon the
percentages of the Class A Certificate Principal Balances outstanding and the
weighted average lives of the Offered Certificates set forth in the tables. In
addition, since the actual Mortgage Loans in each Group have characteristics
which differ from those assumed in preparing the tables set forth below, the
distributions of principal on the Offered Certificates may be made earlier or
later than as indicated in the tables.
For the purpose of the tables below, it is assumed that:
(i) the Mortgage Loans consist of synthetic mortgage loans having
the characteristics set forth below,
(ii) the Closing Date is March 19, 1998,
(iii) distributions on the Certificates are made on the 25th day of
each month regardless of the day on which the Payment Date
actually occurs, commencing in April, 1998 in accordance with
the priorities described herein,
(iv) all prepayments are prepayments in full and include 30 days'
interest thereon,
(v) no early termination of the Trust occurs,
(vi) no Mortgage Loan is ever delinquent,
(vii) the assumed levels of one-month LIBOR, six-month LIBOR, and
CMT are 5.6875%, 5.71484% and 5.43%, respectively, and
(viii) Offered Certificates have the respective pass-through rates
and original principal balances as set forth herein.
S-64
<PAGE> 65
PREPAYMENT SCENARIOS
<TABLE>
<CAPTION>
Scenario I Scenario II Scenario III Scenario IV Scenario V Scenario VI Scenario VII
---------- ----------- ------------ ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Group I(1)........ 0% 50% 100% 115% 175% 200% 250%
Group II(2)....... 0% 10% 20% 25% 30% 40% 50%
</TABLE>
- ------------------------
(1) As a percentage of the Prepayment Assumption.
(2) As a conditional prepayment rate (CPR) percentage.
GROUP I
<TABLE>
<CAPTION>
ORIGINAL REMAINING ORIGINAL
GROSS TERM TO TERM TO AMORTIZATION
COUPON MATURITY MATURITY TERM AMORTIZATION
PRINCIPAL BALANCE RATE (MONTHS) (MONTHS) (MONTHS) METHOD
- ----------------- ---- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
$102,282,632.92 10.993 360 358 360 Level Pay
$110,875,737.63 10.667 180 169 171 Balloon
$85,117,476.49 10.240 237 236 237 Level Pay
$201,724,152.96 10.499 358 356 358 Level Pay
</TABLE>
S-65
<PAGE> 66
GROUP II
<TABLE>
<CAPTION>
PERIODIC
GROSS NEXT RATE CAP PERIODIC CAP
PRINCIPAL COUPON ADJUSTMENT (FIRST RESET (SUBSEQUENT LIFE LIFE
BALANCE RATE DATE MARGIN DATE) RESET DATES) CAP FLOOR
------- ---- ---- ------ ----- ------------ --- -----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 2,734,114.56 10.027% 5/1/98 5.150% 0.828% 1.010% 16.835% 6.499%
1,192,184.62 10.560 6/1/98 6.205 1.267 1.267 17.360 9.868
1,833,975.81 10.856 7/1/98 6.701 1.164 1.240 17.616 9.536
10,132,058.71 10.309 8/1/98 6.193 1.227 1.276 17.047 9.249
12,809,237.72 10.567 9/1/98 6.507 1.392 1.392 17.159 9.975
2,046,369.73 9.496 10/1/98 5.766 0.806 1.087 16.293 8.069
266,666,666.65 10.578 3/1/00 6.548 2.966 1.167 16.990 10.264
74,304,298.69 10.361 1/1/01 6.019 2.992 1.109 17.137 8.608
17,777,777.78 10.262 3/1/03 4.960 1.742 1.042 17.224 8.909
453,717.16 10.108 6/1/98 6.239 2.044 2.000 17.108 8.012
8,798,341.70 9.528 2/1/99 5.241 1.166 2.000 16.394 8.197
1,251,256.87 10.544 10/1/00 5.962 3.000 2.000 16.923 10.544
</TABLE>
<TABLE>
<CAPTION>
ORIGINAL REMAINING
TERM TO TERM TO
MATURITY MATURITY RESET
(MONTHS) (MONTHS) INDEX FREQUENCY
-------- -------- ----- ---------
<S> <C> <C> <C>
360 355 6 Month Libor Semi-annual
360 356 6 Month Libor Semi-annual
360 357 6 Month Libor Semi-annual
358 356 6 Month Libor Semi-annual
350 349 6 Month Libor Semi-annual
360 360 6 Month Libor Semi-annual
359 358 6 Month Libor Semi-annual
354 353 6 Month Libor Semi-annual
356 355 6 Month Libor Semi-annual
360 357 1Year CMT Annual
360 358 1Year CMT Annual
358 352 1Year CMT Annual
</TABLE>
S-66
<PAGE> 67
The following tables set forth the percentages of the initial principal
amount of the Offered Certificates that would be outstanding after each of the
dates shown, based on prepayment scenarios described in the table entitled
"Prepayment Scenarios." The percentages have been rounded to the nearest 1%.
PERCENTAGE OF INITIAL CLASS A-1 CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
DATES SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5 SCENARIO 6 SCENARIO 7
----- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3/25/1998 100 100 100 100 100 100 100
3/25/1999 90 66 42 34 4 0 0
3/25/2000 85 30 0 0 0 0 0
3/25/2001 80 0 0 0 0 0 0
3/25/2002 74 0 0 0 0 0 0
3/25/2003 67 0 0 0 0 0 0
3/25/2004 60 0 0 0 0 0 0
3/25/2005 52 0 0 0 0 0 0
3/25/2006 46 0 0 0 0 0 0
3/25/2007 38 0 0 0 0 0 0
3/25/2008 30 0 0 0 0 0 0
3/25/2009 20 0 0 0 0 0 0
3/25/2010 9 0 0 0 0 0 0
3/25/2011 0 0 0 0 0 0 0
3/25/2012 0 0 0 0 0 0 0
3/25/2013 0 0 0 0 0 0 0
3/25/2014 0 0 0 0 0 0 0
3/25/2015 0 0 0 0 0 0 0
3/25/2016 0 0 0 0 0 0 0
3/25/2017 0 0 0 0 0 0 0
3/25/2018 0 0 0 0 0 0 0
3/25/2019 0 0 0 0 0 0 0
3/25/2020 0 0 0 0 0 0 0
3/25/2021 0 0 0 0 0 0 0
3/25/2022 0 0 0 0 0 0 0
3/25/2023 0 0 0 0 0 0 0
3/25/2024 0 0 0 0 0 0 0
3/25/2025 0 0 0 0 0 0 0
3/25/2026 0 0 0 0 0 0 0
3/25/2027 0 0 0 0 0 0 0
3/25/2028 0 0 0 0 0 0 0
Weighted
Average Life
(years):(1) 7.06 1.51 0.93 0.85 0.64 0.59 0.52
</TABLE>
(1) To Maturity
The weighted average life of each indicated class of Offered Certificates
has been determined by (i) multiplying the amount of each principal payment by
the number of years from the date of issuance to the related Payment Date, (ii)
adding the results and (iii) dividing the sum of the initial respective
Certificate Principal Balance for the related Offered Certificates as of the
Closing Date.
S-67
<PAGE> 68
PERCENTAGE OF INITIAL CLASS A-2 CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
DATES SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5 SCENARIO 6 SCENARIO 7
----- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3/25/1998 100 100 100 100 100 100 100
3/25/1999 100 100 100 100 100 100 94
3/25/2000 100 100 66 43 7 0 0
3/25/2001 100 95 0 0 0 0 0
3/25/2002 100 51 0 0 0 0 0
3/25/2003 100 12 0 0 0 0 0
3/25/2004 100 0 0 0 0 0 0
3/25/2005 100 0 0 0 0 0 0
3/25/2006 100 0 0 0 0 0 0
3/25/2007 100 0 0 0 0 0 0
3/25/2008 100 0 0 0 0 0 0
3/25/2009 100 0 0 0 0 0 0
3/25/2010 100 0 0 0 0 0 0
3/25/2011 93 0 0 0 0 0 0
3/25/2012 69 0 0 0 0 0 0
3/25/2013 0 0 0 0 0 0 0
3/25/2014 0 0 0 0 0 0 0
3/25/2015 0 0 0 0 0 0 0
3/25/2016 0 0 0 0 0 0 0
3/25/2017 0 0 0 0 0 0 0
3/25/2018 0 0 0 0 0 0 0
3/25/2019 0 0 0 0 0 0 0
3/25/2020 0 0 0 0 0 0 0
3/25/2021 0 0 0 0 0 0 0
3/25/2022 0 0 0 0 0 0 0
3/25/2023 0 0 0 0 0 0 0
3/25/2024 0 0 0 0 0 0 0
3/25/2025 0 0 0 0 0 0 0
3/25/2026 0 0 0 0 0 0 0
3/25/2027 0 0 0 0 0 0 0
3/25/2028 0 0 0 0 0 0 0
Weighted
Average Life
(years):(1) 14.37 4.11 2.25 2.00 1.73 1.53 1.25
</TABLE>
(1) To Maturity
The weighted average life of each indicated class of Offered Certificates
has been determined by (i) multiplying the amount of each principal payment by
the number of years from the date of issuance to the related Payment Date, (ii)
adding the results and (iii) dividing the sum of the initial respective
Certificate Principal Balance for the related Offered Certificates as of the
Closing Date.
S-68
<PAGE> 69
PERCENTAGE OF INITIAL CLASS A-3 CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
DATES SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5 SCENARIO 6 SCENARIO 7
----- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3/25/1998 100 100 100 100 100 100 100
3/25/1999 100 100 100 100 100 100 100
3/25/2000 100 100 100 100 100 64 0
3/25/2001 100 100 81 41 0 0 0
3/25/2002 100 100 2 0 0 0 0
3/25/2003 100 100 0 0 0 0 0
3/25/2004 100 70 0 0 0 0 0
3/25/2005 100 31 0 0 0 0 0
3/25/2006 100 8 0 0 0 0 0
3/25/2007 100 0 0 0 0 0 0
3/25/2008 100 0 0 0 0 0 0
3/25/2009 100 0 0 0 0 0 0
3/25/2010 100 0 0 0 0 0 0
3/25/2011 100 0 0 0 0 0 0
3/25/2012 100 0 0 0 0 0 0
3/25/2013 65 0 0 0 0 0 0
3/25/2014 48 0 0 0 0 0 0
3/25/2015 29 0 0 0 0 0 0
3/25/2016 7 0 0 0 0 0 0
3/25/2017 0 0 0 0 0 0 0
3/25/2018 0 0 0 0 0 0 0
3/25/2019 0 0 0 0 0 0 0
3/25/2020 0 0 0 0 0 0 0
3/25/2021 0 0 0 0 0 0 0
3/25/2022 0 0 0 0 0 0 0
3/25/2023 0 0 0 0 0 0 0
3/25/2024 0 0 0 0 0 0 0
3/25/2025 0 0 0 0 0 0 0
3/25/2026 0 0 0 0 0 0 0
3/25/2027 0 0 0 0 0 0 0
3/25/2028 0 0 0 0 0 0 0
Weighted
Average Life
(years):(1) 16.14 6.68 3.44 3.00 2.47 2.15 1.71
</TABLE>
(1) To Maturity
The weighted average life of each indicated class of Offered Certificates
has been determined by (i) multiplying the amount of each principal payment by
the number of years from the date of issuance to the related Payment Date, (ii)
adding the results and (iii) dividing the sum of the initial respective
Certificate Principal Balance for the related Offered Certificates as of the
Closing Date.
S-69
<PAGE> 70
PERCENTAGE OF INITIAL CLASS A-4 CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
DATES SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5 SCENARIO 6 SCENARIO 7
----- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3/25/1998 100 100 100 100 100 100 100
3/25/1999 100 100 100 100 100 100 100
3/25/2000 100 100 100 100 100 100 72
3/25/2001 100 100 100 100 70 3 0
3/25/2002 100 100 100 43 0 0 0
3/25/2003 100 100 11 0 0 0 0
3/25/2004 100 100 0 0 0 0 0
3/25/2005 100 100 0 0 0 0 0
3/25/2006 100 100 0 0 0 0 0
3/25/2007 100 74 0 0 0 0 0
3/25/2008 100 36 0 0 0 0 0
3/25/2009 100 0 0 0 0 0 0
3/25/2010 100 0 0 0 0 0 0
3/25/2011 100 0 0 0 0 0 0
3/25/2012 100 0 0 0 0 0 0
3/25/2013 100 0 0 0 0 0 0
3/25/2014 100 0 0 0 0 0 0
3/25/2015 100 0 0 0 0 0 0
3/25/2016 100 0 0 0 0 0 0
3/25/2017 75 0 0 0 0 0 0
3/25/2018 43 0 0 0 0 0 0
3/25/2019 24 0 0 0 0 0 0
3/25/2020 2 0 0 0 0 0 0
3/25/2021 0 0 0 0 0 0 0
3/25/2022 0 0 0 0 0 0 0
3/25/2023 0 0 0 0 0 0 0
3/25/2024 0 0 0 0 0 0 0
3/25/2025 0 0 0 0 0 0 0
3/25/2026 0 0 0 0 0 0 0
3/25/2027 0 0 0 0 0 0 0
3/25/2028 0 0 0 0 0 0 0
Weighted
Average Life
(years):(1) 20.01 9.69 4.62 4.00 3.23 2.77 2.15
</TABLE>
(1) To Maturity
The weighted average life of each indicated class of Offered Certificates
has been determined by (i) multiplying the amount of each principal payment by
the number of years from the date of issuance to the related Payment Date, (ii)
adding the results and (iii) dividing the sum of the initial respective
Certificate Principal Balance for the related Offered Certificates as of the
Closing Date.
S-70
<PAGE> 71
PERCENTAGE OF INITIAL CLASS A-5 CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
DATES SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5 SCENARIO 6 SCENARIO 7
----- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3/25/1998 100 100 100 100 100 100 100
3/25/1999 100 100 100 100 100 100 100
3/25/2000 100 100 100 100 100 100 100
3/25/2001 100 100 100 100 100 100 35
3/25/2002 100 100 100 100 78 45 0
3/25/2003 100 100 100 71 38 14 0
3/25/2004 100 100 67 35 20 4 0
3/25/2005 100 100 38 10 12 2 0
3/25/2006 100 100 26 2 12 2 0
3/25/2007 100 100 10 0 10 2 0
3/25/2008 100 100 0 0 5 0 0
3/25/2009 100 98 0 0 2 0 0
3/25/2010 100 76 0 0 0 0 0
3/25/2011 100 55 0 0 0 0 0
3/25/2012 100 35 0 0 0 0 0
3/25/2013 100 0 0 0 0 0 0
3/25/2014 100 0 0 0 0 0 0
3/25/2015 100 0 0 0 0 0 0
3/25/2016 100 0 0 0 0 0 0
3/25/2017 100 0 0 0 0 0 0
3/25/2018 100 0 0 0 0 0 0
3/25/2019 100 0 0 0 0 0 0
3/25/2020 100 0 0 0 0 0 0
3/25/2021 86 0 0 0 0 0 0
3/25/2022 70 0 0 0 0 0 0
3/25/2023 51 0 0 0 0 0 0
3/25/2024 30 0 0 0 0 0 0
3/25/2025 7 0 0 0 0 0 0
3/25/2026 0 0 0 0 0 0 0
3/25/2027 0 0 0 0 0 0 0
3/25/2028 0 0 0 0 0 0 0
Weighted
Average Life
(years):(1) 25.00 13.26 6.98 5.78 5.37 4.22 2.96
</TABLE>
(1) To Maturity
The weighted average life of each indicated class of Offered Certificates
has been determined by (i) multiplying the amount of each principal payment by
the number of years from the date of issuance to the related Payment Date, (ii)
adding the results and (iii) dividing the sum of the initial respective
Certificate Principal Balance for the related Offered Certificates as of the
Closing Date.
S-71
<PAGE> 72
PERCENTAGE OF INITIAL CLASS A-6 CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
DATES SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5 SCENARIO 6 SCENARIO 7
----- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3/25/1998 100 100 100 100 100 100 100
3/25/1999 100 100 100 100 100 100 100
3/25/2000 100 100 100 100 100 100 100
3/25/2001 100 100 100 100 100 100 100
3/25/2002 99 94 90 88 82 79 70
3/25/2003 98 89 80 78 67 62 32
3/25/2004 96 80 66 62 45 39 13
3/25/2005 94 70 51 46 28 21 4
3/25/2006 85 46 23 18 9 9 0
3/25/2007 76 30 10 7 1 2 0
3/25/2008 67 19 4 3 0 0 0
3/25/2009 57 12 2 1 0 0 0
3/25/2010 48 7 1 0 0 0 0
3/25/2011 39 4 0 0 0 0 0
3/25/2012 30 2 0 0 0 0 0
3/25/2013 3 0 0 0 0 0 0
3/25/2014 2 0 0 0 0 0 0
3/25/2015 2 0 0 0 0 0 0
3/25/2016 1 0 0 0 0 0 0
3/25/2017 1 0 0 0 0 0 0
3/25/2018 1 0 0 0 0 0 0
3/25/2019 1 0 0 0 0 0 0
3/25/2020 0 0 0 0 0 0 0
3/25/2021 0 0 0 0 0 0 0
3/25/2022 0 0 0 0 0 0 0
3/25/2023 0 0 0 0 0 0 0
3/25/2024 0 0 0 0 0 0 0
3/25/2025 0 0 0 0 0 0 0
3/25/2026 0 0 0 0 0 0 0
3/25/2027 0 0 0 0 0 0 0
3/25/2028 0 0 0 0 0 0 0
Weighted
Average Life
(years):(1) 11.63 8.09 6.80 6.54 5.84 5.62 4.70
</TABLE>
(1) To Maturity
The weighted average life of each indicated class of Offered Certificates
has been determined by (i) multiplying the amount of each principal payment by
the number of years from the date of issuance to the related Payment Date, (ii)
adding the results and (iii) dividing the sum of the initial respective
Certificate Principal Balance for the related Offered Certificates as of the
Closing Date.
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<PAGE> 73
PERCENTAGE OF INITIAL CLASS A-7 CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
DATES SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5 SCENARIO 6 SCENARIO 7
----- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3/25/1998 100 100 100 100 100 100 100
3/25/1999 96 84 72 66 60 44 22
3/25/2000 95 74 55 46 24 9 0
3/25/2001 95 70 48 38 16 1 0
3/25/2002 95 64 42 35 16 1 0
3/25/2003 94 57 36 30 12 1 0
3/25/2004 94 51 31 26 8 1 0
3/25/2005 94 46 28 22 6 1 0
3/25/2006 94 43 25 20 4 1 0
3/25/2007 94 39 22 16 3 1 0
3/25/2008 94 37 19 12 2 0 0
3/25/2009 94 34 15 9 1 0 0
3/25/2010 94 32 11 6 1 0 0
3/25/2011 94 29 9 4 0 0 0
3/25/2012 94 28 6 3 0 0 0
3/25/2013 91 25 4 1 0 0 0
3/25/2014 89 21 3 1 0 0 0
3/25/2015 86 18 2 0 0 0 0
3/25/2016 82 15 1 0 0 0 0
3/25/2017 78 13 1 0 0 0 0
3/25/2018 74 10 0 0 0 0 0
3/25/2019 69 9 0 0 0 0 0
3/25/2020 63 7 0 0 0 0 0
3/25/2021 57 6 0 0 0 0 0
3/25/2022 50 4 0 0 0 0 0
3/25/2023 45 3 0 0 0 0 0
3/25/2024 40 2 0 0 0 0 0
3/25/2025 34 1 0 0 0 0 0
3/25/2026 23 1 0 0 0 0 0
3/25/2027 10 0 0 0 0 0 0
3/25/2028 0 0 0 0 0 0 0
Weighted
Average Life
(years):(1) 22.71 8.78 4.84 3.90 2.01 1.09 0.75
</TABLE>
(1) To Maturity
The weighted average life of each indicated class of Offered Certificates
has been determined by (i) multiplying the amount of each principal payment by
the number of years from the date of issuance to the related Payment Date, (ii)
adding the results and (iii) dividing the sum of the initial respective
Certificate Principal Balance for the related Offered Certificates as of the
Closing Date.
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<PAGE> 74
PERCENTAGE OF INITIAL CLASS A-8 CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
DATES SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5 SCENARIO 6 SCENARIO 7
----- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3/25/1998 100 100 100 100 100 100 100
3/25/1999 100 100 100 100 100 100 100
3/25/2000 99 88 78 75 73 71 38
3/25/2001 96 41 11 5 1 0 0
3/25/2002 93 18 3 2 1 0 0
3/25/2003 89 8 1 0 0 0 0
3/25/2004 84 0 0 0 0 0 0
3/25/2005 77 0 0 0 0 0 0
3/25/2006 69 0 0 0 0 0 0
3/25/2007 60 0 0 0 0 0 0
3/25/2008 50 0 0 0 0 0 0
3/25/2009 39 0 0 0 0 0 0
3/25/2010 26 0 0 0 0 0 0
3/25/2011 12 0 0 0 0 0 0
3/25/2012 0 0 0 0 0 0 0
3/25/2013 0 0 0 0 0 0 0
3/25/2014 0 0 0 0 0 0 0
3/25/2015 0 0 0 0 0 0 0
3/25/2016 0 0 0 0 0 0 0
3/25/2017 0 0 0 0 0 0 0
3/25/2018 0 0 0 0 0 0 0
3/25/2019 0 0 0 0 0 0 0
3/25/2020 0 0 0 0 0 0 0
3/25/2021 0 0 0 0 0 0 0
3/25/2022 0 0 0 0 0 0 0
3/25/2023 0 0 0 0 0 0 0
3/25/2024 0 0 0 0 0 0 0
3/25/2025 0 0 0 0 0 0 0
3/25/2026 0 0 0 0 0 0 0
3/25/2027 0 0 0 0 0 0 0
3/25/2028 0 0 0 0 0 0 0
Weighted
Average Life
(years):(1) 9.50 3.08 2.48 2.36 2.27 2.20 2.00
</TABLE>
(1) To Maturity
The weighted average life of each indicated class of Offered Certificates
has been determined by (i) multiplying the amount of each principal payment by
the number of years from the date of issuance to the related Payment Date, (ii)
adding the results and (iii) dividing the sum of the initial respective
Certificate Principal Balance for the related Offered Certificates as of the
Closing Date.
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<PAGE> 75
PERCENTAGE OF INITIAL CLASS M-1 CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
DATES SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5 SCENARIO 6 SCENARIO 7
----- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3/25/1998 100 100 100 100 100 100 100
3/25/1999 100 100 100 100 100 100 100
3/25/2000 100 100 100 100 100 100 100
3/25/2001 100 100 100 100 100 100 0
3/25/2002 100 100 80 62 56 100 0
3/25/2003 100 100 64 46 33 72 0
3/25/2004 100 100 51 34 23 38 0
3/25/2005 100 92 40 26 16 18 0
3/25/2006 100 82 32 19 11 5 0
3/25/2007 100 73 25 14 8 0 0
3/25/2008 100 65 20 10 5 0 0
3/25/2009 100 58 16 8 4 0 0
3/25/2010 100 51 12 6 0 0 0
3/25/2011 100 45 10 4 0 0 0
3/25/2012 100 40 8 2 0 0 0
3/25/2013 100 35 6 0 0 0 0
3/25/2014 100 31 5 0 0 0 0
3/25/2015 100 27 4 0 0 0 0
3/25/2016 100 23 1 0 0 0 0
3/25/2017 100 20 0 0 0 0 0
3/25/2018 100 17 0 0 0 0 0
3/25/2019 100 15 0 0 0 0 0
3/25/2020 100 12 0 0 0 0 0
3/25/2021 100 10 0 0 0 0 0
3/25/2022 100 8 0 0 0 0 0
3/25/2023 88 6 0 0 0 0 0
3/25/2024 74 5 0 0 0 0 0
3/25/2025 57 3 0 0 0 0 0
3/25/2026 38 0 0 0 0 0 0
3/25/2027 17 0 0 0 0 0 0
3/25/2028 0 0 0 0 0 0 0
Weighted
Average Life
(years):(1) 27.29 13.72 7.27 5.85 5.18 5.91 2.58
</TABLE>
(1) To Maturity
The weighted average life of each indicated class of Offered Certificates
has been determined by (i) multiplying the amount of each principal payment by
the number of years from the date of issuance to the related Payment Date, (ii)
adding the results and (iii) dividing the sum of the initial respective
Certificate Principal Balance for the related Offered Certificates as of the
Closing Date.
S-75
<PAGE> 76
PERCENTAGE OF INITIAL CLASS M-2 CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
DATES SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5 SCENARIO 6 SCENARIO 7
----- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3/25/1998 100 100 100 100 100 100 100
3/25/1999 100 100 100 100 100 100 100
3/25/2000 100 100 100 100 100 100 100
3/25/2001 100 100 100 100 100 100 71
3/25/2002 100 100 80 62 47 58 71
3/25/2003 100 100 64 46 33 15 44
3/25/2004 100 100 51 34 23 9 18
3/25/2005 100 92 40 26 16 4 4
3/25/2006 100 82 32 19 11 0 0
3/25/2007 100 73 25 14 8 0 0
3/25/2008 100 65 20 10 4 0 0
3/25/2009 100 58 16 8 0 0 0
3/25/2010 100 51 12 5 0 0 0
3/25/2011 100 45 10 2 0 0 0
3/25/2012 100 40 8 0 0 0 0
3/25/2013 100 35 6 0 0 0 0
3/25/2014 100 31 3 0 0 0 0
3/25/2015 100 27 0 0 0 0 0
3/25/2016 100 23 0 0 0 0 0
3/25/2017 100 20 0 0 0 0 0
3/25/2018 100 17 0 0 0 0 0
3/25/2019 100 15 0 0 0 0 0
3/25/2020 100 12 0 0 0 0 0
3/25/2021 100 10 0 0 0 0 0
3/25/2022 100 8 0 0 0 0 0
3/25/2023 88 6 0 0 0 0 0
3/25/2024 74 3 0 0 0 0 0
3/25/2025 57 0 0 0 0 0 0
3/25/2026 38 0 0 0 0 0 0
3/25/2027 17 0 0 0 0 0 0
3/25/2028 0 0 0 0 0 0 0
Weighted
Average Life
(years):(1) 27.29 13.67 7.20 5.76 4.94 4.44 4.75
</TABLE>
(1) To Maturity
The weighted average life of each indicated class of Offered Certificates
has been determined by (i) multiplying the amount of each principal payment by
the number of years from the date of issuance to the related Payment Date, (ii)
adding the results and (iii) dividing the sum of the initial respective
Certificate Principal Balance for the related Offered Certificates as of the
Closing Date.
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<PAGE> 77
PERCENTAGE OF INITIAL CLASS B-1 CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
DATES SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5 SCENARIO 6 SCENARIO 7
----- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3/25/1998 100 100 100 100 100 100 100
3/25/1999 100 100 100 100 100 100 100
3/25/2000 100 100 100 100 100 100 100
3/25/2001 100 100 100 100 100 100 100
3/25/2002 100 100 80 62 47 25 30
3/25/2003 100 100 64 46 33 14 0
3/25/2004 100 100 51 34 23 5 0
3/25/2005 100 92 40 26 15 0 0
3/25/2006 100 82 32 19 8 0 0
3/25/2007 100 73 25 13 2 0 0
3/25/2008 100 65 20 7 0 0 0
3/25/2009 100 58 15 3 0 0 0
3/25/2010 100 51 10 0 0 0 0
3/25/2011 100 45 6 0 0 0 0
3/25/2012 100 40 2 0 0 0 0
3/25/2013 100 35 0 0 0 0 0
3/25/2014 100 31 0 0 0 0 0
3/25/2015 100 27 0 0 0 0 0
3/25/2016 100 23 0 0 0 0 0
3/25/2017 100 20 0 0 0 0 0
3/25/2018 100 17 0 0 0 0 0
3/25/2019 100 13 0 0 0 0 0
3/25/2020 100 10 0 0 0 0 0
3/25/2021 100 6 0 0 0 0 0
3/25/2022 100 3 0 0 0 0 0
3/25/2023 88 0 0 0 0 0 0
3/25/2024 74 0 0 0 0 0 0
3/25/2025 57 0 0 0 0 0 0
3/25/2026 38 0 0 0 0 0 0
3/25/2027 17 0 0 0 0 0 0
3/25/2028 0 0 0 0 0 0 0
Weighted
Average Life
(years):(1) 27.27 13.46 7.00 5.56 4.71 3.92 3.88
</TABLE>
(1) To Maturity
The weighted average life of each indicated class of Offered Certificates
has been determined by (i) multiplying the amount of each principal payment by
the number of years from the date of issuance to the related Payment Date, (ii)
adding the results and (iii) dividing the sum of the initial respective
Certificate Principal Balance for the related Offered Certificates as of the
Closing Date.
The actual characteristics and performance of the Mortgage Loans will
differ from the assumptions used in constructing the tables set forth above,
which only demonstrate how the Mortgage Loans may behave under varying
prepayment scenarios. It is unlikely that the Mortgage Loans will prepay at the
same levels of CPR or in accordance with the Prepayment Assumptions. Moreover,
the varying remaining terms to maturity of the Mortgage Loans could produce
slower or faster principal payments then indicated in the foregoing tables.
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<PAGE> 78
YIELD SENSITIVITY OF THE CLASS A-IO CERTIFICATES
As the owners of interest-only strip securities, the Owners of the Class
A-IO Certificates will be entitled to receive monthly distributions only of
interest, as described herein. Because they will not receive any distributions
of principal, the Owners of the Class A-IO Certificates will be affected by
prepayments, liquidations and other dispositions (including optional redemptions
described herein) of the Mortgage Loans in Group I to a greater degree than will
the Owners of the other Classes of Group I Certificates. In addition, the
Notional Principal Balance applicable to interest calculations on the Class A-IO
Certificates is (x) through the 30th Payment Date, the Class A-6 Certificate
Principal Balance and (y) thereafter, zero. Because, however, the Class A-6
Certificates will amortize in accordance with the distribution of the Class A-6
Lockout Distribution Amount, the prepayment scenarios described above are
mitigated and the performance of the Class A-IO Certificates is expected to be
more stable than if such Notional Principal Balance were calculated based on the
amortization of the underlying Group I Mortgage Loans directly; consequently,
the yield sensitivity of such Certificates will only be impacted at extremely
high prepayment rates.
PAYMENT LAG FEATURE OF CERTAIN CERTIFICATES
Pursuant to the Pooling and Servicing Agreement, interest on the Group I
Certificates (except the A-1 Certificates and the Class A-7 Certificates) and
the Class A-8 Certificates accrues during the calendar month immediately
preceding the month in which the related Payment Date occurs. Payment Dates
occur on the 25th day of each month (or, if such day is not a business day, on
the next business day) commencing in April 1998. Thus, the effective yield to
the Owners of such Certificates will be below that otherwise produced by the
related Pass-Through Rate because distributions to Owners of such Certificates
in respect of any given month will not be made until on or after the 25th day of
the following month.
USE OF PROCEEDS
The Sponsor will cause the Trust to acquire the Mortgage Loans
concurrently with the sale of the Offered Certificates. The net proceeds from
the sale of the Offered Certificates will be paid over to the Originators in
consideration of the transfer of the Mortgage Loans. Such amount will be
determined as a result of the pricing of the Offered Certificates through the
offering described in this Prospectus Supplement. The net proceeds to be
received from the sale of the Mortgage Loans will be added to the Originators'
general funds and will be available for general corporate purposes, including
the repayment of debt and the purchase of new mortgage loans.
THE SPONSOR AND THE MASTER SERVICER
The Sponsor, Advanta Mortgage Conduit Services, Inc. is a direct
subsidiary of Advanta Mortgage Corp. USA, the Master Servicer, and is an
indirect subsidiary of Advanta Corp., a Delaware corporation ("Advanta Parent"),
a publicly-traded company based in Springhouse, Pennsylvania with assets as of
December 31, 1997 in excess of $6.7 billion. Advanta Parent, through its
subsidiaries (including the Master Servicer) managed assets (including mortgage
loans) in excess of $21.1 billion as of December 31, 1997. See "The Sponsor and
the Transferor" in the Prospectus.
As of December 31, 1997, the Master Servicer and its subsidiaries were
servicing approximately 75,000 Mortgage Loans in the Owned and Managed Servicing
Portfolio representing an aggregate outstanding principal balance of
approximately $4.9 billion, and approximately 132,000 mortgage loans in the
Third-Party Servicing Portfolio representing an aggregate outstanding principal
balance of approximately $9.2 billion. See "The Master Servicer" in the
Prospectus.
As of December 31, 1997, the Sponsor or its affiliates have issued 34
issues of mortgage pass-through securities with an original balance of
approximately $7.2 billion.
The Master Servicer may resign or be removed, only in accordance with the
terms of the Pooling and Servicing Agreement. No removal or resignation shall
become effective until the Trustee or a successor servicer
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<PAGE> 79
shall have assumed the Master Servicer's responsibilities and obligations in
accordance therewith. See "The Pooling and Servicing Agreement -- Removal and
Resignation of the Master Servicer" in the Prospectus.
The Master Servicer may not assign its obligations under the Pooling and
Servicing Agreement, in whole or in part, unless it shall have first obtained
the written consent of the Trustee and of the Group I Insurer, which consent
shall not be unreasonably withheld; provided, that any assignee must meet the
eligibility requirements for a successor servicer set forth in the Pooling and
Servicing Agreement. See "The Pooling and Servicing Agreement -- Removal and
Resignation of the Master Servicer" in the Prospectus.
The Master Servicer may enter into Sub-Servicing Agreements with qualified
Sub-Servicers with respect to the servicing of all or any portion of the
Mortgage Loans. The Pooling and Servicing Agreement will provide that affiliates
of the Master Servicer which are qualified to service mortgage loans are
qualified Sub-Servicers. No Sub-Servicing Agreements discharge the Master
Servicer from its servicing obligations. See "Mortgage Loan Program --
Sub-Servicers" in the Prospectus.
Upon removal or resignation of the Master Servicer, the Trustee may
solicit bids for a successor servicer and, pending the appointment of a
successor Master Servicer, the Trustee will be required to serve as Master
Servicer. If the Trustee is unable to obtain a qualifying bid and is prevented
by law from acting as servicer, the Trustee will be required to appoint, or
petition a court of competent jurisdiction to appoint, an eligible successor.
Any successor is required to be a housing and home finance institution, bank or
mortgage servicing institution which is acceptable to the Trustee and the Group
I Insurer and shall assume all or any part of the responsibilities, duties or
liabilities of the Master Servicer.
The Offered Certificates will not represent an interest in or obligation
of, nor are the Mortgage Loans guaranteed by, the Sponsor, the Master Servicer,
the Trustee or Advanta Parent, nor will they be insured or guaranteed by the
Federal Deposit Insurance Corporation (the "FDIC") or any other governmental
agency or instrumentality.
DESCRIPTION OF THE CERTIFICATES
GENERAL
Persons in whose name an Offered Certificate is registered in the Register
maintained by the Trustee are the "Owners" of the Offered Certificates. For so
long as the Offered Certificates are in book-entry form with DTC, the only
"Owner" of the Offered Certificates as the term "Owner" is used in the Pooling
and Servicing Agreement will be Cede & Co., the nominee of DTC. No Beneficial
Owner will be entitled to receive a Definitive Certificate representing such
person's interest in the Trust, except in the event that Definitive Certificates
are issued under limited circumstances set forth in the Pooling and Servicing
Agreement. All references herein to the Owners of Offered Certificates shall
mean and include the rights of Beneficial Owners, as such rights may be
exercised through DTC and its participating organizations, except as otherwise
specified in the Pooling and Servicing Agreement. See "Description of the
Securities -- Form of Securities" in the Prospectus.
Each class of Offered Certificates (other than the Class A-IO
Certificates) shall evidence the right to receive on each Payment Date the
related Class Distribution Amount for such class of Offered Certificates, in
each case until the related Certificate Principal Balance has been reduced to
zero. The Class A-IO Certificates shall evidence the right to receive interest
payments only. The Owners of the Class R Certificates will be entitled to
receive distributions of residual Monthly Excess Cashflow Amounts not required
for other purposes pursuant to the Pooling and Servicing Agreement.
REMITTANCE DATES
The Pooling and Servicing Agreement will require that the Trustee create
and maintain a Certificate Account. See "Description of the Securities --
Payments on Mortgage Loans" in the Prospectus.
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<PAGE> 80
On the eighteenth day of each month (or, if such day is not a Business
Day, the immediately preceding Business Day) (the "Remittance Date") the Master
Servicer is required to withdraw from the Principal and Interest Account and
remit to the Trustee, for deposit in the Certificate Account, the Monthly
Remittance Amount. The Monthly Remittance Amount is the sum of the amounts
collected by the Master Servicer in respect of the Mortgage Loans during the
period beginning on the first day of the calendar month immediately preceding
the month in which the related Remittance Date occurs and ending on the last day
of such month (the "Remittance Period") plus any related Loan Purchase Prices,
Substitution Amounts, Delinquency Advances, Compensating Interest and the
proceeds of any liquidation of the Trust Estate relating to the Mortgage Loans,
less the sum of certain amounts the Master Servicer is permitted to withdraw
from the Principal and Interest Account, as described under "Description of the
Securities -- Withdrawals from the Principal and Interest Account."
"Substitution Amounts" are amounts delivered in connection with a
qualified substitute Mortgage Loan, as described in the Pooling and Servicing
Agreement.
BOOK ENTRY REGISTRATION OF THE OFFERED CERTIFICATES
The Offered Certificates will be book-entry certificates (the
"Book-Entry Certificates"). The Beneficial Owners may elect to hold their
Offered Certificates through DTC in the United States, or CEDEL or Euroclear in
Europe if they are participants of such systems ("Participants"), or indirectly
through organizations which are Participants in such systems. The Book-Entry
Certificates will be issued in one or more certificates per class of Offered
Certificates which in the aggregate equal the principal balance of such Offered
Certificates 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 will act as depositary for CEDEL and Morgan
will act as depositary for Euroclear (in such capacities, individually the
"Relevant Depositary" and collectively the "European Depositaries"). Investors
may hold such beneficial interests in the Book-Entry Certificates in minimum
denominations representing principal amounts of $1,000 and in integral multiples
in excess thereof. Except as described below, no Beneficial Owner will be
entitled to receive a Definitive Certificate. Unless and until Definitive
Certificates are issued, it is anticipated that the only "Owner" of such Offered
Certificates will be Cede & Co., as nominee of DTC. Beneficial Owners will not
be Owners as that term is used in the Pooling and Servicing Agreement.
Beneficial Owners are only permitted to exercise their rights indirectly through
Participants and DTC.
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 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).
Beneficial Owners will receive all distributions of principal of, and
interest on, the Offered Certificates from the Trustee through DTC and DTC
Participants. While such Offered Certificates 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 such Offered Certificates and is required to receive and transmit
distributions of principal of, and interest on, such Offered Certificates.
Participants and indirect participants with whom Beneficial Owners have accounts
with respect to Offered Certificates are similarly required to make book-entry
transfers and receive and transmit such distributions on behalf of their
respective Beneficial Owners. Accordingly, although Beneficial Owners will not
possess certificates, the Rules provide a mechanism by which Beneficial Owners
will receive distributions and will be able to transfer their interest.
Beneficial Owners will not receive or be entitled to receive certificates
representing their respective interests in the Offered Certificates, except
under the limited circumstances described below. Unless and until Definitive
Certificates are issued, Beneficial Owners who are not Participants may transfer
ownership of Offered Certificates only through Participants and indirect
participants by instructing such Participants and indirect participants to
transfer such Offered Certificates, by book-entry transfer, through DTC for the
account of the
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<PAGE> 81
purchasers of such Offered Certificates, which account is maintained with their
respective Participants. Under the Rules and in accordance with DTC's normal
procedures, transfers of ownership of such Offered Certificates will be executed
through DTC and the accounts of the respective Participants at DTC will be
debited and credited. Similarly, the Participants and indirect participants will
make debits or credits, as the case may be, on their records on behalf of the
selling and purchasing Beneficial Owners.
Because of time zone differences, credits of securities received in CEDEL
or Euroclear as a result of a transaction with a Participant will be made during
subsequent securities settlement processing and dated the business day following
the DTC settlement date. Such credits or any transactions in such securities
settled during such processing will be reported to the relevant Euroclear or
CEDEL Participants on such business day. Cash received in CEDEL or Euroclear as
a result of sales of securities by or through a CEDEL Participant (as defined
below) or Euroclear Participant (as defined below) to a DTC Participant will be
received with value on the DTC settlement date but will be available in the
relevant CEDEL or Euroclear cash account only as of the business day following
settlements in DTC. For information with respect to tax documentation procedures
relating to the Certificates, see "Certain Federal Income Tax Consequences --
Foreign Investors" and " -- Backup Withholding" in the Prospectus and "Global
Clearance, Settlement and Tax Documentation Procedures -- Certain U.S. Federal
Income Tax Documentation Requirements" in Annex I to the Prospectus.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. CEDEL Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.
DTC, which is a New York-chartered limited purpose trust company, performs
services for its Participants ("DTC Participants"), some of which (and/or their
representatives) own DTC. In accordance with its normal procedures, DTC is
expected to record the positions held by each DTC Participant in the Book-Entry
Certificates, whether held for its own account or as a nominee for another
person. In general, beneficial ownership of Book-Entry Certificates will be
subject to the rules, regulations and procedures governing DTC and DTC
Participants as in effect from time to time.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participant organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 27 currencies, including
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United States dollars. Euroclear includes various other services, including
securities lending and borrowing and interfaces with domestic markets in several
countries generally similar to the arrangements for cross-market transfers with
DTC described above. Euroclear is operated by the Brussels, Belgium office of
Morgan Guaranty Trust Company of New York (the "Euroclear Operator"), under
contract with Euroclear Clearance Systems S.C., a Belgian cooperative
corporation (the "Cooperative"). All operations are conducted by the Euroclear
Operator, and all Euroclear Securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policy for Euroclear on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries.
Indirect access to Euroclear is also available to other firms that clear through
or maintain a custodial relationship with a Euroclear Participant, either
directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions on the Book-Entry Certificates will be made on each Payment
Date by the Trustee to DTC. DTC will be responsible for crediting the amount of
such payments to the accounts of the applicable DTC Participants in accordance
with DTC's normal procedures. Each DTC Participant will be responsible for
disbursing such payment to the Beneficial 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. Distributions with respect to
Offered Certificates held through CEDEL or Euroclear will be credited to the
cash accounts of CEDEL Participants or Euroclear Participants in accordance with
the relevant system's rules and procedures, to the extent received by the
Relevant Depositary. Such distributions will be subject to tax reporting in
accordance with relevant United States tax laws and regulations. Because DTC can
only act on behalf of Financial Intermediaries, the ability of a Beneficial
Owner to pledge Book-Entry Certificates, to persons or entities that do not
participate in the Depository system, or otherwise take actions in respect of
such Book-Entry Certificates, may be limited due to the lack of physical
certificates for such Book-Entry Certificates. In addition, issuance of the
Book-Entry Certificates in book-entry form may reduce the liquidity of such
Certificates in the secondary market since certain potential investors may be
unwilling to purchase Certificates for which they cannot obtain physical
certificates.
Monthly and annual reports on the Trust provided by the Trustee to Cede,
as nominee of DTC, 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 DTC accounts the
Book-Entry Certificates of such Beneficial Owners are credited.
DTC has advised the Trustee that, unless and until Definitive Certificates
are issued, DTC will take any action permitted to be taken by the holders of the
Book-Entry Certificates under the Pooling and Servicing Agreement only at the
direction of one or more Financial Intermediaries to whose DTC accounts the
Book-Entry Certificates are credited, to the extent that such actions are taken
on behalf of Financial Intermediaries whose holdings include such Book-Entry
Certificates. CEDEL or the Euroclear Operator, as the case may be, will take any
action permitted to be taken by an Owner under the Pooling and Servicing
Agreement on behalf of a CEDEL Participant or Euroclear Participant only in
accordance with its relevant rules and procedures and subject to the ability of
the Relevant Depositary to effect such actions on its behalf through DTC. DTC
may take actions, at the
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direction of the related Participants, with respect to some Offered Certificates
which conflict with actions taken with respect to other Offered Certificates.
Definitive Certificates will be issued to Beneficial Owners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if (a) DTC
or the Sponsor advises the Trustee in writing that DTC is no longer willing,
qualified or able to discharge properly its responsibilities as a nominee and
depository with respect to the Book-Entry Certificates and the Sponsor or the
Trustee is unable to locate a qualified successor, (b) the Sponsor, at its sole
option, elects to terminate a book-entry system through DTC or (c) DTC, at the
direction of the Beneficial Owners representing a majority of the outstanding
Percentage Interests of the Offered Certificates, advises the Trustee in writing
that the continuation of a book-entry system through DTC (or a successor
thereto) is no longer in the best interests of Beneficial Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all Beneficial
Owners of the occurrence of such event and the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, at the
Sponsor's expense and thereafter the Trustee will recognize the holders of such
Definitive Certificates as Owners under the Pooling and Servicing Agreement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Certificates among Participants of DTC,
CEDEL and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
Neither the Sponsor, the Master Servicer, the Group I Insurer nor the
Trustee will have any liability for any actions taken by DTC or its nominee,
Euroclear, or CEDEL, including, without limitation, actions for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in the Offered Certificates held by Euroclear, Cedel or Cede & Co., as
nominee for DTC, or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
PAYMENT DATES
Distributions on the Certificates are required to be made on each Payment
Date, commencing on April 27, 1998, to the Owners on each Record Date in an
amount equal to the product of such Owner's Percentage Interest and the amount
distributed in respect of such Certificateholders' class of such Certificates on
such Payment Date. See "Description of the Securities -- Distributions" in
the Prospectus.
On each Payment Date, the Owners of each Class of the Offered Certificates
(other than the Class A-IO Certificates) shall be entitled to receive from
amounts then on deposit in the certificate account established and maintained by
the Trustee in accordance with the Pooling and Servicing Agreement (the
"Certificate Account") and until the Certificate Principal Balance of such Class
of Offered Certificates is reduced to zero, and to the extent funds are
available therefor, the related Current Interest, any Interest Carry Forward
Amount and the portion of the Principal Distribution Amount, if any, allocated
therefor as of such Payment Date, allocated among the Classes of the Offered
Certificates as described below. The Class A-IO Certificates shall be entitled
to receive Current Interest and any Interest Carry Forward Amount, but shall not
receive any Principal Distribution Amounts. Distributions will be made in
immediately available funds to Owners of the Offered Certificates by wire
transfer or otherwise, to the account of such Owner at a domestic bank or other
entity having appropriate facilities therefor, if such Owner has so notified the
Trustee, or by check mailed to the address of the person entitled thereto as it
appears on the register (the "Register") maintained by the Trustee as registrar
(the "Registrar"). Beneficial Owners may experience some delay in the receipt of
their payments due to the operations of DTC. See "Risk Factors -- Book-Entry
Registration" in the Prospectus and "Description of the Offered Certificates --
Book Entry Registration of the Certificates" herein and "Description of the
Certificates -- Book Entry Registration" in the Prospectus.
The Pooling and Servicing Agreement will provide that an Owner, upon
receiving the final distribution on such Owner's Certificate, will be required
to send such Certificate to the Trustee.
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Each Owner of record of the related Class of the Offered Certificates will
be entitled to receive such Owner's Percentage Interest in the amounts due such
Class on such Payment Date. The "Percentage Interest" of an Offered Certificate
as of any date of determination will be equal to the percentage obtained by
dividing the principal balance of such Certificate as of the Closing Date by the
Certificate Principal Balance for the related Class of the Offered Certificates
as of the Closing Date.
DISTRIBUTIONS
Upon receipt, the Trustee will be required to deposit into the Certificate
Account with respect to each Group (i) the total of the principal and interest
collections on the Mortgage Loans, including any Net Liquidation Proceeds and
any amounts advanced by the Master Servicer, remitted by the Master Servicer,
together with any Substitution Amount and any Loan Purchase Price amount and
(ii) the proceeds of any liquidation of the Trust Estate.
The Pooling and Servicing Agreement establishes a pass-through rate on
each Class of the Offered Certificates (each, a "Pass-Through Rate") as set
forth in the Summary of Terms herein.
On each Payment Date, the Trustee is required to make the following
disbursements and transfers from monies then on deposit in the Certificate
Account as specified below in the following order of priority of each such
transfer and disbursement with respect to interest and principal:
INTEREST: On each Payment Date the Interest Remittance Amount with respect
to the related Group will be distributed in the following order of priority:
First, to the Trustee, the Trustee's Fee;
Second, with respect to Group I, the Premium then due to the Group I
Insurer;
Third, to the Owners of the Class A Certificates related to such Group,
the related Current Interest plus the related Interest Carry Forward
Amount with respect to each such Class of Class A Certificates (including,
in the case of the Class A-7 Certificates, the related Current Interest
plus Interest Carry Forward Amount with respect to the applicable
Component of Class A-7) without any priority among such Class A
Certificates; provided, that if the related Interest Amount Available is
not sufficient to make a full distribution of interest with respect to all
Classes of the Class A Certificates within such Group, the Interest Amount
Available will be distributed among the outstanding Classes of Class A
Certificates within such Group pro rata based on the aggregate amount of
interest due on each such Class, and the amount of the shortfall will be
carried forward with accrued interest;
Fourth, with respect to Group II, to the extent of the Interest Amount
Available with respect to Group II then remaining, to the Owners of the
Class M-1 Certificates, the Class M-1 Current Interest;
Fifth, with respect to Group II, to the extent of the Interest Amount
Available with respect to Group II then remaining, to the Owners of the
Class M-2 Certificates, the Class M-2 Current Interest;
Sixth, with respect to Group II, to the extent of the Interest Amount
Available with respect to Group II then remaining, to the Owners of the
Class B-1 Certificates, the Class B-1 Current Interest; and
Seventh, the Monthly Excess Cashflow Amount with respect to such Group
shall be applied as described under "Credit Enhancement -- Application of
Monthly Excess Cashflow Amount."
PRINCIPAL: GENERAL. The Group I Certificates (other than the Class A-IO
Certificates) and the Group II Certificates will generally receive principal
distributions on each Payment Date which are based on principal collections and
Realized Losses, with respect to the related Group. In addition, the
overcollateralization feature of the Trust results in accelerated payments of
principal with respect to each Group to achieve, and thereafter maintain,
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a specialized level of overcollateralization with respect to such Group. Such
accelerated principal will generally be funded from excess interest with respect
to the related Group.
The Class A-7 Certificates are comprised of Component I, which is
supported by Mortgage Loans in Group I, and Component II, which is supported by
Mortgage Loans in Group II. Therefore, the Class A-7 Certificates on each
Payment Date will receive principal distributions as described above with
respect to Group I as they relate to Component I together with principal
distributions as described above with respect to Group II as they relate to
Component II.
GROUP I-PRINCIPAL DISTRIBUTIONS. With respect to Group I and on each
Payment Date, principal will be distributed to the Owners of the Group I
Certificates (other than the Class A-IO Certificates) (including the Class A-7
Certificates to the extent of the Component I Principal Balance) in an amount
equal to the Group I Principal Distribution Amount, in the following order of
priority, in the amounts set forth below and to the extent of the Principal
Distribution Amount with respect to Group I as follows:
First, the Group I Principal Distribution Amount shall be
distributed to the Owners of the Class A-6 Certificates, in an amount
equal to the Class A-6 Lockout Distribution Amount, with the remainder
paid to the Owners of the Class A-1 Certificates until the Class A-1
Certificate Principal Balance has been reduced to zero;
Second, the excess of (i) the Group I Principal Distribution Amount
over (ii) the amount distributed in clause First above shall be
distributed to the Owners of the Class A-2 Certificates, the Class A-3
Certificates, the Class A-4 Certificates and the Class A-5 Certificates,
sequentially in that order, until the Certificate Principal Balance of
each Class (in ascending order of numerical designation) has been reduced
to its Targeted Balance (as set forth in Annex I hereto) for such Payment
Date;
Third, the excess of (i) the Group I Principal Distribution Amount
over (ii) the amounts distributed in clauses First and Second above shall
be distributed to the Owners of the Class A-7 Certificates, until the
Component I Principal Balance has been reduced to zero;
Fourth, the excess of (i) the Group I Principal Distribution Amount
over (ii) the amounts distributed pursuant to clauses First, Second and
Third above shall be distributed to the Owners of the Class A-2
Certificates, the Class A-3 Certificates, the Class A-4 Certificates and
the Class A-5 Certificates, sequentially in that order, until the
Certificate Principal Balance of each Class (in ascending order of
numerical designation) has been reduced to zero;
Fifth, the excess of (i) the Group I Principal Distribution Amount
over (ii) the amounts distributed in clauses First, Second, Third and
Fourth above shall be distributed to the Owners of the Class A-6
Certificates until the Class A-6 Certificate Principal Balance has been
reduced to zero; and
Sixth, any amount of the Group I Principal Distribution Amount
remaining after making all of the distributions in clauses First, Second,
Third, Fourth and Fifth above shall be distributed as part of the Monthly
Excess Cashflow Amounts with respect to Group I and shall be applied as
described below under "Credit Enhancement -- Application of Monthly Excess
Cashflow Amounts."
Notwithstanding the foregoing, on any Payment Date on which the
Overcollateralization Amount related to Group I is zero and the Group I Insurer
is in default of its payment obligations under the Group I Insurance Policy, any
amounts of principal payable to the Owners of the Group I Certificates (other
than the Class A-IO Certificates) (including the Class A-7 Certificates to the
extent of the Component I Principal Balance) on such Payment Date shall be
distributed pro rata and not in accordance with the above priorities.
GROUP II-PRINCIPAL DISTRIBUTIONS. With respect to Group II and on each
Payment Date (a) before the Stepdown Date with respect to Group II or (b) with
respect to which a Group II Delinquency Trigger Event is in effect, the Owners
of the Class A-8 Certificates and the Class A-7 Certificates will be entitled to
receive payment of 100% of the Principal Distribution Amount with respect to
Group II for such Payment Date as follows: first, to the
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Owners of the Class A-8 Certificates, the Class A-8 Lockout Distribution Amount
and then to the Owners of the Class A-7 Certificates until the Component II
Principal Balance has been reduced to zero.
With respect to Group II and on each Payment Date (a) on or after the
Stepdown Date with respect to Group II and (b) as long as a Group II Delinquency
Trigger Event is not in effect, the Owners of all Classes of the Group II
Certificates will be entitled to receive payments of principal, in the following
order of priority, in the amounts set forth below and to the extent of the
Principal Distribution Amount with respect to Group II, as follows:
First, the lesser of (x) the Group II Principal Distribution Amount and
(y) the Class A Principal Distribution Amount with respect to Group II shall be
distributed to the Owners of the Class A-8 Certificates, in an amount equal to
the Class A-8 Lockout Distribution Amount, with the remainder paid to the Owners
of the Class A-7 Certificates until the Component II Principal Balance of the
Class A-7 Certificates has been reduced to zero;
Second, the lesser of (x) the excess of (i) the Group II Principal
Distribution Amount over (ii) the amount distributed in clause First above and
(y) the Class M-1 Principal Distribution Amount shall be distributed to the
Owners of the Class M-1 Certificates, until the Class M-1 Certificate Principal
Balance has been reduced to zero;
Third, the lesser of (x) the excess of (i) the Group II Principal
Distribution Amount over (ii) the sum of the amount distributed in clause First
above and the amount distributed in clause Second above and (y) the Class M-2
Principal Distribution Amount shall be distributed to the Owners of the Class
M-2 Certificates, until the Class M-2 Certificate Principal Balance has been
reduced to zero;
Fourth, the lesser of (x) the excess of (i) the Group II Principal
Distribution Amount over (ii) the sum of the amount distributed in clause First
above, the amount distributed in clause Second above and the amount distributed
in clause Third above and (y) the Class B-1 Principal Distribution Amount shall
be distributed to the Owners of the Class B-1 Certificates, until the Class B-1
Certificate Principal Balance has been reduced to zero;
Fifth, the lesser of (x) any amount of the Group II Principal Distribution
Amount remaining after making all of the distributions in clauses First, Second,
Third and Fourth above and (y) the positive difference, if any, of (A)
$2,000,000 minus (B) the Targeted Overcollateralization Amount for Group II for
such Payment Date shall be applied as a payment of principal with respect to the
Subordinate Certificates in reverse order of seniority (ie., first to the Class
B-1 Certificates, second to the Class M-2 Certificates, third to the Class M-1
Certificates and fourth, to the Class A-8 Certificates and the Class A-7
Certificates (but only with respect to Component II) until their respective
Certificate Principal Balances have been reduced to zero; and
Sixth, any amount of the Group II Principal Distribution Amount remaining
after making all of the distributions in clauses First, Second, Third, Fourth
and Fifth above shall be distributed as part of the Monthly Excess Cashflow
Amounts with respect to Group II and shall be applied as described under "Credit
Enhancement -- Application of Monthly Excess Cashflow Amounts."
Notwithstanding the foregoing, in the event that, on any Payment Date, the
Certificate Principal Balance of the Class A-8 Certificates and the Component II
Principal Balance of the Class A-7 Certificate are zero, all amounts of
principal that would have been distributed to such Certificates on such Payment
Date will be distributed to the Subordinate Certificates sequentially in the
following order: first, to the Class M-1 Certificates until the Certificate
Principal Balance of the Class M-1 Certificates has been reduced to zero,
second, to the Class M-2 Certificates until the Certificate Principal Balance of
the Class M-2 Certificates has been reduced to zero, and third, to the Class B-1
Certificates until the Certificate Principal Balance of the Class B-1
Certificates has been reduced to zero.
Notwithstanding the foregoing, on any Payment Date on which the sum of the
Certificate Principal Balance of the Subordinate Certificates and the
Overcollateralization Amount related to Group II is zero, any amounts of
principal payable to the Owners of the Group II Certificates on such Payment
Date shall be distributed pro rata and not in accordance with the above
priorities.
The Owners of the Class A-8 Certificates are entitled to receive payments
of the Class A-8 Lockout Distribution Amount specified herein; provided, that if
on any Payment Date the Component II Principal Balance is
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zero, the Owners of the Class A-8 Certificates will be entitled to receive the
entire Class A Principal Distribution Amount with respect to Group II for such
Payment Date until the Certificate Principal Balance of the Class A-8
Certificates is zero.
CALCULATION OF LIBOR
On the second business day preceding each Payment Date or, in the case of
the first Payment Date, on the second business day preceding the Closing Date
(each such date, an "Interest Determination Date"), the Trustee will determine
the London interbank offered rate for one-month U.S. dollar deposits ("LIBOR")
for the next Accrual Period for the Group II Certificates and the Class A-1
Certificates on the basis of the offered rates of the Reference Banks for
one-month U.S. dollar deposits, as such rates appear on the Telerate Page 3750
as of 11:00 a.m. (London time) on such Interest Determination Date. As used in
this section, "business day" means a day on which banks are open for dealing in
foreign currency and exchange in London and New York City; Telerate Page 3750
means the display page so designated on the Dow Jones Telerate Service (or such
other page on that service for the purpose of displaying comparable rates or
prices); and "Reference Banks" means four leading banks selected by the Master
Servicer and engaged in transactions in Eurodollar deposits in the international
Eurocurrency market (i) with an established place of business in London, (ii)
whose quotations appear on the Telerate Page 3750 on the Interest Determination
Date in question, (iii) which have been designated as such by the Trustee and
(iv) not controlling, controlled by, or be under common control with, the
Sponsor.
On each Interest Determination Date, LIBOR for the related Accrual Period
for the Group II Certificates (including for Component I and for Component II of
the Class A-7 Certificates, but not the Class A-8 Certificates) and the Class
A-1 Certificates will be established by the Trustee as follows:
(a) If on such Interest Determination Date two or more Reference Banks
provides such offered quotations, LIBOR for the related Accrual Period for such
Certificates shall be the arithmetic mean of such offered quotations (rounded
upwards if necessary to the nearest 1/100,000 of 1% (0.0000001), with five
one-millionths of a percentage point rounded upward, of all such quotations.
(b) If on such Interest Determination Date fewer than two Reference Banks
provide such offered quotations, LIBOR for the related Accrual Period for such
Certificates shall be the rate for that day will be the arithmetic mean, rounded
upward, if necessary, to the nearest 1/100,000 of 1% (0.0000001), with five
one-millionths of a percentage point rounded upward, of the offered per annum
rates that one or more leading banks in New York City, selected by the Indenture
Trustee, are quoting as of approximately 11:00 a.m., New York City time, on such
LIBOR Determination Date to leading European banks for United States dollar
deposits for the Index Maturity; provided that if the banks selected as
aforesaid are not quoting as mentioned in this sentence, LIBOR in effect for the
applicable Interest Period will be LIBOR in effect for the previous Interest
Period.
The establishment of LIBOR on each Interest Determination Date by the
Trustee and the Trustee's calculation of the rate of interest applicable to such
Certificates for the related Accrual Period shall (in the absence of manifest
error) be final and binding. Each such rate of interest may be obtained by
telephoning the Trustee at 1-800-735-7777.
CERTAIN ACTIVITIES
The Trust has not and will not: (i) issue securities (except for the
Certificates); (ii) borrow money; (iii) make loans; (iv) invest in securities
for the purpose of exercising control; (v) underwrite securities; (vi) except as
provided in the Pooling and Servicing Agreement, engage in the purchase and sale
(or turnover) of investments; (vii) offer securities in exchange for property
(except Certificates for the Mortgage Loans); or (viii) repurchase or otherwise
reacquire its securities. See "Description of the Securities -- Reports To The
Securityholders" in the Prospectus for information regarding reports to the
Owners.
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CREDIT ENHANCEMENT
GROUP I. The Credit Enhancement provided for the benefit of the Owners of
the Group I Certificates (including Component I of the Class A-7 Certificates)
consists of the Group I Insurance Policy, the application of the Group I Monthly
Excess Cashflow Amounts and the cross-collateralization feature of the Trust.
The Group I Certificates (including Component I of the Class A-7 Certificates)
will have the benefit of certain levels of overcollateralization as required by
the Group I Insurer.
GROUP II. The Credit Enhancement provided for the benefit of the Owners of
the Class A Group II Certificates (including Component II of the Class A-7
Certificates) consists of the subordination of the Subordinate Certificates, the
priority of application of Realized Losses, the application of the Group II
Monthly Excess Cashflow Amounts and the cross-collateralization feature of the
Trust.
Application of Realized Losses (Group I and Group II). The Pooling and
Servicing Agreement provides that if a Mortgage Loan becomes a Liquidated Loan
during a Remittance Period, the Net Liquidation Proceeds relating thereto and
allocated to principal may be less than the Principal Balance of such Mortgage
Loan. The amount of such insufficiency is a "Realized Loss." Realized Losses
which occur in a Group will, in effect, be absorbed first, by the Class R
Certificates (both through the application of the Monthly Excess Cashflow Amount
to fund such deficiency and through a reduction in the related
Overcollateralization Amount). In the case of Group II, any remaining deficiency
after absorption by the Class R Certificates will be absorbed, second, by the
Owners of the Class B-1 Certificates, third, by the Owners of the Class M-2
Certificates, and, fourth, by the Owners of the Class M-1 Certificates. In the
case of Group I, any remaining deficiency will be covered by the Group I
Insurance Policy to the extent of the Applied Realized Loss Amount.
To the extent that a Group experiences Realized Losses, such Realized
Losses will reduce the aggregate outstanding Principal Balance of the Mortgage
Loans in such Group (i.e., a reduction in the collateral balance will occur).
Since the Overcollateralization Amount with respect to a Group is the excess, if
any, of the related collateral balance over the related Aggregate Certificate
Principal Balance, Realized Losses, to the extent experienced, will in the first
instance reduce the related Overcollateralization Amount.
The Pooling and Servicing Agreement requires that the Overcollateral-
ization Amount with respect to a Group be initially increased to, and thereafter
maintained at, the related Targeted Overcollateralization Amount. This increase
and subsequent maintenance is intended to be accomplished by the application of
related Monthly Excess Interest Amounts to the funding of the related Extra
Principal Distribution Amount. Such Extra Principal Distribution Amounts, since
they are funded from interest collections on the collateral but are distributed
as principal on the Offered Certificates, will increase the related
Overcollateralization Amount.
If, on any Payment Date and with respect to either Group, after taking
into account all Realized Losses experienced with respect to such Group during
the prior Remittance Period and after taking into account the distribution of
principal (including the Extra Principal Distribution Amount) with respect to
the related Certificates on such Payment Date, the Aggregate Certificate
Principal Balance with respect to the related Group exceeds the aggregate
Principal Balance of the Mortgage Loans in the related Group as of the end of
the related Remittance Period (i.e., if the level of overcollateralization is
negative), such excess is an "Applied Realized Loss Amount" with respect to the
related Group. In the case of Group II, such an Applied Realized Loss Amount
will be applied as a reduction in the Certificate Principal Balance of the
Subordinate Certificates in reverse order of seniority (i.e., first against the
Class B-1 Certificate Principal Balance until it is reduced to zero, then
against the Class M-2 Certificate Balance until it is reduced to zero and then
against the Class M-1 Certificate Principal Balance until it is reduced to
zero). In the case of Group I, the Trustee will make a claim under the Group I
Insurance Policy with respect to an Applied Realized Loss Amount with respect to
Group I. The Pooling and Servicing Agreement does not permit the "write down" of
the Certificate Principal Balance of any Class A Certificate.
Once the Certificate Principal Balance of a Class of Subordinate
Certificates has been "written down," the amount of such write down will no
longer bear interest, nor will such amount thereafter be "reinstated" or
"written up," although the amount of such write down may, on future Payment
Dates be paid to Owners of the Subordinate Certificates which experienced the
write down, in direct order of seniority (i.e., first, the Class M-1
Certificates, second, the Class M-2 Certificates and, third, the Class B-1
Certificates). The source of funding of such payments
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will be the amount, if any, of the Monthly Excess Cashflow Amount remaining on
such future Payment Dates after the funding of the Extra Principal Distribution
Amount and after the payment of Interest Carry Forward Amounts with respect to
the Subordinate Certificates on such Payment Date.
Application of Monthly Excess Cashflow Amounts -- Overcollateralization
Mechanics (Group I and Group II). The weighted average net Coupon Rate for the
Mortgage Loans in each Group is generally expected to be higher than the
weighted average of the Pass-Through Rates on the Offered Certificates related
to such Group, thus generating certain excess interest collections which, in the
absence of losses will not be necessary to fund interest distributions on the
Offered Certificates. The Pooling and Servicing Agreement provides that this
excess interest be applied to the extent available, to make accelerated payments
of principal (i.e., the Extra Principal Distribution Amount) to the Class or
Classes then entitled to receive distributions of principal; such application
will cause the Aggregate Certificate Principal Balance with respect to a Group
to amortize more rapidly than the Mortgage Loans in such Group, resulting in
overcollateralization. This excess interest for a Remittance Period and with
respect to a Group, together with interest on the related Overcollateralization
Amount itself, on the related Payment Date is the "Monthly Excess Interest
Amount" for such Payment Date and Group.
The required level of overcollateralization for any Group and Payment Date
is the Targeted Overcollateralization Amount for such Group and Payment Date.
The Targeted Overcollateralization Amount is initially (i.e., prior to the
related Stepdown Date) $12,000,000 with respect to Group II and with respect to
Group I, an amount required by the Group I Insurer. Because the actual level of
the Overcollateralization Amount with respect to each Group as of the Closing
Date is less than the related Targeted Overcollateralization Amount, in the
early months of the transaction, subject to the availability of Monthly Excess
Cashflow Amounts, Extra Principal Distribution Amounts will be paid, with the
result that the Overcollateralization Amount with respect to each Group will
increase to the level of the related Targeted Overcollateralization Amount.
If, once the Targeted Overcollateralization Amount with respect to each
Group has been reached, Realized Losses occur in such Group, such Realized
Losses will result in an Overcollateralization Deficiency (since such Realized
Losses reduce the Principal Balance of the related Mortgage Loans without giving
rise to a corresponding reduction of the related Aggregate Certificate Principal
Balance). The cashflow priorities of the Trust require that, in this situation,
an Extra Principal Distribution Amount be paid (subject to the availability of
any Monthly Excess Cashflow Amount) for the purpose of re-establishing the
Overcollateralization Amount at the then required Targeted Overcollateralization
Amount.
On and after the related Stepdown Date, the Targeted Overcollateralization
Amount with respect to Group I and Group II, respectively, is permitted to
decrease or "step-down" below their initial levels (which, in the case of Group
II is $12,000,000 and which, in the case of Group I, is an amount required by
the Group I Insurer) subject to certain limitations as described in the
definition of Targeted Overcollateralization Amount.
If the Targeted Overcollateralization Amount with respect to each Group is
permitted to "stepdown" on a Payment Date, the Pooling and Servicing Agreement
permits a portion of the related Principal Remittance Amount for such Payment
Date not to be passed through as a distribution of principal on such Payment
Date. This has the effect of decelerating the amortization of the Offered
Certificates with respect to each Group relative to the aggregate outstanding
Principal Balance of the Mortgage Loans, thereby reducing the actual level of
the related Overcollateralization Amount to the new, lower Targeted
Overcollateralization Amount. This portion of the related Principal Remittance
Amount not distributed as principal on the related Certificates therefore
releases overcollateralization from the Trust with respect to the related Group.
The amount of such releases are the related Overcollateralization Release
Amounts.
A. On any Payment Date, the sum of the Group I Monthly Excess Interest
Amount and the Group I Overcollateralization Release Amount is the Group I
Monthly Excess Cashflow Amount, which is required to be applied in the following
order of priority on such Payment Date:
(1) to fund the remaining Class A Interest Carry Forward Amount, if any, with
respect to Group I;
(2) to reimburse the Group I Insurer for prior, unreimbursed Insured Payments;
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(3) to fund the Overcollateralization Deficiency, if any, for such Payment
Date with respect to Group I;
(4) to reimburse the Group I Insurer for any amounts due and owing to the
Group I Insurer under the Insurance Agreement;
(5) to fund any unpaid Current Interest with respect to the Group II
Certificates (including Component II of the Class A-7 Certificates) and
any amounts with respect to Group II listed in clauses B(1) through (8)
below for such Payment Date to the extent that such amounts have not been
funded in full through the application of Group II Monthly Excess Cashflow
Amount on such Payment Date;
(6) to the Master Servicer to the extent of any unreimbursed Delinquency
Advances or Servicing Advances including Nonrecoverable Delinquency
Advances and Nonrecoverable Servicing Advances;
(7) to make payment of any Supplemental Interest Amount then due to the Owners
of the Group I Certificates (including the Class A-7 Certificates with
respect to Component I); and
(8) to fund a distribution to Owners of the Class R Certificates.
B. On any Payment Date, the sum of the Group II Monthly Excess Interest
Amount and the Group II Overcollateralization Release Amount is the Group II
Monthly Excess Cashflow Amount, which is required to be applied in the following
order of priority on such Payment Date:
(1) to fund any remaining Class A Interest Carry Forward Amount, if any, with
respect to Group II;
(2) to fund the Overcollateralization Deficiency, if any, for such Payment
Date with respect to Group II;
(3) to fund the Class M-1 Interest Carry Forward Amount, if any;
(4) to fund the Class M-1 Realized Loss Amortization Amount for such Payment
Date, if any;
(5) to fund the Class M-2 Interest Carry Forward Amount, if any;
(6) to fund the Class M-2 Realized Loss Amortization Amount for such Payment
Date, if any;
(7) to fund the Class B-1 Interest Carry Forward Amount, if any;
(8) to fund the Class B-1 Realized Loss Amortization Amount for such Payment
Date, if any;
(9) to fund any unpaid Current Interest with respect to the Group I
Certificates (including Component I of the Class A-7 Certificates) and any
amounts with respect to Group I listed in clauses A(1), (2), (3) and (4)
above for such Payment Date to the extent that such amounts have not been
funded in full through the application of Group I Monthly Excess Cashflow
Amounts on such Payment Date;
(10) to the Master Servicer to the extent of any unreimbursed Delinquency
Advances or Servicing Advances including Nonrecoverable Delinquency
Advances and Nonrecoverable Servicing Advances;
(11) to make payment of any Supplemental Interest Amount then due to the Owners
of the Group II Certificates (including the Class A-7 Certificates with
respect to Component II); and
(12) to fund a distribution to Owners of the Class R Certificates.
Subordination of Subordinate Certificates (Group II). The rights of the
Owners of the Subordinate Certificates and the Class R Certificates to receive
distributions with respect to the Mortgage Loans in Group II will be
subordinated, to the extent described herein, to such rights of the Owners of
the Class A Certificates in Group II. This subordination is intended to enhance
the likelihood of regular receipt by the Owners of the Class A Certificates
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in Group II of the full amount of their scheduled monthly payment of interest
and principal and to afford such Owners protection against Realized Losses
allocated against Group II.
The protection afforded to the Owners of the Class A Certificates in Group
II by means of the subordination of the Subordinate Certificates and the Class R
Certificates will be accomplished by the preferential right of the Owners of the
Class A Certificates in Group II to receive, prior to any distribution being
made on a Payment Date in respect of such Subordinate Certificates and the Class
R Certificates, the amounts of interest due them and principal available for
distribution on such Payment Date, and, if necessary, by the right of the Owners
of the Class A Certificates in Group II to receive future distributions of
amounts that would otherwise be payable to the Owners of such Subordinate
Certificates and the Class R Certificates.
In addition, the rights of the Owners of the Class M-2, Class B-1 and
Class R Certificates to receive distributions will be subordinated, to the
extent described herein, to such rights of the Owners of the Class A
Certificates in Group II and Class M-1 Certificates. This subordination is
intended to enhance the likelihood of regular receipt by the Owners of the such
Certificates of the amount of interest due them and principal available for
distribution and to afford such Owners with protection against Realized Losses.
The rights of the Owners of the Class B-1 and the Class R Certificates to
receive distributions will be subordinated in the same manner to such rights of
the Owners of the Class A Certificates in Group II, Class M-1 and Class M-2
Certificates and the rights of Owners of the Class R Certificates to receive
distributions will be subordinated in the same manner to such rights of the
Owners of the Group II Certificates.
The Group I Insurance Policy. The Sponsor will obtain a certificate
guaranty insurance policy (the "Group I Insurance Policy"), with respect to the
Group I Certificates (including Component I of the Class A-7 Certificates),
which is noncancelable, in favor of the Trustee on behalf of the Owners of such
Certificates. On each Payment Date, the Group I Insurer will be required to make
available to the Trustee the amount, if any, by which the Required Distributions
exceed the Net Available Distribution Amount as of such Payment Date. The Group
I Insurance Policy does not guarantee to Owners of such Certificates any
specified rate of Prepayments. The Group I Insurance Policy does not cover any
Civil Relief Act Shortfalls or any Supplemental Interest Amounts. See "The Group
I Insurance Policy," "The Group I Insurer" and "Credit Enhancement" herein and
"Description of Credit Enhancement" in the Prospectus.
The Certificate Principal Balance of any Class of the Class A Certificates
(except the Class A-IO Certificates), is the Original Certificate Principal
Balance of such Class as reduced by all amounts actually distributed to the
Owners of such Class of Class A Certificates on all prior Payment Dates.
CERTAIN DEFINITIONS. As used in this Prospectus Supplement, the following
terms have the following meanings:
"Class B-1 Applied Realized Loss Amount" means, as to the Class B-1
Certificates and as of any Payment Date, the lesser of (x) the Class B-1
Certificate Principal Balance (after taking into account the distribution of the
Group II Principal Distribution Amount on such Payment Date, but prior to the
application of the Class B-1 Applied Realized Loss Amount, if any, on such
Payment Date) and (y) the Group II Applied Realized Loss Amount as of such
Payment Date.
"Class B-1 Certificate Principal Balance" means, as to the Class B-1
Certificates and as of any date of determination, the Original Class B-1
Certificate Principal Balance of such Class as reduced by the sum of (x) all
amounts actually distributed to the Owners of the Class B-1 Certificates on all
prior Payment Dates on account of principal and (y) the aggregate, cumulative
amount of Class B-1 Applied Realized Loss Amounts on all prior Payment Dates.
"Class B-1 Realized Loss Amortization Amount" means, as to the Class B-1
Certificates and as of any Payment Date, the lesser of (x) the Class B-1 Unpaid
Realized Loss Amount as of such Payment Date and (y) the excess of (i) the Group
II Monthly Excess Cashflow Amount over (ii) the sum of the Class A Interest
Carry Forward Amount with respect to Group II, the Group II Extra Principal
Distribution Amount, the Class M-1 Realized Loss
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Amortization Amount, the Class M-2 Realized Loss Amortization Amount, the Class
M-1 Interest Carry Forward Amount, the Class M-2 Interest Carry Forward Amount
and the Class B-1 Interest Carry Forward Amount in each case for such Payment
Date.
"Class M-1 Applied Realized Loss Amount" means, as to the Class M-1
Certificates and as of any Payment Date, the lesser of (x) the Class M-1
Certificate Principal Balance (after taking into account the distribution of the
Group II Principal Distribution Amount on such Payment Date, but prior to the
application of the Class M-1 Applied Realized Loss Amount, if any, on such
Payment Date) and (y) the excess of (i) the Group II Applied Realized Loss
Amount as of such Payment Date over (ii) the sum of the Class M-2 Applied
Realized Loss Amount and the Class B-1 Applied Realized Loss Amount, in each
case as of such Payment Date.
"Class M-1 Certificate Principal Balance" means, as to the Class M-1
Certificates and as of any date of determination, the Original Class M-1
Certificate Principal Balance of such Class as reduced by the sum of (x) all
amounts actually distributed to the Owners of the Class M-1 Certificates on all
prior Payment Dates on account of principal and (y) the aggregate, cumulative
amount of Class M-1 Applied Realized Loss Amounts on all prior Payment Dates.
"Class M-1 Realized Loss Amortization Amount" means, as to the Class M-1
Certificates of any Payment Date, the lesser of (x) the Class M-1 Unpaid
Realized Loss Amount as of such Payment Date and (y) the excess of (i) the Group
II Monthly Excess Cashflow Amount over (ii) the sum of the Class A Interest
Carry Forward Amount with respect to Group II, the Group II Extra Principal
Distribution Amount and the Class M-1 Interest Carry Forward Amount, in each
case for such Payment Date.
"Class M-2 Applied Realized Loss Amount" means, as to the Class M-2
Certificates and as of any Payment Date, the lesser of (x) the Class M-2
Certificate Principal Balance (after taking into account the distribution of the
Group II Principal Distribution Amount on such Payment Date, but prior to the
application of the Class M-2 Applied Realized Loss Amount, if any, on such
Payment Date) and (y) the excess of (i) the Group II Applied Realized Loss
Amount as of such Payment Date over (ii) the Class B-1 Applied Realized Loss
Amount as of such Payment Date.
"Class M-2 Certificate Principal Balance" means, as to the Class M-2
Certificates and as of any date of determination, the Original Class M-2
Certificate Principal Balance as reduced by the sum of (x) all amounts actually
distributed to the Owners of the Class M-2 Certificates on all prior Payment
Dates on account of principal and (y) the aggregate, cumulative amount of Class
M-2 Applied Realized Loss Amounts on all prior Payment Dates.
"Class M-2 Realized Loss Amortization Amount" means, as to the Class M-2
Certificates and as of any Payment Date, the lesser of (x) the Class M-2 Unpaid
Realized Loss Amount as of such Payment Date and (y) the excess of (i) the Group
II Monthly Excess Cashflow Amount over (ii) the sum of the Class A Interest
Carry Forward Amount with respect to Group II, the Group II Extra Principal
Distribution Amount, the Class M-1 Realized Loss Amortization Amount, the Class
M-1 Interest Carry Forward Amount and the Class M-2 Interest Carry Forward
Amount, in each case for such Payment Date.
"Cumulative Realized Losses" means, with respect to Group II only, as of
any Payment Date, the aggregate amount of Realized Losses in Group II from the
Cut-Off Date.
"Unpaid Realized Loss Amount" means for any Class of the Subordinate
Certificates and as to any Payment Date, the excess of (x) the aggregate
cumulative amount of Group II Applied Realized Loss Amounts with respect to such
Class for all prior Payment Dates over (y) the aggregate, cumulative amount of
Group II Realized Loss Amortization Amounts with respect to such Class for all
prior Payment Dates.
THE POOLING AND SERVICING AGREEMENT
In addition to the provisions of the Pooling and Servicing Agreement
summarized elsewhere in this Prospectus Supplement and the Prospectus, there is
set forth below a summary of certain other provisions of the Pooling and
Servicing Agreement.
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FORMATION OF THE TRUST
The Trust will be created and established pursuant to the Pooling and
Servicing Agreement on the Closing Date. On such date, the Sponsor will cause
the Trust to acquire the Mortgage Loans. The Trust will issue the Offered
Certificates to the Owners thereof on the Closing Date.
The property of the Trust shall include all money, instruments and other
property to the extent such money, instruments and other property are subject or
intended to be held in trust for the benefit of the Owners, and all proceeds
thereof, including, without limitation, (i) the Mortgage Loans, (ii) such
amounts, including Eligible Investments, as from time to time may be held by the
Trustee in the Certificate Account and by the Master Servicer in the Principal
and Interest Account (except as otherwise provided in the Pooling and Servicing
Agreement), each to be created pursuant to the Pooling and Servicing Agreement,
(iii) any Mortgaged Property, the ownership of which has been effected on behalf
of the Trust as a result of foreclosure or acceptance by the Master Servicer of
a deed in lieu of foreclosure and that has not been withdrawn from the Trust,
(iv) any insurance policies relating to the Mortgage Loans and any rights of the
Sponsor or the affiliated Originators under any insurance policies, (v) Net
Liquidation Proceeds with respect to any Liquidated Loan and (vi) proceeds from
the liquidation of the Trust (collectively, the "Trust Estate").
SALE OF MORTGAGE LOANS
On the Closing Date, the Sponsor will cause the Originators to transfer
the Mortgage Loans pursuant to one or more Master Mortgage Loan Transfer
Agreements between the Originators and the Sponsor (the "Master Transfer
Agreements"). In the Master Transfer Agreements the Originators will make
certain representations and warranties; the Sponsor will assign its rights to
enforce such representations and warranties to the Trustee.
Pursuant to the Pooling and Servicing Agreement, the Sponsor on the
Closing Date will cause the Trust to acquire all right, title and interest of
the Originators in each Mortgage Loan listed on the schedule delivered to the
Trustee on the Closing Date (collectively the "Schedule of Mortgage Loans") and
all their right, title and interest in all principal collected and all interest
due on each such Mortgage Loan on or after the Cut-Off Date.
In connection with the sale of the Mortgage Loans on the Closing Date, the
Originators will be required to deliver to the Trustee a file (a "Mortgage Loan
File") consisting of, among other things, (i) the original Notes or certified
copies thereof, endorsed by the Originator thereof in blank or to the order of
the holder, (ii) originals of all intervening assignments, showing a complete
chain of title from origination to the applicable Originators, if any, including
warehousing assignments, with evidence of recording thereon, (iii) originals of
all assumption and modification agreements if any, and (iv) either: (a) the
original Mortgage, with evidence of recording thereon, (b) a true and accurate
copy of the Mortgage where the original has been transmitted for recording,
until such time as the original is returned by the public recording office or
(c) a copy of the Mortgage certified by the public recording office in those
instances where the original recorded Mortgage has been lost. The Trustee will
agree, for the benefit of the Owners, to review each such file within 90 days
after the Closing Date to ascertain that all required documents (or certified
copies of documents) have been executed and received.
The Originators are additionally required to cause to be prepared and
recorded, within 75 business days of the Closing Date (or, if original recording
information is unavailable, within such later period as is permitted by the
Pooling and Servicing Agreement) assignments of the Mortgages from the
Originators to the Trustee, in the appropriate jurisdictions in which such
recordation is necessary to perfect the lien thereof as against creditors of or
purchasers from the Originators; provided, however, that such requirements may
be waived to the extent that the Sponsor delivers to the Trustee and the Group I
Insurer an acceptable opinion of counsel to the effect that the preparation and
recordation of such assignments in certain jurisdictions is not necessary to
protect the Trust's interest in the related Mortgage Loans.
GOVERNING LAW
The Pooling and Servicing Agreement and each Offered Certificate will 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.
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TERMINATION OF THE TRUST
The Pooling and Servicing Agreement will provide that the Trust will
terminate upon the earlier of (i) the payment to the Owners of all Offered
Certificates of all amounts required to be paid such Owners upon the later to
occur of (a) the final payment or other liquidation (or any advance made with
respect thereto) of the last Mortgage Loan or (b) the disposition of all
property acquired in respect of any Mortgage Loan remaining in the Trust Estate,
or (ii) any time when a Qualified Liquidation of the Trust Estate is effected.
REPORTING REQUIREMENTS
On each Payment Date the Trustee is required to report in writing to each
Owner:
(i) the amount of the distribution with respect to the each Class of
Certificates (based on a Certificate in the original principal amount of
$1,000);
(ii) the amount of such distribution allocable to principal on the
related Mortgage Loans in each Group, separately identifying the aggregate
amount of any Prepayments or other recoveries of principal included therein;
(iii) the amount of such distribution allocable to interest on the
related Mortgage Loans in each Group (based on a Certificate in the original
principal amount of $1,000);
(iv) the Interest Carry Forward Amount for each Class;
(v) the principal amount (or Notional Principal Balance) of each
Class of the Offered Certificates (based on a Certificate in the original
principal (or notional principal) amount of $1,000) which will be outstanding
after giving effect to any payment of principal on such Payment Date;
(vi) the aggregate Principal Balance of all Mortgage Loans and the
aggregate Principal Balance of the Mortgage Loans in each Group after giving
effect to any payment of principal on such Payment Date;
(vii) based upon information furnished by the Sponsor such
information as may be required by Section 6049(d)(7)(C) of the Code and the
regulations promulgated thereunder to assist the Owners in computing their
market discount;
(viii) the total of any Substitution Amounts or Loan Purchase Price
amounts included in such distribution with respect to Group;
(ix) the weighted average Coupon Rate of the Mortgage Loans in each
Group;
(x) whether a Group II Delinquency Trigger Event has occurred;
(xi) the Group II Senior Enhancement Percentage;
(xii) the Overcollateralization Amount for each Group and the
Certificate Principal Balance of each Class of the Offered Certificates then
outstanding after giving effect to any payment of principal on such Payment
Date;
(xiii) the amount of any Applied Realized Loss Amount, Realized Loss
Amortization Amount and Unpaid Realized Loss Amount for each Class as of the
close of such Payment Date; and
(xiv) whether a Group II Cumulative Realized Loss Trigger Event has
occurred.
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Certain obligations of the Trustee to provide information to the Owners
are conditioned upon such information being received from the Master Servicer.
In addition, on each Payment Date the Trustee will be required to
distribute to each Owner, together with the information described above, the
following information prepared by the Master Servicer and furnished to the
Trustee for such purpose and with respect to each Group;
(a) the number and aggregate Principal Balance of Mortgage Loans (i)
30-59 days delinquent, (ii) 60-89 days delinquent and (iii) 90 or more days
delinquent, as of the close of business on the last business day of the calendar
month next preceding the Payment Date and the number and aggregate Principal
Balances of the Mortgage Loans and related data;
(b) the number and aggregate Principal Balance of all Mortgage Loans
in foreclosure proceedings as of the close of business on the last business day
of the calendar month preceding such Payment Date;
(c) the number of Mortgagors and the aggregate Principal Balance of
the related Mortgagors involved in bankruptcy proceedings as of the close of
business on the last business day of the calendar month next preceding such
Payment Date;
(d) the existence and status of any Properties as to which title has
been taken in the name of, or on behalf of the Trustee, as of the close of
business of the last business day of the month next preceding the Payment Date;
(e) the book value of any real estate acquired through foreclosure
or grant of a deed in lieu of foreclosure as of the close of business on the
last business day of the calendar month next preceding the Payment Date;
(f) the amount of cumulative Realized Losses; and
(g) the aggregate Principal Balance of 60 + Day Delinquent Loans.
TERMINATION OF THE TRUST
The Pooling and Servicing Agreement provides that the Trust will terminate
upon the payment to the Owners of all Certificates of all amounts required to be
paid to such Owners upon the last to occur of (a) the final payment or other
liquidation (or any advance made with respect thereto) of the last Mortgage
Loan, (b) the disposition of all property acquired in respect of any Mortgage
Loan remaining in the Trust Estate and (c) at any time when a Qualified
Liquidation of the Trust Estate is effected as described below. To effect a
termination pursuant to clause (c) above, the Owners of all Certificates then
outstanding will be required (i) unanimously to direct the Trustee on behalf of
the Trust to adopt a plan of complete liquidation, as contemplated by Section
860F(a)(4) of the Code and (ii) to furnish to the Trustee an opinion of counsel
experienced in federal income tax matters acceptable to the Trustee to the
effect that such liquidation constitutes a Qualified Liquidation.
OPTIONAL TERMINATION
By the Master Servicer. At its option, the Master Servicer acting directly
or through one or more affiliates may determine to purchase from the Trust all
of the Mortgage Loans and other property then held by the Trust, and thereby
effect early retirement of the Offered Certificates, on any Remittance Date on
and after the Clean-up Call Date.
Termination Upon Loss of REMIC Status. Following a final determination by
the Internal Revenue Service or by a court of competent jurisdiction, in either
case from which no appeal is taken within the permitted time for such appeal, or
if any appeal is taken, following a final determination of such appeal from
which no further appeal can be taken, to the effect that the Trust does not and
will no longer qualify as a "REMIC" pursuant to Section 860D of the Code (the
"Final Determination"), at any time on or after the date which is 30 calendar
days following
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such Final Determination, the Owners of a majority in Percentage Interests
represented by the Offered Certificates then Outstanding may direct the Trustee
on behalf of the Trust to adopt a plan of complete liquidation, as contemplated
by Section 860F(a)(4) of the Code.
THE GROUP I INSURER
MBIA Insurance Corporation ( the "Group I Insurer") is the principal
operating subsidiary of MBIA Inc., a New York Stock Exchange listed company (the
"Company"). The Company is not obliged to pay the debts of or claims against the
Group I Insurer. The Group I Insurer is domiciled in the State of New York and
licensed to do business in and is subject to regulation under the laws of all 50
states, the District of Columbia, the Commonwealth of Puerto Rico, the
Commonwealth of the Northern Mariana Islands, the Virgin Islands of the United
States and the Territory of Guam. The Group I Insurer has two European branches,
one in the Republic of France and the other in the Kingdom of Spain. New York
has laws prescribing minimum capital requirements, limiting classes and
concentration of investments and requiring the approval of policy rates and
forms. State laws also regulate the amount of both the aggregate and individual
risks that may be insured, the payment of dividends by the Group I Insurer,
changes in control and transactions among affiliates. Additionally, the Group I
Insurer is required to maintain contingency reserves on its liabilities in
certain amounts and for certain periods of time.
Effective February 17, 1998, the Company acquired all of the outstanding
stock of Capital Markets Assurance Corporation ("CMAC"), a New York domiciled
financial guarantee insurance company, through a merger with its parent CapMAC
Holdings Inc. The Company then contributed the common stock of CMAC to the Group
I Insurer. Pursuant to a reinsurance agreement, CMAC has ceded all of its net
insured risks, as well as its unearned premiums and contingency reserves, to the
Group I Insurer and the Group I Insurer has reinsured CMAC's net outstanding
exposure. The Company is not obligated to pay the debts of or claims against
CMAC.
The consolidated financial statements of the Group I Insurer, a wholly
owned subsidiary of the Company, and its subsidiaries as of December 31, 1996
and December 31, 1995 and for the three years in the period ended December 31,
1996, prepared in accordance with generally accepted accounting principles,
included in the Annual Report on Form 10-K of the Company for the year ended
December 31, 1996 and the consolidated financial statements of the Group I
Insurer and its subsidiaries as of September 30, 1997 and for the periods ended
September 30, 1997 and September 30, 1996 included in the Quarterly Report on
Form 10-Q of the Company for the period ended September 30, 1997, are hereby
incorporated by reference into this Prospectus Supplement and shall be deemed to
be a part hereof. Any statement contained in a document incorporated by
reference herein shall be modified or superseded for purposes of this Prospectus
Supplement to the extent that a statement contained herein or in any other
subsequently filed document which also is incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus Supplement.
All financial statements of the Group I Insurer and its subsidiaries
included in documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act of 1934, as amended, subsequent to the date of this
Prospectus Supplement and prior to the termination of the offering of the Group
I Certificates (including Component I of the Class A-7 Certificates) shall be
deemed to be incorporated by reference into this Prospectus Supplement and to be
a part hereof from the respective dates of filing such documents.
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The tables below present selected financial information of the Group I
Insurer determined in accordance with statutory accounting practices prescribed
or permitted by insurance regulatory authorities ("SAP") and generally accepted
accounting principles ("GAAP"):
<TABLE>
<CAPTION>
SAP
-----------------------------
DECEMBER 31, SEPTEMBER 30,
1996 1997
---- ----
(Audited) (Unaudited)
(In millions)
<S> <C> <C>
Admitted Assets $4,476 $5,165
Liabilities 3,009 3,457
Capital and Surplus 1,467 1,708
</TABLE>
<TABLE>
<CAPTION>
GAAP
-----------------------------
DECEMBER 31, SEPTEMBER 30,
1996 1997
---- ----
(Audited) (Unaudited)
(In millions)
<S> <C> <C>
Admitted Assets $5,066 $5,819
Liabilities 2,262 2,594
Shareholder's Equity 2,804 3,225
</TABLE>
----------------------------------
Copies of the financial statements of the Group I Insurer incorporated by
reference herein and copies of the Group I Insurer's 1996 year-end audited
financial statements prepared in accordance with statutory accounting practices
are available, without charge, from the Group I Insurer. The address of the
Group I Insurer is 113 King Street, Armonk, New York 10504. The telephone number
of the Group I Insurer is (914) 273-4545.
The Group I Insurer does not accept any responsibility for the accuracy of
completeness of this Prospectus Supplement or any information or disclosure
contained herein, or omitted herefrom, other than with respect to the accuracy
of the information regarding the Group I Insurance Policy and Group I Insurer
set forth under the headings "THE GROUP I INSURER" and "THE GROUP I INSURANCE
POLICY." Additionally, the Group I Insurer makes no representation regarding the
Group I Certificates or the Class A-7 Certificates or the advisability of
investing in the Group I Certificates or the Class A-7 Certificates.
Moody's Investor Service, Inc. ("Moody's") rates the claims paying ability
of the Group I Insurer and CMAC "Aaa."
Standard & Poor's Rating Services, a division of The McGraw-Hill
Companies, Inc. rates the claims paying ability of the Group I Insurer and CMAC
"AAA."
Fitch IBCA, Inc. (formerly known as Fitch Investors Service, L.P.) rates
the claims paying ability of the Group I Insurer "AAA" (CMAC has not requested a
rating from Fitch IBCA, Inc.).
Each rating of the Group I Insurer should be evaluated independently. The
ratings reflect the respective rating agency's current assessment of the
creditworthiness of the Group I Insurer and its ability to pay claims on its
policies of insurance. Any further explanation as to the significance of the
above ratings may be obtained only from the applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the Group I
Certificates or the Class A-7 Certificates and such ratings may be subject to
revision or withdrawal at any time by the rating agencies. Any
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downward revision or withdrawal of any of the above ratings may have an adverse
effect on the market price of the Group I Certificates and the Class A-7
Certificates. The Group I Insurer does not guaranty the market price of the
Group I Certificates or the Class A-7 Certificates nor does it guaranty that the
ratings on the Group I Certificates or the Class A-7 Certificates will not be
revised or withdrawn.
THE GROUP I INSURANCE POLICY
The following information has been supplied by MBIA Insurance Corporation
(the "Group I Insurer") for inclusion in this Prospectus Supplement.
The Group I Insurer, in consideration of the payment of the premium and
subject to the terms of the Group I Insurance Policy (the "Policy"), thereby
unconditionally and irrevocably guarantees to any Owner that an amount equal to
each full and complete Insured Payment will be received by Bankers Trust Company
of California, N.A., or its successor, as trustee for the Owners (the
"Trustee"), on behalf of the Owners from the Group I Insurer, for distribution
by the Trustee to each Owner of each Owner's proportionate share of the Insured
Payment. The Group I Insurer's obligations under the Policy with respect to
particular Insured Payment shall be discharged to the extent funds equal to the
applicable Insured Payment are received by the Trustee, whether or not such
funds are properly applied by the Trustee. Insured Payment shall be made only at
the time set forth in the Policy and no accelerated Insured Payments shall be
made regardless of any acceleration of the Group I Certificates or Component I
of the Class A-7 Certificates, unless such acceleration is at the sole option of
the Group I Insurer.
Notwithstanding the foregoing paragraph, the Policy does not cover
shortfalls, if any, attributable to the liability of the Trust, any REMIC or the
Trustee for withholding taxes, if any, (including interest and penalties in
respect of any such liability). The Policy does not cover, and Insured Payments
do not include, any Civil Relief Act Shortfalls or any Supplemental Interest
Amounts.
The Group I Insurer will pay any Insured Payment that is a Preference
Amount on the Business Day following receipt on a Business Day by the Fiscal
Agent (as described below) of (i) a certified copy of the order requiring the
return of a preference payment, (ii) an opinion of counsel satisfactory to the
Group I Insurer that such order is final and not subject to appeal, (iii) an
assignment in such form as is reasonably required by the Group I Insurer,
irrevocably assigning to the Group I Insurer all rights and claims of the Owner
relating to or arising under the Group I Certificates (including Component I of
the Class A-7 Certificates) against the debtor which made such preference
payment or otherwise with respect to such preference payment and (iv)
appropriate instruments to effect the appointment of the Group I Insurer as
agent for such Owner in any legal proceeding related to such preference payment,
such instruments being in a form satisfactory to the Group I Insurer; provided,
that if such documents are received after 12:00 noon New York City time on such
Business Day, they will be deemed to be received on the following Business Day.
Such payments shall be disbursed to the receiver or trustee in bankruptcy named
in the final order of the court exercising jurisdiction on behalf of the Owner
and not to any Owner directly unless such Owner has returned principal or
interest paid on the Group I Certificates or Component I of the Class A-7
Certificates, as applicable, to such receiver or trustee in bankruptcy, in which
case such payment shall be disbursed to such Owner.
The Group I Insurer will pay any other amount payable under the Policy no
later than 12:00 noon New York City time on the later of the Payment Date on
which the related Deficiency Amount is due or the third Business Day following
receipt in New York, New York on a Business Day by State Street Bank and Trust
Company, N.A., as Fiscal Agent for the Group I Insurer or any successor fiscal
agent appointed by the Group I Insurer (the "Fiscal Agent") of a Notice (as
described below); provided, that if such Notice is received after 12:00 noon New
York City time on such Business Day, it will be deemed to be received on the
following Business Day. If any such Notice received by the Fiscal Agent is not
in proper form or is otherwise insufficient for the purpose of making claim
under the Policy it shall be deemed not to have been received by the Fiscal
Agent for purposes of this paragraph, and the Insurer or the Fiscal Agent, as
the case may be, shall promptly so advise the Trustee and the Trustee may submit
an amended Notice.
Insured Payments due under the Policy unless otherwise stated therein will
be disbursed by the Fiscal Agent to the Trustee on behalf of the Owners by wire
transfer of immediately available funds in the amount of the
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<PAGE> 99
Insured Payment less, in respect of Insured Payments related to Preference
Amounts, any amount held by the Trustee for the payment of such Insured Payment
and legally available therefor.
The Fiscal Agent is the agent of the Group I Insurer only and the Fiscal
Agent shall in no event be liable to Owners for any acts of the Fiscal Agent or
any failure of the Group I Insurer to deposit or cause to be deposited,
sufficient funds to make payments due under the Policy.
As used in the Policy, the following terms shall have the following
meanings:
"Agreement" means the Pooling and Servicing Agreement dated as of March 1,
1998 among Advanta Mortgage Corp. USA, as Master Servicer, Advanta Mortgage
Conduit Services, Inc., as Sponsor, and Bankers Trust Company of California,
N.A., as Trustee, without regard to any amendment or supplement thereto.
"Business Day" means any day other than (i) a Saturday or Sunday or (ii) a
day on which the Group I Insurer is closed or banking institutions in the State
of New York, the State of California or the city in which the principal
corporate trust office of the Trustee under the Agreement is located, are
authorized or obligated by law or executive order to be closed.
"Deficiency Amount" means the excess, if any, of Required Distributions
over the Net Available Distribution Amount.
"Insured Payment" means (i) as of any Payment Date, any Deficiency Amount
and (ii) any Preference Amount (without duplication).
"Notice" means the telephonic or telegraphic notice, promptly confirmed in
writing by fax substantially in the form of Exhibit A attached to the Policy,
the original of which is subsequently delivered by registered or certified mail,
from the Trustee specifying the Insured Payment which shall be due and owing on
the applicable Payment Date.
"Owner" means each Owner (as defined in the Agreement) who, on the
applicable Payment Date, is entitled under the terms of the applicable Group I
Certificates (including the Class A-7 Certificates with respect to Component I
only), to payment thereunder.
"Preference Amount" means any amount previously distributed to an Owner on
the Group I Certificates, or the Class A-7 Certificates with respect to
Component I only, that is recoverable and sought to be recovered as a voidable
preference by a trustee in bankruptcy pursuant to the United States Bankruptcy
Code (11 U.S.C.), as amended from time to time in accordance with a final
nonappealable order of a court having competent jurisdiction.
"Required Distributions" means, as of any Payment Date, the sum of (i) the
Class A-1 Current Interest, Class A-2 Current Interest, Class A-3 Current
Interest, Class A-4 Current Interest, Class A-5 Current Interest, Class A-6
Current Interest, Class A-IO Current Interest and the Class A-7 Current Interest
(to the extent related to Component I), (ii) any Class A-1 Interest Carry
Forward Amount, Class A-2 Interest Carry Forward Amount, Class A-3 Interest
Carry Forward Amount, Class A-4 Interest Carry Forward Amount, Class A-5
Interest Carry Forward Amount, Class A-6 Interest Carry Forward Amount, Class
A-IO Interest Carry Forward Amount and Class A-7 Interest Carry Forward Amount
(to the extent related to Component I) and (iii) any Group I Applied Realized
Loss Amount as of such Payment Date.
Capitalized terms used in the Policy and not otherwise defined in the
Policy shall have the respective meanings set forth in the Agreement as of the
date of execution of the Policy, without giving effect to any subsequent
amendment or modification to the Agreement unless such amendment or modification
has been approved in writing by the Group I Insurer.
Any notice under the Policy or service of process on the Fiscal Agent may
be made at the address listed below for the Fiscal Agent or such other address
as the Group I Insurer shall specify in writing to the Trustee.
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<PAGE> 100
The notice address of the Fiscal Agent is 15th Floor, 61 Broadway, New
York, New York 10006 Attention: Municipal Registrar and Paying Agency or such
other address as the Fiscal Agent shall specify to the Trustee in writing.
THE POLICY IS BEING ISSUED UNDER AND PURSUANT TO, AND SHALL BE CONSTRUED
UNDER, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT
OF LAWS PRINCIPLES THEREOF.
The insurance provided by the Policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law.
The Policy is not cancelable for any reason. The premium on the Policy is
not refundable for any reason including payment, or provision being made for
payment, prior to maturity of the Group I Certificates (including Component I of
the Class A-7 Certificates).
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of certain of the material anticipated federal
income tax consequences of the purchase, ownership and disposition of the
Offered Certificates is to be considered only in connection with "Certain
Federal Income Tax Consequences" in the Prospectus. The discussion herein and in
the Prospectus is based upon laws, regulations, rulings and decisions now in
effect, all of which are subject to change. The discussion below and in the
Prospectus does not purport to deal with all federal tax consequences applicable
to all categories of investors, some of which may be subject to special rules.
Investors should consult their own tax advisors in determining the federal,
state, local and any other tax consequences to them of the purchase, ownership
and disposition of the Offered Certificates.
REMIC ELECTIONS
The Trustee will cause one or more REMIC elections to be made with respect
to certain specified assets of the Trust for federal income tax purposes.
Qualification as a REMIC requires ongoing compliance with certain conditions.
Dewey Ballantine LLP, special tax counsel, will advise that, in its opinion, for
federal income tax purposes, assuming the REMIC elections are made and
compliance with the Pooling and Servicing Agreement, the Trust will be treated
as a REMIC for federal income tax purposes. Each of the Offered Certificates and
the related rights to receive Supplemental Interest Payments will be comprised
of (i) a "regular interest" in a REMIC and (ii) the right to receive
Supplemental Interest Payments having the characteristics described below.
For federal income tax purposes, regular interests in a REMIC are treated
as debt instruments issued by the REMIC on the date on which those interests are
created, and not as ownership interests in the REMIC or its assets. Owners of
Offered Certificates that otherwise report income under a cash method of
accounting will be required to report income with respect to such Offered
Certificates under an accrual method. The Offered Certificates may be issued
with "original issue discount" for federal income tax purposes. The prepayment
assumption that will be used in determining the rate of accrual of original
issue discount on the Offered Certificates is 115% of the "Prepayment
Assumption" for Group I and 25% CPR for Group II. See "Payment and Yield
Considerations -- Projected Prepayments and Yields for Offered Certificates"
herein. No representation is made that any of the Mortgage Loans will prepay at
such rates or any other rate. See "Payment and Yield Considerations -- Projected
Prepayments and Yields for Offered Certificates" herein and "Certain Federal
Income Tax Consequences -- Discount and Premium" in the Prospectus.
SPECIAL TAX ATTRIBUTES
The Offered Certificates possess certain special tax attributes by virtue
of the REMIC provisions of the Code. See "Certain Federal Income Tax
Consequences -- REMIC Securities -- Special Tax Attributes" in the Prospectus.
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<PAGE> 101
SUPPLEMENTAL INTEREST AMOUNTS
The Beneficial Owners of the Offered Certificates and the related rights
to receive Supplemental Interest Amounts will be treated for tax purposes as
owning two separate investments: (i) the respective Offered Certificates without
the right to receive Supplemental Interest Amounts and (ii) the right to receive
the Supplemental Interest Amounts. The Owners of the respective Offered
Certificates must allocate the purchase price of their Certificates between
these two investments based on their relative fair market values. The purchase
price allocated to the first investment will be the issue price of the
respective Offered Certificates for calculating accruals of original issue
discount. See "Certain Federal Income Tax Consequences -- Discount and Premium"
in the Prospectus.
A Beneficial Owner of an Offered Certificate and the related rights to
receive Supplemental Interest Amounts will be treated for federal income tax
purposes as having entered into a notional principal contract on the date that
it purchases its Certificate. Treasury Regulations under Section 446 of the Code
relating to notional principal contracts (the "Notional Principal Contract
Regulations") provide that taxpayers, regardless of their method of accounting,
generally must recognize the ratable daily portion of a periodic payment for the
taxable year to which that portion relates. Any Supplemental Interest Amounts
will be periodic payments. Income with respect to periodic payments under a
notional principal contract for a taxable year should constitute ordinary
income. The purchase price allocated to the right to receive the related
Supplemental Interest Amounts will be treated as a nonperiodic payment under the
Notional Principal Contract Regulations. Such a nonperiodic payment may be
amortized using several methods, including the level payment method described in
the Notional Principal Contract Regulations.
The right to receive the Supplemental Interest Amounts will not
constitute: (i) a "real estate asset" within the meaning of section 858(c)(5)(A)
of the Internal Revenue Code (the "Code") if held by a real estate investment
trust; (ii) a "qualified mortgage" within the meaning of section 860G(a)(3) of
the Code or a "permitted investment" within the meaning of section 860G(a)(5) of
the code if held by a REMIC; or (iii) assets described in section
7701(a)(19)(C)(xi) of the Code if held by a thrift. Moreover, other special
rules may apply to certain investors, including dealers in securities and
dealers in notional principal contracts.
If the Master Servicer, acting directly or through a permitted designee,
exercises its right to an Optional Termination, the Supplemental Interest Amount
may not be paid in full.
TAXATION OF FOREIGN INVESTORS
In general, foreign investors will not be subject to U.S. withholding on
income from the Supplemental Interest Amounts. See "Certain Federal Income Tax
Consequences -- Foreign Investors -- Grantor Trust Securities and REMIC Regular
Securities" in the Prospectus.
ERISA CONSIDERATIONS
CLASS A CERTIFICATES
Section 406 of ERISA and Section 4975 of the Code prohibit a pension,
profit sharing or other employee benefit plan (the "Plans") from engaging in
certain transactions involving "plan assets" with persons that are "parties in
interest" under ERISA or "disqualified persons" under the Code with respect to
the Plan unless a statutory or administrative exemption applies to the
transaction. ERISA also imposes certain duties on persons who are fiduciaries of
Plans subject to ERISA. A violation of these "prohibited transaction" rules may
generate excise tax and other liabilities under ERISA and the Code for such
persons. In addition, investments by Plans are subject to ERISA's general
fiduciary requirements, including the requirement of investment prudence and
diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan.
The United States Department of Labor (the "DOL") has issued a regulation
(the "Plan Asset Regulation") describing what constitutes the assets of a Plan
when the Plan acquires an equity interest in another entity. The Plan
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Asset Regulation states that, unless an exception described in the regulation is
applicable, the underlying assets of a corporation, partnership or trust in
which a Plan makes an equity investment will be considered, for purposes of
ERISA, to be assets of the investing Plan. Pursuant to the Plan Asset
Regulation, if the assets of the Trust were deemed to be plan assets by reason
of a Plan's investment in any Offered Certificates, such plan assets would
include an undivided interest in any assets held in such Trust. Therefore, in
the absence of an exemption, the purchase, sale or holding of any Offered
Certificate by a Plan (including certain individual retirement arrangements)
subject to Section 406 of ERISA or Section 4975 of the Code might result in
prohibited transactions and the imposition of excise taxes and civil penalties.
The DOL has issued to the Underwriters individual prohibited transaction
exemptions, (the "Exemptions"), which generally exempt from the application of
the prohibited transaction provisions of Section 406(a), Section 406(b)(1),
Section 406(b)(2) and Section 407(a) of ERISA and the excise taxes imposed
pursuant to Sections 4975(a) and (b) of the Code, certain transactions with
respect to the initial purchase, the holding and the subsequent resale by Plans
of certificates in pass-through trusts that consist of certain receivables,
loans and other obligations that meet the conditions and requirements of the
Exemptions. The loans covered by the Exemptions include mortgage loans such as
the Mortgage Loans.
Among the conditions that must be satisfied for the Exemptions to apply
are the following:
(1) the acquisition of the certificates by a Plan is on terms (including
the price for the certificates) that are at least as favorable to
the Plan as they would be in an arm's-length transaction with an
unrelated party;
(2) the rights and interests evidenced by the certificates acquired by
the Plan are not subordinated to the rights and interests evidenced
by other certificates of the trust;
(3) the certificates acquired by the Plan have received a rating at the
time of such acquisition that is one of the three highest generic
rating categories from either Standard & Poor's, Moody's, Duff &
Phelps Credit Rating Co. ("D&P") or Fitch;
(4) the Trustee is not an affiliate of any other member of the
Restricted Group (as defined below);
(5) the sum of all payments made to and retained by the Underwriters in
connection with the distribution of the certificates represents not
more than reasonable compensation for underwriting the certificates;
the sum of all payments made to and retained by the Originator and
the Sponsor pursuant to the assignment of the loans to the Trust
Estate represents not more than the fair market value of such loans;
the sum of all payments made to and retained by any Master Servicer
represents not more than reasonable compensation for such person's
services under the Pooling and Servicing Agreement and reimbursement
of such person's reasonable expenses in connection therewith; and
(6) the Plan investing in the certificates is an "accredited investor"
as defined in Rule 501(a)(1) of Regulation D of the Commission under
the Securities Act of 1933.
The Trust Estate must also meet the following requirements:
(i) the corpus of the Trust Estate must consist solely of assets of the
type that have been included in other investment pools;
(ii) certificates in such other investment pools must have been rated in
one of the three highest rating categories of Standard & Poor's, Moody's, Fitch
or D&P (the "Rating Agencies")for at least one year prior to the Plan's
acquisition of certificates; and
(iii) certificates evidencing interests in such other investment pools
must have been purchased by
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investors other than Plans for at least one year prior to the Plan's acquisition
of certificates.
Moreover, the Exemptions provide relief from certain self-dealing/conflict
of interest prohibited transactions that may occur when the Plan fiduciary
causes a Plan to acquire certificates in a trust in which the fiduciary (or its
affiliate) is an obligor on the receivables held in the trust; provided, that,
among other requirements, (i) in the case of an acquisition in connection with
the initial issuance of certificates, at least fifty percent of each class of
certificates in which Plans have invested is acquired by persons independent of
the Restricted Group and at least fifty percent of the aggregate interest in the
trust is acquired by persons independent of the Restricted Group; (ii) such
fiduciary (or its affiliate) is an obligor with respect to five percent or less
of the fair market value of the obligations contained in the trust; (iii) the
Plan's investment in certificates of any class does not exceed twenty-five
percent of all of the certificates of that class outstanding at the time of the
acquisition; and (iv) immediately after the acquisition, no more than
twenty-five percent of the assets of the Plan with respect to which such person
is a fiduciary are invested in certificates representing an interest in one or
more trusts containing assets sold or serviced by the same entity. The
Exemptions do not apply to Plans sponsored by the Sponsor, the Underwriters, the
Trustee, the Master Servicer, any other servicer, any obligor with respect to
Mortgage Loans included in the Trust Estate constituting more than five percent
of the aggregate unamortized principal balance of the assets in the Trust
Estate, or any affiliate of such parties (the "Restricted Group").
As of the date hereof, there is no single Mortgage Loan included in the
Trust Estate that constitutes more than five percent of the aggregate
unamortized principal balance of the assets of the Trust Estate. Before
purchasing a Class A Certificate based on the Exemptions (and, in the case of
the Group II Certificates, an administrative exemption with respect to
Supplemental Interest Amounts), a fiduciary of a Plan should itself confirm (1)
that such Class A Certificate constitutes a "certificate" for purposes of the
Exemptions and (2) that the conditions and other requirements set forth in the
Exemptions would be satisfied.
Prospective Plan investors in the Class A Certificates should consult with
their legal advisors concerning the impact of ERISA and the Code, the
applicability of the Exemptions, and the potential consequences in their
specific circumstances, prior to making an investment in the Class A
Certificates. Moreover, each Plan fiduciary should determine whether under the
general fiduciary standards of investment procedure and diversification an
investment in the Class A Certificates is appropriate for the Plan, taking into
account the overall investment policy of the Plan and the composition of the
Plan's investment portfolio.
In addition to the matters described above, purchasers of a Class A
Certificate that are insurance companies should consult with their counsel with
respect to the recent United States Supreme Court case interpreting the
fiduciary responsibility rules of ERISA, John Hancock Mutual Life Insurance Co.
v. Harris Trust and Savings Bank, 114 S.Ct. 517 (1993). In John Hancock, the
Supreme Court ruled that assets held in an insurance company's general account
may be deemed to be "plan assets" for ERISA purposes under certain
circumstances. Prospective purchasers using insurance company general account
assets should determine whether the decision affects their ability to make
purchases of the Offered Certificates.
Any person purchasing an Offered Certificate and the related right to
receive Supplemental Interest Amounts will have acquired, for purposes of ERISA
and for federal income tax purposes, such an Offered Certificate without the
right to receive the Supplemental Interest Amounts, together with the right to
receive the Supplemental Interest Amounts. The Exemptions do not apply to the
acquisition, holding or resale of the right to receive the Supplemental Interest
Amounts. Accordingly, the acquisition of the right to receive the Supplemental
Interest Amounts by a Plan could result in a prohibited transaction unless
another administrative exemption to ERISA's prohibited transaction rules is
applicable. One or more alternative exemptions may be available with respect to
certain prohibited transaction rules of ERISA that might apply in connection
with the initial purchase, holding and resale of the right to receive the
Supplemental Interest Amounts, including, but not limited to: (i) Prohibited
Transaction Class Exemption ("PTCE") 91-38, regarding investments by bank
collective investment funds; (ii) PTCE 90-1, regarding investments by insurance
company pooled separate accounts; (iii) PTCE 84-14, regarding transactions
negotiated by qualified professional asset managers; or (iv) PTCE 75-1, Part II,
regarding principal transactions by broker-dealers (the "Principal Transactions
Exemption"). It is believed that the conditions of the Principal Transactions
Exemption will be met with respect to the acquisition of a right to receive the
Supplemental Interest Amounts by a Plan, so long as the related Underwriter is
not a fiduciary with respect to the
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Plan (and is not a party in interest with respect to the Plan by reason of being
a participating employer or affiliate thereof).
SUBORDINATE CERTIFICATES
The Exemptions do not apply to the initial purchase, the holding or the
subsequent resale of the Mezzanine Certificates and Class B-1 Certificates
because such Certificates are subordinate to certain other Classes of the
Certificates. Accordingly, Plans may not purchase the Subordinate Certificates,
except that any insurance company may purchase such Certificates with assets of
its general account if the exemptive relief granted by the DOL for transactions
involving insurance company general accounts in Prohibited Transaction Exemption
95-60, 60 Fed. Reg. 35925 (July 12, 1995) is available with respect to such
investment. Any insurance company proposing to purchase such Certificates for
its general account should consider whether such relief would be available.
RATINGS
It is a condition of issuance of the Offered Certificates that each Class
of the Offered Certificates receive ratings from Moody's, Standard & Poor's and
Fitch as set forth below:
<TABLE>
<CAPTION>
Moody's Standard & Fitch
Class Rating Poor's Rating Rating
----- ------ ------------- ------
<S> <C> <C> <C>
Class A-1 Aaa AAA AAA
Class A-2 Aaa AAA AAA
Class A-3 Aaa AAA AAA
Class A-4 Aaa AAA AAA
Class A-5 Aaa AAA AAA
Class A-6 Aaa AAA AAA
Class A-IO Aaa AAAr AAA
Class A-7 Aaa AAA AAA
Class A-8 Aaa AAA AAA
Class M-1 Aa2 AA AA
Class M-2 A A A
Class B-1 Baa2 BBB BBB
</TABLE>
Explanations of the significance of such ratings may be obtained from
Moody's, 99 Church Street, New York, New York 10007, Standard & Poor's, 25
Broadway, New York, New York 10006, and Fitch, One State Street Plaza, New York,
New York 10004. Such ratings will be the views only of such rating agencies.
There is no assurance that such ratings will continue for any period of time or
that such ratings will not be revised or withdrawn. Any such revision or
withdrawal of such ratings may have an adverse effect on the market price of the
Offered Certificates. A security rating is not a recommendation to buy, sell or
hold securities.
The "r" of the "AAAr" rating of the Class A-IO Certificates by Standard &
Poor's is attached to highlight derivative, hydrid, and certain other
obligations that Standard & Poor's believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swap and options; and interest
only and principal only mortgage securities. The absence of an "r" symbol should
not be taken as an indication that an obligation will exhibit no volatility or
variability in total return.
The ratings assigned to the Offered Certificates do not address the
likelihood of the payment of any Supplemental Interest Amounts.
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The ratings of Moody's on home equity pass-through certificates address
the likelihood of the receipt by the Owners of all distributions to which such
Owners are entitled. Moody's rating opinions address the structural and legal
issues and tax-related aspects associated with the Certificates, including the
nature of the underlying home equity loans and the credit quality of the credit
support provider, if any. Moody's ratings on pass-through certificates do not
represent any assessment of the likelihood that principal prepayments may differ
from those originally anticipated.
Such ratings do not address the possibility that, as a result of principal
prepayments, certificateholders may receive a lower than anticipated yield.
The ratings of the 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.
The Sponsor has not requested a rating of the Offered Certificates offered
hereby by any rating agency other than Moody's, Standard & Poor's and Fitch and
the Sponsor has not provided information relating to the Offered Certificates or
the Mortgage Loans to any rating agency other than Moody's, Standard & Poor's
and Fitch. There can be no assurance as to whether any other rating agency will
rate the Offered Certificates offered hereby or, if another rating agency rates
such Offered Certificates, what rating would be assigned to such Offered
Certificates by such rating agency. Any such unsolicited rating assigned by
another rating agency to the Offered Certificates offered hereby may be lower
than the rating assigned to such Offered Certificates by Moody's, Standard &
Poor's and Fitch.
LEGAL INVESTMENT CONSIDERATIONS
No class of the Offered Certificates will constitute "mortgage related
securities" for purposes of SMMEA.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, dated March 12, 1998 (the "Underwriting Agreement"), the Sponsor has
agreed to cause the Trust to sell the Offered Certificates to the Underwriters
and the Underwriters have agreed to purchase the Offered Certificates.
In the Underwriting Agreement, the Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase the entire principal
amount of each class of Offered Certificates in the amounts with respect to each
Underwriter as set forth below:
Class A-1 Certificates
<TABLE>
<CAPTION>
Underwriters Principal Amount
- ------------ ----------------
<S> <C>
Morgan Stanley & Co. Incorporated $35,750,000
Greenwich Capital Markets, Inc. $35,750,000
J.P. Morgan Securities, Inc. $35,750,000
Salomon Brothers Inc $35,750,000
</TABLE>
S-105
<PAGE> 106
Class A-2 Certificates
<TABLE>
<CAPTION>
Underwriters Principal Amount
- ------------ ----------------
<S> <C>
Morgan Stanley & Co. Incorporated $22,250,000
Greenwich Capital Markets, Inc. $22,250,000
J.P. Morgan Securities, Inc. $22,250,000
Salomon Brothers Inc $22,250,000
</TABLE>
Class A-3 Certificates
<TABLE>
<CAPTION>
Underwriters Principal Amount
- ------------ ----------------
<S> <C>
Morgan Stanley & Co. Incorporated $16,000,000
Greenwich Capital Markets, Inc. $16,000,000
J.P. Morgan Securities, Inc. $16,000,000
Salomon Brothers Inc $16,000,000
</TABLE>
Class A-4 Certificates
<TABLE>
<CAPTION>
Underwriters Principal Amount
- ------------ ----------------
<S> <C>
Morgan Stanley & Co. Incorporated $10,500,000
Greenwich Capital Markets, Inc. $10,500,000
J.P. Morgan Securities, Inc. $10,500,000
Salomon Brothers Inc $10,500,000
</TABLE>
Class A-5 Certificates
<TABLE>
<CAPTION>
Underwriters Principal Amount
- ------------ ----------------
<S> <C>
Morgan Stanley & Co. Incorporated $17,000,000
Greenwich Capital Markets, Inc. $17,000,000
J.P. Morgan Securities, Inc. $17,000,000
Salomon Brothers Inc $17,000,000
</TABLE>
Class A-6 Certificates
<TABLE>
<CAPTION>
Underwriters Principal Amount
- ------------ ----------------
<S> <C>
Morgan Stanley & Co. Incorporated $12,500,000
Greenwich Capital Markets, Inc. $12,500,000
J.P. Morgan Securities, Inc. $12,500,000
Salomon Brothers Inc $12,500,000
</TABLE>
Class A-IO Certificates
<TABLE>
<CAPTION>
Underwriters Principal Amount
- ------------ ----------------
<S> <C>
Morgan Stanley & Co. Incorporated $ 0*
</TABLE>
S-106
<PAGE> 107
* No principal payments are distributed with respect to the Class A-IO
Certificates. Interest will be distributed and calculated on the basis of the
Notional Principal Balance of the Class A-6 Certificates. Morgan Stanley & Co.
Incorporated is the sole underwriter with respect to the Class A-IO
Certificates.
Class A-7 Certificates
<TABLE>
<CAPTION>
Underwriters Principal Amount
- ------------ ----------------
<S> <C>
Morgan Stanley & Co. Incorporated $82,500,000
Greenwich Capital Markets, Inc. $82,500,000
J.P. Morgan Securities, Inc. $82,500,000
Salomon Brothers Inc $82,500,000
</TABLE>
Class A-8 Certificates
<TABLE>
<CAPTION>
Underwriters Principal Amount
- ------------ ----------------
<S> <C>
Morgan Stanley & Co. Incorporated $11,000,000
Greenwich Capital Markets, Inc. $11,000,000
J.P. Morgan Securities, Inc. $11,000,000
Salomon Brothers Inc $11,000,000
</TABLE>
Class M-1 Certificates
<TABLE>
<CAPTION>
Underwriters Principal Amount
- ------------ ----------------
<S> <C>
Morgan Stanley & Co. Incorporated $6,500,000
Greenwich Capital Markets, Inc. $6,500,000
J.P. Morgan Securities, Inc. $6,500,000
Salomon Brothers Inc $6,500,000
</TABLE>
Class M-2 Certificates
<TABLE>
<CAPTION>
Underwriters Principal Amount
- ------------ ----------------
<S> <C>
Morgan Stanley & Co. Incorporated $5,750,000
Greenwich Capital Markets, Inc. $5,750,000
J.P. Morgan Securities, Inc. $5,750,000
Salomon Brothers Inc $5,750,000
</TABLE>
Class B-1 Certificates
<TABLE>
<CAPTION>
Underwriters Principal Amount
- ------------ ----------------
<S> <C>
Morgan Stanley & Co. Incorporated $5,250,000
Greenwich Capital Markets, Inc. $5,250,000
J.P. Morgan Securities, Inc. $5,250,000
Salomon Brothers Inc $5,250,000
</TABLE>
The Underwriters have agreed to reimburse the Sponsor for certain expenses
in connection with the issuance and distribution of the Offered Certificates.
The Underwriters have informed the Sponsor that they propose to offer the
Offered Certificates for sale from time to time in one or more negotiated
transactions, or otherwise, at varying prices to be determined, in each case, at
the time of the related sale. The Underwriters may effect such transactions by
selling the Offered Certificates to or through dealers, and such dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Underwriters. In connection with the sale of the Offered
Certificates, the Underwriters may be deemed to have received compensation from
the Sponsor in the form of underwriting compensation. The Underwriters and any
dealers that participate with the Underwriters in the distribution of the
S-107
<PAGE> 108
Offered Certificates may be deemed to be underwriters and any commissions
received by them and any profit on the resale of the Offered Certificates by
them may be deemed to be underwriting discounts and commissions under the 1933
Act.
Advanta Mortgage Conduit Services, Inc. has agreed to indemnify the
Underwriters against certain liabilities including liabilities under the 1933
Act.
In connection with this offering and in compliance with applicable law and
industry practice, the Underwriters may overallot or effect transactions which
stabilize, maintain or otherwise affect the market price of the Offered
Certificates at a level above that which might otherwise prevail in the open
market, including stabilizing bids, effecting syndicate covering transactions or
imposing penalty bids. A stabilizing bid means the placing of any bid, or the
effecting of any purchase, for the purpose of pegging, fixing or maintaining the
price of a security. A syndicate covering transaction means the placing of any
bid on behalf of the underwriting syndicate or the effecting of any purchase to
reduce a short position created in connection with the offering. A penalty bid
means an arrangement that permits Morgan Stanley & Co. Incorporated, as managing
underwriter, to reclaim a selling concession from a syndicate member in
connection with the offering when Offered Certificates originally sold by the
syndicate member are purchased in syndicate covering transactions. The
Underwriters are not required to engage in any of these activities. Any such
activities, if commenced, may be discontinued at any time.
The Sponsor has been advised by the Underwriters that the Underwriters
presently intend to make a market in the Offered Certificates, as permitted by
applicable laws and regulations. The Underwriters are not obligated, however, to
make a market in the Offered Certificates and such market-making may be
discontinued at any time at the sole discretion of the Underwriters.
Accordingly, no assurance can be given as to the liquidity of any trading
markets for the Offered Certificates.
EXPERTS
The consolidated financial statements of MBIA Insurance Corporation and
subsidiaries, as of December 31, 1996 and 1995 and for each of the three years
in the period ended December 31, 1996, incorporated by reference into this
Prospectus Supplement have been audited by Coopers & Lybrand L. L. P.,
independent accountants, as set forth in their report thereon incorporated by
reference herein in reliance upon the authority of such firm as experts in
accounting and auditing.
CERTAIN LEGAL MATTERS
Certain legal matters relating to the validity of the issuance of the Offered
Certificates will be passed upon for the Sponsor and the Underwriters by Dewey
Ballantine LLP, New York, New York.
S-108
<PAGE> 109
INDEX OF PRINCIPAL DEFINED TERMS
<TABLE>
<S> <C>
1933 Act .......................................................... 3
Accrual Period .................................................... 12
Actuarial Loan .................................................... 45
Advanta Parent .................................................... 78
Affiliated Originators ............................................ 2
Aggregate Certificate Principal Balance ........................... 8
Agreement ......................................................... 99
Applied Realized Loss Amount ...................................... 26,88
Appraised Values .................................................. 45
Average Amount Outstanding ........................................ 44
Beneficial Owners ................................................. 34
Book-Entry Certificates ........................................... 80
Business Day ...................................................... 11,87,99
CEDEL ............................................................. 1
CEDEL Participants ................................................ 81
Certificate Account ............................................... 83
Certificate Principal Balance ..................................... 4
Certificates ...................................................... 4
Class ............................................................. 4
Class A Certificates .............................................. 1
Class A Principal Distribution Amount ............................. 14
Class A-1 Certificates ............................................ 1
Class A-1 Formula Pass-Through Rate ............................... 5
Class A-1 Pass-Through Rate ....................................... 5
Class A-2 Certificates ............................................ 1
Class A-3 Certificates ............................................ 1
Class A-4 Certificates ............................................ 1
Class A-5 Certificates ............................................ 1
Class A-6 Certificates ............................................ 1
Class A-7 Certificates ............................................ 1
Class A-7 Formula Pass-Through Rate ............................... 5,6
Class A-7 Lockout Percentage ...................................... 22
Class A-7 Pass-Through Rate ....................................... 5
Class A-8 and Class A-9 Insurance Policy .......................... 31,91
Class A-8 Certificates ............................................ 1
Class A-8 Lockout Distribution Amount ............................. 22
Class A-8 Lockout Pro Rata Distribution Amount .................... 22
Class A-IO Certificates ........................................... 1
Class B-1 Applied Realized Loss Amount ............................ 91
Class B-1 Certificate Principal Balance ........................... 91
Class B-1 Certificates ............................................ 1
Class B-1 Formula Pass-Through Rate ............................... 6
Class B-1 Pass-Through Rate ....................................... 6
Class B-1 Principal Distribution Amount ........................... 24
Class B-1 Realized Loss Amortization Amount ....................... 91
Class Distribution Amount ......................................... 11
Class M-1 Applied Realized Loss Amount ............................ 92
Class M-1 Certificate Principal Balance ........................... 92
Class M-1 Certificates ............................................ 1
</TABLE>
S-109
<PAGE> 110
<TABLE>
<S> <C>
Class M-1 Formula Pass-Through Rate .................................... 6
Class M-1 Principal Distribution Amount ................................ 23
Class M-1 Realized Loss Amortization Amount ............................ 92
Class M-2 Applied Realized Loss Amount ................................. 92
Class M-2 Certificate Principal Balance ................................ 92
Class M-2 Certificates ................................................. 1
Class M-2 Formula Pass-Through Rate .................................... 6
Class M-2 Pass-Through Rate ............................................ 6
Class M-2 Principal Distribution Amount ................................ 23
Class M-2 Realized Loss Amortization Amount ............................ 92
Class R Certificates ................................................... 1
Clean-up Call Date ..................................................... 34
Closing Date ........................................................... 4
CMAC ................................................................... 96
CMT .................................................................... 37
Code ................................................................... 101
COFI ................................................................... 37
Commission ............................................................. 3
Company ................................................................ 96
Compensating Interest .................................................. 34
Component I ............................................................ 38
Component I Principal Balance .......................................... 6
Component II ........................................................... 38
Component Principal Balance ............................................ 6
Cooperative ............................................................ 82
Coupon Rate ............................................................ 27
Cumulative Realized Losses ............................................. 92
Current Interest ....................................................... 11
Cut-Off Date ........................................................... 4
D&P .................................................................... 102
Deficiency Amount ...................................................... 99
Delinquency Advances ................................................... 33
DOL .................................................................... 101
DTC .................................................................... 1
DTC Participants ....................................................... 81
Euroclear .............................................................. 1
Euroclear Operator ..................................................... 82
Euroclear Participants ................................................. 81
European Depositaries .................................................. 80
Exemptions ............................................................. 102
Extra Principal Distribution Amount .................................... 15
FDIC ................................................................... 79
FFI Loans .............................................................. 42,43
Final Determination .................................................... 95
Final Scheduled Payment Dates .......................................... 10
Financial Intermediary ................................................. 80
Fiscal Agent ........................................................... 98
Fitch .................................................................. 35
FNMA ................................................................... 53
Foreclosure Rate ....................................................... 43
G&P Loans .............................................................. 41
Gross Losses ........................................................... 44
</TABLE>
S-110
<PAGE> 111
<TABLE>
<S> <C>
Group .......................................................... 4
Group I ........................................................ 4,45
Group I Available Funds Cap Rate ............................... 6
Group I Certificates ........................................... 8
Group I Insurance Policy ....................................... 2
Group I Insurer ................................................ 4
Group I Maximum Rate ........................................... 6
Group I Senior Specified Enhancement Percentage ................ 24
Group I Statistic Calculation Pool ............................. 8
Group II ....................................................... 4,45
Group II 60+ Delinquency Percentage ............................ 22
Group II Available Funds Cap Rate .............................. 7
Group II Certificates .......................................... 8
Group II Cumulative Realized Loss Trigger Event ................ 23
Group II Delinquency Trigger Event ............................. 22
Group II Maximum Rate .......................................... 7
Group II Original Pool Balance ................................. 17
Group II Senior Enhancement Percentage ......................... 24
Group II Statistic Calculation Pool ............................ 8
Groups ......................................................... 4
Insured Payments ............................................... 28,89,99
Interest Amount Available ...................................... 13
Interest Carry Forward Amount .................................. 12
Interest Determination Date .................................... 87
Interest Remittance Amount ..................................... 14
Junior Lien Ratio .............................................. 46
LIBOR .......................................................... 87
Liquidated Loan ................................................ 15,25
Master Transfer Agreements ..................................... 93
MCA Loans ...................................................... 41
McGuire Loans .................................................. 42
Mezzanine Certificates ......................................... 1
Monthly Excess Cashflow Amount ................................. 13
Monthly Excess Interest Amount ................................. 27,89
Moody's ........................................................ 35,104
Mortgage Loan File ............................................. 93
Mortgage Loan Group ............................................ 45
Mortgage Loans ................................................. 2
Mortgagor ...................................................... 9
Net Available Distribution Amount .............................. 31,91
Net Losses ..................................................... 44
Nonrecoverable Delinquency Advance ............................. 33
Nonrecoverable Servicing Advance ............................... 34
Notes .......................................................... 45
Notice ......................................................... 99
Notional Principal Balance ..................................... 1
Notional Principal Contract Regulations ........................ 101
Offered Certificates ........................................... 1
Optional Termination ........................................... 8
Overcollateralization Amount ................................... 15
</TABLE>
S-111
<PAGE> 112
<TABLE>
<S> <C>
Overcollateralization Deficiency ................................. 15
Overcollateralization Release Amount ............................. 16
Overcollateralization Release Amounts ............................ 28
Owned and Managed Servicing Portfolio ............................ 43
Owner ............................................................ 99
Owners ........................................................... 79
Participants ..................................................... 80
Pass-Through Rate ................................................ 84
Payment Date ..................................................... 11
Percentage Interest .............................................. 84
Plan Asset Regulation ............................................ 101
Plans ............................................................ 101
Policy ........................................................... 98
Pooling and Servicing Agreement .................................. 2
Preference Amount ................................................ 99
Premium .......................................................... 12
prepayment ....................................................... 64
Prepayment ....................................................... 62
Prepayment Assumption ............................................ 64,100
Principal and Interest Account ................................... 15
Principal Balance ................................................ 9
Principal Distribution Amount .................................... 16
Principal Remittance Amount ...................................... 16
Principal Transactions Exemption ................................. 103
PTCE ............................................................. 103
PTE 97-34 ........................................................ 103
Rating Agencies .................................................. 102
Realized Loss .................................................... 25,88
Record Date ...................................................... 11
Recoveries ....................................................... 44
Reference Banks .................................................. 87
Register ......................................................... 83
Registrar ........................................................ 83
regular interest ................................................. 35,100
Relevant Depositary .............................................. 80
Remittance Date .................................................. 15,80
Remittance Period ................................................ 16,80
Required Distributions ........................................... 99
residual interest ................................................ 35
Restricted Group ................................................. 103
Rules ............................................................ 80
Schedule of Mortgage Loans ....................................... 93
Six-Month LIBOR .................................................. 37
SMMEA ............................................................ 36
Standard & Poor's ................................................ 35
Statistic Calculation Pools ...................................... 8
Stepdown Date .................................................... 16
Stepup Trigger Event ............................................. 17
Subordinate Certificates ......................................... 1
Substitution Amounts ............................................. 80
Supplemental Interest Amount ..................................... 7
TAC Certificates ................................................. 63
</TABLE>
S-112
<PAGE> 113
<TABLE>
<S> <C>
TACs ................................................................... 38,63
Targeted Overcollateralization Amount .................................. 17,27
Terms and Conditions ................................................... 82
Third-Party Servicing Portfolio ........................................ 43
Trust .................................................................. 4
Trust Estate ........................................................... 93
Trustee ................................................................ 2,4,98
Trustee's Fee .......................................................... 12
Unaffiliated Originators ............................................... 2
Underwriters ........................................................... 1
Underwriting Agreement ................................................. 105
Unpaid Realized Loss Amount ............................................ 92
Weighted average life .................................................. 64
</TABLE>
S-113
<PAGE> 114
ANNEX I
TARGETED BALANCE SCHEDULES FOR
CLASS A-2, CLASS A-3, CLASS A-4 AND CLASS A-5
CLASS A-2
<TABLE>
<CAPTION>
Per Date Balance
--- ---- -------
<S> <C> <C>
0 03/25/1998 89,000,000.00
1 04/25/1998 89,000,000.00
2 05/25/1998 89,000,000.00
3 06/25/1998 89,000,000.00
4 07/25/1998 89,000,000.00
5 08/25/1998 89,000,000.00
6 09/25/1998 89,000,000.00
7 10/25/1998 89,000,000.00
8 11/25/1998 89,000,000.00
9 12/25/1998 89,000,000.00
10 01/25/1999 89,000,000.00
11 02/25/1999 89,000,000.00
12 03/25/1999 89,000,000.00
13 04/25/1999 89,000,000.00
14 05/25/1999 89,000,000.00
15 06/25/1999 89,000,000.00
16 07/25/1999 89,000,000.00
17 08/25/1999 89,000,000.00
18 09/25/1999 84,724,781.35
19 10/25/1999 76,532,681.85
20 11/25/1999 68,522,722.56
21 12/25/1999 60,690,906.34
22 01/25/2000 53,033,323.11
23 02/25/2000 45,546,147.96
24 03/25/2000 38,225,639.30
25 04/25/2000 31,068,137.09
26 05/25/2000 24,070,061.00
27 06/25/2000 17,227,908.76
28 07/25/2000 10,538,254.40
29 08/25/2000 3,997,746.63
30 09/25/2000 0.00
</TABLE>
<PAGE> 115
ANNEX I
TARGETED BALANCE SCHEDULES FOR
CLASS A-2, CLASS A-3, CLASS A-4 AND CLASS A-5
CLASS A-3
<TABLE>
<CAPTION>
Per Date Balance
--- ---- -------
<S> <C> <C>
0 03/25/1998 64,000,000.00
1 04/25/1998 64,000,000.00
2 05/25/1998 64,000,000.00
3 06/25/1998 64,000,000.00
4 07/25/1998 64,000,000.00
5 08/25/1998 64,000,000.00
6 09/25/1998 64,000,000.00
7 10/25/1998 64,000,000.00
8 11/25/1998 64,000,000.00
9 12/25/1998 64,000,000.00
10 01/25/1999 64,000,000.00
11 02/25/1999 64,000,000.00
12 03/25/1999 64,000,000.00
13 04/25/1999 64,000,000.00
14 05/25/1999 64,000,000.00
15 06/25/1999 64,000,000.00
16 07/25/1999 64,000,000.00
17 08/25/1999 64,000,000.00
18 09/25/1999 64,000,000.00
19 10/25/1999 64,000,000.00
20 11/25/1999 64,000,000.00
21 12/25/1999 64,000,000.00
22 01/25/2000 64,000,000.00
23 02/25/2000 64,000,000.00
24 03/25/2000 64,000,000.00
25 04/25/2000 64,000,000.00
26 05/25/2000 64,000,000.00
27 06/25/2000 64,000,000.00
28 07/25/2000 64,000,000.00
29 08/25/2000 64,000,000.00
30 09/25/2000 61,603,107.22
31 10/25/2000 55,351,129.41
32 11/25/2000 49,238,676.35
33 12/25/2000 43,262,679.59
34 01/25/2001 37,458,703.60
35 02/25/2001 31,912,328.99
</TABLE>
Annex I-2
<PAGE> 116
<TABLE>
<CAPTION>
Per Date Balance
--- ---- -------
<S> <C> <C>
36 03/25/2001 26,489,899.31
37 04/25/2001 21,706,181.28
38 05/25/2001 17,035,989.91
39 06/25/2001 12,476,764.00
40 07/25/2001 8,025,998.86
41 08/25/2001 3,681,245.05
42 09/25/2001 0.00
</TABLE>
Annex I-3
<PAGE> 117
ANNEX I
TARGETED BALANCE SCHEDULES FOR
CLASS A-2, CLASS A-3, CLASS A-4 AND CLASS A-5
CLASS A-4
<TABLE>
<CAPTION>
Per Date Balance
--- ---- -------
<S> <C> <C>
0 03/25/1998 42,000,000.00
1 04/25/1998 42,000,000.00
2 05/25/1998 42,000,000.00
3 06/25/1998 42,000,000.00
4 07/25/1998 42,000,000.00
5 08/25/1998 42,000,000.00
6 09/25/1998 42,000,000.00
7 10/25/1998 42,000,000.00
8 11/25/1998 42,000,000.00
9 12/25/1998 42,000,000.00
10 01/25/1999 42,000,000.00
11 02/25/1999 42,000,000.00
12 03/25/1999 42,000,000.00
13 04/25/1999 42,000,000.00
14 05/25/1999 42,000,000.00
15 06/25/1999 42,000,000.00
16 07/25/1999 42,000,000.00
17 08/25/1999 42,000,000.00
18 09/25/1999 42,000,000.00
19 10/25/1999 42,000,000.00
20 11/25/1999 42,000,000.00
21 12/25/1999 42,000,000.00
22 01/25/2000 42,000,000.00
23 02/25/2000 42,000,000.00
24 03/25/2000 42,000,000.00
25 04/25/2000 42,000,000.00
26 05/25/2000 42,000,000.00
27 06/25/2000 42,000,000.00
28 07/25/2000 42,000,000.00
29 08/25/2000 42,000,000.00
30 09/25/2000 42,000,000.00
31 10/25/2000 42,000,000.00
32 11/25/2000 42,000,000.00
33 12/25/2000 42,000,000.00
34 01/25/2001 42,000,000.00
35 02/25/2001 42,000,000.00
</TABLE>
Annex I-4
<PAGE> 118
<TABLE>
<CAPTION>
Per Date Balance
--- ---- -------
<S> <C> <C>
36 03/25/2001 42,000,000.00
37 04/25/2001 42,000,000.00
38 05/25/2001 42,000,000.00
39 06/25/2001 42,000,000.00
40 07/25/2001 42,000,000.00
41 08/25/2001 42,000,000.00
42 09/25/2001 41,440,107.17
43 10/25/2001 37,300,242.71
44 11/25/2001 33,259,360.87
45 12/25/2001 29,315,221.43
46 01/25/2002 25,465,633.68
47 02/25/2002 21,708,455.29
48 03/25/2002 18,041,591.31
49 04/25/2002 14,462,993.07
50 05/25/2002 10,970,657.24
51 06/25/2002 7,562,624.79
52 07/25/2002 4,236,980.02
53 08/25/2002 991,849.66
54 09/25/2002 0.00
</TABLE>
Annex I-5
<PAGE> 119
ANNEX I
TARGETED BALANCE SCHEDULES FOR
CLASS A-2, CLASS A-3, CLASS A-4 AND CLASS A-5
CLASS A-5
<TABLE>
<CAPTION>
Per Date Balance
--- ---- -------
<S> <C> <C>
0 03/25/1998 68,000,000.00
1 04/25/1998 68,000,000.00
2 05/25/1998 68,000,000.00
3 06/25/1998 68,000,000.00
4 07/25/1998 68,000,000.00
5 08/25/1998 68,000,000.00
6 09/25/1998 68,000,000.00
7 10/25/1998 68,000,000.00
8 11/25/1998 68,000,000.00
9 12/25/1998 68,000,000.00
10 01/25/1999 68,000,000.00
11 02/25/1999 68,000,000.00
12 03/25/1999 68,000,000.00
13 04/25/1999 68,000,000.00
14 05/25/1999 68,000,000.00
15 06/25/1999 68,000,000.00
16 07/25/1999 68,000,000.00
17 08/25/1999 68,000,000.00
18 09/25/1999 68,000,000.00
19 10/25/1999 68,000,000.00
20 11/25/1999 68,000,000.00
21 12/25/1999 68,000,000.00
22 01/25/2000 68,000,000.00
23 02/25/2000 68,000,000.00
24 03/25/2000 68,000,000.00
25 04/25/2000 68,000,000.00
26 05/25/2000 68,000,000.00
27 06/25/2000 68,000,000.00
28 07/25/2000 68,000,000.00
29 08/25/2000 68,000,000.00
30 09/25/2000 68,000,000.00
31 10/25/2000 68,000,000.00
32 11/25/2000 68,000,000.00
33 12/25/2000 68,000,000.00
34 01/25/2001 68,000,000.00
35 02/25/2001 68,000,000.00
</TABLE>
Annex I-6
<PAGE> 120
<TABLE>
<CAPTION>
Per Date Balance
--- ---- -------
<S> <C> <C>
36 03/25/2001 68,000,000.00
37 04/25/2001 68,000,000.00
38 05/25/2001 68,000,000.00
39 06/25/2001 68,000,000.00
40 07/25/2001 68,000,000.00
41 08/25/2001 68,000,000.00
42 09/25/2001 68,000,000.00
43 10/25/2001 68,000,000.00
44 11/25/2001 68,000,000.00
45 12/25/2001 68,000,000.00
46 01/25/2002 68,000,000.00
47 02/25/2002 68,000,000.00
48 03/25/2002 68,000,000.00
49 04/25/2002 68,000,000.00
50 05/25/2002 68,000,000.00
51 06/25/2002 68,000,000.00
52 07/25/2002 68,000,000.00
53 08/25/2002 68,000,000.00
54 09/25/2002 65,825,401.90
55 10/25/2002 62,735,845.51
56 11/25/2002 59,721,428.91
57 12/25/2002 56,780,439.38
58 01/25/2003 53,911,202.13
59 02/25/2003 51,112,079.52
60 03/25/2003 48,381,470.24
61 04/25/2003 46,036,367.19
62 05/25/2003 43,747,622.22
63 06/25/2003 41,513,928.12
64 07/25/2003 39,334,007.30
65 08/25/2003 37,206,611.17
66 09/25/2003 35,130,519.48
67 10/25/2003 33,104,539.66
68 11/25/2003 31,127,506.23
69 12/25/2003 29,198,280.20
70 01/25/2004 27,315,748.44
71 02/25/2004 25,478,823.15
72 03/25/2004 23,686,441.26
73 04/25/2004 22,084,080.86
74 05/25/2004 20,518,105.19
75 06/25/2004 18,987,706.27
76 07/25/2004 17,492,093.83
77 08/25/2004 16,030,494.96
78 09/25/2004 14,602,153.69
79 10/25/2004 13,199,232.22
</TABLE>
Annex I-7
<PAGE> 121
<TABLE>
<CAPTION>
Per Date Balance
--- ---- -------
<S> <C> <C>
80 11/25/2004 11,794,466.00
81 12/25/2004 10,421,716.03
82 01/25/2005 9,080,269.89
83 02/25/2005 7,769,430.80
84 03/25/2005 6,488,517.28
85 04/25/2005 6,381,353.52
86 05/25/2005 6,191,351.35
87 06/25/2005 5,926,433.10
88 07/25/2005 5,593,922.52
89 08/25/2005 5,200,586.99
90 09/25/2005 4,752,676.98
91 10/25/2005 4,255,962.64
92 11/25/2005 3,715,768.01
93 12/25/2005 3,137,002.74
94 01/25/2006 2,524,191.71
95 02/25/2006 1,881,502.58
96 03/25/2006 1,212,771.38
97 04/25/2006 521,526.43
98 05/25/2006 0.00
</TABLE>
Annex I-8
<PAGE> 122
PROSPECTUS
MORTGAGE LOAN ASSET-BACKED SECURITIES, ISSUABLE IN SERIES
[Logo] [Logo]
Sponsor of the Trust Master Servicer
This Prospectus describes certain Mortgage Loan Asset-Backed Securities (the
"Securities") that may be issued from time to time in series and certain classes
of which may be offered hereby from time to time as described in the related
Prospectus Supplement. Each series of Securities will be issued by a separate
trust (each, a "Trust"). The primary assets of each Trust will consist of a
segregated pool (a "Mortgage Pool") of conventional one- to four-family
residential mortgage loans, multi-family residential mortgage loans, mixed use
mortgage loans, revolving home equity loans or certain balances thereof secured
by mortgages primarily on one- to four-family residential properties, or
certificates of interest or participation therein (collectively, the "Mortgage
Loans"), to be acquired by such Trust from Advanta Mortgage Conduit Services,
Inc. (the "Sponsor"). The Sponsor will acquire the Mortgage Loans from one or
more affiliated or unaffiliated institutions (the "Originators"). In connection
with the establishment of certain Trusts the Sponsor may first transfer the
related Trust Estate to Advanta Conduit Receivables Inc. (the "Transferor") and
the Transferor will then transfer such Trust Estate to the related Trust. The
use of the Transferor will not affect the obligations of the Sponsor with
respect to the related Trust or the related Securities. If the Transferor is to
be involved in a particular offering the related Prospectus Supplement will
describe its role in such offering; for purposes of this Prospectus the role of
the Transferor is subsumed in the role of the Sponsor. See "The Mortgage Pools."
The Mortgage Loans in each Mortgage Pool and certain other assets described
herein and in the related Prospectus Supplement (collectively with respect to
each Trust, the "Trust Estate") and in the related Prospectus Supplement will be
held by the related Trust for the benefit of the holders of the related series
of Securities (the "Securityholders") pursuant to a Pooling and Servicing
Agreement to the extent and as more fully described herein and in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, each Mortgage Pool will consist of one or more of the various types
of Mortgage Loans described under "The Mortgage Pools."
SEE "RISK FACTORS" AT PAGE 14 FOR A DISCUSSION OF CERTAIN RISK FACTORS
WHICH SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE SECURITIES OFFERED
HEREBY.
THE ASSETS OF THE RELATED TRUST ARE THE SOLE SOURCE OF PAYMENTS ON THE RELATED
SECURITIES. THE SECURITIES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE
SPONSOR, THE MASTER SERVICER, ANY ORIGINATOR OR ANY OF THEIR AFFILIATES, EXCEPT
AS SET FORTH HEREIN AND IN THE RELATED PROSPECTUS SUPPLEMENT. NEITHER THE
SECURITIES NOR THE UNDERLYING MORTGAGE LOANS WILL BE GUARANTEED OR INSURED BY
ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE SPONSOR, THE MASTER
SERVICER, ANY ORIGINATOR OR ANY OF THEIR AFFILIATES, EXCEPT AS SET FORTH IN THE
RELATED PROSPECTUS SUPPLEMENT. SEE ALSO "RISK FACTORS" PAGE 14.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Offers of the Securities may be made through one or more different methods,
including offerings through underwriters, as more fully described under "Methods
of Distribution" and in the related Prospectus Supplement. There will be no
secondary market for any series of Securities prior to the offering thereof.
There can be no assurance that a secondary market for any of the Securities will
develop or, if it does develop, that it will offer sufficient liquidity of
investment or will continue.
Retain this Prospectus for future reference. This Prospectus may not be used to
consummate sales of securities offered hereby unless accompanied by a Prospectus
Supplement.
The date of this Prospectus is October 30, 1997.
<PAGE> 123
(Cover continued from previous page)
Each series of Securities will include one or more classes. The
Securities of any particular class may represent beneficial ownership interests
in the related Mortgage Loans held by the related Trust, or may represent debt
secured by such Mortgage Loans, as described herein and in the related
Prospectus Supplement. A series may include one or more classes of Securities
entitled to principal distributions, with disproportionate, nominal or no
interest distributions, or to interest distributions, with disproportionate,
nominal or no principal distributions. The rights of one or more classes of
Securities of any series may be senior or subordinate to the rights of one or
more of the other classes of Securities. A series may include two or more
classes of Securities which differ as to the timing, sequential order, priority
of payment, interest rate or amount of distributions of principal or interest or
both. Information regarding each class of Securities of a series, and certain
characteristics of the Mortgage Loans to be evidenced by such Securities, will
be set forth in the related Prospectus Supplement.
THE SPONSOR'S AND THE RELATED ORIGINATORS' ONLY OBLIGATIONS WITH
RESPECT TO A SERIES OF SECURITIES WILL BE PURSUANT TO THE SERVICING REQUIREMENTS
RELATING THERETO, AND PURSUANT TO CERTAIN REPRESENTATIONS AND WARRANTIES MADE BY
THE SPONSOR OR BY SUCH ORIGINATORS, EXCEPT AS OTHERWISE DESCRIBED IN THE RELATED
PROSPECTUS SUPPLEMENT. THE PROSPECTUS SUPPLEMENT FOR EACH SERIES OF SECURITIES
WILL NAME ADVANTA MORTGAGE CORP. USA AS MASTER SERVICER (THE "MASTER SERVICER")
WHICH WILL ACT, DIRECTLY OR THROUGH ONE OR MORE SUBSERVICERS (THE
"SUBSERVICER(S)"). THE PRINCIPAL OBLIGATIONS OF THE MASTER SERVICER WILL BE
PURSUANT TO ITS CONTRACTUAL SERVICING OBLIGATIONS (WHICH MAY INCLUDE A LIMITED
OBLIGATION TO MAKE CERTAIN ADVANCES IN THE EVENT OF DELINQUENCIES IN PAYMENTS ON
THE MORTGAGE LOANS AND INTEREST SHORTFALLS DUE TO PREPAYMENT OF MORTGAGE LOANS).
SEE "DESCRIPTION OF THE SECURITIES."
If so specified in the related Prospectus Supplement, the Trust Estate
for a series of Securities may include any combination of a mortgage pool
insurance policy, letter of credit, financial guaranty insurance policy,
bankruptcy bond, special hazard insurance policy, reserve fund or other form of
Credit Enhancement. In addition to or in lieu of the foregoing, Credit
Enhancement with respect to certain classes of Securities of any series may be
provided by means of subordination, cross-support among Mortgage Assets, as
defined herein, or over-collateralization. See "Description of Credit
Enhancement."
The rate of payment of principal of each class of Securities entitled
to principal payments will depend on the priority of payment of such class and
the rate of payment (including prepayments, defaults, liquidations and
repurchases of Mortgage Loans) of the related Mortgage Loans. A rate of
principal payment lower or higher than that anticipated may affect the yield on
each class of Securities in the manner described herein and in the related
Prospectus Supplement. The various types of Securities, the different classes of
such Securities and certain types of Mortgage Loans in a given Mortgage Pool may
have different prepayment risks and credit risks. The Prospectus Supplement for
a series of Securities or the related Current Report on Form 8-K will contain
information as to (i) types, maturities and certain statistical information
relating to credit risks of the Mortgage Loans in the related Mortgage Pool,
(ii) the effect of certain rates of prepayment, based upon certain specified
assumptions for a series of Securities and (iii) priority of payment and
maturity dates of the Securities. AN INVESTOR SHOULD CAREFULLY REVIEW THE
INFORMATION IN THE RELATED PROSPECTUS SUPPLEMENT CONCERNING THE DIFFERENT
CONSEQUENCES OF THE RISKS ASSOCIATED WITH THE DIFFERENT TYPES AND CLASSES OF
SECURITIES. See "Yield Considerations." A Trust may be subject to early
termination under the circumstances described herein and in the related
Prospectus Supplement.
One or more separate elections may be made to treat a Trust, or one or
more segregated pools of assets held by such Trust, as a real estate mortgage
investment conduit ("REMIC") or a Financial Asset Securitization Investment
Trust ("FASIT") for federal income tax purposes. If applicable, the Prospectus
Supplement for a series of Securities will specify which class or classes of the
related series of Securities will be considered to be regular interests in a
REMIC or FASIT and which classes of Securities or other interests will be
designated as the residual interest in a REMIC or as high-yield interests or the
ownership interest in a FASIT. Alternatively, a Trust may be treated as a
grantor trust or as a partnership for federal income tax purposes, or may be
treated for federal income tax purposes as a mere security device which
constitutes a collateral arrangement for the issuance of secured debt. See
"Certain Federal Income Tax Consequences" herein.
2
<PAGE> 124
No dealer, salesman, or any other person has been authorized to give
any information, or to make any representations, other than those contained in
this Prospectus or the related Prospectus Supplement, and, if given or made,
such information must not be relied upon as having been authorized by the
Company or any dealer, salesman, or any other person. Neither the delivery of
this Prospectus or the related Prospectus Supplement nor any sale made hereunder
or thereunder shall under any circumstances create an implication that there has
been no change in the information herein or therein since the date hereof. This
Prospectus and the related Prospectus Supplement are not an offer to sell or a
solicitation of an offer to buy any security in any jurisdiction in which it is
unlawful to make such offer or solicitation.
TABLE OF CONTENTS
CAPTION PAGE
Summary of Prospectus........................................................ 4
Risk Factors................................................................. 14
Risks of the Mortgage Loans............................................. 15
The Trusts................................................................... 19
The Mortgage Pools........................................................... 26
General................................................................. 26
The Mortgage Pools...................................................... 26
Mortgage Loan Program........................................................ 28
Underwriting Guidelines................................................. 29
Qualifications of Originators........................................... 32
Sub-Servicers........................................................... 33
Representations by Originators.......................................... 33
Sub-Servicing by Originators............................................ 34
Description of the Securities................................................ 36
General................................................................. 36
Form of Securities...................................................... 38
Assignment of Mortgage Loans............................................ 39
Forward Commitments; Pre-Funding........................................ 41
Payments on Mortgage Loans; Deposits to
Distribution Account ................................................ 41
Withdrawals from the Principal and Interest
Account............................................................... 44
Distributions........................................................... 45
Principal and Interest on the Securities................................ 45
Advances ............................................................... 46
Reports to Securityholders.............................................. 47
Collection and Other Servicing
Procedures............................................................ 48
Realization Upon Defaulted Mortgage
Loans................................................................. 50
Subordination................................................................ 51
Description of Credit Enhancement............................................ 52
Hazard Insurance; Claims Thereunder.......................................... 57
Hazard Insurance Policies............................................... 57
The Sponsor and the Transferor............................................... 57
The Master Servicer.......................................................... 58
The Pooling and Servicing Agreement.......................................... 58
Servicing and Other Compensation and
Payment of Expenses; Originator's
Retained Yield........................................................ 58
Evidence as to Compliance............................................... 59
Removal and Resignation of the Master
Servicer.............................................................. 59
Amendments.............................................................. 60
CAPTION PAGE
Termination; Retirement of Securities............................... 61
The Trustee..........................................................61
Yield Considerations......................................................... 64
Maturity and Prepayment Considerations....................................... 65
Certain Legal Aspects of Mortgage Loans
and Related Matters........................................................ 67
General............................................................. 67
Cooperative Loans................................................... 68
Foreclosure......................................................... 69
Foreclosure on Shares of Cooperatives............................... 69
Rights of Redemption................................................ 70
Anti-Deficiency Legislation and Other
Limitations on Lenders............................................ 70
Environmental Legislation........................................... 72
Enforceability of Certain Provisions................................ 72
Certain Provisions of California Deeds
of Trust.......................................................... 73
Applicability of Usury Laws......................................... 73
Alternative Mortgage Instruments.................................... 73
Soldiers' and Sailors' Civil Relief Act
of 1940........................................................... 74
Certain Federal Income Tax Consequences...................................... 74
General............................................................. 74
Grantor Trust Securities............................................ 75
REMIC Securities.................................................... 76
Special Tax Attributes.............................................. 77
Debt Securities..................................................... 82
Discount and Premium................................................ 83
Backup Withholding.................................................. 86
Foreign Investors................................................... 86
ERISA Considerations......................................................... 87
General..............................................................87
Certificates.........................................................87
Notes................................................................89
Consultation With Counsel............................................89
Legal Investment Matters..................................................... 89
Use of Proceeds.............................................................. 90
Methods of Distribution...................................................... 90
Legal Matters................................................................ 91
Financial Information........................................................ 91
Additional Information ...................................................... 92
Index of Principal Definitions .............................................. 93
Annex I..................................................................... A-1
UNTIL 90 DAYS AFTER THE DATE OF EACH PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE RELATED SECURITIES, WHETHER OR NOT PARTICIPATING
IN THE DISTRIBUTION THEREOF, MAY BE REQUIRED TO DELIVER THIS PROSPECTUS AND THE
RELATED PROSPECTUS SUPPLEMENT. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
3
<PAGE> 125
SUMMARY OF PROSPECTUS
The following summary of certain pertinent information is qualified in
its entirety by reference to the detailed information appearing elsewhere in
this Prospectus and by reference to the information with respect to each series
of Securities contained in the Prospectus Supplement to be prepared and
delivered in connection with the offering of such series. Capitalized terms used
in this summary that are not otherwise defined shall have the meanings ascribed
thereto in this Prospectus. An index indicating where certain terms used herein
are defined appears at the end of this Prospectus.
Securities Offered.........................Mortgage Loan Asset-Backed
Securities.
Sponsor....................................Advanta Mortgage Conduit Services,
Inc. See "The Sponsor and The
Transferor."
Originators................................The Sponsor will acquire the
Mortgage Loans from one or more
institutions affiliated with the
Sponsor ("Affiliated Originators")
or institutions unaffiliated with
the Sponsor ("Unaffiliated
Originators") (the Affiliated
Originators and the Unaffiliated
Originators are collectively
referred to as the "Originators").
The Sponsor will transfer the
related Trust Estate to the related
Trust. In connection with the
establishment of certain Trusts the
Sponsor may first transfer the
related Trust Estate to the
Transferor and the Transferor will
then transfer such Trust Estate to
the related Trust. The use of the
Transferor will not affect the
obligations of the Sponsor with
respect to the related Trust or the
related Securities. If the
Transferor is to be involved in a
particular offering the related
Prospectus Supplement will describe
its role in such offering; for
purposes of this Prospectus the role
of the Transferor is subsumed in the
role of the Sponsor.
Master Servicer............................Advanta Mortgage Corp. USA. See "The
Master Servicer" and "The Pooling
and Servicing Agreement--Removal and
Resignation of the Master Servicer."
Sub-Servicers..............................Originators may act as Sub-Servicers
for Mortgage Loans acquired by the
Sponsor from such Originators unless
all servicing duties relating to
such Mortgage Loans have been
transferred to the Master Servicer
or to a third-party, unaffiliated
contract servicer approved by the
Master Servicer. See "Mortgage Loan
Program--Sub-Servicers."
Trustee....................................The trustee (the "Trustee") for each
series of Securities will be
specified in the related Prospectus
Supplement.
The Securities.............................Issuance of Securities.
Each series of Securities will be
issued at the direction of the
Sponsor by a separate Trust (each, a
"Trust"). The primary assets of each
Trust will consist of a segregated
pool (each, a "Mortgage Pool") of
conventional, one- to four-family
residential mortgage loans or multi-
family residential mortgage loans
(the "Mortgage Loans") or
certificates of interest or
participation therein, acquired by
such Trust from the Sponsor. The
Sponsor will acquire the Mortgage
Loans from
4
<PAGE> 126
one or more of the Originators. The
Securities issued by any Trust may
represent beneficial ownership
interests in the related Mortgage
Loans held by the related Trust, or
may represent debt secured by such
Mortgage Loans, as described herein
and in the related Prospectus
Supplement. Securities which
represent beneficial ownership
interests in the related Trust will
be referred to as "Certificates" in
the related Prospectus Supplement;
Securities which represent debt
issued by the related Trust will be
referred to as "Notes" in the
related Prospectus Supplement.
Each Trust will be established
pursuant to an agreement (each, a
"Trust Agreement") by and between
the Sponsor and the Trustee named
therein. Each Trust Agreement will
describe the related pool of assets
to be held in trust (each such asset
pool, the "Trust Estate"), which
will include the related Mortgage
Loans and, if so specified in the
related Prospectus Supplement, may
include any combination of a
mortgage pool insurance policy,
letter of credit, financial guaranty
insurance policy, special hazard
policy, reserve fund or other form
of Credit Enhancement.
The Mortgage Loans held by each
Trust will be master serviced by the
Master Servicer pursuant to a
servicing agreement (each, a
"Servicing Agreement") by and
between the Master Servicer and the
related Trustee.
With respect to Securities that
represent debt issued by the related
Trust, the related Trust will enter
into an indenture (each, an
"Indenture") by and between such
Trust and the trustee named on such
Indenture (the "Indenture Trustee"),
as set forth in the related
Prospectus Supplement. Securities
that represent beneficial ownership
interests in the related Trust will
be issued pursuant to the related
Trust Agreement.
In the case of any individual Trust,
the contractual arrangements
relating to the establishment of the
Trust, the servicing of the related
Mortgage Loans and the issuance of
the related Securities may be
contained in a single agreement, or
in several agreements which combine
certain aspects of the Trust
Agreement, the Servicing Agreement
and the Indenture described above
(for example, a pooling and
servicing agreement, or a servicing
and collateral management
agreement). For purposes of this
Prospectus, the term "Pooling and
Servicing Agreement" as used with
respect to a Trust means,
collectively, and except as
otherwise specified, any and all
agreements relating to the
establishment of the related Trust,
the servicing of the related
Mortgage Loans and the issuance of
the related Securities.
Securities Will Be Recourse to the
Assets of the Related Trust Only.
The sole source of payment for any
series of Securities will be the
assets of the related Trust (i.e.,
the related Trust Estate). The
Securities will not be obligations,
either recourse or non-recourse
(except for certain non-recourse
debt described under "Certain
Federal Income Tax Consequences"),
of the Sponsor, the Master Servicer,
any
5
<PAGE> 127
Sub-Servicer, any Originator or any
Person other than the related Trust.
In the case of Securities that
represent beneficial ownership
interest in the related Trust
Estate, such Securities will
represent the ownership of such
Trust Estate; with respect to
Securities that represent debt
issued by the related Trust, such
Securities will be secured by the
related Trust Estate.
Notwithstanding the foregoing, and
as to be described in the related
Prospectus Supplement, certain types
of Credit Enhancement, such as a
financial guaranty insurance policy
or a letter of credit, may
constitute a full recourse
obligation of the issuer of such
Credit Enhancement.
General Nature of the Securities as
Investments.
The Securities will consist of two
basic types: (i) Securities of the
fixed-income type ("Fixed-Income
Securities") and (ii) Securities of
the equity participation type
("Equity Securities"). No Class of
Equity Securities will be offered
pursuant to this Prospectus or any
Prospectus Supplement related
hereto. Fixed-Income Securities will
generally be styled as debt
instruments, having a principal
balance and a specified interest
rate ("Interest Rate"). Fixed-Income
Securities may be either beneficial
ownership interests in the related
Mortgage Loans held by the related
Trust, or may represent debt secured
by such Mortgage Loans. Each series
or class of Fixed-Income Securities
may have a different Interest Rate,
which may be a fixed or adjustable
Interest Rate. The related
Prospectus Supplement will specify
the Interest Rate for each series or
class of Fixed-Income Securities, or
the initial Interest Rate and the
method for determining subsequent
changes to the Interest Rate.
A series may include one or more
classes of Fixed-Income Securities
("Strip Securities") entitled (i) to
principal distributions, with
disproportionate, nominal or no
interest distributions, or (ii) to
interest distributions, with
disproportionate, nominal or no
principal distributions. In
addition, a series may include two
or more classes of Fixed-Income
Securities that differ as to timing,
sequential order, priority of
payment, Interest Rate or amount of
distributions of principal or
interest or both, or as to which
distributions of principal or
interest or both on any class may be
made upon the occurrence of
specified events, in accordance with
a schedule or formula, or on the
basis of collections from designated
portions of the related Mortgage
Pool, which series may include one
or more classes of Fixed-Income
Securities ("Accrual Securities"),
as to which certain accrued interest
will not be distributed but rather
will be added to the principal
balance (or nominal principal
balance, in the case of Accrual
Securities which are also Strip
Securities) thereof on each Payment
Date, as hereinafter defined and in
the manner described in the related
Prospectus Supplement.
If so provided in the related
Prospectus Supplement, a series of
Securities may include one or more
other classes of Fixed-Income
Securities (collectively, the
"Senior Securities") that are senior
to one or more other classes of
Fixed-Income Securities
(collectively, the
6
<PAGE> 128
"Subordinate Securities") in respect
of certain distributions of
principal and interest and
allocations of losses on Mortgage
Loans.
In addition, certain classes of
Senior (or Subordinate) Securities
may be senior to other classes of
Senior (or Subordinate) Securities
in respect of such distributions or
losses.
Equity Securities will represent the
right to receive the proceeds of the
related Trust Estate after all
required payments have been made to
the Securityholders of the related
Fixed-Income Securities (both Senior
Securities and Subordinate
Securities), and following any
required deposits to any reserve
account which may be established for
the benefit of the Fixed-Income
Securities. Equity Securities may
constitute what are commonly
referred to as the "residual
interest," "seller's interest" or
the "general partnership interest,"
depending upon the treatment of the
related Trust for federal income tax
purposes. As distinguished from the
Fixed-Income Securities, the Equity
Securities will not be styled as
having principal and interest
components. Any losses suffered by
the related Trust will first be
absorbed by the related class of
Equity Securities, as described
herein and in the related Prospectus
Supplement.
No Class of Equity Securities will
be offered pursuant to this
Prospectus or any Prospectus
Supplement related hereto. Equity
Securities may be offered on a
private placement basis or pursuant
to a separate Registration Statement
to be filed by the Sponsor. In
addition, the Sponsor and its
affiliates may initially or
permanently hold any Equity
Securities issued by any Trust.
General Payment Terms of Securities.
As provided in the related Pooling
and Servicing Agreement and as
described in the related Prospectus
Supplement, Securityholders will be
entitled to receive payments on
their Securities on specified dates
(each, a "Payment Date"). Payment
Dates with respect to Fixed-Income
Securities will occur monthly,
quarterly or semi-annually, as
described in the related Prospectus
Supplement; Payment Dates with
respect to Equity Securities will
occur as described in the related
Prospectus Supplement.
The related Prospectus Supplement
will describe a date (the "Record
Date") preceding such Payment Date,
as of which the Trustee or its
paying agent will fix the identity
of the Securityholders for the
purpose of receiving payments on the
next succeeding Payment Date. Unless
otherwise described in the related
Prospectus Supplement, the Payment
Date will be the twenty-fifth day of
each month (or, in the case of
quarterly-pay Securities, the
twenty-fifth day of every third
month; and in the case of
semi-annual pay Securities, the
twenty-fifth day of every sixth
month) and the Record Date will be
the close of business as of the last
day of the calendar month that
precedes the calendar month in which
such Payment Date occurs.
7
<PAGE> 129
Each Pooling and Servicing Agreement
will describe a period (each, a
"Remittance Period") antecedent to
each Payment Date (for example, in
the case of monthly-pay Securities,
the calendar month preceding the
month in which a Payment Date occurs
or such other specified period).
Unless otherwise provided in the
related Prospectus Supplement,
collections received on or with
respect to the related Mortgage
Loans during a Remittance Period
will be required to be remitted by
the Master Servicer to the related
Trustee prior to the related Payment
Date and will be used to fund
payments to Securityholders on such
Payment Date. As may be described in
the related Prospectus Supplement,
the related Pooling and Servicing
Agreement may provide that all or a
portion of the principal collected
on or with respect to the related
Mortgage Loans may be applied by the
related Trustee to the acquisition
of additional Mortgage Loans during
a specified period (rather than be
used to fund payments of principal
to Securityholders during such
period) with the result that the
related securities will possess an
interest-only period, also commonly
referred to as a revolving period,
which will be followed by an
amortization period. Any such
interest-only or revolving period
may, upon the occurrence of certain
events to be described in the
related Prospectus Supplement,
terminate prior to the end of the
specified period and result in the
earlier than expected amortization
of the related Securities.
In addition, and as may be described
in the related Prospectus
Supplement, the related Pooling and
Servicing Agreement may provide that
all or a portion of such collected
principal may be retained by the
Trustee (and held in certain
temporary investments, including
Mortgage Loans) for a specified
period prior to being used to fund
payments of principal to
Securityholders.
The result of such retention and
temporary investment by the Trustee
of such principal would be to slow
the amortization rate of the related
Securities relative to the
amortization rate of the related
Mortgage Loans, or to attempt to
match the amortization rate of the
related Securities to an
amortization schedule established at
the time such Securities are issued.
Any such feature applicable to any
Securities may terminate upon the
occurrence of events to be described
in the related Prospectus
Supplement, resulting in the current
distribution of principal payments
to the specified Securityholders and
an acceleration of the amortization
of such Securities.
Unless otherwise specified in the
related Prospectus Supplement,
neither the Securities nor the
underlying Mortgage Loans will be
guaranteed or insured by any
governmental agency or
instrumentality or the Sponsor, the
Master Servicer, any Sub-Servicer,
any Originator or any of their
affiliates.
No Investment
Companies..................................Neither the Sponsor nor any Trust
will register as an "investment
company" under the Investment
Company Act of 1940, as amended (the
"Investment Company Act").
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Cross-Collateralization....................Unless otherwise provided in the
related Pooling and Servicing
Agreement and described in the
related Prospectus Supplement, the
source of payment for Securities of
each series will be the assets of
the related Trust Estate only.
However, as may be described in the
related Prospectus Supplement, a
Trust Estate may include the right
to receive monies from a common pool
of Credit Enhancement which may be
available for more than one series
of Securities, such as a master
reserve account or a master
insurance policy. Notwithstanding
the foregoing, unless specifically
described otherwise in the related
Prospectus Supplement, no
collections on any Mortgage Loans
held by any Trust may be applied to
the payment of Securities issued by
any other Trust (except to the
limited extent that certain
collections in excess of amounts
needed to pay the related Securities
may be deposited in a common, master
reserve account that provides Credit
Enhancement for more than one series
of Securities).
The Mortgage Pools.........................Unless otherwise specified in the
related Prospectus Supplement, each
Trust Estate will consist primarily
of Mortgage Loans secured by liens
on one- to four-family residential
or multi-family properties
("Mortgages"), located in any one of
the fifty states, the District of
Columbia, Puerto Rico or any other
Territories of the United States.
All Mortgage Loans will have been
acquired by the related Trust from
the Sponsor. All Mortgage Loans will
have been originated either by (x)
one or more institutions affiliated
with the Sponsor (such affiliated
institutions, the "Affiliated
Originators") or (y) one or more
institutions not affiliated with the
Sponsor (such unaffiliated
institutions, the "Unaffiliated
Originators"). The Mortgage Loans
originated by the Affiliated
Originators generally will have been
originated pursuant to the standard
underwriting guidelines (the
"Sponsor's Guidelines") set forth in
the Sponsor's guide for originators
(the "Sponsor's Originator Guide"),
as modified from time to time. The
Mortgage Loans originated by the
Unaffiliated Originators may be
originated either (i) generally
pursuant to the Sponsor's
Guidelines; (ii) generally pursuant
to such Unaffiliated Originators'
underwriting guidelines as approved
by the Sponsor ("Approved
Guidelines"); or (iii) generally
pursuant to such Originators'
underwriting guidelines and
purchased by the Sponsor in a bulk
acquisition ("Bulk Acquisition").
See "Mortgage Loan Program." For a
description of the types of Mortgage
Loans that may be included in the
Mortgage Pools, see "The Mortgage
Pools--The Mortgage Loans."
A Current Report on Form 8-K will be
available to purchasers or
underwriters of the related series
of Securities and will generally be
filed, together with the related
Pooling and Servicing Agreement,
with the Securities and Exchange
Commission within fifteen days after
the initial issuance of such series.
Forward Commitments;
Pre-Funding..............................A Trust may enter into an agreement
(each, a "Forward Purchase
Agreement") with the Sponsor whereby
the Sponsor will agree to transfer
additional Mortgage Loans (the
"Subsequent Mortgage
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Loans") to such Trust following the
date on which such Trust is
established and the related
Securities are issued. Any Forward
Purchase Agreement will require that
any Mortgage Loans so transferred to
a Trust conform to the requirements
specified in such Forward Purchase
Agreement. In addition, the Forward
Purchase Agreement states that the
Depositor shall only transfer the
Subsequent Mortgage Loans upon the
satisfaction of certain conditions
including that the Depositor shall
have delivered to the Certificate
Insurer, the Rating Agencies and the
Trustee opinions of counsel
(including bankruptcy, corporate and
tax opinions) with respect to the
transfer of the Subsequent Mortgage
Loans. If a Forward Purchase
Agreement is to be utilized, and
unless otherwise specified in the
related Prospectus Supplement, the
related Trustee will be required to
deposit in a segregated account
(each, a "Pre-Funding Account") all
or a portion of the proceeds
received by the Trustee in
connection with the sale of one or
more classes of Securities of the
related series; subsequently, the
additional Mortgage Loans will be
transferred to the related Trust in
exchange for money released to the
Sponsor from the related Pre-Funding
Account in one or more transfers.
Each Forward Purchase Agreement will
set a specified period during which
any such transfers must occur. The
Forward Purchase Agreement or the
related Pooling and Servicing
Agreement will require that, if all
monies originally deposited to such
Pre-Funding Account are not so used
by the end of such specified period,
then any remaining monies will be
applied as a mandatory prepayment of
the related class or classes of
Securities as specified in the
related Prospectus Supplement.
Credit Enhancement.........................If so specified in the Prospectus
Supplement, the Trust Estate with
respect to any series of Securities
may include any one or any
combination of a letter of credit,
mortgage pool insurance policy,
special hazard insurance policy,
bankruptcy bond, financial guaranty
insurance policy, reserve fund or
other type of Credit Enhancement to
provide full or partial coverage for
certain defaults and losses relating
to the Mortgage Loans. Credit
support also may be provided in the
form of the related class of Equity
Securities, and/or by subordination
of one or more classes of
Fixed-Income Securities in a series
under which losses in excess of
those absorbed by any related class
of Equity Securities are first
allocated to any Subordinate
Securities up to a specified limit,
cross-support among groups of
Mortgage Assets or
overcollateralization. Unless
otherwise specified in the related
Prospectus Supplement, any mortgage
pool insurance policy will have
certain exclusions from coverage
thereunder, which will be described
in the related Prospectus
Supplement, which may be accompanied
by one or more separate Credit
Enhancements that may be obtained to
cover certain of such exclusions. To
the extent not set forth herein, the
amount and types of coverage, the
identification of any entity
providing the coverage, the terms of
any subordination and related
information will be set forth in the
Prospectus Supplement relating to a
series of Securities. See
"Description of Credit Enhancement"
and "Subordination."
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Advances...................................As to be described in the related
Prospectus Supplement, the Master
Servicer may be obligated to make
certain advances with respect to
payments of delinquent scheduled
interest and/or principal on the
Mortgage Loans, but only to the
extent that the Master Servicer
believes that such amounts will be
recoverable by it. Any such advance
made by the Master Servicer with
respect to a Mortgage Loan is
recoverable by it as provided herein
under "Description of the
Securities--Advances" either from
recoveries on the specific Mortgage
Loan or, with respect to any such
advance subsequently determined to
be nonrecoverable, out of funds
otherwise distributable to the
holders of the related series of
Securities, which may include the
holders of any Senior Securities of
such series.
As to be described in the related
Prospectus Supplement, the Master
Servicer may be required to pay
Compensating Interest as defined
hereafter under "Description of the
Securities--Advances."
In addition, unless otherwise
specified in the related Prospectus
Supplement, the Master Servicer will
be required to pay all "out of
pocket" costs and expenses incurred
in the performance of its servicing
obligations, but only to the extent
that the Master Servicer reasonably
believes that such amounts will
increase Net Liquidation Proceeds on
the related Mortgage Loan. See
"Description of the Securities--
Advances."
Optional Termination.......................The Master Servicer, the Sponsor,
or, if specified in the related
Prospectus Supplement, the holders
of the related class of Equity
Securities or the Credit Enhancer
may at their respective option
effect early retirement of a series
of Securities through the purchase
of the Mortgage Loans and other
assets in the related Trust Estate
under the circumstances and in the
manner set forth herein under "The
Pooling and Servicing
Agreement--Termination; Retirement
of Securities" and in the related
Prospectus Supplement.
Mandatory Termination......................The Trustee, the Master Servicer or
certain other entities specified in
the related Prospectus Supplement
may be required to effect early
retirement of a series of Securities
by soliciting competitive bids for
the purchase of the related Trust
Estate or otherwise, under other
circumstances and in the manner
specified in "The Pooling and
Servicing Agreement--Termination;
Retirement of Securities" and in the
related Prospectus Supplement.
Legal Investment...........................Not all of the Mortgage Loans in a
particular Mortgage Pool may
represent first liens. Accordingly,
as disclosed in the related
Prospectus Supplement, certain
classes of Securities offered hereby
and by the related Prospectus
Supplement may not constitute
"mortgage related securities" for
purposes of the Secondary Mortgage
Market Enhancement Act of 1984
("SMMEA") and, if so, will not be
legal investments for certain types
of institutional investors under
SMMEA.
Institutions whose investment
activities are subject to legal
investment laws and regulations or
to review by certain regulatory
authorities may
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<PAGE> 133
be subject to additional
restrictions on investment in
certain classes of Securities. Any
such institution should consult its
own legal advisors in determining
whether and to what extent a class
of Securities constitutes legal
investments for such investors. See
"Legal Investment" herein.
ERISA Considerations.......................A fiduciary of an employee benefit
plan and certain other retirement
plans and arrangements, including
individual retirement accounts and
annuities, Keogh plans, and
collective investment funds and
separate accounts in which such
plans, accounts, annuities or
arrangements are invested, that is
subject to the Employee Retirement
Income Security Act of 1974, as
amended ("ERISA"), or Section 4975
of the Code (each such entity, a
"Plan") should carefully review with
its legal advisors whether the
purchase or holding of Securities
could give rise to a transaction
that is prohibited or is not
otherwise permissible either under
ERISA or Section 4975 of the Code.
Investors are advised to consult
their counsel and to review "ERISA
Considerations" herein.
Certain Federal Income
Tax Consequences.........................Securities of each series offered
hereby will, for federal income tax
purposes, constitute either (i)
interests ("Grantor Trust
Securities") in a Trust treated as a
grantor trust under applicable
provisions of the Code, (ii)
"regular interests" ("REMIC Regular
Securities") or "residual interests"
("REMIC Residual Securities") in a
Trust treated as a REMIC (or, in
certain instances, containing one or
more REMIC's) under Sections 860A
through 860G of the Code, (iii) debt
issued by a Trust ("Debt
Securities") (iv) interests in a
Trust which is treated as a
partnership ("Partnership
Interests"), or, on or after
September 1, 1997, (v) "regular
interests" ("FASIT Regular
Securities"), "high-yield interests"
("FASIT High-Yield Securities") or
an ownership interest in a Trust
treated as a FASIT (or, in certain
circumstances containing one or more
FASITs under Sections 860H through
860L of the Code.
Investors are advised to consult
their tax advisors and to review
"Certain Federal Income Tax
Consequences" herein and in the
related Prospectus Supplement.
Registration of Securities.................Securities may be represented by
global securities registered in the
name of Cede & Co. ("Cede"), as
nominee of The Depository Trust
Company ("DTC"), or another nominee.
In such case, Securityholders will
not be entitled to receive
definitive securities representing
such Holders' interests, except in
certain circumstances described in
the related Prospectus Supplement.
See "Description of the Securities--
Form of Securities" herein.
Ratings....................................Each class of Fixed-Income
Securities offered pursuant to the
related Prospectus Supplement will
be rated in one of the four highest
rating categories by one or more
"national statistical rating
organizations," as defined in the
Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and
commonly referred to as "Rating
Agencies." Such ratings will
address, in the opinion of such
Rating Agencies, the
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likelihood that the related Trust
will be able to make timely payment
of all amounts due on the related
Fixed-Income Securities in
accordance with the terms thereof.
Such ratings will neither address
any prepayment or yield
considerations applicable to any
Securities nor constitute a
recommendation to buy, sell or hold
any Securities.
Equity Securities will not be rated.
The ratings expected to be received
with respect to any Securities will
be set forth in the related
Prospectus Supplement.
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<PAGE> 135
RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Securities.
Limited Liquidity. There can be no assurance that a secondary market
for the Securities of any series or class will develop or, if it does develop,
that it will provide Securityholders with liquidity of investment or that it
will continue for the life of the Securities of any series. The Prospectus
Supplement for any series of Securities may indicate that an underwriter
specified therein intends to establish a secondary market in such Securities;
however, no underwriter will be obligated to do so. Unless otherwise specified
in the related Prospectus Supplement, the Securities will not be listed on any
securities exchange.
Limited Obligations. The Securities will not represent an interest in
or obligation, either recourse or non-recourse (except for certain non-recourse
debt described under "Certain Federal Income Tax Consequences"), of the Sponsor,
the Master Servicer, any Originator (as defined herein) or any person other than
the related Trust. The only obligations of the foregoing entities with respect
to the Securities or the Mortgage Loans will be the obligations (if any) of the
Sponsor, the related Originators and the Master Servicer pursuant to certain
limited representations and warranties made with respect to the Mortgage Loans,
the Master Servicer's servicing obligations under the related Pooling and
Servicing Agreement (including its limited obligation, if any, to make certain
advances in the event of delinquencies on the Mortgage Loans, but only to the
extent deemed recoverable) and, if and to the extent expressly described in the
related Prospectus Supplement, certain limited obligations of the Sponsor,
Master Servicer, applicable Sub-Servicer, or another party in connection with a
purchase obligation ("Purchase Obligation") or an agreement to purchase or act
as remarketing agent with respect to a Convertible Mortgage Loan upon conversion
to a fixed rate. Notwithstanding the foregoing, and as to be described in the
related Prospectus Supplement, certain types of Credit Enhancement, such as a
financial guaranty insurance policy or a letter of credit, may constitute a full
recourse obligation of the issuer of such Credit Enhancement. Except as
described in the related Prospectus Supplement, neither the Securities nor the
underlying Mortgage Loans will be guaranteed or insured by any governmental
agency or instrumentality, or by the Sponsor, the Master Servicer, any
Sub-Servicer or any of their affiliates. Proceeds of the assets included in the
related Trust Estate for each series of Securities (including the Mortgage Loans
and any form of Credit Enhancement) will be the sole source of payments on the
Securities, and there will be no recourse to the Sponsor or any other entity in
the event that such proceeds are insufficient or otherwise unavailable to make
all payments provided for under the Securities.
Limitations, Reduction and Substitution of Credit Enhancement. With
respect to each series of Securities, Credit Enhancement will be provided in
limited amounts to cover certain types of losses on the underlying Mortgage
Loans. Credit Enhancement will be provided in one or more of the forms referred
to herein, including, but not limited to: a letter of credit; a Purchase
Obligation; a mortgage pool insurance policy; a special hazard insurance policy;
a bankruptcy bond; a reserve fund; a financial guaranty insurance policy or
other type of Credit Enhancement to provide partial coverage for certain
defaults and losses relating to the Mortgage Loans. Credit Enhancement also may
be provided in the form of the related class of Equity Securities, subordination
of one or more classes of Fixed-Income Securities in a series under which losses
in excess of those absorbed by any related class of Equity Securities are first
allocated to any Subordinate Securities up to a specified limit, cross-support
among Mortgage Assets and/or overcollateralization. See "Subordination" and
"Description of Credit Enhancement" herein. Regardless of the form of Credit
Enhancement provided, the coverage will be limited in amount and in most cases
will be subject to periodic reduction in accordance with a schedule or formula.
Furthermore, such Credit Enhancements may provide only very limited coverage as
to certain types of losses, and may provide no coverage as to certain other
types of losses. Generally, Credit Enhancements do not directly or indirectly
guarantee to the investors any specified rate of prepayments. The Master
Servicer will generally be permitted to reduce, terminate or substitute all or a
portion of the Credit Enhancement for any series of Securities, if the
applicable Rating Agency indicates that the then-current rating thereof will not
be adversely affected. To the extent not set forth herein, the amount and types
of coverage, the identification of any entity providing the coverage, the terms
of any subordination and related information will be set forth in the Prospectus
Supplement relating to a series of Securities. See "Description of Credit
Enhancement" and "Subordination."
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<PAGE> 136
RISKS OF THE MORTGAGE LOANS
Risk of the Losses Associated with Junior Liens. Certain of the
Mortgage Loans will be secured by junior liens subordinate to the rights of the
mortgagee or beneficiary under each related senior mortgage or deed of trust. As
a result, the proceeds from any liquidation, insurance or condemnation
proceedings will be available to satisfy the principal balance of a mortgage
loan only to the extent that the claims, if any, of each such senior mortgagee
or beneficiary are satisfied in full, including any related foreclosure costs.
In addition, a mortgagee secured by a junior lien may not foreclose on the
related mortgaged property unless it forecloses subject to the related senior
mortgage or mortgages, in which case it must either pay the entire amount of
each senior mortgage to the applicable mortgagee at or prior to the foreclosure
sale or undertake the obligation to make payments on each senior mortgage in the
event of default thereunder. In servicing junior lien loans in its portfolio, it
has generally been the practice of the Master Servicer to satisfy each such
senior mortgage at or prior to the foreclosure sale but only to the extent that
it determines any amounts so paid will be recoverable from future payments and
collections on such junior lien loans or otherwise. The Trusts will not have any
source of funds to satisfy any such senior mortgage or make payments due to any
senior mortgagee. See "Certain Legal Aspects of Mortgage Loans and Related
Matters--Foreclosure."
Risk of Losses Associated with Declining Real Estate Values. An
investment in securities such as the Securities that generally represent
beneficial ownership interests in the Mortgage Loans or debt secured by such
Mortgage Loans may be affected by, among other things, a decline in real estate
values and changes in the borrowers' financial condition. No assurance can be
given that values of the Mortgaged Properties have remained or will remain at
their levels on the dates of origination of the related Mortgage Loans. If the
residential real estate market should experience an overall decline in property
values such that the outstanding balances of any senior liens, the Mortgage
Loans and any secondary financing on the Mortgaged Properties in a particular
Mortgage Pool become equal to or greater than the value of the Mortgaged
Properties, the actual rates of delinquencies, foreclosures and losses could be
higher than those now generally experienced in the nonconforming credit mortgage
lending industry. Such a decline could extinguish the interest of the related
Trust in the Mortgaged Properties before having any effect on the interest of
the related senior mortgagee. In addition, in the case of Mortgage Loans that
are subject to negative amortization, due to the addition to principal balance
of deferred interest ("Deferred Interest"), the principal balances of such
Mortgage Loans could be increased to an amount equal to or in excess of the
value of the underlying Mortgaged Properties, thereby increasing the likelihood
of default. To the extent that such losses are not covered by the applicable
Credit Enhancement, holders of Securities of the series evidencing interests in
the related Mortgage Pool will bear all risk of loss resulting from default by
Mortgagors and will have to look primarily to the value of the Mortgaged
Properties for recovery of the outstanding principal and unpaid interest on the
defaulted Mortgage Loans.
Risk of Losses Associated with Certain Non-Conforming Credit and
Non-Traditional Loans. The Sponsor's underwriting standards consider, among
other things, a mortgagor's credit history, repayment ability and debt
service-to-income ratio, as well as the value of the property; however, the
Sponsor's Mortgage Loan program generally provides for the origination of
Mortgage Loans relating to non-conforming credits. For purposes hereof,
"non-conforming credit" means a mortgage loan which, based upon standard
underwriting guidelines, is ineligible for purchase by the Federal National
Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation
("FHLMC") due to credit characteristics that do not meet FNMA or FHLMC
guidelines, respectively. Certain of the types of loans that may be included in
the Mortgage Pools may involve additional uncertainties not present in
traditional types of loans. For example, certain of the Mortgage Loans may
provide for escalating or variable payments by the borrower under the Mortgage
Loan (the "Mortgagor"), as to which the Mortgagor is generally qualified on the
basis of the initial payment amount. In some instances the Mortgagors' income
may not be sufficient to enable them to continue to make their loan payments as
such payments increase and thus the likelihood of default will increase.
Additionally, certain Mortgage Loans may have combined loan-to-value ratios in
excess of 100%, which may result in inadequate security for the Mortgage Loans.
For a more detailed discussion, see "Mortgage Loan Program."
Risk of Losses Associated with Balloon Loans. Certain of the Mortgage
Loans may constitute "Balloon Loans." Balloon Loans are originated with a stated
maturity of less than the period of time of the corresponding amortization
schedule. Consequently, upon the maturity of a Balloon Loan, the Mortgagor will
be required to make
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a "balloon" payment that will be significantly larger than such Mortgagor's
previous monthly payments. The ability of such a Mortgagor to repay a Balloon
Loan at maturity frequently will depend on such borrower's ability to refinance
the Mortgage Loan. The ability of a Mortgagor to refinance such a Mortgage Loan
will be affected by a number of factors, including the level of available
mortgage rates at the time, the value of the related Mortgaged Property, the
Mortgagor's equity in the related Mortgaged Property, the financial condition of
the Mortgagor, the tax laws and general economic conditions at the time.
Although a low interest rate environment may facilitate the refinancing
of a balloon payment, the receipt and reinvestment by Securityholders of the
proceeds in such an environment may produce a lower return than that previously
received in respect of the related Mortgage Loan. Conversely, a high interest
rate environment may make it more difficult for the Mortgagor to accomplish a
refinancing and may result in delinquencies or defaults. None of the Sponsor,
the Originators, the Master Servicer, any Sub-Servicer or the Trustee will be
obligated to provide funds to refinance any Mortgage Loan, including Balloon
Loans.
Risk of Losses Associated with ARM Loans. ARM Loans may be underwritten
on the basis of an assessment that Mortgagors will have the ability to make
payments in higher amounts after relatively short periods of time. In some
instances, Mortgagors' income may not be sufficient to enable them to continue
to make their loan payments as such payments increase and thus the likelihood of
default will increase.
Risk of Losses Associated with Bankruptcy of Mortgagors. General
economic conditions have an impact on the ability of borrowers to repay Mortgage
Loans. Loss of earnings, illness and other similar factors also may lead to an
increase in delinquencies and bankruptcy filings by borrowers. In the event of
personal bankruptcy of a Mortgagor, it is possible that a Trust could experience
a loss with respect to such Mortgagor's Mortgage Loan. In conjunction with a
Mortgagor's bankruptcy, a bankruptcy court may suspend or reduce the payments of
principal and interest to be paid with respect to such Mortgage Loan or
permanently reduce the principal balance of such Mortgage Loan thereby either
delaying or permanently limiting the amount received by the Trust with respect
to such Mortgage Loan. Moreover, in the event a bankruptcy court prevents the
transfer of the related Mortgaged Property to a Trust, any remaining balance on
such Mortgage Loan may not be recoverable.
Risk of Losses Associated with Mortgaged Properties. 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 the Securityholders could occur. An action to foreclose on a
Mortgaged Property securing a Mortgage Loan is regulated by state statutes,
rules and judicial decisions 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 Mortgagor, 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
(net of expenses) ("Liquidation Proceeds") sufficient to repay all amounts due
on the related Mortgage Loan. The Master Servicer will be entitled to deduct
from Liquidation Proceeds all expenses reasonably incurred in attempting to
recover amounts due on the related liquidated Mortgage Loan ("Liquidated
Mortgage Loan") and not yet repaid, including payments to prior lienholders,
accrued Servicing Fees, Delinquency Advances, Servicing Advances, legal fees and
costs of legal action, real estate taxes, and maintenance and preservation
expenses. In the event that any Mortgaged Properties fail to provide adequate
security for the related Mortgage Loans and insufficient funds are available
from any applicable Credit Enhancement, Securityholders could experience a loss
on their investment.
Liquidation expenses with respect to defaulted mortgage loans do not
vary directly with the outstanding principal balance of the loan at the time of
default. Therefore, assuming that a servicer takes the same steps in realizing
upon a defaulted mortgage loan having a small remaining principal balance as it
would in the case of a defaulted mortgage loan having a larger principal
balance, the amount realized after expenses of liquidation would be less as a
percentage of the outstanding principal balance of the smaller principal balance
mortgage loan than would be the case with a larger principal balance loan.
Under environmental legislation and judicial decisions applicable in
various states, a secured party that takes a deed in lieu of foreclosure, or
acquires at a foreclosure sale a mortgaged property that, prior to foreclosure,
has
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been involved in decisions or actions which may lead to contamination of a
property, may be liable for the costs of cleaning up the purportedly
contaminated site. Although such costs could be substantial, it is unclear
whether they would be imposed on a holder of a mortgage note (such as a Trust)
which, under the terms of the Pooling and Servicing Agreement, is not required
to take an active role in operating the Mortgaged Properties. See "Certain Legal
Aspects of Mortgage Loans and Related Matters--Environmental Legislation."
Certain of the Mortgaged Properties relating to Mortgage Loans may not
be noninvestor owned. It is possible that the rate of delinquencies,
foreclosures and losses on Mortgage Loans secured by nonnoninvestor owned
properties could be higher than for loans secured by the primary residence of
the borrower.
Certain Mortgage Loans may have combined loan-to-value ratios in excess
of 100%. As a result, the Mortgaged Properties may not provide adequate security
for the Mortgage Loans. Additionally, there is also the risk that if the related
Mortgagors relocate, such Mortgagors will be unable to discharge the Mortgage
Loans in full from the sale proceeds of the related Mortgaged Properties and any
other funds available to these borrowers. As a result, the costs incurred in the
collection and liquidation of Mortgage Loans with combined loan-to-value ratios
at the time of origination in excess of 100% may be higher than with respect to
Mortgage Loans with combined loan-to-value ratios of 100% or less because the
Servicer may be required to pursue collection solely against the Mortgagor. The
Master Servicer may, in accordance with accepted servicing procedures, pursue
alternative methods to maximize proceeds therefrom, including, without
limitation, the modification of defaulted Mortgage Loans, which may include the
abatement of accrued interest or the reduction of a portion of the outstanding
Principal Balance of such defaulted Mortage Loan. Consequently, the losses on
such defaulted Mortgage Loans may be more severe as there is no assurance that
any proceeds will be recovered.
Litigation. Any material litigation relating to the Sponsor or the
Master Servicer will be specified in the related Prospectus Supplement.
Geographic Concentration of Mortgaged Properties. Certain geographic
regions from time to time will experience weaker regional economic conditions
and housing markets than will other regions, and, consequently, will experience
higher rates of loss and delinquency on mortgage loans generally. The Mortgage
Loans underlying certain series of Securities may be concentrated in such
regions, and such concentrations may present risk considerations in addition to
those generally present for similar mortgage loan asset-backed securities
without such concentrations. Information with respect to geographic
concentration of Mortgaged Properties will be specified in the related
Prospectus Supplement or related Current Report on Form 8-K.
Legal Considerations. Applicable state laws generally regulate interest
rates and other charges, require certain disclosures, and require licensing of
the Originators and the Master Servicer and Sub-Servicers. In addition, most
states have other laws, public policy and general principles of equity relating
to the protection of consumers, unfair and deceptive practices and practices
that may apply to the origination, servicing and collection of the Mortgage
Loans. Depending on the provisions of the applicable law and the specific facts
and circumstances involved, violations of these laws, policies and principles
may limit the ability of the Master Servicer to collect all or part of the
principal of or interest on the Mortgage Loans, may entitle the borrower to a
refund of amounts previously paid and, in addition, could subject the Master
Servicer to damages and administrative sanctions. See "Certain Legal Aspects of
Mortgage Loans and Related Matters."
The Mortgage Loans may also be subject to federal laws, including: (i)
the Federal Truth-in-Lending Act and Regulation Z promulgated thereunder and the
Real Estate Settlement Procedures Act and Regulation X promulgated thereunder,
which require certain disclosures to the borrowers regarding the terms of the
Mortgage Loans; (ii) the Equal Credit Opportunity Act and Regulation B
promulgated thereunder, which prohibit discrimination on the basis of age, race,
color, sex, religion, marital status, national origin, receipt of public
assistance or the exercise of any right under the Consumer Credit Protection
Act, in the extension of credit; and (iii) the Fair Credit Reporting Act, which
regulates the use and reporting of information related to the borrower's credit
experience. Depending on the provisions of the applicable law and the specific
facts and circumstances involved, violations of these laws, policies and general
principles of equity may limit the ability of the Master Servicer to collect all
or part of the principal of or interest on the Mortgage Loans, may entitle the
borrower to rescind the loan or to a refund of amounts previously paid and, in
addition, could subject the Master Servicer to damages and administrative
sanctions.
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If the Master Servicer is unable to collect all or part of the principal or
interest on the Mortgage Loans because of a violation of the aforementioned
laws, public policies or general principles of equity then the Trust may be
delayed or unable to repay all amounts owed to Investors. Furthermore, depending
upon whether damages and sanctions are assessed against the Master Servicer or
an Originator, such violations may materially impact the financial ability of
the Sponsor to continue to act as Master Servicer or the ability of an
Originator to repurchase or replace Mortgage Loans if such violation breaches a
representation or warranty contained in a Pooling and Servicing Agreement.
Yield and Prepayment Considerations. The yield to maturity of the
Securities of each series will depend on the rate of payment of principal
(including prepayments, liquidations due to defaults, and repurchases due to
conversion of adjustable-rate mortgage loans ("ARM Loans") to fixed-rate loans
or breaches of representations and warranties) on the Mortgage Loans, the
combined loan-to-value ratios of the Mortgage Loans, and the price paid by
Securityholders. Such yield may be adversely affected by a higher or lower than
anticipated rate of prepayments on the related Mortgage Loans. The yield to
maturity on Strip Securities or Securities purchased at premiums or discounted
to par will be extremely sensitive to the rate of prepayments on the related
Mortgage Loans. In addition, the yield to maturity on certain other types of
classes of Securities, including Accrual Securities or certain other classes in
a series including more than one class of Securities, may be relatively more
sensitive to the rate of prepayment on the related Mortgage Loans than other
classes of Securities.
Unless otherwise specified in the related Prospectus Supplement, the
Mortgage Loans may be prepaid in full or in part at any time; however, a
prepayment penalty or premium may be imposed in connection therewith. Unless so
specified in the related Prospectus Supplement, such penalties will not be
property of the related Trust. The rate of prepayments of the Mortgage Loans
cannot be predicted and is influenced by a wide variety of economic, social, and
other factors, including prevailing mortgage market interest rates, the
availability of alternative financing, local and regional economic conditions
and homeowner mobility. Therefore, no assurance can be given as to the level of
prepayments that a Trust will experience.
Prepayments may result from mandatory prepayments relating to unused
monies held in Pre-Funding Accounts, if any, voluntary early payments by
borrowers (including payments in connection with refinancings of the related
senior Mortgage Loan or Loans), sales of Mortgaged Properties subject to
"due-on-sale" provisions and liquidations due to default, as well as the receipt
of proceeds from physical damage, credit life and disability insurance policies.
In addition, repurchases or purchases from a Trust of Mortgage Loans or
substitution adjustments required to be made under the Pooling and Servicing
Agreement will have the same effect on the Securityholders as a prepayment of
such Mortgage Loans. Unless otherwise specified in the related Prospectus
Supplement, all of the Mortgage Loans contain "due-on-sale" provisions, and the
Master Servicer will be required to enforce such provisions unless (i) the
"due-on-sale" clause, in the reasonable belief of the Master Servicer, is not
enforceable under applicable law or (ii) the Master Servicer reasonably believes
that to permit an assumption of the Mortgage Loan would not materially and
adversely affect the interests of the Securityholders or of the related Credit
Enhancer, if any. See "The Pooling and Servicing Agreement" in the related
Prospectus Supplement.
Collections on the Mortgage Loans may vary due to the level of
incidence of delinquent payments and of prepayments. Collections on the Mortgage
Loans may also vary due to seasonal purchasing and payment habits of borrowers.
Book-Entry Registration. Issuance of the Securities in book-entry form
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 definitive physical securities representing such Securityholders'
interests, except in certain circumstances described in the related Prospectus
Supplement.
Since transactions in Securities will, in most cases, be able to be
effected only through DTC, direct or indirect participants in DTC's book-entry
system ("Direct or Indirect Participants") and certain banks, the ability of a
Securityholder to pledge a Security to persons or entities that do not
participate in the DTC system, or otherwise to take actions in respect of such
Securities, may be limited due to lack of a physical security representing the
Securities.
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Securityholders may experience some delay in their receipt of
distributions of interest on and principal of the Securities since distributions
may be required to be forwarded by the Trustee to DTC and, in such a case, DTC
will be required to credit such distributions to the accounts of its
Participants which thereafter will be required to credit them to the accounts of
the applicable class of Securityholders either directly or indirectly through
Indirect Participants. See "Description of the Securities--Form of Securities."
The Status of the Mortgage Loans in the Event of Bankruptcy of the
Sponsor or an Originator. In the event of the bankruptcy of the Sponsor or an
Originator at a time when it or any affiliate thereof holds an Equity Security,
a trustee in bankruptcy of the Sponsor, an Originator, or its creditors could
attempt to recharacterize the sale of the Mortgage Loans to the related Trust as
a borrowing by the Sponsor, the Originator or such affiliate with the result, if
such recharacterization is upheld, that the Securityholders would be deemed
creditors of the Sponsor, the Originator or such affiliate, secured by a pledge
of the Mortgage Loans. If such an attempt were successful, it could prevent
timely payments of amounts due to the Trust.
Limitations on Interest Payments and Foreclosures. Generally, under the
terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended (the
"Relief Act"), or similar state legislation, a Mortgagor who enters military
service after the origination of the related Mortgage Loan (including a
Mortgagor 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 (including fees and charges) above an annual rate of
6% during the period of such Mortgagor's active duty status, unless a court
orders otherwise upon application of the lender. It is possible that such action
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. In addition, the Relief Act imposes limitations that would impair the
ability of the Master Servicer to foreclose on an affected Mortgage Loan during
the Mortgagor's period of active duty status. Thus, in the event that such a
Mortgage Loan goes into default, there may be delays and losses occasioned by
the inability to realize upon the Mortgaged Property in a timely fashion.
Security Rating. The rating of Securities credit enhanced through
external Credit Enhancement such as a letter of credit, financial guaranty
insurance policy or mortgage pool insurance will depend primarily on the
creditworthiness of the issuer of such external Credit Enhancement device (a
"Credit Enhancer"). Any reduction in the rating assigned to the claims-paying
ability of the related Credit Enhancer below the rating initially given to the
Securities would likely result in a reduction in the rating of the Securities.
See "Ratings" in the Prospectus Supplement.
THE TRUSTS
A Trust for any series of Securities will include the primary mortgage
assets ("Mortgage Assets") consisting of (A) a Mortgage Pool comprised of (i)
Single Family Loans, (ii) Multi-family Loans, (iii) Cooperative Loans, (iv)
Contracts, (v) Home Improvement Loans, or (vi) other loans or (B) certificates
of interest or participation in the items described in clause (A) or in pools of
such items, in each case, as specified in the related Prospectus Supplement,
together with payments in respect of such primary Mortgage Assets and certain
other accounts, obligations or agreements, in each case as specified in the
related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
Securities will be entitled to payment only from the assets of the related Trust
(i.e., the related Trust Estate) and will not be entitled to payments in respect
of the assets of any other related Trust Estate established by the Sponsor, the
Originators or any of their affiliates. If specified in the related Prospectus
Supplement, certain Securities will evidence the entire fractional undivided
ownership interest in the related Mortgage Loans held by the related Trust or
may represent debt secured by the related Mortgage Loans.
The following is a brief description of the Mortgage Assets expected to
be included in the related Trusts. If specific information respecting the
primary Mortgage Assets is not known at the time the related series of
Securities initially is offered, information of the nature described below will
be provided in the Prospectus Supplement, and specific information will be set
forth in a report on Form 8-K to be filed with the Commission within fifteen
days after the initial issuance of such Securities (the "Detailed Description").
A copy of the Pooling and Servicing Agreement with respect to each Series of
Securities will be attached to the Form 8-K and will be
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available for inspection at the corporate trust office of the Trustee specified
in the related Prospectus Supplement. A schedule of the Mortgage Assets relating
to such Series (the "Mortgage Asset Schedule") will be attached to the Pooling
and Servicing Agreement delivered to the Trustee upon delivery of the
Securities.
The Mortgage Loans--General. The real properties and Manufactured
Homes, as the case may be, that secure repayment of the Mortgage Loans and
Contracts (the "Mortgaged Properties") may be located in any one of the fifty
states, the District of Columbia, Puerto Rico or any other Territories of the
United States. Unless otherwise specified in the related Prospectus Supplement,
the Mortgage Loans or Contracts will be "Conventional Loans" (i.e., loans that
are not insured or guaranteed by any governmental agency). If specified in the
related Prospectus Supplement, Mortgage Loans with certain loan-to-value ratios
and/or certain principal balances may be covered wholly or partially by primary
mortgage insurance policies. Unless otherwise specified in the related
Prospectus Supplement, all of the Mortgage Loans will be covered by standard
hazard insurance policies (which may be in the form of a blanket or forced
placed hazard 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 in a Mortgage Pool will provide for payments to be made
monthly ("monthly pay") or bi-weekly. The payment terms of the Mortgage Loans to
be included in a Trust 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, or an Adjustable
Rate (i.e., a rate that is adjustable from time to time in relation to
an index, a rate that is fixed for a period of time and under certain
circumstances 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). The specified rate of interest on a
Mortgage Loan is its "Mortgage Rate." Changes to an Adjustable Rate may
be subject to periodic limitations, maximum rates, minimum rates or a
combination of such limitations. Accrued interest may be deferred and
added to the principal of a Mortgage Loan for such periods and under
such circumstances as may be specified in the related Prospectus
Supplement. If provided for in the Prospectus Supplement, certain
Mortgage Loans may be subject to temporary buydown plans ("Buydown
Mortgage Loans") pursuant to which the monthly payments made by the
Mortgagor during the early years of the Mortgage Loan (the "Buydown
Period") will be less than the scheduled monthly payments on the
Mortgage Loan, and the amount of any difference may be contributed from
(i) an amount (such amount, exclusive of investment earnings thereon,
being hereinafter referred to as "Buydown Funds") funded by the
originator of the Mortgage Loan or another source (including the Master
Servicer or the related Originator and the builder of the Mortgaged
Property) and placed in a custodial account (the "Buydown Account") and
(ii) if the Buydown Funds are contributed on a present value basis,
investment earnings on such Buydown Funds.
(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 or decrease over a
specified period of time ("graduated payments") 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. Mortgage Loans
having graduated payment provisions may provide for deferred payment of
a portion of the interest due monthly during a specified period, and
recoup the deferred interest through negative amortization during such
period whereby the difference between the interest paid during such
period and interest accrued during such period is added monthly to the
outstanding principal balance. Other Mortgage Loans sometimes referred
to as "growing equity" mortgage loans may provide for periodic
scheduled payment increases for a specified period with the full amount
of such increases being applied to principal.
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(d) Prepayments of principal may be subject to a prepayment
fee, which may be fixed for the life of the Mortgage Loan or may
decline over time, and may be prohibited for the life of the Mortgage
Loan or for certain periods ("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
therewith. Other Mortgage Loans may permit prepayments without payment
of a fee unless the prepayment occurs during specified time periods.
The Mortgage Loans may include due-on-sale clauses which permit the
mortgagee to demand payment of the entire Mortgage Loan in connection
with the sale or certain transfers of the related Mortgaged Property.
Other Mortgage Loans may be assumable by persons meeting the then
applicable underwriting standards of the related Originator.
(e) As more fully described in the related Prospectus
Supplement, the Mortgage Loans may consist, in whole or in part, of
revolving home equity loans or certain balances thereof ("Revolving
Credit Line Loans"). Interest on each Revolving Credit Line Loan,
excluding introductory rates offered from time to time during
promotional periods, may be computed and payable monthly on the average
daily outstanding principal balance of such loan. From time to time
prior to the expiration of the related draw period specified in a
Revolving Credit Line Loan, principal amounts on such Revolving Credit
Line Loan may be drawn down (up to a maximum amount as set forth in the
related Prospectus Supplement) or repaid. If specified in the related
Prospectus Supplement, new draws by borrowers under the Revolving
Credit Line Loans will automatically become part of the Trust Estate
described in such Prospectus Supplement. As a result, the aggregate
balance of the Revolving Credit Line Loans will fluctuate from day to
day as new draws by borrowers are added to the Trust Estate and
principal payments are applied to such balances and such amounts will
usually differ each day, as more specifically described in the related
Prospectus Supplement. Under certain circumstances, under a Revolving
Credit Line Loan, a borrower may, during the related draw period,
choose an interest only payment option, during which the borrower is
obligated to pay only the amount of interest which accrues on the loan
during the billing cycle, and may also elect to pay all or a portion of
the principal. An interest only payment option may terminate at the end
of the related draw period, after which the borrower must begin paying
at least a minimum monthly portion of the average outstanding principal
balance of the loan.
Except as otherwise described in the related Prospectus Supplement or
in the related Current Report on Form 8-K, interest will be calculated on each
Mortgage Loan pursuant to one of three methods:
Date of Payment Loans. Date of Payment Loans provide that
interest is charged to the Mortgagor at the applicable Mortgage Rate on
the outstanding principal balance of such Note and calculated based on
the number of days elapsed between receipt of the Mortgagor's last
payment through receipt of the Mortgagor's most current payment. Such
interest is deducted from the Mortgagor's payment amount and the
remainder, if any, of the payment is applied as a reduction to the
outstanding principal balance of such Note. Although the Mortgagor is
required to remit equal monthly payments on a specified monthly payment
date that would reduce the outstanding principal balance of such Note
to zero at such Note's maturity date, payments that are made by the
Mortgagor after the due date therefor would cause the outstanding
principal balance of such Note not to be reduced to zero. In such a
case, the Mortgagor would be required to make an additional principal
payment at the maturity date for such Note. On the other hand, if a
Mortgagor makes a payment (other than a prepayment) before the due date
therefor, the reduction in the outstanding principal balance of such
Note would occur over a shorter period of time than it would have
occurred had it been based on the original amortization schedule of
such Note.
Actuarial Loans. Actuarial Loans provide that interest is
charged to the Mortgagor thereunder, and payments are due from such
Mortgagor, as of a scheduled day of each month which is fixed at the
time of origination. Scheduled monthly payments made by the Mortgagors
on the Actuarial Loans 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.
Rule of 78's Loans. A Rule of 78's Loan provides for the
payment by the related Mortgagor of a specified total amount of
payments, payable in equal monthly installments on each due date, which
total represents the principal amount financed and add-on interest in
an amount calculated on the basis of the
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stated Mortgage Rate for the term of the Loan. The rate at which such
amount of add-on interest is earned and, correspondingly, the amount of
each fixed monthly payment allocated to reduction of the outstanding
principal are calculated in accordance with the "Rule of 78's." Under a
Rule of 78's Loan, the amount of a payment allocable to interest is
determined by multiplying the total amount of add-on interest payable
over the term of the loan by a fraction derived as described below.
The fraction used in the calculation of add-on interest earned each
month under a Rule of 78's Loan has as its denominator a number equal to the sum
of a series of numbers. The series of numbers begins with one and ends with the
number of monthly payments due under the loan. For example, with a loan
providing for 12 payments, the denominator of each month's fraction will be 78,
the sum of the series of numbers from 1 to 12. The numerator of the fraction for
a given month is the number of original payments to stated maturity less the
number of payments made up to but not including the current month. Accordingly,
in the example of a twelve-month loan, the numerator for the first payment is
12, for the second payment, 11, for the third payment, 10, and so on through the
final payment, for which the numerator is 1. The applicable fraction is then
multiplied by the total add-on interest payable over the entire term of the
loan, and the resulting amount is the amount of add-on interest "earned" that
month. The difference between the amount of the monthly payment by the obligor
and the amount of earned add-on interest calculated for the month is applied to
principal reduction. Rule of 78's Loans are non-level yield instruments. The
yield in the initial months of a Rule of 78's Loan is somewhat higher than the
stated Mortgage Rate (computed on an actuarial basis) and the yield in the later
months of the loan is somewhat less than such stated Mortgage Rate.
The Prospectus Supplement for each series of Securities or the Current
Report on Form 8-K will contain certain information with respect to the Mortgage
Loans (or a sample thereof) contained in the related Mortgage Pool; such
information, insofar as it may relate to statistical information relating to
such Mortgage Loans will be presented as of a date certain (the "Statistic
Calculation Date") which may also be the related cut-off date (the "Cut-Off
Date"). Such information will include to the extent applicable to the particular
Mortgage Pool (in all cases as of the Statistic Calculation Date) (i) the
aggregate outstanding principal balance and the average outstanding principal
balance of the Mortgage Loans, (ii) the largest principal balance and the
smallest principal balance of any of the Mortgage Loans, (iii) the types of
Mortgaged Property securing the Mortgage Loans (e.g., one- to four-family
houses, vacation and second homes, Manufactured Homes, multifamily apartments or
other real property), (iv) the original terms to stated maturity of the Mortgage
Loans, (v) the weighted average remaining term to maturity of the Mortgage Loans
and the range of the remaining terms to maturity; (vi) the earliest origination
date and latest maturity date of any of the Mortgage Loans, (vii) the weighted
average CLTV and the range of CLTV's of the Mortgage Loans at origination,
(viii) the weighted average Mortgage Rate or annual percentage rate (as
determined under Regulation Z) (the "APR") and ranges of Mortgage Rates or APRs
borne by the Mortgage Loans, (ix) in the case of Mortgage Loans having
adjustable rates, the weighted average of the adjustable rates and indices, if
any; (x) the aggregate outstanding principal balance, if any, of Buy-Down Loans
and Mortgage Loans having graduated payment provisions; (xi) the amount of any
mortgage pool insurance policy, special hazard insurance policy or bankruptcy
bond to be maintained with respect to such Mortgage Pool; (xii) a description of
any standard hazard insurance required to be maintained with respect to each
Mortgage Loan; (xiii) a description of any Credit Enhancement to be provided
with respect to all or any Mortgage Loans or the Mortgage Pool; and (xiv) the
geographical distribution of the Mortgage Loans on a state-by-state basis. In
addition, preliminary or more general information of the nature described above
may be provided in the Prospectus Supplement, and specific or final information
may be set forth in a Current Report on Form 8-K, together with the related
Pooling and Servicing Agreement, which will be filed with the Securities and
Exchange Commission and will be made available to holders of the related series
of Securities within fifteen days after the initial issuance of such Securities.
The loan-to-value ratio (the "LTV") of a Mortgage Loan is equal to the
ratio (expressed as a percentage) of the original principal balance of such
Mortgage Loan to appraised value of the related Mortgaged Property (unless
otherwise disclosed in the related Prospectus Supplement or in the related
Current Report on Form 8-K) at the time of origination of the Mortgage Loan.
Generally, in the case where the Mortgage represents a purchase money
instrument, the lesser of (a) the appraised value or (b) the purchase price is
used to calculate the LTV. The combined loan-to-value ratio (the "CLTV") of a
Mortgage Loan at any given time is the ratio, expressed as a percentage,
determined by dividing (x) the sum of the original principal balance of such
Mortgage Loan (unless otherwise disclosed in the related Prospectus Supplement
or in the related Current Report on Form 8-K) plus the then-current principal
balance of all mortgage loans (each, a "Senior Lien") secured by liens on the
related Mortgaged
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Property having priorities senior to that of the lien which secures such
Mortgage Loan, by (y) the value of the related Mortgaged Property, based upon
the appraisal or valuation (which may in certain instances include estimated
increases in value as a result of certain home improvements to be financed with
the proceeds of such Mortgage Loan) made at the time of origination of the
Mortgage Loan. If the related Mortgagor will use the proceeds of the Mortgage
Loan to refinance an existing Mortgage Loan which is being serviced directly or
indirectly by the Master Servicer, the requirement of an appraisal or other
valuation at the time the new Mortgage Loan is made may be waived. Unless
otherwise specified in the related Prospectus Supplement, for purposes of
calculating the CLTV of a Contract relating to a new Manufactured Home, the
value of such Manufactured Home will be no greater than the sum of a fixed
percentage of the list price of the unit actually billed by the manufacturer to
the dealer (exclusive of freight to the dealer site) including "accessories"
identified in the invoice (the "Manufacturer's Invoice Price"), plus the actual
cost of any accessories purchased from the dealer, a delivery and set-up
allowance, depending on the size of the unit, and the cost of state and local
taxes, filing fees and up to three years prepaid hazard insurance premiums.
Unless otherwise specified herein or in the related Prospectus Supplement, the
value of a used Manufactured Home will be either (x) the appraised value, and
National Automobile Dealer's Association book value plus prepaid taxes and
hazard insurance premiums or (y) the sum of (i) the appraised value of the land
to which the Manufactured Home is attached and (ii) the appraised value of the
Manufactured Home. The appraised value of a Manufactured Home will be based upon
the age and condition of the manufactured housing unit and the quality and
condition of the mobile home park in which it is situated, if applicable.
No assurance can be given that values of the Mortgaged Properties have
remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. If the residential real estate market should experience
an overall decline in property values such that the outstanding principal
balances of the Mortgage Loans (plus any additional financing by other lenders
on the same Mortgaged Properties) in a particular Pool become equal to or
greater than the value of such Mortgaged Properties, the actual rates of
delinquencies, foreclosures and losses could be higher than those now generally
experienced in the non-conforming credit mortgage lending industry. An overall
decline in the market value of residential real estate, the general condition of
a Mortgaged Property, or other factors, could adversely affect the values of the
Mortgaged Properties such that the outstanding balances of the Mortgage Loans,
together with any additional liens on the Mortgaged Properties, equal or exceed
the value of the Mortgaged Properties. Under such circumstances, the actual
rates of delinquencies, foreclosures and losses could be higher than those now
generally experienced in the non-conforming credit mortgage lending industry.
Certain Mortgage Loans may be secured by junior liens ("Junior Lien
Loans") subordinate to the rights of the mortgagee under any related senior
mortgage(s). The proceeds from any liquidation, insurance or condemnation of
Mortgaged Properties relating to Junior Lien Loans in a Mortgage Pool will be
available to satisfy the principal balance of such Junior Lien Loans only to the
extent that the claims, if any, of all related senior mortgagees, including any
related foreclosure costs, are satisfied in full. In addition, the Master
Servicer may not foreclose on a Mortgaged Property relating to a Junior Lien
Loan unless it forecloses subject to the related senior mortgage or mortgages,
in which case it must either pay the entire amount of each senior mortgage to
the applicable mortgagee at or prior to the foreclosure sale or undertake the
obligation to make payments on each senior mortgage in the event of default
thereunder. Generally, in servicing Junior Lien Loans in its loan portfolios, it
has been the Master Servicer's practice to satisfy each senior mortgage at or
prior to a foreclosure sale but only to the extent that it determines any
amounts so paid will be recoverable from future payments and collections on the
Mortgage Loans or otherwise. The Trusts will not have any source of funds to
satisfy any such senior mortgage or make payments due to any senior mortgagee.
See "Certain Legal Aspects of Mortgage Loans and Related Matters--Foreclosure."
Other factors affecting mortgagors' ability to repay Mortgage Loans
include excessive building resulting in an oversupply of housing stock or a
decrease in employment reducing the demand for units in an area; federal, state
or local regulations and controls affecting rents; prices of goods and energy;
environmental restrictions; increasing labor and material costs; and the
relative attractiveness of the Mortgaged Properties. To the extent that losses
on the Mortgage Loans are not covered by Credit Enhancements, such losses will
be borne, at least in part, by the Securityholders of the related series.
The Sponsor will cause the Mortgage Loans comprising each Mortgage Pool
to be assigned to the Trustee named in the related Prospectus Supplement for the
benefit of the holders of the Securities of the related series. The Master
Servicer will service the Mortgage Loans, either directly or through
Sub-Servicers, pursuant to the Pooling
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and Servicing Agreement and will receive a fee for such services. See "Mortgage
Loan Program" and "The Pooling and Servicing Agreement." With respect to
Mortgage Loans serviced through a Sub-Servicer, the Master Servicer will remain
liable for its servicing obligations under the related Pooling and Servicing
Agreement as if the Master Servicer alone were servicing such Mortgage Loans.
Unless otherwise specified in the related Prospectus Supplement, the
only obligations of the Sponsor and the Originators with respect to a series of
Securities will be to provide (or, where the Sponsor or an Originator acquired a
Mortgage Loan from another originator, obtain from such originator) certain
representations and warranties concerning the Mortgage Loans and to assign to
the Trustee for such series of Securities the Sponsor's or Originator's rights
with respect to such representations and warranties. See "The Pooling and
Servicing Agreement." The obligations of the Master Servicer with respect to the
Mortgage Loans will consist principally of its contractual servicing obligations
under the related Pooling and Servicing Agreement (including its obligation to
enforce the obligations of the Sub-Servicers or Originators as more fully
described herein under "Mortgage Loan Program--Qualifications of Originators"
and "The Pooling and Servicing Agreement") and its obligation, as described in
the related Prospectus Supplement, to make certain cash advances in the event of
delinquencies in payments on, or prepayments received with respect to, the
Mortgage Loans in the amounts described herein under "Description of the
Securities--Advances." The obligations of a Master Servicer to make advances may
be subject to limitations, to the extent provided herein and in the related
Prospectus Supplement.
Single Family and Cooperative Loans. Unless otherwise specified in the
Prospectus Supplement, single family loans will consist of mortgage loans, deeds
of trust or participation or other beneficial interests therein, secured by
first or junior liens on one- to four-family residential properties ("Single
Family Loans"). The Mortgaged Properties relating to Single Family Loans will
consist of detached or semi-detached one-family dwelling units, two-to
four-family dwelling units, townhouses, rowhouses, individual condominium units
in condominium developments, individual units in planned unit developments, and
certain mixed use and other dwelling units. Such Mortgaged Properties may
include noninvestor owned (which includes vacation and second homes) and
investor owned investment properties.
If so specified, the Single Family Loans may include loans or
participations therein secured by mortgages or deeds of trust on condominium
units in low- or high-rise condominium developments together with such
condominium units' appurtenant interests in the common elements of such
condominium developments. Unless otherwise specified, the Cooperative Loans will
be secured by security interests in or similar liens on stock, shares or
membership certificates issued by cooperatives and in the related proprietary
leases or occupancy agreements granting exclusive rights to occupy specific
dwelling units in such cooperatives' buildings.
Multi-family Loans. Multi-family loans will consist of mortgage loans,
deeds of trust or participation or other beneficial interests therein, secured
by first or junior liens on rental apartment buildings or projects containing
five or more residential units ("Multi-family Loans").
Mortgaged Properties that secure Multi-family Loans may include
high-rise, mid-rise and garden apartments. Certain of the Multi-family Loans may
be secured by apartment buildings owned by Cooperatives. In such cases, the
Cooperative owns all the apartment units in the building and all common areas.
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 that confer exclusive rights to occupy specific
apartments or 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 mortgage loan, real property
taxes, maintenance expenses and other capital or ordinary expenses. Those
payments are in addition to any payments of principal and interest the
tenant-stockholder must make on any loans to the tenant-stockholder secured by
its shares in the Cooperative. The Cooperative will be directly responsible for
building management and, in most cases, payment of real estate taxes and hazard
and liability insurance. A Cooperative's ability to meet debt service
obligations on a Multi-family Loan, as well as all other operating expenses,
will be dependent in large part on the receipt of maintenance payments from the
tenant-stockholders, as well as any rental income from units or commercial areas
the Cooperative might control. Unanticipated expenditures may in some cases have
to be paid by special assessments on the tenant-stockholders.
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Home Improvement Loans. Unless otherwise specified in the Prospectus
Supplement, loans to make home improvements may be secured by first or junior
liens on conventional one- to four-family residential properties and
multi-family residential properties ("Home Improvement Loans"). Home Improvement
Loans may be conventional, or may be partially insured by the Federal Housing
Administration ("FHA") or another federal or state agency, as specified in the
related Prospectus Supplement. The loan proceeds from such Home Improvement
Loans are typically disbursed to an escrow agent which, according to guidelines
established by the Originators, releases such proceeds to the contractor upon
completion of the improvements or in draws as the work on the improvements
progresses. Costs incurred by the Mortgagor for loan origination including
origination points and appraisal, legal and title fees, are often included in
the amount financed. In addition, Home Improvement Loans generally provide
additional security to a first or junior mortgage loan because home improvements
typically retain or increase the value of a property.
Contracts. Contracts will consist of manufactured housing conditional
sales contracts and installment sales or loan agreements each secured by a
Manufactured Home ("Contracts"). Contracts may be conventional, insured
partially by the FHA or partially guaranteed by the Veterans Administration, as
specified in the related Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, each Contract will be fully amortizing and
will bear interest at its APR.
Unless otherwise specified in the related Prospectus Supplement, the
"Manufactured Homes" securing the Contracts will consist of manufactured homes
within the meaning of 42 United States Code, Section 5402(6), which defines a
"manufactured home" as "a structure, transportable in one or more sections,
which in the traveling mode, is eight body feet or more in width or forty body
feet or more in length, or, when erected on site, is three hundred twenty or
more square feet, and which is built on a permanent chassis and designed to be
used as a dwelling with or without a permanent foundation when connected to the
required utilities, and includes the plumbing, heating, air conditioning, and
electrical systems contained therein; except that such term shall include any
structure which meets all the requirements of [this] paragraph except the size
requirements and with respect to which the manufacturer voluntarily files a
certification required by the Secretary of Housing and Urban Development and
complies with the standards established under [this] chapter."
The related Prospectus Supplement will specify for the Contracts
contained in the related Trust, among other things, the date of origination of
the Contracts; the Mortgage Rates or the APRs on the Contracts; the Contract
Loan-to-Value Ratios; the minimum and maximum outstanding principal balances as
of the Statistic Calculation Date and the average outstanding principal balance;
the outstanding principal balances of the Contracts included in the related
Trust; and the original maturities of the Contracts and the last maturity date
of any Contract.
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THE MORTGAGE POOLS
GENERAL
Unless otherwise specified in the related Prospectus Supplement, each
Mortgage Pool will consist primarily of (i) Mortgage Loans, minus any stripped
portion of the interest payments due under the related Mortgage Note that may
have been retained by any Originator or broker ("Originator's Retained Yield"),
or any other interest retained by the Sponsor or any affiliate of the Sponsor,
evidenced by promissory notes (the "Mortgage Notes") secured by mortgages or
deeds of trust or other similar security instruments creating a lien on
single-family (i.e., one- to four-family) residential, multi-family properties
or mixed use properties, or (ii) certificates of interest or participations in
such Mortgage Notes. The Mortgaged Properties will consist primarily of attached
or detached one-family dwelling units, two- to four-family dwelling units,
condominiums, townhouses, row houses, individual units in planned-unit
developments and certain other dwelling units, mixed use properties and the fee,
leasehold or other interests in the underlying real property. The Mortgaged
Properties may be noninvestor owned (which includes second and vacation homes)
and investor owned investment properties. If specified in the related Prospectus
Supplement relating to a series of Securities, a Mortgage Pool may contain
cooperative apartment loans ("Cooperative Loans") evidenced by promissory notes
("Cooperative Notes") secured by security interests in shares issued by
cooperatives and in the related proprietary leases or occupancy agreements
granting exclusive rights to occupy specific dwelling units in the related
buildings. In certain cases a Mortgage Loan may also be secured by the pledge of
a limited amount of collateral which is not real estate, such as fixtures or
personal property that includes, but is not limited to, furniture and
appliances. As used herein, unless the context indicates otherwise, "Mortgage
Loans" include Cooperative Loans, "Mortgaged Properties" include shares in the
related cooperative and the related proprietary leases or occupancy agreements
securing Cooperative Notes, "Mortgage Notes" include Cooperative Notes and
"Mortgages" include security agreements with respect to Cooperative Notes.
Each Mortgage Loan will be selected by the Sponsor for inclusion in a
Mortgage Pool from among mortgage loans originated by one or more institutions
affiliated with the Sponsor (such affiliated institutions, the "Affiliated
Originators"), or from banks, savings and loan associations, mortgage bankers,
mortgage brokers, investment banking firms, the RTC, the FDIC and other mortgage
loan originators or purchasers not affiliated with the Sponsor (such
unaffiliated institutions, the "Unaffiliated Originators" and, collectively with
the Affiliated Originators, the "Originators"), all as described below under
"Mortgage Loan Program." The characteristics of the Mortgage Loans will be
described in the related Prospectus Supplement. Other mortgage loans available
for acquisition by a Trust may have characteristics that would make them
eligible for inclusion in a Mortgage Pool but may not be selected by the Sponsor
for inclusion in such Mortgage Pool.
Each Security will evidence an interest in only the related Mortgage
Pool and corresponding Trust Estate, and not in any other Mortgage Pool or any
other Trust Estate (except in those limited situations whereby certain
collections on any Mortgage Loans in a related Mortgage Pool in excess of
amounts needed to pay the related securities may be deposited in a common,
master reserve account that provides Credit Enhancement for more than one series
of Securities).
THE MORTGAGE POOLS
Unless otherwise specified below or in the related Prospectus
Supplement, all of the Mortgage Loans in a Mortgage Pool will (i) have payments
that are due monthly or bi-weekly, (ii) be secured by Mortgaged Properties
located in any of the fifty states, the District of Columbia, Puerto Rico or any
other Territories of the United States and (iii) consist of one or more of the
following types of mortgage loans:
(1) Fixed-rate, fully-amortizing mortgage loans (which may
include mortgage loans converted from adjustable-rate mortgage loans or
otherwise modified) providing for level monthly payments of principal
and interest and terms at origination or modification of generally not
more than 30 years;
(2) ARM Loans having original or modified terms to maturity of
generally not more than 30 years with a related Mortgage Rate that
adjusts periodically, at the intervals described in the related
Prospectus Supplement (which may have adjustments in the amount of
monthly payments at periodic
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intervals) over the term of the mortgage loan to equal the sum of a
fixed percentage set forth in the related Mortgage Note (the "Note
Margin") and an index (the "Index") to be specified in the related
Prospectus Supplement, such as, by way of example: (i) U.S. Treasury
securities of a specified constant maturity, (ii) weekly auction
average investment yield of U.S. Treasury bills of specified
maturities, (iii) the daily Bank Prime Loan rate made available by the
Federal Reserve Board or as quoted by one or more specified lending
institutions, (iv) the cost of funds of member institutions for the
Federal Home Loan Bank of San Francisco, or (v) the interbank offered
rates for U.S. dollar deposits in the London Markets, each calculated
as of a date prior to each scheduled interest rate adjustment date that
will be specified in the related Prospectus Supplement. The related
Prospectus Supplement will set forth the relevant Index, and the
related Prospectus Supplement or the related Current Report on Form 8-K
will indicate the highest, lowest and weighted-average Note Margin with
respect to the ARM Loans in the related Mortgage Pool. If specified in
the related Prospectus Supplement, an ARM Loan may include a provision
that allows the Mortgagor to convert the adjustable Mortgage Rate to a
fixed rate at some point during the term of such ARM Loan subsequent to
the initial payment date;
(3) Fixed-rate, graduated payment mortgage loans having
original or modified terms to maturity of generally not more than 30
years with monthly payments during the first year calculated on the
basis of an assumed interest rate that will be lower than the Mortgage
Rate applicable to such mortgage loan in subsequent years. Deferred
Interest, if any, will be added to the principal balance of such
mortgage loans;
(4) Fixed-rate, graduated payment mortgage loans having
original or modified terms to maturity of generally not more than 30
years with monthly payments in subsequent years that are calculated on
the basis of an assumed interest rate that will be lower than the
Mortgage Rate applicable to such loan in the first year or first two
years, provided that the Mortgagor qualifies under certain positive
criteria, including, but not limited to, a good payment history.
(5) Balloon mortgage loans ("Balloon Loans"), which are
mortgage loans having original or modified terms to maturity of
generally 5 to 15 years as described in the related Prospectus
Supplement, which may have level monthly payments of principal and
interest based generally on a 10- to 30-year amortization schedule. The
amount of the monthly payment may remain constant until the maturity
date, upon which date the full outstanding principal balance on such
Balloon Loan will be due and payable (such amount, the "Balloon
Amount");
(6) Modified mortgage loans ("Modified Loans"), which are
fixed or adjustable-rate mortgage loans providing for terms at the time
of modification of generally not more than 30 years. Modified Loans may
be mortgage loans which have been consolidated and/or have had various
terms changed, mortgage loans which have been converted from adjustable
rate mortgage loans to fixed rate mortgage loans, or construction loans
which have been converted to permanent mortgage loans;
(7) Another type of mortgage loan described in the related
Prospectus Supplement; or
(8) As more fully described in the related Prospectus
Supplement, the Mortgage Loans may consist, in whole or in part, of
Revolving Credit Line Loans. Interest on each Revolving Credit Line
Loan, excluding introductory rates offered from time to time during
promotional periods, may be computed and payable monthly on the average
daily outstanding principal balance of such loan. From time to time
prior to the expiration of the related draw period specified in a
Revolving Credit Line Loan, principal amounts on such Revolving Credit
Line Loan may be drawn down (up to a maximum amount as set forth in the
related Prospectus Supplement) or repaid. If specified in the related
Prospectus Supplement, new draws by borrowers under the Revolving
Credit Line Loans will automatically become part of the Trust Estate
described in such Prospectus Supplement. As a result, the aggregate
balance of the Revolving Credit Line Loans will fluctuate from day to
day as new draws by borrowers are added to the Trust Estate and
principal payments are applied to such balances and such amounts will
usually differ each day, as more specifically described in the related
Prospectus Supplement. Under certain circumstances, under a Revolving
Credit Line Loan, a borrower may, during the related draw period,
choose an interest only payment option, during which the borrower is
obligated to pay only the amount of interest which accrues on the loan
during the billing
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cycle, and may also elect to pay all or a portion of the principal. An
interest only payment option may terminate at the end of the related
draw period, after which the borrower must begin paying at least a
minimum monthly portion of the average outstanding principal balance of
the loan.
If provided for in the related Prospectus Supplement, a Mortgage Pool
may contain either or both of the following types of mortgage loans (i) ARM
Loans which allow the Mortgagors to convert the adjustable rates on such
Mortgage Loans to a fixed rate at some point during the life of such Mortgage
Loans and (ii) fixed rate mortgage loans which allow the Mortgagors to convert
the fixed rates on such Mortgage Loans to an adjustable rate at some point
during the life of such Mortgage Loans (each such Mortgage Loan described in (i)
and (ii) above, a "Convertible Mortgage Loan").
If provided for in the related Prospectus Supplement, certain of the
Mortgage Loans may be Buydown Mortgage Loans pursuant to which the monthly
payments made by the Mortgagor during the Buydown Period will be less than the
scheduled monthly payments on the Mortgage Loan, the resulting difference to be
made up from (i) Buydown Funds funded by the Originator of the Mortgaged
Property or another source (including the Master Servicer or the related
Originator) and placed in the Buydown Account and (ii) if the Buydown Funds are
contributed on a present value basis, investment earnings on such Buydown Funds.
See "Description of the Securities--Payments on Mortgage Loans; Deposits to
Distribution Account." The terms of the Buydown Mortgage Loans, if such loans
are included in a Trust, will be as set forth in the related Prospectus
Supplement.
The Sponsor will cause the Mortgage Loans constituting each Mortgage
Pool to be assigned to the Trustee named in the related Prospectus Supplement,
for the benefit of the holders of all of the Securities of a series. The Master
Servicer named in the related Prospectus Supplement will service the Mortgage
Loans, either directly or through other mortgage servicing institutions
(Sub-Servicers), pursuant to a Pooling and Servicing Agreement and will receive
a fee for such services. See "Mortgage Loan Program" and "Description of the
Securities." With respect to those Mortgage Loans serviced by the Master
Servicer through a Sub-Servicer, the Master Servicer will remain liable for its
servicing obligations under the related Pooling and Servicing Agreement as if
the Master Servicer alone were servicing such Mortgage Loans, unless otherwise
described in the related Prospectus Supplement.
The Sponsor and/or certain Originators may make certain representations
and warranties regarding the Mortgage Loans, but its assignment of the Mortgage
Loans to the Trustee will be without recourse. See "Description of the
Securities--Assignment of Mortgage Loans." The Master Servicer's obligations
with respect to the Mortgage Loans will consist principally of its contractual
servicing obligations under the related Pooling and Servicing Agreement
(including its obligation to enforce certain purchase and other obligations of
Sub-Servicers and of Originators, as more fully described herein under "Mortgage
Loan Program--Representations by Originators," "--Sub-Servicing by Originators"
and "Description of the Securities--Assignment of Mortgage Loans," and its
obligation, if any, to make certain cash advances in the event of delinquencies
in payments on or with respect to the Mortgage Loans and interest shortfalls due
to prepayment of Mortgage Loans, in amounts described herein under "Description
of the Securities--Advances"). The obligation of the Master Servicer to make
delinquency advances will be limited to the extent, in its good faith business
judgment such delinquency advances would be ultimately recoverable from the
proceeds of liquidation of the Mortgage Loans. See "Description of the
Securities--Advances."
MORTGAGE LOAN PROGRAM
As a general matter, the Sponsor's Mortgage Loan program will consist
of the origination and packaging of Mortgage Loans relating to non-conforming
credits. For purposes hereof, "non-conforming credit" means a mortgage loan
which, based upon standard underwriting guidelines, is ineligible for purchase
by FNMA or FHLMC due to credit characteristics that do not meet FNMA or FHLMC
guidelines, respectively. However, certain of the Mortgage Loans will relate to
FNMA or FHLMC conforming credits.
The Mortgagors generally will have taken out the related Mortgage Loans
for one or more of four reasons: (i) to purchase the related Mortgaged Property,
(ii) to refinance an existing mortgage loan on more favorable terms, (iii) to
consolidate debt, or (iv) to obtain cash proceeds by borrowing against the
Mortgagor's equity in the related Mortgaged Property; the Mortgage Loans
described in (i) are commonly referred to as purchase money loans and the
Mortgage Loans described in (ii), (iii) and (iv) on the whole are commonly
referred to as home equity loans.
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It is the Sponsor's practice to solicit existing Mortgagors with
respect to the possible refinancing of their existing Mortgages.
UNDERWRITING GUIDELINES
As more fully described below under "Qualifications of Originators" and
as may also be described in greater detail in the related Prospectus Supplement,
there are various types of Originators that may participate in the Sponsor's
Mortgage Loan Program. Under the Sponsor's Mortgage Loan Program, the Sponsor
purchases and originates Mortgage Loans pursuant to three types of underwriting
guidelines: (1) standard underwriting guidelines according to the Sponsor's
Originator Guide, as modified from time to time, used by Affiliated Originators
and Unaffiliated Originators ("Sponsor's Guidelines"), (2) underwriting
guidelines utilized by certain Unaffiliated Originators and approved by the
Sponsor ("Approved Guidelines"), and (3) underwriting guidelines ("Bulk
Guidelines") used by Unaffiliated Originators of portfolios of Mortgage Loans
subsequently purchased in whole or part by the Sponsor as bulk acquisitions
("Bulk Acquisitions"). The respective underwriting guidelines are described
below.
Sponsor's Guidelines. The Sponsor's Guidelines are set forth in the
Sponsor's Originator Guide. The Sponsor's Guidelines are revised continuously
based on opportunities and prevailing conditions in the nonconforming credit
residential mortgage market, as well as the expected market for the resulting
Securities.
Mortgage Loans originated by Affiliated Originators generally will, and
Mortgage Loans originated by Unaffiliated Originators may have been, originated
in accordance with the Sponsor's Guidelines as set forth in the Sponsor's
Originator Guide. However, certain of the Mortgage Loans may be employee or
preferred customer loans with respect to which, in accordance with such
Affiliate's mortgage loan programs, no income or asset verifications were
required. In addition, certain Originators may originate Mortgage Loans in
satisfaction of specified requirements of federal or state law applicable to
certain Originators, such as, by way of illustration, the federal Community
Reinvestment Act of 1977, which is applicable to banks; such Mortgage Loans
generally will not have been originated pursuant to the Sponsor's standard
underwriting guidelines applicable to nonconforming loans but may have been
originated pursuant to alternative guidelines applicable to such loans. The
Sponsor will not review any Affiliated Originator mortgage loans for conformity
with the Sponsor's Guidelines set forth in the Sponsor's Originator Guide. The
Sponsor generally will review or cause to be reviewed only a limited portion of
the Mortgage Loans in any delivery of Mortgage Loans from Unaffiliated
Originators for conformity with the Sponsor's Originator Guide.
The following is a brief description of the Sponsor's Guidelines set
forth in the Sponsor's Originator Guide customarily and currently employed by
the Sponsor. The Sponsor believes that these standards are consistent with those
generally used by lenders in the business of making mortgage loans based on
non-conforming credits. The underwriting process is intended to assess both the
prospective borrower's ability to repay and the adequacy of the real property as
collateral for the loan granted.
The Sponsor's Guidelines permit the origination and purchase of
mortgage loans with multi-tiered credit characteristics tailored to individual
credit profiles. In general, the Sponsor's Guidelines require an analysis of the
equity in the collateral, the payment history of the borrower, the borrower's
ability to repay debt, the property type, and the characteristics of the
underlying first mortgage, if any. A lower maximum CLTV is required for lower
gradations of credit quality and higher property values.
The Sponsor's Guidelines permit the origination or purchase of fixed or
adjustable rate loans that either fully amortize over a period generally not to
exceed 30 years or, in the case of a balloon mortgage, generally amortize based
on a 30-year or less amortization schedule with a due date and a "balloon"
payment due prior to the 30 year period.
The homes used for collateral to secure the loans generally may be
either noninvestor owned (which includes second and vacation homes) or investor
owned properties which, in either case are single-family residences (which may
be detached, part of a two- to four-family dwelling, a condominium unit or a
unit in a planned unit development). The Sponsor's Guidelines generally require
that the CLTV of a Mortgage Loan not exceed 100%,
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after taking into account the amount of any primary mortgage insurance
applicable to such Mortgage Loan. The Sponsor, however, may originate or
purchase Mortgage Loans that have a maximum combined loan-to-value ratio of
125%. These Mortgage Loans are generally targeted as debt consolidation loans
for repeat or frequent borrowers with generally strong credit ratings. Lending
decisions for these loans are based on an analysis of the prospective
Mortgagor's documented cash flow and credit history supplemented by a collateral
evaluation deemed appropriate by the Sponsor.
If a senior mortgage exists, the Sponsor may first review the senior
mortgage documentation. If it contains open end advance or negative amortization
provisions, the maximum potential senior mortgage balance may be used, although
for certain of the Sponsor's products the current balance may be used in
calculating the CLTV which determines the maximum loan amount. The Sponsor's
Guidelines do not permit the origination or purchase of loans where the senior
mortgage contains a provision pursuant to which the senior mortgagee may share
in any appreciation of the Mortgaged Property.
In most cases, the value of each property proposed as security for a
mortgage loan is required to be determined by a full appraisal. A limited
appraisal of a property, conducted on a drive-by basis, may be utilized. Two
full appraisals are generally required for properties valued over $500,000.
Appraisals are required to be completed by qualified professional
appraisers. The Sponsor evaluates the performance of appraisers and maintains a
current disapproved appraiser list.
The Sponsor's Guidelines have provided for the origination of loans
under three general loan programs: (i) a full verification program for salaried
or self-employed borrowers, (ii) a "lite" documentation program for borrowers
who may have income which cannot be verified by traditional methods and (iii) a
non-income verification program for salaried and self-employed borrowers.
However, the Sponsor's Guidelines allow for certain borrowers with existing
loans to refinance such loans with either limited, or no, verification of
income. The Sponsor may also purchase pools of loans which may include some
loans originated under a non-income verification program. For the Sponsor's full
verification process, each mortgage applicant is required to provide, and the
Sponsor or its designee is required to verify, personal financial information.
The applicant's total monthly obligations (including principal and interest on
each mortgage, tax assessments, other loans, charge accounts and all other
scheduled indebtedness) generally (in the absence of countervailing
considerations, such as a lower Combined Loan-to-Value Ratio or a price
adjustment) should not exceed the applicant's ability to pay. Applicants who are
salaried employees must provide current employment information in addition to
recent employment history. The Sponsor or its designee verify this information
for salaried borrowers based on written confirmation from employers or a
combination of the most recent pay stub, the most recent W-2 tax form and
telephone confirmation from the employer. Self-employed applicants are generally
required to be self-employed in the same field for a minimum of two years. The
self-employed applicant is generally required to provide personal and business
financial statements and signed copies of complete federal income tax returns
(including schedules) filed for the most recent two years. For the Sponsor's
"lite" documentation program the borrower must establish proof of cash flow
trends to support the borrower's income. Such proof can include business bank
statements or personal bank statements. For the Sponsor's non-income verifier
program, proof of two year's history of employment plus proof of current
employment status is required. The applicant's debt-to-income ratio is
calculated based on income as certified by the borrower on the application and
must be reasonable.
A credit report by an independent, nationally recognized credit
reporting agency is required reflecting the applicant's complete credit history.
The credit report should reflect all delinquencies of 30 days or more,
repossessions, judgments, foreclosures, garnishments, bankruptcies and similar
instances of adverse credit that can be discovered by a search of public
records. Verification is required to be obtained of the senior mortgage balance,
if any, the status and whether local taxes, interest, insurance and assessments
are included in the applicant's monthly payment. All taxes and assessments not
included in the payment are required to be verified as current.
In connection with purchase-money loans, the Sponsor's Guidelines
generally require (x) (i) an acceptable source of downpayment funds, (ii)
verification of the source of the downpayment funds and (iii) adequate cash
reserves or (y) adequate equity in the collateral property.
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Certain laws protect loan applicants by offering them a time frame
after loan documents are signed, termed the rescission period, during which the
applicant has the right to cancel the loan. The rescission period must have
expired prior to funding a loan and may not be waived by the applicant except as
permitted by law.
Unless otherwise disclosed in the related Prospectus Supplement, the
Sponsor's Guidelines generally require title insurance coverage issued by an
approved ALTA or CLTA title insurance company on each Mortgage Loan it
purchases. The Sponsor, the related Originator and/or their assignees generally
are named as the insured. Title insurance policies indicate the lien position of
the mortgage loan and protect the insured against loss if the title or lien
position is not as indicated.
The applicant is required to secure property insurance in an amount
sufficient to cover the new loan and any senior mortgage. If the sum of the
outstanding first mortgage, if any, and the related mortgage loan exceeds
replacement value (the cost of rebuilding the subject property, which generally
does not include land value), insurance equal to replacement value may be
accepted. The Sponsor or its designee is required to ensure that its name and
address is properly added to the "Mortgagee Clause" of the insurance policy. In
the event the Sponsor or the related Originator's name is added to a "Loss Payee
Clause" and the policy does not provide for written notice of policy changes or
cancellation, an endorsement adding such provision is required.
Approved Guidelines. The Sponsor may cause a Trust to acquire Mortgage
Loans underwritten pursuant to underwriting guidelines that may differ from the
Sponsor's Guidelines as set forth in the Sponsor's Originator Guide. Certain of
the Mortgage Loans will be acquired in negotiated transactions, and such
negotiated transactions may be governed by agreements ("Master Commitments")
relating to ongoing acquisitions of Mortgage Loans by the Sponsor, from
Originators who will represent that the Mortgage Loans have been originated in
accordance with underwriting guidelines agreed to by the Sponsor. Certain other
Mortgage Loans will be acquired from Originators that will represent that the
Mortgage Loans were originated pursuant to underwriting guidelines determined by
a mortgage insurance company acceptable to the Sponsor. The Sponsor will accept
a certification from such insurance company as to a Mortgage Loan's insurability
in a mortgage pool as of the date of certification as evidence of a Mortgage
Loan conforming to applicable underwriting standards. Such certifications likely
will have been issued before the purchase of the Mortgage Loan by the Sponsor.
The Sponsor only will perform random quality assurance reviews on Mortgage Loans
delivered with such certifications.
The underwriting standards utilized in negotiated transactions and
Master Commitments and the underwriting standards of insurance companies may
vary substantially from the Sponsor's Guidelines. All of the underwriting
guidelines will provide an underwriter with information to evaluate either the
security for the related Mortgage Loan, which security consists primarily of the
borrower's repayment ability or the adequacy of the Mortgaged Property as
collateral, or a combination of both. Due to the variety of underwriting
guidelines and review procedures that may be applicable to the Mortgage Loans
included in any Mortgage Pool, the related Prospectus Supplement will not
distinguish among the various underwriting guidelines applicable to the Mortgage
Loans nor describe any review for compliance with applicable underwriting
guidelines performed by the Sponsor. Moreover, there can be no assurance that
every Mortgage Loan was originated in conformity with the Approved Guidelines in
all material respects, or that the quality or performance of Mortgage Loans
underwritten pursuant to varying guidelines as described above will be
equivalent under all circumstances.
Bulk Guidelines. Bulk portfolios of Mortgage Loans may be originated by
a variety of Originators under several different underwriting guidelines. For
bulk portfolios which are seasoned for a period of time, the Sponsor's
underwriting review of bulk portfolios of Mortgage Loans focuses primarily on
payment histories and estimated current values based on estimated property
appreciation or depreciation and loan amortization. Mortgage Loans that conform
to the related Bulk Guidelines may not conform to the requirements of either the
Sponsor's Guidelines or the Approved Guidelines. For example, the Sponsor may
purchase Mortgage Loans in bulk portfolios with Combined Loan-to-Value Ratios in
excess of that required under the Sponsor's Guidelines, without title insurance,
or with nonconforming appraisal methods such as tax assessments. Bulk
Acquisition portfolios may be purchased servicing released or retained. If
servicing is retained, the Originator must meet certain minimum requirements, as
modified from time to time, by the Sponsor. The Sponsor generally will cause the
Mortgage Loans acquired in a Bulk Acquisition to be reunderwritten on a sample
basis. Such reunderwriting may be performed by the Sponsor, the Master Servicer
or by a third party acting at the direction of the Sponsor.
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Quality Control. The Master Servicer maintains a quality control
department which generally reviews loans originated by Affiliated Originators.
The quality control department randomly selects a portion of the files for
underwriting review. The Sponsor or its Affiliated Originators also cause
appraisal reviews to be performed on a random sample of loan production.
A periodic report is distributed to senior management and the
production offices describing material exceptions to underwriting and appraisal
guidelines, legal and regulatory requirements and variances based on the
reverification process. Appraisers demonstrating chronic errors, omissions or
large valuation errors are removed from the approved appraiser list. Training
programs, additional audits and performance evaluations for underwriting
personnel and management are influenced by the results of the quality control
review.
The Sponsor generally will cause Mortgage Loans acquired from
Unaffiliated Originators to be (i) reunderwritten for the purpose of determining
whether such Mortgage Loans were originated in accordance with the applicable
underwriting guidelines, (ii) reviewed to assess the accuracy of the appraised
values, and (iii) audited to determine the accuracy of the loan computer system
as compared to the loan files. Such process may consist of a review of all such
Mortgage Loans or may be performed on a sample basis. Such reunderwriting may be
performed by the Sponsor, the Master Servicer or a third party acting at the
direction of the Sponsor.
QUALIFICATIONS OF ORIGINATORS
Each Originator from which a Mortgage Loan is acquired will have been
accepted by the Sponsor for participation in the Sponsor's mortgage loan
program. Certain Unaffiliated Originators ("Conduit Participants") may be
qualified to enter into agreements to sell mortgage loans to the Sponsor
pursuant to Master Commitments which provide for the periodic purchase and sale
of loans meeting certain specified requirements.
Loans acquired from Unaffiliated Originators other than Conduit
Participants will be acquired on a "spot" basis, or in connection with a Bulk
Acquisition. Unless otherwise described in the related Prospectus Supplement
with respect to certain specified Unaffiliated Originators (in which case any
remedies for breach will lie only against such Unaffiliated Originator), the
Sponsor will make directly, or will guarantee compliance with, any
representations and warranties made by any Unaffiliated Originator, with respect
to the Mortgage Loans originated by it and acquired by a Trust.
All Conduit Participants must have received a satisfactory review by
the Sponsor of its operating procedures. All Unaffiliated Originators will have
delinquency and foreclosure rates monitored and maintained at levels acceptable
to the Sponsor. All Unaffiliated Originators are required to originate mortgage
loans in accordance with the applicable underwriting standards. However, with
respect to any Originator, some of the generally applicable underwriting
standards described herein and in the Sponsor's Originator Guide may be modified
or waived with respect to certain Mortgage Loans originated by such Originators.
The Federal Deposit Insurance Corporation (the "FDIC") (either in its
corporate capacity or as receiver or conservator for a depository institution)
may also be an Originator of the Mortgage Loans. The FDIC is an independent
executive agency originally established by the Banking Act of 1933 to insure the
deposits of all banks entitled to federal deposit insurance under the Federal
Reserve Act and Federal Deposit Insurance Act. The FDIC administers the system
of nationwide deposit insurance (mutual guaranty of deposits) for United States
Banks and, together with the United States Comptroller of the Currency,
regulates in areas related to the maintenance of reserves for certain types of
deposits, the maintenance of certain financial ratios, transactions with
affiliates and a broad range of other banking practices.
The Sponsor monitors the Originators and the Sub-Servicers under the
control of a Federal Corporation, as well as those Originators and Sub-Servicers
that are insolvent or in receivership or conservatorship or otherwise
financially distressed. Such Originators may not be able or permitted to
repurchase Mortgage Loans for which there has been a breach of representation
and warranty. Moreover, any such Originator may make no representations and
warranties with respect to Mortgage Loans sold by it. The Federal Corporations
(either in their respective corporate capacities or as receiver for a depository
institution) may also originate Mortgage Loans, in which event neither the
related Federal Corporation nor the depository institution for which such
Federal Corporation is acting as receiver
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may make representations and warranties with respect to the Mortgage Loans that
such Federal Corporation sells, or such Federal Corporation may make only
limited representations and warranties (for example, that the related legal
documents are enforceable). A Federal Corporation may have no obligation to
repurchase any Mortgage Loan for a breach of a representation and warranty. If
as a result of a breach of representation and warranty an Originator is required
to repurchase a Mortgage Loan but is not permitted or otherwise fails to do so
or if representations and warranties are not made by an Originator, to the
extent that neither the Sponsor nor any other entity has assumed the
representations and warranties or made representations and warranties, neither
the Sponsor nor that entity will be required to repurchase such Mortgage Loan
and, consequently such Mortgage Loan will remain in the related Mortgage Pool
and any related losses will be borne by the Securityholders or by the related
Credit Enhancement, if any. In addition, loans which are purchased either
directly or indirectly from a Federal Corporation may be subject to a contract
right of such Federal Corporation to repurchase such loans under certain limited
circumstances.
SUB-SERVICERS
Each Originator of a Mortgage Loan will act as Sub-Servicer for such
Mortgage Loan pursuant to an agreement between the Master Servicer and the
Sub-Servicer (a "Sub-Servicing Agreement") unless the servicing obligations are
released to the Master Servicer or transferred to a servicer approved by the
Master Servicer. An Affiliated Originator of a Mortgage Loan may act as the
Sub-Servicer for such Mortgage Loan unless the other related servicing
obligations are released or transferred. An Unaffiliated Originator acting as a
Sub-Servicer for the Mortgage Loans will be required to meet certain additional
standards with respect to its mortgage loan servicing portfolio, GAAP tangible
net worth and other specified qualifications.
REPRESENTATIONS BY ORIGINATORS
Unless otherwise specified in the related Prospectus Supplement, each
Originator will have made representations and warranties in respect of the
Mortgage Loans sold by such Originator and evidenced by a series of Securities.
Such representations and warranties generally include, among other things, that
at the time of the sale by the Originator to the Sponsor of each Mortgage Loan:
(i) the information with respect to each Mortgage Loan set forth in the
Schedules of Mortgage Loans is true and correct as of the related Cut-Off Date;
(ii) each Mortgage Loan being transferred to the Trust which is a REMIC is a
qualified mortgage under the REMIC provisions of the Code and is a Mortgage;
(iii) each Mortgaged Property is improved by a single (one- to four-) family
residential dwelling or a multi-family structure, which may include condominiums
and townhouses, units in a "planned unit development" ("PUD") complex or a
manufactured home; (iv) each Mortgage Loan had, at the time of origination,
either an attorney's certification of title or a title search or title policy;
(v) as of the related Cut-Off Date each Mortgage Loan is secured by a valid and
subsisting lien of record on the Mortgaged Property having the priority
indicated on the related Schedule of Mortgage Loans subject in all cases to
exceptions to title set forth in the title insurance policy, if any, with
respect to the related Mortgage Loan; (vi) each Originator held good and
indefeasible title to, and was the sole owner of, each Mortgage Loan conveyed by
such Originator; and (vii) each Mortgage Loan was originated in accordance with
law and is the valid, legal and binding obligation of the related Mortgagor.
Unless otherwise described in the related Prospectus Supplement, all of
the representations and warranties of an Originator in respect of a Mortgage
Loan will be made as of the date on which such Originator sells the Mortgage
Loan to the Sponsor; the date as of which such representations and warranties
are made thus may be a date prior to the date of the issuance of the related
series of Securities. A substantial period of time may elapse between the date
as of which the representations and warranties are made and the later date of
issuance of the related series of Securities.
The Sponsor will assign to the Trustee for the benefit of the holders
of the related series of Securities all of its right, title and interest in each
agreement by which it acquires a Mortgage Loan from an Originator insofar as
such agreement relates to the representations and warranties made by an
Originator in respect of such Mortgage Loan and any remedies provided for breach
of such representations and warranties. If an Originator 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 a time period specified in the related Pooling and
Servicing Agreement, such Originator and/or the Sponsor will be obligated to
purchase from the related Trust such Mortgage Loan at a price (the "Loan
Purchase Price") set forth in the related Pooling and Servicing
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Agreement which Loan Purchase Price will be equal to the principal balance
thereof as of the date of purchase plus one month's interest at the Mortgage
Rate less the amount, expressed as a percentage per annum, payable in respect of
master servicing compensation or subservicing compensation, as applicable, and
the Originator's Retained Yield, if any, together with, without duplication, the
aggregate amount of all delinquent interest, if any, net of Servicing Advances.
Unless otherwise specified in the related Prospectus Supplement, as to
any such Mortgage Loan required to be purchased by an Originator and/or the
Sponsor, as provided above, rather than repurchase the Mortgage Loan, the Master
Servicer may, at its sole option, remove such Mortgage Loan (a "Deleted Mortgage
Loan") from the related Trust and cause the Sponsor to substitute in its place
another Mortgage Loan of like kind (a "Qualified Replacement Mortgage" as such
term is defined in the related Pooling and Servicing Agreement). With respect to
a Trust for which a REMIC election is to be made, except as otherwise provided
in the Prospectus Supplement relating to a series of Securities, such
substitution of a defective Mortgage Loan must be effected within two years of
the date of the initial issuance of the Securities, and may not be made if such
substitution would cause the Trust to not qualify as a REMIC or result in a
prohibited transaction tax under the Code. Unless otherwise specified in the
related Prospectus Supplement or Pooling and Servicing Agreement, an
Unaffiliated Originator generally will have no option to substitute for a
Mortgage Loan that it is obligated to repurchase in connection with a breach of
a representation and warranty.
The Master Servicer will be required under the applicable Pooling and
Servicing Agreement to enforce such purchase or substitution obligations for the
benefit of the Trustee and the Securityholders, following the practices it would
employ in its good faith business judgment if it were the owner of such Mortgage
Loan; provided, however, that this purchase or substitution obligation will in
no event become an obligation of the Master Servicer in the event the Originator
fails to honor such obligation. If the Originator fails to repurchase or
substitute a loan and no breach of the Sponsor's representations has occurred,
the Originator's purchase obligation will in no event become an obligation of
the Sponsor. Unless otherwise specified in the related Prospectus Supplement,
the foregoing will constitute the sole remedy available to Securityholders or
the Trustee for a breach of representation by an Originator in its capacity as a
seller of Mortgage Loans to the Sponsor.
Unless otherwise described in the related Prospectus Supplement with
respect to certain Unaffiliated Originators (in which case any remedies for
breach will lie only against such Unaffiliated Originator), the Sponsor will
make directly, or will guarantee compliance with, any representations and
warranties made by any Unaffiliated Originator with respect to the Mortgage
Loans originated or purchased by it and acquired by a Trust.
Notwithstanding the foregoing with respect to any Originator that
requests the Master Servicer's consent to the transfer of sub-servicing rights
relating to any Mortgage Loans to a successor servicer, the Master Servicer may
release such Originator from liability, under its representations and warranties
described above, upon the assumption by such successor servicer of the
Originator's liability for such representations and warranties as of the date
they were made. In that event, the Master Servicer's rights under the instrument
by which such successor servicer assumes the Originator's liability will be
assigned to the Trustee, and such successor servicer shall be deemed to be the
"Originator" for purposes of the foregoing provisions.
SUB-SERVICING BY ORIGINATORS
Each Originator of a Mortgage Loan will act as the Sub-Servicer for
such Mortgage Loan pursuant to a Sub-Servicing Agreement unless servicing is
released to the Master Servicer or has been transferred to a servicer approved
by the Master Servicer. The Master Servicer may, in turn, assign such
sub-servicing to designated sub-servicers that will be qualified Originators and
may include affiliates of the Sponsor. While such a Sub-Servicing Agreement will
be a contract solely between the Master Servicer and the Sub-Servicer, the
Pooling and Servicing Agreement pursuant to which a series of Securities is
issued will provide that, if for any reason the Master Servicer for such series
of Securities is no longer the master servicer of the related Mortgage Loans,
the Trustee or any successor Master Servicer must recognize the Sub-Servicer's
rights and obligations under such Sub-Servicing Agreement.
Unless otherwise specified in the related Prospectus Supplement, with
the approval of the Master Servicer, a Sub-Servicer may delegate its servicing
obligations to third-party servicers, but such Sub-Servicer will remain
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obligated under the related Sub-Servicing Agreement. Each Sub-Servicer will be
required to perform the customary functions of a servicer, including collection
of payments from Mortgagors and remittance of such collections to the Master
Servicer; maintenance of hazard insurance (to the extent, if any, required by
the related Pooling and Servicing Agreement) and filing and settlement of claims
thereunder, subject in certain cases to the right of the Master Servicer to
approve in advance any such settlement; maintenance of escrow or impound
accounts of Mortgagors for payment of taxes, insurance and other items required
to be paid by the Mortgagor pursuant to the Mortgage Loan; processing of
assumptions or substitutions; attempting to cure delinquencies; supervising
foreclosures; inspecting and managing Mortgaged Properties under certain
circumstances; and maintaining accounting records relating to the Mortgage
Loans. A Sub-Servicer also may be obligated to make advances to the Master
Servicer in respect of delinquent installments of principal and/or interest (net
of any sub-servicing or other compensation) on Mortgage Loans, as described more
fully under "Description of the Securities--Advances," and in respect of certain
taxes and insurance premiums not paid on a timely basis by Mortgagors. A
Sub-Servicer may also be obligated to deposit amounts in respect of Compensating
Interest to the related Principal and Interest Account in connection with
prepayments of principal received and applied to reduce the outstanding
principal balance of a Mortgage Loan. No assurance can be given that the
Sub-Servicers will carry out their advance or payment obligations, if any, with
respect to the Mortgage Loans. Unless otherwise specified in the related
Prospectus Supplement, a Sub-Servicer may transfer its servicing obligations to
another entity that has been approved for participation in the Sponsor's loan
purchase programs, but only with the prior written approval of the Master
Servicer.
As compensation for its servicing duties, the Sub-Servicer may be
entitled to a Base Servicing Fee. The Sub-Servicer may also be entitled to
collect and retain, as part of its servicing compensation, any late charges or
prepayment penalties provided in the Mortgage Note or related instruments. The
Sub-Servicer will be entitled to reimbursement for certain expenditures that it
makes, generally to the same extent that the Master Servicer would be reimbursed
under the applicable Pooling and Servicing Agreement. See "The Pooling and
Servicing Agreement--Servicing and Other Compensation and Payment of Expenses;
Originator's Retained Yield."
Each Sub-Servicer will be required to agree to indemnify the Master
Servicer for any liability or obligation sustained by the Master Servicer in
connection with any act or failure to act by the Sub-Servicer in its servicing
capacity. Each Sub-Servicer is required to maintain a fidelity bond and an
errors and omission policy with respect to its officers, employees and other
persons acting on its behalf or on behalf of the Master Servicer.
Each Sub-Servicer will be required to service each Mortgage Loan
pursuant to the terms of the Sub-Servicing Agreement for the entire term of such
Mortgage Loan, unless the Sub-Servicing Agreement is terminated earlier by the
Master Servicer or unless servicing is released to the Master Servicer. The
Master Servicer generally may terminate a Sub-Servicing Agreement immediately
upon the giving of notice upon certain stated events, including the violation of
such Sub-Servicing Agreement by the Sub-Servicer, or following a specified
period after notice to the Sub-Servicer without cause upon payment of an amount
equal to a specified termination fee calculated as a specified percentage of the
aggregate outstanding principal balance of all mortgage loans, including the
Mortgage Loans serviced by such Sub-Servicer pursuant to a Sub-Servicing
Agreement and certain transfer fees.
The Master Servicer may agree with a Sub-Servicer to amend a
Sub-Servicing Agreement. Upon termination of a Sub-Servicing Agreement, the
Master Servicer may act as servicer of the related Mortgage Loans or enter into
one or more new Sub-Servicing Agreements. If the Master Servicer acts as
servicer, it will not assume liability for the representations and warranties of
the Sub-Servicer that it replaces. If the Master Servicer enters into a new
Sub-Servicing Agreement, each new Sub-Servicer either must be an Originator,
meet the standards for becoming an Originator or have such servicing experience
that is otherwise satisfactory to the Master Servicer. The Master Servicer may
make reasonable efforts to have the new Sub-Servicer assume liability for the
representations and warranties of the terminated Sub-Servicer, but no assurance
can be given that such an assumption will occur and, in any event, if the new
Sub-Servicer is an affiliate of the Master Servicer, the liability for such
representations and warranties will not be assumed by such new Sub-Servicer. In
the event of such an assumption, the Master Servicer may in the exercise of its
business judgment release the terminated Sub-Servicer from liability in respect
of such representations and warranties. Any amendments to a Sub-Servicing
Agreement or to a new Sub-Servicing Agreement may contain provisions different
from those described above that are in effect in the original Sub-Servicing
Agreements. However, the Pooling and Servicing Agreement for each Trust Estate
will provide that any such
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amendment or new agreement may not be inconsistent with such Pooling and
Servicing Agreement to the extent that it would materially and adversely affect
the interests of the Securityholders.
DESCRIPTION OF THE SECURITIES
GENERAL
The Securities will be issued in series. Each series of Securities (or,
in certain instances, two or more series of Securities) will be issued pursuant
to a Pooling and Servicing Agreement. The following summaries (together with
additional summaries under "The Pooling and Servicing Agreement" below) describe
all material terms and provisions relating to the Securities common to each
Pooling and Servicing Agreement. The summaries do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, all of the
provisions of the Pooling and Servicing Agreement for the related Trust and the
related Prospectus Supplement.
The Securities will consist of two basic types: (i) Securities of the
fixed-income type ("Fixed-Income Securities") and (ii) Securities of the equity
participation type ("Equity Securities"). No Class of Equity Securities will be
offered pursuant to this Prospectus or any Prospectus Supplement related hereto.
Fixed-Income Securities generally will be styled as debt instruments, having a
principal balance and a specified interest rate ("Interest Rate"). Fixed-Income
Securities may be either beneficial ownership interests in the related Mortgage
Loans held by the related Trust, or may represent debt secured by such Mortgage
Loans. Each series or class of Fixed-Income Securities may have a different
Interest Rate, which may be a fixed, variable or adjustable Interest Rate. The
related Prospectus Supplement will specify the Interest Rate for each series or
class of Fixed-Income Securities, or the initial Interest Rate and the method
for determining subsequent changes to the Interest Rate.
A series may include one or more classes of Fixed-Income Securities
("Strip Securities") 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 may include two or more classes of Fixed-Income Securities
that differ as to timing, sequential order, priority of payment, Interest Rate
or amount of distributions of principal or interest or both, or as to which
distributions of principal or interest or both on any class may be made upon the
occurrence of specified events, in accordance with a schedule or formula, or on
the basis of collections from designated portions of the related Mortgage Pool,
which series may include one or more classes of Fixed-Income Securities
("Accrual Securities"), as to which certain accrued interest will not be
distributed but rather will be added to the principal balance (or nominal
principal balance in the case of Accrual Securities which are also Strip
Securities) thereof on each Payment Date, as hereinafter defined and in the
manner described in the related Prospectus Supplement.
If so provided in the related Prospectus Supplement, a series of
Securities may include one or more classes of Fixed-Income Securities
(collectively, the "Senior Securities") that are senior to one or more classes
of Fixed-Income Securities (collectively, the "Subordinate Securities") in
respect of certain distributions of principal and interest and allocations of
losses on Mortgage Loans. In addition, certain classes of Senior (or
Subordinate) Securities may be senior to other classes of Senior (or
Subordinate) Securities in respect of such distributions or losses.
Equity Securities will represent the right to receive the proceeds of
the related Trust Estate after all required payments have been made to the
Securityholders of the related Fixed-Income Securities (both Senior Securities
and Subordinate Securities), and following any required deposits to any reserve
account that may be established for the benefit of the Fixed-Income Securities.
Equity Securities may constitute what are commonly referred to as the "residual
interest," "seller's interest" or the "general partnership interest," depending
upon the treatment of the related Trust for federal income tax purposes. As
distinguished from the Fixed-Income Securities, the Equity Securities will not
be styled as having principal and interest components. Any losses suffered by
the related Trust first will be absorbed by the related class of Equity
Securities, as described herein and in the related Prospectus Supplement.
No Class of Equity Securities will be offered pursuant to this
Prospectus or any Prospectus Supplement related hereto. Equity Securities may be
offered on a private placement basis or pursuant to a separate Registration
Statement to be filed by the Sponsor. In addition, the Sponsor and its
affiliates may initially or permanently hold any Equity Securities issued by any
Trust.
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General Payment Terms of Securities. As provided in the related Pooling
and Servicing Agreement and as described in the related Prospectus Supplement,
Securityholders will be entitled to receive payments on their Securities on
specified dates ("Payment Dates"). Payment Dates with respect to Fixed-Income
Securities will occur monthly, quarterly or semi-annually, as described in the
related Prospectus Supplement; Payment Dates with respect to Equity Securities
will occur as described in the related Prospectus Supplement.
The related Prospectus Supplement will describe a date (the "Record
Date") preceding such Payment Date, as of which the Trustee or its paying agent
will fix the identity of the Securityholders for the purpose of receiving
payments on the next succeeding Payment Date. Unless otherwise described in the
related Prospectus Supplement, the Payment Date will be the twenty-fifth day of
each month (or, in the case of quarterly-pay Securities, the twenty-fifth day of
every third month; and, in the case of semi-annually-pay Securities, the
twenty-fifth day of every sixth month) and the Record Date will be the close of
business as of the last day of the calendar month which precedes such Payment
Date.
The related Prospectus Supplement and the Pooling and Servicing
Agreement will describe a period (a "Remittance Period") antecedent to each
Payment Date (for example, in the case of monthly-pay Securities, the calendar
month preceding the month in which a Payment Date occurs or such other specified
period). Unless otherwise provided in the related Prospectus Supplement,
collections received on or with respect to the related Mortgage Loans during a
Remittance Period will be required to be remitted by the Master Servicer to the
related Trustee prior to the related Payment Date and will be used to distribute
payments to Securityholders on such Payment Date. As may be described in the
related Prospectus Supplement, the related Pooling and Servicing Agreement may
provide that all or a portion of the principal collected on or with respect to
the related Mortgage Loans may be applied by the related Trustee to the
acquisition of additional Mortgage Loans during a specified period (rather than
used to distribute payments of principal to Securityholders during such period)
with the result that the related securities possess an interest-only period,
also commonly referred to as a revolving period, which will be followed by an
amortization period. Any such interest-only or revolving period may, upon the
occurrence of certain events to be described in the related Prospectus
Supplement, terminate prior to the end of the specified period and result in the
earlier than expected amortization of the related Securities.
In addition, and as may be described in the related Prospectus
Supplement, the related Pooling and Servicing Agreement may provide that all or
a portion of such collected principal may be retained by the Trustee (and held
in certain temporary investments, including Mortgage Loans) for a specified
period prior to being used to distribute payments of principal to
Securityholders.
The result of such retention and temporary investment by the Trustee of
such principal would be to slow the amortization rate of the related Securities
relative to the amortization rate of the related Mortgage Loans, or to attempt
to match the amortization rate of the related Securities to an amortization
schedule established at the time such Securities are issued. Any such feature
applicable to any Securities may terminate upon the occurrence of events to be
described in the related Prospectus Supplement, resulting in the current funding
of principal payments to the related Securityholders and an acceleration of the
amortization of such Securities.
Unless otherwise specified in the related Prospectus Supplement,
neither the Securities nor the underlying Mortgage Loans will be guaranteed or
insured by any governmental agency or instrumentality or the Sponsor, the Master
Servicer, any Sub-Servicer, any Originator or any of their affiliates.
Unless otherwise specified in the Prospectus Supplement with respect to
a series, Securities of each series covered by a particular Pooling and
Servicing Agreement will evidence specified beneficial ownership interest in a
separate Trust Estate created pursuant to such Pooling and Servicing Agreement.
A Trust Estate will consist of, to the extent provided in the Pooling and
Servicing Agreement: (i) a pool of Mortgage Loans (and the related mortgage
documents) or certificates of interest or participations therein underlying a
particular series of Securities as from time to time are subject to the Pooling
and Servicing Agreement, exclusive of, if specified in the related Prospectus
Supplement, any Originator's Retained Yield or other interest retained by the
related Originator, the Sponsor or any of its affiliates with respect to each
such Mortgage Loan; (ii) certain other assets including, without limitation,
payments and collections in respect of the Mortgage Loans due, accrued or
received, as described in the related Prospectus Supplement, on and after the
related Cut-Off Date, as from time to time are identified as deposited in
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respect thereof in the Principal and Interest Account and in the related
Distribution Account; (iii) property acquired by foreclosure of the Mortgage
Loans or deed in lieu of foreclosure; (iv) hazard insurance policies and primary
insurance policies, if any, and certain proceeds thereof; and (v) any
combination, as specified in the related Prospectus Supplement, of a letter of
credit, financial guaranty insurance policy, purchase obligation, mortgage pool
insurance policy, special hazard insurance policy, bankruptcy bond, reserve fund
or other type of Credit Enhancement as described under "Description of Credit
Enhancement." To the extent that any Trust Estate includes certificates of
interest or participations in Mortgage Loans, the related Prospectus Supplement
will describe the material terms and conditions of such certificates or
participations.
FORM OF SECURITIES
Unless otherwise specified in the related Prospectus Supplement, the
Securities of each series will be issued as physical certificates ("Physical
Certificates") in fully registered form only in the denominations specified in
the related Prospectus Supplement, and will be transferable and exchangeable at
the corporate trust office of the registrar of the Securities (the "Security
Registrar") named in the related Prospectus Supplement. No service charge will
be made for any registration of exchange or transfer of Securities, but the
Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge.
If so specified in the related Prospectus Supplement, specified classes
of a series of Securities will be issued in uncertificated book-entry form
("Book-Entry Securities"), and will be registered in the name of Cede, the
nominee of DTC. DTC is a limited purpose trust company organized under the laws
of the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code ("UCC") and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC was created to hold securities
for its participating organizations ("Participants") and facilitate the
clearance and settlement of securities transactions between Participants through
electronic book-entry changes in their accounts, thereby eliminating the need
for physical movement of certificates. Participants include securities brokers
and dealers, banks, trust companies and clearing corporations and may include
certain other organizations. Indirect access to the DTC system also is available
to others such as brokers, dealers, banks and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participant").
Under a book-entry format, Securityholders that are not Participants or
Indirect Participants but desire to purchase, sell or otherwise transfer
ownership of Securities registered in the name of Cede, as nominee of DTC, may
do so only through Participants and Indirect Participants. In addition, such
Securityholders will receive all distributions of principal of and interest on
the Securities from the Trustee through DTC and its Participants. Under a
book-entry format, Securityholders will receive payments after the related
Payment Date because, while payments are required to be forwarded to Cede, as
nominee for DTC, on each such date, DTC will forward such payments to its
Participants, which thereafter will be required to forward such payments to
Indirect Participants or Securityholders. Unless and until Physical Securities
are issued, it is anticipated that the only Securityholder will be Cede, as
nominee of DTC, and that the beneficial holders of Securities will not be
recognized by the Trustee as Securityholders under the Pooling and Servicing
Agreement. The beneficial holders of such Securities will only be permitted to
exercise the rights of Securityholders under the Pooling and Servicing Agreement
indirectly through DTC and its Participants who in turn will exercise their
rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Securities and is
required to receive and transmit payments of principal of and interest on the
Securities. Participants and Indirect Participants with which Securityholders
have accounts with respect to their Securities similarly are required to make
book-entry transfers and receive and transmit such payments on behalf of their
respective Securityholders. Accordingly, although Securityholders will not
possess Securities, the rules provide a mechanism by which Securityholders will
receive distributions and will be able to transfer their interests.
Unless and until Physical Certificates are issued, Securityholders who
are not Participants may transfer ownership of Securities only through
Participants by instructing such Participants to transfer Securities, by
book-entry transfer, through DTC for the account of the purchasers of such
Securities, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership
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of Securities will be executed through DTC and the accounts of the respective
Participants at DTC will be debited and credited. Similarly, the respective
Participants will make debits or credits, as the case may be, on their records
on behalf of the selling and purchasing Securityholders.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder to pledge Securities to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
Securities may be limited due to the lack of a Physical Certificate for such
Securities.
DTC in general advises that it will take any action permitted to be
taken by a Securityholder under a Pooling and Servicing Agreement only at the
direction of one or more Participants to whose account with DTC the related
Securities are credited. Additionally, DTC in general advises that it will take
such actions with respect to specified percentages of the Securityholders only
at the direction of and on behalf of Participants whose holdings include current
principal amounts of outstanding Securities that satisfy such specified
percentages. DTC may take conflicting actions with respect to other current
principal amounts of outstanding Securities to the extent that such actions are
taken on behalf of Participants whose holdings include such current principal
amounts of outstanding Securities.
Any Securities initially registered in the name of Cede, as nominee of
DTC, will be issued in fully registered, certificated form to Securityholders or
their nominees ("Physical Certificates"), rather than to DTC or its nominee only
under the events specified in the related Pooling and Servicing Agreement and
described in the related Prospectus Supplement. Upon the occurrence of any of
the events specified in the related Pooling and Servicing Agreement and the
Prospectus Supplement, DTC will be required to notify all Participants of the
availability through DTC of Physical Certificates. Upon surrender by DTC of the
securities representing the Securities and instruction for reregistration, the
Trustee will issue the Securities in the form of Physical Certificates, and
thereafter the Trustee will recognize the holders of such Physical Certificates
as Securityholders. Thereafter, payments of principal of and interest on the
Securities will be made by the Trustee directly to Securityholders in accordance
with the procedures set forth herein and in the Pooling and Servicing Agreement.
The final distribution of any Security (whether Physical Certificates or
Securities registered in the name of Cede), however, will be made only upon
presentation and surrender of such Securities on the final Payment Date at such
office or agency as is specified in the notice of final payment to
Securityholders.
None of the Company, the Originators, the Master Servicer or the
Trustee will have any liability for any actions taken by DTC or its nominee or
Cedel or Euroclear, including, without limitation, actions for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Securities held by Cede, as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
ASSIGNMENT OF MORTGAGE LOANS
At the time of issuance of a series of Securities, the Sponsor will
cause the Mortgage Loans being included in the related Trust Estate to be
assigned to the Trustee together with, unless otherwise specified in the related
Prospectus Supplement, all payments and collections in respect of the Mortgage
Loans due, accrued or received, as described in the related Prospectus
Supplement on or after the related Cut-Off Date. If specified in the related
Prospectus Supplement, the Sponsor or any of its affiliates may retain the
Originator's Retained Yield, if any, for itself or transfer the same to others.
The Trustee will, concurrently with such assignment, deliver a series of
Securities to the Sponsor in exchange for the Mortgage Loans. Each Mortgage Loan
will be identified in a schedule appearing as an exhibit to the related Pooling
and Servicing Agreement. Such schedule will include, among other things,
information as to the principal balance of each Mortgage Loan as of the Cut-Off
Date, as well as information regarding the Mortgage Rate, the currently
scheduled monthly payment of principal and interest and the maturity of the
Mortgage Note.
In connection with the establishment of certain Trusts the Sponsor may
first transfer the related Trust Estate to the Transferor and the Transferor
will then transfer such Trust Estate to the related Trust. The use of the
Transferor will not affect the obligations of the Sponsor with respect to the
related Trust or the related Securities.
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If the Transferor is to be involved in a particular offering the related
Prospectus Supplement will describe its role in such offering; for purposes of
this Prospectus the role of the Transferor is subsumed in the role of the
Sponsor.
The related Prospectus Supplement will describe any applicable
requirements relating to the delivery of documents, such as the related Notes,
and the preparation and/or filing of transfer documentation, such as assignments
of Mortgage, in connection with the establishment of the related Trust. To the
extent that the ratings, if any, then assigned to the unsecured debt of the
Sponsor or of the Sponsor's ultimate corporate parent are satisfactory to the
Rating Agencies, all or any portion of such document delivery requirements
and/or transfer document preparation and filing requirements may be waived, all
as to be described in the related Prospectus Supplement.
A typical provision relating to document delivery requirements would
provide that the Sponsor deliver to the Trustee a file consisting of (i) the
original Notes or certified copies thereof, endorsed by the Originator thereof
in blank or to the order of the holder, (ii) originals of all intervening
assignments, showing a complete chain of title from origination to the
applicable Originators, if any, including warehousing assignments, with evidence
of recording thereon, (iii) originals of all assumption and modification
agreements, if any, and, unless such Mortgage Loan is covered by a counsel's
opinion as described in the next paragraph, (iv) either: (a) the original
Mortgage, with evidence of recording thereon, (b) a true and accurate copy of
the Mortgage where the original has been transmitted for recording, until such
time as the original is returned by the public recording office or (c) a copy of
the Mortgage certified by the public recording office in those instances where
the original recorded Mortgage has been lost. To the extent that such a file
containing all or a portion of such items has been delivered to the Trustee, the
Trustee will generally be required, for the benefit of the Securityholders, to
review each such file within a specified period, generally not exceeding 90
days, to ascertain that all required documents (or certified copies of
documents) have been executed and received.
A typical provision relating to the preparation and filing of transfer
documentation would require the Originators to cause to be prepared and
recorded, within a specified period, generally not exceeding 75 business days of
the execution and delivery of the applicable Pooling and Servicing Agreement
(or, if original recording information is unavailable, within such later period
as is permitted by the Pooling and Servicing Agreement) assignments of the
Mortgages from the Originators to the Trustee, in the appropriate jurisdictions
in which such recordation is necessary to perfect the lien thereof as against
creditors of or purchasers from the Originators, to the Trustee; provided,
however, that if the Originators furnish to the Trustee and to the Certificate
Insurer an opinion of counsel to the effect that no such recording is necessary
to perfect the Trustee's interests in the Mortgages with respect to any of the
jurisdictions in which the related Mortgaged Properties are located, then such
recording will not be required with respect to such jurisdictions or at the
election of the Certificate Insurer, any jurisdiction.
Unless otherwise specified in the related Prospectus Supplement, if any
such document is found to be missing or defective in any material respect, the
Trustee (or such custodian) shall promptly so notify the Sponsor, which shall
notify the related Sub-Servicer or Originator, as the case may be. If the
Sub-Servicer or Originator does not cure the omission or defect within a
specified period, generally not exceeding 60 days after notice is given to the
Sponsor, the Sub-Servicer or Originator, as the case may be, will be obligated
to purchase on the next succeeding Remittance Date the related Mortgage Loan
from the Trustee at its Loan Purchase Price (or, if specified in the related
Prospectus Supplement, will be permitted to substitute for such Mortgage Loan
under the conditions specified in the related Prospectus Supplement). The Master
Servicer will be obligated to enforce this obligation of the Sub-Servicer or
Originator, as the case may be, to the extent described above under "Mortgage
Loan Program--Representations by Originators." Unless otherwise specified in the
related Prospectus Supplement, neither the Master Servicer nor the Sponsor will,
however, be obligated to purchase or substitute for such Mortgage Loan if the
Sub-Servicer or Originator, as the case may be, defaults on its obligation to do
so, and there can be no assurance that a Sub-Servicer or Originator, as the case
may be, will carry out any such obligation. Unless otherwise specified in the
related Prospectus Supplement, such purchase obligation constitutes the sole
remedy available to the Securityholders or the Trustee for omission of, or a
material defect in, a constituent document.
The Trustee will be authorized at any time to appoint a custodian
pursuant to a custodial agreement to maintain possession of and, if applicable,
to review the documents relating to the Mortgage Loans as the agent of the
Trustee. The identity of any such custodian to be appointed on the date of
initial issuance of the Securities will be set forth in the related Prospectus
Supplement.
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Pursuant to each Pooling and Servicing Agreement, the Master Servicer,
either directly or through Sub-Servicers, will service and administer the
Mortgage Loans assigned to the Trustee as more fully set forth below.
FORWARD COMMITMENTS; PRE-FUNDING
A Trust may enter into an agreement (each, a "Forward Purchase
Agreement") with the Sponsor whereby the Sponsor will agree to transfer
additional Mortgage Loans to such Trust following the date on which such Trust
is established and the related Securities are issued. The Trust may enter into
Forward Purchase Agreements to permit the acquisition of additional Mortgage
Loans (the "Subsequent Mortgage Loans") that could not be delivered by the
Sponsor or have not formally completed the origination process, in each case
prior to the date on which the Securities are delivered to the Securityholders
(the "Closing Date"). Any Forward Purchase Agreement will require that any
Mortgage Loans so transferred to a Trust conform to the requirements specified
in such Forward Purchase Agreement. In addition, the Forward Purchase Agreement
states that the Depositor shall only transfer the Subsequent Mortgage Loans upon
the satisfaction of certain conditions including that the Depositor shall have
delivered to the Certificate Insurer, the Rating Agencies and the Trustee
opinions of counsel (including bankruptcy, corporate and tax opinions) with
respect to the transfer of the Subsequent Mortgage Loans.
If a Forward Purchase Agreement is to be utilized, and unless otherwise
specified in the related Prospectus Supplement, the related Trustee will be
required to deposit in a segregated account (each, a "Pre-Funding Account") up
to 100% of the net proceeds received by the Trustee in connection with the sale
of one or more classes of Securities of the related series; the additional
Mortgage Loans will be transferred to the related Trust in exchange for money
released to the Sponsor from the related Pre-Funding Account. Each Forward
Purchase Agreement will set a specified period (the "Funding Period") during
which any such transfers must occur; for a Trust which elects federal income
treatment as a REMIC or as a grantor trust, the related Funding Period will be
limited to three months from the date such Trust is established; for a Trust
which is treated as a mere security device for federal income tax purposes, the
related Funding Period will be limited to nine months from the date such Trust
is established. The Forward Purchase Agreement or the related Pooling and
Servicing Agreement will require that, if all monies originally deposited to
such Pre-Funding Account are not so used by the end of the related Funding
Period, then any remaining monies will be applied as a mandatory prepayment of
the related class or classes of Securities as specified in the related
Prospectus Supplement.
During the Funding Period, the monies deposited to the Pre-Funding
Account will either (i) be held uninvested or (ii) will be invested in
cash-equivalent investments that are rated in one of the four highest rating
categories by at least one nationally recognized statistical rating organization
and that will either mature prior to the end of the Funding Period, or will be
drawable on demand and in any event, will not constitute the type of investment
that would require registration of the related Trust as an "investment company"
under the Investment Company Act of 1940, as amended. On payment dates that
occur during the Funding Period, the Trustee will transfer any earnings on the
monies in the Pre-Funding Account to the Certificate Account for distribution to
the Certificateholders.
The Pre-Funding Account will be maintained by the Trustee, which must
be a bank having combined capital and surplus, generally, of at least
$100,000,000, long-term, unsecured debt rated at least investment grade and a
long-term deposit rating of at least investment grade.
PAYMENTS ON MORTGAGE LOANS; DEPOSITS TO DISTRIBUTION ACCOUNT
Each Sub-Servicer servicing a Mortgage Loan pursuant to a Sub-Servicing
Agreement will establish and maintain an account (the "Sub-Servicing Account")
which generally meets the requirements set forth in the Sponsor's Originator
Guide from time to time, and is otherwise acceptable to the Master Servicer. A
Sub-Servicing Account must be established with a Federal Home Loan Bank or with
a depository institution (including the Sub-Servicer itself) whose accounts are
insured by the National Credit Union Share Insurance Fund or the FDIC, provided
that any such depository institution must meet certain minimum rating criteria
set forth in the Sponsor's Originator Guide. Except as otherwise permitted by
the applicable Rating Agencies, a Sub-Servicing Account must be segregated and
may not be established as a general ledger account.
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A Sub-Servicer is required to deposit into its Sub-Servicing Account on
a daily basis all amounts described above under "Mortgage Loan
Program--Sub-Servicing by Originators" that are received by it in respect of the
Mortgage Loans, less its servicing or other compensation. On or before the date
specified in the Sub-Servicing Agreement (which date may be no later than the
business day prior to the Determination Date referred to below or, if such day
is not a business day, the preceding business day), the Sub-Servicer must remit
or cause to be remitted to the Master Servicer all funds held in the
Sub-Servicing Account with respect to Mortgage Loans that are required to be so
remitted. A Sub-Servicer may also be required to make such Servicing Advances
and Delinquency Advances and to pay Compensating Interest as set forth in the
related Sub-Servicing Agreement.
The Master Servicer will deposit or will cause to be deposited into the
Principal and Interest Account on a daily basis certain payments and collections
due and accrued on or after the Cut-Off Date or received and accrued on or after
the Cut-Off Date, as described in the related Prospectus Supplement and, as
specifically set forth in the related Pooling and Servicing Agreement, such as
the following except as otherwise provided therein:
(i) all payments on account of principal, including principal
payments received in advance of the date on which the related monthly
payment is due (the "Due Date") ("Principal Prepayments"), on the
Mortgage Loans comprising a Trust Estate;
(ii) all payments on account of interest on the Mortgage Loans
comprising such Trust Estate, net of the portion of each payment
thereof retained by the Sub-Servicer, if any, as its servicing or other
compensation;
(iii) all amounts received and retained, if any, in connection
with the liquidation of any defaulted Mortgage Loan, by foreclosure,
deed in lieu of foreclosure or otherwise ("Liquidation Proceeds"),
including all proceeds of any special hazard insurance policy,
bankruptcy bond, mortgage pool insurance policy, financial guaranty
insurance policy and any title, hazard or other insurance policy
covering any Mortgage Loan in such Mortgage Pool (together with any
payments under any letter of credit, "Insurance Proceeds") or proceeds
from any alternative arrangements established in lieu of any such
insurance and described in the applicable Prospectus Supplement, other
than proceeds to be applied to the restoration of the related property
or released to the Mortgagor in accordance with the Master Servicer's
normal servicing procedures (such amounts, net of related unreimbursed
liquidation expenses and insured expenses incurred and unreimbursed
advances of the Master Servicer or by the related Sub-Servicer, "Net
Liquidation Proceeds");
(iv) any Buydown Funds (and, if applicable, investment
earnings thereon) required to be paid to Securityholders, as described
below;
(v) all proceeds of any Mortgage Loan in such Trust Estate
purchased (or, in the case of a substitution, certain amounts
representing a principal adjustment) by the Master Servicer, the
Sponsor, any Sub-Servicer or Originator or any other person pursuant to
the terms of the Pooling and Servicing Agreement. See "Mortgage Loan
Program--Representations by Originators," "--Assignment of Mortgage
Loans" above;
(vi) any amounts required to be deposited by the Master
Servicer in connection with losses realized on investments of funds
held in the Principal and Interest Account, as described below;
(vii) any amounts required to be deposited in connection with
the liquidation of the related Trust; and
(viii) any amounts required to be transferred from the
Distribution Account to the Principal and Interest Account.
In addition to the Principal and Interest Account, the Sponsor shall
cause to be established and the Trustee will maintain, at the corporate trust
office of the Trustee, in the name of the Trust for the benefit of the holders
of each series of Securities, an account for the disbursement of payments on the
Mortgage Loans evidenced by each
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series of Securities (the "Distribution Account"). The Principal and Interest
Account and the Distribution Account each must be maintained with a Designated
Depository Institution. A "Designated Depository Institution" is an institution
whose deposits are insured by the Bank Insurance Fund or the Savings Association
Insurance Fund of the FDIC, the long-term deposits of which have a rating
satisfactory to the Rating Agencies and the related Credit Enhancer, if any, and
which is any of the following: (i) a federal savings and loan association duly
organized, validly existing and in good standing under the federal banking laws,
(ii) an institution duly organized, validly existing and in good standing under
the applicable banking laws of any state, (iii) a national banking association
duly organized, validly existing and in good standing under the federal banking
laws, (iv) a principal subsidiary of a bank holding company, or (v) approved in
writing by the related Credit Enhancer, if any, each Rating Agency and, in each
case acting or designated by the Master Servicer as the depository institution
for the Principal and Interest Account; provided, however, that any such
institution or association will generally be required to have combined capital,
surplus and undivided profits of at least $50,000,000. Notwithstanding the
foregoing, the Principal and Interest Account may be held by an institution
otherwise meeting the preceding requirements except that the only applicable
rating requirement shall be that the unsecured and uncollateralized debt
obligations thereof shall be rated at a level satisfactory to one or more Rating
Agencies if such institution has trust powers and the Principal and Interest
Account is held by such institution in its trust capacity and not in its
commercial capacity. The Distribution Account, the Principal and Interest
Account and other accounts described in the related Prospectus Supplement are
collectively referred to as "Accounts." All funds in the Distribution Account
shall be invested and reinvested by the Trustee for the benefit of the
Securityholders and the related Credit Enhancer, if any, as directed by the
Master Servicer, in certain defined obligations set forth in the related Pooling
and Servicing Agreement ("Eligible Investments"). The Principal and Interest
Account may contain funds relating to more than one series of Securities as well
as payments received on other mortgage loans serviced or master serviced by it
that have been deposited into the Principal and Interest Account. All funds in
the Principal and Interest Account will be required to be held (i) uninvested,
up to limits insured by the FDIC or (ii) invested in Eligible Investments. The
Master Servicer will be entitled to any interest or other income or gain
realized with respect to the funds on deposit in the Principal and Interest
Account.
To the extent that the ratings, if any, then assigned to the unsecured
debt of the Master Servicer or of the Master Servicer's corporate parent and
satisfactory to the Rating Agencies, the Master Servicer may be permitted to
co-mingle Mortgage Loan payments and collections with the Master Servicer's
general funds rather than required to deposit such amounts into a segregated
Principal and Interest Account.
Unless otherwise specified in the related Prospectus Supplement, on the
day seven days preceding each Payment Date (the "Remittance Date"), the Master
Servicer will withdraw from the Principal and Interest Account and remit to the
Trustee for deposit in the applicable Distribution Account, in immediately
available funds, the amount to be distributed therefrom to Securityholders on
such Payment Date. The Master Servicer will remit to the Trustee for deposit
into the Distribution Account the amount of any advances made by the Master
Servicer as described herein under "--Advances," any amounts required to be
transferred to the Distribution Account from a Reserve Fund, as described under
"Credit Enhancement" below, any amounts required to be paid by the Master
Servicer out of its own funds due to the operation of a deductible clause in any
blanket policy maintained by the Master Servicer to cover hazard losses on the
Mortgage Loans as described under "Hazard Insurance; Claims Thereunder--Hazard
Insurance Policies" below and any other amounts as specifically set forth in the
related Pooling and Servicing Agreement. The Trustee will cause all payments
received by it from any Credit Enhancer to be deposited in the Distribution
Account not later than the related Payment Date.
Unless otherwise specified in the related Prospectus Supplement, the
portion of any payment received by the Master Servicer in respect of a Mortgage
Loan that is allocable to the Originator's Retained Yield generally will not be
deposited into the Principal and Interest Account, but will not be paid over to
the parties entitled thereto as provided in the related Pooling and Servicing
Agreement.
Funds on deposit in the Principal and Interest Account attributable to
Mortgage Loans underlying a series of Securities may be invested in Eligible
Investments maturing in general not later than the business day preceding the
next Payment Date. Unless otherwise specified in the related Prospectus
Supplement, all income and gain realized from any such investment will be for
the account of the Master Servicer. Funds on deposit in the related Distribution
Account may be invested in Eligible Investments maturing, in general, no later
than the business day preceding the next Payment Date.
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With respect to each Buydown Mortgage Loan, the Sub-Servicer will
deposit the related Buydown Funds provided to it in a Buydown Account that will
comply with the requirements set forth herein with respect to a Sub-Servicing
Account. Unless otherwise specified in the related Prospectus Supplement, the
terms of all Buydown Mortgage Loans provide for the contribution of Buydown
Funds in an amount equal to or exceeding either (i) the total payments to be
made from such funds pursuant to the related buydown plan or (ii) if such
Buydown Funds are to be deposited on a discounted basis, that amount of Buydown
Funds which, together with investment earnings thereon at a rate as set forth in
the Sponsor's Originator Guide from time to time, will support the scheduled
level of payments due under the Buydown Mortgage Loan. Neither the Master
Servicer nor the Sponsor will be obligated to add to any such discounted Buydown
Funds any of its own funds should investment earnings prove insufficient to
maintain the scheduled level of payments. To the extent that any such
insufficiency is not recoverable from the Mortgagor or, in an appropriate case,
from the related Originator or the related Sub-Servicer, distributions to
Securityholders may be affected. With respect to each Buydown Mortgage Loan, the
Sub-Servicer will withdraw from the Buydown Account and remit to the Master
Servicer on or before the date specified in the Sub-Servicing Agreement
described above the amount, if any, of the Buydown Funds (and, if applicable,
investment earnings thereon) for each Buydown Mortgage Loan that, when added to
the amount due from the Mortgagor on such Buydown Mortgage Loan, equals the full
monthly payment which would be due on the Buydown Mortgage Loan if it were not
subject to the buydown plan.
If the Mortgagor on a Buydown Mortgage Loan prepays such Mortgage Loan
in its entirety during the Buydown Period, the Sub-Servicer will withdraw from
the Buydown Account and remit to the Mortgagor or such other designated party in
accordance with the related buydown plan any Buydown Funds remaining in the
Buydown Account. If a prepayment by a Mortgagor during the Buydown Period
together with Buydown Funds will result in full prepayment of a Buydown Mortgage
Loan, the Sub-Servicer will generally be required to withdraw from the Buydown
Account and remit to the Master Servicer the Buydown Funds and investment
earnings thereon, if any, which together with such prepayment will result in a
prepayment in full; provided that Buydown Funds may not be available to cover a
prepayment under certain Mortgage Loan programs. Any Buydown Funds so remitted
to the Master Servicer in connection with a prepayment described in the
preceding sentence will be deemed to reduce the amount that would be required to
be paid by the Mortgagor to repay fully the related Mortgage Loan if the
Mortgage Loan were not subject to the buydown plan. Any investment earnings
remaining in the Buydown Account after prepayment or after termination of the
Buydown Period will be remitted to the related Mortgagor or such other
designated party pursuant to the agreement relating to each Buydown Mortgage
Loan (the "Buydown Agreement"). If the Mortgagor defaults during the Buydown
Period with respect to a Buydown Mortgage Loan and the property securing such
Buydown Mortgage Loan is sold in liquidation (either by the Master Servicer, the
Primary Insurer, the insurer under the mortgage pool insurance policy (the "Pool
Insurer") or any other insurer), the Sub-Servicer will be required to withdraw
from the Buydown Account the Buydown Funds and all investment earnings thereon,
if any, and remit the same to the Master Servicer or, if instructed by the
Master Servicer, pay the same to the primary insurer or the Pool Insurer, as the
case may be, if the Mortgaged Property is transferred to such insurer and such
insurer pays all of the loss incurred in respect of such default.
WITHDRAWALS FROM THE PRINCIPAL AND INTEREST ACCOUNT
The Master Servicer may, from time to time, make withdrawals from the
Principal and Interest Account for certain purposes, as specifically set forth
in the related Pooling and Servicing Agreement, which generally will include the
following except as otherwise provided therein:
(i) to effect the timely remittance to the Trustee for deposit
to the Distribution Account in the amounts and in the manner provided
in the Pooling and Servicing Agreement and described in "--Payments on
Mortgage Loans; Deposits to Distribution Account" above;
(ii) to reimburse itself or any Sub-Servicer for any accrued and
unpaid Servicing Fees and for Delinquency Advances and Servicing
Advances as to any Mortgaged Property, out of late payments or
collections on the related Mortgage Loan, including Liquidation
Proceeds, Insurance Proceeds and such other amounts as may be collected
by the Master Servicer from the related Mortgagor or otherwise relating
to the Mortgage Loan with respect to which such Delinquency Advances or
Servicing Advances were made;
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(iii) to reimburse itself for any Delinquency Advances or
Servicing Advances determined in good faith to have become
Non-Recoverable Advances, such reimbursement to be made from any funds
in the Principal and Interest Account;
(iv) to withdraw investment earnings on amounts on deposit in
the Principal and Interest Account;
(v) to pay the Sponsor or its assignee all amounts allocable
to the Originator's Retained Yield out of collections or payments which
represent interest on each Mortgage Loan (including any Mortgage Loan
as to which title to the underlying Mortgaged Property was acquired);
(vi) to withdraw amounts that have been deposited in the
Principal and Interest Account in error;
(vii) to clear and terminate the Principal and Interest
Account in connection with the termination of the Trust Estate pursuant
to the Pooling and Servicing Agreement, as described in "The Pooling
and Servicing Agreement--Termination, Retirement of Securities"; and
(viii) to invest in Eligible Investments.
DISTRIBUTIONS
Beginning on the Payment Date in the month following the month (or, in
the case of quarterly-pay Securities, the third month following such month and
each third month thereafter or, in the case of semi-annually-pay Securities, the
sixth month following such month and each sixth month thereafter) in which the
Cut-Off Date occurs (or such other date as may be set forth in the related
Prospectus Supplement) for a series of Securities, distributions of principal
and interest (or, where applicable, of principal only or interest only) on each
class of Securities entitled thereto will be made either by the Trustee or a
paying agent appointed by the Trustee (the "Paying Agent"), to the persons who
are registered as Securityholders at the close of business on the Record Date in
proportion to their respective Percentage Interests. Unless otherwise specified
in the related Prospectus Supplement, interest that accrues and is not payable
on a class of Securities will be added to the principal balance of each Security
of such class in proportion to its Percentage Interest. The undivided percentage
interest (the "Percentage Interest") represented by a Security of a particular
class will be equal to the percentage obtained by dividing the initial principal
balance or notional amount of such Security by the aggregate initial amount or
notional balance of all the Securities of such class. Distributions will be made
in immediately available funds (by wire transfer or otherwise) to the account of
a Securityholder at a bank or other entity having appropriate facilities
therefor, if such Securityholder has so notified the Trustee or the Paying
Agent, as the case may be, and the applicable Pooling and Servicing Agreement
provides for such form of payment, or by check mailed to the address of the
person entitled thereto as it appears on the Security Register; provided,
however, that the final distribution in retirement of the Securities (other than
any Book-Entry Securities) will be made only upon presentation and surrender of
the Securities at the office or agency of the Trustee specified in the notice to
Securityholders of such final distribution.
PRINCIPAL AND INTEREST ON THE SECURITIES
The method of determining, and the amount of, distributions of
principal and interest (or, where applicable, of principal only or interest
only) on a particular series of Securities will be described in the related
Prospectus Supplement. Each class of Securities (other than certain classes of
Strip Securities) may bear interest at a different interest rate (the
"Pass-Through Rate"), which may be a fixed or adjustable Pass-Through Rate. The
related Prospectus Supplement will specify the Pass-Through Rate for each class,
or in the case of an adjustable Pass-Through Rate, the initial Pass-Through Rate
and the method for determining the Pass-Through Rate. Unless otherwise specified
in the related Prospectus Supplement, interest on the Securities will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
On each Payment Date for a series of Securities, the Trustee will
distribute or cause the Paying Agent to distribute, as the case may be, to each
holder of record on the Record Date of a class of Securities, an amount equal
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to the Percentage Interest represented by the Security held by such holder
multiplied by such class' Distribution Amount. The Distribution Amount for a
class of Securities for any Payment Date will be the portion, if any, of the
principal distribution amount (as defined in the related Prospectus Supplement)
allocable to such class for such Payment Date, as described in the related
Prospectus Supplement, plus, if such class is entitled to payments of interest
on such Payment Date, the interest accrued at the applicable Pass-Through Rate
on the principal balance or notional amount of such class, as specified in the
applicable Prospectus Supplement, less (unless otherwise specified in the
Prospectus Supplement) the amount of any Deferred Interest added to the
principal balance of the Mortgage Loans and/or the outstanding balance of one or
more classes of Securities on the related Due Date and any other interest
shortfalls allocable to Securityholders which are not covered by advances or the
applicable Credit Enhancement, in each case in such amount that is allocated to
such class on the basis set forth in the Prospectus Supplement.
As may be described in the related Prospectus Supplement, the related
Pooling and Servicing Agreement may provide that all or a portion of the
principal collected on or with respect to the related Mortgage Loans may be
applied by the related Trustee to the acquisition of additional Mortgage Loans
during a specified period (rather than used to fund payments of principal to
Securityholders during such period) with the result that the related securities
will possess an interest-only period, also commonly referred to as a revolving
period, which will be followed by an amortization period. Any such interest-only
or revolving period may, upon the occurrence of certain events to be described
in the related Prospectus Supplement, terminate prior to the end of the
specified period and result in the earlier than expected amortization of the
related Securities.
In addition, and as may be described in the related Prospectus
Supplement, the related Pooling and Servicing Agreement may provide that all or
a portion of such collected principal may be retained by the Trustee (and held
in certain temporary investments, including Mortgage Loans) for a specified
period prior to being used to fund payments of principal to Securityholders.
In the case of a series of Securities that includes two or more classes
of Securities, the timing, sequential order, priority of payment or amount of
distributions in respect of principal, and any schedule or formula or other
provisions applicable to the determination thereof (including distributions
among multiple classes of Senior Securities or Subordinate Securities) of each
such class shall be as provided in the related Prospectus Supplement.
Distributions in respect of principal of any class of Securities will be made on
a pro rata basis among all of the Securities of such class.
Except as otherwise provided in the related Pooling and Servicing
Agreement, on or prior to the third business day next preceding the Payment Date
(or such earlier day as shall be agreed by the related Credit Enhancer, if any,
and the Trustee) of the month of distribution (the "Determination Date"), the
Trustee will determine the amounts of principal and interest which will be
passed through to Securityholders on the immediately succeeding Payment Date. If
the amount in the Distribution Account is insufficient to cover the amount to be
passed through to Securityholders, the Trustee will be required to notify the
related Credit Enhancer, if any, pursuant to the related Pooling and Servicing
Agreement for the purpose of funding such deficiency.
ADVANCES
Unless otherwise specified in the related Prospectus Supplement, each
Servicer will be required, not later than each Remittance Date, to deposit into
the Principal and Interest Account an amount equal to the sum of the interest
portions (net of the Servicing Fees and the Originators' Retained Yield) due,
but not collected, with respect to delinquent Mortgage Loans directly serviced
by such Servicer during the prior Remittance Period, but only if, in its good
faith business judgment, such Servicer believes that such amount will ultimately
be recovered from the related Mortgage Loan. As may be described in the related
Prospectus Supplement, such Servicer may also be required so to advance
delinquent payments of principal. Any such amounts so advanced are "Delinquency
Advances". The Master Servicer will be permitted to fund its payment of
Delinquency Advances on any Remittance Date from collections on any Mortgage
Loan deposited to the Principal and Interest Account subsequent to the related
Remittance Period, and will be required to deposit into the Principal and
Interest Account with respect thereto (i) collections from the Mortgagor whose
delinquency gave rise to the shortfall which resulted in such Delinquency
Advance and (ii) Net Liquidation Proceeds recovered on account of the related
Mortgage Loan to the extent of the
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amount of aggregate Delinquency Advances related thereto. A Sub-Servicer will be
permitted to fund its payment of Delinquency Advances as set forth in the
related Sub-Servicing Agreement.
A Mortgage Loan is "delinquent" if any payment due thereon is not made
by the close of business on the day such payment is scheduled to be due plus any
applicable grace period.
Unless otherwise specified in the related Prospectus Supplement, on or
prior to each Remittance Date, each Servicer will be required to deposit in the
Principal and Interest Account with respect to any full prepayment received on a
Mortgage Loan directly serviced by such Servicer during the related Remittance
Period out of its own funds without any right of reimbursement therefor, an
amount equal to the difference between (x) 30 days' interest at the Mortgage
Loan's Mortgage Rate (less the related Base Servicing Fees and the Originators'
Retained Yield, if any) on the principal balance of such Mortgage Loan as of the
first day of the related Remittance Period and (y) to the extent not previously
advanced, the interest (less the Servicing Fee and the Originators' Retained
Yield, if any) paid by the Mortgagor with respect to the Mortgage Loan during
such Remittance Period (any such amount paid by such Servicer, "Compensating
Interest"). No Servicer shall be required to pay Compensating Interest with
respect to any Remittance Period in an amount in excess of the aggregate related
Base Servicing Fees received by such Servicer with respect to all Mortgage Loans
directly serviced by such Servicer for such Remittance Period.
Each Servicer will be required to pay all "out of pocket" costs and
expenses incurred in the performance of its servicing obligations, but only to
the extent that such Servicer reasonably believes that such amounts will
increase Net Liquidation Proceeds on the related Mortgage Loan. Each such amount
so paid will constitute a "Servicing Advance". Such Servicer may recover
Servicing Advances to the extent permitted by the Mortgage Loans or, if not
theretofore recovered from the Mortgagor on whose behalf such Servicing Advance
was made, from Liquidation Proceeds realized upon the liquidation of the related
Mortgage Loan or, in certain cases, from excess cash flow otherwise payable to
the holders of the related Equity Securities or prior to any distributions being
made to the related Securityholders.
Notwithstanding the foregoing, if the Master Servicer exercises its
option, if any, to purchase the assets of a Trust Estate as described under "The
Pooling and Servicing Agreement--Termination; Retirement of Securities" below,
the Master Servicer will net from the purchase price of such amounts for all
related advances previously made by it and not theretofore reimbursed to it. The
Master Servicer's obligation to make advances may be supported by Credit
Enhancement as described in the related Pooling and Servicing Agreement. In the
event that the provider of such support is downgraded by a Rating Agency rating
the related Securities or if the collateral supporting such obligation is not
performing or is removed pursuant to the terms of any agreement described in the
related Prospectus Supplement, the Securities may also be downgraded.
REPORTS TO SECURITYHOLDERS
With each distribution to Securityholders of a particular class the
Trustee will forward or cause to be forwarded to each holder of record of such
class of Securities a statement or statements with respect to the related Trust
setting forth the information specifically described in the related Pooling and
Servicing Agreement, which generally will include the following as applicable
except as otherwise provided therein:
(i) the amount of the distribution with respect to each class
of Securities;
(ii) the amount of such distribution allocable to principal,
separately identifying the aggregate amount of any prepayments or other
recoveries of principal included therein;
(iii) the amount of such distribution allocable to interest;
(iv) the aggregate unpaid Principal Balance of the Mortgage
Loans after giving effect to the distribution of principal on such
Payment Date;
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(v) with respect to a series consisting of two or more
classes, the outstanding principal balance or notional amount of each
class after giving effect to the distribution of principal on such
Payment Date;
(vi) the amount of coverage under any letter of credit,
mortgage pool insurance policy or other form of Credit Enhancement
covering default risk as of the close of business on the applicable
Determination Date and a description of any Credit Enhancement
substituted therefor;
(vii) information furnished by the Sponsor pursuant to section
6049(d)(7)(C) of the Code and the regulations promulgated thereunder to
assist Securityholders in computing their market discount;
(viii) the total of any Substitution Amounts and any Loan
Purchase Price amounts included in such distribution; and
(ix) a number with respect to each class (the "Pool Factor")
computed by dividing the principal balance of all Securities in such
class (after giving effect to any distribution of principal to be made
on such Payment Date) by the original principal balance of the
Securities of such class on the Closing Date.
Items (i) through (iii) above shall, with respect to each class of
Securities, be presented on the basis of a certificate having a $1,000
denomination. In addition, by January 31 of each calendar year during which
Securities are outstanding, the Trustee shall furnish a report to each
Securityholder at any time during each calendar year as to the aggregate amounts
reported pursuant to (i), (ii) and (iii) with respect to the Securities for such
calendar year. If a class of Securities are in book-entry form, DTC will supply
such reports to the Securityholders in accordance with its procedures.
In addition, on each Payment Date the Trustee will forward or cause to
be forwarded additional information, as of the close of business on the last day
of the prior calendar month, as more specifically described in the related
Pooling and Servicing Agreement, which generally will include the following as
applicable except as otherwise provided therein:
(i) the total number of Mortgage Loans and the aggregate
principal balances thereof, together with the number, percentage (based
on the then-outstanding principal balances) and aggregate principal
balances of Mortgage Loans (a) 30-59 days delinquent, (b) 60-89 days
delinquent and (c) 90 or more days delinquent;
(ii) the number, percentage (based on the then-outstanding
principal balances), aggregate Mortgage Loan balances and status of all
Mortgage Loans in foreclosure proceedings (and whether any such
Mortgage Loans are also included in any of the statistics described in
the foregoing clause (i));
(iii) the number, percentage (based on the then-outstanding
principal balances) and aggregate Mortgage Loan balances of all
Mortgage Loans relating to Mortgagors in bankruptcy proceedings (and
whether any such Mortgage Loans are also included in any of the
statistics described in the foregoing clause (i));
(iv) the number, percentage (based on the then-outstanding
principal balances) and aggregate Mortgage Loan balances of all
Mortgage Loans relating to the status of any Mortgaged Properties as to
which title has been taken in the name of, or on behalf of the Trustee
(and whether any such Mortgage Loans are also included in any of the
statistics described in the foregoing clause (i)); and
(v) the book value of any real estate acquired through
foreclosure or grant of a deed in lieu of foreclosure.
COLLECTION AND OTHER SERVICING PROCEDURES
Acting directly or through one or more Sub-Servicers as provided in the
related Pooling and Servicing Agreement, the Master Servicer, is required to
service and administer the Mortgage Loans in accordance with the
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Pooling and Servicing Agreement and with reasonable care, and using that degree
of skill and attention that the Master Servicer exercises with respect to
comparable mortgage loans that it services for itself or others.
The duties of the Master Servicer include collecting and posting of all
payments, responding to inquiries of Mortgagors or by federal, state or local
government authorities with respect to the Mortgage Loans, investigating
delinquencies, reporting tax information to Mortgagors in accordance with its
customary practices and accounting for collections and furnishing monthly and
annual statements to the Trustee with respect to distributions and making
Delinquency Advances and Servicing Advances to the extent described in the
related Pooling and Servicing Agreement. The Master Servicer is required to
follow its customary standards, policies and procedures in performing its duties
as Master Servicer.
The Master Servicer (i) is authorized and empowered to execute and
deliver, on behalf of itself, the Securityholders and the Trustee or any of
them, any and all instruments of satisfaction or cancellation, or of partial or
full release or discharge and all other comparable instruments, with respect to
the Mortgage Loans and with respect to the related Mortgaged Properties; (ii)
may consent to any modification of the terms of any Note not expressly
prohibited by the Pooling and Servicing Agreement if the effect of any such
modification (x) will not materially and adversely affect the security afforded
by the related Mortgaged Property or the timing of receipt of any payments
required thereunder (in each case other than as permitted by the related Pooling
and Servicing Agreement); and (y) will not cause a Trust which is a REMIC to
fail to qualify as a REMIC.
The related Pooling and Servicing Agreement will require the Master
Servicer to follow such collection procedures as it follows from time to time
with respect to mortgage loans in its servicing portfolio that are comparable to
the Mortgage Loans; provided that the Master Servicer is required always at
least to follow collection procedures that are consistent with or better than
standard industry practices. The Master Servicer may in its discretion (i) waive
any assumption fees, late payment charges, charges for checks returned for
insufficient funds, prepayment fees, if any, or the fees which may be collected
in the ordinary course of servicing the Mortgage Loans, (ii) if a Mortgagor is
in default or about to be in default because of a Mortgagor's financial
condition, arrange with the Mortgagor a schedule for the payment of delinquent
payments due on the related Mortgage Loan; provided, however, the Master
Servicer shall generally not be permitted to reschedule the payment of
delinquent payments more than one time in any twelve consecutive months with
respect to any Mortgagor or (iii) modify payments of monthly principal and
interest on any Mortgage Loan becoming subject to the terms of the Relief Act in
accordance with the Master Servicer's general policies of the comparable
mortgage loans subject to such Relief Act.
When a Mortgaged Property (other than Mortgaged Property subject to an
ARM Loan) has been or is about to be conveyed by the Mortgagor, the Master
Servicer will be required, to the extent it has knowledge of such conveyance or
prospective conveyance, to exercise its rights to accelerate the maturity of the
related Mortgage Loan under any "due-on-sale" clause contained in the related
Mortgage or Note; provided, however, that the Master Servicer will not be
required to exercise any such right if (i) the "due-on-sale" clause, in the
reasonable belief of the Master Servicer, is not enforceable under applicable
law or (ii) the Master Servicer reasonably believes that to permit an assumption
of the Mortgage Loan would not materially and adversely affect the interests of
Securityholders or the related Credit Enhancer or jeopardize coverage under any
primary insurance policy or applicable Credit Enhancement arrangements. In such
event, the Master Servicer will be required to enter into an assumption and
modification agreement with the person to whom such Mortgaged Property has been
or is about to be conveyed, pursuant to which such person becomes liable under
the Mortgage Note and, unless prohibited by applicable law or the related
documents, the Mortgagor remains liable thereon. If the foregoing is not
permitted under applicable law, the Master Servicer will be authorized to enter
into a substitution of liability agreement with such person, pursuant to which
the original Mortgagor is released from liability and such person is substituted
as Mortgagor and becomes liable under the Mortgage Note. The assumed loan must
conform in all respects to the requirements, representations and warranties of
the Pooling and Servicing Agreement.
An ARM Loan may be assumed if such ARM Loan is by its terms assumable
and if, in the reasonable judgment of the Master Servicer or the Sub-Servicer,
the proposed transferee of the related Mortgaged Property establishes its
ability to repay the loan and the security for such ARM Loan would not be
impaired by the assumption. If a Mortgagor transfers the Mortgaged Property
subject to an ARM Loan without consent, such ARM Loan may be declared due and
payable. Any fee collected by the Master Servicer or Sub-Servicer for entering
into
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an assumption or substitution of liability agreement will be retained by the
Master Servicer or Sub-Servicer as additional servicing compensation unless
otherwise set forth in the related Prospectus Supplement. See "Certain Legal
Aspects of Mortgage Loans and Related Matters--Enforceability of Certain
Provisions" herein.
The Master Servicer will have the right under the Pooling and Servicing
Agreement to approve applications of Mortgagors seeking consent for (i) partial
releases of Mortgages, (ii) alterations and (iii) removal, demolition or
division of Mortgaged Properties. No application for consent may be approved by
the Master Servicer unless: (i) the provisions of the related Mortgage Note and
Mortgage have been complied with; (ii) the credit profile of the related
Mortgage Loan after any release is consistent with the Sponsor's Originator
Guide then applicable to such Mortgage Loan; and (iii) the lien priority of the
related Mortgage is not reduced.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
The Master Servicer shall foreclose upon or otherwise comparably effect
the ownership of Mortgaged Properties relating to defaulted Mortgage Loans as to
which no satisfactory arrangements can be made for collection of delinquent
payments and which the Master Servicer has not purchased pursuant to the related
Pooling and Servicing Agreement (such Mortgage Loans, "REO Property"). In
connection with such foreclosure or other conversion, the Master Servicer shall
exercise such of the rights and powers vested in it, and use the same degree of
care and skill in their exercise or use, as prudent mortgage lenders would
exercise or use under the circumstances in the conduct of their own affairs,
including, but not limited to, making Servicing Advances for the payment of
taxes, amounts due with respect to Senior Liens, and insurance premiums. Unless
otherwise provided in the related Prospectus Supplement, the Master Servicer
shall sell any REO Property within 23 months of its acquisition by the Trust.
The Pooling and Servicing Agreements generally will permit the Master Servicer
to cease further collection and foreclosure activity if the Master Servicer
reasonably determines that such further activity would not increase collections
or recoveries to be received by the related Trust with respect to the related
Mortgage Loan. In addition, any required advancing may be permitted to cease at
this point.
Notwithstanding the generality of the foregoing provisions, the Master
Servicer will be required to manage, conserve, protect and operate each REO
Property for the Securityholders solely for the purpose of its prompt
disposition and sale as "foreclosure property" within the meaning of Section
860G(a)(8) of the Code or to prevent the receipt by the Trust of any "income
from non-permitted assets" within the meaning of Section 860F(a)(2)(B) of the
Code or any "net income from foreclosure property" which is subject to taxation
under the REMIC Provisions. Pursuant to its efforts to sell such REO Property,
the Master Servicer shall either itself or through an agent selected by the
Master Servicer protect and conserve such REO Property in the same manner and to
such extent as is customary in the locality where such REO Property is located
and may, incident to its conservation and protection of the interests of the
Securityholders, rent the same, or any part thereof, as the Master Servicer
deems to be in the best interest of the Securityholders for the period prior to
the sale of such REO Property. The Master Servicer shall take into account the
existence of any hazardous substances, hazardous wastes or solid wastes, as such
terms are defined in the Comprehensive Environmental Response Compensation and
Liability Act, the Resource Conservation and Recovery Act of 1976, or other
federal, state or local environmental legislation, on a Mortgaged Property in
determining whether to foreclose upon or otherwise comparably convert the
ownership of such Mortgaged Property.
The Master Servicer shall determine, with respect to each defaulted
Mortgage Loan, when it has recovered, whether through trustee's sale,
foreclosure sale or otherwise, all amounts it expects to recover from or on
account of such defaulted Mortgage Loan, whereupon such Mortgage Loan shall
become a Liquidated Mortgage Loan. A Mortgage Loan which is "charged-off", i.e.,
as to which the Master Servicer ceases further collection and/or foreclosure
activity as a result of a determination that such further actions will not
increase collections or recoveries to be received by the related Trust is also a
"Liquidated Mortgage Loan."
If a loss is realized on a defaulted Mortgage Loan or REO Property upon
the final liquidation thereof that is not covered by any applicable form of
Credit Enhancement or other insurance, the Securityholders will bear such loss.
However, if a gain results from the final liquidation of an REO Property that is
not required by law to be remitted to the related Mortgagor, the Master Servicer
will be entitled to retain such gain as additional servicing compensation unless
the related Prospectus Supplement provides otherwise. For a description of the
Master Servicer's obligations to maintain and make claims under applicable forms
of Credit Enhancement and insurance relating to
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the Mortgage Loans, see "Description of Credit Enhancement" and "Hazard
Insurance; Claims Thereunder; Hazard Insurance Policies."
SUBORDINATION
A Senior/Subordinate Series of Securities will consist of one or more
classes of Senior Securities and one or more classes of Subordinate Securities,
as specified in the related Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, only the Senior Securities will be offered
hereby. Subordination of the Subordinate Securities of any Senior/Subordinate
Series of Securities will be effected by the following method, unless an
alternative method is specified in the related Prospectus Supplement. In
addition, certain classes of Senior (or Subordinate) Securities may be senior to
other classes of Senior (or Subordinate) Securities, as specified in the related
Prospectus Supplement, in which case the following discussion is qualified in
its entirety by reference to the related Prospectus Supplement with respect to
the various priorities and other rights as among the various classes of Senior
Securities or Subordinate Securities, as the case may be.
With respect to any Senior/Subordinate Series of Securities, the total
amount available for distribution on each Payment Date, as well as the method
for allocating such amount among the various classes of Securities included in
such series, will be as set forth in the related Prospectus Supplement.
Generally, the amount available for contribution will be allocated first to
interest on the Senior Securities of such series, and then to principal of the
Senior Securities up to the amounts determined as specified in the related
Prospectus Supplement, prior to allocation to the Subordinate Securities of such
series.
In the event of any Realized Losses (as defined below) on Mortgage Loans
not in excess of the limitations described below, other than Extraordinary
Losses, the rights of the Subordinate Securityholders to receive distributions
with respect to the Mortgage Loans will be subordinate to the rights of the
Senior Securityholders. With respect to any defaulted Mortgage Loan that becomes
a Liquidated Mortgage Loan, through foreclosure sale, disposition of the related
Mortgaged Property if acquired by deed in lieu of foreclosure, "charged-off" or
otherwise, the amount of loss realized, if any (as more fully described in the
related Pooling and Servicing Agreement, a "Realized Loss"), will equal the
portion of the stated principal balance remaining, after application of all
amounts recovered (net of amounts reimbursable to the Master Servicer for
related advances and expenses) towards interest and principal owing on the
Mortgage Loan. With respect to a Mortgage Loan the principal balance of which
has been reduced in connection with bankruptcy proceedings, the amount of such
reduction will be treated as a Realized Loss.
Except as noted below, all Realized Losses will be allocated to the
Subordinate Securities of the related series, until the Principal Balance (as
defined in the related Prospectus Supplement) of such Subordinate Securities
thereof has been reduced to zero. Any additional Realized Losses will be
allocated to the Senior Securities (or, if such series includes more than one
class of Senior Securities, either on a pro-rata basis among all of the Senior
Securities in proportion to their respective outstanding Principal Balances or
as otherwise provided in the related Prospectus Supplement).
With respect to certain Realized Losses resulting from physical damage to
Mortgaged Properties that are generally of the same type as are covered under a
special hazard insurance policy, the amount thereof that may be allocated to the
Subordinate Securities of the related series may be limited to an amount (the
"Special Hazard Amount") specified in the related Prospectus Supplement. See
"Description of Credit Enhancement--Special Hazard Insurance Policies." If so,
any Special Hazard Losses in excess of the Special Hazard Amount will be
allocated among all outstanding classes of Securities of the related series,
either on a pro-rata basis in proportion to their outstanding Security Principal
Balances, regardless of whether any Subordinate Securities remain outstanding,
or as otherwise provided in the related Prospectus Supplement. The respective
amounts of other specified types of losses (including Fraud Losses and
Bankruptcy Losses) that may be borne solely by the Subordinate Securities may be
similarly limited to an amount (with respect to Fraud Losses, the "Fraud Loss
Amount" and with respect to Bankruptcy Losses, the "Bankruptcy Loss Amount"),
and the Subordinate Securities may provide no coverage with respect to certain
other specified types of losses, as described in the related Prospectus
Supplement, in which case such losses would be allocated on a pro-rata basis
among all outstanding classes of Securities.
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Any allocation of a Realized Loss (including a Special Hazard Loss) to a
Security in a Senior/Subordinate Series will be made by reducing the Security
Principal Balance thereof as of the Payment Date following the calendar month in
which such Realized Loss was incurred.
In lieu of the foregoing provisions, subordination may be effected in the
following manner, or in any other manner described in the related Prospectus
Supplement. The rights of the holders of Subordinate Securities to receive any
or a specified portion of distributions with respect to the Mortgage Loans may
be subordinated to the extent of the amount set forth in the related Prospectus
Supplement (the "Subordinate Amount"). As specified in the related Prospectus
Supplement, the Subordinate Amount may be subject to reduction based upon the
amount of losses borne by the holders of the Subordinate Securities as a result
of such subordination, a specified schedule or such other method of reduction as
such Prospectus Supplement may specify. If so specified in the related
Prospectus Supplement, additional credit support for this form of subordination
may be provided by the establishment of a reserve fund for the benefit of the
holders of the Senior Securities (which may, if such Prospectus Supplement so
provides, initially be funded by a cash deposit by the Originator) into which
certain distributions otherwise allocable to the holders of the Subordinate
Securities may be placed; such funds would thereafter be available to cure
shortfalls in distributions to holders of the Senior Securities.
DESCRIPTION OF CREDIT ENHANCEMENT
Unless otherwise expressly provided and described in the applicable
Prospectus Supplement, each series of Securities shall have credit support
(referred to herein as "Credit Enhancement") comprised of one or more of the
following components. Each component will have a monetary limit and will provide
coverage with respect to Realized Losses that are (i) attributable to the
Mortgagor's failure to make any payment of principal or interest as required
under the Mortgage Note, but not including Special Hazard Losses, Extraordinary
Losses or other losses resulting from damage to a Mortgaged Property, Bankruptcy
Losses or Fraud Losses (any such loss, a "Defaulted Mortgage Loss"); (ii) of a
type generally covered by a special hazard insurance policy (as defined below)
(any such loss, a "Special Hazard Loss"); (iii) attributable to certain actions
which may be taken by a bankruptcy court in connection with a Mortgage Loan,
including a reduction by a bankruptcy court of the principal balance of or the
Mortgage Rate on a Mortgage Loan or an extension of its maturity (any such loss,
a "Bankruptcy Loss"); and (iv) incurred on defaulted Mortgage Loans as to which
there was fraud in the origination of such Mortgage Loans (any such loss, a
"Fraud Loss"). Losses occasioned by war, civil insurrection, certain
governmental actions, nuclear reaction and certain other risks ("Extraordinary
Losses") will not be covered unless otherwise specified. To the extent that the
Credit Enhancement for any series of Securities is exhausted, the
Securityholders will bear all further risks of loss not otherwise insured
against.
As set forth below and in the applicable Prospectus Supplement, Credit
Enhancement may be provided with respect to one or more classes of a series of
Securities or with respect to the Mortgage Assets in the related Trust. Credit
Enhancement may be in the form of (i) the subordination of one or more classes
of Subordinate Securities to provide credit support to one or more classes of
Senior Securities as described under "Subordination," (ii) the use of a mortgage
pool insurance policy, special hazard insurance policy, bankruptcy bond, reserve
fund, letter of credit, financial guaranty insurance policy, other third party
guarantees, another method of Credit Enhancement described in the related
Prospectus Supplement, or the use of a cross-support feature or
overcollateralization, or (iii) any combination of the foregoing. Unless
otherwise specified in the Prospectus Supplement, any Credit Enhancement will
not provide protection against all risks of loss and will not guarantee
repayment of the entire principal balance of the Securities and interest
thereon. If losses occur that exceed the amount covered by Credit Enhancement or
are not covered by the Credit Enhancement, holders of one or more classes of
Securities will bear their allocable share of deficiencies. If a form of Credit
Enhancement applies to several classes of Securities, and if principal payments
equal to the aggregate principal balances of certain classes will be distributed
prior to such distributions to the classes, the classes that receive such
distributions at a later time are more likely to bear any losses that exceed the
amount covered by Credit Enhancement.
The amounts and type of Credit Enhancement arrangement as well as the
provider thereof, if applicable, with respect to each series of Securities will
be set forth in the related Prospectus Supplement. To the extent provided in the
applicable Prospectus Supplement and the Pooling and Servicing Agreement, the
Credit Enhancement arrangements may be periodically modified, reduced and
substituted for based on the aggregate outstanding principal
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balance of the Mortgage Loans covered thereby. See "Description of Credit
Enhancement--Reduction or Substitution of Credit Enhancement." If specified in
the applicable Prospectus Supplement, Credit Enhancement for a series of
Securities may cover one or more other series of Securities.
The descriptions of any insurance policies or bonds described in this
Prospectus or any Prospectus Supplement and the coverage thereunder do not
purport to be complete and are qualified in their entirety by reference to the
actual forms of such policies, copies of which are available upon request.
Letter of Credit. If any component of Credit Enhancement as to any series
of Securities is to be provided by a letter of credit (the "Letter of Credit"),
a bank (the "Letter of Credit Bank") will deliver to the Trustee an irrevocable
Letter of Credit. The Letter of Credit may provide direct coverage with respect
to the related Securities or, if specified in the related Prospectus Supplement,
support the Sponsor's or any other person's obligation pursuant to a Purchase
Obligation to make certain payments to the Trustee with respect to one or more
components of Credit Enhancement. The Letter of Credit Bank, as well as the
amount available under the Letter of Credit with respect to each component of
Credit Enhancement, will be specified in the applicable Prospectus Supplement.
The Letter of Credit will expire on the expiration date set forth in the related
Prospectus Supplement, unless earlier terminated or extended in accordance with
its terms. On or before each Payment Date, either the Letter of Credit Bank or
the Trustee (or other obligor under a Purchase Obligation) will be required to
make the payments specified in the related Prospectus Supplement after
notification from the Trustee, to be deposited in the related Distribution
Account, if and to the extent covered, under the applicable Letter of Credit.
Mortgage Pool Insurance Policies. Any mortgage pool insurance policy
("Mortgage Pool Insurance Policy") obtained by the Sponsor for each related
Trust Estate will be issued by the Pool Insurer named in the related Prospectus
Supplement. Each Mortgage Pool Insurance Policy will, subject to limitations
specified in the related Prospectus Supplement described below, cover Defaulted
Mortgage Losses in an amount equal to a percentage specified in the related
Prospectus Supplement (or in a Current Report on Form 8-K) of the aggregate
principal balance of the Mortgage Loans on the Cut-Off Date. As set forth under
"Maintenance of Credit Enhancement," the Master Servicer will use reasonable
efforts to maintain the Mortgage Pool Insurance Policy and to present claims
thereunder to the Pool Insurer on behalf of itself, the Trustee and the
Securityholders. The Mortgage Pool Insurance Policies, however, are not blanket
policies against loss (typically, such policies do not cover Special Hazard
Losses, Fraud Losses and Bankruptcy Losses), since claims thereunder may only be
made respecting particular defaulted Mortgage Loans and only upon satisfaction
of certain conditions precedent described below due to a failure to pay
irrespective of the reason therefor.
Special Hazard Insurance Policies. Any insurance policy covering Special
Hazard Losses (a "Special Hazard Insurance Policy") obtained by the Sponsor for
a Trust Estate will be issued by the insurer named in the related Prospectus
Supplement. Each Special Hazard Insurance Policy will, subject to limitations
described in the related Prospectus Supplement, protect holders of the related
series of Securities from (i) losses due to direct physical damage to a
Mortgaged Property other than any loss of a type covered by a hazard insurance
policy or a flood insurance policy, if applicable, and (ii) losses from partial
damage caused by reason of the application of the co-insurance clauses contained
in hazard insurance policies. See "Hazard Insurance; Claims Thereunder." A
Special Hazard Insurance Policy will not cover Extraordinary Losses. Aggregate
claims under a Special Hazard Insurance Policy will be limited to a maximum
amount of coverage, as set forth in the related Prospectus Supplement or in a
Current Report on Form 8-K. A Special Hazard Insurance Policy will provide that
no claim may be paid unless hazard and, if applicable, flood insurance on the
Mortgaged Property securing the Mortgage Loan has been kept in force and other
protection and preservation expenses have been paid by the Master Servicer.
Subject to the foregoing limitations, in general a Special Hazard
Insurance Policy will provide that, where there has been damage to property
securing a foreclosed Mortgage Loan (title to which has been acquired by the
insured) and to the extent such damage is not covered by the hazard insurance
policy or flood insurance policy, if any, maintained by the Mortgagor or the
Master Servicer or the Sub-Servicer, the insurer will pay the lesser of (i) the
cost of repair or replacement of such property or (ii) up on transfer of the
property to the insurer, the unpaid principal balance of such Mortgage Loan at
the time of acquisition of such property by foreclosure or deed in lieu of
foreclosure, plus accrued interest at the Mortgage Rate to the date of claim
settlement and certain expenses incurred by the Master Servicer or the
Sub-Servicer with respect to such property. If the property is transferred to
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a third party in a sale approved by the issuer of the Special Hazard Insurance
Policy (the "Special Hazard Insurer"), the amount that the Special Hazard
Insurer will pay will be the amount under (ii) above reduced by the net proceeds
of the sale of the property.
As indicated under "Description of the Securities--Assignment of Mortgage
Loans" above and to the extent set forth in the related Prospectus Supplement,
coverage in respect of Special Hazard Losses for a series of Securities may be
provided, in whole or in part by a type of special hazard instrument other than
a Special Hazard Insurance Policy or by means of the special hazard
representation of the Sponsor.
Bankruptcy Bonds. In the event of a personal bankruptcy of a Mortgagor, it
is possible that the bankruptcy court may establish the value of the Mortgaged
Property of such Mortgagor at an amount less than the then-outstanding,
principal balance of the Mortgage Loan secured by such Mortgaged Property (a
"Deficient Valuation"). The amount of the secured debt then could be reduced to
such value, and, thus, the holder of such Mortgage Loan would become an
unsecured creditor to the extent the outstanding principal balance of such
Mortgage Loan exceeds the value assigned to the Mortgaged Property by the
bankruptcy court. In addition, certain other modifications of the terms of a
Mortgage Loan can result from a bankruptcy proceeding, including a reduction in
the amount of the monthly payment on the related Mortgage Loan or a reduction in
the mortgage interest rate (a "Debt Service Reduction"; Debt Service Reductions
and Deficient Valuations, collectively referred to herein as "Bankruptcy
Losses"). See "Certain Legal Aspects of Mortgage Loans and Related
Matters--Anti-Deficiency Legislation and Other Limitations on Lenders." Any
bankruptcy bond ("Bankruptcy Bond") to provide coverage for Bankruptcy Losses
for proceedings under the federal Bankruptcy Code obtained by the Sponsor for a
Trust Estate will be issued by an insurer named in the related Prospectus
Supplement. The level of coverage under each Bankruptcy Bond will be set forth
in the applicable Prospectus Supplement or in a Current Report on Form 8-K.
Reserve Funds. If so provided in the related Prospectus Supplement, the
Sponsor will deposit or cause to be deposited in an account (a "Reserve Fund")
any combination of cash, one or more irrevocable letters of credit or one or
more Eligible Investments in specified amounts, amounts otherwise distributable
to Subordinate Securityholders or the owners of any Originator's Retained Yield,
or any other instrument satisfactory to the Rating Agency or Agencies, which
will be applied and maintained in the manner and under the conditions specified
in such Prospectus Supplement. In the alternate or in addition to such deposit
to the extent described in the related Prospectus Supplement, a Reserve Fund may
be funded through application of all or a portion of amounts otherwise payable
on any related Subordinate Securities from the Originator's Retained Yield or
otherwise. In addition, with respect to any series of Securities as to which
Credit Enhancement includes a Letter of Credit, if so specified in the related
Prospectus Supplement, under certain circumstances the remaining amount of the
Letter of Credit may be drawn by the Trustee and deposited in a Reserve Fund.
Amounts in a Reserve Fund may be distributed to Securityholders, or applied to
reimburse the Master Servicer for outstanding advances or may be used for other
purposes, in the manner and to the extent specified in the related Prospectus
Supplement. A Trust Estate may contain more than one Reserve Fund, each of which
may apply only to a specified class of Securities or to specified Mortgage
Assets.
Financial Guaranty Insurance Policies. If so specified in the related
Prospectus Supplement, a financial guaranty insurance policy or surety bond
("Financial Guaranty Insurance Policy") may be obtained and maintained for each
class or series of Securities. The issuer of any Financial Guaranty Insurance
Policy (a "Financial Guaranty Insurer") will be described in the related
Prospectus Supplement. A copy of any such Financial Guaranty Insurance Policy
will be attached as an exhibit to the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, a
Financial Guaranty Insurance Policy will unconditionally and irrevocably
guarantee to Securityholders that an amount equal to each full and complete
insured payment will be received by an agent of the Trustee (an "Insurance
Paying Agent") on behalf of Securityholders, for distribution by the Trustee to
each Securityholder. The "insured payment" will be defined in the related
Prospectus Supplement, and will generally equal the full amount of the
distributions of principal and interest to which Securityholders are entitled
under the related Pooling and Servicing Agreement plus any other amounts
specified therein or in the related Prospectus Supplement (the "Insured
Payment").
Financial Guaranty Insurance Policies may apply only to certain specified
classes, or may apply at the Mortgage Asset level and only to specified Mortgage
Assets.
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The specific terms of any Financial Guaranty Insurance Policy will be as
set forth in the related Prospectus Supplement. Financial Guaranty Insurance
Policies may have limitations including (but not limited to) limitations on the
insurer's obligation to guarantee the obligations of the Originators to
repurchase or substitute for any Mortgage Loans, Financial Guaranty Insurance
Policies will not guarantee any specified rate of prepayments and/or to provide
funds to redeem Securities on any specified date.
Subject to the terms of the related Pooling and Servicing Agreement, the
Financial Guaranty Insurer may be subrogated to the rights of each
Securityholder to receive payments under the Securities to the extent of any
payment by such Financial Guaranty Insurer under the related Financial Guaranty
Insurance Policy.
Other Insurance, Guarantees and Similar Instruments or Agreements. If
specified in the related Prospectus Supplement, a Trust may include in lieu of
some or all of the foregoing or in addition thereto third party guarantees, and
other arrangements for maintaining timely payments or providing additional
protection against losses on all or any specified portion of the assets included
in such Trust, paying administrative expenses, or accomplishing such other
purpose as may be described in the Prospectus Supplement. The Trust may include
a guaranteed investment contract or reinvestment agreement pursuant to which
funds held in one or more accounts will be invested at a specified rate. If any
class of Securities has a floating interest rate, or if any of the Mortgage
Assets has a floating interest rate, the Trust may include an interest rate swap
contract, an interest rate cap agreement or similar contract providing limited
protection against interest rate risks.
Cross Support. If specified in the Prospectus Supplement, the beneficial
ownership of separate groups of assets included in a Trust may be evidenced by
separate classes of the related series of Securities. In such case, credit
support may be provided by a cross-support feature which requires that
distributions be made with respect to one class of Securities may be made from
excess amounts available from other asset groups within the same Trust which
support other classes of Securities. The Prospectus Supplement for a series that
includes a cross-support feature will describe the manner and conditions for
applying such cross-support feature.
If specified in the Prospectus Supplement, the coverage provided by one or
more forms of credit support may apply concurrently to two or more separate
Trusts. If applicable, the Prospectus Supplement will identify the Trusts to
which such credit support relates and the manner of determining the amount of
the coverage provided thereby and of the application of such coverage to the
identified Trusts.
Overcollateralization. If specified in the Prospectus Supplement,
subordination provisions of a Trust may be used to accelerate to a limited
extent the amortization of one or more classes of Securities relative to the
amortization of the related Mortgage Loans. The accelerated amortization is
achieved by the application of certain excess interest to the payment of
principal of one or more classes of Securities. This acceleration feature
creates, with respect to the Mortgage Loans or groups thereof, over
collateralization which results from the excess of the aggregate principal
balance of the related Mortgage Loans, or a group thereof, over the principal
balance of the related class of Securities. Such acceleration may continue for
the life of the related Security, or may be limited. In the case of limited
acceleration, once the required level of overcollateralization is reached, and
subject to certain provisions specified in the related Prospectus Supplement,
such limited acceleration feature may cease, unless necessary to maintain the
required level of overcollateralization.
Maintenance of Credit Enhancement. To the extent that the applicable
Prospectus Supplement does not expressly provide for Credit Enhancement
arrangements in lieu of some or all of the arrangements mentioned below, the
following paragraphs shall apply.
If a form of Credit Enhancement has been obtained for a series of
Securities, the Sponsor will be obligated to exercise its best reasonable
efforts to keep or cause to be kept such form of credit support in full force
and effect throughout the term of the applicable Pooling and Servicing
Agreement, unless coverage thereunder has been exhausted through payment of
claims or otherwise, or substitution therefor is made as described below under
"Reduction or Substitution of Credit Enhancement."
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In lieu of the Sponsor's obligation to maintain a particular form of
Credit Enhancement, the Sponsor may obtain a substitute or alternate form of
Credit Enhancement. If the Master Servicer obtains such a substitute form of
Credit Enhancement, it will maintain and keep such form of Credit Enhancement in
full force and effect as provided herein. Prior to its obtaining any substitute
or alternate form of Credit Enhancement, the Sponsor will obtain written
confirmation from the Rating Agency or Agencies that rated the related series of
Securities that the substitution or alternate form of Credit Enhancement for the
existing Credit Enhancement will not adversely affect the then-current ratings
assigned to such Securities by such Rating Agency or Agencies.
The Master Servicer, on behalf of itself, the Trustee and Securityholders,
will provide the Trustee information required for the Trustee to draw under a
Letter of Credit or Financial Guaranty Insurance Policy, will present claims to
each Pool Insurer, to the issuer of each Special Hazard Insurance Policy or
other special hazard instrument, to the issuer of each Bankruptcy Bond and will
take such reasonable steps as are necessary to permit recovery under such Letter
of Credit, Financial Guaranty Insurance Policy, Purchase Obligation, insurance
policies or comparable coverage respecting defaulted Mortgage Loans or Mortgage
Loans which are the subject of a bankruptcy proceeding. Additionally, the Master
Servicer will present such claims and take such steps as are reasonably
necessary to provide for the performance by another party of its Purchase
Obligation. As set forth above, all collections by the Master Servicer under any
Purchase Obligation, any Mortgage Pool Insurance Policy, or any Bankruptcy Bond
and, where the related property has not been restored, any Special Hazard
Insurance Policy, are to be deposited initially in the Principal and Interest
Account and ultimately in the Distribution Account, subject to withdrawal as
described above. All draws under any Letter of Credit or Financial Guaranty
Insurance Policy will be deposited directly in the Distribution Account.
If any property securing a defaulted Mortgage Loan is damaged and
proceeds, if any, from the related hazard insurance policy or any applicable
Special Hazard Instrument are insufficient to restore the damaged property to a
condition sufficient to permit recovery under any applicable form of Credit
Enhancement, the Master Servicer is not required to expend its own funds to
restore the damaged property unless it determines (i) that such restoration will
increase the proceeds to one or more classes of Securityholders on liquidation
of the Mortgage Loan after reimbursement of the Master Servicer for its expenses
and (ii) that such expenses will be recoverable by it through Liquidation
Proceeds or Insurance Proceeds. If recovery under any applicable form of Credit
Enhancement is not available because the Master Servicer has been unable to make
the above determinations, has made such determinations incorrectly or recovery
is not available for any other reason, the Master Servicer is nevertheless
obligated to follow such normal practices and procedures (subject to the
preceding sentence) as it deems necessary or advisable to realize upon the
defaulted Mortgage Loan and in the event such determination has been incorrectly
made, is entitled to reimbursement of its expenses in connection with such
restoration.
Reduction or Substitution of Credit Enhancement. Unless otherwise
specified in the related Prospectus Supplement, the amount of credit support
provided pursuant to any of the Credit Enhancements (including, without
limitation, a Mortgage Pool Insurance Policy, Financial Guaranty Insurance
Policy, Special Hazard Insurance Policy, Bankruptcy Bond, Letter of Credit, or
any alternative form of Credit Enhancement) may be reduced under certain
specified circumstances. In addition, if so described in the related Prospectus
Supplement, any formula used in calculating the amount or degree of Credit
Enhancement may be changed without the consent of the Securityholders upon
written confirmation from each Rating Agency then rating the Securities that
such change will not adversely affect the then-current rating or ratings
assigned to the Securities. In most cases, the amount available pursuant to any
Credit Enhancement will be subject to periodic reduction in accordance with a
schedule or formula on a nondiscretionary basis pursuant to the terms of the
related Pooling and Servicing Agreement as the aggregate outstanding principal
balance of the Mortgage Loans declines. Additionally, in certain cases, such
credit support (and any replacements therefor) may be replaced, reduced or
terminated upon the written assurance from each applicable Rating Agency that
the then-current rating of the related series of Securities will not be
adversely affected. Furthermore, in the event that the credit rating of any
obligor under any applicable Credit Enhancement is downgraded, the credit rating
of the related Securities may be downgraded to a corresponding level, and,
unless otherwise specified in the related Prospectus Supplement, the Sponsor
thereafter will not be obligated to obtain replacement credit support in order
to restore the rating of the Securities, and also will be permitted to replace
such credit support with other Credit Enhancement instruments issued by obligors
whose credit ratings are equivalent to such downgraded level and in lower
amounts which would satisfy such downgraded level, provided that the
then-current, albeit downgraded, rating of the related series of Securities is
maintained. Where the credit support is in the
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form of a Reserve Fund, a permitted reduction in the amount of Credit
Enhancement will result in a release of all or a portion of the assets in the
Reserve Fund to the Sponsor, the Master Servicer, one or more Originators or
such other person that is entitled thereto. Any assets so released will not be
available to fund distribution obligations in future periods.
HAZARD INSURANCE; CLAIMS THEREUNDER
Each Mortgage Loan will be required to be covered by a hazard insurance
policy (as described below). The following is only a brief description of
certain insurance policies and does not purport to summarize or describe all of
the provisions of these policies. Such insurance is subject to underwriting and
approval of individual Mortgage Loans by the respective insurers. The
descriptions of any insurance policies described in this Prospectus or any
Prospectus Supplement and the coverage thereunder do not purport to be complete
and are qualified in their entirety by reference to such forms of policies,
sample copies of which are available from the Trustee upon request.
HAZARD INSURANCE POLICIES
Generally, the terms of the Mortgage Loans require each Mortgagor to
maintain a hazard insurance policy for the Mortgage Loan. Additionally, the
Pooling and Servicing Agreement will generally require the Master Servicer to
cause to be maintained with respect to each Mortgage Loan a hazard insurance
policy with a generally acceptable carrier that provides for fire and extended
coverage relating to such Mortgage Loan in an amount not less than the least of
(i) the outstanding principal balance of the Mortgage Loan, (ii) the minimum
amount required to compensate for damage or loss on a replacement cost basis or
(iii) the full insurable value of the premises.
If a Mortgage Loan at the time of origination relates to a Mortgaged
Property in an area identified in the Federal Register by the Federal Emergency
Management Agency as having special flood hazards, the Master Servicer will
generally be required to maintain with respect thereto a flood insurance policy
in a form meeting the requirements of the then-current guidelines of the Federal
Insurance Administration with a generally acceptable carrier in an amount
representing coverage, and which provides for recovery by the Master Servicer on
behalf of the Trust of insurance proceeds relating to such Mortgage Loan of not
less than the least of (i) the outstanding principal balance of the Mortgage
Loan, (ii) the minimum amount required to compensate for damage or loss on a
replacement cost basis, (iii) the maximum amount of insurance that is available
under the Flood Disaster Protection Act of 1973. Pursuant to the related Pooling
and Servicing Agreement, the Master Servicer will be required to indemnify the
Trust out of the Master Servicer's own funds for any loss to the Trust resulting
from the Master Servicer's failure to maintain such flood insurance.
In the event that the Master Servicer obtains and maintains a blanket
policy insuring against fire with extended coverage and against flood hazards on
all of the Mortgage Loans, then, to the extent such policy names the Master
Servicer as loss payee and provides coverage in an amount equal to the aggregate
unpaid principal balance on the Mortgage Loans without co-insurance, and
otherwise complies with the requirements of the Pooling and Servicing Agreement,
the Master Servicer shall be deemed conclusively to have satisfied its
obligations with respect to fire and hazard insurance coverage under the Pooling
and Servicing Agreement. Such blanket policy may contain a deductible clause, in
which case the Master Servicer will be required, in the event that there shall
not have been maintained on the related Mortgaged Property a policy complying
with the Pooling and Servicing Agreement, and there shall have been a loss that
would have been covered by such policy, to deposit in the Principal and Interest
Account from the Master Servicer's own funds the difference, if any, between the
amount that would have been payable under a policy complying with the Pooling
and Servicing Agreement and the amount paid under such blanket policy.
THE SPONSOR AND THE TRANSFEROR
The Sponsor, Advanta Mortgage Conduit Services, Inc., was incorporated in
the State of Delaware in April, 1993. It is a direct subsidiary of the Master
Servicer, Advanta Mortgage Corp. USA, in addition to Advanta Mortgage Corp.
Midatlantic, Advanta Mortgage Corp., Midatlantic II, Advanta Mortgage Corp.
Midwest, Advanta Mortgage Corp. of New Jersey, Advanta Mortgage Corp. Northeast
and Advanta Finance Corp. The Sponsor was organized for the purpose of the
purchase and securitization of first and junior mortgage loans.
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The Sponsor maintains its principal office at 16875 West Bernardo Drive,
San Diego, California 92127. Its telephone number is (619) 674-1800.
The Transferor, Advanta Conduit Receivables Inc., was incorporated in the
State of Delaware in March, 1994. It is a direct subsidiary of the Sponsor, and
was formed as a special purpose finance subsidiary to facilitate certain
issuances of Securities. The use of the Transferor will not affect the
obligations of the Sponsor with respect to the related Trust or the related
Securities. If the Transferor is to be involved in a particular offering the
related Prospectus Supplement will describe its role in such offering; for
purposes of this Prospectus the role of the Transferor is subsumed in the role
of the Sponsor.
The Transferor maintains its principal office at 16875 West Bernardo
Drive, San Diego, California 92127.
THE MASTER SERVICER
Unless otherwise specified in the related Prospectus Supplement, Advanta
Mortgage Corp. USA will act as the Master Servicer for a series of Securities.
Advanta Mortgage Corp. USA was acquired by Advanta Corp., a Delaware
corporation ("Advanta Parent") in September, 1986 and is an indirect subsidiary
of Advanta Parent. The Master Servicer is an affiliate of Advanta National Bank,
a national banking association domiciled in Delaware, and the parent of Advanta
Mortgage Corp. Midatlantic, Advanta Mortgage Corp. Midatlantic II, Advanta
Mortgage Corp. Midwest, Advanta Mortgage Corp. of New Jersey, Advanta Mortgage
Corp. Northeast and Advanta Finance Corp. Advanta Mortgage Corp. USA is a
Delaware corporation incorporated in 1983. It is a nationwide servicer of first
and junior mortgage loans. Advanta Mortgage Corp. USA has centralized servicing
functions located in San Diego, California. This provides for economies of scale
and a depth of appraisal, attorney and realtor contacts throughout the country.
THE POOLING AND SERVICING AGREEMENT
As described above under "Description of the Securities--General," each
series of Securities will be issued pursuant to a Pooling and Servicing
Agreement as described in that section. The following summaries describe certain
additional provisions common to each Pooling and Servicing Agreement.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES; ORIGINATOR'S RETAINED
YIELD
Each servicer, whether the Master Servicer or any Sub-Servicer (either the
Master Servicer or any Sub-Servicer being a "Servicer"), will retain a fee in
connection with its servicing activities for each series of Securities equal to
the percentage per annum specified in the related Prospectus Supplement or
Current Report on Form 8-K (the "Base Servicing Fee"), generally payable monthly
with respect to each Mortgage Loan directly serviced by such Servicer at
one-twelfth the annual rate, of the then-outstanding principal amount of each
such Mortgage Loan as of the first day of each calendar month. The Master
Servicer acting as master servicer with respect to Mortgage Loans being serviced
directly by a Sub-Servicer will retain a fee equal to the percentage per annum
specified in the related Prospectus Supplement or Current Report on Form 8-K
("Master Servicing Fee"), generally payable monthly on one-twelfth the annual
rate, of the then-outstanding principal amount of each such Mortgage Loan as of
the first day of each calendar month. The Base Servicing Fees and the Master
Servicing Fee are collectively referred to as the "Servicing Fee."
In addition to the Base Servicing Fee, each Servicer will generally be
entitled under the Pooling and Servicing Agreement to retain additional
servicing compensation in the form of prepayment charges, release fees, bad
check charges, assumption fees, late payment charges, or any other
servicing-related fees, Net Liquidation Proceeds not required to be deposited in
the Principal and Interest Account pursuant to the Pooling and Servicing
Agreement, and similar items.
Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer will pay or cause to be paid certain ongoing expenses associated
with each Trust Estate and incurred by it in connection with its
responsibilities under the Pooling and Servicing Agreement, including, without
limitation, payment of any fee or
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other amount payable in respect of any alternative Credit Enhancement
arrangements, payment of the fees and disbursements of the Trustee or
accountant, any custodian appointed by the Trustee, the Security Registrar and
any Paying Agent, and payment of expenses incurred in enforcing the obligations
of Sub-Servicers and Originators. The Master Servicer may be entitled to
reimbursement of expenses incurred in enforcing the obligations of Sub-Servicers
and Originators under certain limited circumstances. In addition, as indicated
in the preceding section, the Master Servicer will be entitled to reimbursements
for certain expenses incurred by it in connection with Liquidated Mortgage Loans
and in connection with the restoration of Mortgaged Properties, such right of
reimbursement being prior to the rights of Securityholders to receive any
related Liquidation Proceeds (including Insurance Proceeds).
The Prospectus Supplement for a series of Securities will specify if there
will be any Originator's Retained Yield retained. Any such Originator's Retained
Yield will be a specified portion of the interest payable on each Mortgage Loan
in a Mortgage Pool. Any such Originator's Retained Yield will be established on
a loan-by-loan basis and the amount thereof with respect to each Mortgage Loan
in a Mortgage Pool will be specified on an exhibit to the related Pooling and
Servicing Agreement. Any Originator's Retained Yield in respect of a Mortgage
Loan will represent a specified portion of the interest payable thereon and will
not be part of the related Trust Estate. Any partial recovery of interest in
respect of a Mortgage Loan will be allocated between the owners of any
Originator's Retained Yield and the holders of classes of Securities entitled to
payments of interest as provided in the Prospectus Supplement and the applicable
Pooling and Servicing Agreement.
EVIDENCE AS TO COMPLIANCE
Each Pooling and Servicing Agreement will require the Master Servicer to
deliver annually to the Trustee and any Credit Enhancer, an officers'
certificate stating, as to each signer thereof, that (i) a review of the
activities of the Master Servicer during such preceding year and of performance
under the related Pooling and Servicing Agreement has been made under such
officers' supervision, and (ii) to the best of such officers' knowledge, based
on such review, the Master Servicer has fulfilled all its obligations under the
related Pooling and Servicing Agreement for such year, or, if there has been a
default in the fulfillment of any such obligations, specifying each such default
known to such officers and the nature and status thereof including the steps
being taken by the Master Servicer to remedy such defaults.
Each Pooling and Servicing Agreement will require the Master Servicer to
cause to be delivered to the Trustee and any Credit Enhancer a letter or letters
of a firm of independent, nationally recognized certified public accountants
reasonably acceptable to the Credit Enhancer, if applicable, stating that such
firm has, with respect to the Master Servicer's overall servicing operations (i)
performed applicable tests in accordance with the compliance testing procedures
as set forth in Appendix 3 of the Audit Guide for Audits of HUD Approved
Nonsupervised Mortgagees or (ii) examined such operations in accordance with the
requirements of the Uniform Single Attestation Program for Mortgage Bankers, and
in either case stating such firm's conclusions relating thereto.
Copies of the annual accountants' statement and the annual statement of
officers of the Master Servicer may be obtained by Securityholders without
charge upon written request to the Master Servicer.
REMOVAL AND RESIGNATION OF THE MASTER SERVICER
Unless otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement will provide that the Master Servicer may not
resign from its obligations and duties thereunder, except in connection with a
permitted transfer of servicing, unless such duties and obligations are no
longer permissible under applicable law or are in material conflict by reason of
applicable law with any other activities of a type and nature presently carried
on by it. No such resignation will become effective until the Trustee has
assumed the Master Servicer's obligations and duties under the Pooling and
Servicing Agreement. The Trustee, the Securityholders or a Credit Enhancer, if
applicable, will have the right, pursuant to the related Pooling and Servicing
Agreement, to remove the Master Servicer upon the occurrence of any of (a)
certain events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings regarding the Master Servicer and certain
actions by the Master Servicer indicating its insolvency or inability to pay its
obligations; (b) the failure of the Master Servicer to perform any one or more
of its material obligations under the Pooling and Servicing Agreement as to
which the Master Servicer shall continue in default with respect thereto for a
specified period, generally of sixty (60) days, after notice
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by the Trustee or any Credit Enhancer (if required by the Pooling and Servicing
Agreement) of said failure; or (c) the failure of the Master Servicer to cure
any breach of any of its representations and warranties set forth in the Pooling
and Servicing Agreement which materially and adversely affects the interests of
the Securityholders or any Credit Enhancer, for a specified period, generally of
thirty (30) days after the Master Servicer's discovery or receipt of notice
thereof.
The Pooling and Servicing Agreement may also provide that the related
Credit Enhancer may remove the Master Servicer upon the occurrence of any of
certain events including:
(i) with respect to any Payment Date, if the total available funds
with respect to the Mortgage Loans Group will be less than the related
distribution amount on the class of credit-enhanced securities in respect
of such Payment Date; provided, however, that the Credit Enhancer
generally will have no right to remove the Master Servicer pursuant to the
provision described in this clause (i) if the Master Servicer can
demonstrate to the reasonable satisfaction of the Credit Enhancer that
such event was due to circumstances beyond the control of the Master
Servicer;
(ii) the failure by the Master Servicer to make any required
Servicing Advance;
(iii) the failure of the Master Servicer to perform one or more of
its material obligations under the Pooling and Servicing Agreement; or
(iv) the failure by the Master Servicer to make any required
Delinquency Advance or to pay any Compensating Interest;
provided, however, that prior to any removal of the Master Servicer by the
related Credit Enhancer pursuant to clauses (i), (ii) or (iii) above the Master
Servicer shall first have been given by the related Credit Enhancer notice of
the occurrence of one or more of the events set forth in clauses (i) or (ii)
above and the Master Servicer shall not have remedied, or shall not have taken
action satisfactory to such Credit Enhancer to remedy, such event or events
within a specified period, generally 30 days (60 days with respect to clause
(iii)) after the Master Servicer's receipt of such notice; and provided, further
that in the event of the refusal or inability of the Master Servicer to make any
required Delinquency Advance or to pay any Compensating Interest as described in
clause (iv) above, such removal shall be effective (without the requirement of
any action on the part of such Credit Enhancer or of the Trustee) not later than
a shorter specified period, generally not in excess of five business days,
following the day on which the Trustee notifies an authorized officer of the
Master Servicer that a required Delinquency Advance or to pay any Compensating
Interest has not been received by the Trustee.
AMENDMENTS
The Trustee, the Sponsor and the Master Servicer may at any time and from
time to time, with the prior approval of the related Credit Enhancer, if
required, but without the giving of notice to or the receipt of the consent of
the Securityholders, amend a Pooling and Servicing Agreement, and the Trustee
will be required to consent to such amendment, for the purposes of (x) (i)
curing any ambiguity, or correcting or supplementing any provision of such
Pooling and Servicing Agreement which may be inconsistent with any other
provision of the Pooling and Servicing Agreement, (ii) in connection with a
Trust making REMIC elections, if accompanied by an approving opinion of counsel
experienced in federal income tax matters, removing the restriction against the
transfer of a REMIC residual security to a Disqualified Organization (as such
term is defined in the Code) or (iii) complying with the requirements of the
Code and the regulations proposed or promulgated thereunder; provided, however,
that such action shall not, as evidenced by an opinion of counsel delivered to
the Trustee, materially and adversely affect the interests of any Securityholder
(without its written consent) or (y) such other purposes set forth in the
related Pooling and Servicing Agreement.
Unless otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement may also be amended by the Trustee, the Sponsor
and the Master Servicer at any time and from time to time, with the prior
written approval of the related Credit Enhancer, if required, and not less than
a majority of the Percentage Interest represented by each related class of
Securities then outstanding, for the purpose of adding any provisions
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or changing in any manner or eliminating any of the provisions of such Pooling
and Servicing Agreement or of modifying in any manner the rights of the
Securityholders thereunder; provided, however, that no such amendment shall (a)
change in any manner the amount of, or delay the timing of, payments which are
required to be distributed to any Securityholders without the consent of the
holder of such Security or (b) change the aforesaid percentages of Percentage
Interest which are required to consent to any such amendments, without the
consent of the holders of all Securities of the class or classes affected then
outstanding.
TERMINATION; RETIREMENT OF SECURITIES
Unless otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement will provide that a Trust will terminate upon
the earlier of (i) the payment to the Securityholders of all Securities issued
by the Trust from amounts other than those available under, if applicable, the
related Credit Enhancement of all amounts required to be paid to such
Securityholders upon the later to occur of (a) the final payment or other
liquidation (or any advance made with respect thereto) of the last Mortgage Loan
in the Trust Estate or (b) the disposition of all property acquired in respect
of any Mortgage Loan remaining in the Trust Estate, (ii) any time when a
Qualified Liquidation (as defined in the Code) of the Trust Estate (if the
related Trust is a REMIC) is effected. In no event, however, will the trust
created by the Pooling and Servicing Agreement continue beyond the expiration of
21 years from the death of the survivor of certain persons named in such Pooling
and Servicing Agreement. Written notice of termination of the Pooling and
Servicing Agreement will be given to each Securityholder, and the final
distribution will be made only upon surrender and cancellation of the Securities
at an office or agency appointed by the Trustee that will be specified in the
notice of termination. If the Securityholders are permitted to terminate the
trust under the applicable Pooling and Servicing Agreement, a penalty may be
imposed upon the Securityholders based upon the fee that would be foregone by
the Master Servicer because of such termination.
Any purchase of Mortgage Loans and property acquired in respect of
Mortgage Loans evidenced by a series of Securities shall be made at the option
of the Master Servicer, the Sponsor or, if applicable, the holder of the REMIC
Residual Securities at the price specified in the related Prospectus Supplement.
The exercise of such right will effect earlier than expected retirement of the
Securities of that series, but the right of the Master Servicer, the Sponsor or,
if applicable, such holder to so purchase is, unless otherwise specified in the
applicable Prospectus Supplement, subject to the aggregate principal balance of
the Mortgage Loans for that series as of any Remittance Date being less than the
percentage specified in the related Prospectus Supplement of the aggregate
principal balance of the Mortgage Loans at the Cut-Off Date for that series. The
Prospectus Supplement for each series of Securities will set forth the amounts
that the holders of such Securities will be entitled to receive upon such
earlier than expected retirement. If a REMIC election has been made, the
termination of the related Trust Estate will be effected in a manner consistent
with applicable federal income tax regulations and its status as a REMIC.
THE TRUSTEE
The Trustee under each Pooling and Servicing Agreement will be named in
the related Prospectus Supplement. Each Pooling and Servicing Agreement will
provide that the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by the Pooling and Servicing Agreement at the
request or direction of any of the Securityholders, unless such Securityholders
shall have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance with
such request or direction.
The Trustee may execute any of the trusts or powers granted by each
Pooling and Servicing Agreement or perform any duties thereunder either directly
or by or through agents or attorneys, and the Trustee will not be responsible
for any misconduct or negligence on the part of any agent or attorney appointed
and supervised with due care by it thereunder.
Pursuant to each Pooling and Servicing Agreement, the Trustee will not be
liable for any action it takes or omits to take in good faith which it
reasonably believes to be authorized by an authorized officer of any person or
within its rights or powers under the Pooling and Servicing Agreement.
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Unless otherwise described in the related Prospectus Supplement, each
Pooling and Servicing Agreement will permit the removal of the Trustee upon the
occurrence and continuance of one of the following events:
(1) the Trustee shall fail to distribute to the Securityholders
entitled thereto on any Payment Date amounts available for distribution in
accordance with the terms of the Pooling and Servicing Agreement; or
(2) the Trustee shall default in the performance of, or breach, any
covenant or agreement of the Trustee in the Pooling and Servicing
Agreement, or if any representation or warranty of the Trustee made in the
Pooling and Servicing Agreement or in any certificate or other writing
delivered pursuant thereto or in connection therewith shall prove to be
incorrect in any material respect as of the time when the same shall have
been made, and such default or breach shall continue or not be cured for
the period then specified in the related Pooling and Servicing Agreement
after the Trustee shall have received notice specifying such default or
breach and requiring it to be remedied; or
(3) a decree or order of a court or agency or supervisory authority
having jurisdiction for the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against the Trustee,
and such decree or order shall have remained in force undischarged or
unstayed for the period then specified in the related Pooling and
Servicing Agreement; or
(4) a conservator or receiver or liquidator or sequestrator or
custodian of the property of the Trustee is appointed in any insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings of or relating to the Trustee or relating to all or
substantially all of its property; or
(5) the Trustee shall become insolvent (however insolvency is
evidenced), generally fail to pay its debts as they come due, file or
consent to the filing of a petition to take advantage of any applicable
insolvency or reorganization statute, make an assignment for the benefit
of its creditors, voluntarily suspend payment of its obligations, or take
corporate action for the purpose of any of the foregoing.
If an event described above occurs and is continuing, then, and in every
such case (i) the Sponsor, (ii) the Securityholders (on the terms set forth in
the related Pooling and Servicing Agreement), or (iii) if there is a Credit
Enhancer, such Credit Enhancer may, whether or not the Trustee has resigned,
immediately, concurrently with the giving of notice to the Trustee, and without
delay, appoint a successor Trustee pursuant to the terms of the Pooling and
Servicing Agreement.
No Securityholder will have any right to institute any proceeding,
judicial or otherwise, with respect to a Pooling and Servicing Agreement or any
Credit Enhancement, if applicable, or for the appointment of a receiver or
trustee, or for any other remedy under the Pooling and Servicing Agreement,
unless:
(1) such Securityholder has previously given written notice to the
Sponsor and the Trustee of such Securityholder's intention to institute
such proceeding;
(2) the Securityholders of not less than 25% of the Percentage
Interests represented by certain specified classes of Securities then
outstanding shall have made written request to the Trustee to institute
such proceeding;
(3) such Securityholder or Securityholders have offered to the
Trustee reasonable indemnity, against the costs, expenses and liabilities
to be incurred in compliance with such request;
(4) the Trustee for the period specified in the related Pooling and
Servicing Agreement, generally not in excess of 60 days after receipt of
such notice, request and offer of indemnity, has failed to institute such
proceeding;
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(5) as long as such action affects any credit-enhanced class of
Securities outstanding, the related Credit Enhancer has consented in
writing thereto; and
(6) no direction inconsistent with such written request has been
given to the Trustee during such specified period by the Securityholders
of a majority of the Percentage Interests represented by certain specified
classes of Securities.
No one or more Securityholders will have any right in any manner whatever
by virtue of, or by availing themselves of, any provision of the Pooling and
Servicing Agreement to affect, disturb or prejudice the rights of any other
Securityholder of the same class or to obtain or to seek to obtain priority or
preference over any other Securityholder of the same class or to enforce any
right under the Pooling and Servicing Agreement, except in the manner provided
in the Pooling and Servicing Agreement and for the equal and ratable benefit of
all of the Securityholders of the same class.
In the event the Trustee receives conflicting or inconsistent requests and
indemnity from two or more groups of Securityholders, each representing less
than a majority of the applicable class of Securities, the Trustee in its sole
discretion may determine what action, if any, shall be taken, notwithstanding
any other provision of the Pooling and Servicing Agreement.
Notwithstanding any other provision in the Pooling and Servicing
Agreement, the Securityholder of any Security has the right, which is absolute
and unconditional, to receive distributions to the extent provided in the
Pooling and Servicing Agreement with respect to such Security or to institute
suit for the enforcement of any such distribution, and such right shall not be
impaired without the consent of such Security.
Either (i) the Securityholders of a majority of the Percentage Interests
represented by certain specified classes of Securities then outstanding or (ii)
if there is a Credit Enhancer, such Credit Enhancer may direct the time, method
and place of conducting any proceeding for any remedy available to the Sponsor
with respect to the Certificates or exercising any trust or power conferred on
the Trustee with respect to such Certificates; provided that:
(1) such direction shall not be in conflict with any rule of law or
with a Pooling and Servicing Agreement;
(2) the Sponsor or the Trustee, as the case may be, shall have been
provided with indemnity satisfactory to them; and
(3) the Sponsor or the Trustee, as the case may be, may take any
other action deemed proper by the Trustee which is not inconsistent with
such direction; provided, however, that the Sponsor or the Trustee, as the
case may be, need not take any action which they determine might involve
them in liability or may be unjustly prejudicial to the Securityholders
not so directing.
The Trustee will be liable under the Pooling and Servicing Agreement only
to the extent of the obligations specifically imposed upon and undertaken by the
Trustee therein. Neither the Trustee nor any of the directors, officers,
employees or agents of the Trustee will be under any liability on any Security
or otherwise to any Account, the Sponsor, the Master Servicer or any
Securityholder for any action taken or for refraining from the taking of any
action in good faith under a Pooling and Servicing Agreement, or for errors in
judgment; provided, however, that such provision shall not protect the Trustee
or any such person against any liability which would otherwise be imposed by
reason of negligent action, negligent failure to act or willful misconduct in
the performance of duties or by reason of reckless disregard of obligations and
duties thereunder.
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YIELD CONSIDERATIONS
The yield to maturity of a Security will depend on the price paid by the
holder for such Security, the Pass-Through Rate on any such Security entitled to
payments of interest (which Pass-Through Rate may vary if so specified in the
related Prospectus Supplement) and the rate of payment of principal on such
Security (or the rate at which the notional amount thereof is reduced if such
Security is not entitled to payments of principal) and other factors.
Each month the interest payable on an actuarial type of Mortgage Loan will
be calculated as one-twelfth of the applicable Mortgage Rate multiplied by the
principal balance of such Mortgage Loan outstanding as of a specified day,
usually the first day of the month prior to the month in which the Payment Date
for the related series of Securities occurs, after giving effect to the payment
of principal due on such day, subject to any Deferred Interest. With respect to
date of payment Mortgage Loans, interest is charged to the Mortgagor at the
Mortgage Rate on the outstanding principal balance of such Note and calculated
based on the number of days elapsed between receipt of the Mortgagor's last
payment through receipt of the Mortgagor's most current payments. The amount of
such payments with respect to each Mortgage Loan distributed (or accrued in the
case of Deferred Interest or Accrual Securities) either monthly, quarterly or
semi-annually to holders of a class of Securities entitled to payments of
interest will be similarly calculated on the basis of such class' specified
percentage of each such payment of interest (or accrual in the case of Accrual
Securities) and will be expressed as a fixed, adjustable or variable
Pass-Through Rate payable on the outstanding principal balance or notional
amount of such Security, calculated as described herein and in the related
Prospectus Supplement. Holders of Strip Securities or a class of Securities
having a fixed Pass-Through Rate that varies based on the weighted average
Mortgage Rate of the underlying Mortgage Loans will be affected by
disproportionate prepayments and repurchases of Mortgage Loans having higher Net
Mortgage Rates or rates applicable to the Strip Securities, as applicable.
The effective yield to maturity to each holder of fixed-rate Securities
entitled to payments of interest will be below that otherwise produced by the
applicable Pass-Through Rate and purchase price of such Security because, while
interest will accrue on each Mortgage Loan from the first day of each month, the
distribution of such interest will be made on the 25th day (or, if such day is
not a business day, the next succeeding business day) of the month (or, in the
case of quarterly-pay Securities, the twenty-fifth day of every third month, or,
in the case of semi-annual-pay Securities, the twenty-fifth day of every sixth
month) following the month of accrual.
A class of Securities may be entitled to payments of interest at a fixed
Pass-Through Rate specified in the related Prospectus Supplement, a variable
Pass-Through Rate or adjustable Pass-Through Rate calculated based on the
weighted average of the Mortgage Rates (net of Servicing Fees and any
Originator's Retained Yield (each, a "Net Mortgage Rate")) of the related
Mortgage Loans for the designated periods preceding the Payment Date if so
specified in the related Prospectus Supplement, or at such other variable rate
as may be specified in the related Prospectus Supplement.
As will be described in the related Prospectus Supplement, the aggregate
payments of interest on a class of Securities, and the yield to maturity
thereon, will be effected by the rate of payment of principal on the Securities
(or the rate of reduction in the notional balance of Securities entitled only to
payments of interest) and, in the case of Securities evidencing interests in ARM
Loans, by changes in the Net Mortgage Rates on the ARM Loans. See "Maturity and
Prepayment Considerations" below. The yield on the Securities also will be
effected by liquidations of Mortgage Loans following Mortgagor defaults and by
purchases of Mortgage Loans required by the Pooling and Servicing Agreement in
the event of breaches of representations made in respect of such Mortgage Loans
by the Sponsor, the Originators, the Master Servicer and others, or repurchases
due to conversions of ARM Loans to a fixed interest rate. See "Mortgage Loan
Program--Representations by Originators" and "Descriptions of the
Securities--Assignment of Mortgage Loans" above. In general, if a class of
Securities is purchased at initial issuance at a premium and payments of
principal on the related Mortgage Loans occur at a rate faster than anticipated
at the time of purchase, the purchaser's actual yield to maturity will be lower
than that assumed at the time of purchase. Conversely, if a class of Securities
is purchased at initial issuance at a discount and payments of principal on the
related Mortgage Loans occur at a rate slower than that assumed at the time of
purchase, the purchaser's actual yield to maturity will be lower than that
originally anticipated. The effect of principal prepayments, liquidations and
purchases on yield will be particularly significant in the case of a series of
Securities having a class entitled to
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payments of interest only or to payments of interest that are disproportionately
high relative to the principal payments to which such class is entitled. Such a
class likely will be sold at a substantial premium to its principal balance, if
any, and any faster than anticipated rate of prepayments will adversely affect
the yield to holders thereof. In certain circumstances, rapid prepayments may
result in the failure of such holders to recoup their original investment. In
addition, the yield to maturity on certain other types of classes of Securities,
including Accrual Securities or certain other classes in a series including more
than one class of Securities, may be relatively more sensitive to the rate of
prepayment on the related Mortgage Loans than other classes of Securities.
The timing of changes in the rate of principal payments on or repurchases
of the Mortgage Loans may significantly affect an investor's actual yield to
maturity, even if the average rate of principal payments experienced over time
is consistent with an investor's expectation. In general, the earlier a
prepayment of principal on the underlying Mortgage Loans or a repurchase
thereof, the greater will be the effect on an investor's yield to maturity. As a
result, the effect on an investor's yield of principal payments and repurchases
occurring at a rate higher (or lower) than the rate anticipated by the investor
during the period immediately following the issuance of a series of Securities
would not be fully offset by a subsequent like reduction (or increase) in the
rate of principal payments.
The Mortgage Rates on certain ARM Loans subject to negative amortization
adjust monthly and their amortization schedules adjust less frequently. During a
period of rising interest rates as well as immediately after origination
(initial Mortgage Rates are generally lower than the sum of the Indices
applicable at origination and the related Note Margins) the amount of interest
accruing on the principal balance of such Mortgage Loans may exceed the amount
of the minimum scheduled monthly payment thereon. As a result, a portion of the
accrued interest on negatively amortizing Mortgage Loans may become Deferred
Interest that will be added to the principal balance thereof and will bear
interest at the applicable Mortgage Rate. The addition of any such Deferred
Interest to the principal balance will lengthen the weighted average life of the
Securities evidencing interests in such Mortgage Loans and may adversely affect
yield to holders thereof depending upon the price at which such Securities were
purchased. In addition, with respect to certain ARM Loans subject to negative
amortization, during a period of declining interest rates, it might be expected
that each minimum scheduled monthly payment on such a Mortgage Loan would exceed
the amount of scheduled principal and accrued interest on the principal balance
thereof, and since such excess will be applied to reduce such principal balance,
the weighted average life of such Securities will be reduced and may adversely
affect yield to holders thereof depending upon the price at which such
Securities were purchased.
For each Mortgage Pool, if all necessary advances are made and if there is
no unrecoverable loss on any Mortgage Loan and if the related Credit Enhancer is
not in default under its obligations or other Credit Enhancement has not been
exhausted, the net effect of each distribution respecting interest will be to
pass-through to each holder of a class of Securities entitled to payments of
interest an amount which is equal to one month's interest (or, in the case of
quarterly-pay Securities, three month's interest or, in the case of
semi-annually-pay Securities, six months' interest) at the applicable
Pass-Through Rate on such class' principal balance or notional balance, as
adjusted downward to reflect any decrease in interest caused by any principal
prepayments and the addition of any Deferred Interest to the principal balance
of any Mortgage Loan. "Description of the Securities--Principal and Interest on
the Securities."
With respect to certain of the ARM Loans, the Mortgage Rate at origination
may be below the rate that would result if the index and margin relating thereto
were applied at origination. Under the Sponsor's underwriting standards, the
Mortgagor under each Mortgage Loan will be qualified on the basis of the
Mortgage Rate in effect at origination. The repayment of any such Mortgage Loan
may thus be dependent on the ability of the Mortgagor to make larger level
monthly payments following the adjustment of the Mortgage Rate.
MATURITY AND PREPAYMENT CONSIDERATIONS
As indicated above under "The Mortgage Pools," the original terms to
maturity of the Mortgage Loans in a given Mortgage Pool will vary depending upon
the type of Mortgage Loans included in such Mortgage Pool. The Prospectus
Supplement for a series of Securities will contain information with respect to
the types and maturities of the Mortgage Loans in the related Mortgage Pool.
Unless otherwise specified in the related Prospectus Supplement, all of the
Mortgage Loans may be prepaid without penalty in full or in part at any time.
The prepayment
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experience with respect to the Mortgage Loans in a Mortgage Pool will affect the
maturity, average life and yield of the related series of Securities.
With respect to Balloon Loans, payment of the Balloon Amount (which, based
on the amortization schedule of such Mortgage Loans, may be a substantial
amount) will generally depend on the Mortgagor's ability to obtain refinancing
of such Mortgage Loan or to sell the Mortgaged Property prior to the maturity of
the Balloon Loan. The ability to obtain refinancing will depend on a number of
factors prevailing at the time refinancing or sale is required, including,
without limitation, real estate values, the Mortgagor's financial situation,
prevailing mortgage loan interest rates, the Mortgagor's equity in the related
Mortgaged Property, tax laws and prevailing general economic conditions. Unless
otherwise specified in the related Prospectus Supplement, neither the Sponsor,
the Master Servicer, nor any of their affiliates will be obligated to refinance
or repurchase any Mortgage Loan or to sell the Mortgaged Property.
A number of factors, including homeowner mobility, economic conditions,
enforceability of due-on-sale clauses, mortgage market interest rates and the
availability of mortgage funds, affect prepayment experience. Unless otherwise
specified in the related Prospectus Supplement, the Mortgage Loans will
generally contain due-on-sale provisions permitting the mortgagee to accelerate
the maturity of the Mortgage Loan upon sale or certain transfers by the
Mortgagor of the underlying Mortgaged Property. Unless the related Prospectus
Supplement indicates otherwise, the Master Servicer will generally enforce any
due-on-sale clause to the extent it has knowledge of the conveyance or proposed
conveyance of the underlying Mortgaged Property and it is entitled to do so
under applicable law; provided, however, that the Master Servicer will not take
any action in relation to the enforcement of any due-on-sale provision which
would adversely affect or jeopardize coverage under any applicable insurance
policy. Certain ARM Loans may be assumable under certain conditions if the
proposed transferee of the related Mortgaged Property establishes its ability to
repay the Mortgage Loan and, in the reasonable judgment of the Master Servicer
or the related Sub-Servicer, the security for the ARM Loan would not be impaired
or might be improved by the assumption. The extent to which ARM Loans are
assumed by purchasers of the Mortgaged Properties rather than prepaid by the
related Mortgagors in connection with the sales of the Mortgaged Properties will
affect the weighted average life of the related series of Securities. See
"Description of the Securities--Collection and Other Servicing Procedures" and
"Certain Legal Aspects of the Mortgage Loans and Related Matters--Enforceability
of Certain Provisions" for a description of certain provisions of the Pooling
and Servicing Agreement and certain legal developments that may affect the
prepayment experience on the Mortgage Loans.
There can be no assurance as to the rate of prepayment of the Mortgage
Loans. The Sponsor is not aware of any reliable, publicly available statistics
relating to the principal prepayment experience of diverse portfolios of
mortgage loans such as the Mortgage Loans over an extended period of time. All
statistics known to the Sponsor that have been compiled with respect to
prepayment experience on mortgage loans indicates that while some mortgage loans
may remain outstanding until their stated maturities, a substantial number will
be paid prior to their respective stated maturities.
Although the Mortgage Rates on ARM Loans will be subject to periodic
adjustments, such adjustments will, unless otherwise specified in the related
Prospectus Supplement, (i) not increase or decrease such Mortgage Rates by more
than a fixed percentage amount on each adjustment date, (ii) not increase such
Mortgage Rates over a fixed percentage amount during the life of any ARM Loan
and (iii) be based on an index (which may not rise and fall consistently with
mortgage interest rates) plus the related Note Margin (which may be different
from margins being used at the time for newly originated adjustable rate
mortgage loans). As a result, the Mortgage Rates on the ARM Loans in a Mortgage
Pool at any time may not equal the prevailing rates for similar, newly
originated adjustable rate mortgage loans. In certain rate environments, the
prevailing rates on fixed-rate mortgage loans may be sufficiently low in
relation to the then-current Mortgage Rates on ARM Loans that the rate of
prepayment may increase as a result of refinancings. There can be no certainty
as to the rate of prepayments on the Mortgage Loans during any period or over
the life of any series of Securities.
As may be described in the related Prospectus Supplement, the related
Pooling and Servicing Agreement may provide that all or a portion of the
principal collected on or with respect to the related Mortgage Loans may be
applied by the related Trustee to the acquisition of additional Mortgage Loans
during a specified period (rather than used to fund payments of principal to
Securityholders during such period) with the result that the related securities
possess an interest-only period, also commonly referred to as a revolving
period, which will be followed
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by an amortization period. Any such interest-only or revolving period may, upon
the occurrence of certain events to be described in the related Prospectus
Supplement, terminate prior to the end of the specified period and result in the
earlier than expected amortization of the related Securities.
In addition, and as may be described in the related Prospectus Supplement,
the related Pooling and Servicing Agreement may provide that all or a portion of
such collected principal may be retained by the Trustee (and held in certain
temporary investments, including Mortgage Loans) for a specified period prior to
being used to fund payments of principal to Securityholders.
The result of such retention and temporary investment by the Trustee of
such principal would be to slow the amortization rate of the related Securities
relative to the amortization rate of the related Mortgage Loans, or to attempt
to match the amortization rate of the related Securities to an amortization
schedule established at the time such Securities are issued. Any such feature
applicable to any Securities may terminate upon the occurrence of events to be
described in the related Prospectus Supplement, resulting in the current funding
of principal payments to the related Securityholders and an acceleration of the
amortization of such Securities.
Under certain circumstances, the Master Servicer, the Sponsor or, if
specified in the related Prospectus Supplement, the holders of the REMIC
Residual Securities or the Credit Enhancer may have the option to purchase the
Mortgage Loans in a Trust Estate. See "The Pooling and Servicing
Agreement--Termination; Retirement of Securities."
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS AND RELATED MATTERS
The following discussion contains summaries of certain legal aspects of
mortgage loans that are general in nature. Because such legal aspects are
governed in part by applicable state law (which laws may differ substantially),
the summaries do not purport to be complete nor to reflect the laws of any
particular state nor to encompass the laws of all states in which the Mortgaged
Properties may be situated. The summaries are qualified in their entirety by
reference to the applicable federal and state laws governing the Mortgage Loans.
GENERAL
The Mortgage Loans will be secured by either deeds of trust or mortgages,
depending upon the prevailing practice in the state in which the Mortgaged
Property subject to a Mortgage Loan is located. In some states, a mortgage
creates a lien upon the real property encumbered by the mortgage. In other
states, the mortgage conveys legal title to the property to the mortgagee
subject to a condition subsequent (i.e., the payment of the indebtedness secured
thereby). The mortgage is not prior to the lien for real estate taxes and
assessments and other charges imposed under governmental police powers. Priority
between mortgages depends on their terms in some cases or on the terms of
separate subordination or intercreditor agreements, and generally on the order
of recordation of the mortgage in the appropriate recording office. There are
two parties to a mortgage, the mortgagor, who is the borrower and homeowner, and
the mortgagee, who is the lender. Under the mortgage instrument, the mortgagor
delivers to the mortgagee a note or bond and the mortgage. In the case of a land
trust, there are three parties because title to the property is held by a land
trustee under a land trust agreement of which the borrower is the beneficiary;
at origination of a mortgage loan, the borrower executes a separate undertaking
to make payments on the mortgage note. Although a deed of trust is similar to a
mortgage, a deed of trust has three parties; the borrower-homeowner 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. The trustee's authority under a deed of trust and the mortgagee's
authority under a mortgage are governed by law, the express provisions of the
deed of trust or mortgage, and, in some cases, the directions of the
beneficiary.
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COOPERATIVE LOANS
If specified in the Prospectus Supplement relating to a series of
Securities, the Mortgage Loans also may consist of Cooperative Loans evidenced
by Cooperative Notes secured by security interests in shares issued by
cooperatives, which are private corporations that are entitled to be treated as
housing cooperatives under federal tax law, and in the related proprietary
leases or occupancy agreements granting exclusive rights to occupy specific
dwelling units in the cooperatives' buildings. The security agreement will
create a lien upon, or grant a title interest in, the property which it covers,
the priority of which will depend on the terms of the particular security
agreement as well as the order of recordation of the agreement in the
appropriate recording office. Such a lien or title interest is not prior to the
lien for real estate taxes and assessments and other charges imposed under
governmental police powers.
Each cooperative owns in fee or has a leasehold interest in all the real
property and owns in fee or leases the building and all separate dwelling units
therein. The cooperative is directly responsible for property management and, in
most cases, payment of real estate taxes, other governmental impositions and
hazard and liability insurance. If there is a blanket mortgage or mortgages on
the cooperative apartment building or underlying land, as is generally the case,
or an underlying lease of the land, as is the case in some instances, the
cooperative, as property mortgagor, or lessee, as the case may be, also is
responsible for meeting these mortgage or rental obligations. A blanket mortgage
is ordinarily incurred by the cooperative in connection with either the
construction or purchase of the cooperative's apartment building or the
obtaining of capital by the cooperative. The interest of the occupant under
proprietary leases or occupancy agreements as to which that cooperative is the
landlord generally is subordinate to the interest of the holder of a blanket
mortgage and to the interest of the holder of a land lease. If the cooperative
is unable to meet the payment obligations (i) arising under a blanket mortgage,
the mortgagee holding a blanket mortgage could foreclose on that mortgage and
terminate all subordinate proprietary leases and occupancy agreements or (ii)
arising under its land lease, the holder of the landlord's interest under the
land lease could terminate it and all subordinate proprietary leases and
occupancy agreements. Also, a 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 final payment at maturity. The
inability of the cooperative to refinance a mortgage and its consequent
inability to make such final payment could lead to foreclosure by the mortgagee.
Similarly, a land lease has an expiration date and the inability of the
cooperative to extend its term or, in the alternative, to purchase the land
could lead to termination of the cooperative's interest in the property and
termination of all proprietary leases and occupancy agreements. In either event,
a foreclosure by the holder of a blanket mortgage or the termination of the
underlying lease 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 the Mortgage Loans,
the collateral securing the Cooperative Loans.
The cooperative is owned by tenant-stockholders who, through ownership of
stock or shares in the corporation, receive proprietary leases or occupancy
agreements that 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 occupancy rights are financed through
a cooperative share loan evidenced by a promissory note and secured by an
assignment of and a security interest in the occupancy agreement or proprietary
lease and a security interest in the related cooperative shares. The lender
generally takes possession of the share certificate and a counterpart of the
proprietary lease or occupancy agreement and a financing statement covering the
proprietary lease or occupancy agreement and the cooperative shares is filed in
the appropriate state and local offices to perfect the lender's interest in its
collateral. Subject to the limitations discussed below, upon default of the
tenant-stockholder, the lender may sue for judgment on the promissory note,
dispose of the collateral at a public or private sale or otherwise proceed
against the collateral or tenant-stockholder as an individual as provided in the
security agreement covering the assignment of the proprietary lease or occupancy
agreement and the pledge of cooperative shares. See "Foreclosure on Shares of
Cooperatives" below.
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FORECLOSURE
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale (private sale) under a specific provision in the deed of trust
and state laws which authorize the trustee to sell the property upon any default
by the borrower under the terms of the note or deed of trust. Beside the
nonjudicial remedy, a deed of trust may be judicially foreclosed. In addition to
any notice requirements contained in a deed of trust, in some states, the
trustee must record a notice of default and within a certain period of time send
a copy to the borrower trustor and to any person who has recorded a request for
a copy of notice of default and notice of sale. In addition, the trustee must
provide notice in some states to any other individual having an interest of
record in the real property, including any junior lienholders. If the deed of
trust is not reinstated within a specified period, a notice of sale must be
posted in a public place and, in most states, published for a specific period of
time in one or more local 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.
Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in completion
of the foreclosure may occasionally result from difficulties in locating
necessary parties. Judicial foreclosure proceedings are often not contested by
any of the applicable parties. If the mortgagee's right to foreclose is
contested, the legal proceedings necessary to resolve the issue can be
time-consuming.
In some states, the borrower-trustor has the right to reinstate the loan
at any time following default until shortly before the trustee's sale. In
general, in such states, the borrower, or any other person having a junior
encumbrance on the real estate, may, during a reinstatement period, cure the
default by paying the entire amount in arrears plus the costs and expenses
incurred in enforcing the obligation.
In the case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee or other designated officer or by the trustee is a public
sale. However, because of the difficulty a potential buyer at the sale would
have in determining the exact status of title and because the physical condition
of the property may have deteriorated during the foreclosure proceedings, it is
uncommon for a third party to purchase the property at a foreclosure sale unless
there is a great deal of economic incentive for the new purchaser to purchase
the subject property at the sale. Rather, it is common for the lender to
purchase the property from the trustee or referee for a credit bid less than or
equal to the unpaid principal amount of the mortgage or deed of trust, accrued
and unpaid interest and the expense of foreclosure. Generally, state law
controls the amount of foreclosure costs and expenses, including attorneys'
fees, which may be recovered by a lender. Thereafter, subject to the right of
the borrower in some states to remain in possession during the redemption
period, the lender will assume the burdens of ownership, including obtaining
hazard insurance 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 and, in some states, the lender may be entitled to a deficiency
judgment. Any loss may be reduced by the receipt of any mortgage insurance
proceeds.
FORECLOSURE ON SHARES OF COOPERATIVES
The cooperative shares and proprietary lease or occupancy agreement 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 by-laws, as well as in the proprietary lease or
occupancy agreement. The proprietary lease or occupancy agreement, even while
pledged, may be cancelled by the cooperative for failure by the tenant
stockholder to pay rent or other obligations or charges owed by such
tenant-stockholder, including mechanics' liens against the cooperative apartment
building incurred by such tenant-stockholder. Commonly, rent and other
obligations and charges arising under a proprietary lease or occupancy agreement
that are owed to the cooperative are made liens upon the shares to which the
proprietary lease or occupancy agreement relates. In addition, the proprietary
lease or occupancy agreement generally permits the cooperative to terminate such
lease or agreement in the event the borrower defaults in the performance of
covenants thereunder. Typically, the lender and the cooperative enter into a
recognition agreement that, together with any lender protection provisions
contained in the proprietary lease, establishes the rights and obligations of
both parties in the event of a default by the tenant-stockholder on its
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obligations under the proprietary lease or occupancy agreement. A default by the
tenant-stockholder under the proprietary lease or occupancy agreement usually
will constitute a default under the security agreement between the lender and
the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate such lease or
agreement until the lender has been provided with notice of and an opportunity
to cure the default. The recognition agreement typically provides that if the
proprietary lease or occupancy agreement is terminated, the cooperative will
recognize the lender's lien against proceeds from a sale of the cooperative
apartment, subject, however, to the cooperative's right to sums due under such
proprietary lease or occupancy agreement or sums that have become liens on the
shares relating to the proprietary lease or occupancy agreement. The total
amount owed to the cooperative by the tenant-stockholder, which the lender
generally cannot restrict and does not monitor, could reduce the amount realized
upon a sale of the collateral below the outstanding principal balance of the
Cooperative Loan and accrued and unpaid interest thereon.
Recognition agreements generally 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-stockholder.
In New York, foreclosure on the cooperative shares is accomplished by
public sale in accordance with the provisions of Article 9 of the UCC and the
security agreement relating to those shares. Article 9 of the UCC requires that
a sale be conducted in a "commercially reasonable" manner. Whether a sale has
been conducted in a "commercially reasonable" manner will depend on the facts in
each case. In determining commercial reasonableness, a court will look to the
notice given the debtor and the method, manner, time, place and terms of the
sale and the sale price. Generally, a sale conducted according to the usual
practice of banks selling similar collateral will be considered reasonably
conducted.
Article 9 of the UCC provides that the proceeds of the sale will be
applied first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the cooperative corporation to receive sums due under
the proprietary lease or occupancy agreement. If there are proceeds remaining,
the lender must account to the tenant-stockholder for the surplus. Conversely,
if a portion of the indebtedness remains unpaid, the tenant-stockholder is
generally responsible for the deficiency. See "Anti-Deficiency Legislation and
Other Limitations on Lenders" below.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and foreclosed junior lienors or other parties are given
a statutory period in which to redeem the property from the foreclosure sale. In
some states, redemption may occur only upon payment of the entire principal
balance of the loan, accrued interest and expenses of foreclosure. In other
states, redemption may be authorized if the former borrower pays only a portion
of the sums due. The effect of a statutory right of redemption is to diminish
the ability of the lender to sell the foreclosed property. The rights of
redemption would defeat the title of any purchaser subsequent to foreclosure or
sale under a deed of trust. Consequently, the practical effect of the redemption
right is to force the lender to maintain the property and pay the expenses of
ownership until the redemption period has expired. In some states, there is no
right to redeem property after a trustee's sale under a deed of trust.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory prohibitions that limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, including California, statutes limit the right of the beneficiary or
mortgagee to obtain a deficiency judgment against the borrower following
foreclosure. A deficiency judgment is a personal judgment against the former
borrower equal in most cases to the difference between the amount due to the
lender and the net amount realized upon the public sale of the real property. In
the case of a Mortgage Loan
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secured by a property owned by a trust where the Mortgage Note is executed on
behalf of the trust, a deficiency judgment against the trust following
foreclosure or sale under a deed of trust, even if obtainable under applicable
law, may be of little value to the mortgagee or beneficiary if there are no
trust assets against which such deficiency judgment may be executed. Other
statutes require the beneficiary or mortgagee to exhaust the security afforded
under a deed of trust or mortgage by foreclosure in an attempt to satisfy the
full debt before bringing a personal action against the borrower. In certain
other states, the lender has the option of bringing a personal action against
the borrower on the debt without first exhausting such security; however, in
some of these states the lender, following judgment on such personal action, may
be deemed to have elected a remedy and may be precluded from exercising remedies
with respect to the security. Consequently, the practical effect of the election
requirement, in those states permitting such election, is that lenders will
usually proceed against the security first rather than bringing a personal
action against the borrower. Finally, in certain other states, statutory
provisions limit any deficiency judgment against the former borrower following a
foreclosure to the excess of the outstanding debt over the fair value of the
property at the time of the public sale. The purpose of these statutes is
generally to prevent a beneficiary or mortgagee from obtaining a large
deficiency judgment against the former borrower as a result of low or no bids at
the judicial sale.
In addition to laws limiting or prohibiting deficiency judgments, numerous
other federal and state statutory provisions, including the federal bankruptcy
laws and state laws affording relief to debtors, may interfere with or affect
the ability of the secured mortgage lender to realize upon collateral or enforce
a deficiency judgment. For example, with respect to federal bankruptcy law, a
court with federal bankruptcy jurisdiction may permit a debtor through his or
her Chapter 11 or Chapter 13 rehabilitative plan to cure a monetary default in
respect of a mortgage loan on a debtor's residence by paying arrearages within a
reasonable time period and reinstating the original mortgage loan payment
schedule even though the lender accelerated the mortgage loan and final judgment
of foreclosure had been entered in state court (provided no sale of the
residence had yet occurred) prior to the filing of the debtor's petition. Some
courts with federal bankruptcy jurisdiction have approved plans, based on the
particular facts of the reorganization case, that effected the curing of a
mortgage loan default by paying arrearages over a number of years.
Courts with federal bankruptcy jurisdiction also have indicated that the
terms of a mortgage loan secured by property of the debtor may be modified.
These courts have allowed modifications that include reducing the amount of each
monthly payment, changing the rate of interest, altering the repayment schedule,
forgiving all or a portion of the debt and reducing the lender's security
interest to the value of the residence, thus leaving the lender a general
unsecured creditor for the difference between the value of the residence and the
outstanding balance of the loan.
Certain states have imposed general equitable principles upon judicial
foreclosure. These equitable principles are generally designed to relieve the
borrower from the legal effect of the borrower's default under the related loan
documents. Examples of judicial remedies that have been fashioned include
judicial requirements that the lender undertake affirmative and expensive
actions to determine the causes for the borrower's default and the likelihood
that the borrower will be able to reinstate the loan. In some cases, lenders
have been required to reinstate loans or recast payment schedules in order to
accommodate borrowers who are suffering from temporary financial disabilities.
In other cases, such courts have limited the right of the lender to foreclose if
the default under the loan is not monetary, such as the borrower failing to
adequately maintain the property or the borrower executing a second deed of
trust affecting the property.
Certain tax liens arising under the Internal Revenue Code of 1986, as
amended, may in certain circumstances provide priority over the lien of a
mortgage or deed of trust. In addition, substantive requirements are imposed
upon mortgage lenders in connection with the origination and the servicing of
mortgage loans by numerous federal and some state consumer protection laws.
These laws include, by example, the federal Truth-in-Lending Act, Real Estate
Settlement Procedures Act, Equal Credit Opportunity Act, Fair Credit Billing
Act, Fair Credit Reporting Act and related statutes and state laws, such as the
California Fair Debt Collection Practices Act. These laws and regulations impose
specific statutory liabilities upon lenders who originate mortgage loans and
fail to comply with the provisions of the law. In some cases, this liability may
affect assignees of the mortgage loans.
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ENVIRONMENTAL LEGISLATION
Certain states impose a statutory lien for associated costs on property
that is the subject of a cleanup action by the state on account of hazardous
wastes or hazardous substances released or disposed of on the property. Such a
lien generally will have priority over all subsequent liens on the property and,
in certain of these states, will have priority over prior recorded liens
including the lien of a mortgage. In some states, however, such a lien will not
have priority over prior recorded liens of a deed of trust. In addition, under
federal environmental legislation and under state law in a number of states, a
secured party which takes a deed in lieu of foreclosure or acquires a mortgaged
property at a foreclosure sale or assumes active control over the operation or
management of a property so as to be deemed an "owner" or "operator" of the
property may be liable for the costs of cleaning up a contaminated site.
Although such costs could be substantial, it is unclear whether they would be
imposed on a lender (such as a Trust Estate) secured by residential real
property. In the event that title to a Mortgaged Property securing a Mortgage
Loan in a Trust Estate was acquired by the Trust and cleanup costs were incurred
in respect of the Mortgaged Property, the holders of the related series of
Securities might realize a loss if such costs were required to be paid by the
Trust.
ENFORCEABILITY OF CERTAIN PROVISIONS
Unless the Prospectus Supplement indicates otherwise, generally all of the
Mortgage Loans contain due-on-sale clauses. These clauses permit the lender to
accelerate the maturity of the loan if the borrower sells, transfers or conveys
the property. The enforceability of these clauses has been the subject of
legislation or litigation in many states including California, and in some cases
the enforceability of these clauses was limited or denied. However, the Garn-St.
Germain Depository Institutions Act of 1982 (the "Garn-St. Germain Act")
preempts state constitutional, statutory and case law that prohibits the
enforcement of due-on-sale clauses and permits lenders to enforce these clauses
in accordance with their terms, subject to certain limited exceptions. The
Garn-St. Germain Act does "encourage" lenders to permit assumption of loans at
the original rate of interest or at some other rate less than the average of the
original rate and the market rate.
The Garn-St. Germain Act also sets forth nine specific instances in which
a mortgage lender covered by the Garn-St. Germain Act may not exercise a
due-on-sale clause, notwithstanding the fact that a transfer of the property may
have occurred. These include intra-family transfers, certain transfers by
operation of law, leases of fewer than three years and the creation of a junior
encumbrance. Regulations promulgated under the Garn-St. Germain Act also
prohibit the imposition of a prepayment penalty upon the acceleration of a loan
pursuant to a due-on-sale clause.
The inability to enforce a due-on-sale clause may result in a mortgage
loan bearing an interest rate below the current market rate being assumed by a
new home buyer rather than being paid off, that may have an impact upon the
average life of the Mortgage Loans and the number of Mortgage Loans that may be
outstanding until maturity.
Upon foreclosure, courts have imposed general equitable principles. These
equitable principles generally are designed to relieve the borrower from the
legal effect of his defaults under the loan documents. Examples of judicial
remedies that have been fashioned include judicial requirements that the lender
undertake affirmative and expensive actions to determine the causes for the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's judgment and have required that lenders reinstate loans or recast
payment schedules in order to accommodate borrowers who are suffering from
temporary financial disability. In other cases, courts have limited the right of
the lender to foreclose if the default under the mortgage instrument is not
monetary, such as the borrower failing to adequately maintain the property or
the borrower executing a second mortgage or deed of trust affecting the
property. Finally, some courts have been faced with the issue of whether or not
federal or state constitutional provisions reflecting due process concerns for
adequate notice require that borrowers under deeds of trust or mortgages receive
notices in addition to the statutorily prescribed minimum. For the most part,
these cases have upheld the notice provisions as being reasonable or have found
that the sale by a trustee under a deed of trust, or under a mortgage having a
power of sale, does not involve sufficient state action to afford constitutional
protections to the borrower.
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CERTAIN PROVISIONS OF CALIFORNIA DEEDS OF TRUST
Most institutional lenders in California use a form of deed of trust that
confers on the beneficiary the right both to receive all proceeds collected
under any hazard insurance policy and all awards made in connection with any
condemnation proceedings, and to apply such proceeds and awards to any
indebtedness secured by the deed of trust, in such order as the beneficiary may
determine, provided, however, that California law prohibits the beneficiary from
applying insurance and condemnation proceeds to the indebtedness secured by the
deed of trust unless the beneficiary's security has been impaired by the
casualty or condemnation, and, if such security has been impaired, permits such
proceeds to be so applied only to the extent of such impairment. Thus, in the
event improvements on the property are damaged or destroyed by fire or other
casualty, or in the event the property is taken by condemnation, and, as a
result thereof, the beneficiary's security is impaired, the beneficiary under
the underlying first deed of trust will have the prior right to collect any
insurance proceeds payable under a hazard insurance policy and any award of
damages in connection with the condemnation and to apply the same to the
indebtedness secured by the first deed of trust. Proceeds in excess of the
amount of indebtedness secured by a first deed of trust will, in most cases, be
applied to the indebtedness of a junior deed of trust.
Another provision typically found in the forms of deed of trust used by
most institutional lenders in California obligates the trustor to pay before
delinquency all taxes and assessments on the property and, when due, all
encumbrances, charges and liens on the property which appear prior to the deed
of trust, to provide and maintain fire insurance on the property, to maintain
and repair the property and not to commit or permit any waste thereof, and to
appear in and defend any action or proceeding purporting to affect the property
or the rights of the beneficiary under the deed of trust. Upon a failure of the
trustor to perform any of these obligations, the beneficiary is given the right
under the deed of trust to perform the obligation itself, at its election, with
the trustor agreeing to reimburse the beneficiary for any sums expended by the
beneficiary on behalf of the trustor. All sums so expended by the beneficiary
become part of the indebtedness secured by the deed of trust.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("Title V"), provides that state usury
limitations shall not apply to certain types of residential first mortgage loans
originated by certain lenders after March 31, 1980. A similar federal statute
was in effect with respect to mortgage loans made during the first three months
of 1980. The Office of Thrift Supervision is authorized to issue rules and
regulations and to publish interpretations governing implementation of Title V.
The statute authorized any state to reimpose interest rate limits by adopting,
before April 1, 1983, a law or constitutional provision which expressly rejects
application of the federal law. In addition, even where Title V is not so
rejected, any state is authorized by the law to adopt a provision limiting
discount points or other charges on mortgage loans covered by Title V. Certain
states have taken action to reimpose interest rate limits or to limit discount
points or other charges.
As indicated above under "Mortgage Loan Program--Representations by
Originators," each Originator of a Mortgage Loan will have represented that such
Mortgage Loan was originated in compliance with then applicable state laws,
including usury laws, in all material respects. However, the Mortgage Rates on
the Mortgage Loans will be subject to applicable usury laws as in effect from
time to time.
ALTERNATIVE MORTGAGE INSTRUMENTS
Alternative mortgage instruments, including ARM Loans and early ownership
mortgage loans, originated by non-federally chartered lenders have historically
been subjected to a variety of restrictions. Such restrictions differed from
state to state, resulting in difficulties in determining whether a particular
alternative mortgage instrument originated by a state-chartered lender was in
compliance with applicable law. These difficulties were alleviated substantially
as a result of the enactment of Title VIII of the Garn-St. Germain Act ("Title
VIII"). Title VIII provides that: notwithstanding any state law to the contrary,
state-chartered banks may originate alternative mortgage instruments in
accordance with regulations promulgated by the Comptroller of the Currency with
respect to origination of alternative mortgage instruments by national banks;
state-chartered credit unions may originate alternative mortgage instruments in
accordance with regulations promulgated by the National Credit Union
Administration with respect to origination of alternative mortgage instruments
by federal credit unions; and all other
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non-federally chartered housing creditors, including state-chartered savings and
loan associations, state-chartered savings banks and mutual savings banks and
mortgage banking companies, may originate alternative mortgage instruments in
accordance with the regulations promulgated by the Federal Home Loan Bank Board,
predecessor to the Office of Thrift Supervision, with respect to origination of
alternative mortgage instruments by federal savings and loan associations. Title
VIII provides that any state may reject applicability of the provisions of Title
VIII by adopting, prior to October 15, 1985, a law or constitutional provision
expressly rejecting the applicability of such provisions. Certain states have
taken such action.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a Mortgagor who enters military service after the
origination of such Mortgagor's Mortgage Loan (including a Mortgagor who was in
reserve status and is called to active duty after origination of the Mortgage
Loan), may not be charged interest (including fees and charges) above an annual
rate of 6% during the period of such Mortgagor's active duty status, unless a
court orders otherwise upon application of the lender. The Relief Act applies to
Mortgagors who are members of the Army, Navy, Air Force, Marines, National
Guard, Reserves, Coast Guard, and officers of the U.S. Public Health Service
assigned to duty with the military. Because the Relief Act applies to Mortgagors
who enter military service (including reservists who are called to active duty)
after origination of the related Mortgage Loan, no information can be provided
as to the number of loans that may be affected by the Relief Act. Application of
the Relief Act would adversely affect, for an indeterminate period of time, the
ability of the Master Servicer to collect full amounts of interest on certain of
the Mortgage Loans. Any shortfall in interest collections resulting from the
application of the Relief Act or similar legislation or regulations, which would
not be recoverable from the related Mortgage Loans, would result in a reduction
of the amounts distributable to the holders of the related Securities, and would
not be covered by advances, any Letter of Credit or any other form of Credit
Enhancement provided in connection with the related series of Securities. In
addition, the Relief Act imposes limitations that would impair the ability of
the Master Servicer to foreclose on an affected Mortgage Loan during the
Mortgagor's period of active duty status, and, under certain circumstances,
during an additional three month period thereafter. Thus, in the event that the
Relief Act or similar legislation or regulations apply to any Mortgage Loan
which goes into default, there may be delays in payment and losses on the
related Securities in connection therewith. Any other interest shortfalls,
deferrals or forgiveness of payments on the Mortgage Loans resulting from
similar legislation or regulations may result in delays in payments or losses to
Securityholders of the related series.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of the material anticipated federal
income tax consequences to investors of the purchase, ownership and disposition
of the Securities offered hereby. The discussion is based upon laws,
regulations, rulings and decisions now in effect, all of which are subject to
change. The discussion below does not purport to deal with all federal tax
consequences applicable to all categories of investors, some of which may be
subject to special rules. Investors 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. For purposes of this
discussion, references to a "Securityholder" or a "Holder" are to the beneficial
owner of a Security.
The following discussion addresses securities of three general types: (i)
securities ("Grantor Trust Securities") representing interests in a Trust Estate
(a "Grantor Trust Estate") which the Sponsor will covenant not to elect to have
treated as a real estate mortgage investment conduit (REMIC); (ii) securities
("REMIC Securities") representing interests in a Trust Estate, or a portion
thereof, which the Sponsor will covenant to elect to have treated as a REMIC
under sections 860A through 860G of the Internal Revenue Code of 1986, as
amended (the "Code"); and (iii) securities ("Debt Securities") that are intended
to be treated for federal income tax purposes as indebtedness secured by the
underlying Mortgage Loans. This Prospectus does not address the tax treatment of
partnership interests or interests in a FASIT. Such a discussion will be set
forth in the related Prospectus Supplement for any Trust issuing Securities
characterized as partnership interests or interests in a FASIT. The Prospectus
Supplement for each series of Securities will indicate whether a REMIC or FASIT
election (or elections) will be made for the related Trust Estate and, if a
REMIC or FASIT election is to be made, will identify all "regular interests" and
"residual interests"
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in the REMIC or all "regular interests," "high-yield interests" or "ownership
interest" in the FASIT. Pursuant to the Small Business Job Protection Act of
1996, enacted on August 20, 1996 (the "1996 Act"), a FASIT election can be made
on or after September 1, 1997.
The Taxpayer Relief Act of 1997 adds provisions to the Code that require
the recognition of gain upon the "constructive sale of an appreciated financial
position." A constructive sale of an appreciated financial position occurs if a
taxpayer enters into certain transactions or series of such transactions with
respect to a financial instrument that have the effect of substantially
eliminating the taxpayer's risk of loss and opportunity for gain with respect to
the financial instrument. These provisions apply only to Classes of Certificates
that do not have a principal balance.
GRANTOR TRUST SECURITIES
With respect to each series of Grantor Trust Securities, Dewey Ballantine,
special tax counsel to the Sponsor, will deliver its opinion to the Sponsor that
(unless otherwise limited in the related Prospectus Supplement) the related
Grantor Trust Estate will be classified as a grantor trust and not as a
partnership or an association taxable as a corporation. Accordingly, each Holder
of a Grantor Trust Security will generally be treated as the owner of an
interest in the Mortgage Loans included in the Grant or Trust Estate.
For purposes of the following discussion, a Grantor Trust Security
representing an undivided equitable ownership interest in the principal of the
Mortgage Loans constituting the related Grantor Trust Estate, together with
interest thereon at a pass-through rate, will be referred to as a "Grantor Trust
Fractional Interest Security." A Grantor Trust Security representing ownership
of all or a portion of the difference between interest paid on the Mortgage
Loans constituting the related Grantor Trust Estate and interest paid to the
Holders of Grantor Trust Fractional Interest Securities issued with respect to
such Grantor Trust Estate will be referred to as a "Grantor Trust Strip
Security."
Special Tax Attributes
Unless otherwise disclosed in a related Prospectus Supplement, Dewey
Ballantine, special tax counsel to the Sponsor, will deliver its opinion to the
Sponsor that (a) Grantor Trust Fractional Interest Securities will represent
interests in (i) "loans . . . secured by an interest in real property" within
the meaning of section 7701(a)(19)(C)(v) of the Code; and (ii) "obligations
(including any participation or certificate of beneficial ownership therein)
which . . . are principally secured by an interest in real property" within the
meaning of section 860G(a)(3)(A) of the Code; and (b) interest on Grantor Trust
Fractional Interest Securities will be considered "interest on obligations
secured by mortgages on real property or on interests in real property" within
the meaning of section 856(c)(3)(B) of the Code. In addition, the Grantor Trust
Strip Securities will be "obligations (including any participation or
certificate of beneficial ownership therein) . . . principally secured by an
interest in real property" within the meaning of section 860G(a)(3)(A) of the
Code.
The 1996 Act repeals the bad debt reserve method of accounting for mutual
savings banks and domestic building and loan associations for tax years
beginning after December 31, 1995. As a result, section 593(d) of the Code is no
longer applicable to treat the Certificates as "qualifying real property loans."
Taxation of Holders of Grantor Trust Securities
Holders of Grantor Trust Fractional Interest Securities generally will be
required to report on their federal income tax returns their respective shares
of the income from the Mortgage Loans (including amounts used to pay reasonable
servicing fees and other expenses but excluding amounts payable to Holders of
any corresponding Grantor Trust Strip Securities) and, subject to the
limitations described below, will be entitled to deduct their shares of any such
reasonable servicing fees and other expenses. If a Holder acquires a Grantor
Trust Fractional Interest Security for an amount that differs from its
outstanding principal amount, the amount includible in income on a Grantor Trust
Fractional Interest Security may differ from the amount of interest
distributable thereon. See "Discount and Premium," below. Individuals holding a
Grantor Trust Fractional Interest Security directly or through certain
pass-through entities will be allowed a deduction for such reasonable servicing
fees and expenses only to the extent that
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the aggregate of such Holder's miscellaneous itemized deductions exceeds 2% of
such Holder's adjusted gross income. Further, Holders (other than corporations)
subject to the alternative minimum tax may not deduct miscellaneous itemized
deductions in determining alternative minimum taxable income.
Holders of Grantor Trust Strip Securities generally will be required to
treat such Securities as "stripped coupons" under section 1286 of the Code.
Accordingly, such a Holder will be required to treat the excess of the total
amount of payments on such a Security over the amount paid for such Security as
original issue discount and to include such discount in income as it accrues
over the life of such Security. See "--Discount and Premium," below.
Grantor Trust Fractional Interest Securities may also be subject to the
coupon stripping rules if a class of Grantor Trust Strip Securities is issued as
part of the same series of Securities. The consequences of the application of
the coupon stripping rules would appear to be that any discount arising upon the
purchase of such a Security (and perhaps all stated interest thereon) would be
classified as original issue discount and includible in the Holder's income as
it accrues (regardless of the Holder's method of accounting), as described below
under "--Discount and Premium." The coupon stripping rules will not apply,
however, if (i) the pass-through rate is no more than 100 basis points lower
than the gross rate of interest payable on the underlying Mortgage Loans and
(ii) the difference between the outstanding principal balance on the Security
and the amount paid for such Security is less than 0.25% of such principal
balance times the weighted average remaining maturity of the Security.
Sales of Grantor Trust Securities
Any gain or loss recognized on the sale of a Grantor Trust Security (equal
to the difference between the amount realized on the sale and the adjusted basis
of such Grantor Trust Security) will be capital gain or loss, except to the
extent of accrued and unrecognized market discount, which will be treated as
ordinary income, and in the case of banks and other financial institutions
except as provided under section 582(c) of the Code. The adjusted basis of a
Grantor Trust Security will generally equal its cost, increased by any income
reported by the seller (including original issue discount and market discount
income) and reduced (but not below zero) by any previously reported losses, any
amortized premium and by any distributions of principal.
Grantor Trust Reporting
The Trustee will furnish to each Holder of a Grantor Trust Fractional
Interest Security with each distribution a statement setting forth the amount of
such distribution allocable to principal on the underlying Mortgage Loans and to
interest thereon at the related Pass-Through Rate. In addition, within a
reasonable time after the end of each calendar year, based on information
provided by the Master Servicer, the Trustee will furnish to each Holder during
such year such customary factual information as the Master Servicer deems
necessary or desirable to enable Holders of Grantor Trust Securities to prepare
their tax returns and will furnish comparable information to the Internal
Revenue Service (the "IRS") as and when required to do so by law.
REMIC SECURITIES
If provided in a related Prospectus Supplement, an election will be made
to treat a Trust Estate as a REMIC under the Code. Qualification as a REMIC
requires ongoing compliance with certain conditions. With respect to each series
of Securities for which such an election is made, Dewey Ballantine, special tax
counsel to the Sponsor, will deliver its opinion to the Sponsor that (unless
otherwise limited in the related Prospectus Supplement), assuming compliance
with the Pooling and Servicing Agreement, the Trust Estate will be treated as a
REMIC for federal income tax purposes. A Trust Estate for which a REMIC election
is made will be referred to herein as a "REMIC Trust." The Securities of each
class will be designated as "regular interests" in the REMIC Trust except that a
separate class will be designated as the "residual interest" in the REMIC Trust.
The Prospectus Supplement for each series of Securities will state whether
Securities of each class will constitute a regular interest (a REMIC Regular
Security) or a residual interest (a REMIC Residual Security).
A REMIC Trust will not be subject to federal income tax except with
respect to income from prohibited transactions and in certain other instances
described below. See "--Taxes on a REMIC Trust." Generally, the total
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income from the Mortgage Loans in a REMIC Trust will be taxable to the Holders
of the Securities of that series, as described below.
Regulations issued by the Treasury Department on December 23, 1992 (the
"REMIC Regulations") provide some guidance regarding the federal income tax
consequences associated with the purchase, ownership and disposition of REMIC
Securities. While certain material provisions of the REMIC Regulations are
discussed below, investors should consult their own tax advisors regarding the
possible application of the REMIC Regulations in their specific circumstances.
SPECIAL TAX ATTRIBUTES
REMIC Regular Securities and REMIC Residual Securities will be "regular or
residual interests in a REMIC" within the meaning of section 7701(a)(19)(C)(xi)
of the Code and "real estate assets" within the meaning of section 856(c)(5)(A)
of the Code. If at any time during a calendar year less than 95% of the assets
of a REMIC Trust consist of "qualified mortgages" (within the meaning of section
860G(a)(3) of the Code) then the portion of the REMIC Regular Securities and
REMIC Residual Securities that are qualifying assets under those sections during
such calendar year may be limited to the portion of the assets of such REMIC
Trust that are qualified mortgages. Similarly, income on the REMIC Regular
Securities and REMIC Residual Securities will be treated as "interest on
obligations secured by mortgages on real property" within the meaning of section
856(c)(3)(B) of the Code, subject to the same limitation as set forth in the
preceding sentence. For purposes of applying this limitation, a REMIC Trust
should be treated as owning the assets represented by the qualified mortgages.
The assets of the Trust Estate will include, in addition to the Mortgage Loans,
payments on the Mortgage Loans held pending distribution on the REMIC Regular
Securities and REMIC Residual Securities and any reinvestment income thereon.
REMIC Regular Securities and REMIC Residual Securities held by a financial
institution to which section 585, 586 or 593 of the Code applies will be treated
as evidences of indebtedness for purposes of section 582(c)(1) of the Code.
REMIC Regular Securities will also be qualified mortgages with respect to other
REMICs.
The 1996 Act repeals the bad debt reserve method of accounting for mutual
savings banks and domestic building and loan associations for tax years
beginning after December 31, 1995. As a result, section 593(d) of the Code is no
longer applicable to treat the Certificates as "qualifying real property loans."
Taxation of Holders of REMIC Regular Securities
Except as indicated below in this federal income tax discussion, the REMIC
Regular Securities will be treated for federal income tax purposes as debt
instruments issued by the REMIC Trust on the date such Securities are first sold
to the public (the "Settlement Date") and not as ownership interests in the
REMIC Trust or its assets. Holders of REMIC Regular Securities that otherwise
report income under a cash method of accounting will be required to report
income with respect to such Securities under an accrual method. For additional
tax consequences relating to REMIC Regular Securities purchased at a discount or
with premium, see "--Discount and Premium," below.
Taxation of Holders of REMIC Residual Securities
Daily Portions. Except as indicated below, a Holder of a REMIC Residual
Security for a REMIC Trust generally will be required to report its daily
portion of the taxable income or net loss of the REMIC Trust for each day during
a calendar quarter that the Holder owned such REMIC Residual Security. For this
purpose, the daily portion shall be determined by allocating to each day in the
calendar quarter its ratable portion of the taxable income or net loss of the
REMIC Trust for such quarter and by allocating the amount so allocated among the
Residual Holders (on such day) in accordance with their percentage interests on
such day. Any amount included in the gross income or allowed as a loss of any
Residual Holder by virtue of this paragraph will be treated as ordinary income
or loss.
The requirement that each Holder of a REMIC Residual Security report its
daily portion of the taxable income or net loss of the REMIC Trust will continue
until there are no Securities of any class outstanding, even
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though the Holder of the REMIC Residual Security may have received full payment
of the stated interest and principal on its REMIC Residual Security.
The Trustee will provide to Holders of REMIC Residual Securities of each
series of Securities (i) such information as is necessary to enable them to
prepare their federal income tax returns and (ii) any reports regarding the
Securities of such series that may be required under the Code.
Taxable Income or Net Loss of a REMIC Trust. The taxable income or net
loss of a REMIC Trust will be the income from the qualified mortgages it holds
and any reinvestment earnings less deductions allowed to the REMIC Trust. Such
taxable income or net loss for a given calendar quarter will be determined in
the same manner as for an individual having the calendar year as the taxable
year and using the accrual method of accounting, with certain modifications. The
first modification is that a deduction will be allowed for accruals of interest
(including any original issue discount, but without regard to the investment
interest limitation in section 163(d) of the Code) on the REMIC Regular
Securities (but not the REMIC Residual Securities), even though REMIC Regular
Securities are for non-tax purposes evidences of beneficial ownership rather
than indebtedness of a REMIC Trust. Second, market discount or premium equal to
the difference between the total stated principal balances of the qualified
mortgages and the basis to the REMIC Trust therein generally will be included in
income (in the case of discount) or deductible (in the case of premium) by the
REMIC Trust as it accrues under a constant yield method, taking into account the
"Prepayment Assumption" (as defined in the Related Prospectus Supplement, see
"--Discount and Premium--Original Issue Discount," below). The basis to a REMIC
Trust in the qualified mortgages is the aggregate of the issue prices of all the
REMIC Regular Securities and REMIC Residual Securities in the REMIC Trust on the
Settlement Date. If, however, a substantial amount of a class of REMIC Regular
Securities or REMIC Residual Securities has not been sold to the public, then
the fair market value of all the REMIC Regular Securities or REMIC Residual
Securities in that class as of the date of the Prospectus Supplement should be
substituted for the issue price.
Third, no item of income, gain, loss or deduction allocable to a
prohibited transaction (see "--Taxes on a REMIC Trust--Prohibited Transactions"
below) will be taken into account. Fourth, a REMIC Trust generally may not
deduct any item that would not be allowed in calculating the taxable income of a
partnership by virtue of section 703(a)(2) of the Code. Finally, the limitation
on miscellaneous itemized deductions imposed on individuals by section 67 of the
Code will not be applied at the REMIC Trust level to any servicing and guaranty
fees. (See, however, "--Pass-Through of Servicing and Guaranty Fees to
Individuals" below.) In addition, under the REMIC Regulations, any expenses that
are incurred in connection with the formation of a REMIC Trust and the issuance
of the REMIC Regular Securities and REMIC Residual Securities are not treated as
expenses of the REMIC Trust for which a deduction is allowed. If the deductions
allowed to a REMIC Trust exceed its gross income for a calendar quarter, such
excess will be a net loss for the REMIC Trust for that calendar quarter. The
REMIC Regulations also provide that any gain or loss to a REMIC Trust from the
disposition of any asset, including a qualified mortgage or "permitted
investment" (as defined in section 860G(a)(5) of the Code) will be treated as
ordinary gain or loss.
A Holder of a REMIC Residual Security may be required to recognize taxable
income without being entitled to receive a corresponding amount of cash. This
could occur, for example, if the qualified mortgages are considered to be
purchased by the REMIC Trust at a discount, some or all of the REMIC Regular
Securities are issued at a discount, and the discount included as a result of a
prepayment on a Mortgage Loan that is used to pay principal on the REMIC Regular
Securities exceeds the REMIC Trust's deduction for unaccrued original issue
discount relating to such REMIC Regular Securities. Taxable income may also be
greater in earlier years because interest expense deductions, expressed as a
percentage of the outstanding principal amount of the REMIC Regular Securities,
may increase over time as the earlier classes of REMIC Regular Securities are
paid, whereas interest income with respect to any given Mortgage Loan expressed
as a percentage of the outstanding principal amount of that Mortgage Loan, will
remain constant over time.
Basis Rules and Distributions. A Holder of a REMIC Residual Security has
an initial basis in its Security equal to the amount paid for such REMIC
Residual Security. Such basis is increased by amounts included in the income of
the Holder and decreased by distributions and by any net loss taken into account
with respect to such REMIC Residual Security. A distribution on a REMIC Residual
Security to a Holder is not included in gross income to the extent it does not
exceed such Holder's basis in the REMIC Residual Security (adjusted as described
above)
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and, to the extent it exceeds the adjusted basis of the REMIC Residual Security,
shall be treated as gain from the sale of the REMIC Residual Security.
A Holder of a REMIC Residual Security is not allowed to take into account
any net loss for any calendar quarter to the extent such net loss exceeds such
Holder's adjusted basis in its REMIC Residual Security as of the close of such
calendar quarter (determined without regard to such net loss). Any loss
disallowed by reason of this limitation may be carried forward indefinitely to
future calendar quarters and, subject to the same limitation, may be used only
to offset income from the REMIC Residual Security.
Excess Inclusions. Any excess inclusions with respect to a REMIC Residual
Security are subject to certain special tax rules. With respect to a Holder of a
REMIC Residual Security, the excess inclusion for any calendar quarter is
defined as the excess (if any) of the daily portions of taxable income over the
sum of the "daily accruals" for each day during such quarter that such REMIC
Residual Security was held by such Holder. The daily accruals are determined by
allocating to each day during a calendar quarter its ratable portion of the
product of the "adjusted issue price" of the REMIC Residual Security at the
beginning of the calendar quarter and 120% of the "federal long-term rate" in
effect on the Settlement Date, based on quarterly compounding, and properly
adjusted for the length of such quarter. For this purpose, the adjusted issue
price of a REMIC Residual Security as of the beginning of any calendar quarter
is equal to the issue price of the REMIC Residual Security, increased by the
amount of daily accruals for all prior quarters and decreased by any
distributions made with respect to such REMIC Residual Security before the
beginning of such quarter. The issue price of a REMIC Residual Security is the
initial offering price to the public (excluding bond houses and brokers) at
which a substantial number of the REMIC Residual Securities was sold. The
federal long-term rate is a blend of current yields on Treasury securities
having a maturity of more than nine years, computed and published monthly by the
IRS.
In general, Holders of REMIC Residual Securities with excess inclusion
income cannot offset such income by losses from other activities. For Holders
that are subject to tax only on unrelated business taxable income (as defined in
section 511 of the Code), an excess inclusion of such Holder is treated as
unrelated business taxable income. With respect to variable contracts (within
the meaning of section 817 of the Code), a life insurance company cannot adjust
its reserve to the extent of any excess inclusion, except as provided in
regulations. The REMIC Regulations indicate that if a Holder of a REMIC Residual
Security is a member of an affiliated group filing a consolidated income tax
return, the taxable income of the affiliated group cannot be less than the sum
of the excess inclusions attributable to all residual interests in REMICS held
by members of the affiliated group. For a discussion of the effect of excess
inclusions on certain foreign investors that own REMIC Residual Securities, see
"--Foreign Investors" below.
The Treasury Department also has the authority to issue regulations that
would treat all taxable income of a REMIC Trust as excess inclusions if the
REMIC Residual Security does not have "significant value." Although the Treasury
Department did not exercise this authority in the REMIC Regulations, future
regulations may contain such a rule. If such a rule were adopted, it is unclear
how significant value would be determined for these purposes. If no such rule is
applicable, excess inclusions should be calculated as discussed above.
In the case of any REMIC Residual Securities that are held by a real
estate investment trust, the aggregate excess inclusions with respect to such
REMIC Residual Securities reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of section 857(b)(2) of the
Code, excluding any net capital gain) will be allocated among the shareholders
of such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Security as if held directly by such
shareholder. Similar rules will apply in the case of regulated investment
companies, common trust funds and certain cooperatives that hold a REMIC
Residual Security.
Pass-Through of Servicing and Guaranty Fees to Individuals. A Holder of a
REMIC Residual Security who is an individual will be required to include in
income a share of any servicing and guaranty fees. A deduction for such fees
will be allowed to such Holder only to the extent that such fees, along with
certain of such Holder's other miscellaneous itemized deductions exceed 2% of
such Holder's adjusted gross income. In addition, a Holder of a REMIC Residual
Security may not be able to deduct any portion of such fees in computing such
Holder's alternative minimum tax liability. A Holder's share of such fees will
generally be determined by (i) allocating the amount of
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such expenses for each calendar quarter on a pro rata basis to each day in the
calendar quarter, and (ii) allocating the daily amount among the Holders in
proportion to their respective holdings on such day.
Taxes on a REMIC Trust
Prohibited Transactions. The Code imposes a tax on a REMIC equal to 100%
of the net income derived from "prohibited transactions." In general, a
prohibited transaction means the disposition of a qualified mortgage other than
pursuant to certain specified exceptions, the receipt of investment income from
a source other than a Mortgage Loan or certain other permitted investments, the
receipt of compensation for services, or the disposition of an asset purchased
with the payments on the qualified mortgages for temporary investment pending
distribution on the regular and residual interests.
Contributions to a REMIC after the Startup Day. The Code imposes a tax on
a REMIC equal to 100% of the value of any property contributed to the REMIC
after the "startup day" (generally the same as the Settlement Date). Exceptions
are provided for cash contributions to a REMIC (i) during the three month period
beginning on the startup day, (ii) made to a qualified reserve fund by a Holder
of a residual interest, (iii) in the nature of a guarantee, (iv) made to
facilitate a qualified liquidation or clean-up call, and (v) as otherwise
permitted by Treasury regulations.
Net Income from Foreclosure Property. The Code imposes a tax on a REMIC
equal to the highest corporate rate on "net income from foreclosure property."
The terms "foreclosure property" (which includes property acquired by deed in
lieu of foreclosure) and "net income from foreclosure property" are defined by
reference to the rules applicable to real estate investment trusts. Generally,
foreclosure property would be treated as such for a period of two years, with
possible extensions. Net income from foreclosure property generally means gain
from the sale of foreclosure property that is inventory property and gross
income from foreclosure property other than qualifying rents and other
qualifying income for a real estate investment trust.
Sales of REMIC Securities
General. Except as provided below, if a Regular or REMIC Residual Security
is sold, the seller will recognize gain or loss equal to the difference between
the amount realized in the sale and its adjusted basis in the Security. The
adjusted basis of a REMIC Regular Security generally will equal the cost of such
Security to the seller, increased by any original issue discount or market
discount included in the seller's gross income with respect to such Security and
reduced by distributions on such Security previously received by the seller of
amounts included in the stated redemption price at maturity and by any premium
that has reduced the seller's interest income with respect to such Security. See
"--Discount and Premium." The adjusted basis of a REMIC Residual Security is
determined as described above under "--Taxation of Holders of REMIC Residual
Securities--Basis Rules and Distributions." Except as provided in the following
paragraph or under section 582(c) of the Code, any such gain or loss will be
capital gain or loss, provided such Security is held as a "capital asset"
(generally, property held for investment) within the meaning of section 1221 of
the Code.
Gain from the sale of a REMIC Regular Security that might otherwise be
capital gain will be treated as ordinary income to the extent that such gain
does not exceed the excess, if any, of (i) the amount that would have been
includible in the income of the Holder of a REMIC Regular Security had income
accrued at a rate equal to 110% of the "applicable federal rate" (generally, an
average of current yields on Treasury securities) as of the date of purchase
over (ii) the amount actually includible in such Holder's income. In addition,
gain recognized on such a sale by a Holder of a REMIC Regular Security who
purchased such a Security at a market discount would also be taxable as ordinary
income in an amount not exceeding the portion of such discount that accrued
during the period such Security was held by such Holder, reduced by any market
discount includible in income under the rules described below under "--Discount
and Premium."
If a Holder of a REMIC Residual Security sells its REMIC Residual Security
at a loss, the loss will not be recognized if, within six months before or after
the sale of the REMIC Residual Security, such Holder purchases another residual
interest in any REMIC or any interest in a taxable mortgage pool (as defined in
section 7701(i) of the Code) comparable to a residual interest in a REMIC. Such
disallowed loss would be allowed upon the sale of
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the other residual interest (or comparable interest) if the rule referred to in
the preceding sentence does not apply to that sale. While this rule may be
modified by Treasury regulations, no such regulations have yet been published.
Transfers of REMIC Residual Securities. Section 860E(e) of the Code
imposes a substantial tax, payable by the transferor (or, if a transfer is
through a broker, nominee, or other middleman as the transferee's agent, payable
by that agent) upon any transfer of a REMIC Residual Security to a disqualified
organization and upon a pass-through entity (including regulated investment
companies, real estate investment trusts, common trust funds, partnerships,
trusts, estates, certain cooperatives, and nominees) that owns a REMIC Residual
Security if such pass-through entity has a disqualified organization as a
record-holder. For purposes of the preceding sentence, a transfer includes any
transfer of record or beneficial ownership, whether pursuant to a purchase, a
default under a secured lending agreement or otherwise.
The term "disqualified organization" includes the United States, any state
or political subdivision thereof, any foreign government, any international
organization, or any agency or instrumentality of the foregoing (other than
certain taxable instrumentalities), any cooperative organization furnishing
electric energy or providing telephone service to persons in rural areas, or any
organization (other than a farmers' cooperative) that is exempt from federal
income tax, unless such organization is subject to the tax on unrelated business
income. Moreover, an entity will not qualify as a REMIC unless there are
reasonable arrangements designed to ensure that (i) residual interests in such
entity are not held by disqualified organizations and (ii) information necessary
for the application of the tax described herein will be made available.
Restrictions on the transfer of a REMIC Residual Security and certain other
provisions that are intended to meet this requirement are described in the
Pooling and Servicing Agreement, and will be discussed more fully in the related
Prospectus Supplement relating to the offering of any REMIC Residual Security.
In addition, a pass-through entity (including a nominee) that holds a REMIC
Residual Security may be subject to additional taxes if a disqualified
organization is a record-holder therein. A transferor of a REMIC Residual
Security (or an agent of a transferee of a REMIC Residual Security, as the case
may be) will be relieved of such tax liability if (i) the transferee furnishes
to the transferor (or the transferee's agent) an affidavit that the transferee
is not a disqualified organization, and (ii) the transferor (or the transferee's
agent) does not have actual knowledge that the affidavit is false at the time of
the transfer. Similarly, no such tax will be imposed on a pass-through entity
for a period with respect to an interest therein owned by a disqualified
organization if (i) the record-holder of such interest furnishes to the
pass-through entity an affidavit that it is not a disqualified organization, and
(ii) during such period, the pass-through entity has no actual knowledge that
the affidavit is false.
The Taxpayer Relief Act of 1997 adds provisions to the Code that will
apply to an "electing large partnership." If an electing large partnership holds
a Residual Certificate, all interests in the electing large partnership are
treated as held by disqualified organizations for purposes of the tax imposed
upon a pass-through entity by section 860E(e) of the Code. An exception to this
tax, otherwise available to a pass-through entity that is furnished certain
affidavits by record holders of interests in the entity and that does not know
such affidavits are false, is not available to an electing large partnership.
Under the REMIC Regulations, a transfer of a "noneconomic residual
interest" to a U.S. Person (as defined below in "--Foreign Investors--Grantor
Trust Securities and REMIC Regular Securities") will be disregarded for all
federal tax purposes unless no significant purpose of the transfer is to impede
the assessment or collection of tax. A REMIC Residual Security would be treated
as constituting a noneconomic residual interest unless, at the time of the
transfer, (i) the present value of the expected future distributions on the
REMIC Residual Security is no less than the product of the present value of the
"anticipated excess inclusions" with respect to such Security and the highest
corporate rate of tax for the year in which the transfer occurs, and (ii) the
transferor reasonably expects that the transferee will receive distributions
from the applicable REMIC Trust in an amount sufficient to satisfy the liability
for income tax on any "excess inclusions" at or after the time when such
liability accrues. Anticipated excess inclusions are the excess inclusions that
are anticipated to be allocated to each calendar quarter (or portion thereof)
following the transfer of a REMIC Residual Security, determined as of the date
such Security is transferred and based on events that have occurred as of that
date and on the Prepayment Assumption. See "--Discount and Premium" and
"--Taxation of Holders of REMIC Residual Securities--Excess Inclusions."
The REMIC Regulations provide that a significant purpose to impede the
assessment or collection of tax exists if, at the time of the transfer, a
transferor of a REMIC Residual Security has "improper knowledge" (i.e., either
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knew, or should have known, that the transferee would be unwilling or unable to
pay taxes due on its share of the taxable income of the REMIC Trust). A
transferor is presumed not to have improper knowledge if (i) the transferor
conducts, at the time of a transfer, a reasonable investigation of the financial
condition of the transferee and, as a result of the investigation, the
transferor finds that the transferee has historically paid its debts as they
come due and finds no significant evidence to indicate that the transferee will
not continue to pay its debts as they come due in the future; and (ii) the
transferee makes certain representations to the transferor in the affidavit
relating to disqualified organizations discussed above. Transferors of a REMIC
Residual Security should consult with their own tax advisors for further
information regarding such transfers.
Reporting and Other Administrative Matters. For purposes of the
administrative provisions of the Code, each REMIC Trust will be treated as a
partnership and the Holders of REMIC Residual Securities will be treated as
partners. The Trustee will prepare, sign and file federal income tax returns for
each REMIC Trust, which returns are subject to audit by the IRS. Moreover,
within a reasonable time after the end of each calendar year, the Trustee will
furnish to each Holder that received a distribution during such year a statement
setting forth the portions of any such distributions that constitute interest
distributions, original issue discount, and such other information as is
required by Treasury regulations and, with respect to Holders of REMIC Residual
Securities in a REMIC Trust, information necessary to compute the daily portions
of the taxable income (or net loss) of such REMIC Trust for each day during such
year. The Trustee will also act as the tax matters partner for each REMIC Trust,
either in its capacity as a Holder of a REMIC Residual Security or in a
fiduciary capacity. Each Holder of a REMIC Residual Security, by the acceptance
of its REMIC Residual Security, agrees that the Trustee will act as its
fiduciary in the performance of any duties required of it in the event that it
is the tax matters partner.
Each Holder of a REMIC Residual Security is required to treat items on its
return consistently with the treatment on the return of the REMIC Trust, unless
the Holder either files a statement identifying the inconsistency or establishes
that the inconsistency resulted from incorrect information received from the
REMIC Trust. The IRS may assert a deficiency resulting from a failure to comply
with the consistency requirement without instituting an administrative
proceeding at the REMIC Trust level. Unless otherwise specified in the related
Prospectus Supplement, the Trustee does not intend to register any REMIC Trust
as a tax shelter pursuant to section 6111 of the Code.
Termination
In general, no special tax consequences will apply to a Holder of a REMIC
Regular Security upon the termination of a REMIC Trust by virtue of the final
payment or liquidation of the last Mortgage Loan remaining in the Trust Estate.
If a Holder of a REMIC Residual Security's adjusted basis in its REMIC Residual
Security at the time such termination occurs exceeds the amount of cash
distributed to such Holder in liquidation of its interest, although the matter
is not entirely free from doubt, it would appear that the Holder of the REMIC
Residual Security is entitled to a loss equal to the amount of such excess.
DEBT SECURITIES
General
With respect to each series of Debt Securities, Dewey Ballantine, special
tax counsel to the Sponsor, will deliver its opinion to the Sponsor that (unless
otherwise limited in the related Prospectus Supplement) the Securities will be
classified as debt of the Sponsor secured by the related Mortgage Loans.
Consequently, the Debt Securities will not be treated as ownership interests in
the Mortgage Loans or the Trust. Holders will be required to report income
received with respect to the Debt Securities in accordance with their normal
method of accounting. For additional tax consequences relating to Debt
Securities purchased at a discount or with premium, see "--Discount and
Premium," below.
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Special Tax Attributes
As described above, Grantor Trust Securities will possess certain special
tax attributes by virtue of their being ownership interests in the underlying
Mortgage Loans. Similarly, REMIC Securities will possess similar attributes by
virtue of the REMIC provisions of the Code. In general, Debt Securities will not
possess such special tax attributes. Investors to whom such attributes are
important should consult their own tax advisors regarding investment in Debt
Securities.
Sale or Exchange
If a Holder of a Debt Security sells or exchanges such Security, the
Holder will recognize gain or loss equal to the difference, if any, between the
amount received and the Holder's adjusted basis in the Security. The adjusted
basis in the Security generally will equal its initial cost, increased by any
original issue discount or market discount previously included in the seller's
gross income with respect to the Security and reduced by the payments previously
received on the Security, other than payments of qualified stated interest, and
by any amortized premium.
In general (except as described in "--Discount and Premium--Market
Discount," below), except for certain financial institutions subject to section
582(c) of the Code, any gain or loss on the sale or exchange of a Debt Security
recognized by an investor who holds the Security as a capital asset (within the
meaning of section 1221 of the Code), will be capital gain or loss and will be
long-term or short-term depending on whether the Security has been held for more
than one year.
DISCOUNT AND PREMIUM
A Security purchased for an amount other than its outstanding principal
amount will be subject to the rules governing original issue discount, market
discount or premium. In addition, all Grantor Trust Strip Securities and certain
Grantor Trust Fractional Interest Securities will be treated as having original
issue discount by virtue of the coupon stripping rules in section 1286 of the
Code. In very general terms, (i) original issue discount is treated as a form of
interest and must be included in a Holder's income as it accrues (regardless of
the Holder's regular method of accounting) using a constant yield method; (ii)
market discount is treated as ordinary income and must be included in a Holder's
income as principal payments are made on the Security (or upon a sale of a
Security); and (iii) if a Holder so elects, premium may be amortized over the
life of the Security and offset against inclusions of interest income. These tax
consequences are discussed in greater detail below.
Original Issue Discount
In general, a Security will be considered to be issued with original issue
discount equal to the excess, if any, of its "stated redemption price at
maturity" over its "issue price." The issue price of a Security is the initial
offering price to the public (excluding bond houses and brokers) at which a
substantial number of the Securities was sold. The issue price also includes any
accrued interest attributable to the period between the beginning of the first
Remittance Period and the Settlement Date. The stated redemption price at
maturity of a Security that has a notional principal amount or receives
principal only or that is or may be an Accrual Security is equal to the sum of
all distributions to be made under such Security. The stated redemption price at
maturity of any other Security is its stated principal amount, plus an amount
equal to the excess (if any) of the interest payable on the first Payment Date
over the interest that accrues for the period from the Settlement Date to the
first Payment Date.
Notwithstanding the general definition, original issue discount will be
treated as zero if such discount is less than 0.25% of the stated redemption
price at maturity multiplied by its weighted average life. The weighted average
life of a Security is apparently computed for this purpose as the sum, for all
distributions included in the stated redemption price at maturity of the amounts
determined by multiplying (i) the number of complete years (rounding down for
partial years) from the Settlement Date until the date on which each such
distribution is expected to be made under the assumption that the Mortgage Loans
prepay at the rate specified in the related Prospectus Supplement (the
"Prepayment Assumption") by (ii) a fraction, the numerator of which is the
amount of such distribution and the denominator of which is the Security's
stated redemption price at maturity. If original issue discount is treated as
zero under this rule, the actual amount of original issue discount must be
allocated to the principal distributions on
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the Security and, when each such distribution is received, gain equal to the
discount allocated to such distribution will be recognized.
Section 1272(a)(6) of the Code contains special original issue discount
rules directly applicable to REMIC Securities and Debt Securities. The Taxpayer
Relief Act of 1997 extends application of Section 1272(a)(6) to the Grantor
Trust Securities for tax years beginning after August 5, 1997. Under these rules
(described in greater detail below), (i) the amount and rate of accrual of
original issue discount on each series of Securities will be based on (x) the
Prepayment Assumption, and (y) in the case of a Security calling for a variable
rate of interest, an assumption that the value of the index upon which such
variable rate is based remains equal to the value of that rate on the Settlement
Date, and (ii) adjustments will be made in the amount of discount accruing in
each taxable year in which the actual prepayment rate differs from the
Prepayment Assumption.
Section 1272(a)(6)(B)(iii) of the Code requires that the prepayment
assumption used to calculate original issue discount be determined in the manner
prescribed in Treasury regulations. To date, no such regulations have been
promulgated. The legislative history of this Code provision indicates that the
assumed prepayment rate must be the rate used by the parties in pricing the
particular transaction. The Sponsor anticipates that the Prepayment Assumption
for each series of Securities will be consistent with this standard. The Sponsor
makes no representation, however, that the Mortgage Loans for a given series
will prepay at the rate reflected in the Prepayment Assumption for that series
or at any other rate. Each investor must make its own decision as to the
appropriate prepayment assumption to be used in deciding whether or not to
purchase any of the Securities.
Each Securityholder must include in gross income the sum of the "daily
portions" of original issue discount on its Security for each day during its
taxable year on which it held such Security. For this purpose, in the case of an
original Holder, the daily portions of original issue discount will be
determined as follows. A calculation will first be made of the portion of the
original issue discount that accrued during each "accrual period." The Trustee
will supply, at the time and in the manner required by the IRS, to
Securityholders, brokers and middlemen information with respect to the original
issue discount accruing on the Securities. Unless otherwise disclosed in the
related Prospectus Supplement, the Trustee will report original issue discount
based on accrual periods of one month, each beginning on a payment date (or, in
the case of the first such period, the Settlement Date) and ending on the day
before the next payment date.
Under section 1272(a)(6) of the Code, the portion of original issue
discount treated as accruing for any accrual period will equal the excess, if
any, of (i) the sum of (A) the present values of all the distributions remaining
to be made on the Security, if any, as of the end of the accrual period and (B)
the distribution made on such Security during the accrual period of amounts
included in the stated redemption price at maturity, over (ii) the adjusted
issue price of such Security at the beginning of the accrual period. The present
value of the remaining distributions referred to in the preceding sentence will
be calculated based on (i) the yield to maturity of the Security, calculated as
of the Settlement Date, giving effect to the Prepayment Assumption, (ii) events
(including actual prepayments) that have occurred prior to the end of the
accrual period, (iii) the Prepayment Assumption, and (iv) in the case of a
Security calling for a variable rate of interest, an assumption that the value
of the index upon which such variable rate is based remains the same as its
value on the Settlement Date over the entire life of such Security. The adjusted
issue price of a Security at any time will equal the issue price of such
Security, increased by the aggregate amount of previously accrued original issue
discount with respect to such Security, and reduced by the amount of any
distributions made on such Security as of that time of amounts included in the
stated redemption price at maturity. The original issue discount accruing during
any accrual period will then be allocated ratably to each day during the period
to determine the daily portion of original issue discount.
In the case of Grantor Trust Strip Securities and certain REMIC
Securities, the calculation described in the preceding paragraph may produce a
negative amount of original issue discount for one or more accrual periods. No
definitive guidance has been issued regarding the treatment of such negative
amounts. The legislative history to section 1272(a)(6) indicates that such
negative amounts may be used to offset subsequent positive accruals but may not
offset prior accruals and may not be allowed as a deduction item in a taxable
year in which negative accruals exceed positive accruals. Holders of such
Securities should consult their own tax advisors concerning the treatment of
such negative accruals.
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A subsequent purchaser of a Security that purchases such Security at a
cost less than its remaining stated redemption price at maturity also will be
required to include in gross income for each day on which it holds such
Security, the daily portion of original issue discount with respect to such
Security (but reduced, if the cost of such Security to such purchaser exceeds
its adjusted issue price, by an amount equal to the product of (i) such daily
portion and (ii) a constant fraction, the numerator of which is such excess and
the denominator of which is the sum of the daily portions of original issue
discount on such Security for all days on or after the day of purchase).
Market Discount
A Holder that purchases a Security at a market discount, that is, at a
purchase price less than the remaining stated redemption price at maturity of
such Security (or, in the case of a Security with original issue discount, its
adjusted issue price), will be required to allocate each principal distribution
first to accrued market discount on the Security, and recognize ordinary income
to the extent such distribution does not exceed the aggregate amount of accrued
market discount on such Security not previously included in income. With respect
to Securities that have unaccrued original issue discount, such market discount
must be included in income in addition to any original issue discount. A Holder
that incurs or continues indebtedness to acquire a Security at a market discount
may also be required to defer the deduction of all or a portion of the interest
on such indebtedness until the corresponding amount of market discount is
included in income. In general terms, market discount on a Security may be
treated as accruing either (i) under a constant yield method or (ii) in
proportion to remaining accruals of original issue discount, if any, or if none,
in proportion to remaining distributions of interest on the Security, in any
case taking into account the Prepayment Assumption. The Trustee will make
available, as required by the IRS, to Holders of Securities information
necessary to compute the accrual of market discount.
Notwithstanding the above rules, market discount on a Security will be
considered to be zero if such discount is less than 0.25% of the remaining
stated redemption price at maturity of such Security multiplied by its weighted
average remaining life. Weighted average remaining life presumably would be
calculated in a manner similar to weighted average life, taking into account
payments (including prepayments) prior to the date of acquisition of the
Security by the subsequent purchaser. If market discount on a Security is
treated as zero under this rule, the actual amount of market discount must be
allocated to the remaining principal distributions on the Security and, when
each such distribution is received, gain equal to the discount allocated to such
distribution will be recognized.
Securities Purchased at a Premium
A purchaser of a Security that purchases such Security at a cost greater
than its remaining stated redemption price at maturity will be considered to
have purchased such Security (a "Premium Security") at a premium. Such a
purchaser need not include in income any remaining original issue discount and
may elect, under section 171(c)(2) of the Code, to treat such premium as
"amortizable bond premium." If a Holder makes such an election, the amount of
any interest payment that must be included in such Holder's income for each
period ending on a Payment Date will be reduced by the portion of the premium
allocable to such period based on the Premium Security's yield to maturity. The
legislative history of the Tax Reform Act of 1986 states that such premium
amortization should be made under principles analogous to those governing the
accrual of market discount (as discussed above under "--Market Discount"). If
such election is made by the Holder, the election will also apply to all bonds
the interest on which is not excludible from gross income ("fully taxable
bonds") held by the Holder at the beginning of the first taxable year to which
the election applies and to all such fully taxable bonds thereafter acquired by
it, and is irrevocable without the consent of the IRS. If such an election is
not made, (i) such a Holder must include the full amount of each interest
payment in income as it accrues, and (ii) the premium must be allocated to the
principal distributions on the Premium Security and, when each such distribution
is received, a loss equal to the premium allocated to such distribution will be
recognized. Any tax benefit from the premium not previously recognized will be
taken into account in computing gain or loss upon the sale or disposition of the
Premium Security.
Some Securities may provide for only nominal distributions of principal in
comparison to the distributions of interest thereon. It is possible that the IRS
or the Treasury Department may issue guidance excluding such Securities from the
rules generally applicable to debt instruments issued at a premium. In
particular, it is possible that such a Security will be treated as having
original issue discount equal to the excess of the total payments to be received
thereon over its issue price. In such event, section 1272(a)(6) of the Code
would govern the accrual of such
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original issue discount, but a Holder would recognize substantially the same
income in any given period as would be recognized if an election were made under
section 171(c)(2) of the Code. Unless and until the Treasury Department or the
IRS publishes specific guidance relating to the tax treatment of such
Securities, the Trustee intends to furnish tax information to Holders of such
Securities in accordance with the rules described in the preceding paragraph.
Special Election
For any Security acquired on or after April 4, 1994, a Holder may elect to
include in gross income all "interest" that accrues on the Security by using a
constant yield method. For purposes of the election, the term "interest"
includes stated interest, acquisition discount, original issue discount, de
minimis original issue discount, market discount, de minimis market discount
and unstated interest as adjusted by any amortizable bond premium or acquisition
premium. A Holder should consult its own tax advisor regarding the time and
manner of making and the scope of the election and the implementation of the
constant yield method.
BACKUP WITHHOLDING
Distributions of interest and principal, as well as distributions of
proceeds from the sale of Securities, may be subject to the "backup withholding
tax" under section 3406 of the Code at a rate of 31% if recipients of such
distributions fail to furnish to the payor certain information, including their
taxpayer identification numbers, or otherwise fail to establish an exemption
from such tax. Any amounts deducted and withheld from a distribution to a
recipient would be allowed as a credit against such recipient's federal income
tax. Furthermore, certain penalties may be imposed by the IRS on a recipient of
distributions that is required to supply information but that does not do so in
the proper manner.
FOREIGN INVESTORS
Grantor Trust Securities and REMIC Regular Securities
Distributions made on a Grantor Trust Security or a REMIC Regular Security
to, or on behalf of, a Holder that is not a U.S. Person generally will be exempt
from U.S. federal income and withholding taxes. The term "U.S. Person" means a
citizen or resident of the United States, a corporation, partnership or other
entity created or organized in or under the laws of the United States or any
political subdivision thereof, an estate that is subject to U.S. federal income
tax regardless of the source of its income, or a trust if a court within the
United States can exercise primary supervision over its administration and at
least one United States fiduciary has the authority to control all substantial
decisions of the trust. This exemption is applicable provided (a) the Holder is
not subject to U.S. tax as a result of a connection to the United States other
than ownership of the Security, (b) the Holder signs a statement under penalties
of perjury that certifies that such Holder is not a U.S. Person, and provides
the name and address of such Holder, and (c) the last U.S. Person in the chain
of payment to the Holder receives such statement from such Holder or a financial
institution holding on its behalf and does not have actual knowledge that such
statement is false. Holders should be aware that the IRS might take the position
that this exemption does not apply to a Holder that also owns 10% or more of the
REMIC Residual Securities of any REMIC trust, or to a Holder that is a
"controlled foreign corporation" described in section 881(c)(3)(C) of the Code.
REMIC Residual Securities
Amounts distributed to a Holder of a REMIC Residual Security that is a not
a U.S. Person generally will be treated as interest for purposes of applying the
30% (or lower treaty rate) withholding tax on income that is not effectively
connected with a U.S. trade or business. Temporary Treasury Regulations clarify
that amounts not constituting excess inclusions that are distributed on a REMIC
Residual Security to a Holder that is not a U.S. Person generally will be exempt
from U.S. federal income and withholding tax, subject to the same conditions
applicable to distributions on Grantor Trust Securities and REMIC Regular
Securities, as described above, but only to the extent that the obligations
directly underlying the REMIC Trust that issued the REMIC Residual Security
(e.g., Mortgage Loans or regular interests in another REMIC) were issued after
July 18, 1984. In no case will any portion of REMIC income that constitutes an
excess inclusion be entitled to any exemption from the withholding tax or a
reduced treaty
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rate for withholding. See "--REMIC Securities--Taxation of Holders of REMIC
Residual Securities--Excess Inclusions."
ERISA CONSIDERATIONS
GENERAL
Section 406 of ERISA and Section 4975 of the Code prohibit a pension,
profit sharing or other employee benefit plan (a "Plan") and certain individual
retirement arrangements from engaging in certain transactions involving "plan
assets" with persons that are "parties in interest" under ERISA or "disqualified
persons" under the Code with respect to the Plan, unless a statutory or
administrative exemption applies to the transaction. ERISA and the Code also
prohibit generally certain actions involving conflicts of interest by persons
who are fiduciaries of such Plans or arrangements. A violation of these
"prohibited transaction" rules may generate excise tax and other liabilities
under ERISA and the Code for such persons. In addition, investments by Plans are
subject to ERISA's general fiduciary requirements, including the requirement of
investment prudence and diversification and the requirement that a Plan's
investments be made in accordance with the documents governing the Plan.
Employee benefit plans that are governmental plans (as defined in Section 3(32)
of ERISA) and certain church plans (as deemed in Section 3(33) of ERISA) are not
subject to ERISA requirements.
Certain transactions involving the Trust might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Plan
(including an individual retirement arrangement) that purchased Securities, if
the assets of the Trust were deemed to be assets of the Plan. Under a regulation
(the "Plan Assets Regulation") issued by the United States Department of Labor
(the "DOL"), the assets of the Trust would be treated as plan assets of a Plan
for the purposes of ERISA and the Code only if the Plan acquired an equity
interest in the Trust and none of the exceptions contained in the Plan Assets
Regulation were applicable. An "equity interest" is defined under the Plan
Assets Regulation as an interest other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features. In addition, in John Hancock Mutual Life Insurance Co. v. Harris Trust
and Savings Bank, 114 S.Ct. 517 (1993), the United States Supreme Court ruled
that assets held in an insurance company's general account may be deemed to be
"plan assets" for ERISA purposes under certain circumstances. Therefore, in the
absence of an exemption, the purchase, sale or holding of a Security by a Plan
(including certain individual retirement arrangements) subject to Section 406 of
ERISA or Section 4975 of the Code might result in prohibited transactions and
the imposition of excise taxes and civil penalties.
CERTIFICATES
The DOL has issued to various underwriters individual prohibited
transaction exemptions (the "Underwriter Exemptions"), which generally exempt
from the application of the prohibited transaction provisions of Section 406(a),
Section 406(b)(1), Section 406(b)(2) and Section 407(a) of ERISA and the excise
taxes imposed pursuant to Sections 4975(a) and (b) of the Code, certain
transactions with respect to the initial purchase, the holding and the
subsequent resale by Plans of certificates in pass-through trusts that consist
of secured receivables, secured loans and other secured obligations that meet
the conditions and requirements of the Underwriter Exemptions. The Underwriter
Exemptions will only be available for Securities that are Certificates.
Among the conditions that must be satisfied in order for the Underwriter
Exemptions to apply to offered certificates are the following:
(1) the acquisition of the certificates by a Plan is on terms (including
the price for the certificates) that are at least as favorable to
the Plan as they would be in an arm's-length transaction with an
unrelated party;
(2) the rights and interests evidenced by the certificates acquired by
the Plan are not subordinated to the rights and interests evidenced
by other certificates of the trust;
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(3) the certificates acquired by the Plan have received a rating at the
time of such acquisition that is one of the three highest generic
rating categories from Standard & Poor's, Moody's, Duff & Phelps
Credit Rating Co. ("D&P") or Fitch;
(4) the Trustee is not an affiliate of any other member of the
Restricted Group (as defined below);
(5) the sum of all payments made to and retained by the underwriters in
connection with the distribution of the certificates represents not
more than reasonable compensation for underwriting the certificates;
the sum of all payments made to and retained by the originators and
the sponsor pursuant to the assignment of the loans to the trust
estate represents not more than the fair market value of such loans;
the sum of all payments made to and retained by any servicer
represents not more than reasonable compensation for such person's
services under the pooling and servicing agreement and reimbursement
of such person's reasonable expenses in connection therewith;
(6) the Plan investing in the certificates is an "accredited investor"
as defined in Rule 501(a)(1) of Regulation D of the Commission under
the Securities Act of 1933; and
(7) in the event that all of the obligations used to fund the trust have
not been transferred to the trust on the closing date, additional
obligations of the types specified in the prospectus supplement
and/or pooling and servicing agreement having an aggregate value
equal to no more than 25% of the total principal amount of the
certificates being offered by the trust may be transferred to the
trust, in exchange for amounts credited to the account funding the
additional obligations, within a funding period of no longer than 90
days or 3 months following the closing date.
The trust estate must also meet the following requirements:
(i) the corpus of the trust estate must consist solely of assets of
the type that have been included in other investment pools;
(ii) certificates in such other investment pools must have been rated
in one of the three highest rating categories of Standard &
Poor's, Moody's, Fitch or D&P for at least one year prior to the
Plan's acquisition of certificates; and
(iii) certificates evidencing interests in such other investment pools
must have been purchased by investors other than Plans for at
least one year prior to the Plan's acquisition of certificates.
Moreover, the Underwriter Exemptions provide relief from certain
self-dealing/conflict of interest prohibited transactions that may occur when
the Plan fiduciary causes a Plan to acquire certificates in a trust in which the
fiduciary (or its affiliate) is an obligor on the receivables held in the trust;
provided that, among other requirements, (i) in the case of an acquisition in
connection with the initial issuance of certificates, at least fifty percent of
each class of certificates in which Plans have invested is acquired by persons
independent of the Restricted Group and at least fifty percent of the aggregate
interest in the trust is acquired by persons independent of the Restricted
Group; (ii) such fiduciary (or its affiliate) is an obligor with respect to five
percent or less of the fair market value of the obligations contained in the
trust; (iii) the Plan's investment in certificates of any class does not exceed
twenty-five percent of all of the certificates of that class outstanding at the
time of the acquisition; and (iv) immediately after the acquisition, no more
than twenty-five percent of the assets of the Plan with respect to which such
person is a fiduciary are invested in certificates representing an interest in
one or more trusts containing assets sold or serviced by the same entity. The
Underwriter Exemptions do not apply to Plans sponsored by the Sponsor, the
Underwriters, the Trustee, the Master Servicer, any other servicer, any obligor
with respect to Mortgage Loans included in the Trust Estate constituting more
than five percent of the aggregate unamortized principal balance of the assets
in the Trust Estate, or any affiliate of such parties (the "Restricted Group").
In addition to the Underwriter Exemptions, the DOL has issued Prohibited
Transaction Class Exemption ("PTCE") 83-1 which provides an exemption for
certain transactions involving the sale or exchange of certain
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residential mortgage pool pass-through certificates by Plans and for
transactions in connection with the servicing and operation of the mortgage
pool.
NOTES
The Underwriter Exemptions will not be available for Securities which are
Notes. However, if the Notes are treated as indebtedness without substantial
equity features, the Trust's assets would not be deemed assets of a Plan. If the
Notes are treated as having substantial equity features, the purchase, holding
and resale of the Notes could result in a transaction that is prohibited under
ERISA or the Code. The acquisition or holding of the Notes by or on behalf of a
Plan could nevertheless give rise to a prohibited transaction, if such
acquisition and holding of Notes by or on behalf of a Plan were deemed to be a
prohibited loan to a party in interest with respect to such Plan. Certain
exemptions from such prohibited transaction rules could be applicable to the
purchase and holding of Notes by a Plan, depending on the type and circumstances
of the plan fiduciary making the decision to acquire such Notes. Included among
these exemptions are: PTCE 84-14, regarding certain transactions effected by
"qualified professional asset managers"; PTCE 90-1, regarding certain
transactions entered into by insurance company pooled separate accounts; PTCE
91-38, regarding certain transactions entered into by bank collective investment
funds; PTCE 95-60, regarding certain transactions entered into by insurance
company general accounts; and PTCE 96-23, regarding certain transactions
effected by "in-house asset managers". Each purchaser and each transferee of a
Note that is treated as debt for purposes of the Plan Assets Regulation may be
required to represent and warrant that its purchase and holding of such Note
will be covered by one of the exemptions listed above or by another Department
of Labor Class Exemption.
CONSULTATION WITH COUNSEL
The Prospectus Supplement for each series of Securities will provide
further information which Plans should consider before purchasing the offered
Securities. A Plan fiduciary considering the purchase of Securities should
consult its tax and/or legal advisors regarding whether the assets of the Trust
would be considered plan assets, the possibility of exemptive relief from the
prohibited transaction rules and other ERISA issues and their potential
consequences. Moreover, each Plan fiduciary should determine whether under the
general fiduciary standards of investment prudence and diversification, an
investment in the Securities is appropriate for the Plan, taking into account
the overall investment policy of the Plan and the composition of the Plan's
investment portfolio.
LEGAL INVESTMENT MATTERS
Certain classes of Securities offered hereby and by the related Prospectus
Supplement will constitute "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") so long as they are
rated in at least the second highest rating category by any Rating Agency, and
as such may be legal investments for persons, trusts, corporations,
partnerships, associations, business trusts and business entities (including
depository institutions, life insurance companies and pension funds) created
pursuant to or existing under the laws of the United States or of any State
whose authorized investments are subject to state regulation to the same extent
that, under applicable law, obligations issued by or guaranteed as to principal
and interest by the United States or any agency or instrumentality thereof
constitute legal investments for such entities. Under SMMEA, if a State enacted
legislation on or prior to October 3, 1991 specifically limiting the legal
investment authority of any such entities with respect to "mortgage related
securities," such securities will constitute legal investments for entities
subject to such legislation only to the extent provided therein. Certain States
have enacted legislation which overrides the preemption provisions of SMMEA.
SMMEA provides, however, that in no event will the enactment of any such
legislation affect the validity of any contractual commitment to purchase, hold
or invest in "mortgage related securities," or require the sale or other
disposition of such securities, so long as such contractual commitment was made
or such securities acquired prior to the enactment of such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal with "mortgage
related securities" without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account without
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regard to the limitations generally applicable to investment securities set
forth in 12 U.S.C. 24 (Seventh), subject in each case to such regulations as the
applicable federal regulatory authority may prescribe.
The Federal Financial Institutions Examination Council has adopted a
supervisory policy statement (the "Policy Statement"), applicable to all
depository institutions, setting forth guidelines for and significant
restrictions on investments in "high-risk mortgage securities." The Policy
Statement has been adopted by the Federal Reserve Board, the Office of the
Comptroller of the Currency, the FDIC and the Office of Thrift Supervision with
an effective date of February 10, 1992. The Policy Statement generally indicates
that a mortgage derivative product will be deemed to be high risk if it exhibits
greater price volatility than a standard fixed rate thirty-year mortgage
security. According to the Policy Statement, prior to purchase, a depository
institution will be required to determine whether a mortgage derivative product
that it is considering acquiring is high-risk, and if so, that the proposed
acquisition would reduce the institution's overall interest rate risk. Reliance
on analysis and documentation obtained from a securities dealer or other outside
party without internal analysis by the institution would be unacceptable. There
can be no assurance as to which classes of Securities will be treated as
high-risk under the Policy Statement. In addition, the National Credit Union
Administration has issued regulations governing federal credit union investments
which prohibit investment in certain specified types of securities, which may
include certain classes of Securities. Similar policy statements have been
issued by regulators having jurisdiction over other types of depository
institutions.
There may be other restrictions on the ability of certain investors either
to purchase certain classes of Securities or to purchase any class of Securities
representing more than a specified percentage of the investors' assets. The
Sponsor will make no representations as to the proper characterization of any
class of Securities for legal investment or other purposes, or as to the ability
of particular investors to purchase any class of Securities under applicable
legal investment restrictions. These uncertainties may adversely affect the
liquidity of any class of Securities. Accordingly, all investors whose
investment activities are subject to legal investment laws and regulations,
regulatory capital requirements or review by regulatory authorities should
consult with their own legal advisors in determining whether and to what extent
the Securities of any class constitute legal investments under SMMEA or are
subject to investment, capital or other restrictions, and whether SMMEA has been
overridden in any jurisdiction applicable to such investor.
USE OF PROCEEDS
Unless otherwise specified in the related Prospectus Supplement,
substantially all of the net proceeds to be received from the sale of Securities
will be applied by the Sponsor to finance the purchase of, or to repay
short-term loans incurred to finance the purchase of, the Mortgage Loans
underlying the Securities or will be used by the Sponsor for general corporate
purposes. The Sponsor expects that it will make additional sales of securities
similar to the Securities from time to time, but the timing and amount of any
such additional offerings will be dependent upon a number of factors, including
the volume of mortgage loans purchased by the Sponsor, prevailing interest
rates, availability of funds and general market conditions.
METHODS OF DISTRIBUTION
The Securities offered hereby and by the related Prospectus Supplements
will be offered in series through one or more of the methods described below.
The Prospectus Supplement prepared for each series will describe the method of
offering being utilized for that series and will state the public offering or
purchase price of such series and the net proceeds to the Sponsor from such
sale.
The Sponsor intends that Securities will be offered through the following
methods from time to time and that offerings may be made concurrently through
more than one of these methods or that an offering of a particular series of
Securities may be made through a combination of two or more of these methods.
Such methods are as follows:
1. By negotiated firm commitment or best efforts underwriting and
public re-offering by underwriters;
2. By placements by the Sponsor with institutional investors through
dealers; and
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3. By direct placements by the Sponsor with institutional investors.
In addition, if specified in the related Prospectus Supplement, a series
of Securities may be offered in whole or in part in exchange for the Mortgage
Loans (and other assets, if applicable) that would comprise the Mortgage Pool in
respect of such Securities.
If underwriters are used in a sale of any Securities (other than in
connection with an underwriting on a best efforts basis), such Securities will
be acquired by the underwriters for their own account and may be resold from
time to time in one or more transactions, including negotiated transactions, at
fixed public offering prices or at varying prices to be determined at the time
of sale or at the time of commitment therefor. Such underwriters may be
broker-dealers affiliated with the Sponsor whose identities and relationships to
the Sponsor will be as set forth in the related Prospectus Supplement. The
managing underwriter or underwriters with respect to the offer and sale of a
particular series of Securities will be set forth on the cover of the Prospectus
Supplement relating to such series and the members of the underwriting
syndicate, if any, will be named in such Prospectus Supplement.
In connection with the sale of the Securities, underwriters may receive
compensation from the Sponsor or from purchasers of the Securities in the form
of discounts, concessions or commissions. Underwriters and dealers participating
in the distribution of the Securities may be deemed to be underwriters in
connection with such Securities, and any discounts or commissions received by
them from the Sponsor and any profit on the resale of Securities by them may be
deemed to be underwriting discounts and commissions under the Securities Act of
1933, as amended. The Prospectus Supplement will describe any such compensation
paid by the Sponsor.
It is anticipated that the underwriting agreement pertaining to the sale
of any series of Securities will provide that the obligations of the
underwriters will be subject to certain conditions precedent, that the
underwriters will be obligated to purchase all such Securities if any are
purchased (other than in connection with an underwriting on a best efforts
basis) and that, in limited circumstances, the Sponsor will indemnify the
several underwriters and the underwriters will indemnify the Sponsor against
certain civil liabilities, including liabilities under the Securities Act of
1933, as amended, or will contribute to payments required to be made in respect
thereof.
The Prospectus Supplement with respect to any series offered by placements
through dealers will contain information regarding the nature of such offering
and any agreements to be entered into between the Sponsor and purchasers of
Securities of such series.
The Sponsor anticipates that the Securities offered hereby will be sold
primarily to institutional investors. Purchasers of Securities, including
dealers, may, depending on the facts and circumstances of such purchases, be
deemed to be "underwriters" within the meaning of the Securities Act of 1933, as
amended, in connection with reoffers and sales by them of Securities. Holders of
Securities should consult with their legal advisors in this regard prior to any
such reoffer or sale.
LEGAL MATTERS
Certain legal matters will be passed upon for the Sponsor by Dewey
Ballantine, New York, New York and by the office of the general counsel of the
Sponsor.
FINANCIAL INFORMATION
The Sponsor has determined that its financial statements are not material
to the offering made hereby. However, any prospective purchaser who desires to
review financial information concerning the Sponsor will be provided by the
Sponsor upon request with a copy of the most recent financial statements of the
Sponsor.
A Prospectus Supplement may contain the financial statements of the
related Credit Enhancer, if any.
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ADDITIONAL INFORMATION
This Prospectus, together with the Prospectus Supplement for each series
of Securities, contains a summary of the material terms of the applicable
exhibits to the Registration Statement and the documents referred to herein and
therein. Copies of such exhibits are on file at the offices of the Securities
and Exchange Commission in Washington, D.C., and may be obtained at rates
prescribed by the Commission upon request to the Commission and may be
inspected, without charge, at the Commission's offices.
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INDEX OF PRINCIPAL DEFINITIONS
Page
Accounts................................................................ 43
Accrual Securities...................................................... 6
Actuarial Loans......................................................... 21
ADVANTA Parent.......................................................... 58
Affiliated Originators.................................................. 4
Approved Guidelines..................................................... 9
APR..................................................................... 22
ARM Loans............................................................... 18
Balloon Amount.......................................................... 27
Balloon Loans........................................................... 15
Balloon payments........................................................ 20
Bankruptcy Bond......................................................... 54
Bankruptcy Loss......................................................... 52
Bankruptcy Loss Amount.................................................. 51
Base Servicing Fee...................................................... 58
Book-Entry Securities................................................... 38
Bulk Acquisition........................................................ 9
Bulk Guidelines......................................................... 29
Buydown Account......................................................... 20
Buydown Agreement....................................................... 44
Buydown Funds........................................................... 20
Buydown Mortgage Loans.................................................. 20
Buydown Period.......................................................... 20
Cede.................................................................... 12
Certificates............................................................ 5
Closing Date............................................................ 41
CLTV.................................................................... 22
Code.................................................................... 74
Compensating Interest................................................... 47
Conduit Participants.................................................... 32
Contracts............................................................... 25
Conventional Loans...................................................... 20
Convertible Mortgage Loan............................................... 28
Cooperative Loans....................................................... 26
Cooperative Notes....................................................... 26
Credit Enhancement...................................................... 43
Credit Enhancer......................................................... 19
Cut-Off Date............................................................ 22
D&P..................................................................... 88
Date of Payment Loans................................................... 21
Debt Securities......................................................... 12
Debt Service Reduction.................................................. 54
Defaulted Mortgage Loss................................................. 52
Deferred Interest....................................................... 15
Deficient Valuation..................................................... 54
Deleted Mortgage Loan................................................... 34
Delinquency Advances.................................................... 46
Designated Depository Institution....................................... 43
Detailed Description.................................................... 19
Determination Date...................................................... 46
Direct or Indirect Participants......................................... 18
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Distribution Account.................................................... 43
DTC..................................................................... 12
Due Date................................................................ 42
Eligible Investments.................................................... 43
Equity Securities....................................................... 6
ERISA................................................................... 12
Exchange Act............................................................ 12
Exemptions.............................................................. 87
Extraordinary Losses.................................................... 52
FDIC.................................................................... 32
FHA..................................................................... 25
FHLMC................................................................... 15
Financial Guaranty Insurance Policy..................................... 54
Financial Guaranty Insurer.............................................. 54
Fixed-Income Securities................................................. 6
FNMA.................................................................... 15
Forward Purchase Agreement.............................................. 9
Fraud Loss.............................................................. 52
Fraud Loss Amount....................................................... 51
Funding Period.......................................................... 41
Garn-St. Germain Act.................................................... 72
Graduated payments...................................................... 20
Grantor Trust Estate.................................................... 74
Grantor Trust Fractional Interest Security.............................. 75
Grantor Trust Securities................................................ 12
Grantor Trust Strip Security............................................ 75
Holder.................................................................. 74
Home Improvement Loans.................................................. 25
Indenture............................................................... 5
Indenture Trustee....................................................... 5
Index................................................................... 27
Indirect Participant.................................................... 38
Insurance Paying Agent.................................................. 54
Insurance Proceeds...................................................... 42
Insured Payment......................................................... 54
Interest Rate........................................................... 6
Investment Company Act.................................................. 8
IRS..................................................................... 76
Junior Lien Loans....................................................... 23
Letter of Credit........................................................ 53
Letter of Credit Bank................................................... 53
Liquidated Mortgage Loan................................................ 16
Liquidation Proceeds.................................................... 16
Loan Purchase Price..................................................... 33
Lockout periods......................................................... 21
LTV..................................................................... 22
Manufactured Homes...................................................... 25
Manufacturer's Invoice Price............................................ 23
Master Commitments...................................................... 31
Master Servicer......................................................... 2
Master Servicing Fee.................................................... 58
Modified Loans.......................................................... 27
Monthly pay............................................................. 20
Mortgage Asset Schedule................................................. 20
Mortgage Assets......................................................... 19
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Mortgage Loans.......................................................... 1
Mortgage Notes.......................................................... 26
Mortgage Pool........................................................... 1
Mortgage Pool Insurance Policy.......................................... 53
Mortgage Rate........................................................... 20
Mortgaged Properties.................................................... 20
Mortgages............................................................... 9
Mortgagor............................................................... 15
Multi-family Loans...................................................... 24
Net Liquidation Proceeds................................................ 42
Net Mortgage Rate....................................................... 64
Note Margin............................................................. 27
Notes................................................................... 5
Originator's Retained Yield............................................. 26
Originators............................................................. 1
Participants............................................................ 38
Partnership Interests................................................... 12
Pass-Through Rate....................................................... 45
Paying Agent............................................................ 45
Payment Date............................................................ 7
Percentage Interest..................................................... 45
Physical Certificates................................................... 38
Plan.................................................................... 12,87
Plan Assets Regulation.................................................. 87
Policy Statement........................................................ 90
Pool Factor............................................................. 48
Pool Insurer............................................................ 44
Pooling and Servicing Agreement......................................... 5
Pre-Funding Account..................................................... 10
Premium Security........................................................ 85
Prepayment Assumption................................................... 78
Principal Prepayments................................................... 42
Purchase Obligation..................................................... 14
Qualified Replacement Mortgage.......................................... 34
Rating Agencies......................................................... 12
Realized Loss........................................................... 51
Record Date............................................................. 7
Relief Act.............................................................. 19
REMIC................................................................... 2
REMIC Regular Securities................................................ 12
REMIC Regulations....................................................... 77
REMIC Residual Securities............................................... 12
REMIC Securities........................................................ 74
REMIC Trust............................................................. 76
Remittance Date......................................................... 43
Remittance Period....................................................... 8
REO Property............................................................ 50
Reserve Fund............................................................ 54
Restricted Group........................................................ 88
Revolving Credit Line Loans............................................. 21
Rule of 78's............................................................ 22
Rule of 78's Loan....................................................... 21
Securities.............................................................. 1
Security Registrar...................................................... 38
Securityholders......................................................... 1
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Senior Lien............................................................. 22
Senior Securities....................................................... 6
Servicer................................................................ 58
Servicing Advance....................................................... 47
Servicing Agreement..................................................... 5
Servicing Fee........................................................... 58
Settlement Date......................................................... 77
Single Family Loans..................................................... 24
SMMEA................................................................... 11
Special Hazard Amount................................................... 51
Special Hazard Insurance Policy......................................... 53
Special Hazard Insurer.................................................. 54
Special Hazard Loss..................................................... 52
Sponsor................................................................. 1
Sponsor's Guidelines.................................................... 9
Sponsor's Originator Guide.............................................. 9
Statistic Calculation Date.............................................. 22
Strip Securities........................................................ 6
Sub-Servicing Account................................................... 41
Sub-Servicing Agreement................................................. 33
Subordinate Amount...................................................... 52
Subordinate Securities.................................................. 7
Subsequent Mortgage Loans............................................... 9
Subservicer(s).......................................................... 2
Title V................................................................. 73
Title VIII.............................................................. 73
Trust................................................................... 1
Trust Agreement......................................................... 5
Trust Estate............................................................ 1
Trustee................................................................. 4
U.S. Person............................................................. 86
UCC..................................................................... 38
Unaffiliated Originators................................................ 4
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Securities
(the "Global Securities") will be available only in book-entry form. Investors
in the Global Securities may hold such Global Securities through any of DTC,
CEDEL or Euroclear. The Global Securities will be tradeable as home market
instruments in both the European and U.S. domestic markets. Initial settlement
and all secondary trades will settle in same-day funds.
Secondary market trading between investors through CEDEL and Euroclear
will be conducted in the ordinary way in accordance with the normal rules and
operating procedures of CEDEL and Euroclear and in accordance with conventional
eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors through DTC will be conducted
according to DTC's rules and procedures applicable to U.S. corporate debt
obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of CEDEL and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name
of Cede & Co. as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect Participants in DTC. As a result, CEDEL and Euroclear will
hold positions on behalf of their participants through their Relevant Depository
which in turn will hold such positions in their accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
DTC settlement practices. Investor securities custody accounts will be credited
with their holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior home
equity loan asset-backed certificates issues in same-day funds.
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
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Trading between DTC, Seller and CEDEL or Euroclear Participants. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a CEDEL Participant or a Euroclear Participant, the purchaser
will send instructions to CEDEL or Euroclear through a CEDEL Participant or
Euroclear Participant at least one business day prior to settlement. CEDEL or
Euroclear will instruct the Relevant Depository, as the case may be, to receive
the Global Securities against payment. Payment will include interest accrued on
the Global Securities from and including the last coupon payment date to and
excluding the settlement date, on the basis of the actual number of days in such
accrual period and a year assumed to consist of 360 days. For transactions
settling on the 31st of the month, payment will include interest accrued to and
excluding the first day of the following month. Payment will then be made by the
Relevant Depository to the DTC Participant's account against delivery of the
Global Securities. After settlement has been completed, the Global Securities
will be credited to the respective clearing system and by the clearing system,
in accordance with its usual procedures, to the CEDEL Participant's or Euroclear
Participant's account. The securities credit will appear the next day (European
time) and the cash debt will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the CEDEL or Euroclear cash debt
will be valued instead as of the actual settlement date.
CEDEL Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within CEDEL or Euroclear. Under this approach,
they may take on credit exposure to CEDEL or Euroclear until the Global
Securities are credited to their account one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL Participants or Euroclear Participants can elect not to preposition
funds and allow that credit line to be drawn upon to finance settlement. Under
this procedure, CEDEL Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although the result will depend on each CEDEL Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for crediting Global Securities
to the respective European Depository for the benefit of CEDEL Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller on
the settlement date. Thus, to the DTC Participants a cross-market transaction
will settle no differently than a trade between two DTC Participants.
Trading between CEDEL or Euroclear Seller and DTC Purchaser. Due to time
zone differences in their favor, CEDEL Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depository, to a DTC Participant. The seller will send instructions
to CEDEL or Euroclear through a CEDEL Participant or Euroclear Participant at
least one business day prior to settlement. In these cases CEDEL or Euroclear
will instruct the respective Depository, as appropriate, to credit the Global
Securities to the DTC Participant's account against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment to and excluding the settlement date on the basis of the actual
number of days in such accrual period and a year assumed to consist of 360 days.
For transactions settling on the 31st of the month, payment will include
interest accrued to and excluding the first day of the following month. The
payment will then be reflected in the account of CEDEL Participant or Euroclear
Participant the following day, and receipt of the cash proceeds in the CEDEL
Participant's or Euroclear Participant's account would be back-valued to the
value date (which would be the preceding day, when settlement occurred in New
York). In the event that the CEDEL Participant or Euroclear Participant has a
line of credit with its respective clearing system and elects to be in debt in
anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft incurred over that one-day period. If settlement
is not completed on the intended value date (i.e., the trade fails), receipt of
the cash proceeds in the CEDEL Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
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Finally, day traders that use CEDEL or Euroclear and that purchase Global
Securities from DTC Participants for delivery to CEDEL Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action is taken. At least three techniques should be
readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the
purchase side of the trade is reflected in their CEDEL or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC
Participant no later than one day prior to settlement, which would give
the Global Securities sufficient time to be reflected in their CEDEL or
Euroclear account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the
trade so that the value date for the purchase from the DTC Participant is
at least one day prior to the value date for the sale to the CEDEL
Participant or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through CEDEL
or Euroclear (or through DTC if the holder has an address outside the U.S.) will
be subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons (as defined below), unless (i) each clearing system, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business in the chain of intermediaries between such beneficial
owner and the U.S. entity required to withhold tax complies with applicable
certification requirements and (ii) such beneficial owner takes one of the
following steps to obtain an exemption or reduced tax rate:
Exemption for Non-U.S. Persons (Form W-8). Beneficial Owners of
Global Securities that are Non-U.S. Persons (as defined below) can obtain
a complete exemption from the withholding tax by filing a signed Form W-8
(Certificate of Foreign Status). If the information shown on Form W-8
changes, a new Form W-8 must be filed within 30 days of such change.
Exemption for Non-U.S. Persons with effectively connected income
(Form 4224). A Non-U.S. Person (as defined below), including a non-U.S.
corporation or bank with a U.S. branch, for which the interest income is
effectively connected with its conduct of a trade or business in the
United States, can obtain an exemption from the withholding tax by filing
Form 4224 (Exemption from Withholding of Tax on Income Effectively
Connected with the Conduct of a Trade or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons residing in a country that has a
tax treaty with the United States can obtain an exemption or reduced tax
rate (depending on the treaty terms) by filing Form 1001 (Ownership,
Exemption or Reduced Rate Certificate). If the treaty provides only for a
reduced rate, withholding tax will be imposed at that rate unless the
filer alternatively files Form W-8. Form 1001 may be filed by Certificate
Owners or their agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Owner of a Global
Security or, in the case of a Form 1001 or a Form 4224 filer, his agent,
files 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.
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On April 22, 1996, the IRS proposed regulations relating to withholding,
backup withholding and information reporting that, if adopted in their current
form would, among other things, unify current certification procedures and forms
and clarify certain reliance standards. The regulations are proposed to be
effective for payments made after December 31, 1997 but provide that
certificates issued on or before the date that is 60 days after the proposed
regulations are made final will continue to be valid until they expire. Proposed
regulations, however, are subject to change prior to their adoption in final
form.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity organized in or under
the laws of the United States or any political subdivision thereof, (iii) an
estate that is subject to U.S. federal income tax regardless of the source of
its income or (iv) a trust if a court within the United States can exercise
primary supervision over its administration and at least one United States
fiduciary has the authority to control all substantial decisions of the trust.
The term "Non-U.S. Person" means any person who is not a U.S. Person. This
summary does not deal with all aspects of U.S. Federal income tax withholding
that may be relevant to foreign holders of the Global Securities. Investors are
advised to consult their own tax advisors for specific tax advice concerning
their holding and disposing of the Global Securities.
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===============================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE SPONSOR
OR BY THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
SECURITIES OFFERED HEREBY TO ANYONE IN ANY JURISDICTION IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO TO ANYONE TO WHOM IT
IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT INFORMATION HEREIN OR THEREIN IS
CORRECT AS OF ANY TIME SINCE THE DATE OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
Available Information............................... S-3
Reports to the Certificateholders................... S-3
Summary............................................. S-4
Risk Factors........................................ S-37
The Portfolio of Mortgage Loans..................... S-41
The Mortgage Loan Pool.............................. S-45
Prepayment and Yield Considerations................. S-62
Use of Proceeds..................................... S-78
The Sponsor and the Master Servicer................. S-78
Description of the Certificates..................... S-79
Credit Enhancement.................................. S-88
The Pooling and Servicing Agreement................. S-92
The Group I Insurer................................. S-96
The Group I Insurance Policy........................ S-98
Certain Federal Income Tax Consequences............. S-100
ERISA Considerations................................ S-101
Ratings............................................. S-104
Legal Investment Considerations..................... S-105
Underwriting........................................ S-105
Experts............................................. S-108
Certain Legal Matters............................... S-108
Index of Principal Defined Terms.................... S-109
Targeted Balance Schedules.......................... Annex I
PROSPECTUS
Summary of Prospectus............................... 4
Risk Factors........................................ 14
The Trusts.......................................... 19
The Mortgage Pools.................................. 26
Mortgage Loan Program............................... 28
Description of the Securities....................... 36
Subordination....................................... 51
Description of Credit Enhancement................... 52
Hazard Insurance; Claims Thereunder................. 57
The Sponsor and the Transferor...................... 57
The Master Servicer................................. 58
The Pooling and Servicing Agreement................. 58
Yield Considerations................................ 64
Maturity and Prepayment Considerations.............. 65
Certain Legal Aspects of Mortgage Loans and Related
Matters........................................... 67
Certain Federal Income Tax Consequences............. 74
ERISA Considerations................................ 87
Legal Investment Matters............................ 89
Use of Proceeds..................................... 90
Methods of Distribution............................. 90
Legal Matters....................................... 91
Financial Information............................... 91
Additional Information.............................. 92
Index of Principal Definitions...................... 93
Global Clearance, Settlement and Tax Documentation
Procedures........................................ Annex I
</TABLE>
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===============================================================
$900,000,000
(Approximate)
Advanta Mortgage
Loan Trust 1998-1
$143,000,000 Adjustable Rate Class A-1
Group I Certificates
$89,000,000 6.25% Class A-2 Group I Certificates
$64,000,000 6.27% Class A-3 Group I Certificates
$42,000,000 6.42% Class A-4 Group I Certificates
$68,000,000 6.60% Class A-5 Group I Certificates
$50,000,000 6.43% Class A-6 Group I Certificates
5.00% Class A-IO Group I Certificates
$330,000,000 Adjustable Rate Class A-7
Combination Certificates
$44,000,000 6.24% Class A-8 Group II Certificates
$26,000,000 Adjustable Rate Class M-1
Group II Certificates
$23,000,000 Adjustable Rate Class M-2
Group II Certificates
$21,000,000 Adjustable Rate Class B-1
Group II Certificates
Mortgage Loan
Asset-Backed Certificates
Series 1998-1
---------------------------
PROSPECTUS SUPPLEMENT
---------------------------
MORGAN STANLEY DEAN WITTER
GREENWICH CAPITAL MARKETS, INC.
J.P. MORGAN & CO.
SALOMON SMITH BARNEY
March 12, 1998
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